VOIT Technologies, LLC v. DEL-TON, INC.

Filing 91

ORDER denying 84 Motion to Quash; denying 85 Motion for Protective Order; and denying as moot 86 Motion to Stay. Signed by Chief Judge Terrence W. Boyle on 7/26/2019. (Stouch, L.)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WESTERN DIVISION
5:17-CV-259-BO
VOIT TECHNOLOGIES, LLC,
Plaintiff,

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v.

DEL-TON, INC.,
Defendant.

ORDER

This cause comes before the Court on non-party Barry H. Schwab's motion to quash
document and deposition subpoenas [DE 84] and motion for a protective order [DE 85], as well as
plaintiffs motion to stay discovery pending resolution or Mr. Schwab's motions [DE 86].
Defendant has responded in opposition to Mr. Schwab's motions and the motions are ripe for
disposition. For the reasons that follow, Mr. Schwab's motion to quash [DE 84] is DENIED, Mr.
Schwab's motion for a protective order [DE 85] is DENIED, and plaintiffs motion to stay
discovery [DE 86] is DENIED AS MOOT.
BACKGROUND
In January 2018, the Court dismissed plaintiffs patent-infringement claims, determining
that they were patent-ineligible under 35 U.S.C. § 101. [DE 46, 47]. The underlying dispute
involved defendant's sale of firearm supplies and accessories using an online portal that
purportedly infringed plaintiffs patent, U.S. Patent No. 6,226,412. [DE 1]. On January 31, 2018,
plaintiff appealed the Court's dismissal order to the United States Court of Appeals for the Federal
Circuit. [DE 50]. In August 2018, the Court awarded defendant $128,535.00 in reasonable
attorneys' fees for the litigation through dismissal. [DE 59]. Plaintiff appealed this order,, too, to
the Federal Circuit. [DE 63]. In February 2019, the Federal Circuit affirmed this Court's dismissal

of plaintiffs claims, agreeing that the claims were patent-ineligible. [DE 77, 78]. In April 2019,
this Court awarded $121,246.04 to defendant in supplemental attorneys' fees. [DE 82]. Plaintiffs
appeal of the original award of attorneys' fees remains pending before the Federal Circuit.
Barry H. Schwab, plaintiffs owner and managing member, now moves to quash document
and deposition subpoenas that seek discovery of his personal assets and income. [DE 84]. Mr.
Schwab also moves for entry of a protective order to shield his personal assets and income from
discovery. [DE 85]. Plaintiff has moved to stay discovery pending resolution of Mr. Schwab's
motions. [DE 86]. Defendant responds in opposition to Mr. Schwab's motions, arguing that
because plaintiff has not yet paid any part of the attorneys' fees awards and claims it has no assets,
defendant is seeking discovery of Mr. Schwab's assets to determine whether he can be held liable
for the judgment. [DE 89].
DISCUSSION
Rule 69 of the Federal Rules of Civil Procedure permits a judgment creditor, like
defendant, to "obtain discovery from any person-including the judgment debtor." Fed. R. Civ. P.
69(a)(2). Rule 45 subpoenas may be used by post-judgment creditors subject to Rule 26's standards
for discoverability. Schaaf v. SmithKline Beecham Corp., 233 F.R.D. 451, 453 (E.D.N.C. 2005).
That is, parties 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)(l). Rule
45 subpoenas may be issued to non-parties and can even be used to discover the assets of "third
parties with close ties to the judgment debtor." Wright & Miller, 12 Fed. Prac. & Proc. Civ. § 3014
(3d ed.); see also Trs. of N Fla. Operating Eng'rs Health & Welfare Fund v. Lane Crane Serv.,
Inc., 148 F.R.D. 662 (M.D. Fla. 1993) (permitting discovery of non-party assets where evidence
showed alter-ego relationship between debtor and non-party); Caisson Corp. v. Cty W Bldg. Corp.,

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62 F.R.D. 331, 333 (E.D. Pa. 1974) (permitting discovery of assets of sole shareholder of debtor
corporation).
Rule 45 of the Federal Rules of Civil Procedure provides that courts must, under certain
circumstances, including when a subpoena would subject a witness to undue burden, quash or
modify a subpoena. Fed. R. Civ. P. 45(3)(A). In deciding whether to quash a subpoena or issue a
protective order, courts balance (1) the relevance of the information sought, (2) the need of the
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information sought, (3) issues concerning confidentiality, and (4) the potential for harm to any
party. Insulate Am. v. Masco Corp., 227 F.R.D. 427, 432 (W.D.N.C. 2005). Because a non-party
moving to quash a subpoena is effectively moving for a protective order against such discovery,

Snoznik v. Jeld-Wen, Inc., 259 F.R.D. 217, 222 (W.D.N.C. 2009), and because Mr. Schwab has
made both motions here, the motions will be considered together.
Mr. Schwab argues that defendant's subpoenas subject him to undue burden because they
seek information that is irrelevant to this action, because his conduct did not contribute in any way
to the conduct at issue in this matter, and because it would violate his due process rights to hold
him personally liable for payment of judgments entered against plaintiff. Mr. Schwab's arguments
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in support of his motion to quash and his motion for a protective order are identical. Defendant
contends, however, that post-judgment discovery of Mr. Schwab's assets and income is necessary
because plaintiff refuses to pay the $249,781.04 in combined costs and fees and plaintiffs Rule
69 responses "indicated that it was being operated as the mere alter-ego of its sol'e owner, [Mr.]
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Schwab." [DE 89, p. 5]. Defendant bases this argument on its belief that plaintiff"had no operating
agreement, had held no company meetings, had not filed tax returns or prepared financial
documents, and had no employees," the fact that Mr. Schwab is plaintiffs "sole owner, officer,
and manager, [and] keeps [plaintiffs] books and records, uses his home to conduct [plaintiffs]

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business, and controls its operations and decisions." Id. at 5-6. Defendant further points out that
plaintiff "transferred $25,000 to Schwab in December 2017 and Schwab paid [plaintiffs] legal
fees and legal management fees." Id. at 6.
On the basis of the above beliefs, defendant argues that Mr. Schwab could potentially be
, held liable for the judgments under either a veil-piercing theory or under 35 U.S.C. § 285, which
permits corporate officers to be personally liable for attorneys' fees in some circumstances. This
does not mean that Mr. Schwab will be held liable under either theory, but here the Court finds

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that it is sufficient to permit discovery of his personal assets and income despite his non-party
status. The information that defendant seeks is relevant. Defendant has also demonstrated a
persuasive need for the information, given that plaintiff has not paid any of the $249,781.04
judgment and purports to have no assets. Mr. Schwab's interest in keeping his financial
information confidential and any potential harm he would suffer from its disclosure is overcome
here by the relevance of the information sought, the importance of the information sought, and the
potential for harm to defendant if it is unable to collect its judgment.
With respect to Mr. Schwab's contention that his due process rights would be violated by
enforcement of the subpoenas, the Court is unpersuaded. Mr. Schwab relies on Nelson v. Adams

USA, Inc., 529 U.S. 460 (2000), arguing that he, as a non-party corporate principal, cannot be
personally liable for the judgment entered against plaintiff. In Nelson, the Supreme Court held that
the, district court had erred in amending its judgment against a corporate plaintiff to add the
corporation's sole shareholder without first giving the shareholder the opportunity to contest his
personal liability for the judgment. 529 U.S. at 468. Nelson does not foreclose the possibility that
Mr. Schwab can be held personally liable for the judgment entered against plaintiff. Additionally,
at this stage of the proceedings defendant is only seeking discovery of Mr. Schwab's assets and

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income to determine whether it can proceed with attempts to make him personally liable. Mr.
Schwab has not demonstrated that his due process rights would be violated by the enforce!llent of
defendant's subpoenas.
Mr. Schwab's remaining objections to the subpoenas, including as to Document Request
No. 30 of the Subpoena Duces Tecum, are without merit. Mr. Schwab has not demonstrated with
particularity why any of the document requests are improper or deficient and he has not made a
particularized showing that a protective order is otherwise necessary. Generalized objections
regarding the sensitivity of the information sought and the scope of the requests is insufficient. As
to Document Request No. 30, while it is true that under Rule 408 of the Federal Rules of Evidence
settlement negotiations are not admissible at trial to prove the validity or amount of a claim, or to
impeach, the facts underlying settlement negotiations are not protected by Rule 408. See Ray
Comms., Inc. v. Clear Channel Comms., Inc., 673 F.3d 294, 306 (4th Cir. 2012). Thus, to the extent

that Document Request No. 30 seeks documents containing otherwise discoverable facts, it is not
barred by Rule 408.
In sum, Mr. Schwab has not demonstrated that defendant's subpoenas should be quashed
or a protective order should be entered. Discovery of Mr. Schwab's personal assets and income in
this post-judgment posture is appropriate and the subpoenas do not impose an undue burden.
Accordingly, Mr. Schwab's motions are denied. Finally, plaintiffs motion to stay discovery in this
case pending resolution of Mr. Schwab's motions is denied as moot, given that Mr. Schwab's
motions are now resolved.

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CONCLUSION
For the above reasons, Mr. Schwab's motion to quash [DE 84] is DENIED, Mr. Schwab's
motion for a protective order [DE 85] is DENIED, and plaintiffs motion to stay discovery [DE
86] is DENIED AS MOOT.

SO ORDERED,

this~ day of July, 2019.

~. R~
T~LE

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