E3 Biofuels, LLC v. Biothane Corporation et al
ORDER - IT IS ORDERED that Defendant Perennial Energy, Inc.'s Motion to Compel, Motion for Sanctions, and Motion to Overrule Plaintiff's Claims of Privilege (filing 271 ) is granted, in part, as set forth above. Ordered by Magistrate Judge F.A. Gossett. (TCL )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
E3 BIOFUELS, LLC,
BIOTHANE, LLC, and PERENNIAL
This suit arises out of the construction of an Ethanol Plant in Mead, Nebraska.
Defendant Perennial Energy, Inc. (“PEI”) filed a Motion to Compel, Motion for Sanctions,
and Motion to Overrule Plaintiff’s Claims of Privilege (filing 271).1 The Motion will be
granted, in part.
Motion to Compel Information Pertaining to the Citizenship of all
PEI asks that the Court compel Plaintiff to provide “information pertaining to the
citizenship of all owners/investors in this business venture.” (Filing 272.) However, it is
unclear what PEI means by “business venture.” If PEI is requesting information regarding
the citizenship of Plaintiff’s owners, members and sub-members, its motion to compel seems
unnecessary because it appears that PEI already has this information. If, however, Plaintiff
has not yet provided this information, it shall do so within ten days of this order.
To the extent that PEI is seeking information pertaining to the citizenship of entities
in which Plaintiff has some business interest, such as AltEn Opportunity I, LP, PEI’s motion
will be denied because this information is irrelevant to the question of subject matter
PEI’s Motion also requested that this case be dismissed for lack of subject matter
jurisdiction. This portion of PEI’s Motion is addressed in a separate order.
jurisdiction.2 As the Court explained in its order on PEI’s motion to dismiss (filing 271), the
citizenship of those entities in which Plaintiff or its members have a partnership interest is
immaterial in evaluating whether the Court has diversity jurisdiction over this dispute. The
citizenship of a limited liability company, such as Plaintiff, is determined by the citizenship
of its members and sub-members. Again, PEI appears to have this information.
Motion to Compel Production of Settlement Agreements
PEI requests that the Court compel Plaintiff to produce a copy of the settlement
agreement that Plaintiff recently entered into with Zurich American Insurance Company
(“Zurich”). PEI maintains that the settlement agreement could reveal information about a
subrogation claim that Zurich may have against PEI pertaining to the issues involved in this
litigation. PEI also claims that Plaintiff threatened to initiate a second legal action against
PEI based upon the terms of the settlement agreement.
Plaintiff asserts that the settlement agreement with Zurich contains a confidentiality
clause, but that it is willing to produce a copy of the agreement if authorized to do so by
Zurich’s counsel. Plaintiff also represents that as part of the settlement agreement, Zurich
no longer has the right to subrogate against the defendants. Plaintiff asserts that, as a result
of the settlement, Zurich gave any subrogation rights against the defendants to Plaintiff.
This Court will order Plaintiff to provide a copy of the settlement agreement to PEI’s
counsel within ten days of this order. The settlement agreement shall, however, be marked
confidential and its disclosure shall be limited to counsel of record. Further disclosure will
not be permitted absent a showing of good cause.
Renewed Motion for Sanctions
PEI previously requested that the Court sanction Plaintiff for allegedly making false
representations by suggesting that Plaintiff and its shareholder, Dennis Langley (“Langley”),
no longer have control over the Ethanol Plant or access to certain documents. PEI argued
The Court is unaware of any other alleged basis for relevance of this information.
that those representations were false because Langley is Plaintiff’s sole shareholder and
Plaintiff owns 30% of the stock of AltEn, LLC, the Ethanol Plant’s owner. The Court denied
PEI’s request for sanctions, but in doing so, noted that PEI had legitimate concerns with
respect to Langley’s involvement with both Plaintiff and AltEn, LLC. (Filing 176.)
However, the Court determined there was insufficient evidence to show that Plaintiff had
made deliberate, false representations with respect to Langley’s involvement with both
Plaintiff and AltEn, LLC, or that Langley had misrepresented the scope of his authority to
produce documents on AltEn’s behalf. The Court cautioned Plaintiff that the issue of
sanctions could be revisited if evidence came to light that Plaintiff had, in fact, been making
misrepresentations with respect to the documents it is able to produce.
PEI has now renewed its request for sanctions, arguing that, in response to an
interrogatory, Plaintiff falsely represented that it does not own any stock of AltEn
Opportunity I, LP. PEI also claims that sanctions are appropriate because Plaintiff falsely
stated in response to a document production request that it did not possess or control the
articles of incorporation or bylaws of AltEn, LLC, AtlEnergy Holdings, LLC or AltEn
Opportunity I, LP. PEI claims that Plaintiff had the practical ability to produce the
documents because Plaintiff’s counsel, Phillip Rouse (‘Rouse”),3 and Langley had the
combined authority to manage AltEn, LLC and make decisions for that entity to produce
requested information for this case.
The Court will deny PEI’s renewed request for sanctions. Rouse’s deposition
testimony suggests that Plaintiff may have a thirty-eight percent limited partnership interest
in AltEn Opportunity I, LP. However, the Court is unable to conclude that Plaintiff’s
statements in its interrogatory responses were intentionally false. A review of the corporate
structures of the entities in question is complex. If an omission with respect to a limited
partnership interest was made, it is easy to see how such a mistake or oversight occurred.
When Langley and Rouse were questioned about the business relationships between the
entities in their depositions, they provided detailed accounts - even providing sketches to aid
their explanations. It does not appear that Plaintiff made any deliberate misrepresentations.
Rouse and Langley are two of the three managers of AltEn, LLC, the current owner
of the Ethanol Plant.
The Court likewise finds Plaintiff’s claims regarding its ability to produce AltEn,
LLC’s records an insufficient basis for sanctions. Rouse explained during his deposition that
Langley did not have the ability to “control” AltEn, LLC or direct it to produce documents
for this litigation. Rouse further testified that Plaintiff’s concerns regarding document
production stemmed from the need to observe corporate formalities, given that Plaintiff and
AltEn, LLC are separate legal entities. PEI ultimately served AltEn with a subpoena, and
AltEn provided responsive documents. Sanctions are not warranted.
Motion to Overrule Plaintiff’s Claims of Privilege
In connection with discovery, Plaintiff provided PEI a privilege log, asserting that
several email communications are privileged. From the log, it appears that many of the
emails were not authored by Plaintiff’s counsel and that several of the communications
included individuals claimed by Plaintiff to be independent contractors or individuals from
entities not affiliated with Plaintiff. Plaintiff’s counsel was included on each of the emails.
In its initial brief, PEI argued that the identified documents are not privileged because
they are not confidential communications between Plaintiff’s representatives or its counsel.
PEI pointed out that the communications were not authored by Plaintiff’s counsel. PEI also
asserted that Plaintiff had waived any privilege with respect to several documents because
Plaintiff had disclosed the documents in other litigation.
Plaintiff responded to PEI’s arguments, stating that although emails were not authored
by Plaintiff’s counsel, they were received by Plaintiff’s counsel from Plaintiff. Plaintiff also
noted that because PEI appeared to have the documents which were supposedly disclosed in
other litigation, PEI’s argument concerning the waiver of privilege as to those documents
was unnecessary. In its reply brief, PEI clarified the basis for its motion to overrule
Plaintiff’s claims of privilege. PEI explained that it questioned the confidentiality of the
emails because they copied or included third-parties.
With this background in mind, the Court will order Plaintiff to submit the subject
documents for in camera review. Plaintiff shall also advise the Court as to which of those
documents, if any, were disclosed in other litigation and whether those documents were
subject to a protective order or any other disclosure restriction in that litigation. Plaintiff
shall do so within ten days of this Order. Further, PEI shall identify, within ten days of this
Order, the subject documents that it currently has in its possession.
Upon consideration of the parties’ respective arguments,
IT IS ORDERED that Defendant Perennial Energy, Inc.’s Motion to Compel, Motion
for Sanctions, and Motion to Overrule Plaintiff’s Claims of Privilege (filing 271) is granted,
in part, as set forth above.
DATED September 19, 2013.
BY THE COURT:
S/ F.A. Gossett
United States Magistrate Judge
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