Judge: Teresa A. Beaudet, Case: 22STCV03916, Date: 2023-04-17 Tentative Ruling

Case Number: 22STCV03916    Hearing Date: April 17, 2023    Dept: 50

Superior Court of California

County of Los Angeles

Department 50

Background

Plaintiffs Daniel Wang (“Wang”) and Grace Lee (jointly, “Plaintiffs”) filed this action on January 31, 2022 against Defendants 360 Capital Ventures Inc. (“360 Capital”), Sachin Patel (“Patel”), and Miguel Soltero (“Soltero”) (collectively, “Defendants”).

On March 21, 2023, 360 Capital and Patel filed a Cross-Complaint against Plaintiffs and other Cross-Defendants.

On April 13, 2023, Plaintiffs filed the operative First Amended Complaint (“FAC”), asserting causes of action for (1) restitution, (2) negligence, and (3) breach of written contract.

On May 4, 2022, Wang served Requests for Production of Documents, Set One (the “RFPs”) on 360 Capital. (Ruttenberg Decl., ¶ 4, Ex. A.) On December 16, 2022, 360 Capital served responses to the RFPs. (Ruttenberg Decl., ¶ 5, Ex. B.) Plaintiffs’ counsel attempted to meet and confer regarding 360 Capital’s responses to the RFPs. (Ruttenberg Decl., ¶¶ 6-7, Exs. C-E.) On January 23, 2023, 360 Capital served Amended Responses to the RFPs. (Ruttenberg Decl., ¶ 8, Ex. F.)

On March 16, 2023, the parties participated in an Informal Discovery Conference (“IDC”). The Court’s March 16, 2023 minute order provides, inter alia, that “[t]he parties attended the Informal Discovery Conference regarding the issues identified in the Informal Discovery Conference Statement. The parties will meet and confer further. Their Informal Discovery Conference requirement has been met.”[1]

Plaintiffs now move to compel 360 Capital “to respond substantively to Plaintiffs’ request that 360 produce alter-ego documents and to actually produce all requested documents.” Plaintiffs also seek monetary sanctions. 360 Capital opposes.

Legal Standard

Code of Civil Procedure section 2031.310, subdivision (a) permits a propounding party to move for an order compelling a further response to a demand for inspection if the propounding party deems that a statement of compliance is incomplete, a representation of inability to comply is inadequate, incomplete, or evasive, or an objection is without merit or too general. (Id.,           § 2031.310, subd. (a).) A motion to compel further responses to a demand for inspection must set forth specific facts showing good cause for the discovery sought and must be accompanied by a meet and confer declaration. (Id., § 2031.310, subd. (b).)

Discussion

A.    Procedural Issues

As an initial matter, 360 Capital asserts that Plaintiffs failed to meet and confer in good faith in advance of filing the instant motion. But as set forth above, Plaintiffs’ counsel sent meet and confer correspondence to 360 Capital’s counsel and the parties participated in an IDC. The Court does not find that Plaintiffs’ meet and confer efforts were insufficient.

360 Capital also asserts that Plaintiffs’ notice of motion fails to indicate the nature of the order being sought. As 360 Capital notes, Plaintiffs’ notice of motion does not cite any statutory authority, and does not identify which discovery requests are at issue. Pursuant to Code of Civil Procedure section 1010, “[n]otices must be in writing, and the notice of a motion, other than for a new trial, must state when, and the grounds upon which it will be made, and the papers, if any, upon which it is to be based.”

However, the moving papers demonstrate that Plaintiffs appear to seek further responses to Requests Nos. 34-52 of the RFPs. Plaintiffs assert in the motion that “360 has objected, on empty grounds, to all RFP seeking alter-ego documents (i.e., RFP Nos. 34-52).” (Mot. at p. 3:16-17.) In addition, Plaintiffs’ separate statement discusses Requests Nos. 34-52 of the RFPs. Plaintiffs’ separate statement also states “Code of Civ. P. §§ 2031.310 and 2031.320(a) provide that a party requesting the production of documents may move to compel a further response and production of the requested documents if the responding part fails to serve a statutorily compliant response or fails to produce requested documents.” (Plaintiffs’ Separate Statement at p. 3:22-25.)

Further, Requests Nos. 34-52 of the subject RFPs are discussed in 360 Capital’s opposition. (Opp’n at p. 5:18-7:4.)

360 Capital cites to Golf & Tennis Pro Shop, Inc. v. Superior Court (2022) 84 Cal.App.5th 127, 137-138, where the Court of Appeal noted that “[Code of Civil Procedure] [s]ection 1010’s requirement is for the benefit of the party upon whom the notice is served, to make him or her aware of the issues to be raised in the motion…The purpose of the notice requirements is to cause the moving party to sufficiently define the issues for the information and attention of the adverse party and the court. Sometimes this purpose is met notwithstanding deficient notice. For example, it may be sufficient that the supporting papers contain the grounds for the relief sought, even if the notice does not.” (Internal quotations and citations omitted.)

The Court finds Plaintiffs’ moving papers adequately define the issues raised in the motion, as further shown by 360 Capital’s opposition to the motion.

B.    Requests  

Wang’s Request No. 34 seeks “YOUR articles of incorporation.”[2] Request No. 35 seeks “YOUR corporate or company minute books for the period January 1, 2016 to date, including all corporate minutes.” Request No. 36 seeks “YOUR bylaws.” Request No. 37 seeks “YOUR stockholder agreements.” Request No. 38 seeks “YOUR stock certificate book.” Request No. 39 seeks “YOUR stock certificates.” Request No. 40 seeks “YOUR stock ledgers.”

Request No. 41 seeks “[a]ll Statements of Information filed by or on YOUR behalf with the Secretary of State of California for the years 2016 to date.” Request No. 42 seeks “[a]ll notices regarding the issuance of stock or membership interests filed by or on YOUR behalf with the Commissioner of Corporations of the State of California.” Request No. 43 seeks “[a]ll resolutions passed or taken by YOU from January 1, 2016 to date.”

Request No. 44 seeks “[a]ll DOCUMENTS showing or listing all of YOUR officers from January 1, 2016 to date.” Request No. 45 seeks “[a]ll DOCUMENTS that IDENTIFY all of YOUR officers from January 1, 2016 to date.” Request No. 46 seeks “[a]ll DOCUMENTS showing or listing all of YOUR investors from January 1, 2016 to date.” Request No. 47 seeks “[a]ll DOCUMENTS that IDENTIFY all of YOUR investors from January 1, 2016 to date.”

Request No. 48 seeks “[a]ll DOCUMENTS showing that YOU have been operated independently from YOUR officers and directors from January 1, 2016 to date.” Request No. 49 seeks “[a]ll DOCUMENTS showing that YOU maintained the formalities requisite to the status of a corporation from January 1, 2016 to date.” Request No. 50 seeks “[a]ll DOCUMENTS showing that YOU have not commingled YOUR funds with the funds of Sachin Patel from January 1, 2016 to date.” Request No. 51 seeks “[a]ll DOCUMENTS showing that YOUR officers and directors have not used YOU as a conduit for their personal affairs from January 1, 2016 to date.” Request No. 52 seeks “[a]ll DOCUMENTS showing that YOU have been properly capitalized from January 1, 2016 to date.”

In response to Requests Nos. 34-52 of the RFPs, 360 Capital asserts essentially the same objections: “Objection. Burdensome, oppressive, overbroad. Vague and ambiguous as to scope and definition. Attorney-client privilege. Work product. Financial privacy. Income tax privilege. Private, proprietary, confidential, trade secret, or other sensitive non-public party or non-party

information.” (Ruttenberg Decl., ¶ 5, Ex. B.)[3] 360 Capital also objects to certain requests on relevance grounds, objects that certain requests are duplicative, and asserts that that certain phrases/words in certain requests are vague and ambiguous.

            Plaintiffs assert that Requests Nos. 34-52, or the “alter-ego discovery,” relates to the allegations in the Complaint. Plaintiffs note that paragraph 7 of the Complaint alleges as follows:

“Patel and Soltero own and control 360. At all times herein alleged, a unity of interest and ownership between Patel, Soltero and 360 existed such that any individuality and separateness between them has ceased. Patel, Soltero and 360 were and are the alter egos of each other in that (a) any individuality of these Defendants never existed or it has ceased to exist; (b) the entities have been and are mere shells and shams, without capital or assets, or were so inadequately capitalized that, compared with the business to be done by the entities, and the risks of loss of the entities’ business, their capitalization has been illusory and the entities were intended by their principals (Patel and Soltero) primarily as devices to avoid individual liability; (c) the principals of the entities (Patel and Soltero) have used the assets of the entities for their own personal use, caused assets of the entity to be transferred to them, their other business entities, or third parties controlled by them, without consideration, or for inadequate consideration, and withdrawn funds from the entities’ bank accounts for their personal use; (d) the entities have been and continue to be shells and mere instrumentalities or conduits through which their principals (Patel and Soltero) have carried on their individual business in the entities’ names, exercising complete control and dominance of the businesses to such an extent that any individuality or separateness between the principals and the entities does not exist; (e) the entities have been controlled, dominated, and operated by their principals (Patel and Soltero) as their individual businesses and alter egos; and (f) judicial adherence to or acknowledgment of the fiction of the separate existence of the entities distinct from their principals (Patel and Soltero) would permit abuse of the corporate privilege, condone and perpetrate a fraud, and promote injustice, particularly in light of the facts that (i) the entities have been inadequately capitalized and (ii) the principals have conducted the business of the entities, including diversion of assets and property from the entities, so as to render 360 insolvent or financially moribund.” (Compl., ¶ 7.)[4]  

            In the opposition, 360 Capital asserts that “[i]n 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.” (Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 538.) 360 Capital asserts that Plaintiffs fail to support the second prong of this analysis in their motion.

Plaintiffs counter that an opposition to a discovery motion is not the appropriate vehicle to challenge the allegations in a pleading. The Court agrees. Pursuant to Code of Civil Procedure section 2017.010, “[u]nless otherwise limited by order of the court in accordance with this title, any 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.”

            360 Capital also asserts that “the IDC vindicated 360 Capital’s position on alter ego discovery.” (Opp’n at p. 5:4-5.) 360 Capital includes in its opposition a table setting forth the asserted “IDC Determination and “Agreed Upon Action(s)” as to Requests Nos. 34-52. (Opp’n at p. 5:18-7:4; Woo Decl., ¶ 3.)

            In the reply, Plaintiffs state that they “do not agree with 360’s attempt to summarize the outcome of the IDC at Pages 5-7 of the Opposition.” (Reply at p. 6:1-2.) Plaintiffs state in the reply that they agreed to withdraw Requests Nos. 38, 45, 46, 47, and 50. (Reply at p. 6:7-13; Suppl. Ruttenberg Decl., ¶ 4.) Plaintiffs assert that “[d]uring the IDC, Mr. Woo agreed to serve further responses and produce the remainder of the documents (i.e., Nos. 34-37, 39-44, and 48, 49, 51, and 52) but, to date, 360 has failed to either serve further responses or produce any responsive documents.” (Ruttenberg Decl., ¶ 5.)

            In the opposition, 360 Capital indicates that it “will produce” documents in response to Requests Nos. 34, 35, 36, 38, and 41. (Woo Decl., ¶ 3.)[5] Thus, the remaining requests at issue are Requests Nos. 37, 39, 40, 42, 43, 44, 48, 49, 51, and 52.

            The Court finds that 360 Capital’s objections to Requests Nos. 37 and 51 are well taken. Regarding Request No. 43, it is too broad but production is warranted as to topics found in any resolutions that may pertain to the alter ego issues.  The parties must meet and confer further to narrow the request. The Court overrules 360 Capital’s objections to Requests Nos. 39 and 40, and finds that Plaintiffs have established good cause to compel further responses to these requests. Regarding Request No. 49, a response to the Request is required to the extent that the response is not duplicative of the responses to other Requests propounded.

The Court notes that as to Requests Nos. 39 and 40, 360 Capital asserts that they are duplicative of Request No. 38, but that they “will produce” in response to Request No. 38. (Woo Decl., ¶ 3.) 360 Capital must produce either in response to Request No. 38 or Requests Nos. 39 and 40.

            As to Request No. 42, 360 Capital asserts that “[t]he Court determined that this Request required further clarification concerning what a notice of issuance by Commissioner of Corporations constituted,” and that Plaintiffs “did not initiate a subsequent meet and confer.” (360 Capital’s Response to Separate Statement at p. 13:4-5.) As to Request No. 44, 360 Capital asserts that “[t]he Court determined that this Request required further clarification because the timeframe sought was overbroad,” and that Plaintiffs “did not initiate a subsequent meet and confer.” (Id. at p. 15:9-12.) As to Request No. 48, 360 Capital asserts that “[t]he Court determined that this Request required further clarification because it was vague and overbroad,” and that Plaintiffs “did not initiate a subsequent meet and confer.” (Id. at p. 19:15-18.) As to Request No. 52, 360 Capital asserts that “[t]he Court determined that this Request required further clarification concerning documents consisting of a line of credit, insurance, or other examples, and that exemplars would be acceptable,” and that Plaintiffs “did not initiate a subsequent meet and confer.” (Id. at p. 24:2-6.) As set forth above, the Court’s March 16, 2023 minute order also provides, “[t]he parties will meet and confer further.” Plaintiffs do not respond to these points in the reply or demonstrate that they further attempted to clarify the above requests. However, Plaintiffs contend that 360 Capital’s counsel “agreed to serve further responses and produce the remainder of the documents (i.e., Nos. 34-37, 39-44, and 48, 49, 51, and 52).” (Suppl. Ruttenberg Decl., ¶ 5.) Based on a consideration of the foregoing, the Court orders the parties to meet and confer further regarding Request No. 42, 44, 48, and 52.

C.    Plaintiffs’ Request for Sanctions

Code of Civil Procedure section 2031.310, subdivision (h) provides that “[e]xcept as provided in subdivision (j), the court shall impose a monetary sanction under Chapter 7 (commencing with Section 2023.010) against any party, person, or attorney who unsuccessfully makes or opposes a motion to compel further response to a demand, unless it finds that the one subject to the sanction acted with substantial justification or that other circumstances make the imposition of the sanction unjust.”

The Court finds that the parties have acted with substantial justification in presenting their positions and thus declines to award sanctions against 360 Capital.

Conclusion

Based on the foregoing, Plaintiffs’ motion is granted in part. The Court orders 360 Capital to provide further verified responses and to produce documents responsive to Requests Nos. 39, 40, and 43 of Wang’s RFPs, within 30 days of the date of this Order. Plaintiffs’ motion is denied as to Requests Nos. 37, 49, and 51.

Plaintiffs’ request for sanctions is denied.

In addition, in light of the foregoing, the hearing on Plaintiffs’ motion is continued to _______________, 2023 at 10:00 a.m. in Dept. 50 as to Requests Nos. 42, 44, 48, and 52 only. Plaintiffs are ordered to meet¿and confer¿with 360 Capital within 10 days of the date of this Order concerning Requests Nos. 42, 44, 48, and 52. If the parties resolve their discovery disputes before the continued hearing date, Plaintiffs are ordered to take the ¿motion¿ off calendar as soon as possible. If the parties are unable to resolve their discovery disputes, Plaintiffs are thereafter to

file and serve¿a declaration setting forth the efforts to meet and confer concerning the subject requests, including the final positions of each party.

Plaintiffs are ordered to give notice of this Order.¿ 

DATED:  April 17, 2023                               

________________________________

Hon. Teresa A. Beaudet

Judge, Los Angeles Superior Court