BB&HC executive held to be a passive investor

United States of America
  • Owner of Earthy LLC served a subpoena on member of BB&HC during infringement case regarding EARTHY trademarks
  • Party seeking discovery failed to show that the executive had any unique personal knowledge of relevant facts
  • Court quashed the subpoena, holding that executive was a passive investor rather than a managing agent


In Earthy, LLC v BB&HC, LLC (October 10 2017) the court quashed a subpoena for documents and testimony on a high-ranking executive of BB&HC. The court concluded that:

  • the executive was a passive investor rather than a managing agent; and
  • the subpoena imposed an undue burden because the party seeking discovery had not shown that the executive had any unique personal knowledge of relevant facts and there was little evidence he was involved in the BB&HC’s day-to-day business.

Facts

BB&HC owned two registered trademarks for EARTHY DELIGHTS. Earthy LLC filed suit for a declaratory judgment, alleging that its EARTHY and EARTHY ORGANIC marks did not infringe BB&HC’s trademarks. BB&HC counterclaimed for trademark infringement and added John Vlahakis, the sole owner of Earthy, as a counterclaim defendant. Vlahakis responded by serving a subpoena for documents and testimony on John Hoagland, a member of BB&HC. BB&HC filed a motion to quash the subpoena.

The court first addressed whether Hoagland was a managing agent whom Vlahakis was entitled to depose or a non-party entitled to greater protection from discovery. A party is entitled to identify and depose a specified corporate managing agent under Rule 30(b)(1) of the Federal Rules of Civil Procedure. In contrast, under Rule 30(b)(6) the corporate entity chooses the deponent.

In order to establish that Hoagland was a managing agent, Vlahakis had to show Hoagland’s direct involvement with the company’s day-to-day operation or the decisions at issue in the case. However, the court determined that Hoagland was merely a passive investor and not a managing agent. Even though he was a member of the defendant limited liability company, Hoagland had a minimal role in day-to-day operations. The company was managed by others (Gollan, then Young) and the employees reported to them.

Hoagland had executed a trademark assignment – co-signed by Gollan – but this was not enough. The fact that Hoagland was on top of BB&HC’s organisation chart and had a role in long-term planning was insufficient to categorise him as a managing agent. Hoagland was thus a third party, eligible for protection from any undue burden under Rule 45.

Vlahakis failed to show that he sought discovery through less intrusive means, such as taking direct discovery from BB&HC. The court held that a high-ranking executive should be subpoenaed only when the party seeking discovery has shown that the executive has unique, personal knowledge of the facts at issue which are not available from other sources. Although Hoagland had signed a trademark assignment, it had also been signed by Gollan. Consequently, Vlahakis failed to establish unique knowledge.

As there was little evidence that Hoagland was involved in BB&HC’s day-to-day business, Vlahakis failed to make the requisite demonstration of personal knowledge. Accordingly, the court quashed the subpoena on Hoagland.

Comment

This case shows that, when seeking discovery from high-level executives, a party must be able to show that the executives have direct involvement with the company’s day-to-day operation or the decisions at issue in the case or that they have unique, personal knowledge of the relevant facts. 

Brandon Scruggs, Sunstein Kann Murphy & Timbers LLP, Boston

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