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Textron Financial Corp. v. Gallegos

United States District Court, S.D. California

August 1, 2016

TEXTRON FINANCIAL CORPORATION, Plaintiff,
v.
MICHAEL S. GALLEGOS, Defendant.

          ORDER GRANTING IN PART AND DENYING IN PART MOTION TO COMPEL FURTHER DEPOSITIONS AND REQUEST FOR SANCTIONS

          DAVID H. BARTICK United States Magistrate Judge

         On April 22, 2016, Judgment Creditor, SPE LO Holdings (“SPE LO”), assignee of Textron Financial Corporation (“Textron”) filed a Motion to Compel Further Depositions and Request for Sanctions Pursuant to Federal Rule of Civil Procedure 37. (ECF No. 63.) On May 19, 2016, Judgment Debtor, Michael S. Gallegos (“Gallegos”) filed an opposition, and on May 26, 2016, SPE LO filed a reply. (ECF Nos. 68, 70.) Having considered the parties’ submissions and supporting exhibits, the Court hereby GRANTS in part, and DENIES in part SPE LO’s motion.[1]

         I. BACKGROUND

         On November 30, 2010, Textron obtained a judgment against Gallegos in the amount of $21, 921, 165.45 in the United States District Court for the District of Rhode Island. (ECF No. 1.) On April 11, 2011, Textron registered the judgment in this Court. (Id.) Thereafter, Textron was only able to collect $10, 484.99 on the judgment. (ECF No. 56.)

         On July 29, 2015, SPE LO filed a motion for a charging order against Gallegos’ interest in two third party LLCs: Pacific Pearl Hotels, LLC (“PPH”) and Pacific Pearl Hotel Management, LLC (“PPHM”) (collectively “the LLCs”). (ECF No. 40.) The Court denied the motion without prejudice because SPE LO had not presented substantial evidence that Gallegos was a member of the entities. However, the Court recognized the “possibility that Gallegos has avoided entry of a charging order by playing coy, ” and therefore specifically authorized SPE LO to pursue postjudgment discovery. (ECF NO. 56.)

         Thereafter, SPE LO served deposition subpoenas on PPH and PPHM. (ECF No. 63-2 at 71-83; 168-180.) The LLCs produced Adhe Homan to testify under Rule 30(b)(6) on behalf of both entities. Mr. Homan testified that he has worked for Gallegos-related entities since 1998, and is currently vice president of finance for both PPH and PPHM. (ECF No. 63-2 at 8-10, 23-24, 128.) PPH is a single-member LLC that was formed in November 2010, with Gallegos as the sole member and manager. (Id. at 84-89.) Gallegos was, and currently still is, also the president and CEO. (Id. at 29.) PPH is engaged in the business of hotel management, and currently manages numerous hotels. (Id. at 17, 43, 93-96.) Mr. Homan described PPH as an umbrella company over multiple other entities that directly employ the hotel workers at the properties contracted with PPH. (Id. at 140-143.) PPHM is one of these entities. (Id. at 131.) PPHM is also a single-member LLC, with Gallegos as its sole member at the time it was formed in May 2010. (Id. at 181-186) Gallegos assigned his 100% interest in PPHM to PPH on January 1, 2012. (Id. at 187.) Mr. Homan testified generally that PPH earns revenue from multiple sources, including: 1) receiving a percentage of the gross revenues of the hotel properties managed by companies that fall under the PPH umbrella, 2) charging for legal-consulting services to clients, and 3) receiving revenue for managing hotels on behalf of other related hotel management companies. (Id. at 44-47, 57-58.)

         Mr. Homan testified that Gallegos has never received any compensation from PPH, other than health insurance. (Id. at 27-30) He did not know if Gallegos had ever received an IRS K-1 form from PPH. (Id. at 30.) Mr. Homan stated that in March of 2015, Gallegos sold his 100% interest in PPH to a Russian investment company, Global Bancorp Commodities and Investment Inc. (“Global Bancorp”) for $100.00. (Id. at 30-31.) There were no evaluations of the value of PPH conducted before the sale. (Id. at 31.) After the sale, Global Bancorp moved its principle place of business to the same address in San Diego as PPH. (Id. at 65-66, 122.) Gallegos also continued as the CEO and president of PPH after the sale. (Id. at 33-34.)

         During the depositions, counsel for Gallegos repeatedly objected to SPE LO’s questions as irrelevant or outside the scope of the deposition notices, and instructed Mr. Homan not to answer. (See ECF No. 63-3.) Specifically, he was instructed not to answer questions on the following topics: Mr. Homan’s background and experience, the formation of PPH, Gallegos’ potential interests in other related Gallegos entities, the revenues and profits of PPH and PPHM, and PPH and PPHM related entities. (Id.)

         Following unsuccessful meet and conferred efforts, SPE LO filed the instant motion. (ECF No. 63.) SPE LO requests the Court compel further depositions of PPH and PPHM to permit SPE LO to obtain answers to the questions Gallegos’ counsel objected to. SPE LO further requests monetary sanctions in the amount of $3, 225.00, plus costs and attorney’s fees associated with the further depositions of PPH and PPHM. Gallegos opposed the motion, arguing state law should control the scope of postjudgment discovery and that SPE LO’s questions fell outside the scope permitted by California law.

         II. DISCUSSION

         Federal Rule of Civil Procedure 69 governs the execution of judgments in federal court. Rule 69(a) provides:

(1) Money Judgment; Applicable Procedure. A money judgment is enforced by a writ of execution, unless the court directs otherwise. The procedure on execution - and in proceedings supplementary to and in aid of judgment or execution - must accord with the procedure of the state where the court is located, but a federal statute governs to the extent it applies.
(2) Obtaining Discovery. In aid of the judgment or execution, the judgment creditor or a successor in interest whose interest appears of record may obtain discovery from any person - including the judgment debtor - as provided in these rules or ...

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