United States District Court, S.D. Indiana, Indianapolis Division
ORDER ON MOTION TO QUASH
J. Dinsmore, United States Magistrate Judge.
matter is before the Court on the Objection and Motion to
Quash Receiver's Nonparty Request for Production,
filed by Broyles & Co. CPA'S, Inc., Nicole Broyles,
Cherry Farms, LLC, Cherry Family Land, LLC, Chris A. Cherry,
Cristi K. Cherry, and Jeffrey A. Cherry (collectively the
"Movants"). [Dkt. 256.] The Receiver in this case
issued subpoenas to Broyles & Co. and Nicole Broyles, a
certified public accountant, seeking financial documents
relating to the Cherry entities. The Movants request the
Court quash the subpoenas because the documents it seeks are
protected by Indiana's accountant-client privilege. In
the alternative, the Movants argue the subpoenas constitute
an undue burden and are not relevant to the underlying
federal litigation. For the reasons set forth below, the
Court DENIES the Movants' Motion.
a securities fraud action brought by the Securities and
Exchange Commission ("SEC") against an Indianapolis
investment advisory firm and related entities. The SEC
alleges Defendants fraudulently raised at least $15 million
from investors to fund short-term operating loans for farms
then misused the proceeds in violation of federal securities
law. On May 1, 2015, the Court appointed a Receiver to
marshal and preserve the assets of Defendants Veros Farm
Holding LLC, FarmGrowCap LLC, PinCap LLC, Veros Partners,
Inc. and Relief Defendant Pin Financial LLC. [Dkt. 34.]
18, 2016, the Receiver issued subpoenas to Broyles & Co.
CPA'S, LLC and Nicole Broyles. Both requests sought, in
.pdf format, "any and all records including but not
limited to reports, tax returns, profit and loss statements,
balance sheets, check registers, bank account statements,
invoices, and any and all other records pertaining to Cherry
Farms, LLC; Cherry Family Land, LLC; Cherry Ag Services, LLC;
High Voltage Painting, LLC; James E. Cherry; Susan L. Cherry;
Chris A. Cherry; Cristi K. Cherry; Jeffrey A. Cherry and
Cherry Investor Group, LLC." [Dkt. 256-2.]
Receiver contends the subpoenaed documents are necessary to
assess the finances of Cherry Farms LLC and its outstanding
loan obligations to Defendant Veros Partners. The Movants
argue the documents are not relevant to the federal claims in
this case and seek to quash the subpoenas on the basis of
Indiana's accountant-client privilege.
Rule of Civil Procedure 45 governs the issuance of subpoenas.
The breadth of discoverable material via subpoena parallels
the liberal scope permitted under Rule 26(b) so long as the
material sought is relevant, not privileged, and at least
leads to admissible evidence. Graham v. Casey's Gen.
Stores, 206 F.R.D. 251, 253-54 (S.D. Ind. 2002)
(citations omitted). A court must grant a motion to quash or
modify a subpoena that "requires disclosure of
privileged or other protected matter ... or subjects a person
to undue burden." Fed.R.Civ.P. 45(d)(3)(A) (iii)-(iv).
The party seeking to quash subpoenas bears the burden of
establishing its objections. Jackson v. Brinker, 147
F.R.D. 189, 194 (S.D. Ind. 1993) (citing HolifieId.
v. United States, 909 F.2d 201, 2014 (7th Cir.1990)).
as here, third-party discovery is at issue, the Court has the
responsibility to determine whether a subpoena imposes an
undue burden, and if so it must quash the subpoena. Fed. R.
Civ. Pro. 45(c) (3)(A)(iv). Non-parties "are not treated
exactly like parties in the discovery context, and the
possibility of mere relevance may not be enough; rather,
non-parties are entitled to somewhat greater
protection." Patterson v. Burge, No. 03 C 4433,
2005 WL 43240, *1 (N.D. 111. Jan. 6, 2005). When determining
whether to enforce a discovery request, the court must weigh
the need for the information, the breadth of the request, the
time period the discovery covers, the particularity of the
documents, and the burden imposed. Charles v. Quality
Carriers, Inc., 2010 WL 396356 at *1 (S.D. Ind. 2010).
"[R]elevance alone may not be enough to justify a
subpoena, particularly given that the undue burden calculus
is more protective of nonparties than it is for
Movants contend the subpoenas, directed to an accounting firm
and an accountant, violate Indiana's accountant-client
privilege. However, while this statutory privilege might
apply in a state suit, there is no accountant-client
privilege under the federal common law. In Couch v.
United States, 409 U.S. 322 (1973), the Supreme Court
stated that "no confidential accountant- client
privilege exists under federal law, and no state-created
privilege has been recognized in federal cases."
Id. at 335. Therefore, the threshold issue here is
whether the Court must apply federal law or state law to the
Receiver argues that because this is a federal question case
(in fact, there are no pending state law claims), the federal
common law must apply. This is the correct result; however,
not quite the correct argument. While federal law governs the
Plaintiffs claims in this lawsuit, the work of the Receiver
herein is entirely separate and distinct from the prosecution
and defense of those claims. Consequently, to answer the
question, the Court must examine the legal basis upon which
the Receiver is operating.
law governs the appointment of receivers. See Tcherepnin
v. Franz, 485 F.2d 1251, 1255-1256 (7th Cir. 1973). Rule
66 of the Federal Rules of Civil Procedure authorizes a court
to appoint a receiver and requires the receiver to
"accord with the historical practice in federal courts
or with a local rule." Fed.R.Civ.P. 66. The appointment
of a receiver in equity is not a substantive right; rather,
it is an ancillary remedy which does not affect the ultimate
outcome of the action. Pusey & Jones Co. v.
Hanssen, 261 U.S. 491, 497 (1923). The conclusion that
federal law governs the appointment of a receiver thus does
not conflict with the Erie doctrine's
requirement that state law apply to matters of substance.
See Guaranty Trust Co. of New York v. York, 326 U.S.
99 (1945) (stating that the equity power of a federal court
exercising diversity jurisdiction cannot be equated with
state law under the Erie doctrine). Thus, a receiver
appointed by a federal court would be governed by federal law
even if the matter in which the receiver was appointed was
governed by state law under the Erie doctrine.
the district court has ancillary jurisdiction over any claims
asserted by a receiver in the exercise of his or her duties.
The Seventh Circuit explained: "The ancillary
jurisdiction of federal courts over actions incident to a
receivership established by a federal court has long been
recognized. So long as an action commenced by a court
appointed receiver seeks 'to accomplish the ends sought
and directed by the suit in which the appointment was made,
such action or suit is regarded as ancillary so far as the
jurisdiction of the ... court of the United States is
concerned.' " Tcherepnin, 485 F.2d at
1255-56, quoting Pope v. Louisville, New Albany &
Chicago Railroad Co.,173 U.S. 573, 577 (1899) (internal
citations omitted); see also ...