United States District Court, D. Nebraska
THERESA MALONE, individually and as a derivative action on behalf of Blue Valley Foods, Inc., a Nebraska corporation, et. al; Plaintiffs,
KANTNER INGREDIENTS, INC., et. al.; Defendants.
CHERYL R. ZWART, Magistrate Judge.
The plaintiffs have moved to compel tax returns and related records for Blue Valley Foods, Inc., Douglas Kantner, and the Kantner Companies. (Filing No. 268).
As stated in the plaintiffs' brief:
This action is at its heart a shareholder derivative action, whereby the Plaintiffs, as minority shareholders of the corporation, have requested a complete accounting of the corporate books of Blue Valley Foods, Inc. The primary aim of that is to determine whether and how Defendants Kantner and Rutter, as Directors of Blue Valley Foods, Inc., breached their fiduciary duties to the company or engaged in fraud or other wrongdoing that harmed the company.
(Filing No. 269).
On February 17, 2009, Blue Valley Foods (BVF) was placed into receivership by the Superior Court of the State of Arizona for the County of Maricopa. MCA Financial Group, Ltd. was the court-appointed receiver. (Filing No. 277-1, at CM/ECF p. 6). Over the following eight months, the assets of Kantner Ingredients, Inc. and BVF were liquidated by the receiver. All proceeds were used to pay either the garnishment held by Christopher Michael & Associates or the loan owed to Wells Fargo Bank. The assets of both Kantner Ingredients, Inc. and BVF had been pledged as collateral to secure the Wells Fargo loan. (Filing No. 277-1, at CM/ECF p. 7).
BVF had ceased its production operations located in Hebron, Nebraska before the receiver was appointed. And by July of 2009, it had terminated its employees and ceased all operations. (Filing No. 277-1, at CM/ECF p. 8). On August 6, 2009, Defendant Douglas Kantner injected $125, 000 to fund the Kantner Companies' operations. On August 21, 2009, he infused an additional $225, 000 into the Kantner Companies to pay off the remaining debt owed to Wells Fargo. (Filing No. 277-1, at CM/ECF p. 10). As of October 26, 2009, the court-appointed receiver reported:
The Receiver has liquidated the majority of assets of KI and BVF which were the collateral of WF. All proceeds were remitted to WF and used to reduce the debt owed by the Kantner Companies. In addition, MCA worked with Doug Kantner to liquidate the assets of KCDP which proceeds were also used to reduce the debt owed by the Kantner Companies. Doug Kantner also injected cash into the Kantner Companies sufficient to pay off the WF debt in full. As of the date of this report, both KI and BVF have terminated all employees and ceased operations and WF has been paid in full.
(Filing No. 277-1, at CM/ECF p. 13).
The above-captioned lawsuit was filed in the District Court of Thayer County, Nebraska on May 20, 2011. (Filing No. 1-1). The plaintiffs served discovery on Defendant Douglas Kantner in late-2011, and within that discovery, they demanded production of all state and federal income tax returns for BVF from 2002 through the present. In his response dated January 23, 2012, Douglas Kantner stated he had "no responsive documents and no access to any responsive documents. As indicated in the previous discovery responses, to the best of my knowledge all documentation was taken by the receiver and dealt with and retained within the receivership." (Filing No. 119-1, at CM/ECF p. 10).
In their April 2012 responses to Plaintiffs' written discovery, Defendants stated "Blue Valley Foods has had no assets or operations since the sale of its assets in 2009, " and "the receivership that was filed in 2009 stripped the officers and directors of Blue Valley Foods of any authority to act on behalf of Blue Valley Foods." (Filing No. 119-3, at CM/ECF p. 4). After tracking down information from outside sources, including the receiver, the defendants disclosed BVF's tax returns through 2009. It did not disclose the returns for the following years, stating BVF's post-liquidation tax returns were irrelevant to Plaintiffs' claims.
The case was removed to this forum on September 9, 2012. (Filing No. 1). ESI discovery battles ensued. During the course of that discovery, the defendants disclosed the 2010 through 2014 tax returns for BVF, and the 2010 personal tax return of Defendant Douglas Kantner. (Filing No. 241-1 through 241-6). After reading those documents, the plaintiff believes BVF continued as an ongoing business after the 2009 liquidation, and although the plaintiffs remained stockholders, they were not paid distributions and dividends in accordance with their shareholder interests.
The plaintiffs served additional document production requests, asking for Defendant Douglas Kantner's personal tax returns and the corporate tax returns for Kantner Ingredients, Inc., Kantner Group, Inc., Chianti Cheese of New Jersey, Inc., and Kantner Custom Dairy Inc. for the 2010-2013 tax years. Plaintiffs also request all working papers provided to the corporate entities' accountant for preparation of the returns, all documentation of inter-company transactions, and all documentation of funds received by these ...