HCI Distribution, Inc. et al v. Peterson et al

Filing 92

ORDER Defendants' Motion to Compel and Motion for a Protective Order (Filing No. 85 ) is granted, in part, as set out above. Plaintiffs shall respond to Interrogatory Nos. 14 and 16 by May 7, 2021. Defendants may revise and re-serve Interro gatory Nos. 11 and 13 in accordance with guidance set out in this Order. The revised requests shall be served no later than May 7, 2021. A telephone status conference will be held on April 23, 2021 at 2:00 p.m. before Magistrate Judge Susan M. Baz is. The remaining case progression deadlines will be set during the status conference. The parties shall submit joint proposed case progression deadlines to [e-mail] by 12:00 p.m. on April 21, 2021. Case conference instructions are found at Filing No. 38 . Ordered by Magistrate Judge Susan M. Bazis. (LRM)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
HCI DISTRIBUTION, INC., and ROCK
RIVER MANUFACTURING, INC.,
Plaintiffs,

8:18CV173
ORDER

vs.
DOUGLAS J. PETERSON, Nebraska Attorney
General; and TONY FULTON, Nebraska Tax
Commissioner;
Defendants.
This matter is before the Court on Defendants’ Motion to Compel and Motion for a
Protective Order (Filing No. 85). For the reasons explained below, the motion will be granted, in
part, as set out below.
BACKGROUND
This action was filed on April 20, 2018. Plaintiffs HCI Distribution, Inc. (“HCID”) and
Rock River Manufacturing (“Rock River”) (collectively, “Plaintiffs”) seek a declaration of rights
pursuant to 28 U.S.C. § 2201 and injunctive relief pursuant to 28 U.S.C. § 2202 regarding the
enforcement of Nebraska’s statutes regulating tobacco product manufacturing and distribution.
Specifically, Plaintiffs, who claim to be tribal entities, seek to prevent Defendants from enforcing
Nebraska’s escrow and directory laws against them.
On March 22, 2019, Defendants served requests for production (“RFP”) on HCID and
Rock River. On May 22, 2019, Plaintiffs responded and objected to the RFPs. Following a meet
and confer process, the parties were able to resolve Plaintiffs’ objections to several of the RFPs,
but the parties were unable to resolve Plaintiffs’ objections to Defendants’ RFP Nos. 11 (to HCID)
and 13 (to Rock River). These RFPs request information regarding cigarette tax stamps. The
parties were also unable to resolve Plaintiffs’ objections to Defendants’ RFP Nos. 14 (to HCID)
and 16 (to Rock River). These requests seek information regarding tribal regulation.
The parties participated in a conference call with the Court to discuss the ongoing discovery
dispute on October 16, 2020. Defendants were granted leave to file this motion.

DISCUSSION
Pursuant to Federal Rule of Civil Procedure 26(b)(1), “[p]arties 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.” Fed. R. Civ. P. 26(b)(1).

Relevancy is broadly construed, and

“[d]iscovery requests should be considered relevant if there is any possibility the information
sought is relevant to any issue in the case and should ordinarily be allowed, unless it is clear the
information sought can have no possible bearing on the subject matter of the action.” Met-Pro
Corp. v. Industrial Air Technology, Corp., No. 8:07CV262, 2009 WL 553017, *3 (D. Neb. Mar. 4,
2009).

“The proponent of discovery must make a threshold showing of relevance before

production of information, which does not reasonably bear on the issues in the case, is required.”
Id. “Mere speculation that information might be useful will not suffice; litigants seeking to compel
discovery must describe with a reasonable degree of specificity, the information they hope to
obtain and its importance to their case.” Id.
Defendants request that Plaintiffs be compelled to produce documents responsive to RFP
Nos. 11 and 13 regarding the purchase and application of cigarette tax stamps, and RFP Nos. 14
and 16 regarding tribal regulation of cigarettes.1 RFP No. 11 to HCID requests “[a]ll documents
related to HCID’s purchase and application of cigarette tax stamps from January 1, 2014 to the
present.” RFP No. 13 to Rock River similarly requests “[a]ll documents related to [Rock River’s]
purchase and application of cigarette tax stamps from January 1, 2014 to present.” RFP No. 14
to HCID seeks “[a]ll documents related to HCID’s communications with, requests to,
authorizations by, denials from, or prohibitions by any tribal governmental entity located within
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Defendants’ motion also requests that the Court enter a protective order preventing Defendants from
having to search for and produce documents as requested in Plaintiffs’ RFP No. 13. Plaintiffs have since
withdrawn this discovery request. (Filing No. 88.) Therefore, Defendants’ request for a protective order
will not be addressed in this Order. Moreover, Defendants’ motion requests that this Court compel
Plaintiffs to produce documents responsive to RFP Nos. 9, 10, 12, and 13 to HCID and RFP Nos. 9-12, 14,
and 15 to Rock River. Defendants claim Plaintiffs previously agreed to respond to these requests using
negotiated search terms but have failed to produce the documents. Plaintiffs do not appear to dispute that
they agreed to respond to the requests and have indicated they are currently in the process of reviewing
thousands of documents for production to Defendants. The Court assumes that these documents have been
produced to Defendants at this point. If they have not, the parties shall confer regarding the production of
documents responsive to RFP Nos. 9, 10, 12, and 13 to HCID and RFP Nos. 9-12, 14, and 15 to Rock River.
If a further dispute arises as to the production of these items, the parties shall contact the Court to schedule
a telephone conference.

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Nebraska pertaining to the manufacture, distribution, transport, wholesale, stamping, possession,
sale, or retail of cigarettes.” RFP No. 16 to Rock River likewise seeks “[a]ll documents related to
[Rock River’s] communications with, requests to, authorizations by, denials from, or prohibitions
by any tribal governmental entity located within Nebraska pertaining to the manufacture,
distribution, transport, wholesale, stamping, possession, sale, or retail of cigarettes.”
Defendants argue that the issue of the application and enforceability of the escrow and
directory laws will be subject to review pursuant to the interest balancing test set out in White
Mountain Apache Tribe v. Bracker, 448 U.S. 136 (1980)2 and, therefore, the Court needs full
discovery to evaluate whether the escrow and directory laws “infringe on the right of reservation
Indians to make their own laws and be ruled by them.” HCI Distribution, Inc. v. Peterson, 360 F.
Supp.3d 910, 922 (D. Neb. 2018) (stating “even if the MSA laws better fit the paradigm of a
regulatory scheme, the laws would be subject to review pursuant to the Bracker interest-balancing
test”). In support of their argument for broad discovery, Defendants point to a previous order in
this case in which the Court stated that it anticipated “a full evidentiary record will be required
before it may undertake a complete resolution of the parties’ claims and contentions pursuant to
the Indian Commerce Clause.” Id.
Plaintiffs argue the discovery requests infringe upon their inherent tribal sovereignty and,
in addition, burden other tribal entities’ sovereignty. Plaintiffs contend the business records sought
have nothing to do with the issue presented in this litigation, i.e., whether the State of Nebraska
can require the Plaintiffs to comply with its escrow and directory laws. Plaintiffs argue Defendants
are using the discovery process as a fishing expedition to obtain information to potentially use in
a subsequent enforcement action. Plaintiffs maintain they should only have to produce records to
determine whether they have complied with Nebraska’s tax and escrow laws if the Court first
concludes they must comply with those laws. Plaintiffs acknowledge that a protective order

“When a State seeks to impose a nondiscriminatory tax on the actions of nonmembers on tribal land, its
authority is not categorically limited. Instead, the Supreme Court applies a flexible analysis to determine
whether state taxation of nonmembers on Indian land is proper, often called the Bracker balancing test.”
Flandreau Santee Sioux Tribe v. Noem, 938 F.3d 928, 932 (8th Cir. 2019). “Each case requires a
particularized examination of the relevant state, federal, and tribal interests.” Id. (internal quotation
omitted).
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prohibiting the disclosure of confidential information has been entered in this case but argue
Defendants will not “magically forget” the information learned in this case if a subsequent
enforcement action is brought.
Plaintiffs propose that rather than directly responding to Defendants’ requests, they provide
a detailed outline of their business model, with aggregate figures for sales in the following
categories: (1) on tribal land sales to tribal members; (2) on tribal land sales to non-tribal members;
and (3) off tribal land sales to non-tribal members. Plaintiffs contend this outline will allow the
Court to determine whether and how Nebraska may impose its escrow and directory laws upon
each of those types of sales. Plaintiffs maintain that because the issues involved in this litigation
are purely legal in nature, this procedure would be proportionate, less expense, less burdensome,
and respectful of tribal sovereignty.
1.

RFP No. 11 (HCID) and RFP No. 13 (Rock River)

Defendants argue that a dispute concerning the applicability of the escrow and directory
laws requires an examination of cigarette tax compliance and tax stamping. Defendants maintain
this is true because only cigarettes that are “units sold” must comply with Nebraska’s escrow and
directory laws. “Units sold” are defined by Nebraska law as cigarettes sold “in packs required to
bear a stamp.” Neb. Rev. Stat. § 69-2702. Defendants maintain that because Nebraska has an
interest in ensuring compliance with its tax laws, “[a]n understanding of Plaintiffs’ stamp
purchases, stamp applications, and the cigarettes sold by Plaintiffs (with or without those stamps)
. . . is integral to an understanding of when and how the escrow and directory laws may or may not
apply to Plaintiffs.” (Filing No. 86.) See HCI Distribution, Inc. v. Peterson, 360 F. Supp.3d 91920 (D. Neb. 2018) (“[A] state has a valid interest in ensuring compliance with lawful taxes that
might otherwise be evaded”). Defendants contend this information is necessary for the Court to
properly perform the Bracker interest balancing test.
Plaintiffs maintain the requests are overly broad and burdensome. Plaintiffs surmise that
the requests seek to determine whether Plaintiffs purchased or applied for tax stamps. Plaintiffs
claim that rather than request all records related to any such purchase or application, Defendants
could simply ask this question in an interrogatory or during a deposition. Plaintiffs complain that
Defendants have requested all records related to tax stamp purchases or applications without first
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establishing that Plaintiffs made any such purchases or applications.

Plaintiffs agree with

Defendants that an understanding of Plaintiffs’ stamp purchases, stamp applications, and the
cigarettes sold by Plaintiffs could be useful in determining when and how the escrow and directory
laws may or may not apply to Plaintiffs. However, Plaintiffs contend that many of the records
sought through these discovery requests would not further that understanding. As an example,
Plaintiffs contend an interrogatory about whether, when, and from whom Plaintiffs applied for or
purchased tobacco stamps would be reasonable, but that a request for all documents, including all
communications between Plaintiffs and anyone else, regarding tobacco stamps is not.
The Court agrees with the parties that information regarding Plaintiffs’ stamp purchases,
stamp applications, and cigarettes sold by Plaintiffs is relevant to the issues in this case. However,
the Court finds the wording of these RFPs overly broad, as they seek “[a]ll documents related to”
without any specificity. The Court will not limit Defendants to simply seeking this information
through interrogatories or a deposition as suggested by Plaintiffs or by settling for a summary of
information as also proposed by Plaintiffs. Rather, the Court will allow Defendants to revise these
discovery requests to identify the precise information sought—just for example, actual stamp
applications or written communications between certain types of entities or people regarding stamp
applications, etc. The use of sub-parts in drafting may be necessary for Defendants to achieve the
appropriate level of specificity. The parties are advised that the Court will not entertain objections
based only on the number of sub-parts used by Defendants in attempting to gain the information
sought.
2.

RFP No. 14 to HCID and RFP No. 16 to Rock River

Defendants argue documents related to communications Plaintiffs had with other tribal
governmental entities are relevant because Plaintiffs’ Complaint alleges Plaintiffs have complied
with tribal regulations.

For example, the Complaint alleges “HCID uses all diligence in

ascertaining and complying with applicable laws” and HCID ships tobacco products “in
accordance with applicable tribal law.” (Filing No. 1.) The Complaint further alleges that the
Winnebago Tribe “imposes a tax on the sale of cigarettes within its jurisdiction.” (Filing No. 1.)
Defendants argue these allegations make Plaintiffs communications with tribal government entities
regarding the manufacture, distribution, transport, wholesale, stamping, possession, sale, or retail
of cigarettes relevant to this case. Plaintiffs contend, however, that these requests burden their
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right to tribal sovereignty, as well as the rights of other tribal entities. Plaintiffs also argue that
these requests are designed to obtain business records for use in a potential enforcement action.
The Court finds the information sought relevant to the issues involved in this case.
Plaintiffs allege in the Complaint that they comply with tribal laws and that the Winnebago Tribe
taxes sales of cigarettes within its jurisdiction. Defendants are entitled to discovery related to these
allegations. Plaintiffs have not pointed the Court to any authority substantiating their position that
discovery should be limited based on purported tribal affiliation, particularly in a case in which
the entity claiming to possess tribal sovereignty filed the lawsuit.

Further, there has been no

showing that responding to the requests would be overly burdensome. The Court appreciates
Plaintiffs’ concerns regarding misuse of the requested information. However, a protective order is
in place and sanctions exist for violations of such orders. The Court has no reason to doubt that
the parties and counsel will abide by the terms of the Protective Order.
Accordingly,
IT IS ORDERED that Defendants’ Motion to Compel and Motion for a Protective Order
(Filing No. 85) is granted, in part, as set out above. Plaintiffs shall respond to Interrogatory Nos.
14 and 16 by May 7, 2021. Defendants may revise and re-serve Interrogatory Nos. 11 and 13 in
accordance with guidance set out in this Order. The revised requests shall be served no later than
May 7, 2021.
A telephone status conference will be held on April 23, 2021 at 2:00 p.m. before Magistrate
Judge Susan M. Bazis. The remaining case progression deadlines will be set during the status
conference. The parties shall submit joint proposed case progression deadlines to
[e-mail] by 12:00 p.m. on April 21, 2021. Case conference instructions are found
at Filing No. 38.
Dated this 7th day of April, 2021.
BY THE COURT:
s/ Susan M. Bazis
United States Magistrate Judge
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