Judge Edward B. Moreton, Jr., Case Number: 23SMCV00232, Date: 2024-01-11 Tentative Ruling

Judge: Edward B. Moreton, Jr., Case: 23SMCV00232, Date: 2024-01-11 Tentative Ruling

Case Number: 23SMCV00232 Hearing Date: January 11, 2024 Dept: 205

Superior Court of California

County of Los Angeles – West District

Beverly Hills Courthouse / Department 205

WORTH CLARK, INC., Petitioner, v. ST. CLOUD CAP. PARTNERS, SBIC, L.P., , Respondent. Case No.: 23SMCV00232 Hearing Date: January 10, 2024 [TENTATIVE] ORDER RE: PETITION TO ENFORCE SUBPOENA FOR PRODUCTION OF DOCUMENTS IN ACTION OUTSIDE CALIFORNIA PURSUANT TO CODE CIV. PROC. § 2029.600 AND REQUEST FOR SANCTIONS

BACKGROUND

This action arises from a petition to enforce a third party subpoena for documents in connection with an action outside of California. The out-of-state action is based in Missouri, Case No. 2211-CC00190 (the “Missouri Action”).

The Missouri Action arises out of the February 2018 sale of a property management business then owned by Petitioner Worth Clark Inc. to the RW Entities. The RW Entities used a subordinated promissory note to pay for 40% of the $2 million purchase price of the business.

The senior debt holder was St. Cloud Cap. Partners SBIC, L.P., a Los-Angeles based private equity firm. St. Cloud entered into a subordination agreement with Worth Clark whereby

it could prevent Worth Clark from taking any action on the promissory note if any of the RW Entities violated any financial covenants in St. Cloud’s senior note – the “2016 St. Cloud Note.”

In the Missouri Action, Worth Clark alleges that the RW entities were already in default of the 2016 St. Cloud Note at the time they closed their deal with Worth Clark but failed to disclose this fact in violation of the parties’ agreement. Worth Clark also alleges that the RW Entities misrepresented their ability to finance the purchase. When the principal amount of the debt to Worth Clark was due, St. Cloud declared a default which prevented Worth Clark from collecting on its principal.

This hearing is on Worth Clark’s petition to enforce a subpoena to St. Cloud. The subpoena seeks eight requests. Request Nos. 1-3 and 5 seek correspondence between the RW Entities and St. Cloud concerning the debt subordination agreement between St. Cloud and Worth Clark and the RW Entities’ default status under both the 2016 St. Cloud Note and other instruments between St. Cloud and the RW Entities. None of these seek correspondence earlier than 2017. Request No. 4 seeks copies of the actual debt instruments between St. Cloud and the RW Entities. These are instruments that allegedly subordinate Worth Clark’s own debt. Request No. 6 seeks financial data provided by the RW Entities to St. Cloud. And Request Nos. 7 and 8 seek St. Cloud’s own calculations of the RW Entities’ default status. Worth Clark contends the requests seek clearly relevant documents, in response to which Worth Clark claims St. Cloud lodged purely boilerplate objections. As of the posting of this tentative ruling, no opposition was filed.

LEGAL STANDARD

Under the California Interstate and International Depositions and Discovery Act (Code Civ. Proc., §§ 2029.100–2029.700) (the “Act”), a party to a proceeding in a foreign jurisdiction may obtain discovery in California. The party may (1) request the superior court in the county where the discovery is sought to issue a subpoena or (2) hire a local attorney to issue the subpoena. (Code Civ. Proc., §§ 2029.300, subd. (a)-(b), 2029.350, subd. (a).)

If a dispute arises relating to discovery under the Act, “any request for a protective order or to enforce, quash, or modify a subpoena, … may be filed in the superior court … and, if so filed, shall comply with the applicable rules or statutes of this state.” (Code Civ. Proc., § 2029.600, subd. (a).) Such relief “shall be referred to as a petition notwithstanding any statute under which a request for the same relief would be referred to as a motion ….” (Code Civ. Proc., § 2029.600, subd. (b).)

ANALYSIS

The Court concludes there is good cause to grant the petition because the documents sought relate to the RW Entities’ debtor relationship with St. Cloud which lies at the heart of the Missouri Action. The majority of the documents sought pertain to correspondence with or information received by St. Cloud from the RW Entities. The balance relates to financial calculations concerning the RW Entities’ default status. All or nearly all of the requested information should be electronically stored and easily accessible.

Worth Clark also seeks sanctions in the amount of $6,000 because St. Cloud failed to meaningfully meet and confer and produce the responsive documents. Code of Civil Procedure § 2023.030 states, in relevant part:

“To the extent authorized by the chapter governing any particular discovery method or any other provision of this title, the court, after notice to any affected party, person, or attorney, and after opportunity for hearing, may impose the following sanctions against anyone engaging in conduct that is a misuse of the discovery process:

(a) The court may impose a monetary sanction ordering that one engaging in the misuse of the discovery process, or any attorney advising that conduct, or both pay the reasonable expenses, including attorney’s fees, incurred by anyone as a result of that conduct. The court may also impose this sanction on one unsuccessfully asserting that another has engaged in the misuse of the discovery process, or on any attorney who advised that assertion, or on both. If a monetary sanction is authorized by any provision of this title, the court shall impose that sanction 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.” (CCP § 2023.030, subd. (a).)

Misuses of the discovery process include, but are not limited to “[m]aking or opposing, unsuccessfully and without substantial justification, a motion to compel or to limit discovery.” (CCP §2023.010, subd. (h).) Here, St. Cloud did not oppose the motion to compel, and its objections were purely boilerplate. Accordingly, the Court concludes sanctions are warranted.

In awarding sanctions, the Court starts with the lodestar which is the reasonable hourly rate multiplied by reasonable hours expended. Counsel bills at an hourly rate of $400, but fails to discuss his experience or that his rates were previously approved by other courts. Counsel also seeks fees for 15 hours of attorney time, which seem excessive given the simple nature of this petition. Given the foregoing, the Court will reduce the requested sanctions from $6,000 to $4,000.

CONCLUSION

For the foregoing reasons, the Court GRANTS the petition to enforce subpoena and GRANTS IN PART and DENIES IN PART the request for sanctions. St. Cloud will pay $4,000 in sanctions to Worth Clark within 30 days of this Order.

IT IS SO ORDERED.

DATED: January 11, 2024 ___________________________

Edward B. Moreton, Jr.

Judge of the Superior Court