MARK A. GOLDSMITH, District Judge.
This matter is before the Court on the Government's motion to compel (Dkt. 32) and Defendant Quicken Loans Inc.'s motion to compel (Dkt. 33). A hearing on these motions was held on May 22, 2017. The Court addresses each motion in turn and, for the reasons stated below, grants, in part, and denies, in part, both of the parties' motions.
Federal Rule of Civil Procedure 26 allows for broad discovery in litigation, including "any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case[.]" Fed. R. Civ. P. 26(b)(1). Although Rule 26 was amended in 2015 to include a "proportionality" requirement, the "basic tenet that Rule 26 is to be liberally construed to permit broad discovery" remains unaltered.
When ruling on discovery-related motions, the district court has broad discretion to determine the proper scope of discovery, including whether a "discovery request is too broad and oppressive."
In analyzing the parties' motions, the Court utilizes these principles, including specifically the Rules' heightened concern with the proportionality of discovery.
The Government requests the production of documents that it claims are specifically related to appraisals, including (i) "communications between Quicken and any appraiser or any appraisal management company"; (ii) "documents concerning value appeals"; (iii) "documents concerning any value provided to the appraiser or appraisal management company"; and (iv) "documents related to Quicken's policies, procedures, and practices related to appraisals and value appeals." Pl. Mot. at 5 (citing Pl. 1st Set of Prod. Requests ¶¶ 8, 59, 72-76, 101-104 (Dkt. 32-3); Pl. 2d Set of Prod. Requests ¶¶ 5, 11, 16-19 (Dkt. 32-4)).
For the 487 loans identified in attachment A to the Government's second set of requests for production,
During the hearing, the Government stated that it would wait for Quicken's production regarding the value appeals tracking items, as well as the policies, procedures, and training documents, at which point the Government will determine what, if any, documents relating to appraisals it still contends have not been produced. Therefore, the Court denies this portion of the Government's motion without prejudice, except Quicken is ordered to fulfill its stated undertaking by June 9, 2017.
The Government also sought the production of documents relating to Title Source Inc., which the Government claims "is the company Quicken used as its appraisal management company and both are wholly-owned subsidiaries of Rock Holdings, Inc." Pl. Mot. at 5. Following the hearing, counsel for the Government informed the Court that the Government is no longer seeking these documents. Therefore, the Court denies this portion of the Government's motion without prejudice.
The Government is seeking the production of loan journal notes and loan-level emails regarding the Loan Selection, Pl. Mot. at 6 (citing Pl. 2d Set of Prod. Requests ¶¶ 4, 6, 12), arguing that these documents "go to the very heart of this matter as they serve as the foundational evidence of Quicken's knowing endorsement of ineligible FHA loans,"
Regarding its request for loan journal notes, the Government contends that these documents are written by a Quicken employee about a specific loan and are "highly relevant to whether a loan is eligible for FHA mortgage insurance, and Quicken's knowledge thereof." Pl. Mot. at 7. Because each loan at issue in this case closed during the time period of September 1, 2007 to December 31, 2011, Quicken objects to the production of journal notes outside of this timeframe, arguing that such journal note entries are irrelevant to the underwriting decisions made on the loans. Def. Resp. at 5-6. The Government contends that this "arbitrary" end-date "ignores the very real possibility that notes written after the loan was underwritten could, among other things, address defects Quicken identified in the loan file or conversations with the borrower concerning the borrower's financial condition at the time the loan was underwritten." Pl. Mot. at 7-8. The Court agrees with the Government.
It is not uncommon for relevant information to be discoverable, even if such information falls outside the timeframe of actionable activity set out in a complaint. Parties may speak or write about past activities or transactions in a way that sheds relevant light on the innocent or guilty nature of their acts — and that light is not dimmed simply because the evidence was generated after the lapse of the period embracing the wrongful acts. In our case, for example, a journal note entered on January 2, 2012 relating to a subject loan would still be relevant, regardless of the fact that it was entered after the time period identified in the Government's complaint. Therefore, the Court overrules Quicken's objection, grants this portion of the Government's motion, and orders the production of all loan journal notes for the Loan Selection, regardless of the time a particular note was created or entered, by June 23, 2017.
Regarding its request for loan-level emails, the Government states that Quicken has objected to the production of emails concerning the selection of a loan product for the borrower, the pricing of the loan, and other email communications with the borrower early in the lending process. Pl. Mot. at 7. The Government argues that these "communications are highly relevant to the ultimate question of the loan file review — whether the loan was eligible for FHA mortgage insurance," because they are evidence of (i) the decision made by Quicken and the borrower to obtain an FHA-insured mortgage, (ii) the support for the decision, and (iii) the representations Quicken made to the borrower regarding the proposed mortgage's qualification for FHA insurance.
In response, Quicken argues that the Government's request for all emails related to the Loan Selection, regardless of date or subject, should be denied because Judge Reggie Walton of the U.S. District Court for the District of Columbia previously considered and rejected the same request when this case was still in his court. Judge Walton specifically ruled that "information regarding mere sales tactics that did not contribute to information being submitted by Quicken Loans to the [FHA] need not be produced." Def. Resp. at 5 (quoting 10/24/2016 Order, Ex. A to Pl. Mot. (Dkt. 32-2). Instead, Quicken claims that Judge Walton "ordered only a targeted production of emails related to mortgage bankers," and that Quicken has completed its production of those emails for the Loan Selection.
This Court concludes that all loan-level emails for the Loan Selection are relevant and should be produced, except for "sales scripts." Because there is no transcript of Judge Walton's ruling, or of the conference that he conducted with counsel, this Court has only his minute order from which to discern his intent. Unfortunately, the order is cryptic, leaving some issues unclear. For example, Judge Walton provides, by way of "category 2" in his order, for the production of "representations or promises that mortgage bankers made to potential borrowers." But this is apparently limited by the phrase "but due to initial appraisals that would not permit Quicken Loans to fulfill those promises, resulting in Quicken Loans having property appraisals reevaluated and the appraisal values of the properties increased so that such representations or promises could be fulfilled." Looking beyond the incorrect syntax — which impedes a clear understanding of the import of this provision — it appears that this provision addresses promises about qualifications for a loan that could not be kept except by way of a request for a higher valuation of the borrower's property after an initial lower-than-hoped-for valuation.
Why Judge Walton would apparently limit the discovery in this fashion is not made clear by anything of record. And given that the Government's case goes well beyond allegedly improper value appeals, there is no principled basis for allowing Quicken to refuse to turn over documents that touch on other allegedly improper tactics, such as management exceptions or inflation of borrower income. The requested loan-level documents are the central repository of what Quicken representatives communicated to their customers about the loans and Quicken's practices. The Government is entitled to their production.
Therefore, the Court overrules Quicken's objection, grants this portion of the Government's motion, and orders the production of all loan-level emails for the Loan Selection, except for the generic "sales scripts" that Quicken employees purportedly use during initial communications with a potential borrower.
The Government is seeking the production of documents regarding "easily extractable tracking items" outside of the Loan Selection that contain (i) "management-exception and requests," (ii) "management's ultimate decision in response to the request," and (iii) "key information concerning value appeals." Pl. Mot. at 9 (citing Pl. 1st Set of Prod. Requests ¶¶ 63-64, 68-69, 72). The Government claims that Quicken has "already written the code necessary to extract the requested data."
In response, Quicken argues that the Government's request for the production of management-exception and value-appeals tracking items "for every one of the 4,000+ claim loans" should be denied because it "did not serve a document request requesting them." Def. Resp. at 6-7. Quicken also argues that these documents would be "useless" and "irrelevant" because the Government does not seek all of the loan files and associated documents.
The Court first finds that the Government's requests would appear to cover the documents being sought here.
The Court also finds that this evidence is relevant, even though the Government has not sought the complete loan files for all of the claim loans. Evidence of an allegedly wrongful practice might well show the mechanics of how Quicken personnel engage in illegal activity; it may also show different contexts or factors that may be relevant in understanding how an illegal practice is orchestrated by Quicken managers, and whether it is encouraged or punished. Whether additional facts or circumstances might be important to determine the ultimate significance of the evidence cannot be determined now. But nothing in the law of discovery requires that a discoverable item independently establish its significance; like evidence at trial, an item may be a building block with other evidentiary items to prove a proposition that is of significance to a party's case.
Although Quicken may be required to write a new code for the limited tracking items sought by the Government, as suggested by Quicken's counsel during the hearing, the Court is not persuaded that such an undertaking would be overly burdensome. Quicken has undoubtedly learned much from its earlier coding efforts that will likely facilitate new coding efforts.
Therefore, the Court overrules Quicken's objection, grants this portion of the Government's motion, and orders Quicken to produce the management-exception and value-appeals tracking items for the approximately 4,000 claim loans. This production is due by June 23, 2017.
The Government seeks "specific documents and data pertaining to the ways and amounts that Quicken's employees were actually compensated for their work." Pl. Mot. at 10 (citing Pl. 1st Set of Prod. Requests ¶¶ 58-61). Following the hearing, counsel for the Government informed the Court that the Government is no longer seeking these documents. Therefore, the Court denies this portion of the Government's motion without prejudice.
The Government seeks discovery of Quicken's profits, claiming that "Quicken's profit from FHA mortgages is relevant to Quicken's motivations for its FHA lending and related processes, and thus, its knowledge regarding its violations of FHA requirements and approval of ineligible loans." Pl. Mot. at 11 (citing Pl. 2d Set of Prod. Requests ¶¶ 30-31). To support its position, the Government claims that Quicken was already ordered by Judge Walton to produce "information regarding profits, e.g., the difference between the costs Quicken Loans incurred marketing a loan and the funds Quicken Loans acquired by successfully securing an FHA loan for a borrower." Pl. Mot. at 11 (quoting 10/24/2016 Order).
In response, Quicken argues that the Government's request for the production of all data related to profit or revenue from FHA loans (which Quicken claims would include loans on which the Government cannot recover because they are either outside the relevant time period or never went to claim) is irrelevant to showing that a specific underwriter knowingly approved a bad loan. Def. Resp. at 9;
According to Quicken, Judge Walton previously resolved this issue, when he "agreed [with Quicken's position] and denied the [G]overnment's request for profit- or revenue-related data except as to loan-specific information regarding all profits, e.g., the difference between the costs Quicken Loans incurred marketing a loan and the funds Quicken Loans acquired by successfully securing an FHA loan for a borrower."
Judge Walton's order does not expressly adopt either a loan-by-loan perspective or something more "macro." The Government states that it is content with certain specific items identified in confidential filings.
The Government sought the production of "[a]ll Opportunity Letters issued to any individual involved with the origination or underwriting of FHA loans." Pl. 1st Set of Prod. Request ¶ 62;
Quicken seeks the production of "all documents applying, interpreting, or construing the FHA guidelines that the Government alleges Quicken Loans violated, even if they involve another lender's loan," including "[Post Endorsement Technical Review ("PETR")] files, [Quality Assurance Division ("QAD")] files, correspondence and memoranda," and "HUD-2 exception request[s]." Def. Mot. at 4 (citing Def. 2d Set of Prod. Requests ¶¶ 116, 121-123, 125, 131-136, 138-139, 148 (Dkt. 33-2)). During the hearing, Quicken reasserted that it was only requesting documents related to the guidelines that the Government contends Quicken allegedly violated in this case.
Because the Government has not yet determined which, if any, of the 350 loans in the Loan Sample violated FHA guidelines, the Court denies this request without prejudice. Once the Government discloses the problematic loans within the sample and the guidelines which those loans purportedly violated, Quicken may renew its request for these additional lender documents; any objection by the Government shall be served within seven days of any renewed demand. In the meantime, the Court orders the Government to produce those documents outlined in the Government's compromise email regarding this request.
Quicken loans seeks over 8,000 "responsive, non-privileged documents that the Government has withheld on the grounds that they are too confidential to share with Quicken," Def. Mot. at 1, and that Quicken "cannot be trusted with them,"
In response, the Government states that it is not withholding these documents based on an Attorney-Eyes-Only objection, but, rather, it has agreed to produce these documents, provided "adequate safeguards [are] in place to protect the sensitivity of the information." Pl. Resp. at 6. There are two categories of materials that the Government seeks to protect: (i) "information related to HUD's function as a regulator which could allow Quicken to reverse-engineer certain ways in which HUD oversees lenders, and thus avoid enforcement"; and (ii) "proprietary information of Quicken's business competitors."
Regarding the first category of materials, the Government contends that production would allow Quicken's "personnel [to] learn[ ] the exact parameters FHA uses to select a mortgage for review," thereby allowing Quicken to avoid FHA review in the future.
The Government further states that, if Quicken's counsel believes that disclosure of the documents to its business-facing employees is necessary to evaluate properly any material marked as Attorney-Eyes-Only, or if Quicken disputes that a document is sufficiently sensitive to deserve such a designation, the parties could discuss the specific document and try to reach a resolution without judicial involvement; if resolution is not achieved, Quicken could then seek the Court's intervention.
At this time, the Court finds the Government's approach to be the most efficient resolution of this issue. Therefore, the Court denies this portion of the motion without prejudice to Quicken filing a motion to remove the Attorney-Eyes-Only restriction. The Government shall produce the "Attorney Eyes Only" documents by June 9, 2017.
Quicken seeks the production of "[e]mail responses from the FHA Resource Center to Quicken." Def. Mot. at 1;
In response, the Government first notes that, in addition to the catalogue of thousands of inquiries it has already produced, it has since located more accurate date information and intends to supplement this data. Pl. Resp. at 10. Because the data does not consistently identify the individual at HUD who responded to an inquiry, the Government contends that it would be inefficient to use this data to target HUD's email responses.
The Court concludes that resolution of this issue in connection with development of ESI searches may be more efficient. The Court grants this portion of the motion insofar as the Government shall produce the requested documents within 14 days following the completion of the Rule 30(b)(6) ESI deposition (which deposition is addressed in a separate order).
Quicken seeks "[d]ocuments comparing the performance of loans originated by Quicken Loans during the relevant time period to those of other lenders," Def. Mot. at 1, including "documents comparing early-payment default and material finding rates, as well as Mortgage Performance Reports, for Quicken Loans' loans originated during the relevant time period (even if the documents were created later),"
In response, the Government argues that Quicken's performance relative to other FHA lenders is irrelevant to the issue of how Quicken performed relative to FHA's requirements. Pl. Resp. at 11. The Government then states that it is currently searching for documents responsive to Quicken's request.
As with the FHA Resource Center email responses, it may be more efficient to produce the requested documents following the ESI searches. Accordingly, the Court grants this portion of the motion insofar as the Government shall produce the requested documents within 14 days following the completion of the Rule 30(b)(6) ESI deposition.
Quicken requests the methodology the Government used in selecting the 350 loans for the sample, Def. Mot. at 9-10 (citing Interrogatory No. 3 (Dkt. 33-11)), as well as permission to take a Rule 30(b)(6) deposition regarding ESI and document custodians,
Sampling methodology will be a complex matter, involving experts to assist in resolving. It makes sense for the Government to disclose the method and justification at this early juncture, so that Quicken can begin its investigation and defense on that issue. However, requiring Quicken to formulate its position on that issue now would be premature. As this case progresses, it may make sense to require Quicken to do so in advance of other expert disclosures; at that point, the timing of an earlier disclosure by Quicken can be considered. Accordingly, the Court orders the Government to disclose its sampling methodology and justifications therefor by either answering Interrogatory 3 of Quicken's first set of interrogatories or furnishing an expert report. This shall be done by July 7, 2017.
The issue of ESI is properly before the Court, as it has been the subject of scheduling and discovery conferences. The rules encourage the Court to address discovery in the less formal setting of a conference.
For the reasons stated above, the Court grants, in part, and denies, in part, the Government's motion to compel (Dkt. 32). The Court also grants, in part, and denies, in part, Quicken's motion to compel (Dkt. 33).
Should the parties wish to modify any dates set forth in this order, the following restrictions apply. The Court's policy is that adjournment of any event scheduled to occur prior to the due date for fact discovery may be accomplished by submission of a proposed stipulated order, provided that no such adjournment may affect the due date of any event scheduled to occur from and after the due date for fact discovery. Adjournment of any event scheduled to occur from and after the fact discovery due date must be sought by written motion setting forth good cause and filed promptly after the circumstance giving rise to the claimed need for an adjournment. A party seeking to file such a motion must first comply with the Court's order on motion protocol (Dkt. 31).
SO ORDERED.