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LEG Q LLC v. RSR Corp.

United States District Court, N.D. Texas, Dallas Division

August 31, 2017

LEG Q LLC, Plaintiff,
v.
RSR CORPORATION, ET AL., Defendants.

          MEMORANDUM OPINION AND ORDER GRANTING LEG Q LLC'S APPLICATION FOR JUDICIAL ASSISTANCE PURSUANT TO 28 U.S.C. § 1782

          DAVID L. HORAN UNITED STATES MAGISTRATE JUDGE.

         LEG Q LLC (“LEG Q”) has filed an Application for Judicial Assistance Pursuant to 28 U.S.C. § 1782, see Dkt. No. 1 (the “Application”), requesting leave under 28 U.S.C. § 1782 and Federal Rules of Civil Procedure 26, 30, and 45 to issue and serve (1) subpoenas for the production of documents, information, or objects to Quexco, Inc., EB Holdings II, Inc., Quemetco, Inc., RSR Corporation, and Revere Smelting & Refining Corporation and (2) subpoenas for deposition testimony to Quexco, Inc., EB Holdings II, Inc., Quemetco, Inc., RSR Corporation, and Revere Smelting & Refining Corporation.

         United States District Judge David C. Godbey has referred the Application to the undersigned United States magistrate judge for determination under 28 U.S.C. § 636(b). See Dkt. No. 30.

         Quexco, Inc., EB Holdings II, Inc., Quemetco, Inc., RSR Corporation, and Revere Smelting & Refining Corporation jointly filed a response to the Application, see Dkt. No. 25, and LEG Q filed a reply, see Dkt. No. 28.

         The Court determines that a hearing or oral argument on the Application is not necessary.

         For the reasons and to the extent explained below, the Court GRANTS the Application [Dkt. No. 1] and DENIES as moot LEG Q's Motion for a Hearing on LEG Q LLC's Application for Judicial Assistance Pursuant to 28 U.S.C. § 1782 [Dkt. No. 6].

         Background

         LEG Q's Application seeks an order under 28 U.S.C. § 1782 “permitting [LEG Q] to subpoena documents and deposition testimony from RSR Corporation (‘RSR'), Revere Smelting & Refining Corporation (‘Revere'), Quemetco, Inc. (‘Quemetco'), Quexco, Inc. (‘Quexco'), and EB Holdings II, Inc. (‘EB Holdings, ' and, together with RSR, Revere, Quemetco, and Quexco, the ‘Subpoena Recipients' [or ‘Respondents']) for use in a shareholder derivative action it intends to bring in the English High Court on behalf of Eco-Bat Technologies Ltd. (‘Eco-Bat' or the ‘Company') against Eco-Bat's Chairman and the directors that he controls.” Dkt. No. 2 at 1. LEG Q explains that it “is a minority shareholder of Eco-Bat, an English lead recycling company that is dominated and controlled by Howard Meyers (‘Meyers'), its Chairman, Managing Director, and indirect majority shareholder”; that “Meyers and the Eco-Bat directors he controls have schemed to enrich Meyers at the expense of Eco-Bat and its minority shareholders, which have been shut out of Eco-Bat's governance and stonewalled in their attempts to gain critical information about the Company”; and that “LEG Q is preparing to commence a shareholder derivative action in the English High Court against Meyers and other current and former Eco-Bat directors to recover massive losses Eco-Bat has incurred as the result of their misconduct and breaches of their duties.” Id. (footnote omitted); see also Id. at 3 (“LEG Q intends to bring a derivative action in the English High Court against six current and former directors of Eco-Bat, including Meyers, to recover for massive losses caused by their breaches of duty to the Company (the ‘English Derivative Action').”).

         “In particular, LEG Q intends to prove that the defendant directors (including Meyers) orchestrated or, at minimum, condoned Eco-Bat's participation in an unlawful cartel to fix the price of scrap automotive batteries in Europe, for which the European Commission fined Eco-Bat over €32 million earlier this year, ” and “LEG Q also intends to establish that, through a series of improper, procedurally-unsound related-party transactions, the defendant directors siphoned assets from Eco-Bat and redirected them into entities wholly owned and controlled by Meyers and his family.” Id. at 1-2. “Finally, LEG Q intends to prove that the defendant directors failed to exercise proper corporate governance by rubber-stamping Meyers's self-dealing activities while scrubbing from Eco-Bat's books and records the objections of the directors appointed by the minority shareholders.” Id. at 2.

         According to LEG Q, it “seeks disclosure under Section 1782 to enable it to satisfy its heightened pleading burden under English law - which requires a derivative plaintiff to present evidence in support of its claims promptly after commencing suit, before it can proceed with its claim and later avail itself of the disclosure mechanisms under English law - and to prove its claims at trial, ” and “Section 1782 is the only mechanism practically available to LEG Q to obtain the evidence it will need to pursue its claims beyond the initial pleading stage.” Id.

         LEG Q asserts that its Application “satisfies the statutory requirements to obtain disclosure under Section 1782: the Subpoena Recipients are headquartered and maintain their principal places of businesses in this District, and LEG Q seeks discovery from them for use in its contemplated derivative action in London.” Id. And, LEG Q contends, “all of the factors guiding the Court's discretion under Section 1782 favor LEG Q's petition: LEG Q seeks to serve subpoenas narrowly tailored to its contemplated derivative claims; English courts are receptive to evidence gathered under Section 1782; and LEG Q's application is a good faith request for probative evidence that does not circumvent any discovery prohibition under English law.” Id.

         LEG Q explains that “[e]ach of the Subpoena Recipients possesses documents and information that are likely to be probative of, and relevant to, LEG Q's claims”:

Quexco. Although he is Eco-Bat's Chairman and Managing Director, Meyers stores his e-mails and electronic files relating to Eco-Bat on one or more servers owned by Quexco. Glynn-Jones Decl. Ex. 2 ¶ 8.3, Appx. 157. If Meyers has e-mails and electronic files concerning Eco-Bat's cartel activity, its one-sided acquisitions from and management agreements with Meyers-controlled entities, and the breakdown in Eco-Bat's corporate governance - in particular, e-mails and files concerning Meyers's involvement in such matters - they are held by Quexco. In addition, as the parent company of Quemetco and Revere, Quexco can likely provide documents and testimony about Eco-Bat's acquisition of the Indiana, New York, and California lead recycling facilities, the “negotiation” and renewal of the one-sided facilities management agreements for those facilities, and Quemetco's misappropriation of an operating permit for the California facility. Id. Ex. 1 at 26, 65-66 & Ex. 2 ¶ 9, Appx. 36, 75-76 & 158-59. Likewise, as RSR's parent, Quexco can presumably provide documents and testimony about RSR's performance under its services agreement with Eco-Bat, including RSR's practice of charging Eco-Bat to use intellectual property that Eco-Bat paid to develop. Id. Ex. 1 at 26, 65 & Ex. 2 ¶ 9.6, Appx. 36, 75 & 159.
EB Holdings. As Eco-Bat's majority shareholder, which controls the majority of the appointments to Eco-Bat's Board (i.e., the prospective defendants), EB Holdings likely has relevant information about all aspects of the English Derivative Action, including all of the matters addressed in the preceding paragraph, as well as the collapse of Eco-Bat's corporate governance and the disenfranchisement of Eco-Bat's minority directors.
RSR, Quemetco, and Revere. As noted, RSR, Quemetco, and Revere - all owned and controlled by Meyers - entered into one-sided agreements with Eco-Bat pursuant to which Eco-Bat pays significant fees to these companies to operate facilities purchased (but, in practice, never controlled) by Eco-Bat and to use intellectual property that Eco-Bat paid to develop. All three of these companies are likely to have information about the “negotiation” and renewal of these agreements, their fairness (or lack thereof) to Eco-Bat, the parties' performance under such agreements, and the amount of value improperly extracted from Eco-Bat pursuant to them.

Id. at 9-10 (footnote omitted).

         Respondents assert in response that “LEG Q's Application is part of an ongoing, concerted effort by LEG Q and others to take control of [Eco-Bat] from Respondent EB Holdings and, ultimately, its shareholder Howard Meyers” and that “LEG Q, an activist minority shareholder of Eco-Bat, has longstanding hostilities toward Eco-Bat's management and has used various legal maneuvers to try to gain leverage over Respondents and their affiliates.” Dkt. No. 25 at 1. According to Respondents, “[i]n addition to efforts to obtain information in the U.K., LEG Q has filed a separate § 1782 action in Wisconsin, attempted to appear in EB Holdings' pending bankruptcy proceeding (even though LEG Q was not a creditor at the time), and, most recently, purportedly purchasing part of EB Holdings' debt in order to become a creditor in connection with the Bankruptcy and in a possible effort to gain access to information in a related proceeding in Nevada state court.” Id.

         Respondents assert that “LEG Q's Application, motivated as much by a desire to harass and burden Respondents as by an actual desire for the information, is not a proper use of § 1782”; that “LEG Q is attempting to obtain discovery in connection with a proposed shareholder derivative action to be filed in the U.K.”; and that “[p]ermitting such discovery here would circumvent the express rules recently adopted in England that require a party to make an initial prima facie showing in order to even maintain a shareholder derivative suit or proceed with discovery.” Id.

         Respondents contend that, “[u]ntil the English court recognizes LEG Q's prima facie right to pursue a claim, this Court should not permit LEG Q to obtain discovery” and that “[t]his is especially true where the discovery being sought is extremely burdensome, seeking ‘all documents' and at least five depositions on numerous topics for a period of over twenty years.” Id. at 1-2. Respondent further argue that “there is little doubt that LEG Q could obtain the requested information in various other forums, including directly from Eco-Bat in the U.K.” Id. at 2.

         According to Respondents, “[u]nder these circumstances, this Court should exercise its broad discretion to deny the Application in its entirety” or, “[i]n the alternative, the Court should stay this proceeding until a determination by the English court as to whether LEG Q can make the required prima facie showing to proceed with discovery on its shareholder derivative claim, ” and, “[i]f LEG Q can make such a showing, then this Court can consider what specific discovery would be proper under § 1782, ” but, “[i]f LEG Q cannot, this proceeding would be moot.” Id.

         Finally, Respondents contend that, “if the Court is inclined to grant any portion of the Application at this time, it should significantly narrow the scope of the requested subpoenas to include an appropriately-tailored production of documents accompanied by a records custodian affidavit, ” where “[t]he depositions of numerous corporate representatives would be overly burdensome and is unnecessary.” Id.; see also Id. at 18 n.2. More specifically, Respondents assert that “LEG Q's Application seeks vast, overbroad discovery, requesting ‘all documents' related to a wide variety of topics over a more than twenty-year period. Specifically, the proposed subpoenas ask for documents and depositions from the Respondents (with the same requests for each Respondent)”:

• “All documents” and depositions “concerning Eco-Bat's participating in a[n alleged] cartel” “from January 1, 2006 through the present.” Docs. 1-1 at 4; 1-2 at 4; 1-6 at 4; 1-7 at 4.”
• “All documents” and depositions “concerning ... the Board of Directors of Eco-Bat” and its members. Docs. 1-1 at 4; 1-2 at 4; 1-6 at 4; 1-7 at 4.
• “All documents” and depositions related to the 1996 Agreement” between Eco-Bat and RSR Corporation” “from September 14, 1995 through the present.” Docs. 1-1 at 5; 1-2 at 5; 1-4 at 4; 1-6 at 4; 1-7 at 4; 1-9 at 4.
• “All documents” and depositions related to “the 2003 Facility Agreements” between Eco-Bat on one side and either Quemetco or Revere on the other “from July 31, 2002 to the present.” Docs. 1-1 at 5-6; 1-2 at 5-6; 1-3 at 4; 1-4 at 5; 1-5 at 4; 1-6 at 5; 1-7 at 5; 1-8 at 4; 1-9 at 4; 1-10 at 4.
• “All documents” and depositions related to “the 2000 Facility Agreement” on Eco-Bat¡|s 2016 annual report “from May 1, 2000 to the present.” Docs. 1-1 at 6; 1-2 at 6; 1-3 at 4-5; 1-4 at 6; 1-6 at 5; 1-7 at 5; 1-8 at 4; 1-9 at 4.
• “All documents” and depositions related to “any Other . . . Agreement” with Eco-Bat. Docs. 1-1 at 6-7; 1-2 at 6-7; 1-3 at 5; 1-4 at 4-5; 1-5 at 4-5; 1-7 at 4; 1-6 at 5; 1-7 at 5; 1-8 at 4; 1-9 at 4; 1-10 at 4.
• “All documents” and depositions concerning licenses or permits “for any facility owned by Eco-Bat.” Docs. 1-1 at 7; 1-2 at 7; 1-3 at 5; 1-4 at 7; 1-6 at 5; 1-7 at 4; 1-8 at 4; 1-9 at 5.
• Documents related to the board of directors for each Respondent and each director's financial interests “[f]or the period from September 14, 1995 to the present.” Docs. 1-1 at 7; 1-2 at 7; 1-3 at 6; 1-4 at 7; 1-5 at 5.
• “All documents” concerning any potential conflicts of interests of any member of the board of directors of any respondent “from September 14, 1995 to the present.” Docs. 1-1 at 7; 1-2 at 7; 1-3 at 6; 1-4 at 8; 1-5 at 5.
• “[A]ll documents” and depositions “show[ing] the amount of and basis for any payments ... to [the potential individual defendants of the U.K. lawsuit] from September 14, 1995 to the present.” Docs. 1-1 at 7-8; 1-2 at 7-8; 1-3 at 6; 1-4 at ...

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