West et al v. International House of Pancakes, LLC et al

Filing 197

ORDER AFFIRMING IN PART AND REVERSING IN PART THE MAGISTRATE JUDGE'S ORDER DATED MARCH 15, 2011 : 163 APPEAL OF MAGISTRATE JUDGE DECISION to District Court by Rennie West re 106 (eps)CERTIFICATE OF SERVICEPa rticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII

RENNIE WEST; JRW OAHU ONE, INC., )
)
Plaintiffs,
)
)
v.
)
)
INTERNATIONAL HOUSE OF PANCAKES, )
LLC,
)
)
Defendant.
)
)

Civ. No. 09-00542 ACK-KSC

ORDER AFFIRMING IN PART AND REVERSING IN PART THE MAGISTRATE
JUDGE’S ORDER DATED MARCH 15, 2011
FACTUAL BACKGROUND1/
In this diversity action, Rennie West and JRW Oahu One,
Inc., claim that International House of Pancakes, LLC, (“IHOP”)
wrongfully terminated the parties’ franchise agreement for the
development of an IHOP restaurant at the Windward Mall in
Kaneohe, Hawai‘i (the “Windward Mall IHOP”).

Plaintiffs’

complaint, which was filed on September 23, 2009 and removed to
this Court on November 12, 2009, asserts the following claims
against IHOP: (1) breach of Hawaii’s Franchise Investment Law,
H.R.S. Ch. 482E, (2) tortious breach of contract, (3)
misrepresentation, (4) unfair competition in violation of H.R.S.

1/

The facts as recited in this Order are for the purpose of
disposing of the instant appeal, and are not to be construed as
findings of fact that the parties may rely on in future
proceedings in this case.

§§ 480-2 and 480-13, and (5) punitive damages.

Before the Court

is Plaintiffs’ appeal of a protective order issued by the
magistrate judge on March 15, 2011.
In November 2004, Plaintiffs entered into a Single
Store Development Agreement (the “SSDA”) with IHOP, providing
Plaintiffs the exclusive right to develop the Windward Mall IHOP.
This was to be West’s third IHOP franchise.

JRW entered into a

lease with Kamehama Schools, the landlord of the Windward Mall,
in February 2005.

In June 2005, Plaintiffs and IHOP entered into

a franchise agreement.

The franchise agreement originally

required the Windward Mall IHOP to open by October 31, 2005,
although the parties later agreed to extend the opening deadline
to December 31, 2005.
In September 2005, West told IHOP’s Director of
Franchise and Development, Jess Sotomayor, that as a result of
delays with the Honolulu Department of Planning and Permitting,
it was unlikely that Plaintiffs could even obtain a building
permit and begin construction by the December 31, 2005, opening
deadline.

Sotomayor informed West, and confirmed by letter, that

West could obtain a further extension of the opening deadline to
March 31, 2006, provided that she pay a Delayed Development Fee
(“DDF”) for each day past the December 31 deadline.

West

contends that she told Sotomayor that she did not know how to
calculate the fee because she did not know when she would be able

2

to open the restaurant.

According to West, Sotomayor told her to

advise him when she began construction and that IHOP would work
with her, but he did not mention that West had to pay the DDF
prior to December 31, 2005.

Sotomayor sent West a second letter

in November 2005 reiterating that West could obtain an extension
provided that she pay the DDF.
Plaintiffs claim that based on West’s communications
with Sotomayor and IHOP’s Vice President of Franchise
Development, Rick Celio, West concluded that she did not have to
pay the DDF until she obtained a permit and knew when
construction would commence.

IHOP points out that Sotomayor’s

letters referenced Section 3.2 of the SSDA, which, along with
Section 4.02(d) of the franchise agreement, explicitly provided
that a DDF in the amount of $350.00 per day for each day the
deadline was extended had to be paid in advance.

IHOP also notes

that West has admitted that she did not review either of these
agreements after receiving Sotomayor’s September 2005 letter.
In any event, Plaintiffs did not pay the DDF prior to
the December 31, 2005 opening deadline, and IHOP terminated the
Plaintiffs’ franchise agreement on January 4, 2006.

Allegedly,

IHOP then advised Plaintiffs that if they wanted to be
reconsidered for development of the Windward Mall IHOP, they had
to file a new franchise application and pay a $15,000 franchise
fee.

Further, IHOP allegedly told Plaintiffs that this would

3

afford them more time to construct the store than the March 31,
2006, extension.

Apparently, it would also save Plaintiffs the

cost of the DDF.

Nevertheless, on January 24, 2006, Plaintiffs

attempted to pay IHOP $31,500 for the DDF.
the tender.

IHOP did not accept

At some point in January 2006 Plaintiffs also

reapplied for a franchise with IHOP and paid the $15,000 fee.
IHOP did not approve the application.
Having defaulted on their lease with Kamehama Schools,
Plaintiffs assigned their Windward Mall lease on December 4,
2006, to VSE Kaneohe, LLC, an entity controlled by Vince and
Sarah Espino.

At the time, Union Mak Corporation, another entity

controlled by the Espinos, already had a Multi-Store Development
Agreement for Hawai‘i with IHOP.

IHOP and Union Mak had executed

the multi-store agreement on August 5, 2005, and it specifically
excluded the Windward Mall IHOP.

On January 26, 2007, IHOP

entered into a franchise agreement with VSE Kaneohe to develop,
own, and operate the Windward Mall IHOP.

This franchise

agreement required the Windward Mall IHOP to open by April 30,
2008.

The restaurant ultimately opened in April 2007.
According to Plaintiffs, the Espinos used Plaintiffs’

permit application (without Plaintiffs’ approval) and plans
virtually unchanged to construct the Windward Mall IHOP.
Plaintiffs also present evidence that Celio discussed development
opportunities with the Espinos even before the Plaintiffs’

4

franchise agreement was terminated.

During those discussions,

the Espinos apparently expressed interest in developing the
Windward Mall IHOP.

Finally, Plaintiffs’ complaint alleges that

“while the [Espinos] faced similar difficulties in obtaining a
building permit, they were shown [courtesies] not extended to
Plaintiffs by the grant of extensions for the opening of [the
Windward Mall IHOP].”

Compl. ¶ 18.f.2/

Plaintiffs also claim

that they were required to comply with all applicable permitting
laws; while the Espinos were allowed to violate the law by
beginning construction on the Windward Mall IHOP before a permit
had been issued.
PROCEDURAL BACKGROUND
Plaintiffs’ complaint was removed to this Court in
November 2009 and Plaintiffs began conducting discovery around
April 2010.

In October 2010, Plaintiffs served IHOP with a Rule

30(b)(6) deposition notice seeking, inter alia, testimony
regarding IHOP’s granting of the Windward Mall IHOP franchise to
the Espinos.

IHOP objected and the parties ultimately submitted

letter briefs to the Court.

In December 2010, the magistrate

2/

The Court is puzzled by the complaint’s allegation that
the Espinos were granted extensions for the opening of the
Windward Mall IHOP, whereas Plaintiffs were not shown such
courtesies. IHOP entered into a franchise agreement with VSE
Kaneohe on January 26, 2007. Apparently, although VSE Kaneohe’s
required opening deadline was April 30, 2008, it opened the
Windward Mall IHOP in April 2007 - within three months of signing
its franchise agreement.
5

judge ruled “[t]hat the discovery disputes should be fully
briefed and presented by way of properly supported motions and
opposing memoranda,” but “suggested that Plaintiffs consider
first obtaining information and documents from the successor
franchisee at the Windward Mall location, pursuant to Rule 45 of
the Federal Rules of Civil Procedure.”

Doc. No. 52.

According

to Plaintiffs, the Espinos agreed that IHOP could produce the
requested documents if Plaintiffs and IHOP signed a stipulated
protective order, which they did.

See Doc. No. 133 (stipulated

protective order).
Notwithstanding the magistrate judge’s suggestion that
Plaintiffs seek discovery from the successor franchisee,
Plaintiffs apparently continued to pursue discovery directly from
IHOP.

The parties arranged for IHOP’s 30(b)(6) deposition to

take place on February 16, 2011.

The parties still disagreed

about the scope of IHOP’s testimony and document production,
however, and on February 11, 2011, IHOP moved for a protective
order with regard to Plaintiffs’ fourth amended Rule 30(b)(6)
deposition notice.

See Doc. Nos. 79 (motion), 83 (Plaintiffs’

opposition), 93 (IHOP’s reply); see also Doc. No. 79, Ex. 9
(“Deposition Notice”).

IHOP’s motion sought to bar questioning

and requests for documents regarding IHOP’s dealings with the
Espinos and their corporate entities.

On March 15, 2011,

following oral argument, the magistrate judge granted in part and

6

denied in part IHOP’s motion.

Doc. No. 106 (“3/15/11 Order”).

In particular, the magistrate judge found that “the request for
testimony and documents regarding the granting of the Windward
Mall franchise to the successor franchisee . . . [is] overbroad
and the information sought is irrelevant.”

3/15/11 Order at 15.

Accordingly, he granted a protective order covering this request
(and other categories of discovery not on appeal).
On March 29, 2011, Plaintiffs moved for reconsideration
of the 3/15/11 Order based on “newly discovered evidence.”

See

Doc. Nos. 125 (motion), 135, (IHOP’s opposition), 143
(Plaintiffs’ reply).
April 29, 2011.

The magistrate judge denied this motion on

Doc. No. 146.

He reasoned as follows:

Plaintiffs, though clearly in disagreement with the
Court’s ruling, have not demonstrated any reason to
reconsider said ruling. What is more, they have not
set forth facts or law of a strongly convincing nature
to induce the Court to reverse its prior decision.
Most, if not all, of the evidence attached to the
Motion should have and could have been presented in
connection with the motion for protective order. For
this reason alone, the Motion should be denied. Even
if the Court had considered all of the attached
evidence at the time it issued its Order, the ruling
would be the same - that a protective order is
appropriate with respect to the request for testimony
and documents regarding the granting of the Windward
Mall franchise to the successor franchisee because
these requests are overbroad and the information sought
is irrelevant. Based on the evidence then and
currently presented, the Court did not err in so
ruling.
Id. at 18.

7

On May 3, 2011, IHOP moved for a protective order to
prevent the production of documents and limit the questioning of
the Espinos, whose deposition had since been noticed.

See Doc.

Nos. 150 (motion), 155 (Plaintiffs’ opposition), 157 (IHOP’s
reply); see also Doc. No. 150, Ex. E (noticing the Espinos’s
deposition).
10, 2011.

The magistrate judge denied IHOP’s motion on May

Doc. No. 158 (“5/10/11 Order”).

He found that IHOP

lacked standing to seek a protective order on the Espinos’s
behalf.

5/10/11 Order at 2-5.

Further, the magistrate judge

held that even if IHOP had standing, its request would be denied.
He reasoned that:
[the 3/15/11] protective order was not meant to apply
to, nor shall it be extended to, all discovery that
Plaintiffs might seek to obtain from third parties.
While the Court believes that Defendant should not bear
the burden of searching for and producing the
categories of documents covered by the protective
order, or producing a 30(b)(6) witness to testify as to
those matters, Plaintiffs are not precluded from
seeking information directly from third parties such as
the Espinos. Indeed, in its Entering Order issued on
December 21, 2010, the Court suggested that Plaintiffs
consider first obtaining documents from the Espinos
pursuant to FRCP 45.
Id. at 5-6 (footnote omitted).

Plaintiffs deposed the Espinos on

May 16, 2011; however, it is unclear what documents the Espinos
have thus far produced.
Plaintiffs filed the instant appeal on May 13, 2011.
Doc No. 163 (the “Appeal”).

The Appeal seeks to overturn the

magistrate judge’s March 15, 2011, finding that “the request for

8

testimony and documents regarding the granting of the Windward
Mall franchise to the successor franchisee . . . [is] overbroad
and the information sought is irrelevant.”

The Appeal does not

challenge the magistrate judge’s April 29, 2011, denial of
Plaintiffs’ motion for reconsideration.

Defendants filed an

opposition to the Appeal on June 7, 2011.

Doc. No. 176 (“Opp’n

to Appeal”).3/
STANDARD OF REVIEW
Pursuant to Local Rule 74.1, any party may appeal from
a magistrate judge’s order determining a non-dispositive pretrial
matter or, if a reconsideration order has issued, the magistrate
judge’s reconsideration order on such a matter.

The district

judge shall consider the appeal and shall set aside any portion
of the magistrate judge’s order found to be clearly erroneous or
contrary to law.

See LR 74.1; see also 28 U.S.C. § 626(b)(1)(A);

3/

The Court notes that because Plaintiffs have not appealed
the magistrate judge’s April 29, 2011, denial of reconsideration,
it would arguably be an end-run around that denial for the Court
to consider evidence that Plaintiffs offered for the first time
in support of their motion for reconsideration. After all,
Plaintiffs have not contested the magistrate judge’s April 29
finding that “[m]ost, if not all, of the evidence attached to the
[motion for reconsideration] should have and could have been
presented in connection with the motion for protective order.”
Doc. No. 146 at 18. Nonetheless, the magistrate judge also found
that even if he had considered Plaintiffs’ purportedly “new
evidence” at the time he had issued the protective order, he
would have reached the same conclusions. Id. Likewise, the
Court’s conclusions in this Order are the same regardless of
whether the Court considers the evidence before the magistrate
judge on March 15, 2011, or on April 29, 2011.
9

Fed. R. Civ. P. 72(a).

The district judge may also reconsider

sua sponte any matter determined by a magistrate judge.

See LR

74.1.
“The clearly erroneous standard applies to the
magistrate judge’s factual findings while the contrary to law
standard applies to the magistrate judge’s legal conclusions,
which are reviewed de novo.”

Columbia Pictures, Inc. v. Bunnell,

245 F.R.D. 443, 446 (C.D. Cal. 2007).

“[A] magistrate judge’s

ruling on discovery issues, including relevancy, is clearly
erroneous only when the district court is left with a ‘definite
and firm conviction that a mistake has been committed.’”

JJCO,

Inc. v. Isuzu Motors America, Inc., Civ. No. 08-00419 SOM/LEK,
2009 WL 3569600, at *2 (D. Haw. Oct. 30, 2009).

The district

judge may not simply substitute his or her judgment for that of
the magistrate judge.

See Grimes v. City and County of San

Francisco, 951 F.2d 236, 241 (9th Cir. 1991).

“‘A decision is

contrary to law if it applies an incorrect legal standard or
fails to consider an element of the applicable standard.’”

Na

Pali Haweo Cmty. Ass’n v. Grande, 252 F.R.D. 672, 674 (D. Haw.
2008) (citation omitted).
DISCUSSION
Plaintiffs appeal the magistrate judge’s issuance of a
protective order as to “testimony and documents concerning the
grant of the Windward Mall IHOP to its successors including the

10

circumstances of the grant, extensions granted and permitting
issues relating thereto.”
at 11-13, 15.

Appeal at 4, 13-14; see 3/15/11 Order

According to Plaintiffs, IHOP “failed to sustain

its burden that Plaintiffs’ requested discovery was irrelevant or
overbroad and that good cause existed for the issuance of the
protective order.”

Appeal at 14.

Plaintiffs argue that

considering the “allegations in their complaint of discrimination
in violation of [Hawaii’s Franchise Investment Law,] and applying
the liberal standards of discovery, it is clear that discovery
should be allowed because it has a bearing on Plaintiffs’
discrimination claim and [their] claim that IHOP’s conduct in
terminating Plaintiffs[’] [franchise agreement] was arbitrary in
violation of HRS 482E-6(1) and (2)(C), (G) and (H).”

Id.

Although IHOP opposes the Appeal with strong arguments
regarding the underlying merits of Plaintiffs’ claims, the Court
nonetheless has a “definite and firm conviction” that the
magistrate judge committed a mistake in not permitting Plaintiffs
to pursue any of the requested discovery from IHOP regarding its
granting of the Windward Mall IHOP franchise to the Espinos.
Accordingly, the Court reverses the 3/15/11 Order with respect to
a number of the discovery requests now at issue on appeal.4/

The

Court affirms the 3/15/11 Order, however, with respect to several

4/

Specifically, the Court reverses with respect to
paragraphs 4(a), 4(b), 4(c), 4(e), 12, and 13 of Exhibit A and
paragraph 4 of Exhibit B to Plaintiffs’ Deposition Notice.
11

other categories of discovery requests which the magistrate judge
did not clearly err in finding overbroad or irrelevant.5/
I.

Legal Framework
Federal Rule of Civil Procedure 26(b) provides that

“[p]arties may obtain discovery regarding any nonprivileged
matter that is relevant to any party’s claim or defense. . . .
Relevant 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).

“The scope

of discovery permissible under Rule 26 should be liberally
construed; the rule contemplates discovery into any matter that
bears on or that reasonably could lead to other matter that could
bear on any issue that is or may be raised in a case.”

Phoenix

Solutions Inc. v. Wells Fargo Bank, N.A., 254 F.R.D. 568, 575
(N.D. Cal. 2008).

“Discovery is not limited to the issues raised

only in the pleadings, but rather it is designed to define and
clarify the issues.”

Miller v. Pancucci, 141 F.R.D. 292, 296

(C.D. Cal. 1992) (citing Oppenheimer Fund, Inc. v. Sanders, 437
U.S. 340, 351 (1978)).

“A request for discovery should be

allowed unless it is clear that the information sought can have
no possible bearing on the claim or defense of any party.”

5/

The Court affirms with respect to paragraphs 4(d), 10,
11, and 14 of Exhibit A to Plaintiffs’ Deposition Notice.
12

Houdini, Inc. v. Gabriel, No. CV 04-09574-GHK (SSx), 2005 WL
6070171, at *2 (C.D. Cal. Oct. 21, 2005) (citation omitted).
In turn, Rule 26(c) provides that a court “may, for
good cause, issue an order to protect a party or person from
annoyance, embarrassment, oppression, or undue burden or
expense.”

Fed. R. Civ. P. 26(c)(1).

To establish “good cause,”

a party seeking a protective order for discovery materials must
“present a factual showing of a particular and specific need for
the protective order.”

Welsh v. City and County of San

Francisco, 887 F. Supp. 1293, 1297 (N.D. Cal. 1995); see also
Gen. Dynamics Corp. v. Selb Mfg. Co., 481 F.2d 1204, 1212 (8th
Cir. 1973).

In determining whether to issue a protective order,

courts must consider “the relative hardship to the non-moving
party should the protective order be granted.”
481 F.2d at 1212.

Gen. Dynamics,

“Under the liberal discovery principles of the

Federal Rules,” a party seeking a protective order “carr[ies] a
heavy burden of showing why discovery [should be] denied.”

See

Blankenship v. Hearst Corp., 519 F.2d 418, 429 (9th Cir. 1975).
Finally, as one district court recently stated:
The party resisting discovery has the burden of
establishing lack of relevance or undue burden. The
resisting party must demonstrate that the documents are
not relevant under the broad scope of relevance
provided by Rule 26(b)(1) of the Federal Rules of Civil
Procedure, or that the documents are “of such marginal
relevance that the potential harm occasioned by
discovery would outweigh the ordinary presumption in
favor of broad disclosure.” A recitation that the
discovery request is “overly broad, burdensome,
13

oppressive and irrelevant” is not adequate to voice a
successful objection. The party resisting discovery
must instead “show specifically how each interrogatory
or request for production is not relevant or how each
question is overly broad, burdensome or oppressive.”
Fosselman v. Caropreso, No. C 09-0055 PJH (PR), 2011 WL 999549,
at *4 (N.D. Cal. Mar. 18, 2011) (internal citations, ellipses,
and alterations omitted).
II.

Analysis
Plaintiffs appeal the grant of a protective order as to

their request that IHOP’s Rule 30(b)(6) deponent be examined upon
the following categories:
4. The circumstances regarding the granting of a
franchise for the Windward Mall IHOP after Rennie
West’s and/or JRW’s franchise for that location was
terminated including:
(a)

The basis for granting the franchise;

(b) The terms and conditions of the granting of the
franchise including the date(s) provided for the
opening of the franchise, any extension granted
therefore, and the circumstances of the granting or
denial of any request for an extension;
(c) Any and all delays experienced by the successor
franchisee in obtaining a construction permit for the
Windward Mall IHOP and any and all extensions granted
to the franchisee to open the Windward Mall IHOP due to
the inability to obtain the permit;
(d) The policy, practice, custom and/or procedure
engaged in by IHOP in determining whether to grant
extensions for the opening of an IHOP franchise,
including the circumstance where a construction permit
cannot be obtained in a timely fashion from a
governmental agency; and
(e) The identity of any and all communications and
documents that relate to the decision to grant the
14

franchise to Plaintiffs’ successors, as well as any
documents that refer or relate to the subject matter of
this category of inquiry and its subparts.
. . . .
10. All dealings and agreements between IHOP and Union
Mak Corporation and any of [its] employees, officers
and/or agents relating to any IHOP franchise including
the Windward Mall Franchise.
11. All dealings and agreements between IHOP and VSE
Kaneohe, Inc. and any of [its] employees, officers
and/or agents relating to any IHOP franchise including
the Windward Mall Franchise.
12. Communications between you and Union Mak
Corporation and/or VSE Kaneohe, Inc. regarding a
construction permit for the Windward Mall IHOP.
13. Communications between you and Union Mak
Corporation and/or VSE Kaneohe, Inc. regarding any
extensions granted either [sic] to open the Windward
Mall IHOP.
14. Communications between you and Union Mak
Corporation and/or VSE Kaneohe, Inc. regarding Rennie
West, James West and/or JRW.
Deposition Notice, Ex. A at 3, 5; see Appeal at 4, 13-17; Opp’n
to Appeal at 17-18; 3/15/11 Order at 11-13, 15.
Plaintiffs also appeal the grant of a protective order
as to their request that IHOP produce:
4. All documents that refer or relate to the decision
to grant an IHOP franchise for the Windward Mall to
Rennie West’s and/or JRW’s successors and any other
documents that refer or relate to the subject matter of
category #4 [which is quoted above], including but not
limited to:
(a) All single store or multi-store development
agreements covering this franchise;
(b)

The franchise agreement covering this franchise;
15

(c) All documents referring or relating to requests
for and/or the granting of extensions to open the
Windward Mall IHOP;
(d) All Franchise Review Committee Minutes concerning
this franchise; and
(e) All documents relating to the pursuit of a
construction permit by this franchisee for the Windward
Mall IHOP.
Deposition Notice, Ex. B at 1; see Appeal at 4, 13-14; Opp’n to
Appeal at 18-19; 3/15/11 Order at 12-13, 15.6/
Plaintiffs argue that such discovery is relevant to
their franchise law and unfair competition claims.

Appeal at 14.

In particular, they contend that the discovery could: (1) “show
evidence of [IHOP’s] motives and plan to terminate Plaintiffs’
franchise even before the deadline for opening the store arose”;
(2) “show discriminatory conduct by [IHOP]” in favor of the
Espinos; (3) “prove that IHOP imposed an unreasonable and
arbitrary standard of conduct upon Plaintiffs . . . by requiring
Plaintiffs to do the legally impossible, to wit, build a
restaurant without a permit”; and (4) “show that Plaintiffs’
[franchise agreement] was terminated without good cause and prior
notice.”

Id. at 15-17.

Plaintiffs further argue that the

6/

Plaintiffs make it difficult to determine the scope of
the Appeal by failing to discuss any of the specific categories
in their Deposition Notice and by re-characterizing the
magistrate judge’s holding. Compare Appeal at 13-14, with
3/15/11 Order at 15. The Court should not have to rely on IHOP’s
opposition in order to determine which discovery requests are now
at issue on appeal.
16

information sought “has a tendency to show whether [IHOP] acted
in good faith towards Plaintiffs” and “has a tendency to prove”
Plaintiffs’ unfair competition claims.

Id. at 17.

Hawaii’s Franchise Investment Law requires franchisors
and its franchisees to “deal with each other in good faith.”
H.R.S. § 482E-6(1).

Further, § 482E-6 makes it unlawful for a

franchisor: to “[d]iscriminate between franchisees . . . in
any . . . business dealing,” unless certain exceptions apply;7/
to “[i]mpose on a franchisee by contract, rule, or regulation,
whether written or oral, any unreasonable and arbitrary standard
of conduct”; or to terminate a franchise without good cause and
without providing a franchisee written notice of a breach and an
opportunity to cure the breach.8/

Id. § 482E-6(2)(C), (G), (H);

7/

Specifically, “any classification of or discrimination
between franchisees” is not unlawful if it is: (i) “[b]ased on
franchises granted at materially different times, and such
discrimination is reasonably related to such differences in
time”; (ii) “related to one or more programs for making
franchises available to persons with insufficient capital,
training, business experience, education or lacking other
qualifications”; (iii) “related to local or regional
experimentation with or variations in product or service lines or
business formats or designs”; (iv) “related to efforts by one or
more franchisees to cure deficiencies in the operation of
franchise businesses or defaults in franchise agreements”; or (v)
“based on other reasonable distinctions considering the purposes
of this chapter and is not arbitrary.” H.R.S. § 482E-6(C)(i)(v).
8/

In full, H.R.S. § 482E-6(2)(H) makes it unlawful for a
franchisor to:
Terminate or refuse to renew a franchise except for good
(continued...)
17

see also Lui Ciro, Inc. v. Ciro, Inc., 895 F. Supp. 1365, 1388-89
(D. Haw. 1995) (holding that an allegation that a defendant
violated § 482E-6(2)(C) “stated a claim for liability under
H.R.S. § 482E-9”).

A violation of § 482E-6 also supports an

unfair competition claim under H.R.S. §§ 480-2 and 480-13.

See

Lui Ciro, 895 F. Supp. at 1388.
A.

Paragraphs 4(d), 10, 11, and 14 of Exhibit A to Plaintiffs’
Deposition Notice
The Court finds that the magistrate judge did not

clearly err in finding overbroad the requests in paragraphs
4(d), 10, 11, and 14 of Exhibit A to Plaintiffs’ Deposition
Notice.
First, paragraph 4(d) of Exhibit A is plainly overbroad
and unduly burdensome because it relates to IHOP’s policies,
8/

(...continued)
cause, or in accordance with the current terms and standards
established by the franchisor then equally applicable to all
franchisees, unless and to the extent that the franchisor
satisfies the burden of proving that any classification of
or discrimination between franchisees is reasonable, is
based on proper and justifiable distinctions considering the
purposes of this chapter, and is not arbitrary. For
purposes of this paragraph, good cause in a termination case
shall include, but not be limited to, the failure of the
franchisee to comply with any lawful, material provision of
the franchise agreement after having been given written
notice thereof and an opportunity to cure the failure within
a reasonable period of time.
Section 482E-6(4), which Plaintiffs also cite, provides that
“[t]he provisions of this chapter shall apply to all written or
oral arrangements with the franchisee . . . and all other such
arrangements in which the franchisor or subfranchisor has any
direct or indirect interest.”
18

practices, customs and/or procedures in determining whether to
grant extensions for the opening of IHOP franchises anywhere.
Although the legislative history of Hawaii’s Franchise Investment
Law sheds little light on the issue, and there are few cases even
considering this statute, there is a strong argument that
discrimination claims under H.R.S. § 482E-6 need to be based on
discrimination between franchises within Hawai‘i.

See Robert W.

Emerson, Franchise Selection and Retention: Discrimination Claims
and Affirmative Action Programs, 40 Ariz. L. Rev. 511, 524 & n.52
(1998) (“[S]tate [franchise] statutes are probably limited to
prohibiting discrimination only between franchises within the
same state.”).

And even assuming § 482E-6 discrimination claims

may be based on the allegedly preferential treatment of
franchises outside of Hawai‘i, paragraph 4(d) is plainly
overbroad and unduly burdensome.

It would likely require IHOP to

testify about - and, pursuant to paragraph 4 of Exhibit B,
produce documents referring or relating to - the practices and
customs regarding opening extensions for hundreds of IHOP
franchises in locations with business climates (and other
relevant bases of comparison) nothing like Hawaii’s.

See H.R.S.

§ 482E-6(C)(i)-(v); supra note 6.9/

9/

According to its website, “[a]s of March 31, 2011, there
were 1,513 IHOP restaurants located in 50 states and the District
of Columbia, Canada, Guatemala, Mexico, Puerto Rico and the U.S.
Virgin Islands.” IHOP, Company Overview, http://www.ihop.com/
(continued...)
19

Second, paragraphs 10 and 11 of Exhibit A to
Plaintiffs’ Deposition Notice are overbroad and unduly burdensome
not only because they relate to any IHOP franchise, and not just
the Windward Mall IHOP, but also because they are not adequately
limited with regard to time and subject matter.10/

Plaintiffs’

request for testimony concerning “[a]ll dealings and agreements
between IHOP and Union Mak Corporation and any of [its]
employees, officers and/or agents” and between “IHOP and VSE
Kaneohe, [LLC] and any of [its] employees, officers and/or
agents” relating to the Windward Mall IHOP would require IHOP to
testify about an enormous range of matters relating to this
franchise, which has been in operation for more than four years.
Much of the information sought by paragraphs 10 and 11
would have no bearing on Plaintiffs’ claims that IHOP improperly
terminated Plaintiffs’ franchise agreement, discriminated against
Plaintiffs in favor of the Espinos and their corporate entities,
imposed an unreasonable and arbitrary standard of conduct upon
Plaintiffs, and/or failed to deal with Plaintiffs in good faith.

9/

(...continued)
(last visited June 30, 2011).
10/

Plaintiffs’ Appeal implicitly asks the Court to approve
modified versions of paragraphs 10 and 11 of Exhibit A to
Plaintiffs’ Deposition Notice such that these paragraphs would
relate to the Windward Mall IHOP only, and not “to any IHOP
franchise”. Because paragraphs 10 and 11 are overbroad even with
these modifications, the Court need not address IHOP’s argument
that Plaintiffs’ “‘new’ discovery requests are not appropriate
(or ripe) for the appeal process.” Opp’n to Appeal at 28-29.
20

These claims are based on IHOP’s conduct in terminating
Plaintiffs’ franchise agreement and granting a franchise
agreement to VSE Kaneohe for the Windward Mall IHOP, and also
IHOP’s treatment of the Espinos and their corporate entities and to some extent, its treatment of Plaintiffs - through the
Windward Mall IHOP’s opening in April 2007.
Third, paragraph 14 of Exhibit A to Plaintiffs’
Deposition Notice is overbroad and unduly burdensome for the same
reasons paragraphs 10 and 11 are overbroad.

Plaintiffs’ request

that IHOP testify about communications between IHOP and Union Mak
and/or VSE Kaneohe regarding West, James West (West’s former
husband, with whom West sought to open the Windward Mall IHOP),
and/or JRW is not adequately limited with regard to subject
matter.
In short, regardless of whether some portions of the
information sought by paragraphs 4(d), 10, 11, and 14 are
relevant, the magistrate judge correctly found that these
discovery requests are overbroad and unduly burdensome.
B.

Paragraphs 4(a), 4(b), 4(c), 4(e), 12, and 13 of Exhibit A
and Paragraph 4 of Exhibit B to Plaintiffs’ Deposition
Notice
On the other hand, the Court finds that the magistrate

judge clearly erred in finding: (1) that paragraphs 4(a), 4(b),
4(c), 4(e), 12, and 13 of Exhibit A and paragraph 4 of Exhibit B
to Plaintiffs’ Deposition Notice are overbroad, and (2) that the
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information sought by these requests is irrelevant.11/

Unlike the

discovery requests discussed in the previous section, these other
categories are specifically limited with regard to time and
subject matter.

They seek information regarding the opening of

the Windward Mall IHOP, including extension decisions and
permitting issues related thereto, and a narrow range of other
documents concerning this franchise.
In particular, these discovery requests seek to
determine, among other things, whether evidence supports
Plaintiffs’ arguments that the Espinos were given more leeway
than Plaintiffs in opening the Windward Mall IHOP (e.g., by being
given more time to open the franchise and being allowed to begin
construction without a permit).

In turn, such evidence might

Plaintiffs’ claims that IHOP violated Ch. 482E-6 and § 480-13 by
discriminating between Plaintiffs and the Espinos (and their
corporate entities).

Such evidence might support Plaintiffs’

arguments that IHOP failed to deal with Plaintiffs in good faith
and imposed an unreasonable and arbitrary standard of conduct on
Plaintiffs.

Accordingly, the information sought by these

11/

Among other things, paragraph 4 of Exhibit B to
Plaintiffs’ Deposition Notice requests the production of any
“documents that refer or relate to the subject matter of category
#4 and its subparts in Exhibit ‘A’ attached hereto.” Consistent
with this Order, that statement is now limited to any “documents
that refer or relate to the subject matter of paragraphs 4(a),
4(b), 4(c), and 4(e) of Exhibit A to Plaintiffs’ Deposition
Notice.”
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categories is relevant.

Also, these categories are narrowly

circumscribed, and neither overbroad nor unduly burdensome on
IHOP.
Moreover, with respect to paragraphs 4(a), 4(b), 4(c),
4(e), 12, and 13 of Exhibit A and paragraph 4 of Exhibit B to
Plaintiffs’ Deposition Notice, the Court agrees with Plaintiffs,
at least with respect to some of their requests, that the
magistrate judge’s May 10, 2011, “denial of Defendant’s Motion
for a Protective Order regarding Plaintiffs’ request for
documents and testimony directly from the Espinos demonstrates
that the Plaintiffs have met the standard of relevance under Fed.
R. Civ. P. 26(b) for discovery and that the same is not
overbroad.”

Appeal at 15.

If Plaintiffs may obtain the

discovery requested by these categories from the Espinos, who are
not a party to this lawsuit, it is unclear why the defendant in
this case “should not bear the burden” of testifying about the
matters in these categories and “searching for and producing”
documents covered by such categories.

See 5/10/11 Order at 5-6;

see also Doc. No. 150 at 6-7 (discussing the documents that
Plaintiffs requested the Espinos bring to their deposition).

And

as Plaintiffs further point out, “IHOP - unlike the Espinos - had
a legal duty to maintain such records and documents.”

Appeal at

5 (citing the regulation governing record keeping under Hawaii’s
Franchise Investment Law).

This suggests that the burden on IHOP

23

is somewhat reduced both as a general matter and relative to the
Espinos.
Finally, the Court is unpersuaded by IHOP’s arguments
in opposition to the Appeal.

See Opp’n to Appeal at 22-30.

None

of the cases IHOP cites for the proposition that “discovery into
IHOP’s relationship with other franchisees, including the
Espinos, is irrelevant” addressed a franchise discrimination
claim.

See Original Great America Chocolate Chip Cookie Co.,

Inc. v. River Valley, 970 F.2d 273, 275, 279 (7th Cir. 1992)
(discussing a breach of contract claim); I’mnaedaft, Ltd. v. The
Intelligent Office System, LLC, No. 08-cv-01804-LTB-KLM, 2009 WL
1537975, *6 & n.1 (D. Colo. May 29, 2009) (contract-based
claims); Dunkin Donuts, Inc. v. Romanias, No. Civ.A.00-1886, 2002
WL 32955492 at *1 (W.D. Pa. May 29, 2002) (breach of duty of good
faith and fair dealing).

And IHOP’s arguments regarding its

interactions with Plaintiffs vís a vís its interactions with the
Espinos go to the merits of Plaintiffs’ claims.

The same goes

for IHOP’s argument that “Plaintiffs seek discovery contrary to
existing evidence.”

These arguments, while strong, do not

“diminish Plaintiffs’ right to discover facts supporting [their]
claim of discrimination.”

Appeal at 18.

In short, the Court finds that the magistrate judge’s
grant of a protective order as to paragraphs 4(a), 4(b), 4(c),

24

4(e), 12, and 13 of Exhibit A and paragraph 4 of Exhibit B to
Plaintiffs’ Deposition Notice is clearly erroneous.
CONCLUSION
For the foregoing reasons, the Court AFFIRMS IN PART
and REVERSES IN PART the magistrate judge’s March 15, 2011, Order
Granting in Part and Denying in Part Defendant’s Motion for
Protective Order.

The Court (1) AFFIRMS the magistrate judge’s

grant of a protective order as to paragraphs 4(d), 10, 11, and 14
of Exhibit A to Plaintiffs’ Deposition Notice; and (2) REVERSES
the magistrate judge’s grant of a protective order as to
paragraphs 4(a), 4(b), 4(c), 4(e), 12, and 13 of Exhibit A and
paragraph 4 of Exhibit B to Plaintiffs’ Deposition Notice.
IT IS SO ORDERED.
Dated:

Honolulu, Hawai‘i, June 30, 2011.

________________________________
Alan C. Kay
Sr. United States District Judge

West et al. v. International House of Pancakes, LLC, Civ. No. 09-00542
ACK-BMK, Order Affirming in Part and Reversing in Part the Magistrate Judge’s
Order Dated March 15, 2011.

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