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Philmar Dairy, LLC v. Armstrong Farms

United States District Court, D. New Mexico

May 7, 2019

ARMSTRONG FARMS, and RANDY ARMSTRONG, Defendants/Counterclaimants.



         THIS MATTER comes before the Court on Plaintiffs' March 26, 2019 motion to compel discovery (Doc. 90) and Plaintiffs' motion for leave to disclose an additional expert witness. (Doc. 94). As for the former, Plaintiffs sought, but were refused, Defendants' tax returns and yearend income statements and balance sheets. In the latter, Plaintiffs ask to add Jan Hendrickx, Ph.D. as an expert to opine based on satellite imagery that, contrary to Defendants' claims, no fire occurred at Armstrong Farms in August 2017. In response, Defendants contend Plaintiffs have failed to establish a prima-facie case for punitive damages entitling them to sensitive financial records, the discovery is premature even if Plaintiffs satisfy their burden, and the requests are insufficiently tailored to protect Defendants' privacy interests. Defendants also maintain Plaintiffs cannot justify adding Dr. Hendrickx past the expert-disclosure deadline.

         Having reviewed the parties' submissions as well as the record, the Court exercises its discretion to order production of the financial records but to preclude Dr. Hendrickx's late disclosure.


         At this point in the litigation, the facts are well known. The parties' briefing on both motions highlights their respective positions. The Court does not repeat the facts here except as are necessary to the analysis below.


         Discovery of Financial Records

         Under Federal Rule of Civil Procedure 26(b)(1), “[p]arties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case.” “The scope of discovery under the federal rules is broad.” Gomez v. Martin Marrietta Corp., 50 F.3d 1511, 1520 (10th Cir. 1995). Rule 26 “contemplates discovery into any matter that bears on or that reasonably could lead to other matter[s] that could bear on any issue that is or may be raised in a case.” Anaya v. CBS Broad., Inc., 251 F.R.D. 645, 649-50 (D.N.M. 2007) (internal quotations marks omitted). The Court is given “wide discretion in balancing the needs and rights of both plaintiff and defendant.” Gomez, 50 F.3d at 1520 (internal quotation marks omitted).

         Generally, “normal civil procedure discovery regarding a defendant's financial condition is not permitted before entry of judgment.” Griego v. Douglas, 2018 U.S. Dist. LEXIS 88562, at *10 (D.N.M. May 24, 2018) (citation omitted). Discovery related to punitive damages is an exception to this rule. See Id. Under what circumstances that exception applies is disputed here. Defendants maintain Plaintiff's must make a prima-facie showing of entitlement to punitive damages before Plaintiffs may obtain financial records. Defendants also insist that even if a prima-facie case exists, discovery should not be allowed until a jury determines liability.

         Finally, Defendants say Plaintiffs are, at most, entitled to a statement of net worth, not the tax returns and balance sheets Plaintiffs seek.

         The Court acknowledges the varied practice federal courts follow in addressing discovery where punitive damages are at issue. Compare Accountable Health Sols., LLC v. Wellness Corp. Sols., LLC, 2017 U.S. Dist. LEXIS 119532, at * 6, 16 (D. Kan. July 31, 2017) (observing that “a majority of federal courts permit pretrial discovery of financial information of the defendant without requiring plaintiff to establish a prima facie case” but staying production “until the District Judge determines whether Plaintiffs' claim for punitive damages survive any dispositive motion”) with Pedroza v. Lomas Auto Mall, Inc., 2008 U.S. Dist. LEXIS 117200, at *5-6 (D.N.M. July 10, 2008) (joining “the majority of state and federal courts [that] . . . permit discovery of a defendant's net worth without requiring the plaintiff to establish a prima-facie case for punitive damages” and explaining the “opposing party's interest in nondisclosure and confidentiality can usually be adequately protected by a protective order restricting dissemination of the documents and the information within”).

         The differences in approach are best explained by the broad discretion federal courts enjoy to balance competing interests. In this case, the Court strikes that balance in favor of immediate disclosure. First, Plaintiffs have plausibly alleged an entitlement to punitive damages. “New Mexico recognizes that, although punitive damages are not normally available for a breach of contract, a plaintiff may recover punitive damages when a defendant's breach was malicious, fraudulent, oppressive, or committed recklessly with a wanton disregard for the plaintiff's rights.” Anderson Living Tr. v. ConocoPhillips Co., 952 F.Supp.2d 979, 1046 (D.N.M. 2013) (citing Romero v. Mervyn's, 784 P.2d 992, 998 (N.M. 1989)).

         Plaintiffs allege numerous facts and circumstances in support of their claim of punitive damages. Central to this case is whether Plaintiffs agreed to bear the risk of loss of hay stored at Armstrong Farms but already paid for by Plaintiffs. Defendants insist the parties agreed at their initial meeting to shift the risk of loss from Defendants to Plaintiffs for hay stored at Armstrong Farms. (Doc. 55-2). Plaintiffs dispute the existence of such an agreement. Plaintiffs point out the parties' original arrangement did not include storage; it called for hay Defendants produced to be weighed, tested, immediately delivered to Plaintiffs' dairies, and be paid for by Plaintiffs. (Doc. 60-3). Plaintiffs explain there was no reason for Plaintiffs and Defendants to have discussed or agreed to shift the risk of loss-no storage was necessary because Plaintiffs were to pay as Defendants delivered it to the dairies. Later delays in the delivery of hay, Plaintiffs maintain, occurred because Defendants could not secure a means of timely transporting the hay, not because Plaintiffs requested for storage. (Id.). According to Plaintiffs, Defendants fabricated a convenient story about a hay fire-and a shift in the risk of loss-that allegedly occurred in August 2017 destroying 2, 647 tons of hay Plaintiffs had paid for, but Defendants had not delivered. (Id.). Plaintiffs contend that they were not informed of the alleged fire until February 2018. (Id.).

         Plaintiffs also allege that Defendants falsified the results of hay quality tests that were actually undertaken by Defendants by increasing the relative feed value (“RFV”) for the hay as shown on Defendants' invoices above the actual RFV test result, and by including RFV test results on invoices where, in fact, the hay's RFV had not been tested as required by the parties' agreement. (Doc. 90). Finally, Plaintiffs claim that Defendants invoiced Plaintiffs for hay after the date of the alleged fire and undertook to sell off assets and go out of business at the end of the 2017 farming season, knowing all the while that they would not be able to deliver the quantity of hay that had been ...

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