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Amtote International Inc. v. Kentucky Downs, LLC

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

December 11, 2017



          H. Brent Brennenstuhl, United States Magistrate Judge.


         This is a discovery dispute that has resulted in cross motions to compel by Plaintiff AmTote International, Inc. and Defendants Kentucky Downs, LLC, Exacta Systems, LLC, and Magellan Gaming, LLC. Plaintiff's motion to compel is located at (DN 151 SEALED and DN 152). Defendants' response is at (DN 163 SEALED and DN 165), and Plaintiffs' reply is at (DN 172 and DN 173 SEALED). Defendants' motion is at (DN 153 SEALED and DN 154). Plaintiffs' response is at (DN 161 and DN 162 SEALED), and Defendants' reply is at (DN 170). Both motions are ripe for review. For the reasons set forth below, AmTote's motion is granted in part, and Defendant's motion is denied.


         A. Background

         This dispute arises out of the Defendants' alleged misappropriation of AmTote's confidential and proprietary information. The action contains claims of breach of contract, tortious interference with an existing contract, and actual and threatened misappropriation of trade secrets. AmTote filed the current version of its complaint, the third amended complaint, on May 5, 2017 (DN 142 SEALED).

         At the time relevant to the dispute, AmTote provided totalisator services[1] to Defendant Kentucky Downs for its pari-mutuel wagering operation.[2] A totalisator functions to calculate the odds of a given historical pari-mutuel horse race and display a ticket of the odds to the end user (DN 142 SEALED at PageID # 3497 ¶ 17). AmTote and Kentucky Downs entered into a Totalisator Service Agreement ("TSA") on November 10, 2011 (Id. at PageID # 3500 ¶ 31). The TSA contains language intended to protect AmTote's proprietary information, as well as the proprietary information of third parties who contract with AmTote. First, the definitions section states as follows:

"AmTote Technology" - means AmTote's (including any related parent and affiliate corporations) proprietary technology, including, software tools, hardware designs, algorithms, software (in source and object code formats), user interface designs, architecture, class libraries, objects and documentation (both printed and electronic), network designs, know-how, trade secrets and any related intellectual property rights throughout the world (whether owned by AmTote or licensed to AmTote from a third party) and also including any derivatives, improvements, enhancements or extensions of AmTote Technology conceived, reduced to practice, or developed during the term of this Agreement;

(Id. at ¶ 32 Subpt. a.). The TSA also included a promise not to reverse engineer, attempt to discover the source code, or otherwise derive protected information from AmTote as well as a non-disclosure provision that covers, among other things, third party relationships (Id. at PageID # 3501-02). AmTote asserts it also held meetings with representatives of Defendants where AmTote revealed additional confidential information, including information about system design and how the totalisator communicated with the terminal server (Id. at PageID # 3505).

         AmTote alleges that agents of Defendants violated the terms of the TSA when officers of Kentucky Downs provided confidential and proprietary information to officers of Exacta (Id. at PageID 3506 ¶ 59). Specifically, three officers of Kentucky Downs - Rayford Reid, Nicholas Hughes, and Corey Johnsen - founded and were officers of Exacta Systems at the same time the three were in possession of AmTote's confidential proprietary information (Id. at 3505 ¶ 54). AmTote asserts that Reid, Johnsen, and Hughes founded Exacta in part to create a competing totalisator service and in so doing communicated AmTote's confidential information to Exacta, thereby misusing the information to create the competing totalisator service (Id. at 3506).

         AmTote additionally details specific features of the AmTote system it alleges Defendants misappropriated, including aspects of seed pool calculations, models for calculating game winners, and features of the central determinate translator (Id. at PageID # 3512-13). Additionally, AmTote alleges Defendants requested that AmTote train its employees on all aspects of the Instant Racing system with the understanding that the training and knowhow were the first step toward furthering the relationship between AmTote and Kentucky Downs by expanding Kentucky Downs' historical horse racing operation using AmTote's totalisator (Id. at PageID # 3512-13). Instead of using AmTote's totalisator, however, AmTote asserts Defendants used the expertise gathered from AmTote and subsequently installed Exacta systems at other historical horse racing facilities (Id. at PageID # 3513 ¶ 88).

         Next, AmTote alleges Johnsen approached AmTote to inquire whether it would be possible to retrofit old slot machines, repurpose them as Instant Racing terminals, and interface the renovated terminals with AmTote's totalisator (Id. at PageID # 3513-14 ¶ 89). AmTote developed a solution involving equipping the terminals with a logic box, peripherals, and a wiring harness that could interface with the AmTote totalisator as well as the design of a new player panel to fit the retrofitted terminals (Id. at PageID # 3514 ¶ 91). The retrofitting project continued for a number of months, and AmTote now believes Defendants were simultaneously developing terminals for the Exacta System, using AmTote's confidential information in the process (Id. at PageID # 3516-17 ¶¶ 98-100).

         B. The Scope of This Discovery Dispute

         This case ("the AmTote case") is the companion case to Parimax Holdings, LLC v. Kentucky Downs, LLC et al, civil action No. 1:15-CV-00082-GNS ("the Parimax case"). The Parties have agreed to consolidate the two actions for purposes of discovery only, pursuant to the terms of the Second Agreed Amended Joint Scheduling Order ("the Agreement") (DN 118).[3]Paragraph 7 of the Agreement provides that discovery produced in the Parimax case shall be deemed to have been produced in the AmTote case, and vice versa (Id. p. 3). The Agreement further provides that requests propounded in one case do not count toward the total limit of requests propounded in the companion case (Id.).

         The undersigned ordered a telephonic conference held on November 2, 2017 (DN 182).[4]The purpose of the telephonic conference was to ensure that, though discovery in the two cases is proceeding jointly, the parties did not believe a request propounded in one case to constitute a request in the companion case. The parties expressed that they understood requests for discovery to apply only to the case in which the requests were propounded, notwithstanding the fact that information gathered from the requests is deemed produced in both cases.

         The text of Rule 37(a)(3)(B) provides that "[a] party seeking discovery may move for an order compelling an answer, designation, production, or inspection." (emphasis added). Thus, only the party who propounded the disputed discovery request may move for enforcement. Payne v. Exxon Corp., 121 F.3d 503, 510 (9th Cir. 1997) (holding defendant lacked standing to seek enforcement of codefendant's discovery request). The Sixth Circuit has not directly addressed this distinction, but other district courts have reached the same conclusion based on a plain reading of the Rule. See e.g. Phoenix Life Ins. Co. v. Raider-Dennis Agency, Inc., Nos. 07-CV-15324, 08-CV-11562, 2010 WL 839416, *1 (E.D. Mich. Mar. 4, 2010) (Noting that a plain reading of the Rule suggests only the party who issued a discovery request may seek to compel a response); Kingsway Financial Servs., Inc. v. Price Waterhouse-Coopers, LLP, No. 03 Civ. 5560(RMB)(HBP), 2009 WL 72165, *3 (S.D.N.Y. Jan. 9, 2009) (same); In re Urethane Antitrust Litig., 237 F.R.D. 454, 457 (D. Kan. 2006) (same). While the present matter has the added wrinkle that two cases have been consolidated for discovery purposes, the reasoning is the same.

         Here, AmTote and Parimax seek to compel responses from Defendants, and Defendants have filed a reciprocal motion to compel, contingent on whether the undersigned grants AmTote's motion. A thorough review of both parties' exhibits reveals that AmTote alone propounded the disputed discovery requests, and AmTote issued those requests to the Defendants in this case only, not in the Parimax case. If a party lacks standing to compel a response to a codefendant's discovery request, it must follow that a non-party also lacks standing, even if the non-party is involved in parallel litigation and feels entitled to the material. Here, Parimax had an equal opportunity to request this information from the Defendants. Alternatively, AmTote could have issued these interrogatories and requests for production in the Parimax case, which would have enabled AmTote to assert relevance arguments from the Parimax complaint. To conclude, it is AmTote alone who presently has standing to seek an order compelling more fulsome responses as to the allegedly deficient discovery requests. Moreover, because these cases are not consolidated for trial, and based on the parties' mutual understanding that a discovery request in one case does not constitute a discovery request in the other, AmTote alone must demonstrate that the requested information is relevant to the complaint in the AmTote case. For these reasons, the undersigned will not look to the complaint in the Parimax case nor entertain either party's arguments regarding Parimax's right to discover the disputed interrogatories and requests for production.

         C. Summary of Disputed Interrogatories and Requests for Production

         Plaintiff classifies its first set of contested interrogatories as "relating to the development of the Exacta System" (DN 151 SEALED at PageID # 3600). This group includes Interrogatory No. 2 to Kentucky Downs, Interrogatory No. 2 to Exacta, as well as Interrogatory No. 4 to Kentucky Downs. Next, AmTote disputes Defendants' responses to a group of interrogatories AmTote describes as "interrogatories relating to how the Exacta System operates" (DN 151 SEALED at PageID # 3602). The interrogatories at issue in this category are Interrogatories No. 3 to Exacta, which contains five subparts. The final challenged interrogatory is Interrogatory No. 4 to Exacta, which AmTote describes as "relating to the terminals and terminal components used in connection with the Exacta System" (Id. at PageID # 3607).

         Plaintiff next outlines challenged requests for production. The first set of disputed RFPs fall into the category of documents relating to the development of the Exacta System. These include AmTote Requests for Production of Documents Nos. 29-31, 35-40, 42-44, 46, 75, and 76 (DN 151 SEALED at PageID # 3605). To summarize, this group of requests seeks documents reflecting communications among various parties that relate to either the development, operation, or maintenance of the Exacta System as well as training materials, GLI reports, engineering specifications, functional specifications, version change information, manuals, and other material relevant to the design of the system's hardware and software components (DN 151 SEALED at PageID # 3605-07). The next set are "[p]roduction requests relating to the development and design of reports used in connection with the operation of the Exacta System, including correspondence and documents relating to Win Systems, such as instructions provided to Win Systems" (DN 151 SEALED at PageID # 36-8). The disputed requests are RFPs 48-52. This set of requests, as its classification suggests, asks each Defendant for documents related to the development and design of reports generated by each defendant in connection with the operation of the Exacta System as well as documents involved in the engagement of Win Systems, instructions to Win Systems, and any documents related to the development or design of reports that Win Systems may have generated (DN 151 SEALED at PageID # 3609-10).

         AmTote next challenges certain redactions in documents produced by Defendants (DN 151 SEALED at PageID # 3611-16). AmTote alleges Defendants redacted a significant number of documents, oftentimes doing so without explanation other than a perfunctory reference to trade secrets or privilege. However, the undersigned conducted a telephonic conference on November 14, 2017 (DN 184). The parties discussed this issue, and the undersigned understands the Defendants are in the process of addressing this by providing logs that describe the redacted material in sufficient detail so AmTote can understand the asserted privilege and decide whether to challenge the designation. Therefore, the undersigned will not address this portion of AmTote's motion in the present order.

         Finally, AmTote seeks access to Exacta's math definition file. According to AmTote's expert, the math definition file is likely software code that calculates how payouts are made, but it is alternatively possible that it is a table of numbers working in conjunction with software code (DN 152-10 at PageID # 3889). AmTote's expert further notes that he cannot effectively compare the AmTote System with the Exacta System without access to this information.

         D. Standard of Review

         In relevant part, Rule 26 states:

Unless otherwise limited by court order, the scope of discovery is as follows: Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense and 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.

Fed. R. Civ. P. 26(b)(1).

         Thus, “[i]nformation is discoverable under revised Rule 26(b)(1) if it is relevant to any party's claim or defense and is proportional to the needs of the case.” Fed.R.Civ.P. 26, Advisory Committee's Note for 2015 Amendment. The scope of discovery is within the broad discretion of the trial court. Ghandi v. Police Dept. of Detroit, 747 F.2d 338, 354 (6th Cir. 1984). Notably, district courts within the Sixth Circuit have agreed that the 2015 amendments do not change the basic principle that Rule 26 is to be liberally construed to permit broad discovery. See e.g. He v. Rom, No. 15-CV-1869, 2016 WL 5682012, at *13 (N.D. Ohio Oct. 3, 2016); Suzette Scott-Warren v. Liberty Life Assurance Co. of Boston, 3:14-CV-00738-CRS-CHL, 2016 WL 5661774, at *5 (W.D. Ky. Sept. 29, 2016); Brooks v. Caterpillar Global Mining Am., LLC, No. 4:14-CV-00022-JHM, 2016 WL 5213936, at *7 (W.D. Ky. Sept. 20, 2016); Albritton v. CVS Caremark Corp., 5:13-CV-00218-GNS-LLK, 2016 WL 3580790, at *3 (W.D. Ky. June 28, 2016). Certainly, the movant bears the burden of demonstrating relevance, but that threshold is relatively low due to the purpose of the Civil Rules. Albritton, 2016 WL 3580790, at *3 (citations omitted).

         E. Relevance

         AmTote seeks a significant amount of information about the development and design of the Exacta System. The Defendants have argued that the scope of discovery should extend no further than three trade secret claims, specifically:

a. Historical Horse Racing Installation, Set-Up, and Operation- involves training and support of Kentucky Downs' personnel on operation of the Instant Racing system, including training on back of house systems, video servers, customer tracking, network architecture, equipment lists, equipment pricing, and labor and training costs;
b. Modification of Slot Gambling Terminals to Operate Historical Horse Racing Games-involves the information used by a third party (Cole Kepro) to retrofit slot machine terminals to be compatible with the Instant Racing system, including hardware specifications, component lists, pricing and sourcing for component parts, wiring instructions, specifications and design drawings ...

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