Judge: Stephen P. Pfahler, Case: 22STCV29636, Date: 2024-04-03 Tentative Ruling

Case Number: 22STCV29636    Hearing Date: April 3, 2024    Dept: 68

Dept. 68

Date: 4-3-24

Case Number: 22STCV29636

Trial Date: 11-4-24

DOCUMENT PRODUCTION

MOVING PARTY:                Defendant, Marvin Engineering Co., Inc.

RESPONDING PARTY:       Plaintiff, Flyer Next, LLC

RELIEF REQUESTED

Motion to Compel Responses to Request for Production of Documents (set two)

SUMMARY OF ACTION

Oded Nechushtan And Amit Nechushtan founded the Flyer entities, which includes Flyer Defense LLC, an entity wholly owned by Flyer Next, LLC, and Flyer Technologies, LLC, a separate entity 50% owned by Flyer Technologies. In 2000, Flyer Technologies entered into a joint venture agreement with Marvin Engineering Co., Inc. for a project involving the developments and sale of lightweight tactical all-terrain vehicles to the United States Marine Corps. Flyer agreed to license its intellectual property to Marvin Engineering, and transferred its subsidiary, Flyer Defense, LLC. Flyer Technologies retained a right to a 50-50 split of royalties and equal board voting power.

In 2018, following the retirement/discontinued involvement of former “head” of Marvin Engineering, Jerry Friedman, the partied entered in a new agreement, whereby Flyer Defense was transferred to a new entity identified as Flyer Next, LLC, with joint ownership between Flyer Technologies and Marvin Engineering. Oded Nechushtan was also designated with the title of Manager, granting “sole power to manage the business, property, and affairs of Flyer Next and ... Flyer Defense.” Flyer Technologies also agreed to an $18,000,000 “priority return” to Marvin Engineering “upon the occurrence of specified liquidity events.”

Plaintiffs allege Defendants provided misrepresenting information, which led to now determined unsupported terms for the revised agreement. Plaintiffs allege a multitude of allegations, including improper money withdrawals to pay other debts, concealment of certain debts, nonpayment of outstanding payments to Flyer Defense, and estruction of data. David Gussman and Howard Gussman serve as president and chief operating officer, and chief executive officer and director of Marving Engineering, and conducted the negotiations.

On September 12, 2022, Plaintiffs Flyer Defense LLC, Flyer Technologies, LLC and Flyer Next, LLC (Flyer) filed their complaint for Declaratory Relief, Accounting, Breach of Contract (contribution and assignment agreement), Money Had and Received, Breach of Fiduciary Duty, and Breach of Contract (22STCV29636). On September 14, 2022, Marvin Engineering Co., Inc. filed a complaint for (1) Breach of Fiduciary Duty; (2) (Derivative) Breach of Fiduciary Duty; (3) Breach of Contract; (Operating Agreement) (4) Breach of Contract (Services Agreement); (5) Breach of the Obligation of Good Faith And Fair Dealing; (6) Breach of the Obligation of Good Faith and Fair Dealing; (7) Theft Pursuant To Cal. Penal Code § 496; (8) Aiding and Abetting Breach of Fiduciary Duty; (9) (Derivative) Aiding And Abetting Breach Of Fiduciary Duty; (10) Demand for Accounting; and (11) Declaratory Relief against the Flyer plaintiffs and Oded Nechushtan And Amit Nechushtan (22STCV30079).

On October 5, 2022, the court deemed the cases related, with 22STCV29636 deemed the lead case.

On October 7, 2022, the Flyer plaintiffs filed their first amended complaint for Breach of Contract, Conversion, Declaratory Relief, Accounting, Breach of Contract (contribution and assignment agreement), Money Had and Received, Breach of Fiduciary Duty, Breach of Contract (services agreement), and Breach of Contract (Line of Credit Agreement). on October 28, 2022, defendants Flyer Defense LLC, Flyer Technologies, LLC and Flyer Next, LLC answered the first amended complaint of Marvin Engineering Co., Inc. On October 28, 2022, Oded Nechushtan And Amit Nechushtan answered the Marvin Engineering Co., Inc. complaint.

On November 14, 2022, Marvin Engineering Co., Inc. answered the Flyer plaintiffs first amended complaint. On the same date, Marvin Engineering Co., Inc. filed a cross-complaint against Flyer Defense LLC, Flyer Technologies, LLC, Flyer Next, LLC,  Oded Nechushtan and Amit Nechushtan for (1) Breach of Fiduciary Duty; (2) (Derivative) Breach of Fiduciary Duty; (3) Breach of Contract; (Operating Agreement) (4) Breach of Contract (Services Agreement); (5) Breach of the Obligation of Good Faith And Fair Dealing; (6) Breach of the Obligation of Good Faith and Fair Dealing; (7) Theft Pursuant To Cal. Penal Code § 496; (8) Aiding and Abetting Breach of Fiduciary Duty; (9) (Derivative) Aiding And Abetting Breach Of Fiduciary Duty; (10) Demand for Accounting; and (11) Declaratory Relief. On December 22, 2022, Marvin Engineering Co., Inc. dismissed its cross-complaint without prejudice.

On May 16, 2023, the court entered the parties’ stipulation for leave to file a second amended complaint of Flyer plaintiffs complaint. On May 17, 2023, Plaintiffs filed their second amended complaint for Breach of Contract, Conversion, Declaratory Relief, Accounting, Breach of Contract (contribution and assignment agreement), Money Had and Received, Breach of Fiduciary Duty, Breach of Contract (services agreement), Breach of Contract (Line of Credit Agreement), Fraudulent Concealment, Fraudulent Misrepresentation, Trespass to Chattels, Conversion, and Unauthorized Access to Computers. The second amended complaint added in new defendants David Gussman and Howard Gussman as well.

On May 25, 2022, the court ordered the cases consolidated. On the June 21, 2023, the Gussman parties and Marvin Engineering Co., Inc. answered the second amended complaint.

On July 5, 2023, the writs and receivers court denied the motion of Marvin Engineering for a writ of attachment against Flyer Defense, LLC and Flyer Next, LLC.

RULING: Granted in Part/Denied in Part.

Evidentiary Objections: Overruled/Not Considered or Relied Upon

Defendant Marvin Engineering Co., Inc. (Marvin) moves to compel responses to Request for Production of Documents (set two) served on Plaintiff, Flyer Next, LLC, numbers 33, 36-38, 44, 46-77, 79, and 81-82. The initial responses consisting of objections: for relevance, documents already in possession of propounding party, overbroad and burdensome, attorney client and work product privileges, lack of possession of certain documents, and improper collateral purpose for discovery. Supplemental responses to certain items provides for limited promised discovery in certain categories, and refusal to produce documents other categories.  

Flyer Next, LLC (Flyer) in opposition states all responsive documents were previously produced, any pre-2021 documents are in possession of moving party, the scope constitutes a grossly expensive burden to produce such broad swaths of documents, and the motion provides no compelling basis as to the privilege objections.

Marvin in reply reiterates the relevance of the demands based on the “financial wrongdoing” claims. Marvin additionally maintains a liberal discovery policy applies, where non-privileged disclosure production of documents remains preferrable over self-selected withholding.

The range of disputed items seeks a broad swath of records from August 27, 2018, potentially relating to any and all expenditures via payroll, banking or securities account transactions,

Flyer agreed to production of documents relating to individual officers Oded Nechushtan and Amit Nechushtan, but maintains production of all such records constitutes an inordinate burden into irrelevant matters. Flyer also agrees to production of financial documents from 2021 to 2022, but objects to 2018-2020.

On the compound and vague objections, Plaintiff may not intentionally misconstrue a work for obstreperous purposes. “Indeed, where the question is somewhat ambiguous, but the nature of the information sought is apparent, the proper solution is to provide an appropriate response.” (Deyo v. Kilbourne (1978) 84 Cal.App.3d 771, 783 superseded by statute on unrelated ground as stated in Guzman v. General Motors Corp. (1984) 154 Cal.App.3d 438, 444.) The objections lack merit.

“But ‘[f]or discovery purposes, information is relevant if it “might reasonably assist a party in evaluating the case, preparing for trial, or facilitating settlement….” [Citation.] Admissibility is not the test and information, unless privileged, is discoverable if it might reasonably lead to admissible evidence. [Citation.] These rules are applied liberally in favor of discovery [citation], and (contrary to popular belief), fishing expeditions are permissible in some cases. [Citation.]’ (Citations.)” (Cruz v. Superior Court (2004) 121 Cal.App.4th 646, 653–654.) The parties agree to the scope of the dispute, and given the willingness to produce financial statements, Flyer agrees the discovery properly seeks information.

On the overbroad objections, the court finds limited support. “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. When a judge evaluates such factors to determine whether a party has acted reasonably and in good faith in attempting informal resolution, a factual component of decision, derived from the trial judge's knowledge of the case, is inevitably involved.” (Obregon v. Superior Court (1998) 67 Cal.App.4th 424, 431.) Numbers 37, 54, 74, 75, 76, 81, and 82 regarding any and all “QuickBooks or other accounting software” “investments in subsidiary,” “communications between you and any consultant,” “services provided to you by any consultant,” “payments made by you to any consultant,” “payments to Ede Ibekwe,” and “payments to Irell Manella,” lacks sufficient parameters within the defined scope of the dispute—the subject joint venture and/or operating agreement(s) between the parties. Numbers 46, 47, 48, 49, 50, 51, 52, 53, 55, 56, 57, 58, 59, 60, 61, 62, 63, 64, 65, 66, 67, 68, 69, 70, 71, 72, 73, 77, and 79, regarding “cash or cash equivalents” “accounts receivables,” “vendor advances” “property plant and equipment,” “notes receivable from related parties,” “deferred cost,” “intangibles,” “accounts payable,” “customer deposits,” “accrued payroll,” “notes payable to MEC,” “deferred income,” “flyer defense” items, “notes payable,” “flyer license fees,” royalty payable to Flyer Next,” “subordinated notes payable to related parties,” “capital account,” “prior period retained earnings,” “distributions,” “net income,” “accrued wages,” “accrued vacation,” “non-privileged legal and accounting services,” “non-privileged professional fees,” “royalty payments,” “payments” to Oded Nechustan, and “payments to Amit Nechushtan,” also constitutes a facially overbroad request in that the request apparently seeks information beyond presumably presented and agreed upon produced financial statements relevant to the parties.

The court otherwise finds no objection as to the timeframe dating back to 2018 given the relevant years of the parties’ relationship, and Flyer’s statement that the information remains equally accessible to Marvin. The objection is therefore valid. (Bunnell v. Sup.Ct. (1967) 254 Cal.App.2d 720, 723–724.) The court finds no basis for ordering further responses thereby overruling this particular objection.

On the burdensome and harassing objections, objecting parties must file evidence detailing the amount of work involved, in order to support objections based upon burden and oppression. (West Pico Furniture Co. v. Sup. Ct. (1961) 56 Cal.2d 407, 417.) “[S]ome burden is inherent in all demands for discovery. The objection of burden is valid only when that burden is demonstrated to result in injustice.” (Id. at p. 418.) As addressed in the overbroad section, the court finds validity in the objection, due to the voluminous redundancy of the requests without sufficient distinction or establishment of the insufficiency of the promises financial statements. [See Declaration of Courtney Elgart.]

The court cannot determine the applicability of any privileges other than potential billing statements from Irell Manella. The attorney-client privilege attaches to a confidential communication between the attorney and the client and bars discovery of the communication irrespective of whether it includes unprivileged material.” (Costco Wholesale Corp. v. Superior Court (2009) 47 Cal.4th 725, 734.) The transmission of information between third parties and counsel also maintain attorney client privilege protection, if the communication is in further interest of the client. (Evid. Code, § 952.) “Once that party establishes facts necessary to support a prima facie claim of privilege, the communication is presumed to have been made in confidence and the opponent of the claim of privilege has the burden of proof to establish the communication was not confidential or that the privilege does not for other reasons apply.” (Costco Wholesale Corp. v. Superior Court, supra, 47 Cal.4th at p. 733.)

The work product privilege applies where the sought after documents contains Defendant’s “impressions, conclusions, opinions or legal research or theories,” the information is protected by the work product doctrine. (Code Civ. Proc., § 2018.030(c).) “An objecting party may be entitled to protection if it can make a preliminary or foundational showing that answering the interrogatory would reveal the attorney's tactics, impressions, or evaluation of the case, or would result in opposing counsel taking undue advantage of the attorney's industry or efforts”].) (Coito v. Superior Court (2012) 54 Cal.4th 480, 502.) Notes, statements, and impressions of the case are protected by the work product doctrine. A list of potential witnesses is not work product. (Id. at p. 495; Nacht & Lewis Architects, Inc. v. Superior Court (1996) 47 Cal.App.4th 214, 217–218.

To the extent any and all documents are withheld under any privilege, the court orders production of a privilege log. (Code Civ. Proc., 2031.240, subd. (c).)

The court therefore finds an insufficient basis to compel further production of non-privileged material barring a more concise statement of the deficiencies with the produced or soon to be produced financial statements, and/or clarification of the expanded scope of the claim. The court therefore only compels production of a privilege log, where applicable. Any privilege log to be produced within 30 days of this order.

The court will not hold independent discovery conferences. Further, significantly voluminous court resource intensive discovery motions may lead to referral to a discovery referee, with the right to impose sanctions in favor of the prevailing party.

Motion for Pro Hac Vice admission set for April 17, 2024.

Moving Party to give notice.