Judge: Holly J. Fujie, Case: 21STCV32886, Date: 2023-11-30 Tentative Ruling

DEPARTMENT 56 JUDGE HOLLY J. FUJIE, LAW AND MOTION RULINGS. The court makes every effort to post tentative rulings by 5.00 pm of the court day before the hearing. The tentative ruling will not become the final ruling until the hearing [see CRC 3.1308(a)(2)], and are also available in the courtroom on the day of the hearing [see CRC 3.1308(b)]. If the parties wish to submit on the tentative ruling and avoid a court appearance, all counsel must agree and choose which counsel will give notice. That counsel must 1) call Dept 56 by 8:30 a.m. on the day of the hearing (213/633-0656) and state that all parties will submit on the tentative ruling, and 2) serve notice of the ruling on all parties. If any party declines to submit on the tentative ruling, then no telephone call is necessary and all parties should appear at the hearing in person or by Court Call. Court reporters are not provided, and parties who want a record of motions and other proceedings must hire a privately retained certified court reporter.

Case Number: 21STCV32886    Hearing Date: March 26, 2024    Dept: 56

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES - CENTRAL DISTRICT

AND RELATED CROSS-ACTIONS

MOVING PARTY: Plaintiffs

RESPONDING PARTY: Defendant Centaurus Financial, Inc. (“Defendant”)

            The Court has considered the moving, opposition and reply papers.

BACKGROUND

This action arises out of alleged mishandling of Plaintiffs’ investment property.  The currently operative second amended complaint (the “SAC”) alleges: (1) breach of fiduciary duty; (2) California financial elder abuse; (3) Illinois financial elder abuse; (4) breach of contract; (5) breach of implied duty of good faith and fair dealing; (6) aiding and abetting breach of fiduciary duty; (7) negligence; (8) violation of Business & Professions Code sections 17200 and 17500; (9) common law fraud; and (10) negligent misrepresentation. 

On March 1, 2024, Plaintiffs filed: (1) a motion to quash Defendant’s Deposition Subpoena for Production of Consumer Records of Plaintiff J. Roger Gorski, individually and as trustee of The J. Roger Gorski Trust Dated 7-28-2005 (“Plaintiff Gorski”) to Third Party BMO Bank N.A./BMO Harris/Harris Bank (“BMO”) (the “BMO Subpoena”); and (2) a motion to quash Defendant’s Deposition Subpoena for Production of Consumer Records of Plaintiff Gorski to Third Party George L. Hukriede Accountancy Corp. (“Hukriede”) (the “Hukriede Subpoena”).

DISCUSSION

Legal Standard

Code of Civil Procedure section 1987.1 authorizes courts to quash a subpoena entirely, modify it, or direct compliance with it upon the court’s own terms and conditions, including protective orders. In addition, the court may take other appropriate means to protect parties or nonparties “from unreasonable or oppressive demands, including unreasonable violations of the right of privacy.” (Code Civ. Proc., § 1987.1, subd. (a).) Discovery devices are meant to facilitate litigation, not wage it. (Calcor Space Facility, Inc. v. Superior Court (1997) 53 Cal.App.4th 216, 221.) 

Where privacy rights are at stake, “[t]he party asserting a privacy right must establish a legally protected privacy interest, an objectively reasonable expectation of privacy in the given circumstances, and a threatened intrusion that is serious. The party seeking information may raise in response whatever legitimate and important countervailing interests disclosure serves, while the party seeking protection may identify feasible alternatives that serve the same interests or protective measures that would diminish the loss of privacy. A court must then balance these competing considerations. . . . 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. . . . What suffices to justify an invasion will . . . vary according to the context. Only obvious invasions of interests fundamental to personal autonomy must be supported by a compelling interest.” (Williams v. Superior Court (2017) 3 Cal. 5th 531, 552-557 (internal citations omitted).) In instances in which the interests at stake are fundamental to personal autonomy, the party seeking discovery must demonstrate that the information is directly relevant to the issues in the action, and that there is a compelling public interest in the disclosure of the information that outweighs the right to privacy  (Board of Trustees v. Superior Court (1981) 119 Cal.App.3d 516, 525.)  

Analysis

            Initially, the Court notes that although Plaintiff argues that Defendant’s opposition brief exceeds the 10 page limit pursuant to California Rules of Court rule 3.1113(d), in fact the 10 page limit applies only to reply or closing memoranda. Both opening and responding (opposition) briefs may be 15 pages. Thus, the Court considers Defendants’ opposition in full.

The BMO Subpoena

The BMO Subpoena seeks the following:

DOCUMENT REQUEST NO. 1: All order forms, subscription agreements, placement memorandums or other DOCUMENTS through which PLAINTIFF made any investments.

DOCUMENT REQUEST NO. 2: All tax-related documents relating to PLAINTIFF for the period of time that PLAINTIFF held their [sic] respective investments.

DOCUMENT REQUEST NO. 3: All monthly or other periodic account statements sent to PLAINTIFF regarding their [sic] respective investments.

DOCUMENT REQUEST NO. 4: Any and all correspondence between PLAINTIFF or any of their [sic] representatives or employees and YOU or anyone acting on PLAINTIFF’[sic] behalf.

DOCUMENT REQUEST NO. 5: Any and all correspondence, brochures marketing materials, letters, information packets, notices, and notes of telephone conversations which evidence, refer or relate in any manner to communications (whether oral or written) between YOU or any of YOUR representatives or employees and the PLAINTIFF or anyone acting on his behalf relating or pertaining to any and all investment(s) maintained by or on behalf of the PLAINTIFF.

DOCUMENT REQUEST NO. 6: Any and all DOCUMENTS relating to distributions made to PLAINTIFF in connection with their [sic] investments.

DOCUMENT REQUEST NO. 7: Any and all DOCUMENTS relating to the current value of PLAINTIFF’ [sic] investment(s).

DOCUMENT REQUEST NO. 8: Any and all DOCUMENTS referencing, memorializing, or reflecting any meetings between PLAINTIFF or any of their’ [sic] representatives or employees and YOU or anyone acting on PLAINTIFF’ [sic] behalf.

DOCUMENT REQUEST NO. 9: All new account forms, applications, contracts, profiles, questionnaires [sic] customer agreements, files and contracts of any kind relating to account(s) maintained by or on behalf of PLAINTIFF as identified in the Subpoena Duces Tecum, and all accounts which PLAINTIFF controls or in which PLAINTIFF has an interest in any capacity. (Declaration of Dharmi C. Mehta in support of the BMO Motion (“Mehta Decl.”), Exhibit 1.)

Plaintiffs argue that the Court should grant the BMO Motion because the BMO Subpoena: (1) seeks categories of documents that are not reasonably specified; (2) seeks information protected by Plaintiff Gorski’s right to privacy, including his right to financial privacy; (3) seeks irrelevant documents; (4) is overbroad as to time and subject matter; (5) is unduly burdensome; and (6) is an improper effort to obtain protected documents from a non-party.

In opposition, Defendant argues that the documents sought by the BMO Subpoena are relevant to the issues in this case, including but not limited to: (1) the scope of the fiduciary duty, if any, owed by Defendant to Plaintiff; (2) Defendant’s purported obligation to determine the suitability of the subject investment and whether Defendant complied with its purported obligations; (3) whether Plaintiff was obligated to conduct his own diligence into the investment and his ability to conduct reasonable diligence to discover facts allegedly material to the investment, in light of Plaintiff’s financial sophistication/status and investment experience/background; (4) the evaluation of Plaintiff’s allegations that he was a relatively vulnerable and unsophisticated party for purposes of his efforts to obtain treble and punitive damages against Defendant; and (5) the determination of whether Plaintiff’s alleged reliance on any purported misrepresentations was reasonable in light of his intelligence, financial sophistication and investment background/experience.

The Court finds that the requested documents are relevant to the issues of this case, specifically in determining Plaintiff’s financial sophistication, background and investment experience for purposes of determining Plaintiff’s reasonable reliance on any alleged misrepresentation. 

The Court does note that two Requests, Request Nos. 4 and 8, appear to have significant typographical error, but will be interpreted by the Court to read instead:

4.         Any and all correspondence between PLAINTIFF or any of his representatives or employees and YOU or anyone acting on YOUR behalf.

8.         Any and all DOCUMENTS referencing, memorializing or reflecting any meetings between PLAINTIFF or any of his representatives or employees and YOU or anyone acting on YOUR behalf. (Mehta Decl., Exhibit 1.)

The Court does find that the information sought by the BMO Subpoena contains sensitive information and implicates privacy concerns.  For that reason, the Court orders that the parties meet and confer and stipulate to the issuance of a Protective Order in the form approved by the Los Angeles County Superior Court for Confidential (not Highly Confidential) documents and submit that Stipulation for Protective Order and [Proposed] Order to the Court by close of business April 5, 2024. 

The Court also notes that while the time period specified in the BMO Subpoena is for a considerable period of time, namely January 1, 2010 to the present, the time period alleged in the SAC goes back to 2013, such that information regarding Plaintiff Gorsky’s financial activities prior to that time – at least to the time period for which documents are sought by the BMO Subpoena – is reasonably calculated to lead to the discovery of admissible evidence. 

Accordingly, the Motion is DENIED as to the BMO Subpoena, subject to the limitations stated above.

The Hukriede Subpoena

The Hukriede Subpoena seeks the following:

DOCUMENT REQUEST NO. 1: For the RELEVANT PERIOD, complete tax returns, including all pages of Form 1040 and 1120S, related schedules, and the IRS worksheets related to these schedules, filed on behalf of PLAINTIFF, or on behalf of any companies, entities, or businesses owned by PLAINTIFF or in which PLAINTIFF had any control or in which they [sic] have [sic]/had any interest in any capacity.

DOCUMENT REQUEST NO. 2: Any and all COMMUNICATIONS, including emails, and/or COMMUNICATIONS between any representatives of YOU and PLAINTIFF or anyone acting on their [sic] behalf regarding investments (including securities), securities accounts, brokerage accounts and tax issues relating to those investments and/or accounts during the RELEVANT PERIOD.

DOCUMENT REQUEST NO. 3: All DOCUMENTS evidencing COMMUNICATIONS between or on behalf of PLAINTIFF and YOU pertaining to the PLAINTIFF’ [sic] tax obligations for the RELEVANT PERIOD.

DOCUMENT REQUEST NO. 4: All DOCUMENTS reflecting PLAINTIFF’S net worth, including financial statements, balance sheets, spreadsheets, and similar statements of their [sic] assets for the RELEVANT PERIOD.

DOCUMENT REQUEST NO. 5: Any and all DOCUMENTS, including any accountant workpapers, referencing, pertaining to, or reflecting information pertaining to any investment activity by PLAINTIFF.

DOCUMENT REQUEST NO. 6: All order forms, subscription agreements, placement memorandums or other DOCUMENTS through which PLAINTIFF made any investments.

DOCUMENT REQUEST NO. 7: All monthly or other periodic account statements sent to PLAINTIFF regarding their [sic] investments including but not limited to TNP Spring Gate Plaza and/or MVP REIT, INC.

DOCUMENT REQUEST NO. 8: Any and all of PLAINTIFF’S 1031 Exchange documents.

DOCUMENT REQUEST NO. 9: Any and all of PLAINTIFF’S loan documents.

DOCUMENT REQUEST NO. 10: Any and all documents pertaining to PLAINTIFF’S real estate investments, including 1031 properties.

(Mehta Decl., Exhibit 1.)

The parties make similar arguments regarding the Hukriede Subpoena as they make regarding the BMO Subpoena, discussed supra.

The Court finds that the requested documents are relevant to the issues of this case, specifically in determining Plaintiff’s financial sophistication, background, and investment experience for purposes of determining Plaintiff’s reasonable reliance on any alleged misrepresentation.

The one exception to this ruling is as to Category 1, which seeks Plaintiff Gorsky’s income tax returns, and any other Category, such as Request No. 9, which may include income tax returns.  While there is no recognized federal or state constitutional right to maintain the privacy of tax returns (see, e.g., Couch v. United States (1973) 409 U.S. 322, 336-337 and Deary v. Superior Court (2001) 87 Cal.App.4^th 1072, 1075, fn. 2, 1077-1078), the California courts have interpreted state taxation statutes as creating a statutory privilege against disclosing tax returns.  (See, e.g., Schnabel v. Superior Court (1993) 5 Cal.4^th 702, 718-721.)  The purpose of the privilege is to encourage voluntary filing of tax returns and truthful reporting of income, and thus to facilitate tax collection. (Webb v. Standard Oil Co. (1957) 49 Cal.2d 509, 513.)

Although this statutory tax privilege is not absolute, none of the exceptions thereto --intentional waiver, the gravamen of the lawsuit being inconsistent with the privilege, and public policy (Schnabel, supra at 5 Cal.4^th 721) --  applies here.  This Court has broad discretion in determining the applicability of a statutory privilege (National Football League Properties, Inc. v. Superior Court (1998) 65 Cal.App.4^th 100, 106-107) and this Court exercises its discretion to apply the statutory privilege to the requested documents and therefore does not order discovery of tax returns in this case.

Accordingly, the Hukriede Motion is GRANTED as to Category 1 and DENIED as to all other Categories in the Hukriede Subpoena, subject to the limitations stated above, and subject to the submission of a proposed Protective Order.

ORDER TO MEET AND CONFER

In light of the fact that there are approximately twenty-three (23) other motions to quash on file in this case scheduled to be heard from March 27 to April 30 (incidentally, consuming most if not all of the available time on this Court’s calendar for discovery matters for that time period) which, although the Court has not yet reviewed all of them in detail, appear to involve very similar issues to those decided herein, the Court orders that the parties meet and confer after the hearing on these motions in an attempt to resolve some or all of those other motions based upon this ruling.

In order to facilitate compliance with this meet and confer order, all of the other motions to quash currently on calendar in this case are hereby ordered continued by two weeks from the dates of the current hearings.  The Court will give notice of these continuances.

PLAINTIFFS are ordered to give notice of this ruling. 

Parties who intend to submit on this tentative must send an email to the Court at SMC_DEPT56@lacourt.org as directed by the instructions provided on the court website at www.lacourt.org.  If the department does not receive an email and there are no appearances at the hearing, the motion will be placed off calendar.

     Dated this 26th day of March 2024