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Apex Colors, Inc. v. Chemworld International Limited, Inc.

United States District Court, N.D. Indiana, Hammond Division

May 25, 2017

APEX COLORS, INC., Plaintiff,
v.
CHEMWORLD INTERNATIONAL LIMITED, INC., CHEMWORLD INTERNATIONAL LIMITED, LLC, ATUL MODI, MANOJ MODI, and PAUL BYKOWSKI, Defendants.

          OPINION AND ORDER

          PAUL R. CHERRY MAGISTRATE JUDGE

         This matter is before the Court on Plaintiff's Motion to Enforce Third Party Subpoenas [DE 486], filed by Plaintiff Apex Colors, Inc. (“Apex”) on March 1, 2017, and on Non-Parties Eric and James Boggess and Wm. B. Tabler Co., Inc.'s Motion for a Protective Order [DE 492], filed by Non-parties Eric Boggess, James Boggess, and Wm. B. Tabler Co., Inc. (collectively “Deponents”) on March 15, 2017. The motions were fully briefed on May 4, 2017.

         BACKGROUND

         A. Allegations of the Second Amended Complaint

         On September 13, 2016, Apex filed a Second Amended Complaint, making the following allegations. Apex, which was founded in 2001, performed testing of, certified, and sold speciality chemical products in the plastics, coatings, and ink industries, which primarily included dyes and pigments. Shyam Zalani, the sole shareholder of Apex since its inception, hired Paul Bykowski to work at Apex. Bykowski was president of Apex from its inception to his resignation on September 5, 2012. Zalani directed Bykowski to set up a color testing laboratory, which Bykowski did in Portage, Indiana. Bykowski's duties included “servicing customers of Apex and later Finos” and “procuring product for Apex and later Finos.”

         In 2002, Zalani along with Jim and Eric Boggess formed a company called Finos, LLC. Finos was half owned by Apex and half owned by Jim and Eric Boggess. At that time, Jim and Eric Boggess operated a specialty chemical distribution company called Wm. B. Tabler, which sold chemicals on behalf of multiple companies-that would also include Finos.

         From Zalani's perspective, Indace (Zalani's pre-existing business that sourced specialty chemical products for use in the plastics, coatings, and ink industries) would handle the sourcing and importing of specialty chemicals, Apex would handle all U.S. based testing and certifying, and Finos would handle the sales. Apex transferred to Finos all assets related to the selling function-such as customer lists. Apex did not transfer intellectual property related to product testing against specifications-such as the product color standards, testing methods, testing specifications, log books, resting records, and standard lot numbering system.

         Bykowski's job responsibilities included assisting Finos and Tabler with some sales functions, primarily filling customer orders. Similarly, the Boggesses assigned Tabler employees to assist with Finos sales activities.

         At the outset, Apex paid its own employees and operating expenses and obtained reimbursement from Finos. Later, to simplify accounting, Finos paid Apex employees and operating expenses directly.

         Apex alleges that Bykowski conspired with Chemworld to steal a business opportunity from Apex related to a pigment.

         Apex alleges that Bykowski began sourcing dyes almost exclusively from Chemworld for Finos instead of sourcing the colorants through Apex. By 2011, through the use of Apex's laboratory, employees, and testing materials, Chemworld had become the primary supplier of colorants to Finos. Then, by conspiring with Chemworld to sell directly to Finos customers, Finos was cut out of the business, which harmed Apex as a half owner of Finos, as all revenues and profits flowed through Finos.

         In 2012, Finos was in the process of dissolving. Bykowski approached Zalani about obtaining an ownership share in Apex. Apex alleges that Bykowski wanted ownership because Apex owned the property, including trade secrets and intellectual property, that would be needed for Bykowski and Chemworld to continue selling colors to Finos customers.

         On September 5, 2012, while Zalani was out of the country, Bykowski resigned from Apex. Apex alleges that Bykowski then stole Apex's physical assets, such as color standards, log books, a color computer with electronic testing records, and hard copy testing records. As a result, Apex could no longer compete for Finos customers.

         Bykowski returned to work for Apex on October 31, 2012. On January 1, 2013, Bykowski again resigned and refused to return the Apex assets in his possession.

         In late 2012, Bykowski and Chemworld were soliciting Finos customers and secured most of the Finos customers to Chemworld. Bykowski used the Apex assets to test Chemworld products for the customers.

         In April 2013, Apex learned of Bykowski's “treachery.” On May 28, 2013, Apex demanded that Bykowski return all of the assets, trade secrets, and other Apex materials that Bykowski had misappropriated. On August 12, 2013, Apex demanded that Bykowski, Chemworld, and the Modi brothers (who were directors, shareholders and officers of Chemworld) cease and desist using Apex's assets, trade secrets, and other Apex materials. They did not.

         The Second Amended Consolidated Complaint asserts the following claims: Civil Conspiracy to Misappropriate Apex's Property (Count I); Misappropriation of Apex's Property (Count II); Civil Conspiracy to Tortiously Interfere with Apex's Prospective Economic Advantage (Count III); Tortious Interference with Prospective Economic Advantage (Count IV); Conspiracy to Misappropriate Apex's Trade Secrets in Violation of the Indiana Trade Secrets Act (Count V); Misappropriation of Apex's Trade Secrets in Violation of Indiana Trade Secrets Act (Count VI); Unfair Competition (Count VII); Breach of Fiduciary Duty (Count VIII); Breach of Contract (Count IX); Conversion (Count X); Replevin (Count XI); and Trespass (Count XII).

         Relevant to the instant motion, in the prayer for relief, Apex asks, among other things, for an order “for an accounting to specifically identify all revenue and benefits realized by Bykowski either directly or indirectly through G.B. Consulting, William Tabler Company, Inc. or Chemworld, while Bykowski was president and employee of Apex” and “after the termination of Bykowski's employment.” (ECF 397, ¶¶ L, M).

         B. The Subpoenas

         Sometime in June 2016, Apex served on each of Eric Boggess, James Boggess, and Wm. B. Tabler Co. (collectively “Deponents”) in Louisville, Kentucky, a subpoena, dated June 1, 2016, issued from the United States District Court for the Northern District of Indiana. See (ECF 486-1, Exs. A-C). The subpoenas are divided into the following categories covering 34 Requests: (A) Finos Sales to Customers; (B) Finos Procurement of Product; (C) Accounting Records of Finos and Tabler; (D) Paul Bykowski's emails as well as emails to and from Paul Bykowski and representatives of Chemworld; (E) Dealings with Chemworld; (F) Finos' Attempts to Move into the Market for Pigments and Paul Bykowski and/or Tabler's Involvement in the Pigment Market; and (G) the Formation and Dissolution of Finos.

         C. The Present Discovery Dispute

         Prior to June 15, 2016, Deponents' original attorney, who practices in Kentucky, spoke with counsel for Apex, and requested an extension of time to July 6, 2016, to serve written objections. Counsel for Apex agreed.[1]

         On June 23, 2016, Deponents' attorney sent an email to counsel for Apex advising that Deponents “strenuously object to the subpoena you recently sent out. The vast majority of the documents you requested are confidential, proprietary information and will not be disclosed. I expect to have more specific objections to each item to you no later than Tuesday, June 28, 2016.” (ECF 499-1).

         On July 1, 2016, counsel for Deponents sent an email indicating that he and Eric Boggess would be discussing the subpoena response on July 5, 2016, and expected to serve the response on July 5, 2016.[2]

         On July 6, 2016, Deponents served on Apex a document titled “Responses and Objections to Specific Requests.” (ECF 486-2, Ex. D). That same date, counsel for Apex responded, thanking counsel for Deponents for the response and indicating that she would review the response and get back to him as soon as possible.

         On July 25, 2016, counsel for Apex sent a response to the objections to counsel for Deponents. In the cover letter, Apex noted that there are three electronic sources of documents: Macola (accounting), Commence (sales), and emails. Apex offered to travel to Louisville, Kentucky, or to arrange for remote access to the databases in Macola and Commence. As for the emails, Apex asked to discuss the availability of emails and where and how they might be searched. Apex also asked to have a “substantive conversation of the location of the electronic documents . . . as well as the paper records, and the various options for accessing these-not only with experts but also without.” (ECF 486-2, Ex. E). Apex asked counsel for Deponents to propose times for the conference. Apex also asked for an indication as to when Apex would receive the documents/data that was not objected to. Finally, Apex provided a written response to Deponents' objection to each of the Requests. Deponents' counsel did not respond and did not return counsel for Apex's calls.

         Although it is unclear from the evidence when the communications occurred, Kentucky counsel for Deponents states in his declaration that he and counsel for Apex had “extensive communications trying to reach an agreement on the narrowing of Apex's subpoenas to Deponents.” (ECF 506-1, ¶ 5).

         Apex filed a subpoena enforcement action in Louisville, Kentucky.

         In September 2016, Defendant Paul Bykowski filed a Third Party Complaint against Eric and Jim Boggess in the instant litigation, prompting the Boggesses to retain a Chicago law firm for their defense. The new attorney contacted counsel for Apex and offered to work with Apex on voluntary compliance with the Kentucky subpoenas in exchange for dismissal of the Louisville enforcement action, agreeing to the jurisdiction of this Court to resolve any issues related to the subpoenas. Apex agreed and dismissed the Kentucky enforcement action.

         On December 1, 2016, counsel for Apex wrote to new counsel for Deponents to follow up on an earlier discussion regarding the subpoenas. (ECF 499-2, Ex. F). In that correspondence, counsel for Apex proposed a declaration from Deponents as to matters that Apex was seeking through the subpoenas, which would obviate the need for responses to requests Nos. 7, 13, 14, 26, 27, 28, 29, 30, 31, and 32. Counsel for Apex also provided narrower date ranges for Requests Nos. 4-5 and 33. Counsel for Apex indicated that she was still waiting for a response regarding Macola, Commence, emails, and paper documents and asked for a response in writing.

         On December 9, 2016, counsel for Deponents emailed counsel for Apex and indicated that the Boggesses had available for inspection in Louisville, Kentucky, approximately 27-28 bankers' boxes and 15-20 large folders containing paper copies of Finos-related documents from the Macola program/database. (ECF 486-3, Ex. F). Counsel for Deponents explained that the “hardcopy duplicates are organized in a manner the electronic records are not, and so reviewing and understanding them should be significantly more efficient than accessing electronically-kept versions, which would likely require a forensic protocol and significant technical support.” (ECF 486-3, Ex. F). Counsel describes these hard copy records as: 8 boxes of customer orders; 9 boxes of receivables/payables, missing 2012; 9 folders of month-end inventories, missing 2003, 2004; 6 large folders of inbounds/outbounds, missing 2003, 2004, 2006, 2007 (inbounds only); 1 box of purchase orders; and 9 boxes of financials. Counsel further explained that Tabler accounting files for the same time period might be commingled with Finos accounting information within the boxes, and that Eric Boggess was working to segregate that information that is not Finos-related. As for emails, counsel for Deponents suggested that a narrower date range be agreed upon from the requested January 1, 2007-December 31, 2013 date range to the proposed date range of January 1, 2007-March 31, 2013 because March 31, 2013, is the date of the Finos dissolution. (ECF 486-3, Ex. F).

         On December 9, 2016, counsel for Apex responded, expressing frustration that Apex still had not been given access to the Macola and Commence databases, despite discussions for approximately one year. Counsel for Apex again asked for remote access to view the databases in Macola and Commence, stating that Apex was able to access the databases remotely while Finos was operating. Counsel explained that printouts of sales and accounting information is “tedious and often impractical” because it does not allow for sorting. “Accordingly, to the extent that the same information is available in electronic and paper form, it is preferable to view the information electronically.” (ECF 486-3, Ex. F). Counsel for Apex asked counsel for Deponents to propose a vendor that could facilitate access to the databases so that Apex could discuss the logistics and cost of searching with the vendor. As for the emails, counsel for Apex offered to produce search terms and custodians but asked for a confirmation that the emails for the 2007 to 2013 time period are available in a format that can be searched.

         On December 13, 2016, counsel for Deponents responded, indicating that Eric Boggess was able to identify paper documents in boxes as Finos-specific and responsive. Counsel for Deponents explained that the information on the Commence and Macola servers is co-mingled and not easily separated and that there is no way to provide remote access without granting the viewer the ability to see sensitive Tabler business information. Counsel writes, “The Macola program does not allow for selective authorization. Once a user has access, the user has access to all dat abases. The Commence database provides similar challenges.” (ECF 486-3, Ex. F). Counsel for Deponents proposed that the hard copy access would be a good place to start with its production and proposed that, if the hard copy access is not sufficient, Deponents and Apex could explore using a vendor to see if it is possible to limit remote access. Finally, Deponents asserted that, within the Commence database, there was customized computer code that Eric Boggess had written that he considered proprietary and did not want Apex to access.

         On December 13, 2016, counsel for Apex replied, noting that Deponent's original counsel in Kentucky, Robert A. Marshall, had indicated that both databases could be accessed through a vendor but had never provided additional information despite counsel for Apex's requests. (ECF 486-3, Ex. F). Counsel for Apex continued to assert that electronic access is the most efficient way to access the information and to ensure that it is complete, noting that there is no guarantee that the physical copies are complete. For emails, counsel for Apex offered to propose search terms and custodians, but asked for confirmation that Deponents in fact have emails for the 2007 to 2013 time period and that they are in a searchable format. Counsel for Apex also asked for an answer by the end of the week as to whether Tabler's in-house person or the vendor could confirm what information is available through Macola and Commence and how difficult it is to obtain the information. Counsel for Apex also asked for clarification as to why accessing the databases would jeopardize the asserted proprietary code.

         On January 5, 2017, counsel for Apex emailed counsel for Deponents, first asking for a response to the previous email. (ECF 499-1, Ex. D). Then, in an attempt to resolve outstanding issues, counsel for Apex agreed to shorten the period for the search of emails from the end date of December 2013 to March 2013. Counsel for Apex also proposed a list of search terms and custodians for searching the emails. See (ECF 486-3, Ex. G). Counsel for Apex also proposed modification to many of the requests after consultation with her client in order to lessen the burden on Deponents. See (ECF 499-1, Ex. D). These modifications included: reducing the time period for Requests No. 1 (2008-2012), No. 2 (2008-2012), No. 3 (2008-2012), No. 11 (2008-2012), No. 24 (2009-2012), No. 25 (2008-2012), and No. 31 (2008-2012); clarifying the time period as 2006-2012 and provided additional explanation for Requests Nos. 4 and 5; withdrawing Requests Nos. 12, 13, 14, 27, 28, 30, 32, and 33; proposing the withdrawal of Requests Nos. 7, 26, 29, and 31 if Deponents produce a declaration regarding that information; and limiting the information sought in Requests Nos. 16 and 17 to eight named email custodians (Larry Krock, Christie Downs, Buddie Miller, Barb/Barbara Boggess, Val Deehan, Eric Boggess, Jim Boggess, and Lloyd Kantner) with six search terms (Chemworld, Atul, Manoj, Shabnom, Daquila, Eagle), in Request No. 18 to the same eight custodians with four search terms (Chemworld, Atul, Manoj, and Shabnom), in Requests No. 19 and 20 to the same eight custodians with three search terms each (Bykowski, Deehan, Molnar and Atul, Manoj, and Shabnom, respectively), and in Request No. 26 to seven named custodians (Larry Krock, Christie Downs, Buddie Miller, Barb/Barbara Boggess, Val Deehan, Eric Boggess, and Jim Boggess) with 5 search phrases (pigment and Paul, pigment and Geri, pigment and GB, pigment and G.B., and pigment and Bykowski). Apex proposed no modifications for Requests Nos. 6-10, 15, and 29.

         In the same email, counsel for Apex acknowledged the impasse as to the production of records in paper versus electronic format with regard to the sales and accounting documents. Counsel for Apex again asserted that the paper records are incomplete, whereas the electronic records are complete and that there is no way to know what is missing from the paper records. Counsel for Apex again asserted that the electronic records are more usable.

         Later the same day, counsel for Deponents responded, thanking counsel for Apex for narrowing the subpoena requests. (ECF 499-1, Ex. F). Counsel for Deponents indicated that he would need to discuss counsel for Apex's proposal with Eric Boggess, hoping to discuss the matter with him within approximately one week. Shortly thereafter, counsel for Apex acknowledged the response and ...


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