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Chevron TCI, Inc. v. Capitol House Hotel Manager, LLC

United States District Court, M.D. Louisiana

November 4, 2019




         Before the Court is Plaintiff's Motion for Protective Order (R. Doc. 24). In lieu of filing a separate opposition, Defendants filed a Motion to Compel (R. Doc. 27), which is also before the Court. Plaintiff then filed a memorandum serving both as an opposition to Defendants' Motion to Compel and as a reply in support of Plaintiffs' Motion for Protective Order. (R. Doc. 33). Defendants filed a reply in support of their Motion to Compel (R. Doc. 41) with exhibits filed under seal (R. Doc. 42) (sealed).

         Also before the Court is Defendants' Motion for Protective Order (R. Doc. 28). The motion is opposed. (R. Doc. 30). Defendants filed a reply. (R. Doc. 36).

         I. Background

         This is a breach of contract action in which Chevron TCI, Inc. (“Plaintiff” or “Chevron TCI” or “CTCI”) alleges that it is entitled to recover approximately $11 million from Capitol House Hotel Manager, LLC (“Capital House Manager”) and/or the Wilbur Marvin Foundation (“WMF”) (collectively, “Defendants”). (R. Doc. 1, “Compl.”).

         CTCI alleges that in 2005, it invested in Capitol House Hotel Operating Company, LLC (“Capital House Operator”) “which was formed to lease, hold, maintain, and operate a hotel and commercial space in downtown Baton Rouge, now know as the Hilton Capital Center.” (Compl. ¶ 7). CTCI represents that the “project was eligible for the federal Historic Tax Credit (HTC) program, which encourages private sector investment in the rehabilitation and re-use of historic buildings.” (R. Doc. 24-1 at 3).

         Defendants represent that on December 19, 2005, Capital House Manager, Capital House Operator, and Capital House Hotel Development Company, LLC (“Capital House Owner”) were organized as limited liability companies under Louisiana law. (R. Doc. 27-1 at 4). Defendants assert that Capital House Owner leased the hotel to Capital House Operator and “there was an historic tax credit pass-through agreement allowing CTCI to receive the income tax credits, even though the entity in which it invested (Operator) did not own the building that was being improved.” (R. Doc. 27-1 at 4). CTCI represents that under Capital House Operator's operating agreement, Capital House Manager would manage Capital House Operator and CTCI would receive tax credits for an investment of $11, 909, 779, payable in two installments, which CTCI paid. (R. Doc. 24-1 at 3).

         On December 29, 2005, CTCI entered into a Purchase Agreement with Capital House Manager with a six-month “put option period” to elect to sell its membership interest in Capital House Operator to Capitol House Manager. (Compl. ¶ 8; see R. Doc. 1-1).[1] That same day, Plaintiff also entered into a Guaranty Agreement with WMF in which WMF guaranteed all obligations of Capitol House Manager within the Purchase Agreement. (Compl. ¶ 9; see R. Doc. 1-2). The Purchase Agreement has been amended several times, with the seventh and final amendment providing that the purchase option period ended on December 31, 2015. (Compl. ¶ 10-11; see R. Docs. 1-3, 1-4). In addition, each of the Amended and Restated Purchase Agreements contains an acknowledgement that the Guaranty Agreement remains in full effect except to the extent the Purchase Agreement is amended. (Compl. ¶ 12; see R. Docs. 1-3, 1-4).

         Capital House Operator was under IRS audits with respect to CTCI's claimed historic tax credit for the years 2006-2011. (R. Doc. 27-1 at 6). Defendants assert that during this audit CTCI took the position that it was a “true partner” with Capital House Operator and, accordingly, could avail itself of the full historic tax credit, but ultimately settled with the IRS by receiving two-thirds of the historic tax credit. (R. Doc. 27-1 at 6-7).

         Defendants represent that on September 5, 2012, Capital House Owner and Capital House Operator “terminated the lease between them” and Capital House Owner sold the hotel, including fixtures and other assets, to a third party. (R. Doc. 27-1 at 5). Defendants assert that Capital House Operator “was terminated and dissolved” in light of the language of Section 2.5(A)(i) of its Operating Agreement. (R. Doc. 27-1 at 5).[2] Defendants further assert that CTCI consented to the sale and termination of the lease, and CTCI lost its right to a put option payment in light of the termination of Capital House Operator as an entity. (R. Doc. 27-1 at 6). CTCI argues that Louisiana law has additional requirements for the termination of a limited liability company, notwithstanding the language in Capital House Operator's Operating Agreement. (R. Doc. 33 at 3).

         Capital House Operator was also under an IRS audit with respect to CTCI's claimed historic tax credit for the years 2012-2013. (R. Doc. 27-1 at 6-7). Defendants represent that during this audit CTCI signed a Form 870-PT agreeing with the IRS' conclusion that Capital House Operator was terminated as an entity in 2012 given the termination of the lease and sale of assets. (R. Doc. 27-1 at 7).

         On November 19, 2015, CTCI demanded Capitol House Manager to purchase its interest in Capital House Operator for $10, 554, 519. (Compl. ¶ 13). Neither Capital House Manager nor WMF paid the amount sought. (Compl. ¶ 14). CTCI is now seeking recovery for breach of the Purchase Agreement and Guaranty Agreement.

         The instant discovery motions concern written discovery served on CTCI and certain topics of the parties' Rule 30(b)(6) deposition. The main disputes with respect to the discovery at issue is whether and to what extent information regarding other historic tax credit investments entered into between CTCI with third parties, including any representations CTCI made to the IRS with respect to those investments and other agreements drafted by counsel for CTCI for the purposes of those investments, fall within the scope of discovery. Defendants assert that statements made by CTCI to the IRS with respect to these other investments “could be an admission and likely will be an admission against its interest in this suit” should CTCI have taken the position that it had “substantial risk” in those other investments. (R. Doc. 27-1 at 7). Defendants further assert that because counsel for CTSI drafted the agreements at issue in this action, other purchase, guaranty, and operating drafted by counsel for CTCI constitute relevant information with respect to whether Capital House Operator was terminated and dissolved prior to the put option and, if so, whether that dissolution renders the put option unenforceable. (R. Doc. 27-1 at 16-20). CTCI objects to the discovery sought on various bases, including relevance, proportionality, and confidentiality concerns.

         II. Law and Analysis

         A. Legal Standards for Discovery

         “Unless otherwise limited by court order, the scope of discovery is as follows: Parties may obtain discovery regarding any non-privileged matter that is relevant to any party's claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties' relative access to relevant information, the parties' resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit. Information within this scope of discovery need not be admissible in evidence to be discoverable.” Fed.R.Civ.P. 26(b)(1). The court must limit the frequency or extent of discovery if it determines that: “(i) the discovery sought is unreasonably cumulative or duplicative, or can be obtained from some other source that is more convenient, less burdensome, or less expensive; (ii) the party seeking discovery has had ample opportunity to obtain the information by discovery in the action; or (iii) the proposed discovery is outside the scope permitted by Rule 26(b)(1).” Fed.R.Civ.P. 26(b)(2)(C).

         “The court may, for good cause, issue an order to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense.” Fed.R.Civ.P. 26(c)(1). Rule 26(c)'s “good cause” requirement indicates that the party seeking a protective order has the burden “to show the necessity of its issuance, which contemplates a particular and specific demonstration of fact as distinguished from stereotyped and conclusory statements.” In re Terra Int'l, Inc., 134 F.3d 302, 306 (5th Cir. 1998) (quoting United States v. Garrett, 571 F.2d 1323, 1326 n.3 (5th Cir. 1978)).

         “When a party withholds information otherwise discoverable by claiming that the information is privileged or subject to protection as trial-preparation material, the party must: (i) expressly make the claim; and (ii) describe the nature of the documents, communications, or tangible things not produced or disclosed--and do so in a manner that, without revealing information itself privileged or protected, will enable other parties to assess the claim.” Fed.R.Civ.P. 26(b)(5)(A). Blanket assertions of a privilege are unacceptable, and the court and other parties must be able to test the merits of a privilege claim. United States v. El Paso Co., 682 F.2d 530, 541 (5th Cir. 1982) (citing United States v. Davis, 636 F.2d 1028, 1044 n. 20 (5th Cir. 1981)).

         Rule 33 of the Federal Rules of Civil Procedure provides for the service of written interrogatories. A party seeking discovery under Rule 33 may serve interrogatories on any other party and the interrogatory “may relate to any matter that may be inquired into under Rule 26(b).” Fed.R.Civ.P. 33(a)(2).

         Rule 34 of the Federal Rules of Civil Procedure provides for the discovery of documents and tangible items. A party seeking discovery must serve a request for production on the party believed to be in possession, custody, or control of the documents or other evidence. Fed.R.Civ.P. 34(a). The request is to be in writing and must set forth, among other things, the desired items with “reasonable particularity.” Fed.R.Civ.P. 34(b)(1)(A).

         A party must respond or object to interrogatories and requests for production. See Fed. R. Civ. P. 33(b)(2); Fed.R.Civ.P. 34(b)(2)(A). This default date may be modified by stipulation between the parties. Fed.R.Civ.P. 29(b). If a party fails to respond fully to discovery requests in the time allowed by the Federal Rules of Civil Procedure, the party seeking discovery may move to compel responses and for appropriate sanctions under Rule 37. An “evasive or incomplete disclosure, answer, or response must be treated as a failure to disclose, answer or respond.” Fed.R.Civ.P. 37(a)(4).

         Rule 30(b)(6) governs deposition notices directed to organizations. In the deposition notice, the party “must describe with reasonable particularity the matters for examination.” Fed.R.Civ.P. 30(b)(6). In response, the organization must designate an agent or other person to testify on its behalf “about information known or reasonably available to the organization.” Id. “The duty to present and prepare a Rule 30(b)(6) designee goes beyond matters personally known to that designee or to matters in which that designee was personally involved. The deponent must prepare the designee to the extent matters are reasonably available, whether from documents, past employees, or other sources.” Brazos River Auth. v. GE Ionics, Inc., 469 F.3d 416, 433 (5th Cir. 2006). The court may limit a Rule 30(b)(6) deposition notice to the extent it requests the organization to designate an agent to testify on topics of information that are overly broad, vague, or ambiguous. See, e.g., Scioneaux v. Elevating Boats, LLC, No. 10-0133, 2010 WL 4366417, at *3 (E.D. La. Oct. 20, 2010) (quashing deposition notice where the plaintiff failed to particularize the topics of discussion in Rule 30(b)(6) deposition notice); In re Katrina Canal Breaches Consolidates Litigation, No. 05-4182, 2008 WL 4833023 (E.D. La. July 2, 2008) (granting motion for protective order to the extent topics listed in a 30(b)(6) notice were overly broad, vague and ambiguous); Padana Assicurazioni-Societa Azioni v. M/V Caribbean Exp., No. 97-3855, 1999 WL 30966 (E.D. La. Jan. 21, 1999) (denying motion to compel Rule 30(b)(6) deposition where the notice was insufficiently particularized).

         B. CTCI's Motion for Protective Order (R. Doc. 24) and Defendants' Motion to Compel (R. Doc. 27)

         CTCI's Motion for Protective Order (R. Doc. 24) and Defendants' Motion to Compel (R. Doc. 27) concern Defendant's Requests for Production Nos. 19, 20, 35-37 (R. Doc. 24-2), Interrogatory Nos. 6-10 ...

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