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South Pointe Wholesale, Inc. v. Vilardi

United States District Court, W.D. Kentucky, Bowling Green Division

September 5, 2017

SOUTH POINTE WHOLESALE, INC. PLAINTIFF
v.
MARIE T. VILARDI DEFENDANT

          MEMORANDUM, OPINION, AND ORDER

          H. BRENT BRENNENSTUHL, UNITED STATES MAGISTRATE JUDGE.

         Before the Court is the joint motion on behalf of non-parties Halas Trading, Inc., Wire Frame Consulting, Inc. and Healthy Concepts, Inc. to quash subpoenas for production of documents served on them by Plaintiff South Pointe Wholesale, Inc. (DN 37). South Pointe has responded in support of the subpoenas (DN 44).

         Nature of the Case

         According to South Pointe's complaint, South Pointe is a Kentucky Corporation organized in 2001 and operates as a pharmaceutical distributor. South Pointe purchases inventory either directly from pharmaceutical manufacturers or from other distributors. These purchases require price negotiations conducted by either distributor or vendor employees or independent brokers working on a commission basis (DN 1, p. 2).

         South Pointe hired Defendant Marie T. Vilardi on March 8, 2004 as a pharmaceuticals purchaser. South Pointe provided Vilardi and two other employees with office space in New York, and Vilardi had access to South Pointe's computer server in Kentucky. Vilardi also made periodic trips to Kentucky for in-person meetings. In 2006 Vilardi purchased a forty-five percent ownership in South Pointe and was elected to South Pointe's board of directors. She was later elected as vice president and chief operating officer (Id. at p. 4-5).

         In 2015 other South Pointe employees became suspicious that Vilardi was making purchases that were not in the company's best interests and South Pointe began restricting Vilardi's purchasing autonomy. In 2017 South Pointe obtained information indicating that Vilardi was performing work for a South Pointe competitor. As a result, South Pointe terminated Vilardi's employment on March 14, 2017 (Id. at p. 6-7). Subsequent to her termination, South Pointe conducted further investigation and concluded that Vilardi had worked for other competitors and engaged in self-dealing (Id. at p. 8-11). South Pointe's complaint against Vilardi alleges violation of fiduciary duties under Kentucky statutes (Id. at p. 11-12).

         Vilardi has asserted counterclaims against South Pointe. She contends she made two loans to South Pointe, one in 2006 in the principal sum of $300, 000.00 and another in 2007 in the principal sum of $205, 000.00. These loans were made because South Pointe “was in desperate financial condition, ” and were both demand notes. She states she made demands for repayment, along with interest, and South Pointe is in default on its repayment obligation (DN 10, p. 9-10). Vilardi further contends that her termination from employment was wrongful and motivated by age discrimination. As a shareholder in South Pointe, Vilardi claims that she has been wrongfully denied access to South Pointe's business and financial records to which she is entitled under Kentucky law and demands an accounting (Id. at p. 10-11).

         Motion to Quash

         South Pointe has issued individual subpoenas to the three non-party movants for production of business records. Halas Trading states that it is owned by Vilardi's husband and is engaged in lending money and has no involvement in the pharmaceuticals business (DN 37, p. 1). Wire Frame and Healthy Concepts are both controlled and operated by Vilardi (Id. at p. 2). The movants do not elaborate on the nature of their business operations, but a prior pleading Vilardi filed suggests that they are engaged in the pharmaceutical market and are competitors of South Pointe (see DN 28 at p. 8-9).[1]

         From Halas, South Pointe seeks production of documents related to any loans it may have made to Vilardi, Wire Frame or Healthy Concepts. Regarding Wire Frame and Healthy Concepts, South Pointe seeks broad production of documents related to their business operations, including correspondence related to Vilardi's services to any entity in the pharmaceutical industry, payments related to those services, financial records, and tax records.

         Movants argue that the subpoenas issued to Halas seek information about loans to Vilardi, Wire Frame or Healthy Concepts. They note that none of South Pointe's claims involve money borrowed by Vilardi or loans which Halas may have made. As to Wire Frame and Healthy Concepts, movants note that, while South Pointe's complaint contends Vilardi breached fiduciary duties by working for various competitors, neither of these businesses are mentioned. Moreover, movants note that South Pointe's complaint discusses activities beginning in 2015, however the subpoenas seek information dating back to 2006. The movants also contend that the requests are overbroad because they are unlimited in time or cover an eleven-year period or seek “all documents” across a wide spectrum of inquiry. As to financial statements, movants argue that these would only show cash flow, revenue and expenses in generalized categories, and profits and losses. Movants assert that these bear no relevance to any alleged breach of fiduciary duty. Likewise, payroll records of every employee working for these entities are unlikely to reveal discoverable information. The tax information requested, they further contend, is not reasonably likely to produce specific information related to South Pointe's claims or defenses. Finally, movants claim that Rule 45(a)(1)(A)(iv) requires that every subpoena set out the text of Rule 45(d) and (e), and that the subpoenas delivered to them lacked the required information.

         South Pointe's Response

         South Pointe agrees that its complaint makes no mention of any of the three entities upon which it has served subpoenas and that the timeframe specified in the complaint begins in 2015. South Pointe asserts, however, that since filing the complaint it has conducted additional investigation which now casts a wider net of suspicion.

         Although Vilardi was required to produce a sworn statement identifying every entity in the pharmaceutical industry which had compensated her directly or indirectly since 2006 (DN 9), South Pointe alleges that she failed to list Able Wholesalers of Tennessee, LLC, which paid Wire Frame and thereby indirectly Vilardi. South Pointe also contends that it discovered a data file on its computer server which Vilardi inadvertently saved there, and which reflects financial registers for both Wire Frame and Healthy Concepts for July 1, 2015 to September 30, 2015. These registers, South Pointe asserts, demonstrate that the entities received commissions from South Pointe competitors and which directly benefited Vilardi. Vilardi's 2012 and 2013 federal tax returns reflect substantial income for both Wire Frame and Healthy Concepts, which South Pointe argues are indications that she has utilized the entities to funnel commissions from competitors longer than South Pointe initially suspected.

         Further, South Pointe has discovered invoices Vilardi saved to the server. One dated in 2009 shows billings to Wire Frame for products that South Pointe was also buying and selling at that time. Another 2010 invoice shows Healthy Concepts billing a distributor for commissions earned for sales both to South Pointe and a competitor. Given this additional information, South Pointe argues that it should be permitted to delve into Wire Frame and Healthy Concepts' business records, as South Pointe believes it will thereby uncover additional actions constituting breaches of Vilardi's fiduciary duty.

         As to Halas, South Pointe argues that it believes the discovery will establish that Vilardi misrepresented the source of the money she loaned to South Pointe and the true interest rate she was passing along to South Pointe. If true, South Pointe asserts this would constitute an additional breach of Vilardi's fiduciary duty.

         South Pointe responds to the movants' complaints that the subpoena was technically deficient by stating that it cannot independently verify whether or not copies of the provisions of Fed.R.Civ.P. 45(d) and (e) were attached. In the interest of full compliance, South Pointe states that it has sent the movants' counsel revised subpoenas with the required text, thereby remedying any deficiency.

         Analysis

         A party “may obtain discovery regarding any nonprivileged matter that is relevant to a party's claim or defense.” Fed.R.Civ.P. 26(b)(1). The discovery must be “proportional to the needs of the case, considering 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 ...


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