Court Opinion

ID: 3202607
Source: CourtListenerOpinion
Date Created: 2016-05-11 15:05:39.202102+00
Date Added: 2024-06-11T12:09:05.999637
License: Public Domain

IN THE COURT OF APPEALS OF IOWA

                                   No. 15-0824
                               Filed May 11, 2016

GOLDEN ENTERPRISES, LLC
and KATHRYN LEANN GOLDEN,
     Plaintiffs-Appellants,

vs.

IOWA DISTRICT COURT FOR
POLK COUNTY,
     Defendant-Appellee.
________________________________________________________________

      Certiorari to the Iowa District Court for Polk County, Jeffrey D. Farrell,

Judge.

      A judgment debtor’s wife and the couple’s limited liability company

challenge the district court’s ruling denying their request for a protective order

and their motion to quash subpoenas issued by the creditor bank in furtherance

of its collection efforts. WRIT ANNULLED.

      Matthew E. Laughlin, Sarah E. Crane, and Margaret A. Hanson of Davis,

Brown, Koehn, Shors & Roberts, P.C., Des Moines, for appellants.

      Jonathan E. Kramer of Whitfield & Eddy, P.L.C., Des Moines, for appellee.

      Considered by Potterfield, P.J., and Doyle and Tabor, JJ.
                                        2

TABOR, Judge.

      Steven Golden is the judgment debtor in a foreclosure action by First

American Bank. To advance its collection efforts, the bank issued subpoenas for

records and testimony from the debtor’s wife, Kathryn Leann Golden (Leann),

and the couple’s company, Golden Enterprises, LLC (Golden Enterprises). The

wife and company unsuccessfully moved to quash the subpoenas.              In this

certiorari proceeding, we are asked to consider whether the subpoenas are

unduly burdensome or seek irrelevant information.         Recognizing the wide

discretion vested in the district court regarding discovery matters, we decline to

grant the relief requested by Leann and Golden Enterprises.

I.    Facts and Prior Proceedings

      Leann is the wife and business partner of Steven Golden, who took out

loans—totaling approximately $2,679,000—from First American to purchase and

operate two car washes. Steven was the limited personal guarantor of the notes.

First American brought a successful foreclosure action against Steven, and

judgment was entered on July 9, 2014. We affirmed the bank’s judgment on

appeal. See First Am. Bank v. Urbandale Laser Wash, L.L.C., 874 N.W.2d 650,

659 (Iowa Ct. App. 2015).

      The bank foreclosed on the subject properties, resulting in partial

satisfaction of the judgment. Seeking to recover the remaining $1.5 million in

judgment debt, the bank filed motions seeking a judgment creditor examination of

Steven and further discovery from Leann and Golden Enterprises, as well as

their accountant. See Iowa Code §§ 630.1, .5 (2013) (proceedings auxiliary to
                                           3

execution).   Steven resisted the bank’s motions.         On January 12, 2015, the

district court granted the bank’s motion to take examinations auxiliary to

execution and allowed the bank to “request production of documents to be

provided prior to or at the examinations.”

       To enforce its judgment, on January 30, 2015, First American served eight

subpoenas seeking depositions and financial documents from several entities

and individuals, including Steven, his accountant Joseph Coco and the

accounting firm Coco & Ermels, P.C.,1 Leann, and Golden Enterprises. Along

with other information, the subpoenas sought disclosure of any asset possessed

by Leann or Golden Enterprises with a value over $500.                 In addition, the

subpoenas requested:

                 All records relating to the income, expenses, assets,
       liabilities, transfers, plans, or statements of or to Steven, [the two
       judgment-debtor companies], or [Leann] from January 1, 2012 to
       the present date.
                 All records relating to the management of [Golden
       Enterprises], and all agreements between or among owners,
       officers, managers, or others relating to management of said
       company at any time.
                 All electronic accounting records of [Golden Enterprises,]
       Steven [and/or Leann].
                 All agreements governing all employee benefit programs of
       Golden Enterprises [ ].
                 All certificates of stock issued and outstanding of [Golden
       Enterprises] and all records relating to changes of ownership or

1
  In the appellants’ brief, counsel for Leann and Golden Enterprises purport to challenge
both the subpoenas issued to them, as well as those issued to Coco and his accounting
firm. In the appellee’s brief, counsel for the bank asserts Coco and his firm have
provided the bank with documents and “no further case or controversy” exists regarding
those parties. The appellants did not file a reply brief to controvert that assertion.
Normally on appeal we do not consider matters outside the record, but we entertain an
exception on claims of mootness. See Clarke Cty. Reservoir Comm’n v. Robins, 862
N.W.2d 166, 170 n.3 (Iowa 2015). Based on the bank’s uncontroverted assertion, we
find the issue is moot as to the subpoenas issued to Coco and the accounting firm.
                                         4

       ownership rights associated with the stock issued and outstanding
       of [Golden Enterprises]

       On February 12, 2015, Leann and Golden Enterprises moved to quash the

subpoenas and sought a protective order,2 alleging the bank’s document and

deposition subpoenas were “overly broad, unduly burdensome, and [sought]

irrelevant discovery from and regarding non-parties and non-debtors.”           The

Goldens’ counsel3 stated he had entered negotiations with the bank’s counsel to

narrow the bank’s requests but felt compelled to take action due to the deadlines

in the subpoenas.

       First American filed a resistance to the motion to quash its subpoenas,

contending the objectors were “insiders” as that term is defined in Iowa Code

section 684.1(7)(a) (fraudulent transfers), and thus “by public policy have been

determined to have a relationship with the debtor,” Steven, which relationship

makes Leann and Golden Enterprises “more likely to be recipients of fraudulent

transfers or other blurring of property ownership such that they are not entitled to

the same presumption of independence from [Steven] shown true third-parties.”

The resistance also asserted the attorneys for all parties had spoken about a

potential protective order. According to the resistance, the bank’s counsel had

“stipulated to a protective order preventing redisclosure of information to be

produced that is confidential in nature, and explaining that information regarding

both [Leann’s and Golden Enterprises’] assets and income are necessary

2
   The combined motion was also filed on behalf of Steven and the two debtor
corporations and argued the deposition dates were inconvenient and more time was
required to respond.
3
  The Davis Brown Law Firm represented all of the objectors.
                                             5

because they are intertwined with [Steven’s] personal assets, expenses, income

and debts.”

         The district court held a hearing on March 25, 2015.4 At the hearing, First

American offered exhibits concerning the financial condition of Steven and Leann

Golden. The bank alleges the exhibits established that during the foreclosure

litigation, Steven and Leann took actions to modify their financial arrangements.

For instance, in November 2014, they converted Golden Enterprises, Ltd., from

an Iowa corporation governed by Iowa Code chapter 490 into Golden

Enterprises, LLC, a limited liability company governed by chapter 489. After the

conversion, each spouse owned a fifty-percent membership interest. In addition,

the couple reduced Steven’s salary from Golden Enterprises, while increasing

the salary paid to Leann. The bank also offered email exchanges between the

parties’ attorneys showing ongoing discussions about narrowing the subpoenas’

scope.

         On April 1, 2015, the Goldens’ counsel filed objections to all of the bank’s

exhibits. The objections generally asserted the financial information sought from

Leann was not relevant because she was not a party to the foreclosure litigation

and any relevant information could be gleaned from Steven’s debtor examination.

4
  The bank points out “the appellants did not present this court with the transcript” of the
March 25 hearing. It is true the appellant is obliged to order a transcript of the parts of
the proceedings relevant to the finding or conclusion challenged on appeal. Iowa R.
App. 6.803(1). But the appellee is obliged to order a transcript of any additional parts of
the proceedings it deems necessary, and any disputes regarding transcription are to be
settled in the district court. Iowa R. App. P. 6.805. It does not appear the appellee bank
disputed the appellant’s failure to order the March 25 hearing transcript.
                                         6

       In a post-hearing brief, First American discussed proceedings auxiliary to

execution on a debt under chapter 630, as well as equitable remedies for

judgment creditors predating those statutory provisions.        The bank requested

“discovery of assets, both by records and testimony, from persons known to have

benefitted from transfers made by [Steven] since the start of the litigation, or with

knowledge of such transfers, as set forth in the oral record”

       In a post-hearing response, the Goldens’ counsel argued:

              Leann is neither a party to this lawsuit nor a debtor of the
       [bank], and therefore, [the bank] has no basis for its request to
       compel Leann to submit to a Judgment Debtor Examination and/or
       produce documents concerning assets only owned by her.
       Defendants do not dispute that [the bank] may examine [Steven]
       regarding his assets, including transfer of any assets to Leann.
       Defendants also do not dispute that [the bank] may examine Leann
       regarding transfers to or from [Steven]. Although, where [the bank]
       examines Leann regarding transfers from [Steven], the inquiry
       should be whether [Steven] liquidated his assets, and if he did so,
       whether he received “reasonably equivalent value” in a transfer to
       Leann. See Iowa Code § 684.5 [(transfers fraudulent as to present
       creditors)].

       In a ruling issued April 15, 2015, the district court reiterated that the bank

could proceed with a judgment debtor examination of Steven, could “examine

other witnesses at the same time,” and “could request production of documents

prior to or at the examinations.” The court also confirmed the bank’s exhibits

were admitted at the hearing. In regard to the objectors-defendants’ motion to

quash the bank’s subpoenas, the court noted: “Defendants agree that the

deponents can provide information about assets held by or transferred by

[Steven] but claim it would be unduly burdensome to provide information about

assets solely held by [Leann] and Golden Enterprises. However, to prevent such
                                          7

questions during the examination would be overly restrictive.”             The court

reasoned:

         [Leann] may hold some assets jointly and some on her own. The
         bank can only determine what assets might be available for
         execution by asking questions about ownership. Not only will the
         bank be able to learn about assets that are jointly held and any
         questionable transfers, but the bank can determine whether any
         assets have been solely owned by [Leann] to avoid any
         inappropriate execution.

         The court applied the same rationale to Golden Enterprises:

         It may be that assets held by Golden Enterprises are not available
         for execution to pay the judgment against [Steven] in this case.
         However, the bank may not be able to make that determination
         without asking the questions and obtaining records to show
         ownership and transfer of assets.

         Leann and Golden Enterprises filed a petition for writ of certiorari to

challenge the district court’s denial of their motions to quash and requests for

protective orders. The Iowa Supreme Court granted their petition and stayed the

district court’s April 15 order, but “only to the extent it requires non-parties [Leann

and Golden Enterprises] to provide discovery and testimony regarding their

individual assets.” After briefing, the supreme court transferred the appeal to this

court.

II.      Scope and Standards of Review

         On writ of certiorari, we review for errors at law; “we may examine only the

jurisdiction of the district court and the legality of its actions.” Reis v. Iowa Dist.

Ct., 787 N.W.2d 61, 66 (Iowa 2010) (citation omitted). An abuse of discretion

may constitute an illegality.    Parrish v. Denato, 262 N.W.2d 281, 286 (Iowa

1978).
                                        8

       This certiorari action involves the rules of discovery.     Courts liberally

construe those rules to effectuate disclosure of all relevant and material

information to the parties. Hutchinson v. Smith Labs., Inc., 392 N.W.2d 139, 140-

41 (Iowa 1986).      The district court enjoys wide discretion in its rulings on

discovery issues, and we will reverse only when an abuse of discretion is found.

Id. at 141; see also Comes v. Microsoft Corp., 775 N.W.2d 302, 305 (Iowa 2009)

(discussing district court’s “wide discretion” in deciding whether to enter

protective order and noting “a protective order is not entered lightly”). “Abuse of

discretion may be shown . . . where the decision is grounded on reasons that are

clearly untenable or unreasonable. A ground or reason is untenable . . . when it

is based on an erroneous application of the law.”             Office of Citizens’

Aide/Ombudsman v. Edwards, 825 N.W.2d 8, 14 (Iowa 2012) (citations and

internal quotations omitted).

III.   Summary of Applicable Law

       Iowa Code chapter 630 sets out proceedings auxiliary to execution to

assist a judgment creditor in discovering assets of the judgment debtor that may

be applied to satisfy the judgment. Section 630.1 provides for the appearance

and examination of the judgment debtor if the execution is not satisfied. Under

section 630.5, witnesses may be required by the court to appear and testify at

any proceedings under the chapter. The discovery available under section 630.5

is disputed in this case.

       Generally, discovery disputes are governed by Iowa Rules of Civil

Procedure 1.501, 1.504, and 1.1701. The first provision discusses discovery
                                         9

methods and directs that “rules for providing discovery should be liberally

construed, administered, and employed by the court and the parties to secure the

just, speedy, and inexpensive determination of every action and proceeding and

to provide the parties with access to all relevant facts.” Iowa R. Civ. P. 1.501(2).

Under the second rule, the district court may grant a protective order, upon the

showing of good cause, and “[m]ay make any order which justice requires to

protect a party or person from annoyance, embarrassment, oppression, or undue

burden or expense.” Iowa R. Civ. P. 1.504(1)(a). The third rule illuminates the

requirements for issuing subpoenas. Iowa R. Civ. P. 1.1701. The party issuing a

subpoena “must take reasonable steps to avoid imposing undue burden or

expense on a person subject to the subpoena.”              See Iowa R. Civ. P.

1.1701(4)(a).

       “A protective order precluding discovery is the most restrictive type of

protective order.” Berg v. Des Moines Gen. Hosp. Co., 456 N.W.2d 173, 177

(Iowa 1990).       A claim that complying with a subpoena would result in undue

burden and expense is generally not sufficient to preclude discovery of relevant

materials. Id. But a showing of burdensomeness may be a basis for limiting

discovery.   Id.    “By limiting discovery, the interests of both parties may be

accommodated: the requesting party is allowed some access to the materials

and the burden on the resisting party is minimized.” Id. The party seeking a

protective order has the burden to show good cause for its issuance. Pollock v.

Deere & Co., 282 N.W.2d 735, 739 (Iowa 1979).
                                         10

IV.    Analysis

       Leann and Golden Enterprises argue the district court abused its

discretion in failing to quash the subpoenas or enter a protective order because

the bank is seeking irrelevant information from third parties and their provision of

such information to the bank would be unduly burdensome. Leann argues the

subpoenas were not narrowly drawn and inappropriately seek her personal

financial information not related to the judgment against Steven.             Golden

Enterprises argues First American is asking for documents from the company

irrelevant to the foreclosure, including information regarding employee benefits,

employee stock information, and personal employee information.

       In response, First American admits the subpoenas issued to Leann and

Golden Enterprises were broad in scope but contends “such subpoenas do not

reflect the status of the information requested at the time of the hearing on March

25, 2015 resulting in the ruling of the court.” At the March 25 hearing, the bank’s

counsel offered, and the court admitted, an exhibit showing correspondence

between the attorneys regarding negotiations to narrow the scope of the

requested information. On February 24, 2015, counsel for the bank sent an

email indicating his client would “need” the following information

          electronic data and tax returns for Golden Enterprises and
           [Steven], and any other entity run by [Steven], if any.
          information from [Steven] as to all assets and transfers for the
           last five years.
          information from [Leann] as to all joint assets or as to entities or
           lines of business she has where Steven participates, also any
           agreements between Steven and Leann that affect either of
           their assets or liabilities.
                                        11

       On February 27, counsel for the Goldens sent an email with a counter

proposal as follows:

          tax returns for [Steven] and Golden Enterprises from 2012 and a
           current Financial Statement for Golden Enterprises.
          a list of assets owned by [Steven] and transfers by Steven over
           the last three years.
          a list of transfers Leann [ ] has received from [Steven] for the
           last three years.
          a list of joint assets owned by Leann [and Steven].

When the bank did not agree to the additional restrictions, the Goldens’ counsel

declined to present his clients for the examination scheduled for March 11, 2015.

       For their part, Leann and Golden Enterprises contend the bank is on a

“fishing expedition” for confidential financial information and has been “unwilling

to limit its subpoenas.” Their accusation that the bank has been unwilling to limit

the scope of its request is belied by the bank’s exhibit showing the attorneys’

email exchanges.       Further, in the motion to quash, the Goldens’ attorney

specifically acknowledged that negotiations to narrow the subpoenas had begun.

       But our ability to assess the scope of the requested information is

hindered by the parties’ failure to order the transcript of the March 25 hearing.

While the bank’s February 24, 2015 email offers to revise and narrow its initial

request, the district court’s ruling addresses the claim that it would be unduly

burdensome to “provide information about assets solely held by [Leann] and

Golden Enterprises.” Moreover, in its resistance to the petition for certiorari, the

bank argued the district court was correct in ruling “although assets” of Leann

and Golden Enterprises “may not ultimately be available for execution,

understanding the parties’ finances could be necessary to determine whether
                                            12

and to what extent such property is protect at to determine the exempt status of

assets.”   Because the transcript is not available, we must review the district

court’s denial of the motion to quash the subpoenas as the subpoenas appear in

the record, as well as reviewing its refusal to issue a protective order based on

the bank’s original requests for information.5

       Even considering the scope of the original discovery requests, we find no

abuse of discretion in the district court’s ruling. See Hutchinson, 392 N.W.2d at

141 (noting in discovery disputes, “[a]n abuse of discretion is rarely found”). The

district court correctly decided the information requested was relevant to the

bank’s ability to determine what assets would be available for execution and what

assets would be inappropriate for execution because they were solely held by

Leann or Golden Enterprises. See King v. Wells, 77 N.W. 338, 339-40 (Iowa

1898) (recognizing husband was not in debt when conveyance of property to wife

was made and “nothing in the record” supports a “presumption” the conveyance

“was designed to hinder, delay, or in any manner defraud subsequent creditors”);

Hamilton v. Lightner, 5 N.W. 603, 605-06 (Iowa 1880) (rejecting as fraudulent a

husband-debtor’s “device of making the wife a debtor for money loaned by the

husband, and upon this transaction basing her claim of title to the property”). As

the district court aptly observed: “The bank can only determine what assets might

be available for execution by asking questions about ownership.” See Ticonic

Bank v. Harvey, 16 Iowa 141, 146-48 (Iowa 1864) (stating land purchased in

5
  Our conclusion on this point should not be read as discouraging the bank, in future
proceedings, from abiding by the more narrow “status of the information [it had]
requested at the time of the hearing on March 25, 2015” as set out in its appellee’s brief.
                                        13

wife’s name only when husband already owed debt to creditor might be available

for creditor’s execution on husband’s debts). We find nothing in our statutes or

rules of civil procedure that would prohibit a judgment creditor in the situation of

First American from seeking pertinent information concerning the financial

condition and assets of the debtor’s spouse or the debtor’s company—especially

where the debtor and his spouse have restructured their joint company, Golden

Enterprises, during the course of the underlying foreclosure action.

       On the issue of undue burden, the bank argues Leann and Golden

Enterprises did not present evidence regarding the cost or difficulty of producing

their financial information so as to entitle them to a protective order. The bank

claims “much of the requested information is readily available by [Golden

Enterprises] in electronic format that could be put onto a flash drive; and that

[First American] would agree to a protective order that prevented redisclosure,

should that be sought” by Golden Enterprises. We agree Leann and Golden

Enterprises have not carried their burden to show good cause for issuance of a

protective order. See Pollock, 282 N.W.2d at 739 (finding no undue burden even

when subpoena recipient Deere offered evidence that production of requested

documents would take months of screening materials and scanning microfiche).

       Leann and Golden Enterprises argue their situation is similar to the

discovery dispute in a malpractice case. See Berg, 456 N.W.2d at 175. Plaintiff

Berg sought medical records from the hospital and doctor for all patients for

whom the doctor had ordered certain heart procedures during the previous five

years. Id. The Iowa Supreme Court found the district court did not abuse its
                                           14

discretion in finding Berg’s discovery request too burdensome because it

required the hospital and doctor to examine thousands of patient files. Id. at 177.

The court also found the discovery would have compromised the confidentiality

of the medical files to some extent. Id.

       This case is distinguishable from Berg. As discussed above, Leann and

Golden Enterprises do not offer any specific evidence concerning the time or

expense their compliance would require. Compare with id. (finding protective

order is appropriate if “nature and complexity of the inquiry shows compliance

with the discovery request would require an unreasonable amount of time and an

unreasonable expenditure of money”). Moreover, the bank’s request obviously

does not involve third-party, private medical records but rather seeks relevant

financial information from the debtor’s spouse and the debtor’s company, both of

which have had at least some assets intermingled with those of the debtor.

       Leann and Golden Enterprises urge us to look to Federal Rule of Civil

Procedure 69(a)(2)6 for guidance in deciding this dispute because Iowa law is

underdeveloped on questions of discovery in furtherance of enforcing judgments.

We agree neither party has pointed to case law directly dealing with discovery in

this post-judgment context. We also agree our supreme court has looked to

federal rules as instructive, even if an inexact analogy, to our own rules. See

Cooksey v. Cargill Meat Sols. Corp., 831 N.W.2d 94, 102 (Iowa 2013). But the

6
  “In aid of the judgment or execution, the judgment creditor . . . may obtain discovery
from any person—including the judgment debtor—in the manner provided in these rules
or by the procedure of the state where the court is located.” Fed. R. Civ. P. 69(a)(2).
See State Res. Corp. v. Younger, No. 08-06041-CV-SJ-DGK, 2014 WL 912369, at *2
(W.D. Mo. Mar. 10, 2014) (stating Rule 69(a)(2) relates only to post-judgment discovery).
                                          15

supreme court has not found a comparison to federal rules helpful when those

rules reach an issue our law does not. See Jack v. P & A Farms, Ltd., 822
N.W.2d 511, 515 n.4 (Iowa 2012). The parties do not point to any Iowa rule of

civil procedure analogous to Federal Rule 69(a).         Accordingly, we do not find

federal case law interpreting that rule to be particularly instructive.

       But even if we tap the federal cases for guidance, we do not find them fully

supportive of Leann’s position. For instance, the Eighth Circuit has interpreted

Rule 69(a) as giving broad discovery rights to a judgment creditor seeking

financial information from an individual third party, holding the creditor had “good

reason to want to know about the relationship” between the judgment-debtor

corporation and a corporate officer. See Credit Lyonnais, S.A. v. SGC Int’l, Inc.,

160 F.3d 428, 431 (8th Cir. 1998) (stressing “the presumption should be in favor

of full discovery of any matters arguably related to Credit Lyonnais’s efforts to

trace SGC assets and otherwise to enforce its judgment” and opining “[m]atters

relating to [the corporate officer’s] personal finances seem to us—subject to such

further reasonable inquiry as the district court may think proper—to be proper

subjects of discovery”).

       On the record before us and under Iowa’s tradition of liberally interpreting

our discovery rules, we cannot say the district court abused its wide discretion in

declining to quash the bank’s subpoenas or in denying the request for a

protective order.     While additional fine tuning may be necessary as the

proceedings auxiliary to execution move forward, we agree with the district

court’s conclusion that First American should be allowed to obtain the requested
                                      16

information concerning the economic circumstances of the judgment debtor’s

spouse and his limited liability company as a first step in determining assets

potentially subject to execution. Given the intertwined financial operations of

Steven, Leann, and Golden Enterprises, the district court did not abuse its

discretion in finding the subpoenas requested relevant information and the

objectors did not show compliance would be unduly burdensome.

      WRIT ANNULLED.