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Conaway v. H&R Block Eastern Enterprises Inc.

United States District Court, S.D. Georgia, Savannah Division

February 15, 2017

CATHY S. CONAWAY, individually and in her capacity as the CONSERVATOR of BETTY L. SANKS, and SANKS ENTERPRISES, INC. Movant,

         (Pending in the United States District Court for the Western District of Missouri, 4:16-cv-206)


         Cathy S. Conaway, individually and as conservator for her mother, joins with Sanks Enterprises, Inc. (SEI) ~ her mother's tax-preparation business -- in moving to partially quash subpoenas arising out of H&R Block Eastern Enterprises, Inc. v. Sanks, CV416-206 (W.D. Mo.) ("Sanks" litigation). MC416-011, doc. 1, as amended, doc. 2. H&R Block (HRB), which filed Sanks against her brother for defrauding it and thus wants SEI-related documents from Cathy, opposes. MC416-011, doc. 3. For the purpose of this Order, the Court accepts as true facts taken from the parties' filings.

         I. BACKGROUND

         Partly opposing HRB's subpoenas, [1] movants' factual recitation generally dovetails with HRB's facts. Betty L. Sanks founded SEI, at 5669 Ogeechee Road, Savannah, (the "5669 office") in 1988.[2] She remains its sole shareholder. Doc. 1 at 2. Yet in 2011 Cathy's brother, Claude L. Sanks, Jr., represented to HRB that he owned SEI (d/b/a "Sanks Income Tax and Business Services"). Doc. 3 at 5. Claude told that lie to secure a 2011 agreement with HRB to convert "his" business into an HRB franchise. Under that agreement, he also acquired a second location across the street, at 5710 Ogeechee Road (the "5710 office"). Id.

         For a while HRB believed that he operated both locations as an HRB franchise. Doc. 3 at 5. But at some point Cathy, after noticing HRB trade dress showing up at the 5669 office, asked Claude what he was doing. She challenged his ownership assertions. He lied to her and claimed that he HRB-franchised only the 5710 office. Id. at 6. He never disclosed that lie to HRB, but instead relocated the 5710 office a few miles away "to improve visibility." He assured HRB that he would move the 5569 office as well, since that building was being sold or demolished. Id. at 6. He thus convinced HRB to pay him $1 million to sell the entire business, operating from both offices, to it. Id.

         But Claude never moved the 5569 office, and that office never closed. Doc. 3 at 6. HRB ultimately confronted Claude, who further misled it by reassuring HRB that he would transfer the rest (Betty's portion) of the business to it, but never did. Doc. 3 at 7. HRB thus has received only a fraction of what it paid Claude for (i.e., clients and revenues), and has alleged that much of it remains under Cathy's control. And Cathy continues to operate (in competition with HRB) the 5569 office to this day. Id. HRB thus sued Claude (Sanks) for fraud, etc., and presses its subpoena against the movants. Id. at 8-9.

         HRB asserts additional facts which, if they don't suggest "familial collusion, " certainly demonstrate that Cathy, who has continued operating the 5569 office as "Sanks Income Tax and Business Services" (thus, an HRB competitor), doc. 3 at 8-9, is in a position to assist her brother's efforts by in bad faith stonewalling HRB. HRB underscores the undisputed events timeline here:

[Cathy] amended the state registration for [SEI] to name her mother as CEO and herself as CFO, replacing her brother, and claimed to H&R Block that [Claude] had never owned the Business at all. H&R Block subsequently filed suit against [Claude] for, inter alia, defrauding H&R Block, failing to deliver the Business as promised, and breaching the parties' contracts ([Sanks]).

         Doc. 3 at 2-3 (footnote added). HRB also points out that

while [Cathy] is not named as a party to [its Sanks case against Claude], she, the Business she is running, and the entity through which she is operating (i.e., Sanks Enterprises d/b/a Sanks Income Tax and Business Services) are central to the dispute being litigated. Moreover, [Cathy] and Sanks Enterprises/Sanks Income Tax and Business Services are in a unique position to provide information and materials that are both directly relevant to the Lawsuit and not available to H&R Block from other sources. Accordingly, H&R Block served the Subpoenas to obtain this discovery.

Id. at 3.

         Cathy knows that HRB accuses Claude of lying to it about his sole SEI-ownership claims that included the 5669 location. Doc. 1 at 3. She also knows that at some point he entered into an "Asset Purchase Agreement" (APA) with HRB, and that HRB understood the APA to mean that Claude was selling it "the entire tax preparation business at the 5669 Ogeechee Road location where [SEI] maintains its offices. ..." Id. at 3. But she says she only learned of this in January 2015, when she received a cease and desist letter from HRB's counsel. Id.

         Before this Court Cathy stands on her claim that Claude had no authority to sell any of SEI to anyone, and that she was unaware of such activity. Doc. 1 at 3-4. In fact, she claims, she had her lawyer demand an explanation from Claude, and further demand that he rectify the situation "to make it clear to HRB that he had conveyed no assets of the Company and was without the authority to do so." Id. at 4. She even asked to be part of Claude's attempts to resolve the matter with HRB, but was excluded. I ...

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