Larson Manufacturing et al v. Western Showcase Homes et al
ORDER denying 28 Motion to Quash. Signed by US Magistrate Judge Veronica L. Duffy on 9/29/2017. (CG)
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
LARSON MANUFACTURING COMPANY
OF SOUTH DAKOTA, INC., SUPERIOR
ORDER DENYING DEFENDANTS'
MOTION TO QUASH
WESTERN SHOWCASE HOMES, INC.,
AMERICAN MODULAR HOUSING
GROUP, LLC, AMERICAN MODULAR
HOUSING GROUP, INC., PAUL
Docket No. 28
This matter is before the court on the basis of diversity jurisdiction, 28
U.S.C. § 1332, after defendants removed the matter from South Dakota state
court. See Docket No. 1, 1-1. The parties have consented to this magistrate judge
handling their case pursuant to 28 U.S.C. § 636(c). Now pending is defendants'
motion to quash a subpoena served on US Bank by plaintiffs. See Docket No. 28.
Plaintiffs oppose the motion. See Docket No. 34.
Background Facts and Claims
The court states the following facts from plaintiffs' amended complaint in
order to evaluate defendants' pending motion. Plaintiff Larson Manufacturing
Company of South Dakota, Inc. (Larson) is the parent company of plaintiff
Superior Homes, LLC (Superior). See Docket No. 1-6 at 4. Both are South Dakota
business entities. Id. Superior is in the business of manufacturing and selling
modular homes. Id.
Defendant Western Showcase Homes, Inc. ("Western") is a Nevada
corporation in the business of purchasing, reselling, and financing modular
homes. Id. at 5. Defendant Paul Thomas, a Nevada resident, is the sole member
of American Modular Housing Group, LLC (AMHG, LLC), a Nevada company in the
business of buying and reselling modular homes. Id. American Modular Housing
Group, Inc. (AMHG, Inc.), is a Canadian corporation with its principal place of
business in Nevada that also buys and resells modular homes. Id. Thomas is the
principal agent and owner of both AMHG entities. Id.
The defendant entities purchased modular homes from Superior and then
re-sold those homes to customers, sometimes arranging for delivery, set and
completion of the home at the customer's location. Id. Larson and Superior
extended credit to the defendant entities for these purchases; AMHG would then
repay the loans when its customer paid the defendant entities. Id. at 6.
The complaint recites that defendant entities placed orders for 26 modular
homes with plaintiffs. Plaintiffs constructed the homes. Of the homes that were
delivered to defendants, full payment was never made even though the complaint
alleges the ultimate customers who received these homes paid defendants. Other
modular homes ordered by defendants were custom-built and never delivered
because defendants never paid for the homes. As to the homes plaintiffs retain
possession of, plaintiffs allege the custom nature of the homes makes resale of the
homes at a reasonable value impracticable.
In addition, Larson entered into a loan agreement with Western which was
guaranteed by AMHG, Inc. This loan agreement ultimately encompassed $14
million in funds. Larson alleges that Western defaulted on the loan and AMHG,
Inc. refused to pay pursuant to its guarantee. For all these matters, plaintiffs
assert eight counts of breach of contract, five counts of unjust enrichment, two
counts of tortious interference with business expectancy, three counts of fraud,
two counts of conversion, one count each of debt and guarantee, and one count of
piercing the corporate veil. In particular, plaintiffs allege defendant Thomas
converted money received from third parties intended for plaintiffs to his own
personal use. See Docket No. 1-6 at p. 4, ¶ 29; p. 7, ¶ 57; p. 10, ¶ 91; p. 15,
¶ 141; p. 17, ¶ 159; and p. 20, ¶¶ 187-190.
Defendants generally deny nearly all of plaintiffs' allegations in their
amended complaint. See Docket No. 6 at 1-16. In addition, defendants assert five
counterclaims against Larson and Superior. Id. at 17-27. Those counterclaims
include breach of contract (failure to pay rebates, failure to pay personal loans
from Thomas); unjust enrichment (rebates, warranty and service fees); tortious
interference with business expectancy (Aspen Links Country Club, Aspen Village
Properties, and Waugh Who Developments); breach of contract (manufacturing
defects in modular homes); and fraud and deceit (fraudulent inducement to sign a
mortgage in connection with Aspen Village and McKenzie Lane, assignment of
mortgage interest in Moose Ridge). See Docket No. 6 at pp. 17-27. Defendants
seek compensatory and punitive damages on their counterclaims, pre- and postjudgment interest, attorney's fees, and other remedies. Id. at 27.
The dates of the business transactions alleged by plaintiffs in their
amended complaint go back as far as July, 2011, and extend into the year
2016. See Docket No. 1-6.
Subpoena Duces Tecum and Motion to Quash
On June 15, 2017, plaintiffs' counsel served non-party US Bank with a
subpoena duces tecum seeking the following:
All non-privileged account records relating to any financial accounts
of [defendant] Paul Dean Thomas; Western Showcase Homes, Inc.;
American Modular Housing Group, LLC; and/or American Modular
Housing Group, Inc., held, maintained, or controlled with US Bank
and any of its parent, subsidiary, and sister entities.
See Docket No. 30-1. US Bank was to have produced the requested documents to
plaintiffs' counsel on July 15, 2017. Id.
After receiving the subpoena, US Bank inquired of plaintiffs' counsel as to
the dates of the documents requested. See Docket No. 35-1. Plaintiffs' counsel
voluntarily limited the documents requested under the subpoena to documents
created January 1, 2012, up to the present. Id. US Bank notified plaintiffs'
counsel on June 26, 2017, that the documents responsive to the subpoena were
located and ready to be produced. US Bank never objected to the subpoena.
Defendants moved to quash the subpoena July 13, 2017. See Docket
No. 28. Defendants assert they have standing to so move because they have a
personal right or privilege with regard to the requested documents. See Docket
No. 29. Defendants move to quash the subpoena because it is overly broad,
unduly burdensome, and not limited in time nor subject matter so as to
reasonably lead to evidence which is admissible in this action. Id.
Provisions of Rule 45
Rule 45 of the Federal Rules of Civil Procedure allows a party to serve a
subpoena for the production of documents on a nonparty, with notice to the
other parties in the litigation. See FED. R. CIV. P. 45(a). The nonparty on whom
the subpoena is served must be protected from undue burden or expense. Id.
at subsection (d)(1).
A subpoena must be quashed or modified if it requires the disclosure of
privileged or other protected matter if there is no exception or waiver
applicable, or if the subpoena subjects a person to undue burden. Id. at
subsection (d)(3)(A). A subpoena may be quashed or modified to protect a
person affected by a subpoena if the subpoena requires disclosure of a trade
secret or other confidential research, development, or commercial information.
Id. at subsection (d)(3)(B).
"Ordinarily a party has no standing to seek to quash a subpoena issued
to someone who is not a party to the action, unless the objecting party claims
some personal right or privilege with regard to the documents sought." Charles
A. Wright, Arthur R. Miller, Mary K. Kane, Richard L. Marcus, A. Benjamin
Spencer, and Adam Steinman, 9A Fed. Prac. & Proc. Civ. § 2459 (3d ed. April,
2017) (hereinafter "Fed. Prac. & Proc. Civ."). As with other discovery, the
relevancy issue at the time a subpoena is served is broad—the court does not
evaluate whether the evidence sought is admissible, but rather whether the
information is relevant to a claim or defense and is nonprivileged. Id. The
court also considers whether the information is likely to lead to the discovery of
admissible evidence. Id. The party seeking to quash a subpoena bears the
burden of demonstrating grounds for quashing it. Id.
Whether the Subpoena Should be Quashed or Modified
Generally, a party to a lawsuit does not have standing to seek to quash a
subpoena directed to a non-party—that power lies with the non-party. See
Smith v. Frac Tech Servs., Ltd., 2010 WL 3522395 at *1 (E.D. Ark. Sept. 1,
2010); Herff Jones, Inc. v. Oklahoma Graduate Servs., Inc., 2007 WL 2344705
at *3 n.4 (W.D. Ok. Aug. 15, 2007). However, when the party seeking to
challenge the subpoena has a personal right or privilege in the subpoena, an
exception has been made. Smith, 2010 WL 3522395 at *1; Herff Jones, Inc.,
2007 WL 2344705 at *3 n.4. Rule 45 specifically grants the court discretion to
quash or modify a subpoena when confidential information is involved. See
FED. R. CIV. P. 45(d)(3)(B). Here, defendants clearly have a personal right in the
confidential nature of their financial documents. Schmulovich v. 1161 RT. 9
LLC, 2008 WL 4572537 at *4 (D.N.J. Oct. 14, 2008); Herf Jones, Inc., 2007 WL
2344705 at *3 n.4. Accordingly, the court concludes they have standing to
challenge the subpoena. See also Winter v. Bisso Marine Co., Inc., 2014 WL
3778833 at **1-2 (E.D. La. July 29, 2014).
Defendants argue that plaintiffs' subpoena is overbroad because it
contains no limits in time or subject matter. The court is at a loss to determine
how US Bank would sort defendants' financial records by subject matter.
Defendants make no suggestion in this regard. The court rejects this as a
basis for limiting or quashing the subpoena.
Plaintiffs voluntarily limited the scope of their subpoena to the period
from January 1, 2012, to the present. Apparently, US Bank was able to easily
compile documents answering this description and prepare them to be
produced. The plaintiffs' complaint contains allegations relating to business
transactions dating back to July, 2011. With plaintiffs' voluntary limitation on
the time period applicable to the subpoena, the court finds the subpoena is not
The objection that a subpoena poses an undue burden is for the
nonparty served with the subpoena to assert. US Bank has not objected to the
subpoena. It is not for defendants to state whether it is an undue burden on
US Bank to produce the requested documents. Furthermore, the fact that US
Bank was able to compile the documents well in advance of the due date on the
subpoena also informs the court's conclusion that the subpoena was not an
undue burden on US Bank.
As pointed out in the FACTS section of this opinion, supra, plaintiffs
have made multiple allegations that defendant Thomas has converted monies
to his own personal use that were supposed to be routed to plaintiffs. Thomas
is the principal agent and owner of both AMHG entities. Thus, the court finds the
US Bank records are relevant to plaintiffs' claims.
It is hereby
ORDERED that defendants' motion to quash [Docket No. 28] is DENIED,
with the caveat that US Bank shall produce only those documents responsive
to the plaintiffs' subpoena falling within the time period from January 1, 2012,
to the present.
DATED this 29th day of September, 2017.
BY THE COURT:
VERONICA L. DUFFY
United States Magistrate Judge
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?