Rhea v. Apache Corporation ( 2020 )

FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
FOR THE TENTH CIRCUIT October 23, 2020
_________________________________
Christopher M. Wolpert
Clerk of Court
BIGIE LEE RHEA,
Plaintiff - Appellee,
v. Nos. 19-7000 & 19-7066
(D.C. No. 6:14-CV-00433-JH)
APACHE CORPORATION, (E.D. Okla.)
Defendant.
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ENABLE GAS GATHERING, LLC;
ENABLE MIDSTREAM PARTNERS, LP;
ENABLE GAS GATHERING &
PROCESSING, LLC,
Movants - Appellants.
_________________________________
ORDER AND JUDGMENT*
_________________________________
Before HARTZ, McHUGH, and EID, Circuit Judges.
_________________________________
This appeal relates to subpoenas Plaintiff Bigie Lee Rhea issued to three
non-parties (Enable). The district court denied Enable’s motion to quash, and its
*
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist in the determination of
this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and collateral
estoppel. It may be cited, however, for its persuasive value consistent with
Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
discovery orders did not protect Enable from any significant expense it might incur in
responding to the subpoenas. The district court later held Enable in contempt for failing
to fully respond and entered an order sanctioning it $1,000 per day for each day its failure
to comply continued. We vacate the district court’s orders compelling Enable to
produce documents, vacate the district court’s order holding Enable in contempt, and
remand for further proceedings.
I. Background
Enable operates a natural gas gathering system that includes more than 5,400
wells, 9,100 miles of gathering lines, 2,100 miles of miles of transmission lines, and
10 processing plants. Rhea filed the underlying suit as a class action against one of
Enable’s largest customers, Apache, alleging Apache systematically underpaid
royalty owners for the minerals produced from their wells. Rhea then issued
subpoenas to non-party Enable seeking a wide range of documents related to
Enable’s entry into, and performance of, contracts with Apache over the span of more
than 16 years. These included:
[A]ll [d]ocuments concerning or discussing the constituents, pressure
and volume of gas passing into [Enable’s] gathering system produced
from each Apache [w]ell for each month [from January 1, 2000 to
present], including any and all gas analyses and gas volume statements
on a month-by-month and well-by-well basis.”
Aplt. App. Vol. II at 91. Enable contends there are about 1,000 Apache wells.
The subpoenas also requested “all [d]ocuments and [c]orrespondences
concerning” Enable’s contracts with Apache and “all contracts for the sale of natural
gas and/or NGLs produced from the Apache [w]ells to which [Enable or Enable’s]
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related entities or affiliates are or were parties,” “including . . . all [c]orrespondences
and [d]ocuments concerning or discussing the negotiation of such contracts, the
performance of such contracts, the proposed or actual modification of such contracts,
and/or the proposed or actual sale or assignment of such contracts.” Id.
Enable moved to quash the subpoenas and for an order protecting it from any
significant expense it would incur if it were ordered to respond. Enable submitted
three affidavits in support of its argument that it would incur significant expense in
responding to Rhea’s subpoenas. An Enable vice president of system operations
stated that “[t]he volume, age and multiple locations of information sought will
require [Enable] to retain outside resources and cause a substantial disruption to
[Enable’s] ongoing business.” Id. at 108. He estimated that responding to the
subpoenas as written would “involve at least thirty-six different, and some obsolete,
computer systems,” “require hiring approximately twenty-four analysts/experts,” and
“take over 900 work days to complete.” Id. at 109.
An Enable senior director of commercial gathering and processing indicated
that data from 2005–2008 could only be searched if IT personnel spent two to five
days preparing a standalone system to unarchive the applicable data. And he asserted
that accessing pre-2005 data “would require [Enable] to retain outside resources to
attempt to undertake a series of steps to try to determine the data structure of . . .
different, obsolete custom electronic systems, reverse engineer[] those systems,
export[] the data to independent, additional servers[,] and creat[e] the documents
sought.” Id. at 124.
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A vice president of enterprise technology noted that responding to the
subpoenas would “require[] [Enable] to expend considerable internal resources.” Id.
at 127. He also explained the difficulties Enable would face in segregating
information from the Apache wells due to “[t]he integrated nature” of Enable’s
system, which “commingl[es] . . . gas” “with different compositions” “from different
geographic locations[ and] production zones.” Id. at 128.
In response to an affidavit presented by Rhea that is not in the record, Enable
submitted two follow-up affidavits. These affidavits estimated certain costs of
compliance. For a set of data related to the 2005–2008 timeframe, the vice president
of system operations stated that Enable did “not have the resources to dedicate to the
preparation of . . . servers[,] and [the] restoration and unarchiving” of data that a
response would require. Id. Vol. III at 101. He estimated the cost to retain outside
resources to restore and unarchive the data at $15,000 to $20,000 and that Enable
would spend another $50,000 to $90,000 to regenerate and validate requested reports.
The vice president of enterprise technology estimated the labor costs of producing
responsive emails sent after 2012 at $45,000 to $90,000 and the labor costs of
producing older responsive emails at $233,720 to $278,720.
The magistrate judge disregarded Enable’s evidence, finding:
This Court has reviewed the affidavits of individuals from both
[Rhea] and Enable concerning the number of hours required to comply
with production and the cost associated with production. The
inconceivably high estimate of time and expense offered by Enable’s
affidavit and the lack of basis in fact of [Rhea’s] sponsored affidavit
leaves this Court with little evidence of undue burden and expense.
This Court would note that [Rhea’s] expert operated from a position of
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ignorance to some degree because of a lack of knowledge of the specific
hardware and software utilized by Enable in preserving and archiving its
records.
Id. Vol. IV at 89.
But the magistrate judge did not specify which Enable affidavit offered an
“inconceivably high estimate of time and expense” or explain why she found
Enable’s cost estimates to be “inconceivably high.” Id. Nor did she make any
finding as to the amount of expense compliance would entail or whether that expense
would be “significant” as a matter of law. She instead focused on the burden
imposed by responding and found that “a burden will result but that burden is not
undue considering the nature and potential importance of the information to this
litigation.” Id. at 91.
The magistrate judge ultimately denied the motion to quash, narrowed the
applicable date range to begin in 2005, and ordered production of responsive
documents created from 2005 forward.1 She did not include any provision protecting
Enable from significant expense it might incur in responding to the subpoenas as
modified by her order.
In ruling on Enable’s objections and motion to reconsider the magistrate
judge’s order, the district court further narrowed the scope of the ordered production
based on clarifications from Rhea and ordered Enable to comply with the magistrate
1
She noted, however, that “[s]hould the production indicate the need for a
modification to this date restriction, [Rhea] may seek further production by justifying
a broadening of the [time period].” Aplt. App. Vol. IV at 91.
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judge’s order, as further modified. The district court did not address Enable’s request
for protection from significant expense or otherwise provide a protection to Enable
from significant expense resulting from its compliance with the order.
Rhea later filed a motion seeking sanctions against Enable for its alleged
failure to comply with the subpoenas. The magistrate judge recommended
(1) finding that Enable failed to comply, and (2) imposing a coercive sanction of
$1,000 per day for each day that Enable’s failure continued.
The district court adopted the report and recommendation. Enable appealed.
We granted a limited remand to determine whether Enable had met its obligations
under the contempt order during the pendency of the appeal. On limited remand, the
district court concluded that Enable had not. Enable appealed that order as well, and
we consolidated the two appeals.
Enable claims it has already spent more than $800,000 producing 1,137
gigabytes of data that included 262,368 documents containing nine million pages in
response to the subpoenas. It also notes that the amount of the sanction totaled
$443,000 as of February 18, 2020.
II. Discussion
A. Appellate Jurisdiction
We have jurisdiction to review “final” orders entered by district courts.
28 U.S.C. § 1291. “Generally, pretrial discovery rulings are interlocutory and not
appealable as final orders under § 1291.” FTC v. Alaska Land Leasing, Inc.,
778 F.2d 577, 578 (10th Cir. 1985). But “when appeal after final judgment will not
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cure an erroneous discovery order, a party may defy the order, permit a contempt
citation to be entered against him, and challenge the order on direct appeal of the
contempt ruling.” Firestone Tire & Rubber Co. v. Risjord, 449 U.S. 368, 377 (1981);
see also Alaska Land Leasing, 778 F.2d at 578 (“To perfect standing to appeal from a
civil pretrial discovery order, a non-party deponent must refuse to comply and submit
to a contempt proceeding. Thereafter, an adverse contempt order is final and it may
be appealed.”).
The district court held Enable in contempt for failing to comply with its
discovery orders. We therefore have appellate jurisdiction to review the discovery
orders and the contempt order.
B. Standard of Review
“We review the district court’s rulings on subpoenas for an abuse of discretion.”
EEOC v. Dillon Cos., 310 F.3d 1271, 1274 (10th Cir. 2002) (internal quotation marks
omitted). “A district court abuses its discretion when it bases a decision on either a
clearly erroneous finding of fact or an erroneous conclusion of law, or when its ruling
manifests a clear error of judgment.” Vallario v. Vandehey, 554 F.3d 1259, 1264
(10th Cir. 2009). “A clear example of an abuse of discretion exists where the trial
court fails to consider the applicable legal standard or the facts upon which . . . its . . .
judgment is based.” Jackson v. Los Lunas Cmty. Program, 880 F.3d 1176, 1191
(10th Cir. 2018) (internal quotation marks omitted).
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C. The District Court’s Discovery Orders
An order directing production from a non-party over that party’s objection
“must protect” that party “from significant expense resulting from compliance.”
Fed. R. Civ. P. 45(d)(2)(B)(ii) (emphasis added). Application of the rule is
mandatory. See New Prods. Corp. v. Dickinson Wright, PLLC (In re Modern Plastics
Corp.), 890 F.3d 244, 252 (6th Cir. 2018) (“[I]f an objection is made and the court
orders the non-party to comply, the court must protect a non-party from significant
expense[] resulting from compliance.”); Legal Voice v. Stormans Inc., 738 F.3d 1178,
1184 (9th Cir. 2013) (observing that Rule 45(d)(2)(B)(ii) “provides no exceptions”
and “leaves no room for doubt that the rule is mandatory”); Linder v.
Calero-Portocarrero, 251 F.3d 178, 182 (D.C. Cir. 2001) (“The [appellants] claim
the court erred in concluding that fee shifting was mandatory. But Rule 45 requires
precisely that . . . .”).2
The advisory committee’s notes clarify that “[t]he court is not required to fix
the costs in advance of production, although this will often be the most satisfactory
accommodation to protect the party seeking discovery from excessive costs.” Fed. R.
Civ. P. 45 advisory committee’s note to 1991 amendment. “In some instances, it may
be preferable to leave uncertain costs to be determined after the materials have been
2
We have not decided what constitutes a “significant” expense within the
meaning of Rule 45. But other circuits have suggested that amounts in the range of
$9,000 to $20,000 qualify as “significant” under the rule. See Legal Voice, 738 F.3d
at 1185 (“[W]e have no trouble concluding that $20,000 is ‘significant.’”); Linder,
251 F.3d at 182 (concluding that estimated expenses in the amount of $199,537.08
were significant and citing a case where a $9,000 estimate was deemed significant).
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produced, provided that the risk of uncertainty is fully disclosed to the discovering
party.” Id.The district court abused its discretion by failing to apply Rule 45(d)(2)(B)(ii)
in its orders directing Enable to produce documents. The district court ordered
Enable to produce a wide range of documents related to Enable’s entry into, and
performance of, contracts with one of its largest customers over the span of more
than 11 years. And Enable submitted evidence that responding would be costly. Yet
the district court did not evaluate whether the expense would be “significant” within
the meaning of Rule 45(d)(2)(B)(ii) or protect Enable from this expense. See Linder,
251 F.3d at 182 (“Under [Rule 45(d)(2)(B)(ii)], the questions before the district court
are whether the subpoena imposes expenses on the non-party, and whether those
expenses are ‘significant.’ If they are, the court must protect the non-party by
requiring the party seeking discovery to bear at least enough of the expense to render
the remainder ‘non-significant.’”).
The district court’s conclusion that it had little evidence on the amount of
expense3 did not negate its obligation to apply Rule 45(d)(2)(B)(ii). Consistent with
the advisory committee notes to Rule 45, it could have ordered Rhea to reimburse
Enable for any significant expense it might incur in responding to the subpoenas.
But the district court instead framed its Rule 45 analysis in terms of undue burden,
3
The district court reached this conclusion by disregarding five affidavits
submitted by Enable and at least one affidavit submitted by Rhea.
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finding that “a burden will result but that burden is not undue considering the nature
and potential importance of the information to this litigation.” Aplt. App. Vol. IV at
91.4 In Legal Voice, the Ninth Circuit reversed where a district court did the same
thing, concluding “that the district court erred in its interpretation of Rule
45(d)(2)(B)(ii) by framing the issue in terms of undue burden, rather than significant
expense.” 738 F.3d at 1184.
Because the district court’s orders compelling production failed to apply Rule
45(d)(2)(B)(ii), we vacate the orders and remand to the district court for further
consideration of Enable’s motion to quash.
D. The District Court’s Sanctions Order
The district court based its sanctions order on Enable’s failure to comply with
its orders directing Enable to produce documents. Because we vacate the underlying
orders, we also vacate the order sanctioning Enable for failing to comply with them.
See Niemi v. Lasshofer, 770 F.3d 1331, 1342 (10th Cir. 2014) (“[T]his court’s order
vacating the preliminary injunction means the contempt order and bench warrant
stemming from it . . . must be vacated as well.”); Reliance Ins. v. Mast Constr. Co.,
84 F.3d 372, 376 (10th Cir. 1996) (“[A] claim for civil contempt must fall if the order
that was disobeyed is subsequently reversed by . . . the appellate court . . . .”).
4
Rule 45(d)(3)(A)(iv) requires district courts to “quash or modify a subpoena
that . . . subjects a person to undue burden.”
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E. Appeal No. 19-7066
We issued a limited remand “to the district court to determine whether
Appellants’ post-appeal discovery production complied with the district court’s
December 3, 2018 civil contempt order that is the subject of this appeal.” The
district court then entered an order addressing “whether Enable’s subsequent
production complies with the [c]ontempt [o]rder.” Aplt. App. Vol. VIII at 174. The
district court concluded that Enable’s production did not comply. In No. 19-7066,
Enable appeals from this order. Because we vacate the underlying contempt order,
we dismiss as moot Enable’s appeal from the order finding it non-compliant.
III. Conclusion
In No. 19-7000, we vacate the district court’s orders compelling Enable to
produce documents over its objections, vacate the district court’s order holding
Enable in contempt, and remand for further proceedings. We grant Enable’s
unopposed motion for leave to file Appellants’ Appendix Volume XI under seal. We
also deny Enable’s pending motion for a limited remand as moot.
We dismiss No. 19-7066 as moot.
Entered for the Court
Allison H. Eid
Circuit Judge
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