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UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF ILLINOIS 

EASTERN DIVISION

 

In re Peregrine Financial Group 

Customer Litigation 

Civil Action No: 12-cv-5546 

Judge Sara L. Ellis 

Magistrate Judge Daniel G. Martin

PLAINTIFFS’ REPLY IN SUPPORT OF THEIR MOTION TO COMPEL 

U.S. BANK’S PRODUCTION OF DOCUMENTS AND TO DETERMINE THE 

SUFFICIENCY OF U.S. BANK’S OBJECTIONS TO REQUESTS FOR ADMISSION 

After Plaintiffs filed their motion to compel, (ECF No. 323), U.S. Bank provided 

information that resolved several of the disputes raised in the motion. (See ECF Nos. 340-341.) 

Plaintiffs submit this reply to respond to the bank’s arguments on the two disputes that remain. 

I. U.S. Bank Should Be Compelled To Produce Its Post-Collapse Policy-Related 

Documents. 

U.S. Bank refuses to produce documents relating to its policies for maintaining customer 

segregated accounts, but only to the extent such documents post-date Peregrine’s collapse. 

Plaintiffs had been led to believe this position was based on U.S. Bank’s argument that the 

responsive documents are protected as subsequent remedial measures. (ECF No. 325 Ex. B at 

11-12 (objecting to Plaintiffs’ request on subsequent remedial measure grounds).) U.S. Bank 

does not raise that argument in its brief, however, likely because the law would not support it. 

(Compare id. with Jumper v. Yellow Corp., 176 F.R.D. 282, 284 (N.D. Ill. 1997) (“The standard 

of admissibility established by Rule 407 for evidence of subsequent remedial measures is not the 

same as that for pretrial discovery.”) (quoting 2 WEINSTEIN, WEINSTEIN’S EVIDENCE ¶ 

407[07] at 407–44 (1996)).) U.S. Bank instead justifies its refusal to produce documents on the 

grounds that its policies for customer segregated accounts are irrelevant. (See, e.g., U.S. Bank Br 

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at 3 (“the content of a bank’s policies and procedures do not give rise to liability”).) There are 

four sound reasons for rejecting U.S. Bank’s relevance argument. 

First, both U.S. Bank and Plaintiffs have treated the bank’s policies as relevant 

throughout the course of this litigation. U.S. Bank has produced all of its relevant policies, for 

example, completing that production less than two months ago.1 (ECF No. 325 Ex. E at 12, 9.) 

U.S. Bank also tendered a deposition witness for the express purpose of testifying about the 

bank’s customer segregated account policies. (Kramer Decl. at ¶ 2; Ex. A.) Finally, this Court 

previously ordered U.S. Bank to produce a number of its policies (after the bank raised no 

relevance objection and instead objected only on vagueness grounds). (ECF Nos. 229 and 228.) 

U.S. Bank does not acknowledge this about-face, let alone explain what changed during the past 

few months, so Plaintiffs can only assume the bank is attempting to conceal documents that 

would damage its case. 

Second, U.S. Bank’s relevance objection presumes that only bank policies would be 

responsive to the requests at issue. U.S. Bank has already produced its policies, however, and the 

requests at issue are reasonably likely to obtain additional relevant information. For example, in 

the wake of Peregrine’s collapse, U.S. Bank executives may have sent emails stating that 

additional bank policies were not necessary because the true blame for the Peregrine loss was not 

on inadequate policies, but was instead attributable to bank employees either violating existing 

policies or refusing to investigate obviously suspicious circumstances. These communications 

would be responsive to the requests and relevant even under U.S. Bank’s view of what Plaintiffs 

 1

 It is undisputed that U.S. Bank implemented new policies for maintaining customer 

segregated accounts after PFG’s collapse. See CFTC v. U.S. Bank, N.A., No. 130cv-2041-LRR 

(N.D. Iowa) (ECF No. 112 at 12) (“Until after Wasendorf’s suicide attempt in July 2012, U.S. 

Bank had no policies, procedures or training specifically applicable to FCM customers or 

customer segregated funds.... U.S. Bank implemented new policies relating to FCM clients after 

July 2012.”). 

 

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must prove at trial. (See ECF No. 325 Ex. A at 3 (Request No. 85); see also ECF No. 256 (Order 

regarding U.S. Bank’s motion to dismiss) at 4-5 (discussing relevance of the bank’s violations of 

its internal policies).) 

Third, U.S. Bank’s relevance argument is based entirely on the elements of Plaintiffs’ 

claim under the Illinois Fiduciary Obligations Act (IFOA), even though Plaintiffs have additional 

claims. Most notably, the Court sustained Plaintiffs’ claim that U.S. Bank breached fiduciary 

duties that the bank owed directly to Peregrine’s customers. (ECF No. 256 at 20.) That claim will 

turn on whether U.S. Bank incurred fiduciary obligations by agreeing to hold Peregrine’s 

customer funds “in trust.” (ECF No. 256 at 19-20.) If so, the bank’s liability will turn on its 

overall conduct and exercise of care, and proof of inadequate policies could establish the 

necessary lack of care or prudence. See, e.g., Woolard v. Woolard, No. 05 C 7280, 2007 WL 

2789097, at *9 (N.D. Ill. Sept. 19, 2007), aff’d, 547 F.3d 755 (7th Cir. 2008) (“A trustee is liable 

for any loss resulting from his failure to exercise reasonable care, prudence, and diligence.”); 

Estate of Venturelli v. Granville Nat’l Bank, 370 N.E.2d 290, 293 (Ill. Ct. App. 1977) 

(fiduciaries must “exercise [the] degree of skill and diligence which an ordinarily prudent man 

bestows on his own similar private affairs”). 

Fourth, U.S. Bank’s relevance argument misstates Plaintiffs’ burden under the IFOA. 

U.S. Bank argues Plaintiffs will need to prove that bank employees were suspicious of 

Wasendorf but decided not to investigate. (U.S. Bank Br. at 2 (quoting Mikrut v. First Bank of 

Oak Park, 832 N.E. 2d 376, 385 (Ill. Ct. App. 2005).) Illinois courts have explained that is just 

“[a]n example” of how bad faith can be established, however. Mikrut, 832 N.E. 2d at 385. Bad 

faith can also be established by showing that a bank implemented “commercially unreasonable” 

policies. Cont’l Cas. Co. v. Am Nat’l Bank & Trust Co. of Chicago, 768 N.E. 2d 352, 366 (Ill. Ct. 

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App. 2002) (“it was commercially unjustifiable for the bank to institute a procedure that 

permitted [the particular type of] theft to occur”) (quoting Master Chem. Corp. v. Inkrott, 55 

Ohio St.3d 23, 28 (1990)); see also id. at 367 (holding the plaintiff stated a claim because “it was 

commercially unreasonable for [the defendant bank] to establish and maintain [the] ATM deposit 

procedure” that led to the plaintiff’s losses). 

As discussed in other briefing pending before this Court, Plaintiffs’ legal theory under the 

IFOA is based in part on U.S. Bank’s egregious lack of policies and training during the relevant 

time period. (ECF No. 350.) Most notably, U.S. Bank promised in writing to maintain 

Peregrine’s 1845 account as a customer segregated account, and formally acknowledged the 

bank understood the account was subject to federal law, even though U.S. Bank had zero policies 

or employee training for customer segregated accounts. (ECF No. 350 Ex. D at 2.) With no 

policies or training, the bank predictably mishandled the 1845 account. U.S. Bank immediately 

titled the 1845 account in a manner that violated federal law. (Id.) U.S. Bank policies allowed the 

account to be treated exactly like an ordinary checking account, rather than a highly regulated 

fiduciary account. (Id.) And U.S. Bank assigned untrained account relationship managers who—

in U.S. Bank’s own words—never “understood the account to be a CEA customer segregated 

account or even understood what a customer segregated account was.” (Id.; U.S. Commodity 

Futures Trading Commission v. U.S. Bank, NA, No. CV 13-2041, Dkt. # 44-1 Ex. 2 at 4.) U.S. 

Bank may try to defend this lack of policies and training at trial, but should not be allowed to 

thwart Plaintiffs’ further development of evidence in the meantime. 

Relatedly, U.S. Bank’s interpretation of the IFOA is not supported by the Court’s ruling 

on the bank’s motion to dismiss. Although U.S. Bank stresses the ruling’s lack of discussion of 

the bank’s policies, the reason the ruling says little about U.S. Bank policies is that the Court was 

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sustaining allegations in a complaint that predated much of the policy- and training-related 

discovery. (ECF No. 169 (operative complaint filed on January 31, 2014).) It was not until over 

five months after the complaint was filed, for example, that U.S. Bank’s corporate designee 

testified about bank policies and procedures. (Kramer Decl. at ¶ 2.) And it was not until several 

more months had passed, that the bank’s two relationship managers finished testifying about 

their training. (Kramer Decl. at ¶ 3.) Since this evidence was developed well after the filing of 

the operative complaint, it was not pled in any detail, and the Court’s ruling turned on other 

factors. As a result, the ruling cannot be construed as judging the probative value of this 

evidence. 

II. U.S. Bank’s Objections To Plaintiffs’ Requests for Admission Should Be Overruled. 

U.S. Bank’s objection to Plaintiffs’ Requests for Admission No. 26 and 27 should be 

overruled. Whether the existence of a fiduciary duty is primarily a question of law or fact is not 

determinative of whether a request is proper under Rule 36. The inquiry is whether the request 

relates to the facts of the case such that its answer can narrow the issues at trial. Requests 26 and 

27 both meet that standard. 

Rule 36 was amended to expressly permit requests that require the application of law to 

fact, and, as the Advisory Committee Notes indicate, the Rule “thereby eliminates the 

requirement that the matters be ‘of fact.’” Fed. R. Civ. P. 36; see also Committee Notes to Fed. 

R. Civ. P. 36 (1970) (“An admission of a matter involving the application of law to fact may, in a 

given case, even more clearly narrow the issues.”). U.S. Bank’s reliance on distinguishing 

between whether a request poses questions primarily of fact instead of law is thus misplaced—

many applications of law to facts will involve substantial questions of law. Instead, the proper 

focus is whether the requests involve the particular facts of the case. Ferrell v. U.S. Dep't of 

Hous. & Urban Dev., No. 73 C 334, 1998 WL 30699, at *1 (N.D. Ill. Jan. 22, 1998) (“after the 

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1970 amendments, the only requests to admit unpermitted in scope are ‘admissions of law 

unrelated to the facts of the case.’”) (citing Committee Notes to Fed R. Civ. P. 36); cf. Hanley v. 

Como Inn, No. 99 C 1486, 2003 WL 1989607, at *3 (N.D. Ill. Apr. 28, 2003) (declining to 

enforce a request “to admit to a provision of ERISA”). 

 Plaintiffs’ Requests for Admission No. 26 and 27 ask U.S. Bank to admit that Peregrine 

and its owner, Russell Wasendorf Sr., owed fiduciary duties to Peregrine’s customers. These 

requests are proper under Rule 36 because they ask U.S. Bank to apply law to the specific facts 

of this case, and the answers will help the parties determine which issues are in genuine dispute 

for trial. U.S. Bank’s objections should thus be overruled and the bank should be ordered to 

admit or deny the statements. 

Dated: March 10, 2015 /s/ Elizabeth A. Kramer 

Daniel C. Girard 

Amanda M. Steiner 

David Stein 

Elizabeth A. Kramer 

GIRARD GIBBS LLP 

601 California Street, Suite 1400 

San Francisco, CA 94104 

Telephone: (415) 981-4800 

Facsimile: (415) 981-4846 

Merrill G. Davidoff 

Michael C. Dell’Angelo 

Jennifer MacNaughton 

BERGER & MONTAGUE, P.C. 

1622 Locust Street 

Philadelphia, PA 19103 

Telephone: (215) 875-3000 

Fax: (215) 875-4604 

Co-Lead Counsel for Plaintiffs 

and the Proposed Class

 

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 CERTIFICATE OF SERVICE 

 I hereby certify that on March 10, 2015 a true and correct copy of the foregoing 

Plaintiffs’ Reply in Support of their Motion to Compel U.S. Bank’s Production of Documents 

and to Determine the Sufficiency of U.S. Bank’s Objections to Request for Admission was filed 

electronically using the CM/ECF system, which caused copies to be delivered to all counsel of 

record.

/s/ Elizabeth A. Kramer 

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