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Re: Goldstein v. Berman

April 15, 2013

RE: GOLDSTEIN
v.
BERMAN,



The opinion of the court was delivered by: Stephanie A. Gallagher United States Magistrate Judge

CHAMBERS OF 101 WEST LOMBARD STREET STEPHANIE A. GALLAGHER BALTIMORE, MARYLAND 21201 UNITED STATES MAGISTRATE JUDGE (410) 962-7780 Fax (410) 962-1812

LETTER TO COUNSEL

Dear Counsel,

This case has been referred to me for discovery-related issues. ECF No. 22. I have reviewed Defendant Marc S. Rosen's Motion to Compel Discovery, and the opposition thereto. ECF No. 24. No hearing is deemed necessary. Local Rule 105.6 (D. Md. 2011). For the reasons set forth herein, Mr. Rosen's Motion will be GRANTED in part and DENIED in part.

As background, on July 13, 2012, Plaintiff Charles R. Goldstein ("Plaintiff"), the bankruptcy trustee for the estate of K Capital Corporation ("K Capital"), sued Mr. Rosen and 13 other individual defendants, seeking $28,243,581.00 plus interest and other relief. [ECF No. 3]. Each of the defendants served as either an officer or director of both K Capital and its wholly owned subsidiary, K Bank. Compl. ¶¶ 4-17. Essentially, the Complaint alleges that the defendants failed to act in the best interest of K Capital, instead protecting their personal interests by, in some cases, selling their shares of K Capital back to K Capital knowing that K Capital was approaching insolvency. The Complaint further alleges that the Defendants protected the interest of K Bank instead of K Capital in situations where the two entities had each made loans to the same borrowers.

Twelve of the defendants are pro se in this lawsuit. Mr. Rosen served Interrogatories on Plaintiff, and was dissatisfied with Plaintiff's responses. After following the requirements of Local Rule 104.7, Mr. Rosen filed the instant motion with this Court. Specifically, Interrogatories Nos. 2-12, 14-17, and 19-22 are in dispute.*fn1 Each Interrogatory is addressed sequentially below:

Interrogatory No. 2: Mr. Rosen asked Plaintiff to detail the facts supporting the allegation that "by December 31, 2007, K Capital was rapidly approaching insolvency or was insolvent because the fair market value of its assets were less then [sic] the amount necessary to pay its existing debts." Plaintiff responded that the interrogatory is (1) untimely, because expert opinions are not yet due, and (2) equally able to be answered by a review of documentation by either party. In a supplemental response, Plaintiff listed the documentation upon which he relied. However, Plaintiff's answer remains inadequate. Plaintiff made the quoted allegation in the Amended Complaint, which required a reasonable investigation of the factual and legal basis for the claim before filing. See, e.g., Fed. R. Civ. P. 11(b)(3). Although Plaintiff may eventually use expert testimony to supplement the factual basis for his belief (or may have reached his belief in part with preliminary advice from an expert witness), Plaintiff can properly be asked, in Interrogatories, to articulate the factual basis for his claim as he understands it. Moreover, for a question of this nature, simply directing the opposing party to documentation is inadequate. A narrative response is required to articulate the basis for Plaintiff's conclusion, which he states that he reached after review of the listed documents. Mr. Rosen's motion to compel a response to Interrogatory No. 2 is GRANTED.

Interrogatory No. 3: Mr. Rosen asked whether Plaintiff contends that Defendants improperly relied on information provided by K Capital's outside accountants, and, if so, asked Plaintiff to provide several additional details about the contention. Plaintiff objected on several grounds, including the timing of the "contention interrogatory," but also provided his general position regarding Defendants' relationship with outside accountants. Plaintiff's response was sufficient, particularly given the timing of the contention interrogatory and the overbroad nature of the subparts to the interrogatory. Mr. Rosen's motion to compel a further response to Interrogatory No. 3 is DENIED, although Plaintiff of course retains the obligation to supplement his answer if appropriate.

Interrogatory No. 4: Mr. Rosen asked Plaintiff to identify each specific loan or K Capital asset that Plaintiff contends was not represented accurately, and to state the fair value of that asset and the factual basis for the contention that the loan or asset was undervalued. Plaintiff responded in its supplemental answer with a list of allegedly overstated loans. While establishment of the actual fair value of each loan is properly the subject of expert testimony, as in Interrogatory No. 2, a further narrative response is warranted to explain, in general, the reasons Plaintiff believes that the loans were not fairly valued. Mr. Rosen's motion to compel a response to Interrogatory No. 4 is therefore GRANTED in part and DENIED in part.

Interrogatory No. 5: Mr. Rosen asked Plaintiff to describe the basis for Plaintiff's allegation that certain Defendants' stock sales to K Capital were fraudulent. Plaintiff responded by stating that the transfers occurred when K Capital was insolvent, and that the value of the stock was therefore overstated. Because the Plaintiff will further explain the basis for his belief that K Capital was insolvent in his response to Interrogatory No. 2, no further response to Interrogatory No. 5 is necessary. Mr. Rosen's motion to compel a response to Interrogatory No. 5 is DENIED.

Interrogatory No. 6: Mr. Rosen asked Plaintiff to identify each "K Capital Loan" by borrower name, amount of loan at time of origination, loan number, amount due at time of default, and date of default. Plaintiff responded with a list of loans, loan numbers, and amount outstanding. I find that Plaintiff's response was sufficient, because Mr. Rosen failed to define "default" with sufficient precision to permit a response. Moreover, with the other information Plaintiff provided, the amount of loan at time of origination is the type of information that is equally ascertainable to both parties. Mr. Rosen's motion to compel a further response to Interrogatory No. 6 is DENIED.

Interrogatory No. 7: Mr. Rosen asked Plaintiff to provide all facts that support each allegation of wrongdoing set forth in paragraph 32 of the Amended Complaint. Plaintiff responded by stating that Defendants took "limited and ineffective actions" to cause K Capital to collect payments due on a series of enumerated loans. Plaintiff's response is sufficient, because it is impossible to provide additional detail about actions that were allegedly not taken, and because the loan files in question were identified by Plaintiff. Mr. Rosen's motion to compel a further response to Interrogatory No. 7 is DENIED.

Interrogatory No. 8: Related to Interrogatory No. 7, in this Interrogatory Mr. Rosen asked Plaintiff to detail what acts Defendants should have taken to collect on the loans, when the acts should have been taken, and what the anticipated consequence of the acts would have been. Plaintiff objected on the basis of (1) timeliness, because expert opinions were not yet due; and (2) the compound and overbroad nature of the interrogatory. Plaintiff's objections were partially well-founded. As in the discussion of Interrogatory No. 2, it is reasonable to ask Plaintiff to provide, in general, an explanation of the acts that he believes Defendants should have taken to collect on the loans. Mr. Rosen's motion to compel will be GRANTED to that extent. Mr. Rosen's motion to compel will be DENIED as to specific dates that such actions should have been taken and the anticipated results of those actions, because those subjects are proper for expert testimony.

Interrogatory No. 9: Mr. Rosen asked Plaintiff to detail the allegations in Paragraph 33 of the Amended Complaint, which states that Defendants caused "K Capital unreasonably and irrationally to act to reduce or eliminate the amounts that K Capital could recover." Plaintiff responds that the information is available in the loan files. That answer is inadequate. Paragraph 33 alleges a series of affirmative actions allegedly taken by Defendants, and Plaintiff should provide a narrative response ...


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