Scott Hutchison Enterprises, Inc. v. Cranberry Pipeline Corp.

318 F.R.D. 44, 2016 U.S. Dist. LEXIS 164828, 2016 WL 7015671
CourtDistrict Court, S.D. West Virginia
DecidedNovember 30, 2016
DocketCase No.: 3:15-cv-13415
StatusPublished
Cited by7 cases

This text of 318 F.R.D. 44 (Scott Hutchison Enterprises, Inc. v. Cranberry Pipeline Corp.) is published on Counsel Stack Legal Research, covering District Court, S.D. West Virginia primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Scott Hutchison Enterprises, Inc. v. Cranberry Pipeline Corp., 318 F.R.D. 44, 2016 U.S. Dist. LEXIS 164828, 2016 WL 7015671 (S.D.W. Va. 2016).

Opinion

MEMORANDUM OPINION and ORDER

Cheryl A. Eifert, United States Magistrate Judge

On November 18, 2016, the parties appeared for a hearing on Defendants’ Renewed Motion to Compel Production of Plaintiffs Financial Information, (ECF No. 181), and Plaintiffs Motion for Sanctions, (ECF No. 182). Having considered the written materials and the arguments presented by counsel, the Court DENIES Defendants’ motion to compel and GRANTS Plaintiffs motion for sanctions as set forth below.

I. Relevant Facts

This civil action involves a gas pipeline owned by Defendants, which is located on real property purchased by Plaintiff for the purpose of developing a residential subdivision (“Ridgewood Subdivision”). The pipeline (also referred to as the “C-1004 pipeline”) is 13 miles in length, crosses over land in both Wayne and Cabell counties, and was constructed by Owens Illinois Glass Company in approximately 1962. In 1970, Defendants, or a subsidiary or predecessor of Defendants, purchased the C-1004 pipeline and has used it to transport gas since its purchase.

The dispute between the parties arose in 2013 when Plaintiff began improvements on an existing roadway in the Ridgewood Subdivision, which involved excavating the earth above and around the pipeline. When Defendants learned of the excavation activities, they requested that Plaintiff cease work, fearing that the pipeline would rupture and potentially cause bodily injury, or even death. Plaintiff ceased operations, and the property has been sitting, undeveloped, since that time. Plaintiff alleges that Defendants’ pipeline renders the Ridgewood Subdivision undevelopable. Consequently, Plaintiff has asserted a variety of claims against Defendants, including trespass, unjust enrichment, and negligence. In turn, Defendants filed a counterclaim, asserting inter alia that they have a prescriptive easement for the portion of the C-1004 pipeline located in the Ridge-wood Subdivision. Defendants claim that they did not receive permission from Plaintiff or any prior owner of the Ridgewood Subdivision to place, operate, or maintain the C-1004 pipeline; that they have operated the pipeline continuously for more than ten years; that the operation of the C-1004 pipeline has been open and notorious; and that the operation of the pipeline has been adverse to Plaintiff and his predecessors in title to the Ridgewood Subdivision.

II. Defendants’ Renewed Motion to Compel Production of Plaintiffs Financial Information

During the course of discovery, Defendants moved to compel production of Plaintiffs state and federal income tax re[47]*47turns, financial statements, and restated financial statements for the years 2011 through 2015. Defendants argued that the information was highly relevant to Plaintiffs damages; in particular, its claim for the alleged loss of profits that Plaintiff would have realized from the sale of residential lots at the Ridgewood Subdivision.

Ultimately, the Court issued an Order compelling Plaintiff to produce its “financial statements (or portions thereof), or similar documents, for the years 2011 through 2015 that reflect Plaintiffs operational expenses, losses, and profits related to the development of residential subdivisions.” (ECF No. 123 at 8). The Court denied the motion insofar as it sought production of financial records for Plaintiffs other business operations, such as its car washes, noting that Plaintiff was not claiming a loss of past profits; rather, it was seeking the loss of future profits related only to the Ridgewood Subdivision, an anticipated but not yet ongoing venture. (Id.). The Court also denied the request for Plaintiffs tax returns, stating that “[i]f financial records exist reflecting Plaintiffs history and experience in similar residential development ventures, then Defendants should learn from that financial information whether there is any data that can be used for comparison and extrapolation,” but “at this juncture, no compelling reason for the production of tax returns has been demonstrated by Defendants.” (Id. at 9).

Defendants have now renewed the foregoing motion to compel on the basis that Plaintiffs “overall financial information is directly relevant and necessary to the calculation of future lost business profits because certain expenses used to calculate the company’s profits or losses are not reflected on the income statement produced,” including “the money that [Plaintiff] paid for the property itself and the company’s general overhead.” (ECF No. 181 at 3). Defendants argue that other critical information is not reflected in the financial records already produced. Specifically, Defendants contend that the records do not demonstrate how Plaintiff accounts for depreciation of real property, in the event Plaintiff takes depreciation expense related to the Ridgewood Subdivision,

Defendants also explain that they need to review all of the requested financial records to advance their argument that Plaintiffs general overhead expenses should be distributed evenly across the company’s business operations, including an allocation to the Ridgewood Subdivision, which would reduce Plaintiffs future lost profits in this action. Defendants claim that, otherwise, Plaintiff could attribute such expenses to business operations other than the Ridgewood Subdivision and artificially inflate the future lost profits calculation of that component of the business. Defendants contend that because Plaintiff—a corporation with all of its business enterprises under one umbrella—is seeking loss profits, Defendants should be able to review the company’s overall financial information; not just portions of information related to the Ridgewood Subdivision.

In response, Plaintiff argues that Defendants are incorrectly treating the claimed damages as a loss of past income suffered by an existing business, as opposed to a loss of potential profits from the inability to develop a specific property. (ECF No. 215 at 5). Plaintiff asserts that Defendants do not require additional financial documents to determine the purchase price of the property because it is stated in the deed, which was produced to Defendants. (Id. at 2). Further, regarding how the purchase price will factor into future lost profits, Plaintiff points out that it produced to Defendants income statements from Island Estates, the only other residential subdivision developed by Plaintiff. (Id. at 3). According to Plaintiff, these income statements show how Plaintiff allocated corporate overhead and expenses to its sole business venture involving the development of a residential subdivision. Because the financial records of Island Estates were prepared before this litigation, Plaintiff argues that they are inherently reliable and accurately reflect the manner by which Plaintiff would account for general overhead and expenses in the Ridgewood Subdivision. Plaintiff contends that its Rule 30(b)(6) witness, Laya Hutchinson, testified regarding the Island Estates’ income statements, explaining that Plaintiff deducted a portion of the property’s purchase price as an expense from the [48]*48sale of each lot. She further testified that a similar deduction would be taken in the case of the Ridgewood Subdivision when the land was developed and the lots were sold. (Id.). As far as general overhead, Plaintiff indicates that all of its past overhead expenses relate solely to the corporation’s other business ventures; because Plaintiff has not started to develop Ridgewood Subdivision, there are no overhead expenses for that property. (Id. at 1).

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318 F.R.D. 44, 2016 U.S. Dist. LEXIS 164828, 2016 WL 7015671, Counsel Stack Legal Research, https://law.counselstack.com/opinion/scott-hutchison-enterprises-inc-v-cranberry-pipeline-corp-wvsd-2016.