LLC v. American Home Mortgage Servicing, Inc. (2010)

Memorandum of Decision on Outstanding Discovery Motions

The factual and procedural background of this litigation is summarized in the court's Memorandum of Decision on Motion to Dismiss dated February 23, 2010.   This memorandum addresses two discovery disputes relating to the upcoming evidentiary hearing on the claimed futility exception to the “No Action Clauses” of the Pooling and Servicing Agreements, as ordered by the court on February 23.

I. Defendant's Motion for Compliance dated July 15, 2010

The defendant seeks an order of compliance directing the plaintiff to answer Interrogatories Nos. 3, 4, 5, 6, 7, and 8 of Defendant's Third Set of Interrogatories dated April 23, 2010.   Those interrogatories are:

3.  For each property identified in your response to Interrogatory 1 [properties with respect to which any Plaintiff gave directions to American Home that you contend American Home disregarded] identify the amount of any loss to any of the Trusts that you contend resulted from American Home disregarding the directions given by any Plaintiff.  (Emphasis supplied.)

4. For each loss identified in Your response to Interrogatory 3, identify how that loss was calculated.

5. For each property identified in Your response to Interrogatory 1, identify the amount of any loss to any Plaintiff that you contend resulted from American Home disregarding any Plaintiff's directions.

6. For each loss identified in Your response to Interrogatory 5, identify how the amount of that loss was calculated.

7. Do you contend that losses to any of the Trusts as a result of American Home disregarding and Plaintiff's directions accumulated to the point that losses were allocable to any Certificateholder with a higher priority or seniority than Plaintiffs?

8. If your response to Interrogatory 7 is affirmative, (i) identify the Trusts in Question, (ii) for each Trust identify by specific tranche and subtranche the other Certificate holders to whom such losses were allocable, and (iii) identify how You arrive at the conclusion that losses accumulated to the point they were allocable to other Certificateholders.

On May 21, 2010 plaintiffs filed Plaintiffs' Responses and Objections to Defendant's Third Set of Interrogatories, in which they filed general objections to the entire set of interrogatories, and specific objections to each numbered interrogatory.   With respect to Nos. 3 through 8, plaintiffs stated:

Subject to and without waiving the foregoing General and Specific Objections, Plaintiffs state that this request is premature.   Information necessary to respond to this request is in the possession of Defendant and discovery is not completed in this matter.   Plaintiffs further state that this information is properly disclosed as part of the expert report and expert discovery process, and that Plaintiffs will provide such information after the necessary discovery has been provided by Defendant and as part of the expert report and discovery process.

Following the expiration of the June 29, 2010 expert disclosure deadline for the futlity issue as per Case Management Order No. 2 without disclosure of any expert by the plaintiffs, defendants demanded that plaintiffs respond to these interrogatories.   On July 22, 2010 plaintiffs filed their Third Supplemental Responses to Defendant's Third Set of Interrogatories Nos. 3-8 in which they incorporated all their previous general and specific objections to these interrogatories, but, “without waiving” those objections (a) responded to Interrogatories No. 3 and 4 as to three of the four trusts “only to the extent that the request seeks information related to the aggregate collateral realized losses suffered by the trusts as a result of (emphasis supplied) Defendant's actions and how those losses were allocated among the certificateholders ․” by stating that the trusts had circulated distribution statements during the period in question showing realized losses in excess of $44 million, allocated entirely to the Class CE Certificate holders (b) referred only to their previous general and specific objections to Interrogatories 5 and 6, and (c) responded to Interrogatories 7 and 8 by referring to their response to Interrogatory No. 3. Then on July 28, 2010 Plaintiffs filed “Plaintiffs' Fourth Supplemental Responses and Objections to defendant's Third Set of Interrogatories Nos. 3-8, by repeating and incorporating all their previous general and specific objections, but “without waiving” those objections:  (a) responded to Interrogatories No. 3 and 4 “only to the extent that the request seeks information related to the aggregate collateral losses suffered by the Trusts after (emphasis supplied) Defendant disregarded Plaintiffs' Directions and how those losses were allocated among the certificate holders ․ “by stating the combined losses for all four trusts as “more than $75 million” allocated entirely to the Class CE Certificate holder;  (b) continued to object to Interrogatories Nos. 5 and 6 by repeating and incorporating their previous general and specific objections;  and (c) responded to Interrogatories 7 and 8 by referring to and incorporating their response to Interrogatory No. 3.

Plaintiffs' position is that they have responded to Interrogatories 3, 4, 7 and 8 and that their objections to Interrogatories Nos. 5 and 6 asking for details of plaintiffs ' claimed losses (as opposed to losses of the four trusts) should be sustained.   Defendant maintains that plaintiffs have not properly responded to Interrogatories 3, 4, 7, and 8 because in their final “Fourth Supplemental” response they unilaterally changed the wording of their response to refer to losses incurred by the trusts “after” the alleged disregarding of plaintiffs' instructions whereas the interrogatories asked for claimed losses incurred “resulting from” that alleged disregarding;  and that plaintiffs' objections to Interrogatories 5 and 6 should be overruled and they should be compelled to answer.

As to 4, 5, 7, and 8, plaintiffs argue that losses incurred “by the trusts” “after” the alleged disregard of their instructions “is the sole responsive information that is relevant to the upcoming evidentiary hearing [on futility], and cite the court's February 23 Memorandum of Decision as recognition of that position.¹  The court disagrees as to switching the answer to losses “after” instead of losses “resulting from.”   Plaintiffs attach too much significance to the court's use of the word “after” at a time when the court had not been made aware of the significance of the distinction between “after” and “resulting from,” that is, no awareness of defendants' present claim that losses were being sustained even during the period that defendant was complying with plaintiffs' instructions.   There was no intent to rule or recognize that “resulting” losses were irrelevant as plaintiffs now argue.   The court rules that plaintiff's must answer interrogatories, 3, 4, 7, and 8 as originally submitted by defendant in terms of losses that plaintiffs contend “resulted from” the alleged disregard of instructions.   On May 21 plaintiffs stated they “will provide” the information as requested.   On July 22, plaintiffs actually answered in terms of resulting losses, but only as to three of the four trusts.   Only on July 28 when they added in the alleged losses incurred by the fourth trust did they purport to limit the answer to losses “after” the alleged disregard of instructions.   They must now respond to the extent of its knowledge, possession or power to interrogatories 3, 4, 7, and 8 as to all four trusts in terms of the questions actually posed, which called for losses claimed to have resulted from the alleged disregard, which would not be irrelevant to the futility inquiry.   The motion to compel is granted as to Interrogatories, 3, 4, 7, and 8. As to Interrogatories 5 and 6, the court rules that losses or damages claimed to have been incurred or sustained by each plaintiff as a result of disregard of its instructions to the defendant would not be relevant to the futility inquiry.²  Other certificate holders would not be motivated or impacted by the plaintiffs' losses, but rather by their own possible or potential losses as reflected by the losses sustained by the trusts.   Plaintiffs' claimed damages are discoverable as to the case in general, but not for the limited purposes of the futility hearing.   The motion to compel is therefore denied as to Interrogatories 5 and 6.

II. Motion for Compliance with Notice of § 13-27h Deposition

As part of its discovery on the issue of plaintiffs' claimed futility of compliance with the “no action” clauses of the four Pooling and servicing Agreements, defendant has noticed a Practice Book § 13-27h deposition ³ for a representative to testify as to the precise directions given to defendant by plaintiffs which were allegedly disregarded, the amounts of losses from sales of REO properties after the defendant allegedly disregarded plaintiffs' directions, and the reasons and means by which plaintiffs adopted a strategy of slowing foreclosures and REO sales as a means of enhancing cashflows.   Plaintiffs oppose that deposition as unnecessary, burdensome and excessive, given the limited scope of the August 24-25 futility hearing, and point out that that they have offered for deposition other witnesses on all the 13-27(h) topics that are relevant to the evidentiary hearing, but declined, at this stage of the litigation, to produce a witness onmertis/damages issues (e.g., the amount of the losses suffered by Carrington as a result of AHMSI's wrongful conduct.).   Those witnesses offered by Carrington include Carrington capital Holdings' Chief Operating Officer, General Counsel, and Vice President of Quality assurance.   It is not clear that plaintiffs ' (as opposed to the trusts') losses are a 13-27(h) topic, which is stated generarically in the notice of deposition as “the amounts of the losses suffered from REO sales ․” In any event the court has previously ruled herein that plaintiff's losses-as opposed to losses of the trusts-are not relevant to the futility hearing.

The court denies the motion for compliance with notice of 13-27(h) deposition without prejudice to renewal after the other Carrington witnesses have been deposed.   Defendant shall have the opportunity to interrogate those deponents as to the 13-27(h) topics.   If defendant then feels that another designated witness is necessary to its preparation for the evidentiary hearing a renewed motion to compel may be submitted prior to the hearing.

Alfred J. Jennings, Jr., Judge Trial Referee

FOOTNOTES

FN1. At page 20 the February 23, 2010 memorandum of decision, I said:  “Many facts relating to futility are undeveloped, such as the precise directions given to the Servicer by Carrington which were allegedly disregarded, the amounts of the losses from sales of REO properties after the servicer allegedly disregarded Carrington's directions ․”.  FN1. At page 20 the February 23, 2010 memorandum of decision, I said:  “Many facts relating to futility are undeveloped, such as the precise directions given to the Servicer by Carrington which were allegedly disregarded, the amounts of the losses from sales of REO properties after the servicer allegedly disregarded Carrington's directions ․”

FN2. These interrogatories were served on April 23, 2010, seeking disclosure that “will be of assistance in the defense of this action ․” and the thirty days for compliance has expired without any extension having been sought or allowed.   Nonetheless both parties have briefed this motion for compliance in terms of discovery relating to the futility issue and the evidentiary hearing on that topic scheduled for August 24-25.   The court has therefore limited its consideration of these motions to the compulsion or not of discovery on that issue prior to the hearing, saving for a later stage discovery compliance relating to the overall case..  FN2. These interrogatories were served on April 23, 2010, seeking disclosure that “will be of assistance in the defense of this action ․” and the thirty days for compliance has expired without any extension having been sought or allowed.   Nonetheless both parties have briefed this motion for compliance in terms of discovery relating to the futility issue and the evidentiary hearing on that topic scheduled for August 24-25.   The court has therefore limited its consideration of these motions to the compulsion or not of discovery on that issue prior to the hearing, saving for a later stage discovery compliance relating to the overall case.

FN3. Practice Book § 13-27h provides, in part:  “A party may in the notice and in the subpoena name as the deponent a public or private corporation ․ and designate with reasonable particularity the matters on which the examination is requested.   The organization ․ so named shall designate one or more officers, directors or managing agents or other persons who consent to testify on its behalf, and may set forth, for each person designated, the matters on which the person will testify.   The persons so designated shall testify as to the matters known or reasonably available to the organization.”.  FN3. Practice Book § 13-27h provides, in part:  “A party may in the notice and in the subpoena name as the deponent a public or private corporation ․ and designate with reasonable particularity the matters on which the examination is requested.   The organization ․ so named shall designate one or more officers, directors or managing agents or other persons who consent to testify on its behalf, and may set forth, for each person designated, the matters on which the person will testify.   The persons so designated shall testify as to the matters known or reasonably available to the organization.”

Jennings, Alfred J., J.T.R.