Judge Randolph M. Hammock, Case Number: 21STCV28604, Date: 2023-12-21 Tentative Ruling

RESPONDING PARTY(S): Defendants Amrezi, LLC, and Clayton Thom; third parties Darlene Thom, Amy Renee Thom, Fraser Thom, Roberta Thom, CNC Motors, Inc., Craig Thom Properties, LLC, Lotus of Upland, LLC, and LIG Financial Services

Plaintiff/Cross-Defendant CNC Technologies, LLC (“CNC”) filed the instant action against Defendants Amrezi, LLC (“Amrezi”) and Clayton Thom (“Thom”), alleging (1) breach of fiduciary duty, (2) conversion, (3) fraud–concealment, (4) breach of contract, and (5) breach of implied covenant of good faith and fair dealing.

Plaintiff/Cross-Defendant alleges Defendant/Cross-Complainant Amrezi and third parties entered into an LLC operating agreement to form CNC. Under the agreement, Cross-complainant Amrezi was one of the initial members of CNC, and Cross-complainant Thom was appointed to CNC’s Board of Directors. Cross-Defendant CNC alleges that in 2021 it became aware of numerous debts and obligations incurred by Cross-complainant Amrezi and Thom, purportedly on behalf of CNC, but without authority to do so. It is further alleged that Cross-Defendant CNC discovered significant financial misconduct by Cross-complainant.

Cross-Complainant Amrezi subsequently filed a cross-complaint against CNC, its members, and individual heads of its members for (1) breach of contract, (2) breach of implied covenant of good faith and fair dealing, (3) breach of fiduciary duty, (4) intentional interference with contractual relations, and (5) conversion. The cross-complaint alleges that the other Members and Directors of CNC voted on certain Major Decisions, as defined under the Operating Agreement, amended the Operating Agreement, and exercised the right to repurchase Amrezi’s units at a “Net Book Value,” to which Amrezi rejects.

These records may be designated “CONFIDENTIAL” under the LASC Standard Protective Order.

Plaintiff may submit a Proposed Order for each subpoena, if needed.

Plaintiff CNC Tech moves to enforce the business records subpoenas it served on two separate banks: (1) Citizens Business Bank and (2) Mechanics Bank. Because the motions and issues are substantively the same or similar, the court addresses the subpoenas together.

On September 29, 2023, CNC Tech issued two Deposition Subpoenas for Production of Business Records on the two banks seeking the production of documents and other information for accounts held at the Banks, at least some of which are in the name of Defendants, Third Parties and/or Defendants’ separate businesses, including CNC Motors, Inc., Craig Thom Properties, and LIG Financial. (Pai Declarations ¶¶ 1, 2.)

This was the second round of subpoenas served on the Banks. Previously, on August 17, 2022, Defendants issued three subpoenas to the Banks, which sought documents from CNC relating to specified transactions on specific dates as set forth in CNC Tech’s accounts held at each of the Banks. (Id. ¶ 4.) Based on CNC Tech’s review of the documents produced it found “suspicious activity as to the credits and debits in these accounts.” (Id. ¶ 5.)

Thus, to further investigate, “it became necessary for CNC Tech to find out specifically to whom and where these transactions were directed.” (Id.) The subpoenas at issue followed. Defendants served formal written objections to the subpoenas on October 19, 2023. (Id. ¶ 7, Exhibit C.)

CNC Tech contends the documents sought are “directly relevant to discovering whether Defendants did in fact improperly transfer funds to and from Third Parties and others,” and “will be dispositive as to the fraud and other tort claims” asserted in the First Amended Complaint. CNC asserts the “only avenue” to conduct this investigation “is to obtain the financial documents associated with Defendants, their related entities, and their family members, including the Third Parties’ accounts.”

In the FAC, CNC Tech alleges that Defendants Thom and Amrezi improperly incurred debts on behalf of CNC without the authority to do so. (FAC ¶ 11.) CNC Tech alleges that it “conducted an analysis of its books and records…which indeed revealed significant financial misconduct on the part of Thom and/or Amrezi, and a pattern of significant improper financial transactions to the benefit of Thom and/or Amrezi occurring ‘off the books.’” (Id. ¶ 12.) Moreover, CNC Tech discovered transactions in and out of CNC Tech to third parties, including, at a minimum: “Thom’s mother; numerous entities associated with Thom including, but not limited to, CNC Motors, Craig Thom Properties, and LIG Financial; as well as several other bank accounts unknown to CNC Tech, and associated with Thom.” (Id. ¶ 13.) Through the subpoenas, CNC Tech now seeks to “trace and potentially recover monies improperly transferred by Defendants from CNC Tech’s bank accounts to Defendants, family members, and/or their related entities. (Mtn. 3: 8-10.)

Defendants and third parties oppose the motion. They argue the moving party has not demonstrated that the records sought—particularly those belonging to third party family members—are relevant to the issues against the Defendants. They also argue that CNC Tech can obtain the information from its own books and records, and that the subpoenas are temporally overbroad, as they seek documents going back to January 1, 2016.

Evidence is relevant if it “ha[s] any tendency in reason to prove or disprove any disputed fact that is of consequence to the determination of the action.” (Evid. Code § 210.) “[A]ny party may obtain discovery regarding any matter, not privileged, that is relevant to the subject matter involved in the pending action or to the determination of any motion made in that action, if the matter either is itself admissible in evidence or appears reasonably calculated to lead to the discovery of admissible evidence.” (CCP § 2017.010; Davies v. Superior Court (1984) 36 Cal.3d 291, 301 [“discovery is not limited to admissible evidence”].)

“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. [Citation.] The party seeking information may raise in response whatever legitimate and important countervailing interests disclosure serves, while the party seeking protection may identify feasible alternatives that serve the same interests or protective measures that would diminish the loss of privacy. A court must then balance these competing considerations.” (Williams v. Superior Ct. (2017) 3 Cal. 5th 531, 552.)

Considering the allegations in the First Amended Complaint, the bank records sought are undoubtedly relevant to this action. Moreover, the temporal scope is properly tailored to the time period at issue, i.e. 2016 through present, because CNC alleges the business relationship started early that year. (FAC ¶ 8.)

Moreover, when balancing the parties’ privacy interests against CNC Tech’s interest in discovering documents that are particularly relevant to its claims, this court finds the balance shifts in favor of disclosure here.

While the Defendants and third parties have a recognized privacy interest in their financial records, the categories sought are relevant and not overbroad in light of the circumstances. Plaintiff alleges that Defendant Thom transferred CNC Tech’s funds to family members or other entities under his control. Further discovery is necessary to substantiate these allegations.

This conclusion is consistent with the legislature’s “very liberal and flexible standard of relevancy,” such that any “doubts as to relevance should generally be resolved in favor of permitting discovery.” (Williams, supra, 3 Cal. 5th at 542.)

Any party may submit on the tentative ruling by contacting the courtroom via email at Smcdept49@lacourt.org by no later than 4:00 p.m. the day before the hearing. All interested parties must be copied on the email. It should be noted that if you submit on a tentative ruling the court will still conduct a hearing if any party appears. By submitting on the tentative you have, in essence, waived your right to be present at the hearing, and you should be aware that the court may not adopt the tentative, and may issue an order which modifies the tentative ruling in whole or in part.