Opinion
C.A. No. 99C-09-168 — JTV.
Submitted: October 10, 2000.
Decided: January 23, 2001.
Upon Consideration of Plaintiff's Motion To Compel GRANTED in Part, DENIED in Part.
Olha N.M. Rybakoff, Esq., Richard W. Hubbard, Esq., Patricia A. Dailey, Esq., and Michael A. Undorf, Esq., Wilmington Delaware, Attorneys for Plaintiff.
Adam L. Balick, Esq., Wilmington, Delaware, Attorney for Defendant Christiana Ventures.
C. Scott Reese, Esq., Wilmington, Delaware, Attorney for Defendants.
ORDER
Upon consideration of the plaintiffs motion to compel discovery, the defendants' opposition thereto, and the record of this case, it appears that:
1. This civil action is brought by the Attorney General alleging that the defendants engaged in unlawful practices in violation of 6 Del. C. § 2513 and deceptive trade practices in violation of 6 Del. C. § 2532. These alleged acts relate to the construction and sale of houses in a residential development named Lea Eara Farms. The Attorney General seeks money damages against the defendants for civil penalties, restitution and damages for consumers, costs, attorneys fees and interest. Defendants Wellington Homes, Inc., Wellington Homes, L.L.C. and 397 Properties, L.L.C. have objected to certain interrogatories served upon them by plaintiff, specifically interrogatories 8-36, on the grounds that they call for financial information which becomes relevant only if and when it is determined that the defendants are liable for civil penalties, or that they are otherwise burdensome, oppressive and not likely to lead to discovery of admissible evidence. The plaintiff has filed this motion to compel seeking an order requiring that interrogatories 8-36 be fully answered. For the reasons which follow, the defendant's objections to the interrogatories are for the most part overruled and discovery of the defendants' financial conditions shall proceed. Since the interrogatories as framed do appear to be overbroad in some respects however, the plaintiffs motion is granted only in part.
It is also noted that interrogatories Nos. 10, 12, 21, 24, 26 and 27 were, in fact, answered by the defendants. Those interrogatories, therefore, are not further considered in connection with this motion to compel. If there are any issues as to the sufficiency of the answers, the plaintiff must raise such issues by an additional motion.
2. But for the claim for civil penalties, the defendants' financial conditions presumably would not present any relevant legal issues. 6 Del. C. § 2522 and § 2533, however, provide that a defendant who willfully violates § 2513 or § 2532, respectively, "shall forfeit and pay to the State a civil penalty of not more than $10,000 for each violation." Among the factors properly considered in determining the amount of a civil penalty is the financial gain realized from an alleged violation and the defendant's ability to pay. It follows that a defendant's net worth and overall financial condition are, therefore, relevant to the subject matter of the proceeding.
United States v. Reader's Digest Association, Inc., D. Del., 494 F. Supp. 770, 772 (1980), aff'd, 662 F.2d 995, 967 (3rd Cir. 1981).
3. The defendants argue, however, that their financial conditions do not become relevant unless and until it is determined, if it is, that a willful violation has occurred. They argue for a bifurcated approach to discovery under which they would not be required to answer the interrogatories unless and until the jury makes a finding that they willfully violated either § 2513 or § 2532. They cite in support of their positions two cases involving punitive damages, Jardel v. Hughes and Kenney v. ACS. Those cases may support the view that financial information should not be admitted at trial until liability for punitive damages is established, but they do not extend that concept to pre-trial discovery. In a number of punitive damage cases where pre-trial discovery of a defendant's financial condition has been an issue, the Court has, in fact, taken the position that such discovery may be allowed if the plaintiff can demonstrate that there is a factual basis rising to the level of a triable issue for punitive damages. The case for allowing pre-trial discovery of the defendants' financial condition is stronger here, where the standard for recovery of civil penalties is more relaxed than the standard for recovery of punitive damages. Although § 2522 and § 2533 speak in terms of "willful violation," a willful violation is defined as including one where the defendant "should have known" that his conduct was prohibited by either § 2513 or § 2522. Under § 2513 a negligent misrepresentation of material fact can be sufficient to violate the statute, regardless of whether a consumer relies upon the misrepresentation or not. Thus, if the State can prove by a preponderance of the evidence that a defendant made a negligent misrepresentation of a material fact with the intent that a consumer rely upon it, under circumstances where the defendant should have known that his conduct was of the nature prohibited by the statute, the State is entitled to have the jury at least consider a civil penalty. Given this relatively relaxed standard, no good cause exists for delaying discovery of the defendants' financial information until the trial is actually in progress.
Del. Supr., 523 A.2d 518 (1987).
Del. Super., C.A. No. 87C-08-70, Conaxvay, B. (July 6, 1992) aff'd October 7, 1992.
Fahey-Hosey v. Capano, C.A. No. 98C-06-299, Del Pesco, J. (Nov. 1, 1999); Walbert v. C.F. Schwartz Motor Company, Inc., C.A. No. 85C-OC-19, Ridgely, P.J. (Dec. 29, 1986); Bradley v. A.C.S. Co., Inc., C.A. No. 84C-MY-.145, Taylor, J. (Nov. 7, 1989); Bryan v. Thos. Best Sons, Inc., Del. Super., 453 A.2d 107 (1982).
State ex ret. Brady v. Gardiner, C.A. No. 98C-02-135, Quillen, J. (Jun. 5, 2000).
4. Therefore, discovery of the defendants' financial conditions regarding amounts realized from transactions relating to Lea Eara Farms, the defendants' net worth, and ability to pay potential civil penalties will go forward. Some of the interrogatories as written, however, do appear to have an unduly broad sweep. For example, interrogatory no. 8 asks for the total number of homes sold by Wellington Homes, Inc. since the date of its incorporation. That is a number which may require some significant research and may include sales of little or no relevance to this proceeding. Interrogatory no. 13 asks for some detail concerning the sale of every newly constructed dwelling or other piece of real estate including, in the case of the Wellington defendants, sales that may have little or no probative value with respect to this litigation. Interrogatory no. 20 literally would require the defendant to list each and every individual asset of any kind owned by any partnership or unincorporated association of which a defendant is a partner. While this is obviously relevant to the defendants' net worth, a complete answer may be an enormous undertaking and may involve partnerships in which a defendant has very little interest. Interrogatory no. 23 asks the defendants to identify all persons to whom they have paid any form of income. This presumably would include everyone from a clerical employee to an unknown number of subcontractors and others. Interrogatory no. 35 asks the defendants whether any license or permit has ever been issued to them by any government or governmental agency, and to state the details thereof. This would seem to call for the defendants to identify every building permit they have ever been issued. This interrogatory, if answered fully and completely, could require the defendants to research and organize license information which has little or no relevance either to the issue of civil penalties or the merits of this case. Therefore, in order to protect the defendants from what could be an undue burden, the limitations set forth in the following paragraph shall apply. These limitations are imposed without prejudice to the plaintiff to pursue the discovery now limited at any later time if it can be more clearly demonstrated that the discovery is material and not unduly burdensome.
5. Defendants Wellington Homes, Inc., Wellington Homes, L.L.C. and 397 Properties L.L.C. are ordered to answer those interrogatories 8-36 which have not previously been answered subject to the following: (a) interrogatory 8 is limited to sales after January 1, 1994; (b) as to individual residential dwellings, interrogatory 13 may be answered in summary form without giving the date and full name of the transferee of each house (such as, by stating the number of homes sold in a stated subdivision), as to other sales, the interrogatory shall be answered in full; (c) interrogatory 20 can be answered with a brief summary of the assets of such partnership or unincorporated association; (d) interrogatory 23 may be limited to any income paid to stockholders or members of any entity party, or any individual party, or persons related to stockholders or members or persons related to an individual party; or income paid to any entity in which any party or any person related to an individual party or any person related to a person having any interest in an entity party, has an interest; (f) interrogatory 35 may be limited to permits issued for Lea Eara Farms and can be answered in summary form.
6. Nothing herein precludes the plaintiff from serving additional interrogatories seeking discovery of pertinent financial information. The defendants' answers shall be served within thirty days of the date of this order.
IT IS SO ORDERED.