UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
__________________________________________
)
NATIONAL COMMUNITY REINVESTMENT )
COALITION, )
)
Plaintiff, )
)
v. ) Civil Action No. 07-861 (RCL)
)
NOVASTAR FINANCIAL, INC., and )
NOVASTAR MORTGAGE, INC., )
)
Defendants. )
__________________________________________)
MEMORANDUM OPINION
Before the Court are three substantive motions: plaintiff’s Motion [26] for Leave to
Amend the Complaint, plaintiff’s Motion [38] to Compel Appearance of Rule 30(b)(6) Designee
in Washington, D.C., and plaintiff’s Motion [40] to Compel Discovery Responses. As detailed
below, the Court will grant plaintiff’s Motion [26], grant plaintiff’s Motion [38], and deny
without prejudice plaintiff’s Motion [40].
A. Factual Background
Plaintiff is suing defendants for alleged violations of the Fair Housing Act, 42 U.S.C. §§
3604 and 3605. Specifically, plaintiff alleges that defendants discriminated against Native
Americans, people with disabilities, and African Americans by explicitly refusing to grant
mortgages secured by “properties located on Indian reservations,” “properties for adult foster
1
care,” or row houses in Baltimore, respectively. Plaintiff seeks declaratory, equitable, and
monetary relief.
B. Plaintiff’s Motion [26] for Leave to Add W. Lance Anderson as a Defendant
Plaintiff seeks leave to amend its Complaint to add W. Lance Anderson, co-founder of
NovaStar Financial and president of both NovaStar Financial and NovaStar Mortgage, as a
defendant. An answer having been filed, this Court will “freely give leave when justice so
requires.” Fed. R. Civ. P. 15(a)(2). However, it is within the Court’s discretion to deny leave to
amend for “sufficient reason, such as ‘undue delay, bad faith, [ ] dilatory motive . . . repeated
failure to cure deficiencies by [previous] amendments . . . [or] futility of amendment.’”
Firestone v. Firestone, 76 F.3d 1205, 1208 (D.C. Cir. 1996) (quoting Foman v. Davis, 371 U.S.
178, 182 (1962)). The Court shall grant leave to amend here.
Plaintiff seeks to add Anderson because, based on defendants’ interrogatory responses
and other information, plaintiff contends that Anderson is the sole person responsible for the
allegedly discriminatory lending policies challenged in the Complaint. (Pl.’s Mot. [26] at 1.)
Defendants argue that (a) because of the fiduciary shield doctrine the Court cannot exercise
jurisdiction over nonresident Anderson, and (b) even if it could the claims against Anderson are
without merit and do not warrant amending the Complaint.
Anderson works in Kansas City, Missouri and lives in a nearby Kansas suburb. This
Court may exercise jurisdiction over a nonresident defendant if jurisdiction is proper under both
the D.C. longarm statute and the requirements of constitutional due process. GTE New Media
Services, Inc. v. BellSouth Corp., 199 F.3d 1343, 1347 (D.C. Cir. 2000). Defendants argue that
2
this Court’s exercise of jurisdiction over Anderson would fail because of the fiduciary shield
doctrine. The fiduciary shield doctrine counsels that “[p]ersonal jurisdiction over the employees
or officers of a corporation in their individual capacities must be based on their personal contacts
with the forum and not their acts and contacts carried out solely in a corporate capacity.” Bailey
v. J & B Trucking Servs., Inc., 577 F. Supp. 2d 116, 118–19 (D.D.C. 2008) (quoting Wiggins v.
Equifax, Inc., 853 F. Supp. 500, 503 (D.D.C. 1994) (Lamberth, J.)). Because Anderson’s
contacts with D.C. are all in his corporate capacity, defendants argue, the fiduciary shield
doctrine makes jurisdiction over him improper. Plaintiff counters that an exception to the
fiduciary shield applies to Anderson and thus corporate contacts with the forum can be
considered.
1. If an Exception to the Fiduciary Shield Applies, Personal Jurisdiction Over
Anderson Is Appropriate
Absent the fiduciary shield doctrine issue—that is, if an exception to the doctrine
applies—this Court can exercise personal jurisdiction over nonresident Anderson. Under the
Fifth Amendment’s Due Process Clause, this Court can exercise jurisdiction over Anderson if he
has purposefully established “minimum contacts with [the District of Columbia] such that the
maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice.’”
Int’l Shoe Co. v. Washington, 326 U.S. 310, 316, (1945) (quoting Milliken v. Meyer, 311 U.S.
457, 463 (1940)). The Court can—absent the fiduciary shield—attribute NovaStar Financial and
NovaStar Mortgage’s connections with Washington, D.C. to Anderson. Defendant companies
clearly have such contacts: between 1999 and 2007 NovaStar Mortgage received 3,021 loan
applications from D.C. residents, and 1,230 of those applications were approved with loans
3
made. (Pl.’s Reply Ex. D [30-5] (Decl. of Caitlin Parton) (reviewing Home Mortgage Disclosure
Act records).) Such a pattern of accepting applications from and making loans to District
residents, when attributed to Anderson, constitutes purposeful establishment of minimum
contacts with the District such that this Court’s exercise of jurisdiction would not offend
traditional notions of fair play and substantial justice.
As for the D.C. longarm statute, D.C. Code § 13-423(a), plaintiff argues that jurisdiction
could be achieved under subsection (a)(1). Subsection (a)(1) grants personal jurisdiction over an
individual “as to a claim for relief arising from the person’s . . . transacting any business in the
District of Columbia.” This Circuit has held that subsection (a)(1) “is given an expansive
interpretation that is coextensive with the due process clause.” Helmer v. Doletskaya, 393 F.3d
201, 205 (D.C. Cir. 2004) (quoting Mouzavires v. Baxter, 434 A.2d 988, 992 (D.C. 1981)).
Therefore, because this Court has already held that the due process clause has been satisfied
through NovaStar Mortgage’s transactions with District residents, subsection (a)(1) of the
longarm statute is satisfied as well.
2. The “More Than An Employee” Exception to the Fiduciary Shield Applies to
Anderson
Plaintiff argues that the fiduciary shield doctrine is inapplicable when the defendant is
“more than an employee” of the corporation. This exception has indeed been recognized in this
jurisdiction. For example, the D.C. Superior Court did not apply the fiduciary shield doctrine to
two defendants who were the “only corporate officers” of the corporation, “set company policies
and procedures,” were “active in day-to-day operations of the company,” and were “involve[d
4
with] and supervis[ed] all aspects of the company.” Covington & Burling v. Int’l Marketing &
Research, Inc., Civ. No. 01-4360, 2003 WL 21384825 at *6 (D.C. Super. 2003) (Blackburne-
Rigsby, J.). Another judge of this Court has twice recognized Covington, but in both those cases
he determined that the exception did not apply to the relevant facts. In Kopff v. Battaglia, a
“chief programmer” of a blast-fax advertising firm was found to be not as integrally involved
with the company as the defendants in Covington. He was not an officer, and he did not have
“any role in directing or controlling company policy.” Kopff, 425 F. Supp. 2d 76, 85 (D.D.C.
2006) (Bates, J.). In D’Onofrio v. SFX Sports Group, Inc., the Court determined that a CFO and
a head of human resources, though directly involved with the plaintiff’s firing, did not play
enough of a role in the corporate structure for jurisdiction to lie under the “more than an
employee” exception. D’Onofrio, 534 F. Supp. 2d 86, 92–93 & n.6 (D.D.C. 2008) (Bates, J.).
Anderson lies somewhere between the sole officers in Covington and the employees in
Kopff and D’Onofrio. Based on the information before the Court, though, he seems closer to the
officers in Covington—that is, he appears to be “more than an employee.” Again, he is the
founder of defendant NovaStar Financial and the president of both defendant companies.
Defendants’ interrogatory response listed Anderson, and only Anderson, when asked to “identify
. . . all individuals responsible for NovaStar’s [challenged] policies.” (Defs.’ Opp’n Ex. B [27-4]
at 9.) Although he is not the sole officer of the defendant entities, as was the case in Covington,
Anderson, as president, does appear to exert significant influence over defendants’ policies,
procedures, and operations. Anderson thus is “more than an employee” of the NovaStar entities
and is not protected by the fiduciary shield doctrine.
5
3. Jurisdiction is Proper Based Upon NovaStar Mortgage’s Contact With Forum
Because the “more than an employee” exception to the fiduciary shield doctrine applies to
Anderson, NovaStar Mortgage’s contacts and transactions within the forum can be considered for
purposes of personal jurisdiction. As described above, those contacts are sufficient to satisfy
both subsection (a)(1) of the longarm statute and the requirements of constitutional due process.
4. Because Defendants’ Criticism of the Merits of Claims Against Anderson Do Not
Militate Against Leave to Amend, Plaintiff’s Motion Shall Be Granted.
Defendants’ only remaining argument against plaintiff’s motion is their contention that
plaintiff’s claims against Anderson are “without merit.” (Defs.’ Opp’n [27] at 1.) Defendants’
main argument in this regard appears to be that Anderson’s actions were all taken in his
corporate capacity. This is no more than a rehash of defendants’ fiduciary-shield arguments and
does not establish an independent basis for denying plaintiff’s motion for leave to amend.
Defendants also argue that the claims against Anderson of discrimination in violation of the Fair
Housing Act are “malicious” and “malevolen[t].” (Id. at 14, 19.) Even if defendants’
characterizations are true, they do not form a basis for denying plaintiff’s motion. Finally,
defendants argue that it is frivolous, based on an assessment of the claim on the merits. But even
if defendants are right, a low likelihood of success is not an acceptable reason for denying leave
to amend.
Because the Court has concluded that it can exercise personal jurisdiction over Anderson,
and in light of the fact that leave shall be freely granted, the Court shall grant plaintiff’s Motion
[26].
6
C. Plaintiff’s Motion [38] to Compel Appearance of Rule 30(b)(6) Designee in
Washington, D.C.
Plaintiff moves to compel Anderson to appear in Washington, D.C. to be deposed as
defendant NovaStar Financial’s 30(b)(6) designee. The Court shall grant plaintiff’s motion, but
plaintiff shall bear the reasonable costs of Anderson’s travel and lodging.
NovaStar Financial’s principal place of business is in Kansas City, Missouri, and
Anderson himself lives in nearby Mission Hills, Kansas. “The deposition of a corporation by its
agents and officers should ordinarily be taken at its principal place of business. This is subject to
modification, however, when justice requires.” Wright, Miller & Marcus, Federal Practice and
Procedure: Civil 2d § 2112 (1994 & Supp. 2008). Turner v. Prudential Insurance Co., 119
F.R.D. 381, 383 (M.D.N.C. 1988), outlines four relevant factors courts can consider when
determining whether modification is appropriate: location of counsel for both parties; size of
defendant corporation and regularity of executive travel; resolution of discovery disputes by the
forum court; and the nature of the claim and the relationship of the parties. Expense is also “an
important question in determining where to hold the examination.” Wright, Miller & Marcus §
2112.
Here, counsel for both parties are located in Washington, D.C. Plaintiff also argues that
were the deposition held in Kansas City, sending a plaintiff’s representative to assist plaintiff’s
counsel would result in additional expense. Defendant counterargues that plaintiff’s
representative is not required to attend the deposition, but given plaintiff’s experience and
expertise in fair lending practices the Court concludes that plaintiff’s representative’s travel
7
expenses are relevant.1 As for the second Turner factor, it is uncontested that defendant
NovaStar Financial does business nationwide (see Pl.’s Mot. [38] at 4 (stating that NovaStar
Financial manages loans in forty-eight states)) and Anderson admits that he travels regularly for
work. (Defs.’ Opp’n Ex. 2 [43-4] ¶11.) However, defendant argues that Anderson’s frequent
travel makes his office time scarce and therefore suggests the deposition be held in Kansas City.
This argument is logical, but it is not as persuasive as the view taken in Turner (frequent travel
suggests that a modification would be less burdensome). As for discovery disputes, the Court is
not moved by this factor. Most discovery disputes could be resolved by telephone regardless of
the deposition location (in the unlikely event the Court needed to get involved at all); the
convenience of being within the forum is an insufficient reason to modify the ordinary rule.
Finally, as for the relationship between the parties, this factor is also somewhat of a wash:
defendant NovaStar Financial is a corporation that does business nationally, but plaintiff is an
advocacy organization with nationwide membership. After considering all of the factors, the
number of deposition participants in Washington, D.C. (plaintiff and counsel for both parties)
and Anderson’s frequent work-related travel suggest that conducting the deposition in
Washington, D.C. is appropriate.
The issue of expenses remains. Although the Court has determined that Anderson shall
be deposed in Washington, D.C., the fact remains that plaintiff chose Washington as the forum
for this action, presumably knowing full well that NovaStar Financial’s principal place of
1
The case that defendant cites for the contrary proposition, Fuller v. Summit Treestands,
LLC, 2008 WL 3049852 (W.D.N.Y. 2008), differs from this case because there defendant
showed that plaintiff had failed to attend other depositions within the forum, thereby mitigating
the relevance of plaintiff’s potential travel costs.
8
business was in Kansas City. In light of the fact that the Court is departing from the general
rule—at plaintiff’s request—while also significantly reducing the overall costs of the deposition,
it seems appropriate that plaintiff should bear the reasonable costs of Anderson’s travel and
lodging. See, e.g., Moore v. George A. Hormel & Co., 4 F.R.D. 15, 16 (S.D.N.Y. 1942)
(ordering plaintiff to pay expenses when an in-forum deposition of corporate defendant was
ordered, at plaintiff’s request, based in part upon location of counsel). It shall be so ordered.
Should plaintiff ultimately prevail in this action, these expenses may be recoverable as costs of
the action. See Fed. R. Civ. P. 54(d); Local Civ. R. 54.1.
D. Plaintiff’s Motion [40] to Compel Discovery Responses
Plaintiff’s Motion [40] seeks to compel defendant NovaStar Financial to respond to
certain discovery responses made of it. At the time plaintiff filed this motion on November 18,
2008, the action was automatically stayed as to defendant NovaStar Mortgage due to its
Suggestion of Bankruptcy [32] filed October 8, 2008. The involuntary bankruptcy petition
underlying the Suggestion was dismissed on March 9, 2009 (see Document [50]), and the
automatic stay was thereby lifted. It appears from plaintiff’s motion and the responsive filings
thereto that the motion was largely necessitated by the automatic stay. Plaintiff’s discovery
requests do not seek any documents from NovaStar Financial that they do not also seek from
NovaStar Mortgage.2 Defendant NovaStar Financial repeatedly contends that (1) the discovery
2
All of the document requests and all but one of the interrogatories aimed at NovaStar
Financial refer to NovaStar Financial and NovaStar Mortgage collectively as “NovaStar”; the
remaining interrogatory (#9) refers to both NovaStar Financial and NovaStar Mortgage. Indeed,
defendants contend (and plaintiff does not contest) that the discovery sought of the two
defendants is identical.
9
plaintiff seeks to compel would act to circumvent the automatic stay and (2) some of the
information sought cannot be provided by NovaStar Financial because it is in the possession of
NovaStar Mortgage. Now that the automatic stay has been lifted, the Court is optimistic that the
parties can resolve the remaining discovery issues without the Court having to intervene in the
process. Accordingly, plaintiff’s motion to compel shall be denied, but without prejudice to its
refiling should plaintiff eventually conclude that defendants are still improperly withholding
discovery.
CONCLUSION
For the reasons outlined above, the Court shall grant plaintiff’s Motion [26], grant
plaintiff’s Motion [38] (with costs borne by plaintiff), and deny without prejudice plaintiff’s
Motion [40]. A separate Order shall issue this date.
Signed by Royce C. Lamberth, Chief Judge, on March 27, 2009.
10