Judge: Steven A. Ellis, Case: 21STCV22503, Date: 2023-09-01 Tentative Ruling
Case Number: 21STCV22503 Hearing Date: November 21, 2023 Dept: 29
NOTE: THIS IS ONLY A PARTIAL, PRELIMINARY TENTATIVE. IT IS NOT A COURT ORDER AND SHOULD NOT BE
CONSTRUED OR TREATED AS SUCH.
TENTATIVE
Plaintiff’s motions are granted in part and denied in part.
Background
According to the Complaint, Plaintiff Tigran Hovanesyan (“Plaintiff”)
was injured on September 14, 2019, in an attack by “bouncers” at E.P. &
L.P. Rooftop & Restaurant on North La Cienega Boulevard in West Hollywood,
California. On June 16, 2021, Plaintiff
filed a complaint alleging causes of action for assault, battery, and
negligence against Defendants E.P. & L.P. Rooftop & Restaurant (an
unknown entity), Botanical Hospitality Group, LLC, and Does 1 through 10. In
the complaint, Plaintiff asserts a claim for punitive damages on the causes of
action for assault and battery.
On November 22, 2021, Plaintiff amended the complaint to name
603 N. La Cienega Boulevard, LLC as Doe 1.
On October 12, 2022, Plaintiff amended the complaint to name Miro House,
Inc. as Doe 2. On October 27, 2022,
Plaintiff amended the complaint to name Daniel Crozat as Doe 3.
On April 25 and 26, 2022, Defendants Botanical Hospitality
Group LLC (“Botanical”), 603 N. La Cienega Boulevard, LLC (“La Cienega”), and
E.P. & L.P. Rooftop & Restaurant filed answers to the complaint.
On November 9 and 22, 2022, Defendants Miro House Inc. (“Miro
House”) and Daniel Crozat filed answers to the complaint.
In late February 2023, Plaintiff served the following six sets
of discovery requests on Defendants: (1) Special Interrogatories (Set Two)
to Miro House; (2) Request For Production (Set Two) to Miro House; (3) Special
Interrogatories (Set Two) to Botanical; (4) Request For Production (Set
Two) to Botanical; (5) Special Interrogatories (Set Two) to La Cienega; and (6)
Request For Production (Set Two) to La Cienega.
This discovery sought financial and other information related to the
defendants, in significant part (according to Plaintiff) to allow Plaintiff to
obtain information relating to his alter ego claims against Defendants. Each Defendant served timely responses,
consisting mainly of objections, to each discovery request.
Plaintiff filed six motions to compel further responses on May
15, 24, and 26. Defendants filed
oppositions on August 21, 22, and 23.
Plaintiff filed replies on August 24 and 28.
The first two motions came (against Miro House) came before
the Court on September 1. At the
conclusion of the hearing, the Court continued the hearings to September
6. On September 6, 2023, all six motions
came before the Court. After hearing
argument, the Court granted the parties the opportunity to file supplemental
briefing and continued the hearings.
Supplemental briefs were filed on September 20.
All six motions are now before the Court for decision.
Legal Standard
“On receipt of a response to interrogatories, the propounding
party may move for an order compelling a further response if the propounding
party deems that … “[a]n answer to a particular interrogatory is evasive or
incomplete … [or] [a]n objection to an interrogatory is without merit or too
general.” (Code Civ. Proc., § 2030.300,
subd. (a).)
“On receipt of a response to a demand for inspection, copying,
testing, or sampling, the demanding party may move for an order compelling
further response to the demand if the demanding party deems that any of the
following apply: (1) A statement of compliance with the demand is incomplete.
(2) A representation of inability to comply is inadequate, incomplete, or
evasive. (3) An objection in the response is without merit or too
general.” (Code Civ. Proc., § 2031.310,
subd. (a).)
Discussion
Through interrogatories and requests for production Plaintiff
seeks a variety of information regarding the finances and corporate information
of Defendant. Although there are other
issues involved, at the center of the dispute is the following: (a) Defendant
asserts that the requests are improper, or at the very least premature, under
Civil Code section 3295 as they relate to Plaintiff’s claim for punitive
damages; (b) Plaintiff disagrees and argues that the requests are proper
discovery into the alter ego allegations of the complaint.
Civil Code section 3295 provides, in pertinent part:
a) The court may, for good cause, grant
any defendant a protective order requiring the plaintiff to produce evidence of
a prima facie case of liability for damages pursuant to Section
3294, prior to the introduction of evidence of:
(1) The profits the defendant has gained
by virtue of the wrongful course of conduct of the nature and type shown by the
evidence.
(2) The financial condition of the
defendant.
…
(c) No pretrial discovery by the
plaintiff shall be permitted with respect to the evidence referred to in
paragraphs (1) and (2) of subdivision (a) unless the court enters an order
permitting such discovery pursuant to this subdivision. However, the plaintiff
may subpoena documents or witnesses to be available at the trial for the
purpose of establishing the profits or financial condition referred to in
subdivision (a), and the defendant may be required to identify documents in the
defendant's possession which are relevant and admissible for that purpose and
the witnesses employed by or related to the defendant who would be most
competent to testify to those facts. Upon motion by the plaintiff supported by
appropriate affidavits and after a hearing, if the court deems a hearing to be
necessary, the court may at any time enter an order permitting the discovery
otherwise prohibited by this subdivision if the court finds, on the basis of
the supporting and opposing affidavits presented, that the plaintiff has established
that there is a substantial probability that the plaintiff will prevail on the
claim pursuant to Section
3294. Such order shall not be considered to be a
determination on the merits of the claim or any defense thereto and shall not
be given in evidence or referred to at the trial.
Defendants argue that the text of section 3295, subdivision
(c) is clear, and that no discovery of a defendant’s financial condition is
permitted until after a court issues an order permitting the discovery after
holding a hearing and making a determination that plaintiff has established a
substantial probability that it will prevail on a claim for punitive damages. Accordingly, Defendants argue, their
objections to the discovery requests should be sustained.
The reported decision that is closest to being on point is Rawnsley
v. Superior Court (1986) 183 Cal.App.3d 86.
In that case, the parties were involved in a business dispute arising
out of a series of limited partnership agreements, and plaintiff alleged that the
defendants were siphoning profits from the limited partnerships, failing to
distribute profits, and/or receiving excessive compensation for managing the
limited partnerships. (Id. at pp.
88-89.) Plaintiff asserted ten causes of
action, some of which could have given rise to a claim for punitive
damages. (Id. at p. 89.) In discovery, plaintiff sought detailed financial
information; defendants objected, arguing that the discovery requests were
barred by (or premature under) Civil Code section 3295.
The Court of Appeal disagreed:
Unlike the situation in which a
plaintiff seeks to discover defendant’s financial status solely for the purpose
of assessing a punitive damages claim, the document sought by petitioner here
are fundamental to his case. He alleges
that asserts have been converted and diverted from the entities in which he has
an interest to the individual defendants or to corporations which are the alter
egos of the individual defendants. The
only way petitioner can prove his case is to obtain defendants’ financial
records. Where the only reason for seeking such financial
information is to give a tactical edge to the party who has obtained discovery
of the information by allowing that party the benefit of pressure in settlement
negotiations by threat or implication of disclosure, the party against whom the
discovery is sought should be afforded the full benefit of Civil Code section
3295, including a protective order limiting access to such information. Where,
however, the financial information goes to the heart of the cause of action
itself, a litigant should not be denied access so easily.
(Id.
at p. 91.)
The instant case falls somewhere between the two poles
described by the Court of Appeal in Rawnsley. It is true, as Plaintiff argues, that this is
not a case in which he is seeking financial information “solely for the purpose
of assessing a punitive damages claim.” But
it is also true, as Defendants argue, that this is not a case in which the financial
discovery at issue “goes to the heart of the cause[s] of action” asserted by
Plaintiff.
The Court has considered the arguments of the parties, the
text of Civil Code section 3295, and the cases cited by the parties. The Court concludes that section 3295 does
not establish an absolute or per se barrier to Plaintiff’s discovery requests. Considering the full context of the statute,
including subdivision (a), and the Rawnsley decision, the court concludes
that the procedural prerequisites to discovery in section 3295, subdivision (c)
apply only when a plaintiff is seeking discovery (including financial
discovery) relating to a plaintiff’s claim for punitive damages.
Here, the
discovery that Plaintiff seeks relates to the merits of his substantive claims,
including whether he can proceed against some of the Defendants on an alter ego
theory. Because the discovery is
relevant to the merits of Plaintiff’s substantive claims against Defendants,
here, as in Rawnsley, the provisions of subdivision (c) do not bar the requests.
“The
alter ego doctrine arises when a plaintiff comes into court claiming that an
opposing party is using the corporate form unjustly and in derogation of the
plaintiff’s interests. In certain circumstances the court will disregard the
corporate entity and will hold the individual shareholders liable for the
actions of the corporation.” (Mesler
v. Bragg Management Co. (1985) 39 Cal.3d 290, 300 [citations omitted].)
The
corporate veil may be pierced “where an abuse of the corporate privilege
justifies holding the equitable ownership of a corporation liable for the
actions of the corporation.” (Sonora Diamond Corp. v Superior Court
(2000) 83 Cal.App.4th 523, 538.) “Under the alter ego doctrine, . . . when the
corporate form is used to . . . accomplish some [] wrongful or inequitable
purpose, the courts will ignore the corporate entity and deem the corporation’s
acts to be those of the persons or organizations actually controlling the
corporation, in most instances the equitable owners.” (Ibid.)
“In
California, two conditions must be met before the alter ego doctrine will be
invoked. First, there must be such a unity of interest and ownership between
the corporation and its equitable owner that the separate personalities of the
corporation and the shareholder do not in reality exist. Second, there must be
an inequitable result if the acts in question are treated as those of the
corporation alone. … Among the factors to be considered in applying the
doctrine are commingling of funds and other assets of the two entities, the
holding out by one entity that it is liable for the debts of the other,
identical equitable ownership in the two entities, use of the same offices and
employees, and use of one as a mere shell or conduit for the affairs of the other.
… Other factors which have been described in the case law include inadequate
capitalization, disregard of corporate formalities, lack of segregation of
corporate records, and identical directors and officers. … No one
characteristic governs, but the courts must look at all the circumstances to
determine whether the doctrine should be applied.”
(Id.
at pp. 538-539; see also, e.g., Mesler, supra, 39 Cal.3d at p. 300; A.J.
Fistes Corp. v. GDL Best Contractors, Inc. (2019) 38 Cal.App.5th 677,
696-697; Toho-Towa Co. v. Morgan Creek Prods., Inc. (2013) 217
Cal.App.4th 1096, 1108-1109; Leek v. Cooper (2011) 194 Cal.App.4th 399,
417-418.)
“A claim
against a defendant, based on the alter ego theory, is not itself a claim for
substantive relief, . . . but rather, procedural, i.e., to disregard the
corporate entity as a distinct defendant and to hold the alter ego individuals
liable on the obligations of the corporation where the corporate form is being
used by the individuals to escape personal liability, sanction a fraud, or
promote injustice.” (Hennessey’s Tavern, Inc. v. American Air Filter Co. (1988)
204 Cal.App.3d 1351, 1359.)
This is
not to say, however, that Defendants have no right to maintain and protect the
privacy of their financial information. Rather,
Defendants are protected by the extensive case law governing the disclosure of
private information in civil discovery.
As the California Supreme Court has repeatedly recognized, California’s Constitutional right to privacy
protects against the unwarranted, compelled disclosure of private information,
including financial information. (Britt
v. Superior Court (1978) 20 Cal.3d 844, 855-856.)
Where, as here, a party claims that a discovery
request improperly invades a protected right to privacy, the California Supreme
Court has established “a framework for evaluating potential invasions of
privacy” in Williams v. Superior Court (2017) 3 Cal.5th 531, 552, Hill
v. Nat'l Collegiate Athletic Assn. (1994) 7 Cal. 4th 1, and other cases. First, a 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.” (Williams, supra, 3
Cal.5th at p. 552, citing Hill, supra, 7 Cal.4th at pp. 35-37.) In response, the party seeking the
information may raise “whatever legitimate and important countervailing
interests disclosure serves,” and “the party seeking protection may identify
feasible alternatives that serve the same interests or protective measures that
would diminish the loss of privacy.” (Ibid.,
citing Hill, supra, 7 Cal.4th at pp. 37-40.) The court must then “balance these competing
considerations.” (Ibid.) The party seeking the information need not,
however, establish a “compelling interest” unless the disclosure would be “an
obvious invasion of an interest fundamental to personal autonomy.” (Id. at p. 556.)
The Court begins by discussing the Williams and
Hill framework in general terms.
Below, the Court will discuss the application of the framework to the
specific discovery requests, where the analysis differs from the general
discussion.
Under
the Williams and Hill framework, a party objecting to discovery is
required first to establish a legally protected privacy interest and a
reasonable expectation of privacy. Here,
Defendants have done so. The detailed
financial information that Plaintiff seeks is protected by the right to
privacy, and Defendants have an objectively reasonable expectation of privacy
in these records.
Next, the discovery requests appear on their face to
be a serious intrusion into Defendants’ right to privacy. Plaintiff seeks extensive information
regarding the details of Defendants’ financial transactions.
At this point, under Williams and Hill,
the party seeking the information must identify the “legitimate and
important countervailing interests” that disclosure would serve. For example, the party seeking the
information may attempt to show that the discovery is “directly relevant” to
the claims or defenses in dispute and is “essential to the fair resolution of
the lawsuit.” (Lantz v. Super. Ct.
(1994) 28 Cal.App.4th 1839, 1854.) Here,
Plaintiff has done so. Plaintiff seeks
compensation for alleged injuries and, without the requested discovery, Plaintiff
could be unable to recover from potentially responsible parties; the
information could show that corporate formalities should be disregarded, that
there is a unity of interest between some or all of the defendants, and that
adherence to corporate formalities would bring about an inequitable
result.
Defendants
have not identified any feasible alternatives that would serve the same
interests and diminish the loss of privacy.
Delaying or deferring the discovery is not a viable option at this
point, as trial is scheduled for June 2024, less than seven months from today.
Finally, under the framework set out in Hill
and reaffirmed in Williams, the Court must balance the “competing
considerations” of the serious intrusion into Defendants’ privacy and Plaintiff’s
legitimate need for the information. This
balancing of competing considerations is necessarily a difficult and delicate
task, and to some extent it is best conducted in the context of the individual
discovery requests. On balance, however,
some discovery will be allowed, as the Court finds that Plaintiff’s legitimate
interest in obtaining some information that could support his alter ego claims outweighs
Defendants’ substantial privacy interest.
In addition, a protective order that limits the Plaintiff’s use of the
financial information to purposes related to this litigation, and prohibits
Plaintiff from any other disclosure of the Defendants’ financial information, is
appropriate, will be required, and will limit the effect of the intrusion into
Defendants’ private affairs.
Special Interrogatories to Miro House, Inc.
Nos. 33-34, 39-40, 43-44, 47-48, 51-52, 55-56, 89-93
The objections to these interrogatories are OVERRULED. The general information sought by these
interrogatories, including overall net worth and the value of assets and
liabilities, overall expenses and revenue (broken down by general category, at
the level of financial statements), and overall profit or loss, is directly
relevant to determining, among other things, adequate capitalization, an
important factor in determining alter ego liability.
Nos. 35-38, 94
The objection to these interrogatories are SUSTAINED. At this stage of the proceedings, identifying
specific assets, specific liabilities, specific expenses, and the values of
each, is unnecessarily intrusive into Defendants’ financial privacy. The sustaining of these objections does not,
however, preclude Plaintiff from seeking this information at a later stage of
the proceedings, if appropriate and justified.
Nos. 41-42, 45-46, 49-50, 53-54, 57-58, 96-101
The objections to these interrogatories are OVERRULED. The information sought by these
interrogatories regarding payments to or on behalf of Mr. Kubicek or any
business in which he has an interest, and regarding use of corporate and
personal accounts and funds, is directly relevant to determining, among other
things, alleged comingling of funds or the use of corporate assets to pay
personal expenses, important factors in determining alter ego liability.
Nos. 59-60
The objections to these interrogatories are OVERRULED. Information regarding the identity of persons
or entities that assisted or participated in the financial and formation of the
corporation is directly relevant to determining, among other things, adequate capitalization,
an important factor in determining alter ego liability.
Nos. 62-63, 66-69, 84, 104-113
The objections to these interrogatories are OVERRULED. Information regarding the identity of directors,
officers, shareholders, bookkeepers, accountants, and potential corporate
witnesses involves limited privacy interests and is reasonably calculated to
lead to discoverable information relating to alter ego liability.
Nos. 64-65
The objections to these interrogatories are SUSTAINED. At this stage of the proceedings, the intrusion
into private financial information associated with identifying compensation to
individual corporate officers substantially outweighs any demonstrated need for
the information. The sustaining of these
objections does not, however, preclude Plaintiff from seeking this information
at a later stage of the proceedings, if appropriate and justified.
Nos. 70-74, 78-80
The objections to these interrogatories are OVERRULED. Information regarding amounts paid for
shares, and dividends paid to shareholders is directly relevant is directly
relevant to determining, among other things, adequate capitalization, an
important factor in determining alter ego liability.
Nos. 81-83, 95
The objections to these interrogatories are SUSTAINED. At this stage of the proceedings, the intrusion
into private financial information associated with identifying every loan made
to every person and every transfer of property is overly broad and substantially
outweighs any demonstrated need for the information. The sustaining of these objections does not,
however, preclude Plaintiff from seeking this information (or a subset of this
information) at a later stage of the proceedings, if appropriate and justified.
Nos. 85-88, 114
The objections to these interrogatory are SUSTAINED. Among other things, it is unclear to the
Court what Plaintiff is seeking and/or the interrogatories are impermissibly
compound.
Nos. 102-104
The objections to these interrogatories are OVERRULED. Information regarding insurance coverage
involves little or no privacy interests and is discoverable.