United States Securities & Exchange Commission v. Nutmeg Group, LLC

285 F.R.D. 403, 2012 WL 4361191, 2012 U.S. Dist. LEXIS 135140
CourtDistrict Court, N.D. Illinois
DecidedSeptember 21, 2012
DocketNo. 09 C 1775
StatusPublished
Cited by5 cases

This text of 285 F.R.D. 403 (United States Securities & Exchange Commission v. Nutmeg Group, LLC) is published on Counsel Stack Legal Research, covering District Court, N.D. Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
United States Securities & Exchange Commission v. Nutmeg Group, LLC, 285 F.R.D. 403, 2012 WL 4361191, 2012 U.S. Dist. LEXIS 135140 (N.D. Ill. 2012).

Opinion

MEMORANDUM OPINION AND ORDER

JEFFREY T. GILBERT, United States Magistrate Judge.

This matter is before the Court on defendant Randall Goulding’s Motion for Deemed Admissions and for Other Relief [Dkt. # 456] and his Second Motion for Deemed Admissions and for Other Relief [Dkt. # 466]. For the reasons set forth in this Memorandum Opinion and Order, both motions are denied.

[404]*404This is a civil enforcement action brought by the United States Securities and Exchange Commission (“SEC”) against The Nutmeg Group, LLC (“Nutmeg”), an investment advisor, Randall Goulding, who is Nutmeg’s owner and managing member, and David Goulding, who is Randall Goulding’s son and Nutmeg’s former Chief Compliance Officer. The SEC alleges, among other things, that Nutmeg and Randall Goulding violated the Investment Advisors Act of 1940, 15 U.S.C. § 80b et seq., by failing to maintain required books and records, commingling client and fund assets, overstating the performance of Nutmeg’s investment funds, transferring fund assets to the custody of entities and individuals controlled by Gould-ing, and misappropriating fund assets. The Court directed Crowe Horwath, an accounting firm, to provide an accounting of Nutmeg and its funds. [Dkt. #38]. The Court also appointed a Receiver in this matter [Dkt. # 63], and the Receiver thereafter directed Crowe Horwath’s work.

The SEC filed an Amended Complaint on June 14, 2011 and certain allegations in the Amended Complaint were based on opinions set forth in Crowe Horwath’s November 16, 2010 report. [Dkt. # 314], at ¶¶ 83-88. Specifically, the SEC alleged that “[a]ceording to Crowe Horwath’s November 16th report, Nutmeg owes Fund investors at least $2,334,838.17 as a result of overstatement of management and performance fees, improper distribution to investors, improper!] allocation of investment costs, improper allocation of investment proceeds, improper calculation of partnership profits, Randall Goulding’s use of investor funds for his own personal investment and improper related party transactions.” Id. at ¶ 88.

Randall Goulding issued interrogatories on June 16, 2011, seeking specific information from the SEC about the allegations in its Amended Complaint that referred to the Crowe Horwath report as well other allegations in the SEC’s Amended Complaint. The SEC responded to these interrogatories on September 16, 2011. The SEC objected to the interrogatories but, subject to those objections, further explained that its proof on the misappropriation claims would depend upon the testimony of Mari Reidy, the author of the November 16, 2010 Crowe Horwath report. [Dkt. # 508-2], Ex. B at 4. The SEC identified the portions of Crowe Horwath’s November 16, 2010 report that corresponded to the allegations in the Amended Complaint and stated “to the extent that any of the information requested in Interrogatory No. 1 is not fully described in Crowe Horwath’s November 16, 2010 report, the Commission does not have additional information to provide to the defendant at this time.” Id.

Randall Goulding was not satisfied with the SEC’s responses to his interrogatories, but did not challenge the SEC’s objections. Nor did Goulding move to compel more detailed answers. Instead, Goulding served the SEC with a set of Requests for Admission pursuant to Federal Rule of Civil Procedure 36 containing, among other things, requests that the SEC admit that it “did not know” anything about the various categories of misconduct alleged in the Amended Complaint. [Dkt. # 456-2], Ex. A. To the extent the SEC did not admit that it did not know the information proffered in the Requests for Admission, Goulding also served an accompanying interrogatory asking the SEC to “state in detail each and every basis for such denial.” Id.

On December 7, 2011, the SEC served its responses, including its objections, to Gould-ing’s Requests for Admission of Facts and Interrogatory. [Dkt. # 508-1], Ex. A. The SEC objected to the Requests for Admission as improper, compound, overbroad, argumentative, and vague, among other objections. Notwithstanding its objections, however, the SEC answered Request for Admission No. 1 by referencing its previous answer to Gould-ing’s Interrogatory No. 1 dated September 6, 2011, wholly objected to Request For Admission No. 2 without any further response, and denied Requests for Admission Nos. 3 through 8. [Dkt. # 508-1], Ex. A at 2-6. Instead of filing a motion to challenge the SEC’s objections and answers, Goulding filed a Motion for Deemed Admissions and for Other Relief [Dkt. #456], requesting that this Court determine that the SEC has not acted in good faith, has not complied with its obligations pursuant to either Rule 36 or [405]*405Rule 37 of the Federal Rules of Civil Procedure and determine that the SEC is deemed to have admitted the November 4, 2011 Requests for Admission of Facts. Goulding asks this Court to ignore the objections and answers put forth by the SEC, and instead deem the requests admitted. The Court declines to do so.

Pursuant to Federal Rule 36(a)(6), a requesting party “may move to determine the sufficiency of an answer or objection.” Fed. R. Civ. P. 36(a)(6). With this motion, however, Goulding skips that step and presumes that the SEC’s objections have been deemed insufficient by the Court. That is not the case here. Federal Rule of Civil Procedure 36 is not a discovery device, but rather creates a procedure for obtaining admissions for the record of facts already known by the party propounding the request. See Stallings-Dcmiel v. Northern Trust Co., 2002 WL 424629, at *1-2 (N.D.Ill.2002), citing 8A Charles Alan Wright, Arthur R. Miller & Richard L. Marcus, Federal Practice and Procedure § 2253 (1994). “The purpose of Rule 36 is to allow parties to narrow the issues to be resolved at trial by effectively identifying and eliminating those matters on which the parties agree.” United States v. Kasuboski 834 F.2d 1345, 1350 (7th Cir.1987).

Requests to admit are proper when they are used to establish facts or the application of law to facts but not to establish legal conclusions. See 7 James W. Moore, Moore’s Federal Practice § 36.10[8] (3d ed. 2006); see, e.g., Enduracare Therapy Management, Inc. v. Cornerstone Healthcare of Illinois, Inc., 2006 WL 1452824, at *4 (S.D.Ill.2006), citing Golden Valley Microwave Foods, Inc. v. Weaver Popcorn Co., 130 F.R.D. 92, 96 (N.D.Ind.1990) (request for admission that patent claim is valid improperly seeks legal conclusion). None of Goulding’s requests are designed for this purpose. Instead, his requests ask the SEC to admit that it does not know certain information or that it lacks the ability to provide information not found in the November 16, 2010 Crowe Horwath report.

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285 F.R.D. 403, 2012 WL 4361191, 2012 U.S. Dist. LEXIS 135140, Counsel Stack Legal Research, https://law.counselstack.com/opinion/united-states-securities-exchange-commission-v-nutmeg-group-llc-ilnd-2012.