Free Brief in Support of Motion - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

Civil Action No. 03-CV-1973-PSF-MJW (Consolidated with 04-cv-02112-PSF-MJW) THE WALKER GROUP, INC. Plaintiff, v. FIRST LAYER COMMUNICATIONS, INC. and J.E.H. KNUTSON Defendants. MEMORANDUM OF LAW IN SUPPORT OF WALKER GROUP'S MOTION TO COMPEL AND FOR SANCTIONS The Walker Group, Inc. ("Walker Group") submits this Memorandum of Law in Support of its Motion to Compel and for Sanctions, pursuant to Federal Rule of Civil Procedure 37(b)(2). INTRODUCTION1 Defendant J.E.H. Knutson ("Defendant") has refused to comply with the Court's June 20, 2006 Order Regarding Plaintiff's Motion to Compel Answers to Interrogatories and Production of Documents (Docket No. 208) ("Order") (attached hereto as Exhibit A). Defendant's

continuing pattern of purposeful delay-tactics has not gone unnoticed by the Court (see April 12, 2005 Minute Order (Docket No. 129)), and his non-compliance with the Order is yet another attempt to slow the wheels of justice, to hamper Walker Group's ability to obtain critical and discoverable information, and, ultimately, to delay paying the judgment entered against
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Because the facts underlying the current dispute have been largely set forth in Walker Group's Memorandum of Law in Support of Walker Group's Motion to Compel, filed on May 16, 2006 (Docket no. 214), those facts will not be rehashed here.

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Defendant. Walker Group therefore respectfully requests that the Court enter yet another Order compelling compliance with the Court's June 20, 2006 Order and imposing sanctions upon Defendant, including an award of reasonable expenses and attorneys' fees pursuant to Fed. R. Civ. P. 37(b)(2) for its efforts in connection with this motion and any further relief the Court deems just and reasonable.

DISCUSSION I. DEFENDANT'S REFUSAL TO COMPLY WITH THE ORDER IS NOT JUSTIFIED AND WARRANTS THE IMPOSITION OF SANCTIONS Defendant has refused to comply with portions of the Court's Order requiring him to supplement his answers and responses to Walker Group's Interrogatory ("Rog") Nos. 8(f) and 10 and Request for Production ("RFP") Nos. 14 and 18. The Order, which was handed down after the Court considered Defendant's objections and the briefing of both parties, clearly states Defendant's obligations with regard to providing additional information responsive to the four discovery requests still at issue. In response to the Court's Order, Defendant served Supplemental Responses to Interrogatories and Requests for Production ("Supplemental Responses") on June 27, 2006 (attached hereto as Exhibit B). The Supplemental Responses were not only a day late, literally (per the provision in the Order requiring responses by June 26, 2006), but are several dollars

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short, failing to provide information and documents covered by the Order.2 (Order at p. 4) Despite the Court's clear mandate, Defendant has refused to comply with the Order.3

A.

Interrogatory No. 8(f): Defendant Has Failed to Identify Property Owned by His Wife.

Defendant has failed to Comply with the Court's Order regarding Interrogatory No. 8(f). Defendant's initial interrogatory answer states as follows: ROG 8. Have you or your spouse, at any time since January 1, 2000,

owned or had any interest in any of the following; and, if so, state the exact location, value and disposition of each: f. Other valuables, including but not limited to guns, diamonds,

silver, furs, jewelry, stamp collections, coin collections, antiques, household furniture, appliances and sporting equipment, such as golf clubs, scuba equipment, etc. RESPONSE: None not exempt from attachment pursuant to C.R.S. § 1354-102. The Court's Order states that Defendant "has not fully answered" Rog No. 8(f). (Order at p. 2) and that "[a]s for Rog 8(f), the Defendant shall address each item of personal property

The fact that the Supplemental Responses were a day late, by itself, is sufficient to warrant sanctions under Rule 37(b)(2). Furthermore, the Supplemental Responses were not accompanied by a signed verification. To this day, the answers have not been verified. 3 Complying with D.C. Colo. L. Civ. R. 7.1A., on July 7, 2006, in an attempt to meet and confer in good faith without further court involvement, Walker Group sent a letter to Defendant's counsel setting forth the deficiencies in the Supplemental Responses. (July 7, 2006 Letter to Michael R. McCurdy and Tamara A. Hoffbuhr, attached hereto as Exhibit C.) On July 11, 2006, Defendant, through counsel, responded to Walker Group's letter, stating that he disagrees with Plaintiff's interpretation of the Order and believes his Supplemental Responses are sufficient. (July 11, 2006 Letter to Richard S. Gottlieb, attached hereto as Exhibit D.)
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listed separately and provide a specific response as to each item of personal property." (Id. at p. 3.) In response to the Order, Defendant raised new objections and answered as follows: SUPPLEMENTAL RESPONSE: Defendant objects to Interrogatory No. 8(f) to the extent it seeks financial information concerning his spouse as such information is neither relevant nor reasonably likely to lead to the discovery of admissible evidence. Without waiving this objection, Defendant states: I owe nothing that is not exempt from attachment pursuant to C.R.S. § 13-54-102 as shown by the attached spreadsheet; items owned by me individually are identified by "JK", and items owned jointly by me and my wife are identified by "JT". Defendant's newly raised objection that he is not required by the Order to list property owned by his wife ignores the fact that Interrogatory No. 8 specifically inquires about property owned by "you or your spouse." It also ignores the fact that Defendant did not lodge a specific objection (nor in his response to the motion to compel) in his original Response to Interrogatory No. 8(f) ­ unlike in other Responses ­ on grounds that it was overly broad or not reasonably likely to lead to the discovery of admissible evidence. Defendant therefore waived any such objection when he failed to raise it as an initial matter and cannot raise it now that he is facing an Order compelling him to produce the information. More importantly, Defendant's belated objection conflicts with the Court's Order, which does not give Defendant the option of omitting information pertaining to his wife. As previously briefed in Walker Group's Motion to Compel, Rule 69(a) allows it to obtain broad discovery "from any person, including the judgment debtor" in aid of execution. Fed. R. Civ. P. 69(a). Rule 69 discovery is particularly important where, as here, discovery is needed to uncover hidden or concealed assets of the judgment debtor. S.E.C. v. Tome, No. 81 civ. 1836, 1987 WL 9415, at *1 (S.D.N.Y. Apr. 3, 1987) (attached hereto as Exhibit E). Walker Group's Motion to

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Compel sought a full and complete response to Interrogatory No. 8(f), and that portion of Walker Group's Motion was granted. Defendant has not complied with the Order. B. Interrogatory No. 10: Defendant Has Failed to Identify Property Owned by His Wife.

Defendant has failed to Comply with the Court's Order regarding Interrogatory No. 10. Defendant's initial interrogatory answer was as follows: ROG 10. If any property identified in response to Interrogatories Nos. 8 and

9 is mortgaged, pledged, encumbered or subject to any conditional bill of sale, give the full details and status thereof. RESPONSE: Objection. This interrogatory is overbroad, irrelevant and not reasonably likely to lead to the discovery of admissible evidence. Without waiving this objection, there is a lien against my stock in CE DOCs Inc. in the approximate amount of $68,000. The Court's Order states that Defendant "has not fully answered" Rog No. 10. (Order at p. 2.) After overruling Defendant's objections, the Order states that "[a]s to Rog 10, the

Defendant shall address each item separately in his response." (Id. at p. 3.) In response to the Order, Defendant raised new objections and answered as follows: SUPPLEMENTAL RESPONSE: Defendant objects to Interrogatory No. 10 to the extent it seeks financial information concerning his spouse as such information is neither relevant nor reasonably likely to lead to the discovery of admissible evidence. Without waiving this objection, Defendant states: 1. 7364 Cortez Lane, Boulder, CO 80303. This property is owned by Suzanne Knutson Revocable Trust and secures a line of credit from US Bank to Suzanne Knutson. The line of credit has a limit of $400,000, and has a current balance of approximately $120,000. 2. 810 Marine, Boulder, CO 80302. This property is owned by Suzanne Knutson Revocable Trust and secures a loan from First MainStreet Bank to
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Suzanne Knutson in the original amount of $202,000; the current balance of the loan is approximately $198,000. Also, a copy of an Installment Note dated April 1, 1997 previously provided to Plaintiff states this property secures a loan from James V. White to me in the original amount of $165,000; the current balance of this loan is approximately $104,000. 3. 802 Marine, Boulder, CO 80302. This property is owned by Suzanne Knutson Revocable Trust and secures a loan from First MainStreet Bank to Suzanne Knutson in the original amount of $202,000; the current balance of the loan is approximately $198,000. Also, a copy of an Installment Note dated December 30, 1999 previously provided to Plaintiff states this property secures a loan from Harrold Company to me in the original amount of $150,000; the current balance of this loan is approximately $84,000. 4. Stock in CE DOCs Inc. A copy of an Installment Note dated January 2, 2005 previously provided to Plaintiff states my stock in CE DOCs Inc. secures a loan from Suzanne Knutson to me in the original amount of $80,000; the current balance of this loan is approximately $68,000. Interrogatory No. 10 seeks full details and status of any property identified in response to Interrogatory Nos. 8 and 9 that is mortgaged, pledged, encumbered or subject to any conditional bill of sale. The Order clearly requires Defendant to "address each item of personal property listed separately and provide a specific response as to each item of personal property...address[ing] each item separately in his response." (Id. at p. 4.) Once again,

however, Defendant's Supplemental Response failed to identify items he claims are owned by his wife, a detail specifically requested in Interrogatory No. 8 and required under the Order of this Court to be provided by Defendant in response to Interrogatory No. 10.4

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The Supplemental Responses to Interrogatory Nos. 8(f) and 10 are also insufficient because they do not indicate whether Defendant continues to withhold information on the grounds that some items of property may be exempt under C.R.S. § 13-54-102 ­ grounds the Order deems to be an invalid basis for withholding information. Defendant's July 11, 2006 letter indicated that Defendant "is also not withholding any information on the grounds that his personal property is exempt under C.R.S. § 13-54-102." Walker Group will consider this specific issue resolved if Defendant will provide such a statement in verified Supplemental Answers to Interrogatories Nos. 8(f) and 10. Until satisfactory supplemental answers are provided, Walker Group will consider this issue unresolved.
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C.

Defendant Has Not Produced Required Documents in Response to Request for Production No. 14.

Defendant has failed to Comply with the Court's Order regarding Request for Production No. 14. Defendant's initial response was as follows: RFP 14. Provide copies of federal and state income tax returns, including

schedules and/or worksheets, for you and your spouse for the past three years. RESPONSE: Objection. This request is duplicative of previous discovery, overbroad and not likely to lead to the discovery of admissible evidence. The Order states that Plaintiff "has not fully responded to" RFP 14 (id. at p. 3.) and requires Defendant to "respond fully" to this request, providing to Plaintiff "federal and state income tax returns, including schedules and/or worksheets for himself and his spouse for the past three years." (Id. at p. 4.) In response to the Order, Defendant raised a new objection and responded as follows: SUPPLEMENTAL RESPONSE: Defendant objects to Interrogatory [sic] No. 14 to the extent it seeks financial information concerning his spouse as such information is neither relevant nor reasonably likely to lead to the discovery of admissible evidence. Without waiving this objection, Defendant states: redacted copies of my 2002 and 2003 tax returns, filed jointly with my spouse, were previously provided. A redacted copy of my 2004 tax return, filed jointly with my spouse, is attached. Notwithstanding the Court's clear Order, Defendant's Supplemental Response to Request No. 14 provided only a redacted copy of Defendant's 2004 joint federal tax return without attachments, such as copies of K-1s or W-2s. Amazingly, Defendant provided no state tax returns, redacted or otherwise. The Court's order, however, specifically requires production of "federal and state income tax returns, including schedules and/or worksheets for himself and his spouse for the past three years," and does not allow for the production of redacted copies.
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(Id. at p. 4.) (emphasis added). To comply with the Order, Defendant must produce unredacted copies of state and federal tax returns from 2002, 2003, 2004 for both himself and his wife, whether filed individually or jointly, complete with all schedules and/or worksheets. In his July 11 letter, Defendant incorrectly asserts that he is entitled to redact portions of the tax returns based on the Court's August 30, 2004 Order. That Order, however, was issued during the course of discovery, before Judgment was entered and is inapplicable to documents being produced after Judgment and in response to Rule 69 discovery. Regardless of the

discoverability of Defendant's wife's financial information before Judgment was rendered, that information is now critical to Walker Group's ability to collect its Judgment and is discoverable under Rule 69, particularly where, as here, Defendant claims that joint assets are protected from collection efforts. Furthermore, it is critical that Walker Group receive all state and federal tax return schedules and worksheets because such forms will confirm Defendant's employment information, which will provide Walker Group information necessary for collection efforts. (See Certificate of Judgment for Registration in Another District, Walker Group, Inc. v. J.E.H. Knutson, No. 2006 CV 509 Div. 12 (District Court, Colorado)). Defendant should not be allowed to ignore the Order in an attempt to continue to hamper Walker Group's collection efforts.5

Plaintiff agrees with Defendant's contention that state and federal tax returns filed in 2006 were not specifically requested in Interrogatory No. 10, which was served in December 2005 and asked for tax returns "for the past three years." However, Defendant has stated this his 2005 tax return would be discoverable if requested in this case, and has agreed to produce a redacted copy. (See July 11, 2006 Letter from Hoffbuhr to Gottlieb, attached hereto as Exhibit D.) Defendant carefully worded this proposed agreement so as not to obligate himself to produce 2005 tax returns in the same manner and breadth as required (per the Order) of the 2002-2004 returns. For this reason, Defendant's proposal regarding 2005 tax returns does not comply with the spirit of the Order. In order to avoid another discovery dispute that would unnecessarily occupy the Court's time and resources, Plaintiff serves herewith a formal request for complete, unredacted copies of Mr. and Mrs. Knutson's 2005 state and federal tax returns and requests that the Court instruct Defendant to produce these documents as if subject to the Court's June 20, 2006 Order.
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D.

Defendant Has Not Produced Required Documents in Response to Request for Production No. 18.

Defendant has failed to Comply with the Court's Order regarding Request for Production No. 18. Defendant's initial response was as follows: RFP 18. Provide all documents evidencing any bank or investment

accounts, held in your own name or jointly since October 1, 2000, including but not limited to commercial, savings, checking, investment or brokerage accounts. Such documents should indicate where the accounts are maintained and the amount of balance for each. RESPONSE: Objection. discovery. This request is duplicative of previous

The Order states that Plaintiff "has not fully responded to" RFP 18 (Id. at p. 3.) and requires Defendant to "respond fully" to this request, providing to Plaintiff "all documents evidencing any bank or investment accounts, held in his own name or jointly since October 1, 2000, including but not limited to commercial, savings, checking, investment, or brokerage accounts. Such documents should indicate where the accounts are maintained and the amount for each." (Id. at p. 4.) In response to the Order, Defendant responded as follows: SUPPLEMENTAL RESPONSE: As of the date of these responses, I have held no accounts individually or jointly since October 1, 2000 other than the accounts at financial institutions I previously disclosed. Plaintiff has recently subpoenaed documents relating to these accounts and I am cooperating with Plaintiff to obtain all documents relating to my individual and joint accounts. Thus far, documents have been produced to Plaintiff from Robert W. Baird and Charles Schwab. Defendant did not produce a single document with his Supplemental Response. Instead, he claims in his supplemental response ­ for the first time ­ that he is not required to produce
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responsive documents in this lawsuit, despite the Court's Order to the contrary, because he is "cooperating" with Walker Group to produce subpoenaed documents in a separate state court action. Defendant cannot, however, rely on documents produced in a separate lawsuit to fulfill his production obligations in this case. The Court's Order requires production of responsive documents in this matter, regardless of whether those documents have been or will be produced in a separate lawsuit. Furthermore, contrary to his assertions, Defendant is not cooperating with Walker Group in the separate lawsuit to obtain the subpoenaed documents relating to Mr. Knutson's individual and joint accounts. In that suit, Defendant's attorneys unilaterally, without cause and contrary to settled law, contacted the entities subpoenaed by Walker Group and instructed them to send all documents directly to them, rather than to Walker Group. Only belatedly did Defendant file a motion for protective order and to quash portions of those subpoenas, because, inter alia, they seek documents related to Mrs. Knutson and her revocable trust. While Walker Group may agree to allow Defendant to avoid duplicative document productions, such an agreement with regard to documents responsive to Request for Production No. 18 has not been reached because Defendant's prior productions of financial records included redacted documents. As discussed above, the Order does not provide for the production of redacted documents. Walker Group believes the Order is clear and the Defendant has simply not complied with the Court's mandate to "respond fully" and "provide all documents evidencing any bank or investment accounts, held in his own name or jointly since October 1, 2000, including but not limited to commercial, savings, checking, investment, or brokerage accounts. Such documents should indicate where the accounts are maintained and the amount for each." (Order at p. 4.)
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CONCLUSION Under Rule 37(b)(2), the Court has discretion to impose various sanctions for failure to comply with an order to provide or permit discovery. Rule 37 also provides, however, that a Court "shall require the party failing to obey the order or the attorney advising that party or both to pay the reasonable expenses, including attorney's fees, caused by the failure, unless the court finds that the failure was substantially justified or that other circumstances make an award of expenses unjust." Fed. R. Civ. P. 37(b)(2); see, e.g., State of Ohio v. Arthur Anderson & Co., 570 F.2d 1370 (10th Cir. 1978) (imposing monetary sanctions, including attorney's fees, under Rule 37 for failure to comply with discovery order). Here, Defendant's failure to comply with the Court's Order is unjustified and is simply another attempt to delay final resolution of this matter.

WHEREFORE, the Plaintiff Walker Group respectfully requests that the Court enter an Order: 1. 2. Compelling full compliance with the Court's June 20, 2006 Order; Awarding reasonable expenses and attorneys' fees pursuant to Fed. R. Civ. P. 37(b)(2) for Plaintiff's efforts in connection with this Motion; and 3. For such other and further relief as the Court deems just and reasonable.

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Respectfully submitted, this the 18th day of July, 2006.

s/ Richard S. Gottlieb Richard S. Gottlieb Kilpatrick Stockton LLP 1001 West Fourth Street Winston-Salem, North Carolina 27101-2400 Telephone: (336) 607-7300 Attorneys for Plaintiff Walker Group, Inc. Joshua Maximon, Esq. The Maximon Law Firm, LLC 12202 Airport Way, Suite 170 Broomfield, Colorado 80021 Telephone: (303) 991-3344

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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO CERTIFICATE OF SERVICE (CM/ECF) I hereby certify that on July 18, 2006, I electronically filed the foregoing with the Clerk of Court using the CM/ECF system which will send notification of such filing to the following email addresses: [email protected] [email protected], and I hereby certify that I have mailed or served the document or paper to the following by first class mail addressed as follows: none.

s/ Richard S. Gottlieb Richard S. Gottlieb Attorney for Plaintiff Walker Group, Inc. Kilpatrick Stockton LLP 1001 West Fourth Street Winston-Salem, North Carolina 27101-2400 Telephone: (336) 607-7300 [email protected]

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