UNITED STATES BANKRUPTCY COURT

DISTRICT OF MAINE

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IN RE CATHERINE DUFFY PETIT, ) Chapter 7

) Case No.93-20821

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MAINE'S MOTION TO QUASH

The Keeper of the Records of the Maine Bureau of Banking, the Maine Bureau of Banking, and the Maine Attorney General (collectively, "Maine") move to quash deposition subpoenas issued on behalf of Paul Richard ("Richard") and Ronald Caron ("Caron"), and served upon them on October 9 and 11, 1996, for depositions scheduled to be held on October 23, 1996. The subpoenas, and their accompanying document requests, are attached to this motion as exhibits.

Maine submits this brief in support of its motion to quash. There are at least three independent reasons why this motion should be granted.

First, the subpoenas are procedurally defective on numerous grounds. On October 15, 1996, Richard Poulos ("Poulos") filed a motion to quash a similar subpoena served upon him, in which he identifies three procedural defects, all of which are which are present in the deposition subpoenas served on Maine. On October 15, 1996, John G. Connor ("Connor"), on behalf of David Poorvu, filed a motion to quash a similar subpoena served upon him, in which he identifies another procedural defect, which is present in the deposition subpoenas served on Maine, i.e., the attorney who signed the subpoena is not admitted to practice in this court. Maine adopts by reference the arguments made by Poulos and Connor on

each of the four procedural defects identified in their papers.

Second, the subpoenas are in plain violation of this court's order dated May 10, 1996. Following the filing of Maine's lawsuit, the trustee sought from this court an ex parte order to conduct examinations of the Maine Bureau of Banking, pursuant to Bankruptcy Rule 2004. On May 10, 1996, this court granted that motion, but denied the request to seal the record. Nevertheless, based on this court's finding concerning "the allegedly sensitive nature of the information sought to be obtained, and on account of the Debtor's demonstrated propensity to hinder and delay all discovery in this case" (emphasis in original), this court specifically ordered the trustee not to provide information obtained from Maine to Petit or her "affiliated parties," which includes Richard and Caron. Furthermore, in that same order, Petit and her "affiliated parties" were "restrained and enjoined from interfering in any manner with the investigations" of the trustee or Maine.

These deposition subpoenas and their accompanying document subpoenas seek precisely the information that this court ordered they could not obtain. Furthermore, these deposition subpoenas certainly would interfere in Maine's on-going investigation.

We have also received reports from investors that Richard and the debtor, Catherine Duffy Petit, have been contacting investors, urging them not to cooperate with Maine in its investigation, and they have been engaging in a number of practices to convince investors not to cooperate with Maine, such as telling them that their investments cannot be disclosed under a court-ordered confidentiality order and telling them that they would only repay investors who did not cooperate with Maine. We therefore believe that the court properly anticipated this strategy by ordering Petit and her cohorts not to interfere with Maine's investigation.

Third, the deposition subpoenas offend basic notions of comity and federalism:

In re Production of Records to Grand Jury, 618 F. Supp. 440, 442 (D. Mass. 1985) (citations omitted) (denying United States' motion to compel production to a grand jury of a state investigation).

The deposition subpoenas are directed at obtaining the results of on-going investigations conducted by the Maine Attorney General and by the Securities Division of the Maine Bureau of Banking. Both of these investigations are confidential by statute. See 16 M.R.S.A. § 614(1) (Supp. 1995) (Attorney General); 32 M.R.S.A. § 10701(4) (Supp. 1995) (Securities Division). Applying the balancing test

*The subpoenas also seek documents and testimony concerning Poulos, Poorvu, and this bankruptcy proceeding. We assume that Richard and Caron are not seeking documents relating to matters other than Maine's securities investigation and lawsuit against Richard and others. If, in fact, they are also seeking documents in other Poulos cases, such as Lovell V. One Bancorp, LoveLl V. Peoples Heritage Bank, and Ricci V. Key Bank, the subpoena should be quashed on the grounds that it is over broad, burdensome, and not likely to lead to discoverable evidence. In any event, we have no documents relating to Poorvu, only a handful of pleadings from the Petit bankruptcy, and a handful of memoranda to the file based on Poulos conversations long after Maine's lawsuit was filed, which, in turn, would be protected by the work product doctrine. We also assume that Richard and Caron are not seeking documents are protected by either the work product doctrine or the attorney client privilege, which would be another basis upon which to quash the subpoena.

established by the First Circuit in the case of In re Hampers, 651 F.2d 19, 22-23 (1st Cir. 1981), this court should not permit Richard and Caron to breach that confidentiality.

This is particularly true since the information sought by Richard and Caron is easily obtained from non-confidential sources, namely, themselves. Richard and Petit know better than any one to whom they illegally sold securities. Indeed, we have been attempting with limited success to discover the identities of their victims. Richard submitted an accounting under oath to the Maine Superior Court in which he identified only an handful of people to whom he sold securities-far fewer than the number of investors who had complained to the Securities Division. Moreover, virtually every day, we learn about new victims, such as Sylvia and Laurence Paine, who this week told us about $310,000 in securities sold to them during the past two years Petit, Richard, and others. Richard and Caron do. not need discovery from Maine in order to learn about their own violations of Maine law.

Furthermore, this information is not sufficiently relevant or material in order to warrant its production. Presumably this information is sought in conjunction with the proposal to sell part of the Key Bank litigation to Richard. As Maine's objection makes plain, this court should deny that proposal on the grounds that the trustee cannot meet his burden of proof in light of the information already in the record, namely, the pleadings and orders in the Superior Court (particularly including the sworn accountings from Richard and others) and the affidavits submitted by the Paines. In this regard, we believe that cross-examination of Richard, Petit, and trustee should provide more than ample evidence to reject the proposed settlement.

Finally, principles of comity, federalism, and abstention dictate that Richard conduct in state court his discovery concerning that pending state court litigation. Richard should not be permitted to seek discovery concerning a case in which he is a party from another court. If he believes that he is entitled to this information, he should conduct discovery in the Maine Superior Court in accordance with the Maine Rules of Civil Procedure.

Dated: October 18, 1996 Augusta, Maine

Respectfully submitted,

ANDREW KETTERER

Attorney General