Coan v. Dunne

          RULING ON MOTION TO COMPEL (DOC. NO. 64)

          Robert M. Spector United States Magistrate Judge.

         I. BACKGROUND

         The genesis of this case lies in a judgment entered by the High Court of Ireland on March 9, 2012, in the amount of €185, 299, 627.78 against Sean Dunne and in favor of National Asset Loan Management, LLC [“NALM” or “NAMA”]. On July 11, 2012, NALM commenced a civil action in the Connecticut Superior Court to, inter alia, avoid fraudulent transfers, require an accounting of assets transferred, require disgorgement of certain transferred assets, impress the transferred assets with a constructive trust for the benefit of a creditor of Sean Dunne, and for related relief. See NALM v. Dunne et al., Conn. Super. Ct. C.A. No. FST0CV1205013922-S (“State Court Action”).^[1] Several discovery disputes arose during the course of discovery in the State Court Action, and on March 29, 2013, the defendant Sean Dunne filed a petition for relief under Chapter 7 of the United States Bankruptcy Code, In re Sean Dunne, Bankruptcy No. 13-50484 (AHWS) (“Bankruptcy Case”), and the Superior Court case was stayed. Richard M. Coan is serving as the Trustee of Sean Dunne's bankruptcy estate. On June 4, 2013, the Bankruptcy Court granted Ulster Bank a relief from the stay to serve Dunne with an involuntary bankruptcy petition in Ireland. Dual bankruptcy actions proceeded - here and in Ireland.

         Based on testimony from Dunne taken during the Bankruptcy Case, NALM commenced an adversary proceeding on July 8, 2013 objecting to Dunne's discharge pursuant to 11 U.S.C. §§ 727(a)(4) (False Oaths) and 727 (a)(2)(A) (Removal, Transfer and/or Concealment of Assets). NALM v. Dunne, Bankr. D. Conn. Adv. Proc. No. 13-05033. The gravamen of NALM's complaint in the adversary proceeding was Dunne's concealment and transfer of assets through Gayle Killilea and other persons and entities in hinderance of his creditors. Discovery proceeded in that action, with extensive motion practice through August 2014. On August 20, 2014, Dunne moved to dismiss his Chapter 7 Bankruptcy Case, to which the Trustee objected, citing Dunne and Killilea's failure to participate in discovery. NALM rescheduled the pending discovery motions which had been stayed because of Dunne's motion to dismiss. Dunne then withdrew his motion to dismiss and, on December 10, 2014, voluntarily waived his discharge by entry of an Order of the Bankruptcy Court, which rendered the adversary proceeding and the discovery motions therein moot.

         On January 12, 2015, the Trustee removed the State Court Action to this court (Doc. No. 1); thereafter, United States District Court Judge Jeffrey Alker Meyer granted the Trustee's Motion to Intervene as Party Plaintiff and denied defendant Killilea's Motion for Remand. (Doc. No. 38). No. action occurred in this case over the next two years. During that time, on March 29, 2015, the Trustee commenced an adversary proceeding in the Bankruptcy Court, Coan, Trustee v. Gayle Killilea, et al., Adversary Proceeding No. 15-5019 (“Adversary Proceeding”), in which the parties engaged in discovery and other pretrial proceedings. (See Doc. Nos. 39-40, 43).

         The gravamen of the Trustee's case against the defendants is the avoidance of various transfers and the concealment of assets made by Sean Dunne to and through related persons and entities, including the defendants, with the intent to hinder, delay or defraud his creditors. Dunne contends that he transferred ownership of certain assets to defendant Killilea and others prior to the bankruptcy and the look back period. The Trustee alleges that the alleged transfers occurred for no consideration, at a time when Dunne was insolvent and for the sole purpose of defeating creditor claims. The defendants are the recipients of Dunne's alleged transfers.

         On September 11, 2018, this case was consolidated with the Adversary Proceeding. (Doc. Nos. 50-52). On October 30, 2018, the Trustee filed, inter alia, the pending Motion to Compel (Doc. No. 64) in which the Trustee seeks documents and information that it contends “are already the subject of prior orders in both the Connecticut Superior Court and the Adversary Proceeding[, ]” in response to which the defendants filed their objection on November 9, 2018. (Doc. No. 78). On November 16, 2018, the Court held a motion hearing to address the “motions or other discovery matters that remain of consequence” from the Adversary Proceeding (Doc. No. 59), including this pending Motion to Compel.

         Following oral argument, during which the Court noted that it would need a “much more detailed recitation of exactly what it is that's believed to be deficient[, ]” (Doc. No. 99 at 29), the Court referred the Trustee's Motion to Compel to this Magistrate Judge and ordered the Trustee to file “a proposed order and detailed itemization of the alleged deficiencies in defendants' document production within the scope of the allegations in the existing motion to compel.” (Doc. No. 82; see Doc. No. 83; see also Doc. 99 at 40-41). The Court then set a December 21, 2018 deadline for the Trustee to disclose its expert report and damages analysis.

         On November 26, 2018, the Trustee filed an Itemization of Categories of Discovery Requested by the Trustee and Deficiencies in Defendants' Response Thereto [“Itemization”], and a Proposed Order on Trustee's Motion to Compel Discovery Responses and to Overrule Defendants' Privilege Objections. (Doc. No. 90, Exs. A-B). In the Itemization, the Trustee lists 23 categories of documents. (Doc. No. 90, Ex. A at 2-6). On November 30, 3018, this Magistrate Judge held a telephonic conference regarding the Trustee's submission, during which the defendants argued that this Itemization did not comply with the November 16, 2018 Order. The defendants represented that they would produce additional documents, but needed more information as to the documents the Trustee claimed were missing. The Trustee agreed to revise its Itemization to specify, more particularly, the documents he was requesting, and the defendant agreed to file a response to the revised submission.

         On December 5, 2018, the Trustee filed his Supplemental Itemization of Categories of Discovery Requested by Trustee and Deficiencies in Defendants' Response Thereto. (Doc. No. 109). On December 11, 2018, the defendants filed their brief in opposition in which they argue that the Trustee's supplementation has expanded rather than narrowed the focus of the discovery requests. (Doc. No. 120). On December 13, 2018, the Trustee filed his reply brief. (Doc. No. 125).

         For the reasons set forth below, the Trustee's Motion to Compel (Doc. No. 64) is granted in part and denied in part.

         II. LEGAL STANDARD

         Rule 26(b)(1) of the Federal Rules of Civil Procedure sets forth the scope and limitations of permissible 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 the 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). The advisory committee's notes to the 2015 amendment of Rule 26 further explain that

[a] party claiming that a request is important to resolve the issues should be able to explain the ways in which the underlying information bears on the issues as that party understands them. The court's responsibility, using all the information provided by the parties, is to consider these and all the other factors in reaching a case-specific determination of the appropriate scope of discovery.

Fed. R. Civ. P. 25 advisory committee's note to 2015 amendment.

         “[T]o fall within the scope of permissible discovery, information must be ‘relevant to any party's claim or defense.' In order to be ‘relevant' for Civil Rule 26 discovery purposes, information and evidentiary material must be ‘relevant' as defined in Rule of Evidence 401.” Bagley v. Yale Univ., No. 3:13 CV 1890 (CSH), 2015 WL 8750901, at *8 (D. Conn. Dec. 14, 2015); see Fed. R. Civ. P. 26(b)(1), advisory committee notes to the 2015 amendments. “Discovery, however, ‘is concerned with ‘relevant information'-not ‘relevant evidence'-and that as a result the scope of relevance for discovery purposes is necessarily broader than trial relevance.'” A.M. v. Am. Sch. for the Deaf, No. 3:13 CV 1337 (WWE), 2016 WL 1117363, at *2 (D. Conn. Mar. 22, 2016) (quoting Steven S. Gensler, 1 Federal Rules of Civil Procedure, Rules and Commentary Rule 26, V. Depositions and Discovery (February 2016 Update) (footnotes omitted). “The Court ‘must limit' discovery otherwise allowed if the discovery sought is ‘unreasonably cumulative or duplicative, or can be obtained from some other source that is more convenient, less burdensome, or less expensive[.]'” Family Wireless #1, LLC v. Auto. Techs., Inc., No. 3:15 CV 01310 (JCH), 2016 WL 3911870, at *2 (D. Conn. July 15, 2016) (quoting Fed. R. Civ. P. 26(b)(2)(C)(i)).

         III. DISCUSSION

         A. ITEMIZATION NO. 1 - NEWINVEST

         The Trustee seeks documents responsive to his Document Request No. 69 to Killilea and Document Request No. 51 to John Dunne, in which the Trustee requests as follows:

Request No. 69: Documents and communications between you and Newinvest concerning any loans or mortgage advanced by or granted to Newinvest, including, but not limited to, any loan closing files, mortgage, and any bank records showing the receipt or disposition of monies related thereto.

Request No. 51: Any application for financing you prepared or submitted on behalf of TJD 21.

         In its Supplemental Itemization, the Trustee requests as follows:

1. Documents and communications concerning the capitalization of Newinvest Holding International Ltd. (“Newinvest”), including, but not limited to, any account opening document, bank statement, wire receipt, deposit slip, withdrawal slip or check.

2. Documents and communications concerning the source of funds used by Newinvest to make loans to the Defendants, including, but not limited to, any account opening document, bank statement, wire receipt, deposit slip, withdrawal slip or check.

3. Documents and communications concerning the ownership of Newinvest, including, but not limited to, any stock ledger, schedule of beneficiaries, membership interests or other documents identifying the owners.

4. Documents concerning the domicile of Newinvest, Totalserve and/or Line Trust Corporation Ltd.

5. Documents and communications concerning any loan to Newinvest, including, but not limited to, Killilea's loan of $1.8 million to Newinvest and the source of funds for such loan.

6. Communications between or among the Defendants and Newinvest.

7. Communications between the Defendants and Sean Dunne, James Ryan, Ross Connolly, Roy Abramowitz, Jospeh Leshkowitz, Hassans International Law Firm, Line Trust Corporation Ltd., Totalserve or any third party concerning Newinvest.

8. Documents and communications concerning the $25, 000, 000.00 loan facility that Killilea made available to Line Trust Corporation Ltd. and the source of funds for such loan facility.

(Doc. No. 109 at 2-3).

         At oral argument before the Court on November 16, 2018, the Trustee argued that the documents related to Newinvest are relevant because Newinvest, which is a lender, is an entity formed by the Hassan Law Firm, and managed by Totalserve. Once Newinvest received funds from the Dunne family, it then lent money to other Dunne-controlled entities (ex: to TJD21, to an entity that owned 42 Bote Road, to defendant Wahl LLC). (Doc. No. 99 at 23). Additionally, defendant Mountbrook USA transferred significant funds to Newinvest after the bankruptcy case was filed. (Doc. No. 99 at 24-25). The Trustee represented that it is requesting documents from Newinvest dating back to the time it was formed in 2007-2008. (Doc. No. 99 at 25).

         At oral argument, the defendants agreed to make “additional disclosure on Newinvest.” (Doc. No. 99 at 37). Now in their response to the Trustee's Supplemental Itemization, the defendants argue that they produced “all Newinvest loan agreements and have provided a supplemental production including incorporation documents and client account records.” (Doc. No. 120 at 4). In his reply, the Trustee notes that, on December 11, 2018, the defendants, “produced for the first time highly relevant documents demonstrating that Killilea was the direct source of the Newinvest funds used to fund the Dunnes' various real estate projects[, ]” and that the defendants failure to produce this information earlier is “sheer obstructionism.” (Doc. No. 125 at 1-2).

         To the extent there are additional documents responsive to the foregoing requests relating to Newinvest, the defendants shall produce such documents on or before December 21, 2018.^[2]

         B. ITEMIZATION NO. 2 - WALFORD

         The Trustee seeks documents responsive to his Document Request Nos. 92-95 to Killilea^[3] and Document Request No. 51 to John Dunne, which requests state as follows:

Request No. 92: All documents concerning your selection or acquisition of Walford, including but not limited to the closing file.

Request No. 93: Documents and communications concerning the source of funds used to acquire the Walford property.

Request No. 94: Documents and communications concerning any consideration you paid to acquire the Walford property.

Request No. 95: All documents concerning the marketing and sale of Walford, including but not limited to the closing file.

         The Trustee now seeks the following:

1. Documents and communications concerning the capitalization of Yesreb Holding Limited (“Yesreb”), including but not limited to, any account opening document, bank statement, wire receipt, deposit slip, withdrawal slip or check.

2. Documents and communications concerning the source of funds used by Yesreb to purchase Walford, including, but not limited to, any account opening document, bank statement, wire receipt, deposit slip, withdrawal slip or check.

3. Documents and communications concerning ownership of Yesreb, including, but not limited to, any stock ledger, schedule of beneficiaries, membership interests or other documents identifying the owners.

4. Documents and communications concerning any loan to Yesreb, including, but not limited to, the €15, 000, 000.00 credit facility made available to Yesreb by Killilea and the source of funds for such credit facility.

5. Communication between or among the Defendants and Yesreb.

6. Communications between the Defendants and the Debtor, James Ryan, Ross Connolly, Roy Abramowitz, Joseph Leshkowitz or any third party concerning Yesreb.

(Doc. No. 109 at 3-4).

         At oral argument on November 16, 2018, the Trustee explained his understanding of the 2005 Walford property transaction (see Doc. No. 99 at 19-22), and the defendants reiterate the transaction in their brief in opposition to the Trustee's supplemental filing. (See Doc. No. 120 at 7-8). The parties explain that Dunne purchased Walford on July 1, 2005, in trust, for €54, 000, 000.00. Then Dunne transferred his rights to the Walford property to an entity known as Matsack Nominees which held that property for the benefit of Killilea. In 2013, the property was transferred to Yesreb, a Cypriot company which is managed by an entity known as Totalserve, which was established by a Gibraltar law firm known as Hassans. (Doc. No. 99 at 19-20; see Doc. No. 120, at 7-8). The Trustee believes, based on disclosed documents, that Killilea lent Yesreb the money so that Yesreb could buy the Walford property for her, and the beneficial owners of Yesreb are the minor children of Sean Dunne and Gayle Killilea Dunne, through a trust. (Doc. No. 99 at 20). Additionally, according to the Trustee, after the bankruptcy case was filed, Yesreb sold the property to another entity in Ireland. (Doc. No. 99 at 20-21).

         The Trustee has explained the link between Yesreb and the Walford transaction, thereby establishing the relevance of the requests directed toward Yesreb. Although Yesreb is not a party to the Trustee's actions and is the subject of litigation in Ireland, the Trustee has explained that the documents related to the Walford transaction relate to his allegations of fraud. (See Doc. No. 99 at 22).

         The additional itemized requests listed above relate to the Walford transaction. At the November 16, 2018 oral argument, defense counsel stated that the defendants could produce the transactional documents that reflect money related to Walford or the properties that have been named at issue in this case. (Doc. No. 99 at 38-39) (“[W]e can produce the actual transactional documents. And if they need a backup of the bank record on that transaction, we will produce that. . . . Many of these documents have already been produced as a result of our providing all the Irish discovery to the trustee.”). To the extent that the defendants have not already produced the documents that they committed to producing during the November 16, 2018 proceeding, they shall do so on or before December 21, 2018. Additionally, on or before December 21, 2018, the defendants shall provide documents responsive to the categories of documents listed above relating to Yesreb.

         C. ITEMIZATION NO. 3 - SOURCES OF FUNDS USED TO PURCHASE THE U.S. PROPERTIES^[4]

         In Document Requests Nos. 64, 67, 69, ^[5] 71, 82 and 87 to Killilea and Request No. 51 to John Dunne, the Trustee sought documents and communications concerning the “source of the funds used to purchase” certain identified properties, and in Request No. 51 to John Dunne, the Trustee sought “[a]ny application for financing you prepared or submitted on behalf of TJD 21.” In his Supplemental Itemization, the Trustee seeks the following documents:

1. Documents and communications concerning the source of funds, direct and indirect, used to purchase 38 Bush Avenue, Greenwich, CT.

2. Documents and communications concerning the distribution of the sale proceeds of 38 Bush Avenue, Greenwich, CT, including but not limited to, closing statements, bank statements, wire receipts, checks, deposit slips or withdrawal slips.

3. Documents and communications concerning the source of funds, direct or indirect, used to purchase 42 Bote Road, Greenwich, CT.

4. Documents and communications concerning the distribution of the sale proceeds of 42 Bote Road, Greenwich, CT, including but not limited to, closing statements, bank statements, wire receipts, checks, deposit slips or withdrawal slips.

5. Documents and communications concerning the source of funds, direct and indirect, used to purchase 1 Hidden Springs Lane, Rye, NY.

6. Documents and communications concerning the distribution of sale proceeds [for] 1 Hidden Springs Lane, Rye, NY, including but not limited to closing statements, bank statements, wire receipts, checks, deposit slips or withdrawal slips.

7. Documents and communications concerning the source of funds, direct and indirect, used to purchase 74 Grand Street, New York, NY.

8. Documents and communications concerning the distribution of the sale proceeds [for] 74 Grand Street, New York, NY, including, but not limited to, closing statements bank statements, wire receipts, checks, deposit slips or withdrawal slips.

9. Documents and communications concerning the source of funds, direct and indirect, used to purchase 22 Stillman Lane, Greenwich, CT.

10. Documents and communications concerning the source of funds, direct and indirect, used to purchase 151 Milbank, Greenwich, CT.

11. Documents and communications concerning the source of the funds used to pay the security deposit and lease payments for 421 Field Point Road, Greenwich, CT.

12. Documents and communications concerning the source of the funds used to pay the security deposit and lease payments for 526 Indian Field Road, Greenwich, CT.

(Doc. No. 109 at 5-6). The Trustee contends that the defendants have refused to produce the documents showing the sources of funds used to purchase these U.S. ...