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Jack v. SPV Ventures, LLC

United States District Court, S.D. Ohio, Eastern Division

May 21, 2018

JOHN JACK, et al., Plaintiffs,
v.
SPV VENTURES LLC, et al., Defendants.

          ALGENON L. MARBLEY JUDGE

          OPINION AND ORDER

          KIMBERLY A. JOLSON UNITED STATES MAGISTRATE JUDGE

         This matter is before the Court on John Jack's Renewed Motion to Compel DeepRock Disposal Solutions, LLC to Produce Records Responsive to Subpoena (Doc. 96 in 2:16-cv-633), Mr. Jack's Motion for Leave to File a Reply Brief Instanter in Support of his Renewed Motion to Compel (Doc. 106 in 2:16-cv-633), and Mr. Jack's Motion to Strike South Park Ventures, LLC's Response to the Renewed Motion to Compel (Doc. 78 in 2:17-cv-808). For the reasons that follow, Mr. Jack's Motion for Leave to File a Reply Brief is GRANTED, and his Motion to Strike and Renewed Motion to Compel are DENIED.

         I. BACKGROUND

         Mr. Jack is the manager and a member of Tri-State Disposal, LLC (“Tri-State”), and former Chief Executive Office (“CEO”) of Water Energy Services, LLC (“WES”), a company that built facilities and operated injection wells for the disposal of waste water generated by the oil and gas industry in the Appalachian Basin. Mr. Jack and Dean Grose, who is part owner and operator of South Park Ventures, LLC (“SPV”), were WES's sole board members. Tri-State and SPV each held a fifty percent share in WES.

         WES began construction on its facilities in April 2015, completed construction in December 2015, and became fully operational around February 2016. Despite WES becoming fully operational, its underlying business relationships soured, leaving Mr. Jack and Tri-State at odds with Mr. Grose and SPV. In the context of those faltering relationships, WES operated as such for just a short period of time. Multiple lawsuits ensued, two of which have been consolidated by this Court and are currently pending. The Court discusses each lawsuit only to the extent necessary to resolve the pending Motions.

         A. Jack, v. SPV Ventures, LLC, , 2:16-cv-633

         Mr. Jack and Tri-State filed the first lawsuit suit against SPV and Mr. Grose in the Court of Common Pleas for Washington County, Ohio on June 3, 2016. (Doc. 4 in 2:16-cv-633). SPV and Mr. Grose removed the action to this Court pursuant to its diversity jurisdiction on June 30, 2016. The case is now captioned as Jack, v. SPV Ventures, LLC, , 2:16-cv-633. Mr. Jack and Tri-State filed the Second Amended Complaint (the operative complaint) on March 23, 2017. (Doc. 27 in 2:16-cv-633).

         According to the Second Amended Complaint, a third-party expressed an interest in purchasing WES in the fall of 2015, even before WES completed construction of its facilities. (Id. at ¶ 25). Mr. Jack and Tri-State allege that, although the offer to purchase WES expired and consequently was declined, having such an offer prompted SPV, Mr. Grose, and others to “engage[ ] in a concerted effort to force Jack to resign from the board of WES, remove him as CEO of WES and remove him as an employee of WES so they could gain control of WES.” (Id. at ¶¶ 27-28). Their motive, Mr. Jack and Tri-State contend, was financial-removing Mr. Jack “without payment of any compensation.” (Id. at ¶ 28). Arising principally from these allegations, Mr. Jack and Tri-State bring claims for breach of contract based on the WES Operating Agreement (Count One), breach of fiduciary duties (Count Two), and defamation resulting in libel and slander (Count Three).

         B. SPV Ventures, LLC v. Jack , No. 2:17-cv-808

         Within a week of Mr. Jack and Tri-State filing the first lawsuit, SPV filed an action against Mr. Jack and former officers of WES in the Court of Common Pleas for Washington County, Pennsylvania. Defendants removed the matter based on diversity jurisdiction to the United States District Court for the Western District of Pennsylvania, which transferred it to this Court in September 2017. (Doc. 26 in 2:17-cv-808). The second lawsuit is now captioned as SPV Ventures, LLC v. Jack , No. 2:17-cv-808. The Amended Complaint (the operative complaint) was filed on March 23, 2017. (Doc. 1-3, PAGEID #: 97-208 in 2:17-cv-808).

         SPV alleges that Mr. Jack and WES's former officers mismanaged the construction of the WES facility and WES's financial assets, resulting in WES's default “of its various obligations to its lenders” and causing WES to “incur[ ] debt …. in excess of $3, 000, 000.00.” (Id. at ¶ 27, PAGEID #: 101). Relevant here, SPV alleges that Mr. Jack and WES's former officers failed to satisfy their duties to obtain proper rights-of-way for WES's pipeline and, consequently, WES constructed the pipeline in the incorrect location. (Id. at ¶¶ 83-85, PAGEID #: 113). SPV also avers that Mr. Jack and WES's former officers acted to WES's detriment by “accept[ing] barrels of water from consumers at a below-market price, ” resulting in increased royalties to them. (Id. at ¶¶ 88-89, PAGEID #: 114).

         WES was placed in receivership in July 2016, and the receiver obtained court approval to sell WES's assets at auction. (Doc. 24 at 4 in 2:17-cv-808 (citing Am. Compl. ¶¶ 46-54 & Ex. D)). WES's assets were sold at auction in December 2016 to Funds Protection Investment, LLC (“FPI”), which assigned them to DeepRock Disposal Solutions, LLC (“DeepRock”). (Id.). DeepRock explains that its owners include two limited liability companies, one of which is owned by Mr. Grose. (Doc. 103 at 16 in 2:16-cv-633). Arising generally from these allegations, SPV brings claims for breach of fiduciary duties (Count One) and misrepresentation and fraud (Count Two).

         C. The Discovery at Issue

         Mr. Jack seeks to compel discovery from DeepRock, which is not a party to either lawsuit pending in this Court. Mr. Jack served a subpoena on DeepRock on June 29, 2017 (Doc. 73-2 in 2:16-cv-633), and first moved to compel in January 2018. (Doc. 73 in 2:16-cv-633). After the Motion was briefed fully, the Court denied it as premature, finding that many of the issues were amenable to resolution through continued discussions. (Doc. 86 at 6-7 in 2:16-cv-633). Consequently, the Court ordered the parties to meet and confer. (Id.).

         After engaging in that process, Mr. Jack opted to withdraw subpoena requests 1-7, 13, 15, and 18-19, but indicated that the parties remained at an impasse as to the remaining subpoena requests, namely requests 8-12, 14, and 16-17. (See Docs. 96-3, 96-4, 96-5, 96-6 in 2:16-cv-633). The remaining requests seek production of:

8. All financial statements of DeepRock whether internal or external, from December 1, 2016 through the Present.
9. All reports and records regarding the barrels of waste water received by DeepRock at its facility for the period ...

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