Jack v. Grose
Filing
113
OPINION AND ORDER denying (96) Motion to Compel; granting (106) Motion for Leave to File in case 2:16-cv-00633-ALM-KAJ; denying (62) Motion to Compel; granting (71) Motion for Leave to File; denying (78) Motion to Strike in case 2:17-cv-00808-ALM-KAJ. The current expert report deadlines are VACATED. Signed by Magistrate Judge Kimberly A. Jolson on 5/21/2018. (ew)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
JOHN JACK, et al.,
Plaintiffs,
v.
Civil Actions: 2:16-cv-633
2:17-cv-808
Judge Algenon L. Marbley
Magistrate Judge Jolson
SPV VENTURES
LLC, et al.,
Defendants.
OPINION AND ORDER
This matter is before the Court on John Jack’s Renewed Motion to Compel DeepRock
Disposal Solutions, LLC to Produce Records Responsive to Subpoena (Doc. 96 in 2:16-cv-633),
Mr. Jack’s Motion for Leave to File a Reply Brief Instanter in Support of his Renewed Motion to
Compel (Doc. 106 in 2:16-cv-633), and Mr. Jack’s Motion to Strike South Park Ventures, LLC’s
Response to the Renewed Motion to Compel (Doc. 78 in 2:17-cv-808). For the reasons that
follow, Mr. Jack’s Motion for Leave to File a Reply Brief is GRANTED, and his Motion to
Strike and Renewed Motion to Compel are DENIED.
I.
BACKGROUND
Mr. Jack is the manager and a member of Tri-State Disposal, LLC (“Tri-State”), and
former Chief Executive Office (“CEO”) of Water Energy Services, LLC (“WES”), a company
that built facilities and operated injection wells for the disposal of waste water generated by the
oil and gas industry in the Appalachian Basin. Mr. Jack and Dean Grose, who is part owner and
operator of South Park Ventures, LLC (“SPV”), were WES’s sole board members. Tri-State and
SPV each held a fifty percent share in WES.
WES began construction on its facilities in April 2015, completed construction in
December 2015, and became fully operational around February 2016. Despite WES becoming
fully operational, its underlying business relationships soured, leaving Mr. Jack and Tri-State at
odds with Mr. Grose and SPV. In the context of those faltering relationships, WES operated as
such for just a short period of time.
Multiple lawsuits ensued, two of which have been
consolidated by this Court and are currently pending. The Court discusses each lawsuit only to
the extent necessary to resolve the pending Motions.
A. Jack, et al. v. SPV Ventures, LLC, et al., 2:16-cv-633
Mr. Jack and Tri-State filed the first lawsuit suit against SPV and Mr. Grose in the Court
of Common Pleas for Washington County, Ohio on June 3, 2016. (Doc. 4 in 2:16-cv-633). SPV
and Mr. Grose removed the action to this Court pursuant to its diversity jurisdiction on June 30,
2016. The case is now captioned as Jack, et al. v. SPV Ventures, LLC, et al., 2:16-cv-633. Mr.
Jack and Tri-State filed the Second Amended Complaint (the operative complaint) on March 23,
2017. (Doc. 27 in 2:16-cv-633).
According to the Second Amended Complaint, a third-party expressed an interest in
purchasing WES in the fall of 2015, even before WES completed construction of its facilities.
(Id. at ¶ 25). Mr. Jack and Tri-State allege that, although the offer to purchase WES expired and
consequently was declined, having such an offer prompted SPV, Mr. Grose, and others to
“engage[ ] in a concerted effort to force Jack to resign from the board of WES, remove him as
CEO of WES and remove him as an employee of WES so they could gain control of WES.” (Id.
at ¶¶ 27–28). Their motive, Mr. Jack and Tri-State contend, was financial—removing Mr. Jack
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“without payment of any compensation.”
(Id. at ¶ 28).
Arising principally from these
allegations, Mr. Jack and Tri-State bring claims for breach of contract based on the WES
Operating Agreement (Count One), breach of fiduciary duties (Count Two), and defamation
resulting in libel and slander (Count Three).
B. SPV Ventures, LLC v. Jack et al., No. 2:17-cv-808
Within a week of Mr. Jack and Tri-State filing the first lawsuit, SPV filed an action
against Mr. Jack and former officers of WES in the Court of Common Pleas for Washington
County, Pennsylvania. Defendants removed the matter based on diversity jurisdiction to the
United States District Court for the Western District of Pennsylvania, which transferred it to this
Court in September 2017. (Doc. 26 in 2:17-cv-808). The second lawsuit is now captioned as
SPV Ventures, LLC v. Jack et al., No. 2:17-cv-808. The Amended Complaint (the operative
complaint) was filed on March 23, 2017. (Doc. 1-3, PAGEID #: 97–208 in 2:17-cv-808).
SPV alleges that Mr. Jack and WES’s former officers mismanaged the construction of the
WES facility and WES’s financial assets, resulting in WES’s default “of its various obligations
to its lenders” and causing WES to “incur[ ] debt …. in excess of $3,000,000.00.” (Id. at ¶ 27,
PAGEID #: 101). Relevant here, SPV alleges that Mr. Jack and WES’s former officers failed to
satisfy their duties to obtain proper rights-of-way for WES’s pipeline and, consequently, WES
constructed the pipeline in the incorrect location. (Id. at ¶¶ 83–85, PAGEID #: 113). SPV also
avers that Mr. Jack and WES’s former officers acted to WES’s detriment by “accept[ing] barrels
of water from consumers at a below-market price,” resulting in increased royalties to them. (Id.
at ¶¶ 88–89, PAGEID #: 114).
WES was placed in receivership in July 2016, and the receiver obtained court approval
to sell WES’s assets at auction. (Doc. 24 at 4 in 2:17-cv-808 (citing Am. Compl. ¶¶ 46–54 &
3
Ex. D)). WES’s assets were sold at auction in December 2016 to Funds Protection Investment,
LLC (“FPI”), which assigned them to DeepRock Disposal Solutions, LLC (“DeepRock”). (Id.).
DeepRock explains that its owners include two limited liability companies, one of which is
owned by Mr. Grose. (Doc. 103 at 16 in 2:16-cv-633). Arising generally from these allegations,
SPV brings claims for breach of fiduciary duties (Count One) and misrepresentation and fraud
(Count Two).
C. The Discovery at Issue
Mr. Jack seeks to compel discovery from DeepRock, which is not a party to either
lawsuit pending in this Court. Mr. Jack served a subpoena on DeepRock on June 29, 2017 (Doc.
73-2 in 2:16-cv-633), and first moved to compel in January 2018. (Doc. 73 in 2:16-cv-633).
After the Motion was briefed fully, the Court denied it as premature, finding that many of the
issues were amenable to resolution through continued discussions. (Doc. 86 at 6–7 in 2:16-cv633). Consequently, the Court ordered the parties to meet and confer. (Id.).
After engaging in that process, Mr. Jack opted to withdraw subpoena requests 1–7, 13,
15, and 18–19, but indicated that the parties remained at an impasse as to the remaining
subpoena requests, namely requests 8–12, 14, and 16–17. (See Docs. 96-3, 96-4, 96-5, 96-6 in
2:16-cv-633). The remaining requests seek production of:
8. All financial statements of DeepRock whether internal or external, from
December 1, 2016 through the Present.
9. All reports and records regarding the barrels of waste water received by
DeepRock at its facility for the period January 1, 2017 through the Present.
10. All reports or documents showing total barrels billed and monetary amount
billed by DeepRock to its customers, by distinct billing period(s), during the
period January 1, 2017 through the Present.
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11. All daily, weekly and/or monthly barrel count records available showing the
number of barrels of waste water received by DeepRock for the period January 1,
2017 through the Present.
12. All records concerning the number of barrels received by DeepRock for
disposal as reported to the Ohio Department of Natural Resources during the
period January 1, 2017 through the Present.
***
14. All documents regarding royalty payments being reported and paid VM Mile
Run, LLC for the period January 1, 2017 through the Present.
***
16. The truck manifest showing barrels of waste water delivered to DeepRock for
the period January 1, 2017 through the Present.
17. All records showing the amount of oil shipped or sold by DeepRock for the
period January 1, 2017 through the Present.
(Doc. 96-2, PAGEID #: 1243 in 2:16-cv-633)
Because counsel represented that Court
intervention was necessary, the undersigned expedited briefing on any renewed Motion to
Compel and indicated that no reply brief should be filed absent leave. (Doc. 94 in 2:16-cv-633).
Mr. Jack filed his Renewed Motion to Compel on April 23, 2018, seeking responses to
requests 8–12, 14, and 16–17. (Doc. 96 at 4 in 2:16-cv-633). Mr. Jack argues that he is entitled
to the responses for two main reasons: (1) the information is necessary to rebut the claims
against him made by SPV and (2) the information is necessary to calculate his damages. (Doc.
96-1 at 4–7 in 2:16-cv-633). In response, DeepRock asserts that the requests improperly “delve
into the heart of [its] business,” and would result in it producing “information that would detail
its confidential pricing models and financials that would show the manner and focus of its
operations.” (Doc. 103 at 2 in 2:16-cv-633). At bottom, DeepRock argues that the information
is irrelevant and disproportional to the needs of the case. (Id. at 1). SPV also filed a Response in
opposition to Mr. Jack’s Renewed Motion (Doc. 72 in 2:17-cv-808), which Mr. Jack moved to
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strike (Doc. 78 in 2:17-808). The Court now considers Mr. Jack’s Renewed Motion to Compel,
Motion for Leave to File a Reply Brief, and Motion to Strike.
II.
RELEVANT LEGAL STANDARD
Rule 45 of the Federal Rules of Civil Procedure “governs discovery from non-parties,
including the right to command a non-party to, inter alia, produce documents.” Taylor v.
Universal Auto Grp. I, Inc., No. 14-MC-50, 2015 WL 1810316, at *4 (S.D. Ohio Apr. 17, 2015)
(citing Fed. R. Civ. P. 45(a)(1)). Rule 45 further provides that “the court for the district where
compliance is required must quash or modify a subpoena that ... requires disclosure of privileged
or other protected matter ... or subjects a person to undue burden.” Id. (citing Fed. R. Civ. P.
45(d)(3)(A)(iii),(iv)). “In determining whether a subpoena imposes an undue burden, a court
considers ‘such factors as relevance, the need of the [requesting] party for the documents, the
breadth of the document request, the time period covered by it, the particularity with which the
documents are described and the burden imposed.’” Kacmarik v. Mitchell, No. 1:15CV2062,
2017 WL 131582, at *4 (N.D. Ohio Jan. 13, 2017) (quoting Hogan v. Cleveland Ave. Rest., Inc.,
No. 2:15-cv-2883, 2016 WL 7467968 at *2 (S.D. Ohio Dec. 28, 2016) (citing Am. Elec. Power
Co. v. United States, 191 F.R.D. 132, 136 (S.D. Ohio 1999)). Ultimately, “[c]ourts must balance
the need for discovery against the burden imposed on the person ordered to produce documents,
and the status of that person as a non-party is a factor.” In re: Modern Plastics Corp., No. 172256, 2018 WL 1959536, at *4 (6th Cir. Apr. 26, 2018) (citations and quotations omitted).
III.
DISCUSSION
The Court first addresses Mr. Jack’s argument that the discovery requested from
DeepRock is relevant given SPV’s claims against him. It next addresses whether the information
requested from DeepRock is relevant to calculate Mr. Jack’s alleged damages.
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A. Whether the Discovery Requested from DeepRock is Relevant to SPV’s
Claims Against Mr. Jack
Mr. Jack argues that the discovery requested from DeepRock is relevant given two
particular claims that SPV makes against him. First, Mr. Jack argues that the discovery is
relevant to SPV’s claim that he caused damage to WES’s assets, including its waste water
disposal facility and its pipeline right-of-way. (Doc. 96-1 in 2:16-cv-633 (citing Doc. 1-3,
PAGEID#: 101, 113–14 in 2:17-cv-808)). Second, Mr. Jack contends that the discovery is
necessary to defend against SPV’s allegations that he “entered agreements to dispose of waste
water at unprofitable prices per barrel because he stood to gain from the collection of
royalties….” (Id.). Tying Mr. Jack’s arguments to the requests themselves, Mr. Jack appears to
be requesting DeepRock’s financial statements and its records concerning barrels of waste water,
oil, and royalty payments in an effort to establish that WES’s facility and pipeline were
constructed properly and that he disposed of waste water at a profitable price per barrel. (See id.
at 6–7).
As an initial matter, the Court is struck by the breadth of these requests from DeepRock,
a non-party, and that all but one request seek information from January 1, 2017 through the
present.
(The sole exception is Request No. 8, which seeks all of DeepRock’s financial
statements from December 1, 2016 through the present). Clearly, discovery concerning the
construction of WES’s facilities from April 2015 through February 2016 (when WES became
fully operational) would have bearing on these claims, as would discovery on WES’s assets
being sold at auction in December 2016, but the relevance of documents after January 1, 2017 is
less clear. However, the Court need not determine relevance or whether non-party DeepRock
would suffer an undue burden because, as DeepRock argues, the allegations relied on by Mr.
Jack “are completely moot.” (Doc. 103 at 2 in 2:16-cv-633).
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DeepRock explains that “SPV has indicated to counsel for Mr. Jack and counsel for
DeepRock that it no longer intends to pursue those lines of inquiry or make those assertions in
relation to any claims against Mr. Jack.” (Id. at 2–3). Because this information is most reliable
coming from SPV itself, the Court finds good reason to consider SPV’s Response to Mr. Jack’s
Renewed Motion to Compel (Doc. 72 in 2:17-808). Consequently, and pursuant to the Court’s
inherent power to manage its docket, Mr. Jack’s Motion to Strike SPV’s Response (Doc. 78 in
2:17-808) is DENIED. See Colas Sols. Inc. v. Blacklidge Emulsions, Inc., No. 1:16CV548, 2016
WL 9356209, at *1 (S.D. Ohio Aug. 8, 2016) (“[T]rial courts make use of their inherent power to
control their dockets when determining whether to strike documents or portions of documents.”)
(internal citations omitted).
A review of SPV’s Response confirms DeepRock’s representation that SPV will not
pursue these allegations against Mr. Jack.
In light of this representation and the related
documentation, the Court takes SPV’s counsel at his word as an officer of this Court that his
client will not pursue these allegations against Mr. Jack. See generally Comp. Leasco, Inc. v.
NTP, Inc., 194 F. App’x 328, 338 (6th Cir. 2006) (“A lawyer is an officer of the court while
preparing [his] client’s case.”). Thus, Mr. Jack’s Renewed Motion to Compel is DENIED to the
extent that he seeks the information to demonstrate that WES’s facility and pipeline were
constructed properly and that he disposed of waste water at a profitable price per barrel.
B. Whether the Requested Discovery Is Relevant to Mr. Jack’s Damages
The Court next turns to whether the evidence is relevant for Mr. Jack’s damages
calculation. Mr. Jack argues that the requests are relevant to damages as follows:
8. All financial statements of DeepRock whether internal or external, from
December 1, 2016 through the Present.
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Relevance: Financial statements present both the financial performance and
the utilization of the WES assets. Monthly financials provide a linear trend
of the actual performance.
9. All reports and records regarding the barrels of waste water received by
DeepRock at its facility for the period January 1, 2017 through the Present.
10. All reports or documents showing total barrels billed and monetary amount
billed by DeepRock to its customers, by distinct billing period(s), during the
period January 1, 2017 through the Present.
11. All daily, weekly and/or monthly barrel count records available showing the
number of barrels of waste water received by DeepRock for the period January 1,
2017 through the Present.
12. All records concerning the number of barrels received by DeepRock for
disposal as reported to the Ohio Department of Natural Resources during the
period January 1, 2017 through the Present.
16. The truck manifest showing barrels of waste water delivered to DeepRock for
the period January 1, 2017 through the Present.
Relevance of requests 9-12, 16: Facts and evidence of performance reported
to third parties in the regular course of business.
14. All documents regarding royalty payments being reported and paid VM Mile
Run, LLC for the period January 1, 2017 through the Present.
Relevance: Present the actual amount paid and volumes, as cross check of
other reported data for accuracy.
17. All records showing the amount of oil shipped or sold by DeepRock for the
period January 1, 2017 through the Present.
Relevance: revenue and profits of company as reported in financials to cross
check accuracy of data.
(Doc. 96-1 at 5–6 in 2:16-cv-633). Mr. Jack adds that this information has been requested by his
“forensic accountant/economic damages expert,” who is conducting a “but for expectations less
actual performance” calculation of damages which requires “information related to the actual
performance of the former[ ] WES assets.” (Id. at 4). In sum, Mr. Jack contends that the
information is relevant because “a component of [his] damages is the value of the business as a
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going concern that was taken from him by Grose and SPV without just compensation when they
squeezed him out of WES.” (Id. at 6).
DeepRock makes a litany of arguments in opposition, but a primary one is that Mr. Jack
fails to make “any complete showing that the requests are relevant” to his damages calculation.
(Doc. 103 at 6 in 2:16-cv-633). More specifically, DeepRock asserts that Mr. Jack never
explains “how this proposed valuation method, if it exists, supports any of his claims or
defenses.” (Id. at 5). The Court agrees that Mr. Jack’s argument falls short of clarifying why
DeepRock’s sensitive business information is relevant to his alleged damages. See Mid Am.
Sols. LLC v. Vantiv, Inc., No. 1:16-MC-2, 2016 WL 1611381, at *5 (S.D. Ohio Apr. 20, 2016)
(“Demonstrating relevance is the burden of the party seeking discovery.”) (quoting Am. Elec.
Power Co., Inc. v. United States, 191 F.R.D. 132, 136 (S.D. Ohio 1999) (citations omitted).
Based upon this finding, the Court allows Mr. Jack to be heard in reply. Mr. Jack’s Motion for
Leave to File a Reply Brief is, therefore, GRANTED (Doc. 106 in 2:16-cv-633).
Mr. Jack’s Reply, however, provides no additional clarification for how DeepRock’s
sensitive business information is relevant to his alleged damages. Instead, the Reply confirms
that this debate now extends well beyond the relevance of discovery and has devolved into a
conversation about the legitimacy of Mr. Jack’s proposed valuation method. Mr. Jack
acknowledges this and seeks to confirm “the … existence of [his] damages expert’s
methodology” and combat the notion that it is “some farfetched theory which was just hatched.”
(Doc. 106-1 at 1 in 2:16-cv-633). Stated simply, this dispute puts the proverbial cart before the
horse.
At base, whether Mr. Jack’s need for the information is rooted in a legitimate
methodology is unnecessary to resolve at this stage of the proceedings. Placing this dispute in
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the greater context of these cases, in which dispositive motions on liability are due prior to expert
reports on damages (see Doc. 105 in 2:16-cv-633), the Court finds it the better exercise of
judgment to resolve the proposed valuation issue at a time when it is properly before the Court.
Doing so promotes efficiency, causing the parties to expend resources to prepare expert reports
only if necessary. It likewise allows the Court a broader perspective in ruling on the scope of
discovery relevant to damages. To that end, the current expert report deadlines are VACATED
and will be re-set, if necessary, following the Court’s ruling on dispositive motions. Based upon
the foregoing, and under this Court’s broad discretion, Mr. Jack’s Renewed Motion to Compel is
DENIED.
C. DeepRock’s Request for Compensation
DeepRock argues that the Court should “award appropriate compensation for the actions
of Mr. Jack in filing the Original Motion and the Renewed Motion [to Compel],” pursuant to
Rule 45. (Doc. 103 at 17–18 in 2:16-cv-633). Rule 45 of the Federal Rules of Civil Procedure
provides in relevant part:
A party or attorney responsible for issuing and serving a subpoena must take
reasonable steps to avoid imposing undue burden or expense on a person subject
to the subpoena. The court for the district where compliance is required must
enforce this duty and impose an appropriate sanction—which may include lost
earnings and reasonable attorney’s fees--on a party or attorney who fails to
comply.
Fed. R. Civ. P. 45(d). Here, the Court finds the requested compensation unwarranted.
As outlined above, a dispute exists over whether the discovery is relevant to Mr. Jack’s
damages computation, an issue that the Court finds premature at this juncture. Under these
circumstances, the Court does not find that Mr. Jack or his counsel imposed an undue burden or
expense on DeepRock. Rule 45(d)(1) is “narrowly-tailored to situations involving the misuse of
a court’s subpoena power[,]” and the Court finds no such misuse here. Muslim Cmty. Ass’n of
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Ann Arbor v. Pittsfield Twp., No. CV 12-10803, 2015 WL 5132583, at *2 (E.D. Mich. Apr. 24,
2015); see also SAJ Distributors, Inc. v. Sandoz, 2008 WL 2668953, at *3 (D.N.J. June 27, 2008)
(noting that “attorney fees are generally awarded only in the most egregious of circumstances,
such as when a party has clearly breached Rule 45”). Accordingly, DeepRock’s request for
compensation is DENIED.
IV.
CONCLUSION
For the reasons set forth above, Mr. Jack’s Motion for Leave to File a Reply Brief (Doc.
106 in 2:16-633) is GRANTED, and his Motion to Strike SPV’s Response to the Renewed
Motion to Compel (Doc. 78 in 2:17-cv-808) and Renewed Motion to Compel (Doc. 96 in 2:16633) are DENIED. DeepRock’s request for compensation is also DENIED. The current expert
report deadlines are VACATED and will be re-set, if necessary, following the Court’s ruling on
the parties’ dispositive motions. If necessary, the parties are DIRECTED to submit a joint
status
report
with
proposed
expert
report
deadlines
to
the
undersigned
(jolson_chambers@ohsd.us.courts.gov) within fourteen (14) days of the Court’s Opinion and
Order on dispositive motions.
IT IS SO ORDERED.
Date: May 21, 2018
/s/ Kimberly A. Jolson
KIMBERLY A. JOLSON
UNITED STATES MAGISTRATE JUDGE
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