United States District Court, N.D. Alabama, Southern Division
DAVID G. BYKER and GLOBAL ASSET MANAGEMENT HOLDINGS, LLC, Plaintiffs,
v.
NANNETTE SMITH, Defendant.
MEMORANDUM OPINION AND ORDER
JOHN
E. OTT CHIEF UNITED STATES MAGISTRATE JUDGE.
In this
diversity action, Plaintiffs David Byker
(“Byker”) and Global Asset Management Holdings,
LLC (“GAM”) (collectively
“Plaintiffs”) bring claims against Defendant
Nannette Smith (“Smith”) based on allegations
that she breached an agreement that settled an underlying
lawsuit in the Circuit Court of Jefferson County, Alabama
(the “State-Court Action”). (Doc.[1] 1). The cause now
comes to be heard on Plaintiffs' motion to compel and
allow the service of subpoenas on two non-parties. (Doc.
109). Smith opposes the motion in part. (Doc. 111). Upon
consideration, the court[2] concludes that Plaintiffs' motion
is due to be granted.
I.
This
case arises out of a dispute regarding computer source code
and software developed by Smith called “B2K, ”
which is designed to run payment systems in gas stations and
convenience stores (the “B2K Software”). In the
State-Court Action, Smith represented that her independent
software auditor, Yusuf Musaji, had examined the B2K software
and had opined that it met the certification requirements of
version 3.2 of the Data Security Standard promulgated by the
Payment Card Industry Security Standards Council
(“PCI”).[3] (See Doc. 50-2). On November 15,
2016, the parties reached a settlement in the State-Court
Action, and their agreement so doing was read into the court
record. (Doc. 1-1). Under the terms of the settlement, Byker
and GAM agreed to pay Smith $500, 000, in installments over
time. (Id. at 4-5). In turn, Smith would provide
Byker and GAM with a “functional and operational”
version of the “same” B2K Software that Musaji
ostensibly reviewed previously. (Id. at 5-6). In
furtherance of that condition, Smith agreed to send a disc
with the B2K Software to Musaji, who was to
“certify” that it was the “same”
software he had previously examined and that it was
“functional and operational.” (Id.)
Musaji also was to advise “of whatever programs or
other information is needed to open and access the disc in a
way that doesn't damage or corrupt it.”
(Id. at 6). Musaji was to complete that work within
30 days after the settlement, i.e., by December 15,
2016. (Id.) By that same date, Byker and GAM were
due to make their first installment payment under the
settlement to Smith, in the amount of $100, 000.
(Id. at 5).
On
December 14, 2016, Musaji spoke with the respective attorneys
representing Smith, Byker, and GAM. (See Doc. 1-2 at
2, Doc. 1-3 at 2). That same evening, Musaji sent an email in
which he summarily confirmed that a zipfile he had received
from Smith contained “the exact same software and
source code” he had previously reviewed and found to
comply with the PCI 3.2 standard and that it was
“functional and operational.” (Doc. 1-2 at 2).
Musaji also there recognized that he had been asked to
identify “what programs (including applicable version)
and other information is required to open and access the
software and source code without damaging or corrupting the
same.” (Id.) In response, Musaji stated,
“There is no corruption of the source code if only
viewing (read-only access). Any text editor software will be
suitable for this purpose.” (Id.)
At that
point, however, the settlement agreement broke down. On
December 15, 2016, counsel for Plaintiffs Byker and GAM sent
a check for $100, 000 to Smith's counsel comprising the
first installment payment owed to Smith under the agreement.
(See Docs. 1-3 and 1-4). However, Plaintiffs'
counsel requested that disbursement of those funds to Smith
be withheld due to asserted deficiencies in Musaji's
review and certification of the software. (Doc. 1-3). In
particular, Plaintiffs' counsel complained that they had
recently learned that Smith had not provided the software to
Musaji until December 12, 2016, only three days before the
parties' agreed-upon deadline for him to complete his
review and certification. (Id. at 2).
Plaintiffs' counsel further asserted that, during
Musaji's conversation with them the day before, Musaji
had reported that he had not actually begun reviewing the
software and that he would not be able to do so until Friday,
December 16th, or thereafter. (Id.) As such, it did
not appear to Plaintiffs' counsel that Musaji had
actually “performed the in-depth comparison required
and contemplated under [the] settlement agreement, ”
notwithstanding his email of December 14th stating that the
software was the “same” as he had previously
reviewed and was “functional and operational.”
(Id.) Indeed, on that front, Plaintiffs' counsel
read Musaji's email responses as indicating that he had
been provided with a “read-only” version of the
software. (Id.) That, Plaintiffs' counsel
suggested, was inconsistent with Musaji's answers
affirming he had received the “same” software as
previously and that it was “functional and
operational.” (Id.) In reply, Smith's
counsel insisted that Smith had complied with her obligations
under the settlement agreement and that Musaji had certified,
both timely and to the extent required, that he had received
the same software and that it was functional and operational.
(Doc. 1-4). Smith's counsel also refused to keep the
installment funds from Smith based on the objections raised
by Plaintiffs' counsel. (Id.)
On
December 19, 2016, Plaintiffs[4] filed this action against Smith.
(Doc. 1). Seeking both injunctive relief and damages,
Plaintiffs raise claims under four Alabama state-law
theories: (1) breach of contract, (2) promissory estoppel,
(3) fraudulent misrepresentation, and (4) fraudulent
suppression. (Id.) The crux of all of those claims
is that Smith has allegedly breached the settlement agreement
with regard to her promised production of the B2K software.
(See id.)
The
parties' instant dispute concerns the scope of discovery.
Specifically, Plaintiffs have moved to compel and allow the
service of subpoenas upon two non-parties: Coalfire Systems,
Inc. (“Coalfire”) and Bearden Oil Company
(“Bearden Oil”). (Doc. 109). Coalfire is a
company that, like Musaji, audits and validates payment
processing system software and has performed such services
for Smith and/or certain business entities she owns. Bearden
Oil, by contrast, owns or operates a fuel sales site that
allegedly uses the B2K Software. The subpoena to Coalfire
seeks, among other things, software validation reports and
implementation guides related to Defendant Nannette Smith,
her son Josh Smith (“Josh”), and certain other
entities controlled by or otherwise related to Nannette
Smith, identified as: (a) B2K Systems, Inc.; (b) B2K Systems,
LLC; (c) Smith and Company; (d) Fueling Clover, LLC
(“Fueling Clover”); and (e) Gas POS, LLC
(“Gas POS”). (Doc. 109-1 at 3-7). The subpoena to
Bearden Oil similarly seeks copies of contracts and other
documentation related to those same individuals and entities.
(Id. at 8-12). Plaintiffs contend that the sought
documents are relevant, at least for purposes of discovery.
That is so, Plaintiffs say, primarily because, as further
explained below, Smith's correspondence with Musaji in
October 2016 indicated that Smith was going to have
Musaji's firm review and audit the same software that had
previously passed audits by Coalfire under the name of
Fueling Clover, which had recently changed its name to Gas
POS.
At this
point, Smith has no objection to the subpoenas to the extent
they seek documents related to B2K Systems, Inc.; B2K
Systems, LLC; or Smith and Company. (Doc. 111 ¶ 3). She
also does not object to the subpoenas with regard to
documentation related to her personally, “so long as
the discovery is limited to the B2K software.”
(Id.) However, Smith continues to object to the
subpoenas insofar as they ask for documents beyond that
scope, including as they relate to Fueling Clover, Gas POS,
or Josh. (Id.) In short, Smith insists that the B2K
Software is materially different and distinct from any
software developed by and audited for Fueling Clover/Gas POS.
As such, Smith argues that the documents sought by the
subpoenas are entirely irrelevant, even for purposes of
discovery.
II.
Parties
litigating in federal court may obtain documents from a
non-party through a subpoena issued pursuant to Rule 45,
Fed.R.Civ.P. It is well-settled that the scope of discovery
under a subpoena is the same as the scope of discovery under
Rule 26(b), Fed. R. Civ. P., and Rule 34, Fed.R.Civ.P.
See Hatcher v. Precoat Metals, 271 F.R.D. 674, 675
(N.D. Ala. 2010). As such, a court must examine whether a
request contained in a subpoena is overly broad or seeks
irrelevant information under the same standards set forth in
Rule 26(b) and as applied to Rule 34 requests for production.
Kwalwasser v. New York Life Ins. Co., 2007 WL
9723881, at *1 (M.D. Fla. June 14, 2007); Rule 26(b)(1) sets
out the general scope of discoverable information as follows:
Unless otherwise limited by court order, the scope of
discovery is as follows: Parties may obtain discovery
regarding any nonprivileged matter that is relevant to any
party's claim or defense and proportional to the needs of
the case, considering 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 the discovery in resolving the
issues, and whether the burden or expense of the proposed
discovery outweighs its likely benefit. Information within
this scope of discovery need not be admissible in evidence to
be discoverable.
Rule 26(b)(1), Fed. R. Civ. P.
Plaintiffs'
interest in obtaining documents from Coalfire appears to have
been piqued by the communications between Smith and Musaji in
October 2016, shortly before the State-Court Action went to
trial and then settled in mid-November 2016. First, in an
email dated October 10, 2016, Smith indicated to Musaji that
she was looking to hire him to audit the B2K software to
assess its compliance with PCI's Payment Application Data
Security Standard (“PA-DSS”). (Doc. 109-2). In so
doing, Smith stated, “We have already passed two
previous times.” (Id.) The next day,
Smith sent another email to Musaji further explaining:
“We are pay at the pump for gas stations. We have
Fuel for Clover, LLC and the software is already audited for
that company. The one we need is for Smith and Co., LLC
and it is Beyond 2000 (B2K) software. There are about 14
clients still using the B2K software.” (Doc. 109-3). In
response, Musaji emailed an engagement letter to Smith on
October 25, 2016, acknowledging that the audit work would be
done for “Fueling ...