Judge: Layne H. Melzer, Case: 2021-01206212, Date: 2022-09-01 Tentative Ruling
Petitioner Nefab Packaging West, LLC
1. Motion to Appear Pro Hac Vice
Parties Armon Medali, Sammy Medali, Intellipax, Inc.
2. Motion to Quash
Non-Party Chelsea Medali
3. Motion to Quash Subpoena
Non-Parties Armon Medali, Sammy Medali, Intellipax, Inc.
4. Motion to Quash Subpoena
Non-Parties Armon Medali, Sammy Medali, Intellipax, Inc.
5. Motion to Quash Subpoena
A. Application to Appear Pro Hac Vice
The court grants Jeffrey Mills, Esq.’s Application to appear pro hac vice for Plaintiff Nefab Packaging West, LLC, as co-Counsel with Zachary A. Bulthuis, Esq. All of the requirements of CRC rule 9.40(a) through (e) are met. (See ROA 52, 69.) The Application is granted.
B. Motion to Quash Subpoenas
Before the court are third-parties Intellipax, Inc., Armon Medali, Sammy Medal, and Chelsea Medali’s motions to quash subpoenas for documents and/or depositions issued by Plaintiff Nefab Packaging West, LLC in an out-of-state lawsuit between Plaintiff and Defendant Steve Brubeck. The court has made its rulings below.
Sanctions are denied as to all parties.
1. Facts
The Texas case is a dispute between a company called Nefab Packaging West, LLC (Plaintiff here) and an individual named Steve Brubeck. Brubeck was the owner of a business known as Pacific Coast Packaging (“PCP”) that was sold and became Nefab.
On December 13, 2018, Nefab and Brubeck entered into Stock Purchase Agreement (“SPA”) for the sale of Brubeck’s company, PCP to Nefab. (Slovacek Decl., at ¶ 5, and Ex. A-1 thereto.)
Among others, Brubeck employed Armon and Armon’s wife Chelsea (who is Brubeck’s daughter) at PCP. Chelsea and Armon became employees of Plaintiff once PCP was sold.
Sammy is Armon’s father.
In October 2020, Sammy formed Intellipax. (S. Medali Dec. ¶ 3.] Intellipax is a competitor of Plaintiff. [Id.] In early 2021 Armon ended his employment with and went to work for Intellipax. (A. Medali Dec. ¶ 7.) Armon is the General Manager of Intellipax. (Id.) Chelsea left her employment with Plaintiff and also went to work at Intellipax with her husband. (A. Medali Dec. ¶ 8.)
As part of the sale, Brubeck was not allowed to compete with his old company. Plaintiff alleges in the Texas lawsuit that he did in fact compete with his old company by using his daughter and son-in-law to start a new company, Intellipax. Plaintiff contends that while Brubeck was at Nefab, he was responsible for a number of customer relationships. Before he left Nefab, he transferred those relationships over to Armon, who was not a salesperson, and there was no reason for him to manage those relationships. Brubeck made this transfer right as Intellipax was formed by Sammy. After Brubeck left Nefab, but while Armon was still at Nefab, Brubeck forwarded email requests from Nefab’s customers to Armon’s Intellipax email address (which was active well before Armon left Nefab).
Specifically, Plaintiff argues that in February 2021, Brubeck forwarded orders from Blue Rose Packaging (“Blue Rose”) intended for Nefab to Armon using both Armon’s personal email account and Intellipax email account (while Armon was still working for Nefab). (Mills Declaration, at Exhibits E-3 and E-4.) On February 8, 2021, Brubeck responded to a request for a purchase order from Blue Rose and told Blue Rose to “[s]end the po over to Intellipax” and copies Armon’s Intellipax email address. (Id., at Exhibit E3, at 1.) On February 28, 2021, Brubeck sent an email to Blue Rose and instructed it to send the purchase order to “Armon … without my name on it.” (Id., at Exhibit E4, at 1.) Nefab discovered these emails from a third party. (See id., at ¶ 8.) Brubeck testified that he had not heard of Intellipax until March 2021, but he was sending orders to Armon’s Intellipax.com email address in February 2021. (Id., at Exhibit E-5, Brubeck Transcript, ¶¶ 46:23-48:3.)
2. Legal Standard
When a deposition subpoena requires the attendance of a witness or production of documents or other things at a deposition, a party, witness, consumer, employee, or person whose personal information is sought in connection with free speech rights may move for an order quashing the subpoena or modifying it. (CCP § 1987.1.)
The court may in its discretion award the amount of the reasonable expenses incurred in making or opposing a motion to quash under Code of Civil Procedure sections 1987 or 1987.1, including reasonable attorney's fees, if the court finds the motion was made or opposed in bad faith or without substantial justification or that one or more of the requirements of the subpoena was oppressive. (CCP § 1987.2; Evilsizor v. Sweeney (2014) 230 Cal. App. 4th 1304, 1310-1311.)
3. Merits
a. Intellipax
The Subpoena to Intellipax has one Request and is for documents only. It reads:
REQUEST FOR PRODUCTION NO. 1: Financial documents, accounting records, production schedules, and/or any other document reflecting revenue and orders from Intellipax customers identified in Exhibit A-1 (from August 1, 2020 through May 31, 2022).
The Request then lists 136 different client names.
Based on the facts presented above and the allegations made in the Texas lawsuit, the court overrules the relevance objection.
The right of privacy contained in the California Constitution (Art. 1, § 1) is limited to “people,” meaning natural persons: “[T]he constitutional provision simply does not apply to corporations.” [Roberts v. Gulf Oil Corp. (1983) 147 CA3d 770, 791, 796-797; see SCC Acquisitions, Inc. v. Sup.Ct. (Western Albuquerque Land Holdings, LLC) (2015) 243 CA4th 741, 755-756—“While corporations do have a right to privacy, it is not a constitutional right”].
Although the issue is unsettled, some privacy protection may exist for business entities, apart from its members or shareholders, depending on the circumstances: “Two critical factors are the strength of the nexus between the artificial entity and human beings and the context in which the controversy arises.” [Roberts v. Gulf Oil Corp., supra, 147 CA3d at 796-797—corporation cannot prevent County Tax Assessor from obtaining corporate financial records for tax assessment purposes, but 14th Amendment limits extent of possible intrusion into corporate records; see Ameri-Medical Corp. v. WCAB (1996) 42 CA4th 1260, 1286-1289—professional medical corporation retained privacy interest in financial and employment information unrelated to preparation of medical reports sought by workers' compensation insurers].
Assuming a business entity has a right of privacy, courts must determine whether it is outweighed by the relevance of the information sought to the subject matter in the pending action. “[D]oubts as to relevance should generally be resolved in favor of permitting discovery.” [Hecht, Solberg, Robinson, Goldberg & Bagley v. Sup.Ct. (Panther) (2006) 137 CA4th 579, 593 (internal quotes omitted); see SCC Acquisitions, Inc. v. Sup.Ct. (Western Albuquerque Land Holdings, LLC), supra, 243 CA4th at 755-756—since corporate privacy right not constitutionally protected, discovery determined by balancing test]
Here, Intellipax has not met its burden to show that this limited subset of documents would be protected by privacy. Further, balancing weighs in favor of production as the documents are highly relevant to Plaintiff’s alleged damages in the Texas case.
However, the court does find the Request, as drafted, overbroad.
The court is inclined to limit the Request to all purchase orders entered into with each of these clients from August 1, 2020 through May 2022.
b. Sammy
The court denies Sammy’s demand to quash his deposition as to testimony. Other than being in-laws through the marriage of their children, Sammy contends that he and Brubeck have no relationship (business or otherwise). (S. Medali Dec. ¶ 5.) Brubeck’s only relationship with Armon is as his father-in-law. (A. Medali Dec. ¶ 10.) But as the court has set forth above, Plaintiff has shown the inquiry is relevant to an alleged conspiracy to violate the non-compete agreement.
There are 10 document Requests.
The court finds that Sammy has met his burden to show that Request Nos. 1, 3, 6, and 10 are overbroad. The Motion is granted as to these Requests in their entirety.
Sammy, however, has not met his burden to show that Nos. 2, 4, 5, 7, and 8 are objectionable. Sammy testifies that he has no business relationship with the Brubecks whatsoever, so communications regarding Intellipax are not objectionable.
With regard to No. 2, which seeks documents reflecting the source of the $175,000 deposited in the Wells Fargo Business Account established by you on or about December 1, 2020, Sammy has not met his burden to show financial privacy outweighs truth in litigation. These documents are directly relevant as Plaintiffs contend that the source of finding to start Intellipax came directly from Brubeck.
c. Armon
The court denies Armon’s Motion to quash the subpoena for testimony only. As discussed above, his testimony is directly relevant to Plaintiff’s claims that Brubeck was behind the financing and formation of Intellipax by Armon’s father. Armon worked for Plaintiff and Intellipax and may have facilitated transferring clients from one entity to the other in violation of Brubeck’s noncompete agreement.
d. Chelsea
The court denies Chelsea’s Motion to quash the subpoena for her deposition testimony.
As an initial matter, Chelsea points to a recent ruling by Judge Lee in her wrongful termination lawsuit, case number 2021-01206088, against Nefarb. (Goodman Supp. Decl., Ex. 7.) Judge Lee found a Subpoena issued in that case with similar requests to be irrelevant in that employment matter.
Here, Chelsea’s testimony is relevant to the Texas lawsuit. Plaintiff argues in February 2021, Armon and Chelsea—Nefab employees at the time—gave notice they were quitting Nefab. A few days later, Nefab made the final $750,000 payment to Brubeck to purchase his company. Just a few days after that, Brubeck wired Chelsea $100,000 from the same account that received the final Nefab payment. Mere days after that transfer, Chelsea and Armon started working at Intellipax.
Chelsea admits that $100,000 that she received was from the same private bank account into which Nefab deposited $750,000 to Steve Brubeck; but her counsel argues that the money was an “inheritance from her grandmother, Betty Brubeck”. (Chelsea Decl.) Steve Brubeck was Betty Brubeck’s son and the executor of Betty Brubeck’s estate. (Chelsea Decl.) The $100,000 Chelsea received was part of proceeds from the sale of Betty Brubeck’s house. (Chelsea Decl.)
She also worked at both Plaintiff and Intellipax and is accused of being part of the conspiracy to create a competing company with her father in violation of his contract with Plaintiff. Her testimony is relevant.
With regard to the document demands, the court has carefully reviewed each demand and the corresponding objections.
The court finds that Chelsea has met her burden to show that Nos. 4, 5, 6, 7, 8, and 9 are objectionable. The court sustains Chelsea’s objections.
Chelsea, however, has not met her burden to show that Nos. 1, 2, 3, 10, 11, 12, 13, 14, 15, 16, and 17 are objectionable, with the caveats below. The court notes that Chelsea can redact bank account statements that include other transactions that are not the $100,000 transfer that Plaintiff contends was used to form Intellipax.
Plaintiff is ordered to serve notice of this Order.