United States District Court, D. Colorado
CGC HOLDING COMPANY, LLC, a Colorado limited liability company; CRESCENT SOUND YACHT CLUB, LLC, a Florida limited liability company; HARLEM ALGONQUIN LLC, an Illinois limited liability company; and JAMES T. MEDICK; on behalf of themselves and all others similarly situated, Plaintiffs,
SANDY HUTCHENS, a/k/a Fred Hayes, a/k/a Moishe Alexander, a/k/a Moshe Ben Avraham; et al., Defendants.
Kristen L. Mix United States Magistrate Judge.
This matter is before the Court on the following pleadings:
• Plaintiffs’ Motion for Sanctions Against the Hutchens Defendants and Motion to Compel Discovery From Defendant Sandy Hutchens (the “Motion”) [#564];
• Hutchens Defendants’ Response to Plaintiffs’ Motion to Compel and for Sanctions [#574];
• Reply Brief in Support of Plaintiffs’ Motion for Sanctions Against the Hutchens Defendants and Motion to Compel Discovery From Defendant Sandy Hutchens [#582];
• Hutchens’ Sur-Reply to Plaintiffs’ Motion for Sanctions and to Compel Discovery [#594];
• Plaintiffs’ Request for a Ruling as to Their Motion for Sanctions Against the Hutchens Defendants and Motion to Compel Discovery From Defendant Sandy Hutchens [#606];
• Hutchens Defendants’ Joinder in and Response to Plaintiffs’ Motion for a Ruling on their Sanctions Motion and Motion to Compel [#610];
• [Plaintiffs’] Status Report Regarding Hutchens Defendants’ Failure to Produce Accounting Records and Plaintiffs’ Continuing Request for a Ruling as to Their Motion for Sanctions Against the Hutchens Defendants and Motion to Compel Discovery from Defendant Sandy Hutchens [#619];
• Hutchens Defendants’ Response to Plaintiffs’ Status Report and Repeated Joinder for Ruling on Sanctions Motion [#622];
• [Plaintiffs’] Response to the Court’s Minute Order and Further Status Report Regarding Hutchens Defendants’ Failure to Produce Accounting Records and Plaintiffs’ Continuing Request for a Ruling as to Their Motion for Sanctions Against the Hutchens Defendants and Motion to Compel Discovery from Defendant Sandy Hutchens [#640];
• [Hutchens Defendants’] Response to Court’s Minute Order re Sanctions Motion [#643];
• Plaintiffs’ Submission of Lapedus Testimony and Response to Hutchens Defendants’ Supplement [#646]; and
• The Hutchens Defendants’ Submission of Lapedus Testimony [#647] (collectively, the “Relevant Pleadings.”) The Court has reviewed the Relevant Pleadings, the entire docket, and the applicable law and is sufficiently advised in the premises. A hearing was held on the Motion on February 8, 2016. For the reasons discussed below, the Motion [#564] is GRANTED in part and DENIED in part.
I. Factual Background
As described by the District Judge, the allegations involved in this case are as follows:
Plaintiffs contend that they were swindled by Sandy Hutchens and related individuals and entities, with the assistance of Canadian and American lawyers and a Canadian realtor. The gist of it is that Hutchens and his associates falsely represented that he was able and willing to make numerous, large commercial loans to more than 100 borrowers in the United States; that they were able to bilk prospective borrowers who thought they were dealing with legitimate lenders out of something in the range of eight million dollars of loan application or ‘advance fees;’ and that in support of the scheme they failed to disclose Hutchens’ identity and his criminal history but instead perpetrated the fraud by disguising Hutchens through a number of different aliases and the use of corporations that were mere shells.
With perhaps one or two exceptions, loan commitments were not filled. That, however, is not the focus of the case. Plaintiffs have stipulated for purposes of this case that there were legitimate reasons on which a bona fide lender could have declined the loans. Plaintiffs’ focus is on the advance fees that were paid on allegedly false pretenses but never returned. They assert claims based on RICO as well as state common law theories.
See Order on Pending Motions - No. 3 [#406] at 1-2.
II. Procedural Background
The length of time required to address the discovery dispute at issue in this Order is partially the result of the case’s unusual procedural path, and partially the result of other factors over which the Court had little control. The information at issue here was originally the subject of Plaintiffs’ Motion to Compel [#255], filed in October of 2012. In their 52-page motion attaching 398 pages of exhibits, Plaintiffs sought a wide variety of information from Defendants Sandy Hutchens, Tanya Hutchens, Jennifer Hutchens and the Hutchens Defendants, ranging from identification of lawyers, accountants, rabbis, synagogues, banks and bank accounts to production of bank statements and accounting records. [#255]. The District Judge granted the Motion after a hearing held in March of 2013, generally ordering the named Defendants to provide all of the requested information except that which they asserted was protected by some type of privilege, and specifically ordering them to produce loan files “forthwith.” [#406] at 32-33.
In June of 2013, Plaintiffs sought a status conference for the purpose of informing the District Judge about their unsuccessful efforts to obtain the information they were seeking from Defendants [#467], but the status conference was not held because the case was stayed pending appellate review of the Order granting class certification [#494]. Almost two years later, in March of 2015, Plaintiffs “renewed their efforts” to secure the missing information from the Hutchens Defendants, [#646] at 7, but the result of those efforts was ultimately unsatisfactory, so they filed the Motion at issue here on September 28, 2015. [#564].
As is evidenced by the titles of the Relevant Pleadings alone, the parties grew increasingly impatient for a ruling, despite the Hutchens Defendants’ on-going supplementation of their written discovery responses. Further complicating - and delaying - the matter is that the District Judge has handled the many burdens of this case almost singlehandedly, thus reducing the need and opportunity for the undersigned Magistrate Judge to follow its tortured history and understand the parties and claims. Also, because the information at the heart of the dispute was first sought by Plaintiffs in July of 2012 and Defendants have “responded” to Plaintiffs’ discovery requests multiple times since, a decision about the propriety of the responses has required the Court to review thousands of pages of pleadings and documents to determine whether the situation is as bad as Plaintiffs or as innocuous as Defendants suggest. Indeed, Plaintiffs have unfailingly sought the harshest sanction available for the Hutchens Defendants’ alleged discovery abuses, i.e., entry of default judgment. Under these circumstances - a unique and lengthy procedural history including a roughly three-year hiatus between the initial posing of discovery requests and the request for court intervention at issue here, voluminous, unfocused, repetitive and increasingly ardent pleadings, a thousand-plus page paper trail, limited involvement of the Magistrate Judge, and a request for the “death penalty” sanction - the need for a thorough and time-consuming review should be manifest.
A. The Relevant Pleadings
At its simplest, this dispute boils down to Plaintiffs’ contention that they have legitimately sought and need certain documents from the Hutchens Defendants to prove their case, and the Hutchens Defendants’ contention that they have provided all responsive documents in their possession, custody and control, albeit over an extended period of time. In the undersigned’s experience, this is the most difficult of discovery disputes for two reasons: first, it demands a thorough understanding of numerous facts and events, including what information was sought, what information was provided, the dates when information was provided, what information was not provided, whether the information not provided was properly sought in the first place, and why any properly sought information was not provided. If the answer to the last inquiry is because the responding party contends that he no longer has the information or never had it, another set of questions arises: Why didn’t he have it in the first place? If he did have it but doesn’t have it now, what happened to it? And can he be believed?
The second reason why this is the most difficult of discovery disputes is because one party is seeking (at least in part) information that the opposing party contends simply doesn’t exist. Judges, who lack access to the actual documents produced (here, according to Defendants, “44 bankers boxes” worth), magic wands, time machines, x-ray vision and the higher powers of the Almighty, are not well equipped to decipher whether specific information exists, ever existed, or was actually produced, especially in the context of the parties’ conflicting arguments and points of view.
The Relevant Pleadings are a hodgepodge of information and arguments relating to the inquiries outlined above. In addition, the Motion presents a moving target due to the Hutchens Defendants’ on-going supplementation of discovery responses as the briefing on the Motion continued unabated. By way of example, Plaintiffs have offered an ever-narrowing list of the information they are seeking from Defendant Sandy Hutchens. In the original Motion [#564], they referred to the following information which they contended was either not provided or not fully provided:
(1) documents to support the Hutchens Defendants’ alleged track record of making hundreds of loans amounting to millions of dollars (p.6);
(2) documents to support “the accuracy of [the Hutchens Defendants’] claimed track record of making loans” (p.6);
(3) “information to support the representations made [by Defendants] on the internet” (p.7);
(4) “information as to whether or not the assets listed [on a Financial Statement dated December 5, 2009] actually existed” (p.9);
(5) “identity of persons to whom were issued loan commitments” (p.9);
(6) “which loan commitments were closed by funding of a loan” (p.9);
(7) “sources of funding for any loan closed” (p.9);
(8) “any source of funding to whom a loan application by a class member has been submitted for consideration or who had expressed an interest in funding the loan” (p.9);
(9) identity of “any lender who loaned money to any Hutchens Defendant” (p.9);
(10) “communications with any funding source with respect to any loan commitment issued” (p.9);
(11) all of the aliases used by Sandy Hutchens (p.11);
(12) identity of all of the entities owned or controlled by Sandy Hutchens (p.11);
(13) facts on which the Hutchen Defendants relied to deny Plaintiffs’ requests for admission (pp.12-13);
(14) identity of the Hutchens Defendants’ accountants (p.14);
(15) identity of the custodian of the Hutchens’ Defendants accounting records (p.14);
(16) identity of banks or other financial institutions where the Hutchens Defendants’ accounts were maintained (p.14);
(17) amount of advance fees paid by each person to whom a loan commitment was issued, when paid and how paid (p.14);
(18) identity of every person to whom monies paid as advance fees were transferred (p.14);
(19) dates and amounts of money transferred and identity of transferees (p.14);
(20) bank statements, including cancelled checks (p.14);
(21) accounting records (p.14);
(22) financial statements (p.14); and
(23) information regarding 136 reference letters (p.18).
Six weeks later, in the Reply [#582], Plaintiffs referred to the following information which they contended was either not provided or not fully provided:
(1) identity of every person in the U.S. who was issued a loan commitment in the Relevant Period (p.7);
(2) for each such person, the amount of money paid or advanced as deposit for fees and the identity of the bank account into which the fees were deposited (p.7);
(3) for each payment of fees, identity of the person to whom fees were paid, date of payment, amount of payment, through whom payment was made, and the means of transmission of the payment (pp.7-8);
(4) identity of every co-Defendant, lawyer, law firm, realtor, loan broker or other person to whom payments were made, date and amount of payments, and identity of person who paid advance fees for each transfer (p.8);
(5) value of the assets listed on Defendants’ December 5, 2009 Financial Statement and whether the asset existed as of that date (p.15);
(6) documents that support claims made on the December 5, 2009 Financial Statement (p. 15);
(7) information regarding claims made on Defendant CFC’s website (p.18);
(8) identities of Defendant CFC’s investors (p.22); and
(9) identification of the private funds referred to in the CFC website (p.22).
A little more than one month later, in the subsequent Request for Ruling [#606], Plaintiffs referred to the following information which they contended was either not provided or not fully provided:
(1) identification of all aliases used by Hutchens in connection with loan commitments (p.2);
(2) identification of all class members to whom Hutchens Defendants issued loan commitments (p.2);
(3) identification of all banks where money paid by class members was wire transferred or otherwise paid (p.3);
(4) all bank records for the accounts that received such funds (p.4);
(5) all accounting records for each of Hutchens Defendants (p.4); and
(6) all loan files for class members (p.5).
Twenty days later, in the Status Report [#619], Plaintiffs complained that they still hadn’t received the Hutchens Defendants’ accounting records. Id. at 3. Twenty-five days after that, in their Further Status Report [#640], they referred to the following information which they contended was either not provided or not fully provided:
(1) Hutchens Defendants’ accounting records (p.2);
(2) bank records, including cancelled checks (p.4);
(3) financial statements, balance sheets, income and expense ...