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Violetta v. Steven Brothers Sports Management, LLC

United States District Court, D. Kansas

August 24, 2017

STEVEN M. VIOLETTA, Plaintiff,
v.
STEVEN BROTHERS SPORTS MANAGEMENT, LLC, et al., Defendants.

          MEMORANDUM AND ORDER

          GWYNNE E. BIRZER, UNITED STATES MAGISTRATE JUDGE.

         On July 24, 2017, the Court held an in-person hearing to discuss the following pending motions:

• Plaintiff s Motion to Amend Complaint (ECF No. 50);
• Defendants' Motion for Leave to File Amended Answer and Counterclaims (ECF No. 57);
• Plaintiffs Motion to Compel Discovery (ECF No. 75); and
• Parties' Joint Motion to Extend All Deadlines (ECF No. 78).

         Plaintiff appeared through counsel, Boyd A. Byers and Sharon E. Rye. Defendants appeared through counsel, Aaron J. Good. After consideration of both the arguments of counsel and the parties' briefing, the Court announced the following rulings at the hearing: Plaintiffs Motion to Amend Complaint (ECF No. 50) was GRANTED; Defendants' Motion for Leave to File Amended Answer (ECF No. 57) was GRANTED as unopposed; and the parties' Joint Motion to Extend All Deadlines (ECF No. 78) was GRANTED in part and DENIED in part (see Order, ECF No. 85). The Court deferred ruling on Plaintiffs Motion to Compel Discovery (ECF No. 75) pending Defendants' submission and the Court's in camera review of specific documents contained in Defendants' third privilege log (Order, ECF No. 85).

         Having reviewed the parties' briefing, the oral arguments of counsel, and the documents submitted in camera, the Court is now prepared to rule. For the reasons set forth below, Plaintiff's Motion to Compel Discovery (ECF No. 75) is GRANTED in part and DENIED in part. Additionally, the Court addresses the other pending motions discussed at hearing.

         I. Factual Background

         Plaintiff Steven M. Violetta was hired in August 2015 as the Chief Executive Officer of three hockey franchises owned and operated by defendants Steven Brothers Sports Management, LLC (“SBSM”), Brandon Steven, and Rodney Steven. After approximately seven months on the job, Defendants terminated Plaintiff's employment. He then filed this federal claim on June 10, 2016, alleging the three defendants failed to pay him under the bonus and commission provisions of the parties' Employment Agreement, and failed to pay him all wages due to him under the Kansas Wage Payment[1]laws. In his Complaint, Plaintiff also claims Defendants violated the Consolidated Omnibus Budget Reconciliation Act (“COBRA”)[2] by failing to provide him notice and offer him continuation of his group health coverage, and violated the Employee Retirement Income Security Act of 1974 (“ERISA”)[3] by refusing to provide copies of his employee benefit plan documents. His initial Complaint seeks a Court order directing Defendants to provide the requested plan documents, remedial measures for the COBRA and ERISA violations, and compensatory damages, statutory penalties, costs and attorney fees for all claims.

         Following the oral rulings announced at the July 24 hearing, Plaintiff filed his First Amended Complaint (ECF No. 86). In his amended pleading, Plaintiff kept his original claims, and added age discrimination (“ADEA”)[4] claims and an additional ERISA claim for breach of fiduciary duty. The Amended Complaint also names five additional defendants, including Steven Brothers Sports Management of Allen, LLC (“SBSM-A”) and Johnny Steven (who, together with the original defendants are referred to as the “Steven brothers”). Plaintiff also named three Genesis Health Club defendants: Genesis Health Clubs Management, Inc.; Genesis Health Clubs Management, LLC; and Genesis Health Club, Inc. (collectively, “Genesis”). In his Amended Complaint, Plaintiff claims all Defendants are jointly and severally liable for his claims. He alleges SBSM, SBSM-A, and Genesis function as an integrated enterprise, because they “have interrelated operations, common ownership, common financial control, common management at the top level, and centralized control of human resources.” (ECF No. 86, ¶ 32.) Plaintiff claims SBSM and SBSM-A shared his services and control over his position, and there was no real separation between the Steven brothers, on the one hand, and SBSM, SBSM-A, and Genesis, on the other. (ECF No. 86, ¶¶ 33-34.)

         II. Procedural Posture

         The entry of a scheduling order in this case was initially postponed, and discovery limited, in order to allow the parties to attempt early mediation (Order, ECF No. 18). After early mediation was unsuccessful, a Scheduling Order was entered on January 20, 2017 (ECF No. 28). This schedule has continued to govern this case leading up to the filing of the recent motions, each of which is discussed below.

         III. Plaintiff's Motion to Amend Complaint (ECF No. 50)

         Plaintiff's motion seeking to amend his Complaint was his first request for amendment. As noted above, he sought amendment to add an ADEA claim, an additional ERISA claim for breach of fiduciary duty, and to add five defendants, including SBSM-A; Johnny Steven, and three Genesis defendants. Although the Court orally granted Plaintiff's motion (ECF No. 85), and the Amended Complaint was recently filed (ECF No. 86), the Court briefly explains the rationale behind its ruling.

         A. Legal Standard

         A party may amend its pleading as a matter of course under Fed.R.Civ.P. 15(a)(1), either before the responding party answers or within 21 days after service of a responsive pleading. However, in cases such as this, where the time to amend as a matter of course has passed, without the opposing party's consent a party may amend his pleading only by leave of the court under Rule 15(a)(2).

         Rule 15(a)(2) provides leave “shall be freely given when justice so requires, ” and the decision to allow an amendment is within the sound discretion of the court.[5] The court considers a number of factors in deciding whether to allow an amendment, including timeliness, prejudice to the other party, bad faith, and futility of amendment.[6]In exercising its discretion, the court must be “mindful of the spirit of the federal rules of civil procedure to encourage decisions on the merits rather than on mere technicalities.”[7]The Tenth Circuit acknowledged that Rule 15 is intended “to provide litigants ‘the maximum opportunity for each claim to be decided on its merits rather than on procedural niceties, '”[8] especially in the absence of bad faith by an offending party or prejudice to a non-moving party.[9]

         B. Issues Regarding Amendment

         Defendants do not dispute SBSM-A may be added as a party. Nor do they argue there exists any undue delay, dilatory motive, prior failure to cure deficiencies, or undue prejudice. They oppose the amendment only on grounds of futility and bad faith, citing four primary arguments: 1) the ADEA claim is time-barred; 2) Plaintiff lacks standing to make an ERISA claim for breach of fiduciary duty; 3) Plaintiff's attempt to add the Genesis defendants is in bad faith; and 4) Plaintiff fails to state a claim against Johnny Steven because he is exempt from liability under the Kansas LLC law. Each of Defendants' contentions is addressed below.

         1. ADEA Claim is Not Untimely as Pleaded

         In Defendants' Response (ECF No. 54) to Plaintiff's motion to amend, they argue his ADEA claim is untimely because he filed his Charge of Discrimination with the Equal Employment Opportunity Commission (“EEOC”) too late. In Plaintiff's First Amended Complaint, he alleges he was terminated on March 11, 2016 (ECF No. 86, ¶ 23). Defendants claim they actually terminated him a month earlier, on February 11, 2016. Although the parties dispute what date the actual termination took place, at this stage, the Court reviews claims of futility under a motion to dismiss standard. In doing so, “the court must accept as true all well-pleaded factual allegations and view them in the light most favorable to the pleading party.”[10] Viewing the well-pleaded allegations in the light most favorable to Plaintiff, the Court accepts Plaintiff's contention he was terminated in March.

         Plaintiff filed his EEOC Charge on December 6, 2016. In their Response, Defendants claim his EEOC charge was filed on Dec. 9, 2016. However, it is clear from the Charge itself, attached to Plaintiff's Reply (ECF No. 63, Ex. B), Plaintiff filed with the EEOC on December 6 and Defendants received their copy on December 9, 2016. Therefore, the remaining question before the Court is whether the 270 days between March 11, 2016 (Plaintiff's alleged termination date) to December 6, 2016 (Plaintiff's filing of the EEOC charge) was within the time required by law.[11]

         At the July 24, 2017 hearing, Defendants conceded much of its arguments regarding timeliness were based upon their incorrect reading of the EEOC filing date. Additionally, Defendants announced that, after a review of Plaintiff's Reply brief and the authority contained therein, they abandoned their arguments regarding the timeliness of Plaintiff's proposed ADEA claim. Therefore, without further analysis, the Court accepts the ADEA claims as timely pleaded.

         2. Plaintiff Does Not Clearly Lack Standing to Make an ERISA Claim for Breach of Fiduciary Duty

         Defendants also argue Plaintiff's new ERISA claim, for breach of fiduciary duty, is duplicative of his original ERISA claim for failure to produce plan documents.

         Defendants further contend Plaintiff lacks standing to bring a breach of fiduciary claim, because 29 U.S.C. §1109 creates liability to the plan itself, but does not allow an individual to make a claim for personal damages against a plan fiduciary. Plaintiff rebuts this argument by noting Defendants ignore other sections of the ERISA statutes, sections 1132(a)(2) and 1132(a)(3), that permit this type of claim.

         A District of Kansas case, Sigurdson v. Southmark-Nat'l Heritage, Inc., specifically permitted a similar claim to proceed.[12] In Sigurdson, the plaintiff alleged the defendants breached their fiduciary duty by failing to send COBRA notices. Although the court acknowledged a plaintiff cannot bring a private cause of action for money damages against plan fiduciaries for breach of a fiduciary duty, it also noted “an individual beneficiary may sue ‘in a representative capacity on behalf of the plan as a whole.'”[13]

         On review of Sigurdson, Plaintiff appears to state at least a plausible claim under 29 U.S.C. § 1132(a)(2) or § 1132(a)(3). During the hearing, Defendants admitted Plaintiff may appropriately bring a section 1132 claim, but argued whether he brings his fiduciary duty claim on behalf of the plan itself-as required-is unclear. However, the broadness of the claim can be narrowed through discovery and crystalized before the entry of a Pretrial Order.[14] Additionally, the new claim does not appear duplicative of the original ERISA claim. Plaintiff is permitted under Fed.R.Civ.P. 8(a)(3) to assert alternative theories. Because discovery may reveal any Defendant to be only an administrator or only a fiduciary, Plaintiff's claims against all Defendants are protected by including both theories at this stage of litigation. Because Plaintiff is permitted to bring alternative theories, and the claim appears plausible, on its face, the Court will not prevent assertion of the ERISA breach of fiduciary duty claim on the basis of futility.

         3. Plaintiff's Attempt to Add the Genesis Defendants is Not in Bad Faith

         Defendants contend Plaintiff seeks the addition of the Genesis defendants in bad faith, because Plaintiff did not first attempt to discover which Defendant(s) are the proper administrators of the benefits plans before seeking to add Genesis. Rather than add additional parties, Defendants argue Plaintiff should have first asked more pointed discovery questions or contention interrogatories. But Plaintiff contends the bulk of his dealings with Defendants regarding his COBRA and plan document inquiries were largely with Genesis employees. In fact, the documents identified in Defendants' privilege log (see discussion infra Section V., Plaintiff's Motion to Compel) demonstrate that Genesis employees were heavily involved in responding to Plaintiff's requests for information.

         In order for the party opposing amendment to succeed on a claim of bad faith amendment, “[t]he movant's bad faith must be apparent from evidence of record.”[15]“Bad faith” is defined as “dishonesty of belief, purpose or motive.”[16] But given the Genesis defendants' apparent relationship with the SBSM and Steven brothers' defendants, and Plaintiff's dealing with them, the Court perceives no apparent bad faith on Plaintiff's part. Although Plaintiff acknowledges his claims could be narrowed through discovery, such as Rule 30(b) depositions, his claims against the Genesis defendants do not appear dishonest or borne of some ulterior motive. Therefore, the Court will not bar Plaintiff's amended complaint on the basis of bad faith.

         4. Plaintiff's Claim against Johnny Steven is Not Futile

         Defendants argue Plaintiff's claim against Johnny Steven is futile, in part because a core claim of the lawsuit is Plaintiff's breach of contract claim, and Johnny Steven was not a signatory to Plaintiff's employment agreement. Defendants also contend K.S.A. § 17-7688 exempts a member or manager of an LLC from personal liability, and Plaintiff's claim against Johnny personally cannot survive. But Plaintiff maintains he seeks to hold Johnny Steven liable in his personal capacity as permitted by both ERISA and the KWPA.[17] Plaintiff also argues he sets forth sufficient allegations to support an alter ego argument, or piercing the corporate veil, to hold Johnny Steven personally liable for any violations committed by SBSM and SBSM-A.

         Defendants do not refute Plaintiff's claim that all three Steven brothers are partial owners of SBSM & SBSM-A, with Rodney and Brandon each owning 45% and Johnny owning 10% of the companies. And, although K.S.A. § 17-7688 may exempt a member or manager of an LLC from personal liability, generally, both the KWPA and ERISA could impose personal liability on Johnny if Plaintiff is successful in piercing the corporate veil. This will be a highly fact-dependent issue, and rather than prohibit Plaintiff from pursuing this claim at the outset, the Court finds it more appropriate to permit Plaintiff to conduct discovery on the topic and determine its viability in a later dispositive motion. The claims are well-pleaded, and the Court does not find the claims against Johnny Steven to be clearly futile.

         C. Conclusion on Amendment

         Despite their stated arguments addressed above, Defendants fail to present any argument regarding the prejudice they might face if the amendment were permitted. As the party opposing the amendment, Defendants bear the burden to demonstrate undue prejudice within the meaning of Rule 15.[18] Given Defendants' complete disregard of this “most important factor, ”[19] the Court finds Defendants failed to demonstrate prejudice sufficient to prohibit the proposed amendment. And, considering the nature of the new claims, the relationship between the original and proposed defendants, and the procedural posture of the litigation, the Court struggles to discern any true injustice which would occur from adding the new claims and additional defendants. The deadlines in this matter will be revised, at the parties' request (see discussion infra Section VI., Joint Motion to Extend All Deadlines). This new schedule will provide the parties with adequate time to conduct discovery and will permit all Defendants with sufficient opportunity to fully defend the new claims.

         In the absence of undue delay, bad faith, futility, or prejudice to the opposing party, “leave to amend should, as the rules require, be freely given.”[20] Finding Plaintiff's proposed amendment is timely, not futile, lacking bad faith, and causes no undue prejudice to Defendants, the Court prefers this case to proceed on its full merits.[21] In the interests of justice, the Court allows Plaintiff to amend his Complaint as announced at hearing.

         IV. Defendants' Motion for Leave to file Amended Answer and Counterclaims (ECF No. 57)

         Defendants sought to add two counterclaims against Plaintiff, alleging: (1) violations of the Kansas Uniform Trade Secrets Act, and (2) violations of the Computer Fraud and Abuse Act. After Defendants filed their motion (ECF No. 57), Plaintiff indicated in his Response (ECF No. 65) he did not oppose Defendants' amendment, but asked that the filing of Defendants' amended pleading be postponed until after Plaintiff was permitted to file his amended complaint. These positions were confirmed at the July 24, 2017 hearing.

         Finding the Motion for Leave to file Amended Answer and Counterclaims (ECF No. 57) unopposed, the Court orally granted the motion and ordered Defendants to file their amended pleading after Plaintiff filed his Amended Complaint (see Order, ECF No. 85). Defendants recently filed their Answer to the Amended Complaint and Counterclaims (ECF No. 88).

         V. Plaintiff's Motion to Compel Discovery (ECF No. 75)

         In addition to his request to amend, Plaintiff also seeks to compel certain discovery responses from Defendants. Plaintiff served four sets of requests for production (RFP) on defendants SBSM, Rodney Steven, and Brandon Steven, beginning with the first set on July 28, 2016 and ending with the final requests sent December 15, 2016 (Pl.'s Mem., ECF No. 76). After various discussions and agreements between the parties, Defendants responded to these requests on January 9, 2017. Since then, the parties have continued to confer in an effort to resolve the ongoing disputes regarding Defendants' responses.[22] Due to the parties' continuing efforts, neither party raises the issue of timeliness concerning Plaintiff's motion.

         A. Compliance with D. Kan. Rule 37.2

         Throughout the briefing, and during the in-person hearing, the parties demonstrated their multiple attempts to resolve their differences on the pending discovery issues. Therefore, the Court is satisfied they have sufficiently conferred as required by D. Kan. Rule 37.2 and Fed.R.Civ.P. 37(a)(1). However, despite their attempts, the parties could not resolve all disputes, leading to the instant motion.

         B. Discovery Disputes

         Notwithstanding the parties' efforts, two primary discovery issues remained for discussion at the July 24, 2017 hearing. First, Plaintiffs seek disclosure of documents related to the sale of the Allen Americans franchise. Second, Plaintiff requests production of information included on Defendant's privilege log. Those documents were delivered to the chambers of the undersigned on July 24, 2017. The Court has reviewed the documents and is now prepared to rule. Each category of information is addressed in turn.

         1. Documents Related to the Sale of the Allen Americans Franchise (Plaintiff's RFP Nos. 25-26)

         In February 2017, SBSM-A sold its Allen Americans hockey franchise to a Texas company, Allen Hockey Team, LLC (ECF No. 79, at 1). Months earlier, in Plaintiff's initial discovery requests, he sought information regarding the potential sale. Plaintiff's Request for Production No. 25 seeks “all documents relating to the sale or potential sale of Allen Americans.” In Request No. 26, he asks Defendants to produce “all documents provided by SBSM to [any] current potential buyer, ” with various types of documents included in the request. Although these requests, as written, appear quite broad, over the past several months Plaintiff agreed to limit the requests to the following four topics:

(1) communications with prospective buyers or the eventual buyer that reference Plaintiff;
(2) communications and documents relating to performance of the franchise during the 2015-2016 season, when Plaintiff was its CEO;
(3) communications with prospective buyers or the eventual buyer during [the time frame] when Plaintiff was employed by SBSM and the month immediately after his termination in March 2016-through the end of April 2016; and
(4) a copy of the final sales agreement.

(ECF No. 76 at 3.) Defendant initially objected to producing any responsive documents, but later agreed to produce only e-mail communications that specifically reference Plaintiff by name (sought by Plaintiff under Topic 1, above).

         Defendants object to additional production, in part because they contend the information sought is irrelevant to Plaintiff's claims. They also believe the requested information is duplicative of financial documents already produced; and claim some of the information is no longer in Defendants' possession, but in the new owners' possession, and the new owner is unresponsive.

         Plaintiff claims his requests have been sufficiently narrowed. He asserts any financial representations surrounding the sale are relevant to demonstrate the organization was performing well financially, which would disprove Defendants' claims they fired him for cause when the companies failed to meet financial goals. The information could also refute Defendants' claim they did not owe Plaintiff bonuses because he failed to reach financial benchmarks. Plaintiff contends there should be some type of “due diligence” file Defendants made available to potential buyers, and believes the representations made to those potential buyers are contradictory to Defendants' claims in this case regarding their financial position. Plaintiff asks that Defendants bear any cost of any “spoliation” related to information solely in the new owner's possession, because he served his discovery requests long before the sale was finalized.

         Before addressing the arguments of the parties, the Court must first examine the appropriate standard for determining the relevance of the information Plaintiff seeks.

         a. Legal Standard - Relevance

         Fed. R. Civ. P. 26(b)(1) permits discovery of “any non-privileged matter that is relevant to any party's claim or defense.” Additionally, the scope of discovery must be:

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.[23]

         Relevance is to be “construed broadly to encompass any matter that bears on, or that reasonably could lead to other matter that could bear on” any party's claim or defense.[24]

         If the party seeking discovery meets its initial, minimal burden to demonstrate its request is relevant, on its face, [25] the resisting party cannot rely upon conclusory statements that the requested discovery is irrelevant.[26] It “must either demonstrate the discovery sought does not come within the broad scope of relevance defined in Rule 26(b)(1), or that it is of such marginal relevance that the potential harm caused by the discovery would outweigh the presumption in favor of broad disclosure.”[27] On the other hand, if the relevancy of the discovery request is not readily apparent on its face, the party seeking the discovery bears the burden to demonstrate the request is relevant.[28] As a general rule, relevancy is determined on a case-by-case basis.[29]

         b. ...


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