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Fryar Hearing Testimony


By: retireman
02 Jun 2012, 10:47 AM CDT
Rating: Msg. 1097514 of 1097564
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Fryar Hearing Testimony
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1
1 CAUSE NUMBER 2011-47860
2
3 HARRIS COUNTY, TEXAS
4 PETITIONER 164th JUDICIAL DISTRICT
5
6
7
8
9 ******************************************* * *****
10 SEPTEMBER 30, 2011
11 *************************************************
12
13
14
15
16 On the 30th day of September, 2011, the
17 following proceedings came on to be heard in the
18 above-entitled and -numbered cause before the
19 Honorable Alexandra Smoots-Rogan, Judge Presiding,
20 held in Houston, Harris County, Texas.
21 Proceedings reported by Certified Shorthand
22 Reporter and Machine Shorthand/Computer-Aided
23 Transcription.

• 1
2 A P P E A R A N C E S
3
4 FOR THE PETITIONER:

FOR
Mr. F. Eric Fryar, SBN 07495770
Mr. Avneil J. Adler, SBN 24071933
FRYAR LAW FIRM, P.C.
1001 Texas Avenue, Suite 1400
Houston, Texas 77001
Telephone: [phone]
Facsimile: 281-715-6397
THE DEPOSITORY TRUST & CLEARING CORPORATION:
Mr. Edward B. Adams, Jr., SBN 00790200
Mr. Peter C. Tipps, SBN 24070748
FULBRIGHT & JAWORSKI, L.L.P.
Fulbright Tower
1301 McKinney, Suite 5100
Houston, Texas 77010
Telephone: [phone]
Facsimile: 713-651-5246

• 1 P R 0 C E E D I N G S
2 THE COURT: All right. We are on the
3 record in Cause Number 2011-47860;
4 and if I could have appearance for the record,
5 Counsel.
6 MR. FRYAR: Eric Fryar, Avneil Adler,
7 Fryar Law Firm, for Petitioner.
8 MR. ADAMS: Edward B. "Teddy" Adams and
9 Peter Tipps for DTCC, one of the respondents.
10 THE COURT: All right. And this is a
11 motion to compel depos prior to suit, correct?
12 MR. FRYAR: I guess for permission to
• 13 take depos prior to suit.
14 THE COURT: Okay. All right. You can
15 give me the background if you want. I've read it.
16 I -- I guess my -- my major question at this point
17 is: The depos you're seeking to get are those
18 dep -- are all of those depos out of county?
19 MR. FRYAR: Yes.
20 MR. ADLER: They're all out of state.
21 THE COURT: They're all out of state.
22 Do I -- that's -- this is going to be my first
23 question to you. Do I have authority to order depos
24 of witnesses that are out of state when we don't even
• 25 have a case pending?
4
• 1 MR. ADLER: Well -- so actually
2 Respondent somewhat addressed that in his objections.
3 THE COURT: I thought of it before he
4 came to his objection, so that's
5 MR. ADLER: Right.
6 THE COURT: That's why I'm asking the
7 question.
8 MR. ADLER: Right. Okay. We 11,
9 Rule 201 does allow us to take out-of-state
10 depositions in the case that there is an action or
11 proceeding in the state. Mr. Adams actually said an
12 action. In the beginning of Rule 201 it says • 13 proceeding in the state.
14 THE COURT: Okay.
15 MR. ADLER: You can certainly make the
16 argument that the Rule 202 petition is a proceeding
17 of some sort. It's an action. There's a cause
18 number. Actually, the case law Mr. Adams cites and
19 which just generally speaks about Rule 202 is about
20 I ' whether or not 1t's subject to removal for federal
21 diversity grounds.
22 So there really is no case law as far
23 as -- I mean, there is case law that discusses
24 Rule two -- as an ancillary proceeding, but there's
• 25 no case law on point as far as out-of-state

• 1 subpoenas, but I'd argue that it is a proceeding for
2 purposes of allowing letters rogatory.
3 MR. FRYAR: It -- it would seem to be
4 strange to set up to say we want to have in this
5 state a mechanism where people can take limited
6 discovery with the permission of the Court in order
7 to avoid unnecessary lawsuits and limit that to
8 discovery within the state unless, you know, it were
9 specifically stated in the rule --
10 THE COURT: Uh-huh.
11 MR. FRYAR: -- and it's not. The rule
12 allows us to have a proceeding, subject to permission
• 13 of the Court, to take limited discovery to determine
14 whether a cause of action exists and allows us to use
15 the rules of discovery to do that.
16 Rules of discovery clearly say -- I
17 mean, you can't order a deposition in New York, but
18 you issue letters rogatory, and we have to go follow
19 the New York procedure in order to secure a subpoena
20 there and get that.
21 THE COURT: Uh-huh.
22 MR. FRYAR: But, I mean, there is a
23 proceeding on file here. There is a cause number.
24 If you issue an order, then Rule 202 gives us the
• 25 right to go exercise, you know, whatever remedies

• 1 exist in New York, Florida, and California.
2 MR. ADLER: Right. Incidentally, we
3 also -- we styled the petition in a way that it's for
4 an anticipated suit. I actually looked into the case
5 law and -- or the -- rather, the statutes in
6 California and Florida, and they also have a similar
7 type of proceeding for obtaining testimony prior to a
8 lawsuit.
9 THE COURT: Okay. Response.
10 MR. ADAMS: Yes, Your Honor. And you
11 want to just talk about whether they can do this at
12 all? • 13 THE COURT: Yeah. I mean, if I don't
14 have legal authority to do it, then I'm not going to
15 do it whether you respond to it or not. I'm--
16 MR. ADAMS: Sure.
17 THE COURT: That's all I'm asking.
18 MR. ADAMS: We believe there is no
19 legal authority for out-of-state depositions. As the
20 Court knows, this is a very narrow area that allows
21 very limited, specific discovery. You don't get to
22 take discovery -- you don't get to do anything
23 besides take a deposition of someone in state.
24 As opposing counsel mentioned, there's
• 25 not a lot of case law on this, but that case law that

··-------------------------------
7
• 1 does exist talks about whether this is an action or
2 proceeding in the context of removal. You can remove
3 an action. So if there were truly an action, we
4 could've come down here and removed the case to
5 federal jurisdiction -- federal court of
6 jurisdiction -- existed.
7 The case that I looked at said "No.
8 You can't do that because this is not an action that
9 can be removed." And for the same reason it's not an
10 action letters rogatory rules of procedure that
11 allow you to, in this pre-suit context, reach over to
12 Florida or New York or California to take a
• 13 deposition of somebody who's a stranger to Texas.
14 But even if you could, Your Honor
15 THE COURT: Uh-huh.
16 MR. ADAMS: -- under that reason, you
17 shouldn't allow the deposition of Mr. Richards here
18 because although -- be talking about investigating a
19 claim, the motion they filed was for -- there are two
20 reasons you can take a deposition pre-suit, one, to
21 investigate a claim --
22 THE COURT: Uh-huh.
2 3 MR. ADAMS: and two, to prevent a
24 failure or delay of justice. At least as to
• 25 Mr. Richards, they went for the latter, and there is
-------- - - -------- ··-- ··-·-·· --- .
8
• 1 no evidence at all anywhere in the papers they filed
2 that taking Mr. Richards' deposition now would any
3 way prevent a failure or delay of justice. He's not
4 sick. He's not going away. If they think they have
5 a lawsuit, they can file it and then go through the
6 procedure, take his deposition if they need it, but
7 there's nothing in the record to indicate that he
8 needs to be deposed now. They could've filed a
9 different motion asking to -- to investigate a claim.
10 We'd have a different issue. They didn't do that.
11 THE COURT: And I thought I read in
12 these papers that this is not y'all's first rodeo,
• 13 that there's already some litigation previously
14 around this.
•
15 MR. ADAMS: Let me give you a little
16 bit of background about this.
17 THE COURT: Okay.
18 MR. FRYAR: Not us.
19 THE COURT: Not you, but there's some
20 previous was it in your response --
21 MR. ADAMS: It was, Your Honor.
22 THE COURT: that I read that? Okay.
23 MR. ADAMS: There's a company called
24 CKKM Diamonds [sic] .
25 THE COURT: Uh-huh.

•
•
9
1 MR. ADAMS: It's a penny stock. The
2 people that ran that company were bad actors, issued
3 billions of shares improperly. There was lawsuits in
4 Nevada by the SEC against the operators of that.
5 Everyone in there either agreed to a consent judgment
6 against them or had summary judgment found against
7 them. While that proceeding was going on, the
8 company was folded up. Through that -- there were
9 various doc exchanges between that company -- other
10 companies as part of the winding-up process.
11 Meanwhile, in California -- and these
12 were some of the documents that were attached to the
13 petition. Mr. Hodges, one of the lawyers, one of the
14 people they want to depose, filed a lawsuit, a
15 putative class action against all the commissioners
16 of the SEC, and their theory is that there is a
17 secret multi-trillion-dollar fund that was set up.
18 That case was dismissed on the
19 pleadings, and one of the things they want to do is
20 depose the lawyer. The DTCC -- and I'm sorry for
21 this background. This is a little complicated.
22 Back in the olden times, when you
2 3 bought a share of stock, you got a stock certificate.
24 They sent it to you in the mail . That doesn't happen
25 anymore. What happens now is the company called the

• 1 DTCC that we represent, The Depository Trust &
2 Clearing Corporation, collects all those stock
3 certificates for pretty much everybody in the
4 country, and they put them in a vault, and they keep
5 electronic records of "Teddy Adams has a thousand
6 shares of Exxon stock" and I have it through Smith
7 Barney. Smith Barney will have an account with the
8 DTC that says "We have 5 million shares," and if they
9 need more shares they'll buy them from Morgan Stanley
10 and they'll make a record on the books.
11 Along with the functions of
12 storing/keeping records of who owns -- which
• 13 brokerage houses own stock, the DTCC also will -- if
14 you're going to make a dividend payment, instead of
15 ExxonMobil having to pass it out to everybody,
16 they'll give it to the DTCC, which, in turn, will
17 say, "All right. Smith Barney has a thousand shares.
18 They get $500,000. Merrill Lynch has 5,000 shares.
19 They get $25,000." Then Merrill Lynch and Smith
20 Barney will allocate it to their people.
21 Mr. Richards, who they want to depose,
22 is somebody who works for the DTCC
23 THE COURT: Okay.
24 MR. ADAMS: -- and he is part of this
• 25 other lawsuit and part of this morass.

1 Someone called him and recorded a
2 conversation with Mr. Richards in which he says "I
3 don't know anything about this. I don't know what
4 you're talking about. I've never seen anything, nor
5 have I told anyone I've ever seen anything." So this
6 is some big fishing expedition trying to find
7 something that may lead to some lawsuit about a $2.8
8 trillion secret fund that may or may not exist.
9 MR. FRYAR: Let me
10 THE COURT: Okay.
11 MR. FRYAR: -- get
12 THE COURT: Yeah.
13 MR. FRYAR: -- real practical.
14 THE COURT: Okay.
15 MR. FRYAR: Okay? First of all, we're
16 representing shareholders okay? -- shareholders
17 who bought stock that wasn't even authorized stock
18 okay? -- who lost their money. They're victims; no
19 question. There was a lot of litigation involving
20 the people that perpetrated the fraud, none which
21 went to a judgment that actually benefited the
22 shareholders.
23 THE COURT: Okay.
24 MR. FRYAR: Okay? There are -- you
25 know, I' 11 just say there are rumors -- okay?
DONNA KING, CSR
164TH OFFICIAL REPORTER
[phone]
There
1 is -- I don't have any documentary evidence that
2 proves this, but there the shareholders had been
3 told by company insiders, some of whom are now d e ad,
4 that there were settlements done several years back
5 to set up funds for the benefit of the shareholders.
6 Mr. Hodges is one of the people we want
7 to depose. He instituted a lawsuit in California in
8 which he went -- you know, we got records of -- of
9 arguments before the Court in which he stated: I've
10 got evidence that this record that these trust
11 funds exist. DTCC is one of the owners of this.
12 Mr. -- who's the other guy?
13 MR. ADLER: Richards.
14 MR. FRYAR: -- Richards has been
15 contacted. The other guy' Fielding
16 MR. ADLER: Phillips.
17 MR. FRYAR: -- Phillips says he's
18 actually seen records that prove that this trust fund
19 exists and is where Mr. Hodges says.
20
21
22
2 3 wait, wait.
24
25
THE COURT: Okay.
MR. FRYAR: So we have contact
THE COURT: Is Phillips one -- wait,
Is Phillips
MR. FRYAR: Okay.
THE COURT: Is this Phillips person

somebody you wanted to depose?

2 MR. FRYAR: Yes. There were --
3 MR. ADLER: Yeah.
4 MR. FRYAR: -- three people we want to
5 depose, Richards, Phillips, and Hodges. Basically
6 we've been hired by a bunch of these shareholders,
7 who say "If there's money out there that belongs to
8 us, we want to find it and we want to assert our
9 rights to it. We want to be paid. If there's not
10 we want to know that too. " You know?
11 THE COURT: Uh-huh.
12 MR. FRYAR: So, I mean, this is a
13 situation in which I could file a lawsuit, which
14 would be very expensive, and go through motions
15 practice on information and belief based on these
16 representations that have been made to our clients.
17 We'd be doing it in good faith. They think the money
18 is there.
19 THE COURT: Okay.
20 MR. FRYAR: Okay? But what we want to
21 do is use this rule for exactly what it's designed
22 for, which is to say, you know, "DTCC, if we're
23 crazy" -- and some people have said Mr. Hodges is
24 crazy. "If this fund doesn't exist, why don't you go
25 under oath and tell our shareholders it doesn't exist
instead of file -- hiring Fulbright & Jaworski tot
2 come in and file a paper the day before the hearing
3 to say 'Don't -- we don't want to go under oath to
4 say whether you have -- we have your money or not.'"
5 THE COURT: Uh-huh.
6 MR. FRYAR: Okay? What we're tying --
7 trying to do is save resources, use the rule for what
8 it's designed for, and they're in here trying to
9 block our access to information. Well, all -- all
10 our people want to know is: Should we be suing
11 somebody? We don't want to file a lawsuit if there's
12 no basis. We've been told that we're crazy. We've
13 been told that this is a lie. We've also been told
14 that it's the truth. You know, "Attorney Fryar, can
15 you -- is there any way to find out for sure?" You
16 know? To which, my response is: There's Rule 2 0 2'
17 which allows us to take a deposition for exactly this
18 type of situation.
19 THE COURT: Right. But does it allow
20 you to take all of those dep -- it sounds like, from
21 the little bit you just told me, the main person you
22 need is this Phillips person, but --
23 MR. FRYAR: Well, Phillips and Hodges
24 definitely, and -- but, you know, what they're saying
2 5 is: We've seen the information -- we -- we have
• 1 information that it's at the DTCC. We've seen a
2 record that it's at the DTCC. They're not, like
3 they're not associated with the DTCC. They're -- all
4 they can give us is hearsay. Why not go to the
5 source? I mean, give us one guy who's going to say
6 "This is true" or "This is false" under oath.
7 MR. ADLER: If I may add, just as far
8 as the DTCC is concerned, the phone transcript that
9 Mr. Adams was referring to earlier -- that's actually
10 a call from the CEO of the company. The rumors were
11 so prevalent that the CEO of a company actually
12 called Mr. Richards, hosted a transcript on their
• 13 company Web site --
14 THE COURT: Uh-huh.
15 MR. ADLER: -- and com -- and put up a
16 report about -- aside from the actual conversation
17 about the substance of this conversation.
18 It was obviously a very prevalent
19 rumor, and there were several people -- we weren't
20 we weren't able to find those people that had spoken
21 directly to Mr. Richards. There were several people
22 that had said -- to that effect, that
23 THE COURT: Uh-huh.
24 MR. ADLER: -- you know •
25 THE COURT: All right. Frankly, I
1 don't think you're saving any money to take three
2 depositions, regardless. I'm still kind of
3 questioning whether or not I even have the authority
4 to order these depositions. I'm--
5 And this Phillips person is somebody
6 you represent as well?
7 MR. ADAMS: No, Your Honor. We
8 represent Morris --we represent DTC, who's Morris
9 Richards' employee [sic].
10 THE COURT: Okay.
11 MR. ADAMS: Hodges and Phillips -- I
12 don't know anything about them. They --
tt 13 THE COURT: Yeah.
14 MR. ADAMS: They're on their own.
15 I think we I'd like to just re-focus
16 for a little bit. First of all, Rule 202 -- there's
17 got to be some standard. It can't just be based on
18 rumors and hopes and dreams. The transcript that was
19 posted was unequivocal. He said he didn't know
20 anything about this, but we're getting a little bit
21 a -- far -- far afield because they asked to take a
22 deposition not to investigate a claim as to
23 Mr. Richards, but to prevent a failure or delay of
24 justice, a situation if somebody is sick, dying,

1 THE COURT: Yeah. I mean, if that's
2 the reason -- that seems like the wrong reason. I'll
3 tell you that right now. If that's what you've
4 alleged, that's the absolute wrong reason because we
5 haven't even talked about that.
6 MR. FRYAR: Well, we don't want to sue
7 Mr. Richards individually, but he's a witness in a
8 lawsuit -- if this -- if the fund exists --
9 THE COURT: Uh-huh.
10 MR. FRYAR: -- our people have a
11 lawsuit to assert their interest in the fund.
12 THE COURT: I understand
tt 13 MR. FRYAR: Right.
14 THE COURT: exactly what you're
15 saying, but if the basis for your wanting a
16 deposition prior to suit is just because you want to
17 avoid him dying on you or something like that
18 that's not what we've discussed. What we've
19 discussed is investigating a claim.
20 If that's your basis, it sounds like
21 that should have been part of the original motion.
22 MR. FRYAR: I think we alleged that in
23 the alternative. Didn't we?
24 MR. ADLER: Well, the rule actually
25 says to perpetuate or obtain testimony, and I don't

1 think that whether Mr. Richards --
•
•
2 THE COURT: Do you have a copy of your
3 motion?
4 MR. ADLER: Yes.
5 THE COURT: Make my life easy. If all
6 it says is that you want to prevent it because he's
7 dying or he's got some other calamity, then it's
8 going to be denied. You're not barred from re-filing
9 it with the correct claim, but -- or you might just
10 save yourself some money, just file this thing.
11 MR. ADLER: Here's the paragraph that
12 talks about Richards' testimony .
13 THE COURT: Yeah. You got "may prevent
14 further delay." You --
15 MR. ADLER: I don't -- I don't think
16 the situation of whether or not he might die is
17 necessarily an only circumstance where --might
18 prevent a delay of justice.
19 THE COURT: And I think we're saying
20 the same things. The problem is that's not what --
21 you -- you alleged it as just trying to prevent delay
22 instead of alleging trying to prevent delay or --
23 and/or investigating the claim.
24 So, you know, if that's all you've got,
25 I'm going to deny as to Richards. Let me see

• 1 Phillips. It sounds like you just need this Phillips
2 person. I will tell you that.
3 MR. FRYAR: Well -- and Hodges is the
4 attorney who says that he has this evidence, and his
5 lawsuit was dismissed before it got to discovery or
6 anything on the merits, so we want to -- and he's
7 also a shareholder, so we want to find out what he's
8 got.
9 THE COURT: Okay. I'll let you depose
10 Hodges and Phillips. You're not deposing Richards.
11 Give me an order. There you go.
12 MR. ADAMS: Thank you, Your Honor. May
• 13 we be excused?
•
14 THE COURT: Yes. You're excused.
15 Do you have an order for me, or do you
16 want to submit one?
17 MR. ADLER: I have one here.
18 THE COURT: If you want to doctor it
19 and submit it to me, that's fine.
20 MR. ADLER: I have -- if you want to
21 just change the -- put the relevant names --
22 THE COURT: There. You fill in their
23 names so that I don't misspell them and then hand it
24 back to me .
25 MR. ADLER: Sure. Sure.

• 1 THE COURT: I'll sign it. Okay?
2 MR. ADAMS: May we submit an order as
3 to Richards?
4 THE COURT: Yes. Submit an order as to
5 Richards, and I'll sign off on it.
6 MR. ADAMS: Thank you.
7 THE COURT: Okay? Thank you. Have a
8 good weekend.
9 (End of proceedings.)

1 THE STATE OF TEXAS
2 COUNTY OF HARRIS
3
4 I, Donna King, Official Court Reporter in
and for the 164th Judicial District Court of Harris
5 County, Texas, do hereby certify that the above and
foregoing contains a true and correct transcription
6 of all portions of evidence and other proceedings
requested in writing by counsel for the parties to be
7 included in this volume of the Reporter's Record in
the above-styled and -numbered cause, all of which
8 occurred in open court or in chambers and were
reported by me.
9
10 I further certify that this Reporter's
Record of the proceedings truly and correctly
11 reflects the exhibits , if any, admitted by the
respective parties.
12
13 I further certify that the total cost for
the preparation of this Reporter's Record is
14 $ and was paid/will be paid by
15
16 WITNESS MY OFFICIAL HAND this, the 13th day
of October, 2011.
17
18
19
20
21
22
23
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~--l{l-;~--------- DONNA KING, Texas CS 6273
Expiration Date: 12/ 1/12
Official Court Reporter
164th Judicial District Court
Harris County, Texas
201 Caroline, 12th Floor
Houston, Texas 77002
[phone]
• 25
DONNA KING, CSR
164TH OFFICIAL REPORTER
[phone]

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