Judge: Randy Rhodes, Case: 22CHCV00493, Date: 2022-12-05 Tentative Ruling

Case Number: 22CHCV00493    Hearing Date: December 5, 2022    Dept: F51

Dept. F-51 

Date: 12/5/22

Case #22CHCV00493

MOTION TO QUASH DEPOSITION SUBPOENA

Motion Filed: 8/31/22

MOVING PARTY: Defendants Gary G. Topolewski and Topolewski America, Inc. (collectively, “Defendants”)

RESPONDING PARTY: Plaintiff Bank of the West

NOTICE: OK

RELIEF REQUESTED: An order quashing Plaintiff’s deposition subpoena for production of business records, dated 8/10/22, propounded and served on non-party deponent JP Morgan Chase Bank. Defendant also seeks an imposition of sanctions against Plaintiff in the amount of $2,750.00.

This action arises out of three business loans extended by Plaintiff to defendant Topolewski America, Inc. (the “Company”). Plaintiff allegedly entered into three separate loan agreements with the Company on 7/26/19, 5/14/20, and 7/12/21, each secured by various pieces of the Company’s equipment as collateral. (Compl. ¶¶ 11–19.)

Plaintiff alleges that the Company breached the loan and security agreements “by, among other things, failing and refusing to allow [Plaintiff] to inspect the Equipment Collateral.” (Id., ¶ 24.) Plaintiff also alleges that it has reason to believe the Company “never actually had ownership or possession of the Collateral and that [the Company] made continuing misrepresentations to [Plaintiff] concerning [the Company’s] alleged ownership and possession thereof.” (Ibid.)

Plaintiff alleges that defendant Gary Topolewski (“Mr. Topolewski”) and the Company “are the alter egos of one another, and each is fully responsible and liable for all obligations and debts.” (Compl. ¶ 7.) On 7/6/22, Plaintiff filed its complaint against Defendants, alleging causes of action for Breach of Contract and Breach of Security Agreement with respect to each of the three loans. Plaintiff’s complaint also pleads causes of action for Recovery of Personal Property, Temporary Restraining Order/Preliminary Injunction, Conversion, and Fraud and Deceit.

On 8/31/22, Defendant filed the instant motion to quash Plaintiff’s 8/10/22 deposition subpoena for business records to JP Morgan Chase Bank. On 11/18/22, Plaintiff filed its opposition. On 11/28/22, Defendants filed their reply.

Analysis

A party may move to quash a deposition subpoena to strike, modify, or impose conditions on a subpoena that is procedurally or substantively defective. (Code Civ. Proc. § 1987.1.) Here, Defendants argue that the Court lacks personal jurisdiction over Defendants, and that Plaintiff does not have the right to discover the financial documents sought by the deposition subpoena.

1.      Personal Jurisdiction

Defendants maintain that both Mr. Topolewski and the Company are residents of the state of Nevada, and thus the Court lacks personal jurisdiction over them. (Defs.’ Mot., 2:1–3.) California’s long-arm statute allows personal jurisdiction to the extent permitted by the Fourteenth Amendment to the United States Constitution. (Code Civ. Proc. § 410.10.) A court’s personal jurisdiction over a defendant may be general or specific to the defendant’s contacts with the forum state which give rise to the action. (Strasner v. Touchstone Wireless Repair & Logistics, LP (2016) 5 Cal.App.5th 215, 222–226.) “A defendant is subject to general jurisdiction when it has substantial, continuous, and systematic contacts in the forum state, i.e., its contacts with the forum are so wide-ranging that they take the place of a physical presence in the state.” (Id., at 222.) “When a defendant challenges jurisdiction through a motion to quash, the plaintiff bears the burden to demonstrate facts, as to each nonresident defendant, justifying the exercise of jurisdiction by a preponderance of evidence.” (Id., at 221–222.)

“In-state service of process confers [general] jurisdiction over a physically present nonresident.” (In re Marriage of Fitzgerald & King (1995) 39 Cal.App.4th 1419, 1426.) Defendants argue that Mr. Topolewski has yet to be served with process. (Defs.’ Mot., 3:16.) However, Plaintiff’s 7/20/22 proof of service shows that Mr. Topolewski was personally served with process in Northridge, CA. (7/20/22 Proof of Personal Service.) Therefore, Plaintiff has met its burden to show that the personal service of process on Mr. Topolewski within California grants the Court general personal jurisdiction over him.

Defendants further argue that the Court has neither general nor specific personal jurisdiction over the Company. The Company is a Nevada corporation with its principal place of business in Las Vegas, Nevada. (Compl., ¶ 3.) Accordingly, absent a showing of the Company’s “substantial, continuous, and systematic contacts” with the State of California, the Court lacks general personal jurisdiction over the Company. (Strasner, 5 Cal.App.5th at 222.)

The question of whether a court may exercise specific jurisdiction over a nonresident defendant involves examining (1) whether the defendant has purposefully directed its activities at the forum state; (2) whether the plaintiff's claims arise out of or are related to these forum-directed activities; and (3) whether the exercise of jurisdiction is reasonable and does not offend traditional notions of fair play and substantial justice. (Bristol-Myers Squibb Co. v. Superior Court (2016) 1 Cal.5th 783, 799.) Defendants argue that the Court lacks specific jurisdiction over the Company because “the Complaint does not allege any action by [the Company] that would connect it with California.” (Defs.’ Mot., 2:17–19.)

“A plaintiff attempting to assert jurisdiction over a nonresident defendant is entitled to an opportunity to conduct discovery of the jurisdictional facts necessary to sustain its burden of proof. In order to prevail on a motion for a continuance for jurisdictional discovery, the plaintiff should demonstrate that discovery is likely to lead to the production of evidence of facts establishing jurisdiction.” (In re Automobile Antitrust Cases I & II (2005) 135 Cal.App.4th 100, 127.) Here, Plaintiff argues that it is “entitled to discovery to establish whether either of the Defendants have participated in commerce in California,” and “the financial and banking history of Defendants … will illustrate the extent to which Defendants are spending money, receiving money, or otherwise participating in financial transactions that are based in California.” (Pl.’s Opp., 3:26–4:5.) The Court finds that Plaintiff has sufficiently demonstrated that its deposition subpoena seeks information likely to lead to facts establishing the Court’s personal jurisdiction over Defendants.

Accordingly, Defendants’ motion to quash the deposition subpoena for business records to JP Morgan Chase Bank on this ground is denied.

2.      Alter Ego

Defendants argue that Plaintiff’s deposition subpoena improperly seeks the private financial records of Mr. Topolewski, a nonparty to the original loan and security agreements, “based on mere conclusory allegations of alter ego.” (Defs.’ Mot., 1:6–8.) “To invoke the alter ego doctrine, a plaintiff must show there is such a unity of interest and ownership between the two entities that they do not have separate personalities and it would be inequitable to treat the conduct as attributable to only one of the entities.” (Strasner, 5 Cal.App.5th at 223.)

While Mr. Topolewski was not, in his individual capacity, a party to the contracts between Plaintiff and the Company, Plaintiff alleges that the Company converted the equipment collateral to Mr. Topolewski, and that Mr. Topolewski made fraudulent misrepresentations to Plaintiff regarding the equipment collateral. (Compl. ¶¶ 103, 109.) As Plaintiff observes, “the crux of the case centers upon whether Defendants have converted certain equipment collateral and/or defrauded Plaintiff by fabricating the existence thereof … such discovery seeking evidence of the Defendants’ financial records is relevant to conversion/fraud allegations as against Defendants.” (Pl.’s Opp., 5:8–13.) The Court finds that Plaintiff has alleged sufficient facts to show the relevance of Mr. Topolewski’s financial records to its causes of action against him, in his individual capacity, for Conversion and Fraud.

Therefore, the Court need not substantively address of whether Mr. Topolewski and the Company are alter egos of one another, and Defendants’ motion to quash the deposition subpoena for business records to JP Morgan Chase Bank is denied on this ground.

3.      Pretrial Financial Discovery

Defendants argue that under Civil Code section 3295, subdivision (c), Plaintiff is precluded from pretrial discovery of Defendants’ financial condition absent a court order. (Defs.’ Mot., 2:26–28.) The statute provides, in relevant part, that “no pretrial discovery by the plaintiff shall be permitted with respect to … [the financial condition of the defendant] unless the court enters an order permitting such discovery pursuant to this subdivision.” (Civ. Code § 3295, subd. (c).) Civil Code section 3295 applies to actions arising out of a breach of an obligation other than contract, where punitive damages are sought. (Civ. Code §§ 3295, subd. (a), 3294, subd (a).)

Here, Plaintiff requests punitive damages under its causes of action for conversion and fraud, and has not sought a court order to discover documents pertaining to Defendants’ financial condition. (Compl. ¶¶ 107, 114.) Nevertheless, Defendants’ argument lacks merit because the statutory language plainly carves out an exception for this information to be sought by way of deposition subpoena. (Civ. Code § 3295, subd. (c) (“However, the plaintiff may subpoena documents or witnesses to be available at the trial for the purpose of establishing the profits or financial condition … and the defendant may be required to identify documents in the defendant’s possession which are relevant and admissible for that purpose.”)

Accordingly, Defendants’ motion to quash the deposition subpoena for business records to JP Morgan Chase Bank on this ground is denied.

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4.      Privacy Rights

Defendants argue that Plaintiff’s deposition subpoena improperly seeks the financial records of Mr. Topolewski in violation of his constitutional right to financial privacy. (Defs.’ Mot., 3:28.) “The right to privacy under article I, section 1 of the California Constitution ‘extends to one's confidential financial affairs.’ … This right embraces confidential financial information in ‘whatever form it takes, whether that form be tax returns, checks, statements, or other account information.’” (Overstock.com, Inc. v. Goldman Sachs Group, Inc. (2014) 231 Cal.App.4th 471, 503.)

Defendants argue that Plaintiff, as the propounding party, has the initial burden to show that the constitutionally protected evidence it seeks is “directly relevant” to the claim or defense. (Defs.’ Mot., 4:16–17, citing Harris v. Superior Court (1992) 3 Cal.App.4th 661.) Plaintiff argues in opposition that the burden is on Defendants as the party asserting a privacy interest “to show that their privacy interests are so serious that they outweigh the interests of the subpoenaing party.” (Pl.’s Opp., 5:25–26, citing Williams v. Superior Court (2017) 3 Cal.5th 531.) In Williams, the Supreme Court explicitly overruled Harris to the extent that it requires that a “compelling interest or compelling need” be automatically required when a party seeks the discovery of constitutionally-protected private information. (3 Cal.5th at 557, fn. 8.) Therefore, the appropriate standard to apply is that of the Williams court, and the burden is therefore on Defendants to show that Mr. Topolewski’s privacy interests outweigh Plaintiff’s need for his financial information.

As set forth above, the documents sought by Plaintiff are relevant to its causes of action for Conversion and Fraud, and “essential to determining the truth of the matters in dispute.” (Pl.’s Opp., 6:22–23.) Apart from asserting Mr. Topolewski’s right to privacy in his financial information under the State Constitution, Defendants make no further showing as to the “extent and seriousness of the prospective invasion” by Plaintiff’s deposition subpoena of Mr. Topolewski’s privacy right. (Williams, 3 Cal.5th at 557.)

Accordingly, Defendants have failed to meet their initial burden under Williams, and the motion to quash the deposition subpoena for business records to JP Morgan Chase Bank on this ground is denied.

5.      Sanctions

A court may award monetary sanctions to a party who makes or opposes a motion to quash a subpoena “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.” (Code Civ. Proc. § 1987.2, subd. (a).) The court may also impose sanctions on a party who misuses the discovery process, or upon one who unsuccessfully asserts that another has done so. (Code Civ. Proc. § 2023.030, subd. (a).)

Defendant requests that the Court impose sanctions on Plaintiff in the amount of $2,750.00, which accounts for 5.5 hours spent working on the instant motion, the reply brief, and appearing for this hearing, at Defendants’ attorney’s hourly rate of $500.00 per hour. Plaintiff argues in opposition that it propounded the deposition subpoena in good faith, as the requests for Defendants’ financial records are germane to the case. (Pl.’s Opp., 7:21–8:4 (“such records are relevant, necessary, and not an excessive intrusion on Defendants’ right to privacy.”))

As the Court finds no grounds to grant Defendants’ motion to quash Plaintiff’s deposition subpoena, Defendants’ request for sanctions is granted jointly, but reduced to $900.00, to be paid within 30 days.