Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. Conn.: Discovery reopened where after-discovered information raised specter of violation of a protective order, (Aug 29, 2024)

By Jeffrey H. Brochin, J.D.

In the dispute between a franchisor of urgent care centers and a master developer, the court found the developer would suffer no prejudice by reopening of discovery.

The federal district court in Hartford, Connecticut has granted a motion to reopen discovery filed by AFC Franchising, LLC (AFC or Franchisor) in a lawsuit brought by a franchise area or master developer for AFC who claimed that his rights to exclusive territory had been violated by AFC. The Franchisor’s motion was based on their obtaining information not disclosed during discovery that the developer had arranged with other master developers to fund the lawsuit so as to give them business leverage over AFC and drain them of resources. As to the developer’s own motion to compel supplemental discovery regarding updated financials, the court ruled that they could have left their request for production open-ended, but chose not to do so (Purugganan v. AFC Franchising, LLC, No. 3:20-cv-00360-KAD (D. Conn. Aug. 27, 2024)).

The developer was the former owner of a Master Development Agreement (MDA) which was entered into with Doctors Express. Franchisor AFC purchased the assets of Doctors Express, including taking the assignment of the developer’s MDA. He claimed that following the acquisition, AFC violated the MDA by operating corporate owned urgent care facilities in the developer’s exclusive territory. Discovery in the case closed on November 30, 2021, however, AFC determined that after the close of discovery, they uncovered information that appeared to indicate that the developer and other Master Developers had worked together to fund and bring the litigation against AFC, in an effort to achieve business leverage by draining AFC’s resources. AFC only learned of the alleged collusion in the course of reviewing emails of a former MDA holder who requested post termination access to his former e-mail account at AFC. During the course of that search, AFC located some of the emails at issue.

The court noted that a party seeking to reopen discovery bears the burden of establishing good cause, and discovery should not be extended when there was ample opportunity to pursue the evidence during discovery. When determining whether to reopen discovery, courts will consider a variety of factors, specifically: (1) whether trial is imminent, (2) whether the request is opposed, (3) whether the non-moving party would be prejudiced, (4) whether the moving party was diligent in obtaining discovery within the guidelines established by the court, (5) the foreseeability of the need for additional discovery in light of the time allowed for discovery by the district court, and (6) the likelihood that the discovery will lead to relevant evidence.

Analysis of the factors. The court first examined the element of a trial being imminent, and observed that the motion was filed in January, 2024, and that the trial was calendared up for November, 2024. Therefore, AFC’s motion was filed well in advance of trial and a reasonable amount of time following AFC’s discovery of the emails at issue in the motion. The motion was in fact opposed by the developer who asserted that AFC should have located the emails and that the motion was a gateway to other discovery related to the issue of venue. The court further found that the non-moving party (developer) would not suffer prejudice if the court were to grant the motion for the limited purpose of allowing discovery related to the litigation funding mechanism.

Foreseeable by developer. The court also found that the need for the discovery was clearly foreseeable to the developer because it appeared that AFC tried to explore those issues during discovery but that the developer’s responses were, at best, not completely accurate. Excerpts from the developer’s deposition made clear that responses to the various discovery requests were not accurate and he did not produce the e-mails in question, despite the fact that the e-mails appeared to be responsive to some of AFC’s discovery requests. Furthermore, the developer had a duty to supplement his discovery responses, and AFC was not required to assume that the discovery responses were inaccurate or incomplete such that AFC was obligated to conduct a random search of AFC’s computer system in order to determine if the discovery responses were accurate or complete.

Violative of protective order. The court observed that the e-mails that AFC quoted in its brief appeared to suggest that documents from the case may have been shared with the other Master Developers. Given that there was a judicially imposed protective order in the case, if a violation indeed occurred, it would certainly be of great interest to the court.

In sum, the court agreed with AFC that further discovery on the issue was relevant and likely to uncover relevant evidence. Therefore, AFC’s motion to re-open discovery was granted for the limited purpose of obtaining discovery related to the Master Developer group and its funding mechanism.

Motion to compel. The court next turned to the issue of the developer’s motion to compel supplemental discovery. His argument was that although prior discovery provided AFC’s reports or spreadsheets showing the revenue from each of the franchisees in their Master Territory for the period of December 2020 through October 2021, the trial had since been delayed a number of years and therefore updated financials were in order.

However, the court rejected that argument, characterizing the developer’s counsel as ‘experienced’ and noting that if he had wanted the discovery request to be temporally open ended, he could have included language to that effect, or, could have refrained from including any end date at all. However, counsel chose to do the opposite by including a specific end date of October of 2021. Accordingly, the court denied the motion to compel.

The Case is No. 3:20-cv-00360-KAD.

Judge: Richardson, R.

Attorneys: Brian C. Roche (Roche Pia LLC) for Danilo Purugganan. Eric Del Pozo (Shipman & Goodwin LLP) for AFC Franchising, LLC.

Companies: AFC Franchising, LLC

Cases: FranchisingDistribution ConnecticutNews