Judge: Anne Richardson, Case: 23STCV00478, Date: 2023-11-01 Tentative Ruling

Case Number: 23STCV00478    Hearing Date: November 1, 2023    Dept: 40

Superior Court of California

County of Los Angeles

Department 40

Background

Pleadings

On January 10, 2023, Plaintiff/Cross-Defendant Misty Hammer (Misty) sued Defendant/Cross-Complainant Morgan Stanley Smith Barney LLC (Morgan Stanley), Defendant Viktor Armand Hammer, and Does 1 through 10 pursuant to a Complaint alleging claims of (1) Breach of Contract and (2) Tortious Interference with Contract.

(Because the parties share a last name, the Court refers to the parties by their first name. No disrespect is intended.)

The claims arise from allegations that Michael Hammer (Michael) and/or his Trust maintained multiple securities accounts (Accounts) with Morgan Stanley. The Complaint alleges that after Michael died on November 30, 2022, Morgan Stanley refused to transfer and/or change beneficiaries on the Accounts—containing more than $2 million in securities and cash—to Stanley’s widow, Misty, who had requested the transfer. The Complaint also alleges that Morgan Stanley’s financial advisor, Viktor Hammer (Viktor), began unlawfully trying to seize control of the Accounts—including assets of two foundations, Armand Hammer Foundation, Inc., (AHF) and Hammer International Foundation, Inc. (HIF)—with Morgan Stanley refusing to honor Misty Hammer’s requests at Viktor’s insistence.

On February 21, 2023, Morgan Stanley filed a Cross-Complaint in Interpleader pursuant to Code of Civil Procedure section 386. The Cross-Complaint seeks an order (1) declaring the party entitled to receive the accounts at issue and the holdings therein, (2) discharging Morgan Stanley from liability to Plaintiff and Cross Defendants with respect to the investment accounts at issue, and (3) awarding Morgan Stanley its attorneys’ fees and costs incurred in this action.

The Cross-Complaint characterizes the dispute as one involving the Accounts and the potential interests held therein by Misty, Cross Defendant Mark Alfano (in his representative capacity as personal representative of the Estate of Michael Hammer), and/or Viktor Hammer and Armand Hammer (in their representative capacities as trustees of the Michael A. Hammer Trust UDT as of May 22, 2023 (the Michael Hammer Trust)).

Motion Before the Court

On September 28, 2023, Morgan Stanley made a motion for protective order in connection with Request for Production (RPDs), Set One, served on Morgan Stanley by Plaintiff Misty Hammer in late June 2023. The motion was set for hearing on November 1, 2023.

That same day, Misty filed a motion to compel Morgan Stanley to produce documents in relation to RPDs, Set One. That motion was set for hearing on November 27, 2023.

On October 19, 2023, Misty opposed the motion for protective order.

On October 25, 2023, Morgan Stanley replied to the opposition.

The motion for protective order is now before the Court.

Motion for Protective Order

Legal Standard

A motion for a protective order is used to ask the court to modify, prohibit, or limit discovery procedures to protect a party from an excessive or unnecessary burden, expense, or intrusion. (See Code Civ. Proc., §§ 2017.020, subd. (a) [burden, expense, or intrusiveness of the discovery clearly outweighs the likelihood that information sought will lead to the discovery of admissible evidence], 2019.030, subds. (a)(1)-(2), (b) [discovery obtainable from other source, cumulative or duplicative, or discovery method is unduly burdensome or expensive]; see also Code Civ. Proc., §§ 1987.1, subd. (a) [same or similar standards for subpoenas], 2025.420 [same or similar standards for depositions], 2025.460, subd. (a) [same or similar standards for depositions], 2025.470 [same or similar standards for depositions], 2030.090 [same or similar standards for interrogatories], 2031.060 [same or similar standards for demands to produce], 2032.510, subds. (d), (e) [same or similar standards for medical examinations], 2033.080 [same or similar standards for admission requests], 2034.250 [same or similar standards for expert-witness discovery], 2034.420 [same or similar standards for expert-witness discovery]; see, e.g., Liberty Mut. Ins. v. Superior Court (1992) 10 Cal.App.4th 1282, 1285 [defendant sought protective order to prohibit apex deposition on grounds of annoyance and embarrassment]; Stony Brook I Homeowners Ass’n v. Superior Court (2000) 84 Cal.App.4th 691, 693 [defendant made motion for protective order to prevent plaintiff’s inquiry into how much defense work defense’s expert had performed in personal-injury actions].)

Good cause and promptness in moving for a protective order must normally be shown to prevail on a motion for protective order. (See Code Civ. Proc., §§ 2025.420, subds. (a), (b) [oral deposition] 2030.290, subds. (a), (b) [interrogatories], 2031.060, subds. (a), (b) [demands to produce], 2033.080, subds. (a), (b) [admission requests], 2034.250, subds. (a), (b) [expert-witness discovery].)

Order Granting Protective Order: GRANTED.

RPDs, Set One, Nos. 1-4 request:

“1. [Morgan Stanley’s] entire file regarding the account maintained by Michael Hammer or any Trust maintained by Michael Hammer ending in 563.350.”

“2. [Morgan Stanley’s] entire file regarding the account maintained by Michael Hammer or any Trust maintained by Michael Hammer ending in 323.044.”

“3. All communications, of any kind, between [Morgan Stanley], or any employee, contractor, or representative of [Morgan Stanley] and Viktor Hammer regarding any account maintained by Michael Hammer or any Trust maintained by Michael Hammer from January 1, 2022 to present, for account ending in 563.350.”

“4. All communications, of any kind, between [Morgan Stanley], or any employee, contractor, or representative of [Morgan Stanley] and Viktor Hammer regarding any account maintained by Michael Hammer or any Trust maintained by Michael Hammer from January 1, 2022 to present, for account ending in 323.044.”

(Mot., Row Decl., Ex. A [563.350 and 323.044 accounts are referred to here as Accounts].)

The dispute between the parties is whether good cause supports a protective order in this action that prevents Morgan Stanley from disclosing the above documents unless there is a protective order in place that prohibits the dissemination of financial documents to persons unconnected with this litigation.

Morgan Stanley appears to concede that the documents sought by Misty’s RPDs are relevant to this action. Morgan Stanley instead argues that it has made this motion promptly and that good cause exists for the issuance of a protective order. Morgan Stanley elaborates on good cause by explaining that the production of the above documents would result in dissemination of documents implicating the privacy rights of (1) the parties in this action who are disputing who is properly entitled to the assets in the Accounts and (2) Morgan Stanley and its employee Viktor Hammer. Morgan Stanley argues that the requested documents include account balances, financial transactions, and suitability information (e.g., net worth, income, and investment objections), which implicate the right to privacy of any putative accountholder: Misty (as alleged beneficiary of the Accounts); Mark Alfano (estate representative); and Viktor and Armand (trustees of the Michael Hammer Trust).

Such information, argues Morgan Stanley, clearly implicates the accountholder’s financial right to privacy because it involves private financial matters (account information), a concern that is magnified by the media attention on this dispute. Moreover, Morgan Stanley argues that the above production requests have been clarified by Plaintiff to involve documents relating to the income derived by Morgan Stanley and Viktor Hammer in relation to the Accounts, thus implicating their right to privacy in “income records.” Morgan Stanley provides a proposed protective order and argues that Plaintiff will not be prejudiced by the protective order, which will allow Plaintiff’s discovery of the above documents to move forward, subject to a prohibition on dissemination of the produced documents to parties not involved with this litigation. (Mot., pp. 8, 10-13.)

In opposition, Plaintiff Misty Hammer argues that the inspection demands are timely and that Stanley Morgan has, under constantly changing reasons, evaded its obligation to provide responsive documents. For example, Misty argues that only recently did Morgan Stanley raise objections to production based on their own and Viktor’s privacy rights, at the last hour, and that Morgan Stanley is improperly imposing a search protocol condition into production. Misty also argues that the only right to privacy at issue in the production requests was Michael Hammer’s right to privacy, which expired when he died, and that any other right to privacy is overcome by the relevancy of RPDs, Set One, to a fair determination of the instant action. Misty also argues that she has or will suffer prejudice as a result of non-production because she is entitled to this discovery to determine her rights to the Accounts’ assets and because Morgan Stanley is refusing to produce documents responsive to Viktor’s communications with Morgan Stanley, which are relevant to this action. (Opp’n, pp. 3-9.)

In reply, Morgan Stanley repeats its intent to comply with discovery subject to a protective order preventing dissemination of production of financial information to parties not involved in this litigation. Morgan Stanley notes a concern in Misty’s refusal to agree to a protective order, which heightens a concern in Morgan Stanley related to whether Misty will disseminate confidential documents in the public sphere to gain a litigation advantage. Morgan Stanley also repeats its argument that it is protecting the financial privacy rights of the accountholders at issue in this case, i.e., that Michael Hammer’s privacy rights do not serve as the grounds for this motion. Last, Morgan Stanley argues that Plaintiff will not suffer prejudice because she will receive the documents to which she is entitled, subject to a prohibition on distribution and use of the documents outside of this litigation. (Reply, pp. 2-7.)

The Court finds in favor of Morgan Stanley.

As explained by the court of appeal: “The right to privacy under article I, section 1 of the California Constitution ‘extends to one's confidential financial affairs ….’ [Citation.] This right embraces confidential financial information in ‘whatever form it takes, whether that form be tax returns, checks, statements, or other account information.’ [Citation.] … [For example,] before a bank discloses customer financial information in civil discovery proceedings, it ‘must take reasonable steps to notify its customer of the pendency and nature of the proceedings and to afford the customer a fair opportunity to assert his interests by objecting to disclosure, by seeking an appropriate protective order, or by instituting other legal proceedings to limit the scope or nature of the matters sought to be discovered.’ [Citations.] A financial institution, ‘as custodian of … relevant documents,’ has ‘standing to assert the privacy interests of its customers in the identifying information they’ provide. [Citations.]” (Overstock.com, Inc. v. Goldman Sachs Group, Inc. (2014) 231 Cal.App.4th 471, 503 (Overstock.com).)

Here, a protective order makes sense. A protective order would, as argued by Morgan Stanley, protect the dissemination of confidential financial information related to the persons that may be entitled to a portion of the Accounts’ assets: Misty (as beneficiary), the estate representative of Michael Hammer’s estate, or the trustees of Michael Hammer’s Trust. Indeed, the opposition alludes to the good cause in support of granting of this motion. The opposition argues that production related to RPDs, Set One, would allow Misty to determine whether Michael named Misty as the beneficiary on the Accounts, whether Morgan Stanley failed to follow and honor Michael’s instructions for the Accounts, and whether Morgan Stanley failed to comply with Michael’s instructions when it refused to transfer the Accounts to Misty or to name Misty as the Accounts’ beneficiary. (Opp’n, p. 8.) If those documents show instead that the Michael Hammer Trust is the beneficiary of the Accounts, then production of the requested documents would necessarily implicate the Trust’s right to privacy in its financial affairs. (See In re Ins. Installment Fee Cases (2012) 211 Cal.App.4th 1395, 1428 [information privacy in personal financial affairs]; see also Overstock.com, supra, 231 Cal.App.4th at p. 503 [in context of motion to seal, confidentiality exists in varied forms, e.g., tax returns, checks, statements, or other account information]; Cassidy v. California Bd. of Accountancy (2013) 220 Cal.App.4th 620, 625 [in context of motion to seal, right to privacy and confidentiality implicated by tax or financial information].)

The Court is also satisfied with the argument that Morgan Stanley’s or Viktor’s right to privacy are affected insofar as Misty expects that the production for RPDs, Set One, will include records showing income received by Morgan Stanley and Viktor. (See Mot., Row Decl., Ex. G, p. 5 [RPS, Set One, Nos. 3-4 involve “(11) [t]he revenue Viktor Hammer derived from maintaining and handling Michael Hammer’s AHF and HIF accounts (which would terminate upon transfer of such accounts from Morgan Stanley to Misty or otherwise)” and “(12) [t]he revenue Morgan Stanley derived from maintaining and handling Michael Hammer’s AHF and HIF accounts (which would terminate upon transfer of such accounts from Morgan Stanley to Misty or otherwise)”].) The Court notes that this information is clearly relevant; for example, it is relevant to Misty’s entitlement to the Accounts’ assets and to damages suffered by Misty if Defendants did not properly turn over the Accounts to her following Michael Hammer’s death. However, such relevance does not mean that no right to privacy exists in financial information, which can take varying forms (here, earnings). (Overstock.com, supra, 231 Cal.App.4th at p. 503.)

Moreover, though the Court recognizes and agrees that “[p]rivacy concerns are not absolute” and “must be balanced against other important interests” (Hill v. National Collegiate Athletic Assn. (1994) 7 Cal.4th 1, 37; see Valley Bank of Nev. v. Superior Court (1975) 15 Cal.3d 652, 656-657), the Court also determines that the proposed protective order in this action is a reasonable restriction on discovery. The protective order will not prevent the disclosure of documents responsive to RPDs, Set One, but rather, prevent dissemination of that information to persons not involved in this litigation. (See Mot., Ex. 1, Proposed Protective Order; see Mot., Ex. 2, Redline of Proposed Protective Order [showing differences between proposed protective order and Superior Court’s Model Protective Order].) The Court finds that this is a more than reasonable compromise given the right to privacy issues implicated in the Complaint and the Cross-Complaint in Interpleader. How the matters will be dealt with at trial is not addressed by this order, which relates to discovery only.

Last, the Court notes that the imposition of a protective order here does not implicate any objectionable prejudice to Misty Hammer. The protective order does not restrict Misty’s ability to obtain production as to the Account, but rather, prohibits the dissemination of that production to persons not involved in this litigation. (See Mot., Exs. 1-2.) The only prejudice arising from that restriction is an inability to bring financial documents into the public sphere, which amounts to insufficient prejudice for the purposes of undercutting the good cause favoring granting this motion.

The Court thus GRANTS Morgan Stanley’s motion.

Sanctions: DENIED.

The court shall impose a monetary sanction under Chapter 7 (commencing with Section 2023.010) against any party, person, or attorney who unsuccessfully makes or opposes a motion for a protective order, unless it finds that the one subject to the sanction acted with substantial justification or that other circumstances make the imposition of the sanction unjust. (Code Civ. Proc., § 2025.420, subd. (h).)

Given that this motion was granted, the request for sanctions in Misty’s opposition is DENIED. 

Conclusion

Defendant/Cross-Complainant Morgan Stanley Smith Barney LLC’s Motion for Protective Order is GRANTED.

Defendant Viktor Hammer’s Joinder is thus also GRANTED.

The Court will inquire whether there are any specific objections to the form of the proposed protective order attached as Exhibit 1 to Defendant/Cross-Complainant Morgan Stanley Smith Barney LLC’s motion at the hearing. If none are expressed, the Court will independently review it for signature.

Plaintiff/Cross-Defendant Misty Hammer’s request for sanctions is DENIED.