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Wollesen v. West Central Cooperative

United States District Court, N.D. Iowa, Western Division

February 8, 2018

WILLIAM S. WOLLESEN, et. al., Plaintiffs,
WEST CENTRAL COOPERATIVE, et. al., Defendants.


          Kelly K.E.Mahoney United States Magistrate Judge

         This matter comes before the Court on two motions: (1) plaintiff Iowa Plains Farms' (“Iowa Plains”) Motion to Compel Against defendants West Central Cooperative, WestCo Agronomy Company, LLC, and Farmers Cooperative Company d/b/a Landus Cooperative (collectively “West Central defendants”) and defendants Wixted Pope Nora Thompson & Associates, LLC, Wixted, Inc., and Eileen Wixted (collectively “Wixted Pope defendants”) (Doc. 169), and (2) Iowa Plains' Motion to Compel Against Wixted Pope defendants (Doc. 172).[1] The Wixted Pope defendants timely filed their resistance (Doc. 181) and the West Central defendants timely filed their resistance (Doc. 180) to Iowa Plains' first motion to compel (Doc. 169). Iowa Plains timely filed a single brief in response to both resistances. (Doc. 189; see Doc. 186 (granting Iowa Plains an extension of time to file its reply brief)). The Wixted Pope defendants also timely filed their resistance to Iowa Plains' second motion to compel (Doc. 172). Doc. 182. Iowa Plains timely filed its reply brief. (Doc. 191; see Doc. 186 (granting Iowa Plains an extension of time to file its reply brief)). The Court entertained oral argument on these motions on December 28, 2017 (Doc. 196).[2]

         For the following reasons, Iowa Plains' Motion to Compel Against West Central and Wixted Pope (Doc. 169) is granted in part and denied in part and Iowa Plains' Motion to Compel Against Wixted Pope (Doc. 172) is granted in part and ruling is reserved in part.

         I. BACKGROUND

         The factual history of this case is complex and need not be recounted in full for purposes of the instant motions. The Court recognizes that the following synopsis eliminates many details, however, in the interest of brevity, the facts are as follows:[3]

         Plaintiffs allege that defendants conspired “to hide and conceal the known fraudulent conduct of Chad A. Hartzler.” Doc. 64 at 2. This conspiracy, plaintiffs allege, involved devising a story in which plaintiffs and Hartzler, together, engaged in fraudulent and illegal conduct. Doc. 64. Subsequently, in an attempt to lessen the repercussions of their own wrongful conduct, certain defendants used plaintiffs as a scapegoat. Id. at 2. As a result, plaintiffs plead damages in excess of $6 million. Id. at 4.

         Plaintiffs began purchasing agronomy products from West Central, a collection of farming companies and their shareholders, on a prepay basis in February 2002. Id. at 14. On June 25, 2007, Iowa Plains Farms became a shareholder of West Central Cooperative (“West Central”). Id. at 23. Hartzler began working for West Central in July 2002; plaintiffs claim that Hartzler's objective was “to increase West Central's sales and to improve its competitive position in the agronomy industry” by increasing West Central's agronomy sales. Id. at 14. In February 2003, Hartzler allegedly began stealing seedcorn from West Central and misappropriating it for personal profit. Id. at 17. Although the exact facts of the multiple alleged misappropriations were varied, plaintiffs claim that the bulk of these misappropriations involved Hartzler stealing seedcorn from West Central and selling it to unknowing West Central customers, who paid Hartzler directly and personally for the seedcorn. Id. In this manner, Hartzler realized a personal profit on the stolen product.

         In 2005, Hartzler was assigned to handle plaintiffs' accounts with West Central. Id. at 18. During plaintiffs' first meeting with Hartzler, Hartzler informed plaintiffs “that he received product from manufacturers that he could sell for his own benefit (a.k.a. ‘rep. material').” Id. This statement was not true. Id. at 18-19. From 2005 through 2010, Hartzler sold this “rep. material” to plaintiffs, who paid Hartzler directly and personally. Id. at 19. Instead of lawfully acquiring the product, Hartzler was stealing the product from West Central and selling it to plaintiffs for personal gain. Id. Plaintiffs allege that they had no reason to suspect any illicit activity. Id.

         To conceal his fraudulent conduct, plaintiffs claim Hartzler engaged in a practice known as “lapping, ” in which Hartzler would sell the stolen product to plaintiffs for a personal profit, then enter a receivable on Iowa Plains' book with West Central. Id. at 29. Thus, Iowa Plains paid Hartzler directly for the product and was also billed for the same product by West Central. Id. Plaintiffs, however, were unaware that they were billed twice and only had knowledge of the payment made directly to Hartzler. Id. Iowa Plains did not pay West Central for the product provided by Hartzler and for which Hartzler personally received payment. Id. As a result, an ever-increasing deficit in Iowa Plains' name was created on West Central's books. Id. To conceal the deficit, Hartzler solicited increasing payments from plaintiffs each year; while a portion of the payment went to Hartzler directly, a portion was applied to the deficit on West Central's books. Id. This scheme resulted in a greater deficit being created each time Hartzler misappropriated product and sold it to plaintiffs for personal gain. See id.

         Plaintiffs allege that because Iowa Plains expressly declined to open a credit line with West Central, West Central should have become aware of Hartzler's conduct at the time the deficit first appeared on the books, but instead permitted Hartzler's conduct to continue. Id. at 29-30. Plaintiffs further argue that West Central became aware of Hartzler's fraudulent conduct in 2007 and, in no case, could West Central have become aware of the fraudulent conduct any later than January 2009. Id. at 25-26.

         On April 20, 2011, Hartzler submitted his resignation, in which he accepted full responsibility for the alleged malfeasance. Id. at 35. Plaintiffs believe that Hartzler's resignation was strategically planned to draw attention away from defendants' failure to act with respect to Hartzler's malfeasance. Id. Shortly thereafter, plaintiffs allege, in an attempt to cover up Hartzler's actions, certain defendants suggested to Hartzler that Hartzler had been bribed by plaintiffs; Hartzler adopted this suggestion and later gave a sworn statement to the effect that plaintiffs had bribed Hartzler. Id. at 35-36. Subsequently, certain defendants pursued a legal action against Iowa Plains Farms in Story County, Iowa. Id. at 37. That lawsuit (which was filed on May 12, 2011) resulted in a verdict in favor of the Wollesens and Iowa Plains Farms. Westco Agronomy Co., LLC v. Wollesen, No. LACV046817, 2014 WL 5389985 (Iowa Dist. Aug. 7, 2014). The Supreme Court of Iowa upheld the verdict as it pertained to the Wollesens. Westco Agronomy Co., LLC v. Wollesen, No. 15-0471, 2017 WL 6545853 (Iowa Dec. 22, 2017).

         West Central retained Wixted Pope Nora Thompson & Associates, LLC (“Wixted Pope”) to serve as West Central's public relations firm amidst the scandal involving Hartzler. Id. at 40. At some point, defendant Eileen Wixted was a business partner at Wixted Pope. The Wixted Pope defendants actively attempted to promote a positive image for West Central. Id. at 40-41. West Central representatives allegedly delivered speeches crafted by the Wixted Pope defendants that were intended to restore and promote West Central's image by using the Wollesens as a scapegoat for both Hartzler's theft and other unrelated losses. Id. at 44. By turning the Wollesens into a scapegoat, the West Central defendants and the individual defendants were able to escape liability and accountability at the hands of West Central's shareholders. Id. Alicia Clancy, as West Central's Director of Communications, became involved in the “cover-up” scheme by making public statements relating to the scheme. Id. at 69. Alicia Clancy, notably, is not named as a defendant in this action.


         Both motions currently under consideration by the Court are motions to compel and seek discovery that has been withheld based on objections for relevance, attorney-client privilege, and the work-product doctrine. Though each motion, resistance, and reply may present a distinct legal issue, the law common to both motions is set forth below.

         A. Motion to Compel

         Federal Rule of Civil Procedure 37(a)(1) provides that a party moving to compel discovery “must include a certification that the movant has in good faith conferred or attempted to confer with the person or party failing to make disclosure or discovery in an effort to obtain it without court action.” See also LR 37(a). An exchange of written communications or a single telephone message will not, by itself, satisfy the requirements.” LR 37(1). “The meet-and-confer requirement is not an empty formality.” Williams v. Cent. Transp. Int'l., Inc., No. 4:13-CV-2009 (CEJ), 2014 WL 6463306, at *2 (E.D. Mo. Nov. 17, 2014) (citation and internal quotation marks omitted).

         Rule 26(b)(1) of the Federal Rules of Civil Procedure provides:

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.

Fed. R. Civ. P. 26(b)(1). Rule 26 is “liberal in scope and interpretation” and extends to matters that “are relevant and reasonably calculated to lead to the discovery of admissible evidence.” Hofer v. Mack Trucks, Inc., 981 F.2d 377, 380 (8th Cir. 1992) (citation omitted). Whether the discovery sought would be admissible in evidence is inconsequential when considering a motion to compel discovery. Id. Thus, evidence that may be inadmissible may properly be discoverable. Id. “[T]here must be at least a ‘threshold showing of relevance' before requiring a party to disclose ‘information which does not reasonably bear upon the issues in the case.'” Liguria Foods, Inc. v. Griffith Labs., Inc., 309 F.R.D. 476, 479 (N.D. Iowa 2015). Once this showing is made, the burden shifts to the resisting party to show the requested information is not relevant for discovery. Id.

         Federal Rules of Civil Procedure 33 and 34 state that objections to discovery requests must be stated with “specificity.” Indeed, the Honorable Mark W. Bennett, United States District Judge, who is the District Judge presiding over the instant case, has admonished parties against “asserting boilerplate objections that the discovery sought is vague, ambiguous, overbroad, unduly burdensome, etc. . . . without specifying how each interrogatory or request for production is deficient and without articulating the particular harm that would accrue if the responding party were required to respond to the proponent's discovery requests.” Liguria Foods, Inc. v. Griffith Labs., Inc., 320 F.R.D. 168, 185 (N.D. Iowa 2017) (alteration in original) (citation and internal quotation marks omitted).

         Discovery will not be permitted if responding to a specific request would be unduly burdensome, or if “harm to the person from whom discovery is sought outweighs the need to the person seeking discovery of the information.” Nachurs Alpine Solutions, Corp. v. Nutra-Flo Co., No. 15-CV-4015-LTS, 2017 WL 1380460, at *2 (N.D. Iowa Apr. 17, 2017); see also Fed. R. Civ. P. 26(b)(1) (requiring discovery be proportional to the needs of the case). This Court has established several factors that may be considered in assessing whether responding to a discovery request would present an undue burden: 1) relevance of the requested information; 2) the party's need for the discovery; 3) the breadth of the discovery request; 4) the time period covered by the request; 5) ...

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