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McFadden v. Williams

United States District Court, E.D. Virginia, Richmond Division

February 8, 2019

BRIAN MCFADDEN, Plaintiff,
v.
LULA WILLIAMS, et al., as individuals, Defendants.

          MEMORANDUM OPINION

          Robert E. Payne, Senior United States District Judge

         This matter is before the Court on Brian McFadden's AMENDED MOTION TO QUASH PLAINTIFFS' SUBPOENA TO BRIAN MCFADDEN TO TESTIFY AT DEPOSITION IN A CIVIL ACTION (ECF No. 4).[1] For the following reasons, the AMENDED MOTION TO QUASH PLAINTIFFS' SUBPOENA TO BRIAN MCFADDEN TO TESTIFY AT DEPOSITION IN A CIVIL ACTION (ECF No. 4) will be granted in part and denied in part.

         BACKGROUND

         In Williams v. Big Picture Loans, LLC, 329 F.Supp.3d 248 (E.D. Va. 2018), [2] the Court set out the basis for this litigation and the efforts of the two corporate defendants, Ascension Technologies, Inc. ("Ascension") and Big Picture Loans, LLC ("Big Picture Loans") (collectively the "Corporate Defendants") to escape the reach of this case by trying to come within the sovereign immunity of the Lac Vieux Desert Band of Lake Superior Chippewa Indians (the "Tribe"). For the reasons set forth in the Memorandum Opinion, the Corporate Defendants' motion to dismiss this case for lack of jurisdiction under a claim of sovereign immunity was rejected. That decision is pending before the United States Court of Appeals for the Fourth Circuit.

         The plaintiffs' Complaint against the Corporate Defendants and Martorello alleges two violations of the federal Racketeering Influenced Corrupt Organizations Act, 18 U.S.C. §§ 1962(c) and 1962(d), as well as violation of Virginia's usury laws, a claim for unjust enrichment, and a plea for declaratory judgment.

         The facts that give rise to these claims are outlined in the Memorandum Opinion, Williams, 329 F.Supp.3d at 253-66. As explained in the Memorandum Opinion, the corporate structures here are convoluted and somewhat difficult to follow. In sum, the Memorandum Opinion recites a structure that was manipulated principally for the purpose of affording Martorello and his related entities the protection of tribal immunity while violating usury laws when, in fact, the applicable test shows that neither Ascension nor Big Picture Loans is an arm of the tribe, and that, therefore, neither are entitled to immunity. The fundamental purpose of the corporate arrangements was to permit the defendants to evade the usury laws of the states, including those of Virginia, and to allow the making of consumer loans at rates approximating 699% per annum, with the overwhelming share of the yield of the repayment of those loans going to Martorello or corporations controlled by him and a very small portion going to the Tribe.

         After the Corporate Defendants appealed from the decision denying them protections of sovereign immunity, the case was set for trial on the claims against Martorello. The case against Martorello was set for trial to begin on March 18, 2019, but as explained in the Memorandum Order entered on January 23, 2019, Williams, No. 3:17-cv-461, ECF No. 323, the Corporate Defendants thwarted the discovery efforts of the plaintiffs and Martorello to adequately prepare for trial. It therefore became necessary to continue the trial against Martorello generally, because, in part, of the need to take the deposition of Brian McFadden and others who are employed by Ascension but were formerly employed by Bellicose Capital, LLC ("Bellicose"). As explained in the Memorandum Opinion, Bellicose was controlled by Martorello, but Bellicose was acquired by the Tribe in 2015. Williams, 329 F.Supp.3d at 259. Bellicose's assets were assigned to Ascension and its liabilities were assigned to Big Picture Loans, and Bellicose ceased to exist. Id. at 261. This restructuring (which saw Ascension and Big Picture Loans take on lending operations of Bellicoise and another Martorello company) was part of a plan by Martorello, Ascension, and Big Picture to clothe a lending operation-which the United States District Court for the Southern District of New York said could be regulated under New York's non-discriminatory anti-usury laws-in the Tribe's sovereign immunity. Id. at 257-259; see also Otoe-Missouria Tribe of Indians v. N.Y. State Dep't of Fin. Servs., 974 F.Supp.2d 353, 360-61 (S.D.N.Y. 2013); aff'd, 769 F.3d 105 (2d Cir. 2014).

         With that in mind, and precluded from conducting discovery against the Corporate Defendants because of their appeal, the plaintiffs sought to obtain information from former Bellicose employees about Bellicose and its operations as well as the transformation of Bellicose and affiliated entities into Ascension and Big Picture Loans. That evidence was intended to help them prove their merits case against Martorello. Although Martorello did not initiate the depositions against the former Bellicose employees, he has said he needs information from the to aid in his defense.

         McFadden is the President of Ascension. McFadden was formerly the president of Bellicose Capital ("Bellicose"), and he is a part owner of Eventide Credit Acquisitions, LLC ("Eventide"). Eventide provided the initial loan of $300M that was to fund the lending operations to be conducted by Ascension and Big Picture Loans after Bellicose became what is now Ascension and Big Picture Loans.

         The plaintiffs from Williams, No. 3:17-cv-461, served McFadden with two subpoenas ad testificandum, one under Federal Rule of Civil Procedure 30(b)(1) and the other under Federal Rule of Civil Procedure 45. After the Corporate Defendants filed their appeal, McFadden's counsel and plaintiffs' counsel discussed the subpoenas, and plaintiffs' counsel made clear that they planned to proceed with a deposition of McFadden under the Rule 45 subpoena.

         McFadden, who is represented by the same law firm as the Corporate Defendants, filed the AMENDED MOTION TO QUASH PLAINTIFFS' SUBPOENA TO BRIAN MCFADDEN TO TESTIFY AT DEPOSITION IN A CIVIL ACTION (ECF No. 4) . The plaintiffs responded to that motion (ECF No. 6), and McFadden replied (ECF No. 10). The parties presented oral argument.

         After the AMENDED MOTION TO QUASH PLAINTIFFS' SUBPOENA TO BRIAN MCFADDEN TO TESTIFY AT DEPOSITION IN A CIVIL ACTION (ECF No. 4) was ripe, but before the Court had a hearing on the motion, the Court decided the Corporate Defendants' motion to stay in Williams. See No. 3:17-cv-461, ECF No. 323. Relevant here, the Court confirmed that neither Matt Martorello (the third defendant in the case) nor the plaintiffs could serve discovery directly on the Corporate Defendants, because the Corporate Defendants' appeal to the Fourth Circuit must be respected. Id. at 7, 9. But, the Court also held that the case against Matt Martorello would not be stayed even though the trial had to be moved because of the delayed discovery caused by expansive assertions of sovereign immunity of which the assertion by Liang is but a part. Id. at 6. Thus, discovery may proceed against Matt Martorello, because the Court is divested only "over [the] aspects of the case involved in the appeal." Id. at 8-9 (quoting Griggs v. Provident Consumer Disc. Co., 459 U.S. 56, 58 (1982)). Martorello's trial date has been continued generally.

         DISCUSSION

         A court must quash or modify a subpoena that "subjects a person to undue burden" or that "requires disclosure of privileged or other protected matter." Fed.R.Civ.P. 45(d)(3)(A). Additionally, the "party or attorney responsible for issuing and serving a subpoena must take reasonable steps to avoid imposing undue burden or expense on a person subject to the subpoena." Fed.R.Civ.P. 45(c)(1). The burden to establish that a subpoena imposes an undue burden is on the person opposing its command. See Singletary v. Sterling Transp. Co., 289 F.R.D. 237, 241 ...


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