7E FIT SPA LICENSING GROUP LLC et al v. DIER et al
Filing
93
ORDER denying Smith Franchisees' 71 Motion to Bifurcate; striking 7E Plaintiffs and Mr. Nielsen 85 Motion for Extension of Time to File Response. Because the 7E Plaintiffs and Mr. Nielsen f ailed to state a good cause for its third motion for extension of time, the Court finds no basis under Fed. R. Civ. P. 6(b) to grant this third motion. It is hereby DENIED. Therefore, Docket No. 103 and Docket No. 104; 1:15-cv- 01111, Docket No. 87 and Docket No. 88 are STRICKEN (see Order for additional details). Signed by Magistrate Judge Matthew P. Brookman on 5/9/2016. (SWM)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
7E FIT SPA LICENSING GROUP LLC,
7E HOLDINGS 1 LLC,
7E LLC,
Plaintiffs,
vs.
7EFS OF HIGHLANDS RANCH, LLC,
SPECTRUM MEDSPA,
GORDON SMITH,
JANE SMITH,
Defendants.
______________________________________
GORDON SMITH,
7EFS OF HIGHLANDS RANCH, LLC,
JANE SMITH,
SPECTRUM MEDSPA,
JANE SMITH,
SPECTRUM MEDSPA,
7EFS OF HIGHLANDS RANCH, LLC,
GORDON SMITH,
Counter Claimants,
vs.
7E FIT SPA LICENSING GROUP LLC,
7E HOLDINGS 1 LLC,
7E LLC,
7E FIT SPA LICENSING GROUP LLC,
7E HOLDINGS 1 LLC,
7E LLC,
Counter Defendants.
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GORDON SMITH,
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No. 1:15-cv-01109-TWP-MPB
Consolidated with:
CASE NO: 1:15-cv-01111-RLY-MPB
for purposes of discovery and case
management
7EFS OF HIGHLANDS RANCH, LLC,
JANE SMITH,
SPECTRUM MEDSPA,
JANE SMITH,
SPECTRUM MEDSPA,
7EFS OF HIGHLANDS RANCH, LLC,
GORDON SMITH,
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Third Party Plaintiffs,
vs.
STEVE NIELSEN,
STEVE NIELSEN,
Third Party Defendants.
ORDER
This matter comes before the Court on four pending motions filed by
Defendants/Counterclaim Plaintiffs/Third-Party Plaintiffs Jane Smith, Gordon Smith, 7EFS of
Highlands Ranch, LLC, and Spectrum Med Spa Highlands Ranch LLC (collectively, the “Smith
Franchisees”) 1 and Defendants/Counterclaim Plaintiffs/Third-Party Plaintiffs Susan Dier Graf,
7EFS of Wheatridge, LLC, and The Full Body Shop, d/b/a MedSpa (collectively, “Dier Graf
Franchisees”). 2 (Docket No. 82; Docket No. 84, also at 1:15-cv-01111, Docket No. 71 (filed only
by the Smith Franchisees); Docket No. 85, Docket No. 94). 3 This matter also comes before the
Court on one pending motion filed by Plaintiffs and Counterclaim Defendants, 7E Fit Spa
Licensing Group, LLC, 7E Holdings 1, LLC, and 7E LLC, (“7E Plaintiffs”) and Third Party
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The action entitled 7E Fit Spa Licensing Group, LLC, et al. v. 7 EFS of Highlands Ranch, Case No. 1:15-cv01109-TWP-MPB, shall hereinafter be referred to as the “Smith Franchisees.” Note, the Court’s use of labels, such
as franchisee or licensee is not indicative of the court’s classification of that party.
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The action entitled 7E Fit Spa Licensing Group, LLC, et al. v. Dier et al., Case No. 1:15-cv-01111-RLY-MPB,
shall hereinafter be referred to as the “Dier Graf Franchisees.”
3
References to docket filings refer to 1:15-cv-01109-TWP-MPB, unless specified otherwise.
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Defendant, Steve Nielsen (“Mr. Nielsen”). (Docket No. 101, also at 1:15-cv-01111, Docket No.
85). The Court will now address each motion in turn.
I.
THE SMITH FRANCHISEES’ AND THE DIER GRAF FRANCHISEES’
MOTION TO COMPEL DISCOVERY (Docket No. 82)
The Smith Franchisees and the Dier Graf Franchisees filed a Motion to Compel on March
31, 2016, requesting that: (1) the Court order the 7E Plaintiffs, Mr. Nielsen, and twelve NonParties to adequately respond to Requests for Production propounded by the Smith and Dier Graf
Franchisees within fourteen days of the Court order; (2) if responses are ordered and not met
then the Court is to hold a hearing to determine awarding the Smith and Dier Graf Franchisees
applicable relief pursuant to Fed. R. Civ. P. 37(b)(2)(A); and (3) that the 7E Plaintiffs, Mr.
Nielsen, and Non-Parties are required to pay the Smith and Dier Graf Franchisees’ attorneys’
fees and costs associated with the aforementioned motion. (Docket No. 82 at 6). For the
following reasons, the Court GRANTS IN PART AND DENIES IN PART the request to order
adequate response to the Smith and Dier Graf First Set of Requests for Production of
Documents; DENIES the request for a hearing to determine awarding the Smith and Dier Graf
Franchisees relief pursuant to Fed. R. Civ. P. 37(b)(2)(A) at this time; and DENIES the request
for attorneys’ fees and costs associated with the aforementioned motion.
The motion is premised on 7E Plaintiffs, Mr. Nielsen, and thirteen of the fourteen NonParties alleged failures to fully and adequately respond to the Smith and Dier Graf Franchisees’
First Set of Requests for Production of Documents to 7E Fit Spa Licensing Group LLC, 7E
Holdings 1 LLC, and 7E LLC (“7E Plaintiffs Requests”), the First Set of Requests for
Production of Documents to Steve Nielsen (“Mr. Nielsen Requests”), and Requests for
Production to Non-Party (“Non-Party Requests”). (Docket No. 82 at 2). Generally, the requests
within each of these sets seeks financial information, tax records, contracts, and business
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organizational documents from each entity and Mr. Nielsen. (Docket No. 83-1, Docket No. 83-3,
Docket No. 83-4).
Fed. R. Civ. P. 26(b)(1) provides that relevant, nonprivileged matter is discoverable.
Specifically, it provides:
Parties may obtain discovery regarding any nonprivileged matter that is relevant to
any party's claim or defense and proportional to the needs of the case, considering
the importance of the issues at stake in the action, the amount in controversy, the
parties’ relative access to relevant information, the parties’ resources, the
importance of the discovery in resolving the issues, and whether the burden or
expense of the proposed discovery outweighs its likely benefit. Information within
this scope of discovery need not be admissible in evidence to be discoverable.
District courts have broad discretion in matters relating to discovery. Packman v.
Chicago Tribune Co., 267 F.3d 628, 646-47 (7th Cir. 2001). There is a strong public
policy in favor of disclosure of relevant materials. Patterson v. Avery Dennison Corp.,
281 F.3d 676, 681 (7th Cir. 2002). If the discovery sought appears relevant, the party
resisting said discovery has the burden to establish the lack of relevance by showing “that
the requested discovery is of such marginal relevance that the potential harm occasioned
by discovery would outweigh the ordinary presumption in favor of broad disclosure.”
Sanyo Laser Products, Inc. v. Arista Records, Inc., 214 F.R.D. 496, 499 (S.D. Ind. 2003).
The Smith and Dier Graf Franchisees assert that these requests for production of
documents are relevant to their counterclaims and assertive defenses. (Docket No. 83 at 9-14).
First, with respect to the Non-Party requests, these were previously held relevant by
Magistrate Judge Baker in his Order denying 7E Plaintiffs’ and Mr. Nielsen’s Motion to Quash
Non-Party Discovery. (Docket No. 80; also at 1:15-cv-01111, Docket No. 68). 4 The Smith and
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“[T]he information sought by way of the disputed discovery is relevant to the asserted counterclaims and
affirmative defenses. Specifically, the discovery relates to whether Steve Nielsen and/or 7E Fit Spa entities made
false material representations to induce Susan Dier and Jane Smith, and their respective business entities, to invest in
7E Fit Spa.” Docket No. 80; also at 1:15-cv-01111, Docket No. 68.
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Dier Graf Franchisees submitted discovery on fourteen (14) non-party entities. (Docket No. 83 at
3-4). 5 Only one, 7EFS of Fishers-Noblesville LLC, responded to the Non-Party Requests.
(Docket No. 83 at 6). Given the Court has already determined the Non-Party requests relevant
and the remaining thirteen, properly-served Non-Parties have failed to respond, the Court finds
the Motion to Compel Discovery as against the remaining thirteen Non-Parties GRANTED. The
thirteen Non-Parties have fourteen (14) days from the date of this Order to comply.
Second, with respect to the 7E Plaintiffs and Mr. Nielsen’s requests, these were
responded to together. (Docket No. 83-5, Docket No. 83-6). Mr. Nielsen responded to the
discovery propounded to the 7E Plaintiffs, therefore, he has altogether failed to respond to the
Requests for Production intended for him. With regards to Request Nos. 1-6, 7E Plaintiffs and
Mr. Nielsen’s responses cite their pending Motion to Dismiss, which they allege will make their
responses to said requests moot for a basis as to their non-responsive answers. (Docket No. 83-5,
Docket No. 83-6). 7E Plaintiffs response to Request No. 7 was partially responded to, but
appears to be incomplete as a link to several documents was referenced in the response, but
never provided and a later production of four documents did not include requested documents the
7E Plaintiffs would be required to have to be duly incorporated. (Docket No. 83 at 12). These
requests, which are identical to the Non-Party requests, were already deemed relevant by the
Court at a time when the Motion to Dismiss was pending. The 7E Plaintiffs and Mr. Nielsen’s
arguments distinguishing the Non-Party requests from the party requests are not persuasive. The
7E Plaintiffs Request Nos. 1-7 request financial, contractual, organizational, and tax records,
which are relevant as to the determination of whether the veracity of the representations made to
the Smith and Dier Graf Franchisees concerning financial condition, business opportunity, and
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Proper service was effectuated by the Smith and Dier Graf Franchisees. (Docket No. 83-2).
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nature of the business relationships the Franchisees were entering into—factual points at issue in
the Franchisees’ affirmative defenses and counterclaims. See Patterson, 281 F.3d at 681. 7E
Plaintiffs and Mr. Nielsen provide no valid bases to the contrary. See Sanyo Laser Products, Inc,
214 F.R.D. at 499. Therefore, the Court finds the Motion to Compel Discovery as to the 7E
Plaintiffs and Mr. Nielsen GRANTED, with the exception that to the extent that 7E Plaintiffs’
responses to Request for Production Nos. 8-10 are complete and, assuming they were answered
in good faith, the Motion to Compel as to Nos. 8-10 is DENIED. 7E Plaintiffs and Mr. Nielsen
have fourteen (14) days the date of this Order to comply with the same.
Next, the Smith and Dier Graf Franchisees request this Court to hold a hearing to
determine awarding the Smith Franchisees and the Dier Graf Franchisees relief pursuant to Fed.
R. Civ. P. 37(b)(2)(A) in the event the 7E Plaintiffs, Mr. Nielsen, and the Non-Parties do not
fully and adequately respond to the Requests for Production. (Docket No. 82 at 6).
Fed. R. Civ. P. 37(b)(2)(A) provides that the Court may issue further just orders if a party
fails to obey an order to provide or permit discovery. A Court may not consider these until a
Court order has been issued and disobeyed. Brandt v. Vulcan, Inc., 30 F.3d 752, 756 (7th Cir.
1994). Thus, a request for said hearing is premature and is DENIED. The Smith and Dier Graf
Franchisees may refile if the aforesaid Order compelling discovery is not obeyed.
Finally, the Smith and Dier Graf Franchisees request this Court to order 7E Plaintiffs, Mr.
Nielsen, and the Non-Parties to pay the Franchisees’ attorneys’ fees and costs associated with
their Motion to Compel. (Docket No. 82 at 6-7). The Federal Rules allow for an award of fees
and expenses when a court rules on a motion to compel. Fed. R. Civ. P. 37(a)(5). The Court,
however, has granted the Smith and Dier Graf Franchisees request in part and denied in part, and
the Court in such circumstances has significant discretion with regard to the award of any fees.
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See Fed. R. Civ. P. 37(a)(5)(C) (“If the motion is granted in part and denied in part, the court . . .
may, after giving an opportunity to be heard, apportion the reasonable expenses for the
motion.”).
While the Court disagrees with the 7E Plaintiffs and Mr. Nielsen’s bases for objections to
Requests for Production No. 1-6, namely that they agreed to revisit the issue if the Court denied
its Motion to Dismiss the Court, the Court does not find any bad faith attempt to evade
discovery. Therefore, the Court sees no basis for ordering the 7E Plaintiffs, Mr. Nielsen, or the
Non-Parties to pay the Smith and Dier Graf Franchisees’ attorneys’ fees. Therefore, said request
is DENIED.
II.
THE SMITH FRANCHISEES’ MOTION TO BIFURCATE THE SMITH
FRANCHISEES’ REQUEST FOR ATTORNEYS’ FEES (Docket No. 84; also at
1:15-cv-01111, Docket No. 71)
The Smith Franchisees filed a Motion to Bifurcate on April 4, 2016, requesting that this
Court order bifurcation of the trial in this action such that the Smith Franchisees’ claim for
attorneys’ fees be tried separately from liability issues. (Docket No. 84 at 3; also at 1:15-cv01111, Docket No. 71 at 3). For the following reasons, the Court DENIES the Motion to
Bifurcate.
The motion is premised on the Smith Franchisees’ request for attorneys’ fees pursuant to
the applicability of the Indiana Franchise Act in their Affirmative and Separate Defenses to
Plaintiffs’ Second Amended Complaint (Docket No. 69 at 18) and Defendants’ Counterclaims
and Third Party Complaint. (Docket No. 25). As a result, 7E Plaintiffs and Mr. Nielsen have
sought discovery related to said representation, specifically requesting the terms of the Smith
Franchisees’ counsel’s representation. (Docket No. 85 at 2). The Smith Franchisees assert that
bifurcation is appropriate because (1) the attorney fee claim is contingent upon the Smith
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Franchisees’ success at trial; (2) because counsel for the Smith Franchisees will be a witness on
the claim; and (3) because the Smith Franchisees should not be required to disclose the contents
of their representation with counsel unless and until the contingent claim for fees is ripe. (Docket
No. 85 at 2).
Fed. R. Civ. P. 42(b) provides that “[f]or convenience, to avoid prejudice, or to expedite
and economize, the court may order a separate trial of one or more separate issues, claims,
crossclaims, counterclaims, or third-party claims. When ordering a separate trial, the court must
preserve any federal right to a jury trial.” When determining whether to bifurcate discovery or
trial, the Court “must balance considerations of convenience, economy, expedition, and
prejudice, depending on the peculiar facts and circumstances of each case.” Houskins v.
Sheahan, 549 F.3d 480, 495 (7th Cir. 2008). Whether to bifurcate trial is a decision made on a
case-by-case basis and committed to the sound discretion of the district court. See Volkman v.
Ryker, 736 F.3d 1084, 1088-89 (7th Cir. 2000). Separation of issues should not be the custom,
but may be used when “experience has demonstrated its worth.” Ojeda-Beltran v. Lucio, No. 07
C 6667, 2008 WL 2782815, at *1 (N.D. Ill. July 16, 2008).
Here, given the pending Motion to Dismiss (Docket No. 28) will determine the
applicability of the Indiana Franchise Act, which is the Smith Franchisee’s basis for attorneys’
fees, the Court finds it premature to determine bifurcation at the trial stage. However, even if the
Act applies, the Court is not persuaded by the Smith Franchisees’ arguments for bifurcation.
First, all damage claims are necessarily contingent on establishing liability of the
underlying issues, thus the Smith Franchisees’ argument that attorneys’ fees are contingent is not
unique nor persuasive as to require bifurcation.
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Second, based on the Smith Franchisees’ own representations it seeks attorneys’ fees
under the Indiana Franchise Act. “In the United States, the prevailing litigant is ordinarily not
entitled to collect a reasonable attorneys’ fee from the loser.” Alyeska Pipeline Service Co. v.
Wilderness Society, 421 U.S. 240, 247 (1975). However, fees can be recoverable by some
exceptions to this common law rule, by statute, or by contract. Id. Fed. R. Civ. P. 54(d)(2)
provides “that a claim for attorneys’ fees . . . must be made by motion unless the substantive law
requires those fees to be proved at trial as an element of damages.” (emphasis added). The Smith
Franchisees have provided no authority that provides the Indiana Franchise Act requires fees to
be proved at trial as an element of damages, therefore the Court is unable to determine whether
the exception to Rule 54(d)(2) applies to even require a consideration of bifurcation. See Fednav
Int’l Ltd. v. Const’l Ins. Co., 624 F.3d 834, 842 (7th Cir. 2010) (stating courts are not required to
fill voids “by crafting arguments and performing the necessary legal research.)
Finally, the Smith Franchisees’ assert that bifurcation is necessary as counsel should not
have to disclose the contents of their representation with opposing counsel unless and until the
contingent claim for fees is ripe. It is well established that information regarding a client’s fees is
not protected by the attorney-client privilege because the payment of fees is not a confidential
communication between the attorney and the client. Matter of Witnesses Before the Special
March 1980 Grand Jury, 729 F.2d 489, 491 (7th Cir. 1984). The Smith Franchisees have
included attorneys’ fees as requested damages—thus making discovery requests as to the same
relevant. See Patterson v. Avery Dennison Corp., 281 F.3d 676, 681 (7th Cir. 2002). While the
Smith Franchisee can redact fee-related discovery as necessary to protect information under the
work product doctrine or the attorney-client privilege, bifurcation is not necessary. See Barlow v.
General Motors Corp., 2008 WL 906169, at *4 (S.D. Ind. March 31, 2008).
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For all the reasons stated above, the Court finds the Motion to Bifurcate the Smith
Franchisees’ Request for Attorneys’ Fees DENIED.
III.
THE SMITH FRANCHISEES’ AND THE DIER GRAF FRANCHISEES’
MOTION TO EXTEND CASE MANAGEMENT PLAN DEADLINES (Docket No.
85)
The Smith Franchisees and the Dier Graf Franchisees filed a Motion to Extend Case
Management Plan Deadlines on April 4, 2016, requesting that this Court extend the April 11,
2016, deadline to file motions for leave to amend the pleadings and/or join additional parties
until thirty (30) days after either: (1) ruling on pending motion to dismiss in the Smith Action
and the Dier Graf action or (2) receipt of full responses to the Franchisees requests for
production of documents, whichever is later. (Docket No. 85 at 3). For the following reasons, the
Court DENIES the Smith Franchisees and Dier Graf Franchisees’ Motion to Extend Case
Management Plan Deadlines.
On November 23, 2015, this Court approved the Case Management Plans (“CMP”).
(Docket No. 44; 1:15-cv-01111, Docket No. 40), which in pertinent part set the deadlines for all
motions for leave to amend the pleadings and/or to join additional parties for April 11, 2016.
(Docket No. 44 at 5; 1:15-cv-01111, Docket No. 40 at 5). The 7E Plaintiffs and Mr. Nielsen filed
a Fed. R. Civ. P. 12(b)(6) Motion to Dismiss in both the actions, which are currently pending
after the aforesaid date for leave to amend the pleadings and/or to join additional parties. (Docket
No. 28; 1:15-cv-01111, Docket No. 25). The Smith and Dier Graf Franchisees assert that they
anticipate filing motions for leave to amend their counterclaims and third-party complaints
and/or join additional parties depending upon the rulings of these aforesaid Motions to Dismiss.
(Docket No. 85 at 2).
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Fed. R. Civ. P. 15(a)(2) provides a mechanism for a party to amend pleading either with
the opposing party’s written consent or the court’s leave—which, “[t]he court should freely give
leave when justice so requires.” Related, Fed. R. Civ. P 16(b)(1) provides that the court must set
a deadline for amended pleadings. Said deadline can only be amended “upon a showing of good
cause.” Fed. R. Civ. P. 16(b)(4).
Here, the Smith and Dier Graf Franchisees have requested an extension of Section III,
paragraph D’s deadline for motions for leave to amend the pleadings and/or to join additional
parties based on the premise that they anticipate filing motions for leave to amend based on the
outcome of the pending Motion to Dismiss. (Docket No. 85 at 2) (emphasis added). However,
the Franchisees provide the Court no detail as to what those amendments may be—thus, the
Court is unable to determine whether said amendments are futile or whether the requirements
outlined in Rule 15(a)(2) or Rule 16(b)(4) are met. Given the Smith and Dier Graf Franchisees
have not provided the necessary proof to extend the CMP deadline, the Court finds the Motion
Extend Case Management Plan Deadlines DENIED. If the outcome of the pending Motion to
Dismiss does impact the Smith and Dier Graf Franchisees’ asserted counterclaims and/or
defenses, both Rule 15(a)2) and Rule 16(b)(4) provide the Franchisees tools to seek leave to
amend at that juncture.
IV.
MISCELLANEIOUS MOTIONS (Docket No. 94; Docket No. 101, also at1:15-cv01111, Docket No. 85)
The Smith and Dier Graf Franchisees filed a Request for Ruling on Their Unopposed
Motion to Compel on April 21, 2016, requesting that this Court grant its unopposed Motion to
Compel Discovery and set the matter for a hearing on the Smith and Dier Graf request for
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attorneys’ fees. (Docket No. 94 at 2). Given the Court’s rulings above, this request is moot and
therefore, STRICKEN.
The 7E Plaintiffs and Mr. Nielsen filed a Third Motion for Extension of Time to File a
Response to the above-discussed motions. (Docket No. 101; also at 1:15-cv-01111, Docket No.
85) on April 29, 2016. Previously, the Court had issued orders granting counsel’s first (Docket
No. 98) and second (Docket No. 100) extension requests, providing counsel until April 29, 2016,
to file 7E Plaintiffs and Mr. Nielsen’s responses to the aforesaid motions. Instead of filing a
response on April 29, 2016, counsel filed a third request for extension, citing deadlines in other
cases as factors necessitating this third extension. Ultimately, counsel did file a response on May
2, 2016, but without leave of the Court as the Third Motion for Extension of Time to File a
Response was still pending. Not only did the 7E Plaintiffs and Mr. Nielsen miss their deadline
and file the response brief late, but they also filed a response brief that violated Local Rule 7-1(a)
and Section 13 of the ECF Policies and Procedures Manual by including a counter motion within
the body of the document.
Because the 7E Plaintiffs and Mr. Nielsen failed to state a good cause for its third motion
for extension of time, the Court finds no basis under Fed. R. Civ. P. 6(b) to grant this third
motion. It is hereby DENIED. Therefore, Docket No. 103 and Docket No. 104; 1:15-cv-01111,
Docket No. 87 and Docket No. 88 are STRICKEN.
SO ORDERED.
Date: 05/09/2016
Served electronically on all ECF-registered counsel of record.
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