In re KZK Livestock, Inc., Bankruptcy No. 91-82986
| Decision Date | 21 May 1998 |
| Docket Number | Bankruptcy No. 91-82986,Adversary No. 95-8069. |
| Parties | In re KZK LIVESTOCK, INC., Debtor. Richard E. BARBER, not individually but as Trustee for the estate of KZK Livestock, Inc. v. PRODUCTION CREDIT SERVICES OF WEST CENTRAL ILLINOIS, FLCA, and Production Credit Services of West Central Illinois, PCA, Defendants. |
| Court | United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Central District of Illinois |
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Alan J. Fulkerson, Riordan & Larson, Chicago, IL, for trustee.
Richard E. Barber, Hanlon & Barber, Galesburg, IL, trustee.
John Bisbee, Macomb, IL, Robert Lindstrom, Mustain, Lindstrom & Henson, Galesburg, IL, for Defendant.
Kendall Knowles (KNOWLES) was the sole shareholder, director, and officer of KZK Livestock, Inc., an Illinois Corporation (KZK). KNOWLES had a loan with Production Credit Services of West Central Illinois, FLCA and Production Credit Services of West Central Illinois, PCA (jointly referred to as "PCA"). KZK repaid the loan. KNOWLES was also operating a check kite involving a KZK bank account at the First National Bank of Blandinsville (FIRST). The funds used to repay the loan came from the bank account at FIRST. KZK's Trustee in bankruptcy (TRUSTEE) sued PCA to recover the loan repayment. Count I is brought under § 548(a)(1) of the Bankruptcy Code and Count II is brought pursuant to § 548(a)(2) of the Bankruptcy Code, 11 U.S.C. § 548(a)(1) and (2), to recover an alleged fraudulent conveyance. Counts III and IV are brought pursuant to § 5(a)(1) and (2) of the Uniform Fraudulent Conveyance Act as adopted by the State of Illinois, 740 ILCS § 160/5(a)(1) and (2).1
PCA filed an answer denying a fraudulent conveyance occurred and filed affirmative defenses. The TRUSTEE filed a motion for partial summary judgment as to Count II. PCA filed a motion for summary judgment as to all counts. A hearing was held and the motions were taken under advisement.
Before deciding the issues raised by the motions for summary judgment, there is a preliminary matter raised by PCA's motion to strike certain discovery being relied on by the TRUSTEE, which has to be resolved. In his motion for summary judgment, the TRUSTEE states that he is relying on depositions of KNOWLES taken on the following dates:
PCA seeks to strike any deposition transcript at which PCA was not present when the deposition was taken.2
PCA relies upon Federal Rule of Civil Procedure 32, which governs the use of depositions in court proceedings, and provides, in part:
(a) Use of Depositions. At the trial or upon the hearing of a motion or an interlocutory proceeding, any part or all of a deposition, so far as admissible under the rules of evidence applied as though the witness were then present and testifying, may be used against any party who was present or represented at the taking of the deposition or who had reasonable notice thereof, in accordance with any of the following provisions. . . .
In response, the TRUSTEE cites a number of cases which hold that a deposition may be considered by the court as a substitute affidavit under F.R.C.P. 56(c) and (e), even though the conditions of F.R.C.P. 32(a) for use of a deposition at trial are not met. Hoover v. Switlik Parachute Co., 663 F.2d 964, 966-67 (9th Cir.1981); Microsoft Corp. v. Very Competitive Computer Products, 671 F.Supp. 1250 (N.D.Cal.1987). These courts posit that it would be pointless to require the witness to file an affidavit when their previous deposition met all the requirements for an affidavit. Other courts have followed that rule. Peterson v. Instapak Corp., 690 F.Supp. 697 (N.D.Ill.1988); In re Baker & Getty Financial Services, Inc., 98 B.R. 300 (Bkrtcy.N.D.Ohio 1989).
This Court agrees with the cases cited by the TRUSTEE. While the depositions taken outside PCA's presence could not be used at trial, they can be used to support a motion for summary judgment. They met the requirements for an affidavit and if PCA believed they were incomplete or inaccurate all it would have had to do is file additional portions of the deposition or counter affidavits.
However, there is another reason, not raised by PCA, why the depositions cannot be used to support the TRUSTEE's motion. In the TRUSTEE's motion, he states that he is relying on five depositions of KNOWLES taken in connection with proceedings other than the one involving PCA. With the exception of the deposition taken on October 4, 1996, none of the depositions or excerpts upon which the TRUSTEE is relying have been filed in this adversary proceeding. All that is before this Court is the TRUSTEE's statement of what is in a particular deposition, along with a reference to a particular deposition.
Rule 56(c) of the Federal Rules of Civil Procedure, applicable here through Rule 7056 of the Rules of Bankruptcy Procedure, provides, in part:
The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.
Fed.R.Civ.P. 56(c). Depositions which are not attached to or incorporated into the record on a motion for summary judgment cannot be considered. Maier-Schule GMC, Inc., v. General Motors Corporation (GMC Truck and Bus Group), 154 F.R.D. 47 (W.D.N.Y.1994). It does not aid the TRUSTEE that the depositions have been filed in another adversary proceeding filed by him in this Court. Each adversary proceeding, while perhaps not a different "case", as that term is used in the bankruptcy parlance, is a separate and distinct proceeding.3 Courts do not search outside a record in order to notice documents in another case, even where the same parties are involved, unless the proceedings are put in evidence. Funk v. Commissioner of Internal Revenue Service, 163 F.2d 796 (3d Cir.1947); Paridy v. Caterpillar Tractor Co., 48 F.2d 166 (7th Cir.1931). Though the rule has generally been strictly construed, exceptions have developed. Funk, supra. Whether the doctrine of judicial notice will be applied turns upon considerations of expediency and justice under the particular facts of a case, as well as upon what the court is asked to notice. Funk; In re Eagson Corp., 37 B.R. 471 (Bkrtcy.E.D.Pa.1984). It is a matter of judicial discretion. A number of bankruptcy courts have refused to take judicial notice of pleadings or documents from the underlying case even when requested by a party. In In re Eagson, supra, the court took judicial notice of pleadings in a prior adversary proceeding because the two proceedings involved the identical parties and subject matter, finding that the proceedings were not, in reality, separate and distinct. In the present case, the TRUSTEE relies upon depositions filed in other adversary proceedings brought by him against other defendants. Thus, the parties are not the same. While some of the same legal principles are involved, the subject matters of the proceedings are entirely different. In addition, it is KNOWLES' testimony which is the heart of this case. Records of KZK, as well as of KNOWLES' other corporations, are missing or incomplete. Given both the nature of the depositions and the dissimilarity of the proceedings, this Court declines to consider the five depositions filed in other adversary proceedings.
The peril, should this Court look outside the record presented, is apparent. The depositions relied on by the TRUSTEE consume over 800 pages. The TRUSTEE cites to less than twenty references in the depositions. Though the parties are directed to specify portions of depositions upon which they rely to support factual assertions, it has always been the practice of this Court, and indeed its obligation, to review filed depositions in their entirety. Here the parties have represented to the Court that they agree on the basic facts, but differ widely on the inferences to be drawn from those facts and the conclusions of law to be made based upon those facts. If these unfiled depositions are to be considered a part of the record, PCA would be entitled, on its motion, to all favorable inferences that may reasonably be drawn therefrom. The same would be true for the TRUSTEE. The Court would be more or less on its own, grappling with the difficult issue of unity of interests between KZK and KNOWLES, and might well draw inferences from the facts unanticipated by either party. That is not how cases of this kind should be decided. Nor, as a practical matter, is it this Court's responsibility to search through the main case and other adversary proceedings to locate the depositions and file them in this adversary proceeding. That is the responsibility of the parties. The TRUSTEE claims to be relying on a deposition of KNOWLES dated March 19, 1992. Depositions of KNOWLES dated January 22, 1992, and March 13, 1992, (captioned a "resumed" deposition) are filed as a part of the main case proceedings as well as in a separate adversary proceeding. This Court has no way of knowing for certain if the reference to the March 19, 1992, deposition is a typing error or if KNOWLES was in fact deposed on that date.4
Notwithstanding the ruling that the depositions cannot be relied upon, this Court will decide the cross motions for summary judgment on the basis that there are no material questions of fact. At the hearing on the cross motions for summary judgment, the parties were asked if there were any. After some discussion, both the TRUSTEE and PCA advised there were none, only conclusions to be drawn from the facts and how the law was to be applied. In so advising the Court of their position, the parties made it crystal clear that regardless of the ruling on the motion to strike the depositions, they wanted the case...
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