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This weeks case update:

Dailey, Emerson, Upright Law LLC, Discovery

Case nos. 15-61088, 16-60056

The underlying dispute between the UST and Upright relates to Upright’s business model and its interactions with individuals in Montana. The UST alleges the process did not work as intended resulting in significant problems in Montana. Based on these allegations, the UST seeks injunctive relief under § 526(c)(5), which states: Notwithstanding any other provision of Federal law and in addition to any other remedy provided under Federal or State law, if the court, on its own motion or on the motion of the United States trustee or the debtor, finds that a person intentionally violated this section, or engaged in a clear and consistent pattern or practice of violating this section, the court may-- (A) enjoin the violation of such section; or (B) impose an appropriate civil penalty against such person. According to the UST, Upright is a debt relief agency that misrepresented to its clients and prospective clients the services it would provide, which is a violation of § 526(a)(3)(A).

The UST seeks to conduct the deposition of 15 Montana consumers and 11 present, or, past employees, or partners of Upright. Upright broadly objects to the additional depositions arguing that the UST has not met its burden of making a particularized showing of the need for additional depositions, the additional depositions would be cumulative and duplicative, and the UST can obtain the information through less burdensome methods.

Absent leave of court, a party is limited to 10 depositions. Rule 7030(a)(2). The Advisory Committee Notes explains that this presumptive 10 deposition limitation serves 2 purposes: (1) “to assure judicial review under the standards stated in Rule 26(b)(2) before any side will be allowed to take more than ten depositions in a case without agreement of the other parties;” and, (2) “to emphasize that counsel have a professional obligation to develop a mutual cost-effective plan for discovery in the case.” See Advisory Committee Notes to 1993 Amendments. The Court must permit more than ten depositions when it is “consistent with Rule 26(b)(2).” Rule 26 provides that additional discovery should be allowed unless the Court determines that: (1) the discovery sought is unreasonably cumulative or duplicative, or is obtainable from some other source that is more convenient, less burdensome, or less expensive; (2) the moving party has had ample opportunity to obtain the information by discovery in the action; or (3) the burden or expense of the proposed discovery outweighs its likely benefit, in light of the factors listed in the Rule. Rule 26(b)(2)(C)(i)-(iii).

Upright’s argument that the additional depositions would be cumulative or duplicative of the 19 depositions previously taken is not persuasive. First, the additional depositions are necessary in part because the UST conducted depositions without the benefit of significant discovery that Upright was ultimately compelled to produce. To the contrary, new depositions are only necessary in part because Upright withheld this production for as long as it did. Although 19 depositions have been taken in this case, discovery has shown that Upright contacted and collected fees from in excess of 500 Montana consumers. If permitted to take an additional 15 depositions of Montana consumers, the total number of Montana consumers deposed in this case will be 30, just over 5% of all those that had contact with Upright. When considered within the broader context of this case, and in particular, the “clear and consistent pattern” required under § 526, Upright’s cumulative and duplicative argument is not persuasive. Similar to the Court’s analysis above, given Upright had contact with in excess of 500 Montanans, and for each Montanan there might have been multiple contacts or communications, permitting 13 employees to be deposed does not strike the Court as duplicative or cumulative, particularly when the UST must show “a clear and consistent pattern or practice” to prevail under §526.

Having surveyed the entirety of the record in this case in conjunction with this Order, this Court would characterize its handling of Upright’s approach to discovery in this case as indulgent. Having elected to object and litigate the discovery process at length, the Court cannot credibly entertain Upright’s stated concerns now regarding convenience, burden, and expense. To the extent the discovery process has been inconvenient and expensive, it appears to the Court that result flows from the approach Upright has chosen to take to the discovery process.

When called upon to consider the burden or expense of proposed discovery and weigh its benefit, this Court is mindful of the following Advisory Committee Comment: The elements of Rule 26(b)(1)(iii) address the problem of discovery that is disproportionate to the individual lawsuit as measured by such matters as its nature and complexity, the importance of the issues at stake in a case seeking damages, the limitations on a financially weak litigant to withstand extensive opposition to a discovery program or to respond to discovery requests, and the significance of the substantive issues, as measured in philosophic, social, or institutional terms. Thus, the rule recognizes that many cases in public policy spheres, such as employment practices, free speech, and other matters, may have importance far beyond the monetary amount involved. The court must apply the standards in an even-handed manner that will prevent use of discovery to wage a war of attrition or as a device to coerce a party, whether financially weak or affluent. Federal Rule 26(b) advisory committee's note to 1983 amendment. At the hearing, the Court noted that the UST’s allegations that Upright collected fees in excess of $500,000, from 521 affected Montana clients, but only filed cases for 109 clients, and in excess of 400 cases were not filed, justified additional discovery. If there exists a pattern or practice that violates § 526, and it involved in excess of 500 Montana clients and more than $500,000 in fees, that is a matter of extraordinary importance for institutional and social reasons.

In re Emerson, In re Dailey, July 30, 2020, Paul R. Thomas, Alison E. Goldenberg for UST, Charles W. Hingle, Shane Coleman, Brianne McClafferty for Upright Law

2020 Mont. B.R. 279 (July 30, 2020)



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