United States Securities and Exchange Commission v. Collector's Coffee Inc.

Background

The court considered an application by defendant Mykalai Kontilai and relief defendant Veronica Kontilai to compel nonparty witness David Chapman to sit for a further deposition and to impose sanctions against him. Chapman had appeared for a deposition on February 22, 2021, without counsel. The deposition ended after Chapman said, in response to questions from Veronica’s counsel, that he wanted counsel present.

The defendants waited eighteen days before asking the court to compel a continuation. The court had previously permitted several late depositions only if they were promptly scheduled and completed by specified deadlines. The court found that the defendants had delayed noticing Chapman’s deposition and had delayed bringing the continuation issue to the court. It also found that they had taken inconsistent positions about whether Chapman was an officer of Collector’s Coffee Inc. and therefore might have coverage for attorney’s fees under the company’s insurance policy. The court noted that Mykalai Kontilai had previously described Chapman as the company’s vice president of investor relations and a corporate officer, while the defendants later described Chapman as a consultant who had chosen to use that title.

Requested deposition topics

The defendants identified five topics for additional questioning:

The SEC and Chapman opposed the application, principally arguing that the defendants had delayed and that the proposed testimony was not relevant. The court rejected the argument that Veronica could not seek testimony relevant to the claims against Mykalai. It reasoned that liability or relief against Veronica depended in part on findings concerning the company and Mykalai, so evidence relevant to claims seeking disgorgement from them could also be relevant to Veronica’s claim for relief.

Rulings on the topics

The court permitted limited questioning about Chapman’s compensation. The defendants could ask about CCI records reflecting payments to Chapman, to verify that the payments occurred and related to company business. They could not question Chapman about payments from or to anyone else. The court found broader questioning only marginally relevant and disproportionate to the needs of the case, particularly because counsel had already asked questions about Chapman’s personal finances that the court viewed as seemingly harassing.

The court allowed questioning about Chapman’s communications with CCI investors and potential investors before the SEC filed its complaint. It did not allow questioning about communications after the complaint was filed when offered only as possible impeachment material.

The court did not allow questioning about how prior litigation involving CCI or Mykalai came about. It found that the defendants had not shown how this testimony related to the claims or defenses and that seeking impeachment material alone was not proportional to the needs of the case.

The court allowed Veronica to ask whether Chapman had entered into agreements with the SEC concerning testimony at the deposition or trial in this matter. It did not allow the other questioning listed under that topic.

The court rejected the fifth topic. The defendants had not explained its relevance beyond wanting to compare Chapman’s answers with his 2018 SEC testimony. The court found that purpose disproportionate to the needs of the case.

Deposition limits and sanctions

The court permitted the defendants to depose Chapman only on the specified topics. Chapman could decline to answer questions outside those areas under Federal Rule of Civil Procedure 30(c)(2). The court rejected the defendants’ stated reservation of a right to ask other relevant questions; no questioning was permitted outside the topics identified in the order.

Because more than ninety minutes of questioning had already occurred, Veronica received a maximum of two hours and fifteen minutes for the direct examination, which she could share with co-defendants. The SEC received a maximum of fifteen minutes for cross-examination. Chapman’s counsel could ask additional questions after the parties used their allotted time. The court ordered that the deposition occur within fourteen days.

The court denied the defendants’ request for sanctions against Chapman. It cited the defendants’ history of delay and found that Chapman’s position was substantially justified under Federal Rule of Civil Procedure 37(a)(5)(A)(ii).