Zapproved Case Summary IconNoble Roman’s, Inc. v. Hattenhauer Distrib. Co., No. 1:14-cv-01734-WTL-DML, 2016 WL 1162553 (S.D. Ind. Mar. 24, 2016).

The court granted a protective order and prohibited a party from subpoenaing a nonparty for records and deposition testimony that it failed to show were proportional to the needs of the case.

In this royalties dispute, the defendant, Hattenhauer, owned and operated gas stations and convenience stores. Hattenhauer also had a franchise agreement with Noble Roman’s that allowed Hattenhauer to buy ingredients and cook Noble Roman’s pizza at its stores. In return, Hattenhauer would pay Noble Roman’s royalties based on weekly gross sales, and Noble Roman’s could audit Hattenhauer’s books and records to ensure proper payment. Several audits revealed that Hattenhauer had underreported sales and owed Noble Roman’s $64,000 in royalties. Hattenhauer objected.

When Noble Roman’s filed a lawsuit seeking the royalties, Hattenhauer counterclaimed, asserting that the audits were an attempt to inflate Noble Roman’s balance sheet. In discovery, Hattenhauer issued subpoenas to Privet Fund, Noble Roman’s major shareholder (at 7.2% of the company’s stock), which was not a party to the lawsuit, because Privet Fund had complained to Noble Roman’s board that its actions had lowered the company’s value. Hattenhauer requested 23 categories of documents from Privet Fund along with Rule 30(b)(6) testimony on Privet Fund’s complaints, its stock ownership, its “investigation and analysis of Noble Roman’s operations, management, finances, and business plans,” and information about franchisee audits.

Though the court denied Noble Roman’s motion to quash the subpoenas, it permitted the company to file a motion for a protective order. In the motion, Noble Roman’s claimed the subpoenas were “an improper fishing expedition” on top of already broad discovery requests. Privet Fund was not privy to any of Noble Roman’s decisions regarding franchisee audits. Furthermore, Noble Roman’s had already provided documents relating to its correspondence with Privet Fund, its financial information, and audit documentation, and it was willing to produce its own Rule 30(b)(6) witnesses for depositions regarding the audits. The court had also ordered Noble Roman’s to produce a number of audit documents.

The court first rejected Hattenhauer’s argument that Noble Roman’s did not have standing to object to the subpoenas. Noble Roman’s had “sufficient legitimate interests” for the court to consider its motion because Noble Roman’s would have to review the documents and depose Privet Fund witnesses. Citing proportionality, the court found Noble Roman’s had an interest in controlling “expansive discovery and corralling the spiraling costs of litigation.”

Next, the court turned to Hattenhauer’s relevancy argument. Tracing the evolution of Federal Rule of Civil Procedure 26(b)(1) to the December 2015 amendments, the court noted that the changes to the rule “were designed to protect against over-discovery and to emphasize judicial management of the discovery process, especially for those cases in which the parties do not themselves effectively manage discovery.”  

The court found that Hattenhauer’s basic reliance on relevancy to justify its document requests and deposition topics was “not good enough.” Hattenhauer did not address proportionality. It also could not show how obtaining Privet Fund’s “analysis of Noble Roman’s management practices and financial prospects is reasonably necessary,” because Privet Fund could not answer questions relating to Noble Roman’s decisions to implement audits. Further, Hattenhauer asked Privet Fund duplicative discovery regarding the resignation of a board member that it had already deposed.

Finding that Hattenhauer’s subpoenas were “discovery run amok,” the court granted Noble Roman’s a protective order. However, the court declined to award Noble Roman’s its fees as a prevailing party because, despite its failure to establish proportionality, Hattenhauer’s standing argument was “supported with some legal authority.”

 

Noble Roman’s, Inc. v. Hattenhauer Distrib. Co., No. 1:14-cv-01734-WTL-DML, 2016 WL 1162553 (S.D. Ind. Mar. 24, 2016).

 

Takeaways

Parties cannot, as the defendant attempted in this case, to “beat[] the drum of ‘relevancy’” without addressing proportionality. Now that Rule 26(b)(1) incorporates the proportionality factors, including “the amount in controversy, the importance of the information in resolving contested issues, whether the burden of the discovery outweighs its likely benefits, whether the information can be obtained from other and more convenient sources, or whether the information is cumulative to other discovery,” parties must be prepared to demonstrate these points to defend their discovery requests.

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