Phx. Process Equip. Co. v. Capital Equip. & Trading Corp., CIVIL ACTION NO. 3:16CV-00024-RGJ-RSE
| Decision Date | 18 March 2019 |
| Docket Number | CIVIL ACTION NO. 3:16CV-00024-RGJ-RSE |
| Parties | PHOENIX PROCESS EQUIPMENT CO. PLAINTIFF v. CAPITAL EQUIPMENT & TRADING CORP., et al. DEFENDANTS |
| Court | U.S. District Court — Western District of Kentucky |
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.
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 (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 thenumerical 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 number 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.).
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...
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