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Larson Manufacturing Co. of South Dakota, Inc. v. American Modular Housing Group, LLC

United States District Court, D. South Dakota, Southern Division

January 30, 2018

LARSON MANUFACTURING COMPANY OF SOUTH DAKOTA, INC., SUPERIOR HOMES, LLC, Plaintiffs/Counterclaim Defendants,
v.
AMERICAN MODULAR HOUSING GROUP, LLC and PAUL THOMAS, Defendants, and WESTERN SHOW HOMES, INC. and AMERICAN MODERN HOUSING GROUP, INC. Defendants/Counterclaim Plaintiffs.

          ORDER DENYING DEFENDANTS' MOTION TO QUASH SUBPOENAS DOCKET NO. 54

          VERONICA L. DUFFY UNITED STATES MAGISTRATE JUDGE.

         INTRODUCTION

         This matter is before the court on the basis of diversity jurisdiction, 28 U.S.C. § 1332, after defendants removed the matter from South Dakota state court. See Docket No. 1, 1-1. The parties have consented to this magistrate judge handling their case pursuant to 28 U.S.C. § 636(c). Now pending is defendants' motion to quash subpoenas. See Docket No. 54. Plaintiffs oppose the motion. See Docket No. 65.

         FACTS

         A. Background Facts and Claims

         The court states the following facts from plaintiffs' second amended complaint in order to evaluate defendants' pending motion. Plaintiff Larson Manufacturing Company of South Dakota, Inc. (Larson) is the parent company of plaintiff Superior Homes, LLC (Superior). See Docket No. 58 at p. 1. Both are South Dakota business entities. Id. Superior is in the business of manufacturing and selling modular homes. Id. at p. 2.

         Defendant Western Showcase Homes, Inc. ("Western") is a Nevada corporation in the business of purchasing, reselling, and financing modular homes. Id. at p. 2. Defendant Paul Thomas, a Nevada resident, is the sole member of American Modular Housing Group, LLC (AMHG, LLC), a Nevada company in the business of buying and reselling modular homes. Id. American Modular Housing Group, Inc. (AMHG, Inc.), is a Canadian corporation with its principal place of business in Nevada that also buys and resells modular homes. Id. Thomas is the principal agent and owner of both AMHG entities. Id.

         The defendant entities purchased modular homes from Superior and then re-sold those homes to customers, sometimes arranging for delivery, set and completion of the home at the customer's location. Id. at pp. 2-3. Larson and Superior extended credit to the defendant entities for these purchases; AMHG would then repay the loans when its customer paid the defendant entities. Id. at p. 3.

         The second amended complaint recites that defendant entities placed orders for fourteen modular homes with plaintiffs. Plaintiffs constructed the homes. Of the homes that were delivered to defendants, full payment was never made even though the complaint alleges the ultimate customers who received these homes paid defendants. Other modular homes ordered by defendants were custom-built and never delivered because defendants never paid for the homes. As to the homes plaintiffs retain possession of, plaintiffs allege the custom nature of the homes makes resale of the homes at a reasonable value impracticable.

         In addition, Larson entered into a loan agreement with Western which was guaranteed by AMHG, Inc. This loan agreement ultimately encompassed $14 million in funds. Larson alleges that Western defaulted on the loan and AMHG, Inc. refused to pay pursuant to its guarantee. For all these matters, plaintiffs assert three counts of breach of contract, two counts of fraud, two counts of conversion, one count each of debt and guarantee, and one count of piercing the corporate veil.[1] Plaintiffs also allege defendant Thomas converted money which was received from third parties and intended for plaintiffs, but was instead used by Mr. Thomas for his own personal use. See Docket No. 58 at ¶¶ 15, 20, 49- 51.

         In their answer to the second amended complaint, defendants generally deny nearly all of plaintiffs' allegations. See Docket No. 62. Defendants Western Showcase, Inc., and American Modular Housing Group, Inc., assert five counterclaims against Larson and Superior. Docket No. 57. Those counterclaims include breach of contract (failure to pay rebates, failure to repay personal loans from Thomas and failure to provide future promised business); unjust enrichment (rebates, warranty and service fees); tortious interference with business expectancy (Aspen Links Country Club and Aspen Village Properties); breach of contract (manufacturing defects in modular homes); and fraud and deceit (fraudulent inducement to sign a mortgage in connection with Aspen Village and McKenzie Lane, assignment of mortgage interest in Moose Ridge, fraudulent building practices). See Docket No. 57 at pp. 7-9. Defendants/counterclaim plaintiffs Western Showcase, Inc. and AMHG, Inc. seek compensatory and punitive damages on their counterclaims, pre- and post-judgment interest, attorney's fees, and other remedies. Id. at 9.

         The dates of the business transactions alleged by plaintiffs in their second amended complaint go back as far as April, 2012, and extend into the year 2016. See Docket No. 58.

         B. Subpoenas Subject To The Motion to Quash

         Counsel for defendants has submitted a declaration (Docket No. 56) summarizing the subpoenas served by the plaintiffs which are the subject of the defendants' motion to quash. They are as follows:

• American Express (Docket 56-1)
• Barclay's (Docket 56-2)
• Bank of America, N.A. (Docket 56-3)
• Capital One Bank, N.A. (Docket 56-4)
• Capital One, N.A. (Docket 56-5)
• Citibank, N.A. (Docket 56-6)
• City National Bank (Docket 56-7)
• Wells Fargo Bank, N.A. (Docket 56-8).

(hereinafter “the subpoenas.”).

         Each of the subpoenas requests the non-privileged financial records from January 1, 2012, through December 1, 2017, pertaining to:

• Paul D. or Wendy G. (Smith) Thomas;
• Western Showcase Homes, Inc.;
• American Modular Housing Group, LLC and/or;
• American Modular Housing Group, Inc.

         Plaintiffs' counsel served the above-described non-parties with subpoenas duces tecum seeking the following:

1. All non-privileged account records which are held, maintained, or controlled with [the named entity] and any of its parent, subsidiary, and sister entities for the period of January 1, 2012 to the present relating to any accounts of the following: Paul Dean Thomas or Wendy G. (Smith) Thomas; 1463 Graystone Canyon, Las Vegas, NV 89183; Western Showcase ...

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