FALATO et al v. FOTOGRAFIXUSA, L.L.C. et al
Filing
150
MEMORANDUM OPINION. Signed by Magistrate Judge Tonianne J. Bongiovanni on 4/29/2013. (gxh)
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
DEIDRE M. FALATO, et al.,
Civil Action No. 09-5232 (MAS)
Plaintiffs,
v.
MEMORANDUM OPINION
FOTOGRAFIXUSA, L.L.C., et al.,
Defendants.
BONGIOVANNI, Magistrate Judge
This matter comes before the Court upon Defendant Raymond Hoather’s (“Hoather”)
motion to quash the subpoena served on the manager of Barter N.J., an independent franchisee of
ITEX Corporation, seeking “[a]ll records/statements concerning ITEX account held by Raymond
R. Hoather (Seaside Heights, NJ and Florida), and Fotografixusa, LLC, Fotografixusa, Inc.,
Vogue Graphics, Inc., Atlantic Financial Group, Inc.” (Hoather Motion, Ex. RH-SUB-1; Docket
Entry No. 129).1 Plaintiffs oppose Hoather’s motion. The Court has reviewed all arguments
submitted in support of and in opposition to Hoather’s motion. The Court considers Hoather’s
motion without oral argument pursuant to FED.R.CIV.P. (“Rule”) 78. For the reasons set forth
more fully below, Hoather’s motion to quash the subpoena served on Barter N.J. is DENIED.
I.
Background
This is a securities fraud action in which Plaintiffs assert violations of the Securities Act
of 1933 and the Securities Act of 1934 as well as various breach of contract and fraud claims
1
Hoather filed the instant motion to quash in his individual capacity and in his capacity as CEO and President of
Fotografixusa LLC N/K/A Fotografixusa Inc. While Hoather is permitted to represent himself pro se, he cannot
represent either Fotografixusa, L.L.C. (the “LLC”) or Fotografixusa Inc. (the “Inc.”) (collectively, “Fotografixusa”)
pro se. Instead, corporations must be represented by counsel. As a result, this motion has not been filed on behalf
of either company.
against Hoather and Fotografixusa in relation to Plaintiffs’ investment in Fotografixusa
beginning in 2008. Currently at issue is Hoather’s motion to quash the subpoena served on the
manager of Barter N.J., which, according to a handwritten note on the subpoena, appears to be
Carolyn Barz.2 According to the website associated with Barter N.J., Barter N.J. is an
independent franchisee of ITEX Corporation. See http://203245.itex.com (last visited April 24,
2013). Plaintiffs’ subpoena to Barter N.J. (the “ITEX subpoena”) seeks “[a]ll records/statements
concerning ITEX account held by Raymond R. Hoather (Seaside Heights, NJ and Florida), and
Fotografixusa, LLC, Fotografixusa, Inc., Vogue Graphics, Inc., Atlantic Financial Group, Inc.”
(Hoather Motion, Ex. RH-SUB-1; Docket Entry No. 129). Via the instant motion, Hoather seeks
to quash the ITEX subpoena.
Hoather seeks to quash the ITEX subpoena on several grounds. In large part, Hoather
bases his motion to quash on the fact that Plaintiffs filed suits as individuals and have no
standing to demand documents from third party corporations in which they have no interest.
Hoather also suggests that service of the subpoena on Carolyn Barz was inappropriate because
Ms. Barz has never been ITEX’s Broker of Record for any of the companies mentioned in the
subpoena. In addition, Hoather argues that the ITEX subpoena is overly burdensome and
oppressive because it does not contain any date limitation. Hoather also argues that to the extent
the ITEX subpoena seeks documents prior to 2008, the information sought is not relevant.
Further, Hoather argues that the subpoena should be quashed because it is untimely under the
schedule set in the Court’s Letter Order entered on May 22, 2012, which set September 14, 2012
as the fact discovery deadline. In this regard, Hoather notes that the ITEX subpoena wasn’t
2
Though based on information contained on the relevant website, it would appear that the correct spelling of Ms.
Barz’s name may be Carolyn Barszcz. See http://203245.itex.com (last visited April 24, 2013).
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served until September 5, 2012, meaning that any response to same would not be due until after
fact discovery was set close.
Hoather also raises specific objections based on the individual people/entities listed in the
ITEX subpoena. These arguments follow:
(1)
to the extent Plaintiffs seek all documents concerning any ITEX account held by
him, Hoather claims that he is not a personal member of ITEX;
(2)
as to the LLC, Hoather argues that because the LLC was converted to the Inc. and
because Plaintiffs have admitted that they were not shareholders of the LLC,
Plaintiffs have no standing to demand documents related to the LLC as
individuals;
(3)
with respect to the Inc., Hoather argues that Plaintiffs are shareholders of the Inc.,
but they have filed a direct action as individuals against the Inc. rather than a
shareholders derivative suit on behalf of the corporation; as such, Hoather claims
that Plaintiffs have no standing to demand documents as individuals to obtain the
information sought;
(4)
as to Vogue Graphics, Inc. (“Vogue”), Hoather, as set forth above, argues that
because Plaintiffs filed this lawsuit as individuals, they have no standing to
demand documents from third party corporations, like Vogue, in which they have
no interest. Further, Hoather claims that because he, individually, is not a
partnership or joint business venture, Plaintiffs have no standing to seek
documents regarding his third party interests in companies in which Plaintiffs
have no interest. Hoather also contends that even if Plaintiffs somehow had
standing to seek documents from Vogue, a company that he owned and operated
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from 1996 to 2005, because Vogue was closed in 2005 the documents sought are
irrelevant; and
(5)
with respect to Atlantic Financial Group Inc. (“Atlantic Financial”), Hoather first
takes issue with the fact that that is not the correct name of the company; instead,
according to Hoather, the correct name is Atlantic Financial Group Enterprises
LLC. Hoather also raises essentially the same arguments raised with respect to
Vogue. First, Hoather claims that because Plaintiffs filed this lawsuit as
individuals, they have no standing to demand documents from third party
corporations, like Atlantic Financial, in which they have no interest. Further,
Hoather contends that because he, individually, is not a partnership or joint
business venture, Plaintiffs have no standing to seek documents regarding his
third party interests in companies in which Plaintiffs have no interest. Similarly
Hoather argues that even if Plaintiffs somehow had standing to seek documents
from Atlantic Financial, a company that he owned and operated from 2006 to
2007, because Atlantic Financial ceased trading in 2007, the documents sought
are irrelevant.
Plaintiffs oppose Hoather’s motion to quash claiming that discovery into the ITEX
accounts held by Hoather, the LLC, the Inc., Vogue and Atlantic Financial is relevant to
Plaintiffs’ claims here. Plaintiffs rely on counsel’s Certification to support this claim. In this
regard, Plaintiffs’ counsel certifies:
2. Because defendant Hoather has concealed from plaintiffs the
use to which their $135,000.00 investment was put, and refused to
disclose the finances of the corporation which they had invested in,
and filed a Chapter 7 Petition in Bankruptcy ascribing no value to
the defendant Fotografixusa, Inc., yet did send e mail dated 6/3/09
boasting of having “a large amount of barter money in our (ITEX)
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account and we could hire attorneys in florida to defend our
position and then counter sue for damages once proven frivolous
and malicious and unjustified.”
3. Since he filed his Bankruptcy Petition in 12/10 and listed his
shares of stock in Fotografixusa, Inc. as worthless (while filing
2010 tax return showing himself as sole owner of Fotografixusa,
Inc. on his Schedule C attributing $14,920.00 of income to that
entity), discovery into that ITEX account is germane and likely to
lead to admissible evidence.
(Certification of Alfred J. Petit-Clair, Jr. of 9/28/2012; Docket Entry No. 141).
Hoather responds to Plaintiffs’ opposition arguing that the tax return referenced by
Plaintiffs has “no bearing on the case” and was filed as an administrative necessity in light of the
fact that he was required to “stay in New Jersey to defend this action[.]” (Hoather Reply at 1-2;
Docket Entry No. 142). As such, Hoather argues that he stayed in New Jersey beyond the 6
month residency requirement and technically earned the reported money in New Jersey. (See
Id.) Hoather also reiterates the arguments made in his motion claiming that Plaintiffs lack
standing to seek the information requested in the ITEX subpoena. Again, Hoather focuses on the
fact that Plaintiffs filed this case as individuals instead of filing a shareholders derivative suit.
Hoather also claims that by pursuing this case in the manner they have, Plaintiffs are improperly
attempting to pierce the corporate veil not only of Fotografixusa but also of several other
companies that Hoather operated. In addition, Hoather argues that Plaintiffs have unclean hands
and are responsible for crippling the Inc. and Hoather himself. Consequently, Hoather argues
that the ITEX subpoena should be quashed.
II.
Analysis
A. Legal Standard
Motions to quash subpoenas are governed by Rule 45. According to Rule
45(c)(3)(A)(iv), the Court must quash or modify a subpoena that “subjects a person to undue
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burden.” Further, while Rule 45(c)(1) requires the attorney “responsible for issuing and serving
a subpoena” to “take reasonable steps to avoid imposing undue burden or expense on a person
subject to the subpoena[,]” it is the person claiming undue burden who must establish same.
Nye v. Ingersoll Rand Company, Civ. No. 08-3481 (DRD), 2011 WL 253957, *6 (D.N.J. Jan. 25,
2011); OMS Investments, Inc. v. Lebanon Seaboard Corp., Civil Action No. 08-261 (AET), 2008
WL 4952445, at *2 (D.N.J. Nov. 18, 2008).
Discovery sought through a subpoena issued pursuant to Rule 45 must fall within the
scope of discovery permitted under Rule 26(b). See OMS Investments, 2008 WL 4952445, *2.
Pursuant to Rule 26, the scope of discovery in civil matters is quite broad. Indeed, pursuant to
Rule 26(b)(1), “[p]arties may obtain discovery regarding any nonprivileged matter that is
relevant to any party’s claim or defense” and “[f]or good cause, the court may order discovery of
any matter relevant to the subject matter involved in the action. Relevant information need not
be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery
of admissible evidence.” Further, the Court has broad discretion in managing requests for
discovery and determining the appropriate scope of discovery. See Salamone v. Carter’s Retail,
Inc., Civil Action No. 09-5856 (GEB), 2011 WL 310701, *5 (D.N.J. Jan. 28, 2011); In re Fine
Paper Antitrust Litig., 685 F.2d 810, 817 (3d Cir. 1982) (finding that conduct of discovery is
committed to sound discretion of the Court). The Court likewise has “broad discretion to control
the method and timing of discovery.” A.E. ex rel. N.E. v. Patriot Pre-School, Civil Action No.
11-2923 (JAP), 2011 WL 4860034, *3 (D.N.J. Oct. 12, 2011) (citing Fed.R.Civ.P. 26(b)).
Importantly, with respect to motions to quash subpoenas, generally only the individual to
whom the subpoena was directed may bring same. See Thomas v. Marina Assocs., 202 F.R.D.
433, 434-435 (E.D. Pa. 2001). However, a party to an action has standing to quash or modify a
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non-party subpoena where the party seeking to quash or modify the subpoena claims a privilege
or privacy interest in the subpoenaed information. Id.; see DIRECTV, Inc. v. Richards, No. Civ.
03-5606 (GEB), 2005 WL 1514187, at *1 (D.N.J. June 27, 2005) (citing Catskill Dev. , LLC v.
Park Place Entertainment Corp., 206 F.R.D. 78, 93 (S.D.N.Y. 2002)). For example, a party has
sufficient standing to challenge a subpoena issued to a bank that seeks disclosure of that party’s
financial records. See Schmulovich v. 1161 Rt. 9 LLC, Civil Action No. 07-597 (FLW), 2007 WL
2362598, at *2 (D.N.J. Aug. 15, 2007).
B. Discussion
Here, Hoather seeks to quash a subpoena served not on him, but on non-party Barter N.J.
As such, Hoather only has standing to move to quash the subpoena to the extent he claims a
privilege or privacy interest in the subpoenaed information. Hoather clearly has a privacy
interest in his financial information. See Schmulovich v. 1161 Rt. 9 LLC, 2007 WL 2362598, at
*2. Consequently, the Court finds that Hoather has standing to move to quash the ITEX
subpoena to the extent it seeks records/statements concerning any ITEX account held by him.
Hoather does not, however, have standing to move to quash the subpoena to the extent it
seeks records/statements concerning any ITEX account held by the LLC, the Inc., Vogue
Graphics or Atlantic Financial. Hoather has not claimed any applicable privilege or privacy
interest in said information. Instead, the interest in the financial information being sought
belongs to the four aforementioned companies not to Hoather. Further, Hoather cannot move to
quash the ITEX subpoena on behalf of the companies because business organizations such as the
LLC, the Inc., Vogue Graphics and Atlantic Financial may only appear through counsel and may
not proceed pro se.
Simbraw, Inc. v. U.S., 367 F.2d 373, 374 (3d Cir. 1966). While Hoather
asks the Court to allow otherwise, the Court has not authority to do so. As a result, Hoather’s
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motion is denied to the extent it seeks to quash the ITEX subpoena seeking records/statements
concerning any ITEX account held by the LLC, the Inc., Vogue Graphics or Atlantic Financial.3
Turning back to the portion of the ITEX subpoena directed at all records/statements
concerning any ITEX account held by Hoather, the Court finds that the subpoena seeks relevant
information. Contrary to Hoather’s arguments, Plaintiffs do have standing to assert claims
against Hoather, individually. While it is unclear, at this juncture, whether Plaintiffs will, in fact,
prevail on such claims, that does not mean that Plaintiffs are precluded from pursuing same.
Hoather seems to argue that the only appropriate action Plaintiffs could have brought is a
shareholders derivative suit. This, however, is inaccurate. While shareholders in a corporation
may file derivative suits, they are not limited to that type of litigation. Instead, the securities
laws were designed to permit shareholders to file fraud claims like many of those asserted here.
See, e.g., Rule 10b-5 of the Securities Act of 1934; Section 12(a)(2) of the Securities Act of
1933. Further, Plaintiffs have asserted specific claims against Hoather, individually. Again,
while it is still an open question as to whether Plaintiff will ultimately succeed on these claims, at
this juncture, Plaintiffs claims against Hoather, individually, are viable and discovery related to
same is warranted.
In addition, the fact that Ms. Barz has never been ITEX’s Broker of Record for any of the
companies mentioned in the ITEX subpoena does not mean that the subpoena should be quashed
and, in fact, Hoather cites no precedent to support his claim that it does. Moreover, to the extent
Ms. Barz could not accept service of the subpoena at issue here on behalf of Barter N.J., the
Court finds that said argument would be more appropriately raised by Barter N.J., itself, not
Hoather.
3
The Court notes that Barter N.J. has not moved to quash the subpoena served upon it.
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Further, while the Court acknowledges that discovery was set to close on September 14,
2012 and that the ITEX subpoena was not served until September 5, 2012, thereby necessitating
an extension of the discovery schedule if not quashed, the reality is that fact discovery in this
matter would have been extended regardless of the ITEX subpoena. As the parties are aware,
discovery disputes are currently pending before the Court. Once these are decided, fact
discovery will have to be extended based on the Court’s rulings. Moreover, while this case
appears to be dated (it was filed over three years ago) it is still in its relevant infancy in light of
the stay pending Hoather’s bankruptcy petition. As a result, the Court shall not quash the ITEX
subpoena based on its late service date.
For these reasons, the Court denies Hoather’s motion to quash the portion of the ITEX
subpoena seeking records/statements concerning any ITEX account held by him. Nevertheless,
as Hoather notes, it is entirely unclear how records/statements from his ITEX accounts, if any,
prior to 2008, the first time Hoather ever allegedly contacted any Plaintiff to discuss investing in
Fotografixusa, would be relevant to Plaintiffs’ claims here. Plaintiffs provide no arguments
concerning the relevancy of pre-2008 documents.4 Consequently, the Court shall modify the
subpoena to records/statements concerning any ITEX account held by Hoather from 2008 forto
the present. In light of the apparent lack of relevancy with respect to pre-2008 documents, the
Court exercises its discretion and sua sponte applies the aforementioned modification to the
entirety of the subpoena at issue here. As such, the ITEX subpoena is limited to “all
records/statements from January 1, 2008 to the present concerning any ITEX account(s) held by
Hoather, the LLC, the Inc., Vogue Graphics and/or Atlantic Financial.”
4
Indeed, the Court has largely disregarded Plaintiffs’ sparse opposition to Hoather’s motion. The Court notes that
Plaintiffs’ opposition was set forth solely in counsel’s five-paragraph certification, which included attorney
argument. No supporting brief was filed. Under the Court’s Local Civil Rules, this is inappropriate. Affidavits,
certifications and declarations must be limited to statements of fact within the personal knowledge of the affiant.
Legal arguments and summations are to be disregarded by the Court. L.Civ.R. 7.2(a).
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III.
Conclusion
For the reasons stated above, Hoather’s motion to quash the subpoena served on Barter
N.J. is DENIED. An appropriate Order follows.
Dated: April 29, 2013
s/Tonianne J. Bongiovanni
HONORABLE TONIANNE J. BONGIOVANNI
UNITED STATES MAGISTRATE JUDGE
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