Judge: Daniel M. Crowley, Case: 21STCV39105, Date: 2023-04-04 Tentative Ruling

Case Number: 21STCV39105    Hearing Date: April 4, 2023    Dept: 207

Background

Plaintiff Michael Landver (“Plaintiff”) initiated this action on October 22, 2021, by bringing a Complaint in his individual capacity and derivatively on behalf of nominal defendant, United Clinical Research, Inc. (“United”). Plaintiff brings this action against Defendant Matrix Clinical Research, Inc. (“Defendant”) and individual Defendants Faramarz Shamam, Peyman Banooni, and Stan Gershovich (the “individual Defendants”). Plaintiff claims he owns 25% of United, a company which conducts clinical trials for drug development. Plaintiff alleges the individual Defendants misappropriated United’s business, employees, revenue, contracts, and trade secrets which they used to start Defendant so they would no longer have to share profits with Plaintiff.

Plaintiff now moves to compel further responses to Form Interrogatories, Special Interrogatories, and Requests for Production which it previously served on Defendant. Defendant opposes Plaintiff’s motion.

Legal Standard

On receipt of a response to interrogatories, the propounding party may move for an order compelling a further response if the propounding party deems that an objection to an interrogatory is without merit or too general. (C.C.P. § 2030.300(a)(3).) The responding party has the burden of justifying the objections to the interrogatories. (Coy v. Sup.Ct. (1962) 58 Cal.2d 210, 220-221.) The moving party on a motion to compel further responses to requests for production of documents must submit “specific facts showing good cause justifying the discovery sought by the inspection demand.” (C.C.P. § 2031.310(b)(1).) If the moving party has shown good cause for the requests, the burden is on the objecting party to justify the objections. (Kirkland v. Sup. Ct (2002) 95 Cal. App.4th 92, 98.)

The scope of what is “relevant” during discovery is broad as information sought need not itself necessarily be admissible, but only need be reasonably calculated to lead to the discovery of admissible evidence. (Gonzalez v. Superior Court (1995) 33 Cal.App.4th 1539, 1546.) “[D]iscovery may be had as to any matter which is relevant to the subject matter involved in the pending action, with added proviso that inadmissibility at trial is not ground for objection if the information sought appears to be reasonably calculated to lead to the discovery of admissible evidence.” (Pettie v. Superior Court (1960) 178 Cal.App.2d 680, 688 [emphasis in original].)

The Code of Civil Procedure requires the Court to sanction a party who makes or opposes a motion to compel further responses to requests for production or interrogatories unless the Court finds the party acted with substantial justification or that other circumstances make the imposition of sanctions unjust. (C.C.P. §§ 2030.030(a), 2031.310(h).) “[S]ubstantial justification” is understood to mean a justification that is “clearly reasonable because it is well-grounded in both law and fact.” (Doe v. U.S. Swimming, Inc.¿(2011) 200 Cal.App.4th 1424, 1434.)

Analysis

Defendant argues it does not have to respond to Plaintiff’s written discovery because Plaintiff has brought this action derivatively on behalf of United and United is a suspended corporation. Defendant argues that by initiating this litigation, Plaintiff is improperly attempting to exercise the powers of a suspended corporation. Defendant’s argument fails for several reasons. First, as the Court acknowledged in its June 24, 2022, ruling on Defendant’s demurrer, Plaintiff here has asserted both individual and derivative claims against Defendant. Even if Plaintiff were not permitted to pursue discovery on his derivative claims, he would still be entitled to discovery as to his individual claims. The California Supreme Court has expressly rejected the precise argument Defendant is advancing here:

On the issue of suspension of the corporation for failure to pay franchise tax, it is true that under the corporation law (Rev. & Tax. Code, §§ 23301, 23302, supra) the corporation may not prosecute or defend an action, nor appeal from an adverse judgment in an action while its corporate rights are suspended for failure to pay taxes [Citations], and, generally, in a derivative action the wrong is "to the corporation as such and not the stockholders individually, hence a bar to an action by the stockholders for the corporation." [Citation] But here, in a stockholders' derivative action, the corporation is forced to be a party because any recovery goes through the corporate channel and thus enhances the stockholders' interest therein. The corporation is not attempting to exercise its rights as a corporation. It is being used as a necessary channel by the shareholders. The books and records of the corporation are in the hands of the mismanaging officers according to plaintiff's complaints and thus the shareholders are not in a position to make a return or compute the franchise tax. In such a case it is not equitable to permit section 23301 of the Revenue and Taxation Code to stand as a shield for protecting allegedly dishonest corporate officials. The corporation is not enjoying any of the privileges accorded to such entities; it is more analogous to the winding up of the business.

(Reed v. Norman (1957) 48 Cal.2d 338, 343.) The Court thus finds that United’s status as a suspended corporation is irrelevant to the issue of whether Defendant must respond to discovery.

Defendant also argues Plaintiff is not permitted to conduct discovery of Defendant’s financial information. In support of this argument, Defendant relies on Ameri-Medical Corp. v. Workers’ Comp. Appeals Bd. (1996) 42 Cal.App.4th 1260, but the Court in that case held the “Privacy rights accorded artificial entities are not stagnant, but depend on the circumstances.” (Id. at 1288.) The Court recognized the plaintiffs in that action “do not have an automatic right to unfettered access to books and records regarding the medical clinic's overall business operation” which were unrelated to the plaintiffs’ claims. (Id.) Thus Ameri-Medical Corp. does not bar discovery into Defendant’s financial information, but rather limits the scope of such discovery to the particular claims being raised in that action.

Plaintiff here alleges the assets of United have been converted and diverted to Defendant, and thus his claims implicate the contractual and financial information of Defendant which is necessary to show such conversion and diversion. Defendant has not shown any interrogatory or request for production exceeds the scope of Plaintiff’s claims. Indeed, much of Plaintiff’s discovery does not appear to implicate Defendant’s financial information in any way. For example, Plaintiff has served requests for production which call for Defendant to produce documents showing the identity of its officers, directors, shareholders, agents, and employees. (See, e.g., Requests for Production Nos. 1 and 2.) Defendant offers no showing as to how these requests implicate sensitive financial information. The Court thus rejects Defendant’s blanket assertion that all of Plaintiff’s discovery improperly infringes on Defendant’s right of privacy.

Defendant raises a similar argument in claiming that because it is a “medical corporation” all of Plaintiff’s discovery necessarily infringes on the medical privacy rights of patients. In support, Defendant cites Wood v. Superior Court (1985) 166 Cal.App.3d 1138. But as Defendant itself acknowledges, that case concerned the production of medical records. Defendant here has made no showing that Plaintiff’s discovery seeks production of medical records which would implicate the privacy rights of third party patients. Rather, Plaintiff’s discovery concerns the business operations of Defendant and seeks information regarding Defendant’s officers, directors, shareholders, contracts, employees, and income. Defendant offers no explanation as to how this discovery would call for the production or disclosure of third-party medical records.

Even if Plaintiff’s requests called, in part, for the production of private financial or medical information, this would not relieve Defendant of its obligation to provide any response to that discovery. (C.C.P. § 2030.220(b) [“If an interrogatory cannot be answered completely, it shall be answered to the extent possible”]; C.C.P. § 2031.240(a) [“If only part of an item or category of item in a demand for inspection, copying, testing, or sampling is objectionable, the response shall contain a statement of compliance, or a representation of inability to comply with respect to the remainder of that item or category”].) Indeed, Defendant’s responses to Plaintiff’s Requests for Production fail to comply with Code Civ. Proc. § 2031.240(b)(1), which required Defendant to “Identify with particularity any document, tangible thing, land, or electronically stored information falling within any category of item in the demand to which an objection is being made.”

Defendant argues under Life Technologies Corp. v. Superior Court (2011) 197 Cal.App.4th 640, 655, the Court must show a compelling need to justify every individual interrogatory and request when balanced against Defendant’s claimed rights of privacy. However, the California Supreme Court expressly disapproved Life Technologies on this exact point. (Williams v. Superior Court (2017) 3 Cal.5th 531, 557, fn. 8.) As the Supreme Court explained:

But the flaw in the Court of Appeal’s legal analysis, and in the cases it relied upon, is the de facto starting assumption that such an egregious invasion is involved in every request for discovery of private information. Courts must instead place the burden on the party asserting a privacy interest to establish its extent and the seriousness of the prospective invasion, and against that showing must weigh the countervailing interests the opposing party identifies, as Hill requires.

(Id. at 557.) Defendant thus had the burden of establishing the extent and seriousness of the prospective invasion caused by Plaintiff’s discovery. Defendant has not even attempted to make such a showing and instead relies solely on boilerplate assertions that all of Plaintiff’s discovery improperly invades its privacy rights. This is insufficient. “[T]he burden of justifying any objection and failure to respond [to discovery] remains at all times with the party resisting an interrogatory.” (Id. at 541; see also Kirkland v. Superior Court (2002) 95 Cal.App.4th 92, 98 [once the propounding party establishes the relevance of the discovery sought, the burden shifts to the responding party to justify any objections raised].)

Defendant has made no attempt to justify the remainder of the objections asserted in response to Plaintiff’s discovery. Many of these objections have already been rejected by the Court in ruling on Defendant’s prior demurrer and motion to quash, including objections regarding the failure to serve United with the summons in this action. The Court thus GRANTS Plaintiff’s motion to compel.

The Court notes Defendant has asserted the attorney-client privilege in response to certain discovery without clearly stating whether documents were being withheld on the basis of privilege. . Code Civ. Proc. § 2031.240(c)(1) expressly provides “If an objection is based on a claim of privilege or a claim that the information sought is protected work product, the response shall provide sufficient factual information for other parties to evaluate the merits of that claim, including, if necessary, a privilege log.” If Defendant is withholding documents on the basis of privilege, it must state so expressly and provide a privilege log sufficient to allow Plaintiff to evaluate that claim of privilege.

Plaintiff asks this Court to impose a monetary sanction against Defendant and counsel in the amount of $6,010, which Plaintiff represents constitutes the legal and filing fees it incurred in bringing this motion. (Baranov Decl. at ¶16.) Such sanctions are authorized by Code Civ. Proc. §§ 2031.300(c) & 2030.290(c) where a party opposes a motion to compel further responses to interrogatories and requests for production without substantial justification. The Court finds Defendant has acted without substantial justification in opposing Plaintiff’s motion. In its discretion, the Court will award Plaintiff monetary sanctions against Defendant in the amount of $4,500.

Conclusion

Plaintiff’s motion to compel is GRANTED. Defendant is to provide further, Code-compliant responses to Plaintiff’s discovery within 30 days of the date of this order. The Court GRANTS Plaintiff’s request for sanctions and in its discretion imposes a monetary sanction against Defendant in the amount of $4,500 to be paid to counsel for Plaintiff within 30 days of the date of this order.