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 IN SUPPORT OF WALKER GROUP'S MOTION TO COMPEL ANSWERS TO INTERROGATORIES AND PRODUCTION OF DOCUMENTS

BACKGROUND On November 14, 2005, judgment was entered in favor of Plaintiff The Walker Group, Inc. ("Walker Group") and against Defendant J.E.H. Knutson ("Defendant" or "Mr. Knutson") "in the amount of $671,336.56, plus prejudgment statutory interest at the rate of 8% per annum from July 9, 2003 through the date of this judgment," with post judgment interest to accrue at the legal rate of 4.32% from the date of entry of the judgment. (Judgment at 4 (Nov. 14, 2005)). Then, on February 6, 2006, an Amended Judgment was entered to reflect the Court's additional award of $223,325.71 for Walker Group's costs and attorneys' fees, with post judgment interest to accrue at the legal rate of 4.60% from the date of entry of the amended judgment. (Am. Judgment at 5 (Feb. 6, 2006)).

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Following entry of the original Judgment, and pursuant to Rule 69 of the Federal Rules of Civil Procedure, on December 23, 2005, Walker Group served Interrogatories and Requests for Production to Supplemental Proceedings ("Discovery Requests") on Defendant in an effort to obtain discovery in aid of execution of the Judgment. On January 26, 2006, Defendant served his objections and verified responses to Walker Group's Discovery Requests. Defendant provided incomplete and evasive answers to interrogatories, and objected to numerous document requests on the grounds that the requested discovery was overbroad, vague, ambiguous, irrelevant and not likely to lead to the discovery of admissible evidence. (Def.'s Resp. to Interrogs. & Reqs. for Produc. to Supplemental Proceedings ("Def.'s Resp.") (attached as Exhibit A)). Furthermore, Defendant produced only sixteen (16) pages of documents in response to Walker Group's document requests. (See Exhibit A). In an effort to resolve the issue of Defendant's incomplete discovery responses without requiring the Court's involvement, counsel for Walker Group wrote Defendant's counsel on February 13, 2006 and requested that Defendant supplement his incomplete discovery responses. (Letter from Gottlieb to McCurdy and Hoffbuhr of 2/13/06 (attached as Exhibit B)). On March 20, 2006, when counsel for Defendant failed to respond to or even acknowledge Walker Group's February 13th request, Walker Group's counsel contacted Defendant's counsel again and asked if they intended to respond to Walker Group's request. (E-mail from Gottlieb to McCurdy and Hoffbuhr of 3/20/06) (included in Exhibit C)). On March 30, 2006, Defendant's attorney informed Walker Group that he did "intend to

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supplement/clarify [Defendant's] discovery responses to some extent, but likely will not get to it until next week." (E-mail from McCurdy to Gottlieb of 3/30/06) (included in Exhibit C)). When Walker Group still had not received any type of response or supplementation from Defendant on April 10, 2006, counsel for Walker Group again contacted Defendant's counsel and asked for an update. (E-mail from Gottlieb to McCurdy of 4/10/06 (included in Exhibit C)). Defendant's counsel indicated that he had intended to supplement Defendant's discovery responses prior to April 10, 2006 but had been ill, and that he would "get to it ASAP. . . ." (E-mail from McCurdy to Gottlieb of 4/10/06 (included in Exhibit C)). Despite Defendant's repeated promises to provide supplemental discovery responses, Defendant has failed to provide any additional documents or otherwise supplement his deficient responses in any way. DISCUSSION Pursuant to Federal Rule of Civil Procedure 69(a), Walker Group, as judgment creditor, "may obtain discovery from any person, including the judgment debtor, in the manner provided for in [the Federal Rules of Civil Procedure] or in the manner provided by the practice of the state in which the district court is held." Consistent with "the principle and policy of the law to subject all property of the judgment debtor, not specially exempt, to the payment of his debts," Hudson v. Am. Founders Life Ins. Co. of Denver, Colo., 160 Colo. 420, 426, 417 P.2d 772, 776 (Colo. 1966), federal and state courts have permitted broad discovery into the judgment debtor's assets, financial transactions and relationships, and transfers. See S.E.C. v. Tome, No. 81 Civ. 1836, 1987 WL 9415, *1 (S.D.N.Y. Apr. 3, 1987)

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(scope of Rule 69 discovery is broad "encompassing the post-judgment creditor's privilege to seek discovery of past financial payments which could lead to the discovery of concealed or fraudulently transferred assets") (attached as Exhibit D); Caisson Corp. v. County W. Bldg. Corp., 62 F.R.D. 331, 334 (E.D. Pa. 1974) ("All agree that the judgment creditor must be given the freedom to make a broad inquiry to discover hidden or concealed assets of the judgment debtor."); Harris v. IES Assocs., Inc., 69 P.3d 297, 313 n.20 (Utah Ct. App. 2003); Griffin v. W. Realty Sales Corp., 665 P.2d 1031, 1034 (Colo. Ct. App. 1983) (automobile titles, tax returns, savings passbooks, real estate deeds, balance sheets, bank records, and accounts receivable ledgers were discoverable under Colorado Rule of Civil Procedure 69). The information Walker Group seeks regarding Defendant's assets, transfers and financial relationships and transactions is undeniably relevant and discoverable under Rule 69. A. The Pending Appeal Does Not Affect Walker Group's Right to Discovery in Aid of Execution

The fact that Defendant has appealed from the Judgment and Amended Judgment entered in this case does not affect Walker Group's right to obtain discovery in aid of its execution of the Amended Judgment. In S.E.C. v. Tome, the judgment debtor argued that the district court should not order it to respond to Rule 69 discovery requests while the underlying judgment was on appeal. 1987 WL 9415, at *1 (Exhibit D). The district court rejected this argument and held that its "power to act in aid of execution of its judgment is not impaired by the filing of an appeal." Id. (citing Int'l Paper Co. v. Whitson, 595 F.2d 559, 561-62 (10th Cir. 1979)). Like Defendant, the judgment debtor in Tome declined to ask for a stay of the district court's judgment. As a result, Walker Group, as the prevailing party, may

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treat the Amended Judgment as final and has a clear right to "obtain a full picture" of Defendant's assets, and Defendant "must answer any interrogatories properly directed at this goal." Id. at *1-2. B. The Information Sought Is Within the Scope of Rule 69

Walker Group's Discovery Requests are properly directed at the goal of obtaining a full picture of Defendant's assets as an aid in executing this Court's judgment against Defendant. 1. Documents Previously Identified by Defendant Interrogatory 10 Requests for Production 4, 5, 10, 13, 14, 16, 18, 21

Defendant failed to identify or produce documents that he previously identified during the course of this case and his appeal. Specifically, he refused to provide updated financial information requested in discovery, and responded that he did not have any financial statements or appraisals, despite the fact that he previously identified or produced such documents in the course of this litigation. Instead, Defendant claimed that the

discovery sought "is duplicative of previous discovery, overbroad and not likely to lead to the discovery of admissible evidence." (See e.g. Def.'s Resp., Reqs. 14, 18). A judgment creditor has a right to make "reasonable and relevant inquiries beyond a judgment debtor's assertion that it presently has no assets." Harris, 69 P.3d at313 n.20. The circumstances of each case determine what is reasonable and relevant. Id. In Harris, the judgment creditor ("Harris") examined the corporate judgment debtor's ("IES") president under oath and served subpoenas on IES's bank and bookkeeper seeking account and

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financial records for an eighteen (18) month period, pursuant to Utah Rule of Civil Procedure 69. Id. at 304. IES's president testified that the corporation ceased doing business shortly after trial in the case ended and that IES had no assets. Id. Counsel for IES objected to follow-up questions regarding distributions to shareholders and accounts receivable at the time the business closed as outside the scope of Rule 69. Id. IES also moved to quash the subpoenas on grounds that they were unduly burdensome and beyond the scope of Rule 69. Id. The trial court overruled IES's objections and denied its motions to quash the subpoenas. Id. At a second hearing, IES's counsel represented that the corporation had liquidated all of its assets and obtained fair market value or better, and objected to any examination beyond those assertions as outside the scope of Rule 69. Id. at 304-05. Again, the trial court overruled the objections and ruled that "under the circumstances it was appropriate to allow Harris to inquire into how the dissolution occurred, if it occurred, where the assets went, and what the compensation was." Id. at 305. On appeal, IES claimed that the trial court erred in allowing the discovery under Rule 69. Id. at 311-12. Although the Utah Court of Appeals dismissed IES's appeal of the trial court's postjudgment discovery order on the grounds that it was interlocutory, the court included a lengthy discussion regarding the scope of discovery in aid of execution. Id. at 313 n.20. As noted above, the Harris court found that judgment creditors are not required simply to accept a judgment debtor's assertion that it has no assets, but instead are entitled to make reasonable and relevant inquiries into such assertions, including requests for financial records and other

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information indicating what assets the judgment creditor had prior to and at the time of trial and what happened to those assets. Id. In the present case, Defendant refused to provide updated financial information requested in discovery, and responded that he did not have any financial statements or appraisals, despite the fact that he previously identified or produced such documents in the course of this litigation. (See Def.'s Resp., Reqs. 13, 14, 18, 21). Defendant refused to produce a copy of his 2004 or 2005 tax returns, copies of financial statements, copies of appraisals which he previously indicated had been performed, or updated information on bank and investment accounts.1 As discussed above, Rule 69 provides Walker Group with the right to a judgment debtor's financial records for collection purposes. New information should have been provided and, to the extent that information was provided in the past, it must be updated to give Walker Group a current snapshot of assets against which Walker Group can collect its judgment. This is particularly true in light of the fact that documents provided to Walker Group by Defendant in early March 2005 indicated that Defendant held over $75,000 in various bank and investment accounts, but when Judgment Collections were served upon these accounts in March 2006 only approximately $120 remained. (Compare Knutson's 2d Am. Resps. to Walker Group's 2d Set of Interrogs (2/28/2005) (attached as Exhibit E) with Affs. of Service of Judgment Collections (Apr. 5, 2006) (attached as Exhibit F)).
Additionally, Defendant indicated at various times, including during mediation in association with his appeal, that the properties located at 7364 Cortez Lane, 810 Marine Street and 802 Marine Street were subject to mortgages. Interrogatory No. 10 specifically asked for all mortgages to be identified and copies of any such mortgages were requested in Request No. 5, but Defendant failed to identify any mortgages or provide copies of them. (Def.'s Resp., Interrog. 10, Req. 5).
1

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Likewise, Mr. Knutson failed to produce any documents evidencing his interest in High Country Equipment, Inc. or Long's Peak Equipment Company, Inc. as requested. (Discovery Requests, Req. 10). He also did not provide a copy of his life insurance policy or copies of any contracts he is, or has been, a party to within the past five years. (Id., Reqs. 4, 16). All of this information is germane to Walker Group's attempt to obtain a full picture of Defendant's assets as an aid in executing this Court's judgment against Defendant, and therefore Defendant should be required to supplement his responses. Defendant's objections in the present case ­ that the requested discovery was overbroad, vague, ambiguous, irrelevant and not likely to lead to the discovery of admissible evidence ­ are unfounded. Walker Group is not required to simply accept Defendant's assertions regarding his assets, or lack thereof, or Defendant's scant 16 pages of documents. Instead, it is entitled to the full picture of Defendant's assets that the Discovery Requests sought in the first place. 2. Inconsistencies Between Defendant's Discovery Responses and His Prior Testimony Interrogatories 2, 8(c), 15, 16 Request for Production 5

Several of Defendant's discovery responses, or lack thereof, are inconsistent with testimony he has given previously in this case regarding his assets, finances and sources of income. For the same reasons discussed above, Walker Group requests that Defendant be required to supplement his discovery responses to include information regarding these assets, finances and sources of income and what, if anything, happened to them, as well as an explanation for any changes in the status quo since his prior testimony.

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For example, during his deposition, Defendant testified about an ownership interest in an airplane, but his responses to discovery do not include any information regarding an airplane. (Dep. of J.E.H. Knutson, pp. 20-21; 221 (Mar. 25, 2004) (cited portions attached as Exhibit G); Def.'s Resp., Interrog. 8(c)). Walker Group requests that Defendant be required to supplement his answer to Interrogatory No. 8(c) to include information regarding the ownership he referred to during his deposition. Likewise, Defendant testified during his deposition that he was employed by Transvidia Communications. (Knutson Dep. at 16-19). In his answer to Interrogatory No. 2, however, Defendant does not list Transvidia as an employer. If Defendant is still employed by Transvidia, he should provide the particulars of any contract of employment and the amount of salary, commissions, or other compensations that he receives. If he is no longer employed by Transvidia, Walker Group requests that he be compelled to supplement his answer to provide the last date of his employment with the business as well as the reasons for his departure. Finally, Defendant testified at his deposition that he had borrowed money from his father and his father's trust. (Knutson Dep. at 158, 178). His discovery responses, however, do not include his father, individually, or his father's trust in any list of creditors. Walker Group requests that Defendant be required to supplement his answers to Interrogatories Nos. 15 and 16 to provide the requested information with respect to any debts owed by Defendant to his father, individually, or to his father's trust.

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3.

Defendant Failed to Provide Full and Complete Responses Interrogatories 11, 13

Finally, Defendant failed to provide full and complete responses to Walker Group's discovery requests. Several requests asked Defendant to give the "particulars" or "full details" of identified financial transactions or relationships. Walker Group defined these terms as meaning "to give the date and a full and complete narrative account of the information requested without omission of any relevant facts." Definitions). In response to Interrogatory No. 13, Defendant stated that he received $22,000 in full payment of an account receivable, but did not give the requested particulars, such as the name of the debtor and the particulars of the account, or the identification of any documents that evidence the account receivable. Likewise, Defendant claimed in response to (Discovery Requests,

Interrogatory No. 11 that Walker Group owes him approximately $50,000, but provided no explanation of the alleged debt. Defendant should be required to supplement these responses to provide a full and complete narrative account of the information requested without omission of any relevant facts, as requested. C. Section 13-54-102 of the Colorado Revised Statutes Does Not Excuse Defendant from Responding to Discovery Interrogatory 8(f)

Defendant failed to identify a single asset in response to Interrogatory 8(f), which asked Defendant to identify ownership, since January 1, 2000, of any "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

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equipment, etc." Instead, Defendant claimed that he had "None not exempt from attachment pursuant to C.R.S. § 13-54-102." (Def.'s Resp., Interrog. 8). Defendant's response is wholly improper. Although Section 13-54-102 of the Colorado Revised Statutes lists certain property that is exempt from levy and sale under writ of execution, it does not provide that information regarding the identity and value of such items is non-discoverable. See

generally Colo. Rev. Stat. § 13-54-102 (2005). Discovery of the identity, nature and value of such property, even if it may ultimately be determined to be exempt, is consistent with the broad scope of discovery under Rule 69 and furthers the goal of discovering assets that the judgment debtor hid, concealed or fraudulently transferred. See S.E.C. v. Tome, 1987 WL 9415, at *1; Caisson Corp., 62 F.R.D. at 334. Therefore, Defendant is obligated to identify all valuables he owned or had any interest in from January 1, 2000 to the present. CONCLUSION WHEREFORE, the Plaintiff Walker Group respectfully requests that the Court enter an Order: 1. Compelling Defendant to answer Interrogatories 2, 8(c), 8(f), 10, 11, 13, 15, and 16; 2. Compelling Defendant to produce documents responsive to Requests for Production 4, 5, 10, 13, 14, 16, 18 and 21; 3. Awarding attorneys' fees and costs pursuant to Fed. R. Civ. P. 37 for efforts in connection with this Motion; and

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4.

For such other and further relief as the Court deems just and reasonable.

Respectfully submitted, this the 16th day of May, 2006.

s/ Richard S. Gottlieb Richard S. Gottlieb Laura A. Greer 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 May 16, 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]

02560-207219 9301232.1