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United States v. Quicken Loans Inc.

United States District Court, E.D. Michigan, Southern Division

May 26, 2017

UNITED STATES OF AMERICA, Plaintiff,
v.
QUICKEN LOANS INC., Defendant.

          ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION TO COMPEL (DKT. 32) AND GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO COMPEL (DKT. 33)

          MARK A. GOLDSMITH United States District Judge.

         This matter is before the Court on the Government's motion to compel (Dkt. 32) and Defendant Quicken Loans Inc.'s motion to compel (Dkt. 33). A hearing on these motions was held on May 22, 2017. The Court addresses each motion in turn and, for the reasons stated below, grants, in part, and denies, in part, both of the parties' motions.

         I. STANDARD OF DECISION

         Federal Rule of Civil Procedure 26 allows for broad discovery in litigation, including “any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case[.]” Fed.R.Civ.P. 26(b)(1). Although Rule 26 was amended in 2015 to include a “proportionality” requirement, the “basic tenet that Rule 26 is to be liberally construed to permit broad discovery” remains unaltered. State Farm Auto. Ins. Co. v. Warren Chiropractic & Rehab Clinic, P.C., 315 F.R.D. 220, 222 (E.D. Mich. 2016); Martin v. Bimbo Foods Bakeries Distribution, LLC, 313 F.R.D.1, 5 (E.D. N.C. 2016) (“The rules of discovery, including Rule 26, are to be given broad and liberal construction.”). Relevance, in turn, “has been broadly construed to encompass any possibility that the information sought may be relevant to the claim or defense of any party.” Martin, 313 F.R.D. at 5; Tucker v. Momentive Performance Materials USA, Inc., 2016 WL 8252929, at *2 (S.D. W.Va. Nov. 23, 2016) (same).

         When ruling on discovery-related motions, the district court has broad discretion to determine the proper scope of discovery, including whether a “discovery request is too broad and oppressive.” Surles ex rel. Johnson v. Greyhound Lines, Inc., 474 F.3d 288, 305 (6th Cir. 2007); Lewis v. ACB Bus. Serv., Inc., 135 F.3d 389, 402 (6th Cir. 1998).

         In analyzing the parties' motions, the Court utilizes these principles, including specifically the Rules' heightened concern with the proportionality of discovery.

         II. ANALYSIS

         A. The Government's Motion to Compel (Dkt. 32)

         1. Request for Documents Related to Appraisals

         The Government requests the production of documents that it claims are specifically related to appraisals, including (i) “communications between Quicken and any appraiser or any appraisal management company”; (ii) “documents concerning value appeals”; (iii) “documents concerning any value provided to the appraiser or appraisal management company”; and (iv) “documents related to Quicken's policies, procedures, and practices related to appraisals and value appeals.” Pl. Mot. at 5 (citing Pl. 1st Set of Prod. Requests ¶¶ 8, 59, 72-76, 101-104 (Dkt. 32-3); Pl. 2d Set of Prod. Requests ¶¶ 5, 11, 16-19 (Dkt. 32-4)).

         For the 487 loans identified in attachment A to the Government's second set of requests for production, see Attach. A at 10-20 (cm/ecf pages) (Dkt. 32-4) - which the parties refer to as the “Loan Selection” - Quicken claims that it has already “produced the loan files, appraisals, loan journal notes, certain appraisal-related tracking items on the list of 573 specific tracking items requested by the government, and appraisal-related emails.” Def. Resp. at 2 (Dkt. 36).[1] In its response, as well as during the hearing, Quicken stated that, once discovery resumes in this case, it will produce the value appeals tracking items and any remaining appraisal-specific policies, procedures, and training documents. See id. at 2-3.

         During the hearing, the Government stated that it would wait for Quicken's production regarding the value appeals tracking items, as well as the policies, procedures, and training documents, at which point the Government will determine what, if any, documents relating to appraisals it still contends have not been produced. Therefore, the Court denies this portion of the Government's motion without prejudice, except Quicken is ordered to fulfill its stated undertaking by June 9, 2017.

         The Government also sought the production of documents relating to Title Source Inc., which the Government claims “is the company Quicken used as its appraisal management company and both are wholly-owned subsidiaries of Rock Holdings, Inc.” Pl. Mot. at 5. Following the hearing, counsel for the Government informed the Court that the Government is no longer seeking these documents. Therefore, the Court denies this portion of the Government's motion without prejudice.

         2. Request for Loan Journal Notes and Loan-Level Emails

         The Government is seeking the production of loan journal notes and loan-level emails regarding the Loan Selection, Pl. Mot. at 6 (citing Pl. 2d Set of Prod. Requests ¶¶ 4, 6, 12), arguing that these documents “go to the very heart of this matter as they serve as the foundational evidence of Quicken's knowing endorsement of ineligible FHA loans, ” id. at 8.

         Regarding its request for loan journal notes, the Government contends that these documents are written by a Quicken employee about a specific loan and are “highly relevant to whether a loan is eligible for FHA mortgage insurance, and Quicken's knowledge thereof.” Pl. Mot. at 7. Because each loan at issue in this case closed during the time period of September 1, 2007 to December 31, 2011, Quicken objects to the production of journal notes outside of this timeframe, arguing that such journal note entries are irrelevant to the underwriting decisions made on the loans. Def. Resp. at 5-6. The Government contends that this “arbitrary” end-date “ignores the very real possibility that notes written after the loan was underwritten could, among other things, address defects Quicken identified in the loan file or conversations with the borrower concerning the borrower's financial condition at the time the loan was underwritten.” Pl. Mot. at 7-8. The Court agrees with the Government.

         It is not uncommon for relevant information to be discoverable, even if such information falls outside the timeframe of actionable activity set out in a complaint. Parties may speak or write about past activities or transactions in a way that sheds relevant light on the innocent or guilty nature of their acts - and that light is not dimmed simply because the evidence was generated after the lapse of the period embracing the wrongful acts. In our case, for example, a journal note entered on January 2, 2012 relating to a subject loan would still be relevant, regardless of the fact that it was entered after the time period identified in the Government's complaint. Therefore, the Court overrules Quicken's objection, grants this portion of the Government's motion, and orders the production of all loan journal notes for the Loan Selection, regardless of the time a particular note was created or entered, by June 23, 2017.

         Regarding its request for loan-level emails, the Government states that Quicken has objected to the production of emails concerning the selection of a loan product for the borrower, the pricing of the loan, and other email communications with the borrower early in the lending process. Pl. Mot. at 7. The Government argues that these “communications are highly relevant to the ultimate question of the loan file review - whether the loan was eligible for FHA mortgage insurance, ” because they are evidence of (i) the decision made by Quicken and the borrower to obtain an FHA-insured mortgage, (ii) the support for the decision, and (iii) the representations Quicken made to the borrower regarding the proposed mortgage's qualification for FHA insurance. Id. at 7. It wants all loan-level emails, except for so-called “sales scripts” (i.e., the generic sales pitches that are made to customers during the initial contact), which it expressly waived at the hearing.

         In response, Quicken argues that the Government's request for all emails related to the Loan Selection, regardless of date or subject, should be denied because Judge Reggie Walton of the U.S. District Court for the District of Columbia previously considered and rejected the same request when this case was still in his court. Judge Walton specifically ruled that “information regarding mere sales tactics that did not contribute to information being submitted by Quicken Loans to the [FHA] need not be produced.” Def. Resp. at 5 (quoting 10/24/2016 Order, Ex. A to Pl. Mot. (Dkt. 32-2). Instead, Quicken claims that Judge Walton “ordered only a targeted production of emails related to mortgage bankers, ” and that Quicken has completed its production of those emails for the Loan Selection. Id.[2]

         This Court concludes that all loan-level emails for the Loan Selection are relevant and should be produced, except for “sales scripts.” Because there is no transcript of Judge Walton's ruling, or of the conference that he conducted with counsel, this Court has only his minute order from which to discern his intent. Unfortunately, the order is cryptic, leaving some issues unclear. For example, Judge Walton provides, by way of “category 2” in his order, for the production of “representations or promises that mortgage bankers made to potential borrowers.” But this is apparently limited by the phrase “but due to initial appraisals that would not permit Quicken Loans to fulfill those promises, resulting in Quicken Loans having property appraisals reevaluated and the appraisal values of the properties increased so that such representations or promises could be fulfilled.” Looking beyond the incorrect syntax - which impedes a clear understanding of the import of this provision - it appears that this provision addresses promises about qualifications for a loan that could not be kept except by way of a request for a higher valuation of the borrower's property after an initial lower-than-hoped-for valuation.

         Why Judge Walton would apparently limit the discovery in this fashion is not made clear by anything of record. And given that the Government's case goes well beyond allegedly improper value appeals, there is no principled basis for allowing Quicken to refuse to turn over documents that touch on other allegedly improper tactics, such as management exceptions or inflation of borrower income. The requested loan-level documents are the central repository of what Quicken ...


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