United States District Court, D. Arizona
ORDER
Dominic W. Lanza Judge
Richard
Paul Brown and Belinda Gail Brown (collectively, “the
Browns”) have filed a “Motion for Leave to
Appeal.” (Doc. 2.) As explained below, the motion will
be denied.
FACTUAL
AND PROCEDURAL BACKGROUND
A.
The State-Court Proceedings
The
Browns own a controlling interest in a company called Hot
Salsa Interactive, LLC (“Hot Salsa”). (Doc. 6-6
at 6.) In 2014, Mr. Brown spoke with Kevin Fuciarelli
(“Fuciarelli”) about potentially investing in Hot
Salsa. As part of these discussions, Mr. Brown sent an email
to Fuciarelli stating: “Keep in mind that if you do
decide to invest, I / Hot Salsa Interactive had federal
contracts that I will not be able to discuss with you.”
(Doc. 6-6 at 41.) Fuciarelli agreed to invest in Hot Salsa
but, after providing approximately $1 million, came to
suspect he'd been defrauded. (See generally Doc.
6-6 at 47-48.)
In
November 2016, Fuciarelli sued the Browns and Hot Salsa in
Arizona state court. (Doc. 6 at 6.) The Browns denied the
allegations and asserted counterclaims alleging that
Fuciarelli had harmed them by, inter alia, providing
only half of the $2 million investment he'd originally
agreed to provide. (Doc. 6-6 at 5-8.) Among other things, the
Browns alleged that Fuciarelli had “cause[d] Hot Salsa
to lose the ability to continue to be a contractor of the
U.S. Government” and to “incur[] damages from the
loss of business opportunities, in an amount . . . which is
several millions of dollars at present value.” (Doc.
6-6 at 8-9.)
One of
the disputed issues in the state-court litigation was the
extent to which Hot Salsa had preexisting “federal
contracts.” As part of the discovery process,
Fuciarelli propounded interrogatories and requests for
production that sought “all federal and nonfederal
contracts to which Hot Salsa . . . was a party . . . .”
(Doc. 6-6 at 35.) The Browns, however, refused to provide
this information on the ground that “[t]he federal
contract work performed by Hot Salsa . . . and Rick Brown is
classified, and therefore details cannot be discussed or
shared.” (Doc. 6-6 at 69.) As a result, Fuciarelli
filed a motion to compel. (Doc. 6-6 at 46-50.) In an order
issued on September 5, 2017, the state-court judge granted
the motion to compel and ordered the Browns to “[f]ully
answer Interrogatory No. 1, ” which was the
interrogatory seeking information about the federal
contracts.[1]
B.
The Bankruptcy Proceedings
In
January 2018, the Browns filed a Chapter 7 bankruptcy
petition. This filing had the effect of halting the
state-court litigation. (Doc. 6 at 7.)
In
February 2018, Fuciarelli[2] filed an adversary complaint alleging
the Browns' $1 million debt was non-dischargeable under
11 U.S.C. § 523(a)(2) because it had been procured via
fraud. In their answer to the complaint, the Browns again
alleged that Fuciarelli had caused them to suffer harm in the
form of lost government contracts. (Doc. 6-7 at 5-6.)
In May
2018, Fuciarelli propounded-as part of the bankruptcy case-
interrogatories and requests for production that sought
“all federal contracts to which Hot Salsa was a
party” and “[a]ll documents relating to any
government or federal contract to which you or Hot Salsa were
a party since 2013.” (Doc. 6-7 at 16, 18.)
In July
2018, the Browns (then acting pro se) filed written
objections asserting that “[n]either K.A., Fuciarelli,
The Fuciarelli Group, nor his legal counsel have
authorization and/or the proper security clearance to request
or obtain the” contracts and that Fuciarelli had not
demonstrated “that any information requested of
Defendants . . . will be of any use as part of this
bankruptcy proceeding.” (Doc. 6-7 at 31.)
On
October 24, 2018, the bankruptcy court held a hearing to
address this dispute. (Doc. 6-4 at 2-25.) During this
hearing, the Browns (now represented by counsel) argued the
discovery request was improper in part because
Fuciarelli's adversary complaint didn't specifically
allege he'd relied on the presence of the purported
federal contracts when deciding to make the $1 million
investment. (Doc. 6-4 at 12-13.) At the conclusion of the
hearing, the bankruptcy court ordered Fuciarelli to file an
amended complaint containing those allegations (see
Doc. 6-4 at 17-18) and further ordered that, “as to
this discovery dispute, I am going to order that all of the
Defendant's responses be submitted to the Court on an
in-camera inspection that is under seal. . . . Is there a
confidentiality agreement? I want to see it. Is there a
federal contract? I want to see it.” (Doc. 6-4 at 19.)
The
following day, on October 25, 2018, the bankruptcy court
issued a written order memorializing this ruling. (Doc. 2 ...