Judge Stephen I. Goorvitch, Case 21STCV00960 2022-12-07 Tentative Ruling

Judge: Stephen I. Goorvitch, Case: 21STCV00960, Date: 2022-12-07 Tentative Ruling

Case Number: 21STCV00960 Hearing Date: December 7, 2022 Dept: 39

U.S. Legal Support v. Philip K. Anthony, et al.

Case No. 21STCV00960

Motion to Quash

Plaintiff U.S. Legal Support, Inc. (“Plaintiff” or “Legal Support”) filed this action directly on behalf of itself and derivatively on behalf of DecisionQuest, LLC (“DecisionQuest”) against three former officers—Philip K. Anthony (“Anthony”), Michael Cobo (“Cobo”) and Nicole Khoshnoud (“Khoshnoud”)—and two entities—Deepwater, Inc. (“Deepwater”) and HM&R, LLC (“HM&R”)—allegedly involved in a scheme to defraud DecisionQuest and its clients. Several of these defendants—Anthony, Cobo, Khoshnoud, and HM&R, as well as DecisionQuest Holdings, Inc. (collectively, the “Cross-Complainants”) filed a cross-complaint against Legal Support and another entity, Abry Partners, LLC (“Abry Partners”) (collectively, the “Cross-Defendants”). Legal Support issued a subpoena duces tecum on Wells Fargo Bank, N.A. (“Wells Fargo”) on June 17, 2922, seeking certain records of Deepwater. Deepwater now moves to quash the subpoena.

A party seeking discovery from a person who is not a party to the action may obtain discovery by oral deposition, written deposition, or deposition subpoena for production of business records. (Code Civ. Proc., § 2020.010.) A deposition subpoena may command: (1) only the attendance and testimony of the deponent, (2) only the production of business records for copying, or (3) the attendance and testimony of the deponent, as well as the production of business records, other documents, electronically stored information, and tangible things. (Code Civ. Proc., § 2020.020.) Code of Civil Procedure, Section 1987.1, subdivision (a) provides:

If a subpoena requires the attendance of a witness or the production of books, documents, electronically stored information, 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.

(Code Civ. Proc., § 1987.1(a).) Defendants move to quash the subpoena based upon: (1) financial privacy, (2) relevance, and (3) overbreadth. In the alternative, Defendants seek to limit the scope of the subpoena.

A. Financial Privacy

Privacy, including privacy of financial information, is protected by Section 1 of the California Constitution. (See, e.g., Valley Bank of Nevada v. Superior Court (1975) 15 Cal.3d 652, 656.) “A bank customer's reasonable expectation is that, absent compulsion by legal process, the matters he reveals to the bank will be utilized by the bank only for internal banking purposes.” (Id. at 657.) However, “the burden is placed upon the party opposing discovery to show good cause for a protective order limiting discovery.” (Ibid.) “Courts must instead place the burden on the party asserting a privacy interest to establish its extent and the seriousness of the prospective invasion, and against that showing must weigh the countervailing interests the opposing party identifies. What suffices to justify an invasion of privacy will vary according to context.” (Williams v. Superior Court (2017) 3 Cal.5th 531, 557.) Whenever possible concerns of privacy and relevance should be addressed by protective orders rather than by general attacks and flat refusals to provide information. (See Norton v. Superior Court (1994) 24 Cal.App.4th 1750, 1761.)

Deepwater does not satisfy its burden. In general, corporate financial documents are discoverable. (Weingarten v. Superior Ct. (2002) 102 Cal.App.4th 268, 274; Schnabel v. Superior Ct. (1993) 5 Cal. 4th 704, 723.) The records sought are directly related to Legal Support’s allegations and necessary to trace purportedly stolen funds. (Declaration of Elizabeth J. Lee, Exh. A, at p. 13). The records also are relevant to Legal Support’s contentions that Defendants falsified invoices and bank records as part of the scheme to defraud. (Declaration of Elizabeth J. Lee, ¶ 4(d), Exh. E; First Supplemental Declaration of Darren Yausie, ¶¶ 22-26; Second Supplemental Declaration of Darren Yausie, ¶¶ 6-18.) Therefore, the motion is denied on this ground.

B. Relevance

Defendants move to quash the subpoena on the grounds of relevance. “Discovery may relate to the claim or defense of the party seeking discovery or of any other party to the action.” (Civ. Proc. Code § 2017.010; see also People v. Villa (2020) 55 Cal. App. 5th 1042, 1052 [“Relevance is a low bar.”].) As discussed, the records are relevant, and the motion is denied on this ground.

C. Overbreadth

Finally, Defendants move to quash the subpoena on the grounds that the subpoena is overbroad or, in the alternative, seek a protective order limiting the scope of the subpoena. “When discovery requests are grossly overbroad on their face, and hence do not appear reasonably related to a legitimate discovery need, a reasonable inference can be drawn of an intent to harass and improperly burden.” (Obregon v. Superior Court (1998) 67 Cal.App.4th 424, 431.) As discussed, the documents are relevant to this case.

The Court gave some consideration to limiting the time period of the subpoena, but concluded that it would not be appropriate. Deepwater has been in existence since 2005; transfers between DecisionQuest and Deepwater began in 2007; and Legal Support’s allegations go back as far as 2012. Given the allegations, Legal Support is entitled to records dating back to the beginning of the allegedly fraudulent transfers. In addition, given Legal Support’s allegations that Deepwater does not perform legitimate services, Legal Support is entitled to bank records dating back to its inception. For example, if Deepwater’s bank records show no revenue since 2005 (except for the allegedly fraudulent transfers from DecisionQuest), that evidence is relevant to Legal Support’s claims.

D. Sanctions

Legal Support seeks sanctions in the amount of $15,000 against Defendants for opposing this motion, per Code of Civil Procedure section 1987.2(a). The Court finds that this motion was filed without substantial justification. Simply, the Court’s decision on this motion was not “a close call.” Therefore, the Court grants the request and orders Defendants to pay discovery sanctions in the amount of $9,750 based upon a blended attorney rate of $650 per hour for 15 hours of attorney time, which the Court believes is fair and reasonable under the circumstances. Because U.S. Legal Support does not clearly state that it is seeking sanctions against Defendants’ counsel, in addition to sanctions against Defendants, the award is limited to Defendants.

E. Conclusion and Order

Based upon the foregoing, the Court orders as follows:

1. Defendants’ motion to quash is denied.

2. Defendants, jointly and severally, shall pay U.S. Legal Support, by and through counsel, sanctions in the amount of $9,750 within thirty (30) days of notice of this order.

3. Counsel for U.S. Legal Support may prepare and lodge a proposed order if Wells Fargo requires an order with the judge’s signature.

4. Counsel for U.S. Legal Support shall provide notice to all parties, as well as Wells Fargo if necessary, and shall file a proof of service with the Court.