## Facts

- RyCon Specialty Foods, Inc. (RyCon) supplied hormone-free cheese products to Wellshire Farms, Inc. (Wellshire) for resale and distribution.
- RyCon sued Wellshire in the Middle District of Pennsylvania, alleging Wellshire stopped paying for products and owed $229,584.53 on unpaid invoices.
- Wellshire filed counterclaims, including breach of contract and related business tort theories, alleging an oral or implied agreement that Wellshire would be RyCon’s exclusive and “master” distributor.
- In discovery, Wellshire sought two general categories of information from RyCon: (1) documents and communications about the RyCon–Wellshire relationship and any exclusivity/distribution agreement, and (2) extensive information about other parts of RyCon’s business, including relationships with vendors, producers, slicers, packers, shippers, customers, and brokers, as well as RyCon’s financial information.
- RyCon objected to the broader requests as overbroad and as seeking confidential, competitively sensitive information—especially because the parties’ relationship had ended and they were operating as competitors.
- The discovery dispute was addressed first by Magistrate Judge Martin C. Carlson, who granted the motion to compel in part and denied it in part, limiting discovery largely to information bearing on the parties’ dealings and the existence and terms of any agreement.
- Wellshire filed objections to the magistrate judge’s nondispositive discovery order under Federal Rule of Civil Procedure 72(a).
- Chief Judge Yvette Kane reviewed the objections and issued the decision reported at 2011 WL 1342998 (2011).

## Issues

1. Under Rule 72(a) and 28 U.S.C. § 636(b)(1)(A), were the magistrate judge’s limits on Wellshire’s motion to compel “clearly erroneous or contrary to law”?
2. Under Rule 26(b)(1), should Wellshire be permitted broad discovery into RyCon’s finances and third-party business relationships when the main dispute concerns the existence and scope of an alleged exclusive distribution agreement?

## Decision

- The court overruled Wellshire’s Rule 72(a) objections.
- The court affirmed the magistrate judge’s order granting the motion to compel only in part.
- The court permitted discovery focused on the RyCon–Wellshire relationship and materials bearing on whether an agreement existed and what its terms were.
- The court left in place the denial of Wellshire’s sweeping requests for RyCon’s confidential financial information and wide-ranging customer/vendor and other third-party business relationship information, given the limited connection to the central contract questions and the risk of competitive harm.

## Legal Principles

- A district judge reviewing a magistrate judge’s nondispositive discovery order may modify or set it aside only if the order is “clearly erroneous or contrary to law.” Fed. R. Civ. P. 72(a); 28 U.S.C. § 636(b)(1)(A).
- Discovery management, including rulings on motions to compel, is committed to the court’s discretion; that discretion is especially hard to disturb on Rule 72(a) review.
- Rule 26(b)(1) allows discovery of nonprivileged matter relevant to a party’s claim or defense, but relevance alone does not require production where the requests are overly broad or where the burden and likely harms outweigh the likely benefit.
- In a dispute about an alleged oral or implied distribution agreement, discovery properly centers on evidence of contract formation, scope, and course of dealing between the parties—rather than a full audit of one party’s unrelated business operations.
- Courts may limit or deny discovery that would expose sensitive competitive information (such as customer lists, pricing, cost structure, financing, and broad business relationships) when the requesting party’s need is weak and the responding party shows a real risk of competitive injury.

## Conclusion

RyCon Specialty Foods holds that, on Rule 72(a) review, a magistrate judge’s decision to confine discovery to information directly tied to the parties’ alleged distribution arrangement—and to deny far-reaching demands for a competitor’s confidential financial and third-party business records—will be upheld absent a clear error or legal mistake.


RyCon Specialty Foods, Inc. v. Wellshire Farms, Inc., 2011 WL 1342998 (2011)