Anahuac Management v. Mazer et al

Filing 59

ORDER that Third Party Defendants Emergency Motion to Quash 44 is DENIED. However, a protective order is entered as set forth in the body of this order. Defendants Motion to Deem Matters Admitted 50 is DENIED. Signed by Magistrate Judge Peggy A. Leen on 8/11/11. (Copies have been distributed pursuant to the NEF - ECS)

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UNITED STATES DISTRICT COURT
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DISTRICT OF NEVADA
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ANAHUAC MANAGEMENT,
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Plaintiff,
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vs.
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KEITH A. MAZER, et al.,
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Defendants. )
__________________________________________)

Case No. 2:09-cv-01590-RLH-PAL
ORDER
(Emg Mot Quash - Dkt. #44)
(Mot Deem Matters Admitted - Dkt. #50)

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The court conducted a hearing on June 29, 2011, on Third Party Defendant Jehu Hand’s
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Emergency Motion to Quash Subpoenas, or in the Alternative, for Protective Order (Dkt. ##44, 45),
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which was filed as an “emergency motion”. The court has considered the Motion, Defendants/Third
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Party Plaintiffs’ Opposition (Dkt. ##45, 48), Third-Party Defendant’s Reply (Dkt. #46), and the
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arguments of counsel at the hearing. During the hearing, counsel for the Defendants strenuously argued
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that the Motion to Quash was part of a concerted strategy by Hand to resist appropriate discovery which
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Defendants had raised in another discovery motion filed after this one. The court inquired when
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briefing on the additional motion would be completed, continued the hearing on the Motion to Quash
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until August 4, 2011, at 10:30 a.m., and reserved ruling on the Emergency Motion to Quash.
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The court has considered Defendants’ Motion to Deem Matters Admitted or Order Jehu Hand to
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Serve Amended Answers to Request for Admissions (Dkt. #50), Anahuac Management and Third-Party
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Defendant Jehu Hand’s Opposition to Defendants’ Motion (Dkt. #52), Defendants’ Reply (Dkt. #55)
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and the arguments of counsel at the hearing conducted August 4, 2011.
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BACKGROUND
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The Complaint in this case was filed in state court and removed (Dkt. #1) August 21, 2009.
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Plaintiff has asserted claims for securities fraud in violation of SEC Regulation 10(b) and Rule 10(b-5),
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fraud in violation of SEC Regulation 17(a), and state claims for fraud, negligent misrepresentation,

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breach of fiduciary duty, conversion and breach of contract. Plaintiff Anahuac Management

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(“Anahuac”) alleges Defendant Keith A. Mazer (“Mazer”) and his alleged alter ego World Capital

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Funding, LLC (“WCF”) induced it to purchase 1,573,333 shares of Cleantech Biofuels, Inc.

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(“Cleantech”) for $211,067.00. However, Mazer/WCF did not deliver the shares and converted them to

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their own economic benefit.

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I.

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Emergency Motion to Quash (Dkt. #44)
On May 24, 2011, Defendants served subpoenas issued by the United States District Court for

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the Northern District of Illinois to Wells Fargo and Bank of America to obtain banking records of Third

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Party Defendant Jehu Hand (“Jehu”), and Hand & Hand, P.C., his law firm. Hand filed an emergency

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motion because the Bank of America advised counsel that it had received the subpoena served on it and

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intended to comply with it by producing responsive documents on June 6, 2011. The court reviewed

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the motion and entered an Order (Dkt. #47) establishing a briefing schedule and

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a temporary protective order precluding the Defendants/Counterclaimants/Third-Party Plaintiffs Mazer

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and WCF from obtaining and/or using documents subpoenaed from Wells Fargo and Bank of America

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pending a decision on the merits.

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In the current motion, the movants seek to quash the subpoenas asserting they were improperly

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issued by the United States District Court for the Northern District of Illinois because counsel for

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Defendants have law offices in Chicago, Illinois. The bank accounts at issue were opened and held in

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the State of California, and the Northern District of Illinois has no connection with this lawsuit.

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Additionally, Hand seeks to quash the subpoenas issued to Hand and non-party Hand & Hand, P.C.

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because the subpoenas seek confidential banking records for a five-year period from 2004 to 2009

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which are not relevant to this dispute, especially in light of the District Judge’s order granting

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Anahuac’s Motion to Dismiss Count II of Mazer’s Third-Party Complaint. Hand recognizes that

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generally a motion to quash subpoenas issued in another district should be enforced by the district court

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that issued them. However, this line of cases does not alter this court’s broad discretion to control

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discovery in this case. Requiring the parties to pursue a motion to quash in Illinois because the

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subpoenas were issued there would unduly burden Hand, and serving the subpoenas in Illinois is the

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type of gamesmanship that this court should not sanction.
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Hand argues that although bank records, if relevant, may be discoverable, they are private and

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deserving of protection. The subpoenas issued to Bank of America and Wells Fargo seek bank records

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of Hand and his law firm for a five-year period which is chronologically over broad as the claims

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involved in this lawsuit involve a single set of facts involving stock share transactions in 2007. Hand

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argues that if Defendants intend to use the bank records to argue that Anahuac did not pay for the shares

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in question, “then the Subpoenas are non-starters.” Plaintiff bears the burden of proving every element

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of its claims. Payment is an element of the claim, and if it cannot prove payment “Defendants’ case

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will not get any stronger by combing through Hand’s personal bank records or Hand & Hand, P.C.’s

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bank records for evidence of non-payment.” Hand also argues the bank records are irrelevant to any of

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Mazer’s remaining counterclaims for breach of contract to pay for consulting services, and unjust

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enrichment. If the court is not inclined to quash the subpoenas, Hand requests a protective order

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finding the confidential bank records are not reasonably calculated to lead to the discovery of

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admissible evidence and forbidding any discovery of them. Finally, if the court is not inclined to forbid

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any discovery of the confidential bank records, Hand requests that the record be “kept from the public.”

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Mazer opposes the motion1 and argues that the motion to quash is meritless because under Rule

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45(c) the motion must be filed in the issuing court, not this court. Mazer acknowledges that this court

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has the authority to issue a protective order, but argues that Hand, as the moving party, must show good

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cause which he has failed to do. Mazer also argues that Hand did not satisfy the letter or spirit of the

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meet-and-confer requirements which impose an obligation to engage in personal consultation before

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filing a discovery motion seeking judicial intervention. On the merits, the motion does not establish a

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good cause to “forbid discovery” of the bank records sought by the subpoena. Although the court has

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discretion to impose specifically narrow protections that would be appropriate to address any legitimate

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confidentiality concerns, Hand has not satisfied his burden of establishing such concerns.

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Mazer argues that there is nothing improper about issuing subpoenas in the jurisdiction where
the subpoenaed parties and lead counsel are all present. As the party moving for a protective order,

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The court’s Order (Dkt. #47) was not electronically docketed until June 9, 2011. The court was
not aware at the time the order was prepared that Mazer had already filed a Response (Dkt. #45).
Unfortunately, this caused the parties to file another round of briefs.
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Hand has the burden of establishing good cause. Relevancy is construed broadly under the Federal

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Rules and Hand has not met his burden of establishing the bank records are not relevant. He “also

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mischaracterizes and marginalizes the issues in this case.” Documents and deposition testimony

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secured recently establish “a direct and immediate relevance connection between the records and the

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issues and allegations in this case.” Specifically, the bank records are relevant to Mazer’s

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counterclaims and Third Party claims based on allegations Hand owes significant amounts to Mazer

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from various dealings between the parties over the years. Mazer claims that he has sent over

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$1,000.000.00 to Hand over the years, and that Hand deposited the money into his client-trust account.

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Thus, the bank records will shed light on additional allegations showing the magnitude of Hand’s debt

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to Mazer, and that he failed to contribute 50% of the total amounts required to construct a house Hand

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and Mazer were building in Antigua. The bank records will show that Hand’s debt included

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deficiencies in the amounts he contributed, from his client-trust account, to the construction of the

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Antigua house. These allegations are the core of Mazer’s pending breach of contract and unjust

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enrichment claims.

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Plaintiff Anahuac answered an interrogatory which admits, in describing payment for Cleantech

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shares, that it paid $211,607.00 in a wire to Cleantech Biofuels, Inc. from the client-trust account of its

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counsel, Hand & Hand on March 14, 2008. Thus, there is no doubt that Cleantech’s stock at issue was

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purchased from funds from Hand’s client-trust account, and Mazer is entitled to the account statement

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that would substantiate Plaintiff’s admission. Mazer also claims it is entitled to all of the requested

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client-trust account statements on March 14, 2008 “in order to see and tell the full story regarding the

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payment of Anahuac’s Cleantech stock.” Mr. Hand testified at his deposition on June 9, 2011, and

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Anahuac produced one account statement showing a wire transfer into Hand’s client-trust account from

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“Fangos Consulting, S.A.” February 4, 2008. Hand testified at his deposition that this wire transfer

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constituted the “Dana Resources” funds that went towards the purchase of Anahuac’s Cleantech stock.

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Defendants are not obligated to accept Hand’s position on its face, and are entitled to test that position

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by reviewing Hand’s accounts to identify whether the funds were deposited by Mazer and other sources.

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Discovery has also shown Hand’s practices of co-mingling funds into his client-trust account which

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make discovery of client-trust account statements critical. Mazer points out that Hand was Plaintiff’s
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counsel, and as such, Defendants are entitled to discover his client-trust accounts to secure relevant

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evidence showing that Plaintiff’s purchase of Cleantech stock was unlawful, and therefore, not

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actionable. Mazer argues the bank records are relevant to his alter-ego allegations that Hand used

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Anahuac as his alter ego. Review of the bank records will show that Hand funneled amounts into and

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out of his bank and client-trust accounts for Anahuac’s purposes although the funds were his own.

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Finally, Mazer argues that even if Hand has a legitimate confidentiality concern about the

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contents of the bank records, they can be appropriately addressed and resolved with a limited protective

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order rather than a broad protective order precluding discovery of the records at all.

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Hand replies that Anahuac derives its seven claims from, more or less, a single set of facts

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arising out of a 2007 offer to sell certain shares of stock. Defendants’ surviving claims involve

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accusations Hand breached a contract with Mazer in which Mazer agreed to provide consulting services

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that Hand failed to pay for, or in the alternative, that Hand was unjustly enriched by the benefit of

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Mazer’s consulting services. As these are the “entire universe of claims set to go to trial” the bank

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records at issue are not relevant or discoverable. Hand argues that he has complied with LR 26-7(b) by

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faxing a letter to opposing counsel stating his legal position and intention to move to quash the

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subpoenas. The Defendants responded the next day in a faxed response and the letters were attached to

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the opposition brief and speak for themselves. At most, defense counsel offered to enter into a

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protective order to preclude use of irrelevant information, and had no intention of limiting or modifying

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the subpoenas themselves.

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DISCUSSION
The subpoenas challenged in this motion were issued by the United States District Court for the

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Northern District of Illinois and served on Wells Fargo and the Bank of America in the Northern

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District. Hand acknowledges that a subpoena issued pursuant to Fed.R.Civ.P. 45 must ordinarily be

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challenged in the district issuing the subpoena. However, as the Northern District of Illinois has no

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relationship to this lawsuit, any of its claims, defenses or counter claims requiring Hand to go to the

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Northern District of Illinois where opposing counsel has law offices would cause Hand to incur

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unnecessary expense. The court will not quash the subpoenas challenged in this motion, but will

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exercise its supervisory responsibility over the appropriate scope of discovery in this case pursuant to
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Rule 26 and enter a protective order limiting the scope of discovery in this case.

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Motion for Protective Order

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Fed. R. Civ. P. 26(c) permits the court in which an action is pending to “make any order which

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justice requires to protect the party or person from annoyance, embarrassment, oppression or undue

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burden or expense” upon motion by a party or a person from whom discovery is sought. The burden of

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persuasion under Fed. R. Civ. P. 26(c) is on the party seeking the protective order. Cipollone v. Liggett

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Group, Inc., 785 F.2d 1108, 1121 (3d Cir. 1986). To meet that burden of persuasion, the party seeking

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the protective order must show good cause by demonstrating a particular need for the protection sought.

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Beckman Indus., Inc., v. Int’l. Ins. Co., 966 F.2d 470, 476 (9th Cir. 1992). Rule 26(c) requires more

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than “broad allegations of harm, unsubstantiated by specific examples or articulated reasoning.” Id.

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(citing Cipollone v. Liggett). “A party asserting good cause bears the burden, for each particular

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document it seeks to protect, of showing that prejudice or harm will result if no protective order is

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granted.” Foltz v. State Farm, 331 F.3d 1122, 1130 (9th Cir. 2003) (citing San Jose Mercury News,

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Inc., v. District Court, 187 F.3d 1096, 1102 (9th Cir. 1999)).

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Having reviewed and considered the moving and responsive papers and the arguments of

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counsel, the court finds the two subpoenas at issue are grossly over broad in seeking all of Hand’s

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personal and client trust account banking records for more than a five-year period. The court will

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exercise its discretion and authority under Rule 26(b)(2)(C) to limit the discovery Defendants may

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obtain. A protective order is entered precluding the Defendants from reviewing, using or keeping

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documents already produced by Wells Fargo and Bank of America from Hand’s personal bank account.

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A protective order is also entered limiting the banking records Defendants may obtain from Hand &

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Hand, PC Client Trust Account for the period between April 2007 and March 2008. As counsel

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indicate both banks have already complied with the subpoenas as served, and counsel for the parties

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were ordered to forthwith meet and confer to review documents produced by both banks. Counsel for

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the Defendants indicated that he had received an envelope of responsive documents from Wells Fargo

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but had not yet opened it. Counsel for Defendants shall return banking records for Hand’s personal

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account, and shall return all banking records from Hand and Hand, PC’s account except for the period

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between April 2007 and March 2008.
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Defendants’ Motion to Deem Matters Admitted (Dkt. #50)

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This motion asks the court to deem Hand’s responses to requests for admissions which were

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served on May 27, 2011, deemed admitted, or in the alternative, that the court require Hand to serve

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supplemental responses. Defendants claim that Hand unreasonably refused to answer questions posed

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in the requests for admissions and has interjected boiler plate and baseless objections rather than

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provide responsive answers. The motion also seeks an order allowing the Defendants to redepose Hand

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after the supplemental answers are served, and an award of attorney’s fees and costs for the necessity of

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filing this motion.

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Plaintiff and Third Party Defendant oppose the motion pointing out that Defendant served 255

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requests for admissions on Hand. Identical sets were served on Anahuac which have been answered.

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Hand served supplemental responses to the requests for admissions based on information provided at

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the deposition of Yuriy Semenov, Anahuac’s sole owner, officer and director. Thus, this motion is

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largely unnecessary. Serving a duplicate set of requests for admissions, which have been answered by

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Anahuac, is also an abusive discovery tactic, especially because the requests for admissions seek

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admissions of facts relevant to claims that have been dismissed by the District Judge.

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The Ninth Circuit has recognized that requests for admissions “are sought, first, to facilitate

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proof with respect to issues that cannot be eliminated from the case and, second, to narrow the issues by

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eliminating those that can be.” Conlon v. United States, 474 F.3d 616, 622 (9th Cir. 2007). Rule 36(a)

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“seeks to serve two important goals: truth-seeking in litigation and efficiency in dispensing justice.” Id.

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The goal of requests for admissions is to “eliminate from the trial matters as to which there is no

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genuine dispute.” People of the State of California v. The Jules Fribourg, 19 F.R.D. 432, 436 (N.D.

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CA. 1955). For this reason, “requests for admissions are not principally discovery devices.” Safeco of

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America v. Rawstron, 181 F.R.D. 441, 445 (C.D. Cal. 1998) (citing 8A Charles Alan Wright, Arthur R.

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Miller & Richard L. Marcus, § 2252 at 524-525). (“Strictly speaking Rule 36 is not a discovery

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procedure at all, since it presupposes that the party proceeding under it knows the facts or has the

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document and merely wishes its opponent to concede their genuineness. A party who desires to

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discovery what the facts are should resort to other discovery rules rather than Rule 36.” ).

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During oral argument counsel for Defendants repeatedly referred to Hand’s deficient “answers”
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to the request for admissions. A responding party does not “answer” a request for admission like an

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answer to an interrogatory. Rule 36 requires a party receiving a request for admission to admit or deny

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matter. The court has reviewed Hand’s responses and finds that the set of 255 requests for admissions

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are directed to obtaining discovery more typically obtained through answers to interrogatories. These

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disputed requests for admissions are clearly designed to obtain discovery, rather than admissions of

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non-disputed facts, or the genuineness of documents. Accordingly, the motion will be denied.

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For the reasons stated,

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IT IS ORDERED that:

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Third Party Defendant’s Emergency Motion to Quash (Dkt. #44) is DENIED. However,
a protective order is entered as set forth in the body of this order.

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2.

Defendants’ Motion to Deem Matters Admitted (Dkt. #50) is DENIED.

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Dated this 11th day of August, 2011.

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______________________________________
Peggy A. Leen
United States Magistrate Judge

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