S. Filter Media, LLC v. Halter

• Decision Date: 29 August 2014
• Docket Number: CIVIL ACTION NO. 13-116-JJB-RLB
• Parties: SOUTHERN FILTER MEDIA, LLC v. TIMOTHY P. HALTER
• Court: U.S. District Court — Middle District of Louisiana

SOUTHERN FILTER MEDIA, LLC v. TIMOTHY P. HALTER

CIVIL ACTION NO. 13-116-JJB-RLB

UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF LOUISIANA

August 29, 2014

RULING AND ORDER

Before the court is Plaintiff Southern Filter Media, L.L.C.'s (SFM) Second Motion for Protective Order Quashing or Limiting the Discovery Sought by Timothy P. Halter (R. Doc. 55) and Defendant Timothy P. Halter's (Halter) Second Motion to Compel (R. Doc. 56). The motions are opposed. (R. Docs. 66, 67). Because the motions concern the same discovery requests, the court will consider them together. For the reasons given below, both motions are GRANTED IN PART AND DENIED IN PART.

I. BACKGROUND

In this action, SFM alleges fraud, misrepresentation and conspiracy involving the negotiation and execution of a Master Service Agreement (MSA) between SFM and Titan Sand USA, L.L.C. (Titan) and a Performance Guaranty signed by Timothy P. Halter wherein Halter Financial Group, L.P. guaranteed Titan's performance under the MSA. (R. Doc. 73).¹ SFM alleges that under the MSA, "SFM agreed to sell and provide and Titan agreed to purchase and take not less than 6,000 tons of sand products per month (the 'Committed Volume') for a period of eighteen (18) months." (R. Doc. 73 at ¶ 21). Based on these obligations, SFM alleges that theMSA was a "take or pay" contract requiring Titan to "pay SFM's invoices for the Committed Volume notwithstanding the actual volume of products of which Titan has taken delivery during each month of the Term of the MSA." (R. Doc. 73 at ¶ 22). SFM claims that Titan defaulted almost immediately and only took $258,954.70 of products for March 2012. (R. Doc. 73 at ¶ 24).

Titan then declared bankruptcy. SFM made a demand upon Halter Financial Group, L.P., per the terms of the Performance Guaranty. SFM alleges that upon this demand, Halter informed SFM that Halter Financial Group, L.P. was a subsidiary of the Halter Financial Group and had limited assets. Approximately five months later, Halter Financial Group, L.P. declared bankruptcy. SFM alleges that it is owed millions of dollars under the terms of the MSA and Performance Guaranty and seeks to recover these amounts from the defendants²

SFM alleges that certain representations were made by Halter and other individuals affiliated with Halter Financial Group, L.P. in order to induce SFM to enter into the MSA with Titan. SFM was told that "Halter Financial Group and Halter had the wealth to easily pay the entire MSA if necessary" and that Matthew Bryant of SFM "was directed to the Halter Financial Group's website to assure himself that 'Halter Financial Group' was an established, capitalized entity with the resources to respond should Titan be unable to perform and that SFM could rely upon the financial strength of 'Halter Financial Group' to ensure that Titan performed under the long-term contract." (R. Doc. 73 at ¶ 12). SFM alleges that "Halter actively and knowingly defrauded SFM by having Halter Financial Group, LP, a financial shell, sign the Performance Guaranty notwithstanding that SFM had requested a guarantee from the 'parent company, Halter financial,' and Tim Halter's knowledge that SFM was relying upon the financial strength of the'Halter Financial Group' to guarantee the MSA." (R. Doc. 73 at ¶ 46). SFM further alleges that Halter "personally conspired with Titan through the unknowing participation of its principals . . . and Halter Financial Group, L.P. to defraud SFM, knowing that Halter Financial Group, L.P. did not have the ability to perform under the Performance Guaranty as represented." (R. Doc. 73 at ¶ 48).

SFM seeks to recover from the defendants the sum of $8,921,045.30, less credit for partial deliveries. (R. Doc. 73 at ¶ 60). SFM claims that it is entitled to this amount under the MSA because "Titan was required to pay a minimum amount regardless of whether Titan took sand from SFM under the MSA," and, therefore, "the measure of damages is the 'take' amount, subtracting out the cost associated with getting the sand to the port for delivery (that amount is $85.00 a ton)." (R. Doc. 73 at ¶ 59).

Halter now seeks to compel various responses to interrogatories and requests for production seeking facts to support its own damages theory. Halter argues that SFM's damages, if any, are to be measured by its lost profits and mitigation efforts. (R. Doc. 56-1 at 10; R. Doc. 74 at ¶ 75).

Many of the documents sought by Halter are in the possession, custody, or control of Sun Minerals, L.L.C. ("Sun Minerals") and Kinder Sand Company, L.L.C. ("Kinder Sand"), which are owned by the same four family members (Matthew Bryant, David Bryant, Ronnie Bryant, and Debra Norman) who are the sole members and owners of SFM. (R. Doc. 56-1 at 2). Halter claims that SFM also has "control" of those documents within the meaning of Rule 34 of the Federal Rules of Civil Procedure, and can therefore be compelled to produce the documents.

In support of his Motion to Compel, Halter sets forth the discovery requests at issue, the responses by SFM, and Halter's assertions of the insufficiency as to each response provided.The Motion to Compel is directed to Requests for Production numbers 24-26, 33-69, 72-73, 75-76, and Interrogatories numbers 2, 3, 5, 6, and 7. Halter further requests leave to supplement his damages expert's report based on any additional documents or information provided by SFM that is relevant to its calculation of damages. (R. Doc. 56-1 at 3).

SFM seeks a protective order quashing or limiting virtually the same discovery that Halter seeks to compel. SFM argues that documents sought to support Halter's damages theory based on lost profits and mitigation are irrelevant to determining damages because the MSA is a take-or-pay contract. SFM further argues that it does not have possession, custody, or control of documents in the possession of Sun Minerals and Kinder Sand, which SFM represents are nonparty entities distinct from SFM. Finally, SFM represents that it has produced all non-privileged documents responsive to certain document requests or has provided supplemental responses to interrogatories.

II. LAW AND ANALYSIS

Rule 26(b)(1) of the Federal Rules of Civil Procedure allows a party to "obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense." A relevant discovery request seeks information that is "either admissible or reasonably calculated to lead to the discovery of admissible evidence." McLeod, Alexander, Powel & Apffel, P.C. v. Quarles, 894 F.2d 1482, 1484 (5th Cir. 1990) (quoting Fed. R. Civ. P. 26(b)(1)). Nonetheless, a party may withhold otherwise discoverable information on the basis of privilege. Fed. R. Civ. P. 26(b)(1). In addition, the "district court must limit otherwise permissible discovery if it determines that 'the burden or expense of the proposed discovery outweighs its likely benefit, considering the needs of the case, the amount in controversy, the parties' resources, the importance of the issues at stake in the action, and the importance of discovery in resolving the issues." Crosby v. La.Health Serv. & Indem. Co., 647 F.3d 258, 264 (5th Cir. 2011) (quoting Fed. R. Civ. P. 26(2)(C)(iii)).

Rule 33 of the Federal Rules of Civil Procedure provides for the service of written interrogatories. A party seeking discovery under Rule 33 may serve interrogatories on any other party and the interrogatory "may relate to any matter that may be inquired into under Rule 26(b)." Fed. R. Civ. P. 33(a)(2). Rule 34 of the Federal Rules of Civil Procedure provides for the discovery of documents and tangible items. A party seeking discovery must serve a request for production on the party believed to be in possession, custody, or control of the documents or other evidence. Fed. R. Civ. P. 34(a). The request is to be in writing and must set forth, among other things, the desired items with "reasonable particularity." Fed. R. Civ. P. 34(b)(1)(A).

If a party fails to answer interrogatories or permit inspection as required under Rules 33 and 34, the party seeking discovery may move to compel disclosure and for appropriate sanctions 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).

A. Relevance of SFM's Lost Profits and Mitigation Efforts

The general scope of discovery is broad and permits the discovery of "any nonprivileged matter that is relevant to any party's claim or defense." Crosby, 647 F.3d at 262 (5th Cir. 2011) (quoting Fed. R. Civ. P. 26(b)(1)). The rules governing discovery are accorded a broad and liberal treatment to achieve their purpose of adequately informing litigants in civil trials. Hebert v. Lando, 441 U.S. 153, 176 (1979). It is well established that the scope of discovery is within the sound discretion of the trial court. E.g., Quintero v. Klaveness Ship Lines, 914 F.2d 717, 724 (5th Cir. 1990) ("the district court has wide discretion in determining the scope and effect of discovery").

Halter claims that many of the documents requests and interrogatories at issue are relevant to his theory of damages, which is based on the measure of SFM's lost profits and reasonable mitigation efforts. SFM claims that a substantial amount of the documents and information sought by Halter to supports his damages theory are irrelevant because the MSA is a "take-or-pay" contract.

The parties both acknowledge that courts applying Louisiana law have held that take-or-pay contacts are enforceable, and provide for alternative performances. See, e.g, PGC Pipeline v. La. Intrastate Gas, 791 F.2d 338, 340 (5th Cir. 1986); Pogo Producing Co. v. Sea Robin Pipeline Co., 493 So. 2d 909, 915-16 (La. Ct. App. 3d Cir. 1986); see also La. Civ. Code Ann. art. 1808 ("An obligation is alternative when an obligor is bound to render only one of two or more items of performance."). The parties disagree, however, on whether the MSA constitutes a...