Judge: David A. Rosen, Case: EC067057, Date: 2022-07-29 Tentative Ruling

Case Number: EC067057    Hearing Date: July 29, 2022    Dept: E

Hearing Date: 07/29/2022 – 8:30am
Case No.  EC067057
Trial Date:   09/19/2022
Case Name: NICK HALEKAKIS v. KATHARINE SESTANOVICH, ET AL

TENTATIVE RULING ON 5 MOTIONS TO QUASH

Moving Party: Defendants, Nick Halekakis and Megan Lorick (“Defendants”)
Responding Party: Plaintiffs, Katharine Sestanovich, Kara Sestanovich, Melinda Fuentes and Anthony Moreno (“Plaintiffs”)

Proof of Service Timely Filed (CRC Rule 3.1300): ok
16/21 Court Days Lapsed (CCP 1005(b)): ok
Proper Address: ok

Oppo and Reply Submitted (Opposition and Reply are both late but the Court in its discretion considers them both.)

RELIEF REQUESTED 
Motion 1 – Defendants, Nick Halekakis and Megan Lorick, move for an order to quash/limit Plaintiffs’ subpoena duces tecum to Lighthouse Funding Group for production of documents related to Defendants’ mortgage and income information. The motion is made on the grounds that Plaintiffs’ subpoena seeks production of documents that are either protected from disclosure by privilege, which Defendants are not waiving, or are grossly overbroad and beyond the scope of discovery, per CCP §2017.020 and 1987.1.

Motion 2 – Defendants move for an order to quash/limit Plaintiffs’ subpoena duces tecum to Better Mortgage Corporation for production of documents related to Defendants’ mortgage and income information. The motion is made on the grounds that Plaintiffs’ subpoena seeks production of documents that are either protected from disclosure by privilege, which Defendants are not waiving, or are grossly overbroad and beyond the scope of discovery, per CCP §2017.020 and 1987.1.

Motion 3 – Defendants move for an order to quash/limit Plaintiffs’ subpoena duces tecum to Cardinal Financial Company for production of documents related to Defendants’ mortgage and income information. The motion is made on the grounds that Plaintiffs’ subpoena seeks production of documents that are either protected from disclosure by privilege, which Defendants are not waiving, or are grossly overbroad and beyond the scope of discovery, per CCP §2017.020 and 1987.1.

Motion 4 – Defendants move for an order to quash or limit Plaintiffs’ subpoena duces tecum to Pachulski Stang Ziehl & Jones LLP, Megan Lorick’s employer, for production of documents related to defendant Megan Lorick’s protected income and employment information. The motion is made on the grounds that plaintiffs’ subpoena seeks production of documents that are either protected from disclosure by privilege, which defendants are not waiving, or are overbroad and beyond the scope of discovery, per Code of Civil Procedure, sections 2017.020 and 1987.1

Motion 5 – Defendants move for an order to quash/limit Plaintiffs’ subpoena duces tecum to Prime Funding Choice, Inc. for production of documents related to defendants’ mortgage and income information. The motion is made on the grounds that plaintiffs’ subpoena seeks production of documents that are either protected from disclosure by privilege, which defendants are not waiving, or are grossly overbroad and beyond the scope of discovery, per Code of Civil Procedure, sections 2017.020 and 1987.1

BACKGROUND
This action involves a landlord-tenant dispute. The former tenants of a single family residence in North Hollywood, Kara Sestanovich, Melinda Fuentes, Katharine Sestanovich and her minor son Anthony Moreno (“Plaintiffs”), filed three separate lawsuits suing property owners Nick Halekakis and Megan Lorick (“Defendants”) for breach of the implied warranty of habitability, negligence, nuisance, harassment, retaliatory eviction, breach of the implied covenant of quiet enjoyment, intentional infliction of emotional distress, and gender discrimination. Prior to Plaintiffs’ lawsuits, Mr. Halekakis filed an Unlawful Detainer action (Halekakis v. Sestanovich, et al., LASC Case No. EC067057).

Plaintiffs served subpoenas duces tecum for production of documents at trial on five third parties, attempting to obtain information relating to Defendants’ financial condition because Plaintiffs are seeking punitive damages in connection with multiple causes of action.

Defendants’ moving papers argue that these subpoenas seek production of documents that are either protected from disclosure by privilege, which defendants allege they are not waiving, or the documents are overbroad and beyond the scope of discovery.

The moving papers attached copies of the subpoenas which seek the following information in requests for production:

REQUEST FOR PRODUCTION NO. 1: ALL DOCUMENTS AND COMMUNICATIONS RELATING TO the following real property: 3828 GLENEAGLES DR, TARZANA, CA 91356-5625 (APN: 2180-019-017) (hereafter, the “Property”).

REQUEST FOR PRODUCTION NO. 2: ALL state and federal tax returns RELATING TO Nick Halekakis.

REQUEST FOR PRODUCTION NO. 3: ALL state and federal tax returns RELATING TO Megan Lorick.

REQUEST FOR PRODUCTION NO. 4: ALL W-2s and/or 1099s RELATING TO or reflecting income paid to Nick Halekakis.

 REQUEST FOR PRODUCTION NO. 5: ALL W-2s and/or 1099s RELATING TO or reflecting income paid to Megan Lorick.

REQUEST FOR PRODUCTION NO. 6: ALL DOCUMENTS AND COMMUNICATIONS RELATING TO a mortgage or loan obtained by Nick Halekakis and/or Megan Lorick from YOU.

REQUEST FOR PRODUCTION NO. 7: ALL loan applications submitted by Nick Halekakis and/or Megan Lorick to YOU.

REQUEST FOR PRODUCTION NO. 8: ALL DOCUMENTS AND COMMUNICATIONS RELATING TO any loan application(s) from Nick Halekakis and/or Megan Lorick to YOU, including, but not limited to, all loan applications and supporting documentation from Nick Halekakis and/or Megan Lorick.

REQUEST FOR PRODUCTION NO. 9: ALL DOCUMENTS RELATING TO any purchase or sale of the Property

REQUEST FOR PRODUCTION NO. 10: ALL DOCUMENTS RELATING TO, reflecting or identifying the value of the Property.

REQUEST FOR PRODUCTION NO. 11: ALL appraisal reports RELATING TO the Property, including the most recent appraisal report(s) in YOUR possession, custody or control.

 REQUEST FOR PRODUCTION NO. 12: ALL mortgage statements RELATING TO a mortgage or loan obtained by Nick Halekakis or Megan Lorick from YOU.

REQUEST FOR PRODUCTION NO. 13: ALL DOCUMENTS RELATING TO mortgage payments due or received from Nick Halekakis or Megan Lorick RELATING TO the Property, including, but not limited to, mortgage statements.

REQUEST FOR PRODUCTION NO. 14: ALL DOCUMENTS RELATING TO the assessed value or fair market value of the Property.

The Court will not explain what was sought in the subpoena for Motion 4 because that motion will be denied as moot since both parties agreed that it was moot.

LEGAL STANDARD
“If a subpoena requires the attendance of a witness or the production of books, documents, electronically stored information, or other things before a court, or at the trial of an issue therein, or at the taking of a deposition, the court, upon motion reasonably made by any person described in subdivision (b), or upon the court’s own motion after giving counsel notice and an opportunity to be heard, may make an order quashing the subpoena entirely, modifying it, or directing compliance with it upon those terms or conditions as the court shall declare, including protective orders. In addition, the court may make any other order as may be appropriate to protect the person from unreasonable or oppressive demands, including unreasonable violations of the right of privacy of the person.” (CCP §1987.1(a).)

ANALYSIS
Although the Opposition and Reply mention how the Plaintiffs and Defendants have agreed that the third-party Lenders can produce certain documents, the Opposition and Reply do not make clear which of the specific requests for production they have agreed on or disagreed on. The Opposition and Reply speaks in terms of general categories and not in terms of the specific request for production that are in the separate statement. This is of no help to the Court. For instance, the Opposition refers to categories in the subpoenas by referencing 5 categories; however, the actual subpoenas have 14 requests for production. If the parties wish to explain at the hearing which requests for production have been agreed on and are therefore moot, then they are welcome to do so.

Moving party argues that all state and federal tax returns, any W-2, and any 1099 related forms related to Defendants are protected by privilege and Plaintiffs are not entitled to this information. Further, Defendants argue that requests numbers 7, 12, and 13 all seek loan applications, mortgage statements, and documents related to mortgage payments, and these documents invade Defendants’ right of privacy with regard to personal financial information.

Moving party also argues that the remaining requests seek documents which are extremely overbroad.

In Opposition, Plaintiffs argue that they seek punitive damages in connection with multiple causes of action, and thus if they prove in the first phase of trial that Defendants’ conduct justifies an award of punitive damages the requested information is relevant in relation to Defendants’ financial condition. Plaintiffs state that Defendants’ offer to provide the last 6 months of mortgage statements would not accurately capture Defendants’ complete financial condition because there could have been transactions with the Lenders prior to six months ago that would affect Defendants’ current net worth. Specifically, Plaintiffs argue that there are many different types of transactions that Defendants could have entered into with their Lenders, such as adding a second mortgage, a refinance, a home equity line of credit, or other encumbrances that could date back to an undeterminable amount of time.

In Reply, Defendants concede that where a punitive damage claim exists, the financial documents are relevant, but the Court needs to balance the level of the invasion that will be permitted to accomplish the goal of determining the defendants’ current net worth.

DISCUSSION
Moving party states that when a party seeks disclosure of presumptively private documents such as employment records, consumer records, or tax returns, there must be a careful balancing of compelling public need for discovery against the fundamental right of privacy. Moving party cites: Board of Trustees v. Superior Court (1981) 119 Cal.App.3d 516, 525; Binder v Superior Court (1987) 196 Cal.App.3d 893, 900; and Valley Bank v. Superior Court (1975) 15 Cal..3d 652, 657. However, what is important to note is that those cases were disapproved in part in Williams v. Superior Court (2017) 3 Cal.5th 531. “To the extent prior cases require a party seeking discovery of private information to always establish a compelling interest or compelling need, without regard to the other considerations articulated in Hill v. National Collegiate Athletic Assn., supra, 7 Cal.4^th 1, 26, they are disapproved.” (Williams v. Superior Court (2017) 3 Cal.5th 531, 557.)

“Privacy concerns are not absolute; they must be balanced against other important interests. [Citation.] Not every act which has some impact on personal privacy invokes the protections of our Constitution…a court should not play the trump card on unconstitutionality to protect absolute every assertion of individual privacy.” (Hill v. National Collegiate Athletic Assn. (1994) 7 Cal.4th 1, 37.) “The diverse and somewhat amorphous character of the privacy right necessarily requires that privacy interests be specifically identified and carefully compared with competing or countervailing privacy and non-privacy interests in a ‘balancing test.’ The comparison and balancing of diverse interests is central to the privacy jurisprudence of both common and constitutional law.” (Id.)

Defendants are arguing that the instant subpoenas infringe on their right to privacy. However, Plaintiffs argue that obtaining information on Defendants’ net worth is relevant to proving punitive damages. “In Coy the Supreme Court held that in an action for punitive damages, evidence of defendant’s financial condition is admissible at trial for determining the amount that is proper to award. It further held that his financial condition is relevant to the issue and is properly discoverable, and it concluded that the trial court in that case ‘erred seriously in holding that plaintiff must wait until after he obtains a judgment in order to obtain such information.” (Cobb v. Superior Court (1979) 99 Cal.App.3d 543, 548.)

Defendants’ arguments that state and federal tax returns, W-2s, and 1099s are privileged and cannot be produced is not availing because the statutory tax return privilege is not absolute. (Weingarten v. Superior Court (2002) 102 Cal.App.4th 268, 274.) The trial court ordered Weingarten's tax returns disclosed based on the third exception, finding that a public policy “greater than confidentiality of the tax return [was] involved....” Weingarten challenges this finding, asserting that although tax returns may be a useful source to establish a defendant's financial condition and thus to prove the proper punitive damage amount, the mere fact that her tax returns would be relevant to punitive damage issues does not warrant abrogating the privilege.

We agree with this general principle. The public policies underlying the punitive damages statutes are to punish and deter wrongdoers. (Piscitelli v. Friedenberg (2001) 87 Cal.App.4th 953, 980, 105 Cal.Rptr.2d 88.) While these public policies are important and the need to prove the defendant's financial condition is essential to ensure an appropriate punitive damages amount (Adams v. Murakami, supra, 54 Cal.3d at p. 120, 284 Cal.Rptr. 318, 813 P.2d 1348), these policies are not necessarily greater than the significant public policy considerations underlying the need to maintain confidentiality of tax returns. Our Supreme Court has recognized the public's substantial interest in ensuring a *275 taxpayer will make full and truthful declarations in his or her return without fear the statements will be revealed or used against the taxpayer for other purposes. (Webb v. Standard Oil Company, supra, 49 Cal.2d at p. 513, 319 P.2d 621.) Thus, the fact that a complaint contains a punitive damages allegation, or a factfinder has found a basis for imposing punitive damages does not, standing alone, constitute a basis for compelling the disclosure of tax return information.

However, this case does not present a simple balance between the public policies underlying the tax return privilege and the public policies supporting an appropriate punitive damages award. Instead, this case involves a trial court's discretionary authority to order the production of tax returns only once a defendant who has been found to have acted with malice, oppression, or fraud, has sole control of their financial records and has refused to produce relevant nonprivileged documents.

Weingarten v. Superior Ct., 102 Cal. App. 4th 268, 274–75, 125 Cal. Rptr. 2d 371, 376 (2002)

Further, Defendants’ argument as to the 401k’s not being discoverable is not persuasive as Defendants cited no case law that this information is not discoverable. Although Defendants’ 401k money may not be reachable by judgment, the value of their 401k remains part of what the jury could consider as to Defendants’ financial condition pursuant to CA Civil Code sec. 3295.

TENTATIVE RULING:

Motion 4 is denied as the parties have agreed it is moot.

Motions 1, 2, 3, and 5 are granted in part and denied in part. Each subpoena contained 14 requests for production. In balancing Plaintiffs’ right to discovery and Defendants’ right to privacy, the motion to quash as to motion 1, 2, 3, and 5 is granted as to all documents generated before January 1, 2015. The motion is denied as to documents generated from January 1, 2015, through the present, as under the facts and circumstances of this case, such a time frame is reasonably calculated to lead to the discovery of admissible evidence.

To respect Defendants’ privacy rights, the third parties are ordered to respond to the subpoenas in the fashion stated above by delivering their responses in a sealed envelope to the Court and the responses will remain sealed unless and until the trial gets to phase two with respect to punitive damages. Per CCP Trial subpoena procedures, these documents are to be sent to the Court under seal and not to be sent to either Plaintiffs’ or Defendants’ counsel.