Opinion
No. 00-2512-JWL
July 27, 2001
MEMORANDUM AND ORDER
Pending before the Court is Plaintiff's Motion to Compel Production of Documents (doc. 29) and Defendant's Motion for Protective Order and for Sanctions (doc. 31). A telephone hearing was held on July 27, 2001 in order to discuss these pending motions. Plaintiff appeared at the telephone hearing through counsel Matt Geiger and Defendant appeared through counsel Gordon Atcheson and Rod Tanner. For the reasons set forth by the Court in the telephone conference, and for the reasons stated in this Memorandum and Order, Plaintiff's Motion to Compel is granted and Defendant's Motion for Protective Order is denied to the extent provided below:
Discussion
Peter Heilmayr ("Defendant") is the former President of American Maplan Corporation ("Plaintiff"), a company engaged in the business of manufacturing and selling equipment and parts used in the business of plastic extrusion. Defendant currently is President of Vinyl Extrusion Technologies, Inc. ("VET"), a company founded by Defendant and also engaged in the business of manufacturing and selling equipment and parts used in the business of plastic extrusion.
Plaintiff filed this lawsuit against Defendant based upon Defendant's alleged violation of a covenant not to compete and a non — disclosure covenant as well as Defendant's alleged wrongful solicitation and diversion of Plaintiff's customers. In conjunction with this lawsuit, Plaintiff has requested numerous documents pursuant to Fed.R.Civ.P. 34. Defendant has refused to produce the documents requested for the following reasons:
(1) The documents requested are not within Defendant's possession, custody or control but instead are legally possessed, controlled and owned by VET;
(2) The documents are available from other sources;
(3) Production of such documents would invade the privacy of Defendant and third parties;
(4) The requests are facially objectionable because they are vague and/or ambiguous, overly broad in time and scope, unduly burdensome and neither relevant nor reasonably calculated to lead to the discovery of admissible evidence.1. Possession, custody or control
Defendant does not dispute that he has the practical ability to obtain or access the requested documents from VET, but instead argues that he does not have the authority to actually produce them to Plaintiff without the VET's permission, since it is VET as a corporation that has legal possession and ownership of such documents.
Parties have a duty to produce all documents within their possession, custody, or control when responding to a request for production. See Fed.R.Civ.P. 34(a). "[F]ederal courts have universally held that documents are deemed to be within the possession, custody or control of a party for purposes I of Rule 34 if the party has actual possession, custody or control of the materials or has the legal right to obtain the documents on demand." National Union Fire Ins. Co. v. Midland Bancor, Inc., 159 F.R.D. 562, 566 (D. Kan. 1994) (quoting RTC v. Deloitte Touche, 145 F.R.D. 108, 110 (D. Colo. 1992)). Production of documents not in a party's possession is required if a party has the practical ability to obtain the documents from another, irrespective of legal entitlement to the documents. Id. "The ability to obtain documents on demand is not affected by the source's retention of ownership or its unilaterally imposed restriction on disclosure." Id. Given this discussion, Defendant's objections relating to possession, custody and control will be overruled.
2. Availability From Other Sources
Defendant objects to producing documents responsive to Plaintiff's request because the documents allegedly are available from sources other than Defendant. Notably, Fed.R.Civ.P. 26(b)(2)(i) directs the court to limit discovery, if it determines that "the discovery sought is unreasonably cumulative or duplicative, or is obtainable from some other source that is more convenient, less burdensome, or less expensive." Defendant, however, has failed to assert, let alone establish, that the documents requested are obtainable from another source that is more convenient, less burdensome' or less expensive. Defendant's objections on these grounds will be overruled.
3. Confidentiality/Privacy
Defendant objects to producing many of the requested documents because they constitute trade secrets and confidential information and thus production invades the privacy of Defendant and third parties. Notably, there is no absolute privilege for trade secrets or similar confidential information. Federal Open Market Comm. of Federal Reserve Sys. v. Merrill, 443 U.S. 340, 362 (1979); Centurion Indus., Inc. v. Warren Steurer Assocs., 665 F.2d 323, 325 (10th Cir. 1981). To resist disclosure under Rule 26(c)(7), a person must first establish that the information is a trade secret or other confidential research, development, or commercial information and then demonstrate that its disclosure might be harmful. Centurion, 665 F.2d at 325-26. If these requirements are met, the burden then shifts to the party seeking discovery to establish that disclosure of a trade secret or other confidential information is relevant and necessary to the action. Id. Finally, the district court must balance the need for discovery of the trade secrets against the claim of injury resulting from disclosure. Id.
Simply put, Defendant's broad confidentiality objections in and of itself do not suffice to shield the requested documents from discovery. The nature of the requested discovery, however, does appear to warrant protection from unnecessary dissemination once discovered. Accordingly, the parties are directed to confer regarding an appropriate protective order to protect the confidentiality of the documents at issue and attempt to submit a joint proposed Order to the Court for approval. If the parties are unable to agree upon a joint proposed Order on or before August 10, 2001 , the parties shall individually submit their own proposed Order on that date and the Court will issue an appropriate Order.
4. Facial Objections
Defendant asserts the document requests at issue are facially objectionable because they are vague and/or ambiguous, overly broad in time and scope, unduly burdensome and neither relevant nor reasonably calculated to lead to the discovery of admissible evidence. As the party resisting the discovery, Defendant has the burden to show facts justifying his objections. See Snowden v. Connaught Lab, Inc., 137 F.R.D. 325, 332 (D. Kan. 1991). Defendant has submitted no explanation to support its objections that the document requests are vague and/or ambiguous, overly broad in time and scope, unduly burdensome and neither relevant nor reasonably calculated to lead to the discovery of admissible evidence. Accordingly, these objections will be overruled.
Conclusion
It is hereby ORDERED that
(1) Plaintiff's Motion to Compel (doc. 29) is granted subject to entry of an appropriate protective order to address the confidentiality concerns raised by Defendant;
(2) The parties are directed to meet and confer regarding an appropriate protective order to protect the confidentiality of the documents at issue and they shall attempt to submit a joint proposed Order to the Court for approval. If the parties are unable to agree upon a joint proposed Order on or before August 10, 2001 , the parties shall individually submit their own proposed Order on that date and the Court will issue an appropriate Order;
(3) Defendant's Motion for Protective Order (doc. 31) is denied;
(4) The Court shall defer ruling on the parties' requests for sanctions until after the August 10, 2001 deadline referenced above; and
(5) Plaintiff's oral request to stay deposition discovery is denied.
IT IS SO ORDERED.
DEFENDANT'S REPLY TO PLAINTIFF'S RESPONSE TO DEFENDANT'S MOTION FOR PROTECTIVE ORDER AND MOTION FOR SANCTIONS
We are the hollow men We are the stuffed men Leaning together Headpiece filled with straw. Alas!
Our dried voices, when We whisper together Are quiet and meaningless As wind in dry grass Or rats `feet over broken glass In our dry cellar . . ."The Hollow Men" T. S. Eliot
Defendant Peter Heilmayr, Ph.D. ("Dr. Heilmayr") seeks a protective order from this Court and sanctions against counsel for Plaintiff American Maplan Corporation ("AMC") for engaging in abusive discovery tactics. AMC, through its attorneys, alleges in rather exaggerated rhetoric that Dr. Heilmayr and Vinyl Extrusion Technologies, Inc. ("VET"), a nonparty Texas corporation, "have collaborated" in a "shell game" to resist AMC's document discovery. AMC has sued Dr. Heilmayr in his individual capacity and has not brought any action against VET. AMC is obligated to seek any production of VET's corporate documents and records directly from VET pursuant to the provisions of FED. R. CIV. P. 45. There is no "shell game" and there is no collaboration between Dr. Heilmayr and VET for the purpose of resisting any legitimate discovery efforts. Rather, Dr. Heilmayr properly expects AMC to comply with Rule 45 since he does not have control over VET's confidential documents and since disclosure of such documents would constitute a breach of his fiduciary duties under Texas law. Moreover, VET is preparing to produce more than 1,000 pages of documents in response to a subpoena issued at AMC' request. Dr. Heilmayr respectfully submits that the Court should order AMC to refrain from seeking production of VET documents from Dr. Heilmayr personally. The Court should also award him attorney fees and costs in defending AMC's groundless motion to compel and in securing a protective order.
AMC'S Discovery Objectives Are Improper
AMC's oppressive litigation tactics are closely related to plaintiff's real objective in this litigation, which was revealed when the company commenced document discovery. AMC served an abusive request for production of documents on Dr. Heilmayr, requesting that he produce numerous corporate records and documents owned by VET. Dr. Heilmayr does not have personal custody or control of these documents (under VET's bylaws the company's Secretary is custodian of all corporate records). Moreover, AMC has issued an extraordinarily broad subpoena to VET to compel the production of all types of VEPs corporate records including, for example, invoices and purchase orders for extrusion equipment sold "to any company" — not just AMC customers — that Dr. Heilmayr has contacted since January 1, 1998. Similarly, AMC seeks the production of all VET files pertaining to any company that Dr. Heilmayr has contacted and to which VET sold or distributed extrusion equipment during the past three and one — half years. (A copy of the subpoena is included in the Appendix to Dr. Heilmayr's Response to Plaintiff's Motion to Compel and Defendant's Motion for Protective Order and Motion for Sanctions). This kind of document search goes far beyond the boundaries of permissible discovery since VET's transactions with companies that have never done business with AMC can have no bearing on plaintiff's tortious interference claim or any issue in this case.AM's breach of contract claims are frivolous for the reasons set forth in Dr. Heilmayr's Motion for Partial Summary Judgment. AMC's tortious interference claim is premised on the alleged disruption of established business relationships with AMC's customers. AMC's clear objective in this case is not to redress any injury allegedly caused by Dr. Heilmayr, but rather to permit AMC to inspect, dissect and analyze VET's entire business operation. The conclusion is inescapable that AMC's document discovery is the raison d'etre for this civil action.
Dr. Heilmayr's Disclosure of Confidential Corporate Documents Would Breach His Fiduciary Duties to Vinyl Extrusion Technologies, Inc.
As president, Dr. Heilmayr owes VET the fiduciary duties of obedience, loyalty and care. See Resolution Trust Corp v. Acton, 844 F. Supp. 307, 313 (N.D. Tex 1994) (discussing Texas law); FDIC v. Harrington, 844 F. Supp. 300, 306 (N.D. Tex 1994). The duty of obedience prohibits Dr. Heilmayr from acting outside the scope of corporate power; the duty of loyalty requires him to act in good faith with respect to all corporate matters; and the duty of care requires him to manage the corporation's affairs with diligence and prudence. Acton, 844 F. Supp. at 313; see also Imperial Group (Texas), Inc. v. Scholnick, 709 S.W.2d 358 (Tex.App. 1986, writ ref d n.r.e.). VET's Board of Directors has instructed Dr. Heilmayr not to disclose any of the corporation's confidential business or financial records so that Robin Kinsel, VET's attorney, can address the matter under Rule 45. See Affidavit of Steve Murin, III and Declaration of Rod Tanner, Appendix to Dr. Heilmayr's Response to Plaintiff's Motion to Compel, and Defendant's Motion for Protective Order and Motion for Sanctions. Under these circumstances Dr. Heilmayr's disclosure of VET's confidential documents would clearly constitute a breach of his fiduciary duties to the corporation.
Dr. Heilmayr Has No Right of Control with Respect to VET'S Documents
The authorities relied on by AMC in its reply brief do not support its contention that Dr. Heilmayr has control over VET's corporate documents. Weaver v. Gross, 107 F.R.D. 715, 717 (D.D.C. 1985) is the only decision that provides any support whatsoever for AMC's position, but it is neither controlling nor persuasive. The court in Weaver held that a corporate president has the authority to produce records and documents in a corporation's possession, but provides no reasoning and cites no authority for this holding. Id. at 718.
Nelson v. United States, 201 U.S. 92 (1906) and National Labor Relations Board v. Line, 50 F.3d 311 (5th Cir. 1995) are inapposite. Both Nelson and Line involved compliance proceedings in which the corporation in question was a party to the litigation. See Nelson, 201 U.S. at 115; Line, 50 F.3d at 314. Those cases stand merely for the proposition that it is appropriate to direct a subpoena duces tecum to the president of a corporate party. See id.
AMC has mischaracterized the holdings in Federal Trade Commission v. J. K. Publications, Inc., 99 F. Supp.2d 1176 (C.D. Cal. 2001) and Federal Trade Commission v. Five Star Auto Club, Inc., 97 F. Supp.2d 502 (S.D.N. Y. 2000). Those cases involved proceedings against companies which had violated FTC regulations and the court held in each case that it was appropriate to hold the president of the corporation accountable for the corporation's actions. See J. K. Publications, 99 F. Supp.2d. at 1205; Five Star Auto Club, 97 F. Supp.2d at 538.
United States v. International Business Machines Corp., 71 F.R.D. 88 (S.D.N.Y. 1976), is distinguishable on its facts. There, the defendant served a subpoena duces tecum on the president of a nonparty corporation seeking production of certain documents and the court compelled his compliance. Id at 91. However, the subpoena in that case was served on the company's president in his corporate capacity and was thus directed toward the corporation, not toward the president personally. Id at 89.
Dr. Heilmayr Has Withheld No Discoverable Documents
AMC alleges in its reply brief that Dr. Heilmayr has been withholding documents that support the plaintiff's claims. Specifically, AMC refers to a letter from Dr. Heilmayr in his capacity as President of VET to Hans Groeblacher dated March 4, 1999. (See Exhibit C to AMC's reply brief) AMC's attorneys breathlessly proclaim, with feigned indignation, that "the Solicitation Letter establishes an intentional effort by Defendant to advertise AMC's trade secrets and improperly compete with AMC." (Plaintiff's reply brief, p. 3) In reality the letter is proof of nothing except AMC's propensity to mislead the Court.
At the outset, it should be observed that the letter was addressed and presumably mailed to Mr. Groeblacher. The letter is typed on VET letterhead and is in all respects a VET document. Dr. Heilmayr does not contest the letter's authenticity, but it is not known at this time whether or not VET retained a copy. Any copy retained by VET would be maintained in the corporation's files. Certainly, Dr. Heilmayr has not withheld this letter since he never maintained a copy of it in any personal files. Presumably this letter and similar documents would be produced by VET if AMC would pursue discovery against that corporation in the manner required by Rule 45.
Further, AMC's attorneys have misrepresented both the surrounding circumstances and the meaning of the letter. In AMC's reply brief it is alleged that "a cooperative customer" provided the letter to AMC. This is a rather disingenuous statement inasmuch as AMC neglects to mention that Mr. Groeblacher has been a vice president of AMC for more than one year. There is little question that Mr. Groeblacher, who is not a customer, either secured or provided the letter to AMC.
With respect to the letter itself, AMC makes much of the reference to the availability of "all Maplan designs." AMC asserts that Dr. Heilmayr's reference to such designs constitutes proof of some nefarious attempt to exploit AMC trade secrets. Yet AMC is well aware that the reference to Maplan designs in the Groeblacher letter is not by any means a reference to trade secrets. In the letter Dr. Heilmayr clearly states that "Vinyl Extrusion Technologies, Inc. is representing the program of THEYSOHN EXTRUSIONS TECHNIK." The letter then notes, among other things, that VET, as Theysohn Extrusions Technik's representative, has all Maplan designs available. AMC fails to mention the reason that such designs were available to VET, however. Long before Dr. Heilmayr accepted employment with VET, Theysohn Extrusions Technik's acquired Austria Maplan Company. As part of that transaction Theysohn Extrusions Technik's acquired all Maplan designs pursuant to an agreement between those companies to share their designs. Theysohn Extrusions Techniks have made Maplan designs available to its representatives because such Maplan designs are now Theysohn designs. At no time has Dr. Heilmayr used any Maplan design information which he acquired by reason of his employment with that company.
The efforts by AMC's counsel to sandbag Dr. Heilmayr with the Groeblacher letter, and to misrepresent the meaning and origin of that letter to the Court, are additional reasons why the Court should impose sanctions against plaintiff's attorneys. AMC did not disclose the Groeblacher letter in its initial disclosures even though plaintiff asserts that the letter is relevant to its claims within the meaning of FED, R. CIV. P. 26. Nor did AMCs attorneys ever produce the document in any supplemental disclosure. This misconduct is consistent with other misrepresentations made by AMC in this litigation.
Conclusion
For the foregoing reasons, Dr. Heilmayr's motion for protective order and motion for sanctions should be granted in all respects.