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United States v. Stabl, Inc.

United States District Court, D. Nebraska

May 22, 2018

UNITED STATES OF AMERICA, Plaintiff,
v.
STABL INC., LANT, INC., LEON JOHNSON, and ANN JOHNSON, Defendants. STATE OF NEBRASKA, Plaintiff,
v.
STABL, INC., LANT, INC., LEON JOHNSON, and ANN JOHNSON, Defendants.

          STABL, INC., LANT, INC., LEON JOHNSON; and ANN JOHNSON, Defendants., William G. Dittrick, John P. Heil, Krista M. Eckhoff, BAIRD HOLM LLP Their Attorneys

          DOUGLAS J. PETERSON Attorney General

          Joshua E. Dethlefsen Assistant Attorney General Agriculture, Environment & Natural Resources Bureau

          ORDER

          MICHAEL D. NELSON UNITED STATES MAGISTRATE JUDGE

         This matter is before the Court following a telephone conference held on May 18, 2018, with the Court and counsel for the parties. Counsel for the United States requested the conference to informally resolve two discovery disputes. The parties submitted one-page written arguments to the court by email in advance of the conference. The Court has marked Defendants' submission as “Attachment A, ” the United States' submission as “Attachment B, ” and the State's submission as Attachment C, and attached each submission to this Order. The Court heard arguments from the parties at the conference, which was recorded and is available at Filing No. 125 in the Lead Case.

         The issues before the court concern (1) the United States' notice of intent to serve third-party subpoenas on two brokerage firms alleged to have received transfers from the bank account of Defendant Stabl, Inc. (“Stabl”), and Defendants' objections thereto, and (2) defendants Leon and Ann Johnson's objections to their scheduled depositions.

         Third-Party Subpoenas

         The first issue concerns the United States' notice of intent to service third-party subpoenas on Waddell & Reed and Edward Jones, requesting all documents between January 1, 2010, and the present, relating to Defendants' accounts alleged to have received transfers of money from the bank account of Stabl. The plaintiffs allege that the requested documents are relevant to tracking the funds from the alleged fraudulent transfers from Stabl. The plaintiffs allege that the requested documents will contain evidence to determine where the funds were transferred initially through where they are today, which is relevant to support the United States' veil-piercing claims and to “ensure that any judgment of this Court ordering the ‘unwinding' of fraudulent transactions is meaningful and effective.” Defendants have objected to the notices on the grounds that the scope of the document requests are overbroad, request irrelevant information, and are unduly burdensome/not proportional to the needs of the case. Defendants further object that the subpoenas are harassing to the individual defendants against whom the plaintiffs do not have a judgment. See Attachment A - Defendants' Objections to Plaintiffs' Third Party Subpoenas.

         The Court will overrule the Defendants' objections and permit the United States to issue the third-party subpoenas as noticed. First, because the subpoenas are directed to third parties, the defendants are limited to objections based on relevancy and to protect a personal right or privilege in the information requested. See Jenkins v. Pech, 2015 WL 728305, at *3 (D. Neb. Feb. 19, 2015)(quoting Streck, Inc. v. Research & Diagnostic Sys., Inc., No. 8:06CV458, 2009 WL 1562851, at *3 (D. Neb. June 1, 2009). As such, the court finds Defendants do not have standing to lodge objections to the issuance of the third-party subpoenas to protect the third parties from undue burden, inconvenience, and the like.

         The documents sought in the subpoenas are relevant on their face to support the plaintiffs' claims that Stabl fraudulently transferred its assets to Leon and Ann Johnson to avoid paying the civil enforcement fine in the underlying action. Although the plaintiffs only obtained a judgment against Stabl in the underlying action, the pleadings in this case allege that Stabl's corporate identity should be disregarded to prevent fraud and injustice. Leon Johnson is the President and sole shareholder for Stabl and its related companies, including the defendant Lant, Inc. (Filing No. 47 at p. 9; Filing No. 52 at p. 10). Under Nebraska law, “Some of the relevant factors in determining whether to disregard the corporate entity on the basis of fraud are (1) grossly inadequate capitalization, (2) insolvency of the debtor corporation at the time the debt is incurred, (3) diversion by the shareholder or shareholders of corporate funds or assets to their own or other improper uses, and (4) the fact that the corporation is a mere facade for the personal dealings of the shareholder and that the operations of the corporation are carried on by the shareholder in disregard of the corporate entity.” Christian v. Smith, 759 N.W.2d 447, 462 (Neb. 2008). Financial transfers between the companies and the Johnsons, beginning in the year the alleged fraudulent transfers occurred, are relevant to support the plaintiffs' claims, including the claim that Stabl's corporate veil should be pierced to satisfy the plaintiffs' judgment. See Met-Pro Corp. v. Industrial Air Technology, Corp., No. 8:07CV262, 2009 WL 553017, * 3 (D. Neb. March 4, 2009)(“Discovery requests should be considered relevant if there is any possibility the information sought is relevant to any issue in the case and should ordinarily be allowed, unless it is clear the information sought can have no possible bearing on the subject matter of the action.”). Accordingly, the defendants' objections are overruled, and the plaintiffs may issue the third-party subpoenas.

         Depositions of Leon and Ann Johnson

         The second issue before the Court concerns Leon and Ann Johnson's objections to their scheduled depositions. The Johnsons take the position that they need to take the depositions of the United States and the State of Nebraska, and receive the expert reports from the United States and the State of Nebraska, in order for the Johnsons to be prepared for their depositions. See Attachment A - Defendants' Objections to Plaintiffs' Deposition Notices. The Johnsons also argue the issue of fairness, as they noticed their intention to take the plaintiffs' 30(b)(6) depositions in February of this year, but due to the plaintiff's pending motions to quash, and the court's issuance of a stay until the motions are resolved, those depositions have not yet taken place.

         Under Fed.R.Civ.P. 26(d), “Unless the parties stipulate or the court orders otherwise for the parties' and witnesses' convenience and in the interests of justice: (A) methods of discovery may be used in any sequence; and (B) discovery by one party does not require any other party to delay its discovery.” Fed.R.Civ.P. 26(d). Rule 26(d) eliminates any fixed priority in the sequence of discovery, including the rule developed by courts conferring priority on the party to first serve notice of taking depositions, and “one party's initiation of discovery should not wait upon the other's completion, unless the delay is dictated by special considerations.” Liguria Foods, Inc. v. Griffith Labs., Inc., 320 F.R.D. 168, 183 (N.D. Iowa 2017)(quoting Committee Note to 1970 amendment of Rule 26(d), 48 F.R.D. 487, 507 (1969)); see also, The Former Priority Rule, 8A Fed. Prac. & Proc. Civ. § 2045 (3d ed.).

         The court agrees with the plaintiffs that there is no reasonable basis why Leon and Ann Johnson must wait to be deposed until after the plaintiffs provide expert disclosures. As noted by the plaintiffs, the Johnsons are parties to this case, not expert witnesses. “The underlying purpose of a deposition is to find out what a witness saw, heard, or did--what the witness thinks.” Hall v. Clifton Precision, a Div. of Litton Sys., Inc., 150 F.R.D. 525, 528 (E.D. Pa. 1993). Although the defendants argue that they “have not had the benefit of the expert reports or Plaintiffs' 30(b)(6) depositions to understand the scope of this case, and all facts and documents supporting Plaintiffs' claims, ” the plaintiffs' pleadings in these consolidated cases, and the elements as set forth in the parties' Rule 26(f) report, are adequate to provide the defendants with notice of the plaintiffs' theory of the cases. Although it is unfortunate that the pending motions have delayed depositions of the plaintiffs, there is no reason why the parties should not proceed with what discovery they can pending the court's definitive ruling on those motions. Therefore, to the extent the defendants object to ...


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