Arrow Enterprise Computing Solutions, Inc. v. BlueAlly, LLC, et al
Filing
52
ORDER granting 49 Motion to Compel the Production of Alter Ego Documents - BlueAlly Defendants shall provide a full answer to Interrogatory No. 4 and produce responsive documents to Requests for Production 11, 12, 13, and 15 within seven days of entry of this order. Signed by Magistrate Judge Robert T. Numbers, II on 8/15/2016. (Tripp, S.)
UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WESTERN DIVISION
No. 5:15-CV-00037-FL
Arrow Enterprise Computing
Solutions, Inc.,
Plaintiff,
Order
v.
BlueAlly, LLC, et al.,
Defendants.
Plaintiff Arrow Enterprise Computing Solutions, Inc. (“Arrow”) seeks an order
compelling Defendants BlueAlly, LLC (“BlueAlly”) and BlueAlly Direct, LLC (“BlueAlly
Direct” and collectively the “BlueAlly Defendants”) to provide a full answer to one of its
interrogatories and responsive documents to four of its requests for production. The BlueAlly
Defendants argue that the requested discovery is not relevant to either party’s claims or defenses
and is not proportional to the needs of the case. After reviewing the docket and the arguments of
the parties, the court determines that Arrow is entitled to an order compelling the requested
discovery.
I.
Background
Arrow alleges a variety of contract claims against the BlueAlly Defendants and
Defendants Net Direct Systems, LLC; Philip Albert Santoni; and Crista Marie Santoni. Arrow
also alleges that the BlueAlly Defendants are agents and alter egos of each other. D.E. 10 at ¶ 41.
In early 2016, Arrow served upon the BlueAlly Defendants its first discovery request
containing interrogatories, requests for production, and requests for admissions. Among other
things, Arrow sought information regarding infusions of capital from 2012 through 2014 for both
BlueAlly and BlueAlly Direct (Interrogatory 4) and requested that the BlueAlly Defendants
produce their 2012–2014 tax returns (Request for Production 11), all bank account statements
and check registers from 2013 (Request for Production 12), all corporate credit card statements
from 2013 (Request for Production 13), and all utility invoices from 2013 (Request for
Production 15). D.E. 51-1 at 8, 27–29. The BlueAlly Defendants responded to Arrow’s first
discovery request, but objected to a number of the interrogatories and requests for production.
Specifically, the BlueAlly Defendants limited their response to Interrogatory 4 to information
about BlueAlly Direct, asserting that the information sought from BlueAlly was not proportional
to the needs of the case. Id. at 8. Similarly, the BlueAlly Defendants objected to Arrow’s
Requests for Production 11, 12, 13, and 15 on the grounds that the information was not relevant
and not proportional to the needs of the case. Id. at 27–29.
Arrow contacted the BlueAlly Defendants concerning their responses in an attempt to
resolve the dispute without judicial intervention. D.E. 51-2, 51-3. The parties were unable to
resolve their differences and this motion followed.
II.
Discussion
a. Scope of Discovery
Rule 26(b)(1) of the Federal Rules of Civil Procedure allows “discovery regarding any
nonprivileged matter that is relevant to any party’s claim or defense.” Fed. R. Civ. P. 26(b)(1)
(2014). 1 A discovery request is relevant if it is “reasonably calculated to lead to discovery of
admissible evidence.” Spell v. McDaniel, 591 F. Supp. 1090, 1114 (E.D.N.C. 1984). If a party
fails to respond to an interrogatory pursuant to Rule 33 of the Federal Rules of Civil Procedure
or a request to produce documents pursuant to Rule 34 of the Federal Rules of Civil Procedure,
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Arrow filed its Complaint on January 22, 2015. D.E. 1. As such, the Federal Rules of Civil
Procedure in force at that time govern this discovery dispute. See Fed. R. Civ. P. 86(a).
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the “party seeking discovery may move for an order compelling … production ….” Fed. R. Civ.
P. 37(a)(3)(B) (2014). However, the court “must limit the frequency or extent of discovery” if it
finds that (1) “the discovery sought is unreasonably cumulative or duplicative, or can be obtained
from some other source that is more convenient, less burdensome, or less expensive;” (2) “the
party seeking discovery has had ample opportunity to obtain the information by discovery in the
action;” or (3) “the proposed discovery is outside the scope permitted by Rule 26(b)(1).” Fed. R.
Civ. P. 26(b)(2)(c) (2014). The court has “substantial discretion in managing discovery.” Lone
Star Steakhouse & Saloon, Inc. v. Alpha of Va., Inc., 43 F.3d 922, 929 (4th Cir. 1995).
b. Analysis
i. Interrogatory 4
Arrow asks that the court require the BlueAlly Defendants to provide a full response to
its fourth interrogatory asking them to identify, for both BlueAlly and BlueAlly Direct, infusions
of capital from 2012 through 2014, the date, source, amount, and consideration given for each
infusion, as well as any document memorializing the infusion. D.E. 50 at 3–4. The BlueAlly
Defendants provided the requested information for BlueAlly Direct, but objected to providing
the information for BlueAlly because
it seeks information that is not 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.
D.E. 51-1 at 9. After review, the court determines that Arrow is entitled to the requested
information about BlueAlly.
Objections to interrogatories are governed by Rule 33(b)(4) of the Federal Rules of Civil
Procedure. That rule provides, in relevant part, that “[t]he grounds for objecting to an
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interrogatory must be stated with specificity.” Fed. R. Civ. P. 33(b)(4) (2014). In light of this
language, this court has held that the use of boilerplate objections stating that an interrogatory is
overbroad, unduly burdensome, irrelevant, or the like does not satisfy the specificity
requirement. Silicon Knights, Inc. v. Epic Games, Inc., 917 F. Supp. 2d 503, 533 (E.D.N.C.
2012) aff'd, 551 F. App'x 646 (4th Cir. 2014); Mainstreet Collection, Inc. v. Kirkland's, Inc., 270
F.R.D. 238, 240 (E.D.N.C. 2010). Instead, an objection must include particularized facts
justifying the objection. See Mancia v. Mayflower Textiles Servs. Co., 253 F.R.D. 354, 358–59
(D. Md. 2008) (citing cases).
The BlueAlly Defendants’ objection to Arrow’s fourth interrogatory is nothing more than
a boilerplate objection. The response merely recites the amended version of Rule 26(b)(1) of the
Federal Rules of Civil Procedure 2 and fails to specify why the BlueAlly Defendants believe that
the request is not proportional to the needs of the case. Therefore, the court deems the objection
to have been waived and the BlueAlly Defendants shall provide a full response to Interrogatory
4.
ii. Requests for Production
Arrow next requests that the court compel BlueAlly and BlueAlly Direct to produce
separately their 2012–2014 tax returns (Request for Production 11); all bank account statements
and check registers from 2013 (Request for Production 12); all corporate credit card statements
from 2013 (Request for Production 13); and all utility invoices from 2013 (Request for
Production 15). D.E. 50 at 4–5. The BlueAlly Defendants objected to each request on the
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The court notes that the proportionality factors contained in the amended version of Rule
26(b)(1) of the Federal Rules of Civil Procedure are substantially similar to the proportionality
factors contained in 2014 version of Rule 26(b)(2)(C)(iii). See Fed. R. Civ. P. 26(b)(1) (2016);
Fed. R. Civ. P. 26(b)(2)(C)(iii) (2014). The 2016 proportionality factors are also similar to the
factors contained in the advisory committee’s notes regarding the 1980 Amendment. See Fed. R.
Civ. P. 26(b)(1) (2016); Fed. R. Civ. P. 26(b) advisory committee’s notes (1980 amendment).
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grounds that the requested discovery is not relevant and is not 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.” D.E. 51-1 at 27–29. Arrow asserts that the requested discovery is
relevant to its claim that BlueAlly Direct is an alter ego of BlueAlly and is proportional to the
needs of the case. After review, the court determines that Arrow is entitled to the requested
documents.
In response to a request for production, the responding party must “either state that
inspection and related activities will be permitted as requested or state an objection to the
request, including the reasons.” Fed. R. Civ. P. 34(b)(2)(B) (2014). Courts have regularly held
that “[o]bjections to Rule 34 requests … must be stated specifically, and boilerplate objections
simply regurgitating words and phrases from Rule 26 are unacceptable.” Boykin Anchor Co. v.
Wong, No. 5:10-CV-591-FL, 2011 WL 5599283, at *3 (E.D.N.C. Nov. 17, 2011). Accord
Prodigious Ventures, Inc. v. YBE Hosp. Grp., LLC, No. 5:14-CV-433-F, 2015 WL 7176350, at
*4 (E.D.N.C. Nov. 10, 2015); Pinnix v. SSC Silver Stream Operating Co., LLC, No. 7:14-CV00161-FL, 2015 WL 4671979, at *9 (E.D.N.C. Aug. 6, 2015); Silicon Knights, Inc. v. Epic
Games, Inc., 917 F. Supp. 2d 503, 533 (E.D.N.C. 2012) aff'd, 551 F. App'x 646 (4th Cir. 2014);
Kinetic Concepts, Inc. v. ConvaTec Inc., 268 F.R.D. 226, 241 (M.D.N.C. 2010) (citing cases).
Accordingly, an appropriate objection must contain sufficient information to allow the court and
the requesting party to determine the validity of the objection.
The BlueAlly Defendants’ objections to Requests for Production 11, 12, 13, and 15 are
nothing more than boilerplate objections: they fail to specify why the requested documents are
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not relevant to a party’s claim or defense and not proportional to the needs of the case. Instead,
they simply regurgitate the amended version of Rule 26(b)(1) of the Federal Rules of Civil
Procedure. Therefore, the court deems the objections to have been waived.
Furthermore, the requested documents are relevant to Arrow’s alter ego claim. The
standard for relevancy during discovery is broader than the standard for relevancy during trial. In
discovery, the requested information “need not be admissible at trial.” Fed. R. Civ. P. 26(b)(1)
(2014). Instead, the requested information must be “reasonably calculated to lead to the
discovery of admissible evidence.” Id. As such, “relevance during discovery is ‘construed
broadly to encompass any matter that bears on, or that reasonably could lead to other matter that
could bear on, any issue that is or may be in the case.’” Silicon Knights, 917 F. Supp. 2d at 534
(quoting Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351 (1978)). The party opposing
discovery must show that the requested discovery is not relevant. Id.
The BlueAlly Defendants argue that the requested discovery is not necessary for Arrow
to establish its alter ego claim. D.E. 51 at 9–10. Courts in this district apply the law of the
defendant corporation’s place of incorporation when evaluating alter ego claims. Jo v. Piston
Mfg., Inc., No. 4:06-CV-00056-F, 2009 WL 1578522, at *8 (E.D.N.C. June 2, 2009). As
BlueAlly was incorporated in Delaware and BlueAlly Direct was incorporated in Virginia (D.E.
51 at 8), the court will consider both Delaware law and Virginia law to determine whether
Arrow’s requests for production are relevant to its alter ego claim.
Delaware and Virginia have similar tests for finding an alter ego relationship between
corporations. Under Delaware law, an alter ego relationship exists when there is “fraud or
something like it” and either one corporation exercised complete domination and control over the
other or “there is a lack of attention to corporate formalities, such as where the assets of two
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entities are commingled, and their operations intertwined. Binder v. Bristol-Myers Squibb, Co.,
184 F. Supp. 2d 762, 772 (N.D. Ill. 2001) (describing Delaware law) (internal quotation marks
omitted). When considering whether complete domination exists, Delaware courts look to factors
such as “stock ownership, officers and directors, financing, responsibility for day-to-day
operations, arrangements for payment of salaries and expenses, and origin of [the other
corporation’s] business and assets.” Id. (quoting Phoenix Canada Oil Co. Ltd. v. Texaco, Inc.,
658 F. Supp. 1061, 1084 (D. Del. 1987)) (internal quotation marks omitted). Similarly, under
Virginia law, an alter ego relationship exists if the principal corporation exerted undue
domination and control over the other, the control “was exercised in such a manner as to defraud
and wrong the complainant,” and the complainant will suffer unjust loss or injury if the principal
corporation is not held liable. Eure v. Norfolk Shipbuilding & Drydock Corp., Inc., 263 Va. 624,
634, 561 S.E.2d 663, 669 (2002) (internal quotation marks omitted).
Here, Arrow requests that the court compel the BlueAlly Defendants to produce
separately their 2012–2014 tax returns and all bank account statements, check registers,
corporate credit card statements, and utility invoices from 2013. D.E. 50 at 4–5. This information
relates to the issue of whether BlueAlly exerted domination and control over BlueAlly Direct. As
such, the court finds that the requested discovery is relevant to Arrow’s alter ego claim.
Therefore, the BlueAlly Defendants shall provide responsive documents to Arrow’s Requests for
Production 11, 12, 13, and 15.
III.
Conclusion
For the forgoing reasons, the court grants Arrow’s Motion to Compel (D.E. 10) in its
entirety. BlueAlly Defendants shall provide a full answer to Interrogatory 4 and produce
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responsive documents to Requests for Production 11, 12, 13, and 15 within seven days of entry
of this order.
Dated:
ROBERT T. NUMBERS, II
UNITED STATES MAGISTRATE JUDGE
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