Third Pentacle, LLC
Filing
56
DECISION AND ENTRY granting in part and denying in part 50 Motion to CompelIT IS THEREFORE ORDERED THAT: 1. Defendant Pates Motion to Compel (Doc. # 50 ) is GRANTED, in part. On or before January 12, 2012, Third Pentacle shall disclose the amoun t of money it received under the terms of the Settlement Agreement reached by Third Pentacle, Interactive Life Forms, and Shubin. Third Pentacle shall disclose the required information to Pates counsel of record in writing, verified by sworn statement, and for counsel's eyes only. The settlement amount shall otherwise Motion to Compel (Doc. # 50 ) is DENIED in remaining part.Signed by Magistrate Judge Sharon L Ovington on 01/05/12. (pb1)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION AT DAYTON
THIRD PENTACLE, LLC,
c/o Thomas Leach, Manager,
:
:
Plaintiff,
Case No. 3:10cv00238
:
vs.
District Judge Thomas M. Rose
Magistrate Judge Sharon L. Ovington
:
INTERACTIVE LIFE FORMS, LLC,
c/o Steve A. Shubin Sr., et al.,
Defendants.
:
:
DECISION AND ENTRY
I.
Plaintiff Third Pentacle, LLC initially brought this case against Defendants Sarah
Pate, Steve Shubin (individually), and Interactive Life Forms, LLC. Third Pentacle’s
claims included, in part, trademark infringement, breach of contract, and unjust
enrichment.
Within ten days of the date Third Pentacle filed its Complaint, nearly all parties –
Third Pentacle, Interactive Life Forms, and Shubin (but not Pate) – reached a settlement
agreement (the Settlement Agreement). Third Pentacle and Pate are the only remaining
parties.
Pate’s responses to Third Pentacle’s Complaint raise several (amended)
counterclaims against Third Pentacle, including (in part) trademark infringement, breach
of contract, and unjust enrichment. In their respective pleadings, Third Pentacle and Pate
seek declaratory judgment establishing who owns Third Pentacle and who owns the
trademark “Raven Riley.”
The case is before the Court upon Pate’s Motion to Compel Discovery Concerning
Settlement Agreement Between Plaintiff, Interactive Life Forms, LLC, and Steven Shubin
(Doc. #50), Third Pentacle’s Memorandum Contra (Doc. #53), Pate’s Reply (Doc. #55),
and the record as a whole.
II.
Beginning in 2005, Pate and Thomas Leach (and others) each held an ownership
interest in Third Pentacle. Although the business was financially successful, Pate and
Leach encountered problems that led her to file a lawsuit in state court against Leach and
others. By April 2009, Pate and Leach had resolved their differences, and they ended the
state lawsuit with a settlement agreement and by adopting an amended operating
agreement related to Third Pentacle. Under their state-court settlement agreement, Pate
and Leach would each receive $10,000 from Third Pentacle in the future. They further
agreed that those payments would occur when Third Pentacle received past-due royalties,
at least $20,000, that Interactive Life Forms owed Third Pentacle.1
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On this point, the state settlement agreement provides:
13) . . . once the Company receives all money past due from [Interactive
Life Forms] (ILF), that such monies shall be placed in the (Third
Pentacle) bank account and (Sarah Pate) and (Thomas Leach) shall
thereafter receive a distribution of Ten Thousand and 00/100 Dollars
($10,000.00) each within three business days, on the condition that at
2
As the ensuing months ticked by Third Pentacle allegedly did not receive royalty
payments from Interactive Life Forms. Coincidentally – or not – Shubin provided Pate
with money upon occasion; the amounts varied and added up to approximately $10,000.
Pate maintains that the money was a gift. Leach grew suspicious when he learned about
Pate’s receipt and retention of $10,000 directly from Shubin. This, and other events, led
Leach to conclude, in part, that Pate had nefariously retained royalty payments that
Interactive Life Forms owed Third Pentacle under a contract titled “Fleshlight Girls
Contract.”
III.
Pate acknowledges in the present case that she received a total of approximately
$10,000 from Shubin. See Doc. #55 at Page ID# 981. In response to Third Pentacle’s
claims, she counters that the money was a gift, not royalties owed to Third Pentacle. She
further asserts that Third Pentacle received a substantially larger amount from Shubin or
Interactive Life Forms as part of the Settlement Agreement they reached in the instant
case. If so, she reasons, Third Pentacle suffered no monetary harm by her retention of
Shubin’s gift.
Through her Motion to Compel, Defendant Pate seeks to learn more about matters
related to the Settlement Agreement, particularly the “amount of money Third Pentacle
least Twenty Thousand and 00/100 Dollars ($20,000.00) is received from
(ILF).
See Doc. #50 at 922.
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claimed it was owed, the amount of money it actually received, and the reasons the parties
may have agreed to some amount less than the total amount due . . . .” (Doc. #50 at
PageID #923). Pate contends that the information she seeks “goes to numerous issues
pending in this case including but not limited to the following: (1) that portion of the
Settlement Agreement concerning the division of $20,000 worth of money due from ILF
[Interactive Life Forms]; and (2) Plaintiff’s claim for breach of fiduciary duty; and (3)
Sarah Pate’s claim for monetary damages.” Id. at Page ID# 922.
Third Pentacle argues that Pate is not entitled to information about the Settlement
Agreement due to its confidentiality provision.
IV.
“Parties may obtain discovery regarding any matter, not privileged, that is relevant
to the claim or defense of any party . . . . For good cause, the court may order discovery
of any matter relevant to the subject matters involved in the action. Relevant information
need not be admissible at the trial if the discovery appears to be reasonably calculated to
lead to the discovery of admissible evidence. . . .” Fed. R. Civ. P. 26(b)(1). Courts must
limit discovery when it is unreasonably cumulative or duplicative, when the party has
already had a sufficient opportunity to obtain the sought-after information, or when the
burden or expense of providing the sought-after information outweighs its likely benefits.
Fed. R. Civ. P. 26(b)(2)(C)(i)-(iii); see Ewert v. Holzer Clinic, Inc., 2009 WL 4547567 at
*2 (S.D.Ohio 2009)(King, M.J.).
In the present case, the information Pate seeks to discover includes the amount
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Third Pentacle actually received from Interactive Life Forms and Shubin under the
Settlement Agreement. This information is relevant under Rule 26(b)(1) and Pate’s
request for it is reasonably calculated to lead to the discovery of admissible evidence. If
Third Pentacle received a substantial settlement amount – over $20,000 (as much as
$100,000 to $200,000, as Pate “has reason to believe” (Doc. #50 at PageID #923)) – then
Pate may be able to show that Third Pentacle suffered no financial harm due to her
acceptance and retention of approximately $10,000 directly from Shubin. Without
financial harm caused by Pate, Third Pentacle’s breach of contract claim would fail for
lack of an essential element. Moreover, if Third Pentacle received more than $20,000 in
past-due royalties from Interactive Life Forms and if the money Pate received directly
from Shubin was an actual gift, as Pate asserts, then Third Pentacle might still owe Pate
$10,000 under the terms of the Pate/Leach state-court settlement agreement.
Additionally, Pate’s discovery request for the amount Third Pentacle received
under the Settlement Agreement seeks information that is relevant, under Rule 26(b)(1),
to her claim that Third Pentacle has breached the terms of its Amended Operating
Agreement. She asserts that Third Pentacle owes her money under the Amended
Operating Agreement in light of past-due royalties (i.e., those owed by Interactive Life
Forms) that were earned when she was still a part owner of Third Pentacle. Pate reasons
that those earnings were past due until Third Pentacle received payment from Interactive
Life Forms under the terms of the Settlement Agreement. This is a reasonable assertion
given that the Settlement Agreement led to the dismissal of Third Pentacle’s claims
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against Interactive Life Forms. Third Pentacle claimed, for example, that Interactive Life
Forms breached the Fleshlight Girls Contract by not paying royalties it owed Third
Pentacle. The upshot is that if Third Pentacle has received royalties that it earned during
the time when Pate was a co-owner, she would have a factual basis for asserting that
Third Pentacle still owes her money under the Amended Operating Agreement.
Third Pentacle contends that a confidentiality provision in the Settlement
Agreement bars it from disclosing, and Pate from discovering, the information she seeks.
A confidentiality privilege generally applies to the substance of communications made
during negotiations that result in a confidential settlement agreement. See Goodyear Tire
& Rubber Company v. Chiles Power Supply, Inc., 332 F.3d 976, 980-81 (6th Cir. 2003).
But, the privilege does not apply here as to the amount Third Pentacle received under the
Settlement Agreement. The amount discloses nothing specific about what was said
during the settlement negotiations between Third Pentacle (essentially, Leach),
Interactive Life Forms, or Shubin. See id. at 981 (“Thus, as with other privileges, the
relationship itself is not privileged, but only the underlying communications.”). Yet the
confidentiality privilege does apply to Pate’s requests for substantive information, such as
the amount Third Pentacle claimed it was owed during settlement negotiations and the
reasons the parties agreed to some amount less than the total amount due.
Third Pentacle further argues that Pate’s claim for damages is unrelated to any
royalty payments or to the amount Third Pentacle received in the Settlement Agreement.
This contention lacks merit. For the reasons discussed previously, the total amount of the
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Settlement Agreement is related – indeed, relevant under Rule 26(b)(1) – to Pate’s claims
(breach of contract and unjust enrichment).
Third Pentacle also maintains that Pate’s discovery requests fail because she
breached the Pate/Leach state-court settlement agreement, because she holds no
ownership interest in Third Pentacle, and because she breached her of fiduciary duties to
Third Pentacle. These arguments encompass much that remains at issue in the case. For
example, Pate claims that Third Pentacle owes her money from royalties it earned when
she was a co-owner; Third Pentacle disagrees. Third Pentacle claims that Leach is the
sole owner of Third Pentacle; Pate disagrees. The parties’ disagreements on these and
other issues are presently under review in connection with the pending motions for
summary judgment. Although Third Pentacle presently holds a strong belief in the merits
of its litigation positions, its strong belief – whether ultimately justified or not – provides
no basis for avoiding its discovery obligations created by the Federal Rules of Civil
Procedure.
Accordingly, Pate’s Motion to Compel is well taken, in part, as to her request for
Third Pentacle to disclose the actual amount it received under the terms of the Settlement
Agreement. Pate’s Motion to Compel otherwise seeks information shielded by the
confidentiality privilege.
IT IS THEREFORE ORDERED THAT:
1.
Defendant Pate’s Motion to Compel (Doc. #50) is GRANTED, in part. On
or before January 12, 2012, Third Pentacle shall disclose the amount of
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money it received under the terms of the Settlement Agreement reached by
Third Pentacle, Interactive Life Forms, and Shubin. Third Pentacle shall
disclose the required information to Pate’s counsel of record in writing,
verified by sworn statement, and for counsel’s eyes only. The settlement
amount shall otherwise remain confidential, absent further Order of the
Court; and
2.
Defendant Pate’s Motion to Compel (Doc. #50) is DENIED in remaining
part.
January 5, 2012
s/ Sharon L. Ovington
Sharon L. Ovington
United States Magistrate Judge
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