Opinion
Civil Action No. SA-03-CA-1275-XR.
November 10, 2005
ORDER
On this date, the Court considered Defendants' motion for confidentiality order and for exclusion of evidence, filed September 28, 2005. Defendants request the Court enter a protective order under Federal Rule of Civil Procedure 26 and exclude certain documents from trial. Defendants claim that Plaintiff has abused the discovery process by obtaining irrelevant documents in order to disparage Defendants. Plaintiff opposes Defendants' motion. After careful consideration, the Court DENIES the motion (docket no. 47).
Defendants request a "confidentiality order under F.R.C.P. 26(b)(1)." Mot., at 1. Rule 26(c), not Rule 26(b), authorizes a district court to enter a protective order. FED. R. CIV. P. 26(c). The Court will treat Defendants' motion as a request under Rule 26(c).
I. Factual and Procedural Background
Plaintiff provides distribution marketing and direct marketing to businesses and advertisers. Plaintiff's clients receive various marketing services, including geographic and demographic marketing, planning, implementation, and management of door-to-door delivered advertisement materials, samples, and circulars.
Defendants Nationwide Delivery Systems, LLC ("NDS") and Advertising Network Solutions, Inc. ("ANS") are competitors of Plaintiff that were allegedly owned and operated by Defendants Jerry Ballenger and Troy Thomas, respectively. Ballenger and Thomas allegedly each own a one-third (1/3) share of NDS. Ballenger also owns ANS.
On December 18, 2003, Plaintiff filed suit against Defendants for breach of contract, breach of non-disclosure, confidentiality, and non-compete agreements, tortious interference with existing and prospective business relationships, unfair competition, fraud, breach of fiduciary duty, and civil conspiracy. Plaintiff is seeking actual damages in excess of $150,000 as well as exemplary damages and attorney's fees. Defendants filed an answer and various counterclaims against Plaintiff seeking monetary damages.
According to Plaintiff's First Amended Complaint, Larry Leathers, Plaintiff's president and chief executive officer, hired Defendant Thomas in January, 2003. Thomas' hiring was allegedly based on his representation that NDS had ceased operating. Thomas allegedly executed a confidentiality agreement, in which he promised not to disclose any proprietary information or engage in any employment or consultation in competition with Plaintiff. In February 2003, Defendant Ballenger approached Plaintiff seeking assistance in creating a marketing presentation for ANS. In exchange for a share of future profits, Plaintiff agreed to create the presentation. Ballenger allegedly entered into a non-disclosure confidentiality agreement.
Over the course of the next few months, Plaintiff allegedly provided Ballenger with additional services to assist in securing new accounts for ANS. Plaintiff assigned Thomas to assist Ballenger. In May 2003, Plaintiff alleges that it learned Thomas, while an employee of Plaintiff, had been negotiating agreements on behalf of NDS. Plaintiff alleges that Thomas shared confidential information with Ballenger and together they schemed to takeover Plaintiff.
On January 18, 2005, Plaintiff directed a letter to Don Harvey of Southwest Advertising Distribution. Plaintiff accused Harvey of breaching his "previous contracts with [Plaintiff] by not distributing the products [Plaintiff] paid [him] to deliver." Harvey is accused of failing to deliver 90% of the contracted for advertisements, causing Plaintiff to suffer $710,000 in damages. Plaintiff alleges Harvey was one of the distributors Defendants did business with in violation of their confidentiality, non-disclosure, and non-compete agreements with Plaintiff. Neither Harvey nor Southwest Advertising Distribution are parties to this action.
In March 2005, Plaintiff sent depositions by written questions and subpoena duces tecums to non-parties Master Fibers, Inc. and El Paso Waste Materials, Inc. seeking the production of "[a]ny and all records, including invoices, correspondence, pickup receipts, bill of ladings, freight bills, scale tickets, fax messages, checks, check stubs, pay orders with tickets and/or purchase orders" between Master Fibers, Inc. or El Paso Waste Materials, Inc. and NDS, ANS, or Southwest Advertising Distribution. Defendants neither objected to the depositions by written questions nor sought to quash the subpoena duces tecums. The records Plaintiff received allegedly revealed that between 2001 and 2004 Southwest Advertising Distribution recycled large volumes of material at Master Fibers, Inc. and El Paso Waste Material, Inc.
Defendants attempted to investigate Plaintiff's allegations against Harvey and Southwest Advertising Distribution at Leathers' April 8, 2005 deposition and through interrogatories served on Plaintiff. Defendants assert, and the deposition testimony reflects, Leathers never informed any clients that 90% of their advertising materials had not been delivered and refused to answer, on grounds of the attorney-client privilege, whether Plaintiff offered to refund any money to its allegedly defrauded clients. In response to ANS's interrogatories requesting information concerning Harvey's allegedly fraudulent recycling, Plaintiff objected on grounds of relevance and asserted the attorney-client privilege.
During the course of discovery, Plaintiff sought production of "all communications and contracts, freight bills, transportation bills, financial information, invoices, payment information, internal memos, and correspondence" concerning transactions between Defendants and certain clients. Defendants produced all documents in their custody, possession, or control that prior to September 1, 2003, but objected to any further production as not relevant or reasonably calculated to lead to the discovery of admissible evidence and claimed disclosure of the information would provide confidential information to a competitor, i.e. Plaintiff. Plaintiff filed a motion to compel. By order dated June 2, 2005, Magistrate Judge Pamela Mathy ordered Defendants to fully respond to Plaintiff's discovery request. Magistrate Judge Mathy found, in relevant part, that "no argument is presented to show why [the post-September 1, 2003] documents are more sensitive than those generated before September 1, 2003 or that defendants' understandable concern about disclosing the requested client-related documents to a competitor could not be addressed by a protective order. No assertion is made the parties need the assistance of the Court in obtaining or implementing a protective order governing the dissemination of confidential information learned in discovery." Despite Defendants' misgivings concerning disclosure of confidential information to Plaintiff, a protective order was never requested.
Plaintiff sought documents with regard to fourteen entities: Alliance Media, Walmart, Kmart, Pizza Hut, News Corporation, Penny Saver, Chicago Sun-Times, Newspaper Services of America, SPM (Strategic Print Marketing), Excel Communications, Earthlink, Target, National Distribution System, and Midwest Newspapers.
On May 26, 2005, this Court referred Plaintiff's motion to compel to Magistrate Judge Mathy pursuant to 28 U.S.C. § 636 and Local Rule CV-72 (docket no. 21).
The impetus for Defendants' instant motion was a September 12, 2005 e-mail sent by Leathers to members of AAPS, a trade association in the parties' industry. The subject line of the e-mail was "Alert on SW Advertising." In the e-mail, Leathers informed the recipients of the pendency of this action and how documents obtained during discovery revealed that Harvey had recycled large volumes of materials while working with Thomas and Ballenger. Leathers further alleged Harvey had avoided all attempts to depose him. Leathers closed with a request that the recipients "share [his] opinion that these individuals have no business in our industry or our association."
Thomas and Ballenger, allegedly members of AAPS, were conspicuously left off Leathers' distribution list.
Harvey's deposition has been postponed due to him suffering a stroke and having stents placed in his heart. Mot., at 7.
Defendants argue Leathers' e-mail, deposition testimony, and discovery concerning Harvey and Southwest Advertising Distribution evidence Plaintiff's discovery abuse for the purpose of disparaging ANS, Ballenger, and Thomas. Defendants believe Leathers' actions are an indication of the further damage Plaintiff will inflict on ANS "by contacting businesses and `revealing' [its] version of discovery, including profit margins and other trade secrets." Mot., at 8. Defendants request this Court exclude from trial the documents obtained from Master Fibers, Inc. and El Paso Waste Materials, Inc., prohibit Plaintiff from further disclosure to third-parties of the recycling documents unless it also discloses Leathers' deposition testimony and interrogatory answers, and enter a protective order preventing further disclosure of any documents Plaintiff obtained from ANS.
II. Analysis
A. Motion for Protective Order.The Federal Rules of Civil Procedure do not limit the use of discovered documents or information. Harris v. Amoco Prod. Co., 768 F.2d 669, 684 (5th Cir. 1985). As a general rule, a party is allowed to disclose documents obtained through the discovery process. Id. at 683-84. "If a party from whom discovery is sought shows `good cause,' the presumption of free use dissipates, and the district court can exercise its sound discretion to restrict what materials are obtainable, how they can be obtained, and what use can be made of them once obtained." Id. The Court will issue protective order under Rule 26(c) upon a showing of good cause and certification by the movant that a good faith attempt was made to confer with other parties in an effort to resolve the dispute without court action. FED. R. CIV. P. 26(c). Here, Defendants have failed to confer with Plaintiff regarding the necessity of a protective order and cannot establish good cause for the protection sought.
Defendants' counsel certified that he "contacted [Plaintiff's] attorney by facsimile and Plaintiff has responded that it opposes this motion." Mot., at 12. Plaintiff's response alleges that Defendants only conferred as to the motion to exclude evidence and attached a letter from Defendants' counsel in support. Pl's. Resp., at ¶ 3 Ex. B. The September 21, 2005 letter verifies Plaintiff's allegation that Defendants failed to confer in good faith regarding their request for a protective order. Defendants openly admit the failure to confer. In a September 13, 2005 facsimile directed to Plaintiff's counsel, Defendants' counsel attaches a copy of Leathers' e-mail and questions: "Did you know about this? Did you authorize this?" Reply, at 2 Ex. A. Defendants argue "[n]o response nor justification was made as to the e-mail and the misuse of discovery by [Plaintiff]. Certainly the opposition to the protective order is evidence that no agreement would be forthcoming." Reply, at 2. Rule 26(c) requires more. Because Defendants failed to confer in good faith, no relief is available under Rule 26(c).
Even if Defendants had conferred in good faith, a protective order is not proper. Their motion demonstrates a waiver of confidentiality and the failure to establish the good cause Rule 26(c) requires. Defendants had the burden of establishing the existence of good cause for a protective order. United States v. Garnett, 571 F.2d 1323, 1326 n. 3 (5th Cir. 1978). Defendants' burden required "a particular and specific demonstration of fact as distinguished from stereotyped and conclusory statements." Id. at 1326 n. 3.
Defendants openly acknowledge that at the time of production no protective order was sought because "the position of [Defendants] . . . was there was no way to realistically keep [Plaintiff] from utilizing price information . . . to bid on jobs and to contact business sources of [Defendants]. . . ." Reply, at 10. Defendants assert Leathers' email, however, raises a different injustice: "statements to customers of [Defendants] as to [Plaintiff's] version of what the produced documents show." Reply, at 10. Defendants' characterization is a distinction without a difference. Defendants' injury, regardless of how described, is the use of alleged confidential information obtained in discovery to enhance Plaintiff's position with Defendant's clients. Defendants conscious decision to produce alleged confidential documents without a protective order waives any claim of confidentiality and discredits Defendants' asserted good cause.
Additionally, Leathers' email neither discloses confidential information nor references documents produced by ANS. The email addresses the alleged recycling fraud committed by Harvey and Southwest Advertising Distribution. Any injury caused by the email is distinct from the disclosure of ANS's documents. Defendants have not demonstrated that Plaintiff intends to publicly disclose confidential information. But see Baker v. Buffenbarger, 2004 WL 2124787, at *3 (N.D. Ill. Sept. 22, 2004) (good cause for protective order established by evidence of local union officials intention to use depositions to criticize international union officials and influence elections). Defendants merely speculate that Leathers' email is the tip of the iceberg: "The injury caused by the e-mail has been instituted and is growing. Now ANS is concerned with the misuse of the discovery of material produced under the Order of June 2, 2005. [Plaintiff] can go to business contacts of ANS and make claims about profit margins and the like with the assertion that [Plaintiff] got the information from discovery and hence placing the imprimatur of this Court on the assertions of [Plaintiff]." Mot., at 9-10. Defendants allegations are merely conclusory statements of a speculative injury that fails to satisfy Rule 26(c)'s good cause requirement. Defendants' motion for a protective order is denied.
Although Defendants seek to restrain Plaintiff's conduct as a whole, the key actor is Leathers. On October 1, 2005, Leathers was critically injured by a gun shot wound to his head and to the Court's knowledge remains in critical condition.
B. Motion to Prohibit Further Disclosure of Documents Obtained from Master Fibers, Inc. and El Paso Waste Materials, Inc.
Defendants request the Court orders Plaintiff not to disclose the documents obtained from Master Fibers, Inc. and El Paso Waste Materials, Inc. unless it also discloses Leathers' deposition testimony and Plaintiff's interrogatory answers. The only authority for the Court to take such action would presumably arise under a Rule 26(c) protective order, which has already been denied. Defendants' real claim appears to be Plaintiff's "stonewalling" of their investigation into Harvey's and Southwest Advertising Distribution's alleged fraudulent recycling. Defendants' relief lies in a motion to compel interrogatory answers and deposition testimony. Defendants' request to prohibit further disclosure of the recycling documents is denied.
C. Motion to Exclude Documents Obtained from Master Fibers, Inc. and El Paso Waste Materials, Inc.
Defendants request the Court exclude from the trial of this cause any and all documents Plaintiff obtained from Master Fibers, Inc. and El Paso Waste Material, Inc. Defendants' argue documents regarding Harvey and Southwest Advertising Distribution are not relevant to this action. Defendants' request is premature. The Court will evaluate the relevancy of such information through a motion in limine or upon a relevancy objection to the admissibility of such evidence at the time of trial. Defendants' motion to exclude is denied.
III. Conclusion
Defendants, competitors of Plaintiff, seek the Court's protection from Plaintiff's disclosure of confidential information and the exclusion of certain evidence from trial. Defendants request for a protective order is improper because they failed to confer in good faith prior to filing their motion, waived any claim of confidentiality by producing allegedly confidential documents prior to seeking a protective order, and failed to demonstrate good cause for the protection sought. Defendants' claim that Plaintiff has improperly objected to and asserted the attorney-client privilege to deposition questions and interrogatories is more properly addressed in a motion to compel. Defendants' request to exclude certain evidence from trial is premature. Accordingly, Defendants' motion is DENIED (docket no. 47).