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United States v. Rapower-3, LLC

United States District Court, D. Utah, Central Division

January 24, 2018

UNITED STATES OF AMERICA, Plaintiff,
v.
RAPOWER-3, LLC, INTERNATIONAL AUTOMATED SYSTEMS, INC., LTB1, LLC, R. GREGORY SHEPARD, NELDON JOHNSON, and ROGER FREEBORN, Defendants.

          Magistrate Judge Evelyn J. Furse

          MEMORANDUM DECISION AND ORDER OVERRULING OBJECTION TO THE MAGISTRATE JUDGE'S ORDER

          David Nuffer United States District Judge

         Defendants Neldon Johnson's, International Automated Systems, Inc.'s, RaPower-3, LLC's, and LTB1, LLC's (collectively, “Defendants”) Objection[1] to Magistrate Judge Furse's Order Granting the United States' Expedited Motion for Sanctions (“October 25 Order”)[2] is resolved in this order. For the reasons that follow, the Objection is overruled and the October 25 Order is affirmed.

         I. Background for Defendants' Objection

         On August 17, 2017, the United States filed a motion to compel Defendants to produce five categories of documents and information.[3] Defendants did not file a brief in opposition to the Motion to Compel.[4] At a hearing on August 31, 2017, Magistrate Judge Furse granted the Motion to Compel and ordered Defendants to produce all documents and information by September 28, 2017.[5] Defendants produced (or explained the non-existence of) two categories of documents.[6] But they did not produce three categories of documents and information by the September 28 deadline:

• The computer program, or data extracted from it, that (among other things) purportedly tracks solar lens customer names and sales, serial numbers of lenses, and the location of any customer's lens;
• All RaPower-3 solar lens purchase agreements with customers since 2010; and
• The solar lens purchase contract between SOLCO I and a “company back East” with a down-payment of $1 million.[7]

         On October 11, 2017, the United States filed the Motion for Sanctions under Fed.R.Civ.P. 37(b)(2)(A) and (C) against Defendants for their failure to produce. The relief the United States sought included an order 1) requiring Defendants to allow the United States and its contractors to enter onto their property to obtain copies of the information and documents Defendants were ordered to produce; 2) requiring Defendants to pay the United States' costs for enforcing this Court's order; and 3) warning Defendants of possible future sanctions including contempt of court and terminating sanctions.[8] Defendants opposed the Motion for Sanctions, arguing that they had: 1) satisfied the first category by “producing a 190-page document containing the names of all lens purchasers and the serial number of each lens, ” and 2) did not produce the remaining two categories of documents because they were disproportionate to the needs of the case and not relevant.[9]

         After a hearing, Magistrate Judge Furse granted the United States' Motion for Sanctions, finding that sanctions were “necessary to ensure compliance with [her order on the motion to compel] given Defendants' continued obstruction of discovery.”[10] The October 25 Order requires Defendants to produce the three categories of documents and information identified above under specific conditions which include: a required meet-and-confer between counsel for the United States and counsel for Defendants regarding the database at issue in the first category and the quantity of paper (if any) in the second category; counsel for the United States may enter onto Defendants' property to obtain a copy of the documents ordered to be produced, along with vendors to support collection; Defendants shall make a “knowledgeable person” available to assist counsel for the United States and a vendor to understand and navigate the database; and the United States may “bring a videographer to record the proceedings during the visit . . . to document Defendants' compliance with this Order.”[11] The October 25 Order also required Defendants to pay the United States' fees and costs in enforcing the September 13 order compelling Defendants to produce.[12] The Magistrate Judge also warned Defendants that “continued failure to obey this Court's orders puts them in jeopardy of being held in contempt of court and orders imposing other sanctions including striking all or part of their Answer and rendering a default judgment against them See Fed R Civ P. (b)(2)(A)(iii), (vi).”[13]

         Defendants objected to Magistrate Judge Furse's October 25 Order for four reasons.[14]First, Defendants argue that the October 25 Order will cause Defendants to make an “unlawful disclosure” of their customers' “private, protected information” in the database.[15] According to Defendants, this will “violate[] numerous personal rights and constitutional protections” of their customers, including a violation of the Fourth Amendment prohibition on unreasonable searches and seizures because the United States will use the customers' information from the database to audit customers' tax returns.[16] Second, Defendants argue that the presence of a videographer is an “expense and intrusion” that is disproportionate to Defendants' discovery obligations.[17] Third, Defendants claim that the information in their database “does not advance any issue in this dispute.”[18] Fourth, Defendants argue that until “there is a judicial determination” that the tax benefits Defendants promoted (a depreciation deduction for solar lenses and solar energy tax credits) are unlawful, “the information obtained by the government in this case should not be used for enforcement purposes and the Protective Order entered in this case should be clarified to prohibit the government's use of confidential information outside of the parameters of this case.”[19]

         II. Standard of Review

         When reviewing orders of a magistrate judge resolving non-dispositive pretrial matters, “[t]he district judge in the case must consider timely objections and modify or set aside any part of the order that is clearly erroneous or is contrary to law.”[20] The October 25 Order is a non-dispositive discovery order because it does not resolve any claim or defense in this case.[21]

         III. Discussion

         Defendants contest only two features of the October 25 Order: 1) the requirement to produce customer information (whether through the database or through actual contracts) to the United States, and 2) the presence of the videographer to record the collection of data and documents. The record on these issues is clear: these terms of the October 25 Order are not clearly ...


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