Judge Walter P. Schwarm, Case 30-2021-01212845 2023-08-08 Tentative Ruling

Judge: Walter P. Schwarm, Case: 30-2021-01212845, Date: 2023-08-08 Tentative Ruling

Motion No. 1:

Plaintiffs’ (Residual Income Opportunities, Inc. and Reuven Justin Cypers) Motion to Compel Defendants’ Further Supplemental Responses to Plaintiffs’ Special Interrogatories Set 1 (Motion), filed on 10-12-22 under ROA No. 148, is OFF CALENDAR as MOOT.

This Motion seeks to compel further responses to Plaintiffs’ Special Interrogatory (SI) Nos. 21, 22, and 29 directed Defendants (Eventus Holdings, LLC, National Payments Systems, LLC, Sabin Burrell, and John Hynes). (Motion 1:3-11.)

On 3-28-23, the court ordered the parties to meet and confer in an attempt to reach agreement on the Motion and to file a Joint Statement regarding any remaining discovery dispute. (3-28-23 Minute Order.) On 6-29-23 under ROA No. 286, the parties filed a Joint Status Report (Report.) According to the Report, the parties have resolved their dispute as to SI Nos. 21, 22, and 29. (Report; 5:6-18.)

Therefore, the court TAKES Plaintiffs’ (Residual Income Opportunities, Inc. and Reuven Justin Cypers) Motion to Compel Defendants’ Further Supplemental Responses to Plaintiffs’ Special Interrogatories Set 1, filed on 10-12-22 under ROA No. 148, OFF CALENDAR as MOOT. The court DENIES Plaintiffs’ request for a monetary sanction (Code Civ. Proc., § 2030.300, subd. (d)) because both parties worked cooperatively to resolve the discovery disputes at issue.

Plaintiffs are to give notice.

Motion No. 2:

Plaintiffs’ (Residual Income Opportunities, Inc. and Reuven Justin Cypers) Motion to Compel Defendants’ Further Supplemental Responses to Plaintiffs’ Request for Production Set 1 (Motion), filed on 10-12-22 under ROA No. 149, is GRANTED in part and DENIED in part.

Code of Civil Procedure section 2031.310 provides, “(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. [¶] (b) A motion under subdivision (a) shall comply with each of the following: [¶] (1) the motion shall set forth specific facts showing good cause justifying the discovery sought by the demand. [¶] (2) The motion shall be accompanied by a meet and confer declaration under Section 2016.040. . . [¶] (c) Unless notice of this motion is given within 45 days of the service of the verified response, or any supplemental verified response, or on or before any specific later date to which the demanding party and the responding party have agreed in writing, the demanding party waives any right to compel a further response to the demand.”

This Motion seeks to compel further responses to Plaintiffs’ Request for Production (RFP) Nos. 1, 2, 4, 7, 8, 10, 11, 12, 13, 14, 15, and 16 directed to Defendants (Eventus Holdings, LLC, National Payments Systems, LLC, Sabin Burrell, and John Hynes). (Motion 1:3-11.)

RFP No. 4 seeks, “All DOCUMENTS including COMMUNICATIONS on and after March 1, 2020 with any and all PERSONS who were prospects to purchase a residual income portfolio.” (Plaintiff’s Separate Statement (PSS) filed on 10-12-22 under ROA No. 145; 19:8-10.)

Plaintiffs contend that good cause exists to compel a further responses as to RFP No. 4 which seeks information regarding any prospects to purchase RIO’s Portfolio after March 1, 2020 because it “ . . . directly pertain[s] to Plaintiffs’ Claims in relation to RIO’s Portfolio of Residual Revenue streams which Defendants misrepresented could and would execute a Combined Sale to an unrelated third party at a multiplier of 60 or more, and while that effort was under way RIO would enjoy the same income from its continued business operations collecting Residual Revenue streams until such time as the sale to the third party buyer closed. However, Defendants invoked defaults on the Five Agreements (including alleged ‘loans’ to RIO via Burrell’s BSR with payments to Black Dog, and/or Javelin Holdings, LLC) pursuant to supposed failings to meet minimum production benchmarks under which Defendants actively withheld RIO’s residual income stream to strong-arm and cripple RIO in order to wrongfully possess and control, and then convert RIO’s Portfolio residual streams without ever intending to allow those RIO to participate or to sell RIO’s Portfolio in a Combined Sale at a multiplier of 60 or more.” (PSS; 20:18-28.)

The Report states, “Defendants offered to produce all communications on or after March 1, 2020 with persons who were prospects to purchase a residual income portfolio that reference or relate to the portion of Plaintiffs’ residual portfolios subject to the so-called ‘Second Option’ described in Section 1.5 of the parties’ Option Agreement.” (Report 2; 22-26.)

As to RFP No. 4, Defendants’ Opposition to Plaintiffs’ Motion to Compel Further Supplemental Responses to Plaintiffs’ Request for Production, Set One (Opposition), states, “. . . Disclosure of information regarding Defendants’ finances, customers, assets, and business plans would harm Defendants’ business interests if known to third-parties within its industry or to the public at large. Although it is impossible to predict all of the ways in which third-parties could utilize Defendants’ confidential information to Defendants’ detriment, disclosure of confidential information would enhance the ability of third parties to, among other things, target Defendants’ business relationships to their detriment . . . .” (Opposition; 7:6-11.)

Section 1.5(a) of the Option Agreement states, “In the event that Purchaser exercises the Option and subsequently agrees to sell all or substantially all of its equity interests or assets, including, but not limited to, all or substantially all of its merchant processing portfolio to an unaffiliated third-party buyer in one transaction or a series of related transactions (‘Sale Transaction’): (a) Purchaser shall have an additional irrevocable option to purchase all or any portion of Seller’s wholly owned unencumbered Merchant account Portfolio and related Residuals not previously purchased by Purchaser and include such purchased Residuals in the Sale Transaction (‘Second Option’); (b) Purchaser shall use commercially reasonable efforts to provide Seller, at the request and option of Seller’s, the right to participate in such Sale Transaction by selling directly to the buyer as part of the Sale Transaction all or any portion of its wholly owned unencumbered Merchant account Portfolio and related Residuals not previously purchased by Purchaser (‘Seller Tag Along Right’), and (b) [sic] provided that the Total Multiple (as hereinafter defined) in the Sale Transaction is sixty times (60x) or higher, Seller shall, at the request and option of Purchaser, participate in such Sale Transaction by selling directly to the buyer as part of the Sale Transaction all or any portion of its wholly owned unencumbered Merchant account Portfolio and related Residuals not already purchased by Purchaser (‘Purchaser Drag Along Right’).” (Complaint filed on 7-8-21 under ROA No. 2, ¶ 54 and Exhibit A at p. 2; Underscore in Exhibit A.)

Plaintiffs have sufficiently demonstrated good cause for the production of documents relating to persons who were prospects to purchase a residual income portfolio. Section 1.5 contemplates the sale of account portfolios and residuals by Defendant—Eventus Holdings, LLC. The prospects who were potential buyers as contemplated in Section 1.5 are relevant (Code Civ. Proc., § 2017.010) as to whether Defendant—Eventus Holdings, LLC misrepresented its ability to conduct a “Sale Transaction” (Section 1.5) with a prospect at a multiplier of 60 or higher. (For example, see Complaint at ¶¶ 113-124, and 137-144.)

Defendants, however, have shown that the request for “. . . all DOCUMENTS . . .” (RFP No. 4) is overbroad because it potentially includes Defendant—Eventus Holdings, LLC’s confidential and proprietary information. (Hynes Decl., ¶ 6.) Plaintiffs have not sufficiently shown how documents other than communications with prospects are relevant with respect the purchase of account portfolios and residuals contemplated by Section 1.5. Therefore, the court GRANTS the Motion as to RFP No. 4 by limiting it to all communications on or after March 1, 2020 with any and all persons who were prospects to purchase a residual income portfolio.

RFP Nos. 11, 12, 13, and 14 seek documents regarding payments and accounting entries of payments from Defendant—Eventus Holdings, LLC to Black Dog and Javelin “. . . derived from the $20,000 monthly RIO payments to Eventus.” (PSS Nos. 11, 12, 13, and 14.)

As to payments to Black Dog and Javelin, the PSS states, “. . . Defendants invoked defaults on the Five Agreements (including alleged ‘loans’ to RIO via Burrell’s BSR with payments to Black Dog, and/or Javelin Holdings, LLC) pursuant to supposed failings to meet minimum production benchmarks under which Defendants actively withheld RIO’s residual income stream to strong-arm and cripple RIO in order to wrongfully possess and control, and then convert RIO’s Portfolio residual streams without ever intending to allow those RIO to participate or to sell RIO’s Portfolio in a Combined Sale at a multiplier of 60 or more. . . .” (PSS; 43:15-21.) The PSS does not explain how payments to Black Dog and Javelin derived from monthly payments by are relevant to this action in light of the Complaint.

The Complaint does not mention Javelin, and the only reference to Black Dog is at paragraph 27 of the Complaint. Paragraph 27 of the Complaint states, “BSR itself, and/or through its various shell companies inter alia Black Dog Management, LLC (‘Black Dog’) or SLB Ventures, LLC (‘SLB’ and with BSR and Black Dog referred to herein as the ‘BSR Entities’), purchased Residual Revenue from or loaned funds to hundreds of ISOs and Sub-ISOs. Not one of those ISOs/Sub-ISOs had anything positive to say about the experience.” (Complaint, ¶ 27.)

It is simply unclear how payment to Black Dog and Javelin relate Plaintiff’s claims. Therefore, Plaintiffs have failed to show good cause for the production related to RFP Nos. 11, 12, 13, and 14, and the court DENIES the Motion as to RFP Nos. 11, 12, 13, and 14.

Based on the above, the court GRANTS Plaintiffs’ (Residual Income Opportunities, Inc. and Reuven Justin Cypers) Motion to Compel Defendants’ Further Supplemental Responses to Plaintiffs’ Request for Production Set 1, filed on 10-12-22 under ROA No. 149, as to RFP No. 4 as described above. The court DENIES the Motion as to RFP Nos. 11, 12, 13, and 14. The court ORDERS Defendants to provide a Code of Civil Procedure compliant response to RFP No. 4 within 14 days from the date of service of the notice of the court’s decision. The court DENIES Plaintiff’s request for a monetary sanction (Code Civ. Proc., § 2031.310, subd. (h)) because both parties achieved success on this Motion, and the court commends both parties for working cooperatively to resolve a significant number of the discovery disputes at issue.

Plaintiffs are to give notice.