Canam Steel Corporation et al v. TCI Environment NV/SA et al

2:06-ap-00647Paeb16 de out. de 2007

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UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
In re 	: 	Chapter 11
TOTAL CONTAINMENT, INC. 	:
Debtor 	: 	Bankruptcy No. 04-13144bf
____________________________________
CANAM GROUP, INC. 	:
Plaintiff 	:
v. 	:
TCI ENVIRONMENT NV/SA 	: 	Adversary No. 06-0647
Defendant 	:
____________________________________
.................................................
ORDER
.................................................
AND NOW, this 16th day of October 2007, Canam Steel Corporation
having filed a Motion for Protective Order under Fed. R. Bankr. P. 7026,
And on May 31, 2005 Canam Steel Corp. filed a complaint against TCI
Environment NV/SA (renamed Delaware Valley Enterprises NV, but still referred to by
the parties as TCIE) in the Circuit Court for Frederick County, Maryland (10-C-05-
001215). The matter was removed to the Federal District Court for the District of
Maryland on June 3, 2005 (1:05-cv-01786). On November 7, 2006, the matter was
transferred to the District Court for the Eastern District of Pennsylvania (2:06-cv-0496).
On December 15, 2006, the proceeding was referred to this bankruptcy court as related to
the chapter 11 case of Total Containment, Inc., the latter being the primary shareholder of
TCIE,
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Although Canam Steel is no longer a party in this proceeding, it is a defendant in1
Adv. No. 05-0145, and thus has reason to be concerned if discovery being sought in this instant
deposition is intended for use in the other adversary proceeding.
2
And Canam Steel alleged in its complaint that TCIE owed it by way of
contribution or reimbursement for amounts it paid on TCIE’s behalf to the Bank of
America pursuant to a guaranty agreement. TCIE disputes its liability, asserting that it
received no consideration for any funds loaned by Bank of America,
And, by order dated May 31, 2007, Canam Group, Inc. was substituted for
Canam Steel Corp. as plaintiff, based upon an assignment of this claim. The substituted
plaintiff then filed an amended complaint, to which TCIE filed an answer asserting in a
general fashion fifteen affirmative defenses,
And TCIE served a Notice of Deposition on Canam Steel on June 21, 2007,
pursuant to Federal Rule of Civil Procedure 30(b)(6), requesting that the former plaintiff
produce corporate designees for deposition regarding enumerated areas of inquiry,
And the former plaintiff objects to certain areas of inquiry as, variably:
unrelated to the issues in the case, not within the proper scope of discovery, overly broad,
matters of public record, calling for speculation or legal conclusions, regarding facts
internal to TCIE, or not reasonably calculated to lead to the discovery of admissible
evidence. It also claims that TCIE’s inquiries concerning another adversary proceeding
related to this bankruptcy case, Miller v. Dutil, et at., Adv. Proc. 05-0145, is an attempt to
obtain discovery in that case after the discovery period in that case has closed, 1
And although TCIE was able to depose previously at least two persons
produced by Canam Steel—namely, Ronald W. Peppe II (7/30/07), produced to respond
to all non-objectionable areas of inquiry excepting ##15 and 16; and Mary K. Gordon
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Ultimately, Canam Steel did not include areas of inquiry ##15 and 16, regarding2
Canam Steel’s payment of the $4 million-plus to Bank of America and its factual basis for
alleging that TCIE was obligated to repay this amount to Canam Steel, in its Motion for
Protective Order.
Mr. Peppe stated that he did not prepare the complaint in this case and did not3
study it, see Canam Steel’s Reply to Opposition to Motion for Protective Order, Exhibit C, pp.
29-31; did not know whether he saw the 12/14/1999 loan agreement, id., pp. 29-30; was not
familiar with the guaranty agreement, id., p. 30; did not know who the secretary of TCIE was in
12/1999 or 6/2001, id., pp. 34, 37; did not know who Jeffrey Boehmer was, id., p. 35; did not
know why Bank of America required the guaranty, id., p. 39, 40; did not know where TCIE’s
assets were for purposes of the security agreement, id., pp. 57-58; had no knowledge of TCIE or
co-borrowers defaulting on the note, id., p. 59; did not know who the vice president of finance of
Canam Steel was on 12/29/2003, id., p. 61; had no knowledge of the lawsuit or the confessed
judgment in Maryland court, id., pp. 62, 71-74; did not know if the first promissory note listed
TCIE as a borrower, id., p. 67; did not remember if he worked on the 10/18/2001 revolving note,
id., p. 68; did not prepare any of the loan documents attached to the amended complaint, id., p.
69; did not know what happened after receiving Bank of America’s 1/9/2004 letter regarding
default, id., pp. 69-71; was not involved with the settlement between TCI and Bank of America,
id., pp. 76-78; and had no knowledge regarding the corporate relationship between TCI and
TCIE, id., pp. 76-77.
3
(7/31/07), produced to respond to ##15 and 16 ; see exhibits C and D to Canam Steel2
Corp’s Reply to Opposition to Motion for Protective Order—TCIE asserts that these
persons were not knowledgeable in all areas for which discovery was sought. See TCIE’s
Opposition to Canam Steel’s Motion for Protective Order, ¶¶ 10-11, and n. 2 to ¶ 11,
And Mr. Peppe, who was General Counsel of Canam Steel, had very little
knowledge of the issues in this proceeding, 3
And while Ms. Gordon, who was vice president and corporate controller of
Canam Steel, had more familiarity with the facts alleged in this proceeding, she yet did
not know who were the other co-borrowers in the Bank of America loan transaction
involving TCIE, see Canam Steel Corp.’s Reply of Opposition to Motion for Protective
Order, Exhibit D, p. 57; did not remember how it was determined that TCIE had defaulted
on the loan, id., p. 58; and did not remember the source of certain details in her affidavit
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That motion was denied to permit defendant further discovery under Rule 56(f).4
4
submitted in support of the former plaintiff’s motion for summary judgment in the case in
Maryland District Court. Id., pp. 48-49, 55, 56-58, 4
And after a hearing held on the instant discovery motion on August 29,
2007,
And Federal Rule of Bankruptcy Procedure 7030 incorporates Federal Civil
Rule of Procedure 30 into adversary proceedings. Rule 30(b)(6) allows for a party to
name a corporation as a deponent, and to describe the matters on which the examination
is requested. The corporate deponent named then is obligated to “designate one or more
officers, directors, or managing agents, or other persons who consent to testify on its
behalf . . . . The persons so designated shall testify as to matters known or reasonably
available to the organization.” Fed. R. Civ. P. 30(b)(6),
And “[a] designee is not simply testifying about matters within his or her
personal knowledge, but rather is speaking for the corporation about matters to which the
corporation has reasonable access.” In re Linerboard Antitrust Litigation, 237 F.R.D.
373, 382 (E.D. Pa. 2006) (internal quotations omitted). Therefore the corporation should
either designate a witness or witnesses that have knowledge of all of the matters noticed
for deposition, or prepare a witness with such information. See Triple Crown America,
Inc. v. Biosynth AG, 1999 WL 492661, at *1 (E.D. Pa. July 12, 1999),
And an entity seeking to avoid complying with Rule 30(b)(6) bears the
burden to prove that the information sought is not known or reasonably knowable to the
deponent. A “claimed lack of knowledge is generally not sufficient for a protective order
as the other side may test this claim by deposing the witness.” Kanaji v. Philadelphia
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5
Child Guidance Center of Children’s Hospital, 2001 WL 708898, at *2 (E.D. Pa. June 20,
2001),
And in noticing any deposition in federal litigation, a party may only obtain
“relevant discovery,” as described by Federal Civil Rule 26 (incorporated into bankruptcy
proceedings by Fed. R. Bankr. P. 7026) as follows:
(b) Discovery Scope and Limits. Unless otherwise limited by
order of the court in accordance with these rules, the scope of
discovery is as follows:
(1) In General. Parties may obtain discovery regarding any
matter, not privileged, that is relevant to the claim or defense
of any party, including the existence, description, nature,
custody, condition, and location of any books, documents, or
other tangible things and the identity and location of persons
having knowledge of any discoverable matter. For good
cause, the court may order discovery of any matter relevant to
the subject matter involved in the action. Relevant
information need not be admissible at the trial if the discovery
appears reasonably calculated to lead to the discovery of
admissible evidence. All discovery is subject to the
limitations imposed by Rule 26(b)(2)(i), (ii), and (iii).
Fed. R. Civ. P. 26(b),
And courts have construed liberally the language “reasonably calculated to
lead to the discovery of admissible evidence.” Momah v. Albert Einstein Medical Center,
164 F.R.D. 412, 417 (E.D. Pa. 1996) (citing Oppenheimer Fund, Inc. v. Sanders, 437 U.S.
340, 351 (1978)),
And, however, the Third Circuit Court of Appeals has explained that
“discovery is not intended as a fishing expedition permitting the speculative pleading of a
case first and then pursuing discovery to support it; the plaintiff must have some basis in
fact for the action.” Zuk v. Eastern Pennsylvania Psychiatric Inst. of the Medical College
of Pennsylvania, 103 F.3d 294, 299 (3d Cir. 1996),
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And Federal Rule of Civil Procedure 26(c) provides that an entity from
whom discovery is sought may seek a court order denying such discovery in certain
limited circumstances:
(c) Protective Orders. Upon motion by a party or by the
person from whom discovery is sought, accompanied by a
certification that the movant has in good faith conferred or
attempted to confer with other affected parties in an effort to
resolve the dispute without court action, and for good cause
shown, the court in which the action is pending . . . may make
any order which justice requires to protect a party or person
from annoyance, embarrassment, oppression, or undue burden
or expense, including one or more of the following:
(1) that the disclosure or discovery not be had;
(2) that the disclosure or discovery may be had only on
specified terms and conditions, including a designation of the
time or place;
(3) that the discovery may be had only by a method of
discovery other than that selected by the party seeking
discovery;
(4) that certain matters not be inquired into, or that the scope
of the disclosure or discovery be limited to certain matters;
(5) that discovery be conducted with no one present except
persons designated by the court;
(6) that a deposition, after being sealed, be opened only by
order of the court;
(7) that a trade secret or other confidential research,
development, or commercial information not be revealed or
be revealed only in a designated way; and
(8) that the parties simultaneously file specified documents or
information enclosed in sealed envelopes to be opened as
directed by the court.
If the motion for a protective order is denied in whole or in
part, the court may, on such terms and conditions as are just,
order that any party or other person provide or permit
discovery. The provisions of Rule 37(a)(4) apply to the award
of expenses incurred in relation to the motion.
Fed. R. Civ. P. 26(c).
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And therefore an entity seeking a protective order has the burden to
demonstrate that one or more of the provisions of Rule 26(c) are applicable. See Arif v.
Immigration and Naturalization Service, 1992 WL 380932 (S.D.N.Y. Dec. 8, 1992);
Videon Chevrolet, Inc. v. General Motors Corp., 1992 WL 160459, at *2 (E.D. Pa. June
26, 1992). It must “show specifically how, despite the broad construction of the
discovery rules, each [request] is not relevant, overly broad, or burdensome.” Videon
Chevrolet, Inc. v. General Motors Corp., at *2. “Mere conclusory statements . . . are
insufficient.” Arif v. Immigration and Naturalization Service, at *1,
And a court issuing a protective order need not prohibit disclosure of
information, but may condition discovery to prevent injury, harassment, or abuse of the
court’s processes. Security Ins. Co. of Hartford v. Trustmark Ins. Co., 218 F.R.D. 24, 26
(D. Conn. 2003); see Long v. Marubeni America Corp., 2007 WL 541621, at *2
(S.D.N.Y. Fed. 16, 2007) (narrowing request for credit card statements disclosing internet
purchases of any kind to those disclosing internet purchases of computers and computer-
related equipment); see also M&M Medical Supplies and Service, Inc. v. Pleasant Valley
Hospital Inc., 981 F.2d 160, 169 (4th Cir. 1993) (barring party from contacting former
patients after complaint that the patients felt harassed). This has included barring
discovery material from being used in any other litigation proceeding. See, e.g., Sperry
Rand Corp. v. Rothlein, 288 F.2d 245 (2d Cir. 1961) (prohibiting employer from using in
another proceeding any information divulged in discovery proceedings); Wolters Kluwer
Fin’l Services, Inc. v. Scivantage, 2007 WL 1498114, at *7 (S.D.N.Y. May 23, 2007); On
Command Video Corp. v. Lodgenet Entertainment Corp., 976 F. Supp. 917 (N.D. Cal.
1997) (plaintiff prohibited from using confidential materials obtained under protective
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TCIE’s theory that if the plaintiff had unclean hands in connection with the5
transactions alleged in the Miller v. Dutil adversary proceeding then it also had unclean hands in
connection with the facts alleged in this proceeding, see TCIE Opposition to Canam Steel’s
Motion for Protective Order, p. 8, ¶ 18, is too remote—condoning a fishing expedition—to
permit discovery.
8
order to initiate separate state proceeding); Brittain v. Stroh Brewery Co., 136 F.R.D. 408
(M.D.N.C. 1991) (limiting the parties who could see certain produced documents),
Accordingly, upon review of the areas of inquiry sought to be covered as
part of the former plaintiff’s deposition, and upon consideration of the arguments of
counsel, and certain areas of inquiry are not opposed by the plaintiff, and areas 6-10, 12,
18-19, 21-22, 24-25, and 27 remain in contention, it is hereby ordered that Canam Steel’s
motion for a protective order is granted in part and denied in part, for the following
reasons:
• 	Area of Inquiry #6 (Canam Steel’s defense of and counterclaims in the related
adversary proceeding, Miller v. Dutil, 05-0145bif): Mr. Miller made a series of
allegations under the heading “Canam defendants,” (Canam Manac Group and Canam
Steel) that they “orchestrate[d], direct[ed] and controll[ed] the fraudulent transfer of
TCI’s property and the deepening of TCI’s insolvency as part of a scheme to eliminate
or reduce these defendants’ guaranty obligations to Bank of America . . . .” 05-0145
Amended Complaint, p.5. No specific allegations involve TCIE. 5
The counterclaims in that other adversary proceeding involve allegations of a
breach of fiduciary duty of plaintiff George Miller as trustee and individually; thus
discovery involving those counterclaims would be irrelevant in this proceeding.
To the extent that TCIE seeks to prove that Canam Steel took steps to reduce its
guaranty obligations to Bank of America, such information could be relevant to the
instant adversary proceeding. However, as there are no specific allegations or
defenses raised in the trustee’s proceeding, the above area of inquiry is too broad
and would be burdensome to prepare one or more witnesses to address. Other
areas of inquiry, such as ##10, 12, and 15 are sufficient to address the narrow,
relevant topic. Therefore, Canam Steel’s motion for protective order as to this area
of inquiry, as framed, is granted.
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• 	Area of Inquiry #7 (pleadings filed by Canam Steel in TCI’s main bankruptcy case):
TCIE states that it requests a designee to “stand ready to discuss certain aspects of [the
main bankruptcy case] as they relate to this lawsuit.” Canam Steel’s Motion for
Protective Order, ex. C, p. 2. It is not clear how any aspects of the main bankruptcy
case, involving a company liquidating under an approved chapter 11 plan, could yield
evidence admissible in this proceeding. Moreover, the broad nature of this request
makes it burdensome to the former plaintiff to comply. Therefore, Canam Steel’s
motion for protective order as to this area of inquiry is granted.
• 	Area of Inquiry #8 (relevance of Bank of America, N.A. v. TCI Environment NC
[sic]/SA, in the Circuit Court for Baltimore City to any claims or rights of TCIE or to
the adversary proceeding or to the allegations in the complaint or amended complaint):
As worded, this request appears to seek legal conclusions regarding the effect of Bank
of America’s confessed judgment against TCIE, subsequently vacated with prejudice.
TCIE explains however, see Opposition, p. 11, ¶ 24, that it wants to know “if Canam
Steel is relying on . . . any facts obtained from the Bank of America case.” As the
Bank of America case likely relied on some of the same documents produced in this
case, the discovery request, so constrained, is relevant and may lead to the discovery
of admissible evidence. The state court case ended in a confessed judgment, later
vacated; therefore the request also is not burdensome for Canam Steel to familiarize a
designee with the relevant facts. Therefore the former plaintiff’s motion for
protective order as to this area of inquiry, as limited to any facts obtained from the
Bank of America case, but without requesting any legal conclusions therefrom, is
denied.
• 	Area of Inquiry #9 (facts relating to the December 13, 1999 corporate resolution
identified in paragraph 6 of the amended complaint): Canam Steel complains that this
request attempts to have Canam Steel produce “a witness to testify regarding facts
internal to TCIE.” Canam Steel’s Motion for Protective Order, ¶ 6. However, Canam
Group relied on this document to support its allegations, quoting the resolution in
paragraph 6 of its amended complaint. In addition, since TCIE argues that the
resolution was not validly entered into, and implicitly alleges, through its references to
the Miller v. Dutil proceeding, that Canam Steel may have controlled some of the
persons who signed the document (for example, one of the signators, Pierre
Desjardins, is alleged (by George Miller in Adv. Proc. 05-0145, ¶ 15) to be chairman
of TCI’s board of directors and a consultant to and representative of the Canam
Manac Group), inquiry regarding this document is relevant to this proceeding.
Canam Steel also argues that TCIE already had an opportunity to question a
Canam Steel designee on this subject, citing to pages 34-36 of the Peppe
deposition. However, Mr. Peppe’s answers to TCIE’s questions stated that he did
not know who the secretary of TCIE was, and he did not know who Mr. Jeff
Boehmer was. Mr. Peppe agreed only that the document was dated December 13,
1999. Thus Canam Steel’s earlier designee was not someone knowledgeable and
able to testify about this document. Accordingly, Canam Steel’s motion for
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protective order as to this area of inquiry is denied, but is limited to a factual
inquiry and should not seek legal conclusions from the deponent.
• 	Area of Inquiry #10 (all consideration Canam Steel believes TCIE received as a result
of the loan agreement): In paragraph 8 of the Amended Complaint, Canam Group
alleges that “TCIE, [RMI and ACI], all subsidiaries of TCI, for various considerations
received were added as co-borrowers under the Line of Credit . . . .” TCIE however
asserts that it did not know about its involvement in this BOA loan agreement until
years later and never received any of its proceeds. Therefore this area of inquiry is
relevant to inquire of the former plaintiff what funds or other consideration, if any, it
knows that TCIE received as support for its participation in the loan. Therefore,
Canam Steel’s motion for a protective order as to this factual area of inquiry is denied.
• 	Area of Inquiry #12 (Canam Steel’s relationship with Bank of America, “including but
not limited to,” all documents related to those identified in paragraph 15 of the
amended complaint): The documents referenced are loan modification agreements
dated May 4, 2004, September 2, 2004 and January 31, 2005, between Bank of
America, Canam Steel Corporation and The Canam Manac Group/Canam Group, Inc.
As stated, this request is overly broad and thus burdensome. Therefore, the former
plaintiff’s motion for a protective order as to this area of inquiry is granted in part and
denied in part. The former plaintiff shall produce a designee to testify regarding
Canam Steel’s relationship with Bank of America, if any, limited however to these
three loan modification documents.
• 	Area of Inquiry #18 (Canam Steel’s involvement in the PolyFlow transaction): TCIE
claims that it is entitled to discovery on this topic because it concerns its equitable
defenses, but does not specify which defenses or how they relate. This area of inquiry
then is too remote from the claims and defenses alleged in the amended complaint and
answer. Therefore, the former plaintiff’s motion for a protective order as to this area
of inquiry is granted.
• 	Area of Inquiry #19 (TCIE’s corporate form, its articles and by-laws, the publication
in the Belgian Official Gazette of the appointment of any directors of TCIE, and the
conduct of TCIE’s board meetings from 1999 to March 4, 2004): Canam Steel avers
that it does not have any knowledge regarding this area of inquiry. However, this
averment by itself does not preclude a party from inquiring about a certain subject.
This area of inquiry is relevant to determine how TCIE authorized the BOA loan.
Therefore, Canam Steel’s motion for a protective order as to this area of inquiry is
denied.
• 	Area of Inquiry #21 (The “Certificate of Corporate Resolution,” dated June 20, 2001):
Canam Steel avers that it does not have any knowledge regarding this area of inquiry.
However, just as above, a professed lack of knowledge does not preclude a party from
inquiring about a certain subject. This area of inquiry is relevant for the same reason
as Area of Inquiry #19. Therefore, Canam Steel’s motion for a protective order as to
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this area of inquiry is denied. Inquiry though is limited to the discovery of facts that
may be admissible at trial and not inadmissible legal conclusions.
• 	Area of Inquiry #22 (Canam Steel’s relationship with Bank of America): This request
is duplicative of Area of Inquiry #12, except without the specification of the three loan
modification agreements. Therefore, Canam Steel’s motion for protective order as to
this area of inquiry is granted.
• 	Area of Inquiry #24 (TCI’s ownership of stock in and relationship with TCIE): TCIE
states that this request concerns its equitable defenses, however it does not explain
exactly which equitable defense(s) or how they apply. It was acknowledged at the
hearing by TCIE counsel that TCI owned approximately 99% of TCIE stock.
Therefore, Canam Steel’s motion for protective order as to this area of inquiry is
granted.
• 	Area of Inquiry #25 (Canam Steel’s ownership of preferred shares of TCI and the sale
of those shares to Finloc US Inc.): To the extent that Canam Steel exerted control
over TCI, which was the majority shareholder of TCIE, this area of inquiry is relevant,
as it may lead to facts regarding TCIE’s involvement in the BOA loan. Canam Steel
does not aver that it did not own any shares of TCI. Bernard Gouin, alleged to be a
director of TCI and also Vice President of Finance and Treasurer of Canam Steel (by
George Miller in Adv. Proc. 05-0145, ¶ 14), signed the guaranty agreement on Canam
Steel’s behalf. Therefore, Canam Steel’s motion for a protective order as to this area
of inquiry is granted in part and denied in part: Canam Steel shall produce a designee
with knowledge of its shareholder status vis-a-vis TCI only, and whether Canam Steel
exerted control over TCIE concerning the BOA loan.
• 	Area of Inquiry #27 (TCIE’s financial condition from 1999 to 2005): This area of
inquiry is relevant to determine whether Canam Steel had information regarding
TCIE’s ability to repay Bank of America. Thus, the motion for a protective order is
denied.
It is further ordered that any information gained through this discovery
request to Canam Steel shall be limited for use in this adversary proceeding and cannot
not be used in Miller v. Dutil, et al., Adv. Proc. 05-0145, or shared with counsel for the
plaintiff in that proceeding.
BRUCE FOX
United States Bankruptcy Judge
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copies to:
Mark J. Friedman, Esquire
Jeffrey D. Herschman, Esquire
Susan S. Maher, Esquire
Anthony P. Ashton, Esquire
DLA Piper US LLP
6225 Smith Ave.
Baltimore, MD 21209
Phillip E. Wilson, Jr., Esq.
DLA Piper US LLP
One Logan Square
1650 Market Street, Suite 4900
Philadelphia, PA 19103
Craig Martin, Esquire
Denise Seastone Kraft, Esquire
Angell Palmer & Dodge LLP
919 North Market Street, Suite 1500
Wilmington, DE 19801
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