IN THE UNITED STATES BANKRUPTCY COURT MIDDLE DISTRICT OF FLORIDA ORLANDO DIVISION. Chapter 11 Jointly Administered

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1 IN THE UNITED STATES BANKRUPTCY COURT MIDDLE DISTRICT OF FLORIDA ORLANDO DIVISION In re: LOUIS J. PEARLMAN, et al., Debtor. / Case No. 6:07-bk ABB Chapter 11 Jointly Administered DEFENDANTS 1 OBJECTION TO TRUSTEE S MOTION TO SET CASE MANAGEMENT PROCEDURES AND DISCOVERY PROTOCOL Defendants Howard Dorough, Paula Dorough, and Sweet D, Inc. (collectively, the Defendants ), by and through their undersigned counsel, hereby files this objection (the Objection ) to the Trustee s Motion for Order Approving Case Management Procedures and Discovery Protocol [Docket No. 2566] (the Motion ) 2. In support of their Objection, the Defendants state as follows: BACKGROUND 1. The Trustee has filed adversary proceedings against each of the Defendants, along with some nearly 800 others, seeking to recover certain transfers of money utilizing the fraudulent conveyance statutes under Florida state law and the U.S. Bankruptcy Code. 2. Due to the voluminous number of adversary proceedings that the Trustee has filed, he now seeks an Order from this Court to assist him in implementing cost-effective and 1 Adversary Defendant Adversary Case Number Howard Dorough 6:09-ap ABB Paula Dorough 6:09-ap ABB Sweet D, Inc. 6:09-ap ABB 2 Defendants acknowledge that the Trustee s Motion to Establish and Implement Omnibus Procedures for Resolving and/or Settling Certain Adversary Proceedings [Docket No. 2497] is currently pending before the Court, the result of which could be a stay of all adversary proceedings pending the outcome of certain test cases. Defendants file this Objection simply to preserve their objections to the instant Motion. 1

2 efficient discovery procedures. 3. The Trustee asserts that the adversary proceedings can be lumped into some five (5) separate categories. Based on this assertion, the Trustee implies that the facts of each case within each respective category are identical, with the same legal and factual issues. Such is not the case and these cases should not be treated as the same. Each case rests on its own independent facts and should be treated independently absent the parties consent. Specific Objections and Argument 4. For the reasons and legal bases set forth below, Defendants object to the following limitations that the Trustee has proposed in his Motion, which are simply for the Trustee s benefit: a. Paragraph 45 - Trustee seeks to limit each party grouped in the EISA and TCTS Stock cases 3 to ten (10) Interrogatories and fifteen (15) Requests for Admissions; b. Paragraph 46(b) Trustee seeks to impose all costs for withdrawal and return fees charged by any off-site storage provider simply for the Defendants to have the ability to review Trustee s documents; c. Paragraph 46(e) Trustee seeks to limit the discovery of metadata of documents delivered via electronic means; d. Paragraph 51 Trustee seeks to impose a time limit on his or his professionals discovery depositions; e. Paragraph 52 Trustee requests that all deposition testimony be available for use in every other EISA Case or TCTS Stock Case without regard for confidentiality or the fact that one defendant s case has nothing to do with another defendant s 3 The Defendants cases have been identified by the Trustee as falling within the EISA case classification. 2

3 case. 5. All of these requests are solely for the benefit of the Trustee and are highly prejudicial to the Defendants ability to conduct full and complete discovery to allow each to adequately defend the claims asserted against them. 6. While there may come a point within the cases to appropriately seek protective orders or restrict discovery, it is premature at this stage of the litigation to preemptively limit the parties ability to conduct discovery. Argument I. The Discovery Limitations Proposed by Trustee are Prejudicial to the Defendants. While the Defendants acknowledge that this Court has the discretion to limit discovery pursuant to the Federal Rules of Civil Procedure, courts should exercise extreme caution in limiting the initial input of facts and information. See In re Sams, 123 B.R. 788, 792 (Bankr. S.D. Ohio 1991). The main purpose of the court s discretion to limit discovery is to protect litigants from annoyance, embarrassment, oppression, or undue burden or expense. In re Mosher, 2009 Bankr. LEXIS 392, *6 (Bankr. N.D. Ill. Feb. 11, 2009) citing to Am. Int l Specialty Lines Ins. Co. v. NWI-I, Inc., 240 F.R.D. 401, 412 (N.D. Ill. 2007). Correspondingly, courts utilize the proportionality test of Rule 26(b)(2)(C)(iii) to consider the needs of the case, the amount in controversy, the parties resources, the importance of the issues at stake, and the importance of the discovery in resolving the issues. Id. Despite the fact that the parties are in the very early stages of litigation, a cursory review of the factors in Rule 26(b)(2)(C)(iii) reveal that for most defendants in this case, discovery is absolutely crucial given the Debtor s elegant scheme. The Trustee has chosen to file nearly 800 adversary proceedings in an attempt to recover 3

4 millions of dollars, yet he wants to impose severe and unprecedented limitations 4 on the defendants ability to conduct discovery solely to avoid unnecessarily depleting estate resources without regard to the defendants right to conduct full and complete discovery and adequately defend these claims. Put another way, the Trustee seeks to recover large sums of money from each defendant, but desires to severely limit, on the front end, each defendant s right to conduct full and complete discovery, simply for the benefit of preserving the Estate s resources. Defendants submit that the undue burden or expense portion of the test is not intended to allow courts to limit discovery simply because a plaintiff does not have the resources to properly litigate the claim. The Rules are written to protect both parties and the Plaintiff should be required to participate fully and faithfully. One example of the Trustee s attempts to gain an unreasonable advantage in this case is his effort to impose the costs of withdrawal and return fees simply for the parties requesting that the Trustee produce documents that he currently has in storage. While the Defendants would agree that certain costs such as the cost of photocopying documents is wholly reasonable, imposing a surcharge on each defendant simply to gain access to documents is another example of the Trustee s attempt to impose a one-way burden on the defendants. The Trustee filed the actions and should be required to fully participate in all discovery that is reasonably calculated to lead to the discovery of admissible evidence and conducted in good faith in accordance with the Rules. The Trustee should not be afforded the equivalent of a golf game s handicap at the outset of discovery process. II. The Proposed Discovery Limitations are Premature. While the Trustee has unilaterally grouped each adversary proceeding into one of five (5) 4 The Trustee s Motion does not point to any case law to support his requests and Defendant s Counsel has been unable to locate any supporting case law based on the facts of this case. 4

5 self-described categories, there are assuredly certain cases within those categories that have their own facts and circumstances distinct from every other case. Because of this, some cases may require more discovery than others given a more intense fact pattern or a longer history of interaction between the parties. The Trustee seeks to limit certain portions of discovery (Requests for Admissions, Interrogatories, and electronic discovery) before such discovery requests have even been served on the Trustee. Defendants respectfully suggest that the Trustee wait until he is served with the relevant discovery requests, at which point, he will truly be able to make the assertion to this Court that such requests are burdensome. At this point, there are no discovery requests and no burdens to the Trustee or the Estate. Furthermore, for the Court to preemptively restrict discovery without first reviewing the facts of the cases and defendants requesting such discovery would result in a circumvention of the intent of the Rules. 5 Ultimately, the Trustee s motion is not only prejudicial by attempting to impose one-way limitations on the defendants ability to reasonably conduct discovery, but it is wholly premature as the Trustee is merely speculating at what the various parties may seek to discover. Any preemptive restriction will only result in perhaps numerous discovery motions being filed with this Court seeking to undo that which the Trustee currently seeks to have this Court order. WHEREFORE, Defendants Howard Dorough, Paula Dorough, and Sweet D, Inc. request that this Court enter an order denying the Trustee s Motion, and granting such other and further relief as may be deemed just and proper. 5 The Rules are clear that such limitations should not occur until after the discovery requests have been made. To wit, Rule 26 uses phrases such as the discovery sought and the proposed discovery when outlining on what bases courts should consider such limitations. See Fed. R. Civ. P. 26(b)(2)(C). 5

6 Dated: July 28, 2009 Respectfully submitted, LASSITER TIDWELL DAVIS KELLER & HOGAN, PLLC By: /s/ Jason L. Turner Jason L. Turner Florida Bar No.: One Nashville Place 150 Fourth Avenue North Nashville, TN (615) (phone) (615) (fax) OF COUNSEL: /s/ Henry E. Hildebrand, III Henry E. Hildebrand, III, Esq. 150 Fourth Avenue North, Suite 1850 Nashville, TN TN BPR No.: Phone: (615) Fax: (615) Attorneys for Defendants Howard Dorough, Paula Dorough, and Sweet D, Inc. CERTIFICATE OF SERVICE I certify that I served a true and correct copy of the foregoing Disclosure of Corporate Interest through the Court s ECF system if available, or by placing same in the U.S. Mail, firstclass and postage pre-paid, to the following persons or parties: Denise D. Dell-Powell, Esquire Akerman Senterfitt 420 S. Orange Ave., Suite 1200 Post Office Box 231 Orlando, FL Michael I. Goldberg, Esquire Akerman Senterfitt Las Olas Centre II, Suite East Las Olas Boulevard Ft. Lauderdale, FL

7 Soneet R. Kapila, Bankruptcy Trustee Post Office Box Fort Lauderdale, FL on this the 28 th day of July, /s/ Jason L. Turner Jason L. Turner 7