Judge David J. Cowan, Case Number: 19STCV30463, Date: 2024-06-21 Tentative Ruling

TENTATIVE RULING ON WINE WAREHOUSE’S SECOND MOTION FOR ISSUE AND MONETARY SANCTIONS

Ben Myerson Candy Co., Inc., dba Wine Warehouse v. Devoto-Wade LLC, dba Golden State Cider, and related cross-complaint, Case No. 19STCV30463

By its cross-complaint, Golden State Cider (“GSC”) sought some $30 million in lost profits from Wine Warehouse (“WW”) arising from conduct of WW based on a distribution agreement. After this action was filed, however, GSC was acquired in May 2022 by a third party, Sonoma Craft Holdings (“Sonoma”). WW seeks to determine whether the conduct in question made any difference in the amount for which GSC was able to sell the business. On this motion, WW seeks relief based on its attempt to conduct discovery from GSC’s most knowledgeable person (“PMK”) concerning the acquisition.

On March 30, 2021, Judge Mel Recana appointed a referee “for all discovery purposes in the action.” (Para. 4) The Court notes the numerous discovery motions and other disputes providing “exceptional circumstances” for the appointment of a referee. (Para. 2) The referee “shall preside over hearings and depositions, take evidence; and rule on objections, motions…” (Para. 5) “Nothing in this order shall preclude the Court from hearing and deciding discovery matters if the Referee is unavailable or the Court so orders.” (Attachment to Order, para. 5)

On March 23, 2023, Judge Recana granted GSC’s motion for a protective order in part to limit the topics for examination at its PMK deposition.

On May 31, 2023, Judge Recana approved the discovery referee’s May 9, 2023 recommendation and report. Sec. 2 of that report recommended on WW’s motion to compel a further PMK deposition of GSC that GSC be ordered to produce Christopher Lacey for a one-hour deposition, that GSC produce certain text messages responsive to an order of March 23, 2023 and bank statements related to payments to GSC from its acquisition and that WW’s request for monetary sanctions be denied where GSC’s objections were substantially justified. On WW’s motion to compel documents withheld from GSC’s responses, the recommendation was to find that the documents were not privileged and if privileged, the privilege was waived. Again, the referee recommended that WW’s request for monetary sanctions be denied where GSC’s objections were substantially justified.

On August 1, 2023, WW filed an earlier version of this motion for issue and monetary sanctions.

On November 16, 2023, Judge Recana denied WW’s motion for contempt and sanctions related to the non-production of certain e-mail between counsel. (GSC produced the documents promptly after the California Supreme Court denied its petition for review of an earlier order of the Court of Appeal denying its petition for a writ from the order compelling the production of these email.)

On December 7, 2023, WW took the further PMK deposition that was based on the topics set forth in the notice to the earlier session of the deposition. The referee attended the deposition.

On December 11, 2023, after tentatively denying the motion, Judge Recana ultimately took the first motion for sanctions off calendar, without prejudice to consideration by the judge to which this case was to be assigned for a long cause trial (given that the any issue sanction would impact motions in limine and issues at trial.)

On December 22, 2023, WW filed this second motion for issue sanctions and monetary sanctions:

WW seeks an order precluding GSC from arguing WW’s conduct caused loss of enterprise value to GSC in its acquisition by Sonoma and or that Sonoma paid less for its purchase of GSC due to conduct of WW. WW contends GSC violated the May 31, 2023 order by Lacey coming to the follow up PMK deposition again unprepared to answer questions concerning the acquisition. Further, WW argues GSC’s counsel improperly continued to interpose objections to questions related to the acquisition, including as to Lacey’s role at the new entity formed based on the acquisition, that the referee had overruled. In addition, WW complains that GSC did not earlier produce two email of counsel regarding the acquisition that GSC withheld from production on grounds of privilege until after the California Supreme Court denied its petition for review. WW argues that these facts, like in Sauer v. Superior Court (1987) 195 Cal.App.3d 213, 228-229, warrant the above-referenced issue sanctions.

In turn, seeks total monetary sanctions of $21,756, representing $14,063.60 in bringing this motion and $7,692.40 for conducting the deposition in December 2023 that did not produce the information GSC should have then provided.

On April 11, 2024, GSC filed its Opposition to the motion. GSC argues initially this is an impermissible motion for reconsideration of earlier orders. In addition, GSC contends that WW improperly bypassed seeking relief from the referee before filing the sanctions motion, that the referee found GSC’s conduct “substantially justified,” precluding this motion, and that the e-mails between counsel was not within the scope of the further session of the deposition or relevant to the acquisition that was the basis for re-opening discovery. Lacey was prepared to answer questions about the topics that should have been the focus of the deposition. GSC also argues that the objections it asserted through counsel at the second session of the deposition were proper and that the referee agreed. Further, GSC argues that the proposed issue sanction would in any event act as a “windfall” to WW that would not be justified (see Williams v. Russ (2008) 167 Cal.App.4^th 1215, 1223) and that the monetary sanction is excessive given it includes time for the earlier sanctions motion.

On April 17, 2024, WW filed its Reply in further support of this motion. It argues this motion was properly brought before this Court, as opposed to the referee, where Judge Recana indicated this motion should be heard by the long-cause trial judge, that it is not in effect an untimely motion for reconsideration, and that the second session of the GSC PMK deposition was not limited to texts and bank records. WW reiterates why sanctions are warranted based on what occurred at the deposition.

On April 29, 2024, this case was assigned to the undersigned for a long-cause trial.

On May 28, 2024, at an initial status conference with the undersigned, the Court set the hearing on this second motion for June 21, 2024.

The Court does not find this motion to be one seeking to reconsider earlier orders (though it does recite prior related history.) The motion is based solely on what transpired at the deposition on December 7, 2023.[1] There is no prior report or order concerning the conduct of the December 2023 deposition. Therefore, this is an open issue.

GSC is correct, however, that this motion should have been heard at least initially by the referee. The March 30, 2021 order makes this clear, as recited above.[2] Even if ultimately the motion would have come to the Court for an order, it would have gone first to the referee for his report and recommendation.

WW argues instead that Judge Recana ordered this motion be heard by the long-cause trial court – as opposed to his having decided the earlier version of it - and that therefore it did not have to be heard first by the referee. However, Judge Recana did not state that he was indicating a different rule should follow than the parties had engaged in previously concerning discovery matters by using the referee, or not follow the order appointing the referee – which remained in place. That this trial courtroom should hear the motion rather than his courtroom does not mean he was indicating that WW should not have first been heard by the referee. It makes no sense that the referee would not first provide a report and recommendation where he was present at the deposition and would give an impartial perspective. (WW may also not have wanted the referee’s input on this issue where it appears he had found GSC’s position was justified on at least some occasions). The referral to this trial court was due merely to its having to address potentially overlapping issues about what should properly be heard at trial. However, the motion remained one arising from discovery issues even its effect would concern the scope of trial.

Consistent therewith, the nature of the claims here concerning discovery would have been best determined by the referee -- who was present at the deposition and would know whether the questioning was proper, if follow up questioning was necessary or if ultimately GSC and or Lacey complied with the order for a further session. Those issues are not now clear after the fact:

For example, contrary to GSC’s claims, the May 9, 2023 referee report did not explicitly limit the further session of Lacey’s deposition to the text messages and bank records. On the other hand, in the same report, the referee recommended production of those documents. Hence, it is unclear if the deposition was solely concerning those documents to be produced.

In turn, while GSC is again in error in asserting that the e-mails do not concern the acquisition, where the earlier issue remains in doubt, this may not have been material. Further, it is not clear what knowledge Lacey should have had about e-mail which he neither sent nor received.

Similarly, while GSC improperly instructed Lacey not to answer a question as to Lacey’s interest in the new entity – also likely relevant to the consideration for the acquisition – WW does not indicate whether this information was not secured by way of answer to another question, adequately addressed by way of errata to the transcript or again make clear if this was properly part of this session of the deposition in the first place.

Therefore, even if this motion did not have to go to the referee, the Court cannot conclude that there is a basis for the requested sanctions. Moreover, as relates to the issue sanctions at least, the Court agrees with GSC that those appear to be too severe for what was involved here. This would eradicate seemingly the principal claim of the cross-complaint or effectively serve as a terminating sanction. There is nothing in the record showing prior sanctions or other incremental discipline as to any wrongdoing by GSC previously that would warrant taking this seemingly disproportionate – and punitive - step. (Doppes v. Bentley Motors (2009) 174 Cal.App.4^th 967, 992)

[1] As a result, the delay in WW securing the emails is not now before the Court. Moreover, as GSC argues, the referee previously denied sanctions related to the non-production of those documents. Further, Judge Recana denied the related motion for contempt arising from this same course of action, finding GSC’s careful approach to appropriate production of its documents was more significant than WW’s loss of its trial date.

[2] GSC contended erroneously that the May 9, 2023 report requires that any further motions related to discovery be heard by the referee. It does not.