Lester et al v. Wow Car Company Ltd. et al
Filing
93
OPINION AND ORDER denying 81 Motion to Quash Subpoena and/or for Protective Order. Signed by Magistrate Judge Terence P Kemp on 11/13/2013. (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 defendants’
joint motion to quash the subpoena and/or for a protective order.
(Doc. #81).
For the reasons set forth below, the motion will be
denied.
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., which
provides funding to another business owned by Ms. Hartzler, the
Hartzler-Erwin Group LLC.
The Lesters claim that the Hartzler-
Erwin Group LLC 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 Motor Funding Group, Ltd., the
Hartzler-Erwin Group LLC, and Marmax.
In that complaint (Doc.
80), the Lesters have 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, violations of the Ohio Consumer Sales Practices Act,
and alter ego.
On September 9, 2013, defendants moved to dismiss
portions of the second amended complaint; that motion is still
pending.
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)
b)
c)
d)
Amy
Max
Wow
Wow
Hartzler;
R. Erwin, Sr.;
Car Company;
Car Company, Ltd.;
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e) Mid-Ohio Motor Funding Group, Ltd.;
f) The Hartzler-Erwin Group, LLC; and
g) 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.
In the motion,
defendants argue that “[t]here are simply no relevant banking
records related to the sale of the car that have not already been
produced,” and that the Lesters’ attempt to obtain the
information is “nothing short of harassment” and “most certainly
not an effort to obtain evidence relevant to this case.”
5-6 (emphasis in original).
Id. at
Defendants likewise argue that the
Lesters should not obtain the information in connection with
their joint venture claim, because the required elements “are
wholly absent from plaintiffs’ complaint.”
Id. at 6.
Similarly,
defendants assert that the alter ego claim is premature and can
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only be asserted if liability is first established against the
principal parties.
Id. at 7.
In sum, defendants contend that
the requested discovery is a “fishing expedition” and that the
subpoena should be quashed or a protective order should be issued
to prevent the Lesters from obtaining the discovery.
Id. at 8.
Finally, defendants contend that the subpoena violated Fed. R.
Civ. P. 26(d) because “there has been no conference of the
parties related to the Lesters’ second amended complaint” and
“four of the Defendants” have not “been officially served with a
copy of the second amended complaint yet.”
Id. at 9.
In their opposing memorandum, the Lesters construe the basis
for defendants’ motion to be their (erroneous, according to the
Lesters) belief that the “joint venture and alter ego allegations
. . . are subject to dismissal.”
(Doc. #87 at 2).
The Lesters
dispute that, of course, and they argue that as long as the
claims remain part of the case, the defendants have identified
“no justifiable reason” to quash the subpoena or issue a
protective order.
Id. at 2-3.
According to the Lesters, the
banking records are discoverable because they are relevant to the
joint venture, alter ego, and successor liability allegations in
the second amended complaint.
Id. at 4.
Further, the Lesters
allege that they have done all of the conferring required by Fed.
R. Civ. P. 26(f) and are entitled to pursue discovery even as it
relates to new parties to the case.
In their reply memorandum, defendants reiterate their
position that it is “unfair to subject [them] to highly intrusive
prying . . . into their personal and business affairs before
Plaintiffs have obtained a judgment on Hartzler, the only person
who could possibly found to be primarily liable. . . .”
#92 at 2-3).
(Doc.
Alternatively, they argue that the Lesters have not
shown that the documents sought are relevant to any of their
claims.
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II. Discussion
The Court first addresses defendants’ argument that the
subpoena was issued in violation of Fed. R. Civ. P. 26(d).
Rule
26(d) provides that discovery may not ordinarily begin prior to
the Rule 26(f) conference.
In this case, the Rule 26(f) report
reflects that counsel for both sides met and conferred on May 8,
2012.
(Doc. #27).
The rule does not require a second or a third
conference to be held subsequent to the filing of an amended
complaint even if it joins new parties.
Defendants have not
cited any cases which imply such a requirement or suggest that
every time a new party is added, discovery must stop until that
party appears and participates in a Rule 26(f) conference.
Certainly, if a newly-joined party can show some prejudice from
being subjected to discovery soon after the party is served with
a summons and complaint, the Court has the power to issue an
appropriate order to protect the party’s rights.
the argument which defendants have made here.
But that is not
In the absence of
such an argument, the Court will not quash the subpoena or issue
a protective order just because there are now parties to the case
who were not there when the original Rule 26(f) conference was
held.
There is a potential standing question here based upon the
fact that none of the parties who have moved to quash the
subpoena are its targets.
Although a party generally lacks
standing to seek to quash a subpoena issued to a nonparty, see
Wright & Miller, Federal Practice and Procedure, Civil 3d §2459,
p. 435, an exception is made if the information sought implicates
a party’s personal right or privilege.
See Hendricks v. Total
Quality Logistics, LLC, 275 F.R.D. 251, n.1 (S.D. Ohio 2011).
The Lesters do not dispute that the exception applies here, where
the information sought from the non-party consists of defendants’
banking records.
(Doc. #87 at 3).
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This Court agrees that
defendants have standing to file a motion to quash the subpoena
issued to Home Loan.
See Riding Films, Inc. v. John Does, No.
2:13-cv-46, 2013 WL 3322221, at *4 (S.D. Ohio July 1,
2013)(noting that personal rights or privileges supporting a
claim of standing have been recognized with respect to bank
records).
It now turns to the merits of defendants’ arguments.
As this Court noted previously, the pleadings reflect a
significant dispute concerning who actually sold the used car to
the Lesters, or, more accurately, who can properly be held liable
for the Lesters’ various claims against the seller.
and Order of August 12, 2013, Doc. #78, at 1.
See Opinion
In opposing the
motion to quash, the Lesters argue that “[t]he documents sought
will lead to information that will verify or disprove the
existence of transactions and the operation of Wow Car Company
through accounts other than those directly in the name of Wow Car
Company and Hartzler.”
(Doc. #87 at 4).
In other words, the
Lesters claim that the information sought is relevant to the
joint venture, alter ego, and successor liability allegations in
the second amended complaint.
There is no question that bank records may well contain
information relating to these types of claims.
See, e.g., Trans
Pacific Ins. Co. v. Trans-Pacific Ins. Co., No. 90-2531, 1991 WL
152302 (E.D. Pa. Aug. 2, 1991) (finding that the requested bank
documents were relevant and “may provide further evidence of the
alter-ego status of the [defendant corporations]”).
Consequently, the information sought from Home Loan is relevant
to establish the financial relationships between defendants, and
that such information could lead to a determination of the
individual, entity, or entities responsible for selling the
vehicle to the Lesters.
Because the discovery sought is relevant
on its face to claims in the second amended complaint, or is, at
the least, reasonably calculated to lead to the discovery of
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evidence relevant to those claims, defendants have “the burden to
establish lack of relevance.”
Hendricks, 275 F.R.D. at 253.
Defendants have not met that burden.
What defendants are really arguing is not that the documents
which the Lesters have subpoenaed are irrelevant to their joint
venture or alter ego claims, but rather that discovery on such
claims is premature - that is, until the Court decides if these
claims can survive the motion to dismiss, the Lesters should not
be allowed to pursue discovery on these claims.
That is coupled
with an argument that the information is sensitive and the
discovery is intrusive.
Defendants are, in essence, asking this
Court to stay discovery pending determination of their pending
motion to dismiss.
A stay of discovery for any reason is a matter ordinarily
committed to the sound discretion of the trial court.
See
Chrysler Corp. v. Fedders Corp., 643 F.2d 1229, 1240 (6th Cir.
1981).
In ruling upon a motion for a stay, the Court is required
to weigh the burden of proceeding with discovery upon the party
from whom discovery is sought against the hardship that would be
worked by a denial of discovery.
See Marrese v. American Academy
of Orthopedic Surgeons, 706 F.2d 1488, 1493 (7th Cir. 1983).
Additionally, the Court is required to take into account any
societal interests that are implicated by either proceeding or
postponing discovery.
See id.
When a stay, rather than a
prohibition, of discovery is sought, the burden upon the parties
requesting the stay is less than if they were requesting a total
freedom from discovery.
See id.
The argument that discovery should be stayed pending the
resolution of a dispositive motion is typically unpersuasive.
See, e.g., Gray v. First Winthrop Corp., 133 F.R.D. 39, 40 (N.D.
Cal. 1990) (stating that if the Federal Rules of Civil Procedure
had contemplated that a pending dispositive motion would stay
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discovery, they would contain a provision to that effect).
This
Court has often observed that the occasions when it has granted
such a stay are few, arising where there are issues of immunity
from suit, or a narrow legal issue that is evaluated easily in
order to determine whether the dispositive motion has merit.
Despite the fact that stays of discovery during the pendency
of dispositive motions are rarely granted, the Court does
consider each such motion on its individual merits.
In Heartland
Jockey Club Ltd. v. Penn National Gaming, Inc., 2009 WL 5171829,
at *4 (S.D. Ohio Dec. 21, 2009), this Court noted that it:
takes seriously its obligation to manage discovery and
recognizes that there are cases where the plaintiff's
claim is so tenuous, and the potential injury to either
private or societal interests from unfettered discovery
is so great, that the Court must limit or preclude
discovery in order to strike the proper balance between
the competing interests involved.
Id.
That does not appear to be the case here, and defendants
have not really argued that it is.
Rather, whether the Lesters
properly assert a joint venture claim or whether the principal
parties are ultimately liable are not issues that are resolved
easily in order to determine whether the motion to dismiss will
likely be granted.
Consequently, and in the exercise of its
discretion, the Court will not stay discovery pending a
resolution of the motion to dismiss.
Defendants do make a valid point about the sensitivity of
some of the information subpoenaed.
Usually, however, that is
not a reason to preclude discovery altogether (unless the
potential for harm to the defendants outweighs the potential
benefit to the plaintiffs), but may justify restrictions on the
use and dissemination of the information.
That is something the
parties are free to consider, but it does not justify quashing
the subpoena.
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III. Conclusion
For the reasons set forth above, the Lesters’ motion to
quash the subpoena and/or for a protective order is denied.
(Doc. #81).
The requested documents shall be produced within
fourteen days of the date of this order.
IV. Procedure for Seeking Reconsideration
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
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