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Flame S.A. v. Industrial Carriers, Inc.

United States District Court, E.D. Virginia, Norfolk Division

April 23, 2014

FLAME S.A., Plaintiff,
v.
INDUSTRIAL CARRIERS, INC., VISTA SHIPPING, INC., and FREIGHT BULK PTE. LTD., Defendants. GLORY WEALTH SHIPPING PTE LTD., Consolidated Plaintiff,

OPINION & ORDER

ROBERT C. DOUMAR, Senior District Judge.

This matter comes before the Court on Freight Bulk Pte. Ltd.'s ("FBP") "Response Objections to Magistrate Judge's Ruling or Recommendation." ECF No. 178. FBP argues that Magistrate Judge Leonard's ruling that FBP must produce discoverable material concerning the alter ego allegations in this case in response to discovery requests by Flame and Glory Wealth should be set aside. ECF Nos. 148, 149. FBP contends that Judge Leonard's order misunderstands the law by forcing it to produce documents of a sister corporation and effectively pierces the corporate veil.

I. FBP'S OBJECTIONS

FBP makes four contentions. First, that it does not control the documents that it is being compelled to produce due to its alleged sister corporate status with Vista. Second, that Magistrate Judge Leonard improperly merged the roles Mr. Baranskiy plays for FBP and for Vista with each other and with Mr. Baranskiy as an individual. Third, that Judge Leonard disregarded Vista's corporate form when he ordered FBP to produce documents under Vista's control. And fourth, that the Plaintiffs should make their discovery requests to Vista itself, not through FBP.[1]

II. LEGAL STANDARD

A. Rule 34

A party may be compelled to produce items in its "possession, custody, or control." Fed.R.Civ.P. 34(a)(1). Nonparties may be compelled to produce documents under Rule 45. Id. at (c). It is well established that a district court may order the production of documents in the possession of a related nonparty entity under Rule 34(a) if those documents are under the custody or control of a party to the litigation. Steele Software Sys., Corp. v. DataQuick Info. Sys., Inc. , 237 F.R.D. 561, 564 (D. Md. 2006) (citing cases). "Control does not require that the party have legal ownership or actual physical possession of the documents at issue, but rather the right, authority or practical ability to obtain the documents from a nonparty to the action.'" E.I. DuPont de Nemours & Co. v. Kolon Indus., Inc., 286 F.R.D. 288, 292 (E.D. Va. 2012) (citing Bush v. Ruth's Chris Steak House. Inc., 286 F.R.D. 1, 5-6 (D.D.C. 2010). To determine whether a party has the right, authority, or practical ability to obtain documents from non-parties, courts consider a number of factors. Id . For related non-parties, like parent, sister, or subsidiary corporations, courts examine (1) the corporate structure of the party/non-party, (2) the non-party's connection to the transaction at issue in the litigation, (3) the degree that the non-party will benefit from the outcome of the case; (4) whether the related entities exchange documents in the ordinary course of business; (5) whether the nonparty has participated in the litigation; (6) common relationships between a party and its related non-party entity; (7) the ownership of the non-party; (8) the overlap of directors, officers, and employees; (9) the financial relationship between the entities; (10) the relationship of the parent corporation to the underlying litigation; and (11) agreements among the entities that may reflect the parties' legal rights or authority to obtain certain documents. Id . (citing Steele Software , 237 F.R.D. at 564-65).

Although "[d]ocuments in the possession of a nonparty are not automatically subject to discovery under Rule 34 simply because the nonparty has a corporate relationship to a party to the litigation, " Steele Software , 237 F.R.D. at 565, "control has been found where the party and its related nonparty affiliate are owned by the same individual" or "where related entities share management" Id. at 564.

FBP's reliance on Gerling Intern. Inc. Co. v. C.I.R. for the proposition that only alter egos can be compelled to provide documents from sister corporations is misplaced. 839 F.2d 131 (3d Cir. 1988). The Third Circuit held no such thing. Instead it was commenting on district court cases where Rule 34(c)'s necessary control was found in the context of sister corporation. In analyzing the facts before it, the Third Circuit focused on both common control and the party's disregard of the corporate entities at issue as the key factors. Id . Given that case's focus, the many legal developments since the 1988 opinion, outlined in Steele and E.I. Dupont, and the persuasive but not binding authority of the Third Circuit, the Court will use the factors gathered in the Steele and E.I. Dupont cases in its analysis.

B. Rule 72

Rule 72(a) of the Federal Rules of Civil Procedure permits a party to submit objections to a magistrate judge's ruling on nondispositive matters such as discovery orders. Fed.R.Civ.P. 72(a); 28 U.S.C. § 636(b)(1)(A). The Court reviews a magistrate's discovery order under the "clearly erroneous or contrary to law" standard. 28 U.S.C. § 636(b)(1)(A); Malletier v. Haute Diggity Dog, LLC, 2007 WL 676222, at *1 (E.D. Va. Feb. 28, 2007). A court's "finding is clearly erroneous when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." Malletier, 2007 WL 676222 at* 2 (citing United States v. United States Gypsum Co. , 333 U.S. 364, 395 (1948). The Fourth Circuit reviews a district judge's discovery decisions for abuse of discretion standard. Copen v. House, 45 F.3d 425, *2 (4th Cir. 1994).

III. ANALYSIS

The question raised by FBP's objections boils down to this: was Judge Leonard's order clearly erroneous or contrary to law in compelling FBP to produce documents under Vista's control? FBP contends that this ruling misstates the law by forcing it to produce documents of a sister corporation and effectively pierces the corporate veil.

As the Steele court pointed out, "control has been found where the party and its related nonparty affiliate are owned by the same individual." Steele Software , 237 F.R.D. at 564. In the Perini case that the Steele court cited, the district judge found the companies to be alter egos of the plaintiff in compelling discovery. Perini Am., Inc. v. Paper Converting Mach. Co. , 559 F.Supp. 552, 553 (E.D. Wis. 1983). That is not the case ...


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