Representations by Wholly Owned Subsidiary Made During Discovery May Bind Parent Company

Authored by R. Benjamin Cassady, D. Brian Kacedon, and John C. Paul

Parties are often bound by the representations they make during discovery. For example, they typically cannot reassert claims previously withdrawn or rely on evidence previously characterized as irrelevant. On the other hand, courts do not typically bind litigants to statements made by third parties. But if a third party that is a wholly owned subsidiary of a party involved in a lawsuit makes statements, those may bind the parent company. In Schütz Container Sys. v. Mauser Corp., C. A. No. 1:09-CV-3609, Dkt. No 359 (N.D. Ga. Mar. 31, 2014),¹ the United States District Court for the Northern District of Georgia held that statements regarding discovery by a wholly owned subsidiary of the plaintiff would limit the plaintiff's damages claim. Although it limited the plaintiff's damages claims, the court did not extend the prohibition to the plaintiff's request for an injunction, as the defendant had requested.²

Background

An intermediate bulk container or "IBC" is a storage unit designed to transport and store bulk liquids. It comprises an outer structural shell or "cage" and an interior liner or "bottle." To reuse an IBC, the bottle can be reconditioned (i.e., washed) or replaced entirely. A "cross-bottled" IBC is one where the bottle has been replaced by one made by an entity other than the manufacturer that produced the original IBC.

After Schütz Container Systems filed suit against Mauser Corporation and National Container Group (collectively "Mauser") for trademark infringement, Mauser sought discovery from Schütz's wholly owned subsidiary (and third party) Cardinal Container. The discovery Mauser sought related to Cardinal's reconditioning, rebottling, and cross-bottling procedures. Cardinal responded to Mauser's requests by representing that it had no evidence relevant to any claim or defense. Schütz's counsel, who also represented Cardinal, further explained that Cardinal had no evidence related to any of Schütz's claims for damages. In particular, counsel stated that Mauser's request "is not relevant to any claim or defense . . . or is not reasonably likely to lead to the discovery of admissible evidence." After Mauser asked Cardinal to explain why its procedures were irrelevant, Cardinal and Schütz's joint counsel claimed that "Schütz does not intend to base any damages claims on reconditioned IBCs."

Later, however, Schütz sought to enjoin Mauser from reconditioning Schütz IBCs. Mauser responded by moving to preclude Schütz from seeking an injunction for Mauser's reconditioned IBCs because of Cardinal's and Schütz's representations that reconditioned IBCs were irrelevant. Schütz argued that it should be allowed to seek an injunction because, despite Cardinal's objections, it did provide some of the discovery Mauser requested and, further, Schütz and Cardinal claimed only that Cardinal's reconditioning procedures were irrelevant to damages, not to an injunction.

The Schütz Decision

Analyzing Mauser's motion to preclude Schütz's claims for injunctive relief, the court noted that "[a]fter a party objects to discovery based upon a disclaimer of claims, that party should not be allowed to reverse that position by simply providing some of the requested discovery. To the extent that [Schütz] represented that it was not asserting claims during discovery, [Schütz] is bound by that position." Thus, that Schütz allegedly provided some of the information regarding Cardinal's procedures that Mauser sought in discovery was irrelevant—the court bound Schütz to its representations during discovery and those of its subsidiary, Cardinal. In fact, the court appears to have treated Cardinal's statements synonymously with Schütz's. Then the court closely examined the statements made by Schütz and Cardinal to determine the scope of the representations to which Schütz would be bound.

Regarding scope, the court noted that Schütz claimed it did not intend to seek damages based on reconditioned IBCs. But the court noted that Schütz never claimed it would not seek to enjoin Mauser from reconditioning Schütz's IBCs. Therefore, while the court would not allow Schütz to seek damages related to reconditioned IBCs or to introduce evidence regarding Cardinal's reconditioning procedures—the information sought by Mauser in discovery—to support a claim for damages, the court would allow Schütz to seek injunctive relief.

Strategy and Conclusion

The court treated the aligned parties in this case as one and the same. While this may have resulted from the close corporate relationship and their representation by a single counsel, the case is a reminder that statements during discovery may create limitations on a party's claims. Where those statements come from a closely aligned party or nonparty, a party should consider the effect those statements may have. Here, a representation that an entity does not have any information relevant to a claim or defense during discovery may limit the arguments or claims of an aligned party.

Endnotes

¹ The Schütz decision is available at http://www.finnegan.com/files/upload/LES_Insights_Column/2014/SchutzContainer_v_Mauser.pdf.

² The court also decided five other motions at the same time; its discussion of those motions is not relevant to the issues discussed here.

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