*1 This matter came before the Court on December 8, 2022 for a hearing on various discovery issues. In addition to counsel Alice Powers being present to represent the named defendants in the case, attorney Mark Baird was also present to represent third parties Sterling Race Team LLC and Deric Kramer. The Court previously held a discovery dispute hearing on November 22, 2022, when certain of the same discovery issues were presented. The second, December 8, 2022, hearing mostly dealt with the propriety of subpoenas for documents issued to third parties, such as the Sterling Race Team LLC; Deric Kramer; Wells Fargo Bank; and entities associated with Mark Earnhart, who is a lawyer and accountant for the Sterling Race Team, David Kramer, and Deric Kramer.

The following motions are now before the Court: (1) Motion to Compel Production of Documents from Third-Parties Sterling Race Team, LLC and Deric Kramer (Dkt. #99); Motion to Compel Production of Documents from Third Parties Mark Earnhart P.C., Earnhart & Associates, Inc., and Mark Earnhart (Dkt. #105); and Motion to Quash Subpoenas to Earnhart Third Parties (Dkt. #113).

Factual Background

This is a complicated corporate dispute that requires some background to comprehend the nature of the discovery being sought and the objections thereto.

Plaintiffs are members of and investors in Bridgeport Ethanol, LLC (“Bridgeport”), which produces ethanol and distills wet grains. Bridgeport's ethanol production plant is located in Bridgeport, Nebraska. Bridgeport produces more than 52 million gallons of ethanol per year and on average approximately 382,000 tons of distiller wet grains per year.

Defendant Colorado Agri Products LLC (“CAP”) has served as the sole management company and commodities marketer for Bridgeport, providing management and oversight to Bridgeport and two other ethanol production companies. CAP has served in this role since 2007. Defendant David Kramer is the co-founder, co-owner and General Manager of CAP. Under Bridgeport's Operating Agreement, David Kramer is also the Managing Member of Bridgeport. Plaintiffs allege in their Amended Complaint that David Kramer and co-defendant William Bornhoft have, since 2007, used their positions and power to control Bridgeport, including directing its day-to-day operations.

The overarching allegations of the Amended Complaint are that David Kramer, aided and abetted by William Bornhoft, obtained funds that otherwise would have been distributed to Plaintiffs from Bridgeport for the benefit of Kramer's personal NHRA drag racing operation, referred to as the “Sterling Race Team.” David Kramer's son Deric is the driver for the Sterling Race Team. Plaintiffs also allege that David Kramer, in his capacity as the managing member of Bridgeport, entered Bridgeport into quid-pro-quo agreements with suppliers of the Bridgeport ethanol plant, whereby Bridgeport would pay inflated prices to the enzyme and product suppliers, while the suppliers agreed to lucrative sponsorships (to the tune of tens of thousands or hundreds of thousands of dollars a year) for the Sterling Race Team. Thus, David Kramer allegedly used his position as the person who controlled Bridgeport to divert funds that otherwise would have gone to Bridgeport (and presumably been distributed as profits to investors) to his own private race team, where his son and other family members were owners/employees. Plaintiffs allege that almost six million dollars were diverted from Bridgeport's coffers in this manner (through racing sponsorships).

*2 Plaintiffs allege Defendants conduct was done in violation of the Bridgeport Operating Agreement and various duties that David Kramer is alleged to have owed to Bridgeport and its investors. The Sterling Race Team has existed in various forms since 2012 and Plaintiffs allege that this behavior has been occurring since that time.

Plaintiffs further allege that Bridgeport investors had asked David Kramer about the scope and magnitude of the many sponsorships that were being obtained for the Sterling Race Team, but he failed to disclose those sponsorships. Instead, David Kramer fired Bridgeport's General Manager, Ted Free, when it was discovered that Mr. Free was going to report such information to Bridgeport's governing body.

Because Plaintiffs’ claims necessarily relate to sponsorship payments to and from the Sterling Race Team, Plaintiffs have sought the financial records of the Sterling Race Team. In addition, because the Sterling Race Team did not actually exist as a separate corporate entity until approximately 2019 (but instead operated for many years as a D/B/A of David Kramer and/or Deric Kramer), Plaintiffs have also sought personal financial records for David and Deric Kramer, including tax returns and credit card statements that would reflect various payments coming into and going out of the Sterling Race Team.

In support of these allegations and their efforts to obtain more financial information about how much (if any) money was diverted from Bridgeport to the Sterling Race Team, at the discovery hearings, Plaintiffs’ counsel presented the Court with certain documents. The documents include among other things, the following:

• Meeting minutes from an April 9, 2020 Bridgeport board meeting where the managers of Bridgeport were asked to provide information relating to any Bridgeport corporate sponsorships, including team sports and sporting events. A responsive letter to the investors’ attorney attested that “There are no corporate sponsorships. There is no Member, Board Member or Management or any family member thereof being sponsored.”
• Minutes from an April 27, 2021 Bridgeport board meeting where it is recited that “Dave announced that his son's Sterling Race Team has no volume contracts with any of the sponsors and no money is contributed from Bridgeport Ethanol to support the Race Team.”
• Records from 2015 through 2017 showing invoices to Bridgeport Ethanol and payments made by Bridgeport of $16,000; $25,000; $13,000; $25,000; $16,666.67; and $25,000 for “Deric Kramer (Sterling Race Team)” for “Sponsorship.”
• Multiple checks from Bridgeport's supplier, Poet Ethanol Products, to Bridgeport in the amount of $33,333.33 that are endorsed, “Pay to the order of Sterling Race Team – Deric Kramer.” One of these check records apparently had attached to it a note stating, “Bridgeport receives a 1099 for this payment, but [Bridgeport Ethanol] signs over the check and doesn't record in system. Is this handled right? Asking these questions now may/will cause the Auditors to step up testing or report this as a finding.”
• David Kramer's Fifth Supplemental Responses to Interrogatories which lists, in response to an interrogatory asking for all sponsorship payments by Third-Party Suppliers to any Racing Team, sponsorship payments from the years 2012 to 2022 from approximately a dozen different suppliers totaling more than $6,600,000.
• *3 A copy of the “confidential” sponsorship agreement between Kramer Racing (Sterling Race Team) and Novozymes Bioenergy (supplier to Bridgeport) along with the product supply agreement – which tends to refute the notion that Sterling Race Team was not benefitting from volume contracts between suppliers and Bridgeport. The “Kramer Racing American Ethanol NHRA ProStock Sponsorship” agreement explicitly provided that Novozymes would pay a sponsorship to the race team ranging from 2.5 percent to 3.5 percent of the Sterling Ethanol Group's total “spend” with Novozymes. In this agreement, The Sterling Ethanol Group is identified as the collective group of Sterling Ethanol, LLC; Yuma Ethanol, LLC; and Bridgeport Ethanol, LLC.
• An April 2017 e-mail, subject line “Racing Sponsorship,” from David Kramer to a representative of U.S. Water Services (a supplier to Bridgeport of a corn oil additive) asking for sponsorship for the race team and suggesting that without sponsorship support, David Kramer would no longer use US Waters’ corn oil additive. One e-mail makes an explicit threat, “If you are not aware we have been trying another companies [sic] corn oil additive with good results. With the lack of support on the above subject we will be discounting the use of US Waters corn oil additive. THANKS for your support. DAVE”
• Plaintiffs have also provided documentation showing direct payments made from the Sterling Race Team to David Kramer’ son-in-law as well as Deric Kramer's girlfriend.

Based on these materials, the Court concludes that Plaintiffs have a good faith basis to seek the books and records of the Sterling Race Team from 2012 to the present, whether that entity existed as a separate legal entity (or entities) or merely as a D/B/A for David or Deric Kramer. The suggestion is that David Kramer was usurping the corporate opportunities of Bridgeport and breaching contractual and potentially other duties owed to Bridgeport and its investors for the benefit of his and his sons’ private drag racing team. These allegations seem to be supported by the documents provided. Financial information about the income and expenses of the Sterling Race Team are therefore relevant to the allegations and claims in the case. Such books and records should reflect any income (including sponsorships) to the Sterling Race Team and expenditures by or on behalf of the Sterling Race Team.

The Discovery Dispute

Plaintiffs have been trying since the beginning of the case to obtain financial information from Bridgeport and the David Kramer about payments from Bridgeport or Bridgeport's third-party suppliers to the Sterling Race Team. In David Kramer's deposition, he claimed he did not have any of the books and records for the Sterling Race Team and that all the records (financial data) are with his accountant, Mark Earnhart and Associates. See David Kramer 9/20/2022 Dep. of Sept. 20, 2022 at 174 and 177. Mr. David Kramer also testified that the specifics of spending by the Sterling Race team are reflected in the “bank records and the credit card records ... it's all on the credit card. It's a credit card business.” Id. at 178. Based on Mr. Kramer's deposition testimony, Plaintiffs subpoenaed the Mr. Earnhart and his entities to obtain the relevant financial information.

Subpoena to the Earnhart Entities. In response to a subpoenas issued to Mr. Earnhart and his entities (a law firm and an accounting firm), seeking financial documents related to the Sterling Race Team, Mr. Earnhart submitted a declaration, dated November 22, 2022, seeking to quash the subpoenas, asserting that the subpoenas seek production of documents and information covered by the attorney-client privilege. This overbroad assertion is baseless. Mere tax documents or statements of income or expenses for the race team would not be covered by any privilege. Mr. Earnhart made similar assertions in a November 8, 2022 letter to Plaintiffs’ counsel at the firm Sherman & Howard. He described the nature of the withheld documents as including:

November 8, 2022 Letter from Mark Earnhart to Sherman & Howard.

Communications, including e-mails, memoranda or file notes seeking or providing Mr. Earnhart's legal advice are protected by the attorney-client privilege. Upjohn Co. v. U.S., 449 U.S. 383 (1981). But with respect to Mr. Earnhart and his entities, I find the claim that financial documents of the Sterling Race Team are protected by the attorney-client privilege or some other privilege is not well founded.

With respect to the credit card statements and other financial information for Sterling Race Team (in whatever form it existed in throughout the years), the Court finds that these documents must be produced. Unlike a request for a party's personal credit card statement, the credit card statements related to the racing team entity would not constitute an invasion of personal privacy, and will provide insight into how the Sterling Race Team operated. And because, as David Kramer testified, this was a “credit card business,” the statements may be one of the only ways for Plaintiffs to obtain information about Sterling Race Team's expenses.

To the extent counsel for Defendants or for non-parties Deric Kramer and the Sterling Race Team object that the subpoena to Earnhart (or to Deric Kramer and Sterling Race Team, for that matter) did not request the credit card statements, the Court rejects this argument. It has been clear from the beginning of this case that Plaintiffs are seeking the books and records of the Sterling Race Team and, when David Kramer was questioned about such documents, he testified they were in the possession of Mr. Earnhart. Thus, regardless of whether David Kramer, Deric Kramer, Earnhart or one of his entities, or Sterling Race Team in any of its various forms has access to or control of these credit card statements, such documents must be produced from January 1, 2012 to the present.

With respect to tax returns, because the Sterling Race Team operated for a substantial period of time (almost a decade), not as an independent legal entity but through David Kramer or Deric Kramer as individuals, the Schedule C portions of the individuals’ tax returns are relevant. The Schedule Cs will reflect the revenues, expenses, and profits and losses associated with the Sterling Race Team. Other aspects of the personal tax returns need not be produced.

Thus, with respect to Mr. Earnhart and each of his entities, including his law office and his accounting practice, the Court ORDERS that they shall produce to the Plaintiffs the following:

Accordingly, the Motion to Compel Production of Documents from Third Parties Mark Earnhart P.C., Earnhart & Associates, Inc., and Mark Earnhart (Dkt. #105) is GRANTED in substantial part, as explained above, and the Motion to Quash with respect to the Earnhart entities (Dkt. #113) is DENIED in substantial part as explained above.

The Sterling Race Team and Deric Kramer. To the extent the Motion to Compel Production of Documents from Third-Parties Sterling Race Team, LLC and Deric Kramer (Dkt. #99) seeks the same information listed above, the motion is GRANTED. Again, for the avoidance of any doubt, the information must be produced regardless of whether it is from David Kramer, Earnhart or his entities, or Deric Kramer and Sterling Race Team.

The Wells Fargo Subpoena. Finally, though I orally ruled on Plaintiffs’ Motion to Compel Production of Documents from Wells Fargo Bank, N.A. in Response to Third-Party Subpoena (Dkt. #101), I find it prudent to further memorialize my order because my oral ruling involves a non-party who was not present at the discovery hearing. In response to the subpoena seeking bank records for the Sterling Race Team, Wells Fargo bank has produced number of documents. Defendants filed a Motion to Quash but, apparently, Wells Fargo was not informed of the Motion to Quash and continued to produce financial documents reflecting payments into and out of accounts associated with the Sterling Race Team (whether as an independent entity, or as a D/B/A of David and Deric Kramer). Plaintiffs seem satisfied with the materials that have been produced by Wells Fargo and seek only two additional items: 1) an account card or profile page confirming that that the bank records that have been produced are truly associated with the Sterling Race Team and/or David and Deric Kramer; and 2) copies of any checks to or from the account, to the extent such copies exist. Defendants did not object to the production of these documents, but requested that the account card or profile page be appropriately redacted to include only the last four digits of the account or social security number. These documents should be produced, with appropriate redactions.

All of the documents that are being ordered to be produced in this Order should be produced to the Plaintiffs by January 6, 2022.

SO ORDERED this 15th day of December, 2022.