*1 In July 2018, Eco-Tech Environmental Services, Inc. and Eco-Tech, LLC filed a motion to quash documents subpoenas served by the defendants. Because the briefing on that motion showed that the Eco-Tech Entities and the defendants had not engaged in substantive, meaningful good faith negotiations about discovery disputes, the court ordered them to do so. The court also provided some guidance on their disputes and ordered the parties to confer in good faith and to file new discovery motions by early September if agreements could not be reached. That deadline was extended several times at the parties’ requests. On November 15, 2018, the defendants filed a motion to compel with respect to the subpoenas. The next day, the Eco-Tech Entities filed their renewed motion to quash. The court held a hearing on the motions (and a separate motion to compel directed at the plaintiff) on December 21, 2018.

As more fully explained below, the court GRANTS IN PART AND DENIES the Eco-Tech Entities’ motion to quash (Dkt. 141) and GRANTS IN PART AND DENIES IN PART the Counties’ motion to compel (Dkt. 122).

The court first describes the nature of the claims and defenses in this litigation, then sets forth the guiding discovery principles, and finally rules on each of the categories of documents comprising the Counties’ discovery requests to the Eco-Tech Entities.

The following description of the claims and other matters is taken from the parties’ pleadings and other filings by the parties and by the Eco-Tech Entities. These are not findings by the court but provide context to the discovery disputes.

This case concerns a county landfill that has been in operation since about 1971 and is owned by the defendant counties of Clark and Floyd (the “Counties”). The Counties contracted with plaintiff Clark Floyd Landfill, LLC (“Landfill LLC”) for it to maintain and operate the landfill. Their original contract, effective January 1, 2004, was supplemented by agreements entered in December 2006, July 2011, and January 2013. Various disputes between the contracting parties led to this litigation filed by Landfill LLC in January 2018, after the parties were not able to resolve their disputes in mediation.

Landfill LLC seeks a declaratory judgment about the parties’ rights and obligations under their contracts and alleges that the Counties breached those contracts. It contends that (a) it is not obligated to pay for all capital improvements at the landfill; (b) a Landfill Improvement Fund (“LIF”) referenced by the contracts applies only to capital improvements for horizontal expansion of the landfill and Landfill LLC has satisfied its obligations for contributing to the LIF; (c) all capital improvements for vertically expanding the landfill’s capacity must be funded through certain government bonds and Landfill LLC has no other responsibility for vertical expansion costs; (d) the Counties have failed to pay it for certain construction work at the landfill, for property acquisition costs, and for other services; and (e) the Counties have failed to perform other duties under the contracts that have caused or will cause losses to Landfill LLC.

*2 The Counties filed a counterclaim sounding in contract and tort. The court has now granted Landfill LLC’s motion to dismiss the Counties’ tort theories, but its order allows the Counties to pursue the factual predicates of their tort theories as part of their breach of contract claim. The Counties allege that Landfill LLC has breached the contracts by, among other things, failing to (a) pay for certain capital improvements, (b) make required contributions to the LIF, and (c) undertake and pay for certain environmental compliance and reporting tasks. Their contract theory also includes allegations that Landfill LLC cheated the Counties out of revenue owed under the contracts through self-dealing conducted with and through Landfill LLC’s affiliated entities, including Eco-Tech, LLC and its majority member, Eco-Tech Environmental Services, LLC. The Counties allege that money has been and is being improperly funneled away from the landfill’s operations and into the coffers of affiliated entities—in essence, that Landfill LLC uses the landfill operations to subsidize affiliated businesses. The Counties allege the scheme is accomplished primarily through Landfill LLC’s charging of below-market rates to its affiliates for waste disposal at the landfill and perhaps through other affiliate-to-affiliate financial transactions. Landfill LLC and its largest customer, Eco-Tech LLC, are essentially controlled or managed by one person—Robert Lee. Mr. Robert Lee also manages these other affiliate companies.

The stakes in this case are enormous. The money at stake is potentially in excess of $10 million. In addition, the viability of continued operations of the landfill is affected by resolution of the claims.[1] At issue is whether the landfill is unable to comply with environmental regulations and must be closed, as well as the financial, environmental, and societal repercussions of closure for the Counties, their residents, and surrounding communities.

The scope of discovery available via a Rule 45 subpoena is measured by the same standards applicable to party discovery under Rule 26. See Advisory Committee Notes regarding 1991 amendments to Rule 45 (“non-party witness is subject to the same scope of discovery under this rule as that person would be as a party to whom a request is addressed pursuant to Rule 34”); Jackson v. Brinker, 147 F.R.D. 189, 193-94 (S.D. Ind. 1993) (“The scope of material obtainable by a Rule 45 subpoena is as a broad as permitted under the discovery rules....”)

Rule 26 permits the discovery of nonprivileged matter “that is relevant” to a party’s claim or defense and “proportional” to the needs of a case, considering the importance of the issues at stake, the importance of the discovery in resolving those issues, the amount in controversy, and the weighing of burdens and benefits. See Rule 26(b)(1). In weighing burdens in the Rule 45 context, a court should be vigilant to protect non-parties from undue burden or expense. That theme purposefully runs throughout Rule 45, which gives the court broad powers to quash or modify a subpoena, order the payment of attorneys’ fees where the discovering party has not been reasonable in avoiding the imposition of undue burden or expense, or order the discovering party to subsidize the costs of compliance with the subpoena. See Advisory Committee Notes to 1991 amendments (explaining that one purpose of the 1991 overhaul of Rule 45 was to “clarify and enlarge the protections afforded persons who are required to assist the court by giving information or evidence”).

Solicitude for the interests of non-parties is not blindly conferred, however. Facts and context matter. In this case, the Eco-Tech Entities share extraordinarily close relationships with the plaintiff and the very subject matter of the claims and counterclaims. The plaintiff and the Eco-Tech Entities are essentially controlled or managed by one person—Robert Lee. According to Mr. Lee, Eco-Tech Environmental Services, Inc. (“EESI”) is a holding company and is the majority owner of Eco-Tech, LLC. It does not possess or control any documents or information responsive to the Counties’ discovery requests that are not discoverable from Eco-Tech, LLC. In other words, no costs or burdens befall EESI that are not, or would not be, already borne by Eco-Tech LLC.

*3 As to Eco-Tech LLC, it has actually managed, controlled, and directed the activities of Landfill LLC in its operations of the landfill at the center of this case, and may even still do so. Mr. Robert Lee, acting in a representative capacity on behalf of both Landfill LLC and Eco-Tech LLC, signed a Management Agreement between these two entities dated April 1, 2009, by which he agreed, on behalf of both entities, that Eco-Tech LLC has the responsibility to “control and direct the daily activities of [Landfill, LLC]” but subject to Eco-Tech LLC “reporting to, and following the directions of,” Mr. Lee himself. Dkt. 125 at p. 3. Though Mr. Lee now explains in an affidavit that this Management Agreement was “intended” to last for only one year, and though counsel claims based on this affidavit statement that the Management Agreement actually was in effect for only one year, the Management Agreement itself states that it is subject to renewals and there is no evidence that the Agreement was not renewed.

Moreover, there is evidence that to this day, persons employed by Eco-Tech LLC also act in the same capacities for Landfill LLC. For example, Eco-Tech’s controller (Mr. James Baldridge) also acts as the controller for Landfill LLC, and the office personnel for Eco-Tech and for Landfill LLC work in the same small building and can communicate by shouting across the hall or room to one another. Eco-Tech charges Landfill LLC for labor costs it asserts its employees perform for Landfill LLC. There are scores of inter-company financial transactions between the two entities—all of which are apparently accounted for on the books of the companies by the same controller and at the ultimate direction of the same person—Mr. Robert Lee. Persons who make business decisions related to the landfill’s operations, including Messrs. Robert Lee and Matt Lee, use their Eco-Tech email addresses in communicating about the landfill’s operations. The two entities share the same law firm in this case as well.[2]

Under all of these circumstances, the Eco-Tech Entities’ arguments that they should be treated as if they are “stranger” non-parties to this litigation who should bear little burden, or should be compensated for costs in complying with discovery, are not persuasive at all. Spears v. City of Indianapolis, 74 F.3d 153, 158 (7th Cir. 1996) (court has considerable discretion “in determining whether expense-shifting in discovery production is appropriate in a given case”).

Furthermore, the Eco-Tech Entities’ arguments against discovery are not truly based on undue burdensomeness or expense. They have not shown that gathering responsive documents is difficult. Accounting information is available via the company’s accounting software, and the controller knows how to create reports from the system.[3] Searches for emails that use the Eco-Tech domains would have to be conducted anyway to comply with discovery directed at Landfill LLC. Paper documents possessed by the Eco-Tech Entities are organized and stored in boxes, and there are not that many boxes. Basic operational and management documents are contained in file cabinets or on the controller’s computer’s hard drive and he knows how the documents are organized. The real issue here is that the Eco-Tech Entities want to shield from discovery the documents they contend are their “confidential commercial” information.

*4 The discovery rules address this topic but do not, particularly under the circumstances of this case, provide a shield from discovery. Rule 45 recognizes that non-parties—just like parties—have special interests in connection with the discovery of trade secrets or confidential commercial information. Rule 45(d)(3)(B) (previously at subsection (c)(3)(B) before the 2013 amendments to Rule 45) provides that a court may, but need not, quash or modify a subpoena that seeks discovery of such information. The provision “corresponds to Rule 26(c)(7),” see Advisory Committee Notes, a subsection that now appears at Rule 26(c)(1)(G). Thus, as explained in Wright & Miller, 8A Federal Practice & Procedure Civil § 2043 (3rd ed. 2018), when discovery is sought of trade secrets or confidential commercial information, the discovering party should be required to show that the discovery has sufficient relevancy and materiality to the case to outweigh whatever harm disclosure would cause.[4] Further, the imposition of protective measures for the use and dissemination of the information suffices in most situations to substantially eliminate harm that disclosure might have:

The Eco-Tech Entities contend that there are no reasonable protective measures that could be employed in this case because they fear that the Counties will someday become a competitor and use business information obtained in this case somehow to undercut them in the marketplace. They have exaggerated that theory to the point of absurdity here. Eco-Tech LLC is a waste hauler; the Counties are not in the business of hauling waste, and there is no suggestion they ever will be in the business of hauling waste for others. And while the Counties may, through this litigation or otherwise, take over control of the landfill and hire a new operator for it (the Counties don't have the manpower or expertise to operate a landfill themselves), that will not make the Counties—or anyone else—a competitor to the trash hauling services that Eco-Tech offers its customers. Moreover, a protective order that restricts the use and dissemination of any truly confidential commercial information that the Eco-Tech Entities must produce in this litigation to persons with an appropriate need for the information sufficiently guards against any possible harm to Eco-Tech’s competitive business interests.

Indeed, based on the overall behavior of the Eco-Tech Entities in resisting discovery when they lacked a real factual basis for asserting burdensomeness in searching for and gathering documents, when Eco-Tech LLC has served as the Operational Manager of the landfill itself, and when Robert Lee essentially controls the business decisions for both Landfill LLC and Eco-Tech LLC, the court is left with the firm conviction that the competitor theory and irrelevant alter ego and veil piercing defenses have served merely as excuses to unfairly resist production of information the Eco-Tech Entities know is material and indeed central to claims made by the Counties in this case.

With the foregoing principles in mind, the court now rules on the outstanding discovery disputes.

The document requests can be placed in broad categories and the court will address them in groups.

Requests 1-5, 10, 15-16

These requests are central to the Counties’ theory that Landfill LLC has deprived the Counties of revenue through self-dealing conducted with and through Landfill LLC’s affiliated entities, including Eco-Tech LLC. Eco-Tech LLC, which is a waste hauler, is apparently the largest customer at the landfill. The Counties allege that money has been and is improperly funneled away from the landfill’s operations (certain revenues of which the Counties are entitled to share with Landfill LLC) and into the coffers of the affiliated entities, including Eco-Tech LLC. In essence, they allege that Landfill LLC operates the landfill in a way that subsidizes the affiliated businesses.

*5 To test this theory, the Counties seek information about (a) how much Eco-Tech LLC pays Landfill LLC for waste it transports to the Counties’ landfill as compared to how much Eco-Tech LLC pays other landfill operators for waste it transports to other landfills for similar types and amounts of waste and (b) how much Eco-Tech LLC charges its customers to haul/dispose of their waste (type and amount) when the waste is disposed at the Counties’ landfill and when it is disposed at other landfills. Requests 1-5, 10, and 15-16 seek this information, but the only documents that Eco-Tech has produced are boxes full of weigh tickets for deliveries to the Counties’ landfill.

The court agrees with the Counties that the production of weigh tickets does not satisfy Eco-Tech LLC’s discovery obligations. The court is persuaded that it is highly likely that Eco-Tech LLC maintains in some formats accessible to its own management without auditing boxes and boxes of weigh tickets (a) a list of its customers, (b) information about the terms on which it charges and charged its customers for waste hauling and/or disposal, (c) documentation of the terms on which it has been charged for disposal by Landfill LLC, other affiliates, and other landfills, (d) documentation of the types and amounts of material it has disposed for customers both at the Counties’ landfill and other landfills, and (e) documentation of the payments that Eco-Tech LLC has made to Landfill LLC, other affiliates, and other landfills for waste hauling and/or disposal services. Certainly, Eco-Tech LLC has made no showing that it is burdensome to provide this type of information. And the Eco-Tech Entities’ suggestion at the hearing that they lack the documents that provide this information is unbelievable.

The court therefore GRANTS the Counties’ motion to compel with respect to Document Requests 1-5, 10, and 15-16, and DENIES the Eco-Tech Entities’ corresponding motion to quash. The court requires the Counties, however, to again propose its limitations on these requests as described in its briefing. See, e.g., Dkt. 155 at p. 5 (limiting to information regarding 30 largest customers). The Eco-Tech Entities must produce their responsive information/documents within 21 days.

Requests 6-7 and 17

These requests seek communications between the Eco-Tech Entities and Landfill LLC, any other affiliated entity, or any person that are related to the landfill or to any payments from the Eco-Tech Entities to Landfill LLC. The Counties offered to limit these requests using certain search terms matching search terms they provided for Landfill LLC’s document production. The court finds that the search term limitation is reasonable and that it is reasonable to require the Eco-Tech Entities to conduct searches of their sources of information using these search terms. Indeed, Eco-Tech LLC actually operated the landfill for at least some period of time, and its management and employees may be the de facto managers and operators even now. For that reason alone, it is appropriate to require the Eco-Tech Entities to conduct searches for communications and correspondence in the manner requested by the Counties.

Request 6 also seeks documentation underlying inter-company transactions between Landfill LLC and Eco-Tech LLC that appear on certain ledgers that were produced. Because an understanding of the financial interplay between these entities is central to the Counties’ counterclaims—and appears to be material to certain monetary relief sought by Landfill LLC against the Counties—the Counties are entitled to review the documentation that supports the inter-company transactions.

The court GRANTS the Counties’ motion to compel with respect to Document Requests 6-7 and 17, and DENIES the Eco-Tech Entities’ corresponding motion to quash. The Eco-Tech Entities must produce their responsive documents within 21 days.

*6 Requests 8-9 and 14

Requests 8-9 and 14 seek high-level financial information. The Counties want the Eco-Tech Entities’ tax returns for the last 10 years (Request 8) and want all their audited and unaudited financial statements, income statements, and balance sheets for the same period (Request 9). They also want documents showing distributions, compensation, payments, and transfers from the Eco-Tech Entities to any member, owners, or shareholders (Request 14).

The court agrees with the Counties that the tax returns and financial statements are appropriate sources for identifying the scope of the financial interrelationships between the Counties’ contracting partner, Landfill LLC, and the affiliated entities through which, the Counties suspect, profits may have been improperly funneled, and agrees with the Counties that this information is central to the clams in this case. The court rejects the Eco-Tech Entities’ contention that they do not possess tax returns because they are pass-through tax entities. A reasonable reader of the discovery requests would interpret a request for tax returns directed to an LLC to mean the LLC’s required annual information return or actual annual tax return filing, and the court so interprets it here.

As to financial statements, the court has no information about the Eco-Tech Entities’ business practices in the preparation of financial statements, income statements, and balance sheets. If it prepares such documents on a semi-annual or annual basis, or can print out from an accounting system such documents expressed on semi-annual and annual bases, then that is sufficient to satisfy its obligations under Request 9.

The court finds that it is not proportional discovery, at this time, to require the Eco-Tech Entities to produce documentation about distributions, compensation, payments, and transfers to its members, owners, or shareholders, except as that information may be revealed on the tax returns or annual financial statements/income statements/balance sheets. The Counties have not shown at this point that more detailed information than that likely to be revealed by tax returns and financial statements is reasonably necessary discovery. As to financial transactions between the Eco-Tech Entities and Landfill LLC, that information is covered by other document requests and the court anticipates that the Counties will receive the information through those requests.

The court GRANTS the Counties’ motion to compel with respect to Document Requests 8-9 and DENIES the Eco-Tech Entities’ corresponding motion to quash. The court DENIES the Counties’ motion to compel with respect to Document Request 14 and GRANTS the Eco-Tech Entities’ corresponding motion to quash. The documents responsive to Requests 8-9 must be produced within 21 days.

Requests 11-12 and 18

Requests 11-12 and 18 seek management-type agreements between or among the Eco-Tech Entities and their affiliated companies and seek the Eco-Tech Entities’ basic organizational documents. The court finds that this discovery is proportional to the needs of this case. The existence and contents of any such agreements are material to the Counties’ understanding of the business relationships among the affiliates and their ability to trace the ways in which landfill revenues could be improperly siphoned off to an affiliate. The Counties appear to be satisfied with the production that has been made except that they suspect that the Eco-Tech Entities are withholding from production a shared service agreement between Eco-Tech LLC and EESI. If such documentation exists, it must be produced.

*7 The court GRANTS the Counties’ motion to compel with respect to Document Requests 11-12 and 18 and DENIES the Eco-Tech Entities’ corresponding motion to quash. The Eco-Tech Entities must produce their responsive documents within 21 days.

Request 13

Request 13 seeks documents showing all inter-company payments or transfers by and between the Eco-Tech Entities and Landfill LLC or any of its affiliates. The court finds that the existence and bases for inter-company payments are critical to the Counties’ understanding of the business relationships among the affiliates and their ability to trace the ways in which landfill revenues could be (or have been) improperly siphoned off to an affiliate. At this time, the Eco-Tech Entities can satisfy their discovery obligations as to Request 13 by producing ledgers from their accounting systems that document inter-company payments or transfers. As to those payments/transfers between the Eco-Tech Entities and Landfill LLC, they must also produce documentation underlying the payments or transfers. As to payments/transfers between the Eco-Tech Entities and the other affiliates, the ledgers are sufficient at this time so long as they reasonably identify the bases of the payment/transfer. To the extent additional documentation is reasonably necessary for the Counties to understand why and on what basis any particular payment or transfer was made, the court expects the Eco-Tech Entities to cooperate to supply that additional documentation.

The Counties’ motion to compel is therefore granted with respect to Document Request 13, and the court DENIES the Eco-Tech Entities’ corresponding motion to quash. The Eco-Tech Entities must produce their responsive documents within 21 days.

*8 Because of the difficulties in obtaining information from the Eco-Tech Entities (and the plaintiff, as addressed in a separate order), the court makes two additional observations and rulings here. First, the court has the impression from arguments made by counsel for the plaintiff and the Eco-Tech Entities that they believe information contained within an accounting system does not have to be collated or otherwise collected into a document for production in response to document requests. The court disagrees. For example, the Eco-Tech Entities cannot claim that they do not possess any documents identifying their customers for waste hauling or disposal services (except in the form of thousands of weigh tickets) when that information can be printed through a query of the accounting system and then produced. Likewise, they may not assert the absence of documentation about payments of one kind or another when a query of the accounting system can produce that very information and be printed. Second, to the extent questions remain, the court will permit the Counties to take appropriate deposition(s) of the Eco-Tech Entities and plaintiff regarding discovery in general to the extent reasonably necessary to determine the existence of information or documentation that is available but was not searched or produced. Such depositions (or inquiries within a deposition) will not count against the 10-deposition and one-time limits in Rule 30(a)(2) or the 7-hour limit in Rule 30(d).

The Counties’ motion to compel does not explicitly seek the recovery of attorneys’ fees for bringing the motion, although Rule 37(a)(5)’s “loser pays” provision applies to motions to compel addressed to parties and non-parties. Because fees were not explicitly requested in the briefing, the court declines to award fees at this time. The court is willing to consider, however, a motion for fees based on the costs in obtaining this order if it is necessary to later adjudicate any motion to comply with this order.

The Counties’ motion to compel directed to the Eco-Tech Entities (Dkt. 122) is GRANTED IN PART AND DENIED IN PART. The Eco-Tech Entities’ motion to quash (Dkt. 141) is GRANTED IN PART AND DENIED IN PART.

So ORDERED.