FLAME S.A. v. INDUSTRIAL CARRIERS, INC. et al

Filing 192

OPINION & ORDER - the Court finds nothing clearly erroneous or contrary to law in Judge Leonard's ruling. The Court therefore OVERRULES FBP's Objections to Magistrate Judge Leonard's order. Signed by District Judge Robert G. Doumar on 4/23/14. (afar)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
NORFOLK DIVISION

APR 2 3 2014
.

-Ill:

rr

FLAME S.A.,
Plaintiff,
CIVIL NO. 2:13-cv-658

GLORY WEALTH SHIPPING PTE LTD.,
Consolidated Plaintiff,
v.

INDUSTRIAL CARRIERS, INC., VISTA
SHIPPING, INC., and FREIGHT BULK
PTE. LTD.,
Defendants.

OPINION & ORDER

This matter comes before the Court on Freight Bulk Pte. Ltd,'s ("FBP'*) "Response

Objections to Magistrate Judge's Ruling or Recommendation." ECF No. 178. FBP argues that
Magistrate Judge Leonard's ruling that FBP must produce discoverable material concerning the

alter ego allegations in this case in response to discovery requests by Flame and Glory Wealth
should be set aside. ECF Nos.

148, 149. FBP contends that Judge Leonard's order

misunderstands the law by forcing it to produce documents of a sister corporation and effectively
pierces the corporate veil.
I.

FBP'S OBJECTIONS

FBP makes four contentions. First, that it does not control the documents that it is being

compelled to produce due to its alleged sister corporate status with Vista. Second, that Magistrate

1

Judge Leonard improperly merged the roles Mr. Baranskiy plays for FBP and for Vista with each
other and with Mr. Baranskiy as an individual. Third, that Judge Leonard disregarded Vista's

corporate form when he ordered FBP to produce documents under Vista's control. And fourth,

that the Plaintiffs should make their discovery requests to Vista itself, not through FBP.1
II.

LEGAL STANDARD
A.

Rule 34

A party may be compelled to produce items in its "possession, custody, or control."
Fed.R.Civ.P. 34(a)(1). Nonparties may be compelled to produce documents under Rule 45. Id. at

(c). It is well established that a district court may order the production of documents in the

possession of a related nonparty entity under Rule 34(a) if those documents are under the
custody or control of a party to the litigation. Steele Software Svs.. Corp. v. DataOuick Info.
Svs.. Inc.. 237 F.R.D. 561, 564 (D. Md. 2006) (citing cases). "Control does not require that the

party have legal ownership or actual physical possession of the documents at issue, but rather
'the right, authority or practical ability to obtain the documents from a nonparty to the action.'"
E.I. DuPont de Nemours & Co. v. Kolon Indus.. Inc.. 286 F.R.D. 288, 292 (E.D. Va. 2012)

(citing Bush v. Ruth's Chris Steak House. Inc.. 286 F.R.D. 1, 5-6 (D.D.C. 2010). To determine
whether a party has the right, authority, or practical ability to obtain documents from non-parties,
courts consider a number of factors. ]d. For related non-parties, like parent, sister, or subsidiary

corporations, courts examine (1) the corporate structure of the party/non-party, (2) the non1FBP makes a number of additional arguments couched as "independent reasons" why Magistrate Judge
Leonard's order should be vacated including the absence of a suitable protective order, that the scope of Plaintiffs'
discovery request exceeds the scope of such discovery in a quasi in rem action; that the Ukraine is undergoing crisis
so discovery cannot be completed; and that all Ukrainian males must serve in the reserves, and so the people

subpoenaed may soon be drafted into military service. These issues were not addressed by Magistrate Judge
Leonard. Although Judge Leonard did deny a protective order to stay discovery until the Fourth Circuit made its
jurisdictional determination and the Court ruled on the pending motions to vacate the attachments, that is not the
same "protective order" here. These independent reasons therefore are not properly before the Court as objections to
Judge Leonard's order. The parties may file separate motions to address these discovery issues, but the Court
declines to address them in this posture.

party's connection to the transaction at issue in the litigation, (3) the degree that the non-party
will benefit from the outcome of the case; (4) whether the related entities exchange documents in

the ordinary course ofbusiness; (5) whether the nonparty has participated in the litigation; (6)
common relationships between a party and its related non-party entity; (7) the ownership ofthe

non-party; (8) the overlap of directors, officers, and employees; (9) the financial relationship
between the entities; (10) the relationship of the parent corporation to the underlying litigation;

and (11) agreements among the entities that may reflect the parties' legal rights or authority to
obtain certain documents. Id (citing Steele Software. 237 F.R.D. at 564-65).

Although "[documents in the possession of a nonparty are not automatically subject to
discovery under Rule 34 simply because the nonparty has a corporate relationship to a party to

the litigation," Steele Software. 237 F.R.D. at 565, "control has been found where the party and
its related nonparty affiliate are owned by the same individual" or "where related entities share
management" Id. at 564.

FBP's reliance on Gerline Intern. Inc. Co. v. C.I.R. for the proposition that only alter

egos can be compelled to provide documents from sister corporations is misplaced. 839 F.2d 131
(3d Cir. 1988). The Third Circuit held no such thing. Instead it was commenting on district court
cases where Rule 34(c)'s necessary control was found in the context of sister corporation. In

analyzing the facts before it, the Third Circuit focused on both common control and the party's

disregard of the corporate entities at issue as the key factors. Id. Given that case's focus, the
many legal developments since the 1988 opinion, outlined in Steele and E.I. Dupont. and the
persuasive but not binding authority of the Third Circuit, the Court will use the factors gathered
in the Steele and E.I. Dupont cases in its analysis.

B.

Rule 72

Rule 72(a) of the Federal Rules of Civil Procedure permits a party to submit objections to

a magistrate judge's ruling on nondispositive matters such as discovery orders. Fed.R.Civ.P.
72(a); 28 U.S.C. § 636(b)(1)(A). The Court reviews a magistrate's discovery order under the
"clearly erroneous or contrary to law" standard. 28 U.S.C. § 636(b)(1)(A); Malletier v. Haute
Diggitv Doe. LLC. 2007 WL 676222, at *1 (E.D. Va. Feb. 28, 2007). A court's "finding is

clearly erroneous when although there is evidence to support it, the reviewing court on the entire
evidence is left with the definite and firm conviction that a mistake has been committed."

Malletier. 2007 WL 676222 at* 2 (citing United States v. United States Gypsum Co.. 333 U.S.
364, 395 (1948). The Fourth Circuit reviews a district judge's discovery decisions for abuse of
discretion standard. Copen v. House. 45 F.3d 425, *2 (4th Cir. 1994).
III.

ANALYSIS

The question raised by FBP's objections boils down to this: was Judge Leonard's order
clearly erroneous or contrary to law in compelling FBP to produce documents under Vista's
control? FBP contends that this ruling misstates the law by forcing it to produce documents of a

sister corporation and effectively pierces the corporate veil.
As the Steele court pointed out, "control has been found where the party and its related
nonparty affiliate are owned by the same individual." Steele Software. 237 F.R.D. at 564. In the
Perini case that the Steele court cited, the district judge found the companies to be alter egos of

the plaintiff in compelling discovery. Perini Am.. Inc. v. Paper Converting Mach. Co.. 559 F.
Supp. 552, 553 (E.D. Wis. 1983). That is not the case before the Court; the alter ego question is
undecided. With that caveat, the Court considers the factors before it.

All but one of the factors delineated in Steele and E.I. Dupont weigh against FBP's

objections to Judge Leonard's ruling. The allegations, Mr. Baranskiy's deposition, ECF No. 51,
4

and Mr. Baranskiy's declaration, ECF No. 19, Ex. 1, indicate that Vista and FBP have a
commercial management agreement whereby Vista acts as, and in certain charter documents is
listed as, the owner of the CAPE VIEWER, the attached ship at the heart of this case. FBP owns

the CAPE VIEWER. FBP is owned by Freight Bulk Ltd., which is owned by HACHI, a holding

company. The CAPE VIEWER was purchased with funds from Sea Traffic (also controlled by
Mr. Baranskiy), which in turn received the funds from Vista. Hachi and Sea Traffic are all linked
to FBP and are owned by Mr. Baranskiy. Vista's connection to the transaction at issue is

therefore clear and it would certainly benefit or suffer from the case's outcome. Vladimir Varna
keeps the records for these related companies, although perhaps not FBP. Many of the directors
of Vista were formerly of ICI and are alleged to control and direct FBP. These significant
connections tilt all the factors towards FBP having control over the requested discovery
documents.

Weighing for FBP is the fact that Vista has thus far not participated in the litigation.
Finally, FBP argues that Mr. Baranskiy would violate his fiduciary duties to Vista were

he to obtain the requested materials and treat them as his personal property. This may be the
case. But that is not the issue here. Mr. Baranskiy is not being asked to treat the documents as his
personal property. Indeed, he is not being requested to do anything. Rather FBP was ordered to
produce those documents responsive to Plaintiffs' discovery requests that are within its control.

That control is based on the factors outlined above, with Mr. Baranskiy being the keystone in the
links between the two corporations.

IV.

CONCLUSION

Having considered the relevant law and the factors as outlined in this case, the Court

finds nothing clearly erroneous or contrary to law in Judge Leonard's ruling. The Court therefore
OVERRULES FBP's Objections to Magistrate Judge Leonard's Order.
The Clerk is DIRECTED to forward a copy of this Order to all Counselof Record.
IT IS SO ORDERED.

Robert G. Do/

Senior Unitec^t^j^rict Judge
UNITED STATES DISTRICT JUDGE
Norfolk^/A

April :2SreO14