IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA
October 7, 2010
KENNETH SEGAL, ET AL PLAINTIFFS
STRAUSSER ENTERPRISES, INC., ET AL DEFENDANTS
The opinion of the court was delivered by: Henry S. Perkin United States Magistrate Judge
This matter is before the Court on defendants' motions to quash subpoenas issued to Nick Azzolina, Lafayette Ambassador Bank, Salvatore J. Panto, Jr. and Gross McGinley, LLP.*fn1 The subpoenas, which were served by plaintiffs, seek production of financial documentation pertaining to the defendants. Having reviewed and considered the contentions of the parties, the Court is prepared to rule on these matters.*fn2
This action is properly before this court based on diversity jurisdiction pursuant to 28 U.S.C. § 1332. All plaintiffs are citizens of the State of New Jersey, and all defendants are citizens of the Commonwealth of Pennsylvania. The amount in controversy is in excess of $75,000.
Venue is proper pursuant to 28 U.S.C. § 1391(a)(2) because the events giving rise to plaintiffs' claims allegedly occurred within this judicial district.
FACTUAL AND PROCEDURAL HISTORY
Plaintiffs, Kenneth Segal ("Segal"), Adam Segal, as trustee for and on behalf of the Karen and Kenneth Segal Descendents Trust ("Trust"), and Segal and Morel, Inc. ("S&M") initiated this action on November 5, 2007 by filing a four-count civil Complaint against Strausser Enterprises, Inc. ("SEI"), Gary Strausser ("Strausser") and SEI's attorney, Leonard Mellon ("Mellon"). The Complaint alleges four state-law claims: tortious interference with contract (Count I), tortious interference with prospective contractual relations (Count II), malicious prosecution under the Dragonetti Act, 42 Pa.C.S.A. §§ 8351-8354 (Count III), and abuse of process (Count IV).
According to the Complaint, this action arises from purchase agreements whereby plaintiff S&M contracted to purchase several parcels of land from defendant SEI. SEI retained certain limited rights of first refusal to repurchase some of the parcels under specific contractually defined circumstances.*fn3
S&M subsequently assigned all rights and obligations arising under the purchase agreements and subsequent amendments to several limited liability companies (the "S&M LLCs") of which plaintiff Segal and the Trust are the only members. Plaintiffs allege that on December 21, 2005, Segal and the Trust (collectively the "Segal sellers") contracted to sell their interests in the S&M LLCs to K. Hovnanian Pennsylvania Acquisitions, LLC ("Hovnanian"), by way of a sales agreement that took several months to negotiate and finalize ("the Hovnanian agreement").
Plaintiffs allege that the Segal sellers attempted to meet with defendants SEI and Strausser to discuss the sale of memberships in the S&M LLCs to Hovnanian, but that, in an attempt to interfere with the sale to Hovnanian and to gain leverage by which to gain monetary concessions from the Segal sellers, Strausser and other SEI representatives refused to meet with the Segal sellers. The Complaint further alleges that on February 13, 2006, just two days prior to closing on the Hovnanian agreement, SEI, through its attorney, defendant Mellon, filed a lawsuit in the Court of Common Pleas of Northampton County, Pennsylvania to stop the transfer of the properties based on a right of first refusal, as well as a notice of entry of lis pendens against the property.
As a result of the lis pendens, plaintiffs allege that Hovnanian refused to proceed with the closing. Plaintiffs aver that SEI and Strausser refused to withdraw the lis pendens, and Hovnanian terminated the Hovnanian agreement because the Segal sellers were unable to provide good title to the properties.
The Complaint alleges that the filing of the Northampton County lawsuit was frivolous and in bad faith because defendants SEI, Strausser and Mellon all knew that the purchase agreements had binding arbitration clauses; the transaction with Hovnanian did not trigger the right of first refusal clauses; and SEI and Strausser lacked the financial ability to exercise the rights of first refusal, even if properly triggered.
As recently noted by my colleague, the Honorable Jacob P. Hart,
The Federal Rules of Civil Procedure are liberal with respect to discovery, permitting the requesting party to obtain even inadmissible material, so long as it is relevant to the claim or defense of any party, unprivileged, and 'appears reasonably calculated to lead to the discovery of admissible evidence.' Relevancy is to be broadly construed and is not limited to the precise issues set out in the pleadings.
Leeds v. Axis Gloucester City Storage, Civ. A. No. 08-1433, 2009 U.S. Dist. LEXIS 52217 (E.D. Pa. June 16, 2009) (citations omitted).
As set forth above, the plaintiffs allege, inter alia, that SEI lacked the financial ability to exercise the rights of first refusal. More specifically, the Complaint avers that
SEI and Strausser lacked the financial wherewithal to exercise these rights of first refusal. Indeed, in a December 20, 2005, voicemail message to K. Segal, SEI's representative, Panto, advised that SEI was in a "cash flow crunch", and inquired whether, in light of that situation, SEI could delay payment of $210,856 that SEI then owed to the S&M LLCs for certain road improvements performed at the Property.
See Complaint at ¶ 49. Given this theory of liability, we conclude that plaintiffs are entitled to obtain discovery of financial documentation as it pertains to SEI from third parties.*fn4 Plaintiffs have a right to test this theory of liability and need not solely rely on defendants' submissions to do so.
However, we note that the riders attached to the subpoenas issued in this matter attempt to seek financial information, from January 1, 2003 through the present, not only from SEI, but also from Strausser, any Strausser company and SEI's attorney, Mellon. Based on our review of the Complaint and agreements attached thereto, we conclude that the scope of the subpoenas must be limited to financial documentation pertaining to SEI only. As discussed above, both agreements containing rights of first refusal as to SEI were executed by SEI and S&M. Although Gary J. Stausser, as president, executed the agreements on behalf of SEI, he was not a party to the contract and did not bind himself as an individual. Accordingly, we find that any discovery as to Strausser or Mellon individually or as to any of Strausser's other companies would not be relevant at this time.*fn5
Further, this Court finds that plaintiffs' request for financial information from January 1, 2003 to the present is too broad given the assertions made in the Complaint. As detailed above, the Hovnanian agreement was executed on December 21, 2005. The Complaint alleges that shortly thereafter, the Segal sellers attempted to meet with SEI and Strausser to discuss the sale of memberships in the S&M LLCs to Hovnanian, but Strausser and other SEI representatives refused to meet with the Segal sellers. The Complaint further alleges that on February 13, 2006, just two days prior to closing on the Hovnanian agreement, SEI, through its attorney, defendant Mellon, filed a lawsuit in the Court of Common Pleas of Northampton County, Pennsylvania to stop the transfer of the properties based on a right of first refusal, as well as a notice of entry of lis pendens against the property. Based on the foregoing, this Court concludes that the scope of the subpoenas at issue be further limited to the time period of January 1, 2005 through January 1, 2008. It is the Court's belief that this limitation will give a sufficient financial picture of SEI during the relevant period of time asserted in the Complaint.
Moreover, to address defendants' concerns of confidentiality, this Court will enter an Order limiting the use and disclosure of information obtained in response to these subpoenas. More specifically, plaintiffs and their counsel shall not disclose the documents or their contents to any non-party, shall not use them for any commercial advantage, and shall limit their use to this litigation only.
Finally, we note that both parties have made requests for costs and fees associated with these motions. Neither request will be granted. With respect to our denial of defendants' request for sanctions, we find persuasive the reasoning set forth by Judge Hart in the case of Whitmill v. City of Philadelphia, Civ. A. No. 96-5216, 1998 U.S. Dist. LEXIS 13135, at *4-5 (E.D. Pa. August 18, 1998) (denying counsel's request for sanctions because of noncompliance with Local Rule of Civil Procedure 26.1(f)). With respect to plaintiffs' request, because we find that defendants' alleged failure to comply with the local rules does not demonstrate a pattern of misconduct worthy of sanctions, and because we have determined that these motions had merit, plaintiff's request for sanctions is denied.
An appropriate Order follows.