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Garsite/Progress, LLC v. Paul

United States District Court, D. Kansas

November 13, 2014

GARSITE/PROGRESS, LLC, Plaintiff/Counterdefendant,
v.
MELVIN PAUL, Defendant/Counterclaimant.

MEMORANDUM AND ORDER

KAREN M. HUMPHREYS, Magistrate Judge.

This matter comes before the court on two motions by third party Michael Ellis to quash discovery subpoenas (Docs. 85 and 101). As explained in greater detail below, Ellis' motion to quash or modify the third-party subpoena served on him by plaintiff (Doc. 85) is GRANTED IN PART and DENIED IN PART. Ellis' motion to quash or modify the third-party subpoenas to others (Doc. 101) is DENIED.

Background[1]

Plaintiff Garsite/Progress, LLC ("Garsite") is an assembler of aircraft refuelers, hydrant dispensers, pumper trucks and above-ground fuel storage tanks. Plaintiff's business is separated into three divisions: 1) Garsite, which manufactures trucks by purchasing the component parts from dealers; 2) Tri State Tank, which assembles tanks onto a chassis and sells the completed units; and 3) Progress Tanks, which manufactures and sells fuel tanks to distributors, including Garsite and Tri State. Defendant Melvyn Paul founded Garsite and Tri State, and although both companies were later sold, he remained as company president until 2011.

As a part of its business, plaintiff operates a "Chassis Program" by which it facilitates the sale of truck chassis to its distributor network and incentivizes the distributors to purchase trucks through a points-based vacation program. In October 2011, plaintiff reorganized the Chassis Program and retained defendant to direct the program as an independent contractor. Defendant's compensation included a base salary plus a percentage of each chassis sale for which plaintiff received a supplier rebate. However, on April 1, 2013 plaintiff provided defendant a 60-day notice of termination, blaming him for mismanagement of the Chassis Program. Plaintiff alleges that within days of that notice, defendant breached the non-compete clause of his Independent Contractor Agreement.

Plaintiff accuses defendant of assisting Stephen Paul (his son), and Michael Ellis (his former business partner), [2] to replicate plaintiff's Chassis Program for plaintiff's competitors, SkyMark and FlowMark. Plaintiff maintains that defendant transferred its ideas and materials to the competitors' "Truck Program" and filed this case to enforce the non-compete clause. Defendant denies competing with plaintiff and counterclaims that he was improperly classified as an independent contractor and that plaintiff miscalculated his pay.

I. Third-Party Motion to Quash Subpoena (Doc. 85)

Consistent with Fed.R.Civ.P. 45, plaintiff served third party Michael Ellis with a subpoena on June 4, 2014 requiring his appearance at deposition and seeking 20 categories of documents regarding the business activities and financial positions of competitors SkyMark and FlowMark. Ellis is Chief Financial Officer of both entities. After conference between counsel, plaintiff and Ellis agreed to stay further action on the subpoena pending the outcome of mediation in July 2014. After that mediation was unsuccessful, plaintiff reissued its subpoena and Ellis filed his first motion.

Ellis asks the court to quash the document subpoena in its entirety, arguing that confidential marketing and sales materials, financial statements and tax returns of plaintiff's competitors are not relevant to issues in this case, and that the non-party status of Ellis "tips the balance toward quashing the subpoena." Ellis also requests that the court narrow the scope of his deposition to exclude testimony about the confidential commercial information of SkyMark/FlowMark.

Plaintiff asserts that the information is "highly relevant" to both its non-compete claims and its claims for damages. Through discovery, plaintiff has obtained email exchanges among defendant, his son, and Ellis which reveal that defendant reviewed marketing materials and the website for the Truck Program at SkyMark/FlowMark. Defendant admitted to accompanying Ellis on business lunches with prospective customers of the Truck Program. Plaintiff believes that defendant's actions have resulted in lost sales to plaintiff and that relevant financial information from SkyMark/FlowMark will show increased sales to those competitors and therefore form the basis of plaintiff's claim for damages. Plaintiff argues that any concerns about confidentiality are adequately addressed by the Protective Order currently in place. Defendant has taken no position regarding the enforcement of the subpoena.

A. Production of documents

Although Fed.R.Civ.P. 45(d)(3)(B)(i) permits a court to quash or modify a subpoena that requires disclosure of confidential trade secret or commercial information, the information does not enjoy an absolute privilege from disclosure.[3] The party opposing production bears the burden to establish that the information sought constitutes a trade secret or confidential information and that its disclosure could be harmful.[4] If the party satisfies that burden, the burden then shifts to the party seeking discovery to establish the information's relevance and necessity.[5] If the party establishes relevance and necessity, the court weighs the need for the information against any harm which could result from disclosure.[6]

As the party resisting discovery, Ellis bears the burden to demonstrate that the information sought is both confidential and that "its disclosure will work a clearly defined and serious injury."[7] Although Ellis argues that that "information about the terms of sales is among the most competitively sensitive commercial information imaginable, " he states simply that the confidential nature of the information is "self-evident" and he therefore "does not need to provide a detailed explanation of its confidentiality." This argument is conclusory and is therefore rejected.

Even assuming that Ellis could meet his burden, the burden would then shift to plaintiff to demonstrate relevance. The court finds that plaintiff has sufficiently demonstrated relevance for Request Nos. 1 - 6, which seek information specific to the Truck Program and its related Navistar Incentive Program. Although Ellis argues repeatedly that there is "no business relationship between defendant and either SkyMark or FlowMark" and defendant confirmed that during his deposition, the fact remains that defendant clearly communicated with representatives of those companies on multiple occasions, reviewed their marketing materials, [8] and accompanied Ellis on business lunches with prospective customers.[9] Defendant also personally contacted the Atlantis resort through which the Chassis Program offered its incentive program and requested that the program be transferred to SkyMark/FlowMark's Truck Program.[10] Defendant dismisses these communications as mere interest and claims that SkyMark/FlowMark have "no interest whatsoever in this ...


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