Malone et al v. Kantner Ingredients, Inc. et al
ORDER denying 268 Motion to Compel. Ordered by Magistrate Judge Cheryl R. Zwart. (Zwart, Cheryl)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
THERESA MALONE, individually and as
a derivative action on behalf of Blue Valley
Foods, Inc., a Nebraska corporation, et. al;
KANTNER INGREDIENTS, INC., et. al;
The plaintiffs have moved to compel tax returns and related records for Blue
Valley Foods, Inc., Douglas Kantner, and the Kantner Companies. (Filing No. 268).
As stated in the plaintiffs’ brief:
This action is at its heart a shareholder derivative action, whereby the
Plaintiffs, as minority shareholders of the corporation, have requested a
complete accounting of the corporate books of Blue Valley Foods, Inc. The
primary aim of that is to determine whether and how Defendants Kantner
and Rutter, as Directors of Blue Valley Foods, Inc., breached their fiduciary
duties to the company or engaged in fraud or other wrongdoing that harmed
(Filing No. 269).
On February 17, 2009, Blue Valley Foods (BVF) was placed into receivership by
the Superior Court of the State of Arizona for the County of Maricopa. MCA Financial
Group, Ltd. was the court-appointed receiver. (Filing No. 277-1, at CM/ECF p. 6). Over
the following eight months, the assets of Kantner Ingredients, Inc. and BVF were
liquidated by the receiver. All proceeds were used to pay either the garnishment held by
Christopher Michael & Associates or the loan owed to Wells Fargo Bank. The assets of
both Kantner Ingredients, Inc. and BVF had been pledged as collateral to secure the
Wells Fargo loan. (Filing No. 277-1, at CM/ECF p. 7).
BVF had ceased its production operations located in Hebron, Nebraska before the
receiver was appointed. And by July of 2009, it had terminated its employees and ceased
all operations. (Filing No. 277-1, at CM/ECF p. 8). On August 6, 2009, Defendant
Douglas Kantner injected $125,000 to fund the Kantner Companies’ operations. On
August 21, 2009, he infused an additional $225,000 into the Kantner Companies to pay
off the remaining debt owed to Wells Fargo. (Filing No. 277-1, at CM/ECF p. 10). As
of October 26, 2009, the court-appointed receiver reported:
The Receiver has liquidated the majority of assets of KI and BVF which
were the collateral of WF. All proceeds were remitted to WF and used to
reduce the debt owed by the Kantner Companies. In addition, MCA
worked with Doug Kantner to liquidate the assets of KCDP which proceeds
were also used to reduce the debt owed by the Kantner Companies. Doug
Kantner also injected cash into the Kantner Companies sufficient to pay off
the WF debt in full. As of the date of this report, both KI and BVF have
terminated all employees and ceased operations and WF has been paid in
(Filing No. 277-1, at CM/ECF p. 13).
The above-captioned lawsuit was filed in the District Court of Thayer County,
Nebraska on May 20, 2011.
(Filing No. 1-1).
The plaintiffs served discovery on
Defendant Douglas Kantner in late-2011, and within that discovery, they demanded
production of all state and federal income tax returns for BVF from 2002 through the
present. In his response dated January 23, 2012, Douglas Kantner stated he had “no
responsive documents and no access to any responsive documents. As indicated in the
previous discovery responses, to the best of my knowledge all documentation was taken
by the receiver and dealt with and retained within the receivership.” (Filing No. 119-1, at
CM/ECF p. 10).
In their April 2012 responses to Plaintiffs’ written discovery, Defendants stated
“Blue Valley Foods has had no assets or operations since the sale of its assets in 2009,”
and “the receivership that was filed in 2009 stripped the officers and directors of Blue
Valley Foods of any authority to act on behalf of Blue Valley Foods.” (Filing No. 119-3,
at CM/ECF p. 4). After tracking down information from outside sources, including the
receiver, the defendants disclosed BVF’s tax returns through 2009. It did not disclose the
returns for the following years, stating BVF’s post-liquidation tax returns were irrelevant
to Plaintiffs’ claims.
The case was removed to this forum on September 9, 2012. (Filing No. 1). ESI
discovery battles ensued. During the course of that discovery, the defendants disclosed
the 2010 through 2014 tax returns for BVF, and the 2010 personal tax return of
Defendant Douglas Kantner. (Filing No. 241-1 through 241-6). After reading those
documents, the plaintiff believes BVF continued as an ongoing business after the 2009
liquidation, and although the plaintiffs remained stockholders, they were not paid
distributions and dividends in accordance with their shareholder interests.
The plaintiffs served additional document production requests, asking for
Defendant Douglas Kantner’s personal tax returns and the corporate tax returns for
Kantner Ingredients, Inc., Kantner Group, Inc., Chianti Cheese of New Jersey, Inc., and
Kantner Custom Dairy Inc. for the 2010-2013 tax years. Plaintiffs also request all
working papers provided to the corporate entities’ accountant for preparation of the
returns, all documentation of inter-company transactions, and all documentation of funds
received by these entities from June 31, 2009 to the present. (Filing No. 270-1). The
defendants have refused to produce the requested documents, stating:
The Defendants object to this request as it is seeking information that is
neither relevant nor reasonably calculated to lead to admissible or relevant
information. The Defendant companies were liquidated in 2009, and as
reflected in the Second and Final Receiver's Report, after the sale of its
assets by the Receiver, Blue Valley Foods wound down its operations,
terminated its employees and ceased all operations. Any information or
documents after that date is merely requested for purposes of harassment
and other improper purposes, and the Defendants object to any request for
information after the date the Defendant companies were liquidated.
(Filing No. 270-1).
Plaintiffs have moved to compel full and complete discovery responses, claiming
the requested information is relevant, and Defendants and their counsel have lied and
hidden information during the course of this lawsuit. Plaintiffs claim that although they
were BVF shareholders and BVF earned income between 2010 and 2013, they never
received a K1 nor an income distribution during that time frame. Plaintiff’s counsel
states that the corporate tax return for BVF for 2010 establishes that in that tax year:
Intercompany accounts receivable from Kantner Custom Dairy Products
increased from zero to $482,142.
Intercompany accounts receivable from Kantner Group increased from zero
Intercompany accounts payable to Chianti Cheese Company of New Jersey,
Inc. increased from zero to $348,192.
Intercompany accounts payable to Kantner Ingredients increased from zero
(Filing No. 279, at CM/ECF p. 2-3). Upon reviewing the report of Plaintiffs’ accounting
expert, Defendants’ expert asked for information explaining the basis for BVF’s
receivables and payables entries for 2010. (Filing No. 280-3).
The record does not include any report or statement of an expert witness
explaining BVF’s post-liquidation tax returns. Upon the court’s review, the BVF post4
liquidation returns include some positive numbers, many negative numbers, and an
ultimate finding that BVF owed no income tax.
To the extent not already disclosed by Defendants, any receipts and business
documents underlying the accounts receivable and payable entries in BVF’s 2010 tax
return shall be provided to Plaintiffs.
From the record before the court, it appears
Defendants’ expert needed this information to fully evaluate the case. And presumably
that information was provided. The same information should be available for review by
With that exception, Plaintiffs’ motion to compel is denied. Plaintiffs’ counsel
argues that upon reading Douglas Kantner’s 2010 tax return and BVF’s post-liquidation
tax returns, it is clear that BVF remained an ongoing business after it was liquidated.
Plaintiffs claim the defendants have expressly and falsely denied or purposefully
concealed BVF’s post-liquidation business dealings and profit distributions.
The court is able to understand the court-appointed receiver’s report to the Arizona
court, including the statement that BVF’s operations were shut down and its employees
were terminated in 2009.
Without expert assistance, the court is not capable of
deciphering BVF’s post-liquidation corporate tax returns.
The information within
Douglas Kantner’s 2010 tax return and BVF’s post-liquidation tax returns does not, to my
lay understanding, show that BVF was resurrected as a going concern following its
liquidation, and that profits were thereafter improperly withheld from the plaintiffs.
Perhaps these tax returns support the plaintiffs’ allegations; perhaps not.
plaintiffs must make a threshold showing of relevance. And in the absence of any expert
guidance explaining the tax returns currently before the court, the plaintiffs have failed to
meet their burden of showing the post-2009 tax returns of Douglas Kantner and the
Kantner entities are relevant to the plaintiffs’ claim that BVF continued as a business
after it was liquidated.
In addition, the plaintiffs are pursuing this action as minority shareholders of BVF.
The question of whether they remained shareholders following BVF’s liquidation is
currently before Judge Gerrard on a motion for summary judgment. The issue is also
important for ruling on the pending motion to compel.
That is, if the plaintiffs’
shareholder status in BVF ceased at the time of BVF’s liquidation, the financial
information describing BVF’s post-liquidation business transactions and associations is
likely irrelevant—irrespective of whether BVF continued operating after it was
IT IS ORDERED:
To the extent not already disclosed by Defendants, any receipts and
business documents underlying the accounts receivable and payable entries
in BVF’s 2010 tax return shall be provided to Plaintiffs.
2)In all other respects, Plaintiffs’ motion to compel, (Filing No. 268), is denied.
May 19, 2015.
BY THE COURT:
s/ Cheryl R. Zwart
United States Magistrate Judge
The undersigned magistrate judge will not address the potentially dispositive issue
currently pending before Judge Gerrard when ruling on this discovery dispute.
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