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Phoenix Process Equipment Co. v. Capital Equipment & Trading Corporation

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

March 18, 2019



          Regina S. Edwards, Magistrate Judge

         Plaintiff Phoenix Process Equipment Company has filed a Motion to Compel Discovery. (DN 119). Defendants Capital Equipment & Trading Corporation, Alexander Chudnovets, and Coralina Engineering, LLC, have responded in opposition (DN 120). Plaintiff has replied. (DN 123). For the following reasons, Plaintiff's Motion is granted in part and denied in part.

         I. Background

         Plaintiff Phoenix Process Equipment Co. (“Phoenix”) is a Kentucky-based company that designs, engineers, manufactures, and services machinery and equipment used for recycling water and other materials used to wash coal. (DN 40, at ¶ 10). Since 1997, Phoenix has had its products distributed in Russia, Ukraine, and other Eastern European countries by an assortment of companies. (Id. at ¶ 11). In May of 2009, Phoenix entered into a three-year distribution agreement with Defendant Capital Equipment & Technology Corporation (“Technology”). (Id. at ¶¶ 12-14). The agreement granted Technology an exclusive territory to market and sell Phoenix's products. (Id. at ¶ 11). Defendant Alexander Chudnovets (“Chudnovets”), the CEO of Technology, signed the distribution agreement on the company's behalf after meeting with Phoenix employees in their Kentucky and Indiana facilities. (Id. at ¶¶ 12-14).

         The parties dispute the events following the 2009 distribution agreement. Technology dissolved in October of 2011; however, Phoenix claims it was unaware of the dissolution because it continued doing business with a company referred to as CETCO. (DN 57, at p. 2). Instead of Technology, Phoenix claims it was unknowingly doing business with Defendant Capital Equipment and Trading Corporation (“CETCO” or “Trading Corp.”), headquartered in Texas, and Defendant Coralina Engineering, LLC (“Coralina”), a limited liability corporation under Russian law. (Id.). On July 6, 2012, Phoenix and CETCO entered into what Phoenix believed was a “renewal” of the 2009 distribution agreement. (DN 57, at p. 2). The 2012 agreement was executed by Maria Roberson, the president of CETCO. (Id.). Defendants assert that this agreement was not a “renewal” of the 2009 agreement because Phoenix entered into the earlier agreement with “an altogether different entity.” (DN 120, at p. 5). Defendants further argue that Phoenix cannot “feign[] confusion” over which Defendant it was doing business with prior to the 2012 agreement because CETCO issued purchase orders with its name clearly set forth and made millions of dollars of payments in its name to Phoenix. (Id. at p. 4).

         Phoenix continued to receive purchase orders following the alleged renewal of the distributor agreement from Vadim Novak, a Coralina employee. (DN 57, at p. 2). But at some point after entering into the 2012 distributor agreement, Phoenix allegedly obtained information that products very similar to its own were being sold and distributed in the region assigned to CETCO by Coralina and Electrogorsk Metal Factory, a Russian limited liability corporation doing business as Elemet.[1] (Id. at p. 3). Phoenix believed that CETCO and Coralina violated the distributor agreements by conducting business with Elemet and selling Elemet's allegedly pirated equipment. (DN 40, at ¶¶ 20-22).

         Based on this information, Phoenix brought suit in Jefferson Circuit Court in November of 2015, which Defendants timely removed to this Court. (See DN 1; DN 1-1). Phoenix's Amended Complaint asserted five claims: (1) breach of contract; (2) unfair competition or “passing off;” (3) violation of the Kentucky Uniform Trade Secrets Act (KUTSA); (4) civil conspiracy; and (5) fraud or fraud in the inducement. (DN 40, at ¶¶ 32-51). Phoenix further claims that CETCO and Coralina are “alter ego” companies because Chudnovets served as CEO and on the board of directors at CETCO and was the sole member of Coralina and because the two companies share the same employees and offices. (Id. at ¶¶ 18-20, 25-28). According to Phoenix, Coralina branded itself through its website, business cards, and communications with Phoenix as CETCO-Coralina. (Id. at ¶¶ 25, 28, 30). Defendants “emphatically deny” that they participated in any reverse engineering of Phoenix's products or furnished any confidential design information that would allow anyone else to do so. (DN 120, at p. 6). Defendants also state that CETCO, Coralina, and Chudnovets hold no ownership of, affiliation with, or control over Elemet and that Elemet is a “separate and independent company.” (Id.).

         This Court previously dismissed Phoenix's claims for unfair competition and “passing off, ” fraud and fraud in the inducement, and conspiracy because such claims are preempted by the KUTSA. (DN 57, at pp. 18-20). Almost a year-and-a-half later, Phoenix filed a Second Motion to Amend Complaint, seeking to remove its KUTSA claim and replead its previously dismissed claims. (DN 110). This Court recently denied Phoenix's Second Motion to Amend as futile.[2] (DN 125).

         The parties have struggled with cooperative discovery for months. During their Rule 26(f) planning conference, the parties agreed that “[e]ach party shall be allowed a maximum of thirty (30) interrogatories . . . . [e]ither party may ask the Magistrate Judge for an additional fifteen (15) interrogatories.” (DN 90, at ¶ 3(D)). On November 16-17, 2017, Phoenix propounded its first written discovery, including 28 interrogatories on CETCO, 30 interrogatories on Coralina, and 26 interrogatories on Chudnovets, totaling eighty-four interrogatories, not counting subparts. Because Phoenix did not comply with their agreement to propound a maximum of forty-five interrogatories, the Defendants sought a telephonic conference with the Court. Following this first teleconference, Magistrate Judge Dave Whalin struck a compromise, allowing Phoenix to issue forty-five interrogatories to Trading Corp. (CETCO) and Coralina together and thirty interrogatories to Chudnovets. (DN 97). The Court further directed the parties to continue efforts at resolving the numerosity issues with Phoenix's interrogatory subparts over the next month. (Id.).

         According to Defendants, Phoenix continued to issue interrogatories to CETCO and Coralina that exceeded the additional amount granted by the Court. (DN 120, at p. 9). Defendants sought a second teleconference with the Court, where Magistrate Judge Whalin again gave the parties additional time to resolve their dispute without court intervention. (DN 104). When the parties still failed to reach an agreement following the two telephonic conferences with the Court and face-to-face meetings among themselves, the Court authorized the parties to file appropriate motions to resolve the dispute. (DN 108).

         Before filing a motion with the Court, Defendants responded to Phoenix's most-recent (third) discovery requests and issued objections. (DN 119-3). Phoenix then sent Defendants a twenty-seven-page letter outlining perceived deficiencies with their responses. (DN 119-5). Defendants responded with a thirty-nine-page letter, explaining that Phoenix still exceeded the numerical limit for its interrogatories to CETCO and Coralina together and providing additional explanation for their objections. (DN 120-2).

         Phoenix has now filed a Motion to Compel, seeking responses to its third set of discovery. (DN 119). Phoenix broadly focuses on two alleged deficiencies in Defendants' responses. First, Phoenix alleges that Defendants have “improperly and unilaterally divided” its interrogatories into subparts to increase its total No. of interrogatories. (Id. at p. 5). Second, Phoenix claims that Defendants have failed to produce any internal communications between themselves and third-parties related to the suit, including records, agreements, contracts, purchase orders, invoices, and other documents. (Id.).

         II. Analysis

         Trial courts have wide discretion in dealing with discovery matters. See S.S. v. E. Ky. Univ., 532 F.3d 445, 451 (6th Cir. 2008); Chrysler Corp. v. Fedders Corp., 643 F.2d 1229, 1240 (6th Cir. 1981). The “scope of discovery” encompasses “any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case[.]” Fed.R.Civ.P. 26(b)(1). Relevance is to be construed broadly to include “any matter that bears on, or that reasonably could lead to other matter that could bear on” any party's claim or defense. Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351, 98 S.Ct. 2380, 57 L.Ed.2d 253 (1978) (citation omitted). In analyzing proportionality, the Court must consider the need for the information sought based upon “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 discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.” Fed.R.Civ.P. 26(b)(1).

         Federal Rule of Civil Procedure 37 allows a party to move for an order compelling disclosure or discovery when “a party fails to answer an interrogatory submitted under Rule 33” or “fails to produce documents . . . as requested under Rule 34.” Fed.R.Civ.P. 37(a)(3)(iii), (iv). Under Rule 37, an “evasive or incomplete disclosure, answer, or response must be treated as a failure to disclose, answer, or respond.” Fed.R.Civ.P. 37(a)(4). When an objection to relevance is raised, the party seeking discovery must demonstrate that the requests are relevant to the claims or defenses in the action. Anderson v. Dillard's, Inc., 251 F.R.D. 307, 309-10 (W.D. Tenn. 2008). If that party demonstrates relevancy, the burden shifts to the party resisting discovery to demonstrate why the information or documents are not discoverable under the Federal Rules. Id.

         A. Numerosity of Interrogatories

         i. Applicable Law

         Rule 33 provides that unless otherwise stipulated and ordered by the court, a party may serve on another party “no more than 25 written interrogatories, including all discrete subparts.” Fed.R.Civ.P. 33(a)(1). Neither Rule 33 nor this Circuit identifies a precise formulation for determining when discrete, separate subjects should be treated as multiple interrogatories. See Perez v. KDE Equine, LLC, No. 3:15-CV-00562-CRS, 2017 WL 56616, at *3 (W.D. Ky. Jan. 4, 2017) (citing State Farm Mut. Auto Ins. Co. v. Pain & Injury Rehabilitation Clinic, Inc., No. 07-CV-15129, 2008 WL 2605206, at *2 (E.D. Mich. June 30, 2008)).

         District courts and treatise writers have formulated various tests for defining “discrete subparts.” One test asks whether a subpart of an interrogatory “introduces a line of inquiry that is separate and distinct from the inquiry made by the portion of the interrogatory that precedes it.” Ott v. Mortgage Investors Corp. of Ohio, Inc., No. 3-14-cv-645, 2015 WL 691643, at *1 (D. Or. Feb. 17, 2015); Kline v. Berry, 287 F.R.D. 75, 79 (D.D.C. 2012). This test, however, essentially restates the term “discrete subpart” and “does not add much by way of resolving power.” Erfindergemeinschaft Uropep GbR v. Eli Lilly & Co., 315 F.R.D. 191, 195 (E.D. Tex. 2016).

         Some courts have invoked the “common theme” standard, developed from a leading treatise. See In re Lithium Ion Batteries Antitrust Litig., No. 13-md-2420, 2015 WL 1221924, at *2 (N.D. Cal. Mar. 17, 2015); Pouncil v. Branch Law Firm, 277 F.R.D. 642, 646 (D. Kan. 2011). This treatise states that “an interrogatory containing subparts directed at eliciting details concerning a common theme should be considered a single question.” 8B Charles Alan Wright, Arthur R. Miller & Richard L. Marcus, Federal Practice & Procedure § 2168.1, at 39-40 (2010). There are two main problems with this test. First, what constitutes “a common theme” is subject to widely divergent views. Eli Lilly & Co., 315 F.R.D. at 196. Second, if “a common theme” is broadly interpreted, there could be limitless use of multiple subparts qualifying as a single interrogatory. Id.

         Most courts have followed the “related question” approach. This test generally states that subparts that are “logically or factually subsumed within and necessarily related to the primary question should not be treated as separate interrogatories.” Kendall v. GES Exposition Servs., Inc., 174 F.R.D. 684, 685 (D. Nev. 1997) (citation omitted); see also Gilmore v. Lockard, No. 1:12-cv-925, 2015 WL 5173170, at *8 (E.D. Cal. Sept. 3, 2015); Klein v. Fed. Ins. Co., No. 7:03-cv-102, 2014 WL 3408355, at *6 (N.D. Tex. July 14, 2014); Perez v. Aircom Mgmt. Corp., No. 12-60322, 2012 WL 6811079, at *1 (S.D. Fla. Sept. 24, 2012). Courts have further articulated this approach as: “if the first question can be answered fully and completely without answering the second question” then the second question is totally independent of the first and not factually subsumed within it. Paananen v. Cellco Partnership, No. Co8-1042 RSM, 2009 WL 3327227, at *2 (W.D. Wash. Oct. 8, 2009) (quoting Estate of Manship v. United States, 232 F.R.D. 552, 555 (M.D. La.2005)); see also F.T.C. v. Think All Pub., L.L.C., No. 4:07-cv-011, 2008 WL 687455, at *1 (E.D. Tex. Mar. 11, 2008).

         Regardless of which verbal formulation of “discrete subparts” is used, these tests must be tempered by a “pragmatic approach” that asks whether an interrogatory “threatens the purpose of Rule 33” by combining several lines of inquiry into one interrogatory. Warren v. Bastyr Univ., No. 2:11-cv-1800, 2013 WL 1412419, at *1 (W.D. Wash. Apr. 8, 2013). Under this pragmatic approach, courts must evaluate “discrete subparts” by balancing the competing purposes of Rule 33(a)(1): allowing reasonable latitude in formulating an inquiry to elicit as complete an answer as possible, while at the same time not allowing the multiplication of interrogatories which would defeat the purposes of Rule 33's limits. Eli Lilly & Co., 315 F.R.D. at 196-97 (citing Williams v. Bd. of Cty. Comm'rs of the Unified Gov. of Wyandotte Cty. & Kan. City, Kan., 192 F.R.D. 698, 701 (D. Kan. 2000)).

         In Perez v. KDE Equine, this Court discussed the various “discrete subparts” tests utilized by district courts but declined to adopt a single approach.[3] 2017 WL 56616, at *3 (citing Paananen, 2009 WL 3327227, at *2; Singleton v. Hedgepath, No. 1:08-cv-00095, 2011 WL 1806515, at *7 (E.D. Cal., May 10, 2011); Estate of Manship, 232 F.R.D. at 555). Here, after comprehensively reviewing these tests, the Court finds the “related question” approach, combined with pragmatic considerations, will allow for the most faithful adherence to the policies of Rule 33. See, e.g., Eli Lilly & Co., 315 F.R.D. at 197. The Court acknowledges, however, that the issue of counting “discrete subparts” cannot reliably be captured in a verbal formula and must be assessed based on the particular circumstances in a case. See Allen v. Mill-Tel, Inc., 283 F.R.D. 631, 637 (D. Kan. 2012).

         ii. Analysis of Challenged Interrogatories to CETCO and Coralina

         Here, the Court permitted Phoenix to tender 45 interrogatories to CETCO and Coralina together. (DN 97). Phoenix's third production of discovery included 20 numbered interrogatories to CETCO and 17 numbered interrogatories to Coralina. (See DN 119-2; DN 119-3). Defendants refused to answer Interrogatory Nos. 7-17 to Coralina based on their “Universal Objection 12, ” which states that the interrogatories “exceed the numerical limitations” set by the Court. (DN 119-3, at p. 5). This objection further states that by answering all of Phoenix's interrogatories to CETCO, which totaled 37 interrogatories (including subparts), Defendants would only respond to the first 8 of Phoenix's interrogatories containing subparts to Coralina. (Id.).

         In its Motion to Compel, Phoenix explains why it believes Defendants improperly treated Interrogatory Nos. 2, 7, 8, 9, 10, 11, 13, 15 and 16 to CETCO as containing discrete subparts. (DN 119, at pp. 8-13). Phoenix claims that these Interrogatories “describe details sought in the original question” and that each interrogatory is “based upon a common theme.” (Id. at pp. 7-8). Defendants defend their decision not to answer Phoenix's final ten interrogatories to Coralina by explaining why each of the above Interrogatories was appropriately divided into discrete subparts. (DN 120, at pp. 14-17). The Court will address these disputed interrogatories in turn.

         Interrogatory No. 2:

         For both Capital Equipment and Trading Company and Capital Equipment and Trading Corporation, state all trade names or assumed names by which each has ever been known and identify the names of all affiliate, parent, and subsidiary organizations. (DN 119-2, at p. 7). Defendants assert that the “potential trade names or assumed names” of Trading Corp.

         (“CETCO”) and “the identity of any affiliate, parent, or subsidiary organization” are stand-alone questions, independent of one another. (DN 120, at p. 14). This Court does not agree. These questions are both related to corporate structure and are meant to clarify whether other businesses are merely connected to CETCO v. identical to CETCO. Because these two inquiries are logically subsumed, the Court counts Interrogatory No. 2 as a single inquiry.

         Interrogatory No. 7:

         Please explain Alexander Chudnovets' status and role at CETCO since 2009, including his employment status, job title(s), ownership interest, and his relationship and/or employment history with any other Defendant in this lawsuit. As part of your answer, please fully explain Chudnovets' role and job duties at CETCO in relation to Phoenix. (DN 119-2, at p. 9).

         Defendants argue this Interrogatory contains three discrete subparts: (1) Chudnovets' status and role at CETCO . . .; (2) his relationship and/or employment history with any other Defendant in this lawsuit; and (3) his role and job duties at CETCO relating to Phoenix. (DN 120, at pp. 14-15). Defendants are correct. The first question asks for general information regarding Chudnovets' status and role at Trading Corp. (CETCO). The second question, “his relationship and/or employment history with any other Defendant, ” is not necessarily related to the primary inquiry. While Phoenix may believe that Chudnovets' role at Trading Corp. is factually related to his role with other Defendants in the lawsuit, the Court finds the primary inquiry can be answered fully and completely without answering this secondary inquiry. Likewise, the second sentence of the Interrogatory, asking for a full explanation of Chudnovets' role and job at Trading Corp. “in relation to Phoenix” is independent from the first inquiry because Defendants could fully answer the initial inquiry without any reference to Phoenix. This Interrogatory, therefore, will be counted as three interrogatories.

         Interrogatory No. 8:

         Describe the nature and extent of Capital Equipment and Trading Company's and Capital Equipment and Trading Corporation's business activities since 2009, including all of their business functions and activities, as well as the locations of each of the business operations/facilities and/or offices. (DN 119-2, at p. 11).

         This is one Interrogatory. The primary question asks for the nature and extent of CETCO's business activities. The clause that Defendants argue constitutes an independent inquiry, “the locations of each business operations/facilities and/or offices” seeks additional explanation or detail for the original information sought. A full description of a business's “nature” and extent” would logically include the location of such business.

         Interrogatory No. 9:

         Please state all facts, evidence, and list all documents upon which you rely for the statement in your Answer to Phoenix's First Amended Complaint that CETCO and Capital Equipment and Technology Corporation were and always have been separate legal entities and your denial that there is a predecessor/successor relationship between the CETCO and Capital Equipment and Technology Corporation. (DN 119-2, at p. 12). Defendants argue that an interrogatory asking for information related to an event and then also requesting documents or evidence pertaining to that event constitute two discrete requests. (DN 120, at pp. 13-14). Courts are divided on this issue. See Engage Healthcare Comms., LLC v. Intellisphere, LLC, No. 12-cv-00787(FLW)(LHG), 2017 WL 2371834, at *6 (D.N.J. Feb. 10, 2017). As Defendants assert, several courts have found that a demand for information and a demand for documents pertaining to that information should be counted as two separate interrogatories. See, e.g., Cook v. City of Dallas, No. 3:12-CV-3788-N, 2017 WL 9534098, at *2 (N.D. Tex. Apr. 10, 2017); Smith v. Café Asia, 256 F.R.D. 247, 254 (D.D.C. 2009); Banks v. Office of Senate Sergeant-at-Arms, 222 F.R.D. 7, 10 (D.D.C. 2004). One court noted that interrogatories seeking both facts and documents are “really a fugitive request for production of documents” and discovery would be better served in that format. Kendall v. GES Exposition Servs., Inc., 174 F.R.D. 684, 686 (D. Nev. 1997). But other courts have found that this type of interrogatory should not be divided into discrete subparts because the facts and documents regarding a specific contention or affirmative defense are “logically or factually related.” See, e.g., Engage Healthcare, 2017 WL 2371834, at *6-7; Synopsys, Inc. v. A TopTech, Inc., 319 F.R.D. 293, 297 (N.D. Cal. 2016).

         Here, the Court is more persuaded by the second line of cases. Phoenix has not asked Defendants to produce evidence or documents in this Interrogatory. Phoenix, instead, seeks Defendants “state” the facts and evidence and “list” the documents it relied on for a specific contention from their Answer. To conclude they are discrete subparts would hamstring this complex case. This conclusion allows reasonable latitude for Phoenix to formulate an inquiry to elicit as complete an answer as possible. See Eli Lilly Corp., 315 F.R.D. at 197. Although Phoenix's Interrogatory relates to both Defendants' contention that CETCO and Technology were always separate legal entities and their denial that a predecessor/successor relationship exists between the two, because the same facts, evidence, and documents would likely be used to respond to both inquiries, this Interrogatory is considered one for purposes of Rule 33.

         The Court, accordingly, counts this as one interrogatory because the “facts, evidence, and documents” are subsumed within the interrogatory as logically related to its primary topic, e.g., the basis for Defendants' contention that CETCO and Technology Corp. are separate entities. See Synopsys, Inc., 319 F.R.D. at 299.

         Interrogatory No. 10:

         Please list all business addresses, phone numbers, fax numbers, and website domains that CETCO has used at any time since 2009 and for each identify the dates of usage. (DN 119-2, at p. 14).

         Because Defendants explain in their response that they only counted Phoenix's Interrogatory No. 10 as one interrogatory, the parties no longer ...

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