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Wellin v. Wellin

United States District Court, D. South Carolina, Charleston Division

February 9, 2018

WENDY WELLIN, as the Special Administrator of the Estate of Keith S. Wellin and as Trustee of the Keith S. Wellin Florida Revocable Living Trust u/a/d December 11, 2011, PLAINTIFF,
v.
PETER J. WELLIN, et al., DEFENDANTS, LARRY S. MCDEVITT, as Trustee of the Wellin Family 2009 Irrevocable Trust, PLAINTIFF,
v.
PETER J. WELLIN, et al., DEFENDANTS, PETER J. WELLIN, et al., PLAINTIFF,
v.
WENDY WELLIN, individually and as Trustee of the Keith S. Wellin Florida Revocable Living Trust u/a/d December 11, 2011, DEFENDANT.

          SPECIAL MASTER'S REPORT AND RECOMMENDATION RE: WELLIN CHILDREN AND NON-PARTY WELLIN & CO. MOTION TO QUASH AND/OR FOR PROTECTIVE ORDER, ECF NO. 601 IN 2:13-CV-1831-DCN

          William L. Howard, Special Referee

         Currently before the undersigned is the motion of Peter J. Wellin, Cynthia W. Plum, Marjorie W. King and Friendship Management, LLC. (collectively the "Wellin Children") as well as non-party Wellin & Co., seeking to quash the 30(b)(6) deposition notice directed to Wellin & Co. and/or seeking a protective order. The motion is before the undersigned, sitting as Special Master, pursuant to the February 17, 2015 Order of the United States District Court for the District of South Carolina, Charleston Division, Hon. David C. Norton presiding. See ECF Nos. 270, 258, and 35.[1]

         The above captioned lawsuits involve multiple issues surrounding the handling and disposition of the assets, trusts, and estate of Keith S. Wellin (Keith). The factual allegations and procedural histories of these cases are extensively outlined in the Order of Judge Norton issued in Wellin I, Case No. 2:13-cv-1831-DCN, ECF No. 158, filed on June 28, 2014, and in the Amended Report and Recommendation of the Special Master, ECF No. 320, filed on July 31, 2015.

         PROCEDURAL HISTORY

         On May 19, 2017, counsel for the Estate of Keith S. Wellin (the "Estate') sent a draft Notice of Rule 30(b)(6) Deposition of Wellin & Co. to counsel for the Wellin Children. On June f'i 9, 2017, counsel for the Wellin Children responded by letter with written objections to the draft notice. The parties conferred on June 20, 2017 during a status conference with the. undersigned in an attempt to narrow or resolve the issues raised by the Wellin Children's objections. They were unsuccessful, and on June 22, 2017, the Estate served its Notice of Rule 30(b)(6) Deposition of Wellin & Co. On July 7, 2017, the Wellin Children and Wellin & Co. filed the instant Motion to Quash and/or for Protective Order, and the Estate thereafter filed its Memorandum in Opposition to the Motion to Quash and/or for Protective Order on July 21, 2017. A hearing in this matter was held before the undersigned on November 15, 2017.

         Having reviewed the memoranda, exhibits and the arguments of counsel, I make the following Report and Recommendation for disposition of the Motion.

         HISTORY OF THE CASE PERTINENT TO THE MOTION

         Prior to 2003, Keith Wellin amassed a sizable fortune, which included a'large investment in the stock of Berkshire Hathaway, Inc. (BRKa). In 2003, Keith formed Friendship Partners, LP, and transferred 896 shares of BRKa stock into the partnership in return for a 98.9% ownership interest. At the same time, Keith formed Friendship Management, LLQ naming his daughter, Cynthia W. Plum, as its Manager, and made Friendship Management ELC the general partner of Friendship Partners, LP. Between 2003 and 2009, Keith's Will and Revocable Trust provided that Keith's full interest in Friendship Partners, LP as well as a majority of the rest of his estate, would pass to his three children, Peter J. Wellin, Cynthia W. Plum and Marjorie W. King, at his death.

         Keith modified his estate plan in 2009, creating the Wellin Family 2009 Irrevocable Trust, which is at the center of this litigation. In this Trust, Keith named his three children, Peter S. Wellin, Cynthia W. Plum and Marjorie W. King, as the only named beneficiaries, and designated them as the only individual trustees. The Trust provided that the three Wellin children could not be removed as trustees by the Trust Protector, and also designated them as members of the Trust's distribution committee. The Trust was created as att "intentionally defective grantor trust", by virtue of which Keith Wellin remained responsible for any taxes upon sale of the stock, and not the Trust.

         Keith Wellin filed suit against his children on July 3, 2013. (C.A. No. 2:13-cv-01831-DCN) (Wellin I), seeking a return of all assets in the Trust and Friendship Partners, LP, and asserting that the Defendant Wellin children had defrauded him into entering into the 2009 transactions. Keith also made modifications to his Revocable Trust, shifting the bulk of the beneficial interest away from his children.

         Keith Wellin died during the litigation in November of 2014, and his widow, Wendy Wellin, was substituted in Wellin I as Plaintiff in her capacity as Special Administrator of the Estate of Keith S. Wellin and as Trustee of the Keith S. Wellin Florida Revocable Living Trust u/a/d December 11, 2001. On April 30, 2015, Wendy filed a Second Amended Complaint in Wellin I. C/A No. 2:13-cv-01831-DCN, ECF No. 301. The Second Amended Complaint targeted the actions of the Wellin Children regarding three separate transactions: 1) in the formation and handling of the Wellin Family 2009 Irrevocable Trust; 2) in the liquidation of Friendship Partners following the initiation of Wellin I, with distribution to themselves of the proceeds; and 3) regarding their actions in allowing gifts to themselves of 10 million dollars each from Keith in 2013 at a time when Keith was temporarily incapacitated and under the mistaken belief that he had 220 million dollars in liquid assets.

         The Second Amended Complaint alleges the following causes of action: Breach of Fiduciary Duty as to Peter J. Wellin; Breach of Fiduciary Duty as to Cynthia Plum; Aiding and Abetting Breach of Fiduciary Duty as to Cynthia Plum and Marjorie King; Conversion as to Peter J. Wellin, Cynthia Plum and Marjorie King; Breach of Contract by Peter J. \tyellin, Cynthia Plum, and Marjorie King; Rescission of the 2013 Gifts from Peter J. Wellin, Cylithia Plum and Marjorie King; Unjust Enrichment as to Peter J. Wellin, Cynthia Plum and Marjorie King; Breach of Fiduciary Duty as to Friendship Management, LLC, Peter J. Wellin, Marjorie King and Cynthia Plum; Aiding and Abetting Breach of Fiduciary Duty as to Peter J. Wellin and Marjorie King; Civil Conspiracy as to Peter J. Wellin, Marjorie King, Cynthia Plum; and Constructive Trust as to Peter J. Wellin, Cynthia Plum and Marjorie King. As to those causes of action alleging breaches of fiduciary duties based upon Powers of Attorney, they are premised upon five Powers of Attorney executed by Keith Wellin in 2006.

         The subject of the instant motion is Wellin & Co., a real estate development and management company formed by Keith's son and named party, Peter J. Wellin, in 1993. Peter ran the business from the time of the formation of the company up to and including the present time. Keith invested $45, 000 in the start-up of the company, and Peter invested $5, 000.

         Initially, Keith owned 51% of the company, and Peter's two sisters, Cynthia Plum and Marjorie King each owned 9.6% of the company. In 2006, the company redeemed the shares owned by both Cynthia Plum and Marjorie King, and Keith transferred 4 shares of his stock to Peter, thereby leaving Peter and Keith as the sole stockholders, with Peter having a 51% controlling interest.

         Prior to the re-distribution of the stock, on June 15, 2002, all four stockholders executed a shareholder agreement containing, inter alia, a buy-out provision in the event of death of a shareholder at the option of the corporation or its remaining shareholders. Under the terms of the agreement, the redemption price for any shares purchased by the corporation or the remaining shareholders was set at fair market value. In the event the affected shareholder or deceased shareholder and the corporation or remaining shareholders cannot agree upon fair market value, the price is to be set by an appraisal process whereby one agreed upon appraiser establishes fair market value, and if the parties cannot agree upon a mutually satisfactory appraiser, then each party chooses one appraiser, and the two appraisers select a third appraiser. All decisions of the appraisers, including the valuation, are then determined by majority vote of the appraisers, provided, if the appraisers cannot agree upon a valuation of the shares, the valuation shall be the average of the valuations offered by the two appraisers whose valuations are the closest to each other.

         Following the July 2013 initiation of suit in Wellin I, the parties embarked upon a course of discovery that is now nearly five years in length, has spawned thousands of pages of written documents and emails, and has included the taking of more than 80 depositions, all at a cost to the parties in excess of 10 million dollars. The Wellin Children point out that the most logical, and likely designee to represent Wellin & Co. at ¶ 30(b)(6) deposition is Peter Wellin, who has already been deposed, individually, for 18 hours, with no questions being asked about Wellin & Co. Counsel for the Wellin Children and Wellin & Co. further assert that the reason no questions have been asked about Wellin & Co. is that it is not a relevant subject in these proceedings under the issues framed by the pleadings.

         The 30(b)(6) deposition notice lists twenty-five (25) topic areas and eleven (11) requests for documents, including broad subject matters such as business operations of and transactions made by Wellin & Co. from its formation to the present. The Wellin Children highlight what they assert to be a very telling topic request for "copies of any insurance policies or coverage available to satisfy all or part of claims brought against Wellin & Co. for breach of fiduciary duty, " which they argue demonstrates the impermissible use of discovery as a fishing expedition to gather information for use in proceedings other than the pending suits. See Qppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 353, n. 17 ("[W]hen the purpose of a discovery request is to gather information for use in proceedings other than the pending suit, discovery is properly denied.").

         Conversely, the Estate asserts the movants cannot meet the heavy burden of showing extraordinary circumstances necessary to deny the taking of a deposition. See S'alter v. Upjohn Co., 593 F.2d 649, 651 (5th Cir. 1979) ("It is very unusual for a court to prohibit the taking of a deposition altogether and absent extraordinary circumstances, such an order would likely be in error..."); Static Control Components, Inc. v. Darkprint Imaging, 201 F.R.D. 431, 434 (M.D. N.C. ) (holding that the moving party "assumes a heavy burden because protective orders which totally prohibit a deposition should rarely be granted absent extraordinary circumstances.") (internal quotations omitted)).

         In response to the arguments of the Wellin Children and Wellin & Co., the Estate advances essentially three arguments. First, the Estate argues the deposition, may provide discoverable information in support of its claims for breach of fiduciary duty against the Wellin Children. Second, the Estate submits additional discovery is permissible to obtain information regarding the shares of Wellin & Co., which is currently held by Keith Wellin's Revocable Trust, because information about the assets of the Revocable Trust have been held to be relevant and discoverable following a motion brought by the Wellin Children. In this regard, the Estate asserts a (30)(b)(6) deposition is not only a permissible way to proceed, but is "the best discovery tool to obtain this information from Wellin & Co., as it prevents the practice of bandying from non-corporate witnesses."

         Third, the Estate argues the Wellin Children are not entitled to a protective order because they thwarted the Estate's attempts to get information from Wellin & Co. during the deposition of the company's attorney and corporate clerk, when counsel for the Wellin Children instructed the witness not to answer basic questions about ownership and governance of Wellin & Co. and stated that the discovery should instead be obtained from a non-lawyer witness.

         APPLICABLE LAW

         As the Estate asserts, absent extraordinary circumstances, an order denying the taking of a deposition altogether would likely be in error. Salter v. Upjohn Co., 593 F.2d at 651; Static Control Components, Inc. v. Darkprint Imaging, 201 F.R.D. at 434.

Fed. R. Civ. P. 26(b)(2)(C) provides as follows:
Unless otherwise limited by court order, the scope of discovery is as follows: Parties may obtain discovery regarding any non-privileged matter that is relevant to any party's claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties relative access to relevant information, the parties resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit. Information within the scope of discovery need not be admissible in evidence to be discoverable.

         "For purposes of discovery, then, information is relevant, and thus discoverable, if it 'bears on, or . . . reasonably could lead to other matter[s] that could bear on, any issue that is or may be in the case.'" Amick v. Ohio Power Co., C.A. No. 2:cv-06593, 2014 WL 468891, at *1 (S.D.W.Va. Feb. 5, 2014) (citing Kidwiler v. Progressive Paloverde Ins. Co., 192 F.R.D. 193, 199 (N.D.W.Va. 2000)).

         Conversely, as the United States Supreme Court has long ago observed, "[D]iscovery, like all matters of procedure, has ultimate and necessary boundaries." Hickman v. Taylor,329 U.S. 495, ...


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