Franchisors May Have Standing to Seek to Quash Subpoenas Directed to Third Parties

What can a franchisor do if some of its franchisees or business partners (who are not parties to the litigation) are slapped with broad and burdensome subpoenas from disgruntled franchisees or potential franchisees in litigation? In many cases, the answer may be nothing. The Federal Rules of Civil Procedure generally do not allow a party to seek to enforce the rights of others (many states have analogous rules, as well).

Notwithstanding the general rule, one federal district court recently found that Dunkin' Donuts, Inc. and Baskin-Robbins USA, Co. had standing to object to nine subpoenas served on third parties even though the third parties themselves never directly sought the court's protection or involvement. Barkan v. Dunkin' Donuts, Inc., No. CA05-050L, 2008 WL 1924007, at *3 (D.R.I. Apr. 28, 2008). The subpoenas were served on investment banks involved in the acquisition of the defendants' corporate owner, other Dunkin' Donuts franchisees that purchased stores, another franchisee that apparently made unsuccessful efforts to acquire six additional stores, another bank, and the defendants' attorneys. Barkan, 2008 WL 1924007, at *1.

The court's finding that the franchisors had standing to object to the subpoenas directed to third parties may be surprising to some. Rule 26(c) of the Federal Rules of Civil Procedure provides that “[a] party or any person from whom discovery is sought may move for a protective order…to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense. … ” Id. Based on this rule, many courts have found that a party to a lawsuit does not have standing to assert many kinds of objections, such as the breadth of the subpoenas or undue burden or expense, unless a “privilege” exists. See Langford v. Chrysler Motors Corp., 513 F.2d 1121, 1126 (2nd Cir. 1975) (“In the absence of a claim of privilege a party usually does not have standing to object to a subpoena directed to a non-party witness.”). See also In re Grand Jury Proceedings, 814 F.2d 61, 66 (1st Cir. 1987) (a party that raises an objection to a subpoena directed to a third party must establish the existence of a privileged relationship or a legitimate property or privacy interest in the documents).

Some courts have also found that parties with a privacy interest in subpoenaed documents have standing to oppose the subpoena. See Solow v. Conseco, Inc., No. 06CIV.5988(BSJ)(THK), 2008 WL 190340, at *3 (S.D.N.Y. Jan. 18, 2008) (quoting In re Application of FB Foods, Inc., No. M8-85(JFK), 2005 WL 2875366, at *1 (S.D.N.Y. Nov. 2, 2005) (“Absent a showing of privilege or privacy, a party ordinarily lacks standing to challenge a non-party subpoena with a motion for a protective order or to quash.”) Many of these cases deal with subpoenas seeking banking records or other financial information. See Arias-Zeballos v. Tan, No. 06CIV.1268(GEL)(KNF), 2007 WL 210112, at *1 (S.D.N.Y. Jan. 25, 2007) (“[C]ourts have found that individuals, whose banking records are subpoenaed, have a privacy interest in their personal financial affairs that give them standing to move to quash a subpoena served on a non-party financial institution.”); In re Flag Telecom Holdings, Ltd. Sec. Litig., No. 02CIV.3400WCC, 2006 WL 2642192, at *2 (S.D.N.Y. Sept. 13, 2006) (the court held that party had standing to challenge the subpoena when they have an adequate privacy interest in the confidentiality of financial records.)

In Barkan, none of the third parties sought relief from the court, although counsel for some of the third parties sent letters objecting to the discovery requests, and the defendants' attorneys apparently advised all of the subpoenaed individuals or entities of the defendants' motion for a protective order to quash the subpoenas. Barkan, 2008 WL 1924007, at *1.

So how were the franchisors successful in objecting to the subpoenas that were not even directed to them? The defendants raised two primary interests with respect to the third-party subpoenas. First, they argued that the subpoenas were overly broad and were not limited to the remaining issues in the lawsuit, which resulted in defendants (not the third parties) incurring undue burden and expense by being dragged into the third-party discovery. Id. Second, the defendants argued that the plaintiffs were engaged in a “strategy to punish others for having even a tangential business relationship” with the defendants. Id.

Of course, similar kinds of arguments could be made in many other cases, as well, but those are often not successfully raised for the reasons explained above. In this case, however, the court concluded that the defendants sufficiently identified their own interests in the matter to give them standing to object to the subpoenas directed to the third parties. Id. In reaching this conclusion, the court found it “troubling” that the plaintiffs were apparently attempting to expand the scope of the litigation “at the eleventh hour” by seeking discovery that may have been outside the matters raised in the current state of the case. Id.

This recent decision suggests that one possible approach for franchisors or other businesses to deal with subpoenas directed to business partners or other entities ' to the extent their own interests are at issue ' is to try to show the court how the discovery sought goes beyond the real issues at hand and has merely become a fishing expedition. The more the argument can be framed in that manner, the higher the prospects are for limiting the discovery that also implicates the interests of the franchisor.

Douglas M. Mansfield and J. Todd Kennard are both partners in the Columbus, OH, office of Jones Day. Mansfield can be contacted at 614-281-3943 or [email protected]. Kennard can be contacted at 614-281-3989 or [email protected]. The views set forth herein are the personal views of the authors and do not necessarily reflect those of the law firm with which they are associated.

What can a franchisor do if some of its franchisees or business partners (who are not parties to the litigation) are slapped with broad and burdensome subpoenas from disgruntled franchisees or potential franchisees in litigation? In many cases, the answer may be nothing. The Federal Rules of Civil Procedure generally do not allow a party to seek to enforce the rights of others (many states have analogous rules, as well).

Notwithstanding the general rule, one federal district court recently found that Dunkin' Donuts, Inc. and Baskin-Robbins USA, Co. had standing to object to nine subpoenas served on third parties even though the third parties themselves never directly sought the court's protection or involvement. Barkan v. Dunkin' Donuts, Inc., No. CA05-050L, 2008 WL 1924007, at *3 (D.R.I. Apr. 28, 2008). The subpoenas were served on investment banks involved in the acquisition of the defendants' corporate owner, other Dunkin' Donuts franchisees that purchased stores, another franchisee that apparently made unsuccessful efforts to acquire six additional stores, another bank, and the defendants' attorneys. Barkan, 2008 WL 1924007, at *1.

The court's finding that the franchisors had standing to object to the subpoenas directed to third parties may be surprising to some. Rule 26(c) of the Federal Rules of Civil Procedure provides that “[a] party or any person from whom discovery is sought may move for a protective order…to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense. … ” Id. Based on this rule, many courts have found that a party to a lawsuit does not have standing to assert many kinds of objections, such as the breadth of the subpoenas or undue burden or expense, unless a “privilege” exists. See Langford v. Chrysler Motors Corp. , 513 F.2d 1121, 1126 (2nd Cir. 1975) (“In the absence of a claim of privilege a party usually does not have standing to object to a subpoena directed to a non-party witness.”). See also In re Grand Jury Proceedings, 814 F.2d 61, 66 (1st Cir. 1987) (a party that raises an objection to a subpoena directed to a third party must establish the existence of a privileged relationship or a legitimate property or privacy interest in the documents).

Some courts have also found that parties with a privacy interest in subpoenaed documents have standing to oppose the subpoena. See Solow v. Conseco, Inc., No. 06CIV.5988(BSJ)(THK), 2008 WL 190340, at *3 (S.D.N.Y. Jan. 18, 2008) (quoting In re Application of FB Foods, Inc., No. M8-85(JFK), 2005 WL 2875366, at *1 (S.D.N.Y. Nov. 2, 2005) (“Absent a showing of privilege or privacy, a party ordinarily lacks standing to challenge a non-party subpoena with a motion for a protective order or to quash.”) Many of these cases deal with subpoenas seeking banking records or other financial information. See Arias-Zeballos v. Tan, No. 06CIV.1268(GEL)(KNF), 2007 WL 210112, at *1 (S.D.N.Y. Jan. 25, 2007) (“[C]ourts have found that individuals, whose banking records are subpoenaed, have a privacy interest in their personal financial affairs that give them standing to move to quash a subpoena served on a non-party financial institution.”); In re Flag Telecom Holdings, Ltd. Sec. Litig., No. 02CIV.3400WCC, 2006 WL 2642192, at *2 (S.D.N.Y. Sept. 13, 2006) (the court held that party had standing to challenge the subpoena when they have an adequate privacy interest in the confidentiality of financial records.)

In Barkan, none of the third parties sought relief from the court, although counsel for some of the third parties sent letters objecting to the discovery requests, and the defendants' attorneys apparently advised all of the subpoenaed individuals or entities of the defendants' motion for a protective order to quash the subpoenas. Barkan, 2008 WL 1924007, at *1.

So how were the franchisors successful in objecting to the subpoenas that were not even directed to them? The defendants raised two primary interests with respect to the third-party subpoenas. First, they argued that the subpoenas were overly broad and were not limited to the remaining issues in the lawsuit, which resulted in defendants (not the third parties) incurring undue burden and expense by being dragged into the third-party discovery. Id. Second, the defendants argued that the plaintiffs were engaged in a “strategy to punish others for having even a tangential business relationship” with the defendants. Id.

Of course, similar kinds of arguments could be made in many other cases, as well, but those are often not successfully raised for the reasons explained above. In this case, however, the court concluded that the defendants sufficiently identified their own interests in the matter to give them standing to object to the subpoenas directed to the third parties. Id. In reaching this conclusion, the court found it “troubling” that the plaintiffs were apparently attempting to expand the scope of the litigation “at the eleventh hour” by seeking discovery that may have been outside the matters raised in the current state of the case. Id.

This recent decision suggests that one possible approach for franchisors or other businesses to deal with subpoenas directed to business partners or other entities ' to the extent their own interests are at issue ' is to try to show the court how the discovery sought goes beyond the real issues at hand and has merely become a fishing expedition. The more the argument can be framed in that manner, the higher the prospects are for limiting the discovery that also implicates the interests of the franchisor.

Douglas M. Mansfield and J. Todd Kennard are both partners in the Columbus, OH, office of Jones Day. Mansfield can be contacted at 614-281-3943 or [email protected]. Kennard can be contacted at 614-281-3989 or [email protected]. The views set forth herein are the personal views of the authors and do not necessarily reflect those of the law firm with which they are associated.