Opinion ID: 574314
Heading Depth: 2
Heading Rank: 3

Heading: The Scope of Ordered Discovery.

Text: 65 Ekco further argues that sanctions were improper because the court's discovery order was overly broad. Where the information sought is not properly discoverable, a district court may not impose sanctions for non-compliance with an order requiring its production. Fonseca v. Regan, 734 F.2d 944, 948 (2d Cir.), cert. denied, 469 U.S. 882, 105 S.Ct. 249, 83 L.Ed.2d 186 (1984). In the present case, however, the required discovery was adequately related to the issue of alter ego liability. 66 The standard for determination of this issue is provided by Fed.R.Civ.P. 26(b)(1), which states in pertinent part: 67 Parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action, whether it relates to the claim or defense of the party seeking discovery or to the claim or defense of any other party.... It is not ground for objection that the information sought will be inadmissible at the trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence. 68 This obviously broad rule is liberally construed. See Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351, 98 S.Ct. 2380, 2389, 57 L.Ed.2d 253 (1978) (relevance under Rule 26(b)(1) broadly construed to encompass any matter that bears on, or that reasonably could lead to other matter that could bear on, any issue that is or may be in the case); Morse/Diesel, Inc. v. Fidelity & Deposit Co., 122 F.R.D. 447, 449 (S.D.N.Y.1988) (term reasonably calculated in the quoted provision means  ' any possibility that the information sought may be relevant to the subject matter of the action ' ) (quoting Mallinckrodt Chem. Works v. Goldman, Sachs & Co., 58 F.R.D. 348, 353 (S.D.N.Y.1973) (quoting Charles A. Wright, Law of Federal Courts § 81, at 359 n. 47 (2d ed. 1970))) (emphasis added in Mallinckrodt ). 69 In this case, plaintiffs-appellees had the burden of establishing an alter ego relationship among Ektrans, Ekco, and Ekinciler. This could require them to show that one corporation so dominated another that the latter's distinct corporate personality should be disregarded. See, e.g., William Wrigley Jr. Co. v. Waters, 890 F.2d 594, 600 (2d Cir.1989) (applying New York law). Factors which are relevant to such a showing include: (1) intermingling of corporate funds; (2) under-capitalization of one of the corporations; and (3) failure to maintain separate books and records or observe other legal formalities. Id. (citations omitted). The discovery order was closely related to these factors of corporate control. 70 The July 11, 1991 order required Ekco to comply with the notices of deposition and subpoenas duces tecum served by plaintiffs-appellees. This discovery related directly to the issue of alter ego liability. The discovery notices sought basic corporate records, and documents (1) concerning banking and other financial transactions, (2) relating to transactions between the corporations, and (3) relating to corporate assets. The deposition was largely focused on issues of corporate ownership and control. In sum, the discovery sought adequately tracked plaintiffs-appellees' burden of proof on the alter ego issue. 71 Ekco counters that alter ego liability is properly determined as of the time of the transaction at issue in the case, and therefore records and documents from years subsequent to 1987, when the events at issue had concluded, were not discoverable. However, it was reasonable to conclude, as the district court did, that information from subsequent years could help piece together the earlier picture. We are persuaded that information concerning financial transactions and movements of corporate assets subsequent to the transaction giving rise to this litigation was reasonably calculated to lead to the discovery of evidence admissible on the issue of alter ego liability within the meaning of Rule 26(b)(1). 72