## Facts

- American Roller Co., LLC (American) agreed to purchase Champion Roller, LLC (Champion) from the seller defendants under a purchase agreement that included representations and warranties.
- CM Acquisitions (CM), an investor in American’s parent company, served as a guarantor connected to American’s obligations in the Champion deal.
- After the closing, American sued the seller defendants alleging misrepresentation and breach of warranty arising out of the Champion transaction.
- The seller defendants counterclaimed, contending American owed payments under the parties’ agreements.
- In a separate matter not involving Champion, CM negotiated the purchase of Pillar Industries by Pillar Induction (entities in which CM also had an investment interest), and that deal later led to a dispute and settlement between CM and Pillar Industries.
- During discovery in the Champion case, the seller defendants sought documents and testimony about the CM–Pillar dispute and settlement, even though CM and Pillar were not parties in this lawsuit.
- The seller defendants argued that discovery about the CM–Pillar episode could show that American (or related entities) had a practice of acquiring companies and then suing to obtain better terms, and that the information might support additional claims.
- As part of that effort, the seller defendants sought to depose Mark Skiba, the former president of Pillar Industries, to develop evidence about alleged business practices and motives for filing suit.
- American moved for a protective order under Federal Rule of Civil Procedure 26 to prohibit discovery concerning the CM–Pillar transaction, dispute, settlement, and Skiba’s deposition, arguing the materials were unrelated to the Champion purchase and imposed unjustified burden on nonparties.

## Issues

1. Whether Rule 26 allows discovery into a separate acquisition dispute and settlement involving nonparties (CM and Pillar) to support a theory about American’s alleged pattern of acquiring businesses and later suing.
2. Whether good cause existed under Rule 26(c) to prohibit or limit third-party discovery (including the deposition of a former Pillar executive) where the requested information was tied to an unrelated transaction and offered only speculative value to the existing claims and defenses.

## Decision

- The court granted American’s motion for a protective order.
- The court barred discovery into the unrelated CM–Pillar transaction, dispute, and settlement, including the attempted deposition of Mark Skiba, because the requested discovery was outside the proper scope of discovery in the Champion misrepresentation/breach-of-warranty case.

## Legal Principles

- Discovery under Rule 26 is limited to information that is tied to the claims and defenses in the case and is not justified where the connection to the case is remote or speculative.
- A party may not use discovery to investigate unrelated business dealings or past disputes simply to search for material that might support a narrative about an opponent’s general business conduct or litigation motives.
- Under Rule 26(c), a court may issue a protective order for good cause to prevent discovery that imposes undue burden or expense, especially where the discovery targets nonparties and concerns collateral matters.
- Courts weigh the likely benefit of the requested discovery against the burden and disruption it would impose, including the burden of third-party depositions and production about a concluded, unrelated dispute and settlement.
- Discovery aimed primarily at finding a basis for new claims, rather than proving or defending the pleaded claims, may be restricted when it would expand the case into side disputes unrelated to the transaction being litigated.

## Conclusion

In this discovery order arising from American’s suit over the Champion purchase, the court concluded that the seller defendants’ attempt to pursue discovery about CM’s separate dispute and settlement with Pillar (including deposing a former Pillar executive) was too disconnected from the misrepresentation, warranty, and payment issues in the Champion transaction, and it granted a protective order to prevent that collateral third-party discovery under Rule 26.


American Roller Co., LLC v. Foster-Adams Leasing, LLP, 2006 WL 1371441 (2006)