Compass North Industries LLC v. Taylor et al

Filing 65

ORDER denying 53 Motion to Quash Subpoena Issued to Non-Party Thoroughbred Houseboats. Signed by Judge G Murray Snow on 6/19/2014.(ALS)

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WO

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Compass North Industries LLC,

No. CV-14-00034-PHX-GMS

Plaintiff,

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ORDER

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v.

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David B. Taylor; Tiffini Taylor; Bravada
Yacht Sales Incorporated; Unlimited Boat
Sales Incorporated; Unlimited Houseboat
Services Incorporated; Taylor Yachts
Incorporated; Chad Orth; Coleen Orth,

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Defendants.
Unlimited Boat Sales Incorporated, et al.,

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Counterclaimants,

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v.

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Compass North Industries LLC, Steven
James Goettl, Tracey Goettl,

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Counterdefendants.
Pending before the Court is the Motion to Quash Subpoena Issued to Non-Party
Thoroughbred Houseboats, (Doc 53), by the Taylor Defendants/Counterclaimants.
BACKGROUND

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Defendant David Taylor and Counter Defendant James Goettl once intended to

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work together in the manufacture and sale of house boats under the name and trademark

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BRAVADA. Now, they and the companies and individuals with whom they are currently

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working are litigating various claims against each other based on the fallout from that

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relationship.

These

claims

include

alleged

violations

of

the

Lanham

Act,

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misappropriation of trademarks and trade secrets, and breach of covenants and duties.

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(Docs. 39, 47, 48.)

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The parties held a Rule 26(f) discovery conference on March 28, 2014. During

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that meeting, Plaintiff Compass North Industries, LLC (“CNI”) informed Defendants that

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they intended to pursue discovery from non-party Thoroughbred Houseboats

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(“Thoroughbred”). In fact, CNI had already issued and served a subpoena on

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Thoroughbred the day before, on March 27.

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Defendants filed a Motion to Quash Subpoena arguing that the subpoena was

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served prematurely and without notice. (Doc. 53.) Defendants further argue that it creates

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an undue burden, relates to trade secrets and proprietary business records, and a

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protective order has not yet been entered to cover such disclosure. (Id.)
DISCUSSION

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I.

Legal Standard

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“Unless otherwise limited by court order, . . . [p]arties may obtain discovery

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regarding any nonprivileged matter that is relevant to any party’s claim or defense . . . .“

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Fed. R. Civ. P. 26(b)(1). Generally, the purpose of discovery is to remove surprise from

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trial preparation so the parties can obtain evidence necessary to evaluate and resolve their

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dispute. Oakes v. Halvorsen Marine Ltd., 179 F.R.D. 281, 283 (C.D. Cal. 1998). Toward

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this end, Rule 26(b) is liberally interpreted to permit wide-ranging discovery of

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information even though the information may not be admissible at the trial. Jones v.

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Commander, Kansas Army Ammunitions Plant, 147 F.R.D. 248, 250 (D. Kan. 1993).

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As a general principle, however, “[a] party may not seek discovery from any

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source before the parties have conferred as required by Rule 26(f).” Fed. R. Civ. P.

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26(d)(1). Additionally, “[i]f the subpoena commands the production of documents,

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electronically stored information, or tangible things . . . , then before it is served on the

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person to whom it is directed, a notice and a copy of the subpoena must be served on

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each party.” Fed. R. Civ. P. 45(a)(4).

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To obtain discovery, a party may, through the clerk of the appropriate district,

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issue a subpoena pursuant to Rule 45. Rule 45 also provides circumstances in which a

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court must or may quash or modify a subpoena. The Court must do so if the subpoena

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“(iii) requires disclosure of privileged or other protected matter, if no exception or waiver

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applies; or (iv) subjects a person to undue burden.” Fed. R. Civ. P. 45(d)(3)(A)(iii)–(iv).

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A court may do so “if it requires: (i) disclosing a trade secret or other confidential

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research, development, or commercial information.” Fed. R. Civ. P. 45(d)(3)(B). The

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party seeking to have a subpoena quashed bears the burden of persuasion under Rule

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45(d)(3). Travelers Indem. Co. v. Metro. Life Ins. Co., 228 F.R.D. 111, 113 (D. Conn.

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2005).

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II.

Analysis

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A.

Procedural Grounds

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Defendants first ask that the Court quash the subpoena because CNI issued it

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before the Rule 26(f) conference and without serving Defendants either notice or a copy

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of the subpoena. CNI concedes that its subpoena was premature but argues that this

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procedural violation was already addressed between the parties when it voluntarily gave

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an extension of the deadline to object or respond to the subpoena. Although in their first

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motion Defendants argue that this mistake alone should merit dismissal because “is not a

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minor technical violation of the rule in this case” (Doc. 53 at 4), in the reply they

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acknowledge that CNI attempted to remediate the problem and they argue that these

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violations “are factors which the Court can, and should, take into consideration when

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evaluating whether to quash the Subpoena.” (Doc. 59 at 10).

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Here, CNI notified Defendants about their intent to issue a subpoena one day after

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service rather than before. CNI insists that it did not realize the subpoena would be served

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so quickly. It acknowledged its mistake and made an accommodation that placed

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Defendants in the same position they would have been in had the subpoena been served

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one day later. Any harm caused by this violation was remediated by the extended

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deadline and there is no purpose for this Court to quash the subpoena months after it was

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issued when it was only one day premature.

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B.

Undue Burden, Expense, or Inconvenience

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Defendants argue that the subpoena places an undue burden on the third party,

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Thoroughbred, and that the information can be more appropriately obtained directly from

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Defendants. However, the objection letter from Thoroughbred does not argue that the

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disclosure is unduly burdensome. (Doc. 56-1 Ex. F.) Defendants argue that it is unduly

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burdensome to require a third party to produce documents when they can be obtained

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from the party defendants, but in the case they cite the magistrate judge also relied on the

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fact that over ten years’ of records were sought. See Moon v. SCP Pool Corp., 232

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F.R.D. 633, 638 (C.D. Cal. 2005). The other cases cited by Defendants only establish that

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courts may restrict discovery from third parties, not that a court must do so. See Dart

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Indus. Co., Inc. v. Westwood Chem. Co., Inc., 649 F.2d 646, 649 (9th Cir. 1980) (noting

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only that “restriction may be broader when a nonparty is the target of discovery”);

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Haworth, Inc. v. Herman Miller, Inc., 998 F.2d 975, 978 (Fed. Cir. 1993) (holding that is

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was not error for the court to defer discovery from a third party in an ancillary

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proceeding).

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Here, the subpoena seeks only two years of documents, not over ten. Defendants

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have not demonstrated or even argued that a large number of such luxury houseboats,

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apparently retailing at over a million dollars, were produced during this time. The

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possibility that some of the documents sought are also available from Defendants does

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not make the subpoena improper. Defendants are equivocal on this point and seem to

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concede that not all of the documents can be obtained from them. (See Doc. 53 at 6

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(Arguing that direct discovery from the Defendants “seeks nearly all categories of

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documents that are also being sought by the Thoroughbred subpoena.”); Doc. 59 at 9

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(“[C]urrently pending discovery requests . . . cover most, if not all, of the documents

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being sought from nonparty Thoroughbred . . . .”).) Defendants have not met their burden

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to establish that there is undue burden, expense, or inconvenience caused by the subpoena

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in this case.

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C.

Trade Secrets and Protective Order

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Defendants’ final two arguments for quashing the subpoena are both interrelated

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and somewhat inconsistent. On the one hand, Defendants argue that CNI has not

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sufficiently identified what trade secrets it is seeking or proven that they are in fact trade

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secrets. On the other hand, Defendants argue that the trade secrets and other proprietary

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and confidential business information cannot be disclosed until a protective order is in

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place.

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As to the first argument, the documents sought are described with sufficient clarity

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for Thoroughbred to respond to the subpoena. CNI’s ability to subpoena documents is not

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limited to only those documents constituting the trade secrets that were allegedly

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misappropriated as part of one count in this case. Rule 26 provides for a broad scope of

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discovery. Fed. R. Civ. P. 26(b)(1) (“For good cause, the court may order discovery of

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any matter relevant to the subject matter involved in the action. Relevant information

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need not be admissible at the trial if the discovery appears reasonably calculated to lead

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to the discovery of admissible evidence.”). There are multiple claims and counterclaims

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at issue and most are not based only on trade secrets. CNI does not need to prove that the

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documents are trade secrets in order to make them relevant during discovery. It will only

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have to do so when it attempts to establish misappropriated trade secrets at trial or on

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motion.

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Instead, it is Thoroughbred or the Defendants opportunity to object to the

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discovery of any documents that contain trade secrets. This relates to Defendants final

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argument, that such document should not be disclosed until a protective order is in place.

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However, Defendants first argue that most of the materials in dispute are not trade

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secrets, or at least that CNI cannot prove that they are. Defendants then argue that the

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documents should not be disclosed because they are trade secrets, or at least confidential

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or proprietary information.

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This final concern about a protective order is well taken but Defendants should

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have continued to work on it in good faith with CNI before raising it here. The parties

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had their Rule 26(f) conference on March 28, 2014. Both seemed in agreement that a

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protective order would be required and CNI sent a draft less than two weeks later on

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April 9. Just over two weeks after that, on April 25, Defendants returned a redlined

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version with suggested changes. One week later, on May 2, Defendants submitted the

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Motion to Quash. On May 9, CNI responded to the redlined changes. A week later, on

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May 16, it submitted its response to the Motion to Quash.

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This sequence of events does not suggest that the parties reached an impasse

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before bringing this matter before the Court. Although Defendants or Thoroughbred may

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have a right to move for a protective order, such a motion must be accompanied by a

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“certification that the movant has in good faith conferred or attempted to confer with

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other affected parties in an effort to resolve the dispute without court action” Fed. R. Civ.

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P. 26(c)(1).

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Although a Court may quash or modify a subpoena that seeks disclosure of a trade

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secrets or other confidential research, development, or commercial information;

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Defendants have not met their burden to show that doing so would be appropriate here.

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Defendants should work in good faith to reach a proposed protective order with the other

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parties in this case and only raise the issue with this Court if such efforts have failed.

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D.

Other Issues

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The parties raise several other arguments that the Court declines to address at this

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time. Both parties argue that the other lacks standing to bring certain aspects of their

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arguments in these motions. However, the Court did not rely on any of the grounds where

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standing is in dispute. The undue burden and other substantive arguments that Defendants

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may have asserted on behalf of Thoroughbred were unsuccessful. The Court did not rely

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on the alleged joint venture between Taylor and Goettl that CNI may have asserted on

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behalf of Goettl.

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Finally, the parties each proposed various ways in which they might compromise

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including disclosure to an expert, a designation for attorney’s eyes only, or giving

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Defendants an opportunity to redact the materials and submit a privilege log. The parties

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are encouraged to discuss these and other ideas with each other as they fashion a

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proposed protective order and move forward with discovery including any modifications

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to the subject subpoena that they wish to agree on. At this juncture, Defendants have not

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demonstrated that the Court’s intervention is warranted as to the subpoena or a protective

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order.

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IT IS HERBY ORDERED that the Motion to Quash Subpoena Issued to NonParty Thoroughbred Houseboats (Doc 53) is DENIED.
Dated this 19th day of June, 2014.

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