Dailygobble, Inc., v. Amit Jain, et al.

PLAINTIFF’S MOTION TO COMPEL THIRD-PARTY CARDLYTICS, INC. TO PRODUCE DOCUMENTS IN RESPONSE TO PLAINTIFF’S SUBPOENA

 

MOVING PARTY: Plaintiff Dailygobble, Inc.

RESPONDING PARTY(S): Non-Party Cardlytics, Inc.

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

Plaintiff DailyGobble, Inc., brings this Complaint against Defendants Amit Jain, Alliance Group Ventures, LLC, and Chirag Patil.  Plaintiff alleges Defendant Jain is the CEO of Bridg, Inc., and Plaintiff DailyGobble held a sizeable number of shares in Bridg.  Defendant Jain approached Plaintiff about a potential sale of its shares, and falsely represented that the shares were worth no more than $0.75 each. At the same time, in fact, Jain was allegedly negotiating a sale of Bridg in a transaction that would represent a substantial premium from the valuation Jain disclosed to DailyGobble. In reliance on Jain’s representations, Plaintiff DailyGobble sold 851,601 shares of Bridg stock to Alliance Group Ventures, purportedly operated by and for Defendant Patil, at a price of $0.725 per share. Plaintiff alleges that Defendants Alliance Group and Patil are fronts for Defendant Jain.  Months after Plaintiff sold its shares, Cardlytics, Inc. acquired all of Bridg’s outstanding stock at $9 per share, a 1200% increase in the price Plaintiff received for its shares.  Plaintiff brings causes of action in the Second Amended Complaint for (1) & (2) fraud, (3) conversion, (4) breach of fiduciary duty, (5) aiding and abetting breach of fiduciary duty, and (6) violation of Penal Code section 496.

Plaintiff now moves to compel the production of documents pursuant to a subpoena served on third-party Cardlytics, Inc. Third-party Cardlytics, Inc., opposed.

TENTATIVE RULING:

Defendant’s Motion to Compel is GRANTED IN Part and DENIED IN PART. Third Party Cardlytics, Inc. is ordered to turn over: 

(1) All communications between any Cardlytics employee or agent and any Bridg employee or agent concerning a share acquisition or merger or tender offer or potential business combination between Cardlytics and Bridg from before May 5, 2021; and 

(2) Documents sufficient to show whether and in what amount each potential “earnout” described in the business combination of Cardlytics and Bridg was achieved.

Any and all requests for monetary sanctions are DENIED.

Moving party to give notice.

DISCUSSION:

Motion to Compel Production of Documents

I. Analysis

Plaintiff now moves to compel the production of documents pursuant to a subpoena served on third-party Cardlytics, Inc.

“If a deponent fails to answer any question or to produce any document, electronically stored information, or tangible thing under the deponent’s control that is specified in the deposition notice or a deposition subpoena, the party seeking discovery may move the court for an order compelling that answer or production.” (CCP § 2025.480.) Likewise, “[i]f a subpoena requires the attendance of a witness or the production of books, documents, electronically stored information, or other things before a court[,]…the court, upon motion reasonably made by any [party] or upon the court’s own motion after giving counsel notice and an opportunity to be heard, may make an order…directing compliance with it upon those terms or conditions as the court shall declare…” (CCP § 1987.1(a).)

On August 15, 2022, Plaintiff served the subject deposition subpoena (the “Subpoena”) on Cardlytics’ designated agent of process. (Grimes Decl. ¶ 2.) The Subpoena seeks 12 categories of documents, including, among other things, those relating to Cardlytic’s acquisition of Bridg; those relating to Jain and Patil’s “scheme” to purchase shares of Bridg from Plaintiff; and those relating to any Cardlytics affiliates with ownership interests in Alliance Ventures, LLC.

Plaintiff contends that the “communications and documents exchanged between the Defendants and Cardlytics are relevant to demonstrating Defendants’ fraudulent conduct and deliberate actions to conceal the Cardlytics deal from Plaintiff.” (Mtn. 5: 1-7.) Plaintiff notes that “Jain remains the CEO of Bridg,” that “Bridg is a wholly-owned subsidiary of Cardlytics,” and that “[b]oth Jain and Cardlytics are represented by the same counsel.” (Mtn. 3: 22-27.)

In opposition, Cardlytics advances several arguments.  First, it contends Plaintiff’s Motion “should be continued at least until after the Court” rules on Defendants’ pending demurrer to the Second Amended Complaint, which is “nearly identical” to the FAC. (Opp. 8: 10-11.)  This court previously sustained a demurrer to the FAC with leave to amend. Cardlytics goes on to explain why it believes the SAC is again defective. It therefore argues the continuance “would allow for a determination, not only as to whether a single actionable claim exists, but also as to what, if any, discovery in particular may be relevant to the remaining claims. (Opp. 8: 10-12.)

The court declines that request.  The demurrer is not set to be heard until April of 2023.  “Pleading deficiencies generally do not affect either party's right to conduct discovery (Budget Finance Plan v. Superior Court (1973) 34 Cal.App.3d 794, 797, 798 [110 Cal.Rptr. 302]) and this right (and corresponding obligation to respond) is particularly important to a plaintiff in need of discovery to amend its complaint (Union Mutual Life Ins. Co. v. Superior Court (1978) 80 Cal.App.3d 1, 12 [145 Cal.Rptr. 316]).” (Mattco Forge, Inc. v. Arthur Young & Co. (1990) 223 Cal. App. 3d 1429, fn. 4.)  [FN 1] The mere possibility of another successful demurrer is wholly speculative and does not warrant the discovery delay.

As to the merits, Cardlytics argues that Plaintiff has not set forth “specific facts showing good cause justifying” the discovery sought, and that the discovery is overbroad, unduly burdensome, and not reasonably calculated to lead to the discovery of admissible evidence. (Opp. 11: 13-15; 12: 7-8.) In support, Cardlytics attaches a declaration from its Chief Legal and Privacy Officer, Nick Lynton, who attests that responding to even a single request “could require Cardlytics to collect and review documents from dozens of different custodians.” (Lynton Decl. ¶ 4.)

Notably, as evidenced by the email exchange attached as exhibits to the motion, it appears the parties came close to an agreement to narrow down the categories of documents without the need for a motion.  Indeed, the moving party in Reply states it had “negotiated all the way down to asking for only” (1) “All communications between any Cardlytics employee or agent and any Bridg employee or agent concerning a share acquisition or merger or tender offer or potential business combination between Cardlytics and Bridg from before May 5, 2021,” and (2) “Documents sufficient to show whether and in what amount each potential ‘earnout’ described in the business combination of Cardlytics and Bridg was achieved.” (Reply 8: 1-2.) Cardlytics almost agreed but wanted to limit the production to only those communications before November 26, 2020, as opposed to those before May 5, 2021. This six-month window was apparently where negotiations broke-down.

While the parties apparently could not finalize this compromise on their own, this court concludes it was a reasonable solution that balances the interests of each party. 

Once accounting for this narrowing of the categories, this court otherwise agrees with Plaintiff that the discovery sought is, at the very least, “reasonably calculated to lead to the discovery of admissible evidence.” (CCP § 2017.010.) Moreover, it appears there is no other way to obtain the relevant discovery, because Defendant Jain—potentially the only other party who could have access to the same documents—contends they are outside of his possession, custody, or control. (Grimes Decl. Exh. E.) Finally, Cardlytics has not demonstrated it will be unduly burdened by the discovery here.  Although the subpoena by require Cardlytics to communicate with numerous custodians, such is the nature of discovery and litigation.

The only remaining issue is the relevant time period. The SAC alleges the wrongful conduct largely occurred in the latter half of 2020 and that Cardlytics acquired Bridg in early-to-mid 2021. (SAC ¶¶ 30, 31, 32, 38, 39, 40, 48, 49.) Thus, Plaintiff’s request for communications occurring before May 5, 2021, is entirely reasonable. Anything earlier—as Cardlytics proposes—cuts the window too short, potentially precluding production of documents directly relevant to the allegations during the relevant time period.

Accordingly, Defendant’s Motion to Compel is GRANTED IN Part and DENIED IN PART. Third Party Cardlytics is ordered to turn over: 

(1) All communications between any Cardlytics employee or agent and any Bridg employee or agent concerning a share acquisition or merger or tender offer or potential business combination between Cardlytics and Bridg from before May 5, 2021; and 

(2) Documents sufficient to show whether and in what amount each potential “earnout” described in the business combination of Cardlytics and Bridg was achieved.

II. Sanctions

The Court declines to award sanctions as it finds each party acted with substantial justification or that other circumstances make the imposition of the sanction unjust. (CCP § 2023.030(a).)

IT IS SO ORDERED.

Dated:  February 14, 2023 ___________________________________

Randolph M. Hammock

Judge of the Superior Court


FN 1 - But as cited by Cardlytics, there is authority supporting the opposite conclusion. (See Terminals Equip. Co. v. City & Cnty. of San Francisco (1990) 221 Cal. App. 3d 234, 247 [“Unless and until appellants filed a viable complaint stating at least one triable cause of action, further discovery of these documents would only be an unnecessary and burdensome additional expense to respondents, and there was no abuse of discretion in staying discovery.”].) This suggests the issue is purely a matter within this court’s discretion. This court exercises that discretion to decline Cardlytics’ request here.