Opinion
Case No.: 12cv1078 BAS (JLB)
06-17-2015
EDU-SCIENCE (USA) INC., Plaintiff, v. INTUBRITE, LLC, Defendant.
ORDER:
(1) DENYING INTUBRITE'S MOTION TO QUASH SUBPOENA; AND
(2) GRANTING IN PART AND DENYING IN PART EDU-USA'S MOTION TO COMPEL
[ECF Nos. 121, 122]
Presently before the Court is Defendant IntuBrite's ("IntuBrite") Motion to Quash Subpoena (ECF No. 121), and Plaintiff Edu-Science's ("Edu-USA") Motion to Compel Production of Documents (ECF No. 122). For the reasons set forth below, the Motion to Quash Subpoena is DENIED and the Motion to Compel is GRANTED in part and DENIED in part.
I. BACKGROUND
On February 16, 2013, Edu-USA sued IntuBrite for breach of contract. (ECF No. 2.) In its First Amended Complaint, Edu-USA alleges that IntuBrite breached its contract to purchase custom-manufactured instruments for tracheal intubation from Edu-USA. (ECF No. 97 at 5.) According to Edu-USA, although IntuBrite paid for some of the product, IntuBrite did not fulfill its obligations under the contracts. (Id.)
IntuBrite, in its First Amended Counterclaim, alleges that the products delivered were defective and untimely. (ECF No. 99.) IntuBrite further claims it paid fully for the products it actually received. (Id. at 5.) IntuBrite asserts seven claims against Edu-USA and Counter Defendant Edu-Science (HK) LTD ("Edu-HK"): (1) breach of contract; (2) breach of the implied warranty of merchantability; (3) negligence; (4) intentional interference with prospective economic advantage; (5) negligent interference with prospective economic advantage; (6) intentional misrepresentation of fact; and (7) negligent misrepresentation of fact. (ECF No. 99.)
Edu-HK, in its Third Amended Cross-Complaint, asserted three claims against IntuBrite and Cross Defendant Robert Hicks: (1) intentional misrepresentation; (2) fraudulent non-disclosure; and (3) negligent misrepresentation. (ECF No. 98.) On March 10, 2015, Edu-HK's Third Amended Cross-Complaint was dismissed without prejudice for failure to properly allege falsity. (ECF No. 118 at 5.)
On March 23, 2015, this Court issued a Minute Order setting a briefing schedule for cross-motions to resolve the parties' pending discovery disputes. (ECF No. 120.) On March 27, 2015, Edu-USA filed a Motion to Compel Production of Documents and IntuBrite filed a Motion to Quash Subpoena. (ECF Nos. 122, 121.)
II. THE INSANT MOTIONS
A. Motion to Compel
Edu-USA's Motion seeks a Court order compelling IntuBrite to produce documents responsive to six Requests for Production ("RFPs"): 135; 136; 139; and 140-142. (ECF No. 122-1.) The RFPs can be organized into three categories. RFP No. 135 seeks financial statements. (Id. at 4.) RFP Nos. 136 and 140-142 seek sales projections and sales forecasts. (Id. at 5-6.) And RFP No. 139 seeks customer lists. (Id. at 6.) Edu-USA argues that these requests seek relevant information and that such discovery is necessary to allow it to rebut IntuBrite's counterclaims for damage to customer relationships and lost future profits. (Id. at 5.) Furthermore, such discovery is necessary to allow Edu-USA to "fully and completely respond to and cross-examine IntuBrite's expert testimony [regarding] damages." (Id. at 4.)
RFP Nos. 140-142 seek securities law filings and investment documents because "those documents almost always contain financial projections . . . ." (ECF No. 122-1 at 6.)
IntuBrite argues that the documents sought are irrelevant and that the requests violate IntuBrite's right of privacy. (ECF No. 123 at 2-5.) "While the privilege that protects financial and proprietary information is not absolute, where there is no doubt that the information requested implicates traditional notions of what is private information, the burden is on the requesting party to demonstrate that the information needs of the case outweigh the need for non-disclosure." (Id. at 5 (citing Davis v. Leal, 43 F. Supp. 2d 1102, 1110 (E.D. Cal. 1999).) IntuBrite argues that Edu-USA fails to meet this burden. (ECF No. 123 at 5.)
B. Motion to Quash
IntuBrite moves to quash Edu-USA's Subpoena that requests, "without limitation of any kind, all IntuBrite's financial records from . . . third party [Moss Adams LLP]." (ECF No. 121 at 1.) The subpoena requests "'[a]ll documents, financial records, financial documents and financial statements relating to or pertaining to IntuBrite, LLC." (Id. (citing Exhibit 1).) IntuBrite objects on the grounds that the subpoena: (1) seeks irrelevant information; and (2) violates IntuBrite's right to privacy. (Id. at 2-5.)
Edu-USA argues that the documents sought are relevant to the claims and counterclaims in the instant action and that IntuBrite's privacy concerns do not outweigh Edu-USA's interest in obtaining relevant discovery. (ECF No. 124 at 3-4.)
The parties, through meet and confer efforts, have narrowed the scope of the Subpoena. (Id. at 3.) Accordingly, the Subpoena has been limited to seek the following documents: balance sheets, profit and loss statements, income and expense statements, statements of cash flow, and accounts receivable journals from the date IntuBrite was formed through the end of 2013 or the date IntuBrite began selling a video laryngoscope product, whichever is later. (Id. at 3.) As amended, the Subpoena mirrors Edu-USA's amended RFP No. 135. (See ECF No. 122-1 at 3-4.)
III. LEGAL STANDARD
The Federal Rules of Civil Procedure generally allow for broad discovery, authorizing parties to obtain discovery regarding "any nonprivileged matter that is relevant to any party's claim or defense." Fed. R. Civ. P. 26(b)(1). Also, "[f]or good cause, the court may order discovery of any matter relevant to the subject matter involved in the action." Id. Relevant information for discovery purposes includes any information "reasonably calculated to lead to the discovery of admissible evidence," and need not be admissible at trial to be discoverable. Id. District courts have broad discretion to determine relevancy for discovery purposes. See Hallett v. Morgan, 296 F.3d 732, 751 (9th Cir. 2002). Similarly, district courts have broad discretion to limit discovery where the discovery sought is "unreasonably cumulative or duplicative, or can be obtained from some other source that is more convenient, less burdensome, or less expensive." Fed. R. Civ. P. 26(b)(2)(C)(i). Limits should be imposed where the burden or expense outweighs the likely benefits. Fed. R. Civ. P. 26(b)(2)(C)(iii).
Rule 37 of the Federal Rules of Civil Procedure enables the propounding party to bring a motion to compel responses to discovery. Fed. R. Civ. P. 37(a)(3)(B). "The party seeking to compel discovery has the burden of establishing that its request satisfies the relevancy requirements of Rule 26(b)(1). Thereafter, the party opposing discovery has the burden of showing that the discovery should be prohibited, and the burden of clarifying, explaining or supporting its objections." Bryant v. Ochoa, 2009 WL 1390794 at *1 (S.D. Cal. May 14, 2009). Those opposing discovery are "required to carry a heavy burden of showing" why discovery should be denied. Blankenship v. Hearst Corp., 519 F.2d 418, 429 (9th Cir. 1975).
Federal Rules of Civil Procedure 26 and 45 govern discovery from nonparties by subpoena. See Exxon Shipping Co. v. U.S. Dep't of Interior, 34 F.3d 774, 779 (9th Cir. 1994) (applying both rules to motion to quash subpoena). Specifically, under Federal Rule of Civil Procedure 45(a)(1)(C), any party may serve a subpoena commanding a nonparty "to produce documents, electronically stored information, or tangible things . . . ." The subpoena may command the production of documents which are "not privileged" and are "relevant to any party's claim or defense" or "reasonably calculated to lead to the discovery of admissible evidence." Fed. R. Civ. P. 26(b)(1).
A party that is not the recipient of the subpoena has standing to challenge the subpoena "where its challenge asserts that the information is privileged or protected to itself." Diamond State Ins. Co. v. Rebel Oil Co., 157 F.R.D. 691, 695 (D. Nev. 1994). Upon a timely motion, the court issuing such a subpoena shall quash or modify it if it determines that the subpoena "requires disclosure of privileged or other protected matter, if no exception or waiver applies; or subjects a person to undue burden." Fed. R. Civ. P. 45(c)(3)(A)(iii)-(iv).
IV. ANALYSIS
A. IntuBrite's Response and Objections
In response to the six RFPs that are the subject of the instant Motion to Compel, IntuBrite responds with largely identical objections. The standard objection is as follows:
Objection. The second request for production does not include a signature as required by Federal Rules of Civil Procedure, Rule 26(g)(1); therefore, Responding Party has no duty to act on this request for production under Federal Rules of Civil Procedure, Rule 26(g)(2). Objection is also made on the grounds that EDU-USA lacks standing to sue because it is not currently a corporation in good standing with the Delaware Secretary of State. Responding Party also objects on the ground that this request seeks documents that are not relevant to EDU-USA's claims or reasonably calculated to lead to discovery of admissible information as it requests information not related to the time frame of the transactions between EDU-USA and IntuBrite and not related to EDU-USA's claims. Further objection is made on the grounds that this request for production is overly broad and without reasonable limitation in its scope. Objection is further made on the grounds that this request fails to describe with reasonable particularity each item or category of items to be produced. Responding Party also objects on the ground that this request invades Responding Party's right to privacy by seeking Responding Party's confidential financial information.(ECF No. 122-3 at 3-4.) To the extent that a response differs from the one provided above, the Court will identify the specific variation. B. RFP No. 135 and the Moss Adams Subpoena
The Court notes that an amended copy of the discovery requests, signed in ink, has been supplied to IntuBrite. (See ECF No. 126 at 2, FN 1.) Accordingly, the issue is now moot and the Court declines to address IntuBrite's signature objection.
Neither party addresses this objection in their briefing, nor does IntuBrite provide authority supporting this objection. Accordingly, the Court will not consider it.
As the amended versions of these two requests seek the same documents from the same timeframe, the Court's analysis will address them together. (See ECF Nos. 122-1 at 3; 124 at 3.)
Edu-USA's amended RFP No. 135 seeks the following: balance sheets, profit and loss statements, income and expense statements, statements of cash flow, and accounts receivable journals from the date IntuBrite was formed through the end of 2013 or the date IntuBrite began selling a video laryngoscope product, whichever is later. (ECF No. 122-1 at 3-4.)
The parties' briefing - for all six RFPs - focuses almost exclusively on the relevancy, overbroad, and privacy objections. Edu-USA argues that RFP No. 135 seeks relevant information within a relevant timeframe. The requested financial documents are "necessary to allow Edu-USA to . . . cross-examine Intubrite's expert testimony regarding damages," and are relevant to "assess the competitive situation in Intubrite's market as reflect in . . . actual sales and financial performance." (ECF No. 122-1 at 4-5.) Edu-USA further argues that, given IntuBrite's existing counterclaims for intentional and negligent interference with a prospective economic advantage, the financial documents from the extended timeframe are relevant and the need for such discovery outweighs IntuBrite's privacy concerns. (Id. at 5.)
IntuBrite argues that its financial statements are irrelevant because they "have no connection at all to the existence of any alleged contract, the breach of any alleged contract, performance under any alleged contract, or any damages allegedly suffered by EDU-USA . . . ." (ECF No. 123 at 3.) IntuBrite objects to the extended timeframe of this request, arguing that because IntuBrite does not seek damages beyond November 2012, this extended timeframe is irrelevant. Furthermore, the financial information sought is private and Edu-USA has not shown that the "needs of this case outweigh the need for non-disclosure of IntuBrite's confidential private information." (Id. at 5.)
The Court finds that RFP No. 135, as amended, seeks financial documents relevant to the claims, counterclaims, and defenses in the instant action. While the documents may not have a connection to Edu-USA's breach of contract claim, they are certainly relevant to IntuBrite's counterclaims and damages models. Furthermore, the Court finds that the extended timeframe - from the date IntuBrite was formed through the end of 2013 or the date Intubrite began selling a video laryngoscope product, whichever is later - is relevant and is not overbroad. IntuBrite offers no reason, let alone a compelling reason, why the damages models should end at November 2012. Even if IntuBrite is not seeking damages past this date, financial data continuing past November 2012 is relevant in light of IntuBrite's counterclaims. Accordingly, IntuBrite's relevancy and overbroad objections are OVERRULED.
As IntuBrite correctly points out in its Opposition, the privilege provided for private financial and proprietary information is not absolute. (ECF No. 123 at 5.) Rather, the burden is on the requesting party to demonstrate that its interest in relevant information outweighs the producing party's need for non-disclosure. The right to privacy "is subject to balancing the needs of the litigation with the sensitivity of the information/records sought." Davis v. Leal, 43 F. Supp. 2d 1102, 1110 (E.D. Cal.1999); see also Womack v. Metro. Transit Sys., 2010 WL 2178962, at *3 (S.D. Cal. May 26, 2010) (balancing privacy rights of third parties with discovery rights of civil litigants.)
With respect with RFP No. 135, IntuBrite's privacy interests must yield to disclosure of the financial documents requested. The documents sought are relevant to the counterclaims in this case and have a direct impact on damages models and expert testimony. Accordingly, the Court OVERRULES Plaintiffs' privacy objection.
C. RFP No. 136
Edu-USA's RFP No. 136 seeks: "All documents in [IntuBrite's] possession, custody or control relating to or pertaining to any sales projections or sales forecasts prepared by [IntuBrite] and/or on [IntuBrite's] behalf at any time." (ECF No. 122-3 at 4.) IntuBrite responds with the same objections listed in Section A. (Id. at 4-5.)
The Court OVERRULES IntuBrite's relevancy objection. The requested documents are relevant given IntuBrite's counterclaims for intentional and negligent interference with a prospective economic advantage. Furthermore, the financial documents are relevant to damages calculations and expert testimony.
For the reasons provided above, IntuBrite's privacy objection is OVERRULED. IntuBrite's overbroad objection is SUSTAINED in part. The request is amended to include the following timeframe limitation: all documents in IntuBrite's possession, custody or control relating to or pertaining to any sales projections or sales forecasts prepared by IntuBrite and/or on IntuBrite's behalf from the date IntuBrite was formed to the end of 2013 or the date IntuBrite began selling a video laryngoscope, whichever is later.
D. RFP No. 139
RFP No. 139 seeks: "A list of [IntuBrite's] customers for each year from the date [IntuBrite was] formed to present." (ECF No. 122-3 at 6.) However, in its Memorandum, Edu-USA clarifies that it is seeking customer lists to the extent they exist in specific reports referred to as "Sales by Customer Detail Reports." (ECF No. 122-1 at 6.) IntuBrite's response mirrors the response set forth in Section A except for its privacy objection. (ECF No. 122-3 at 6.) IntuBrite "objects on the ground that this request invades Responding Party's right to privacy by seeking Responding Party's confidential trade secret information by seeking Responding Party's client list." (Id.)
IntuBrite claims that its client list is confidential and should not be compelled in light of the protection afforded to trade secrets. (ECF No. 122-3 at 6.) "Client lists can receive trade secret protection if they satisfy the requirements of Cal. Civ. Code § 3426.1(d)." Hilderman v. Enea TekSci, Inc., 551 F. Supp. 2d 1183, 1201 (S.D. Cal. 2008). While IntuBrite responds that its client list is a trade secret and objects to producing it, IntuBrite fails to address this objection in its briefing. There is no discussion of whether IntuBrite's customer list meets the requirements for protection as a trade secret. Accordingly, IntuBrite has not established that its privacy interests outweigh Edu-USA's interests in obtaining discovery, at least with respect to the most relevant time period.
Furthermore, IntuBrite has already produced the Sales by Customer Detail Reports through November 2012. The dispute at issue between the parties is the production of Sales by Customer Detail Reports from November 2012 to the present. Edu-USA asserts that it is entitled to the production of these reports "at least through the end of 2013 or when Intubrite began selling the video laryngoscope, whichever is later," but further argues it should get the reports through the present. (ECF No. 122-1 at 6.) IntuBrite objects to producing the report up to the present. Edu-USA does not set forth persuasive arguments as to how its interest in customer sales reports after the end of 2013, or when IntuBrite began selling the video laryngoscope, outweighs IntuBrite's interest in protecting its current customer data.
IntuBrite provided the Report to its expert - Mr. Basney - who in turn produced the Report to Edu-USA. (ECF No. 122-1 at 6.)
The Court has already found the extended timeframe from to the end of 2013 or when IntuBrite began selling the video laryngoscope to be relevant. Accordingly, IntuBrite's relevancy objection is OVERRULED as to that time period. IntuBrite's privacy and overbreadth objections are GRANTED as to the time period after the end of 2013 or the date IntuBrite began selling the video laryngoscope. As such, Edu-USA's motion to compel RFP 139 is GRANTED in part in that IntuBrite is ordered to produce Sales by Customer Detail Reports for the period from November 2012 to the end of 2013 or when IntuBrite began selling the video laryngoscope, whichever is later.
E. RFP No. 140
RFP No. 140 seeks: "All documents [IntuBrite has] submitted to any federal and/or state governmental agency pursuant to the securities laws of the United States, the State of California, or any other state." (ECF No. 122-3 at 6.) IntuBrite asserts the same response and objections listed in Section A.
Edu-USA contends that the requested documents are relevant because those documents will likely contain "financial projections, management's discussions of the results of past operations (and the reasons for such performance) and forward-looking statements and projections about future business results." (ECF No. 122-1 at 6.)
Relying on Edu-USA's proffered basis for requesting these documents, the Court finds that RFP No. 140 is largely duplicative of RFP No. 136. However, documents containing discussions about past results and the reasons for those results are not likely to be captured by RFP No. 136. The Court finds that these documents are relevant in light of IntuBrite's position that its "damages include loss of sales and loss of marketplace momentum, since IntuBrite did not have all of the supply it required." (ECF No. 99 at 7.) Accordingly, the Court OVERRULES IntuBrite's objections but amends RFP No. 140 as follows: All documents [IntuBrite has] submitted to any federal and/or state governmental agency pursuant to the securities laws of the United States, the State of California, or any other state, that discuss the results of past operations and the reasons for those results.
District courts have broad discretion to limit discovery where the discovery sought is "unreasonably cumulative or duplicative . . . ." Fed. R. Civ. P. 26(b)(2)(C)(i).
F. RFP Nos. 141-142
RFP No. 141 seeks: "All private placement memoranda, and/or any other documents used or intended to solicit investment funds, prepared by [IntuBrite] or on [IntuBrite's] behalf (including all drafts thereof)." (ECF No. 122-3 at 7.) RFP No. 142 seeks: "All documents in [IntuBrite's] possession, custody or control relating to or pertaining to communications between IntuBrite and potential investors, including correspondence, memoranda, and emails with potential investors and documents provided to potential investors." (Id. at 8.) IntuBrite asserts the same objections raised in Section A, with the following additional objection asserted in response to RFP No. 142: "Responding Party also objects on the ground that this request invades Responding Party's right to privacy by seeking Responding Party's, and its investors', confidential financial information." (ECF No. 122-3 at 8.)
Edu-USA seeks the above listed documents in order to obtain "financial projections, management's discussions of the results of past operations (and the reasons for such performance), and forward-looking statements and projections about future business results." (ECF No. 122-1 at 6.)
In light of Edu-USA's proffered relevancy argument, the Court finds RFP Nos. 141 and 142 to be relevant but overbroad as drafted. If narrowed to align with Edu-USA's purported need for the information, RFP Nos. 141 and 142 would be limited to those investor documents that refer to or reflect "financial projections, management's discussions of the results of past operations (and the reasons for such performance), and forward-looking statements and projections about future business results." So narrowed, the requests are relevant and not overbroad, and Edu-USA's interest in the discovery prevails when weighed against the privacy interest asserted by IntuBrite. Accordingly, the Motion to Compel is DENIED in part and GRANTED in part as to RFP Nos. 141 and 142. IntuBrite is to produce documents responsive to RFP Nos. 141 and 142 that refer to or reflect financial projections, management's discussions of the results of past operations (and the reasons for such performance), and forward-looking statements and projections about future business results.
V. CONCLUSION
For the reasons set forth above, IntuBrite's Motion to Quash Subpoena (ECF No. 121) is DENIED in light of the amended language agreed to by the parties during the meet and confer process. Edu-USA's Motion to Compel Production of Documents (ECF No. 122) is GRANTED in part and DENIED in part. IntuBrite shall produce documents responsive to: amended RFP No. 135; and shall produce documents responsive to RFP Nos. 136, 139, 140 and 141-142 as amended by the Court. Such production shall be completed within 14 calendar days of the date of this Order.
See ECF No. 124 at 3. --------
IT IS SO ORDERED. Dated: June 17, 2015
/s/_________
Hon. Jill L. Burkhardt
United States Magistrate Judge