Judge: Mitchell L. Beckloff, Case: 20STCP01863, Date: 2022-08-31 Tentative Ruling
Case Number: 20STCP01863 Hearing Date: August 31, 2022 Dept: 86
MARICOPA ORCHARDS, LLC v. WONDERFUL GROWERS COOPERATIVE
Case Number: 20STCP01863
Hearing Date: August 31, 2022
[Tentative] ORDER GRANTING RESPONDENTS’ MOTION FOR PROTECTIVE ORDER
[Tentative] ORDER GRANTING IN PART RESPONDENTS’ MOTION TO QUASH DEPOSITION
[Tentative] ORDER GRANTING IN PART PETITIONERS’ MOTION TO COMPEL
Petitioners, collectively referred to as the Assemi Growers, bring this action pursuant to Code of Civil Procedure section 1085 and Corporations Code section 1601 (Section 1601).
The operative second amended petition (2AP) is brought against Respondents, Wonderful Growers Cooperative (WGC), Wonderful Almond Cooperative (WAC), Cal Pure Produce, Inc. (Cal Pure), The Wonderful Company LLC (Wonderful), and Wonderful Pistachios & Almonds LLC (Wonderful P&A).
There are three discovery motions before the court. The motions and tentative rulings thereon are as follows:
Respondents’ motion for a protective order directing that certain confidential financial and competitively sensitive commercial information and/or documents marked “confidential” or “highly confidential” be disclosed only to specified persons and/or only in a specified way (GRANTED);
Respondents’ motion to quash the deposition notice previously served on May 31, 2022 on the Person Most Qualified (PMQ) of Cal Pure (GRANTED IN PART as to Topics 4 and 5 only); and
Petitioners’ motion to compel Respondents to: (a) produce the PMQ for a deposition; (b) produce their responses to interrogatories and documents in response to requests for production of documents in advance of the PMQ deposition; and (3) respond to Request for Production of Documents No. 11, to produce “documents sufficient to show the amount of money spent by Cal Pure from 2015-2021 to market the Wonderful Pistachio brand of products.” (GRANTED IN PART)
ALLEGATIONS IN THE 2AP
Petitioners are members of WGC and WAC, agricultural cooperatives controlled by the Wonderful. Cal Pure is also an agricultural cooperative controlled by the Wonderful. Petitioners are not members of Cal Pure.
WGC and WAC are members of Cal Pure. WGC and WAC sell their crops to Cal Pure. Cal Pure then sells the crops to others.
Pursuant to Section 1601 and common-law rights, Petitioners requested to inspect the “accounting books, records, and minutes” of Respondents, including Cal Pure. Respondents denied Petitioners’ request.
Petitioners seek an order compelling Respondents to comply with their inspection requests. (2AP, Prayer.)
LEGAL STANDARD
Protective Order
Any party may obtain discovery, subject to restrictions, by taking the oral deposition of any person, including any party to the action. (Code Civ. Proc., § 2025.010.) A properly served deposition notice is effective to require a party or party-affiliated deponent to attend and to testify, as well as to produce documents for inspection and copying. (Id., § 2025.280, subd. (a).)
“Before, during, or after a deposition, any party, any deponent, or any other affected natural person or organization may promptly move for a protective order. . . .” (Id., § 2025.420, subd. (a).)
“The court, for good cause shown, may make any order that justice requires to protect any party, deponent, or other natural person or organization from unwarranted annoyance, embarrassment, or oppression, or undue burden and expense.” (Id., subd. (b).)
The burden is on the moving party to establish “good cause” for whatever relief is requested. Generally, a deponent seeking a protective order will be required to show that the burden, expense, or intrusiveness involved in the discovery procedure clearly outweighs the likelihood that the information sought will lead to the discovery of admissible evidence. (Emerson Electric Co. v. Superior Court (1997) 16 Cal.4th 1101, 1110.)
Courts have considerable discretion in granting and crafting protective orders. (Raymond Handling Concepts Corp. v. Superior Court (1995) 39 Cal.App.4th 584, 588.)
“A party seeking the protective order must show by a preponderance of the evidence that the issuance of a protective order is proper.” (Stadish v. Superior Court (1999) 71 Cal.App.4th 1130, 1145.)
Quash
Code of Civil Procedure section 1987.1, subdivision (a) states, “[i]f a subpoena requires the attendance of a witness or the production of books, documents, or other things before a court, or at the trial of an issue therein, or at the taking of a deposition, the court, upon motion reasonably made by any person described in subdivision (b), or upon the court’s own motion after giving counsel notice and an opportunity to be heard, may make an order quashing the subpoena entirely, modifying it, or directing compliance with it upon those terms or conditions as the court shall declare, including protective orders. In addition, the court may make any other order as may be appropriate to protect the person from unreasonable or oppressive demands, including unreasonable violations of the right of privacy of the person.”
“[U]pon motion reasonably made by the party, judges may rule upon motions for quashing, modifying or compelling compliance with, subpoenas.” (Lee v. Swansboro Country Property Owners Ass’n (2007) 151 Cal.App.4th 575, 582-583.)
Compel
“If, after service of a deposition notice, a party to the action or an officer, director, managing agent, or employee of a party, or a person designated by an organization that is a party under Section 2025.230, without having served a valid objection under Section 2025.410, fails to appear for examination, or to proceed with it, or to produce for inspection any document … described in the deposition notice, the party giving the notice may move for an order compelling the deponent’s attendance and testimony, and the production for inspection of any document . . . described in the deposition notice.” (Code Civ. Proc., § 2025.450, subd. (a).) The motion shall set forth specific facts showing good cause justifying the production for inspection of any document described in the deposition notice. (Id., subd. (b)(1).) The motion shall also be accompanied by a meet and confer declaration. (Id., subd. (b)(2).)
Under Code of Civil Procedure section 2031.310, subdivision (a), a court may order a party to serve a further response to a demand for inspection when the court finds that: “(1) A statement of compliance with the demand is incomplete[;] (2) A representation of inability to comply is inadequate, incomplete, or evasive[; or] (3) An objection in the response is without merit or too general.”
The burden is on the moving party to “set forth specific facts showing good cause justifying the discovery sought by the demand.” (Code Civ. Proc., § 2031.310, subd. (b)(1).)
ANALYSIS
All three motions are substantially related.
Protective Order
Respondents seek a protective order to safeguard their confidential financial and competitively sensitive commercial information and documents from unrestricted disclosure.
It is undisputed the documents Petitioners seek are documents that contain protectible confidential information. The documents contain sensitive business information which if released could cause financial harm to Respondents. The confidential information could give leverage to Respondents’ competitors, customers, and/or business partners. (Hohmann Decl. ¶¶ 4-10.)
It is also undisputed the court has the broad authority to issue this type of protective order. (Corp. Code § 1603, subd. (a); Code Civ. Proc., § 2031.060, subd. (b)(5); see also Weingarten v. Superior Court (2002) 102 Cal.App.4th 268, 276 [protective order for tax returns].) The issue requiring resolution is whether Respondents have shown good cause to subject the producible documents to the proposed protective order.
Petitioners are not direct members of Cal Pure. (Hohmann Decl. ¶ 3.) Instead, Petitioners allege they are indirect members of Cal Pure as members of WGC and WGA, both members of Cal Pure. (2AP ¶ 12.) Petitioners allege WGC, WAC, Cal Pure, and Wonderful are all a single legal enterprise, or alter egos, using the corporate form of Cal Pure to perpetuate fraud, circumvent statutes including but not limited to Section 1601, as well as to accomplish other wrongful and inequitable purposes. (Id. ¶ 17.)
In this action, Petitioners seek accounting books and records, tax returns and board minutes from WGC, WAC and Cal Pure. More specifically, Petitioners seek the following documents: (1) WGC’s accounting books and records and board minutes from September 1, 2010 to the present and WGC’s tax returns from 2010 to the present; (2) WAC’s accounting books and records and board minutes from July 1, 2014 to the present and WAC’s tax returns from 2014 to the present; and (3) Cal Pure’s accounting books and records and board minutes from
September 1, 2010 to the present and Cal Pure’s tax returns from 2010 to the present.
Respondents contend they will produce the documents sought. They condition their willingness, however, on a protective order. Petitioners have declined to sign a protective order.
Respondents have proposed a protective order modeled after the order used by many of the same parties in Assemi Brothers, LLC, et al. v. Wonderful Pistachios & Almonds LLC, et. al., Case No. 19CECG03249 (Fresno Action). The proposed protective order contains two designations:
(1) Confidential or (2) Highly Confidential-Attorneys’ Eyes Only. Respondents anticipate they will disclose and designate documents from WGC and WAC as Confidential. Respondents anticipate they will produce Cal Pure’s documents with a Highly Confidential-Attorneys’ Eyes Only designation. Respondents reason Cal Pure’s documents should be entitled to more confidentiality because Petitioners are not members of Cal Pure, and Petitioners have formed a competing business, Touchstone Pistachio Company.
Petitioners make a series of arguments in opposition to Respondents’ request for a protective order: (1) Respondents are agricultural cooperatives with fiduciary responsibilities to their members; (2) WAC and WGC’s “offer” to produce documents is illusory; (3) the proposed protective order is a trap because it (a) allows Respondents to designate the documents,
(b) sets no legal standard to evaluate the designations, (c) precludes showing Petitioners (not their counsel) highly confidential documents, (d) limits documents to use in this proceeding only, and (e) imposes an illegal restriction regarding the use of materials; and (3) Respondents’ declarant Michael Hohmann should be subject to cross-examination.
The court addresses each argument in turn.
First, Petitioners argue Respondents improperly rely on caselaw regarding the rights and duties of a corporation to its shareholders. Petitioners contend such authority is inapposite given this action involves agricultural cooperatives—closely held, non-profit organizations with a fiduciary duty to be transparent to its members. (Opposition 7:4-10:17.) In other words, Petitioners argue Respondents have a distinctly different duty than that of a corporation to its shareholders:
“This is the major error of Wonderful/Cal Pure’s understanding of the accounting books and records of the agricultural cooperatives. Because of the fiduciary duties and the requirement for financial transparency, the documents the Assemis seek to inspect in this case equally belong to the Assemis and to Wonderful/Cal Pure, and not just to Wonderful/Cal Pure.”
(Opposition 10:6-9.)
The court disagrees. First, Petitioners are not members of Cal Pure; Petitioners contend they are indirect members. (2AP ¶ 12.) Even assuming Petitioners are indirect members of Cal Pure, WGC and WAC may seek a protective order to protect disclosure of confidential material. Petitioners ultimately seek to inspect records under Section 1601. Section 1601 does not support Petitioners’ position the corporate records of an agricultural cooperative “equally belong” to Petitioners even if they are direct members of an agricultural cooperative. Corporations Code section 1603, subdivision (a) provides a court “may enforce the right of inspection with just and proper conditions.” Petitioners do not demonstrate how Respondents’ supporting authority expressly excludes agricultural cooperatives. The authority is sufficiently analogous to allow the court to issue a protective order here.
Petitioners argue WAC and WGC’s “offer” to produce documents is illusory. (Opposition 10:18-26.) More specifically, Petitioners contend WAC and WGC must provide the Cal Pure documents and are legally required to do so. The court disagrees. Moreover, production of documents pursuant to a protective order does not impact (in any real way) Petitioners’ ability to prosecute this action and allows Petitioners to seek their remedy for accounting irregularities or other wrongdoing. (Proposed Protective Order ¶¶ 7, 9, 10(b).) The protective order ensures no threat to Respondents’ confidential information.
Petitioners argue the proposed protective order is a trap because it (a) allows Respondents to designate the documents, (b) sets no legal standard to evaluate the designations, (c) precludes showing highly confidential documents to Petitioners (not counsel), (d) limits documents to use in this proceeding, and (e) imposes an illegal restriction regarding the use of materials. (Opposition 11:1-14:16.)
First, Petitioners argue the protective order gives Respondents unilateral discretion to designate documents as Confidential or Highly Confidential. The relevant language states:
2. The Designating Party shall have the right to designate as “Confidential” any Documents, Testimony or Information which is in the possession of a Designating Party who believes in good faith that such Documents, Testimony or information is entitled to confidential treatment under applicable law.
3. The Designating Party shall have the right to designate as “Highly Confidential” only the non-public Documents, Testimony, or Information that the Designating Party in good faith believes meets the definition set forth in paragraph 1.e herein above.
(Proposed Protective Order ¶¶ 2-3 [emphasis added].) Admittedly, the language could invite abuse. Nonetheless, the existence of any potential for abuse does not suggest a likelihood of abuse. Indeed, the form protective order adopted by this court uses the same model language. (RJN Ex. A ¶¶ 1(c), (e), 2.) The same standard language has also been used in the Fresno Action. (RJN Ex. B ¶¶ 2-3.)
Second, Petitioners argue there is no workable legal standard to use to evaluate Respondents’ designations. The proposed protective order’s relevant language states:
c. “Confidential” means any Documents, Testimony or Information which is in the possession of a Designating Party who believes in good faith that such Documents, Testimony or Information is entitled to confidential treatment under applicable law.
. . .
e. “Highly Confidential” means Documents, Testimony or Information, including Confidential Information, which a Designating Party believes in good faith (i) derives independent economic value, actual or potential, from not being generally known to the public or to other persons, including the Non-Designating Party, who can obtain economic value from its disclosure or use, and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy; (ii) is unknown to others and an attempt has been made to keep said Documents, Testimony or Information secret; (iii) has not been ascertained by others, including Non-Designating Party; or (iv) would create a substantial risk of serious financial or other injury that cannot be avoided by less restrictive means if Disclosed.
(Proposed Protective Order ¶¶ 1(c), (e).)
Based on the language, Petitioners contend there is no specified law for the Confidential designation (“under applicable law”) and Respondents will over designate documents as Highly Confidential, as supported by an interrogatory response about basic information. As already discussed, the existence of the potential for abuse does not mean a likelihood of abuse. Indeed, the form protective order adopted by this court uses the same or substantially similar model language. (RJN Ex. A ¶¶ 1(c), (e), 2.) The same standard language has also been used in the Fresno Action, and there is no record of the endless litigation about which Petitioners speculate. (RJN Ex. B ¶¶ 1(c).) Additionally, as discussed, Respondents indicate they intend to designate documents from WGC and WAC as Confidential, not Highly Confidential. Finally, as Respondents argue persuasively in Reply, Wonderful, not Cal Pure, issued the alleged questionable interrogatory response. (Reply 9:14-26.)
Third, Petitioners argue that Highly Confidential documents cannot be shown to Petitioners such that Petitioners would be unable to use the information as permitted by law. The argument overlooks the process to challenge the Highly Confidential designation. Also, Petitioners may use information from a document designated Highly Confidential to seek a remedy for any accounting irregularities or other wrongdoing shown by the inspection. (Proposed Protective Order ¶¶ 9, 10(b).) Finally, the order allows Petitioner’s counsel to use the documents to prosecute the action.
Fourth, Petitioners argue that the protective order limits the use of documents to this proceeding. (Opposition 13:12-19.) The proposed protective order is not so limited. (Proposed Protective Order ¶ 9.) Moreover, the purpose of the discovery is to prosecute this action.
Fifth, Petitioners argue the protective order imposes an illegal restriction on the use of materials. (Opposition 13:20-14:16.) More specifically, Petitioners argue Respondents can use the information for any purposes and can use the information to sue Petitioners repeatedly. The argument is now moot based on Respondents’ willingness to modify the proposed protective order to address such concerns. (Reply 12:1-12.)
Finally, Petitioners argue that Respondents’ declarant Michael Hohmann should be subject to cross-examination. (Opposition 14:17-24.) It is unclear how the issue relates to whether the court should issue a protective order, or how the deposition might figure into the court’s analysis of the issue.
Based on the foregoing, the court finds Respondents have demonstrated good cause for the requested protective order. Accordingly, the court grants the motion and will enter a protective order as requested and as modified. (See Reply 12:1-12 [modifications].)
Quash
Respondents seek to quash Petitioners’ notice to take a PMQ deposition. The notice seeks testimony regarding the following topics:
(1) The corporate structure [sic] Cal Pure;
(2) The members and employees of Cal Pure;
(3) The relationship of Cal Pure to Wonderful and its cooperatives;
(4) The activities of Cal Pure, including the financing and accounting for its activities; and
(5) The control of Cal Pure, including individuals responsible for the business dealings of Cal Pure and the authority to enter into agreements on behalf of Cal Pure.
(Dharwarkar Decl. Ex. A 3:6-12.)
As a threshold matter, Petitioners argue the court should deny the motion because Respondents did not adequately meet and confer. (Opposition 8:11-9:15.) More specifically, Petitioners argue Respondents did not discuss moving the deposition date and the topics in the deposition notice. Respondents do have an obligation to make a good faith and reasonable attempt at an informal resolution before making this motion. (Code Civ. Proc. §§ 2016.040, 2025.410, subd. (c).) Although the parties could have met and conferred more, the record contains sufficient evidence of an adequate meet and confer. (See Dharwarkar Decl. ¶¶ 8-9.)
Accordingly, the court reaches the merits.
As a preliminary matter, Respondents argue if the court grants Respondents’ motion for a protective order, then the issue of the deposition is moot. (Motion 9:7-18.) The court disagrees. Two distinct methods of discovery are at issue. The protective order covers the disclosure of documents. The deposition notice seeks testimony. Nothing prevents Petitioners from pursuing both forms of discovery.
Respondents argue Petitioners are abusing the discovery process by noticing the deposition of Cal Pure’s PMQ concerning confidential and sensitive information before the hearing on the protective order motion. (Motion 7:23-8:20.) The court is not so persuaded. In any event, the court has heard all three discovery motions at the same time. Thus, no party is suffering any prejudice.
Second, Respondents argue Petitioners are improperly seeking to access information sought in the underlying 2AP. (Motion 8:21-9:6.) The court agrees to some extent. That is, the deposition topics are overbroad and seek information that is ultimately at issue in this action. Topics 4 and 5 are subject to overreach and concern information that is the crux of the 2AP. The information subsumed within Topics 4 and 5 are relief to be awarded after trial, not during the discovery process. Topics 1, 2 and 3 all address factual issues related to alter ego status. Topics 1, 2 and 3 sufficiently provide information on alter ego issues albeit without the detail of Topics 4 and 5. Allowing the exploration of Topics 4 and 5 improperly provides Petitioners with the relief sought in their petition through the discovery process.
Petitioners argue Respondents cannot make this type of argument; instead, Respondents are limited to grounds stated in Code of Civil Procedure sections 2025.220 and 2025.230. The court disagrees. Those sections set forth requirements for deposition notices. The cited provisions do not provide the only grounds to move to quash a deposition notice under Code of Civil Procedure section 2025.410, subdivision (c). The court has the authority to modify the subpoena.
Third, Respondents argue the motion should be granted due to additional deficiencies. (Motion 9:19-22.) Respondents’ motion improperly seeks to incorporate stated objections contained in their objection to the notice of deposition. (Dharwarkar Decl. Ex. B.) Respondents fail to identify in their motion with particularity the objections the court should examine. Nonetheless, the court examined the objections (id. at 2:17-3:21), and those objections not earlier discussed herein are insufficiently analyzed. For example, an objection based on the purported vagueness of the deposition topics is unpersuasive when the deposition notice is read in the context of the 2AP’s allegations and the parties’ positions to date in this litigation.
The court finds Topics 1, 2 and 3 are permissible areas of inquiry. The factual information informs on the alter ego allegations made by Petitioners.
Accordingly, the court modifies the subpoena and limits the PMQ’s testimony to Topics 1, 2 and 3.
Compel Motion
Petitioners move to compel: (1) a PMQ deposition; (2) responses to interrogatories and documents in response to requests for production of documents in advance of the PMQ deposition; and (3) a response to Request for Production of Documents No. 11 to produce “documents sufficient to show the amount of money spent by Cal Pure from 2015-2021 to market the Wonderful Pistachio brand of products.”
For the reasons already stated above, the court compels the deposition only as to Topics 1, 2 and 3.
The request for an order requiring responses to interrogatories and documents in response to requests for production of documents in advance of the PMQ deposition is not clearly briefed. (Motion 2:8-10, 5:3-5.) In any event, Respondents identify that the sought responses were already produced by Wonderful to be supplemented once a protective order is issued, and there is no proper motion to compel further responses before the court, other than relating to Request for Production of Documents No. 11.
Regarding Request for Production of Documents No. 11 to produce “documents sufficient to show the amount of money spent by Cal Pure from 2015-2021 to market the Wonderful Pistachio brand of products,” Petitioners argue Respondents rely on boilerplate objections and the use of a Cooperative’s (Cal Pure) funds to promote Wonderful’s brand is directly relevant to the alter ego issue, the crux of this litigation. The court agrees.
Respondents cannot rely on unreasoned explanations, e.g., vagueness, overbreadth to avoid the request. Respondents argue the information regarding marketing is irrelevant to the alter ego allegations. Although the sought information is not of itself sufficient to prove an alter ego allegation, presumably, the use of marketing may inform on whether Cal Pure is merely a shell for Wonderful. (See 2AP ¶¶ 13, 49, 53-54; see also Reply 3:25-4:8 [describing pertinent allegations].)
That the court granted the motion for a protective order does not mean the relief sought as to this specific request is moot. The protective order relates to how Respondents can produce documents, not what documents Respondents are obligated to produce.
Accordingly, the court grants the motion in part, as to Topics 1, 2 and 3 only and as to Request for Production of Documents No. 11.
CONCLUSION
Based on the foregoing, the court: (1) GRANTS the protective order motion; (2) GRANTS the motion to quash as to deposition Topics 4 and 5; and (3) GRANTS IN PART the motion to compel and to Topics 1, 2 and 3 and as to Request for Production of Documents No. 11.
IT IS SO ORDERED.
August 31, 2022 ________________________________
Hon. Mitchell Beckloff
Judge of the Superior Court