Free Response - District Court of Federal Claims - federal

Case 1:95-cv-00524-GWM

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS ____________________________________ HOMER J. HOLLAND, ) STEVEN BANGERT, co-executor of the ) ESTATE OF HOWARD R. ROSS, ) AND FIRST BANK, ) ) Plaintiffs, ) ) v. ) No. 95-524C ) ) (Judge George W. Miller) THE UNITED STATES, ) ) Defendant. ) ____________________________________) DEFENDANT'S OPPOSITION TO PLAINTIFF'S MOTION TO QUASH TRIAL SUBPOENA DIRECTED AT MARK KIPNIS Defendant, the United States, respectfully opposes plaintiffs' motion to quash the trial subpoena directed at Mark Kipnis. Plaintiffs assert that testifying at trial places an undue burden upon Mr. Kipnis, requiring this Court to quash the subpoena under Rule 45(c)(3)(A)(iv) of the Rules of the Court of Federal Claims ("RCFC"). Traveling from Chicago to Washington, D.C., to testify at trial does not present an undue burden upon Mr. Kipnis, who will provide relevant, non-duplicative testimony on a number of issues of importance to our case. Alternatively, Mr. Kipnis' testimony could be presented by remote videoconferencing, pursuant to RCFC 43(a). ARGUMENT I. Traveling To Provide Testimony Before The Court Will Impose No Undue Burden Upon Mr. Kipnis Plaintiffs contend that traveling between Chicago and Washington, D.C., while awaiting incarceration would place an undue burden upon Mr. Kipnis. "The burden of proving that a subpoena is oppressive is on the party moving to quash and is a heavy one." Heat & Control,

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Inc. v. Hester Indus., Inc., 785 F.2d 1017, 1025 (Fed. Cir. 1986). For the Court to accept plaintiffs' explanation for Mr. Kipnis's inability to fulfill his duty to testify at trial "would offend the time-honored principle that under our system of justice every litigant is entitled to another person's relevant and non-privileged testimony in a judicial proceeding." Owens v. QVC, 221 F.R.D. 430, 432 (E.D. Pa. 2004). "[W]hether a subpoena is burdensome depends on the facts of the case." Hussey v. State Farm Lloyds Ins. Co., 216 F.R.D. 591, 596 (E.D. Tex. 2003). "Being placed in an `awkward position'" does not constitute an undue burden. Owens, 221 F.R.D. at 432. Plaintiffs' brief description of the "stressful and difficult time" for Mr. Kipnis does not satisfy their heavy burden to demonstrate that testifying will unduly burden him. See, e.g., Green v. Baca, 226 F.R.D. 624, 653 (C.D. Cal. 2005) (determining, in dicta, that a witness had made a strong showing that trial testimony would be an undue burden when the witness's arms and feet were paralyzed, he was unable to move without assistance, and he received extensive medical treatment each day). Furthermore, the Court should not give deference to Mr. Kipnis simply because he is a convicted felon, when all other witnesses bear the burden of appearing at trial. It is our understanding that Mr. Kipnis will be sentenced on December 10, 2007, but that he will likely not be committed to prison until January 2008, which provides sufficient time for him to appear at trial. II. Mr. Kipnis Will Provide Relevant, Non-Duplicative Testimony Regarding His Personal Involvement In The Matters At Issue Plaintiffs assert that Mr. Kipnis should not testify because he has "little relevant ­ and no non-duplicative ­ testimony to provide." Pl. Mot. at 2. Plaintiffs claim that Mr. Kipnis "had few

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responsibilities [as Secretary of River Valley] other than to sign all of River Valley's official documents." Id. at 1. Numerous documents and his own deposition testimony, however, show that Mr. Kipnis played a more prominent role at River Valley and became involved in many of the matters at issue in this case. A. Mr. Kipnis Will Testify About His Involvement With River Valley

In his roles as corporate counsel, Secretary, director, and shareholder of River Valley, Mr. Kipnis was more than just a scrivener. Mr. Kipnis first became a shareholder in Rock Falls Savings and Loan Association ("Rock Falls"), later River Valley I, when Howard Ross, "a good client and friend[,]" offered to sell Mr. Kipnis a percentage of his interest in the institution. Kipnis Dep. Tr. 26:3-8 (Aug. 14, 2000) (annexed as Exhibit A). Mr. Kipnis purchased five percent. Id. Tr. 26:17-18. Mr. Kipnis later sold three percent back to Mr. Ross, leaving him the owner of two percent of the various River Valley institutions. Id. Tr. 16:14-21. Mr. Kipnis became the Secretary and a director of River Valley I and River Valley II and, later, Western Capital Holdings, Inc. ("WCHI"). Id. Tr. 12:19-22; 15:18-22. Also, he was a member of the audit committee. See, e.g., DX 377 (Minutes of the January 24, 1990 Audit/Personnel/ Administrative Committee Meeting) (annexed as Exhibit B); see also Kipnis Dep. Tr. 20:6-8 (Aug. 14, 2000). Upon the sale of River Valley to First Bank, Kipnis received $744,793 from First Bank, which further belies plaintiffs' claim that he was a mere scrivener. DX 1098 at PHO065 0123 (annexed as Exhibit C). Mr. Kipnis also was involved in a variety of regulatory issues at the heart of this case. For example, Mr. Kipnis met with the OTS to discuss River Valley I's preferred stock issuances and dividends. PX 368 at WOL275 0079 (annexed as Exhibit D). Mr. Kipnis also requested that -3-

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the OTS "re-rate" River Valley I and River Valley II to allow further acquisitions. PX 368 at WOL275 0080. In addition, Mr. Kipnis reviewed River Valley's 1991 settlement agreement with the FDIC regarding loans. Kipnis Dep. Tr. 79-80:10 (Aug. 14, 2000). Indeed, the FDIC sent Mr. Kipnis their proposed Settlement Agreement with River Valley. DX 586 at PHO054 0750 (annexed as Exhibit E). Mr. Kipnis responded with drafts of certified resolutions, a certificate of incumbency, and an opinion letter from his law firm, Holleb & Coff, DX 588 at PHO049 0703 (annexed as Exhibit F), and followed up the next day with executed copies of these documents and the Settlement Agreement. PHO049 0701-702 (annexed as Exhibit G). In his correspondence with the FDIC, Mr. Kipnis stated that he would respond to any questions that the FDIC had. DX 588 at PHO049 0703 (annexed as Exhibit F); PHO049 0702 (annexed as Exhibit G). Furthermore, Mr. Kipnis closed WCHI's acquisition of San Antonio Federal Savings Bank ("SAFSB") in San Antonio. Kipnis Dep. Tr. 15:5-9 (Aug. 14, 2000). These activities on behalf of River Valley and WCHI demonstrate Mr. Kipnis's significant personal involvement in its dealings with regulators. B. Mr. Kipnis Will Testify About His Involvement With SAFSB 1. Mr. Kipnis Will Testify About The Acquisition Of SAFSB Through A Vehicle Created By River Valley Shareholders

Plaintiffs base their SAFSB lost profits claims on the assertion that, when River Valley III could not obtain funding to acquire SAFSB, it was purchased by an institution unaffiliated with River Valley III. Plaintiffs' counsel stated that [t]he acquisition had to go through another vehicle, and that's what it did. The profits that would have accrued to River Valley accrued -4-

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to the other vehicle ­ the entity is called Western Capital Holdings ­ instead. As to reasonable certainty, Your Honor, as I said, we're not looking at mere reasonable certainty here; we're looking at almost mathematical certainty. These are actual traceable profits from the very same investment that River Valley should have made. Somebody else got that opportunity. Somebody else got those profits. Hrg. Tr. 32:9-20 (Sept. 6, 2007) (annexed as Exhibit H) (emphasis added). Plaintiffs' counsel also asserted that, as a result of the breach, San Antonio [SAFSB] was acquired by a separate institution, a third party that is not a Plaintiff in this case, and that is therefore not relevant to the damages claims except insofar as it operated SAFSB as a separate, wholly owned institution that allowed us to now trace the actual, real profits, the cashflows in, the cashflows out, the resulting net economic effects of SAFSB's operations, operations that should have been within the River Valley structure but instead accrued to somebody else who is not a Plaintiff here. Id. Tr. 28:11-21 (emphasis added). Several documents, however, belie these claims and demonstrate that Mr. Kipnis can provide testimony contradicting the claims of plaintiffs' counsel and demonstrating that the River Valley shareholders, as the shareholders of WCHI, did not lose any of the SAFSB profits as a result of the transfer of the opportunity to WCHI. Mr. Kipnis closed WCHI's acquisition of SAFSB in San Antonio and did "some review and comments of the acquisition agreement, preparation of closing documents, and ma[d]e sure that monies were wire transferred and that documents were received." Kipnis Dep. Tr. 15:5-9 (Aug. 14, 2000). Thus, Mr. Kipnis was intimately involved in the transaction and may testify regarding the SAFSB acquisition.

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2.

Mr. Kipnis Will Testify About Affiliated Party Transactions Between River Valley and SAFSB

This cohesion among River Valley, WCHI, and SAFSB led to a conclusion by Mr. Kipnis's law firm, Holleb & Coff, that transactions between River Valley and SAFSB were affiliated party transactions. Indeed, Mr. Kipnis and Holleb & Coff played an important role in facilitating regulatory approval of transactions between SAFSB and River Valley needed because they were "affiliated parties." For example, in an August 24, 1992 memorandum, River Valley's Ronald Pikus concluded that "[t]he most efficient flow of SAFSB's conforming loan production to the secondary market would be the incorporation of Texas and Illinois production into the same MBS's. This does, however, raise a regulatory issue regarding affiliated party transactions." DX 1017 at PHO068 1782 (annexed as Exhibit I). Mr. Pikus stated that he and Mr. Bangert would "work with Mark Kipnis of Holleb & Coff to draft agreements which will meet regulatory scrutiny." Id. at PHO068 1783. Holleb & Coff attorneys later corresponded with Larry Ferries of the OTS regarding an agreement for the sale of mortgage loans by SAFSB to River Valley III. PX 794 at H&R-B4700808 (annexed as Exhibit J). Holleb & Coff then sent the OTS a draft letter memorializing a conversation regarding these affiliated transactions. HO2002 1027 (annexed as Exhibit K). Thus, Mr. Kipnis had knowledge of the affiliated party transactions between River Valley and SAFSB and is expected to testify about them at trial.

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3.

Mr. Kipnis Has Information Regarding River Valley's Purported Inability To Raise Funding To Acquire SAFSB And American National Bank's Loan To WCHI

Plaintiffs have asserted that they were unable to acquire SAFSB through River Valley due to their inability to obtain funding through American National Bank ("ANB"). Messrs. Holland and Ross, however, had a collective net worth of $57 million. PX 599A PHO054 0494 (annexed as Exhibit L); PX 599B PHO054 0506 (annexed as Exhibit M). Mr. Kipnis was familiar with Mr. Ross's financial situation. Kipnis Dep. Tr. 65:3-23 (Aug. 14, 2000). Mr. Kipnis can also provide relevant testimony about ANB's loan of $10 million to WCHI to finance the purchase of SAFSB, which ANB conditioned upon a requirement that RV Holdings pay down a previous ANB $7 million loan to $1 million. JSF ¶ 350, 354; Kipnis Dep. Tr. 53:11-19 (Aug. 14, 2000). On October 24, 1991, Holleb & Coff requested that the OTS process an amendment to River Valley III's Stock Charter to "modify the dividend rate authorized for the Class C Preferred Stock." HO2001 2768 FL-2769 FL (annexed as Exhibit N). Mr. Kipnis attended a meeting with the OTS on March 19, 1992, at which River Valley requested an exception from its supervisory agreement to allow it to pay down the loan to ANB. DX 677 at WON034 0611 (annexed as Exhibit O). Mr. Kipnis is expected to testify about that meeting and regarding other aspects of the ANB loan. C. Mr. Kipnis Was Involved In The Payment Of Preferred Stock Dividends And Bonuses To Messrs. Holland, Ross, And Bangert

The River Valley thrifts paid substantial dividends, deferred compensation, and significant bonuses to Messrs. Holland, Ross, and Bangert. Mr. Kipnis recalled a deferred compensation agreement with Mr. Bangert. Kipnis Dep. Tr. 62:11-14 (Aug. 14, 2000). In fact, -7-

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he signed the December 1, 1991 agreement to provide $3.5 million in deferred compensation to Dr. Holland, DX 626 at PHO030 0355-256 (annexed as Exhibit P), and the November 1, 1991 agreement to provide $2.1 million in deferred compensation to Mr. Bangert. PX 629 at PHO030 0285-286 (annexed as Exhibit Q). Mr. Kipnis and other members of the Board of River Valley Holdings, Inc., allowed a payout of $4.6 million in deferred compensation to Messrs. Holland and Bangert on December 31, 1993. DX 1555 at PHO036 0005-6 (annexed as Exhibit R). Additionally, River Valley's Board approved further payments to Messrs. Holland, Ross, and Bangert. PX 351 at H&R-B44-1396 (annexed as Exhibit S). Mr. Kipnis determined when dividends were payable under the Class "D," Class "E," and Class "F" preferred stock, designed to compensate Messrs. Ross, Holland, and Bangert. DX 194 at PHO003 0457 (annexed as Exhibit T); PX 351 at H&R-B44-1396 (annexed as Exhibit S). Mr. Kipnis is expected to testify about these payments, which were later criticized by the OTS. PX 455 at WON034 1059 (annexed as Exhibit U). Given his substantial involvement in and knowledge of River Valley's dealings and discussions with regulators, Mr. Kipnis will provide relevant, non-duplicative testimony necessary to our case. The Court should deny plaintiffs' motion to quash the subpoena. III. Alternatively, Mr. Kipnis Can Provide Testimony By Remote Videoconferencing Should the U.S. District Court for the Northern District of Illinois restrict Mr. Kipnis's movement out of Illinois or should this Court conclude that travel to Washington, D.C., would create an undue burden, Mr. Kipnis may testify by remote videoconferencing. Under RCFC 43(a), the court may "permit presentation of testimony in open court by contemporaneous transmission from a different location." RCFC 43(a).

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CONCLUSION For the reasons set forth above, we respectfully request that the Court deny plaintiffs' motion to quash the subpoena directed at Mark Kipnis, or, in the alternative, that Mr. Kipnis provide testimony by remote videoconferencing.

Respectfully submitted, JEFFREY S. BUCHOLTZ Acting Assistant Attorney General JEANNE E. DAVIDSON Director /s/ Kenneth M. Dintzer KENNETH M. DINTZER Assistant Director /s/ John H. Roberson JOHN H. ROBERSON Trial Attorney Commercial Litigation Branch Civil Division Department of Justice Attn: Classification Unit 8th Floor, 1100 L Street Washington, D.C. 20530 Tele: (202) 353-7972 Fax: (202) 514-8640 Attorneys for Defendant

Of Counsel: SCOTT D. AUSTIN ELIZABETH A. HOLT WILLIAM G. KANELLIS AMANDA L. TANTUM JOHN J. TODOR SAMEER YERAWADEKAR Trial Attorneys Department of Justice December 5, 2007

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CERTIFICATE OF SERVICE

I hereby certify that on this 5th day of December 2007, a copy of the foregoing "DEFENDANT'S OPPOSITION TO PLAINTIFF'S MOTION IN LIMINE TO QUASH TRIAL SUBPOENA DIRECTED AT MARK KIPNIS" was filed electronically. I understand that notice of this filing will be sent to all parties by operation of the Court's electronic filing system. Parties may access this filing through the Court's system.

/s/ John H. Roberson John H. Roberson