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CMI Roadbuilding, Inc. v. Iowa Parts, Inc.

United States District Court, N.D. Iowa, Cedar Rapids Division

September 21, 2017

IOWA PARTS, INC., Defendant.


          C.J. Williams, Chief United States Magistrate Judge.


         I. INTRODUCTION ............................................................................. 1

         II. PROCEDURAL BACKGROUND ......................................................... 2

         III. PLAINTIFFS' MOTION TO COMPEL .................................................. 3


         V. PLAINTIFFS' MOTION FOR SANCTIONS .......................................... 21

         VI. CONCLUSION .............................................................................. 24


         This case is before the Court on plaintiffs' resisted motion to compel discovery, to impose sanctions, and for leave and additional time to conduct a Rule 30(b)(6) deposition. (Doc. 128). Defendant filed its timely resistance, and plaintiffs filed a timely reply. (Docs. 129, 130). Both parties included exhibits with their filings. These attachments have been considered. For the reasons stated below, the Court grants in part plaintiffs' motions.


         This case concerns allegations by CMI Roadbuilding, Inc. and CMI Roadbuilding Ltd. (plaintiffs) that defendant Iowa Parts, Inc. (defendant) misappropriated trade secrets in the form of engineering documents acquired by and exclusively licensed to plaintiffs in violation of state and federal law. (Doc. 81). Plaintiffs also pled common law conversion and unjust enrichment claims seeking, among other remedies, compensation for defendant's use of plaintiffs' proprietary information and trade secrets. (Id.).

         Discovery for this case began in 2016. A general protective order was entered on August 17, 2016, pursuant to the parties' joint motion. (Doc. 37, 38). In September of 2016, plaintiffs brought their first motion to compel discovery, seeking production of engineering documents in defendant's possession. (Doc. 41). Subsequently, defendant filed an unresisted motion for a second protective order, arguing that plaintiffs' production request encompassed sensitive information that had no bearing on this case and, therefore, requested that this Court require plaintiffs to identify the trade secrets or proprietary information at issue. (Docs. 48, 48-1). At a hearing on the motion to compel, defendant agreed to produce approximately 1, 000 pages of plans, specifications, and drawings, notwithstanding its objection that these included documents not related to this lawsuit. (Doc. 50).

         On October 24, 2016, the Court entered an order granting in part plaintiffs' motion to compel in light of this agreement. (Id.). On November 9, 2016, the Court entered an order summarily granting defendant's unresisted motion for a protective order to the extent that it was not inconsistent with the order on the motion to compel. (Doc. 53). Defendant maintains that plaintiffs have yet to articulate the particular trade secrets defendant is alleged to have misappropriated. (Doc. 129, at 4).

         In May 2017, defendant produced engineering documents pursuant to the October 2016 order to compel and, under the protective order, designated the documents as being for “Attorney's Eyes Only.” Plaintiffs filed a motion requesting that this designation be reduced to “Confidential” to permit inspection by certain persons. On May 26, 2017, the Court granted plaintiffs' motion. (Doc. 109).

         The instant motion marks the parties' third discovery dispute in this case. In their motion, plaintiffs seek to compel defendants to supplement production of documents identified in plaintiffs' initial discovery requests. (Doc. 128). Plaintiffs claim that information gathered during the depositions of Yvonne Bardwell, Suzy Hartley, and Jay King purportedly shows that defendant has failed to produce responsive financial documents. (Doc. 128-1 at 3, 4). Additionally, plaintiffs request that the Court impose sanctions against defendant on the grounds that defendant has abused the discovery process and frustrated plaintiffs' fair examination of Bardwell, Hartley, and King. (Doc. 128, at 1). Finally, plaintiffs request leave and additional time to conduct a Rule 30(b)(6) deposition of defendant. (Id.). Pursuant to Local Rule 37(a), plaintiffs aver to have conferred in good faith with defendant in an attempt to resolve these issues. (Id.).

         Discovery was scheduled to close on August 9, 2017. (Doc. 62).


         Plaintiffs' motion aims to compel supplemental production of certain financial and accounting records pertaining to defendant's business. In their initial written discovery requests, plaintiffs sought, inter alia, production of the following documents, which are now the subject of dispute:

a) “any and all documents, including invoices, bills, receipts and contracts relating to Iowa Parts, Inc.'s purchase of materials, tools, or machinery to be utilized in the manufacturing of products sold by Iowa Parts, Inc. from 2006 to the present”;
b) “any and all State and Federal tax returns for Defendant Iowa Parts, Inc. from 2006 to the present”;
c) “any and all pro-forma income statements or balance sheets, statements of cash flow, budgets, and other bookkeeping paperwork related to Defendant Iowa Parts, Inc.'s operation between 2006 and the present”; and
d) “all monthly income statements for Defendant Iowa Parts, Inc., showing the revenue and expenses generated by that entity (fixed and variable).”

(Doc. 128-1, at 7-8). Subsequently, in a March 10, 2017, letter addressed to defense counsel (hereinafter “March 10 letter”), plaintiffs' counsel extended what the Court takes to be an offer to narrow the scope of the foregoing production requests. (Doc. 128-8). The letter stated that there remained “basic information which must be provided” by defendant, including defendant's records of sales and costs of production “since 12/31/10 relating to the asphalt plant, concrete plant, and landfill and dirt compaction equipment product lines that is for a part or component for a product manufactured by [defendant], its subsidiaries and/or affiliates.” (Doc. 128-8, at 1-2). These narrowed requests have been incorporated into plaintiffs' motion. (Doc. 128-1, at 8).

         On March 30, 2017, defendant responded to plaintiffs' demand for supplemental production explaining that, “[w]ith respect to sales and costs of production, Iowa Parts is not able to search for responsive documents based upon a drawing number, type, or description.” (Doc. 128-9, at 1). Defendant claimed that it had received over 15, 000 purchase orders since 2010, but acknowledged that “[i]f Iowa Parts is provided with a part number, [it is] able to identify related purchase orders that would need to be manually searched.” (Id.). Plaintiffs do not claim to have provided a list of part numbers to date, although they have identified 3, 600 engineer drawings which plaintiffs allege contain trade secrets. (Docs. 129-1, at 1, 130, at 3). Notably, these drawings have been identified by spreadsheet, but the drawings themselves remain unproduced. (Id.).

         Plaintiffs acknowledge that defendant has produced at least 42 pages of financial and accounting information in response to its requests, including a “Sales by Rep Summary” for the years 2011 through 2016, as well as balance sheets and profit and loss statements for the same time span. (Doc. 128-1, at 4). Plaintiffs argue, however, that defendant has withheld additional responsive documents to which plaintiffs are entitled.

         Plaintiffs point to deposition testimony by Bradwell, Hartley, and King as evidence that accessible, unproduced financial records exist. Plaintiffs claim these records include financial statements, sales reports, commission reports, and account receivables, which are collectively in the possession of defendant's sole shareholder, Mike Hawkins, and also available on defendant's computer system. (Id., at 9). Further, billing records, employee records, and non-compete contracts are located in the filing cabinet in Hartley's office. (Id.). “[A]ccount receivable reports for all companies or individuals who have purchased products from [defendant], historical records of commissions for all sales of products, and a list of the pre[ ]-paid expenses” are all allegedly available on defendant's computer system. (Id.). Finally, plaintiffs allege that Bardwell used state and federal income tax documents, information about employees' gross earnings, profit and loss statements, balance sheets, and bank statements. (Id.). Plaintiffs ask the Court to compel defendant's production of these materials, as well as defendant's payroll reports, income and expense statements, and retained earnings, which were used by Bardwell in the course of her employment. (Id., at 9-10).

         In its resistance, defendant argues that supplemental production is not required. Its position, in essence, is that plaintiffs' demand is overly broad and unduly burdensome. Defendant claims that plaintiffs have failed to sufficiently particularize the trade secrets alleged to have been misappropriated, resulting in defendant's inability to identify relevant financial documents. (Doc. 129, at 3-4). Citing the Court's November 9, 2016, protective order, defendant argues that plaintiffs are required to identify the relevant trade secrets before compelling discovery from defendant. (Id., at 4). Additionally, to the extent that it is able to determine the scope of relevant discovery, defendant claims that the documents plaintiffs identify in their motion pertain to defendant's general business operations and are largely irrelevant to this trade secret litigation. (Id., at 5, 7). Although defendant admits that “a small percentage” of the documents plaintiffs seek relate to the products and designs identified thus far (id., at 7), defendant contends that locating and producing these documents would “involve the manual review of 15, 000 plus documents.” (Id., at 9-10).

         A. Standards for ...

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