Opinion
Case No. 99-1245-JTM.
December 2000.
MEMORANDUM AND ORDER
This matter is before the court on plaintiffs' motion to quash (Doc. 135) and defendant FirstPlus Home Loan Owner Trust 1997-1's (hereafter "1997-1 Trust") motion to compel (Doc. 139). For the reasons stated below, the motion to quash shall be denied. The motion to compel shall be granted with certain limitations.
Background
Plaintiffs, individually and on behalf of a proposed class, allege that their home-equity loans from National Equity Corporation (NEC) violated the supervised lender provisions of the Kansas Consumer Credit Code (KCCC). Highly summarized, they contend that NEC (1) was not authorized to issue "supervised loans" in Kansas and (2) charged illegal fees and interest rates. Plaintiffs seek to invalidate the loans and mortgages and request punitive remedies under the KCCC.
NEC originated the loans and mortgages and assigned them to FirstPlus Financial, Inc. FirstPlus, in turn, "pooled" plaintiffs' loans and mortgage with other mortgages and assigned them to various trusts (FirstPlus Home Loan Owner Trusts 1997-1, 1997-2, 1997-3, 1997-4, 1998-1, 1998-2, 1998-3, 1998-4, and 1998-5). Each trust's loan pool is pledged to secure repayment of investment bonds. "Securitization" of loan pools is a recognized practice in the financial industry and adds liquidity to the secondary market for loans.
Plaintiffs have moved for class certification pursuant to Fed.R.Civ.P. 23 and D. Kan. Rule 23.1(b) and a hearing is scheduled before the Honorable J. Thomas Marten on January 18, 2001. Discovery has been limited to class certification issues and is concluded, with the exception of the pending motions. As discussed in greater detail below, shortly before the close of discovery, plaintiffs sought to quash certain deposition notices and the 1997-1 Trust moved to compel interrogatory answers and documents.
I. The 1997-1 Trust's Motion to Compel (Doc. 139)
This discovery dispute relates to the 1997-1 Trust's efforts to compel discovery concerning an individual named "Brian," Brian Thomas, and the Coalition for Mortgage Reform. Stripped of prolixity, the motion seeks production and answers regarding whether plaintiffs' counsel engaged in unethical solicitation of prospective plaintiffs and class members. Plaintiffs argue that the requested discovery 1) is not relevant to class certification and 2) is otherwise privileged. For the reasons stated below, the motion to compel shall be granted.
A. Background to Motion to Compel
At her deposition, Sharon Pilcher testified that she received a brochure from Enterprise State Bank, a Wichita, Kansas bank, advertising second mortgage interest rates at 6.5%. Because her second mortgage with NEC had an interest rate of 14%, Pilcher phoned the number listed in the brochure and spoke to an individual named "Brian." "Brian" asked Pilcher to forward copies of her current loan and mortgage documents for review and she complied. After reviewing the documents, "Brian" told Pilcher that he thought the loan with NEC might be illegal but would not say why. "Brian" suggested that she contact Hutton Hutton, the law firm which now represents her.
One week after Pilcher filed this class action lawsuit, a person named Brian Thomas incorporated a non-profit entity in Texas under the name "Coalition for Mortgage Reform." Thomas then contacted other prospective plaintiffs and Kansas homeowners by sending them a flier under the "Coalition for Mortgage Reform" letterhead. The flier advised recipients that they might have a second mortgage from a lender "charging excessive fees" and invited them to call to verify whether their loan was illegal. Persons who called the toll-free number were referred to the Hutton Hutton law firm. At least one individual, Albert Abraham, became a named plaintiff through the Coalition's referral.
The 1997-1 Trust believes that the "Brian" who spoke to Pilcher is Brian Thomas. During the meet and confer process, the Trust offered to forego further discovery if plaintiffs would confirm the identity of the "Brian" to whom Pilcher spoke. For reasons unexplained, plaintiffs will neither confirm nor deny that "Brian" is Brian Thomas.
The 1997-1 Trust investigated further and found no Kansas bank operating under the name "Enterprise State Bank." Information from the Texas Secretary of State's office revealed that the Coalition's registered agent, Brian Thomas, was located at 8300 Douglas Avenue, Suite 800, Dallas, Texas. Occupants at that address stated that they had never heard of Brian Thomas or the Coalition. Based on this preliminary investigation, the Trust believes that Brian Thomas located a plaintiff (Pilcher) for the Hutton Hutton firm by falsely advertising second mortgage loans in Kansas. Additional plaintiffs were located and referred to the law firm under the guise of a nonprofit corporation's newsletter.
The 1997-1 Trust advised plaintiffs' counsel in an October 17, 2000 letter that the Kansas Secretary of State records indicate that the Enterprise State Bank ceased doing business in 1959. The record reveals no response to this letter or clarification to Pilcher's testimony.
In an effort to clarify the activities of "Brian," Brian Thomas, and the Coalition, interrogatories and production requests were served on plaintiffs. Interrogatory No. 5 asked that Pilcher detail any communication or relationship between her attorneys and "Brian" or any entity on whose behalf "Brian" has worked. Interrogatory No. 6 asked Pilcher to detail amounts and dates of payments made by or on behalf of plaintiffs' attorneys to Brian or any entity on whose behalf Brian has worked. Responses to both interrogatories, signed by plaintiffs' counsel, were "Unknown." No objections were asserted. Production Request No. 4 asked for documents sent to or received from Brian, including documents sent by plaintiffs' attorneys to Brian or received from Brian by plaintiffs' attorneys. Plaintiffs responded by stating "Produced." Again, no objections were asserted.
Similar interrogatories asking about the Coalition for Mortgage Reform were served on the other named plaintiffs. The responses, again signed by plaintiffs' counsel, were "Unknown."
The parties conferred but were unable to resolve this discovery dispute and this motion to compel followed. After the motion was filed, plaintiffs served supplemental responses, objecting that information or opinions held by Brian Thomas and/or his Coalition were privileged because Thomas and his Coalition were hired as "informal, non-testifying expert witnesses for this litigation." Plaintiffs also argued that the information sought was irrelevant to the issue of class certification.
B. Analysis
The threshold issue is whether plaintiffs waived their right to assert objections belatedly lodged after the motion to compel was filed. Fed.R.Civ.P. 33(b)(4) states:
All grounds for an objection to an interrogatory shall be stated with specificity. Any ground not stated in a timely objection is waived unless the party's failure to object is excused by the court for good cause shown.Id. Fed.R.Civ.P. 34(b) also requires that objections be timely set forth:
The response [to a production request] shall state, with respect to each item or category, that inspection and related activities will be permitted as requested, unless the request is objected to, in which event the reasons for the objection shall be stated.Id. Accordingly, unless plaintiffs show good cause for their belated objections, they have waived their right to contest the interrogatories and production requests.
Plaintiffs argue that they "simply made a mistake" and an intentional omission would have been foolishly inconsistent with the argument asserted in their motion to quash that Thomas and his Coalition were retained as "their non-testifying, informal consultant for this litigation." (Doc. 136). They argue that "any omission was inadvertent error" and should be excused.
The court is not persuaded that plaintiffs have shown good cause to excuse their failure to assert timely objections. The interrogatories and production requests specifically target communications between Thomas/the Coalition and plaintiffs' counsel and raise obvious privilege concerns. However, plaintiffs answered the interrogatories with a single word: "Unknown." This response suggests a fundamental misunderstanding of the duty to answer interrogatories rather than an inadvertent error. When answering an interrogatory, a party has a duty to include facts known by counsel. Hickman v. Taylor, 329 U.S. 495 (1947). An interrogatory answer limited to information personally known to a party is legally insufficient.
Plaintiffs' reference to their motion to quash also does not establish good cause for untimely objections. While it is true that plaintiffs sought to quash Thomas' deposition because he was a retained, non-testifying consultant, they also argued that the depositions should not proceed because the 1997-1 Trust sought similar information through written discovery. (Doc. 136, p. 4). The motion to quash implies that plaintiffs would answer the written discovery and does not support the untimely objection and refusal to provide interrogatory answers concerning Thomas or the Coalition. Good cause for the untimely objections has not been shown and the objections are therefore deemed waived.
Although the court concludes that plaintiffs waived their objections, the court will not allow discovery of all aspects of Thomas/the Coalition's communications with plaintiffs' counsel. The 1997-1 Trust states that none of the discovery sought is directed at any opinions that Thomas might have concerning second mortgages. Rather, the Trust seeks discovery "related directly to the specific factual issue of what Thomas or the Coalition did on behalf of plaintiffs' counsel to locate plaintiffs for this action." (Doc. 139, p. 13, emphasis added). The court will limit plaintiffs' interrogatory answers and document production to only those facts and prohibit discovery of opinions expressed by Thomas or communications from plaintiffs' counsel requesting an opinion.
Plaintiffs' supplemental interrogatory answer begins with the clause "[a]ssume for the sake of this interrogatory that `Brian' is Brian Thomas. . . ." That clause is improper and tantamount to no answer. Plaintiffs' answer shall include an unqualified admission or denial of whether the "Brian" described by Pilcher is Brian Thomas.
Although the motion is granted based on plaintiffs' waiver, plaintiffs' objections to the requested discovery are also unpersuasive. Plaintiffs argue that any actions by Thomas/the Coalition and plaintiffs' counsel are irrelevant to the issue of class certification. The court disagrees. The "adequacy of representation" issue is "of critical importance in all class actions and the court is under an obligation to pay careful attention to the Rule 23(a)(4) prerequisites in every case." 7A Charles Alan Wright Arthur R. Miller, Federal Practice and Procedure, § 1765, p. 264 (2d ed. 1986). "One facet of this attention is that the courts have recognized that the attorneys for the class perform a major role in assuring that the representation satisfies due process standards." Id., § 1769.1, p 375. Thus, when the court considers the quality of the named representative, it also considers the quality and experience of the attorneys for the class. Id. Actions by or on behalf of plaintiffs' counsel may be considered in the determination of class certification. Id. at p. 382. Plaintiffs have failed to demonstrate that the requested discovery is irrelevant.
Procedural irregularities or improper communications to prospective class members are grounds for denying class certification. See Pilots Against Illegal Dues v. Air Line Pilots Assoc., 938 F.2d 1123, 1134 (10th Cir. 1991). The court expresses no opinion as to whether counsel engaged in improper conduct, only that the discovery is relevant.
Plaintiffs have also failed to establish their claim of privilege. A party who refuses to respond to discovery based on a claim of privilege has the burden of showing that the privilege applies. See e.g., Boyer v. Johnson County Board of County Commissioners, 162 F.R.D. 687 (D.Kan. 1995). However, plaintiffs provide no information for the court's consideration except to state that Thomas and the Coalition were retained as their "non-testifying, informal consultant on second mortgages." No explanation is provided regarding plaintiffs' hiring of Thomas and the Coalition. Moreover, no explanation is offered for why the privilege, if one exists, was not waived when Pilcher and Abraham testified at their depositions about conversations with "Brian" or the Coalition without objection. Plaintiffs have not shown that a privilege precludes the discovery requested by the 1997-1 Trust.
An important factual issue related to the privilege claim is the date plaintiffs' counsel hired Thomas and the Coalition. "Brian" had conversations with Pilcher before she contacted the Hutton Hutton firm. Plaintiffs have not explained how a Rule 26(b)(4)(B) privilege can protect facts which occurred before Pilcher contacted the law firm to explore her legal rights and the filing of this lawsuit.
II. Plaintiffs' Motion to Quash (Doc. 135)
The 1997-1 Trust issued subpoenas from the Northern District of Texas to take the depositions of Brian Thomas and the "Coalition for Mortgage Reform" in Dallas, Texas. Plaintiffs move to quash under Fed.R.Civ.P. 45, arguing that 1) the subpoenas are invalid for lack of personal service and 2) the 1997-1 Trust is not entitled to depose plaintiff's non-testifying experts (Thomas and the Coalition). For the reasons set forth below, the motion to quash shall be denied.
The motion is fatally flawed because it has been filed with the wrong court. The federal court for the Northern District of Texas issued the subpoena and is vested with jurisdiction to quash or modify the subpoena. See Rule 45(c)(3)(A). Thus, plaintiffs motion to quash shall be denied. IT IS THEREFORE ORDERED that plaintiffs' motion to quash (Doc. E135) is DENIED. The 1997-1 Trust's motion to compel (Doc. 139) is GRANTED, consistent with the ruling expressed herein. Plaintiffs shall provide their discovery responses withing ten calendar days from the date of this order.
Plaintiffs' reliance on Rule 45 is unusual. More typically parties join a motion to quash with a request for a protective order under Rule 26(c). Under Rule 26(c), the court in which the action is pending or alternatively, the court which issued the subpoena, has jurisdiction to issue a protective order limiting discovery.
Plaintiffs' motion to quash is also moot because the 1997-1 Trust failed to personally serve Brian Thomas or the Coalition with the subpoenas. The Trust's process server, George Reese, filed an affidavit stating that he did not serve Brian Thomas. With respect to the Coalition, Reese stated that he left the subpoena with an occupant of an office at 8300 Douglas Avenue, Suite 800, Dallas, Texas. The occupant of Suite 800 had no familiarity with any corporation or entity known as the "Coalition for Mortgage Reform."