United States District Court, D. South Dakota, Southern Division
ORDER DENYING DEFENDANTS' MOTION TO MODIFY
SUBPOENAS DOCKET NO. 40
VERONICA L. DUFFY, UNITED STATES MAGISTRATE JUDGE.
matter is before the court on the complaint of plaintiff
Colonial Funding Network, Inc. (“Colonial”),
invoking this court's diversity jurisdiction.
See Docket No. 1. On March 15, 2018, Colonial served
four subpoenas duces tecum on third-party banks at
which various defendants have accounts. See Docket
No. 42-1 through 42-4. The banks on which the subpoenas were
served have not objected to producing the documents
requested, but defendants themselves have filed a motion to
modify the subpoenas. See Docket No. 40. The
district judge, the Honorable Lawrence L. Piersol, referred
defendants' motion to this magistrate judge for
resolution. See Docket No. 44.
purposes of providing some context for the instant motion,
the court sets forth some basic facts gleaned from
Colonial's complaint and its pending partial summary
judgment motion so as to sketch out the claims asserted
herein. See Docket Nos. 1 & 32. By doing so, the
court does not endorse the verity of those facts or claims.
is a servicing provider for Strategic Funding Source, Inc.
and Direct Merchants Funding, LLC, doing business as Flash
Advance. Because neither Strategic Funding nor Direct
Merchants Funding are parties to this lawsuit, the court
refers to them collectively as “Colonial, ” even
though the court realizes Colonial itself did not provide
funding. From June 23, 2016, to January 12, 2017, Colonial
entered into six separate funding transactions whereby $1.760
million dollars were provided to defendants.
to making these loans,  Colonial conducted a physical site
visit to ensure the defendants were actual legitimate
businesses with a physical presence and employees. Defendants
assert that Colonial never met face-to-face with James
Bunker, however. Colonial also conducted a background check
on James Bunker, the owner or predominate owner of the
defendant entities. Colonial also alleges that prior to each
of these loans, it conducted a recorded “funding
call” with James Bunker to verify the material terms of
each of the loans prior to any funds being disbursed-an
allegation defendants deny. Recordings of these phone calls
are on file with the court in connection with Colonial's
partial summary judgment motion. See Docket Nos.
37-36, -48, -54, -80, -115, and -127. Although a male voice
is heard answering on behalf of James Bunker in these
recordings, the court is not aware whether the male is in
fact defendant Bunker. After the recorded phone calls were
made, Colonial then disbursed the funds into defendants'
terms of the contracts required defendants to repay the funds
through periodic electronic funds transfers out of their
various bank accounts. Through these transfers, defendants
paid Colonial $1, 161, 567. In late January, 2017, however,
defendants instructed their banks not to honor the electronic
transfers with the result that no further payments were made
to Colonial on the loans. At this time, defendants still owed
Colonial approximately $1, 158, 932 in unpaid balances plus
approximately $46, 810 in fees.
notified Colonial they disputed the validity of the six
transactions. Defendants asserted that defendants'
employee, James Bunker's sister, Sandra Tawzer, forged
Mr. Bunker's name to the contracts. Ms. Tawzer held the
position of controller within Mr. Bunker's companies.
Colonial asserts Ms. Tawzer had a prior felony conviction for
embezzlement before defendants hired her.
asserts claims against defendants of breach of contract,
promissory estoppel, unjust enrichment, quantum
meruit, and money had and received. Defendants deny that
they entered into the contracts in question and assert a
litany of affirmative defenses, including equitable defenses
of unclean hands and estoppel. See Docket No. 17 at
March 15, 2018, Colonial served subpoenas duces
tecum on Richland State Bank of Bruce, South Dakota
(see Docket No. 42-1); Frontier Bank of Rock Rapids,
Iowa (see Docket No. 42-2); Citizens State Bank of
Arlington, South Dakota (see Docket No. 42-3); and
Fishback Financial Corporation, First Bank & Trust of
Sioux Falls, South Dakota (see Docket No. 42-4).
Each of the subpoenas requested all documents relative to any
bank account for any defendant for the period from January 1,
2016, to the date of compliance with the subpoena, which was
April 2, 2018. See, e.g. Docket No. 42-1 at p. 4.
Four days later, Colonial filed a motion for partial summary
judgment against defendants [Docket No. 32], which motion is
currently still pending.
charges against Sandra Tawzer have been filed in South Dakota
state court, but those charges are not based on the
transactions between defendants and Colonial which are at
issue in this case. The chief investigating agent in the
Sandra Tawzer case testified one year ago (May 31, 2017),
before a state grand jury that Ms. Tawzer was using two men
to represent themselves to be James Bunker and to approve of
the loans over the phone with the loan companies.
See Docket No. 36-14 at pp. 21, 24. The telephonic
loans were with out-of-state entities. Id. The court
assumes this testimony refers at least in part to
Colonial's loans to defendants.
loan discussed at length before the grand jury, and
apparently the sole basis for the state criminal charges
against Ms. Tawzer, was a loan made by a South Dakota bank,
Citizens State Bank of Arlington, South Dakota, on which Ms.
Tawzer forged Mr. Bunker's signature. Id. at p.
3-5. That loan was entirely paid back to the bank out of
defendants' bank accounts. Id. at pp. 5-6. As to
the telephonic loans, the investigating agent did not ask for
a grand jury indictment as to those funds because
“[t]he loans were made out to the business and cashed
in the business's name, but there was so much going on
within passing checks and moving checks around that at this
point I have not determined where the money's final
destination was.” Id. at pp. 24-25. A grand
juror asked specifically if the agent could say whether the
money went to defendants or to Ms. Tawzer. Id. at p.
25. The agent testified, “I can't show that the
money went into [Ms. Tawzer's] pocket at this
defendants have represented in this lawsuit that all of the
money from Colonial was purloined by Sandra. Defendants have
produced no documents in discovery, according to Colonial,
not even their required Rule 26 initial disclosures. Hence,
Colonial has no documents that show where the funds they gave
to defendants went.
the events of January, 2017, defendant James Bunker sought
certificates of dissolution from the South Dakota Secretary
of State as to defendants Midwest Poured Foundations, Inc.
and Waters Edge Concrete, LLC.
now move to modify the four bank subpoenas. See
Docket No. 40. They allege the time frame for the subpoenas
are too broad. Because the first funding transaction was
consummated June 23, 2016, and the last such transaction was
consummated January 12, 2017, defendants want the court to
limit the banks' production of documents to that
approximately six-month time period. They point out that the
subpoenas cover time periods after Colonial filed its
complaint in this matter (on August 28, 2017), and they argue
that providing financial information about defendants during
the pendency of this lawsuit places them at a strategic and
also assert a claim that the subpoenas are unduly burdensome,
but none of the banks have asserted that claim. In fact,
Frontier Bank has already compiled the documents and made
them available to Colonial. Colonial has declined to receive
those documents until the instant motion is resolved.
points out that, in conducting its due diligence prior to
sending funds to defendants pursuant to the contracts,
Colonial requested and received, inter alia,
financial documents, tax returns, bank statements, balance
sheets, and profit and loss statements for various defendants
spanning the time period from 2013 up through 2016. Thus, the
bank records subpoenaed partially cover the due diligence
period. Finally, Colonial points out that the district court
entered a protective order ...