-PAL Painters Joint Committee et al v. J.L. Wallco, Inc. et al, No. 2:2010cv01385 - Document 96 (D. Nev. 2011)
Court Description: ORDER Denying 59 Defendants' Motion to Quash and 61 Defendant's Motion for Attorney Fees. The court will modify the subpoenas issued to Wells Fargo and Bank of America to limit the time period for responsive documents for the period be tween 4/30/08 and the present. A protective order is entered precluding the parties from disclosing or using the documents produced for any purpose unrelated to this litigation. Plaintiffs shall serve a copy of this order on Wells Fargo and Bank of America. Signed by Magistrate Judge Peggy A. Leen on 9/28/11. (Copies have been distributed pursuant to the NEF - EDS)
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-PAL Painters Joint Committee et al v. J.L. Wallco, Inc. et al Doc. 96 1 2 3 4 UNITED STATES DISTRICT COURT 5 DISTRICT OF NEVADA 6 7 8 9 10 11 12 13 PAINTERS JOINT COMMITTEE, et al., ) ) Plaintiffs, ) ) vs. ) ) EMPLOYEE PAINTERS TRUST HEALTH & ) WELFARE FUND, et al., ) ) Defendants. ) __________________________________________) Case No. 2:10-cv-01385-JCM-PAL ORDER (Mot Quash - Dkt. #59) (Mot Atty Fees - Dkt. #61) Before the court is Defendants’ Motion to Quash Subpoena Directed to Bank of America, N.A., 14 and Wells Fargo Bank, N.A. (Dkt. #59), and Motion for Fees and Costs (Dkt. #61). The court has 15 considered the Motions, Plaintiffs’ Opposition (Dkt. #62), Supplement to Plaintiffs’ Opposition (Dkt. 16 #67), Defendants’ Reply (Dkt. #69), Second Supplement (Dkt. #70), and the arguments of counsel at 17 the hearing conducted July 14, 2011. Kevin Christensen appeared on behalf of the Plaintiffs, and 18 Zachariah Parry appeared on behalf of the Defendants. The court heard oral argument and took the 19 matter under submission to issue a written order as the non-prevailing party is likely to file objections 20 with the district judge. 21 BACKGROUND 22 This is an action filed by Plaintiffs “Union Trust Funds” against Defendants which alleges the 23 Defendants are alto egos of the J.L. Wallco, Inc., d/b/a Wallternatives (“JLW”). Plaintiffs obtained a 24 stipulation for entry of judgment and judgment by confession against JLW for trust fund fringe benefit 25 contribution delinquencies through April 30, 2009. Amended Complaint (Dkt. #4 ¶5). The judgment 26 was satisfied in full. Id. However, Plaintiffs believe that JLW was liable to the trust funds for 27 delinquencies after April 30, 2009. Id. The amended complaint alleges that the moving Defendants are 28 functioning as the alter egos and conduits of JLW, whose business operations have been operated under Dockets.Justia.com 1 common ownership, financial control, labor relations and an interrelationship of operations, such that 2 they constitute a single business in fact. Id. ¶ 8. The amended complaint also named Great American 3 Insurance Company as a Defendant. Great American issued a surety bond in the amount of $15,000.00 4 to Defendant Genuine Quality Coating. A Second Amended Complaint (Dkt. #53) added Shrader and 5 Martinez Construction, Inc. (“Shrader”), Merchants Bonding Company (“Merchants”), and Western 6 Surety Company (“Western”) as Defendants. 7 On May 6, 2011, the Plaintiffs filed a Motion to Compel (Dkt. #45) seeking to compel an audit 8 and discovery from Defendants Genuine Quality Coatings, Inc., (“GQC”) and Sunrise Painting/RCH, 9 Inc. (“Sunrise”), alleging that both were the alto egos of JLW. The motion to compel discovery and for 10 an audit sought disclosure of a broad range of records and related information, including payroll 11 records, tax returns, and other tax records, bank records and all documents or other information of any 12 nature showing any and all transfers of assets or other transactions among the Defendants. The 13 Defendants opposed the motion, and the court denied the motion to compel in its entirety finding the 14 Plaintiffs discovery requests were overbroad, and that the Plaintiffs had not made a sufficient threshold 15 showing that the Defendants were the alto egos of the Union signatory to compel an audit. 16 After the motion to compel was denied, the Plaintiffs served 15 subpoenas duces tecum on 17 various entities including Wells Fargo and Bank of America to obtain: “Any and all documents relating 18 to Sunrise Painting/RCH, Inc., J.L. Wallco, Inc., Wallternatives, Genuine Quality Coatings, Richard R. 19 Nieto, Claudio Bammer, and/or Richard Nieto d/b/a/ Genuine Quality Coatings, including, but not 20 limited to signature cards, checks, check registers, statements, account summaries, and loans/credit 21 applications for the period July 11, 2006 through current.” The moving Defendants seek to quash the 22 subpoenas issued to Wells Fargo and Bank of America arguing the Plaintiffs seek information the court 23 has already determined is not discoverable in this case. Movants point out that this is not the first time 24 the Plaintiffs have had a motion denied by the court and attempted to circumvent the court’s order by 25 serving a subpoena duces tecum. On October 27, 2010, the Plaintiffs filed a Motion for an Order 26 Requiring Disclosure of Quarterly Wage Reports for the Nevada Employment Security Division (Dkt. 27 #17). The court entered an Order (Dkt. #28) denying the motion because it was not properly served. 28 After the motion was denied, the Plaintiffs served a subpoena on the Nevada Employment Security 2 1 Division requesting the same information, but failed to serve it on the Defendants. Defense counsel 2 made multiple requests for a copy of the subpoena served on the Nevada Employment Security Division 3 orally and in writing. However, Defendants did not receive a copy of the subpoena until after the 4 Nevada Employment Security Division had produced the documents requested without affording the 5 Defendants an opportunity to move to quash. 6 The current motion is supported by the declaration of counsel, Zachary Parry, and attached 7 exhibits which outline the efforts made to meet and confer in a good-faith effort to resolve this matter 8 without court intervention. The Plaintiffs have refused to withdraw their subpoenas directed to the 9 banks. Non-parties Wells Fargo and Bank of America have not objected to complying with the 10 subpoenas served on them by the Plaintiffs. 11 The movants argue that the court has broad discretion and control of discovery in this case, and 12 that the Federal Rules of Civil Procedure must be read in pari materia, citing 9A Charles Alan Wright 13 & Arthur R. Miller, Fed. Prac. & Proc. § 2452 (2d ed. 1995). The court should quash the two 14 subpoenas at issue in the motion because they call for clearly irrelevant matter. The financial 15 information sought via the subpoenas is almost identical to the financial information the Plaintiffs 16 sought in their motion to compel which the court denied. Therefore, the court should not permit the 17 Plaintiffs to obtain the same discovery by a Rule 45 subpoena duces tecum. The financial information 18 is not relevant unless and until the Plaintiffs show the Defendants were signatories to the collective 19 bargaining agreement, or alter egos of a signatory to the collective bargaining agreement. The moving 20 Defendants also seek an order awarding attorneys fees and costs for the necessity of bringing this 21 motion pursuant to Fed.R.Civ.P. 37(a)(5)(A), and 37(b)(2). 22 Plaintiffs oppose the motion asserting the Defendants are the alter egos of each other and are 23 individually and collectively obliged by the terms of the collective bargaining agreement between 24 IUPAT District Council 15, Painters Union Local 159 and J.L. Wallco. Plaintiffs assert that their 25 claims are based on evidence indicating common ownership, management, operations and labor 26 relations between the Defendant entities. As such, all of the elements of an ERISA alter ego claim have 27 been established, and Plaintiffs are entitled to an audit of the Defendants’ books as well as the discovery 28 sought via subpoena at issue in this motion. 3 1 Plaintiffs dispute that the court’s prior order denying the motion to compel precludes them from 2 obtaining the requested discovery through Rule 45 subpoenas, or that the subpoenas circumvent the 3 court’s prior order. Rather, a review of the transcript of the hearing indicates the court found Plaintiffs’ 4 discovery requests were over broad, and that Plaintiffs had made an inadequate showing that the broad 5 range of financial data requested in the Plaintiffs’ written discovery requests should be sought from 6 non-signatories on the record then before the court. The court also found there was an inadequate meet 7 and confer before the motion to compel was filed, and that defense counsel had provided Plaintiffs with 8 discovery of materials potentially relevant to the alter ego issues. Finally, the court denied the motion 9 to compel the audit finding that the Plaintiffs had not established a prima facie case that the Defendants 10 were the alter egos of J.L. Wallco, the signatory to the collective bargaining agreement at issue in this 11 case. 12 Plaintiffs argue that they took the court’s findings as guidance in conducting additional 13 discovery to prove their alter ego claims, and prepared subpoenas to Wells Fargo Bank and Bank of 14 America to obtain information directly relevant to their alter ego claims. The subpoenas were hand 15 delivered to counsel for Defendants and served on the banks the same day. Counsel for Defendants sent 16 an e-mail the following day, June 23, 2011, objecting to this discovery. Counsel for Plaintiffs argue 17 they immediately called Defendants and requested a meeting to comply with the meet and confer 18 requirements of the Local Rules of Practice and Federal Rules of Civil Procedure. However, the 19 Defendants refused to meet and confer indicating a motion to quash would be filed. The opposition is 20 supported by the affidavit of Evan L. James, which is attached as Exhibit “1”. 21 On the merits, Plaintiffs argue a party does not ordinarily have standing to challenge a subpoena 22 issued to a non party unless the party claims some personal right or privilege in the information sought, 23 citing 9A Charles Allen Wright and Arthur R. Miller, Fed. Prac. & Proc. § 2459 (2d ed. 1995). 24 Relying on U.S. v. Miller, 425 U.S. 435, 442 (1976), Plaintiffs argue a party typically lacks standing to 25 challenge a subpoena issued to his or her bank for financial records because bank records are the 26 business records of the bank, in which a party has no personal right. The moving Defendants have not 27 made any showing that they have a personal right or privilege in the business records of the bank, and 28 as such, lack standing to challenge the subpoenas issued to the banks. 4 1 Plaintiffs also argue that the court’s prior order denying the motion to compel found only that 2 the discovery sought in the motion was overbroad, and did not prohibit Plaintiffs from obtaining 3 financial information appropriate to their alter ego claims through a narrowly tailored request. Rule 4 26(b)(1) permits a party to obtain discovery regarding non-privileged matters relevant to a party’s 5 claims or defense, and Plaintiffs need not make a greater showing to obtain the requested discovery. 6 The court’s prior order denying Plaintiffs’ motion to compel clearly stated the court would not allow an 7 audit of the Defendants until the Plaintiffs had proven that they are the alter egos of Defendant Wallco. 8 To prove alter ego, Plaintiffs must be able to discover evidence relevant to those claims, i.e., evidence 9 that establishes: (1) common ownership; (2) common management; (3) interrelation of operations; and 10 (4) centralized control of labor relations. UA Local 343 United Ass’n of Journeymen & Apprentices of 11 Plumbing & Pipefitting Indus. of U.S. & Canada AFL/CIO v. Nor-Cal Plumbing, Inc., 48 F.3d 1465, 12 1471 (9th Cir. 1994). 13 After the court denied the motion to compel, the Plaintiffs narrowed the discovery of 14 information sought via subpoena duces tecum from the banks. Plaintiffs assert that the requested 15 information is discoverable for alter ego purposes and will either prove or disprove an alter ego 16 relationship among the moving Defendants and JLW. Specifically, signature cards will show who has 17 financial control of the company, bank accounts and when this control existed. Checks will show the 18 addresses of the entities and individuals using the accounts who had authority to sign checks, payees, 19 including employee suppliers, commercial accounts, book keepers, etc., which will show an 20 interrelation of operations and whether there was common management or ownership among the 21 Defendants. The check registers, statement and account summaries will show ownership and control of 22 the accounts; records of debits and credits in the account will demonstrate vendors, suppliers, 23 employees and projects for the companies. This information tends to establish whether or not there is 24 an interrelation of operations among the Defendant companies. It may also show co-mingling between 25 the companies indicating common management and ownership. The loan and credit application 26 information sought will indicate whether there were any guarantees and who issued them, and whether 27 there were any loans between the companies or between individuals in the companies. The applications 28 should also list assets, business locations and equipment used by the companies to establish credit, who 5 1 signed the loan applications, who incurred debts, and whether any of the debts were joint debts between 2 the companies or the individuals, and whether individuals or companies co-signed or guaranteed other 3 companies’ or individuals’ bank accounts. All of this information tends to establish the elements of 4 common ownership, common management, and interrelationship of operations. Plaintiffs argue that in denying the earlier motion to compel, the court faulted the Plaintiffs’ 5 6 efforts to meet and confer in compliance with LR 26-7(b) indicating that e-mail communication was 7 insufficient to comply with a parties’ personal consultation obligations. However, Defendants refused 8 to engage in a personal consultation before filing the motion to quash, indicating their e-mail objection 9 was sufficient. Plaintiffs’ counsel also object to Defendants’ references to the prior subpoena served on the 10 11 Nevada Employment Security Division as an ad hominem attack intended to prejudice counsel before 12 the court. Plaintiffs reiterate that the Defendants lack standing to oppose the subpoenas, and ask that 13 the motion to quash and request for attorneys fees be denied in its entirety. 14 The moving Defendants reply that the Plaintiffs’ opposition employs a number of logical 15 fallacies to avoid discussion of the real issue, that is, that the Plaintiffs are seeking the same information 16 the court previously made clear was outside the scope of permissible discovery. The moving 17 Defendants did not claim in their motion to quash that they had any privacy right in the bank records. 18 Rather, they seek to have the subpoenas quashed because they seek “undiscoverable information”. The 19 moving Defendants argue they have standing to challenge the subpoenas on relevance, not privacy 20 grounds. The moving Defendants also reiterate their arguments that the court’s denial of the motion to 21 compel has already decided that the financial information Plaintiffs seek is beyond the scope of 22 permissible discovery in this case. Counsel for moving Defendants dispute that counsel refused to 23 personally consult about the e-mail requesting withdrawal of the subpoenas. Moving Defendants point 24 out that the LR 26-7 certification that is attached as Exhibit “D” to the motion to quash points out that 25 counsel for the parties discussed the e-mail, and the reasons for seeking withdrawal of the subpoenas 26 telephonically. 27 /// 28 /// 6 1 2 DISCUSSION I. Applicable Legal Standards 3 A. 4 As a general rule, a party has no standing to seek to quash a subpoena issued to a non party to 5 the action unless the party moving to quash claims some personal right or privilege in the documents 6 sought. Jacobs v. Connecticut Community Technical Colleges, 258 FRD 192, 194 (D. Conn. 2009); 7 U.S. Bank Association v. James, 264 FRD 17, 18-19 (D. Me (2010); Johnson v. Gmeinder, 191 FRD 8 638. 639 n.2 (D. Kan. 2000); Thomas v. Marina Assocs., 202 FRD 433, 434 (E.D. Pa 2001); United 9 States v. Gordon, 247 FRD 509 (E.D.N.C. 2007); Warnke v. CVS Corporation, 265 FRD 64, 66 10 11 Standing to Oppose the Subpoenas (E.D.N.Y. 2010). The United States Supreme Court has held that a bank customer has no reasonable expectation 12 of privacy in bank records because they are the business records of the bank and that subpoenas seeking 13 a party’s bank records may not be quashed on this basis. United States v. Miller, 425 U.S. 435, 442 14 (1976). See also United States v. Gordon, “[t]ypically, a party has no standing to challenge a subpoena 15 issued to his or her bank seeking discovery of financial records because bank records are the business 16 records of the bank, in which the party has no personal right.” 247 FRD at 510. However, some courts 17 have held that a party’s claim of privilege in bank account records is sufficient to confer standing for 18 purposes of challenging a subpoena if the party offers more than “vague conclusions and speculations” 19 about the existence of a threatened personal privilege. Id., citing a number of unpublished decisions. 20 B. 21 It is well established that the scope of discovery under a subpoena issued pursuant to Rule 45 is 22 the same as the scope of discovery allowed under Rule 26(b)(1). Hendricks v. Total Quality Logistics, 23 LLC, ___ FRD ___ 2011 WL 1791094 *2 (S.D. Ohio 2011); Transcor, Inc. v. Furney Charters, Inc., 24 212 FRD 588, 591 (D. Kan. 2003); Warnke v. CVS Corp., 265 FRD 64, 66 (E.D.N.Y. 2010); In re: 25 Refco Securities Litigation, 759 F.Supp 2d 342, 345 (S.D.N.Y. 2011); U.S. National Bank Association 26 v. James, 264 FRD 17, 18 (D. Me. 2010). The Federal Rules of Civil Procedure define relevance 27 broadly. Fed.R.Civ.P. 26(b) was amended in 2000 and permits discovery into “any matter, not 28 privileged, that is relevant to the claim or defense of any party.” The stated purpose of the amendment Relevance of the Discovery Sought by the Subpoenas 7 1 was not only to narrow the scope of discovery, but also to address the rising costs and delay of 2 discovery. See, e.g. Graham v. Casey’s General Stores, 206 FRD 251, 253 (S.D. Ind. 2002); Advisory 3 Committee Notes to 2000 Amendments to Federal Rule of Civil Procedure 26. However, even after the 4 2000 Amendments to the rule it is clear that liberal discovery remains the standard. Id. The party 5 seeking the discovery does not need to establish the information is admissible at trial; only that it is 6 reasonably calculated to lead to the discovery of admissible evidence. Fed.R.Civ.P. 26(b)(1). 7 It is also well established that the party resisting discovery bears the burden of showing why a 8 discovery request should be denied. Blankenship v. Hearst Corp., 519 F.2d 418, 429 (9th Cir. 1975). 9 Specifically, the party opposing discovery bears the burden of showing the discovery is overly broad 10 and duly burdensome, or not relevant. Graham, 206 FRD at 254. To meet this burden, the objecting 11 party must specifically detail the reasons why each request is irrelevant. Id., citing Shaap v. Executive 12 Indus., Inc., 130 FRD 384, 387 (N.D. Ill. 1990). The party resisting discovery has the burden of 13 clarifying, explaining and supporting its objections. Nestle Food Corp. v Aetna Cas. & Sur. Co., 135 14 FRD 101, 104 (D.N.J. 1990). “Boilerplate, generalized objections are inadequate and tantamount to not 15 making any objection at all.” Walker v. Lakewood Condominium Owners Assoc., 186 FRD 584, 587 16 (C.D. Cal. 1999). The party filing a motion for protective order to prohibit or limit discovery, or filing 17 a motion to quash bears the burden of proof. Achte-Neunte Boll Kino Beteiligungs GMBH & Co., v. 18 Does 1 though 4, 577, 736 F.Supp 2d 212, 215 (D.C.D.C.) Hendricks, ___ FRD ___, 2001 WL *2. 19 Fed.R.Civ.P. 26(c) permits the court in which an action is pending to “make any order which 20 justice requires to protect a party or person from annoyance, embarrassment, oppression, or undue 21 burden or expense, upon motion by a party or person from whom discovery is sought.” To meet its 22 burden of persuasion, the movant seeking the protective order must show good cause by demonstrating 23 a particular need for the protection sought. Beckman Indus., Inc. v. Int’s Ins. Co., 966 F.2d 470, 476 24 (9th Cir. 1992). Rule 26(c) requires more than “broad allegations of harm, unsubstantiated by specific 25 examples or articulated reasoning.” Id. Rule 26(c) confers broad discretion on the trial court to decide 26 when a protective order is appropriate and what degree of protection is required. Seattle Times Co. v. 27 Rhinehart, 467 U.S. 20, 36 (1984). In Rhinehart, the Supreme Court recognized that the “trial court is 28 in the best position to weigh fairly the competing needs and interests of the parties affected by 8 1 discovery. The unique character of the discovery process requires that the trial court has substantial 2 latitude to fashion protective orders.” Id. 3 Finally, in evaluating a request to limit or prohibit discovery, a court must weigh the burden or 4 expense of the proposed discovery and its likely benefit taking into account “the needs of the case, the 5 amount in controversy, the parties’ resources, the importance of the issues at stake in the litigation, and 6 the importance of the proposed discovery in resolving the issues.” Rule 26(b)(2)(C)(iii). 7 Applying these principals, the court finds the moving Defendants have not met their burden of 8 establishing the two subpoenas at issue should be quashed. In denying the earlier motion to compel, the 9 court did not preclude the Plaintiffs from pursuing the discovery of financial information relevant to 10 their alter ego claims. Rather, the court found that Plaintiffs had not complied with their meet and 11 confer obligations before filing the motion to compel, and that Plaintiffs’ discovery requests were over 12 broad. The discovery requests at issue in the motion to compel sought a broad range of financial data 13 including income tax returns, and other tax records. 14 The two subpoenas at issue in the motion to quash seek bank records between and among the 15 moving Defendants, and/or between the moving Defendants and J.L.Wallco to prove or disprove 16 Plaintiffs’ claims that the Defendants are the alter egos of J.L.Wallco. The court finds the discovery 17 sought is relevant and discoverable within the meaning of Rule 26(b)(1) as it will tend to prove or 18 disprove common ownership, common management, interrelation of operations, and centralized control 19 of labor relations among the moving Defendants and J.L. Wallco. However, the court finds the 20 subpoenas are temporally overbroad in seeking financial information for the period from July 11, 2006, 21 through the present. The Amended Complaint alleges that J.L. Wallco is liable to the trust funds for 22 delinquencies after April 30, 2009, and seeks to find the moving Defendants liable for unpaid 23 contributions after April 30, 2001, as the alter egos of J.L. Wallco. The court will therefore modify the 24 subpoena and limit the time period for the bank records sought to the year prior to April 30, 2009, that 25 is for the period between April 30, 2008, and the present. Additionally, the court will enter a protective 26 order precluding the parties from using or disclosing the documents produced by Wells Fargo and Bank 27 of America for any purpose unrelated to this litigation. 28 Having reviewed and considered the matter, and for the reasons stated, 9 1 IT IS ORDERED that: 2 1. Defendants’ Motion to Quash (Dkt. #59) is DENIED. 3 2. Defendants’ Motion for Attorney’s Fees (Dkt. #61) is DENIED. 4 3. Although the court has denied the Motion to Quash, the court will modify the subpoenas 5 issued to Wells Fargo and Bank of America to limit the time period for responsive 6 documents for the period between April 30, 2008 and the present. 7 4. A protective order is entered precluding the parties from disclosing or using the 8 documents produced responsive to the subpoenas duces tecum for any purpose unrelated 9 to this litigation. 10 5. Plaintiffs shall serve a copy of this order on Wells Fargo and Bank of America who shall 11 limit the production of the documents subpoenaed to the period between April 30, 2008, 12 and the present. 13 Dated this 28th day of September, 2011. 14 15 16 ______________________________________ Peggy A. Leen United States Magistrate Judge 17 18 19 20 21 22 23 24 25 26 27 28 10
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