Judge: Daniel S. Murphy, Case: 22STCV14915, Date: 2023-04-03 Tentative Ruling

Case Number: 22STCV14915    Hearing Date: April 3, 2023    Dept: 32

BACKGROUND

            On May 4, 2022, Plaintiff WG Holdings SPV, LLC (WGH) initiated this action for breach of fiduciary duties, breach of contract, interference, and fraud stemming from Defendants’ purported mismanagement of Plaintiff.

The complaint alleges that Defendant E&B Natural Resources Management Corporation (E&B) sought to purchase a 25% stake in WGH. Due to financial issues with its lenders, E&B could not directly deal with WGH. Instead, E&B allegedly formed Defendant Triton LA, LLC (Triton) to hold E&B’s 25% interest in WGH. The complaint alleges that the arrangement was induced by fraud and that Defendants merely sought to take over WGH’s assets for themselves. Triton allegedly demanded a higher ownership stake in WGH, which WGH’s board denied. Thereafter, Defendants allegedly mismanaged WGH’s finances and operations, leading to the damages sought in this action.

Triton has cross-complained against Scott Wood (Wood), William Nicholson (Nicholson), and CW Children Holdings, LLC (CWH). Triton asserts causes of action for harm done to Triton and asserts claims derivatively on behalf of WGH. Triton and CWH are allegedly the sole members of WGH. Wood and Nicholson are two of three board members on WGH, both appointed by CWH. Triton alleges that Wood, Nicholson, and CWH colluded to deprive Triton of its rights and also mismanaged WGH assets. The operative Second Amended Cross-Complaint (SACC) was filed on October 27, 2022.

Wood and CWH have filed their own cross-complaint against Triton, E&B, and various others. Wood wanted to invest in oil and gas properties and came into contact with Galesi Group (Galesi), a consortium of companies with experience in operating oil and gas assets. Wood was allegedly led to believe that Galesi was financially solvent and had the expertise needed to operate the oil and gas properties he sought to purchase. Wood paid the money to purchase the oil and gas assets and formed CWH and WGH to hold his 75% interest. Wood agreed to give Galesi 25% in return for Galesi’s promise to operate the assets and pay government bond premiums. Cross-Defendants allegedly lied about their financial stability, capability to operate the assets, and intent to pay the government bond premiums. Wood and CWH then replaced Cross-Defendants and rescinded the LLC Agreement (ARLLCA) that the parties had signed.

            On February 22, 2023, Plaintiff filed the instant motion to compel production by E&B. The Court had previously ordered E&B to produce all nonprivileged documents to RFP Nos. 3-7 and to provide a privilege log for withheld documents. Plaintiff contends that E&B continues to improperly withhold documents under the attorney-client privilege and has also clawed back a previous production.

LEGAL STANDARD

            “If a party filing a response to a demand for inspection, copying, testing, or sampling . . . thereafter fails to permit the inspection, copying, testing, or sampling in accordance with that party’s statement of compliance, the demanding party may move for an order compelling compliance.” (Code Civ. Proc., § 2031.320(a).)

DISCUSSION

            A confidential communication between a client and attorney is privileged. (Evid. Code, § 954.) A confidential communication is defined as:

“information transmitted between a client and his or her lawyer in the course of that relationship and in confidence by a means which, so far as the client is aware, discloses the information to no third persons other than those who are present to further the interest of the client in the consultation or those to whom disclosure is reasonably necessary for the transmission of the information or the accomplishment of the purpose for which the lawyer is consulted, and includes a legal opinion formed and the advice given by the lawyer in the course of that relationship.”        

(Id., § 952.)

            The privilege is waived “if any holder of the privilege, without coercion, has disclosed a significant part of the communication or has consented to disclosure made by anyone.” (Evid. Code, § 912(a).) However, the privilege is not waived “when disclosure is reasonably necessary for the accomplishment of the purpose for which the lawyer . . . was consulted . . . .” (Id., subd. (d).) “Together, sections 912 and 952 will permit sharing of privileged information when it furthers the attorney-client relationship; not simply when two or more parties might have overlapping interests.” (Seahaus La Jolla Owners Assn. v. Superior Court (2014) 224 Cal.App.4th 754, 768.)

            Plaintiff seeks communications involving Alan White, a financial restructuring expert hired by E&B. Plaintiff argues that E&B cannot assert the privilege over information just because its attorneys were copied on the communications and certainly cannot claim privilege over communications that did not involve its attorneys at all. However, E&B asserts the privilege on the grounds that White was hired to assist E&B’s counsel in providing legal advice on restructuring. (Francis Decl. ¶ 5.) E&B provided a privilege log for withheld documents. (Schwartz Decl. ¶ 3.)

It is E&B’s burden to show that the communications are privileged when information is disclosed to third parties. (See Behunin v. Superior Court (2017) 9 Cal.App.5th 833, 844-45.) The court finds that E&B has met its burden in that White’s involvement was to facilitate the rendering of legal advice with respect to E&B’s financial structure effort. 

Plaintiff claims that E&B’s privilege log is deficient, but a party cannot be compelled to produce potentially privileged communications just because of a deficient privilege log. (Catalina Island Yacht Club v. Superior Court (2015) 242 Cal.App.4th 1116, 1129-30.) At the moment, Plaintiff has not articulated what information is missing from the privilege log that would help it assess E&B’s privilege claims.  

As for the clawed-back production, E&B explains that its discovery vendor—whom it shares with Triton—erroneously produced documents bates-stamped with E&B’s name even though the documents actually belonged to Triton. (Schwartz Decl. ¶ 4.) E&B clawed back the production to allow Triton to correctly produce the documents. (Ibid.) Plaintiff has no evidence to dispute that the documents were erroneously produced under E&B’s name and that Triton is the one with custody. E&B avers that it has otherwise produced responsive documents, including documents that E&B received from other parties during discovery. (Ibid.)  

CONCLUSION

            Plaintiff’s motion to compel is DENIED. Sanctions are denied as the parties acted with substantial justification.

BACKGROUND

            On May 4, 2022, Plaintiff WG Holdings SPV, LLC (WGH) initiated this action for breach of fiduciary duties, breach of contract, interference, and fraud stemming from Defendants’ purported mismanagement of Plaintiff.

The complaint alleges that Defendant E&B Natural Resources Management Corporation (E&B) sought to purchase a 25% stake in WGH. Due to financial issues with its lenders, E&B could not directly deal with WGH. Instead, E&B allegedly formed Defendant Triton LA, LLC (Triton) to hold E&B’s 25% interest in WGH. The complaint alleges that the arrangement was induced by fraud and that Defendants merely sought to take over WGH’s assets for themselves. Triton allegedly demanded a higher ownership stake in WGH, which WGH’s board denied. Thereafter, Defendants allegedly mismanaged WGH’s finances and operations, leading to the damages sought in this action.

Triton has cross-complained against Scott Wood (Wood), William Nicholson (Nicholson), and CW Children Holdings, LLC (CWH). Triton asserts causes of action for harm done to Triton and asserts claims derivatively on behalf of WGH. Triton and CWH are allegedly the sole members of WGH. Wood and Nicholson are two of three board members on WGH, both appointed by CWH. Triton alleges that Wood, Nicholson, and CWH colluded to deprive Triton of its rights and also mismanaged WGH assets. The operative Second Amended Cross-Complaint (SACC) was filed on October 27, 2022.

Wood and CWH have filed their own cross-complaint against Triton, E&B, and various others. Wood wanted to invest in oil and gas properties and came into contact with Galesi Group (Galesi), a consortium of companies with experience in operating oil and gas assets. Wood was allegedly led to believe that Galesi was financially solvent and had the expertise needed to operate the oil and gas properties he sought to purchase. Wood paid the money to purchase the oil and gas assets and formed CWH and WGH to hold his 75% interest. Wood agreed to give Galesi 25% in return for Galesi’s promise to operate the assets and pay government bond premiums. Cross-Defendants allegedly lied about their financial stability, capability to operate the assets, and intent to pay the government bond premiums. Wood and CWH then replaced Cross-Defendants and rescinded the LLC Agreement (ARLLCA) that the parties had signed.

            On March 7, 2023, Triton filed the instant motion to compel the deposition of CWH’s person most knowledgeable. Triton argues that it is entitled to depose Wood as CWH’s PMK and to do so separately from its deposition of Wood in his individual capacity. CWH had proposed that Wood be deposed in both capacities simultaneously in two days, which Triton rejected.  

LEGAL STANDARD

             “If, after service of a deposition notice, a party to the action or an officer, director, managing agent, or employee of a party, or a person designated by an organization that is a party under Section 2025.230, without having served a valid objection under Section 2025.410, fails to appear for examination . . . the party giving the notice may move for an order compelling the deponent’s attendance and testimony . . . .” (Code Civ. Proc., § 2025.450(a).)

DISCUSSION

            Although CWH’s PMK has not actually “failed to appear” because the deposition has not occurred yet, the parties have clearly reached an impasse regarding the terms of the deposition. Therefore, the Court will address the merits of the motion.

            Normally, “a deposition examination of the witness by all counsel, other than the witness’ counsel of record, shall be limited to seven hours of total testimony.” (Code Civ. Proc., § 2025.290(a).) However, this limit does not apply “[t]o any deposition of a person who is designated as the most qualified person to be deposed under Section 2025.230.” (Id., subd. (b)(5).) Therefore, CWH cannot impose a two-day limit on the deposition, no matter how confident it is that the deposition will not take longer than two days. Triton is entitled to depose CWH’s PMK separately without a time constraint.  

            On the other hand, Triton cannot dictate who CWH designates as its PMK. “If the deponent named is not a natural person, . . . the deponent shall designate and produce at the deposition those of its officers, directors, managing agents, employees, or agents who are most qualified to testify on its behalf . . . .” (Code Civ. Proc., § 2025.230.) Triton points out that Wood is admittedly the sole owner of CWH. However, Triton cites no authority for the proposition that a PMK designation can be preemptively limited by a party’s allegations or discovery responses. Nor does the Code limit the PMK to one person. No matter how confident Triton is that Wood should be the PMK, it cannot designate the deponent’s PMK for them. (See Maldonado v. Superior Court (2002) 94 Cal.App.4th 1390, 1395-96 [“the burden is on the entity, not the examiner, to produce the right witnesses”].)  

CONCLUSION

            Triton is entitled to depose CWH’s PMK separately and without a time limit. CWH will designate its own PMK.