Miller et al v. MP Global Products, LLC et al
ORDER denying 68 Motion for Protective Order as set out. Signed by Magistrate Judge Katherine P. Nelson on 3/17/2014. (cmj)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ALABAMA
DRAYTON G. MILLER and MILLER
MP GLOBAL PRODUCTS, LLC and
CHAD A. COLLISON,
Civil Action No. 12-00747-KD-N
Before the Court is Defendant MP Global Products, LLC’s motion for a
protective order (Doc. 68) (the “MPO”), filed February 10, 2014, seeking to prevent
the plaintiffs from serving a Rule 45 subpoena duces tecum on MP Global’s accounts,
Sehi & Associates, P.C. The MPO, which has been referred to the undersigned
United States Magistrate Judge pursuant to 28 U.S.C. § 636(b)(1)(A) and Local Rule
72.2(c)(1), is now ripe, the plaintiffs’ having responded (see Doc. 72) and MP Global
having filed a reply (Doc. 76).
After a review of the pleadings, and for the reasons
stated below, the MPO is DENIED.
Applicable Background and Legal Standards
The MPO is essentially MP Global’s attempt to prevent the plaintiffs from
serving on its outside accounting firm a document subpoena seeking: “All year-end
financial statements, federal and state income tax returns, profit and loss
statements and general ledgers with respect to MP Global Products, LLC and any of
its subsidiaries, parent corporations, or related entities from 2009 until the present
date” (the “tax records”). (See Doc. 69-1 at 5-9.)
“To be sure, Rule 26(c) confers broad discretion on the trial court to decide
when a protective order is appropriate and what degree of protection is required[,]”
Seattle Times Co. v. Rhinehart, 467 U.S. 20, 36 (1984), including “forbidding [ ]
disclosure or discovery” and “requiring that . . . confidential . . . commercial
information not be revealed[,]” FED. R. CIV. P. 26(c)(1)(A), (G).
The threshold for relevancy—the same whether under Rule 26
or Rule 45—is indeed low, and the inquiry turns on the
complaint and defenses raised thereto.
This Court “has broad discretion to ensure that parties ‘obtain discovery
regarding any matter, not privileged, that is relevant to any party’s claim or
defense,’” and “[f]or good cause, . . . may order discovery of any matter relevant to the
subject matter involved in the action.’”
Hope For Families & Cmty. Serv., Inc. v.
Warren, No. 3:06-CV-1113-WKW, 2009 WL 174970, at *3 (M.D. Ala. Jan. 26, 2009)
(quoting FED. R. CIV. P. 26(b)(1)). Importantly,
“[r]elevant information need not be admissible at the trial if the
discovery appears reasonably calculated to lead to the discovery of
admissible evidence.” [FED. R. CIV. P. 26(b)(1).] “[I]f there is an
objection that the discovery goes beyond material relevant to the
parties’ claims or defenses, the Court . . . become[s] involved to
determine whether the discovery is relevant to the claims or
defenses[.]” FED. R. CIV. P. 26(b)(1), advisory committee’s note (2000
Amendment). If it is not, the court must [then] determine “whether
good cause exists for authorizing it so long as it is relevant to the
subject matter of the action. The good-cause standard warranting
broader discovery is meant to be flexible.” Id.
Id.; see also id. (“Rule 26(b)(1) is ‘highly flexible,’ United States v. Microsoft Corp.,
165 F.3d 952, 959-60 (D.C. Cir. 1999), and, as a whole, the federal discovery rules are
to be construed broadly and liberally, Herbert v. Lando, 441 U.S. 153, 177 (1979).”).
Rule 26, quite simply, “sets forth a very low threshold for relevancy,” and
“[t]hus, the court is inclined to err in favor of discovery rather than against it.”
Kipperman v. Onex Corp., Civil Action No. 1:05-CV-1242-JOF, 2008 WL 1902227, at
*10 (N.D. Ga. Apr. 25, 2008); accord United States v. Tinoco, 304 F.3d 1088, 1120
(11th Cir. 2002) (“The standard for what constitutes relevant evidence is a low
one.”); In re Enron Corp. Sec., Derivative & ERISA Litig., Civil Action No. H–01–
3624, 2009 WL 3247432, at *1 (S.D. Tex. Sept. 29, 2009) (“A request for discovery
should be considered relevant if there is any possibility that the information sought
may be relevant to the subject matter of the action.” (quoting In re Folding Carton
Antitrust Litig., 83 F.R.D. 251, 254 (N.D. Ill. 1978) (emphasis added))); but see
Herbert, 441 U.S. at 177 (“While the deposition-discovery rules are to be accorded a
broad and liberal treatment to effect their purpose of adequately informing the
litigants in civil trials, they are also subject to the injunction of Rule 1 that they be
construed to secure the just, speedy, and inexpensive determination of every
action.” (citations and internal quotation marks omitted and emphasis in original)).
“To determine the relevancy of the information sought [through discovery],
the court takes note of the facts set forth in the complaint.”
Washington State Dep’t of Corr., No. C10–0363 RBL/KLS, 2011 WL 1771063, at *1
(W.D. Wash. May 9, 2011) (emphasis added).
Further, despite MP Global’s
argument otherwise (see Doc. 69 at 2 (citing a Nevada district court decision that, in
turn, discussed the standard in not this, but the Ninth Circuit)), “[i]t is well settled
that the scope of discovery under a Rule 45 subpoena is the same as that permitted
under Rule 26.”
Hernandez v. Hendrix Produce, Inc., No. CV613–053, 2014 WL
953503, at *1 n.3 (S.D. Ga. Mar. 10, 2014) (quoting Ross v. Livingston, No. 5:11–CV–
474 (CAR), 2012 WL 4862827, at *1 n.3 (M.D. Ga. Oct. 12, 2012)) (other citations
In this Circuit, a party need not show a compelling need before
tax information may be obtained.
The parties disagree as to the applicable showing the plaintiffs must make in
order to obtain tax records from MP Global’s outside accounts.
While the plaintiffs
contend that mere relevance is the required showing, MP Global insists that the test
“When tax returns are sought, courts use a two-prong test to
determine ‘whether (1) the tax return is relevant to the subject matter in dispute;
and (2) a compelling need exists for the return, because the information sought is not
obtainable from other sources.’”
(Doc. 69 at 3 (quoting Terwilliger v. York Int’l
Corp., 176 F.R.D. 214, 217 (W.D. Va. 1997).)
Which approach this Court should
Both Georgia district court decisions also cite to § 2459 of Wright & Miller.
The third edition of that treatise provides:
The 1970 amendment of [Rule 45] deleted the former requirement that
things subject to a subpoena duces tecum must be “evidence.” These changes,
the Advisory Committee said in its Note to what was then Rule 45(d)(1),
“make it clear that the scope of discovery through a subpoena is the same as
that applicable to Rule 34 and the other discovery rules.”
9A CHARLES ALAN WRIGHT, ARTHUR R. MILLER et al., FEDERAL PRACTICE AND PROCEDURE §
2459 (3d ed.).
apply turns in large part on the impact of the only published Eleventh Circuit
decision to address the issue. In Maddow v. Procter & Gamble Co., Inc., 107 F.3d
846 (11th Cir. 1997), the Eleventh Circuit affirmed the district court’s decision to
compel discovery of tax records, finding it “was not an abuse of discretion” and also
found that the tax records were “arguably relevant to the case.” Id. at 853. The
Eleventh Circuit, however, reversed, the district court’s sanction of attorney’s fees,
because it found, applicably, “the plaintiffs were substantially justified in refusing
discovery [by their reliance] on out-of-circuit district court caselaw, where there was
no in-circuit caselaw, regarding the tax form issue.”
Id. at 853, 854 (citing Lemanik
v. McKinley Allsopp, Inc., 125 F.R.D. 602, 609 (S.D.N.Y. 1989) (finding the public
policy of confidentiality of tax returns required a party seeking such returns to both
establish relevancy and a compelling need for the returns—that is, that the
information is not otherwise obtainable); Biliske v. American Live Stock Inc., 73
F.R.D. 124, 126 n.1 (W.D. Okla. 1977) (finding public policy was against unnecessary
disclosure of tax returns)).
Importantly, the Eleventh Circuit, in Maddow, recognized, but did not adopt
the two-pronged test, as noted in Lemanik. Instead, the Eleventh Circuit merely
acknowledged that there was not controlling case law in this Circuit at the time the
plaintiffs there refused to answer the discovery.
See, e.g., United States v. Certain
Real Property known as and Located at 6469 Polo Pointe Way, Delray Beach, Fla.,
444 F. Supp. 2d 1258, 1262-64 (S.D. Fla. 2006) (granting motion to compel tax
records once relevance established, after noting (1) the split among all federal courts
“as to whether tax returns are entitled to enhanced protection”; (2) that “[m]ost
courts . . . hold that a party seeking disclosure of tax returns must show some
compelling need in addition to relevance because tax returns are either privileged or
public policy restricts their disclosure”2; (3) and that, “[d]espite” this, “the Eleventh
Circuit declined[, in Maddow,] to adopt such a position[,]” after it “recognized [some]
cases requiring a compelling need” (collecting cases)).
More than a decade after Maddow, in an unreported decision, the Eleventh
Circuit affirmed its “arguably relevant” position: “in civil cases, we have not required
This “privilege” is best understood not as a bar to disclosure, but as a public
policy-based concern for confidentiality. See, e.g., Columbus Drywall & Insulation, Inc. v.
Masco Corp., Civil Action No. 1:04-CV-3066-JEC, 2006 WL 5157686, at *7 (N.D. Ga. May 31,
2006) (“With respect to the disclosure of tax returns and other personal financial
information, this court has stated, ‘most courts do not recognize the existence of privilege
against disclosure [of tax returns], but rather recognize a general federal policy limiting
disclosure to appropriate circumstances.’ In general, most courts have noted that public
policy concerns favor keeping tax returns confidential when possible . . . .” (quoting Beller v.
Credit Alliance Corp., 106 F.R.D. 557, 559 (N.D. Ga. 1985) (in turn quoting Elgin Fed. Credit
Union v. Cantor, Fitzgerald Sec. Corp., 91 F.R.D. 414, 416 (N.D. Ga. 1981)))); cf. Barrington
v. Mortgage IT, Inc., No. 07-61304-CIV, 2007 WL 4370647, at *1 n.3 (S.D. Fla. Dec. 10, 2007)
(“[I]t is well settled that confidentiality does not act as a bar to discovery and is generally not
grounds to withhold documents from discovery.” (citation omitted)).
In this litigation, a stipulated protective order—providing two tiers of protection for
information deemed confidential—is already in place (Doc. 55; see also Doc. 46). That order
provides the option to designate as “attorney’s eyes only” materials considered to be
“confidential and sensitive things of a business nature which would be of value to a potential
competitor of the party holding the proprietary rights thereto[.]” (Doc. 55 at 3.) Thus, the
undersigned is not concerned that, if found relevant, MP Global has no means to protect the
dissemination of its tax records to business competitors, including the plaintiffs. Cf. Coach,
Inc. v. Visitors Flea Market, LLC, No. 6:11–cv–1905–Orl–19TBS, 2013 WL 5770598, at *2
(M.D. Fla. Oct. 24, 2013) (noting, “even courts which hold that relevancy is the sole issue
have taken steps to protect the confidentiality of tax returns”; compelling production of the
tax returns to the party’s counsel; and ordering, “[u]ntil the issue of confidentiality is
resolved, counsel for Coach shall not reveal the information contained in the tax returns”
a showing of compelling need before tax information may be obtained by a party in
discovery, but instead have determined that such information need be only arguably
Erenstein v. S.E.C., 316 Fed. App’x 865, 869-70 (11th Cir. Sept. 16, 2008)
(per curiam) (citing Maddow, 107 F.3d at 853).3
Erenstein, which affirms that, as to
discovery of tax records, relevancy is the sole consideration in this Circuit, has,
moreover, been cited for that proposition by district courts within this Circuit.
e.g., Walker v. Americare Radiographics, Inc., No. 10–60340–CIV, 2010 WL 5437254,
at *6 (S.D. Fla. Dec. 27, 2010) (“As to Request 5, the undersigned concludes that
Defendants’ tax records must be produced.
First, the tax records sought by
Defendant fit within the broad definition of relevance under [Rule] 26, which
provides that a party is entitled to discovery of information that “appears reasonably
calculated to lead to the discovery of admissible evidence.”
documents may be admissible or may well lead to the discovery of admissible
evidence.” (citations omitted)); accord Soliday v. 7-Eleven, Inc., No. 2:09–cv–807–
FtM–29SPC, 2010 WL 4537903, at *1-2 (M.D. Fla. Nov. 3, 2010); but see Coach, Inc.
v. Visitors Flea Market, LLC, No. 6:11–cv–1905–Orl–19TBS, 2013 WL 5770598, at
*2-3 (M.D. Fla. Oct. 24, 2013) (acknowledging Maddow, but not Erenstein, after
noting that “[t]he Eleventh Circuit has not explicitly addressed the issue or
MP Global did not cite to Maddow in its MPO. The plaintiffs, through their
opposition, did, however. And MP Global responded, in its reply, by attempting to
distinguish Maddow through a discussion of the minority of reported district court decisions
within this Circuit that have required a showing of compelling need. Notably, however,
neither side provided this Court with Erenstein.
recognized a special privilege for tax records[,]” and then ordering production of tax
returns as relevant).
The plaintiffs’ request for tax records here is, at a minimum, relevant to their
prayers for punitive damages (in Counts I, II, IV, and VII of their complaint).
[i]n most cases, financial discovery is not appropriate until after
Information about the financial status of a putative defendant
would be interesting to any person or agency considering a civil
suit for damages. Under most circumstances, however, a
private plaintiff may not discover an opponent’s assets until
after a judgment against the opponent has been rendered. [ ]
[Defendant’s] financial status, like the financial status of most
putative defendants, is not relevant to any issue that will be
raised in the contemplated lawsuit.
When punitive damages are sought, however, a defendant’s financial
condition becomes relevant.
Soliday, 2010 WL 4537903, at *2 (quoting FTC v. Turner, 609 F.2d 743, 745 (5th Cir.
1980) (citation omitted)).4
MP Global argues, however, that the Court should impose an additional
barrier to the plaintiffs’ ability to obtain discovery relevant to their claims for
punitive damages: “MP Global submits that the Court should adopt the standard for
discovery of financial information solely based on a claim for punitive damages set
forth in Ex parte Mark Hsu, M.D., 707 So. 2d 223 (Ala. 1997).”
(Doc. 76 at 5.)
All decisions of the former Fifth Circuit issued before October 1, 1981 are
binding precedent in this Circuit. See Bonner v. City of Prichard, 661 F.2d 1206, 1209
(11th Cir. 1981) (en banc).
characterized by MP Global,
[t]here, the Alabama Supreme Court held that the defendants could not
be required to disclose financial information prior to the return of
verdict against them which awarded punitive damages. Id. at 225-26.
It went on to state that evidence of a defendant’s net wealth is highly
prejudicial and therefore inadmissible during trial but is considered
relevant and admissible in post-verdict hearing before trial judge on
alleged excessiveness of punitive damages award. Id.
Applied to this case, MP Global’s proposal presents several problems.
First, claims for punitive damages are not the “sole” basis for finding that the
tax records being sought are relevant. As the plaintiffs contend—a contention that
MP Global fails to directly challenge—Count VII of their complaint seeks “a full and
complete accounting of all business activities conducted by [MP Global] and Chad A.
Collison from January 2009 through the present date.”5
(Doc. 72 at 5.)6
The plaintiffs tie their accounting claim to the affidavit of Denise Dauphin,
who contends that the tax records are relevant and necessary to her analysis. While MP
Global does challenge Ms. Dauphin’s affidavit, it does not challenge the plaintiffs’
contention that the tax records are relevant to a claim in their complaint (actually, two
claims—they also specifically claim that the tax records are relevant to their claim for
unjust enrichment (Count V) (see Doc. 72 at 6)). Contra Pablo v. ServiceMaster Global
Holdings, Inc., Nos. C 08-03894 SI, C 10-00628 SI, 2010 WL 5022564, at *3 (N.D. Cal. Dec.
3, 2010) (denying motion to compel “[b]ecause the request for production is not relevant to
any claim that has actually been alleged in a complaint, is not relevant to a defense, and is
not reasonably calculated to lead to the discovery of admissible evidence”); Hughes v.
LaSalle Bank, N.A., No. 02Civ.6384MBMHBP, 2004 WL 414828 (S.D.N.Y. Mar. 4, 2004) (“A
litigant may not use discovery to determine whether there is a cause of action. The
purpose of discovery is to find out additional facts about a well-pleaded claim, not to find out
whether such a claim exists.”) (citation omitted).
Additionally, the final count of the complaint is for trademark infringement
and made pursuant to the Lanham Act. 15 U.S.C. § 1117, cited in the plaintiffs’ complaint,
provides for the recovery of damages for trademark infringement, and § 1117(c) allows for
statutory damages for the use of counterfeit marks. Where applicable, a plaintiff may, of
course, “elect, at any time before final judgment is rendered by the trial court, to
Second, MP Global’s proposal violates Erie. Although MP Global does not
explicitly invoke the Alabama statute, by citing Ex parte Mark Hsu, M.D., it appears
MP Global is advocating that this Court apply Ala. Code § 6-11-23(b) (evidence of a
defendant’s wealth “shall not be subject to discovery, unless otherwise discoverable,
until after a verdict for punitive damages has been rendered” (cited at 707 So. 2d at
225-26)). A Florida statute similarly restricts discovery of financial worth. See
Gottwald v. Producers Grp. I, LLC, No. 12–81297–CIV, 2013 WL 1776154, at *2
(S.D. Fla. Apr. 25, 2013) (“Florida law prohibits financial discovery until after a
plaintiff has made a reasonable showing that he is entitled to punitive damages.”
(discussing FLA. STAT. § 768.72(1) ( “. . . no claims for punitive damages shall be
permitted unless there is a reasonable showing by evidence in the record or proffered
by the claimant which would provide a reasonable basis for recovery of such
damages[,]” allowing leave to amend “to assert a claim for punitive damages[,]” and
providing that “[n]o discovery of financial worth shall proceed until after the
pleading concerning punitive damages is permitted”))). While the Eleventh Circuit
recover, instead of actual damages and profits under [§ 1117(a)], an award of statutory
damages . . . .” 15 U.S.C. § 1117(a) (emphasis added); see also Games Workshop Ltd. v.
Beal, No. 04–0013–CV–W–FJG, 2006 WL 6924046, at *2 (W.D. Mo. Apr. 21, 2006)
(“[S]tatutory damages under 15 U.S.C. § 1117(c) are designed to compensate the trademark
owner and punish the counterfeiter: ‘[t]he option to select statutory damages in
counterfeiting cases ensures that trademark owners are adequately compensated and that
counterfeiters are justly punished, even in cases where the plaintiff is unable to prove
actual damages because, for example, the defendant engages in deceptive record-keeping.’”
(quoting Senate Section-by-Section Analysis, CONG. REC. S12084 (Aug. 9, 1995), reprinted
in 50 P.T.C.J. 425 (Aug. 17, 1995))). And, as district courts in this Circuit have noted, “a
defendant’s tax returns are relevant when the plaintiff asks for statutory damages” in an
infringement case. Visitors Flea Market, LLC, 2013 WL 5770598, at *2 (collecting cases)).
has yet to address whether Section 768.72’s discovery limitations apply in federal
in Cohen v. Office Depot, Inc., 184 F.3d 1292 (11th Cir. 1999), vacated in
part on other grounds, 204 F.3d 1069 (11th Cir. 2000), [it] held that
Section 768.72’s requirement that a plaintiff seek leave of court before
pleading punitive damages is inapplicable in federal court. 184 F.3d
at 1299. . . . [I]n Cohen, [moreover,] the court provided an explicit
roadmap to lower courts on how to deal with similar conflicts between
state law and federal procedural rules:
Under Hanna v. Plumer, 380 U.S. 460 (1965), the proper
question to ask is not whether the state law provision is
procedural or substantive; instead, the court must ask whether
the state law provision conflicts with a federal procedural rule.
If it does, the federal procedural rule applies and the state
provision does not. Stated another way, if the state law
conflicts with a federal procedural rule, then the state law is
procedural for Erie / Hanna purposes regardless of how it may
be characterized for other purposes.
The only exception is where the advisory committee, the
Supreme Court, and Congress have collectively erred and
adopted a federal procedural rule that is either unconstitutional
or should not have been adopted under the Rules Enabling Act
process because it is a matter of substantive law.
Cohen, 184 F.3d at 1296-97. See also Blount v. Sterling Healthcare
Grp., 934 F. Supp. 1365, 1373–74 (S.D. Fla. 1996). Here, the federal
procedural rule that governs discovery is Federal Rule of Civil
Procedure 26, which has been interpreted to “encompass any matter
that bears on, or that reasonably could lead to other matter that could
bear on, any issue that is or may be in the case.” Oppenheimer Fund,
Inc. v. Sanders, 437 U.S. 340, 351 (1978) (citing Hickman v. Taylor, 329
U.S. 495, 501 (1947)). The Court of Appeals has upheld the discovery
of tax information where it is “arguably relevant” to the claims at issue.
Erenstein, 316 Fed. App’x at 869-70 (citing Maddow, 107 F.3d at 853).
Moreover, it is clear that financial worth is relevant to a claim of
punitive damages. See EEOC v. DiMare Ruskin, Inc., No. 2:11–cv–
158–FtM–36SPC, at *3-4 (M.D. Fla. Aug. 24, 2011); Soliday, 2010 WL
4537903, at *2 . . . .
Under the Cohen analysis, it is clear that Section 768.72’s restriction on
financial worth discovery conflicts with Rule 26’s mandate of a broad
and liberal discovery regime. The discovery provision must therefore
be interpreted as procedural, rather than substantive, for Erie
Moreover, there is no indication that Rule 26 is
unconstitutional or violates the Rules Enabling Act. Accordingly, in
federal actions, even those based upon state substantive law, Section
768.72’s discovery provision must yield.
Gottwald, 2013 WL 1776154, at *2-3 (some citations modified); accord Ward v.
Estaleiro Itaji S/A, 541 F. Supp. 2d 1344 (S.D. Fla. 2008); see also Gottwald, 2013
WL 1776154, at *3 (“Because Gottwald has pressed a claim for punitive damages,
evidence of the defendants' financial worth is relevant to his claim.
He is therefore
entitled to discovery of their tax returns. . . .”).
In this case, § 6-11-23(b) must similarly yield to Rule 26.7
As explained at length, relevancy is the sole applicable inquiry.
plaintiffs have proven that the tax records are relevant for several reasons. As
such, they are discoverable. That said, the undersigned does not take lightly public
policy that favors keeping tax records confidential. To that end, the court-adopted
It should be noted, however, that the Northern District of Alabama has
specifically considered, and applied, § 6-11-23 to postpone the discovery of a defendant’s
financial worth “until all questions of liability have been determined.” Wilson v. Gillis
Advertising Co., 145 F.R.D. 578, 582 (N.D. Ala. 1993). But, obviously, that court did not
have the benefit of Cohen, and the undersigned questions whether that court would reach
the same result today after considering Cohen. Moreover, even if application of § 6-11-23
did not violate Erie, it would not apply here because Alabama’s statutory prohibition
against discovering evidence of a defendant’s wealth “until after a verdict for punitive
damages has been rendered” applies only to information that is not “otherwise
discoverable.” Here, the tax records are “otherwise discoverable”—they are relevant to
claims in the complaint and, if so elected, statutory damages under the Lanham Act.
protective order, which allows for the production of those records under the
designation “attorney’s eyes only,” should provide the requisite protection against
dissemination to its competitors information MP Global rightly believes is business
Thus, for all the reasons stated above, the MP Global’s MPO (Doc. 68) is due to
be and hereby is DENIED.
DONE and ORDERED this the 17th day of March, 2014.
/s/ Katherine P. Nelson
KATHERINE P. NELSON
UNITED STATES MAGISTRATE JUDGE
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