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Larson Manufacturing Company of South Dakota, Inc. v. Western Showcase Homes, Inc.

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

December 11, 2018

LARSON MANUFACTURING COMPANY OF SOUTH DAKOTA, INC., SUPERIOR HOMES, LLC, Plaintiffs,
v.
WESTERN SHOWCASE HOMES, INC., AMERICAN MODULAR HOUSING GROUP, LLC, AMERICAN MODULAR HOUSING GROUP, INC., PAUL THOMAS, Defendants.

          MEMORANDUM OPINION AND ORDER DENYING MOTION TO QUASH SUBPOENAS, OR FOR PROTECTIVE ORDER, DOCKET NO. 86

          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 Salvatore Torresco, Laura Riffel, and Guardant Investment's (“the movants' ”) motion to quash subpoenas or for a protective order. See Docket No. 86. Plaintiffs oppose the motion. See Docket No. 95.

         FACTS

         A. Background Facts and Claims

          The court states the following facts from plaintiffs' second amended complaint in order to evaluate movants' 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 movants/defendants submitted a declaration (Docket No. 90) attaching copies of the subpoenas served by the plaintiffs which are the subject of the motion to quash. They are as follows:

(1) a subpoena to produce documents, information or objects dated May 17, 2018, served upon Salvatore Torresco, Jr. (Docket 90-4);
(2) a subpoena to produce documents, information or objects dated May 17, 2018, served upon Laura Riffel, individually (Docket 90-5);
(3) a subpoena to produce documents, information or objects dated May 17, 2018, served upon Guardant Investments, Inc., Attn: Laura Riffel. (Docket 90-6).

         The subpoenas seek the following information:

• Correspondence, notes, documents, and memorandums, including but not limited to, emails, letters, text messages, checks, deposit slips, receipts, invoices and bank statements, relating to any and all payments and transfers of funds from Western Showcase Homes, Inc. (including any of its officers, directors, employees, agents and subsidiaries) to you (including any business entities you operate, if any) from January 1, 2012 to the present;
• Correspondence, notes, documents, and memorandums, including but not limited to, emails, letters, text messages, checks, deposit slips, receipts, invoices and bank statements, relating to any and all payments and transfers of funds from you (including any business entities you operate under, if any) to Western Showcase Homes, Inc. (including any of its officers, directors, employees, agents and subsidiaries) from January 1, 2012 to the present;

Id. For each of the of the movants (Salvatore Torresco, Laura Riffel individually, and Laura Riffel on behalf of Guardant Investments) the request as it is worded above is also made as to items going to and coming from: American Modular Housing Group, Inc.; American Modular Housing Group, LLC; and Paul Thomas. Id.

         The subpoenas also request the following:

• bank statements, processed checks, deposit slips, and receipts for each and every account into or from which any of the funds involved in the transactions identified [above] were deposited or withdrawn, from January 1, 2012, to present;
• Bank statements, processed checks, deposit slips, and receipts for each and every account with which you (including any business entities you operate under, if any) transacted business with Western Showcase Homes, Inc., American Modular Housing Group, Inc., American Modular Housing Group, LLC, and/or Paul Thomas, from January 1, 2012, to the present.

         Counsel for defendants, appearing on behalf of the movants (Salvatore Torresco, Laura Riffel individually, and Laura Riffel on behalf of Guardant Investments) moved to quash these subpoenas on June 4, 2018. Docket 86. The movants, through counsel, argue the subpoenas should be quashed because they are duplicative and because they are overbroad and burdensome.

         The plaintiffs counter that Mr. Torresco and Ms. Riffel are both business associates of the named defendants-particularly Mr. Thomas-and that Mr. Torresco and Ms. Riffel administered funds and accounts for the defendants. The plaintiffs further argue the bank records provided by the discovery so far reveal “hundreds of thousands of dollars” worth of unexplained payments to Salvatore Torresco. The plaintiffs cite the following facts/evidence in support of their argument that the newly issued ...


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