The Possibility to Perpetuate Discovery Prior to Filing a Federal Complaint: Rule 27 of the Federal Rules of Civil Procedure

By   /   April 15, 2013 

 

 The Possibility to Perpetuate Discovery Prior to Filing a Federal Complaint:
Rule 27 of the Federal Rules of Civil Procedure

In re Liquor Salesmen’s Union Local 2D Pension Fund1

United States District Court
Eastern District of New York

(July 19, 2012)

 Robert Mitchell

 

The Petitioner Incorrectly Attempted to Obtain Pre-Complaint Discovery Regarding Bank Account Information.

In re Liquor Salesmen’s Union Local 2D Pension Fund2 pertains to Salesmen’s Union Local 2D Pension Fund’s (hereinafter “Petitioner”) request for discovery from Bank of America “prior to the commencement of an action related to a certain bank account.”3  The Petitioner is an “employee benefit plan” within the meaning of Employee Retirement Income Security Act (hereinafter “ERISA”) and from which one of the plan’s participants, Mr. Mortimer Abrams, received a monthly check.4  In 2008, Mr. Abrams authorized the Petitioner to electronically deposit his checks into a Bank of America (hereinafter “BOA”) in Florida.5  However, between 2008 and 2011, Mr. Abrams was also still receiving a monthly check in the mail.6  The Petitioner asserted the direct deposit checks were deposited into a “John Doe” account of which Mr. Abrams was not the owner.7  Mrs. Abrams, who had power of attorney over Mr. Abrams accounts due to his struggles with Alzheimer’s disease, claimed she knew nothing about the direct deposit checks being sent to the John Doe account.8  She only knew of and deposited the checks she received in the mail.9

The Petitioner asserted in its Verified Petition under Rule 27 that it required the identities and account information of the John Doe account from BOA to “complete its investigation of its ERISA claims by properly identifying potential defendants” and to support its claim that “there has been a wrongful (possibly fraudulent) deposit and retention of its funds into the John Doe account.”10  Prior to the filing of the Verified Petition, BOA refused the Petitioner’s request to divulge the identity of the owner of the John Doe account due to “privacy restrictions imposed by [current] federal banking laws.”11  The Petitioner requested an Order to compel pre-complaint discovery testimony from BOA regarding the identity of the John Doe account.12

 

The Court Should Not Grant Pre-Complaint Discovery for Evidence That Will Not Otherwise be Concealed, Destroyed, or Lost.

The issue in In re Liquor Salesmen’s Union Local 2D Pension Fund was whether the Petitioner was “entitled to pre-complaint discovery under Federal Rule of Civil Procedure 27.”13  If after filing a verified petition in a district court, within the district where anticipated adverse parties reside, a petitioner may be entitled to such discovery after providing twenty-one day notice to adverse parties and by showing:

that it expects to be a party to an action cognizable in a court of the United States, but the action is unable to be brought presently; the subject matter of the expected action and the petitioner’s interest in such an action; facts which the petitioner seeks to establish through the proposed testimony and the reasons for desiring to perpetuate that testimony at this time; the names or description of the expected adverse parties and; the names and addresses of the witnesses to be examined and the substance of the testimony petitioner expects to obtain from those witnesses (omit citation). If the court finds that perpetuating the testimony may prevent a failure or delay of justice, the court may order appropriate orders to allow the discovery (omit citation).14

Mosseller v. United States15 holds that a court may grant pre-complaint discovery requests as per Rule 27.16  However, these requests are not a substitute for post-complaint discovery and are only allowable in “special circumstances to preserve testimony which may be otherwise lost.”17  A successful Rule 27 petition must establish three elements: (1) petitioner must provide a focused explanation of what any anticipated testimony may establish, but it must not be utilized to simply uncover evidence necessary for filing a complaint; (2) petitioner must in good faith expect to bring an action in federal court, but is currently unable to have it brought; (3) petitioner objectively must show a Rule 27 hearing is necessary because known testimony will otherwise be concealed, destroyed, or lost.18

In In re Liquor Salesmen’s Union Local 2D Pension Fund, the District Court held the first element was established, the second element may or may not have been, but the third element was not established by the Petitioner.19  While the Petitioner sufficiently explained the information it was seeking, the court doubted the Petitioner was unable to bring its ERISA claim.20  However, to its detriment, the Petitioner did not adequately establish the materials it was requesting from BOA would be destroyed or lost before an actually complaint could be filed.21  “Rule 27 was enacted to provide parties with an equitable means to preserve evidence that would otherwise be destroyed, [it is] not a short-cut to full discovery.”22  The Petitioner did not allege any facts pertaining to the John Doe account that showed the account holder’s identity or information would be or was in jeopardy of being lost or destroyed.23  Therefore, the Petitioner’s request was denied under Rule 27.24

The Petitioner relied on In re Alpha Industries, Inc.25 when it asserted it “must delay in bringing its ERISA action to recover the Pension fund’s money until receiving the information sought from BOA is sufficient to satisfy the loss-of-evidence element of Rule 27.”26  In re Alpha Industries, Inc. concerned counterfeit Alpha-brand jackets being sold in Japan.27  The court in Alpha held that Alpha was unable to discern the proper defendant, which made it impossible to file a complaint, and, therefore, Alpha “satisfied the inability-to-sue aspect of Rule 27.”28  Further, unless Alpha identified the wrongdoer, nothing would prevent further wrongful exports of Alpha’s goods “which would be a failure or delay of justice.”29

The court here stated In re Alpha Industries, Inc. does not represent the majority view and has “been seriously questioned in this circuit and beyond.”30  It is not binding law on the court and “conflates the inability-to-sue and loss-of-evidence elements of” Rule 27.31  The majority view requires a showing of potential loss of evidence.32  Further, “the only case in the Eastern District of New York to grant a petition based on Alpha Industries, General Board of Global Ministries of the United Methodist Church v. Cablevision Lightpath, Inc.33 is distinguishable because there the requested information was going to be destroyed by the respondent in the ordinary course of business after 90 days.”34  Here the Petitioner never suggested BOA would destroy the information pertaining to the John Doe account.35  This was the fatal flaw in the Petitioner’s Verified Petition.

It is well-settled law that “Rule 27 is not a vehicle for general discovery before an action is commenced and should not be used to determine whether a cause of action exists, and, if so, against whom the action should be instituted.”36  Inability to bring suit due to a lack of facts to properly frame a complaint is an invalid reason to attempt to utilize Rule 27.37  The key is courts must “balance the need to discourage the use of Rule 27 as a means of obtaining discovery and the need to preserve evidence that may be highly relevant should an action be commenced.”38

The Petitioner never established an equitable need for the requested account information aside from stating the John Doe accountholder information was necessary in order for it to “complete its investigation of ERISA claims by properly identifying potential defendants and to support its claim that there has been a wrongful (possibly fraudulent) deposit and retention of its funds into the John Doe account.”39  Under Rule 27, these grounds are rejected by most courts.40  The Petitioner never explained why it could not presently bring its ERISA claim or revealed any parties against whom such a claim could be brought.41  Further, it was never established by the Petitioner why it could not simply “amend its complaint based on later-discovered evidence.” 42 The court held the Petitioner did not establish equitable grounds in order for its petition to be granted because there simply never existed a need to preserve the requested BOA evidence.43  The Petitioner could not establish the main element of showing that necessary discovery may be lost or destroyed and, therefore, its Verified Petition under Rule 27 was denied.44

 

Preservation of Evidence is Paramount to Perpetuate Discovery Prior to Filing a Federal Complaint.

One needs to respect the value, importance, and elements of Rule 27.  It is necessary to understand its restricted use.  The value of the rule cannot be overstated, as it may be the only way for an attorney to perpetuate discovery in certain circumstances.  The focus is the preservation of evidence.  It can be a fantastic litigation tool if all the elements set forth above can be met and the practitioner understands how to wisely use this rule with razor sharp focus.


 

 

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Footnotes:

  1. No. 12-CV-2786 (KAM) (MDG), 2102 WL 2952391 (E.D.N.Y. July 19, 2012).
  2. Id.
  3. In re Liquor Salesmen’s Union Local 2D Pension Fund, No. 12-CV-2786 (KAM) (MDG), 2102 WL 2952391, at *1 (E.D.N.Y. July 19, 2012).
  4. Id.; see 29 U.S.C. § 1002 (2012) (defining the Employee Retirement Income Security Act).
  5. In re Liquor Salesmen’s Union Local 2D Pension Fund, 2102 WL 2952391, at *1.
  6. Id.
  7. Id.
  8. Id. at *2.
  9. Id.
  10. In re Liquor Salesmen’s Union Local 2D Pension Fund, 2102 WL 2952391, at *2.
  11. Id.
  12. Id.
  13. Id.
  14. Id., see Fed. R. Civ. P. 27.  The rule states the following:

    (a) Before an Action Is Filed.

    (1) Petition. A person who wants to perpetuate testimony about any matter cognizable in a United States court may file a verified petition in the district court for the district where any expected adverse party resides. The petition must ask for an order authorizing the petitioner to depose the named persons in order to perpetuate their testimony. The petition must be titled in the petitioner’s name and must show:

    (A) that the petitioner expects to be a party to an action cognizable in a United States court but cannot presently bring it or cause it to be brought;

    (B) the subject matter of the expected action and the petitioner’s interest;

    (C) the facts that the petitioner wants to establish by the proposed testimony and the reasons to perpetuate it;

    (D) the names or a description of the persons whom the petitioner expects to be adverse parties and their addresses, so far as known; and

    (E) the name, address, and expected substance of the testimony of each deponent.

    (2) Notice and Service. At least 21 days before the hearing date, the petitioner must serve each expected adverse party with a copy of the petition and a notice stating the time and place of the hearing.

  15. 158 F.2d 380 (2d Cir. 1946).
  16. In re Liquor Salesmen’s Union Local 2D Pension Fund, 2102 WL 2952391, at *3; see also Mosseller v. United States, 158 F.2d 380, 382 (2d Cir. 1946).
  17. In re Liquor Salesmen’s Union Local 2D Pension Fund, 2102 WL 2952391, at *3.
  18. Id.; see also In re Yamaha Motor Corp. U.S.A, 251 F.R.D. 97, 99 (N.D.N.Y. 2008), In re Allegretti, 229 F.R.D. 93, 96 (S.D.N.Y. 2005).
  19. In re Liquor Salesmen’s Union Local 2D Pension Fund, 2102 WL 2952391, at *3.
  20. Id.
  21. Id.
  22. Id.; see also In re Allegretti, 229 F.R.D. at 96.
  23. In re Liquor Salesmen’s Union Local 2D Pension Fund, 2102 WL 2952391, at *4.
  24. Id.
  25. 159 F.R.D. 456 (S.D.N.Y. 1995).
  26. In re Liquor Salesmen’s Union Local 2D Pension Fund, 2102 WL 2952391, at *4.
  27. In re Alpha Industries, Inc., 159 F.R.D. at 456.
  28. In re Liquor Salesmen’s Union Local 2D Pension Fund, 2102 WL 2952391, at *4; see also In re Alpha Industries, Inc., 159 F.R.D. at 457.
  29. Id.
  30. In re Liquor Salesmen’s Union Local 2D Pension Fund, 2102 WL 2952391, at *5.
  31. Id.
  32. Id.; see also In re Yamaha Motor Corp., U.S.A., 251 F.R.D at 100.
  33. No. CV 06-3669 (DRH) (ETB), 2006 WL 3479332 (E.D.N.Y. Nov. 30, 2006).
  34. In re Liquor Salesmen’s Union Local 2D Pension Fund, 2102 WL 2952391, at *5; see also General Board of Global Ministries of the United Methodist Church v. Cablevision Lightpath, Inc., No. CV 06-3669 (DRH)(ETB), 2006 WL 3479332, at *4 (E.D.N.Y. Nov. 30, 2006).
  35. In re Liquor Salesmen’s Union Local 2D Pension Fund, 2102 WL 2952391, at *5.
  36. Id. at *6; see In re Allegretti, 229 F.R.D. at 96 (stating “Rule 27 affords relief only to those petitioners seeking to “perpetuate testimony.”  It is well-established in case law that perpetuation means the perpetuation of known testimony.  In other words, Rule 27 may not be used as a vehicle for discovery prior to filing a complaint.”).
  37. In re Liquor Salesmen’s Union Local 2D Pension Fund, 2102 WL 2952391, at *6.
  38. Id. (quoting In re Pacific Tech. Corp., No. 00 CIV 2622 (JSM), 2000 WL 1634393, at *2 (S.D.N.Y. Oct. 31, 2000) (emphasis added) (internal quotation marks omitted).
  39. Id. at *7.
  40. Id.
  41. Id.
  42. In re Liquor Salesmen’s Union Local 2D Pension Fund, 2102 WL 2952391, at *7.
  43. Id.
  44. Id.