Advantage Indus. Sys. v. Aleris Rolled Prods., Inc.

ADVANTAGE INDUSTIAL SYSTEMS, LLC, PLAINTIFF v. ALERIS ROLLED PRODUCTS, INC., Commonly known as ALERIS ROLLED PRODUCTS MANUFACTURING, INC.,which merged with COMMONWEALTH ALUMINUM, DEFENDANT

CIVIL ACTION NO. 4:18-CV-00113-JHM-HBB

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF KENTUCKY OWENSBORO DIVISION

February 27, 2020

MEMORANDUM OPINION AND ORDER

This matter is before the Court on a motion to compel filed by Plaintiff Advantage Industrial Systems, LLC (AIS) (DN 30). Defendant Aleris Rolled Products, Inc. (Aleris) responded with a memorandum in opposition, an exhibit, and affidavit (DN 33). AIS replied with a memorandum (DN 34) and four exhibits (DN 40 SEALED). By leave of Court (DN 38, 39), AIS filed four exhibits under seal (DN 40) and both parties filed supplemental memoranda discussing the exhibits (DN 41 SEALED, DN 42 SEALED). For the reasons set forth below, AIS's motion to compel is GRANTED in part and DENIED in part.

Background

AIS entered into a written AIA contract (Contract) with Aleris to erect structural steel and install equipment for two continuous annealing lines with pre-treatment (CALP 1 and 2) lines at Aleris's rolling mill in Lewisport, Kentucky (DN 1 PageID # 2 Complaint; DN 1-2 Exhibit A - AIA Contract). AIS alleges it performed the work in connection with a $350 million project to convert Aleris's Lewisport Rolling Mill into a state-of-the-art facility with improved rolled aluminum fabrication capabilities for use among various industries including, sheet plate and fabricated products for the automotive, building and construction, and transportation and consumer durable goods industries (DN 1 PageID # 2-8; DN 30 PageID # 540-41; DN 33 PageID # 556). Aleris asserts the Project cost more than $600 million (DN 33-2 PageID # 573 ¶ 10 Declaration of Eric M. Rychel).

The Complaint alleges that Aleris failed to pay AIS for base contract work and additional costs arising from extra work, delays, disruptions, and inefficiencies on the Project (DN 1 PageID # 2-17). Count I in the Complaint asserts a breach of contract claim; Count II raises a claim under the Kentucky Fairness in Construction Act; and Count III presents a quantum meruit/unjust enrichment claim (Id. PageID # 17-19). AIS seeks a monetary damage award of an amount not less than the base contract amount of $1,518,610.79; impact costs; interest in accordance with KRS 371.405 et seq.; attorney fees in accordance with KRS 371.415; collection costs; pre and post judgment interest; and other relief the Court deems appropriate (Id. PageID # 19).

Aleris responded to the Complaint with an Answer asserting seventeen defenses and two counterclaims (DN 18 PageID # 199-213). Count I of the counterclaims alleges that AIS committed numerous material breaches of the Contract which have damaged Aleris in an amount equal to or greater than $4,900,000.00 (Id. PageID # 206-11). Count II asserts a claim of unjust enrichment/quantum meruit that is pled in the alternative to Count I (Id. PageID # 211-13). AIS responded to Aleris's counterclaims with an Answer asserting ten defenses (DN 19).

This discovery dispute arises out of written discovery AIS propounded to Aleris (DN 30). Specifically, AIS's second request for production of documents asked Aleris to:

1. Produce any and all agreements and/or contracts relating and/or pertaining to the funding of the Project and/or Aleris' investment in the Project, including without limitation funding agreements and/or loan agreements between Aleris and General Motors.

2. Produce any and all Documents and/or Communications that relate and/or pertain to the agreements and/or contracts identified and/or produced in Request No. 1, including without limitation Documents or Communications that relate and/or pertain to the negotiation, drafting, performance, breach, expiration and/or termination of the agreements and/or contracts.

(DN 30 PageID # 543). Initially, Aleris objected to Request Nos. 1 and 2 on the grounds they are overbroad and implicate documents that are not relevant to the claims or defenses of the parties and are not proportional to the needs of the case (Id. PageID # 543-44). Aleris subsequently changed its position and agreed to produce certain documents it viewed as responsive to Request Nos. 1 and 2 (Id. PageID # 544). This discovery dispute concerns the fulsomeness of Aleris's responses to AIS's written discovery.

AIS' Motion to Compel

AIS contends that Aleris has failed to produce all documents sought in Request Nos. 1 and 2 (DN 30 PageID # 544). AIS argues these requests go to the crux of whether Aleris had the funds necessary to pay the Project expenses, which is crucial to AIS' claims in the complaint and the defenses it raises to Aleris's breach of contract counterclaim (Id. PageID # 542-46). AIS asserts that Aleris did not have the money to fund the $350 million project which led to delays, inefficiencies and AIS not getting paid by Aleris (Id.). For this reason, Aleris should be compelled to more fully respond to Request Nos. 1 and 2 which seek documents and communications concerning the sources of and circumstances surrounding the funding of the Project (Id.).

Aleris' Response

Aleris acknowledges AIS's argument but contends that such material is not reasonably calculated to lead to the discovery of admissible evidence because a party's reason or motivationfor the breach is not relevant to a breach of contract claim (DN 33 PageID # 559-61).¹ Aleris also contends that information regarding its ability to pay a judgment against it is not discoverable until after AIS is successful on the merits (Id.).

Next, Aleris contends that it has complied in good faith with all reasonable portions of Request Nos. 1 and 2 (Id. PageID # 561-62). Aleris explains that it and non-party GM have produced to AIS all the project related agreements between Aleris and GM, even though such agreements involve reserving capacity on the new lines and the supply of aluminum once the lines were operational² (Id.). From these contracts, AIS can see the amounts of the capacity reservation payments and when they were due and owing, and the circumstances where the agreements could be terminated³ (Id.). Aleris also points out that it is required to make certain public filings with the United States Securities and Exchange Commission (SEC) because Aleris has public debt (Id.). Aleris suggests that AIS review these public filings about Aleris' financial health, liquidity, indebtedness and material transactions, because they will debunk AIS' theory that Aleris' funding ran out for the Project⁴ (Id.). Further, Eric Rychel's declaration indicates that Aleris funded theProject through cash on hand and from monies borrowed under its revolving credit line; Aleris did not have a "funding shortfall" on the Project; and Aleris did not pay the alleged amounts that AIS is claiming in this lawsuit because Aleris believed they were not due⁵ (DN 33 PageID # 559; DN 33-2 PageID # 571-72 Exhibit B Rychel Affidavit).

Aleris contends the only portion left of Request Nos. 1 and 2 would be documents pertaining to Aleris' investment in the Project as asked for in Request No. 1 (DN 33 PageID # 562-63). Aleris argues that portion of Request No. 1 is disproportionate, overbroad, unreasonable, vexatious, harassing, and unduly burdensome for Aleris to sift through thousands of invoices and hundreds and thousands of pages of internal documents, including highly confidential and proprietary financial and accounting records, meeting minutes, and banking information, demonstrating how it paid for all of the invoices transmitted on the approximately $600 million Project (DN 33 PageID # 562-63; DN 33-2 PageID # 573 Exhibit B ¶ 10). Aleris indicates the information sought is highly confidential, sensitive, proprietary, and encompasses privileged communications (Id.). Aleris also asserts that AIS can look at its SEC filings to ascertain its financial wherewithal during the Project and to the GM documents already provided (Id. PageID # 562-63).

AIS's Reply

In reply, AIS explains that it seeks the requested information not to show Aleris's intent, but rather: (1) to corroborate its theory of the case and its claims that Aleris acted in bad faith pursuant to its claims under the Kentucky Fairness in Construction Act; (2) to rebut Aleris's defenses to AIS's claims and show those defenses are pretextual and false; and (3) to defend against Aleris's counterclaims wherein it alleges AIS was responsible for delays, faultyperformance or breaches of the AIS Contract on the project resulting in damages to Aleris in an amount in excess of $3.9 million (DN 34 PageID # 575). Further, Aleris failed to cite any case that holds the ability or capacity to pay are not discoverable in a collection case (Id.).

AIS claims that it seeks agreements, communications, and any documents relating to the funding of the project not to show Aleris's intent, but rather to corroborate its theory of the case⁶ (DN 34 PageID # 577-78). AIS asserts that this information is relevant to the claims and defenses asserted by the parties in this action (Id.). Further, AIS claims to have a good faith basis to believe that evidence exists pertaining to Aleris waiting for funds from GM to pay its project expenses (Id.). For this reason, AIS believes that communications between GM and Aleris or internal communications of Aleris discussing funding shortfalls relating to the funding agreements, and the GM agreements may exist (Id.).

AIS purportedly seeks the information related to the funding of the project to substantiate and corroborate its claim for costs and attorney fees under the Kentucky Fairness in Construction Act (Id. PageID # 578-79). AIS explains that under the Act it is entitled to costs and attorney fees if it demonstrates that Aleris acted in bad faith when it ordered equipment, supplies, machinery, and work for the project despite knowing it did not have the means to pay for them at the time of the...