28721.doc

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

MICROSERV COMPUTER TECHNOLOGIES, INC., an Idaho corporation,

Petitioner

vs.

U S WEST COMMUNICATIONS, INC.

Respondent.
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CASE NO. USW-T-99-20

ORDER NO.  28721

On March 21, 2001, the Commission issued Order No. 28682 establishing a discovery and hearing schedule in this matter. That Order required that any motions regarding discovery disputes be filed no later than April 6, 2001. Qwest Corporation (fka U S WEST Communications) filed a timely Motion to Compel Microserv Computer Technologies to answer and/or supplement 17 data requests. Microserv filed a timely response and Qwest then filed a Reply Memorandum. A hearing on the discovery dispute was held in Boise on April 20, 2001. As set out in greater detail below, we grant in part and deny in part Qwest’s Motion.
BACKGROUND
This case originated in August 1999 when Microserv Computer Technologies filed a complaint against Qwest. Microserv alleged that Qwest was inappropriately threatening to terminate telephone service to Microserv. In its Answer, Qwest asserted that Microserv obtained its telephone service through “subterfuge” and a fraudulent conveyance. More specifically, Qwest alleged that Microserv purchased most of the assets from and continued doing business at the location of a similarly named company, Microserv Telecomputing, LLC (hereinafter LLC). Although Microserv purportedly purchased the assets of LLC, Qwest stated that LLC’s accumulated debt (approximately $340,000) for rendered telephone service was not transferred to the new entity. Qwest Answer at 4-5. In essence, Qwest asserted that the two companies are one in the same. Id. at 4. Consequently, Qwest transferred the unpaid debt of LLC to Microserv and threatened to terminate service for non-payment.
After the complaint was filed, the parties conducted mutual discovery in January-February 2000. The parties then began protracted negotiations in an attempt to settle the complaint. Following unsuccessful settlement negotiations, the Commission issued Order No. 28682 on March 21, 2001. The Order adopted a discovery schedule and set an evidentiary hearing in this matter for May 23, 2001.
QWEST’S MOTION TO COMPEL
In its Motion to Compel, Qwest requests that the Commission issue an Order directing Microserv to answer 17 data requests (Nos. 22, 24, 26, 27, 28, 31, 33, 35, 37, 39, 42, 45, 46, 50, 51, 53 and 55). In an attempt to discover information regarding the relationship between Microserv and LLC, Qwest’s data requests generally ask Microserv to provide information concerning LLC. In its answer to these data requests, Microserv expressed an inability to answer because it “is not privy to the information requested” and that Microserv’s attorneys do not represent LLC. Qwest argues that Microserv should not be allowed to frustrate discovery in this matter especially when two current directors of Microserv (owning 40% of that company) “are the sole members of Microserve LLC.” Motion at 7. Qwest also presented an alternative plea that if the Commission does not compel Microserv to answer, then the Commission should issue subpoenas to the two LLC directors and LLC itself. Qwest Motion at 10; Reply at 13.
LEGAL CONSIDERATIONS
The Commission’s Procedural Rule 221 provides that discovery in Commission proceedings will be generally governed by the Idaho Rules of Civil Procedure. IDAPA 31.01.01.221. Civil Procedure Rule 26(b)(1) provides that “parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action, whether it relates to the claim or defense of the party seeking discovery or to the claim or defense of any other party. . . .” I.R.C.P. 26(b)(1).
Rule 33(a) provides that any “party may serve upon any other party written interrogatories to be answered by the party served or, if the party served is a . . . private corporation . . ., by any officer or agent, who shall furnish such information as is available to the [requesting] party.” I.R.C.P. Rule 33(a) (emphasis added). Qwest argues that Microserv directors Kevin Hemsley and Ivan Jenkins were/are “the sole members of . . . LLC.” Qwest Motion at 7. Consequently, Qwest asserts that these Microserv directors have personal knowledge of LLC’s operations and are in a position to answer the interrogatories seeking information about LLC. Microserv responds that Qwest should seek to obtain answers to its discovery requests from LLC itself. Microserv Response at 2.
THE PARTIES ARGUMENTS
Both parties agree that the Commission’s ability to compel Microserv to respond to discovery seeking information about LLC is controlled by the three-part test laid out in Afros S.P.A. v. Krauss-Maffei Corporation, 113 F.R.D. 127, 130 (D. Del. 1986). The three factors used to determine whether a party has control over a non-party such that the production of information should be compelled are: (1) the corporate structures of the party and the non-party; (2) the non-party’s connection to the transaction; and (3) the benefits to the non-party from the outcome of the proceeding. Id.; Qwest Motion at 8; Microserv Response at 4.
Under the Afros three-part test, the Commission must first look to the corporate relationship between LLC and Microserv. While Qwest does not assert that the two corporations are sister subsidiaries or parent and wholly-owned subsidiary, Qwest maintains that two of Microserv’s five directors are the sole managing members of LLC. Qwest Motion at 8. Qwest argues that the “financial relationship is so overlapping as to be parasitic. Hemsley and Jenkins have transferred all of Microserv LLC’s assets to Microserv and given Microserv LLC no consideration in return for those assets.” Id. (bolding added, underlines in original).
Microserv argues that the two companies are neither a parent, subsidiary, or sister corporation of the other. Microserv Response at 5. Microserv maintains that there are no ongoing financial relationships between LLC and Microserv. “The only connection between the two entities is the Sale of Assets Agreement (Exhibit A) in which Microserv Inc. acquired some of the LLC’s assets to the expressed exclusion of some of the LLC’s debts.” Id. LLC was created as an Idaho company in September 1995, while Microserv was created in May 1997 and changed its name (from Diversified Networking to Microserv) on June 29, 1998. Complaint at 1-2.
Discussing the common directors between the two companies, Microserv states that “Hemsley and Jenkins hold [their] interest in Microserv, Inc. in their personal capacity and not in their capacity as members of the LLC. Such personal ownership does not afford Microserv, Inc. any control over the LLC or its documents.” Id. Microserv’s three other directors control 60% of the Company. Microserv Answer to Qwest Data Request No. 21. Hemsley and Jenkins did not become Microserv stockholders until the day after LLC sold the assets per the Sale of Assets Agreement dated June 30, 1998. Microserv answer to Qwest Data Request Nos. 21-22. The sale of LLC’s assets to Microserv did “not include the books of account and records of [LLC’s] business.” Sale of Assets Agreement ¶ 16(a).
COMMISSION FINDINGS
Having reviewed the discovery requests and answers, the pleadings of the parties and their oral arguments, we conclude that Qwest’s Motion to Compel Microserv to answer for LLC should be denied for two reasons. First, in examining the corporate structures of the two entities under the Afros test, we agree with Microserv that the two companies for purposes of discovery are distinct separate entities. Qwest does not deny this but maintains that the financial relationship of the two companies and the “overlapping” two directors would permit the Commission to treat discovery requests for these companies as one and the same. This we decline to do. Based upon the arguments presented by Microserv, we find that the corporate structures of Microserv and LLC are not aligned in such a fashion that would allow us to compel Microserv to answer for LLC. Having failed this part of the Afros’ test, the Commission need not examine the remaining two parts.
The second reason for denying Qwest’s Motion to Compel is based upon the Rules of Civil Procedure. As Qwest acknowledges, the use of interrogatories are proper when directed to other parties. I.R.C.P. 33(a)(1). In most of the interrogatories, Qwest asks Microserv to supply information or documents relating to LLC. For example, Qwest’s Data Request No. 24 seeks the identity of “all present and former manager(s) of Microserve LLC.” However, LLC is not a party to this proceeding.
In an attempt to get around this obvious problem, Qwest maintains that the two Microserv directors have personal knowledge of LLC’s operations and thus should be compelled to answer these questions about LLC. However, this argument is unpersuasive. In examining the use of interrogatories under Rule 33, our Idaho Supreme Court has indicated that it is “improper” to submit interrogatories to an individual non-party who is employed by a corporation that is a party. Crown v. Department of Agriculture, 127 Idaho 175, 182, 898 P.2d 1086, 1093 (1995). In Crown, plaintiffs brought suit against the Idaho Department of Agriculture and then the Department’s director. When the director failed to respond, the plaintiffs moved to compel the responses. See Crown v. Department of Agriculture, 127 Idaho 188, 193, 898 P.2d 1099, 1104 (Ct. App. 1994), aff’d on appeal, 127 Idaho at 182, 898 P.2d at 1093. The Supreme Court held that interrogatories may not be directed to a particular person within a corporation if that person is not a party. Interrogatories must be directed to the corporation. Straley v. Idaho Nuclear Corporation, 94 Idaho 917, 923, 500 P.2d 218, 923 (1972); 7 Moore’s Fed. Practice § 33.20[3][a](3d Ed.). Thus, Qwest’s request to have the two directors supply information about LLC is inappropriate.
Although we deny Qwest’s motion that Microserv answer for LLC, we shall grant its alternate request that the Commission issue subpoenas to Kevin Hemsley, Ivan Jenkins, and Microserv Telecomputing LLC. Civil Procedure Rules 30(a) and 31(a) provide that “any party may take the testimony of any person, including a party, by deposition upon oral examination [or] written questions.” These Rules also permit the Commission for cause to shorten the time for appearing at such deposition. I.R.C.P. 30(b)(3); 31(a). We find there is good cause to shorten the time for notice of the deposition(s). As directors of Microserv, Mr. Hemsley and Mr. Jenkins should be aware of the attempts to acquire information about LLC and the Commission’s schedule in this matter. Consequently, the Commission has determined that it is reasonable to issue subpoenas to require the attendance of Mr. Hemsley, Mr. Jenkins and LLC at a deposition to provide information and documents in response to Qwest’s discovery requests. I.R.C.P. 45(a) and (b).
In conformance with our scheduling Order in this matter, we believe that taking the deposition(s) should be scheduled in a fashion that does not adversely affect the existing schedule. The parties’ willingness to stipulate to the issuance of subpoenas should ensure that Mr. Hemsley and Mr. Jenkins are available. Qwest, of course, is not required to pursue this discovery if it believes that the evidence it can present at the hearing is sufficient to establish responsibility for the outstanding balance on the telephone account(s) at issue.
O R D E R
IT IS HEREBY ORDERED that Qwest’s Motion to Compel Microserv to answer the disputed data requests is denied.
IT IS FURTHER ORDERED that Qwest’s alternative plea that the Commission issue subpoenas to Mr. Jenkins, Mr. Hemsley, and Microserv Telecomputing LLC is granted. The Commission shall issue the requested subpoenas to Qwest.
IT IS FURTHER ORDERED that the Commission Secretary serve this Order on the parties via facsimile.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho, this
day of April 2001.

PAUL KJELLANDER, PRESIDENT

MARSHA H. SMITH, COMMISSIONER

DENNIS S. HANSEN, COMMISSIONER

ATTEST:

Jean D. Jewell
Commission Secretary

bls/O:uswt9920_dh3

ORDER NO. 28721 1

Office of the Secretary
Service Date
April 25, 2001