Preview
CAUSE NO. 352-214202-05
RAYMOND SPOTH, GEORGE RAY, INC., § IN THE DISTRICT COURT
PSI PARTNERS, LTD., AND PSI GP, LLC §
AS THE GENERAL PARTNER OF PSI §
PARTNERS, LTD., §
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PAUL PEEBLES, AND FIRST OLD
CAPITAL, INC.,
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PLAINTIFFS' MOTION TO COMPEL
TO THE HONORABLE COURT:
Plaintiffs file this Motion To Compel ("Motion") in the above styled suit and, in support
thereof, would show as follows:
I.
FACTUAL BACKGROUND RELEVANT TO THIS MOTION TO COMPEL
This case involves a partnership dissolution and associated claims. On or about
September 29, 2003, Plaintiff Raymond Spoth ("Mr. Spoth") and Defendant Paul Peebles ("Mr.
Peebles") formed PSI Partners, Ltd., which operated as a management company in Colleyville,
Texas. The parties to this lawsuit had approximately a three-year relationship from 2003-2006.
This discovery dispute centers on Defendants failure to produce documents, specifically
loan origination files, HUD-1 Settlement Statements ("HUD-1 s "), closing worksheets, and
copies of lender and title company checks for 2003-2004, the balance of the loan origination files
for 2005 not previously produced, and complete copies of Defendants' bank statements for the
relevant time period. 1 Without access to these documents, Plaintiffs are unable to compute their
1
See Plaintiffs' First Request for Production ofDocuments to Defendants, requests nos. 4, 6, 7, 17 and 41, attached
hereto as Exhibit A
PLAINTIFFS' MOTION TO COMPEL Page 1
damages relating to unpaid loan origination fees and fee splits.
The agreement between Mr. Spoth and Mr. Peebles regarding loan origination fees and
fee splits was that the originating loan officer would be paid based on a percentage of his/her
originations which closed during any particular month. In connection with any loans originated
by Ray Spoth, George Spoth or any loan officer brought into the firm by Ray Spoth, George
Spoth or George Ray, Inc., once the individual loan officer was paid his/her commission, the
remaining funds paid to First Old Capital or any related entity ("FOC") through escrow on any
particular loan application file were to be divided between George Ray, Inc. ("GRI") and Mr.
Peebles.
Plaintiffs propounded their first request for production of documents on Defendants on
March 8, 2006, with the discovery responses being due within 30 days of receipt of service.
Through a series of Rule 11 agreements, the deadline for Defendants' responses and document
production was continued until May 22, 2006. Defendants first production on May 31, 2006,
only contained 18 loan origination files, none of which appeared to be complete. Some of these
loan origination files contained incomplete, partial or unsigned HUD-ls. None of these loan
origination files contained closing worksheets showing the commissions paid to the individual
loan officers or copies of checks from the lender and/or title company reflecting the monies paid
to First Old Capital, Inc. and any related entities in connection with these loans.
Additionally, Defendants produced some bank statements in the May 31st production;
however, the information relevant to this lawsuit was redacted from the copies produced.
Without the information contained in these bank statements showing monies paid to individual
loan officers and monies paid to First Old Capital, Inc. and any related entities by title companies
and/or mortgage companies, it is impossible for Plaintiffs to calculate their damages. See
Affidavit of Judith E. Smith ("Smith Affidavit"),~ 2, attached hereto as Exhibit B.
PLAINTIFFS' MOTION TO COMPEL Page2
Attempts to resolve these issues without court intervention were unsuccessful.
Accordingly, Plaintiffs filed their first Motion to Compel with the Court on June 7, 2006.
Defendants then filed a tit-for-tat motion to compel. Plaintiffs and Defendants then entered into
a series of discussions, whereby Defendants agreed to produce, among other things, requested
loan origination files, HUD-1 s, closing worksheets, and copies of lender and title company
checks from 2003-2006. Plaintiffs and Defendants then entered into a Rule 11 agreement
memorializing this agreement and dismissing all motions to compel then pending before the
Court.
In July 2006, pursuant to the parties' Rule 11 agreement, Plaintiffs arranged for a copy
service to copy loan origination files located in Mr. Peebles' garage at his personal residence.
See Smith Affidavit, ~~ 3-8. Once Plaintiffs received the copied files, it became apparent that
Defendants had produced "raw" loan origination files for the years 2003, 2005, and 2006, with
no redaction of personal identifying information. See Smith Affidavit, ~~ 3-8. These loan
origination files should contain HUD-1 s, closing worksheets, and copies of lender and title
company checks reflecting all monies paid to First Old Capital, Inc. and any related entities in
connection with these files, but most do not contain all the information which should be kept in
said files. See Smith Affidavit, ~~ 3-8. Additionally, Defendants only produced one loan
origination file for 2003, none for 2004 and only two for the period of January through June
2005. See Smith Affidavit,~~ 3-8. Additionally, see, the chart ofloan origination files produced
by Defendants attached as Exhibit C and the timeline of document requests and production
immediately below:
PLAINTIFFS' MOTION TO COMPEL Page3
.,.
Date Discovery Event Documents Requested/Produced
March 8, 2006 Plaintiffs First Request for Specifically requesting all documents
Production ofDocuments to relating to any loans originated by Ray
Defendants ("RFP") is served. Spoth, George Spoth or GRI, which would
include HUD-1 Settlement Statements,
closing worksheets, and copies oflender
and title company checks for 2001 to
present and any documents evidencing
payment to any loan officers or First Old
Capital
March 21, 2006 The parties enter into a Rule 11
Agreement agreeing to extend the
deadline for Defendants to
respond to RFP until May 5, 2006
May9, 2006 The parties enter into a Rule 11
Agreement agreeing to extend the
deadline for Defendants to
respond to RFP until May 22,
2006
May22, 2006 Defendants serve Responses to
Plaintiffs' First Request for
Production of Documents to
Defendants
May 31,2006 Defendants produce documents Only 18 loan application files were
responsive to RFP included in this production and most, if not
all, were incomplete
June 7, 2006 Plaintiffs and Defendants each file
Motions to CompeL
June 22, 2006 Parties enter into Rule 11
Agreement wherein Defendants
agree (in part) to make available
to Mr. Spoth all closed loan files
under loan officers Parker, Muhm,
Whelan, DellAngelo, Webster,
Newberry, Spoth, Torres,
Donaghue, Moore, Hawks, Shore
and Hull from the period of July
2005 through the present and the
parties agree to dismiss their
respective motions to compeL
July 11, 2006 Defendants produce additional Print outs and information regarding
documents responsive to RFP website
PLAINTIFFS' MOTION TO COMPEL Page4
July 17, 2006 Plaintiffs arrange for copy service Production consisted of "raw" loan
to copy Defendants' loan origination files for years 2003 2, 2005, and
origination files located in the 2006.
garage ofMr. Peebles' personal
residence. Production again contained no loan
origination files for 2004 (and only one for
2003) and only a few complete HUD-ls,
closing worksheets, or copies of checks
from lender and title companies to First Old
Capital, Inc. and any related entities or any
other Peebles' entity.
July 19, 2006 Defendants produce one Email from Peebles concerning calculation
additional document responsive to of the loan officers' commissions
RFP
August 9, 2006 Plaintiffs file second Motion to
Compel.
Plaintiffs have been requesting the loan origination files, HUD-1 s, closing worksheets,
and copies of lender and titlecompany checks for months, which are immediately relevant to
Plaintiffs' calculation of damages. Defendants continue to unreasonably object to Plaintiffs'
request as overly burdensome and refuse to produce these documents related to the partnership.
Because attempts to resolve these issues without court intervention are still unsuccessful,
Plaintiff is forced to filethis Motion with the Court respectfully requesting the following relief:
(1) the Court order Plaintiffs to produce loan origination files for 2003-2004 3, including HUD-
1s, closing worksheets, and copies of lender and title company checks; (2) the Court extend the
discovery deadline (and other deadlines under the Scheduling Order, as appropriate) to allow
Plaintiffs reasonable and sufficient time to review the loan origination files and compute
damages; (3) the Court continue the trial date in this case until after January 1, 2007 to allow
Plaintiffs reasonable and sufficient time to complete discovery and prepare for trial.
2
This production included only one file for 2003, none for 2004, one for February 2005, one for April2005 and the
balance were for the period July 2005 through June 2006.
3
See Exhibit B, a chart listing all loan application files produced by Defendants.
PLAINTIFFS' MOTION TO COMPEL PageS
II.
LEGAL ANALYSIS
The information and documents that Plaintiffs requested is certainly within the scope of
discovery. Discovery is permitted of any unprivileged information that is relevant to the subject
of the lawsuit, including inadmissible evidence, so long as the request is reasonably calculated to
lead to the discovery of admissible evidence. TEX. R. Civ. P. 192.3(a); In Re Amer. Optical
Corp., 988 S.W.2d 711,713 (Tex 1998). Information is relevant if it tends to make the existence
of a fact that is of consequence to the determination of the action more or less probable than it
would be without the information. TEX. R. Evm. 401; R. K. v. Ramirez, 887 S.W.2d 836, 842
(Tex. 1994). As the Texas Supreme Court stated:
The ultimate purpose of discovery is to seek the truth, so disputes may be decided
by what the facts reveal, not by what facts are conceivable. For this reason,
discovery is not limited to information that will be admissible at trial. To increase
the likelihood that all relevant evidence will be disclosed and brought before the
trier of fact, the law circumscribes a significantly larger class of discoverable
evidence to include anything reasonably calculated to lead to the discovery of
material evidence.
Janpole v. Touchy, 673 S.W.2d 569, 573 (Tex. 1984), overruled on other grounds, Walker v.
Packer, 827 S.W.2d 833 (Tex. 1992).
A party is entitled to secure discovery from another party without court intervention.
When a party refuses to comply with proper discovery requests, the party seeking discovery may
file a pre-trial motion to secure an order compelling the other party to respond. TEX. R. CIV. P.
215.1(b). Furthermore, if a party refuses to respond to a request for production, the party
requesting the documents can move to compel production of those documents. See Tex. R. Civ.
P. 215.2. Once a hearing on a motion to compel is set, the person who resists discovery, in this
case Defendants, must produce evidence in support of its objection. See ISK Biotech Corp. v.
Lindsay, 933 S.W.2d 565,568-69 (Tex. App. - Houston [1 51Dist.] 1996, orig. proceeding).
Under the applicable rules and standards, there is no justification for the Defendants' improper
PLAINTIFFS' MOTION TO COMPEL Page6
objections that producing the loan origination files,HUD-1 s, closing worksheets, and copies of
lender and title company checks is unduly burdensome. Plaintiffs are entitled to the discovery
requested.
For the most part, the loan origination files and HUD-1 s sought by Plaintiffs are relevant
business records that should have been kept in the ordinary course of the partnership's business
by Defendants. Additionally, Section 80.13 of the Texas Administrative Code specifically states
that:
"In order to assure that each licensee will have all records necessary to enable the Commissioner
or the Commissioner's designee to investigate complaints and discharge their responsibilities
under the Act and this Chapter, each Mortgage Broker and Loan Officer shall maintain records
as set forth below. The particular format of records to be maintained is not specified. However,
they must be complete, current, legible, readily accessible, and readily sortable. Records
maintained for other purposes, such as compliance with other state and federal laws, will be
deemed to satisfy these requirements if they include the same information.
(1) Mortgage Application Records. Each Mortgage Broker and each Loan Officer is
required to maintain, at the location specified in his or her application, the following books and
records:
(A) A Mortgage Loan file for each Mortgage Loan application received; each such file
shall contain at least the following:
(i) a copy of the Mortgage Loan application (including any attachments, supplements,
or addenda thereto);
(ii) either a copy of the signed closing statement if the Mortgage Loan is closed in the
name of the Mortgage Broker or an entity through which the Mortgage Broker is
providing mortgage lending services or documentation of the timely denial or other
disposition of the application for a Mortgage Loan;
(iii) a copy of each item of correspondence, each evidence of any contractual
arrangement or understanding (including, but not limited to, any interest rate lock-ins or
loan commitments), and all notes memoranda or conversations or meetings with any
Mortgage Applicant or any other party in connection with that Mortgage Loan
application or its ultimate disposition.
(C) General Business Records. The following general business records:
(i) all checkbooks, check registers, bank statements, deposit slips, withdrawal
slips, and cancelled checks (or copies thereof) relating to the mortgage brokerage
PLAINTIFFS' MOTION TO COMPEL Page7
business of such person;
(ii) complete records (including invoices and supporting documentation) for all
expenses paid on behalf of a Mortgage Applicant, including a record of the date and
amount of all such payments actually made by each Mortgage Applicant;
(iii) copies of all federal tax withholding forms, reports of income for federal
taxation, and evidence of payments to all employees, independent contractors and
others compensated by such Mortgage Broker or Loan Officer in connection with the
conduct of mortgage lending business;
(vi) copies of all contractual arrangements or understandings with third parties in
any way relating to the providing of mortgage lending services (including, but not
limited to, any delegations of underwriting authority, any agreements for pricing of
goods and services, any investor contracts, any employment agreements, and any non-
compete agreements);
(5) The foregoing books and records shall be maintained for three years or such longer
period(s) as may be required by applicable state and/or federal laws and regulations.
(6) A Loan Officer may meet applicable record-keeping requirements if his or her
sponsoring Mortgage Broker maintains the required records ..... "
How can Defendants state that Plaintiffs' requests are overly burdensome when Plaintiffs
are only requesting those items which Defendants are required to keep by law.
v.
CONCLUSION AND PRAYER
Plaintiffs request that this Court enter an order overruling Defendants' objections to the
requests at issue as overly burdensome, and order Plaintiffs to produce for inspection and
copying to produce loan origination files,HUD-1 s, closing worksheets, copies of checks from
the lenders and title companies for loan originations for the years of 2003-2005 and bank
statements with the relevant portions unredacted within seven (7) days of the Court's order.
PLAINTIFFS' MOTION TO COMPEL PageS
Plaintiffs also pray that the Court award as sanctions Plaintiffs' attorney's fees incurred in filing
this Motion.
Plaintiffs further pray that the Court extend the discovery deadline (and other deadlines
under the Scheduling Order, as appropriate) to allow Plaintiffs reasonable and sufficient time to
review the loan origination files and compute damages; and the Court continue the trial date in
this case until after January 1, 2007 to allow Plaintiffs reasonable and sufficient time to complete
discovery and prepare for trial.
Finally, Plaintiffs pray that the Court award Plaintiffs any and all other relief to which it
is justly entitled in either law or equity.
William Frank Carroll
State Bar No. 03892500
Jennifer L. Murphy
State Bar No. 24027560
Thomas B. Alleman
State BarNo. 01017485
5400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270-2199
(214) 754-5400 Telephone
(214) 745-5390 Facsimile
ATTORNEYS FOR RAYMOND SPOTH,
GEORGE RAY, INC., PSI PARTNERS, LTD.,
AND PSI GP, LLC AS THE GENERAL
PARTNER OF PSI PARTNERS, LTD.,
PLAINTIFFS' MOTION TO COMPEL Page9
CERTIFICATE OF CONFERENCE
111 1
The undersigned counsel certifies that a conference was held on August 9 and 10 \ 2006
with Defendants' Counsel's office on the merits of this motion. Defendants' Counsel initially
opposed this motion. A reasonable effort has been made to resolve the dispute and the parties
are continuing their attempts to resolve the dispute without the necessity of court intervention;
however, due to the impending trialdate and since no agreement has been finalized, plaintiffs are
presenting this motion to the Court for determination.
One of Counsel
FIAT
A hearing on this motion will be conducted at _ _ o'clock _.m. on the _ _ day of
_ _ _ _ _ _ _, 2006, in the courtroom of the 352nd District Court in Tarrant County, Texas.
SIGNED this _ _ day of _ _ _ _ _ _ _, 2006.
JUDGE PRESIDING
CERTIFICATE OF SERVICE
The undersigned counsel affirms that the above document was served pursuant to the
111
Texas Rules of Civil Procedure on all counsel or parties of record this 10 day of August, 2006.
Dallas_1 \4460914\3
44752-1 8/10/2006
PLAINTIFFS' MOTION TO COMPEL Page 10
EXHIBIT A
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CAUSE NO. 352-214202-05
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RAYMOND SPOTH, GEORGE RAY, INC., § IN THE DISTRICT COURT
PSI PARTNERS, LTD., AND PSI GP, LLC §
AS THE GENERAL PARTNER OF PSI §
PARTNERS, LTD., §
§
PLAINTIFFS, §
§
~ § OFTARRANTCOUNTY,TEXAS
§
PAUL PEEBLES, AND FIRST OLD §
CAPITAL, INC., §
§
DEFENDANTS. § 352ND JUDICIAL DISTRICT
PLAINTIFFS' FIRST REQUEST FOR PRODUCTION
OF DOCUMENTS TO DEFENDANTS
TO; Paul Pebbles and First Old Capital, Inc., (collectively, "Defendants"), by and through
their attorneys-of-record, Betty L. Brown, Brown Law Office, 4880 Long Prairie Road,
Suite 220, Flower Mound, Texas 75028.
)
Pursuant to the Texas Rule of Civil Procedure 196, Plaintiffs, Raymond Spoth, George
Ray, Inc., PSI Partners, Ltd., and PSI GP, LLC (collectively "Plaintiffs11) , serve this First Set of
Requests for Production of Documents on Defendants, Paul Peebles and First Old Capital, Inc.,
(collectively "Defendants"). Defendants shall produce the Requested Documents to the
undersigned counsel for Plaintiff at the offices of Winstead Sechrest & Minick P.C., 5400
Renaissance Tower, 1201 Elm Street, Dallas, Texas 75270-2199, on the first business day thirty
(30) days after service of this Request for Documents or at a time and place mutually agreed
upon by the parties.
)
PLAINTIFFS' FIRST REQUEST FOR
PRODUCTION OF DOCUMENTS TO DEFENDANTS Pagel
I.
INSTRUCTIONS
1. Defendants shall serve their responses and objections to the Requests upon
counsel for Plaintiffs within thirty (30) days of service hereof To the fullest extent permitted by
the Texas Rules of Civil Procedure, these Requests are intended to be continuing in nature.
Defendants are required to timely supplement their responses when appropriate or necessary to
make them correct or complete as required by the Texas Rules of Civil Procedure and the Tarrant
County local rules.
2. These Requests include all documents in the possession, or subject to the custody
or control, whether directly or indirectly, of Defendants. A document is deemed to be within
Defendants' possession, custody, or control if:
a. It is within Defendants' actual knowledge or possession; or
) b. It is within the knowledge of any other person or entity and Defendants
have the right to obtain the information or document from such person or entity.
3. Unless otherwise indicated, the use within these Requests of the name or identity
of any person, business organization, or other entity shall specifically include all past and present
employees, officers, directors, partners, agents, representatives, and attorneys of that person,
organization, or entity and its predecessors and successors.
4. If Defendants believe that the use of any term in these Requests is ambiguous or if
a Defendants do not understand any of these Requests, definitions, or instructions, Defendants
should immediately contact the undersigned, and an unambiguous definition or clarification will
be promptly supplied.
5. Unless otherwise specified, these Requests cover the period from June 1, 2003 to
the present.
PLAINTIFFS' FmST REQUEST FOR
PRODUCTION OF DOCUMENTS TO DEFENDANTS Page2
6. If you object to any Request in part, you should respond fully to the extent not
objected to and set forth specifically the grounds upon which the objection is based.
7. If you are requested to produce documents which are no longer in the possession
or subject to the control of Defendants, please state when such documents were most recently in
the possession or subject to the control of the Defendants, what has become of them, and identify
the persons presently in possession or control of the documents. If any documents have been
destroyed, please state when such docuinents were destroyed.
8. Computer-based documents should be produced in electronic, native format on
CD-ROM. Defendants should not expect to meet discovery obligations solely by providing hard
copies of electronic data. Requests for emails and documents call for deleted emails and
documents available on any backup tapes or other media. The review, collection, and storage of
computer-based documents should be performed so as to preserve and not alter the documents'
)
meta data.
II.
DEFINITIONS
1. The term "document'' is defined, without limitation, to be synonymous i·n
meaning and equal in scope to the usage of this term in Texas Rule of Civil Procedure 192.3(b)
and includes the following items, whether printed, recorded or reproduced by mechanical or
electronic means, or written or produced by hand: e-mail, agreements, communications,
including intercompany and intracompany co:minunications, correspondence, letters,telegrams,
cables, telexes, memoranda, records, books, journals, summaries of records or papers, graphs,
charts, maps, models, sketches, plans, drawings, blueprints, diagrams, tables, indices, pictures,
recordings, tapes, accounts, analytical records, memoranda of telephone calls, minutes or records
· ·\ of meetings or conferences, reports, notes, minutes or summaries of interviews, conversations,
·'
PLAINTIFFS' FIRST REQUEST FOR
PRODUCTION OF DOCUMENTS TO DEFENDANTS Page_3
\/ telephone calls, conferences, negotiations, meetings, investigations, opinions or reports of
consultants, appraisals, reports or summaries of negotiations, brochures, bulletins, pamphlets,
circulars, advertising literature, trade letters,press releases, contracts, notes, codes as well as
other devices to decipher abbreviations or other notations, computer printouts, analytical records,
diaries, engineering notebooks, inventor's notebooks; research logs, technical papers, technical
articles~theses, forecasts, photographs, photocopies, recordings, tape recordings, motion picture
. films, graphics films, presentation files, video clips, audio clips, voice or other annotations,
archival or compressed files, graphs, note charts, notebooks, documents generated for or as a
result of meetings, lists of persons attending meetings, newspaper articles, mailing lists,
contracts, drafts, notes, marginal comments appearing on or affixed to any document, calendars,
day-timers, date books, messages, letters of credit, financial statements, invoices, statements of
account, receipts, promissory notes,. security agreements, deeds of trust, instruments purporting
to grant or reflecting any security interest of lien, loan agreements, credit and debit memoranda,
drafts, projections, working papers, securities ledgers, canceled checks and drafts (front and
back), check stubs, receipts, and other documents, papers or writings of whatever description
including any information contained in any computer or information storage or information
retrieval device. The term "document" includes the originals of documents, all drafts of
documents, and all nonidentical copies of documents. Furthermore, the term "document"
specifically includes electronic versions of documents as originally saved, including any
versions, backup copies, deleted versions, and any associated meta data.
)
PLAINTIFFS' FIRST REQUEST FOR
PRODUCTION OF DOCUMENTS TO DEFENDANTS Page4
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2. For purposes of interpreting or consbuing the scope of the Request, the terms
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used in these Requests shall be given their most expansive and inclusive interpretation unless
otherwise specifically limited by the language of an, individual request. This includes the
following:
a Construing "and" as well as "or" in the disjunctive or conjunctive as
necessary to make the request more inclusive;
b. Construing the singular form of the word to include the plural and the
plural form to include the singular;
c. Construing the masculine to include the feminine and vice versa; and
d. Construing the term "including" and "includes" to mean including but not
limited to.
3. The terms "identification," "identify" or "identity" when used in reference to: (1)
a natural individual, requires you to state his or her full name and residential and business
address; (2) a corporation, requires you to state itsfull corporate name and any names under
which it does business, its state of incorporation, the address of its principal place of business
and the addresses of all of its offices; (3) a business, requires you to state the full name or style
under which the business is conducted, its business address or addresses, the types of businesses
in which it is engaged, the geographical areas in which it conducts those businesses, the identity
of the person or persons who own, operate and control the businesses; (4) a document, requires
you to state the number of pages and the nature of the document (e.g., letter, memorandum, etc.),
its title,its date, the name or names of its authors or recipients, and its present location and
custodian; (5) a communication, requires you, if any part of the communication is written, to
identify the document or documents which refer to or evidence the communication, and, to the
)
PLAINTIFFS' FIRST REQUEST FOR
PRODUCTION OF DOCUMENTS TO DEFENDANTS PageS
.)
.,•
extent that the communication was nonwritten, to identify the persons participating in the
communication and to state the date, manner, place, and substance of the communication; and
(6) a product, good or article of manufacture, requires you to state the product riame, model
number, catalog number and any other identifying characteristics.
4. The term "person" includes natural persons, groups of natural persons acting in a
collegial capacity (e.g., a committee or counsel), corporations, partnerships, associations, joint
vtmtures, and any other incorporated or unincorporated business, governmental, public or legal
entity. A reference to any person shall include, when applicable, its past and present
subsidiaries, co
Preview
CAUSE NO. 352-214202-05 RAYMOND SPOTH, GEORGE RAY, INC., § IN THE DISTRICT COURT PSI PARTNERS, LTD., AND PSI GP, LLC § AS THE GENERAL PARTNER OF PSI § PARTNERS, LTD., § § PLAINTIFFS, § J'\~1"''1 ~ § :c ~ c;::) 0 C1" V. § OF TARRANT COUNTY,~~S § PAUL PEEBLES, AND FIRST OLD CAPITAL, INC., § § § -··4>' ·:ecn Cl ·-~ -0 § ,.... (J' -o -,::K: DEFENDANTS. § 352ND JUDICIAL DISTRIC~ f"!'\ r·"' c;.. .. N N PLAINTIFFS' MOTION TO COMPEL TO THE HONORABLE COURT: Plaintiffs file this Motion To Compel ("Motion") in the above styled suit and, in support thereof, would show as follows: I. FACTUAL BACKGROUND RELEVANT TO THIS MOTION TO COMPEL This case involves a partnership dissolution and associated claims. On or about September 29, 2003, Plaintiff Raymond Spoth ("Mr. Spoth") and Defendant Paul Peebles ("Mr. Peebles") formed PSI Partners, Ltd., which operated as a management company in Colleyville, Texas. The parties to this lawsuit had approximately a three-year relationship from 2003-2006. This discovery dispute centers on Defendants failure to produce documents, specifically loan origination files, HUD-1 Settlement Statements ("HUD-1 s "), closing worksheets, and copies of lender and title company checks for 2003-2004, the balance of the loan origination files for 2005 not previously produced, and complete copies of Defendants' bank statements for the relevant time period. 1 Without access to these documents, Plaintiffs are unable to compute their 1 See Plaintiffs' First Request for Production ofDocuments to Defendants, requests nos. 4, 6, 7, 17 and 41, attached hereto as Exhibit A PLAINTIFFS' MOTION TO COMPEL Page 1 damages relating to unpaid loan origination fees and fee splits. The agreement between Mr. Spoth and Mr. Peebles regarding loan origination fees and fee splits was that the originating loan officer would be paid based on a percentage of his/her originations which closed during any particular month. In connection with any loans originated by Ray Spoth, George Spoth or any loan officer brought into the firm by Ray Spoth, George Spoth or George Ray, Inc., once the individual loan officer was paid his/her commission, the remaining funds paid to First Old Capital or any related entity ("FOC") through escrow on any particular loan application file were to be divided between George Ray, Inc. ("GRI") and Mr. Peebles. Plaintiffs propounded their first request for production of documents on Defendants on March 8, 2006, with the discovery responses being due within 30 days of receipt of service. Through a series of Rule 11 agreements, the deadline for Defendants' responses and document production was continued until May 22, 2006. Defendants first production on May 31, 2006, only contained 18 loan origination files, none of which appeared to be complete. Some of these loan origination files contained incomplete, partial or unsigned HUD-ls. None of these loan origination files contained closing worksheets showing the commissions paid to the individual loan officers or copies of checks from the lender and/or title company reflecting the monies paid to First Old Capital, Inc. and any related entities in connection with these loans. Additionally, Defendants produced some bank statements in the May 31st production; however, the information relevant to this lawsuit was redacted from the copies produced. Without the information contained in these bank statements showing monies paid to individual loan officers and monies paid to First Old Capital, Inc. and any related entities by title companies and/or mortgage companies, it is impossible for Plaintiffs to calculate their damages. See Affidavit of Judith E. Smith ("Smith Affidavit"),~ 2, attached hereto as Exhibit B. PLAINTIFFS' MOTION TO COMPEL Page2 Attempts to resolve these issues without court intervention were unsuccessful. Accordingly, Plaintiffs filed their first Motion to Compel with the Court on June 7, 2006. Defendants then filed a tit-for-tat motion to compel. Plaintiffs and Defendants then entered into a series of discussions, whereby Defendants agreed to produce, among other things, requested loan origination files, HUD-1 s, closing worksheets, and copies of lender and title company checks from 2003-2006. Plaintiffs and Defendants then entered into a Rule 11 agreement memorializing this agreement and dismissing all motions to compel then pending before the Court. In July 2006, pursuant to the parties' Rule 11 agreement, Plaintiffs arranged for a copy service to copy loan origination files located in Mr. Peebles' garage at his personal residence. See Smith Affidavit, ~~ 3-8. Once Plaintiffs received the copied files, it became apparent that Defendants had produced "raw" loan origination files for the years 2003, 2005, and 2006, with no redaction of personal identifying information. See Smith Affidavit, ~~ 3-8. These loan origination files should contain HUD-1 s, closing worksheets, and copies of lender and title company checks reflecting all monies paid to First Old Capital, Inc. and any related entities in connection with these files, but most do not contain all the information which should be kept in said files. See Smith Affidavit, ~~ 3-8. Additionally, Defendants only produced one loan origination file for 2003, none for 2004 and only two for the period of January through June 2005. See Smith Affidavit,~~ 3-8. Additionally, see, the chart ofloan origination files produced by Defendants attached as Exhibit C and the timeline of document requests and production immediately below: PLAINTIFFS' MOTION TO COMPEL Page3 .,. Date Discovery Event Documents Requested/Produced March 8, 2006 Plaintiffs First Request for Specifically requesting all documents Production ofDocuments to relating to any loans originated by Ray Defendants ("RFP") is served. Spoth, George Spoth or GRI, which would include HUD-1 Settlement Statements, closing worksheets, and copies oflender and title company checks for 2001 to present and any documents evidencing payment to any loan officers or First Old Capital March 21, 2006 The parties enter into a Rule 11 Agreement agreeing to extend the deadline for Defendants to respond to RFP until May 5, 2006 May9, 2006 The parties enter into a Rule 11 Agreement agreeing to extend the deadline for Defendants to respond to RFP until May 22, 2006 May22, 2006 Defendants serve Responses to Plaintiffs' First Request for Production of Documents to Defendants May 31,2006 Defendants produce documents Only 18 loan application files were responsive to RFP included in this production and most, if not all, were incomplete June 7, 2006 Plaintiffs and Defendants each file Motions to CompeL June 22, 2006 Parties enter into Rule 11 Agreement wherein Defendants agree (in part) to make available to Mr. Spoth all closed loan files under loan officers Parker, Muhm, Whelan, DellAngelo, Webster, Newberry, Spoth, Torres, Donaghue, Moore, Hawks, Shore and Hull from the period of July 2005 through the present and the parties agree to dismiss their respective motions to compeL July 11, 2006 Defendants produce additional Print outs and information regarding documents responsive to RFP website PLAINTIFFS' MOTION TO COMPEL Page4 July 17, 2006 Plaintiffs arrange for copy service Production consisted of "raw" loan to copy Defendants' loan origination files for years 2003 2, 2005, and origination files located in the 2006. garage ofMr. Peebles' personal residence. Production again contained no loan origination files for 2004 (and only one for 2003) and only a few complete HUD-ls, closing worksheets, or copies of checks from lender and title companies to First Old Capital, Inc. and any related entities or any other Peebles' entity. July 19, 2006 Defendants produce one Email from Peebles concerning calculation additional document responsive to of the loan officers' commissions RFP August 9, 2006 Plaintiffs file second Motion to Compel. Plaintiffs have been requesting the loan origination files, HUD-1 s, closing worksheets, and copies of lender and titlecompany checks for months, which are immediately relevant to Plaintiffs' calculation of damages. Defendants continue to unreasonably object to Plaintiffs' request as overly burdensome and refuse to produce these documents related to the partnership. Because attempts to resolve these issues without court intervention are still unsuccessful, Plaintiff is forced to filethis Motion with the Court respectfully requesting the following relief: (1) the Court order Plaintiffs to produce loan origination files for 2003-2004 3, including HUD- 1s, closing worksheets, and copies of lender and title company checks; (2) the Court extend the discovery deadline (and other deadlines under the Scheduling Order, as appropriate) to allow Plaintiffs reasonable and sufficient time to review the loan origination files and compute damages; (3) the Court continue the trial date in this case until after January 1, 2007 to allow Plaintiffs reasonable and sufficient time to complete discovery and prepare for trial. 2 This production included only one file for 2003, none for 2004, one for February 2005, one for April2005 and the balance were for the period July 2005 through June 2006. 3 See Exhibit B, a chart listing all loan application files produced by Defendants. PLAINTIFFS' MOTION TO COMPEL PageS II. LEGAL ANALYSIS The information and documents that Plaintiffs requested is certainly within the scope of discovery. Discovery is permitted of any unprivileged information that is relevant to the subject of the lawsuit, including inadmissible evidence, so long as the request is reasonably calculated to lead to the discovery of admissible evidence. TEX. R. Civ. P. 192.3(a); In Re Amer. Optical Corp., 988 S.W.2d 711,713 (Tex 1998). Information is relevant if it tends to make the existence of a fact that is of consequence to the determination of the action more or less probable than it would be without the information. TEX. R. Evm. 401; R. K. v. Ramirez, 887 S.W.2d 836, 842 (Tex. 1994). As the Texas Supreme Court stated: The ultimate purpose of discovery is to seek the truth, so disputes may be decided by what the facts reveal, not by what facts are conceivable. For this reason, discovery is not limited to information that will be admissible at trial. To increase the likelihood that all relevant evidence will be disclosed and brought before the trier of fact, the law circumscribes a significantly larger class of discoverable evidence to include anything reasonably calculated to lead to the discovery of material evidence. Janpole v. Touchy, 673 S.W.2d 569, 573 (Tex. 1984), overruled on other grounds, Walker v. Packer, 827 S.W.2d 833 (Tex. 1992). A party is entitled to secure discovery from another party without court intervention. When a party refuses to comply with proper discovery requests, the party seeking discovery may file a pre-trial motion to secure an order compelling the other party to respond. TEX. R. CIV. P. 215.1(b). Furthermore, if a party refuses to respond to a request for production, the party requesting the documents can move to compel production of those documents. See Tex. R. Civ. P. 215.2. Once a hearing on a motion to compel is set, the person who resists discovery, in this case Defendants, must produce evidence in support of its objection. See ISK Biotech Corp. v. Lindsay, 933 S.W.2d 565,568-69 (Tex. App. - Houston [1 51Dist.] 1996, orig. proceeding). Under the applicable rules and standards, there is no justification for the Defendants' improper PLAINTIFFS' MOTION TO COMPEL Page6 objections that producing the loan origination files,HUD-1 s, closing worksheets, and copies of lender and title company checks is unduly burdensome. Plaintiffs are entitled to the discovery requested. For the most part, the loan origination files and HUD-1 s sought by Plaintiffs are relevant business records that should have been kept in the ordinary course of the partnership's business by Defendants. Additionally, Section 80.13 of the Texas Administrative Code specifically states that: "In order to assure that each licensee will have all records necessary to enable the Commissioner or the Commissioner's designee to investigate complaints and discharge their responsibilities under the Act and this Chapter, each Mortgage Broker and Loan Officer shall maintain records as set forth below. The particular format of records to be maintained is not specified. However, they must be complete, current, legible, readily accessible, and readily sortable. Records maintained for other purposes, such as compliance with other state and federal laws, will be deemed to satisfy these requirements if they include the same information. (1) Mortgage Application Records. Each Mortgage Broker and each Loan Officer is required to maintain, at the location specified in his or her application, the following books and records: (A) A Mortgage Loan file for each Mortgage Loan application received; each such file shall contain at least the following: (i) a copy of the Mortgage Loan application (including any attachments, supplements, or addenda thereto); (ii) either a copy of the signed closing statement if the Mortgage Loan is closed in the name of the Mortgage Broker or an entity through which the Mortgage Broker is providing mortgage lending services or documentation of the timely denial or other disposition of the application for a Mortgage Loan; (iii) a copy of each item of correspondence, each evidence of any contractual arrangement or understanding (including, but not limited to, any interest rate lock-ins or loan commitments), and all notes memoranda or conversations or meetings with any Mortgage Applicant or any other party in connection with that Mortgage Loan application or its ultimate disposition. (C) General Business Records. The following general business records: (i) all checkbooks, check registers, bank statements, deposit slips, withdrawal slips, and cancelled checks (or copies thereof) relating to the mortgage brokerage PLAINTIFFS' MOTION TO COMPEL Page7 business of such person; (ii) complete records (including invoices and supporting documentation) for all expenses paid on behalf of a Mortgage Applicant, including a record of the date and amount of all such payments actually made by each Mortgage Applicant; (iii) copies of all federal tax withholding forms, reports of income for federal taxation, and evidence of payments to all employees, independent contractors and others compensated by such Mortgage Broker or Loan Officer in connection with the conduct of mortgage lending business; (vi) copies of all contractual arrangements or understandings with third parties in any way relating to the providing of mortgage lending services (including, but not limited to, any delegations of underwriting authority, any agreements for pricing of goods and services, any investor contracts, any employment agreements, and any non- compete agreements); (5) The foregoing books and records shall be maintained for three years or such longer period(s) as may be required by applicable state and/or federal laws and regulations. (6) A Loan Officer may meet applicable record-keeping requirements if his or her sponsoring Mortgage Broker maintains the required records ..... " How can Defendants state that Plaintiffs' requests are overly burdensome when Plaintiffs are only requesting those items which Defendants are required to keep by law. v. CONCLUSION AND PRAYER Plaintiffs request that this Court enter an order overruling Defendants' objections to the requests at issue as overly burdensome, and order Plaintiffs to produce for inspection and copying to produce loan origination files,HUD-1 s, closing worksheets, copies of checks from the lenders and title companies for loan originations for the years of 2003-2005 and bank statements with the relevant portions unredacted within seven (7) days of the Court's order. PLAINTIFFS' MOTION TO COMPEL PageS Plaintiffs also pray that the Court award as sanctions Plaintiffs' attorney's fees incurred in filing this Motion. Plaintiffs further pray that the Court extend the discovery deadline (and other deadlines under the Scheduling Order, as appropriate) to allow Plaintiffs reasonable and sufficient time to review the loan origination files and compute damages; and the Court continue the trial date in this case until after January 1, 2007 to allow Plaintiffs reasonable and sufficient time to complete discovery and prepare for trial. Finally, Plaintiffs pray that the Court award Plaintiffs any and all other relief to which it is justly entitled in either law or equity. William Frank Carroll State Bar No. 03892500 Jennifer L. Murphy State Bar No. 24027560 Thomas B. Alleman State BarNo. 01017485 5400 Renaissance Tower 1201 Elm Street Dallas, Texas 75270-2199 (214) 754-5400 Telephone (214) 745-5390 Facsimile ATTORNEYS FOR RAYMOND SPOTH, GEORGE RAY, INC., PSI PARTNERS, LTD., AND PSI GP, LLC AS THE GENERAL PARTNER OF PSI PARTNERS, LTD., PLAINTIFFS' MOTION TO COMPEL Page9 CERTIFICATE OF CONFERENCE 111 1 The undersigned counsel certifies that a conference was held on August 9 and 10 \ 2006 with Defendants' Counsel's office on the merits of this motion. Defendants' Counsel initially opposed this motion. A reasonable effort has been made to resolve the dispute and the parties are continuing their attempts to resolve the dispute without the necessity of court intervention; however, due to the impending trialdate and since no agreement has been finalized, plaintiffs are presenting this motion to the Court for determination. One of Counsel FIAT A hearing on this motion will be conducted at _ _ o'clock _.m. on the _ _ day of _ _ _ _ _ _ _, 2006, in the courtroom of the 352nd District Court in Tarrant County, Texas. SIGNED this _ _ day of _ _ _ _ _ _ _, 2006. JUDGE PRESIDING CERTIFICATE OF SERVICE The undersigned counsel affirms that the above document was served pursuant to the 111 Texas Rules of Civil Procedure on all counsel or parties of record this 10 day of August, 2006. Dallas_1 \4460914\3 44752-1 8/10/2006 PLAINTIFFS' MOTION TO COMPEL Page 10 EXHIBIT A ·.) .. CAUSE NO. 352-214202-05 :.> RAYMOND SPOTH, GEORGE RAY, INC., § IN THE DISTRICT COURT PSI PARTNERS, LTD., AND PSI GP, LLC § AS THE GENERAL PARTNER OF PSI § PARTNERS, LTD., § § PLAINTIFFS, § § ~ § OFTARRANTCOUNTY,TEXAS § PAUL PEEBLES, AND FIRST OLD § CAPITAL, INC., § § DEFENDANTS. § 352ND JUDICIAL DISTRICT PLAINTIFFS' FIRST REQUEST FOR PRODUCTION OF DOCUMENTS TO DEFENDANTS TO; Paul Pebbles and First Old Capital, Inc., (collectively, "Defendants"), by and through their attorneys-of-record, Betty L. Brown, Brown Law Office, 4880 Long Prairie Road, Suite 220, Flower Mound, Texas 75028. ) Pursuant to the Texas Rule of Civil Procedure 196, Plaintiffs, Raymond Spoth, George Ray, Inc., PSI Partners, Ltd., and PSI GP, LLC (collectively "Plaintiffs11) , serve this First Set of Requests for Production of Documents on Defendants, Paul Peebles and First Old Capital, Inc., (collectively "Defendants"). Defendants shall produce the Requested Documents to the undersigned counsel for Plaintiff at the offices of Winstead Sechrest & Minick P.C., 5400 Renaissance Tower, 1201 Elm Street, Dallas, Texas 75270-2199, on the first business day thirty (30) days after service of this Request for Documents or at a time and place mutually agreed upon by the parties. ) PLAINTIFFS' FIRST REQUEST FOR PRODUCTION OF DOCUMENTS TO DEFENDANTS Pagel I. INSTRUCTIONS 1. Defendants shall serve their responses and objections to the Requests upon counsel for Plaintiffs within thirty (30) days of service hereof To the fullest extent permitted by the Texas Rules of Civil Procedure, these Requests are intended to be continuing in nature. Defendants are required to timely supplement their responses when appropriate or necessary to make them correct or complete as required by the Texas Rules of Civil Procedure and the Tarrant County local rules. 2. These Requests include all documents in the possession, or subject to the custody or control, whether directly or indirectly, of Defendants. A document is deemed to be within Defendants' possession, custody, or control if: a. It is within Defendants' actual knowledge or possession; or ) b. It is within the knowledge of any other person or entity and Defendants have the right to obtain the information or document from such person or entity. 3. Unless otherwise indicated, the use within these Requests of the name or identity of any person, business organization, or other entity shall specifically include all past and present employees, officers, directors, partners, agents, representatives, and attorneys of that person, organization, or entity and its predecessors and successors. 4. If Defendants believe that the use of any term in these Requests is ambiguous or if a Defendants do not understand any of these Requests, definitions, or instructions, Defendants should immediately contact the undersigned, and an unambiguous definition or clarification will be promptly supplied. 5. Unless otherwise specified, these Requests cover the period from June 1, 2003 to the present. PLAINTIFFS' FmST REQUEST FOR PRODUCTION OF DOCUMENTS TO DEFENDANTS Page2 6. If you object to any Request in part, you should respond fully to the extent not objected to and set forth specifically the grounds upon which the objection is based. 7. If you are requested to produce documents which are no longer in the possession or subject to the control of Defendants, please state when such documents were most recently in the possession or subject to the control of the Defendants, what has become of them, and identify the persons presently in possession or control of the documents. If any documents have been destroyed, please state when such docuinents were destroyed. 8. Computer-based documents should be produced in electronic, native format on CD-ROM. Defendants should not expect to meet discovery obligations solely by providing hard copies of electronic data. Requests for emails and documents call for deleted emails and documents available on any backup tapes or other media. The review, collection, and storage of computer-based documents should be performed so as to preserve and not alter the documents' ) meta data. II. DEFINITIONS 1. The term "document'' is defined, without limitation, to be synonymous i·n meaning and equal in scope to the usage of this term in Texas Rule of Civil Procedure 192.3(b) and includes the following items, whether printed, recorded or reproduced by mechanical or electronic means, or written or produced by hand: e-mail, agreements, communications, including intercompany and intracompany co:minunications, correspondence, letters,telegrams, cables, telexes, memoranda, records, books, journals, summaries of records or papers, graphs, charts, maps, models, sketches, plans, drawings, blueprints, diagrams, tables, indices, pictures, recordings, tapes, accounts, analytical records, memoranda of telephone calls, minutes or records · ·\ of meetings or conferences, reports, notes, minutes or summaries of interviews, conversations, ·' PLAINTIFFS' FIRST REQUEST FOR PRODUCTION OF DOCUMENTS TO DEFENDANTS Page_3 \/ telephone calls, conferences, negotiations, meetings, investigations, opinions or reports of consultants, appraisals, reports or summaries of negotiations, brochures, bulletins, pamphlets, circulars, advertising literature, trade letters,press releases, contracts, notes, codes as well as other devices to decipher abbreviations or other notations, computer printouts, analytical records, diaries, engineering notebooks, inventor's notebooks; research logs, technical papers, technical articles~theses, forecasts, photographs, photocopies, recordings, tape recordings, motion picture . films, graphics films, presentation files, video clips, audio clips, voice or other annotations, archival or compressed files, graphs, note charts, notebooks, documents generated for or as a result of meetings, lists of persons attending meetings, newspaper articles, mailing lists, contracts, drafts, notes, marginal comments appearing on or affixed to any document, calendars, day-timers, date books, messages, letters of credit, financial statements, invoices, statements of account, receipts, promissory notes,. security agreements, deeds of trust, instruments purporting to grant or reflecting any security interest of lien, loan agreements, credit and debit memoranda, drafts, projections, working papers, securities ledgers, canceled checks and drafts (front and back), check stubs, receipts, and other documents, papers or writings of whatever description including any information contained in any computer or information storage or information retrieval device. The term "document" includes the originals of documents, all drafts of documents, and all nonidentical copies of documents. Furthermore, the term "document" specifically includes electronic versions of documents as originally saved, including any versions, backup copies, deleted versions, and any associated meta data. ) PLAINTIFFS' FIRST REQUEST FOR PRODUCTION OF DOCUMENTS TO DEFENDANTS Page4 :)' 2. For purposes of interpreting or consbuing the scope of the Request, the terms << used in these Requests shall be given their most expansive and inclusive interpretation unless otherwise specifically limited by the language of an, individual request. This includes the following: a Construing "and" as well as "or" in the disjunctive or conjunctive as necessary to make the request more inclusive; b. Construing the singular form of the word to include the plural and the plural form to include the singular; c. Construing the masculine to include the feminine and vice versa; and d. Construing the term "including" and "includes" to mean including but not limited to. 3. The terms "identification," "identify" or "identity" when used in reference to: (1) a natural individual, requires you to state his or her full name and residential and business address; (2) a corporation, requires you to state itsfull corporate name and any names under which it does business, its state of incorporation, the address of its principal place of business and the addresses of all of its offices; (3) a business, requires you to state the full name or style under which the business is conducted, its business address or addresses, the types of businesses in which it is engaged, the geographical areas in which it conducts those businesses, the identity of the person or persons who own, operate and control the businesses; (4) a document, requires you to state the number of pages and the nature of the document (e.g., letter, memorandum, etc.), its title,its date, the name or names of its authors or recipients, and its present location and custodian; (5) a communication, requires you, if any part of the communication is written, to identify the document or documents which refer to or evidence the communication, and, to the ) PLAINTIFFS' FIRST REQUEST FOR PRODUCTION OF DOCUMENTS TO DEFENDANTS PageS .) .,• extent that the communication was nonwritten, to identify the persons participating in the communication and to state the date, manner, place, and substance of the communication; and (6) a product, good or article of manufacture, requires you to state the product riame, model number, catalog number and any other identifying characteristics. 4. The term "person" includes natural persons, groups of natural persons acting in a collegial capacity (e.g., a committee or counsel), corporations, partnerships, associations, joint vtmtures, and any other incorporated or unincorporated business, governmental, public or legal entity. A reference to any person shall include, when applicable, its past and present subsidiaries, co