Venture Communications Cooperative, Inc. v. James Valley Cooperative Telephone Company et al

UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
CENTRAL DIVISION
VENTURE COMMUNICATIONS
COOPERATIVE,INC.,
3:20-CV-03011-RAL
Plaintiff,
ORDER ON PENDING MOTIONS
vs.
JAMES VALLEY COOPERATIVE
TELEPHONE COMPANY,and NORTHERN
VALLEY COMMUNICATIONS,LLC,
Defendants.
There are four pending motions in this case:(1) Defendants' Motion to Compel, Doc. 33,
seeking to compel better responses from Plaintiffto three requests for production and one request
for admission;(2)Defendants' Motion to Compel Answers to Interrogatories, Doc. 34, seeking to
compel better answers from Plaintiff to three interrogatories;(3) Plaintiffs Motion for an Order
Compelling Production of Documents, Doc. 35; and (4) Plaintiffs Motion for Leave to File
Amended Complaint, Doc. 38. Plaintiff opposes Defendants' Motions to Compel, Docs. 37, 40,
and Defendants oppose Plaintiffs Motion to Compel and motion to amend its complaint. Docs.
41, 43. The motions have been thoroughly briefed with a number of additional documents
submitted into the CMECF record. Docs. 33, 33-1-33-6, 34, 34-1-34-3, 35, 36, 36-1-36-4, 37,
37-1-37-2, 38, 38-1, 39, 39-1-39-2, 40,41,41-1-41-5, 42,43,44,45,46. This Court cannot help
but wonder how much further along this case might be if the parties had put as much effort into
working cooperatively in discovery as they have in staking out positions on the discovery disputes.
1
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I. Motion for Leave to Amend Complaint
This Court first addresses Plaintiffs Motion for Leave to File Amended Complaint, Doc.
38. Plaintiff filed the motion within the time set by the Rule 16 Scheduling Order in this case,
Doc. 29 at 14,and attached the proposed amended complaint highlighting changes as required by
Local Rule. D.S.D. Civ. LR 15.1; Doc. 38-1. The proposed amended complaint adds no new party
and,despite alleging civil conspiracy in the Fifth Cause ofAction and for reasons explained below,
no new cause ofaction. Doc. 38-1. Rather,the proposed amended complaint augments allegations
under the heading "The Parties' Longstanding Disputes" to contend that part of Defendants'
animus toward Plaintiff stems fi-om Defendants' "access stimulation" or "traffic pumping"
practices being opposed by Plaintiffs CEO Randy Houdek in his capacity as "an active member"
of the Board of Managers of South Dakota Network, LLC (SDN), a provider network to which
both Plaintiff and Defendants belong. Doc. 38-1 at 11-12. Plaintiffs other substantive change in
the proposed amended complaint is to allege a Fifth Cause of Action of Civil Conspiracy. Doc.
38-1 at 19-20. The civil conspiracy allegations no doubt are connected to this Court's discussion
in its prior Opinion and Order of civil conspiracy as an alternative ground why Defendant James
Valley Cooperative Telephone Company (James Valley) should not be dismissed. Doc. 20 at 8-
9.
Defendants' Opposition to Plaintiffs Motion for Leave to File Amended Complaint, Doc.
43, argues, with some merit, that a parent company like James Valley cannot form a civil
conspiracy with a wholly-owned subsidiary like Northern Valley Communications, LLC, citing
cases including Copperweld Corp. v. Independence Tube Corp.. 467 U.S. 752, 771-77 (1984)
(holding that a parent corporation and its wholly owned subsidiary are incapable of conspiring
with one another under § 1 ofthe Sherman Act); Fogie v. THORN Am.. Inc.. 190 F.3d 889, 898-
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99 (8th Cir. 1999) (holding that a parent corporation and its subsidiaries are incapable of
committing a RICO conspiracy). Defendants also argue that the added allegations supporting
Defendants' alleged motive to act tortiously or otherwise wrongly to undermine Plaintiff is
"implausible" and thus leave to amend should be denied.
No South Dakota court has directly addressed whether a parent and subsidiary can form an
agreement actionable as a civil conspiracy under South Dakota law. S^ Berg v. Johnson &
Johnson. CIV. 09-4179-KES,2013 WL 12411821, at *2(D.S.D. Sept. 12, 2013). Indeed, there is
quite a split of authority over whether a parent and subsidiary can form an agreement actionable
as a civil conspiracy. Some courts find that a civil conspiracy can arise from the actions ofa parent
and subsidiary. See Fortis Advisors LLC v. Fishawack Med. Commc'n Ltd.. No.: 20cv607-LAB-
AGS, 2021 WL 308279, at *4-5 (S.D. Cal. Jan. 29, 2021)(rejecting defendants' argument that
Copperweld Corp. forecloses an actionable civil conspiracy between a parent corporation and its
subsidiary under California lawl: Strvker Corp. v. Ridgewav. Nos. 1:13-CV-1066, l:14-CV-889,
2015 WL 5308038, at *16-17(W.D. Mich. Sept. 10, 2015)(holding that a parent corporation and
its subsidiary can commit a civil conspiracy under Michigan law because such entities are separate
and distinct from one another); All Energv Corp. v. Energetix. LLC. 985 F. Supp. 2d 974, 995
(S.D. Iowa 2012) (finding no Iowa cases adopting the intracorporate immunity doctrine and
declining to apply the doctrine on a motion to dismiss for failure to state a claim); ASARCQ LLC
V. Am. Min. Corp.. 382 B.R. 49, 76-80 (S.D. Tex. 2007) (predicting that a civil conspiracy
between a parent corporation and its wholly owned subsidiary is actionable in at least some
circumstances under Arizona law based on 50-state survey conducted by the court); TRC Self
Storage Dev.. LLC v. Public Storage. Inc.. No. 07-cv-00351-WDM-MEH, 2007 WL 2936322,
at *3(D. Colo. Oct. 9, 2007)(holding that plaintiff alleged enough facts to state a claim for civil
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conspiracy between parent corporation and its subsidiary under Colorado law); Nilavar v. Mercy
Health Svs. Western Ohio. 142 F. Supp. 2d 859, 888-89 (S.D. Ohio 2000) (rejecting the
defendants' argument that a parent corporation and its subsidiary cannot commit a civil conspiracy
under Ohio law); SEECO. Inc. v. Hales. 22 S.W.3d 157, 173 (Ark. 2000)(declining to apply
intracorporate immunity doctrine beyond the antitrust realm); Metro. Life Ins. Co. v. La Mansion
Hotels & Resorts. Ltd.. 762 S.W.2d 646, 651-52 (Tex. App. 1988) (holding that a parent
corporation and its wholly owned subsidiary are separate legal entities, and therefore, can commit
a civil conspiracy under Texas law).
Some courts hold that a parent and subsidiary cannot form a civil conspiracy. St. Jude
Med.. S.C.. Inc. v. Biosense. Webster. Inc., 994 F. Supp. 2d 1033, 1052(D. Minn. 2014)(finding
that a parent corporation and its subsidiary are incapable of committing a civil conspiracy under
Minnesota law (citing Palm Beach Polo. Inc. v. Dickinson Fin. Corp.. 221 F.3d 1343 (8th Cir.
2000)(unpublished))); Clav v. Consol Pa. Coal Co.. LLC. 955 F. Supp. 2d 588, 599-601 (N.D.
W.Va.2013)(holding that parent corporation and its subsidiary are not separate entities but rather
acted as "one consciousness," and therefore, plaintiff cannot state a claim for civil conspiracy
under West Virginia law); Alonso v. McAllister Towing of Charleston. Inc.. 595 F. Supp. 2d 645,
652-53(D.S.C. 2009)(holding that South Carolina does not recognize a claim for civil conspiracy
between a parent corporation and its wholly owned subsidiary because such entities are not
separate actors); Norkol/Fibercore. Inc. v. Gubb. 279 F. Supp. 2d 993, 1000 (E.D. Wis. 2003)
(noting that a parent corporation and its wholly owned subsidiary cannot conspire with one another
under Wisconsin law); Siegel Transfer. Inc. v. Carrier Exp.. Inc.. 856 F. Supp. 990, 1009(E. D.
Pa. 1994)(holding that it is well established under Pennsylvania law that a parent corporation and
its subsidiaries cannot commit a civil conspiracy); Okusami v. Psvch. Inst. of Washington. Inc..
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959 F.2d 1062, 1066-67(D.C. Cir. 1992)(affirming dismissal of civil conspiracy claim between
a subsidiary, its officer, and two parent corporations because such parties operate as a single
entity); Pizza Mgmt.. Inc. v. Pizza Hut. Inc.. 737 F. Supp. 1154, 1165-66(D. Kan. 1990)(holding
that a civil conspiracy between a parent corporation and its subsidiary is not actionable under
Kansas law); Chrvsler Credit Corp. v. Rebhan,311 S.E.2d 606,609(N.C. Ct. App. 1984)(holding
that a parent corporation and its wholly owned subsidiary cannot commit a civil conspiracy under
Michigan law).
Nothing in this Court's Opinion and Order Granting in Part and Denying in Part
Defendants' Motion to Dismiss, Doc. 20, should be read as predicting how the Supreme Court of
South Dakota would rule on whether a parent and subsidiary can form a civil conspiracy. The
parties had not briefed that issue, and this Court simply mentioned civil conspiracy as an alternative
ground to deny dismissal ofJames Valley as a party defendant. South Dakota law, however, makes
clear that civil conspiracy "is not an independent cause of action, but is sustainable only after the
underlying tort claim has been established." Sancom. Inc. v. Qwest Commc'ns Corp..643 F. Supp.
2d 1117,1132(D.S.D. 2009): see also Kirlin v. Halverson. 758 N.W.2d 436,455(S.D.2008)(civil
conspiracy not an "independent cause of action" but an "agreement to commit a tort").
Rule 15(a) of the Federal Rules of Civil Procedure requires at this stage of the case the
opposing party's written consent or leave of court for Plaintiff to amend the complaint. Under
Rule 15(a), this Court"should freely give leave when justice so requires." Fed. R. Civ. P. 15(a)(2).
Factors to consider in deciding whether to grant leave to amend a complaint include whether the
motion was filed in bad faith or with dilatory motive, whether there was undue delay in filing the
motion, whether leave to amend would be unduly prejudicial to any opposing party, and whether
the proposed amendment would be futile. Bell v. Allstate Life Ins. Co.. 160 F.3d 452, 454 (8th
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Cir. 1998). The proposed amended complaint was not filed in bad faith, or with dilatory motive
or undue delay, nor is there any undue prejudice to Defendants by allowing the proposed
amendment of the complaint. Defendants instead argue that the amendment would be futile.
Denial of a motion to amend for futility "means the district court has reached the legal conclusion
that the amended complaint could not withstand a motion to dismiss under Rule 12(b)(6) of the
Federal Rules of Civil Procedure." Zutz v. Nelson. 601 F.3d 842, 850 (8th Cir. 2010)(citation
omitted).
The proposed amendment ofthe complaint to allege an additional motive for Defendants'
actions is not so implausible as to be futile. The additional cause of action for "civil conspiracy"
is, like the claim of"unfair competition" in the Fourth Cause of Action,^Doc. 20 at 24, not a
viable separate cause of action under South Dakota law. Sancom. Inc.. 643 F. Supp. 2d at 1132;
Kirlin. 758 N.W.2d at 455. This Court could discern from the original complaint facts that, if a
parent and subsidiary could form a civil conspiracy under South Dakota law, the Plaintiff could
allege such a theory. This Court will grant leave to file the amended complaint, but makes two
things clear:(1)the dismissal of the Third Cause of Action for Fraud and Fourth Cause of Action
for "Unfair Competition" in Doc. 20 stands; and(2)the Fifth Cause of Action for Civil Conspiracy
is, like the unfair competition claim, not a separate cause of action and whether South Dakota law
permits a claim of a parent-subsidiary conspiracy is a question this Court likely will address later.
As the prior Opinion and Order made clear, civil conspiracy was an alternative ground for James
Valley not being dismissed as a party fi-om this action; thus, whether civil conspiracy can exist
between a parent and subsidiary under South Dakota does not determine whether James Valley is
entitled to be dismissed from this suit. Doc. 20 at 7-8. Other allegations exist in this case that
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justify James Valley being a named Defendant, regardless of the existence of a civil conspiracy
claim involving a parent and subsidiary under South Dakota law.
II. Motions to Compel
Both Plaintiff and Defendants have filed motions to compel discovery. Rule 26 permits
discovery of "any nonprivileged matter that is relevant to any party's claim or defense and
proportional to the needs of the case." Fed. R. Civ. P. 26(b)(1). Proportionality is gauged by
"considering the importance of the issues at stake in the action, the amount in controversy, the
parties' relative access to relevant information, the parties' resources, the importance of the
discovery in resolving the issues, and whether the burden or expense of the proposed discovery
outweighs its likely benefits." Id.; see United States v. One Assortment of 93 NFA Regul.
Weapons. 897 F.3d 961,966(8th Cir. 2018).
This Court is familiar with the factual allegations and defense themes both from ruling on
Defendants' motion to dismiss and from the lengthy briefing submitted by the parties on the
pending motions. Discussing each discovery dispute separately with the competing arguments and
views of relevant facts would prolong this order and delay ruling unnecessarily. This Court finds
neither Plaintiff nor Defendants completely in the right and will award no sanctions to any party
under Fed. R. Civ. P. 37.
III. Order
For good cause, it is hereby
ORDERED that Plaintiffs Motion for Leave to File Amended Complaint, Doc. 38, is
granted and Plaintiff must file its proposed amended complaint within seven days ofthis order. It
is further
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ORDERED that Defendants' Motion to Compel, Doc. 33, is granted in part and denied in
part as follows;
1. Defendants' motion to compel on Request for Production (REP)6 is denied. Either
party could seek production from the other side of nonprivileged documents,ifany,the
party created or possessed explaining or discussing its interpretation ofthe Alternative
Connect America Cost Model(A-CAM-I)or the second A-CAMII. REP 6, as written,
is confusing and appears to seek different material than that.
2. Plaintiffs responses to REP 13 and 14 are to the effect that such documents will be
produced through December 31, 2019. This lawsuit was filed April 14, 2020, and that
date shall be the cut-off date for production in response to REP 13 and 14.
3. Plaintiff must respond anew to Request for Admission(REA)9 to address ArCAM II
funding, as that was the thrust of REA 9.
It is further
ORDERED that Defendants' Motion to Compel Answers to Interrogatories, Doc. 34, is
denied with respect interrogatory answers 4 and 5, as those answers are sufficient at this time, but
granted with respect to interrogatory answer 7. This Court believes it proper to allow both sides
ofthis lawsuit some latitude to conduct discovery on the claimed animosity between Plaintiff and
its CEO Randy Houdek and Defendants and their CEO James Groft. This Court recognizes that
the relevance of the animosity allegedly of Defendants and Groft toward Plaintiff and Houdek is
central to certain claims, but cannot conclude that animosity in the opposite direction is not relevant
at this time. It is finally
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ORDERED that Plaintiffs Motion to Compel Production of Documents, Doc. 35, is
granted,except that this Court limits the applicable time frame to beginning January 1,2015, rather
than back to January 1, 2014.
DATED this 1^ day of March, 2021.
BY THE COURT:
ROBERTO A. LANGE
CHIEF JUDGE
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