NORMA GUDELJ, Plaintiff, v. VITALITY WORKS, INC., AND MITCHELL COVEN, Defendants Civ. No. 19-14 KG/JFR United States District Court, D. New Mexico Filed December 16, 2019 Counsel Glenn R. Smith, Stephanie Landry, Landry & Ludewig, L.L.P., Albuquerque, NM, for Plaintiff. Charles J. Vigil, Rodey Dickson Sloan Akin & Robb, P.A., Albuquerque, NM, for Defendants. Robbenhaar, John F., United States Magistrate Judge ORDER GRANTING PLAINTIFF'S EXPEDITED SECOND MOTION TO COMPEL: ENFORCEMENT OF SUBPOENA OF MS. JENNIFER SCHWARTZ *1 THIS MATTER is before the Court on Plaintiff's Expedited Second Motion to Compel: Enforcement of Subpoena of Ms. Jennifer Schwartz, filed November 22, 2019. Doc. 48. Defendants filed a Response on December 6, 2019. No Reply is necessary. Having reviewed the parties’ submissions and the relevant law, the Court finds that Plaintiff's Motion is well taken and is GRANTED. I. Background Information and Procedural History This case arises from Plaintiff's allegations that one or both Defendants violated Title VII of the Civil Rights Act, the Family Medical Leave Act, the American With Disabilities Act, the Age Discrimination in Employment Act, and the New Mexico Human Rights Act during the course of and when they terminated Plaintiff's employment. Doc. 27 at 2. Plaintiff also alleges Defendants preemptively and retaliatorily discharged her before she could exercise her rights under the Family Medical Leave Act. Id., Doc. 4 at 16-17. In Plaintiff's Second Motion to Compel, Plaintiff explains that she scheduled the deposition of Jennifer Schwartz, a former employee of Vitality Works, Inc., by a Rule 45 Subpoena issued on November 5, 2019. Doc. 48 at 1, Doc. 48-1 at 6-7. The deposition was scheduled for November 19, 2019. Doc. 48-1 at 6-7. Plaintiff argues that Ms. Schwartz is a pivotal witness in her case because Ms. Schwartz is a first-hand witness to Plaintiff's claims and to her own claims against Vitality Works, Inc.,[1] and that Ms. Schwartz took part in an audit regarding Plaintiff's work that Defendants are claiming, in part, was grounds for termination of Plaintiff's employment. Id. at 3. After scheduling the deposition, Plaintiff states she learned that Ms. Schwartz was subject to a non-disparagement clause as part of a settlement agreement she entered into with Vitality Works, Inc. Id. at 2-3. In response, Plaintiff reached out to Defendants and obtained assurances that although Vitality Works, Inc., would not allow Ms. Schwartz to testify regarding the terms of the settlement, Defendants agreed that Ms. Schwarz could testify about her employment subject to the terms of the Protective Order in this case, and that there was nothing to prevent Ms. Schwartz from testifying fully about her claims against Vitality Works, Inc., and the basis for those claims. Id. at 2, Doc. 48-1 at 15-16. Plaintiff states that the afternoon before Ms. Schwartz's scheduled deposition, however, that Defendants informed Plaintiff that they would be “enforcing” the non-disparagement clause at the deposition and that it “may hinder” Ms. Schwartz's testimony. Id. Although the deposition proceeded as scheduled, Defendants placed the issue of the non-disparagement clause on the record and the deposition was continued pending a ruling on whether the non-disparagement clause limits the scope of Ms. Schwartz's testimony. Doc. 48-1 at 4. *2 Plaintiff argues that case law regarding the enforcement of non-disparagement clauses is clear, and that a subpoena supersedes any non-disparagement clause, meaning that such clauses cannot affect or otherwise chill Ms. Schwartz's testimony. Doc. 48 at 3. Plaintiff further argues that there is no testimonial privilege based on a non-disparagement clause under state law that would prevent Ms. Schwartz from testifying. Id. Finally, Plaintiff contends that neither Defendants nor Ms. Schwartz, who is represented by separate counsel, filed a motion for protective order to limit Ms. Schwartz's deposition testimony. Id. at 12. Plaintiff cites Gotham Holdings, LP v. Health Grades, Inc., 580 F.3d 664, 665 (7th Cir. 2009) to support her argument that an agreement between a deponent and party outside of this case cannot prevent relevant discovery required in this case. Doc. 48 at 12. Plaintiff also cites Cooper Tire & Rubber Co. v. Farese, Farese & Farese Prof. Ass'n, 423 F.3d 446, 457 (5th Cir. 2005), to support her argument that a separation agreement containing a non-disparagement clause cannot prevent testimony in court or at a deposition pursuant to a valid subpoena. Id. at 13. In their Response, Defendants contend that the question presented is whether a valid non-disparagement agreement is “per se” voided when a third-party witness in an employment discrimination lawsuit is commanded to appear for deposition testimony pursuant to a subpoena. Doc. 56 at 1. Defendants also contend that the case law Plaintiff cited does not support her legal arguments. Id. at 2. Defendants object to Plaintiff's request that Ms. Schwartz violate the terms of her non-disparagement agreement. Id. at 2. II. Legal Standard Federal Rule of Civil Procedure 45 governs the procedure for obtaining discovery from a nonparty. See Simon v. Taylor, No. 12-0096 JB/WPL, 2014 WL 6633917, at *14 (D.N.M. Nov. 18, 2014). Because a Rule 45 subpoena is a discovery device, it is subject to a court's scheduling order as well as applicable rules of procedure. See Dreyer v. GACS, Inc., 204 F.R.D. 120, 122 (N.D. Ind. 2001). Likewise, “[a] subpoena to a third party under Rule 45 is subject to the same discovery limitations as those set out in Rule 26.” W. Convenience Stores, Inc. v. Suncor Energy (U.S.A.), Inc., No. 11-cv-01611-MSK-CBS, 2014 WL 1257762, at *21 (D. Colo. Mar. 27, 2014) (internal quotations omitted). “Parties may obtain discovery regarding any non-privileged matter that is relevant to any party's claim or defense and proportional to the needs of the case, 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 benefit.” Fed. R. Civ. P. 26(b)(1). “While the court has considerable discretion with regard to regulating discovery which is exchanged in a lawsuit, discovery from third-parties in particular must, under most circumstances, be closely regulated.” Premier Election Sol., Inc. v. Systest Labs, Inc., No. 09-cv-01822-WDM-KMT, 2009 WL 3075597, at *3 (D. Colo. Sept. 22, 2009). “It is generally recognized that a non-party involuntarily embroiled in civil litigation should not be subjected to undue burden or significant expense merely by virtue of having received a subpoena.” W. Convenience Stores, 2014 WL 1257762, at *21 (internal quotations omitted). In addition to the requirements of relevance and proportionality, discovery requests to third parties are subject to additional restraints. First, the requesting party has the affirmative duty to “take reasonable steps to avoid imposing undue burden or expense” on the subpoenaed party. Fed. R. Civ. P. 45(d)(1). If the subpoena nonetheless “subjects a person to undue burden,” then the court must quash or modify it. Fed. R. Civ. P. 45(d)(3). Moreover, the court may quash or modify the subpoena if it requires “disclosing a trade secret or other confidential ... commercial information” unless the requesting party “shows a substantial need for the ... material that cannot be otherwise met without undue hardship,” and ensures that the subpoenaed person will be reasonably compensated.” Id. In any event, under Fed. R. Civ. P. 45(d)(2)(B)(ii), a non-party is entitled to reimbursement for “significant expense resulting from compliance” with a subpoena. See Legal Voice v. Stormans Inc., 738 F.3d 1178, 1184-85 (9th Cir. 2013); Linder v. Calero-Portocarrero, 251 F.3d 178, 182 (D.C. Cir. 2001). III. Analysis *3 There is no question here that discovery is being obtained from a nonparty pursuant to Rule 45. There is also no debate among the parties that the discovery is relevant. The issue here is whether offering truthful testimony pursuant to a Rule 45 Subpoena, and subject to a Protective Order, would violate the non-disparagement clause contained within the settlement agreement entered into between Ms. Schwartz and Vitality Works, Inc. The Court finds it does not. As an initial matter, the Court agrees that any concerns Defendants had regarding the implications of the non-disparagement clause on Ms. Schwartz's scheduled deposition testimony should have been raised with a motion for protective order. Rule 26(c) provides that any person from whom discovery is sought may move for a protective order and that the court for good cause shown may issue an order, inter alia, forbidding inquiry into certain matters, or limiting the scope of disclosure or discovery to certain matters. Fed. R. Civ. P. 26(c)(1)(D). Defendants failed to do so. To the contrary, Defendants unequivocally agreed to the scope of Ms. Schwartz's deposition testimony prior to the deposition. On November 11, 2019, Plaintiff's counsel forwarded an email to defense counsel stating Chuck, To recap, Vitality Works is not allowing Ms. Schwartz to testify regarding the terms of the settlement but Vitality Works has agreed that Ms. Schwartz can testify about her employment subject to the terms of the protective order and, therefore, there is nothing that prevent Ms. Schwartz from testifying fully about her claims against Vitality Works and the basis therefore. Please confirm and we will proceed accordingly. Doc. 48-1 at 15. On November 12, 2019, at 1:00 p.m., defense counsel responded: Yes that is correct. Id. Plaintiff, therefore, had a sound basis for relying on Defendants’ representations with respect to the scope of Ms. Schwartz's testimony, and Defendants have offered no explanation for its eleventh-hour about face. Nor have Defendants offered any legal basis for its theory that a deponent's obeying a Rule 45 subpoena and offering truthful deposition testimony per se violates the non-disparagement clause at issue here. Instead, Defendants merely contend that the two cases Plaintiff's cited to support her argument that a Rule 45 subpoena supersedes a non-disparagement clause do not support her argument. Doc. 56 at 2-3. In doing so, however, Defendants selectively limit and/or mischaracterize the facts and holdings of the cases Plaintiff cited such that their contention is not persuasive. In Gotham Holdings, LP v. Health Grades, Inc., the issue was whether confidential documents related to an arbitration agreement could be disclosed pursuant to a third-party subpoena. 580 F.3d 664, 665 (7th Cir. 2009). The Seventh Circuit affirmed the district court's decision directing the documents be produced. Id. In so doing, the Court explained that first, the arbitration agreement itself provided that materials from the arbitration may be disclosed in response to a subpoena. Id. The Court went on to explain, however, that even if the agreement had purported to block disclosure, such a provision would be ineffectual. Id. (emphasis added). The Court explained that “[c]ontracts bind only the parties. No one can ‘agree’ with someone else that a stranger's resort to discovery under the Federal Rules of Civil Procedure will be cut off.” Id. The Court went on to state more broadly that a person's desire for confidentiality is not honored in litigation. Id. “Trade secrets, privileges, statutes or rules requiring confidentiality must be respected, see Fed. R. Civ. P. 45(c)(3)(A)(iii), but litigants’ preference for secrecy does not create a legal bar to disclosure.” Id. Finally, the Court noted that while the parties were entitled to agree they would not voluntarily disclose information related to the arbitration, that did not prevent disclosure pursuant to a legal right of access. Id. at 665-66. In other words, “the parties promised to keep their mouths (and files) shut unless a subpoena required a turnover.” Id. at 666. *4 Here, Defendants argue this case is inapplicable because it relates only to a confidentiality provision in an arbitration agreement and says nothing about non-disparagement agreements, and further because the non-disparagement clause at issue here does not expressly provide for disclosure in response to a subpoena. Doc. 56 at 2. Although the Court agrees that certain facts in Gotham Holdings are distinguishable from the facts here, the Court does not agree that the general principles are inapplicable. Additionally, Defendants appear to ignore that the Seventh Circuit expressly stated that even if the agreement had purported to block disclosure of confidential documents, such a provision would be ineffectual in the face of a legal right to access. 580 F.3d at 665. In any event, the Court is not persuaded by Defendants’ argument that the general legal principles found in Gotham Holdings only apply in cases involving a confidential provision in an arbitration agreement that expressly allows disclosure in response to a subpoena. In Cooper Tire & Rubber Co. v. Farese, the issue was whether the district court had correctly granted summary judgment in favor of defendants after having found that the settlement agreement entered into between a former employee and Cooper Tire & Rubber Co. was illegal and unconscionable.[2] 423 F.3d 446 (5th Cir. 2005). The district court awarded summary judgment in favor of defendants finding, inter alia, that under Mississippi law, non-disparagement agreements are void per se for illegality and that the separation agreement was unconscionable because the former employee had no meaningful choice in entering it since her reputation was on the line for future employment, as well as Cooper Tire's apparent threats of criminal prosecution. Id. at 458. In granting summary judgment, the district court explained that the courts have the duty and the power to declare void and unenforceable contracts made in violation of law or in contravention to the public policy of the state including when the principal purpose of the contract directly furnishes aid and protection to an illegal enterprise. Id. at 456. The district court held that the separation agreement “aids and protects an illegal enterprise because it ‘would discourage employees from informing the authorities of alleged illegal actions committed by their employers and would enable unscrupulous employers to cover up illegal acts.’ ” Id. The Fifth Circuit[3] found the district court's reasoning was flawed for several reasons. Id. at 457. First, it stated that while illegal contracts are unenforceable in Mississippi, the district court cited no statute or case law declaring non-disparagement clauses as illegal. Id. Second, the Fifth Circuit court explained that simply because a contract could possibly result in some unlawful end, it does not follow that the courts should automatically withhold enforcement of the contract. Id. Finally, the Fifth Circuit explained that Mississippi law allowed for employees to sue their employers for wrongful termination if they were terminated for their refusal to participate in or reporting of illegal activity, and that it would be against public policy for an employer to sue a former employee for violating a non-disparagement clause for disclosing the employer's illegal activities. Id. The Court then acknowledged that in any event the parties had correctly conceded that the separation agreement and non-disparagement clause could not prevent the former employee from testifying in court or at a deposition pursuant to a valid subpoena. Id. The Court stated: It goes without saying that non-disparagement clauses are common in situations where two parties terminate their employment relationship by contract. See Equal Employment Opportunity Comm'n v. Severn Trent Servs., Inc., 358 F.3d 438, 440 (7th Cir. 2004) (“Such private gag orders appear to be fairly common.”). They are intended to prevent a disgruntled former employee from disseminating sensitive or false information in revenge for being terminated. Id. This action demonstrates the valid legal purpose these clauses serve. *5 423 F.3d at 457-58. Defendants contend that Cooper Tire & Rubber Co. stands only for the premise that non-disparagement clauses are not per se unlawful. Doc. 56 at 3. But whether the non-disparagement clause is unlawful is not at issue here. Further, Defendants failed to address the Fifth Circuit's acknowledgement that the separation agreement and non-disparagement clause could not prevent the former employee from testifying in court or at a deposition pursuant to a valid subpoena, and also failed to address the Fifth Court's explanation as to the general purpose of non-disparagement clauses, both of which are applicable to the case here. The Court is, therefore, not persuaded that Ms. Schwartz's truthfully testifying regarding her claims against Vitality Works and the basis therefore in response to a Rule 45 subpoena violates the non-disparagement clause as part of a settlement agreement between Ms. Schwartz and Vitality Works, Inc., particularly where the deposition testimony will be governed by a Protective Order already entered into by the parties. The non-disparagement clause at issue here states that Releasor and Mitch Coven and board members, officers, directors, senior managers of Vitality Works will not make any critical, negative, or disparaging remarks about the other party. Ms. Schwartz further agrees that she will not disparage Vitality Works, its business employees, officers or agents, or any of its successors, affiliates, or related entities in any manner harmful to its business or business reputation. Doc. 48-1 at 19 (emphasis added). As explained in Cooper Tire & Rubber Co., the purpose of a non-disparagement clause is to prevent a disgruntled former employee from disseminating sensitive or false information in revenge for being terminated. 423 F.3d at 458. There is nothing in the facts before this Court to suggest that Ms. Schwartz's subpoenaed deposition testimony amounts to voluntarily disseminating sensitive or false information in revenge for being terminated and thereby violating the non-disparagement clause. Moreover, Defendants have failed to offer any legal argument whatsoever that testifying pursuant to a court order per se violates the non-disparagement clause. IV. Conclusion *6 For the foregoing reasons, the Court finds that Plaintiff's Expedited Second Motion to Compel: Enforcement of Subpoena of Ms. Jennifer Schwartz (Doc. 48) is well taken and is GRANTED. IT IS SO ORDERED. Footnotes [1] Plaintiff states that Ms. Schwartz's employment was terminated by Vitality Works, Inc., in 2017, and that soon thereafter Ms. Schwartz alleged claims against Vitality Works, Inc., similar to Plaintiff's claims here. Id. at 11-12. [2] The former employee had her employment terminated for allegedly embezzling gift certificates and college football tickets from Cooper Tire's company picnic fund. 423 F.3d at 450. In exchange for not filing criminal charges, Cooper Tire required she execute a separation agreement that included a non-disparagement clause. Id. While the separation agreement was being negotiated, the former employee signed an affidavit stating that she had burned documents at the behest of her manager at Cooper Tire which were allegedly discoverable in pending litigation in Arkansas. Id. The former employee was subsequently called to testify in the Arkansas litigation where counsel agreed that the separation agreement and non-disparagement clause did not prevent her from testifying pursuant to a valid federal court subpoena. Id. at 452. [3] Defendants repeatedly misidentified the Fifth Circuit as the Third Circuit in its Response. Doc. 56 at 3.