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United Parcel Service Co. v. DNJ Logistic Group, Inc.

United States District Court, W.D. Kentucky, Louisville Division

July 3, 2018

UNITED PARCEL SERVICE CO., et al. PLAINTIFFS
v.
DNJ LOGISTIC GROUP, INC., et al. DEFENDANTS

          MEMORANDUM OPINION AND ORDER

          GREG N. STIVERS, JUDGE

         This matter is before the Court on Defendants' Objection to the Magistrate Judge's April 16, 2018, Discovery Order (DN 57). For the reasons discussed below, the objection is OVERRULED.

         I. BACKGROUND

         A. Factual Background

         This action arises out of a billing dispute between Plaintiff United Parcel Service Co. (“UPS”), UPS Worldwide Forwarding, Inc. (“Worldwide Forwarding”), and Defendant DNJ Logistic Group, Inc. (“DNJ”) and its CEO, Ralph Nabavi (“Nabavi”).[1] Worldwide Forwarding contracted with UPS to transport Worldwide Forwarding's packages. (Compl. ¶ 19, DN 1). UPS, in turn, entered into a Small Package Cargo Handling Services Agreement (“Agreement”) with DNJ, under which DNJ promised to transport certain of those packages across international routes on behalf of UPS. (Compl. ¶¶ 2, 18-19). Per the Agreement, UPS shipped packages from its hub in Louisville, Kentucky, to airports in Miami, Newark, and Dulles, at which point DNJ retrieved the packages and delivered them for shipment to common carrier airlines, such as LAN Cargo, United Airlines, Saudi Arabian Airlines, and South African Airways. (Compl. ¶¶ 36-39).

         Under the Agreement, UPS was required to pay DNJ the price set forth in the attachments to the Agreement for services performed and to forward payments to DNJ within thirty days after receipt of a DNJ invoice. (Compl. Ex. 1, at 5, DN 1-2 [hereinafter Agreement]). The parties executed attachments to the Agreement, which often provided that DNJ would charge a designated “rate per kilo” for particular routes. (Agreement 12; Compl. ¶ 6). On other occasions, however, DNJ would reserve space for UPS's packages on certain airlines and charge UPS for this space. (See Pl.'s Mot. Compel 1-3, DN 37).

         In June 2016, Plaintiffs determined that they were being overbilled by Defendants. They contend that DNJ was supposed to multiply the actual weight of the packages tendered to it by the applicable rate per kilo and invoice UPS accordingly. UPS alleges DNJ instead used inflated package weights to compute the amounts invoiced to Plaintiffs, causing DNJ to be paid more than it was owed under the Agreement. (Compl. ¶¶ 34-35, 45, 69). UPS further submits that DNJ charged them for reserved space that DNJ did not reserve. Upon discovering these practices, Plaintiffs demanded reimbursement. (Compl. ¶¶ 51-52). Defendants balked, so Plaintiffs brought this suit to recover the alleged overbillings. (Compl. ¶¶ 52-54).

         B. Procedural History

         After initiating suit, Plaintiffs sought discovery.[2] As relevant here, Plaintiff requested discovery pertinent to DNJ's relationship with the common carriers and DNJ's tax returns. (See, e.g., Pls.' Mot. Compel Ex. O, at 5-6, DN 37-5 [hereinafter Pls.' Second Interrog.]; Pls.' Mot. Compel Ex. J, at 10, DN 37-10). Plaintiffs also sought information regarding the circumstances under which the Transportation Security Administration (“TSA”) decertified DNJ from participation in the Indirect Air Carrier Standard Security Program (“IACSSP”)-the program that allowed DNJ to tender the cargo to common carrier airlines. (See, e.g., Pls.' Second Interrog. 7).

         Dependants notified Plaintiffs that they would not produce the requested information, which prompted Plaintiffs to move to compel production. (See Pls.' Mot. Compel; Def.'s Mot. Protective Order, DN 43). In their motion, Plaintiffs contended that information regarding DNJ's relationships with the common carriers may provide support to their claim that DNJ charged them for services that they did not provide.[3] (Pls.' Mot. Compel 5). Plaintiffs also asserted that they are entitled to DNJ's tax returns for the years relevant to the parties' contractual relationship because DNJ has represented that it has no other records which would reveal its revenues.[4] Plaintiffs indicated their experts can analyze the tax returns and draw conclusions regarding DNJ's profit margins-including whether those margins are higher than usual for Defendant's line of work-to show that DNJ was overbilling Plaintiffs. (Pl.'s Mot. Compel 16-18). Finally, Plaintiffs argued that discovery regarding DNJ's IASSCP decertification is relevant to show that DNJ breached the provision in the Agreement requiring compliance with all applicable laws in providing services for Plaintiffs. (Pls.' Mot. Compel. 9-11).

         DNJ moved for a protective order shielding it from producing the above-described discovery. DNJ argued in its motion that it should not be required to submit information related to the terms of the agreements it entered into with the common carriers because such information is irrelevant to the question whether DNJ overbilled Plaintiffs. (Def.'s Mot. Protective Order 26-31). DNJ further contended that because this case involves a question of contract interpretation, its income is not at issue, and, therefore, its tax returns are irrelevant. (Def.'s Mot. Protective Order 18-22). Last, DNJ maintained that the documents and other information related to its IACSSP decertification are irrelevant to Plaintiffs' claims and that-because such documents contain sensitive security information (“SSI”)-various federal regulations prohibit DNJ from disclosing them. (Def.'s Mot. Protective Order 22-26).

         The parties' motions were then submitted to the Magistrate Judge, who held that most of the information Plaintiffs sought was discoverable. (Order 21-33). Specifically, the Magistrate Judge reasoned that Plaintiffs are entitled to know about DNJ's relationships with the common carriers because-per the terms of the Agreement-“DNJ . . . was required to deal with and enter into agreements with” those carriers.[5] (Order 25). The Magistrate Judge also concluded that “DNJ must produce its tax returns and be prepared to testify at corporate deposition about such returns to the extent they reflect financial performance” because tax returns are not privileged and are the only available documents that speak to DNJ's financial status during the pertinent time period. (Order 28-30). Finally, the Magistrate Judge held Plaintiffs could discover information related to DNJ's IACSSP decertification because the Agreement “required DNJ to comply with all” laws, and, “[i]f the TSA decertified DNJ due to the violation of [law], or for the type of conduct alleged by UPS, such information would be directly relevant” to Plaintiffs' claims. (Order 31-33). The Magistrate Judge then explained that, to the extent such discovery contains SSI, a privilege log could address DNJ's security concerns. (Order 32).

         C. Pending Motion

         DNJ objected to the Order, arguing that the Magistrate Judge's conclusions were clearly erroneous and contrary to law. (Def.'s Rule 72(a) Obj. to Court's April 16, 2018, Disc. Order, DN 57 [hereinafter Def.'s Obj.]). Plaintiffs did not submit a response to DNJ's objections, ...


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