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Wells Fargo Bank NA v. Wyo Tech Investment Group LLC

United States District Court, D. Arizona

August 29, 2019

Wells Fargo Bank NA, Plaintiff,
Wyo Tech Investment Group LLC, et al., Defendants.



         Pending before the Court is a motion to quash/modify filed by non-parties Wilenchik & Bartness, P.C. (“the Wilenchik Firm”) and Lisa Loftis. (Doc. 179.) The motion is directed at a pair of Rule 45 deposition subpoenas that were issued by CWT Canada II Limited Partnership, Resource Recovery Corporation, and Jean Noelting (collectively, the “Judgment Creditors”), who have filed an opposition to the motion. (Doc. 184.)[1] As explained below, the motion will be granted in part and denied in part.


         I. Case Background

         This is a civil interpleader action in which two sets of adversaries-(1) Wyo Tech Investment Group LLC (“Wyo Tech”) and (2) the Judgment Creditors-are fighting over $546, 282.55.

         In 2016, the Judgment Creditors obtained a $7 million judgment against Dennis Danzik in New York state court.

         In October 2017, the Judgment Creditors attempted to collect on a portion of the outstanding judgment by freezing a bank account at Wells Fargo, which had a balance of $546, 282.55. Notably, this account wasn't held in Danzik's name. Instead, it was held in the name of Wyo Tech. To freeze the account, the Judgment Creditors' attorneys utilized an unusual procedural tool known as a “restraining notice, ” which is governed by section 5222 of the New York Civil Practice Law and Rules.

         Wyo Tech protested when it learned its account had been frozen, arguing that it had no connection with Danzik and that Wells Fargo should immediately release the frozen funds. In response, Wells Fargo filed an interpleader action in this court. Functionally, this meant that Wells Fargo deposited the disputed funds into the Court's bank account so the Court could referee the fight between Wyo Tech and the Judgment Creditors over who has the superior entitlement to the funds.

         II. The Ruling That The Judgment Creditors Are Entitled To Conduct Discovery Concerning The Legal Fees Remitted To The Wilenchik Firm By Wyo Tech

         One of the key disputed issues in this case has been whether the Judgment Creditors should be entitled to conduct discovery concerning their theory that Danzik secretly controls Wyo Tech or otherwise has an interest in Wyo Tech's funds. In a lengthy order issued in April 2019, the Court concluded that the Judgment Creditors should be entitled to pursue such discovery. (Doc. 119.)

         In that order, the Court also addressed a related discovery dispute, which concerned a Rule 45 document subpoena the Judgment Creditors had issued to the Wilenchik Firm in February 2019. (Id. at 11-13.) That subpoena sought all “documents sufficient to show all payments made to Wilenchik by Wyo Tech and by third party Inductance Energy Corporation (‘Inductance') and the client(s) on whose behalf and the matter for which the payments were made.” (Id. at 11.) The Judgment Creditors argued the subpoena was appropriate because they had a good-faith basis to believe Wyo Tech and Inductance had been paying the Wilenchik Firm to represent Danzik in various legal matters and “the more money Wyo Tech paid for Danzik's and his cronies' legal fees-especially in matters in which Wyo Tech has no interest-the more probable it is that Danzik has an interest in the disputed funds.” (Id., citation omitted.) The Wilenchik Firm disagreed, arguing the subpoena should be quashed because, inter alia, the payment records are irrelevant. (Id.) The Court rejected the Wilenchik Firm's relevance argument and ordered it to comply, reasoning as follows:

To be sure, the Court agrees with Wilenchik that whether Wyo Tech paid Danzik's attorneys' fees does not conclusively establish Danzik has an interest in the interpleaded funds. But the standard for relevance does not require that the evidence sought conclusively prove any issue in the case. If Wyo Tech paid Danzik's attorneys' fees, that at least makes it more likely Danzik had an interest in Wyo Tech's funds. [Citing New York cases.] Additionally, because some of Wyo Tech's funds were transferred to Inductance for the ‘opening' of an Inductance account immediately before the restraining notice was issued on the Wyo Tech account, whether Inductance paid Danzik's legal bills also bears on whether Danzik has an interest in the interpleaded funds.

(Id. at 13, citations omitted.)

         III. The Wilenchik Firm's Belated Production Of The Subpoenaed Payment Records

         A. The Motion Papers

         This was not, unfortunately, the end of the dispute over the payment records. On May 13, 2019, the Judgment Creditors filed a motion for an order to show cause (“OSC”) why the Wilenchik Firm should not be held in civil contempt for failing to comply with the subpoena. (Doc. 131.) This motion stated that the Wilenchik Firm had simply ignored the April 26, 2019 production deadline that was set forth in the Court's earlier order and not produced any responsive records. (Id.)

         On May 15, 2019, the Wilenchik Firm filed a response to the OSC motion. (Doc. 134.) The Wilenchik Firm asserted that it mistakenly thought it had sent responses to the subpoena to the Judgment Creditors on April 26, 2019 and only came to realize, after receiving the OSC Motion, that the responses had never been delivered due to a miscommunication. (Id. at 2, 4.) The Wilenchik Firm also asserted that it supplemented its responses by producing responsive documents after corresponding with the Judgment Creditors' counsel after the OSC motion was filed. (Id. at 4-5.)

         Later that day, the Judgment Creditors filed an amended motion for an OSC. (Doc. 135.) In this motion, the Judgment Creditors asserted that the belatedly-produced documents were still insufficient because, among other things, (1) “Wilenchik's production of 14 pages . . . doesn't show which payments were for which clients or which matter, nor do they show the ‘account source' of the payments, all of which were required by the subpoena”; and (2) “Wilenchik continues to withhold documents related to other payments we know it got from Wyo Tech and Inductance. Indeed, we submit with this motion several checks from Wyo Tech and Inductance to Wilenchik showing payments that Wilenchik did not disclose in its production.” (Id. at 3-4.)

         On May 16, 2019, the Court issued an order setting a hearing on the Judgment Creditors' OSC request. (Doc. 136.) In this order, the Court expressed “significant concerns about discovery conduct of Wilenchik . . . . These concerns have nothing to do with the timing of the discovery responses-like the Judgment Creditors, the Court accepts the [Wilenchik Firm's] representation that [it] mistakenly believed [its] discovery responses had been sent on April 26, 2019. Instead, these concerns flow from the substance of the discovery responses and the seeming ...

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