Judge: Michael Shultz, Case: 23CMCV01412, Date: 2023-10-19 Tentative Ruling
Case Number: 23CMCV01412 Hearing Date: March 28, 2024 Dept: A
Thursday,
March 28, 2024, at 8:30 a.m.
[TENTATIVE] ORDER DENYING
CROSS-DEFENDANTS MOTION TO QUASH SUBPOENA AND REQUEST FOR IMPOSITION OF
SANCTIONS
The complaint
alleges that Plaintiff ROSE ML (“ROSE” or “Plaintiff”) agreed to serve as a
non-exclusive distributor of tobacco products purchased from Defendant, Air
Distribution, USA, Inc. (“AIR” or “Defendant”) pursuant to a written contract. AIR
allegedly breached the agreement by selling product to other non-direct buying
customers at a lower price than what ROSE paid for the product. ROSE alleges
claims for breach of contract, fraud, and breach of the implied covenant of
good faith and fair dealing.
Defendant
AIR filed a first amended cross-complaint (“FAXC”) against Sal Haddadin
(“Haddadin”), ROSE, Alfa Distribution (“ALFA”), and Corona Wholesale, Inc.
(“CORONA”) (collectively “Cross-Defendants”) alleging claims for breach of
contract, common counts, and breach of personal guaranty based on a written
distribution agreement wherein AIR, a wholesale importer and distributor of
tobacco products, sold products to Cross-Defendants, who breached the contract
by failing to pay for goods totaling $3,158,685.65. (FAXC, ¶22.) The contract allegedly
prohibited ROSE from sub-distributing or selling the products to any person or
entity for redistribution. (FAXC ¶ 17.) Haddadin allegedly breached his
obligation to personally guarantee ROSE’s debts. (FAXC, ¶¶ 40-42.) The FAXC also
alleges a claim for fraudulent conveyance based on the allegation that Haddadin
transferred product to ALFA and CORONA for sale. (FAXC ¶ 52.)
On
October 20, 2023, the Court issued a right to attach order in favor of
Cross-Complainant AIR as well as an order for issuance of a writ of attachment
against the Haddadin’s property in the amount of $3,158,685.65, including
interests in real property, cash, accounts receivable, chattel, and inventory
among other assets.
II.
ARGUMENTS
Cross-defendant
ROSE argues that Cross-Complainant AIR served a subpoena on Bank of America for
the production of the Cross-defendants’ financial records (ALFA and CORONA). ROSE
admits that statements and evidence of transfers within four months of the
filing date are relevant, but bank records in 2018 are not. The subpoena for
2018 records impermissibly infringes on Cross-defendants’ right to privacy,
requests irrelevant records, and is overbroad in scope. ROSE requests
imposition of sanctions.
In
opposition, Cross-Complainant AIR argues it has obtained writs to attach money,
property, and product of Cross-defendants Sal Haddadin and ROSE to secure a
debt owed to AIR totaling over $3 million. Haddadin testified that he is the
only authorized signatory on bank accounts in the name of ROSE, ALFA, and
CORONA. Haddadin admitted freely
transferring cash from these entities to himself to pay for his personal living
expenses. ROSE admits that transfers within four months of the complaint’s
filing are relevant.
AIR
also argues that the bank records are also relevant to establish AIR’s cross-claim
for fraudulent conveyance based on Haddadin’s alleged transfer of product to
ALFA and CORONA for their sale to others. AIR alleges that the only
distribution agreement for the sale of AIR’s product was between AIR and ROSE
ML, not ALFA and CORONA. (FAXC ¶ 52.) ROSE and Haddadin are diverting assets to
avoid the Writs of Attachment. CORONA’s website shows it is selling AIR’s
products.
In
reply, ROSE contends it is not hiding information, but is unclear what AIR is
requesting. The subpoena does not contain a date range.
III. LEGAL STANDARDS
The court can quash a
subpoena to protect a party from unreasonable or oppressive demands including
unreasonable violations of the right of privacy. The court has discretion to
modify the subpoena, or direct compliance upon terms or conditions as the court
declares, including issuing protective orders. (Code Civ. Proc., § 1987.1.)
The
documents sought shall be specifically described, or each category of documents
sought must be “reasonably particularized.”
(Code
Civ. Proc., § 2020.410 subd. (a).) Generalized categories
unsupported by evidence showing "at least the potential evidentiary value
of the information sought, are not permitted." (Calcor
Space Facility, Inc. v. Superior Court (1997) 53 Cal.App.4th 216, 218.)
The
party claiming a privacy interest bears the burden of proof on the issue.” (Williams
v. Superior Court (2017) 3 Cal.5th 531, 531.
[“The 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
right of privacy protects against compelled disclosure of confidential records
including tax and personal financial records pertaining to topics not placed in
issue by filing the complaint. (White v. Davis (1975)
13 Cal.3d 757) [constitutional privacy]; Brown v. Superior Court (1977)
71 Cal.App.3d 141[tax and related records]; SCC Acquisitions, Inc. v.
Superior Court (2015) 243 Cal.App.4th 741, 754
[personal financial information.].)
Where
privacy rights are implicated, the requesting party must make a threshold
showing that the records sought are directly relevant to Plaintiff’s claims and
are essential to the fair resolution of the lawsuit. (Davis v. Superior Court (1992)
7 Cal.App.4th 1008, 1014.) An order compelling disclosure must be
narrowly tailored so as not to infringe on constitutional rights. Speculation
that an answer may recover something helpful does not meet that threshold
burden. (Fults v. Superior Court
(1979) 88 Cal.App.3d 899, 901.)
The
party asserting privacy must establish the extent and seriousness of the
prospective invasion. (Williams v. Superior Court (2017)
3 Cal.5th 531, 557.)
Against that showing, the court must weigh the countervailing interests the
opposing party identifies. (Id.) The court considers the purpose of the
information sought, the effect that disclosure will have on the affected
persons and parties, the nature of the objections urged by the party resisting
disclosure, and whether there are less intrusive means for obtaining the requested
information. (SCC Acquisitions, Inc. v.
Superior Court (2015) 243 Cal.App.4th 741, 755.)
IV.
DISCUSSION
The
subpoena served on Bank of America (“BOA”) requests all account information for
ALFA and CORONA including but not limited to three separate account numbers and
concerning all account statements, transfers, wires sent and received,
deposits, withdrawals, and copies of checks. (Motion Ex. A.) The subpoena is
not limited in time.
Where
a right to attach order is issued, the creditor may discover through any means
permitted by the Discovery Act, the identity, location, and value of property
in which the debtor has an interest to aid in the enforcement of judgment. (Code
Civ. Proc., § 485.230; § 2016.070.) This includes the
issuance of a subpoena for bank records. (Shrewsbury Management, Inc.
v. Superior Court (2019) 32 Cal.App.5th 1213, 1228
[“We conclude that when a subpoena duces tecum is tethered to an examination
under section 708.110, the scope of discoverable documents must be broadly
construed to include matters relating to the “ ‘property and business affairs
of the judgment debtor’”(Lee, supra, 151 Cal.App.4th at p. 581,
59 Cal.Rptr.3d 924), and is not limited by section 708.120."].)
ALFA
and CORONA are not “people” under the California Constitution entitled to a
right of privacy. The right to privacy under the California Constitution applies
to people, not corporations. (Roberts v. Gulf Oil Corp.
(1983) 147 Cal.App.3d 770, 793 [“Nowhere in the statutes of
California or elsewhere have we found the word ‘people’ to be defined to
include corporations.”].) Roberts
determined that corporations do not have a fundamental right of privacy under
the state constitution. However, a corporation may have a “general” right to
privacy under the 4th Amendment, which is "a lesser right to
privacy than human beings.” (Roberts
at 796.)
Whatever
the degree of privacy accorded to Cross-Defendants, the balance of factors
weigh in favor of disclosure since a subpoena for bank records is expressly
permitted under the Enforcement of Judgment Statutes. (Shrewsbury at 1228.) The bank records are
directly relevant to AIR’s FAXC for fraudulent conveyance, asserting that Haddadin
and ROSE fraudulently transferred assets to CORONA and ALPHA, including cash
and AIR’s product for which Cross-Defendants owe nearly $3.1 million. (FAXC ¶
12.)
Haddadin
testified that ROSE sold AIR’s product to ALPHA for sale to others in violation
of the distribution agreement. (Hershorin Decl., Ex. A, 92:14-19.) ALPHA
purportedly paid ROSE for that merchandise. Haddadin could not remember when that
sale occurred but speculated between June or July of 2023 through October 2023.
(Id. 101:3-13.)
He testified he is a CEO of ALPHA, CORONA, and ROSE. (Id. 104:1-4.) ALPHA and CORONA were opened in April 2023.
(Id. 104:12-18.) Haddadin testified he has
signing authority for both ALPHA’s and CORONA’s accounts at BOA. (Id.
49:24-28.) Haddadin testified that
ROSE’s bank account balance was negative $7,125.93. (Id.
44:12-15.)
ROSE’s reply brief no longer contends
that ALPHA and CORONA are entitled to privacy. ROSE contends that if AIR had
specified a date range, ROSE would not have filed a motion to quash. (Reply 3:8-12.)
The only issue is whether AIR is entitled to all of the bank records regardless
of date. AIR clarifies in its opposition that it seeks documents since the creation
of ALFA and CORONA which is about four to five months prior to the filing of
the complaint on August 30, 2023. (Opp 5:25-27.) Since ALFA and CORONA were created in April of
2023, the scope of the subpoenas is limited to documents from that date to the
present.
V.
CONCLUSION
Based on the foregoing, ROSE’S motion to
quash is DENIED. However, the court modifies the subpoenas to limit production
of bank records from April of 2023 through the present. Both parties’ requests
for imposition of sanctions are DENIED as ROSE acted in good faith given the
lack of time limitation for the subpoenaed records. ROSE’s request for
sanctions against AIR is DENIED, since AIR was entitled to subpoena the records
at issue.