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Lu v. Lu

June 12, 2006


The opinion of the court was delivered by: Gold, S., United States Magistrate Judge



This case arises from plaintiffs' decision to invest in a restaurant with defendants. Plaintiffs contend that defendants, who already owned and operated several Chinese restaurants, encouraged plaintiffs to invest more than $80,000 and relocate to Joplin, Missouri to own and operate a new restaurant with defendants there. Amended Complaint ¶¶ 12, 15, 25. Plaintiffs further contend that defendants forced them out of the new business only a few months after it opened, depriving them of the value of their investment. Am. Compl. ¶¶ 32, 40, 43, 46.

I held a telephone conference in this case on May 18, 2006. At that time, I made rulings with respect to all pending motions with the exception of plaintiffs' motion to compel production of certain documents, and directed counsel to make additional submissions with respect to that motion. See Minute Entry for conference held on May 18, 2006, and Transcript, Docket Entry 71 ("Tr."). This order sets forth my ruling on the remaining motion and addresses as well other issues which have arisen since the May 18, 2006 conference.


On February 20, 2006, plaintiffs moved to compel defendants to produce the financial records -- including tax returns, tax forms such as W-2s, payroll records, pay stubs, daily receipt logs, and records of cash tips -- of the various restaurants they own and operate other than the Joplin restaurant in which plaintiffs made their investment. Affirmation of Mohamad A. Akbik, Docket Entry 48-2 ("Akbik Aff."), ¶¶ 3, 5. Plaintiffs also sought to compel the production of defendants' personal tax returns. Akbik Aff. ¶ 7.

Plaintiffs contend that they are entitled to this discovery because defendants have commingled the assets of their various businesses. Akbik Aff. ¶ 12. The facts relied upon by plaintiffs in support of their motion to compel, however, fail to establish commingling or that the financial records of defendants' other businesses are otherwise relevant to the claims and defenses asserted in this action.

Plaintiffs point out that the various corporations through which defendants operate their businesses did not conduct separate board or shareholder meetings, Akbik Aff. ¶ 14; that the restaurants are all owned and operated by defendants Lu and Lou and employ the same accountant, Akbik Aff. ¶¶ 18, 24; and that all of defendants' restaurant businesses, including the Joplin restaurant, are identified together in one promotional item, Akbik Aff. Ex. D. Plaintiffs also assert that an accountant's report and a small number of other documents concerning the Joplin restaurant bear the name of one of defendants' other restaurants. Akbik Aff. ¶¶ 16-17. However, each of the defendants' restaurants has a similar name, and the fact that the documents on which plaintiffs rely do not accurately reflect the name of the Joplin restaurant is more indicative of clerical error than of commingling of assets. In addition, defendants' accountant, Philip Koonce, submitted an affidavit stating that he prepares separate financial statements and tax returns for each of defendants' restaurants, and that defendants' businesses are not treated as a single corporate entity. Affidavit of Philip Koonce submitted in opposition to plaintiffs' motion to compel, Docket Entry 52-4, ¶ 3. Although plaintiffs had the opportunity to depose Koonce after he submitted the affidavit, they have failed to point to any testimony by Koonce calling into question the statements he made in the affidavit. Taking all of the facts and circumstances into account, I am not persuaded that any information about the finances of the Joplin restaurant will be revealed in the documents pertaining to defendants' other businesses, or that those documents are otherwise relevant to this case.

As noted above, plaintiffs had the opportunity to depose Philip Koonce, the accountant for the various restaurants owned and operated by the defendants, including the Joplin restaurant involved in this case. The deposition was held on March 16, 2006. Counsel called from the deposition seeking a ruling with respect to plaintiffs' attempt to question the accountant about the financial affairs of the other restaurants. During the course of the telephone call from the deposition, I held as follows:

You can question the accountant about anything having to do with the restaurant in Joplin. When you question the accountant about anything having to do with the restaurant in Joplin, that can include the source of any money loaned to that restaurant. . . . That can include where the profits of the restaurant were recorded and how they were disbursed. That can include whether the profits of the restaurant and the cash generated by the restaurant was used to pay the expenses of any of the parties. That can -- you can ask questions about whether the money generated by the restaurant was used to compensate the employees or pay the wages or the insurance or the rent for any of the restaurants. But you may not ask about the cash generated and made by any of the other six restaurants, until you make a showing in this deposition or otherwise that there was such commingling that you should be entitled to do [so. Y]our current motion papers before this Court do not make that showing.

Tr. of Koonce Dep., March 16, 2002, at 59-60.

The same reasoning underlying the ruling I made during Mr. Koonce's deposition -- that plaintiffs have failed, through their analysis of the records of the Joplin restaurant or otherwise, to demonstrate the relevance of the financial activities of defendants' other restaurants -- applies with equal force to plaintiffs' motion to compel. Moreover, although plaintiffs have had the opportunity since filing their motion to take additional discovery, including in particular the deposition of Mr. Koonce, they have failed to present any information or evidence that was not part of their original motion to compel and that might justify the broad discovery they seek.

During the conference on May 18, 2006, I alerted plaintiffs that I would deny their motion to compel unless they pointed to additional evidence demonstrating the relevance of the documents they seek to discover, and I granted plaintiffs one week to supplement their motion papers. Tr. 16, 21. Plaintiffs have failed to present any new evidence -- such as an analysis of Koonce's testimony, or a forensic accountant's findings after reviewing the Joplin restaurant's records -- in support of their motion. To the contrary, in their letters submitted since the May 18 conference, plaintiffs reiterate the same ...

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