Eagle Railcar Serv. - Washington v. Innovative Blast Tech. Inc.
Eagle Railcar Serv. - Washington v. Innovative Blast Tech. Inc.
2020 WL 12178042 (S.D. Ind.2020)
May 22, 2020
Brookman, Matthew P., United States Magistrate Judge
Summary
The court found that ESI, such as confidential financial information, trade secrets, and proprietary drawings of the blast-cleaning system, was relevant to the contract in question and to industry custom, practice, and terminology. The court ordered Eagle to supplement its responses to Request for Production No. 3 and Interrogatory No. 12 within twenty-one days of the entry, and also ordered Defendants to supplement their responses to either the Request for Production No. 14 or No. 10 within twenty-one days of the entry.
EAGLE RAILCAR SERVICES - WASHINGTON, INDIANA LLC, Plaintiff,
v.
INNOVATIVE BLAST TECHNOLOGIES INC., 1340614 ONTARIO, INC., ALWAYS DEPENDABLE SERVICE INC., 1099726 ONTARIO LIMITED, THE RISE CENTRE INC., JAMES WILSON, Defendants.
1340614 ONTARIO, INC., Counter Claimant,
v.
EAGLE RAILCAR SERVICES - WASHINGTON, INDIANA LLC, Counter Defendant
v.
INNOVATIVE BLAST TECHNOLOGIES INC., 1340614 ONTARIO, INC., ALWAYS DEPENDABLE SERVICE INC., 1099726 ONTARIO LIMITED, THE RISE CENTRE INC., JAMES WILSON, Defendants.
1340614 ONTARIO, INC., Counter Claimant,
v.
EAGLE RAILCAR SERVICES - WASHINGTON, INDIANA LLC, Counter Defendant
No. 3:19-cv-00095-RLY-MPB
United States District Court, S.D. Indiana, Evansville Division
Filed May 22, 2020
Brookman, Matthew P., United States Magistrate Judge
ORDER ON PENDING DISCOVERY AND SEALING MOTIONS
*1 Plaintiff Eagle Railcar Services—Washington, Indiana, LLC, alleges it entered into a contract with Innovative Blast Technologies Inc. (“IBT”) and Always Dependable Service Inc. (“ADS”) to purchase a blast cleaning system (“the System”) for $1,475,000. Neither IBT nor ADS existed at that time. After paying Corporate Defendants—all of whom are owned and controlled by Defendant James Wilson--$664,155 toward the purchase of the System, Defendants allegedly absconded with the same and converted those funds among Defendants’ various entities. Eagle's Complaint, which was originally filed in the Daviess Circuit Court before it was removed to this court, consists of six counts: Count I (Theft), Count II (Conversion), Count III (Fraud), Count IV (Damages Resulting from Civil Conspiracy), Count V (Unjust Enrichment), and Count VI (Breach of Contract). Prior to removal, the Daviess Circuit Court summarily denied Defendants’ Partial Motion to Dismiss Counts I-V of Eagle's Amended Complaint. Defendants filed a practically identical Partial Motion to Dismiss in this court and the court declined to exercise its discretion to reopen the motion to dismiss. (Docket No. 38 at ECF p. 3) (“The court finds the issues raised are best addressed on a motion for summary judgment, after the parties have had the opportunity to conduct discovery.”).
Discovery has proved to be a contentious matter between the parties, leading to several telephonic discovery conferences with the court and flooded the docket with three pending discovery motions, a motion for sanctions, and three motions to seal several of the memoranda or exhibits addressing these issues. The court now addresses each motion in turn.
I. Motions to Maintain Under Seal
The court first addresses three motions to seal that the parties have filed in connection with the pending substantive motions. The Supreme Court has recognized that the public has a right to inspect public records and documents, including court records and documents, which stems from the First Amendment. Globe Newspaper Co. v. Super. Ct. for Norfolk Cty., 457 U.S. 596, 603–06 (1982). “Information that affects the disposition of litigation belongs in the public record unless a statute or privilege justifies nondisclosure.” U.S. v. Foster, 564 F.3d 852, 853 (7th Cir. 2009), citing Baxter Int'l, Inc. v. Abbott Labs., 297 F.3d 544, 545–46 (7th Cir. 2002). “Secrecy is fine at the discovery stage, before the material enters the judicial record.” Baxter Int'l, Inc., 297 F.3d at 545, citing Seattle Times Co. v. Rhinehart, 467 U.S. 20 (1984).
Good cause must exist for any portion of the record of a case to be sealed from the public. See Citizens First Nat'l Bank v. Cincinnati Ins. Co., 178 F.3d 943 (7th Cir. 1999). Courts “should balance the interests between privacy and public access.” Jepson, Inc. v. Makita Elec. Works, Ltd., 30 F.3d 854, 859 (7th Cir. 1994). Federal Rule of Civil Procedure 26(c)(1)(G) provides that this court may protect trade secrets or other confidential business information, and as a matter of course, information covered by a recognized privilege, and information required to remain private by statute. See Citizens First Nat'l Bank, 178 F.3d at 945. “Other confidential business information” can include “non-public financial and business information.” Johnson v. UHS Midwest Ctr. for Youth & Families, LLC, No. 2:13-cv-149, 2014 WL 4228114, at *1 (N.D. Ind. Aug. 20, 2014).
a. Defendants’ Motion to Maintain Under Seal its Motion for Sanctions and Various Exhibits Under Seal (Docket No. 54)
*2 Defendants’ Motion to Maintain Documents Under Seal (Docket No. 54), seeks to seal Defendants’ Motion for Sanctions (Docket No. 51) and the following accompanying Exhibits: (1) Exhibit B, Eagle's wire transfer records (Docket No. 51-1); Exhibit J, Eagle's February 7, 2020 letter (Docket No. 51-2); Exhibit L, 1340614 Ontario, Inc.’s (“IBT (134 Ontario)”) 2018 financial records (Docket No. 51-3); and Exhibit O, affidavit of Jim Wilson (Docket No. 51-4). Eagle opposes the motion[1] (Docket No. 66) and the matter is fully briefed (Docket No. 70). For the reasons that follow, the court GRANTS Defendants’ request.
The documents at issue contain IBT (134 Ontario)’s confidential financial information. The court agrees that at this juncture compelling reasons support sealing because the documents identify total sales and production figures, expenses and profit information, revenue and operating costs; disclosure of which could cause Defendants (at least IBT (134 Ontario)) competitive harm. As a privately held company, this information is not publicly available. Moreover, the information that Defendants seek to seal does not go to the heart of the sanctions motion that this court addresses herein. It may be that this information is relevant to the court's disposition of a future issue and, if that is the case, the sealing of this information can be re-addressed at that time. For now, the court finds the documents’ sealing proper.
Defendants’ Motion to Maintain Certain Documents Under Seal (Docket No. 54) is GRANTED. Docket No. 51, Docket No. 51-1, Docket No. 51-2, Docket No. 51-3, and Docket No. 51-4 are to be maintained under seal. Redacted versions are available as follows: Motion for Sanctions (Docket No. 51, redacted at Docket No. 53), Exhibit J (Docket No. 51-1, redacted at Docket No. 53-1); Exhibit L (Docket No. 51-2, redacted at Docket No. 53-2); and Exhibit O (Docket No. 51-3, redacted at Docket No. 53-3). Given the court did not rely on the substance of Docket No. 51-1, the court will not require strict compliance of the redacted version provision of S.D. Ind. L.R. 5-11(d)(3), but reminds Eagle that in the future it must comply with this provision or the court may summarily deny the sealing request.
b. Eagle's Motion to Maintain Various Documents Under Seal (Docket No. 79)
Eagle's Motion to Maintain Documents Under Seal (Docket No. 79), seeks to seal four exhibits. For three of those exhibits it identifies Defendants as the designating party and states that it does not believe those documents should be sealed. (Docket No. 79; Docket No. 101). Those documents are: (1) Exhibit 2 to the Affidavit of Jacob V. Bradley (Docket No. 76 at ECF pp. 8–17); (2) Exhibit 10 to Eagle's Response in Opposition to Defendants’ Motion for Sanctions (Docket No. 76-2); and (3) Exhibit 1 to Eagle's Response Opposing Defendants’ Motion for Discovery Protective Order (Docket No. 78). Defendants, as the designating party, filed a timely brief in support of the request pursuant to S.D. Ind. L.R. 5-11(d)(3) and publicly available redacted copies. The fourth document is Exhibit 7 to Eagle's Response in Opposition to Defendants’ Motion for Sanctions. (Docket No. 76-1). The court GRANTS Plaintiffs’ request.
The court first addresses the documents for which Defendants are the designating party. For the documents submitted with respect to Defendants’ Motion for Sanctions (Exhibit 2 to the Affidavit of Jake Bradley (Docket No. 76 at ECF pp. 8–17) and Exhibit 10 to the Affidavit of Jake Bradley (Docket No. 76-2)), these documents again contain confidential information that, at this juncture, do not go to the heart of the sanctions motion that this court addresses herein. If it is relevant to the court's disposition of a future issue, the sealing of this information can be re-addressed at that time. With respect to Exhibit 1 to Eagle's response in opposition to Defendants Motion for Protective Order (Docket No. 78), Defendants only seek to seal the non-public, confidential information contained within the letter, which is again information that Eagle does not rely on in its response brief. Thus, for the same reasons sealing at this juncture is proper.
*3 Eagle seeks to seal Exhibit 7 to its response in opposition to Defendants’ Motion for Sanctions (Docket No. 76-1) because it contains confidential and proprietary drawings of the blast-cleaning system that is at issue in this lawsuit. Eagle indicates that these drawings contain a legend that they are the property of IBT and cannot be reproduced without consent. Defendants do not contest Eagle's positions. Indeed drawings constitute trade secrets. See, e.g., Honda Mfg. of Ind., LLC v. Custom Machines, Inc., No. 1:15-cv-00042-TWP-MPB, 2017 WL 4956427, at *7–8 (S.D. Ind. Nov. 1, 2017) (acknowledging drawings constitute trade secrets under the Indiana Uniform Trade Secret Act). Eagle also submits that the drawings are not fundamental to the resolution of the claims at issue in the case. For these reasons, sealing appears proper.
However, Eagle has again not followed the procedural requirements set forth by the Local Rules in filing this exhibit. Local Rule 5-11(d)(1) requires the party to file the document under seal unredacted. Then, Local Rule 5-11(d)(2)(i) requires the filing party (if they are the designating party) to file a redacted public version. This procedure provides the court with an unredacted version to determine if the document warrants sealing and a redacted version so that it is clear which portions of the document can be cited in a public decision. But here, Eagle has filed a public cover letter (Docket No. 75-7) and a sealed, redacted version (Docket No. 76-1). Normally the court would deny Eagle's motion with leave to refile in accordance with the Local Rule. But here, Eagle has admitted the redacted version is not needed to resolve the motion in question and Defendants do not contest this statement. For efficiency, the court will permit Docket No. 76-1 to be maintained under seal.
Eagle's Motion to Maintain Materials Under Seal (Docket No. 79) is GRANTED. Docket No. 76, Docket No. 76-1, Docket No. 76-2, and Docket No. 78 are to be maintained under seal. Redacted versions are available as follows: Exhibit 2 to the Affidavit of Jake Bradley (Eagle's second supplemental interrogatory responses) (Docket No. 76 at ECF pp. 8–14, redacted at Docket No. 86-2); Exhibit 10 to the Affidavit of Jake Bradley (Development Bank of Canada Letter) (Docket No. 76-2, redacted at Docket No. 86-3); and Exhibit 1 to Eagle's response in opposition to Defendants’ protective order (January 3, 2020 letter from James Hinshaw) (Docket No. 78, redacted at Docket No. 86-1). Given the court did not rely on the substance of Docket No. 76-1, the court will not require strict compliance of the redacted version provision of Local Rule 5-11(d)(2)(i), but reminds Eagle that future noncompliance may result in summarily denial.
c. Defendants’ Motion to Maintain Document Under Seal (Docket No. 89)
Defendants’ Motion to Maintain Document Under Seal (Docket No. 89) seeks to seal its reply brief in support of its Motion for Sanctions (Docket No. 87). Eagle opposes the motion (Docket No. 90) and the matter is fully briefed (Docket No. 101). The court GRANTS Defendants’ request.
Similar to Defendants’ first sealing motion, Defendants indicate that certain information in its reply brief relates to the financial status of IBT (134 Ontario). Eagle cites the same opposition as in its previous opposition. (Docket No. 101, citing Docket No. 66). The court addressed these objections above and, for the same reasons finds compelling reasons support sealing the reply brief at this juncture. Again, this information is not publicly available and, most notably, the information does not go to the heart of the issues the court need address today.
Defendants’ Motion to Maintain Document Under Seal (Docket No. 89) is GRANTED. Docket No. 87 is to be maintained under seal. Its public, redacted version is available at Docket No. 89-1.
II. Defendants’ Motion for Sanctions (Docket No. 51)
*4 Defendants assert that Eagle's Amended Complaint violates Fed. R. Civ. P. 11 and 28 U.S.C. § 1927 because there is no factual basis to support Eagle's “shell-game theory.” (Docket No. 51). Defendants ask this court to dismiss all of the Defendants with the exception of IBT (134 Ontario). Defendants also ask the court dismiss all of the claims with the exception of the breach of contract, unjust enrichment, and theft and conversion claims that are not premised on Eagle's corporate shell-game theory, and award Defendants their attorneys’ fees for having to defend the portion of the case related to that portion of the case. (Docket No. 51 at ECF p. 4). Eagle has responded in opposition and seeks the attorney's fees it has incurred in opposing this motion. (Docket No. 75). Defendants have replied. (Docket No. 87). For the reasons that follow, the court DENIES with leave to refile Defendants’ motion and DENIES with leave to re-request Eagle's request for attorney fees.[2] As explained, the court finds a ruling on both requests premature at this juncture.
Rule 11, like all of the federal rules of civil procedure, applies after a case is removed from state court. See Fed. R. Civ. P. 81(c)(1) (“These rules apply to a civil action after it is removed from state court.”). Thus, a sanction under Rule 11 cannot apply to what a litigant did in state court; it must be grounded on the attorney's actions in signing, filing, submitting, or later advocating a paper in federal court. See Maciosek v. Blue Cross & Blue Shield United of Wisc., 930 F.2d 536, 541 (7th Cir. 1991) (while Rule 11 sanctions could not be imposed based on the plaintiff's filing of a complaint in state court, they could be imposed based on the plaintiff's opposing in federal court the defendant's Rule 12(b)(6) motion to dismiss the claims in that complaint); Schoenberger v. Oselka, 909 F.2d 1086, 1087–88 (7th Cir. 1990) (Rule 11 sanctions not available based on state court complaint where, after removal, the plaintiff did not amend or file any paper opposing the dismissal of the allegedly frivolous complaint). Here, the Amended Complaint in question was filed in Daviess Circuit Court, as was the response to Defendants’ original Partial Motion to Dismiss. Eagle did, however, defend the Amended Complaint in response to Defendants’ Renewed Motion to Dismiss, which was filed in this court. (Docket No. 18). Thus, Eagle has advocated the merits of its state court complaint while in federal court.
Rule 11 states that “[b]y presenting to the court a pleading, ... an attorney or unrepresented party certifies to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances ... [that] the factual contentions have evidentiary support.” Fed. R. Civ. P. 11(b)(3). A party moving for sanctions under Rule 11 on the basis that the other party has fallen short of this obligation bears a “high burden of showing that [such] sanctions are warranted.” Lundeen v. Minemyer, 2010 WL 5418896, at *3 (N.D. Ill. Dec. 17, 2010) (citing Fed. Dep. Ins. Corp. v. Tekfen Const. and Installation Co., Inc., 847 F.2d 440, 444 (7th Cir. 1988)).
However, the court finds any ruling on a Rule 11 motion to be premature at this stage. “As the Advisory Committee Notes to Rule 11 suggest, a sanctions motion addressed to the pleadings in a case may properly be resolved at the conclusion of the litigation.” Quaker Alloy Casting Co. v. Gulfco Industries, Inc., 686 F. Supp. 1319, 1351 (N.D. Ill. 1988) (citing the Advisory Committee Notes to the 1983 version of Rule 11); see also Fed. R. Civ. P. 11 advisory committee's note to 1993 amendment (“As under the prior rule,[3] the court may defer its ruling (or its decision as to the identity of the persons to be sanctioned) until final resolution of the case[.]”).
*5 While the court understands that Rule 11 asks a party to promptly bring a sanctions motion, if the moving party believes one is warranted, here the court finds good reasons to defer any decision until after the merits of the case have been decided. The court made clear in its entry on Defendants’ partial motion to dismiss that it would not set aside the Daviess Circuit Court's denial of Defendants’ partial motion to dismiss, which was practically identical to the motion filed upon removal. (Docket No. 38). The court notes that “the issues raised are best addressed on a motion for summary judgment, after the parties have had the opportunity to conduct discovery.” (Id. at ECF pp. 2–3). Defendants try to construe the court's entry as a deferral of analyzing the legal sufficiency of Eagle's theories at the summary judgment stage, whereas Defendants’ Motion for Sanctions addresses the factual sufficiency. Yet, the court's entry never makes that distinction.
It is true that the purpose of a Rule 12(b)(6) motion to dismiss is to test the legal sufficiency of the complaint, whereas this motion purports to attack Eagle's lack of a factual basis, at the time it filed the Amended Complaint. to support its theories. But, reviewing the Amended Complaint and Eagle's response to Defendants’ motion, it is not so obvious that the pleadings lack the factual bases Defendants’ assert such that the court should use its discretion to decide on sanctions before the merits of the matter are resolved.
Eagle points to several pieces of evidence that demonstrate the extent of its factual investigation. This includes the April 15, 2017, Proposal # IBT-3005 Final to Eagle (Docket No. 1-3 at ECF pp. 13–37), which purports to be on behalf of Defendant, IBT, which was allegedly dissolved in or around 2013, approximately four years prior to the quote that references the entity. (Docket No. 75 at ECF p. 3, citing Docket No. 1-3)). Eagle also posits that the contract suggests a number of these entities are interchangeable: “17. Subsidiaries and Affiliates. This order may be performed and all rights hereunder against Buyer may be enforced, in whole or in part, by Seller or its parent corporation or any one or more subsidiary or affiliate of Seller.” (Docket No. 1-3 at ECF p. 36). Nothing in the contract references or refers to IBT (134 Ontario), which Defendants assert is the only properly named defendant in the action. Defendants argue that there was never anything wrong, let alone fraudulent or deceptive in referring to IBT (134 Ontario) as “Innovative Blast Technologies, Inc.” because the corporation is registered to do business as Innovative Blast Technologies. (Docket No. 87 at ECF p. 7, citing Docket No. 1-1 at ECF p. 94). Thus, the parties dispute what defendant entity, the one dissolved prior to the quote or ITB (134 Ontario) purportedly generated the contract. That does not necessarily mean Eagle's allegations are without a factual basis. Despite Defendants’ assertions, Eagle's arguments about corporate form are not so unsubstantiated as to be frivolous on their face where the contract suggested that each of the entities on its face were interchangeable because any one of them could enforce it and where there is a factual basis to believe the contracting party was not in existence when it executed the contract.
The court cites this example only to show that Eagle's claims are not so clearly frivolous as to permit Defendants’ requested relief pre-merit determination. That does not necessarily mean that a renewed Rule 11 motion would not be warranted in the future, but to rule on it at this juncture would be inappropriate as the merits of the pleading are still at issue.
[The Advisory Committee Notes to Rule 11's] logic of a distinction between motions and pleadings is that sanctions should not be imposed until a matter is resolved on the merits to ensure that all relevant facts are before the court. With a motion, this would be after ruling at any time, but with pleadings, it is normally at the end of the case.
*6 Bannon v. Joyce Beverages, Inc., 113 F.R.D. 669, 671 (N.D. Ill. 1987). This court exercised its discretion to decline to reopen the motion to dismiss decided in state court. Defendants’ sanctions argument cuts to the core of Eagle's good faith basis for asserting claims against all Defendants but IBT (134 Ontario). As the court's disposition of the motion to dismiss reflects, those issues cannot be fully decided at this stage. Defendants’ request brought under 28 U.S.C. § 1927 asserting that Eagle unreasonably and vexatiously multiplied the proceedings in this matter is equally premature given the current posture of this posture of this case. See In re Studio Eleven, 1986 WL 4711, at *1 (N.D. Ill. Apr. 14, 1986) (“We cannot determine at this stage of the proceedings whether [the non-movant's] actions have ‘multiplie[d] the proceedings in [this] case unreasonably and vexatiously’ without reaching the merits of the matters raised by it.”).
The cases Defendants rely on as factually analogous support this court's conclusion. See Fred A. Smith Lumber Co. v. Edidin, et al., 845 F.2d 750 (7th Cir. 1988) (Defendant sought Rule 11 sanctions after the complaint was dismissed by district court); Agristor Leasing v. McIntyre, 150 F.R.D. 150 (S.D. Ind. 1993) (Purchaser of farm equipment filed for Rule 11 sanctions after being granted summary judgment in conversion action brought by holder of security interest in equipment); Nazarenus, et al. v. J.F. Daley Intern., Ltd., et al., 714 F. Supp. 361 (7th Cir. 1989) (Defendant's motion to dismiss was granted in the same entry its motion for sanctions was considered).
The court notes that for the first time in Defendants’ reply brief that they seek sanctions under Federal Rule of Civil Procedure 26(g) and this court's inherent authority due to several statements Eagle made in its response brief regarding potential “disclosure” (i.e., discovery) issues. While Rule 11 does not apply to discovery, see Fed. R. Civ. P. 11(d), § 28 U.S.C. 1927 can apply to discovery violations. Castillo v. St. Paul Fire & Marine Ins. Co., 938 F.2d 776, 779-81 (7th Cir. 1991) (affirming imposition of sanctions under Section 1927 for discovery abuses, inter alia). Nonetheless, Defendants filed their motion for sanctions in March 2020, well before the discovery deadline and well before any discovery disputes were properly before this court. Thus, it is premature to determine if Eagle's discovery conduct has unreasonably and vexatiously multiplied the proceedings in this matter. And it is impermissible for Defendants to bring new bases (i.e., Rule 26(g) and this court's inherent authority) for sanctions in their reply brief. See S.D. Ind. Local Rule 7-1(a) (“A motion must not be contained within a brief, response, or reply to a previously filed motion[.]”).
At this stage the court finds Defendants’ request premature and Eagle's challenge of it, and request for attorney's fees, equally premature. See Quaker Alloy Casting Co., 686 F. Supp. at 1351–1352. When the complete picture is available, this court can determine whether Eagle had an objective good faith basis for the positions it took in this case and whether Eagle had that basis at the appropriate juncture in the litigation (i.e., before the Amended Complaint is filed). Because the Case Management Order does not require discovery to be completed and dispositive motions to be filed until October 2020, the court finds the most efficient management of this case is to DENY Defendants’ motion (Docket No. 51) with leave to refile and to DENY Eagle's request for attorney's fees with leave to re-request.
III. Defendants’ Motion for Protective Order (Docket No. 65)
Dovetailing off of their motion for sanctions, Defendants also seek an order from this court precluding Eagle from using upcoming depositions to elicit testimony about its corporate shell-game theory, and to prevent further written discovery into that theory. (Docket No. 65). Eagle opposes the request (Docket No. 77), which is fully briefed (Docket No. 91). For the reasons that follow, Defendants’ Motion for Protective Order is DENIED.
*7 Rule 26 of the Federal Rule of Civil Procedure 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 weighing of burdens and benefits. See Rule 26(b)(1). Rule 26(c) further reads, in part:
A party or any person from whom discovery is sought may move for a protective order in the court where the action is pending—or as an alternative on matters relating to a deposition, in the court for the district where the deposition will be taken. The motion must include a certification that the movant has in good faith conferred or attempted to confer with other affected parties in an effort to resolve the dispute without court action. The court may, for good cause, issue an order to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense.
Fed. R. Civ. P. 26(c). The moving party bears the burden of establishing the requisite “good cause” to prevent the non-movant's otherwise relevant discovery. Symons Int'l Grp., Inc. v. Cont'l Cas. Co., 306 F.R.D. 612, 619 (S.D. Ind. 2014) (explaining the moving party must “adequately demonstrate the nature and extent of the claimed burden by making a specific showing as to how disclosure of the requested documents and information would be particularly burdensome.” (citation omitted)).
Defendants argue that this court should preclude the aforementioned discovery because when Eagle filed its complaint it did not have evidence to support its factual assertions. In drawing this conclusion, it relies on its sanction's briefing, which the court rejected as it is not so obvious that Eagle's claims are baseless to award sanctions at this juncture. Defendants state that they originally discussed Defendants’ intent to move for a protective order at the parties February 21, 2020 telephonic meet and confer and again on March 24, 2020. (Docket No. 65 at ECF p. 6). After those discussions were unsuccessful they had a call with the Magistrate Judge on March 27, 2020. (Docket No. 69). During that call the court authorized the filing of this motion. (Docket No. 65 at ECF p. 6). However, Defendants concede that while the parties met and conferred they have not fully conferred on the discovery in question (i.e., with respect to proportionality or deposition topics) because “doing so would presume that the depositions are moving forward at all on Eagle's baseless shell-game theory.” (Docket No. 65 at ECF p. 5). Defendants have not established with the requisite specificity that the discovery requests they seek a blanket prohibition of will cause the annoyance, embarrassment, oppression, or undue burden or expense contemplated by Rule 26(c). Thus, because the court rejects Defendants’ argument, the parties must meet-and-confer in an effort to resolve the issues that Defendants concede were not addressed at the prior meet and confer. Fed. R. Civ. P. 26(c). Defendants’ Motion for Protective Order is DENIED.
Eagle asks for attorneys’ fees incurred in defending against this motion. Federal Rule of Civil Procedure 26(c)(3) provides that Rule 37(a)(5) applies to the award of expenses related to a motion for a discovery protective order. Rule 37(a)(5)(B) provides that if a motion “is denied, the court ... must require the movant ... to pay the party who opposed the motion its reasonable expenses incurred in opposing the motion, including attorney's fees ..., [unless] the motion was substantially justified or other circumstances make an award of expenses unjust.” Fed. R. Civ. P. 37(a)(5)(B). For a number of reasons, the court finds an award of attorney's fees in this instance unjust. First, Rule 11 encourages (if not requires) a party to file a sanctions motion at the earliest possible juncture, even if it encourages (or at least gives discretion) to the district court to defer ruling on the same until the underlying merits of the issue are resolved. Defendants filed their sanctions motion in accordance with the timing suggested by Rule 11. That motion had the potential to impact the scope of discovery. Second, the court approved of this motion's filing after a discovery conference with the Magistrate Judge. While a discovery conference may not always save the losing party from paying attorney's fees, given the complexity of this case—both factually and procedurally—and the number of discovery issues raised by both sides the court declines to award Eagle attorney's fees in opposing this motion.
IV. Defendants’ Motion to Compel Discovery (Docket No. 67)
*8 Defendants seek an order pursuant to Federal Rules of Civil Procedure 26 and 37 compelling Eagle to fully respond to IBT (134 Ontario)’s Request for Production Nos. 3 and 4 and Interrogatory No. 12. (Docket No. 67). Eagle opposes the request (Docket No. 80), which is fully briefed. (Docket No. 93). For the reasons that follow, the court GRANTS in part and DENIES in part Defendants’ request.
a. Overview
On March 22, 2019, Defendant IBT (134 Ontario) served its requests for production of documents on Eagle. (Docket No. 67-2). These requests included:
3. Please produce all documents and communications regarding any negotiations, proposals, agreements, or contracts for a blast cleaning system or other similar system placed or to be placed at the Facility. Your response should include, but not be limited to, any negotiations, proposals, agreements, or contracts with companies or individuals other than IBT or Innovative Blast Technologies, Inc. as well as any payments made for the same.
4. Please produce all documents and communications related to the construction of the Facility and the building dedicated to or to be dedicated to housing the System including, but not limited to, photographs and documents regarding the completion date, changes to the estimated completion date, construction delays, weather delays, invoices, purchase orders, budgets, and expense or budget overruns.
(Id. at ECF p. 5). On April 22, 2019, Eagle responded to IBT (134 Ontario)’s requests for production. (Docket No. 67-3). Eagle responded to Requests for Production Nos. 3 and 4 as follows:
RESPONSE [TO REQUEST NO. 3.]:
Objection. Eagle objects to Request No. 3 on the grounds that it seeks information that is not relevant to any claim or defense in this case, nor is it reasonably calculated to lead to the discovery of admissible information. Eagle further objects to Request No. 3 as overly broad and unduly burdensome in that it is not limited in time or scope. Eagle further objects to Request No. 3 to the extent it is duplicative of Request Nos. 1 and 2. Eagle further objects to Request No. 3 on the grounds that it seeks confidential or proprietary information without the entry of an appropriate protective order.[4] Subject to and without waiving these objections, see Eagle's response to Request Nos. 1 and 2.
...
RESPONSE [TO REQUEST NO. 4]:
Objection. Eagle objects to Request No. 4 on the grounds that it seeks information that is not relevant to any claim or defense in this case, nor is it reasonably calculated to lead to the discovery of admissible information. Eagle further objects to Request No. 4 as overly broad and unduly burdensome in that it is not limited in time or scope. Eagle further objects to Request No. 4 on the grounds that it seeks confidential or proprietary information without the entry of an appropriate protective order.
(Id. at ECF pp. 3–4). Defendants contend that while Eagle has produced documents relating to the System to be built by IBT (134 Ontario), which was responsive to Requests for Production Nos. 1 and 2, Eagle has not produced any other documents responsive to either Request for Production Nos. 3 or 4—including (without limitation) documents regarding construction of the Facility, and documents reflecting communications with third parties about a blast cleaning system or similar system to be placed at the Facility.
*9 On September 6, 2019, IBT (134 Ontario) served Eagle with its first set of interrogatories. (Docket No. 67-4). Interrogatory No. 12 read:
12. Identify all entities or individuals from whom You sought, requested, or received a quote or proposal for a blast cleaning system that was to be housed at the Building. For each such entity or individual, identify all communications between You and said entity or individual including, but not limited to, conditions, terms, delivery dates, prices, and specifications. In Your response, identify each person with knowledge of these facts, and identify each document regarding these facts.
(Id. at ECF p. 8).
On October 31, 2019, Eagle responded to IBT (134 Ontario)’s first set of interrogatories (Docket No. 67-5), and specifically, Interrogatory No. 12, as follows:
ANSWER [TO INTERROGATORY NO. 12]:
Objection. Eagle objects to Interrogatory No. 12 on the grounds that it seeks information that is not relevant to any claim or defense in this case, nor is it proportional to the needs of this case. Eagle further objects to Interrogatory No. 12 as overly broad and unduly burdensome in that it is not limited in time or scope. Eagle further objects to Interrogatory No. 12 to the extent the requested information is in Defendants’ possession and control.
(Id. at ECF p. 7). Eagle has supplemented its answers, but has not supplemented Interrogatory No. 12.
The parties met and conferred on these issues. After an unsuccessful discovery conference with the Magistrate Judge, the parties were cleared to file this motion.
b. Standard
If parties cannot informally resolve a discovery dispute, Federal Rule of Civil Procedure 37 provides a vehicle for the aggrieved party to request an order from the court compelling discovery. See Chavez v. DaimlerChrysler Corp., 206 F.R.D. 615, 619 (S.D. Ind. 2002); see also S.D. Ind. Local Rule 37-1. District courts have broad discretion in matters relating to discovery. See Patterson v. Avery Dennison Corp., 281 F.3d 676, 681 (7th Cir. 2002) (citing Packman v. Chicago Tribune Co., 267 F.3d 628, 646-47 (7th Cir. 2001)).
Federal Rule of Civil Procedure 26(b)(1) sets the standard for the scope of general discovery, providing that:
Scope in General. Unless otherwise limited by court order, the scope of discovery is as follows: Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit. Information within this scope of discovery need not be admissible in evidence to be discoverable.
A party moving to compel production carries the initial burden of establishing, with specificity, that the requested documents are relevant. West v. Miller, 2006 WL 2349988, at *2 (N.D. Ill. Aug. 11, 2006) (citing United States v. Farley, 11 F.3d 1385, 1390 (7th Cir. 1993)). If that burden is met, the burden then shifts to the non-movant to show the impropriety of the request. Id. at *7.
c. Analysis
*10 Requests for Production No. 3 and Interrogatory No. 12 seek information that includes information about communications, negotiations, and contracts that Eagle had with other individuals or entities about providing a System for its Washington, Indiana facility. Defendants contend that these other communications, negotiations, or contracts are relevant to the contract in question because the parties dispute what each side was required to provide in accordance with the agreement. Thus, Defendants posit, these other correspondences will be relevant as to industry custom, practice, and terminology. Eagle responds that these issues are not relevant, that it has never asserted that the parties’ contract was ambiguous (i.e., that there is no reason parole evidence would be relevant), and that it is willing to provide two stipulations relevant to show industry custom and practice. First, they would be willing to stipulate it takes 10-12 weeks to manufacture and commission a system like the one in question and (2) contracts for systems like the one in question contain milestone payment schedules similar to that contained in the parties’ agreement.
It is not clear that Eagle has never asserted the contract was ambiguous. For example, in Eagle's responses and objections to IBT (134 Ontario)’s 30(b)(6) deposition topics, with regard to the parties’ contract, Eagle includes the following objection: “Defendants drafted the Quote, so it will be construed against Defendants.” (Docket No. 94-1 at ECF p. 2). Defendants reasonably interpret that argument as Eagle's indication that it plans to rely on the Indiana contract doctrine that “[a]ll ambiguities are strictly construed against the party who prepared the document.” INB Banking Co. v. Opportunity Options, Inc., 598 N.E.2d 580, 582 (Ind. Ct. App. 1992). Furthermore, the contract provides that Eagle was to furnish “all foundations, pits, ... and detailed design.” (Docket No. 1-3 at ECF p. 33) (emphasis added). It appears IBT (134 Ontario) was responsible for the General Arrangement Drawing. (Id. at ECF p. 32). Eagle claims that IBT (134 Ontario) breached the parties’ contract by not providing drawings for, among other things, the foundation and pits. (Docket No. 80 at ECF p. 1) (“Written discovery has established that Defendants failed to provide foundation drawings in a timely manner, as required under the Quote.”); (Docket No. 80 at ECF p. 2) (“Defendant's failure to provide the required drawings prevented Eagle from completing construction of the specific building that was to house the System. Eagle could not fully construct a building to house the System without fundamental foundation drawings to allow for the planning of load points, pits, and other foundational structures.”) (internal citation omitted). Thus, there is a dispute as to who was responsible for these design drawings pursuant to the contract.
If the contract language is ambiguous, then parole evidence would be admissible. See Pepsi-Cola Co. v. Steak ‘N Shake, Inc., 981 F. Supp. 1149, 1156 (S.D. Ind. 1997) (parole evidence admissible to interpret ambiguous contract term). Course of dealing, usage of trade, or course of performance can explain or supplement. Ind. Code § 26-1-2-202(a). A usage of trade “is any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question.” Ind. Code § 26-1-1-205(3). Thus, these written discovery requests could inform on industry custom, practice, and terminology. Eagle does not address this argument and does not cite authority for its position that the requested information is not relevant.
Eagle's offer to stipulate to the two points instead of answering the written discovery is inadequate. While sometimes stipulations are a helpful way to pare down discovery requests (i.e., if a party stipulates to liability in a personal injury suit), here Defendants argue, and the court agrees, that there is still other relevant information that these written requests will likely inform. For example, the requested information is also relevant to what is industry practice relating to who is supposed to provide the requisite drawings and industry custom for the level of detail required for System foundation designs, among other topics. Eagle provides no authority as to how a party can make a unilateral stipulation in order to avoid the opposing party's written discovery request that still appears to be relevant. Finally, Eagle also argues that it should not be burdened with responding to this discovery request. (Docket No. 80 at ECF pp. 3–4). Eagle does not offer an explanation, substantiation, or quantification of this burden showing why responding to these requests would be a burden on Eagle, especially a burden not proportional to the needs of this case, in which Eagle is seeking close to $2 million in damages. (Docket No. 1-3). Eagle is ordered to supplement its responses to Request for Production No. 3 and Interrogatory No. 12 within twenty-one days of this entry.
*11 Request for Production No. 4 seeks information and documents that relate to Eagle's expansion of its entire facility located in Washington, Indiana—not just the building that was to house the System. Defendants contend that the contract required Eagle to first complete construction of the building that was to house the System prior to IBT (134 Ontario) shipping and installing the system. Defendants contend that one of the points in dispute in this litigation is who was at fault for the delays in constructing that building. Moreover, they contend that non-party discovery has shown that Eagle's delay in the overall expansion project at the facility was at least partly to blame for its delay in constructing the particular building for the System. Eagle contends that a request for all documents regarding the entirety of construction on Eagle's 50-acre facility is overbroad and that there is no evidence to support Defendants’ theory that delays in unrelated areas of construction or purported “cost overruns” occurring elsewhere caused the delays for the building that was to be dedicated to the System. Eagle further contends that, even if the information was relevant, Defendants have already received the entire file of the Facility's architect through non-party discovery.
Non-party evidence that Defendants have received from the architect indicate that Eagle admits it (or at least other non-Defendant entities) were partially responsible for and behind on foundation drawings and for completion of the building. For example, on September 27, 2017, Eagle's president, Marc Walraven, emailed Eagle's architect and stated “[w]e need to get the autoblast building out for bid. We are going to get into a bind with the autoblast manufacturer if we do not get it under construction right away.” (Docket No. 94-2). And on October 26, 2017, Walraven emailed the architect and stated, in part: “can you provide me an eta on the drawings for the autoblast building and foundation? I would like to get it out for bid asap. As an fyi, IBT (the autoblast manufacturer) plans to be on site on December 1st to start erecting the unit in the completed building. We are way behind schedule.” (Docket No. 94-3). Thus, the court agrees that Request for Production No. 4 is relevant, at least as it applies to “the building dedicated to or to be dedicated to housing the System.” (Docket No. 67-2 at ECF p. 5).
However, Request for Production No. 4 is overbroad as written. Defendants have not provided sufficient evidence that discovery as to the entire fifty-acre facility's expansion is relevant to the delay of the building dedicated or to be dedicated to housing the System. Defendants argue the evidence shows that other buildings included in the expansion were behind schedule and theorizes that delays in these unrelated areas of construction or purported “cost overruns” may have impacted the building's progress. However, at this juncture Defendants appear to be “merely request[ing] leave to cast a wider net with the apparent hope that, with it, they would uncover [relevant evidence]. In re Dairy Farmers of Am., Inc. Cheese Antitrust Litig., 801 F.3d 758, 766 (7th Cir. 2015) (noting district court does not abuse its discretion in denying additional discovery where the request is based on “mere speculation.”). Defendants argue that this objection is too little, too late because when Eagle first responded to Request for Production No. 4 it used a boilerplate objection that did not explain how the request was overbroad. See Novelty, Inc. v. Mountain View Mktg., Inc., 265 F.R.D. 370, 375 (S.D. Ind. 2009) (“ ‘[G]eneral objections’ made without elaboration, whether placed in a separate section or repeated by rote in response to each requested category, are not ‘objections’ at all—and will not be considered.”), clarified on denial of reconsideration, 2010 WL 11561280 (S.D. Ind. Jan. 29, 2010). But, Eagle's objections were tailored to Request for Production No. 4, not merely repeated by rote, and indicated that it was overbroad in both time and scope. Under these circumstances, the court finds that this is enough.
But, the court is unpersuaded by Eagle's objection that this request would be duplicative of the already-obtained non-party discovery from Eagle's architect because the architect would not have internal Eagle communicates related to the building's progress (or lack thereof) or communications that Eagle had with other contractors or vendors relating to the same. Eagle Railcar is ordered to supplement its responses to Request for Production No. 4 as to “the building dedicated or to be dedicated to housing the System” only within twenty-one days of this entry.
*12 Both sides seek attorney's fees pursuant to the relevant provisions of Federal Rule of Civil Procedure 37(a)(5). Here, the court granted Defendants’ motion in part and denied it in part. Pursuant to Rule 37(a)(5)(C) “the court may ... after giving an opportunity to be heard, apportion the reasonable expenses for the motion.” Again, the court finds that both sides have attributed to the numerous discovery issues in this case and, for the most part, each side's arguments have been substantially justified. Thus, the court declines to award any attorney's fees associated with this motion.
In sum, Defendants’ Motion to Compel is GRANTED in part and DENIED in part. Eagle is ordered to supplement its responses as outlined above within twenty-one days of this entry.
V. Eagle's Motion to Compel Discovery (Docket No. 81)
Finally, Eagle seeks an order compelling Defendants, IBT (134 Ontario), 1099726 Ontario Limited (“109 Ontario”), ADS, The RISE Centre Inc. (“RISE”), and James Wilson to produce non-privileged documents responsive to Eagle's single, similar Request for Production.[5] Defendants oppose the request (Docket No. 92), which is fully briefed (Docket No. 102; Docket No. 105[6]). For the reasons that follow the court GRANTS Eagle's request.
a. Overview
The parties dispute a singular request for production propounded by Eagle on April 22, 2019, which seeks evidence intimately related to the dispute raised in Defendants’ Motion for Sanctions, discussed above. This Request for Production seeks “all records of payments, loans, or exchanges of money [the responding defendant] advanced, provided, transferred to or received from [any other defendant] during the five years immediately preceding [the responding defendant's] responses to these Requests.” (Docket No. 82-1 at ECF p. 21; Docket No. 82-2 at ECF pp. 19–20; Docket No. 82-3 at ECF p. 17; Docket No. 82-4 at ECF p. 15; Docket No. 82-5 at ECF p. 17). In their July 26, 2019, responses to Eagle's discovery requests each Defendant asserts:
RESPONSE:
Objection. This request is overly broad, unduly burdensome, and seeks the production of irrelevant information not proportional to the needs of this litigation.
Subject to and without waiving these objectives, responsive and non-privileged documents will be produced.
(Id.).
About a month later, Defendants began their production of responsive documents. At least some Defendants produced documents establishing that they made transfers of money to undisclosed “related entities.” (See, e.g., Docket No. 53-2 at ECF p. 4). RISE produced a document under which its sole shareholder, James Wilson, authorized it to guarantee a loan obtained by 134 Ontario and another entity. (Docket No. 75-9). 134 Ontario produced a document evidencing its agreement to guarantee a loan obtained by RISE. (Docket No. 75-10). Eagle purports the Defendants’ production was incomplete and their unfounded boilerplate objections remain.
On October 31, 2019, Eagle initiated informal attempts to resolve this discovery dispute by asking Defendants to provide the remaining responsive documents. (Docket No. 82-6).On January 3, 2020, Defendants’ counsel sent Eagle a letter indicating Defendants “will not produce financial documents beyond those already produced,” concluding that Eagle's claims were “baseless” and Defendants “will no longer entertain them.” (Docket No. 86-1 at ECF p. 2). On February 24, 2020, the court denied Defendants’ second partial motion to dismiss, as discussed above. (Docket No. 38). On March 17, 2020, Defendants’ filed the Motion for Sanctions. (Docket No. 51). On March 24, 2020, the parties again met and conferred on a number of issues, including these requests for production. Then, after an unsuccessful discovery conference, the Magistrate Judge authorized the filing of this motion.
*13 Eagle argues that this request goes to the heart of an issue in this litigation: whether the court should pierce Defendants’ corporate veils. Defendants do not disagree that this request is relevant to that issue. (Docket No. 92 at ECF p. 2) (“The requests for which Eagle now seeks an order compelling discovery relate solely to its baseless shell-game theory.”). Defendants argue, however, for the same reasons outlined in its Motion for Sanctions that the claims that rely on Eagle's corporate veil piercing theory should not be permitted to proceed.
b. Analysis
Having set forth the legal standard in the above Motion to Compel, the court turns to the analysis. The court also need not re-address the reasons it denied Defendants’ Motion for Sanctions. The court finds that the requests for production are relevant. Ketchem v. Am. Acceptance, Co., LLC, 641 F. Supp. 2d 782, 786 (N.D. Ind. 2008) (holding courts pierce the corporate veil when “the corporate form is so ignored, controlled, or manipulated that it is merely the instrumentality of another” and “the misuse of the corporate form constitutes a fraud or promotes injustice.”); Cox v. Sherman Capital LLC, No. 1:12-cv-01654-TWP-MJD, 2013 WL 2897884, at *1 (S.D. Ind. June 13, 2013), on reconsideration, No. 1:12-cv-01654-TWP-MJD, 2013 WL 12177060 (S.D. Ind. June 18, 2013) (holding clear evidence of an agency relationship, assertion of greater-than-normal control over the other, or “where one company is ‘merely an empty shell’ ” each constitute grounds to pierce the veil).
It is notable that Defendants initially agreed to produce these documents, produced some responsive documents, but then changed their mind and now refuse to produce any further information. And while Defendants point out that they also asserted and never waived objections to the Requests, they never provide any specificity or support for these objections or how the requests should have been more narrowly tailored. Instead, Defendants take a hard-lined approach: the Requests should not be asked at all. The court has rejected this extreme position and, without further detail from the Defendants, the court cannot assess their objections. Defendants concede that they “produced some financial records (those that were easily accessible and imposed no burden to produce) for the various defendant entities in response to Eagle's discovery requests. (Docket No. 92 at ECF p. 3) (emphasis added). But the standard is not that a party need only produce the discovery that imposed no burden to produce. Rule 26 provides that a party may obtain non-privileged discovery that is proportional to the needs of the case. By the plain language of the rule it envisions at least some burden on the producing party. Defendants, IBT (134 Ontario), 109 Ontario, ADS, RISE, and James Wilson are ordered to supplement their responses to either the Request for Production No. 14 or No. 10, as referenced above, within twenty-one days of this entry.
Both sides seek attorney's fees pursuant to the relevant provisions of Federal Rule of Civil Procedure 37(a)(5). Pursuant to Rule 37(a)(5)(A), in relevant part, if a motion is granted:
[T]he court must, after giving an opportunity to be heard, require the party [ ] whose conduct necessitated the motion ... to pay the movant's reasonable expenses incurred in making the motion ...
[unless]
...
(ii) the opposing party's nondisclosure, response, or objection was substantially justified; or
(iii) other circumstances make an award of expenses unjust.
Similar to the court's denial of attorney's fees for Defendants’ Motion for Protective Order, the court finds an award of attorney's fees in this instance unjust. The court finds that Defendants were justified in taking the position that they did while they awaited a ruling on their sanctions motion. Moreover, as this entry shows, this case has been riddled with discovery issues from its arrival in district court and each side is partially responsible for those disputes. On this record, the court finds an award for expenses unjust.
VI. Conclusion
*14 Defendants’ Motion for Sanctions (Docket No. 51) is DENIED with leave to refile; Defendants’ Motion to Maintain Documents Under Seal (Docket No. 54) is GRANTED; Defendants’ Motion for Protective Order (Docket No. 65) is DENIED; Defendants’ Motion to Compel (Docket No. 67) is GRANTED in part and DENIED in part; Eagle's Motion to Maintain Document Under Seal (Docket No. 79) is GRANTED; Eagle's Motion to Compel Discovery (Docket No. 81) is GRANTED; Defendants’ Motion to Maintain Document Under Seal (Docket No. 89) is GRANTED; and Defendants’ Motion for Leave to File Surreply is GRANTED. (Docket No. 105). All requests for attorney's fees are DENIED. The parties should carefully review the entry herein for particular directives as to which discovery needs to be supplemented and by what date.
SO ORDERED.
Service made electronically to all CM/ECF counsel of record.
Footnotes
Eagle does not oppose filing Exhibit B under seal because it contains confidential bank account information and because the contents of the wire transfer records are not material to the issues in this case. (Docket No. 66 at ECF p. 1, n. 1).
The parties consented to the exercise of jurisdiction by the United States Magistrate Judge for the purposes of ruling upon Defendants’ Motion for Sanctions only in accordance with 28 U.S.C. § 636(c) and Fed. R. Civ. P. 73. (Docket No. 71; Docket No. 73).
The Advisory Committee Notes to the 1983 amendment of Rule 11 provided as follows:
A party seeking sanctions should give notice to the court and the offending party promptly upon discovering a basis for doing so. The time when sanctions are to be imposed rests in the discretion of the trial judge. However, it is anticipated that in the case of pleadings the sanctions issue under Rule 11 normally will be determined at the end of the litigation, and in the case of motions at the time when the motion is decided or shortly thereafter.
After these responses, on July 15, 2019, the court entered the parties’ stipulated protective order relating to the protection of certain confidential or otherwise commercially sensitive materials. (Docket No. 22).
Eagle does not name IBT in this motion as it provided a satisfactory response to the request.
Defendants’ request to file a surreply (Docket No. 105) is GRANTED.