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KGK Jewelry LLC v. Esdnetwork

United States District Court, S.D. New York

March 21, 2014

KGK JEWELRY LLC, Plaintiff,
v.
ESDNETWORK AND STEVE YEKO, Defendant.

OPINION AND ORDER

RONALD L. ELLIS, Magistrate Judge.

I. INTRODUCTION

Plaintiff KGK Jewelry LLC ("KGK") brings this action for breach of contract, tortious interference of a contract, and unfair competition against Defendants Electronic Sales Dealer Network, Inc. and Steve Yeko, its Chief Executive Officer (collectively, "ESDN"). Defendants issued subpoenas duces tecum to four non-party corporations: Sterling Jewelers Inc. d/b/a Kay Jewelers ("Kay"), Sterling Jewelers Inc. d/b/a Jared the Galleria ("Jared"), Le Vian Corp. ("Le Vian"), and the Jewelers Board of Trade ("JBT"). The subpoenas for Kay, Jared, and Le Vian requested the grading information for all jewelry provided by KGK Group, a foreign affiliate of KGK and a non-party to this action. The subpoena for JBT requested documents related to a collection dispute between KGK and a non-party. Before the Court is (1) KGK's motion to quash the four non-party subpoenas pursuant to Rule 45 of the Federal Rules of Civil Procedure and for sanctions pursuant to Rule 45, 28 U.S.C. ยง 1927, and the Court's inherent power; and (2) ESDN's cross motion for sanctions.

For the reasons that follow, KGK's motion to quash the subpoenas issued against Kay, Jared, JBT, and Le Vian is DENIED; KGK's motion for sanctions in the form of attorneys' fees is GRANTED; and ESDN's cross motion for sanctions is DENIED.

II. BACKGROUND

In 2010, KGK developed an electronic marketing tool that allowed the customers of various jewelry retailers to view KGK's inventory on a touch screen tablet ("kiosk"). (Pl. Mem. of Law in Supp. of Mot. to Quash ("KGK Mem."), at 4.) The kiosk required customers to input their email addresses so that KGK could periodically send notifications regarding store promotions to them. ( Id. ) KGK entered into contracts with seventy independent retail jewelry stores to market their products using the kiosk. ( Id. ) On October 20, 2011, KGK entered into two contracts with ESDN to "supply the kiosk to each of the 70 retailers and to maintain and service the compute system running on the kiosks." ( Id. at 5.) KGK alleges that ESDN did not fully perform all the services required under the contract, including not providing kiosks to all participating retailers and "withholding the email addresses that [KGK] retailers' customers had supplied through the retailers' respective kiosks... to divert business opportunities with the retailers from KGK to itself... ( Id. ) KGK also alleges that ESDN threatened to discontinue their services unless KGK "pa[id] monies claimed to be owed for services outside the scope of the contracts." ( Id. ) After ESDN informed KGK that it would cancel services on the kiosks if KGK did not pay them at least $1 million, KGK terminated the relationship and filed this action. ( Id. )

On December 19, 2012, ESDN filed notices of subpoenas duces rectum issued from the United States District Court for the District of New Hampshire to Kay and Jared ("the Kay and Jared subpoenas"). (Peter Raymond Decl. in Supp. of Mot. to Quash ("Raymond Decl."), Ex. C, D.) The subpoenas demanded the corporations provide ESDN with five engagement rings sold in their stores that were manufactured by the KGK Group or any of its affiliates or subsidiaries and documents concerning the grade of the rings provided. (KGK Mem. at 7.) Kay and Jared objected to the subpoenas, claiming among other things, that the grading information requested is highly confidential. (Raymond Decl., Ex. E.)

On January 29, 2013, ESDN issued a subpoena duces tectum to Le Vian ("the Le Vian subpoena") in this District. ( Id. Ex. F.) ESDN requested that Le Vian also provide the "grading information and jewelry manufactured by KGK Group or any of its affiliates or subsidiaries." (KGK Mem. at 7.) Le Vian refused to do so because it alleged that the information is highly confidential. (Raymond Decl., Ex, G.)

On January 29, 2013, ESDN issued a subpoena duces tecum to JBT ("the JBT subpoena") by the United States District Court for the District of Rhode Island. (Raymond Decl., Ex. H.) ESDN requested that JBT provide "all documents and other tangible things concerning JBT Collection Claim No. 47831... including all correspondence with KGK and all internal communications." (KGK Mem. at 8.) KGK alleges that the information requested from JBT concerns a "separate dispute between KGK and The Diamond Center, a non-party regarding monies owed to KGK." ( Id. ) JBT has provided the requested documents to ESDN, but ESDN has not released these documents to KGK. ( Id. )

III. DISCUSSION

A. KGK's Motion to Quash

1. The Kay, Jared, and JBT Subpoenas

The motion to quash the Kay, Jared, and JBT subpoenas implicates the 2013 amendments to Federal Rule of Civil Procedure 45, which became effective on December 1, 2013, after the subpoenas were issued. 2013 U.S. Order 0022 (C.O. 0022). Prior to the 2013 amendments, subpoenas had to be issued from the court where compliance was required, [1] and the power to quash or modify a subpoena was reserved to that court.[2] After the 2013 amendments, Rule 45 now requires subpoenas to issue from "the court where the action is pending, " Fed.R.Civ.P. 45(a)(2), but still reserves the power to quash or modify a subpoena to the "court for the district where compliance is required, " Fed.R.Civ.P. 45(d(3)). However, Rule 45(f) states that "[w]hen the court where compliance is required did not issue the subpoena, it may transfer a motion under this rule to the issuing court if the person subject to the subpoena consents or if the court finds exceptional circumstances." Fed.R.Civ.P. 45(f).

The Second Circuit has not yet addressed the question of how the 2013 amendments to Rule 45 apply to pending cases. In adopting the amendments, the Supreme Court stated that they "shall govern in all proceedings in civil cases thereafter commenced and, insofar as just and practicable, all proceedings then pending." 2013 U.S. Order 0022 (C.O. 0022). When the Supreme Court adopted amendments to the Federal Rules of Civil Procedure in 1991, it also ordered that the amendments apply to pending cases when "just and practicable, " and this District subsequently applied the amendments to pending cases. See Crossen v. Bernstein, 91 Civ. 3501 (PKL), 1994 WL 281881 (S.D.N.Y. June 23, 1994) (applying the 1991 amendments to Rule 15(c) retroactively); Dayton Monetary Associates v. Donaldson, Lufkin, & Jenrette Sec. Corp., 91 Civ. 2050 (LLS), 1992 WL 204374 (S.D.N.Y. Aug. ...


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