Richards v. Kallish
- Cathy Seibel
- 7:22-cv-09095
- U.S. District Court · Southern District of New York
- 7
In Richards v. Kallish, Judge Reznik partly granted a discovery-enforcement request, denied broader QuickBooks and loan-data requests, and declined Rule 11 sanctions.
Nicole Richards and the defendants, including Thomas C. Kallish and Everyone’s Earth, were affected by the discovery directives and rulings. Defendants must verify whether additional QuickBooks data was used by the accountant and produce it if so; the parties must confer about the “Start-Up Expenses” category.
What happened
In Richards v. Kallish, Nicole Richards asked the court to enforce an earlier order requiring defendants to produce financial documents used by their accountant for tax returns. She sought access to Everyone’s Earth’s QuickBooks data and additional information concerning a sister entity’s forgiven COVID Paycheck Protection Program loan.
The court partly granted the enforcement request. Defendants must ask the accountant whether any other QuickBooks financial data was used for the 2019–2022 tax returns and produce that data if so. The court denied unlimited QuickBooks access and the requested loan information because Richards had not shown that the additional material was relevant and proportionate to the case. The court also required the parties to discuss documents that might explain a “Start-Up Expenses” category and report back.
Judge Victoria Reznik declined to entertain defendants’ proposed sanctions matter under Rule 11, while reminding Richards’s counsel to meet and confer before raising discovery disputes and to check whether requested materials had already been produced.
The detailed version
- Richards v. Kallish · No. 7:22-cv-09095
- Cathy Seibel
- Aug. 27, 2024
Background
Nicole Richards filed a letter motion seeking to enforce the court’s July 10, 2024 order directing defendants to produce underlying financial documents provided to their accountant to prepare and file annual tax returns. Richards asked for access to data in Everyone’s Earth’s QuickBooks system, either by inspection or export. She also sought financial data concerning 2020 and 2021, when defendants’ sister entity took and had forgiven a COVID Paycheck Protection Program loan.
Richards said defendants had produced balance sheets for 2019 through 2023 but argued that the documents showed questionable activity in a “Start-Up Expenses” category. Defendants responded that the only information given to the accountant was QuickBooks login credentials, that the accountant used QuickBooks to generate balance sheets, and that those balance sheets had been produced. Defendants also argued that Richards had not shown the requested information was relevant and accused her counsel of conduct warranting sanctions under Rule 11 of the Federal Rules of Civil Procedure.
Court’s Analysis
The court explained that electronically stored information may be requested under Rule 34, but discovery is limited by Rule 26(b) to nonprivileged information relevant to a claim or defense and proportional to the needs of the case.
The court found that Richards had already received the QuickBooks-generated balance sheets and an updated capitalization table showing Everyone’s Earth’s raised capital and the purchase price for issued shares. Richards had not identified what additional relevant information she needed, and unrestricted access to all QuickBooks data was not proportional to the needs of the case. The court also found that Richards had not explained how information about the sister entity’s COVID benefits related to her claim that Thomas C. Kallish breached a fiduciary duty by failing to issue her “founders shares” in exchange for work on certain patents.
The court nevertheless concluded that the earlier order covered any other QuickBooks financial data that the accountant used to prepare the tax returns. Because defendants said the accountant had used QuickBooks to generate the balance sheets, the court directed defendants to contact the accountant and verify whether any other QuickBooks financial data was used for the 2019–2022 tax returns. If so, defendants had to produce it.
The court also directed the parties to confer about what additional documents, short of producing all underlying QuickBooks data, might support or explain the “Start-Up Expenses” category and to report back by joint letter. The court directed defendants to submit a letter confirming compliance by September 13, 2024.
Disposition
Richards’s request to enforce the July 10, 2024 order was GRANTED in part. Defendants were ordered to verify whether other QuickBooks financial data was used for the 2019–2022 tax returns and, if so, produce it. The parties were also ordered to confer about documents supporting or explaining the “Start-Up Expenses” category and report back.
Richards’s requests for unlimited access to QuickBooks data and for information about the sister entity’s COVID Paycheck Protection Program loan were DENIED. The court declined to entertain a Rule 11 sanctions motion. The clerk was directed to terminate the pending letter motions identified in the order.
Read the full 7-page opinion on CourtListener, the free public archive maintained by the Free Law Project.