United States District Court, E.D. North Carolina, Western Division
TERRENCE W. BOYLE CHIEF UNITED STATES DISTRICT JUDGE
cause comes before the Court on non-party Barry H.
Schwab's motion to quash document and deposition
subpoenas [DE 84] and motion for a protective order [DE 85],
as well as plaintiffs motion to stay discovery pending
resolution or Mr. Schwab's motions [DE 86]. Defendant has
responded in opposition to Mr. Schwab's motions and the
motions are ripe for disposition. For the reasons that
follow, Mr. Schwab's motion to quash [DE 84] is DENIED,
Mr. Schwab's motion for a protective order [DE 85] is
DENIED, and plaintiffs motion to stay discovery [DE 86] is
DENIED AS MOOT.
January 2018, the Court dismissed plaintiffs
patent-infringement claims, determining that they were
patent-ineligible under 35 U.S.C. § 101. [DE 46, 47].
The underlying dispute involved defendant's sale of
firearm supplies and accessories using an online portal that
purportedly infringed plaintiffs patent, U.S. Patent No. 6,
226, 412. [DE 1]. On January 31, 2018, plaintiff appealed the
Court's dismissal order to the United States Court of
Appeals for the Federal Circuit. [DE 50]. In August 2018, the
Court awarded defendant $128, 535.00 in reasonable
attorneys' fees for the litigation through dismissal. [DE
59]. Plaintiff appealed this order, too, to the Federal
Circuit. [DE 63]. In February 2019, the Federal Circuit
affirmed this Court's dismissal of plaintiff s claims,
agreeing that the claims were patent-ineligible. [DE 77, 78].
In April 2019, this Court awarded $121, 246.04 to defendant
in supplemental attorneys' fees. [DE 82]. Plaintiffs
appeal of the original award of attorneys' fees remains
pending before the Federal Circuit.
H. Schwab, plaintiffs owner and managing member, now moves to
quash document and deposition subpoenas that seek discovery
of his personal assets and income. [DE 84]. Mr. Schwab also
moves for entry of a protective order to shield his personal
assets and income from discovery. [DE 85]. Plaintiff has
moved to stay discovery pending resolution of Mr.
Schwab's motions. [DE 86]. Defendant responds in
opposition to Mr. Schwab's motions, arguing that because
plaintiff has not yet paid any part of the attorneys'
fees awards and claims it has no assets, defendant is seeking
discovery of Mr. Schwab's assets to determine whether he
can be held liable for the judgment. [DE 89].
of the Federal Rules of Civil Procedure permits a judgment
creditor, like defendant, to "obtain discovery from any
person-including the judgment debtor." Fed.R.Civ.P.
69(a)(2). Rule 45 subpoenas may be used by post-judgment
creditors subject to Rule 26's standards for
discoverability. Schaaf v. SmithKline Beecham Corp.,
233 F.R.D. 451, 453 (E.D. N.C. 2005). That is, 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." Fed.R.Civ.P.
26(b)(1). Rule 45 subpoenas may be issued to non-parties and
can even be used to discover the assets of "third
parties with close ties to the judgment debtor."
Wright & Miller, 12 Fed. Prac. & Proc. Civ.
§ 3014 (3d ed.); see also Trs. of N. Fla. Operating
Eng'rs Health & Welfare Fund v. Lane Crane Serv.,
Inc., 148 F.R.D. 662 (M.D. Fla. 1993) (permitting
discovery of non-party assets where evidence showed alter-ego
relationship between debtor and non-party); Caisson Corp.
v. Cty W. Bldg. Corp., 62 F.R.D. 331, 333 (E.D. Pa.
1974) (permitting discovery of assets of sole shareholder of
of the Federal Rules of Civil Procedure provides that courts
must, under certain circumstances, including when a subpoena
would subject a witness to undue burden, quash or modify a
subpoena. Fed.R.Civ.P. 45(3)(A). In deciding whether to quash
a subpoena or issue a protective order, courts balance (1)
the relevance of the information sought, (2) the need of the
information sought, (3) issues concerning confidentiality,
and (4) the potential for harm to any party. Insulate Am.
v. Masco Corp., 227 F.R.D. 427, 432 (W.D. N.C. 2005).
Because a non-party moving to quash a subpoena is effectively
moving for a protective order against such discovery,
Snoznik v. Jeld-Wen, Inc., 259 F.R.D. 217, 222 (W.D.
N.C. 2009), and because Mr. Schwab has made both motions
here, the motions will be considered together.
Schwab argues that defendant's subpoenas subject him to
undue burden because they seek information that is irrelevant
to this action, because his conduct did not contribute in any
way to the conduct at issue in this matter, and because it
would violate his due process rights to hold him personally
liable for payment of judgments entered against plaintiff.
Mr. Schwab's arguments in support of his motion to quash
and his motion for a protective order are identical.
Defendant contends, however, that post-judgment discovery of
Mr. Schwab's assets and income is necessary because
plaintiff refuses to pay the $249, 781.04 in combined costs
and fees and plaintiffs Rule 69 responses "indicated
that it was being operated as the mere alter-ego of its sole
owner, [Mr.] Schwab." [DE 89, p. 5]. Defendant bases
this argument on its belief that plaintiff "had no
operating agreement, had held no company meetings, had not
filed tax returns or prepared financial documents, and had no
employees," the fact that Mr. Schwab is plaintiffs
"sole owner, officer, and manager, [and] keeps
[plaintiffs] books and records, uses his home to conduct
[plaintiffs] business, and controls its operations and
decisions." Id. at 5-6. Defendant further
points out that plaintiff "transferred $25, 000 to
Schwab in December 2017 and Schwab paid [plaintiffs] legal
fees and legal management fees." Id. at 6.
basis of the above beliefs, defendant argues that Mr. Schwab
could potentially be, held liable for the judgments under
either a veil-piercing theory or under 35 U.S.C. § 285,
which permits corporate officers to be personally liable for
attorneys' fees in some circumstances. This does not mean
that Mr. Schwab will be held liable under either
theory, but here the Court finds that it is sufficient to
permit discovery of his personal assets and income despite
his non-party status. The information that defendant seeks is
relevant. Defendant has also demonstrated a persuasive need
for the information, given that plaintiff has not paid any of
the $249, 781.04 judgment and purports to have no assets. Mr.
Schwab's interest in keeping his financial information
confidential and any potential harm he would suffer from its
disclosure is overcome here by the relevance of the
information sought, the importance of the information sought,
and the potential for harm to defendant if it is unable to
collect its judgment.
respect to Mr. Schwab's contention that his due process
rights would be violated by enforcement of the subpoenas, the
Court is unpersuaded. Mr. Schwab relies on Nelson v.
Adams USA, Inc., 529 U.S. 460 (2000), arguing that he,
as a non-party corporate principal, cannot be personally
liable for the judgment entered against plaintiff. In
Nelson, the Supreme Court held that the district
court had erred in amending its judgment against a corporate
plaintiff to add the corporation's sole shareholder
without first giving the shareholder the opportunity to
contest his personal liability for the judgment. 529 U.S. at
468. Nelson does not foreclose the possibility that
Mr. Schwab can be held personally liable for the judgment
entered against plaintiff. Additionally, at this stage of the
proceedings defendant is only seeking discovery of Mr.
Schwab's assets and income to determine whether it can
proceed with attempts to make him personally liable. Mr.
Schwab has not demonstrated that his due process rights would
be violated by the enforcement of defendant's subpoenas.
Schwab's remaining objections to the subpoenas, including
as to Document Request No. 30 of the Subpoena Duces Tecum,
are without merit. Mr. Schwab has not demonstrated with
particularity why any of the document requests are improper
or deficient and he has not made a particularized showing
that a protective order is otherwise necessary. Generalized
objections regarding the sensitivity of the information
sought and the scope of the requests is insufficient. As to
Document Request No. 30, while it is true that under Rule 408
of the Federal Rules of Evidence settlement negotiations are
not admissible at trial to prove the validity or amount of a
claim, or to impeach, the facts underlying settlement
negotiations are not protected by Rule 408. See Ray
Comms., Inc. v. Clear Channel Comms., Inc., 673 F.3d
294, 306 (4th Cir. 2012). Thus, to the extent that Document
Request No. 30 seeks documents containing otherwise
discoverable facts, it is not barred by Rule 408.
Mr. Schwab has not demonstrated that defendant's
subpoenas should be quashed or a protective order should be
entered. Discovery of Mr. Schwab's personal assets and
income in this post-judgment posture is appropriate and the
subpoenas do not impose an undue burden. Accordingly, Mr.
Schwab's motions are denied. Finally, plaintiffs motion
to stay discovery in this case pending ...