Judge: Yolanda Orozco, Case: 21STCV34645, Date: 2022-10-21 Tentative Ruling

Case Number: 21STCV34645    Hearing Date: October 21, 2022    Dept: 31

MOTION TO COMPEL FURTHER DISCOVERY

RESPONSES TO RPD, SET ONE IS GRANTED, IN PART 

Background 

The present action arises from the deterioration of a business relationship between Jeff Kwatinetz, founder and manager of a music production company known as Prospect Park, LLC and Azealia Banks, a recording artist and rapper.   

On September 20, 2021, Plaintiffs Jeff Kwatinetz and Prospect Park, LLC initiated the present action by filing a Complaint against Azealia Banks, Lasagna Girl, LLC, and Does 1 through 10 (collectively, “Defendant”).  Plaintiffs’ Complaint alleges the following causes of action against Defendants: (1) Breach of Implied Covenant of Good Faith and Fair Dealing; (2) Interference with Contractual Relations; (3) Defamation; (4) Trade Libel; (5) Stalking in Violation of California Civil Code Section 1708.7; (6) Invasion of Privacy; and (7) Civil Extortion.  

On November 18, 2021, Defendants Azealia Banks and Lasagna Girl, LLC filed a Cross-Complaint against Plaintiffs Jeff Kwatinetz, Prospect Park, LLC.  The Cross-Complaint alleges the following causes of action against Cross-Defendants: (1) Breach of Contract; (2) Fraud and Deceit; (3) Breach of Fiduciary Duty; (4) Declaratory Relief; and (5) Negligence. 

On September 21, 2022, Azealia Banks and Lasagna Girl, LLC (hereinafter “Defendant”) filed a motion to compel Plaintiffs/Cross-Defendants (hereinafter “Plaintiff”) to provide further responses to the Request for Production of Documents (RPD), Set One. 

Plaintiff filed opposing papers on October 03, 2022. 

Defendant filed a reply on October 11, 2022. 

Legal Standard 

Under Code of Civil Procedure section 2031.310(a), parties may move for a further response to request for production where an answer to the requests was evasive or incomplete or where an objection is without merits or too general. ¿ 

Notice of the motions must be given within 45 days of service of the verified response, otherwise, the propounding party waives any right to compel a further response. (Code Civ. Proc. § 2031.310(c).)  ¿ 

The motions must also be accompanied by a meet and confer declaration. (Code Civ. Proc. § 2031.310(b).) ¿ 

Finally, Cal. Rules of Court Rule (CRC) 3.1345 requires that all motions or responses involving further discovery contain a separate statement with the text of each request, the response, and a statement of factual and legal reasons for compelling further responses. (Cal. Rules of Court, Rule 3.1345, subd. (a)(3)). 

MEET AND CONFER  

Defense counsel asserts they meet numerous times with Plaintiff’s counsel, including an IDC over the telephone. (Passin Decl. ¶¶ 4, 7.) Thus, the meet and confer requirement is met. 

Discussion 

I.  RPD Nos. 7-12, 14, 27-29, 36, 38, 41-59. 

Ambiguity in The Recording Contract 

The discovery dispute at issue pertains to Defendant’s claim for Breach of Contract which arose out of a July 1, 2020 Accounting Statement (the “2019 Statement”) that covers the period from inception, that being when the Recording Agreement was signed on October 24, 2014, through December 31, 2019 (the “Recording Agreement”). 

            a.         Section 9.04 and Possible Bar on Challenging Prior Profit Statements 

The Recording Agreement sets forth the contractual rights of the parties. A copy of the Recording Agreement was not provided by the parties, but section 9.04 is purported to state: 

“If you have any objections to a royalty statement, you will give Company specific notice of that objection and your reasons for it within three (3) years after the date on which the applicable royalty statement is rendered to you. Each royalty statement will become conclusively binding on you at the end of that three (3) year period, and you will no longer have any right to make any other objections to it. You will not have the right to sue Company in connection with any royalty accounting, or to sue Company for royalties on Records sold during the period a royalty accounting covers, unless you commence the suit within one (1) year after the expiration of such three (3) year period.”

(Opp. at 3:14-20.) 

Plaintiff points to section 9.04 to assert that because Defendant Banks received her 2015 profit participation statement (the “2015 Statemen”) covering the period of inception to December 31, 2015, Defendant is now barred from challenging the 2015 statement and seeking any discovery pertaining to documents used to render the accounting for the 2015 covered time period. 

On July 1, 2020, Plaintiff rendered the 2019 Statement that covered the period from inception, including the period covered by the 2015 statement, to December 31, 2019. (Passin Supp. Decl. ¶ 2.) Defendant takes the position that because the 2019 Statement was recently issued, she can challenge that statement under section 9.04 because “[a]ny examination may be made for a particular statement only once, and only within three (3) years after the date on which the applicable royalty statement was rendered to you.” (Passin Supp. Decl. ¶ 5.) Defendant Banks asserts she can object to the entirety of the 2019 Statement, including the accounting figures provided in the 2015 statement, because she is challenging the entire 2019 Statement. 

b.         Proper Notice of 2015 Statement under section 17.11 

Defendant also asserts she failed to challenge the 2015 statement because she was not given proper notice of the 2015 Statement as required by the recording contract. 

Section 17.11 of the Recording Agreement is purported to Read: 

“All notices to be given to you and all statements and payments to be sent to you hereunder shall be addressed to you at the address set forth on page 1 or at such other address as you shall designate in writing from time to time. All notices to be given to Company hereunder shall be addressed to Company to the attention of the Vice President of Business Affairs at the address set forth on page 1 hereof or at such other address as Company shall designate in writing from time to time. To be effective, all notices hereunder must be in writing, addressed to the proper party specified above and sent by: (i) registered or certified mail, return receipt requested; (ii) personal delivery; or (iii) overnight receipted courier service (e.g., Fedex or UPS).” 

(Opp. at 3: 2-8; see also Passin Decl. ¶ 8.) 

Plaintiff asserts that its outside accounting firm, NKSFBGO, LLC, rendered the 2015 Statement to Lasagna Girl’s business representative, David Weise & Associates via email, as permitted under section 17.11 of the Recording Agreement. (Norris Decl. ¶ 2, Ex. 1.) Plaintiff asserts that under the Recording Agreement, only notices, but not statements or payments, needed to be sent by certified mail, personal delivery, or overnight receipted services to be valid. (Opp. at 3:12-16.) Therefore, statements may be sent by other means, like email. 

Defendant Banks disagrees and asserts that the first sentence of section 17.11 asserts that “all statements and payments” will be “addressed [to] the address set forth on page 1” which on page 1 of the Recording Agreement was designated as “Lasagna Girl, LLC f/s/o Azealia Banks, c/o David Weise & Associates, Inc., 16000 Ventura Blvd., Suite 600, Encino CA 91436, Atten: David Weise.” (Passin Decl. ¶ 8.) Therefore, Defendant Banks argues that the 2015 Statement was not properly rendered because it was emailed rather than mailed to the address provided. 

Conversely, Plaintiff asserts that because Defendant Banks received the 2015 Statement, under section 9.04 of the Recording Agreement, Defendant Banks is barred from challenging the 2015 participation statement and seeking documents from 2014 to 2015 that pertain to that statement. Brittany Norris attached the 2015 profit participation statement sent to Jon Payne at David Weise & Associates on or about April 15, 2016. (Norris Decl. ¶ 2, Ex. 1.) 

c.            Conflicting Evidence Regarding Industry Practices Regarding Profit Statements 

Defendant’s expert, Wayne Coleman, asserts that it is common knowledge and custom and practice in the music industry that if a company accounts for a particular period and subsequently renders a second statement for the same period, the company opens up the period for auditing for another 3 years. (Coleman ¶¶ 10, 11.)  Therefore, because Defendant is objecting to the 2019 Statement, Defendant is entitled to inquire about 2015 Statement since the prior accounting statements make up the 2019 Statement. (Id.) 

Plaintiff’s expert disagrees with the assertion and asserts that “[a]ll standard profit participation statements in the music and other industries are cumulative reports of so-called ‘inception-to-date’ transactions” meaning they carry forward prior period information. (Boschan Decl. ¶¶ 20, 24.) Plaintiff’s forensic accountant asserts that cumulative reports are how accounting professionals are trained to account for all profit participants (statements) and it is how accountings were stated by PPK on the statements provided to Defendant Banks. (Id.) If this were not the case, Plaintiff’s expert asserts that a profit participant/artist would generally never lose the right to audit back to inception because it is the standard for every participation statement to report the cumulative earnings during an inception-to-date period. (Id. ¶ 22.) For this reason, Plaintiff’s expert asserts that section 9.04 of the Recording Agreement bars objections and lawsuits after the expiration of the three (3) year period. (Id. ¶ 24.) Consequently, Plaintiff maintains that Defendant’s right to object to the 2015 Statement expired on April 15, 2019. (Id. ¶ 30.) 

Defense counsel, Mark D. Passin, asserts that it is not typical to render inception to date royalty statements in the music industry. (Passin Supp. Decl. ¶ 5.) Defendant also takes the position that under section 9.04 of the Recording Agreement, Defendant Banks has the right to audit the 2019 statement, including the 2014 and 2015 documents used to render the 2015 Statement. According to Defendant, it is common knowledge and custom and practice in the music industry that if a company accounts for a particular period, here 2020, the company opens up the period for objection another three (3) years. Therefore, Defendant is not objecting to the 2015 statement rendered in 2016 (also called the 2015 profit participant statement), but the 2019 Statement that covered periods from the inception of the agreement through December 31, 2019. Therefore, under section 9.04 of the Recording Agreement, Defendant Banks is allowed to object and is entitled to all of the documents from inception. 

There is conflicting evidence regarding the applicability of section 9.04 of the Recording Agreement and whether Defendant Banks is barred by section 9.04 from inquiring about documents related to the 2015 Statement when she is challenging the 2019 Statement. The approach taken by courts is that any ambiguities in the contract are construed against the drafting party and in favor of the non-drafting party.  (See Restatement (Second) of Contracts § 206.) Therefore, the Court finds that the ambiguity as to the scope of section 9.04 must be construed against Plaintiff as the drafter of the contract. 

In addition, there are other reasons which favor allowing Defendant to seek account documents related to the 2015 Statement.   

Defendant Banks has presented evidence that the 2015 Statement given to Defendant Banks is inaccurate. The 2019 Statement includes the expenses incurred in 2014 and 2015. (Passin Supp. Decl.  ¶ 2.) Defendant asserts that the 2015 Statement does not contain the same financial figures as the 2019 Statement for the same time period despite guarantees in the Recording Agreement that the statements would include gross expenses, including all actual, documented, out-of-pocket costs. (Id. ¶¶ 3,4.) For example, the producer expenses in the 2015 Statement are reported to be $181,637.34 but the amount is higher, $211,385.68, in the 2019 Statement despite the expenses being for the same period ending on December 31, 2015.  (Id ¶ 3, Ex. 1.) The total income reported in the 2015 Statement is $951,583.07, but only $578,801.62 for the same period as reported in the 2019 Statement. (Id.) If the participation statements are cumulative reports, it is reasonable to assume that the figures would remain the same for previously reported periods. 

The Court finds that Defendant has presented sufficient evidence to question the authenticity of the 2015 Statement and whether or not it was accurately rendered to Defendant Banks, such that Defendant is allowed to obtain discovery as to the 2014 and 2015 documents used to render the 2015 Statement in order to discover if discrepancies in accounting exist in the 2019 Statement. 

Limiting Discovery by  Use of Test Selections 

Plaintiff maintains that the audit documents sought by Wayne Coleman, Defendant’s expert, are excessive and overly burdensome. Plaintiff asserts that the use of test selections from a list of costs and expenses is the way an audit profit participant can conduct an efficient examination and audit in a way that does not negatively impact outcomes for profit participants but dramatically reduces the burden associated with the audit. (See Boschan Decl. ¶¶ 9-17; Norris Decl. ¶¶ 4-7.) 

According to Brittany Norris, a Royalty Manager for NKSFBGO, when Wayne Coleman initially requested documents in connection with the 2019 audit statement he stated:  

“All documents concerning evidencing or supporting the costs and expenses charged to Banks. We will request test selections from list of costs and expenses.” 

(Norris Decl. ¶ 4, Ex. 2.) 

Coleman does not offer an explanation as to why the test selection method was abandoned in favor of seeking further document production. 

Defendant argues that audits are governed by the Recording Agreement but because this is a civil suit, the Recording Agreement is inapplicable, and the Code of Civil Procedure governs. This argument is unavailing. 

Under the Code of Civil procedure, “[t]he court shall limit the scope of discovery if it determines that the burden, expense, or intrusiveness of that discovery clearly outweighs the likelihood that the information sought will lead to the discovery of admissible evidence.” (Code Civ. Proc., § 2017.020, subd. (a).) If a party asserts a “burdensome” objection, that party bears the burden of “showing the quantum of work required” to respond to discovery and articulate that burden that is being imposed on that party. (West Pico Furniture Co. v. Los Angeles v. Superior Court (1961) 56 Cal. 2d 407, 417-418.)  Brittany Norris asserts that if the Court were to grant Defendant’s request to analyze accounting documents from the periods prior to 2016, including 2014 and 2015, it would take “approximately 140 hours to conduct a review of the participation statement for the period from inception through 2015, including gathering the source documentation.” (Norris Decl. ¶ 6.) Moreover, Norris asserts that because Defendant is also requesting a search for other documents, including email communications that relate in any way to Defendant Banks’ participation statements, the burden is oppressive because it would require multiple people at NKSFBGO to search through years of email communications back to 2014. (Norris Decl. ¶ 7.) 

Cedar Boschan, a forensic accountant and expert for Plaintiffs, attests that the documents requested by Coleman “are too voluminous to comport with industry standards.” (Boschan Decl. ¶ 9.) Boschan also states that Coleman’s request does not comply with the Recording Agreement which sets strict limits on the documents Defendant is entitled to examine. (Id. ¶ 12.) Boschan also states that it is costly and burdensome for both parties to produce, view and analyze every potentially relevant document. (Id. ¶ 15.) For this reason, Boschan asserts that Coleman should identify reasonable samples of relevant information to review and proceed based on his analysis of the test selections. (Id. ¶ 16.) 

Plaintiff asserts that the Recording Agreement governs only the audit, but not discovery. As a copy of the Recording Agreement and the relevant provisions at issue, have not been provided to the Court, the Court cannot ascertain the veracity of the claims that the Recording Agreement limits the documents Defendants can examine. 

Additionally, Plaintiff’s outside accountant and record label administration firm, NKSFBGO has already spent approximately 240 hours producing documents for Defendants. (Norris Decl. ¶ 5.) The 240 hours included gathering the source documentation, as well as deleting or redacting information relating to other artists that often appear on the same invoices or statements issued by various third parties to Prospect Park. (Norris Decl. ¶ 5.) Plaintiff asserts that the NKSFBGO documents can confirm the accuracy of the profit participation statements. Moreover, if Coleman had provided a list of test selections that limited the number of expenses audited to 20% of the total, as is customary, the associated burden would have been commensurately lower. (Norris Decl. ¶ 5.) 

Plaintiff has met its burden of showing that it is unduly burdensome to produce the documents sought, and that a less burdensome method (the test selections) exists to obtain the necessary information. Mr. Coleman does not explain why the test selection method would not serve to confirm the accuracy of the 2015 Statement or why the NKSFBGO records/documents that were provided are inadequate to conduct an audit of the 2019 Statement. 

Accordingly, Defendant can seek discovery regarding the 2015 Statement, including documents dating back to 2014 and 2015, however, they are limited to using the test selection method. 

The Motion with respect to RPD Nos. 7-12, 14, 27-29, 36, 38, 41-59 is GRANTED. 

Plaintiff is to produce the documents requested. Any audit documents pertaining to the 2015 Statement or the 2019 Statement shall be produced using the test selection method from the list of documents to be provided by Defendant. Any claims of attorney-client privilege and/or attorney work product are without merit as Plaintiff has not submitted a privilege log. (See Coy v. Superior Court (1962) 58 Cal.2d 210, 220 [the responding party has the burden of establishing a valid objection, including any claim of privilege.].)  

II. RPD Nos. 3 to 6 

Documents associated with Brooklyn Music Distribution, Inc. (“BMD”) 

Plaintiff objects to any discovery pertaining to Brooklyn Music Distribution (“BMD”) on the basis that Defendant has not plead that BMD is the alter ego of Plaintiff Prospect Park. This argument is unavailing because Defendant is not precluded from developing the theory through discovery that Plaintiff Kwatinetz formed an entity entitled FTE Distribution, LLC that eventually changed its name to Brooklyn Music Distribution and that Kwatinetz changed distributors of the album that is the subject of the Recording Agreement to BMD so that PPK could retain a larger share of the net receipts even though Prospect Park could do the same work at no cost to Defendant. 

The Complaint and the Cross-Complaint both describe BMD as a party that has an interest in the litigation. Defendant alleges in the Cross-Complaint that BMD is owned and controlled by Kwatinetz and that BMD receives a distribution fee. Defendant further alleges that BMD was designated as the sole distributor “solely as a way for Prospect Park to retain a larger share of the net receipts than it is entitled to receive pursuant to the Agreement.” (Cross-Complaint, para. 32.) These allegations are sufficient to inquire as to BMD. "To recover on an alter ego theory, a plaintiff need not us the words 'alter ego,' but must allege sufficient facts to show a unity of interest and ownership, and an unjust result if the corporation is treated as the sole actor." (Leek v. Cooper (2011) 194 Cal.App.4^th 399, 415.)

Defendants present evidence that (1) Kwatinetz is the chief executive offer of BMD and owns and controls BMD; (2) John Bowen, the former manager of PPK, is the current manager of BMD; (3) That although Bowen supposedly works at BMD, he uses a PPK e-mail address; and (4) That prior to the pandemic both BMD and PPK were housed in the same offices. Moreover, records by the California Secretary of State show that in 2019 BMD converted to a corporation entitled Brooklyn Music Distribution, Inc., and that both PPK and BMD list the same business managers, NKSFBGO, LLC’s offices, as their address and have the same agent for service of process. (Passin Supp. Decl. ¶ 9.) 

For the reasons stated, the Motion as to RPD Nos. 3 to 4 is GRANTED and DENIED as to RPD Nos. 5 and 6 because the requests are overly broad and unlimited in limited in scope. 

III. RPD Nos. 73 to 76 

To the extent that Plaintiff seeks discovery regarding former NBA player Roger Mason’s recanted allegations that Jeff Kwatinetz used derogatory slurs regarding African American basketball players, the requested discovery is denied. Plaintiff seeks documents relating to the lawsuit, the arbitration, and any settlement agreement. 

Roger Mason is not a party in this case and the allegations were recanted. Furthermore, Defendant has not shown that the information sought is directly relevant and essential to the fair resolution of this case. To the extent that Plaintiff also seeks documents relating to a settlement agreement, these documents are likely confidential. 

The Motion with respect to RFD Nos. 73 to 76 is DENIED. 

Conclusion 

Defendant/Cross-Complainant’s Motion to Compel Further Discovery is GRANTED, IN PART. 

The Motion relating to RPD Nos. 7-12, 14, 27-29, 36, 38, 41-59 is GRANTED. 

Plaintiff is to produce the documents requested. Any audit documents pertaining to the 2015 Statement and the 2019 Statement shall be produced using the test selection method from the list of documents to be provided by Defendant. Any claims of attorney-client privilege and/or attorney work product are without merit as Plaintiff has not submitted a privilege log. (See Coy v. Superior Court (1962) 58 Cal.2d 210, 220 [the responding party has the burden of establishing a valid objection, including any claim of privilege.].) 

The Motion relating to RPD Nos. 3 to 4 are GRANTED. RPD Nos. 5 and 6 are DENIED because the request is overly broad and not limited in scope.

The Motion relating to RFD Nos. 73 to 76 is DENIED. 

The moving party to provide notice.