Federal Deposit Insurance Corporation v. Ark-La-Tex Financial Services, LLC

Filing 23

Memorandum of Opinion and Order: Defendant's Motion to Compel (Doc. 16 ) is GRANTED IN PART AND DENIED IN PART. Defendants are ordered to supplement their discovery responses consistent with the foregoing. Attorney fees are awarded. Judge Patricia A. Gaughan on 6/24/16. (LC,S)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

Federal Deposit Insurance Corporation, )
as Receiver for AmTrust Bank
)
)
Plaintiff,
)
)
Vs.
)
)
Ark-La-Tex Financial Services, LLC
)
d/b/a Benchmark Mortgage
)
)
Defendant.
)

CASE NO. 1:15 CV 2470

JUDGE PATRICIA A. GAUGHAN

Memorandum of Opinion and Order

INTRODUCTION
This matter is before the Court upon Defendant Ark-La-Tex Financial Services, LLC’s
Motion to Compel (Doc. 16). For the reasons that follow, the motion is GRANTED IN PART
AND DENIED IN PART.
FACTS
Plaintiff FDIC is the receiver for AmTrust, which was a federally chartered savings bank
prior to its closure in 2009. (Compl. ¶ 8). Defendant Ark-La-Tex is engaged in the business of
brokering, originating, processing, packaging, submitting for funding, selling, and/or transferring

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loans secured by real property. (Id. at ¶ 9). In this lawsuit, plaintiff claims that defendant
breached contractual warranties and representations in the course of brokering six mortgage
loans (the “At-Issue Loans”) pursuant to a January 6, 2006 Master Broker Agreement and a May
23, 2007 Master Broker Agreement. Plaintiff alleges that defendant breached these agreements
by submitting false information for the At-Issue loans to AmTrust, and by failing to indemnify
plaintiff for the loss sustained on the loans.
On January 16, 2016, defendant served discovery requests on plaintiff, which plaintiff
responded to on February 22. Defendant notified plaintiff on February 29 of deficiencies in
plaintiff’s responses, and plaintiff supplemented its responses on March 15. Defendant sent
another letter to plaintiff the following day, stating that it believed plaintiff’s responses
continued to be deficient. Counsel for both parties held a telephone conference regarding
discovery on April 21, and plaintiff further supplemented its responses on May 6. Still finding
plaintiff’s responses to be deficient, defendant filed the current motion, which plaintiff opposes.
STANDARD OF REVIEW
Federal Rule of Civil Procedure 26(b)(1) sets forth the permissible scope of discovery:
Parties may obtain discovery regarding any nonprivileged matter that is relevant
to any party’s claim or defense and proportional to the needs of the case,
considering the importance of the issues at stake in the action, the amount in
controversy, the parties’ relative access to relevant information, the parties’
resources, the importance of the discovery in resolving the issues, and whether the
burden or expense of the proposed discovery outweighs its likely benefit.
Information within this scope of discovery need not be admissible in evidence to
be discoverable.
Fed. R. Civ. P. 26(b)(1). “[T]he scope of discovery under the Federal Rules of Civil Procedure is
traditionally quite broad.” Lewis v. ACB Bus. Serv., Inc., 135 F.3d 389, 402 (6th Cir. 1998). After
making a good faith attempt to resolve a dispute, a party may file a motion to compel discovery
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under Rule 37 of the Federal Rules of Civil Procedure if it believes another party has failed to
respond to discovery requests or that the party’s responses are evasive or incomplete. Fed. R.
Civ. P. 37(a). In ruling on such a motion, a trial court has broad discretion in determining the
scope of discovery. Lewis, 135 F.3d at 402. Defendant has shown that it made a good faith
attempt to resolve the disputes at issue before filing this motion. The Court will now address
defendant’s requests in the order they were raised in its motion.
ANALYSIS
1. Request for Production Nos. 10, 12, 13, and 27
The first set of documents at issue relate to AmTrust’s documents reflecting policies and
procedures applicable to the At-Issue loans as well as documents concerning due diligence,
audit, or quality control review that AmTrust performed on the At-Issue Loans. Specifically,
these requests state:
REQUEST NO. 10.
All Documents Relating To the Policies of AmTrust Bank between 2005 and
2008 with respect to approval, funding, and/or underwriting of mortgage loans
submitted by brokers.
REQUEST NO. 12.
All Documents Relating To the Policies of AmTrust Bank between 2005 and
2008 for evaluating, either before or after its decision whether to fund a particular
mortgage loan, whether that loan met the requirements of the applicable
Agreement and Seller’s Guide.
REQUEST NO. 13.
All Documents concerning AmTrust Bank’s Policies for performing quality
control, due diligence, or auditing on mortgage loans it funded that were
submitted by a broker.
REQUEST NO. 27.
All Documents concerning any due diligence, audit, or quality control review
AmTrust Bank performed on any of the At-Issue Loans.
Plaintiff argues that defendant is not entitled to these documents because they are not legally
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relevant to the parties’ claims or defenses and are disproportionate to the needs of the case.
a. Relevancy
As to relevancy, plaintiff argues that the documents defendants seek have nothing to do
with its breach of contract claim, which requires plaintiff to prove: (1) the existence of a valid
contract; (2) performance by the plaintiff; (3) breach by the defendant; and (4) damage or loss to
the plaintiff. Resource Title Agency, Inc. v. Morreale Real Estate Servs., Inc., 314 F. Supp. 2d
763, 769 (N.D. Ohio 2004) (citing Samadder v. DMF of Ohio, Inc., 154 Ohio App. 3d 770, 778
(2003). It also notes that defendant dismissed its affirmative defenses based on comparative
fault, contributory negligence, and assumption of the risk and argues that “[i]ncredibly,
Defendant now seeks discovery on these very issues” and that “the conduct of AmTrust with
respect to the At-Issue Loans is unavailable as a defense to this breach of contract case.” (Pl.’s
Resp. at 5, 6).
Although defendant withdrew several of its affirmative defenses, it continues to assert a
number of others, including estoppel, laches, waiver, breach of the duty of good faith and fair
dealing, and failure to mitigate damages. Defendant asserts that AmTrust’s knowledge and
conduct at the time it underwrote and funded the At-Issue loans is relevant to these defenses
because if AmTrust was aware of defects in the loan, it may have failed to act in good faith or be
estopped from contesting the defects now.
Defendant has met its burden of showing that the documents are relevant to at least some
of the defenses that it continues to assert. Guinn v. Mount Carmel Health Sys., No. 2:09-cv-226,
2010 WL 2927254, at *5 (S.D. Ohio July 23, 2010) (“The proponent of a motion to compel
discovery bears the initial burden of proving that the information sought is relevant.”). For

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example, to invoke the equitable defense of laches to a breach of contract claim, a party must
show: (1) unreasonable delay or lapse of time in asserting a right; (2) absence of an excuse for
the delay; (3) knowledge, actual or constructive, of the injury or wrong; and (4) prejudice. Sims
v. Anderson, 38 N.E.3d 1123, 1130 (Ohio App. 2015). Whether AmTrust complied with its own
policies and procedures in funding and underwriting the At-Issue loans and the due diligence that
it took with respect to the loans is relevant to its knowledge, if any, of the alleged defects in the
loans at the time they were made and whether AmTrust unreasonably delayed in asserting such
defects. Moreover, if AmTrust had knowledge of the defects long before the loans defaulted, its
knowledge and conduct is relevant to defendant’s failure to mitigate damages defense. See also
First Tennessee Bank v. Republic Mortgage Ins. Co., 276 F.R.D. 215, 222 (W.D. Tenn. 2011)
(ordering defendant to produce information about how it handled claims and rescissions under an
insurance policy because such information was probative of how defendant generally
administered its business and to produce information about defendant’s knowledge and
experience with the loans at issue because such information was relevant to plaintiff’s claims of
bad faith and could “demonstrate that [defendant] was aware of risks of materially false or
misleading stated-income loans”).
b. Burden
Plaintiff also argues that production would be disproportionate to the needs of this case.
Another court in this district has succinctly explained the parties’ respective obligations when
one party claims that discovery is overly burdensome: “At the very least, where a party claims
burdensomeness, it must explain why that is so. It should also propose alternatives, if such might
be possible, that could enable some degree of production. Where a party explains the difficulties

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that compliance would create, the requesting party must be heedful, and not simply knee-jerk
dismissive of those explanations.” In re Heparin Products Liab. Litig., 273 F.R.D. 399, 410-11
(N.D. Ohio 2011).
As an initial matter, plaintiff’s contention that the requested discovery is overly
burdensome because this case “involves only six loans” is unpersuasive. As defendant notes,
plaintiff is seeking over $1.5 million in damages; thus, while only a small number of loans are at
issue, those loans involve a significant amount of money.
Plaintiff next argues that it “simply cannot know which documents ‘reflect’ policies and
procedures ‘applicable to’ the At-Issue Loans, or which documents ‘concern[] any due diligence,
audit or quality control review AmTrust performed’ on the At-Issue Loans.” Again, this
argument is unpersuasive. Plaintiff is the party with access to this information, defendant has no
other way to obtain it, and a number of defendant’s defenses depend on it. Moreover, plaintiff
has offered no alternatives that would enable even some degree of production. A party cannot
simply claim ignorance in order to avoid producing documents that are relevant to an opposing
party’s claim or defense.
Finally, plaintiff submits a declaration from its Senior E-Discovery Specialist, Ray
Rivard, to support its assertion that the requested discovery is burdensome. The extent of Mr.
Rivard’s averments regarding the burdensome nature of defendant’s requests is that:
6. Attempting to identify the documents sought by [defendants] would require
FDIC-R to employ an expansive set of ESI search terms, such as ‘loan policy,’
that would yield tens of thousands of documents culled from a universe of over
1.5 billion pages of documents.
7. A preliminary search for just the organizational charts (Request #5) yields over
5,800 documents.
(Rivard Dec. ¶¶ 6-7). This conclusory declaration is insufficient to meet plaintiff’s burden. Aside
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from one search for organizational charts, it does not appear that plaintiff has attempted to run
any searches at all. The declaration identifies one word search–“loan policy”–that plaintiff
presumes will yield thousands of documents but does not identify whether there are other terms
that could be used to narrow the yield, and it seems quite unlikely that no other narrowing terms
exist. The declaration also does not identify whether dates could be used to restrict the pool of
available documents. In short, it does not appear that plaintiff has made a good faith effort at
searching for the requested documents and has not met its obligation to show that the burden of
complying with defendant’s requests outweighs the likely benefit of production.
For the foregoing reasons, the Court orders plaintiff to produce the documents requested
in Requests for Production Nos. 10, 12, 13, and 27.
2. Request for Production No. 21
This request asks for documents relating to lawsuits with respect to the At-Issue Loans.
Plaintiff has agreed to produce such documents.
3. Request for Production Nos. 2 and 8
These requests relate to the Seller’s Guide referred to in plaintiff’s complaint and which
plaintiff relies on for its claims against defendant. The requests at issue state:
REQUEST NO. 2.
All Documents constituting or relating to Agreements between AmTrust Bank
and Defendant.
REQUEST NO. 8.
All versions, including drafts, of the Seller’s Guide as identified in Your
Complaint.
Plaintiff does not dispute that the Seller’s Guide is relevant, but counsel for plaintiff states in a
declaration that “Plaintiff has produced the full version of the Seller’s Guide as it existed at the

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failure of AmTrust, and I have advised Defendant that Plaintiff does not have in its possession,
custody or control full versions of the Seller’s Guide as it previously existed.” Defendant is not
satisfied with this declaration, arguing that counsel’s letters during this discovery dispute
“strongly suggest[] that there were also portions [of the Seller’s Guide] that Plaintiff unilaterally
deemed irrelevant and did not produce.” (Def.’s Reply at 7).
The Court cannot make plaintiff produce a document that it does not have the ability to
produce. Counsel’s declaration sufficiently clarifies that plaintiff has produced the documents
that it has in its possession or control that are responsive to this request. Defendant’s motion to
compel is therefore denied with respect to Requests for Production Nos. 2 and 8. Plaintiff, of
course, is under a continuing obligation to supplement this response should it “learn that in some
material respect the disclosure or response is incomplete or incorrect” and the additional
information has not otherwise been made known to defendant. Fed. R. Civ. P. 26(e)(1)(A).
4. Request for Production No. 11
Request No. 11 asks for production of “all AmTrust organizational charts from 2005
through 2008.” Plaintiff’s only response to this request is that it would be unduly burdensome to
produce because “a preliminary search for...the organization charts...yields over 5,800
documents.” The organizational charts are relevant to the claims and defenses at issue in this
case and could identify potential witnesses. For the reasons discussed above, the conclusory
statement in Mr. Rivard’s declaration is insufficient to meet plaintiff’s burden of showing that
the burden or expense of the requested documents outweighs the likely benefit of production.
Thus, the Court orders plaintiff to comply with Request for Production No. 11.
5. Rule 34(b)(2)(C)

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Finally, defendant argues that plaintiff’s responses fail to comply with Rule 34(b)(2)(C),
effective December 1, 2015, which states: “An objection must state whether any responsive
materials are being withheld on the basis of that objection. An objection to part of a request must
specify the part and permit inspection of the rest.” Fed. R. Civ. P. Rule 34(b)(2)(C). The purpose
of the amendment is to “end the confusion that frequently arises when a producing party states
several objections and still produces information, leaving the requesting party uncertain whether
any relevant and responsive information has been withheld on the basis of the objections.” Fed.
R. Civ. P. Rule 34 Advisory Committee Notes. Defendant notes that plaintiff’s responses are all
made subject to its sixteen general objections and do not make clear which specific objection or
objections each response relies on. Because the Court has already ordered plaintiff to comply
with the outstanding requests, this issue is largely moot. Going forward, however, the parties
may not rely on a laundry-list of general objections for withholding documents but may instead
only withhold documents based on specific objections.
6. Attorney’s Fees
Defendant moves for expenses in filing this motion pursuant to Rule 37, which provides:
If the motion is granted – or if the disclosure or requested discovery is provided
after the motion was filed – the court must, after giving an opportunity to be
heard, require the party or deponent whose conduct necessitated the motion, the
party or attorney advising that conduct, or both to pay the movant’s reasonable
expenses incurred in making the motion, including attorney’s fees. But the court
must not order this payment if:
(i) the movant filed the motion before attempting in good faith to obtain the
disclosure or discovery without court action;
(ii) the opposing party’s nondisclosure, response, or objection was substantially
justified; or
(iii) other circumstances make an award of expenses unjust.
Thus, according to Rule 37, the Court must award expenses if none of the exceptions identified
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in the rule apply. The Court finds that attorney’s fees are warranted. First, defendant’s motion
was almost wholly successful–either through the Court granting the motion or because plaintiff
agreed to provide the discovery after defendant filed the motion. Second, defendant made a good
faith effort to obtain disclosure before filing the motion. Third, for the reasons discussed above,
the reasons for plaintiff’s nondisclosure were not substantially justified, especially in light of
plaintiff’s mischaracterization regarding the dismissal of defendant’s affirmative defenses.
Finally, no other circumstances make an award of expenses unjust.
CONCLUSION
For the reasons set forth above, Defendant’s Motion to Compel (Doc. 16) is GRANTED
IN PART AND DENIED IN PART. Defendants are ordered to supplement their discovery
responses consistent with the foregoing. Attorney fees are awarded.
IT IS SO ORDERED.

/s/ Patricia A. Gaughan
PATRICIA A. GAUGHAN
United States District Judge
Dated: 6/24/16

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