Harney et al v. Select Portfolio Servicing, Inc.

RESPONSE/MEMORANDUM in Opposition

E.D. La.January 30, 2018

1 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF LOUISIANA ELISABETH HARNEY and * CASE NO. 2:16-01998 NOEL HARNEY * JUDGE CARL J. BARBIER VERSUS * M. JUDGE DANIEL KNOWLES SELECT PORTFOLIO SERVICING, INC. * SECTION “J” MAG. (3) * * * * * * * * * * * * * MEMORANDUM IN OPPOSITION TO MOTION TO QUASH PLAINTIFFS’ SUBPOENAS DUCES TECUM TO NON-PARTIES OR, IN THE ALTERNATIVE, FOR A PROTECTIVE ORDER NOW COME plaintiffs, Elisabeth and Noel Harney (“Plaintiffs”), and file their Opposition to Motion to Quash Plaintiffs’ Subpoenas Duces Tecum to Non-Parties, Residential Real Estate Review, Inc. (“RRReview”),1 American Security Insurance Company (“ASIC”),2 and Safeguard Properties, L.L.C. (“Safeguard”)3 or, in the Alternative, for a Protective Order, filed by defendant, Select Portfolio Servicing, Inc. (“SPS”). I. RELEVANT FACTS Plaintiffs own property at 1472 Angus Drive, Harvey, Louisiana 70058 (hereinafter referred to as the “Property”). The Property was severely damaged by wind and floodwaters produced by Hurricane Isaac on or around August 29, 2012. The Property was so damaged that Plaintiffs could not reside there.4 Plaintiffs made a claim and received funds from their homeowners and flood insurers. The Property was again damaged by a February 2013 hailstorm, and another claim was filed and additional funds were paid. 1 RRReview Subpoena Duces Tecum, attached hereto as Exhibit 1. 2 ASIC Subpoena Duces Tecum, attached hereto as Exhibit 2. 3 Safeguard Subpoena Duces Tecum, attached hereto as Exhibit 3. 4 The Harneys have not resided at the Property since Hurricane Isaac struck. Case 2:16-cv-01998-CJB-DEK Document 54 Filed 01/30/18 Page 1 of 12 2 Between September 2012 and August 2014, seven checks totaling $108,744.74 were issued to Plaintiffs for these claims, each naming SPS as a payee. All seven checks were forwarded to SPS and were deposited into an escrow account. From that escrow account, SPS ultimately disbursed a total of $28,246.87 for attorney’s fees and $9,100.00 in expert litigation costs. On January 31, 2013, SPS issued a single check for $10,000.00 to Plaintiffs for repairs to the Property. SPS retained the remainder of the insurance proceeds, approximately $60,000.00. Plaintiffs used the $10,000.00 to tarp the roof, gut the property to the studs, haul debris, apply anti-microbial agents, and purchase and partially-install new insulation. At the end of February 2013, the Harneys requested that SPS release additional funds so they could continue to make repairs. On February 28, 2013 SPS sent a representative from Safeguard Properties, Inc., to inspect the property and to determine the percentage of repairs. Plaintiffs did not receive evidence of this inspection report until after litigation was filed. The Harneys were told over the phone that the inspector, whose identity is purportedly unknown to SPS, found that the repairs were nine percent complete. SPS continued to rely on this inspection report as the basis for their refusal to disburse additional insurance proceeds.5 When SPS answered the Harneys’ initial discovery requests, this single-page, unsigned inspection report from Safeguard was produced to the Harneys for the first time.6 SPS was questioned about the report through its corporate reprehensive, Diane Weinberger, in September 2017. During her deposition she denied that any portion of the Safeguard report was missing but could not tell the Harneys who authored the report, the qualifications of the inspector, how or why 5 SPS alleges in its Motion for Summary Judgment that this Safeguard report initially reflected that repairs were 25 percent complete, but this report was then “revised” down to nine percent complete. SPS Motion for Summary Judgment, 2:16-cv-01998-CJB-DEK, Document 49-1, p. 13. 6 Safeguard report produced by SPS, attached as Exhibit 4. Case 2:16-cv-01998-CJB-DEK Document 54 Filed 01/30/18 Page 2 of 12 3 the report was stamped with “revised,” or how the report had been altered.7 During her deposition, Weinberger could not testify with any knowledge about any of the subsequent Safeguard inspections of the property. Plaintiffs then subpoenaed the documents directly from Safeguard. These documents are vital to the Harneys claims for two reasons: (1) SPS relied completely on the February 2013 inspection by Safeguard as its sole basis for withholding the Harneys’ insurance proceeds; and (2) every time SPS sent Safeguard to the property for an inspection, SPS deducted the amounts, fees, and charges from the Harneys escrow account. Instead of tendering the insurance proceeds to Plaintiffs for property repairs, SPS used those funds to purchase: (1) force-placed insurance policies through ASIC, which policies were greatly in excess of the value of the Property;8 (2) excessive bi-monthly inspections through Safeguard; and (3) numerous drive-by appraisals through RRReview, SPS’s wholly-owned subsidiary, which appraisals were ignored—the values ascribed at appraisal were never used to value the Property for insurance procurement.9 On March 9, 2016, Plaintiffs filed their Complaint for Damages against SPS alleging violations under the Dodd-Frank Wall Street Reform and Consumer Protection Act, breach of contract, breach of the duty of good faith and fair dealing, conversion, and unjust enrichment.10 At that time, Plaintiffs had no documents regarding their SPS loan because, for a period of years, SPS knowingly sent all communications and documentation to an uninhabited address, where Plaintiffs received no correspondence.11 7 Deposition testimony of Diane Weinberger pp. 201, ln 20- 213, ln 13, attached as Exhibit 5. 8 See 2014, 2015, 2016 forced placed insurance policies, attached as Exhibit 6. 9 See RRReview Appraisals, attached hereto in globo as Harney Exhibit 7. 10 Harney Complaint for Damages, 2:16-cv-01998-CJB-DEK, Rec. doc. 1. 11 Exhibit 5, p. 119 ln. 2-p. 129 ln. 24. Case 2:16-cv-01998-CJB-DEK Document 54 Filed 01/30/18 Page 3 of 12 4 On September 21, 2017, Plaintiffs conducted a corporate deposition of SPS. Due to SPS’s lack of responsiveness during the corporate deposition, Plaintiffs propounded additional discovery requests on September 25, 2017 seeking documents discussed at the deposition. These requests included, inter alia: SUPPLEMENTAL REQUEST FOR PRODUCITON NO. 5: Please produce all bills, invoices, cancelled checks, money transfers, evidence of payments, correspondence and all documentation relative to the property located at 1472 Angus Drive between Select Portfolio and American Security Insurance Company between September 1, 2012 and January 1, 2017. SUPPLEMENTAL REQUEST FOR PRODUCITON NO. 6: Please produce all bills, invoices, cancelled checks, money transfers, evidence of payments, correspondence and all documentation relative to the property located at 1472 Angus Drive between Select Portfolio and RRReview between September 1, 2012 and January 1, 2017. SUPPLEMENTAL REQUEST FOR PRODUCTION NO. 11: Please provide a copy of any and all master insurance policies with American Security Insurance Company which covered the property located at 1472 Angus Drive, Harvey, Louisiana 70058 between September 1, 2012 and January 1, 2017.12 SPS refused to provide these documents. As such, Plaintiffs have sought to mitigate any burden on SPS by requesting these and other relevant documents from their respective sources, namely RRReview, ASIC, and Safeguard, via subpoenas duces tecum. SPS then filed the instant motion to quash these subpoenas. II. LAW AND ARGUMENT Federal Rule of Civil Procedure 26(b)(1) provides a broad scope for discovery: Scope in General. Unless otherwise limited by court order, the scope of discovery is as follows: Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense and proportional to the needs to the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit. 12 Supplemental Discovery propounded 9-25-17. Case 2:16-cv-01998-CJB-DEK Document 54 Filed 01/30/18 Page 4 of 12 5 Information within this scope of discovery need not be admissible in evidence to be discoverable. This particularly wide net allows Plaintiffs to obtain any relevant, non-privileged discovery. Because the documents requested in the underlying subpoenas are relevant and non- privileged, they are subject to discovery. SPS lacks standing to bring a motion to quash on behalf of RRReview, ASIC, and/or Safeguard, because it has no personal right or privilege with respect to the documents subpoenaed. Even if SPS did have standing, it cannot demonstrate the facts necessary to support a motion to quash under the facts presented here. As such, SPS’s Motion to Quash should be denied. ASIC, Safeguard and RRReview regularly transacted business in Louisiana and in particular, at the Harney’s property located in Harvey, Louisiana. Furthermore, the documents sought in the underlying subpoenas are undeniably relevant. As such, SPS’s Motion for a Protective Order should be denied. A. SPS Lacks Standing to Bring a Motion to Quash Subpoenas Duces Tecum to Non- Parties SPS lacks standing to file the underlying Motion to Quash because it is not the person named in any of the underlying subpoenas, and because it has no personal right or privilege with respect to the documents subpoenaed. A motion to quash or modify a subpoena under Rule 45(c)(3) may ordinarily be made by the person to whom the subpoena is directed, because only that person has standing to attack the subpoena. Kiger v. Plaisance Dragline, 2006 U.S. Dist. LEXIS 80756, at *4 (E.D. La. Nov. 2, 2006). “However, a party, although not the person to whom a subpoena is directed and not in possession or control of the requested materials, does have such standing if he has a personal right or privilege in respect to the subject matter of the subpoena or a sufficient interest in it.” Id. SPS asserts that it has such standing, though the subpoenas are not Case 2:16-cv-01998-CJB-DEK Document 54 Filed 01/30/18 Page 5 of 12 6 directed at SPS, because it has a “sufficient interest in the subject matter” of the documents requested in the underlying subpoenas. Court have found that a party, attempting to quash a subpoena directed to a non-party, does not have sufficient interest to establish standing, when it has “not alleged any personal right or privilege with respect to the materials subpoenaed.” Westside-Marrero Jeep Eagle v. Chrystler Corp., 1998 U.S. Dist. LEXIS 5614, at *11 (E.D. La. Apr. 17, 1998); see also 9A C.A. Wright & A.R. Miller, Federal Practice and Procedure § 2459, at 41 & cases cited nn. 15, 16 (2d ed. 1997) (“Ordinarily a party has no standing to seek to quash a subpoena issued to someone who is not a party to the action unless the party claims some personal right or privilege with regard to the documents sought.”); Brown v. Braddick, 595 F.2d 961, 967 (5th Cir. 1979) (“Braddick and Lindsey do not have standing to raise the issue of Grainger’s amenability to the compulsory process of the district court since they are not in possession of the materials subpoenaed and have not alleged any personal right or privilege with respect to the materials subpoenaed.”). SPS has not alleged that it has any personal right or privilege with respect to the materials subpoenaed, here. As such, SPS lacks standing to bring the underlying Motion to Quash. B. The Requested Documents are Within the Subpoena Power of the United States Court for the Eastern District of Louisiana SPS argues that all documents subpoenaed in the RRReview, ASIC, and Safeguard Subpoenas duces tecum are located in other districts, and that this Court cannot order that the documents be produced in New Orleans, Louisiana. SPS provides absolutely no basis for its self- serving allegations regarding the whereabouts of the subpoenaed documents. Rather, SPS asserts without support that any responsive documents held by RRReview are located in Salt Lake City, Utah; that the responsive documents held by ASIC are located in Atlanta, Georgia; and that the responsive documents held by Safeguard are located in Valley View, Ohio. These are the same Case 2:16-cv-01998-CJB-DEK Document 54 Filed 01/30/18 Page 6 of 12 7 locations identified by SPS as the headquarters of each company. SPS provides no support whatsoever for their claims that the subpoenaed documents are located at the headquarters of these companies. Furthermore, SPS appears to be unclear of the location of the Safeguard headquarters, stating “Safeguard appears to be headquartered in Valley View, Ohio.” According to Federal Rule of Civil Procedure Rule 45(c)(2)(A), a subpoena may command “production of documents, electronically stored information or tangible things at a place within 100 miles of where the person resides, is employed, or regularly transacts business in person.” Thus, even if SPS can demonstrate that all of the requested documents are located in other states, RRReview, ASIC, and Safeguard all regularly conducted business in Louisiana, and provided services at Plaintiffs’ Property. Specifically, RRReview and Safeguard performed inspections and other services at the Property, as demonstrated in the limited documents produced regarding these entities. In addition, ASIC insured the Property and collected considerable premiums from the Harneys. Because ASIC, Safeguard and RRReview regularly transact business in the greater New Orleans area, and within the jurisdiction of this Court, the underlying subpoena’s request for production of documents in New Orleans, Louisiana is appropriate. Because SPS has not demonstrated that any of the documents subpoenaed are located in any district outside of the jurisdiction of this Court, and all parties regularly conduct business within this Court’s jurisdiction, SPS’s Motion to Quash should be denied. C. The Requested Documents are Relevant 1. The ASIC Documents Sought are Relevant SPS has failed to address any questions or produce any meaningful documentation regarding the force-placed insurance policies on Plaintiffs’ property. SPS’s corporate representative had no idea who ordered the policies, what factors went into the decision regarding Case 2:16-cv-01998-CJB-DEK Document 54 Filed 01/30/18 Page 7 of 12 8 amounts, premiums, or coverage.13 The insurance policies were purchased using the Harney’s money, amounts were deducted from the Harney’s escrow account, and fees and charges accrued on the amounts taken by SPS—all of which was used and/or deducted from the insurance proceeds at issue in this lawsuit. There can be no question that the manner in which SPS used the Harneys’ insurance proceeds is relevant, especially in light of the fact that the Harneys allege causes of action for both breach of contract and civil conversion, among other allegations, in their complaint. The Harney’s have alleged that SPS failed to service their mortgage in good faith and the insurance policies go to the heart of this allegation. SPS basically used the Harney’s escrow account as a piggy bank, taking far more than was owed for the insurance premium and purchasing unnecessarily high amounts of coverage-- up to seven times the value of the Plaintiffs’ property. The subpoena requests evidence of the payments from the Harney’s account so that they can explain to a jury how SPS breached its contract with the Harneys, failed to service their account in good faith, and converted the Harneys’ insurance proceeds for its own benefit. 2. The RReview Documentation Sought is Relevant SPS has also failed to address questions or produce meaningful documentation regarding the numerous RRReview appraisals of the property ordered by SPS. Ms. Weinberger failed to make herself knowledgeable about this subject and could not cite the reasons for the constant appraisals performed on behalf of SPS, nor could she testify as to who ordered them or how they were utilized relative to the Harney’s property. “It was ordered by whomever needed it, I don’t know the purpose,” simply does not justify the payments taken from the Harney’s account. Every single time SPS instructed RRReview to appraisal the property, funds were deducted from the 13 Exhibit 5 at p. 174, ln 2- p. 178, ln. 9, p.185, ln 2- p. 201, ln 7. Case 2:16-cv-01998-CJB-DEK Document 54 Filed 01/30/18 Page 8 of 12 9 Harneys escrow account—which included the insurance proceeds at issue in the Harneys’ complaint. Any and all appraisals were paid for by the insurance proceeds earmarked for repairs. The Harney’s are simply requesting documentation regarding why their escrow account was deducted for the many appraisals, who ordered the appraisals, and the purpose for which the appraisals were ordered. 3. The Safeguard Documentation Sought is Relevant After the Harneys had exhausted their initial draw, SPS retained Safeguard to inspect the property in an effort to determine what percentage of repairs had been made. In the weeks and months following the inspection, SPS told the Harney’s that they would not release additional insurance proceeds because the Safeguard report stated that the repairs were at only 9 percent completion. The Harneys were told that repairs needed to be at 25 percent completion before additional insurance proceeds could be released. SPS’s corporate representative testified to the same thing.14 After the Harney’s filed their lawsuit and propounded discovery, they received the Safeguard “report” SPS relied upon as the reason they never released additional funds. The report is one page, unsigned, and lacks any other identifiers as to the scope of the inspection, calculations, or instructions from SPS regarding the ordered inspection. However, the report was stamped “revised.” When questioned, SPS’s corporate representative could not say whether the one page document was the entire report or who authored the report. More importantly, she had no idea how the report had been revised or what the original report stated.15 Last week in its Motion For Summary Judgment, SPS referenced the inspection by Safeguard and stated the following: 14 Id at p. 93, ln 12- p. 94, ln 5, p. 96, ln 6- p. 97, ln 10, p. 108, lns 4-13. 15 Id at pp. 201, ln 20- 213, ln 13. Case 2:16-cv-01998-CJB-DEK Document 54 Filed 01/30/18 Page 9 of 12 10 On February 20, 2013, Mrs. Harney called SPS to request an inspection of the repairs so another disbursement could be made. SPS arranged for its vendor, Safeguard Properties, to conduct an inspection of the repairs. The inspection took place eight days following Mrs. Harney’s request, on February 28, 2013. Based on the initial visual inspection, the percentage of work completed was indicated to be 25%. After further review of the photographs, Safeguard reduced the completion percentage to 9%.16 SPS’s assertions in this regard are precisely why Plaintiffs are entitled to these documents. Plaintiffs have never received any reports, supplemental discovery responses or other documentation regarding the February 28, 2013 inspection other than the single page “revised” report referenced earlier. In September, SPS testified that it had no idea what the initial inspection report said or how the original percentage of repairs completed was determined. This information is vital to the Harneys claims. If the original report came back at 25 percent completion, according to its own policies, SPS should have disbursed additional insurance proceeds to the Harney’s so that they could continue making repairs to their property. SPS specifically relied on the Safeguard inspection report dated March 2013 as its sole basis for not releasing additional insurance funds to the Harney’s for repairs. These funds were retained by SPS and converted for its own purposes, including its insurance fraud scheme with ASIC. Clearly SPS has the original inspection report evidencing that 25 percent of repairs had been made as of February 2013, as they cite it in their Motion for Summary Judgement. Considering the contents of the report directly led to SPS retaining the insurance proceeds, the reports and supporting documentation to the reports are relevant to the Harneys’ claims against SPS. In addition to the February 28, 2013 inspection, SPS retained Safeguard to inspect the property at least twice a month beginning in March 2013. For at least three years, the Harney’s unknowingly paid for the Safeguard inspections out of their escrow account—an account 16 SPS Motion for Summary Judgment, 2:16-cv-01998-CJB-DEK, Document 49-1, p. 13. Case 2:16-cv-01998-CJB-DEK Document 54 Filed 01/30/18 Page 10 of 12 11 containing insurance proceeds ostensibly meant for the repair of the Property. The unnecessary, ineffective, and excessive inspections ate up untold amounts of the insurance proceeds. The documents evidencing the amounts paid to Safeguard and the instructions from SPS to Safeguard go directly the Harney’s claims of breach of contract, breach of good faith, and conversion. Because the documents sought in the underlying subpoenas are undeniably relevant, SPS’s Motion for a Protective Order should be denied. Further, because the documents sought in the underlying subpoenas are undeniably relevant, SPS’s request that the Court limit the scope of the subpoenas to “only those documents in the possession of Safeguard related to the February 2013 inspection” should likewise be denied. WHEREFORE, Plaintiffs, Elisabeth and Noel Harney, respectfully pray that this Court deny the Motion to Quash Plaintiffs’ Subpoenas Duces Tecum to Non-Parties or, in the Alternative, for a Protective Order filed by defendant, Select Portfolio Servicing, Inc. Respectfully submitted by, /s/David A. Binegar David A. Binegar (#26603) Tiffany R. Christian (#28529) BINEGAR CHRISTIAN, LLC 4902 Canal Street, Suite 301 New Orleans, Louisiana 70119 T: (504) 301-1403 F: (504) 304-2081 Attorneys for the Harneys Case 2:16-cv-01998-CJB-DEK Document 54 Filed 01/30/18 Page 11 of 12 12 CERTIFICATE OF SERVICE The undersigned hereby certifies that a copy of the foregoing pleading has been served on all counsel of record via this Court’s CM/ECF filing system. Service was made via this Court’s electronic filing system this 30th day of January, 2018. /s/David A. Binegar Case 2:16-cv-01998-CJB-DEK Document 54 Filed 01/30/18 Page 12 of 12