DISCOUNT PAYMENT PROCESSING, INC. v. APPLIED CARD SYSTEMS, INC.
Filing
63
MEMORANDUM OPINION AND ORDER denying 52 Applied Card System's Motion to Compel; denying 53 Applied Card System's Motion to Compel; and granting in part and denying in part 56 Joint Motion of Discount Payment and Non-Party Dependable to Quash Subpoena and Motion for Protective Order. See Memorandum Opinion for details. Signed by Judge Terrence F. McVerry on 10/28/2011. (bsc)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
DISCOUNT PAYMENT PROCESSING, INC.,
)
)
)
)
)
)
)
)
)
Plaintiff,
v.
APPLIED CARD SYSTEMS, INC.,
Defendant.
2: 10-cv-1236
MEMORANDUM OPINION AND ORDER OF COURT
Presently before the Court are three related discovery motions:
(1)
APPLIED CARD SYSTEMS, INC.‟S MOTION TO COMPEL (Document No.
52) and DISCOUNT PAYMENT PROCESSING, INC.‟S RESPONSE IN OPPOSITION TO
DEFENDANT‟S MOTION TO COMPEL (Document No. 54);
(2)
APPLIED CARD SYSTEMS, INC.‟S MOTION TO COMPEL (Document No.
53) and the RESPONSE IN OPPOSITION OF DEPENDABLE PAYMENT PROCESSING,
INC. TO DEFENDANT‟S MOTION TO COMPEL COMPLIANCE WITH RULE 45
SUBPOENA TO PRODUCE DOCUMENTS (Document No. 55); and
(3)
JOINT MOTION OF PLAINTIFF DISCOUNT PAYMENT PROCESSING,
INC. AND NON-PARTY DEPENDABLE PAYMENT PROCESSING, INC. TO QUASH
SUBPOENA AND MOTION FOR A PROTECTIVE ORDER, with brief in support (Document
Nos. 56 and 57) and APPLIED CARD SYSTEMS, INC.‟S OPPOSITION TO JOINT MOTION
OF PLAINTIFF DISCOUNT PAYMENT PROCESSING, INC. AND DEPENDABLE
PAYMENT PROCESSING, INC. TO QUASH SUBPOENA AND MOTION FOR
PROTECTIVE ORDER (Document No. 61).
1
Background
Although the parties are familiar with the background of this case, a brief recitation of the
background is necessary in order to put these discovery disputes in perspective. On August 8,
2011, Defendant Applied Card Systems, Inc. (“Applied Card”) filed a Motion for Leave to
Amend its Answer to add a counterclaim and add Dependable Payment Processing, Inc.
(“Dependable”) as a counterclaim defendant. The proposed counterclaim was based upon an
alleged failure to disclose and/or concealment of certain information by Plaintiff Discount
Payment Processing, Inc. (“Discount”) during the Due Diligence Period following the parties
having signed a Letter of Intent. Specifically, Applied Card alleged that Discount “purposefully
failed to disclose and/or intentionally misrepresented” to Applied Card that the Minimum Fees
required to market the Merchant Portfolio were comprised of fees generated by both Discount
and Dependable. Thus, even though Applied Card stands firm in its position that no contract
exists between the parties, to the extent that the Court determines that a contract does exist,
Applied Card asserted that had the information about Dependable been disclosed, it would not
have purchased the Merchant Portfolio or, in the alternative, Applied Card would have
negotiated a purchase on different terms.
While the Motion for Leave to Amend was pending, on August 21, 2011, Applied Card
deposed Thomas Shanley, the owner and principal officer of both Discount and Dependable.
Mr. Shanley testified that he was the most knowledgeable person concerning the business and
operations of both Discount and Dependable. He was questioned concerning both entities, the
income volume of each entity, the existence and nature of processing contracts between each
entity and First Data, and any inter-relationship between these two entities in the conduct of their
2
respective businesses. The deposition extended over a seven (7) hour period, commencing at
9:30 AM and concluding at 4:52 PM.
On September 16, 2011, Applied Card issued a Subpoena to Produce Documents,
Information or Objects or to Permit Inspection of Premises in a Civil Action to Dependable,
commanding that the requested documents be produced to attorneys for Applied Card on
September 30, 2011 at 9:00 AM.
On September 20, 2011, the Court entered its Memorandum Opinion and Order in which
the Motion for Leave to Amend was denied. The Court found that Applied Card had failed to
show good cause to allow the amendment, especially in light of the uncontested assertion that the
information about the terms of the Marketing Agreement, including the involvement of
Dependable, was known to Applied Card as of June 1, 2010, the day the parties signed the Letter
of Intent.
On October 5, 2011, Applied Card filed a Motion to Compel in which it moved the Court
for an order compelling Discount to (1) produce financial statements and residual reports from
January 1, 2007 to December 31, 2008; (2) produce tax returns from 2007 through present; and
(3) produce the unspecified documents which Discount has been withholding on the grounds of
overbreadth. (Document No. 52).
The next day, on October 6, 2011, Applied Card filed a second Motion to Compel in
which it moved the Court for an order compelling Dependable, a non party, to produce
documents responsive to the subpoena for production of documents served upon it by Applied
Card. (Document No. 53).
Four (4) days later, on October 10, 2011, Applied Card contemporaneously served upon
Discount a Notice of Deposition under Rule 30(b)(6) and upon Dependable a separate deposition
3
subpoena. Both the 30(b)(6) deposition notice and the deposition subpoena call for the giving of
testimony by Discount and Dependable on the same date, time and place, to wit: October 21,
2011 at 10:00 AM in the offices of Reed Smith, 225 Fifth Avenue, Suite 1200, Pittsburgh, PA.
On October 14, 2011, Discount and Dependable filed the instant Joint Motion to Quash
Subpoena and Motion for a Protective Order (Document No. 56).
With that background in mind, the Court will now address the outstanding motions
seriatim.
DISCOVERY AT ISSUE
A.
Motion to Compel Discount To Produce Documents (Document No. 52)
Applied Card has served discovery requests upon Discount with regard to Discount‟s
claim for damages. Specifically, Applied Card seeks discovery related to the value of the assets
(including the present day value of the assets) and Discount‟s financial condition in order to
properly assess Discount‟s alleged damages. In response, Discount has produced numerous
documents with the exception of the following three categories of documents: (1) financial
statements and residual reports from January 1, 2007 to December 31, 2008; (2) tax returns from
2007 through the present; and (3) unspecified documents which Discount has been withholding
on the grounds of overbreadth.
1. Request for Financial Documents. Applied Card seeks financial information from
Discount for the period of January 1, 2007 to the present. To date, Discount has produced all
residual reports from January 1, 2009 through July 2011. Further, Discount has produced a
complete set of its internal financial statements by month and year for the period of January 1,
2009 through June 2011. According to Discount, taken together, these documents provide
Applied Card with all of the financial information and records needed to determine the value of
4
Discount‟s Portfolio Assets and financial condition as of the date of the alleged breach, July 31,
2010, the closing date provided in the Letter of Intent.
According to the Complaint, the parties entered into a Letter of Intent on June 1, 2010.
Applied Card was to complete its due diligence review on July 16, 2010, and the closing was to
occur on July 31, 2010.
Discount has provided its financial records from January 1, 2009
through July 2011. However, Applied also seeks financial information for the earlier time period
of January 1, 2007 through December 31, 2008. The Court agrees with Discount that the only
relevant valuation date is July 31, 2010. Accordingly, Applied Card‟s request for financial
records for the period January 1, 2007 through December 31, 2008, is not relevant and is thus
DENIED.
2. Request for Tax Returns. Applied Card has requested Discount‟s “U.S. and
Pennsylvania tax returns for the period January 1, 2007 to present.” Discount has refused to
produce its tax returns on the “grounds that [the request] is overly broad, unduly burdensome,
and seeks information neither material nor relevant to any of the issues in this case, nor
reasonably likely to lead to the discovery of admissible evidence.” Further, according to
Discount, the information gleaned from the tax returns would not “be any more or better than the
information already provided from the First Data residual reports and Discount‟s own financial
books all of which have been produced for the period of July (sic) 1, 2009 to July 2011.”
Interestingly, Discount points out that Applied Card never requested tax returns during the Due
Diligence period under the Letter of Intent.
As the United States Court of Appeals for the Third Circuit has stated, “the public policy
regarding disclosure of [tax return] contents is pertinent. Congress has guaranteed that federal
income tax returns will be treated as confidential communications between a taxpayer and the
5
government.” DeMasi v. Weiss, 669 F.2d 1114, 119 (3d Cir. 1982) (citing I.R.C. § 6103).
However, there is no hard rule that tax returns never have to be produced in discovery and courts
have acknowledged that financial information should be disclosed when its relevancy to the case
outweighs the intrusion to the privacy of the producing party.
In this case, Discount has produced all residual reports and a complete set of its internal
financial statements by month and year for the period of January 1, 2009 through June 2011. It
appears to the Court that these documents provide alternative sources of information related to
the value of Discount. Accordingly, the Motion to Compel production of tax returns is
DENIED.
3. Documents Relating to Negotiations Discount Had With Other Parties to Sell Any
Part of its Business. Applied Card has requested “any documents relating to any party‟s offer to
purchase all or any part of the „Merchant Accounts and/or” Portfolio Assets or any party with
whom [Discount] negotiated to sell any part of its business from January 1, 2007 to present.”
Discount objected to the request on the grounds that the request is “overly broad, unduly
burdensome, seeks documents or information neither material or relevant to any of the issues in
this action nor reasonably likely to lead to the discovery of admissible evidence, and, as framed
is so vague as to be incapable of response.” However, Discount also responded that
“notwithstanding said objections, and without waiving same, [Discount] will produce documents
which it reasonably believes to be responsive to this request as they are kept in the normal course
of its business.”
With the exception of the further disclosure that Discount has already offered to provide
in response to Applied Card‟s Third Request for Documents, the Motion to Compel “unidentified
documents withheld” is DENIED.
6
B.
Motion to Compel Non-Party Dependable to Produce Documents (Document No. 53)
On September 16, 2011, Applied Card served a subpoena on Dependable in which it
sought access to a variety of financial records of Dependable from January 1, 2009 to the
present, including monthly and yearly financial statements and reports of sales volume, the
identity of certain merchant accounts, the revenue generated from those accounts, the interplay
between Dependable and Discount, and whether there were sales agents that worked for both
Discount and Dependable. Dependable objects to the requests in the subpoena and has refused
to produce any documents.
As noted in the Memorandum Opinion which denied the Motion for Leave to Amend, it
is not contested that the information about the terms of the Marketing Agreement, including the
involvement of Dependable, was known to Applied Card prior to the expiration of the due
diligence period. However, Applied Card conducted no due diligence with respect to
Dependable and never requested any documents which related to Dependable‟s business. It
appears to the Court, especially in light of the Motion for Leave to Amend being denied and
Dependable not being added as a party to this lawsuit, that Applied Card is seeking documents
through this subpoena which are not relevant and not reasonably likely to the lead to the
discovery of admissible evidence. Accordingly, this Motion to Compel is DENIED.
C.
Joint Motion to Quash Subpoena or Alternatively Motion for Protective Order
(Document No. 56)
On October 10, 2011, Applied Card issued a Rule 30(b)(6) notice to take the deposition
of a corporate designee of Discount. At the same time, Applied Card served a subpoena for
Dependable to testify at a deposition. As Discount and Dependable have noted, the topics which
7
Applied Card intends to cover in both depositions are nearly identical. They both seek
information of Discount and Dependable for the period of January 1, 2007 to the present.
On August 23, 2001, Applied Card took the fact deposition of Thomas Shanley, the
owner of both Discount and Dependable. Discount has indicated that Thomas Shanley would be
the Rule 30(b)(6) corporate designee for Discount, as well as the person to testify in response to
the subpoena served upon Dependable.
The Joint Motion to Quash is GRANTED IN PART and DENIED IN PART as
follows:
1.
The Rule 30(b)(6) deposition of Discount by Thomas Shanley is limited to a
duration of not more than four and one-half (4-1/2) hours;
2.
The Rule 30(b)(6) deposition shall cover only topics directly related to the
finances of Discount, for the period January 1, 2009 through and including July 31, 2010;
3.
The topics listed in Paragraphs 3, 6, 7, 9, 10, 11, 12, 15, 16, 17, and 18 of the Rule
30(b)(6) deposition notice are stricken;
4.
The Rule 30(b)(6) deposition shall be taken on or before November 15, 2011; and
5.
The Deposition Subpoena served upon Dependable is QUASHED.
So ORDERED this 28th day of October, 2011.
BY THE COURT:
s/ Terrence F. McVerry
United States District Court Judge
8
cc:
James W. Pfeifer, Esquire
McGuireWoods, LLP
Email: jpfeifer@mcguirewoods.com
F. Michael Ostrander, Esquire
Woods Oviatt Gilman LLP
Email: mostrander@woodsoviatt.com
Warren B. Rosenbaum, Esquire
Woods Oviatt Gilman LLP
Email: wrosenbaum@woodsoviatt.com
K. Issac deVyver , Esquire
Reed Smith
Email: kdevyver@reedsmith.com
Abraham J. Colman, Esquire
Reed Smith LLP
Email: AColman@reedsmith.com
Jarrod Shaw, Esquire
Reed Smith LLP
Email: jshaw@reedsmith.com
Michael E. Flaherty, Esquire
Karlowitz Cromer & Flaherty, P.C.
Email: flahertylaw@msn.com
9
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?