Judge: Kristin S. Escalante , Case: 22STCV21218, Date: 2023-06-22 Tentative Ruling
Case Number: 22STCV21218 Hearing Date: June 22, 2023 Dept: 24
NATURE OF PROCEEDINGS: Hearing on Motion to Compel
Further Discovery Responses to Request for Production Nos. 29-32 by Columbia
Care Inc.; Hearing on Motion to Compel Further Discovery Responses to Special
Interrogatory No. 24 by Columbia Care LLC; Hearing on Motion to Compel Further
Discovery Responses to Request for Production Nos. 29-32 by Columbia Care LLC; Hearing
on Motion to Compel to Special Interrogatory No. 24 by Columbia Care Inc.
The
above-captioned matters are called for hearing.
The Court has
read the moving and opposing papers in the above-captioned motions and
announces its tentative rulings in open Court.
The Motion to Compel Further Discovery Responses to Request
for Production Nos. 29-32 by Columbia Care LLC ID: 293732444448 filed by Plaintiff
MM Acquisition Co. LLC on 04/28/2023; The Motion to Compel Further Discovery
Responses to Special Interrogatory No. 24 by Columbia Care LLC ID: 291778015061
filed by Plaintiff MM Acquisition Co. LLC on 04/28/2023; The Motion to Compel
Further Discovery Responses to Request for Production Nos. 29-32 by Columbia
Care Inc. ID: 181558938845 filed by Plaintiff MM Acquisition Co. LLC on
04/28/2023; and The Motion to Compel Further Discovery Responses to Special
Interrogatory No. 24 by Columbia Care Inc. ID: 550723905207 filed by Plaintiff MM Acquisition Co. LLC on 04/28/2023.
The motions are DENIED.
Plaintiff MM
Acquisition Co. LLC (“Plaintiff”) moves for four discovery orders compelling (i)
Defendant Columbia Care, LLC (“CCL”) to provide further responses to Request
for Production (“RFP”) Numbers 29-32, (ii) CCL to provide a further response to
Special Interrogatory (“SROG”) number 24, (iii) Defendant Columbia Care Inc.
(“CC Inc.”) to provide further responses to RFP numbers 29-32, and (iv) CC Inc.
to provide a further response to SROG number 24.
By way of
background, on June 30, 2022, Plaintiff filed suit against CCL and CC Inc.
(collectively “Defendants”) for breach of contract and declaratory relief. Plaintiff
alleged Defendants acquired several cannabis companies (“acquired assets”),
related IP (“acquired IP”), and the option to acquire certain real estate from
Plaintiff. Per the parties’ merger agreement (“Agreement”), Defendants issued
stock to Plaintiff which were also subject to a Lock-Up Agreement (“Lock Up”).
Under the terms of the Lock Up, Plaintiff could not sell the stock for a certain period. Defendants released the stock in five increments over the course of 18 months after the closing of the Agreement. The fifth tranche of stock received different treatment. Defendants only needed to release a final tranche to the extent the TTM EBITDA for the acquired assets reached $12 million. If the assets did not reach $12 Million, Defendants was obligated “to release only the number of shares that comports with the actual TTM EBITDA, and the balance of any such Subject Shares shall be transferred back to [Defendants].” (Compl., ¶13 [the “claw back”].) When the final tranche became due, Plaintiff alleges Defendants materially understated the value of the assets to improperly claw back 94% of the final tranche of stock.
The Court notes that the requests at issue, the moving, opposing and reply papers are all identical as between the motions directed at CCL and the motions directed at CC Inc. Accordingly, the court addresses the motions jointly.
1. CCL/CC Inc. RFPs
“Upon receipt of a response to a demand for inspection, copying, testing, or sampling, the demanding party may move for an order compelling further response if the demanding party deems that any of the following apply: [¶] (1) A statement of compliance with the demand is incomplete. [¶] (2) A representation of inability to comply in inadequate, incomplete, or evasive. [or] [¶] (3) An objection in the response is without merit or too general.” (Code Civ. Proc., §2031.310.) Once an objection is made, the party propounding the inspection demand must take the initiative in obtaining a judicial determination of the validity of the objection by bringing a timely motion to compel a further response. Once the party making such a motion has met its initial burden of showing “good cause,” the burden shifts to the objecting party to justify the objections. (Coy v. Superior Court of Contra Costa County (1962) 58 Cal.2d 210, 220-221; see also Kirkland v. Superior Court (2002) 95 Cal.App.4th 92, 98.)
Plaintiff takes issue with Defendants’ responses to RFPs Numbers 29-32. The RFPs relate to (i) documents sufficient to identify the acquired IP Defendants have exploited or plans to exploit, (ii) documents related to “consideration or planning for the exploitation of any [Plaintiff] marijuana product brands”, (iii) documents showing Defendants plans or financial projects for the exploitation of the acquired IP, and (iv) documents showing detailed information regarding production and sales of the acquired IP. (Brian Daucher Declaration [“Daucher Decl.”], ¶2, Ex. A [“RFP Requests”].) Defendants both provided objection only responses to the identical requests. (Daucher Decl., ¶3, Ex. B [“RFP Responses”].) Notably, Plaintiff states the requests and responses were identical, but only attaches the requests and responses for CC Inc. Nevertheless, Defendants do not object to this characterization. Accordingly, the court assumes the responses from both Defendants were identical based on Plaintiff’s declaration.
Defendants object to the requests for production on the grounds that they are not relevant to the underlying claims of TTM EBITDA calculation, they are burdensome and require Defendants to create new documents, and they seek confidential and proprietary information. The court takes each in turn.
1. Relevancy
The relevancy standard for discovery is broad and “is in no sense a determination of relevance for purpose of trial.” (Pac. Tel. & Tel. Co. v. Superior Ct. (1970) 2 Cal.3d 161, 172.) “Matters sought are properly discoverable if they will aid in a party’s preparation for trial.” (Ibid.) “[T]he relevance of the subject matter standard must be reasonably applied; in accordance with the liberal policies underlying the discovery procedures, doubts as to relevance should generally be resolved in favor of permitting discovery . . .” (Id. at p. 173.)
Here, Plaintiff has not demonstrated the requests are relevant. The Lock Up states that TTM EBITDA “shall mean as of any date of determination, the net earnings before interest, taxes, depreciation and amortization of the Companies (excluding reasonable and one-time non-recurring charges and rent expenses for the properties subject to the Sale-Leaseback Transaction (as defined in the Purchase Agreement)), determined on a consolidated basis in accordance with GAAP, for the 12 month period most recently ended.” (Lee Benge Declaration [“Benge Declaration”], ¶6, Ex. I [“Lock Up”] at p. 2.) The Lock Up does not include any information tying the TTM EBITDA with the valuation of the acquired IP. Plaintiff’s argument that Defendants had an obligation to both use and properly value the use of the acquired IP does not appear to be tied to the allegations of the improper claw back. As Defendant points out, if the parties had intended that the acquired IP be part of the valuation for the purpose of TTM EBITDA, they would have included such language in the Lock UP.
In the reply, Plaintiff argues more that the acquired IP was subsumed into the purchase of the acquired assets but does not support this information with evidence. Defendant argues it acquired IP separately from the other acquired assets. Plaintiff’s complaint suggests the same, e.g., that the parties treated the acquire IP separately from the acquired cannabis companies. (See Compl., ¶8 [“Columbia Care acquired several cannabis companies as well as related IP and options to acquire certain real estate from MMAC”].)
Accordingly, Plaintiff has not established good cause and relevancy as to the requested documents.
2. Burden and Propriety
As the court has determined the request are not relevant, it only briefly addresses the objections as to the burden and propriety of the RFPs. Defendants argue the burden of producing documents responsive to RFP number 32 is extremely high given the nature of the cannabis businesses, e.g., all state systems exist in separate silos to prevent any interstate commerce which would violate federal law. Plaintiff argues the burden of the documentation would be minimal as Defendants have access to the information available by virtue of tracking its sales in each market in the Dutchie system.
The court may limit discovery sought if it determines that the “selected method of discovery is unduly burdensome or expensive taking into account the needs of the case, the amount in controversy, and the importance of the issues at stake in the litigation.” (Code Civ. Proc., §2019.030, subd. (a)(2).)
Here, the “burden of responding to the requests [is] oppressive and substantially outweigh[s] any possible relevance or informational value of the evidence.” (Lopez v. Watchtower Bible & Tract Soc’y of New York, Inc. (2016) 246 Cal.App.4th 566, 594.) Defendants submit the declaration of Guy Hussussian—Chief Data Officer for Defendants—who provides persuasive information that the burden of producing documents would be substantial. Hussussian declares that the Dutchie system is used intermittently between its stores during the relevant period. (Hussussian Decl., ¶ 5.) Therefore, to provide the requested information, Defendants would have to collect and consolidate date from millions of transactions, including consolidating information from multiple legacy systems. The process would take weeks of full-time work. . . The process would require the work of multiple Columbia Care personnel in multiple departments and would entail not only the import of the data but processing the data to ensure accuracy. (Hussussian Decl., ¶8.)
This is sufficient to demonstrate the burden of providing the data outweighs the need or relevancy. Plaintiff submits Lee Benge’s declaration, in which Benge states she has substantial experience working with the Dutchie system and the burden would be minimal. (Benge Decl., ¶¶12-14.) While Benge’s declaration regarding the ease of using the Dutchie system is helpful, Hussussian’s particularized declaration explaining why the Dutchie system cannot provide the information easily for Defendants demonstrates the heavy burden of providing the requested information. Accordingly, this is an alternative ground to deny the request as to RFP number 32.
Finally, as to propriety, neither party argues the matter in the brief. Accordingly, the court does not address this.
The motion to compel further responses to RFPs numbers 29-32 is denied.
2. CCL SROG
A party may
move for an order compelling further response if “[a]n answer to a particular
interrogatory is evasive or incomplete[, or] [a]n objection to an interrogatory
is without merit or too general.” (Code Civ. Proc., §2030.300.)
Plaintiff takes issue with Defendants’
responses to SROG number 24 which requests Defendants “Describe with
particularity all steps YOU have taken to develop and/or commercialize the MMAC
cannabis brands YOU purchased under the MERGER AGREEMENT, including without
limitation the following brands: TRIPLE SEVEN / 777 TR7PLE SE7EN and CLASSIX
CURATED CANNABIS.” (Sept Stmt., at p. 3) Defendant responded with only an
objection. (Sept Stmt., at p. 3.) The parties’
arguments mirror those on the motion to compel further responses to RFPs.
Plaintiff argues the discovery is relevant to the claim of whether Defendant’s
claw back was proper. Defendant argues the information sought is irrelevant and
unduly burdensome.
As to
relevancy, the court incorporates by reference its prior discussion and finds
Plaintiff has not demonstrated the sought after information is relevant.
Given the relevancy issue is dispositive, the court addresses Defendants’ claim of burden only to the extent that it is not a sufficient second ground for denying the motion. Defendants argue that responding to SROG number 24 regarding the development of the acquired IP would necessitate looking at the acquired IP’s development across multiple states and conferring with multiple members of Defendants’ development team. The court is not persuaded that undue burden has been shown. “[T]here is no rule that holds that proper discovery is limited to interrogatories which may be answered without effort or loss of time.” (Sigerseth v. Superior Court (1972) 23 Cal.App.3d 427, 433.) “The fact alone that the response to an interrogatory may be expensive and burdensome does not justify a refusal to answer.” (Alpine Mut. Water Co. v. Superior Court for Ventura County (1968) 259 Cal.App.2d 45, 55.)
Nevertheless, the motion is DENIED for the reasons stated.
Moving party is directed to give notice.