Lester et al v. Wow Car Company Ltd. et al
Filing
108
OPINION AND ORDER reaffirming 93 Opinion and Order. Signed by Magistrate Judge Terence P Kemp on 2/4/2014. (kk2)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
Zachary Lester, et al.,
:
Plaintiffs,
:
v.
Case No. 2:11-cv-00850
:
Wow Car Company, Ltd.,
et al.,
:
JUDGE EDMUND A. SARGUS, JR.
Magistrate Judge Kemp
:
Defendants.
OPINION AND ORDER
This matter is before the Court to consider whether this
Court’s opinion and order issued on November 13, 2013 should be
reaffirmed or reconsidered.
Defendants filed a motion to
reconsider the order with the assigned District Judge, but, as
explained below, Judge Sargus remanded the underlying discovery
motion to the Magistrate Judge for reconsideration in light of
his Opinion and Order of November 14, 2013.
For the reasons set
forth below, the Court reconfirms the original discovery order.
I. Background
This case involves a dispute over the purchase of a used car
by plaintiffs Zachary and Brandi Lester.
The Lesters returned
the car to the seller twice within the first week they owned it,
and the engine blew six days after the purchase.
As a result of
these events, the Lesters filed a lawsuit in the Court of Common
Pleas for Knox County, Ohio, which was removed to this Court on
September 21, 2011.
The Lesters filed an amended complaint on
July 31, 2012, and a second amended complaint on August 26, 2013.
There has been considerable debate in this case concerning
who actually sold the car to the Lesters.
It appears to be
defendants’ position that the Lesters bought their car from Amy
Hartzler, who was operating Wow Car Company as a dba.
However,
the Lesters claim that Amy Hartzler and Max R. Erwin, Sr., who,
they claim have both a business and a personal relationship,
operated Wow Car Company as a joint venture and that the two of
them either created or maintained other businesses for the
purpose of shielding that joint venture from liability.
More
specifically, they claim that Mr. Erwin owned or operated Wow Car
Company, Ltd. (“Wow Ltd.”), Wow’s eventual successor, and a
company called Marmax Enterprises LLC (“Marmax”) as an alter ego
for Wow and Wow, Ltd. and that he used that company to purchase
inventory for the Wow businesses.
The Lesters also allege that
Ms. Hartzler owns Mid-Ohio Motor Funding Group, Ltd. (“MidOhio”), which provides funding to another business owned by Ms.
Hartzler, the Hartzler-Erwin Group LLC (“Hartzler-Erwin”).
The
Lesters claim that Hartzler-Erwin is also used to operate Wow and
is an alter ego for Wow and Wow Ltd.
Consistent with the Lesters’ theory that Ms. Hartzler and
Mr. Erwin are using other entities for the purposes of escaping
liability, the Lesters filed a second amended complaint against a
number of defendants including Ms. Hartzler dba Wow, Wow Ltd.,
Mr. Erwin dba Wow, Mid-Ohio, Hartzler-Erwin, and Marmax.
In that
complaint (Doc. #80), the Lesters pleaded claims for breach of an
express warranty, breach of the implied warranty of
merchantability, breach of the implied warranty of fitness for a
particular purpose, deceptive trade practices, violations of the
Truth in Lending Act (“TILA”), violations of the Ohio Consumer
Sales Practices Act (“OCSPA”), and alter ego.
On August 23, 2013, the Lesters served a subpoena on a nonparty The Home Loan Savings Bank (“Home Loan”).
That subpoena
asked Home Loan to produce
Copies of the following documents for all accounts
bearing the signatory authority of, or in the name(s) of:
a) Amy Hartzler;
b) Max R. Erwin, Sr.;
c) Wow Car Company;
-2-
d)
e)
f)
g)
Wow Car Company, Ltd.;
Mid-Ohio Motor Funding Group, Ltd.;
The Hartzler-Erwin Group, LLC; and
Marmax Enterprises, LLC.
1. Documents pertaining to all open or closed
checking, savings, or other deposit or accounts in
the name of or under signature authority of any of
the named parties or entities, including but not
limited to:
a. Signature cards;
b. Articles of Incorporation;
c. Articles of Organization;
d. Bank statements for the period January 1,
2010 through the present;
e. Applications to open bank accounts,
whether approved or denied, and any
supporting documentation submitted with said
applications; and
f. Applications to open accounts for credit,
whether approved or denied, and any
supporting documentation submitted with said
applications.
2. Records of communications you have for each of
the named parties and entities.
(Doc. #81, Ex. A).
On September 5, 2013, defendants filed a
joint motion to quash the subpoena served upon Home Loan “and/or
for a protective order forbidding the disclosure or discovery of
the requested bank documents.”
Id. at 1.
On November 13, 2013, this Court issued an opinion and order
on the joint motion to quash the subpoena and/or for a protective
order.
(Doc. #93).
In doing so, the Court first addressed
defendants’ argument that the subpoena was issued in violation of
Fed. R. Civ. P. 26(d).
Because the Rule 26(f) report reflected
that counsel for both sides met and conferred and the rule does
not require a conference to be held subsequent to the filing of
an amended complaint even if it joins new parties, the Court
declined to quash the subpoena on that basis.
-3-
Next, the Court
determined that defendants had standing to move to quash the
subpoena issued to Home Loan, where the information sought from
Home Loan consisted of defendants’ banking records.
Finally, the
Court noted that defendants were, in essence, asking the Court to
stay discovery pending determination of their motion to dismiss
filed on September 9, 2013.
The Court, in the exercise of its
discretion, declined to stay discovery pending a resolution of
the motion to dismiss.
Based upon these findings, the Court
denied the joint motion to quash the subpoena and/or for a
protective order.
The following day, on November 14, 2013, the District Judge
issued an opinion and order addressing, inter alia, defendants’
motion to dismiss.1
In the opinion and order, the Court first
found that the Lesters sufficiently pleaded that Mr. Erwin
engaged in a joint venture with Ms. Hartzler.
Accordingly, the
Court denied the motion to dismiss as it related to that claim.
Next, the Court granted defendants’ motion to dismiss the TILA
claims against Mr. Erwin, Mid-Ohio, Hartzler-Erwin, and Marmax.
The Court also granted the motion to dismiss the Lesters’ implied
warranty claim, but it denied the motion as to the Lesters’
express warranty claim.
As to the Lesters’ alter ego claims, the
Court found that those claims “should be dismissed without
prejudice to re-filing if the Lesters establish liability on
behalf of the defendants against whom the remaining claims are
filed in the instant action.”
(Doc. #94 at 13).
Thus, the Court
granted the motion to dismiss the alter ego claims and dismissed
1
The opinion and order also addressed whether the statute of
limitations had run on the Lesters’ supplemental OCSPA claims
against Max Erwin, Sr., finding that the claims were brought
within the relevant time period. On this basis, the opinion and
order sustained the Lesters’ objection to a prior order and
amended the second amended complaint in accordance with its
decision.
-4-
those claims without prejudice.
On November 20, 2013, defendants filed an objection to the
November 13, 2013 opinion and order.
(Doc. #96).
Defendants
claim that because the alter ego claims against Mr. Erwin,
Hartzler-Erwin, Wow, Ltd., Mid-Ohio, and Marmax have been
dismissed, “the subpoenaed documents can no longer be relevant to
any claim remaining in the case.”
Id. at 2.
Consequently,
defendants assert that the motion for a protective order as to
the banking records of these defendants should now be granted.
As to the joint venture claim against Ms. Hartzler and Mr. Erwin,
defendants argue that all of the banking records and checks
related to the sale of the Lesters’ vehicle have been produced.
Defendants argue that the “subpoena to Home Loan thus seeks
documents wholly irrelevant to this case and which are not likely
to lead to the discovery of admissible evidence.”
Id. at 3.
The Lesters oppose defendants’ objection, arguing that the
documents in question were found to be relevant to the joint
venture and successor liability allegations, in addition to the
alter ego claims.
Accordingly, the Lesters maintain that
defendants’ banking records are relevant to establishing “a joint
venture in the operation of Wow Car Company by Hartzler, Erwin,
and companies that are wholly owned by Defendants and used in the
operation of Wow Car Company.”
(Doc. #98 at 3).
Plaintiffs urge
that the documents are also relevant to “Wow Car Company, Ltd.’s
successor status,” in that “the Marmax account was used to
finance the operation of Wow Car Company.”
Id. at 3-4.
In the reply in support of their objection, defendants
reiterate their position that the banking records relate solely
to the Lesters’ dismissed alter ego claims and are no longer
relevant given the remaining claims.
More specifically,
defendants argue that the banking records are not relevant to the
Lesters’ remaining joint venture claim and successor liability
-5-
allegations.
Defendants assert that a joint venture claim is
based on a single transaction which, in this case, “is the sale
of one vehicle to the Plaintiffs in March of 2011.”
at 1).
(Doc. #101
Defendants argue that they have produced every banking
document pertaining to that sale and they are entitled to the
protective order as to any additional banking documents.
Defendants also assert that the second amended complaint contains
no claim for successor liability and, as such, the Lesters cannot
seek the banking records on this basis.
Alternatively,
defendants argue that “even if there was a successor liability
claim in the case, it would be subject to dismissal as premature
on the same grounds as Plaintiffs’ already dismissed alter ego
claim.”
Id. at 2-3.
In light of the pending objection, defendants’ motion for a
protective order was recommitted to the Magistrate Judge for
further proceedings in light of the District Judge’s ruling on
the motion to dismiss.
On December 13, 2013, the Court issued an
order allowing any party who wished to submit additional briefing
on the motion for a protective order to do so in a supplemental
brief to be filed by December 19, 2013.
(Doc. #103).
The
Lesters submitted a supplemental brief on December 19, 2013.
(Doc. #104).
On December 23, 2013, defendants filed a “a brief
reply in response to Plaintiffs’ December 19, 2013 Supplemental
brief.”
(Doc. #105 at 1).
In their supplemental brief, the Lesters argue that “the
requested banking records, which have already been produced by
non-party The Home Loan Savings Bank, are relevant to claims in
the second amended complaint, specifically, the Lester’s [sic]
joint venture and successor liability allegations.”
at 1).
(Doc. #104
The Lesters argue that a joint venture under Ohio law is
not, as defendants assert, limited to a single transaction.
Rather, the Lesters claim that allegations pertaining to a joint
-6-
venture may relate to a limited period of time, as opposed to a
single transaction.
As such, they argue that the banking records
over time are relevant to that claim.
As to their successor
liability allegations, the Lesters also argue that the documents
are relevant to their “claims that Wow Car Company, Ltd. is
liable as the successor to the ‘Wow Car Company’ joint venture
operated by Hartzler and Erwin.”
(Doc. #104 at 4).
The Lesters
argue that they are not required to plead “a specific, separate
claim for successor liability to place such a claim before the
Court,” and their allegations that “Wow Car Company, Ltd. – who
has been a party to this lawsuit since its inception – is liable
as the successor to ‘Wow Car Company’” are sufficient.
5.
Id. at
Based upon their argument that the banking records are
“plainly relevant,” the Lesters urge this Court to overrule
defendants’ objection.
Id.
Defendants oppose the Lesters’ supplemental brief, arguing
that the case law relied upon by the Lesters actually supports
defendants’ position on joint venture and successor liability law
in Ohio.
Defendants reiterate their position that a joint
venture claim is based on a single transaction and “not ongoing,
long-term business operations.”
(Doc. #105 at 1).
According to
defendants, the single transaction involving the sale of one
vehicle by Ms. Hartzler does not justify the Lesters’ “attempts
to delve into four years of banking records for all
Defendants....”
Id. at 2 (emphasis in original).
Defendants
also argue that the authority relied upon by the Lesters relating
to their allegations of successor liability does not support
entitlement to the subpoenaed information.
Defendants argue that
“[i]n every one of the cases cited by Plaintiffs, the
plaintiff(s) . . . specifically asserted a successor liability
claim.”
Id. (emphasis in original).
Based upon these arguments,
defendants again request that the Court grant their joint motion
-7-
for a protective order.
II.
Discussion
The governing issue before the Court is whether the District
Judge’s decision to dismiss the Lesters’ alter ego claims in this
case warrants reconsideration of this Court’s November 13, 2013
opinion and order denying defendants’ joint motion to quash the
subpoena issued to Home Loan and/or for a protective order.
In
resolving this issue, the Court first examines whether the joint
venture claim is sufficient to entitle the Lesters to the
discovery of the information subpoenaed from Home Loan.
In ruling on the motion to dismiss, the District Judge
examined the Lesters’ joint venture claim in detail.
The Court
recognized that the essential elements of a joint venture
partnership are:
1.
a joint contract;
2.
an intention to associate as joint venturers;
3.
community of interest and control,
contributions to the joint venture;
4.
the mutual right to direct and control the purpose
of the joint venture; and
5.
an agreement for the division
losses-jointly, not severally.
of
including
profits
and
(Doc. #94 at 5) (citing Blessing v. United Steel, Paper and
Forestry, Rubber, Mfg., Energy, Allied Indus. & Serv. Workers
Int’l Union, 244 F. Appx. 614, 619 (6th Cir. 2007)).
The Court
found that the Lesters alleged sufficient facts that, accepted as
true, allowed it to draw the reasonable inference that Mr. Erwin
and Ms. Hartzler “intended to engage in and carry out a single
business adventure for joint profit, for which the parties
combined their efforts, property, money, skill and knowledge.”
Id. at 6.
More specifically, the Court noted:
-8-
the Lesters allege that in 2009, Hartzler and Erwin
planned the opening of Wow Car Company, and they agreed
to combine their efforts, property, money, skills, and
knowledge to operate the business. They further allege
that Hartzler obtained the Motor Vehicle Dealer’s
License, and Hartzler, Hartzler’s father, and Erwin
financed the purchase of cars for sale with Erwin
financing more than 50% of the inventory. Additionally,
the Lesters aver that the parties had an agreement that
Erwin was to cover the operating expenses and teach
Hartzler how to buy cars and that Hartzler and Erwin
agreed to split the profits based partially on who
financed the vehicle, with Erwin also being paid
additional fees generated from each sale. Finally, they
allege Erwin and Hartzler had discussions contemplating
that at some point Hartzler would branch out and open a
new dealership, and that Erwin would take over Wow Car
Company.
Id.
Defendants correctly observe that a joint venture under Ohio
law may be defined as an agreement “entered into for a single
transaction.”
Busler v. D & H Mfg., Inc., 81 Ohio App.3d 385,
391 (10th Dist. 1992).
Significantly, however, a joint venture
under Ohio law is not limited to a single transaction.
The
relevant agreement may also be for a “limited period of time.”
Id.
Here, the Court looked beyond the “single transaction”
referred to by defendants which involved selling the vehicle at
issue to the Lesters.
Instead, the Court found that the joint
venture alleged by the Lesters consisted of a broader agreement
to operate a business to sell vehicles for a limited period of
time.
The issue to be resolved by this Court is whether the
information subpoenaed from Home Loan is reasonably calculated to
lead to the discovery of evidence relevant to the Lesters’ joint
venture claim.
As the Court found previously, the information
sought is relevant to establish the financial relationships
between defendants.
The Lesters argue that the banking records
-9-
“are relevant to showing an association between Hartzler and
Erwin to engage in a single business adventure, i.e. the sale of
used cars for a limited period of time, for joint profit, for
which they combined, inter alia, efforts, property, and money.”
(Doc. #104 at 3-4) (internal quotations omitted).
This Court
agrees.
The Lesters rely upon Ohio Valley Bank v. Copley, 121 Ohio
App.3d 197, 206 (4th Dist. 1997) in arguing that the banking
records are competent, credible evidence of a joint venture.
That case involved, inter alia, a challenge to the trial court’s
determination that Cliff Browning, a contractor, and his wife,
Marie Browning, engaged in a joint venture in the construction of
a residence.
Id.
The Court of Appeals found the trial court’s
ruling to be supported by “competent, credible testimony and
evidence” showing that “Marie (1) opened the business account and
was the sole authorized signer for the account, (2) wrote all
checks to pay for all workers, subcontractors, and suppliers, (3)
deposited money in the account from other sources for the benefit
of the construction project, and (4) controlled the business
records.”
Id.
The Court of Appeals overruled the relevant
assignment of error on this basis.
Defendants argue that Copley weighs in their favor,
demonstrating that a joint venture claim is based on a single
transaction.
According to defendants, the transaction in Copley
involved “the construction of one home” and, in this case, the
single transaction involved the sale of one vehicle. (Doc. #105
at 1) (emphasis in original).
Based upon their representation
that they have produced every document relating to the sale of
the vehicle, defendants urge that the subpoena seeks only
irrelevant documents.
As noted above, Ohio law provides that a joint venture may
be formed either for the purpose of engaging in a single
-10-
transaction or for the purpose of engaging in multiple
transactions over a limited period of time.
App.3d at 391.
See Busler, 81 Ohio
The latter is clearly alleged here, and the law
does not limit joint venturers to associating for the purpose of
engaging only in a single transaction.
See also Roberts v.
Weiner, 137 Conn. 668, 671 (1951)(explaining that a general
partnership “is formed for carrying on a general business, while
the latter [a joint venture] is more often limited to a single
transaction or course of transactions”)(emphasis supplied).
The
fact that Copley involved a single transaction does not undermine
its determination that banking activity may serve as evidence of
a joint venture.
Because the banking records sought are relevant
on their face to the joint venture claim, defendants have the
burden to establish the lack of relevance.
See Hendricks v.
Total Quality Logistics, LLC, 275 F.R.D. 251, 253 (S.D. Ohio
2011).
Defendants’ argument that any joint venture was
necessarily limited to the sale of a single vehicle,
notwithstanding the Lesters’ allegations that the joint venture
engaged in a course of transactions, does not satisfy that
burden, and defendants have advanced no other arguments on the
issue of relevance.
Accordingly, the Court will reaffirm its
earlier order that these documents be produced.
Moreover, having
found that the Lesters are entitled to the subpoenaed information
based upon their joint venture claim, the Court need not examine
their entitlement to the same information based on their
allegations of successor liability.
III. Conclusion
Based on the foregoing, this Court’s November 13, 2013
Opinion and Order is reaffirmed.
If it has not already occurred,
the requested documents shall be produced within fourteen days of
the date of this order.
IV. Procedure for Seeking Reconsideration
-11-
Any party may, within fourteen days after this order is
filed, file and serve on the opposing party a motion for
reconsideration by a District Judge.
28 U.S.C. §636(b)(1)(A),
Rule 72(a), Fed. R. Civ. P.; Eastern Division Order No. 91-3, pt.
I., F., 5.
The motion must specifically designate the order or
part in question and the basis for any objection.
Responses to
objections are due fourteen days after objections are filed and
replies by the objecting party are due seven days thereafter.
The District Judge, upon consideration of the motion, shall set
aside any part of this Order found to be clearly erroneous or
contrary to law.
This order is in full force and effect, notwithstanding the
filing of any objections, unless stayed by the Magistrate Judge
or District Judge.
S.D. Ohio L.R. 72.3.
/s/ Terence P. Kemp
United States Magistrate Judge
-12-
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?