United States District Court, D. Nebraska
RICHARD D. MYERS, Bankruptcy Trustee of M&M Marketing, L.L.C. and Premier Fighter, L.L.C., Plaintiff,
MICHAEL L. BLUMENTHAL and FRANK VICARI, Defendants.
THOMAS D. THALKEN, Magistrate Judge.
This matter is before the court on the plaintiff Richard Myers' (Myers) motion to compel (Filing No. 6) the defendant Michael Blumenthal (Blumenthal) to answer interrogatories and requests for production of documents. Myers filed a brief (Filing No. 8) and an index of evidence (Filing No. 7) in support of the motion. Blumenthal filed a certificate of service (Filing No. 14) representing he had responded to the discovery requests. Myers filed a brief (Filing No. 15) with additional evidence attached, reasserting the motion to compel. Blumenthal filed a brief (Filing No. 18) and an index of evidence (Filing No. 19) in opposition to Myers' motion. Myers filed a brief (Filing No. 20) in reply.
This case arises from the financial relationship between the defendants and the bankruptcy debtors M&M Marketing, L.L.C. (M&M) and Premier Fighter, L.L.C. (Premier L.L.C.) prior to the bankruptcy proceedings. At the conclusion of certain bankruptcy proceedings, the debtors' trustee, Myers, initiated this action against the defendants in the attempt to avoid alleged preferential transfers made by the debtors to the defendants. On April 21, 2014, the court adopted the case's transfer from the United States Bankruptcy Court for the District of Nebraska based on the parties' demands to have the matter tried to a jury. See Filing Nos. 1 and 4. On August 5, 2014, Myers filed an amended complaint alleging the following underlying facts. See Filing No. 22.
Matthew Anselmo (Anselmo) formed M&M on April 20, 2006. See Filing No. 22 - Amended Complaint ¶¶ 9-10. M&M instigated a financial Ponzi scheme whereby Anselmo raised capital from outside investors to buy fictitious merchandise orders for large short-term gains, which were actually paid by later investors. Id. In this way M&M became insolvent immediately and, by June 25, 2008, had a deficit net worth in the millions of dollars. Id. ¶ 10. Premier L.L.C., a wholly owned subsidiary of M&M, was formed on January 18, 2008, and immediately began operating the same Ponzi scheme as M&M, causing the company to be insolvent from its inception. Id. ¶¶ 4, 11.
During May of 2007, at Anselmo's urging, Blumenthal transferred $1, 585, 000 in loans to M&M, which loans became delinquent the following month. Id. ¶ 12. Blumenthal initiated a lawsuit against Anselmo and M&M, in Illinois, alleging fraud. Id. ¶ 14. While the lawsuit contained four counts, on January 31, 2008, the court issued an order in favor of Blumenthal against both Anselmo and M&M on only one count, for $2, 200, 000, but the order did not create a final judgment. Id. ¶ 15. On or about March 28, 2008, while insolvent, M&M wire transferred $165, 000 to Blumenthal. Id. ¶ 17.
On June 27, 2008, in a telephone conversation between Blumenthal, David Piell (Peill), Anselmo, and others, Blumenthal "demanded" Anselmo complete a Disclaimer of Interest (Disclaimer) turning over control of the debtors to Blumenthal. Id. ¶ 18. The Disclaimer transferred control over all assets of the debtors, tangible and intangible, to Blumenthal. Id. ¶ 19. The debtors' assets at the time of the transfer included: inventory valued at not less than $1, 000, 000, the lease interest in Omaha commercial property, an Econoline truck, an Econoline van, equipment, receivables from Premier L.L.C., Premier L.L.C. posters and banners, M&M inventory from Omaha, and office furniture and supplies. Id. ¶ 20. The debtors were insolvent at the time of the transfer and received no consideration for the transfer. Id. ¶ 19-20. Additionally, the debtors had outstanding unsecured debts with creditors, other than Blumenthal, at the time of the transfer. Id. ¶ 20.
Shortly after executing the Disclaimer, Blumenthal created Premier Fighter, Inc. (Premier Inc.), which took control of the debtors' assets for the purpose of selling the assets while keeping the proceeds of the sales separate from Blumenthal's other finances. Id. ¶ 21. Blumenthal was the President of Premier Inc. from its inception. Id. However, Blumenthal argues he was the "President" in name only while Piell was responsible for operations. See Filing No. 19 - Blumenthal Decl. ¶ 3. Premier Inc. received all proceeds from the debtors until they ceased to operate in January 2009. Id. ¶ 22. Blumenthal collected on accounts, throughout 2008 and 2009, owed to the debtors. Id. ¶ 23. All transfers occurred while Blumenthal knew the debtors were insolvent, were made without consideration, and with awareness M&M had defrauded Blumenthal. Id. ¶ 23-4.
Based on the above factual allegations, Myers brought this action as part of the Chapter 7 proceedings in the United States Bankruptcy Court for the District of Nebraska to assert claims "for avoidance of transfers that [the debtors] made to Blumenthal on strong arm, preference, and fraudulent conveyance theories, pursuant to: 11 U.S.C. § 544(a)(1) and (2), 544(b) (1), 547(b), § 548(a)(1)(A) and (B), 550(a), and 551; and Neb. Rev. Stat. §§ 36-705 and 36-706." See Filing No. 8 - Brief p. 3; see also Filing No. 22 - Amended Complaint. Additionally, Myers "also pled claims for an equitable accounting in Counts XIII and XIV." See Filing No. 8 - Brief p. 8; see also Filing No. 22 - Amended Complaint. After the case was transferred from the bankruptcy court for trial by jury, Myers sought discovery from Blumenthal.
On February 28, 2014, Myers served interrogatories and requests for production of documents upon Blumenthal. See Filing No. 7 - Betterman Decl. ¶¶ 2, 3, and 9; Ex. A - Interrogatories; Ex. B - Second Set of Requests for Production. The discovery seeks disclosure from Blumenthal of the amount realized in liquid assets, from the collection of accounts and contract rights, and the sale of physical assets, inventory and equipment transferred from the debtors to Blumenthal. See Filing No. 7-Ex. A - Interrogatories 11-13, 16 and Ex. B - Requests 1-8, 15, 16; Filing No. 6 - Motion ¶ 4; Filing No. 8 - Brief p. 3. Moreover, Myers requests all documents relating to the fraudulent transfer in possession of Blumenthal, Piell, and Premier Inc. See Filing No. 6 - Motion ¶ 5; Filing No. 8 - Brief p. 3, 7-8. Interrogatory No. 14 requires justification for each objected to request for admission and Interrogatory No. 15 requests the names of individuals Blumenthal spoke with at the FBI concerning reports against Anselmo. See Filing No. 7-Ex. A - Interrogatories. Finally, Request for Production of Documents Nos. 9-14 concern Premier Inc.'s business conduct unrelated to the debtors.
Initially, Blumenthal did not respond to the discovery. See Filing No. 7 - Betterman Decl. ¶ 10. By correspondence and personal contact in April 2014, Blumenthal stated he could not respond to the discovery. Id. ¶¶ 11-12. On May 3, 2014, Myers filed the instant motion to compel. See Filing No. 6. The court required the parties to confer and file a planning report, which they did, by May 15, 2014. See Filing Nos. 5 and 9. At that time, the court entered an initial progression order authorizing the parties to commence discovery. See Filing No. 10.
On June 10, 2014, the court entered an order requiring Blumenthal to respond to the motion to compel discovery no later than June 25, 2014. See Filing No. 11 - Order. On June 25, 2014, Blumenthal filed a certificate of service showing he had, on that date, served responses to the discovery requests at issue in Myers' motion. See Filing No. 14. On July 1, 2014, Myers re-asserted his motion to compel, contending Blumenthal's discovery responses were "non-responsive" by failing to provide "answers to the interrogatories propounded and... produce the documents requested." See Filing No. 15 - Brief p. 2.
Myers argues the discovery sought is "absolutely necessary... to obtain a proper accounting of all cash, receivables, contract rights, inventory, and equipment [the debtors] fraudulently transferred to Blumenthal." See Filing No. 6 - Motion ¶ 4. Without the requested discovery, Myers asserts his case will be "seriously prejudiced" because without the documents, which are only obtainable through Blumenthal, Myers is unable to complete the accounting of the amounts Blumenthal realized. Id. ¶ 6; see Filing No. 8 - Brief p. 3-4. Myers contends Blumenthal has access to Premier Inc.'s accounting records and documents evidenced by Blumenthal's production of a Quicken file from Premier Inc. associated with the discovery responses. See Filing No. 8 - Brief p. 9 (citing Filing No. 7-Ex. C - Request for Admission Responses Nos. 98, 100, 101, and 102, & p. 43-53 (Quicken files)). Additionally, Blumenthal admitted in a deposition he could obtain the cash receipts from the sales of inventory by the debtors but he would need Piell's assistance. Id. ¶ 12. Myers' attorney stated he attempted to subpoena discovery from Piell, but a process server was unable to complete service. See Filing No. 15-Ex. 2 Betterman Decl. ¶ 2. Myers argues Blumenthal has not met his burden to provide a reasonable explanation for each objection to the discovery. See Filing No. 15 - Brief p. 2. In any event, Myers argues Blumenthal waived any objections he might have to the discovery by failing to timely respond. Id. at 2, 11. Finally, Myers requests attorney's fees pursuant to Rule 37. Id. ¶ 8.
Blumenthal, a practicing attorney representing himself in this matter, did not raise any objections to the discovery sought by Myers. Instead, Blumenthal provides answers or asserts he has no access or control over any responsive information or documents, to the extent any exists. See Filing No. 15 - Ex. 1; see also Filing No. 7 - Ex. C - Request for Admission Response No. 83. Moreover, Blumenthal contends Myers is making another attempt to obtain discovery he was unable to obtain during the bankruptcy proceeding. See Filing No. 18 - Response ¶ 8. He argues he provided responses in the previous litigation, where the court denied a similar motion to ...