Concepts NREC, LLC v. Qiu
Concepts NREC, LLC v. Qiu
2021 WL 6750964 (D. Vt. 2021)
September 20, 2021

Crawford, Geoffrey W.,  United States District Judge

Protective Order
Third Party Subpoena
Download PDF
To Cite List
Summary
Concepts NREC, LLC sued its former employee and his wife for trade secret misappropriation. The court found that the former employee had standing to object to the subpoenas issued by the court, but that Concepts had met its burden to make a prima facie showing of jurisdiction under an alter-ego theory. The court granted Concepts' Motion for Sanctions, ordering Hefei Taize to comply with the subpoenas within 30 days.
Additional Decisions
CONCEPTS NREC, LLC, Plaintiff,
v.
XUWEN QIU and TURBOTIDES, INC., and HONG YING ZHANG, Defendants
Case No. 5:20-cv-133
United States District Court, D. Vermont
Filed September 20, 2021

Counsel

R. Bradford Fawley, Esq., Fawley, PLLC, Stamford, CT, for Plaintiff.
Mark D. Oettinger, Esq., Montroll, Backus & Oettinger, P.C., Burlington, VT, Timothy K. Cutler, Esq., Cutler & Wilensky, LLP, Waltham, MA, for Defendants.
Crawford, Geoffrey W., United States District Judge

ORDER ON MOTION FOR PROTECTIVE ORDER AND TO QUASH SUBPOENAS AND ON MOTION FOR CONTEMPT AND COERCIVE SANCTIONS (Docs. 61, 73)

*1 Plaintiff Concepts NREC, LLC (“Concepts”)—a Delaware company with its principal place of business in Vermont—sues its former employee Xuwen Qiu, Mr. Qiu's wife Hong Ying Zhang, and TurboTides, Inc. alleging that Mr. Qiu founded TurboTides to compete with Concepts in the business of software for turbomachinery and wrongfully obtained and used Concepts trade secrets. (See Doc. 52.) The court heard argument on multiple pending motions on September 14, 2021. This Order addresses Defendants’ Motion for Protective Order and to Quash Subpoena (Doc. 61) and Concepts’ Motion for Contempt and Coercive Sanctions (Doc. 73).
Background
The Second Amended Complaint alleges that TurboTides is a New Hampshire corporation with its principal place of business at Mr. Qiu and Ms. Zhang's New Hampshire home and with an office in the Luyang District of Hefei, China. (Doc. 52 ¶ 4.) Concepts further alleges that TurboTides does business internationally under the names Hefei Taize Toping Technology Co. Ltd., TurboTides Technology Co., Ltd., Taize Turbine Technology Co., Ltd., Hefei TurboTides Turbomachinery Technology Co. Ltd., and Hefei Taize Turbine Technology Co., Ltd. (the “Hefei Entities”). (Id.) Hefei Taize Turbine Technology Co., Ltd. (“Hefei Taize”) is a Chinese company. (See Doc. 48-3.)
Concepts alleges that Mr. Qiu is a Chinese citizen and lawful permanent United States resident and also the principal stockholder, founder, President, and Director of TurboTides. (Doc. 52 ¶¶ 3, 5.) Concepts also alleges that Mr. Qiu is the controlling owner and principal corporate officer of the Hefei Entities. (Id. ¶ 5.) Concepts asserts that Mr. Qiu controls TurboTides and the Hefei Entities and that all of those corporate entities share a unity of interest and ownership such that they are Mr. Qiu's alter ego and are a “single enterprise.” (Id. ¶¶ 7–9.)
In July 2021 Concepts served Mr. Qiu with two subpoenas issued by this court. One subpoena requests the production of documents and materials. It requests production by August 16, 2021. The second subpoena is for a Rule 30(b)(6) deposition on September 22, 2021.
Consistent with Concepts’ theory that Defendants wrongfully obtained and used its software trade secrets, the subpoenas seek a wide variety of information regarding Hefei Taize and the conception and development of turbomachinery software. (See Doc. 61-2 at 4–7, 13–17.) Both subpoenas are directed to “HEFEI TAIZE TURBINE TECHNOLOGY CO., LTD. through service on its AGENT, DIRECTOR AND CHAIRMAN XUWEN QIU, 21 PINNEO HILL ROAD, HANOVER, NH 03755.” (Doc. 61-2 at 1, 8.) Mr. Qiu states in an affidavit that he was served with the subpoenas at his New Hampshire home on July 27, 2021. (Doc. 61-3 ¶ 1.)[1] A New Hampshire deputy sheriff effected service by hand delivery. (See Doc. 73-1.)
*2 Mr. Qiu asserts that, through his affiliation with TurboTides, he is a reseller of Hefei Taize's software but that he is “not an officer, agent or manager of Hefei Taize.” (Doc. 61-3 11 4, 8.) He states that he forwarded both subpoenas to “the General Manager of the Hefei Taize (equivalent of a president of a corporation in the U.S.).” (Id. ¶ 9.) He further states that the General Manager instructed him that he (Mr. Qiu) is “not authorized to speak or act on behalf of the company” and has not been “granted access to Hefei Taize's documents and records.” (Id. ¶ 10.)
Concepts asserts that Mr. Qiu is Hefei Taize's “Chairman of the Board, Director, founder and majority shareholder.” (Doc. 62 at 1.) Concepts notes that Mr. Qiu has previously stated in an affidavit that he is on Hefei Taize's board of directors and was involved in raising capital for Hefei Taize. (Doc. 41-2 ¶ 16.) In further support, Concepts refers to a translation of an announcement on the China General Machinery Industry Association website identifying Mr. Qiu as “Chairman” of “Hefufei [sic] Taize Turbine Technology Co., Ltd.” (Doc. 62-1 at 7.)
Analysis
I. Defendants’ Motion for Protective Order and to Quash (Doc. 61)
A. Standing
The court begins with Concept's argument that Defendants lack standing to seek a protective order or to move to quash a subpoena served on Hefei Taize, which is not a party in this case. (See Doc. 62 at 2.) On that issue, Defendants maintain that Mr. Qiu was subpoenaed “as an individual” and thus has standing on his own behalf to object. (Doc. 67 at 1.)
In the court's view, the subpoenas are directed to Hefei Taize, not Mr. Qiu. It is true that, “[i]n the absence of a claim of privilege a party usually does not have standing to object to a subpoena directed to a non-party witness.” Langford v. Chrysler Motors Corp., 513 F.2d 1121, 1126 (2d Cir. 1975); see also Gabriel v. Albany Coll. of Pharmacy & Health Scis.-Vt. Campus, No. 2:12-cv-14, 2014 WL 3378629, at *3 (D. Vt. July 10, 2014) (same); 9 Moore's Federal Practice – Civil § 45.50[3] (“When a subpoena is directed to a nonparty, any motion to quash or modify the subpoena generally must be brought by the nonparty.”). But this general rule is subject to exceptions. “[A] party may object to a subpoena directed to another person if ‘the objecting party claims some personal right or privilege with regard to the documents sought.’ ” Trump v. Vance, 941 F.3d 631, 642 n.15 (2d Cir. 2019) (quoting 9A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2459 (3d ed. 2008)).
The court interprets Mr. Qiu's position on this issue as an argument that he has a personal right as to the information sought in the subpoenas. Here, the subpoenas seek multiple materials authored or created by Mr. Qiu and materials concerning his rights and ownership of Hefei Taize. (See Doc. 61-2 at 4–7, 13–17.) The court concludes that the subpoenas seek materials in which Mr. Qiu claims a personal right or privilege and thus Mr. Qiu has standing to object to the subpoenas.
B. Service Under Rule 45
Defendants assert that Mr. Qiu is not authorized to speak or act on behalf of Hefei Taize. (Doc. 61 at 1.) Insofar as that is an argument that service of the subpoenas was improper, the court considers that issue here. Improper service can be a basis for quashing a subpoena. See Song v. Dreamtouch, Inc., No. 01 Civ. 0386(AGS), 2001 WL 487413, at *7 (S.D.N.Y. May 8, 2001) (“Such improper service warrants quashing the subpoena.”). For the reasons below, the court concludes that service was proper.
*3 Rule 45 of the Federal Rules of Civil Procedure states, in pertinent part, that “[s]erving a subpoena requires delivering a copy to the named person.” Fed. R. Civ. P. 45(b)(1). “Several courts have interpreted this language as requiring personal service.” U.S. Bank Nat'l Ass'n as Tr. for CSMC Mortg.-Backed Pass-Through Certificates, No. 16-cv-230, 2020 WL 3881412, at *3 (D. Vt. July 9, 2020); see also 9 Moore's Federal Practice – Civil § 45.21[1] (“A subpoena is served by ‘delivering’ a copy to the person named in the subpoena. The majority rule is that personal service of a subpoena is required, and that service by mail or other substituted service is insufficient.”). Because Rule 45 “does not specify what constitutes personal service on a corporation in the United States or in a foreign country,” courts within the Second Circuit “rely on the service of process requirements on corporations set out in Federal Rule of Civil Procedure 4.” Aristocrat Leisure Ltd. v. Deutsche Bank Tr. Co. Americas, 262 F.R.D. 293, 305 (S.D.N.Y. 2009); see also 9 Moore's Federal Practice – Civil § 45.21 [1] (“[S]ervice of a subpoena on an artificial entity may be made by using the analogous method for service of process on that entity under Rule 4.”).
The relevant portion of Rule 4 provides that, to serve a domestic or foreign[2] corporation in a judicial district of the United States, the entity must be served:
(A) in the manner prescribed by Rule 4(e)(1) for serving an individual; or
(B) by delivering a copy of the summons and of the complaint to an officer, a managing or general agent, or any other agent authorized by appointment or by law to receive service of process and—if the agent is one authorized by statute and the statute so requires—by also mailing a copy of each to the defendant ....
Fed. R. Civ. P. 4(h)(1). In support of its contention that service was proper, Concepts focuses on the former provision's incorporation of the procedure under Rule 4(e)(1). As relevant here, that rule provides for service by “following state law for serving a summons in an action brought in courts of general jurisdiction in the state where the district court is located or where service is made.” Fed. R. Civ. P. 4(e)(1).
Concepts relies on the following Vermont provision[3] authorizing service upon a domestic or foreign private corporation by:
delivering a copy of the summons and of the complaint to an officer, a director, a managing or general agent, a superintendent, or to any other agent authorized by appointment or by law to receive service of process, provided that any further notice required by a statute authorizing an agent to receive service shall also be given.
V.R.C.P. 4(d)(7) (emphasis added). In light of the evidence above that Mr. Qiu is a director of Hefei Taize, the court declines to quash the subpoenas or issue a protective order on the basis of improper service.[4]
C. Personal Jurisdiction
*4 Defendants argue that the court lacks personal jurisdiction over Hefei Taize because the company has no connection to the State of Vermont. (Doc. 61 at 3.) Rule 45 does not list lack of personal jurisdiction as a basis to quash a subpoena. See 9 Moore's Federal Practice – Civil § 45.21[1] (“[N]othing in the rules explicitly imposes that requirement.”). But such jurisdiction is essential for a court to compel compliance with a subpoena. See Gucci Am., Inc. v. Weixing Li, 768 F.3d 122, 141 (2d Cir. 2014) (a district court “must have personal jurisdiction over a nonparty in order to compel it to comply with a valid discovery request under Federal Rule of Civil Procedure 45”); 9 Moore's Federal Practice – Civil § 45.21 [1] (“To support service of a subpoena on an artificial entity, the entity must have sufficient minimum contacts with the district in which the subpoena is served”). And where the issuing court lacks personal jurisdiction over the subpoenaed entity, quashing the subpoena is appropriate. See Gucci, 768 F.3d at 141 n.20 (citing cases); Elder-Beerman Stores Corp. v. Federated Dep't Stores, Inc., 45 F.R.D. 515, 516 (S.D.N.Y. 1968) (quashing subpoena directed to non-party company that was not subject to personal jurisdiction in New York). The court therefore rejects Concepts’ argument that Defendants have failed to articulate any possible basis for quashing the subpoenas and turns to Concepts’ position that specific personal jurisdiction is present as to Hefei Taize.
Concepts has the burden to “make out a prima facie case for personal jurisdiction” over Hefei Taize in order to take any discovery from that company. Gucci, 768 F.3d at 141 n.20 (quoting Estate of Ungar v. Palestinian Auth., 400 F. Supp. 2d 541, 549 (S.D.N.Y. 2005)). Since the court has not held an evidentiary hearing, Concepts may meet this burden “through its own affidavits and supporting materials.” Estate of Ungar, 400 F. Supp. at 549 (quoting Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 904 (2d Cir. 1981)). Concepts maintains that the court has specific personal jurisdiction over Hefei Taize on the basis of personal jurisdiction over Mr. Qiu and the allegations that Hefei Taize and TurboTides are “one and the same entity” and that those entities and Mr. Qiu “engaged in a joint conspiracy ‘purposefully directed’ to damage Concepts in Vermont.” (Doc. 62 at 7.)
The test for specific jurisdiction “examines whether a cause of action arises out of or relates to the defendant's contacts with the forum.” Gucci, 768 F.3d at 141 (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985)). Concepts relies on that test to argue that the court has specific jurisdiction over Hefei Taize. (Doc. 62 at 7.) That test, however, is designed to evaluate personal jurisdiction over parties, not over nonparty witnesses.[5]
The Second Circuit has offered guidance on how to modify the test for specific jurisdiction to evaluate a nonparty witness's contacts with the forum. “At least one circuit has translated this test to nonparty discovery requests by focusing on the connection between the nonparty's contacts with the forum and the discovery order at issue.” Gucci, 768 F.3d at 141 (citing Application to Enforce Admin. Subpoenas Duces Tecum of the S.E.C. v. Knowles, 87 F.3d 413, 418 (10th Cir. 1996)). The court applies that test to the nonparty discovery requests in this case: do the discovery requests “arise out of” or relate to Hefei Taize's contacts with the United States?[6] Knowles, 87 F.3d at 418. Since the “arise out of”/“relate to” language requires a causal relationship, the court asks whether the material sought “proximately resulted” from Hefei Taize's U.S. contacts. In re del Valle Ruiz, 939 F.3d 520, 530 (2d Cir. 2019).[7]
*5 Concepts asserts that “the TurboTides software is precisely what was stolen by Defendants from Concepts in Vermont and it undeniably would not be in Hefei's hands (if indeed that is where it is) but for Mr. Qiu's actions on behalf of Hefei in Vermont.” (Doc. 78 at 4 (emphasis added).) But-for causation, however, is only appropriate where the nonparty's contacts “are broader and more significant.” In re del Valle Ruiz, 939 F.3d at 530. Here, according to Concepts, Hefei Taize's contacts with the United States are: (1) its chairman maintains a residence in New Hampshire and this court has established personal jurisdiction over him in this case; (2) it is allegedly “one and the same entity” as TurboTides, a New Hampshire company; and (3) it allegedly conspired with Defendants to damage Concepts, a Vermont company, by developing the TurboTides software using Concepts’ trade secrets. (Doc. 62 at 7.)
These are not the kinds of “broad and significant” contacts that would trigger a but-for causation analysis. The court therefore focuses on whether the discovery material sought “proximately resulted” from Hefei Taize's U.S. contacts—i.e., whether Hefei Taize's “having purposefully availed itself of the forum” was “the primary or proximate reason that the evidence sought is available at all.” In re del Valle Ruiz, 939 F.3d at 530.
“For purposes of specific personal jurisdiction, the contacts of a third-party may be imputed to the defendant under either an agency or alter ego theory.” Bertolini-Mier v. Upper Valley Neurology Neurosurgery, P.C., No. 5:16-cv-35, 2017 WL 4081901, at *4 (D. Vt. Sept. 13, 2017) (quoting Celgard, LLC v. SK Innovation Co., 792 F.3d 1373, 1379 (Fed. Cir. 2015)). Analogizing to the issue here, the court concludes that the contacts of a party can be imputed to a nonparty witness under an alter-ego theory. Thus a corporate entity can “purposefully avail[ ] itself of the forum state through an entity acting as its alter ego.” Celgard, 792 F.3d at 1379 (citing Nuance Commc'ns, Inc. v. Abbyy Software House, 626 F.3d 1222, 1232–33 (Fed. Cir. 2010)).
The court finds that, for personal jurisdiction purposes, Concepts has met its burden to make a prima facie showing of jurisdiction under an alter-ego theory. Similar to Nuance, the forum company, TurboTides, sells Hefei Taize's software in the United States. Cf. Nuance, 626 F.3d at 1232–33. According to Concepts’ allegations, both companies are commonly owned. Cf. id. The companies also allegedly “all share the same offices in Hefei, China and their various employees and agents work for the collective benefit of Mr. Qiu's single enterprise offering the same products and services to the same customers world-wide.” (Doc. 52 ¶ 6.) On this theory, the reason that the turbomachinery software at issue in the subpoenas exists is that Hefei Taize and TurboTides created the software based on information wrongfully obtained from Concepts.
II. Concepts’ Motion for Contempt and Coercive Sanctions (Doc. 73)
After filing its opposition to Defendants’ Motion to Quash, Concepts filed a Motion for Contempt and Coercive Sanctions against Hefei Taize. (Doc. 73.) Concepts asserts that because Hefei Taize has not complied with the duly issued and served subpoenas, the court should order Hefei Taize to comply within 30 days and be fined $10,000 per day each day thereafter if compliance has not been achieved. (Doc. 73 at 5.) Defendants reiterate the arguments in their Motion for a Protective Order and to Quash and contend that the subpoenas are stayed because of that motion. (Doc. 77 at 1.) Concepts maintains that simply filing a motion to quash or for a protective order does not stay compliance with a subpoena. (Doc. 78 at 1–2.)
Concepts correctly observes that “[a]bsent an improperly issued subpoena or an ‘adequate excuse’ by the non-party, failure to comply with a subpoena made under Rule 45 may be deemed a contempt of the court from which the subpoena issued.” Gray v. City of New York, No. 14-CV-2488 (MKB)(MDG), 2016 U.S. Dist. LEXIS 28269, at *2 (E.D.N.Y. Mar. 4, 2016). “Indeed, the judicial power to hold in contempt a non-party who has failed to obey a valid subpoena in contempt is the primary mechanism by which a court can enforce a subpoena.” Id. Moreover, a motion for a protective order does not stay a deposition. See Ceslik v. Miller Ford, Inc., No. 3:04CV2045(AWT), 2007 WL 9757725, at *1 (D. Conn. Feb. 23, 2007) (citing FAA v. Landy, 705 F.2d 624, 634–35 (2d Cir. 1983), and Gavenda v. Orleans Cnty., 174 F.R.D. 265, 270 (W.D.N.Y. 1996)), recommended ruling adopted, 2007 WL 9757726 (D. Conn. Mar. 21, 2007); see also Goodwin v. City of Boston, 118 F.R.D. 297, 298 (D. Mass. 1988) (“The filing of a motion to quash or a motion for protective order does not automatically operate to stay a deposition or other discovery.”).
*6 Still, where a motion to quash or a protective order has been filed concerning certain discovery, it may be “imprudent” for the party opposing the motion to expect production, and harsh sanctions are unlikely to be warranted. See Goodwin, 118 F.R.D. at 298 (awarding $150 in partial reimbursement for costs and attorney's fees incurred by defendant's failure to appear at deposition). Here, Concepts has not documented any costs incurred as a result of not receiving the subpoenaed materials by the August 16, 2021 deadline or not holding the September 22, 2021 Rule 30(b)(6) deposition. The court will accordingly grant Concepts’ Motion for Sanctions only insofar as to order Hefei Taize to comply with the subpoenas within 30 days.
Conclusion
Defendants’ Motion for Protective Order and to Quash Subpoenas (Doc. 61) is DENIED.
Concepts’ Motion for Contempt and Coercive Sanctions against Hefei Taize (Doc. 73) is GRANTED only insofar as Hefei Taize is ordered to comply with the subpoenas within 30 days.

Footnotes

The affidavit is signed “under the pains and penalties of perjury” but is not notarized. (Doc. 61-3 at 2.) The lack of a notary's jurat appears to be immaterial for present purposes. See 28 U.S.C. § 1746.
Hefei Taize is a Chinese company and therefore a “foreign” corporation. The rules contemplate that such foreign corporations can be subject to a U.S. subpoena. See, e.g., Erie Ins. Exch. v. Gree USA, Inc., No. 3:CV-18-2126, 2019 WL 1405854, at *4–6 (M.D. Pa. Mar. 28, 2019) (holding that Chinese corporations were effectively served under Rule 4(h)(1)(A) by serving their subsidiary at subsidiary's California address); Honig v. Cardis Enters. Int'l N.V., No. 14-cv-7548 (SJF)(GRB), 2016 WL 6304695, at *6 (E.D.N.Y. Oct. 27, 2016) (holding that Curacao corporation was effectively served under Rule 4(h)(1)(B) via its CEO in New York); Drew Techs., Inc. v. Robert Bosch, L.L.C., No. 12-15622, 2013 WL 6797175, at *3 (E.D. Mich. Oct. 2, 2013) (holding that German corporation could be effectively served under Rule 4(h)(1)(A) via a member of the corporate board of management who was “at least occasionally located within the United States”).
Service was made in New Hampshire, but since this court issued the subpoena, Concepts relies on the clause in Rule 4(e)(1) that permits service under the law of the state “where the district court is located.”
The court therefore rejects Defendants’ suggestion that Concepts could subpoena Hefei Taize only via the process set forth in the Hague Convention. See Int'l Diamond Imps., Inc. v. Oriental Gemco (N.Y.), Inc., 64 F. Supp. 3d 494, 510 (S.D.N.Y. 2014) (“[I]f the corporate defendant is served according to Rule 4(h)(1), the requirements for service under the Hague Convention do not apply ....”).
The court has also considered the possibility of transient jurisdiction. It is true that Mr. Qiu was served while present in the United States, but that is not a sufficient basis to establish personal jurisdiction over Hefei Taize. Cf. 4A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1069.5 (4th ed.) (“[S]erving a corporate officer while he or she is temporarily present in the forum state will not automatically establish personal jurisdiction over the corporation.’ ”).
The court considers contacts with the United States because Fed. R. Civ. P. 45(b)(2) permits service of a subpoena “at any place within the United States.” See Gucci, 768 F.3d at 142 n.21.
The Second Circuit has acknowledged that the terminology of causation is a “somewhat awkward fit for discovery.” In re del Valle Ruiz, 939 F.3d at 530 n.12. Still, the court has concluded that the proper approach is to focus on the relationship between the nonparty witness's forum contacts and “the resulting availability of the evidence.” Id.