1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

1

TRANSCRIBED FROM DIGITAL RECORDING

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

ZHU ZHAI HOLDINGS LIMITED and

PETER PUI TAK LEE,

Plaintiffs,

-vsSTEVEN IVANKOVICH,

Defendant.

)

)

)

)

)

)

)

)

)

Case No. 20 CV 04985

Chicago, Illinois

March 22, 2021

9:29 a.m.

TRANSCRIPT OF PROCEEDINGS

BEFORE THE HONORABLE SUSAN E. COX, MAGISTRATE JUDGE

TELEPHONIC APPEARANCES:

For the Plaintiffs: MR. WILL SEARS

Quinn Emanuel Urquhart & Sullivan LLP

865 South Figueroa Street

10th Floor

Los Angeles, CA 90017

(213) 443-3000

E-mail: Willsears@quinnemanuel.com

For the Defendant: MR. DARYL M. SCHUMACHER

Kopecky Schumacher Rosenburg PC

120 N. LaSalle Street, Suite 2000

Chicago, IL 60602

(312) 380-6556

E-mail: Dschumacher@ksrp.com

**PLEASE NOTIFY OF INCORRECT SPEAKER IDENTIFICATION**

NOTE: USE OF A SPEAKERPHONE MAY MAKE PORTIONS

UNINTELLIGIBLE AND INAUDIBLE

Transcriber:

KATHLEEN M. FENNELL, CSR, RPR, RMR, FCRR

Official Court Reporter

United States District Court

219 South Dearborn Street, Suite 1426

Chicago, Illinois 60604

Telephone: (312) 435-5569

Kathleen_Fennell@ilnd.uscourts.gov

Case: 1:20-cv-04985 Document #: 50 Filed: 03/22/21 Page 1 of 27 PageID #:729
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

2

(Proceedings heard in open court:)

THE COURTROOM DEPUTY: Case No. 20 CV 4985, Zhu

versus Ivankovich.

THE COURT: Good morning. Could you please --

MR. SEARS: Good morning, your Honor.

THE COURT: Could you please state your names and who

you represent, starting with the plaintiff.

MR. SEARS: Yes. Good morning, your Honor. This is

Will Sears, Quinn Emanuel, for the plaintiffs.

THE COURT: Thank you.

MR. SCHUMACHER: Good morning, your Honor. Daryl

Schumacher on behalf of defendant Ivankovich.

THE COURT: Good morning to you.

Okay. I guess the state of play is the plaintiff

filed a motion, and then the defendant filed a response, which

I would strike because you're not allowed to file a response

until the motion is heard, but then I saw that you filed the

motion to withdraw that, but attached your response, and then

the plaintiff replied to that.

Do I have that straight?

MR. SEARS: That's correct, your Honor.

MR. SCHUMACHER: Your Honor --

THE COURT: Okay.

Well, the whole point of hearing a motion is to kind

of maybe cut through some of the necessity for briefing

Case: 1:20-cv-04985 Document #: 50 Filed: 03/22/21 Page 2 of 27 PageID #:730
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

3

everything, so I -- I would like, if you wouldn't mind, first

with the plaintiff it seems to me that the major dispute

between the parties, and, again, I should say, I -- I really

didn't study the defendant's response carefully because it

came over the weekend, but it seemed to me from reading the

plaintiffs' motion that the heart of this dispute is discovery

of other entities besides the one that made the -- the one

that the plaintiff made the loan to.

Is that accurate?

MR. SEARS: Your Honor, this is Will Sears, Quinn

Emanuel.

I think --

THE COURT: Yeah.

MR. SEARS: -- that is accurate. I think there's --

I think that's a big part of the dispute. I think there are

two other issues that are somewhat --

THE COURT: Okay.

MR. SEARS: -- related but a little bit distinct.

And those actually --

THE COURT: Okay.

MR. SEARS: -- if it's okay with the Court, I'd like

to start with those other two because I think they're actually

fairly straightforward --

THE COURT: Sure, why don't you go ahead.

MR. SEARS: Thank you.

Case: 1:20-cv-04985 Document #: 50 Filed: 03/22/21 Page 3 of 27 PageID #:731
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

4

So the other two issues other than the Atlas

organization, one is about discovery into the collateral

securing these loans --

THE COURT: Mm-hmm.

MR. SEARS: -- and the other one is about litigation

involving the defendant and his assets, and I'll take those in

turn if that's okay.

THE COURT: Okay. Sure.

MR. SEARS: So regarding the collateral, and in terms

of the specific request, it's really Request 7 and Request 8.

Quite simply, these are secured loans. A big issue in the

case --

THE COURT: Yeah.

MR. SEARS: -- is what the security was and what the

economic value that our clients received for what the loans

were.

It's come out over the past few months and even in

defendant's response at Page 5 is that they think the

collateral is basically worthless. The collateral is largely

distributions from this entity called Overlook that the

defendant controls. He's now taken the position that Overlook

is not making any distributions. In other words, there's no

money coming out of it so the collateral, to his view, isn't

worth anything.

We think that's a huge (inaudible) the case. If

Case: 1:20-cv-04985 Document #: 50 Filed: 03/22/21 Page 4 of 27 PageID #:732
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

5

that's correct, the economic bargain that our client struck

was much different from what they realized, and we're just

trying to get some basic discovery into how it came to be that

what was pledged as collateral really has no value now that

the loans are in default.

THE COURT: How -- sorry -- hold on for a second.

(Dog barking in background.)

THE COURT: Okay. Sorry about that.

So what -- how long a time was it between the loan

being made and this acknowledgment that the collateral or your

discovery of the collateral that secured that loan was

basically worthless? What's the timeframe we're talking

about?

MR. SEARS: So there's two loans here, very similar

structures for both. One from plaintiff ZZH, Zhu Zhai

Holding, one from plaintiff Lee. The loans were made

respectively in late 2018, early 2019. I don't have the

exact --

(Cross-talking.)

THE COURT: That's okay. That gives me enough.

Okay. Go ahead.

MR. SEARS: When we found out that the collateral was

nothing was really after the loans defaulted, which was this

summer. Again, slightly different maturity dates, but the ZZH

loan matured June 15, 2020. The Lee loan matured July 31st,

Case: 1:20-cv-04985 Document #: 50 Filed: 03/22/21 Page 5 of 27 PageID #:733
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

6

2020.

It was after that when our client sought to enforce

their rights that we started hearing that, well, there's been

no distributions from this entity. And one of the things we

pleaded in our complaint is that we think that there may have

been things that were effectively distributions but were

perhaps called something else, and that those were

misappropriated, which would be a breach of the limited

guaranty agreement, but to figure out what exactly happened

and to what extent those were breached and if there were any

distributions by a different name and they were -- something

else was done with them, we'd really need some basic discovery

into the collateral.

THE COURT: Okay.

So basically you're -- with respect to this argument,

you're arguing and you're contending basically that Overlook,

which is now essentially bust -- might be bust because of

misappropriations of the funds (inaudible).

MR. SEARS: Kind of, although I think it's a little

more subtle. It's not clear to us really whether it's bust or

what the deal is.

One thing that we learned, again, just after we filed

the lawsuit and was in defendant's response at Page 5, is this

Overlook entity apparently doesn't even have a bank account,

which is very concerning to us.

Case: 1:20-cv-04985 Document #: 50 Filed: 03/22/21 Page 6 of 27 PageID #:734
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

7

As the defendant notes, he's produced a balance sheet

for Overlook. It's hard for us to understand how it has a

balance sheet but no bank account and how its distributions

were pledged as collateral if it has no account from which it

can make those.

THE COURT: Okay. And so what exactly are you

looking for?

MR. SEARS: I think this would be Request 7. We've

asked for --

THE COURT: Uh-huh.

MR. SEARS: -- all documents regarding the

collateral, and we give some specific examples.

I think on this, and really all of these requests,

your Honor, we're willing to be reasonable here. We don't

think --

THE COURT: Yeah.

MR. SEARS: -- this is a million-document case. We

don't want discovery to go on for years and years.

THE COURT: Right.

MR. SEARS: This is something where we could take --

we could take documents sufficient to show or we could come up

with a narrow set of search terms.

What we're concerned about is the scenario that we're

in now, where the defendant is selectively disclosing bits and

pieces of information but without a full picture. So we see a

Case: 1:20-cv-04985 Document #: 50 Filed: 03/22/21 Page 7 of 27 PageID #:735
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

8

balance sheet, but we don't understand what that means because

there's no bank account to go with it.

THE COURT: Uh-huh, uh-huh.

Okay. Defendant, why don't you tell me what's wrong

with that idea?

MR. SCHUMACHER: Thank you, your Honor.

THE COURT: I think -- you challenged relevance

primarily as I recall, correct?

MR. SCHUMACHER: That's correct, your Honor.

THE COURT: Okay.

Why isn't this relevant?

MR. SCHUMACHER: So I guess the first thing I would

disagree with is the conclusion that counsel made that their

collateral is worthless. This portfolio has an entity called

Overlook Managing Member at sort of the top of the

organization.

Below Overlook are five operating entities referred

to as the program entities.

THE COURT: Uh-huh.

MR. SCHUMACHER: That's -- and then there are

entities below that as well. Their collateral are

distribution rights from Overlook. Simply because Overlook

isn't distributing assets doesn't mean the collateral is

worthless. I think that's a false --

THE COURT: But aren't -- okay. But aren't you sort

Case: 1:20-cv-04985 Document #: 50 Filed: 03/22/21 Page 8 of 27 PageID #:736
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

9

of proving their point a little bit when you say that? I

mean --

MR. SCHUMACHER: Well, your Honor --

THE COURT: -- you're contending one thing about

Outlook, and the plaintiff is contending an entirely different

thing, and it seems to me the only way to get to the bottom of

whether this -- you know, what the evidence is on these

allegations is to give them this information.

MR. SCHUMACHER: Judge, what we've given them already

are bank accounts for all of the Pilgrim entities, as well as

the balance sheet for Overlook, which is at the top.

You know, I think the dispute is some of the things

they're looking for are deep, deep into this portfolio

beyond -- again, keeping in mind their collateral are just the

distribution rights. They want documents about refinancing

and very extensive --

THE COURT: Yeah, but -- but essentially they want to

test what you're saying --

MR. SCHUMACHER: Understood.

THE COURT: -- right?

MR. SCHUMACHER: And I think they want to test what

we're saying --

THE COURT: What's the problem?

MR. SCHUMACHER: -- give them --

THE COURT: I mean, take your word for it on that

Case: 1:20-cv-04985 Document #: 50 Filed: 03/22/21 Page 9 of 27 PageID #:737
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

10

particular point, it seems to me given the allegations in the

case, so --

MR. SCHUMACHER: Judge --

THE COURT: -- go ahead. Go ahead.

MR. SCHUMACHER: I'm not asking them to take my word

for it. We've given them all the bank accounts and the

operating -- I'm sorry, and the balance sheet for the

top-level entity.

And I'm not suggesting that, you know, maybe there's

some additional documents they'd be entitled to, but they seem

to want everything for the entire portfolio and relative to

the -- you know, the distribution rights from the top-level

entity that they're entitled to, I just think it's -- it's way

beyond the realm of anything that could be relevant. The

burden is --

THE COURT: Well, that's -- I mean, I heard the

plaintiffs say that they were willing try to come up with some

way to limit this discovery to test exactly what you're

saying, and it seems to me from even your -- I mean, I read it

briefly, but even your position is that -- well, you're

basically sort of closing the door on that --

MR. SCHUMACHER: I just think that there's --

THE COURT: -- as automatically -- it's automatically

not relevant, and I don't agree with that premise.

So it seems -- really, it doesn't make sense to me.

Case: 1:20-cv-04985 Document #: 50 Filed: 03/22/21 Page 10 of 27 PageID #:738
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

11

But I do understand that this is -- this is a, you know, a

complicated series of companies, but I don't agree that it

should be just not negotiable in terms of relevance. So I

think the best thing to do here is to have you guys talking

this through.

I don't think just saying stop is sufficient, and I

don't think if the balance sheet for Outlook is basically not

backed up by even a bank account, that suggests to me that

something more complicated is going on with respect to these

entities.

And I thought I read that the plaintiffs -- I guess

plaintiff pointed out that there was testimony, you know,

money kind of moved around in and among these entities, which

makes it more likely that there's something there.

I agree with you, and I think the plaintiff agrees

with you, that there should be limitations on this discovery,

and they've offered to try to negotiate that, but essentially

you put up a stop sign.

MR. SCHUMACHER: Your Honor, my only point is I don't

think they get unfettered access to the entirety of this

portfolio --

THE COURT: I don't think they're asking -- I don't

think they're asking for unfettered access. I think they're

asking -- you know, what I'm saying is you just said no.

Now, you're only giving -- you're only giving

Case: 1:20-cv-04985 Document #: 50 Filed: 03/22/21 Page 11 of 27 PageID #:739
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

12

information concerning this particular transaction and what

backs it up, but that doesn't -- I mean, I think that the

allegations kind of go beyond that.

MR. SCHUMACHER: Okay. And just for the record,

there is no allegation that there was misappropriation that

caused Outlook to be --

THE COURT: No, there was allegations that there was

fraud and intentional misrepresentation about --

MR. SCHUMACHER: The portfolio, the inducement to the

loan is what they're arguing. This is just the collateral to

the loan. The fraud that counsel has alleged is fraudulent

inducement to a loan.

THE COURT: Yeah, and what exactly would that be?

MR. SCHUMACHER: I guess my point, your Honor, is

they're not alleging misappropriate or fraud within this

portfolio of companies. They're alleging that a separate

loan, which is the subject of the lawsuit, they were

fraudulently induced into, indeed distribution rights served

as collateral. That's all.

THE COURT: Okay. But --

MR. SCHUMACHER: I understand your ruling though, I

understand --

THE COURT: Well, let me ask the plaintiff, what

about that? What about what he just said?

MR. SEARS: Yes, your Honor. I think we don't agree

Case: 1:20-cv-04985 Document #: 50 Filed: 03/22/21 Page 12 of 27 PageID #:740
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

13

with that characterization of our complaint. I've got it open

in front of me, and there are --

THE COURT: Yeah.

MR. SEARS: -- numerous places where we've alleged

that he misappropriated distributions. We say it in

Paragraph 6 in the preliminary statement of the complaint.

THE COURT: Yeah.

MR. SEARS: We say it in Paragraph (inaudible). It's

repeated throughout. In fact, one of our (inaudible) is of

the limited guaranties that we plead is that he

misappropriated distributions because under the guaranties,

that is one of the triggers that renders defendant liable.

THE COURT: Yeah.

MR. SEARS: He misappropriated distributions. So

it's within the four corners of the complaint, and he didn't

move to dismiss it.

THE COURT: All right.

Well, that was my sense, too, so I'm just not

understanding why this should be, you know, a forbidden topic.

I think -- you know what my feelings are, and I think you guys

need to, as the plaintiff actually suggested, get together and

figure out how to streamline this so that you're getting at

exactly what it is, what is relevant to these allegations

because I don't think they want every document from every

entity, every -- that's not what I -- that's not how I read

Case: 1:20-cv-04985 Document #: 50 Filed: 03/22/21 Page 13 of 27 PageID #:741
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

14

what they're saying.

But I also think that you've stymied that by just

sort of taking these issues, which seem very germane to what

the complaint says, just off the table, and you're not going

to do that. That's not going to fly I guess is what I'm

saying. I don't agree with that basic premise.

I do agree that there could be overbreadth issues and

they should be negotiated, and I'm going to order you to do

that with respect to these particular documents because I

don't think that negotiation has taken place.

Am I correct?

MR. SCHUMACHER: Your Honor, we've had a telephonic

meet-and-confer. The big issue was we're going to negotiate

search terms. It's going to be an electronic type of review,

but obviously we have some significant scope issues, one of

which you've just resolved.

But once we get past, in my view, the two big issues,

I know counsel has identified it as three, I think we can

negotiate search terms if you so order.

THE COURT: Okay.

So when you do do that, you're going to do it face to

face. And what I mean by that is you're going to either have

a Zoom or Teams or other video platform meeting so that you

can talk directly to each other and get to the bottom.

It seems to me that's more effective than chatting on

Case: 1:20-cv-04985 Document #: 50 Filed: 03/22/21 Page 14 of 27 PageID #:742
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

15

the telephone and sending emails back and forth. And,

frankly, my standing order requires it. Now we can't do it

actually in person. We can certainly do it via these

platforms.

Okay. So let's get to the litigation involving

defendants. What's the relevance of that, plaintiffs?

MR. SEARS: Thank you, your Honor.

And I'm sorry, I don't mean to belabor the point, but

I just had one clarification on the collateral.

THE COURT: Uh-huh.

MR. SEARS: So Request 8 is related to the

collateral. The collateral securing the Lee loan includes

proceeds from refinancing another loan from a third party

called Walker Dunlop. I just want to confirm that the Court's

order applies to that, and it's subject --

THE COURT: Agree.

MR. SEARS: -- to a face to face -- thank you.

THE COURT: Yeah, agree.

Really, what I want you to focus on, and I'm

stressing this to you, that just because I ruled it relevant

doesn't mean that you get everything you want. You need to

get really in good faith negotiate a scope of this particular

material.

Okay. So let's get to the litigation.

MR. SEARS: Thank you.

Case: 1:20-cv-04985 Document #: 50 Filed: 03/22/21 Page 15 of 27 PageID #:743
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

16

So, your Honor, I think the litigation issue is as

follows: Under Section 9 of both guaranty agreements, the

defendant made express representations that there were no

pending or threatened legal proceedings against him personally

or any of the defendant's assets that would have a material

adverse impact on him if adversely determined.

So it's an express representation. The breach of it

would trigger the limited guaranties, and we know, your Honor,

that that representation was not true because when he signed

at least one of the loans -- the guaranty agreements, there

was already a lawsuit on file against them, which has since

been resolved against the defendant and he's now currently

facing a judgment in that case.

So these litigation requests really all go to that

issue. We think they're clearly relevant to whether he

breached that express representation in the guaranty, and for

this one, we don't see any plausible burden objection because

it's essentially just a list of lawsuits involving the

defendant or his assets. We'll be reasonable on the timeframe

we're looking for. I don't think it can just be as of the

date that he signed the guaranties because the guaranties are

broader than that.

They speak in terms of threatened litigation. They

could also contemplate cases in which maybe the defendant or

one of his entities is a plaintiff but sort of sued first for

Case: 1:20-cv-04985 Document #: 50 Filed: 03/22/21 Page 16 of 27 PageID #:744
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

17

some tactical reason.

THE COURT: Yeah, yeah.

MR. SEARS: So we're happy to work that out similar

to the guidance the Court provided, but we don't think a

categorical relevance objection or even really significant

narrowing of these requests is appropriate, given that it's

within the four corners of the guaranty.

THE COURT: Remind me what your time frame was?

MR. SEARS: When we asked for this, I think we asked

for documents and a list of the lawsuits from 2017 to the

present. We'd be willing to narrow that. Our

understanding --

THE COURT: Yeah, I do think -- yeah, I do think you

do need to narrow that.

I understand why you can't just say, you know, on the

day of the -- of the closing because, you know, threatened

litigation is actually something that needs to be covered, and

you can't really do that by, you know, essentially limiting

the request (inaudible).

But I do think the timeframe is pretty narrow. I

don't think 2017 to the present by any means, so I'd like you

to negotiate that.

What does the defendant think an appropriate

timeframe for this would be?

MR. SCHUMACHER: Judge, if we're trying to capture

Case: 1:20-cv-04985 Document #: 50 Filed: 03/22/21 Page 17 of 27 PageID #:745
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

18

threatened and pending at the time he signed these documents,

which I agree is appropriate, six months before and six months

after would be fine.

Your Honor, my issue is not with what we've just

discussed. I have two issues with this. One, the guaranty,

where he makes the representations are with respect to himself

and the language "his assets" is in there. I think what --

what plaintiffs have requested is a problem in two respects:

One, they're requesting litigation for any of the 50-plus

Atlas entities; and, two, they're not just requesting the

listing of it. They're asking for all documents involved in

any case, and that --

THE COURT: Well, I -- I don't mean to cut you off,

but that's an overbreadth issue, which should be, as I said,

negotiated in good faith by the parties, and that needs to

take place.

I read assets pretty broadly though. Why wouldn't

the defendant's personal assets -- rather entity assets count?

MR. SCHUMACHER: Well, those are -- those are

entities in which he has a membership interest, but --

THE COURT: Well, that's an asset, is it not, by any

definition? I mean, it just is.

Like, again, this is -- to me, this is more a scope

issue than a relevance. I mean, I think -- you know, I'm not

faulting you. I don't think, you know, you've -- there's been

Case: 1:20-cv-04985 Document #: 50 Filed: 03/22/21 Page 18 of 27 PageID #:746
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

19

a lot of discovery in this case, you know, things have been

turned over and so on and so forth.

But just basically not really negotiating this, just

saying it's off the table doesn't make sense to it. Atlas is

a broad term, and I think it encompasses membership interests

in other assets or other entities, which it does.

Plaintiff, what do you think about the timeframe?

MR. SEARS: Thank you, your Honor.

THE COURT: Six months before and six after?

MR. SEARS: I think that's close. If it's okay with

the Court, I think what we'd like to do is think about it and

talk it over with Mr. Schumacher. The six months before

sounds about right.

I guess our concern with six months after is that

we're already aware of lawsuits that were hitting the docket

and potentially even proceedings involving some of the

defendants' personal assets that may have come about more than

six months after, but for some of them and one of them we

identify in our Requests for Production is a lawsuit the

defendant initiated over a foreclosure sale of one of his

portfolios of properties. Those things don't just come out of

the blue. There are usually pre-default notices and

discussions. I think we would --

THE COURT: Yeah.

MR. SEARS: -- want to make sure that whatever

Case: 1:20-cv-04985 Document #: 50 Filed: 03/22/21 Page 19 of 27 PageID #:747
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

20

timeframe we agree on, we're not losing emails that say we are

concerned you're going to default and we're going to sue you

for a lot of money just because it happens to be on month

seven.

THE COURT: Mm-hmm. Again, also, okay, that topic

should also be negotiated between the parties. I can see

going a little beyond six months, maybe nine months. I just

don't think the timeframe of 2017 to present is really -- is

really appropriate.

So, again, you can add this to your list of things to

do in your conference.

So what's the third issue?

MR. SEARS: Judge, before we move on, could I get one

point of clarification?

THE COURT: Sure.

MR. SCHUMACHER: I think some guidance would be

helpful on, you know, identifying litigation is one thing, but

one piece of litigation involves, as your Honor's aware, many,

many, many documents. I don't think they're necessary. Maybe

the complaint is necessary, but if you can just give us some

guidance because I know we're going to be negotiating that.

THE COURT: Well, I actually think, I actually think

this is more -- I mean, this is your case. You both know more

about it than I do. I don't -- I'm not going to tell you with

respect to, you know, all litigation, you know, what exactly

Case: 1:20-cv-04985 Document #: 50 Filed: 03/22/21 Page 20 of 27 PageID #:748
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

21

should be produced because it depends, and I think you guys

are a better -- in a better place than I am to draw those

kinds of distinctions.

And I think what happened in this case, which is

unfortunate, is those negotiations really didn't happen

because you sort of took this off the table with respect to

other -- you know, other entities, and now you're going to

have to, like, understanding that I don't think that bars this

discovery, you're going to have to negotiate about it.

And this is why I have my rule because it seems to

me, you know, briefing those isn't great, but you get more to

the bottom of this by talking, and what I think was really

important for me to say is that I think these relevance

objections are not appropriate. What is appropriate is

overbreadth with respect to some of the requests. I totally

see that.

But how that gets -- how that gets, you know,

resolved is really going to depend on your negotiations.

If at the end of your -- of your discussions you've

made a lot of progress but there are a few things that you

just need a ruling on, I'll do that.

But I'm not going to do it now because you haven't

done, in my mind, the hard work that is required to actually

bring this -- you know, bring this to the Court for an actual

ruling by sort of taking it off the table, and now you know

Case: 1:20-cv-04985 Document #: 50 Filed: 03/22/21 Page 21 of 27 PageID #:749
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

22

you can't do that. So it seems to me -- and now the plaintiff

knows that they need to narrow, but I think the plaintiff has

sort of always been willing to do that, but you can't get

there if you just, like I say, put a stop sign on it.

So what's the third issue? I've got to move on.

I've got other people.

MR. SEARS: Understood, your Honor. I'll try to be

brief.

The third issue is the Atlas organization. That one

I think is the one that's been briefed the most heavily, and I

think your Honor actually identified the key allegations here.

We allege in Paragraph 56 of our complaint that the

defendant testified under oath that he's moved money between

his entities and has the ability to do so, and we also alleged

and the defendant has admitted in his answer that one of the

things that was shown to our client during the preloan

discussions was projections and decks showing asset values for

different entities and portfolios of properties owned by

different Atlas entities, and the defendants can make

arguments at summary judgment as to why those are or aren't

actionable, but because they were some of the materials given

to our clients and we concluded they were some of the

inducements for this loan, we think that discovery into the

financial condition of the Atlas organization generally is

relevant.

Case: 1:20-cv-04985 Document #: 50 Filed: 03/22/21 Page 22 of 27 PageID #:750
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

23

This isn't a business that observes hard-and-fast

corporate distinctions. It's just not. The whole point of

the transaction and the materials that were shown to our

clients was that there were other entities that owned other

assets that produced income, and that was always on the table

as part of the deal.

THE COURT: Uh-huh. What do you say to that,

defendant?

MR. SCHUMACHER: Your Honor, I think there are two

Atlas entities involved here, which, by the way, they're not

suing. They're suing the guarantor. There are over 50 Atlas

entities that all are involved in real estate operations.

I made a proportionality argument. I think also many

of the other Atlas entities that weren't a borrower, weren't a

guarantor, and quite frankly had no relevance to this

transaction are -- you know, discovery as to those entities,

which would be extremely burdensome, the relevance is

disproportionate to the value in this case.

THE COURT: Well, normally I would agree with you,

but what your client said under oath gives me pause.

What do you have to say about that?

MR. SCHUMACHER: I think it's taken out of context.

It wasn't relating to any of these entities, and what he was

saying was he's the managing member of many of the LLCs,

but --

Case: 1:20-cv-04985 Document #: 50 Filed: 03/22/21 Page 23 of 27 PageID #:751
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

24

THE COURT: How was it taken out of context exactly?

MR. SCHUMACHER: Because it was with respect to -- it

was in one case in New York with respect to one particular

issue.

THE COURT: Plaintiff, what's your answer?

MR. SEARS: Your Honor, I think that we don't agree

that it was taken out of context. I'm sure that won't

surprise the Court. I think --

THE COURT: No, it does not.

MR. SEARS: -- going back and forth -- I think going

back and forth over how to interpret something that the

defendant said under oath in another lawsuit is a summary

judgment Rule 56 argument, not a Rule 26 argument.

We've pleaded that he doesn't observe corporate

formalities. We've pleaded that to induce our clients to make

the loans, he gave them projections about asset values for

properties owned by other Atlas entities and that those were

material and something they relied on as part of the deal.

He can make arguments at summary judgment as to why

that doesn't give rise to the claim. For now, we think it's

fair game for discovery.

I hear the Court and defense counsel on the burden

issues. Frankly, we don't want millions of documents from 50

different companies --

THE COURT: No, I don't expect -- I'm sorry, I

Case: 1:20-cv-04985 Document #: 50 Filed: 03/22/21 Page 24 of 27 PageID #:752
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

25

interrupted. I don't expect you do. I don't know why you

would want them.

MR. SEARS: Exactly. I think what we want, though,

is in an organization where literally every entity is called

Atlas blank LLC, we don't want documents about the defendant's

financial condition or the financial condition of his

organization generally to get left on the cutting room floor

because they just say Atlas or they say --

THE COURT: Right.

MR. SEARS: -- your financial troubles and they

reference an LLC that maybe wasn't the borrower in this case;

but as your Honor has noted, I really think that's a search

term and custodians issue. It's not a relevance issue.

THE COURT: Yeah, I don't think it's a relevance

issue either, but I never thought of the proportionality of

the discovery. And, again, that's something you have a better

idea about in terms of solving that problem than do I at this

point.

So, again, I need you to discuss it. So what I would

like you to do is take, you know, I don't know how long you

need, maybe a week, maybe two weeks, to have this discussion

and try to resolve sort of the burden issues that are part

of -- and timeframe with respect to litigation that are part

of each of these separate issues, and what you can't agree on,

and I really hope it ends up being nothing, but if you can't

Case: 1:20-cv-04985 Document #: 50 Filed: 03/22/21 Page 25 of 27 PageID #:753
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

agree on it, you'll -- I would -- what I typically do

(inaudible) but I order the conference and then order at the

end of the conference you file a joint submission as to what

remains for the Court to resolve, and it should be fairly

narrow with respect to each of these.

So that's what I'm going to do with this. So how

long do you think it will take you to have the

meet-and-confer?

MR. SCHUMACHER: Your Honor, this is Daryl

Schumacher.

I have an appellate argument later this week, so if

we could make two weeks part of the suggestion.

THE COURT: Yeah, okay. That's fine.

So you have 14 days to have your meet-and-confer by

video, and then you can file (inaudible) let's say seven days,

and it's a joint submission, specifically defining what you

were not able to agree on, and -- and as I said, I would hope

in a good-faith negotiation, now that you've gotten something

from the Court, you would be able to resolve many of these

issues.

So that will be the Court's order today. Like I

said, the submission should be joint, and if you want to, you

can say a little bit about what your position is each, but,

again, I hope that those will be relatively -- you won't have

a lot of those.

Case: 1:20-cv-04985 Document #: 50 Filed: 03/22/21 Page 26 of 27 PageID #:754
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

27

And if we do, then you're just going to have me make

a call, and that, really, I always tell people, cases like

that, you know the landscape a lot better than I will ever do,

but to some extent when you present me with, you know, these

kinds of issues, it's really going to be, you know, I don't

want to say arbitrary, but I'm just going to take my best

whack at it, and you're going to have to live with the

results.

So I often think what the parties can negotiate

themselves is more valuable. But, again, that's the order for

today. Okay, is everybody clear? I have to move on to the

next case.

MR. SCHUMACHER: Yes, your Honor.

MR. SEARS: Yes, your Honor. Thank you.

THE COURT: All right. Thank you very much.

Bye-bye.

(Which were all the proceedings heard.)

CERTIFICATE

I certify that the foregoing is a correct transcript from

the digital recording of proceedings in the above-entitled

matter to the best of my ability, given the limitations of

using a digital-recording system.

/s/Kathleen M. Fennell March 22, 2021

Kathleen M. Fennell Date

Official Court Reporter

Case: 1:20-cv-04985 Document #: 50 Filed: 03/22/21 Page 27 of 27 PageID #:755