Window World of Baton Rouge, LLC v. Window World, Inc.; Window World of St. Louis, Inc. v. Window World, Inc.

2018 NCBC 56

• Court: North Carolina Business Court
• Decided: June 19, 2018
• Docket: 15-CVS-1 & 15-CVS-2
• Status: Published

Opinion

Window World of Baton Rouge, LLC v. Window World, Inc.; Window World of St. Louis, Inc. v. Window World, Inc., 2018 NCBC 56.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION WILKES COUNTY 15 CVS 1

WINDOW WORLD OF BATON ROUGE, LLC; WINDOW WORLD OF DALLAS, LLC; WINDOW WORLD OF TRI STATE AREA, LLC; and JAMES W. ROLAND,

Plaintiffs, ORDER AND OPINION ON WINDOW WORLD DEFENDANTS’ MOTION TO v. STRIKE PLAINTIFFS’ OBJECTIONS, WINDOW WORLD, INC.; WINDOW MOTIONS FOR COMMISSIONS, AND WORLD INTERNATIONAL, LLC; MOTION TO COMPEL RICHARD and TAMMY WHITWORTH, FARRELL AND THE FARRELL LAW GROUP Defendants.

WILKES COUNTY 15 CVS 2

WINDOW WORLD OF ST. LOUIS, INC.; WINDOW WORLD OF KANSAS CITY, INC.; WINDOW WORLD OF SPRINGFIELD/PEORIA, INC.; JAMES T. LOMAX III; JONATHAN GILLETTE; B&E INVESTORS, INC.; WINDOW WORLD OF NORTH ATLANTA, INC.; WINDOW WORLD OF CENTRAL ALABAMA, INC.; MICHAEL EDWARDS; MELISSA EDWARDS; WINDOW WORLD OF CENTRAL PA, LLC; ANGELL P. WESNERFORD; KENNETH R. FORD, JR.; WORLD OF WINDOWS OF DENVER, LLC; RICK D. ROSE; CHRISTINA M. ROSE; WINDOW WORLD OF ROCKFORD, INC.; WINDOW WORLD OF JOLIET, INC.; SCOTT A. WILLIAMSON; JENNIFER L. WILLIAMSON; BRIAN C. HOPKINS; WINDOW WORLD OF LEXINGTON, INC.; TOMMY R. JONES; JEREMY T. SHUMATE; WINDOW WORLD OF PHOENIX LLC; JAMES BALLARD; and TONI BALLARD,

Plaintiffs,

v.

WINDOW WORLD, INC.; WINDOW WORLD INTERNATIONAL, LLC; and TAMMY WHITWORTH, individually and as trustee of the Tammy E. Whitworth Revocable Trust,

Defendants.

1. THIS MATTER is before the Court upon the following matters in the above-

captioned cases: (i) Defendants Window World, Inc. and Window World International,

LLC’s (“Window World Defendants”) Motion to Strike Plaintiffs’ Objections to Third-

Party Subpoenas (the “Motion to Strike”), (ii) Motion for Commission to Issue Out-of-

State Subpoena for Deposition of Michael M. Sayers, Esq. (“Sayers”) and Motion for

Commission to Issue Out-of-State Subpoena for Corporate Designee Deposition of

Independent 189 Dealer Association, Inc. (the “Motions for Commissions”), and (iii)

the Window World Defendants’ Motion to Compel Discovery from Richard Farrell

(“Farrell”) and the Farrell Law Group, P.C. (the “Farrell Motion” collectively with the

other motions, the “Motions”). 2. By orders dated April 20, April 23, and May 8, 2018, the Court established

briefing schedules on the Motions and scheduled a hearing on the Motions for May

24, 2018, at which all parties were represented by counsel.1 After reviewing the

Motions, the briefs in support of and in opposition to the Motions, the relevant

materials associated with the Motions, and the arguments of counsel at the May 24

hearing, the Court, in the exercise of its discretion and for good cause shown, hereby

rules upon the Motions as set forth below.

Brooks, Pierce, McLendon, Humphrey & Leonard LLP, by Charles E. Coble, Robert J. King III, Benjamin R. Norman, Jeffrey E. Oleynik, and Andrew L. Rodenbough, and Keogh Cox & Wilson, Ltd., by Richard W. Wolff, John P. Wolff, III, and Virginia J. McLin, for Plaintiffs Window World of Baton Rouge, LLC, Window World of Dallas, LLC, Window World of Tri State Area LLC, James W. Roland, Window World of St. Louis, Inc., Window World of Kansas City, Inc., Window World of Springfield/Peoria, Inc., James T. Lomax III, Jonathan Gillette, B&E Investors, Inc., Window World of North Atlanta, Inc., Window World of Central Alabama, Inc., Michael Edwards, Melissa Edwards, Window World of Central PA, LLC, Angell P. Wesnerford, Kenneth R. Ford, Jr., World of Windows of Denver, LLC, Rick D. Rose, Christina M. Rose, Window World of Rockford, Inc., Window World of Joliet, Inc., Scott A. Williamson, Jennifer L. Williamson, Brian C. Hopkins, Window World of Lexington, Inc., Tommy R. Jones, Jeremy T. Shumate, Window World of Phoenix LLC, James Ballard, and Toni Ballard.

Manning, Fulton & Skinner, P.A., by Michael T. Medford, Judson A. Welborn, Natalie M. Rice, and Jessica B. Vickers, and Laffey, Leitner & Goode LLC, by Mark M. Leitner, Joseph S. Goode, Jessica L. Farley, Sarah E. Thomas Pagels, and John W. Halpin, for Defendants Window World, Inc. and Window World International, LLC.

Bell, Davis & Pitt, P.A., by Andrew A. Freeman and Alan M. Ruley, for Defendant Tammy Whitworth.

Richard W. Farrell, for third parties Richard W. Farrell and the Farrell Law Group, P.C.

1Farrell attended the hearing via telephone as counsel for himself and the Farrell Law Group, P.C. Kilpatrick Townsend & Stockton LLP, by Jason Wenker and Beth Winters, for third party TriMark Solutions, LLC.

Bledsoe, Judge.

I.

PROCEDURAL AND FACTUAL BACKGROUND

3. The procedural and factual background of these matters is set out more fully

in Window World of Baton Rouge, LLC v. Window World, Inc., 2016 NCBC LEXIS 82,

at *5 (N.C. Super. Ct. Oct. 25, 2016), Window World of Baton Rouge, LLC v. Window

World, Inc., 2017 NCBC LEXIS 60, at *4 (N.C. Super. Ct. July 12, 2017), and Window

World of St. Louis, Inc. v. Window World, Inc., 2015 NCBC LEXIS 79, at *2 (N.C.

Super. Ct. Aug. 10, 2015). The Court recites only the facts necessary for the

determination of the Motions.

4. Defendant Window World, Inc. (“Window World”) is in the business of

selling and installing windows, doors, and siding. It operates several store locations

and also franchises its business around the country. Plaintiffs in these actions are

various Window World franchisees. Defendant Window World International, Inc. is

an entity Plaintiffs claim Defendant Tammy Whitworth created to receive Window

World’s intellectual property in a scheme to enrich herself and defraud Window

World’s creditors.

5. In 2011, some of the Plaintiffs incorporated an entity they named the

Independent 189 Dealer Association (the “189 DA”), which was comprised of various

Window World franchisees. It is alleged that the purpose of the 189 DA was “to

operate an association of independent dealers of Window World products that would bring together the resources, talents and knowledge of the dealers in order to enhance

the value of their businesses and promote stability and security for all dealers within

the Window World system.” (Window World Defendants’ Br. Supp. Mot. Commission

189 DA, at 2, ECF No. 376 (15 CVS 1), ECF No. 392 (15 CVS 2).)

6. The Window World Defendants claim that Sayers, an attorney in St. Louis,

Missouri, was retained to assist the 189 DA in its incorporation and may have

attended meetings of the 189 DA in 2011. The Window World Defendants further

contend that the 189 DA also retained Farrell, a franchise attorney in Raleigh, North

Carolina, to, among other things, write a letter on the 189 DA’s behalf to Michigan

franchise regulators reporting the Window World Defendants for potential violations

of federal franchise laws. According to the Window World Defendants, the 189 DA,

and the work Sayers and Farrell performed on behalf of that entity, were part of a

plan by Plaintiff James Roland (“Roland”) and others to attempt to take over the

ownership and management of Window World. The Window World Defendants

contend that the instant litigation is also part of that plan.

7. The Window World Defendants also assert that TriMark Solutions, LLC

(“TriMark”), a digital marketer for certain Plaintiffs, and MetricWise, Inc.

(“MetricWise”), a customer relationship management provider for certain Plaintiffs,

have information concerning Plaintiffs’ businesses that is relevant to the claims and

defenses asserted in this litigation.

8. Based on the foregoing, the Window World Defendants have filed motions

seeking commissions to issue subpoenas to Sayers and to the 189 DA and have issued subpoenas to Farrell, TriMark, and MetricWise. Plaintiffs oppose the Window World

Defendants’ efforts to seek discovery from these persons and entities on grounds of

relevance, undue burden, and privilege.

II.

LEGAL ANALYSIS

A. Motion to Strike

9. Plaintiffs timely served objections to the subpoenas issued to Farrell,

TriMark, and MetricWise, and the Window World Defendants thereafter filed the

Motion to Strike. The Window World Defendants contend that Plaintiffs’ objections

should be struck because (i) Plaintiffs do not have standing to assert the objections,

except as to Farrell’s subpoena based on attorney-client privilege, and (ii) Plaintiffs’

objections based on the confidentiality of their subpoenaed business information can

readily be protected through the July 31, 2015 Protective Order previously entered

in this case.

10. It is true that parties “typically lack standing” to contest third-party

subpoenas. Deyton v. Estate of Waters, 2011 NCBC LEXIS 36, at *7 (N.C. Super. Ct.

Sept. 23, 2011) (citing Jarrell v. Charlotte-Mecklenburg Hosp. Auth., 206 N.C. App.

559, 564, 698 S.E.2d 190, 193–94 (2010) (“The challenge they attempt to assert,

however, belongs not to Plaintiffs but to the nonparty witnesses whose attendance

was sought, and Plaintiffs accordingly lack standing to dispute the subpoenas’

validity.”)). However, an exception to this general rule exists when the party is

claiming privilege over information sought in the challenged subpoena, id., or when the challenged subpoena “requires disclosure of a trade secret or other confidential

research, development, or commercial information” and the challenging party is

affected by the subpoena, see N.C. R. Civ. P. 45(c)(7).

11. It appears to the Court that the Window World Defendants seek, through

their subpoenas to TriMark and MetricWise, Plaintiffs’ confidential and proprietary

information concerning Plaintiffs’ advertising strategies and metrics as well as

Plaintiffs’ sensitive customer and sales data. It further appears to the Court that the

July 31, 2015 Protective Order in this case provides that the parties may object to

third-party subpoenas on privilege grounds, which Plaintiffs have done with respect

to Farrell here. As a result, in light of the information sought, the objections posed,

and the applicable North Carolina law as cited above, the Court concludes that

Plaintiffs have standing to challenge Defendants’ subpoenas to Farrell, TriMark, and

MetricWise. Accordingly, the Court, in the exercise of its discretion, denies the

Window World Defendants’ Motion to Strike based on Plaintiffs’ alleged lack of

standing.

12. As for the Window World Defendants’ contention that Plaintiffs’ objections

should be struck in light of the protections against harmful disclosure provided in the

Protective Order, the Court rules as follows: (i) as explained below, the Farrell Motion

should be denied and thus the Motion to Strike should be denied as to the subpoena

to Farrell, (ii) the Court will consider Plaintiffs’ specific objections to the subpoenas

to TriMark at the hearing on the Window World Defendants’ Motion to Compel

TriMark Solutions LLC and Randy Goins currently scheduled in this case for August 22, 2018, and (iii) in light of the limited attention in the parties’ briefing to the

Window World Defendants’ contention that the Protective Order provides sufficient

protection to Plaintiffs arising from the subpoena to MetricWise, the Court concludes

that it will assist the Court’s determination of the Motion to Strike as to MetricWise

for the parties to provide short statements of no more than 750 words each further

addressing this argument, such statements to be filed no later than June 26, 2018.

B. Motions for Commissions

13. The Window World Defendants, through the subpoenas that are the subject

of the Motions for Commission, seek information from Sayers regarding his

communications with (i) Window World’s former employees; (ii) state and federal

regulators regarding Window World’s alleged violation of franchise disclosure laws

and its voluntary conversion to a franchise system; and (iii) Farrell. The Window

World Defendants also seek a Rule 30(b)(6) deposition of the 189 DA.

14. Rule 45 of the North Carolina Rules of Civil Procedure governing subpoenas

“affords greater protection to nonparties than Rule 26 provides to parties.” Bank of

Am. Corp. v. SR Int’l Bus. Ins. Co., 2006 NCBC LEXIS 17, at *16 (N.C. Super. Ct.

Nov. 1, 2006); SciGrip, Inc v. Osae, 2015 NCBC LEXIS 89, at *13 (N.C. Super. Ct.

Sept. 28, 2015). As this Court has observed, “[a] subpoena to a nonparty . . . poses a

concrete, one-sided burden with no corresponding benefit . . . [because] [n]onparties,

by definition, have no direct stake in litigation.” Arris Grp., Inc. v. Cyberpower Sys.

(USA), 2017 NCBC LEXIS 58, at *6 (N.C. Super. Ct. July 11, 2017).

Consequently, “[t]he courts have an obligation to protect nonparties from burden and expense imposed without sufficient justification.” Bank of Am. Corp., 2006 NCBC

LEXIS 17, at *16 (emphasis added).

15. As a result, Rule 45 makes plain that “[t]he court shall quash or modify the

subpoena if” the recipient demonstrates the existence of any enumerated grounds for

objection, including privilege, unreasonableness, and undue burden. N.C. R. Civ. P.

45(c)(3), (5); see also Arris Grp., Inc., 2017 NCBC LEXIS 58, at *7. Further, where

the subpoena requests trade secrets or other confidential information, Rule

45 provides that the court may “quash or modify the subpoena” unless the issuing

party “shows a substantial need for the testimony or material that cannot otherwise

be met without undue hardship.” N.C. R. Civ. P. 45(c)(7).2

16. At their core, the claims in this action involve Plaintiffs’ contentions that

the Window World Defendants knowingly and intentionally withheld information

that Plaintiffs were entitled to receive under federal franchise laws and

misrepresented to Plaintiffs that they would receive the Window World Defendants’

lowest available wholesale prices. Plaintiffs contend that the information the

Window World Defendants seek from Sayers and the 189 DA is not relevant to any

issue in controversy in this litigation and is beyond the scope of permissible discovery.

The Window World Defendants respond that the information they seek is relevant to

Plaintiffs’ credibility, the reasons Plaintiffs filed this action, and Plaintiffs’ unclean

hands.

2 Federal courts have also stressed the “distinction between a party and nonparty” in applying the Federal Rules of Civil Procedure. See Arris Grp., Inc., 2017 NCBC LEXIS 58, at *7–8 (citing cases). 17. It appears to the Court that information regarding the “who” and “how”

behind the 189 DA reporting the Window World Defendants to Michigan regulators

has little if any bearing on the claims or defenses advanced or forecast in this action.

It further appears to the Court that providing the information sought would be

unduly burdensome for Sayers, an out-of-state attorney who represented a nonparty

to this litigation and whose information is, for the most part, likely to be privileged,

cumulative, or unrelated to the matters at issue in this case. The same is true for the

189 DA, an organization that has been administratively dissolved and whose

principal members have already been deposed in this action and were made available

for questioning on this same subject matter.

18. Upon careful consideration of the parties’ respective showings, the Court

concludes that the undue burden the requested subpoenas will impose on Sayers and

the 189 DA outweighs the Window World Defendants’ need for the information sought

on the current record, and, further, that the Window World Defendants have failed

to show a substantial need for the information they seek from Sayers and the 189 DA

that cannot otherwise be met without undue hardship.

19. Accordingly, based on the foregoing, the Court, in the exercise of its

discretion, denies the Motions for Commissions.

C. The Farrell Motion

20. The Window World Defendants seek to compel the following information

from Farrell and his law firm (i.e., the Farrell Law Group, P.C.) with the Farrell

Motion: (i) identities of the never-identified Window World store owners Farrell represented in dealings with state regulators, (ii) communications between Farrell

and franchise regulators regarding his clients’ contention that Window World was

engaged in franchising and intentionally concealing the same; (iii) communications

to and from Window World store owners other than Farrell’s clients; (iv)

communications between Farrell and Window World or its lawyers, and (v)

communications with persons or entities other than Farrell’s clients regarding the

business of the 189 DA.

21. The Window World Defendants contend that the Court should compel the

production of this information because it is relevant to Plaintiffs’ claims for fraud and

unfair or deceptive trade practices, Plaintiffs’ credibility, and Plaintiffs’ bias. In

particular, the Window World Defendants argue that Farrell’s representations to the

Michigan regulators concerning Window World’s alleged violations of franchise law

involve the same allegations Plaintiffs advance here and, further, were made as part

of Roland’s scheme, with others, to facilitate a buyout or hostile takeover of Window

World.

22. Plaintiffs counter that the Window World Defendants are fully aware of the

facts Farrell disclosed to the Michigan regulators and that in late October 2011,

Window World admitted that the company had violated “certain Federal and State

Franchise Laws.” (See Pls.’ Br. Opp’n Mot. Compel Farrell and Farrell Law Group 2,

ECF No. 441 (15 CVS 1), ECF No. 481 (15 CVS 2).) Consequently, Plaintiffs argue,

the only purpose for the Window World Defendants’ subpoena to Farrell is to learn

the identity of the 189 DA members that prompted Farrell’s letter to the Michigan regulators so that Window World can retaliate against those members. As such,

Plaintiffs argue the subpoena to Farrell should be quashed.

23. Having carefully considered the parties’ respective positions, including

Farrell’s arguments concerning privilege, the Court concludes, in the exercise of its

discretion, that the Farrell Motion should be denied.

24. First, the Court is not persuaded that Farrell’s activities on behalf of the 189

DA, all of which are alleged to have occurred in 2011 and 2012, are relevant to the

claims and defenses asserted in this action. This is particularly so in light of the

absence of any post-2012 evidence of Roland’s alleged takeover plan and the tenuous

connection of any such plan to the claims and defenses advanced in this case.

25. Second, the Court is not convinced of the need for discovery from Farrell in

the circumstances presented here. Farrell was the attorney for the 189 DA, which

was created and operated by some of the Plaintiffs, for a short period in 2011 and

2012. It appears to the Court that the Window World Defendants have had ample

opportunity to seek and obtain discovery from Plaintiffs and others concerning the

basis for Plaintiffs’ claims in this litigation. The Window World Defendants have not

offered any evidence or argument that the information they seek from Farrell has not

been, or could not have been, obtained from other sources, including, most

significantly, Plaintiffs themselves.

26. Finally, the Court concludes that compliance with the Window World

Defendants’ subpoenas would be unduly burdensome for Farrell, who, like Sayers, is

an attorney representing a non-party to this litigation and whose information, for the most part, is likely to be privileged, cumulative, or unrelated to the matters at issue

in this case. This is particularly so when the burden of compliance on Farrell is

compared to the Window World Defendants’ limited need for the information sought

based on the current record. The Court further concludes that the Window World

Defendants have failed to show a substantial need for the information they seek from

Farrell and his law firm that cannot otherwise be met without undue hardship.

27. Accordingly, based on the foregoing, the Court, in the exercise of its

discretion, denies the Farrell Motion.

III.

CONCLUSION

28. WHEREFORE, the Court, for the reasons stated herein and in the exercise

of its discretion, hereby DENIES the Motions for Commissions and the Farrell

Motion, DEFERS further consideration of the Motion to Strike Plaintiffs’ objections

to the TriMark subpoena until the August 22, 2018 hearing currently scheduled in

this case, and ORDERS further briefing on the Motion to Strike Plaintiffs’ objections

to the MetricWise subpoena as set forth above.

SO ORDERED, this the 19th day of June, 2018.

/s/ Louis A. Bledsoe, III l Louis A. Bledsoe, III Special Superior Court Judge for Complex Business Cases