Case Number: BC499379 Hearing Date: April 09, 2014 Dept: 56

Case Name: Misraje, et al. v. Carolla, et al.
Case No.: BC499379
Matter: Motions to Compel Discovery

Tentative Ruling: Motions are granted in part

Plaintiffs Donny Misraje, Kathee Schenider-Misraje, and Sandy Ganz originally filed six motions to compel discovery against Defendants Adam Carolla and Lotzi Digital, Inc. The parties have agreed that only two issues remain in dispute: 1) whether tax returns of nonparty Lotzi Inc. and Defendant Lotzi Digital Inc. are discoverable, and 2) whether documents pertaining to nonparty Lotzi Inc. are discoverable.

Discovery of Tax Information –
Plaintiffs seek discovery of tax returns, K-1 forms, and tax related documents and information for Lotzi Digital and Lotzi. Defendants objected to the discovery on the grounds (among others) of privacy and privilege.

California recognizes a privilege against the disclosure of tax returns and related tax documents in discovery. Webb v. Standard Oil (1957) 49 Cal.2d 509, 513. The privilege applies to corporations as well as individuals. Adjay v. Superior Ct. (1961) 55 Cal.2d 789, 796. The only exceptions are when the circumstances indicate an intentional waiver of the privilege, the gravamen of the lawsuit is inconsistent with the privilege, or a public policy greater than that of the confidentiality of tax returns is involved. Schnabel v. Superior Court (1993) 5 Cal. 4th 704, 721.

None of these exceptions apply here. Plaintiffs claim that they entered into an oral partnership with Defendant Carolla, concerning daily podcasts and related activities. They seek recovery of their share of profits earned from this activity, through claims for breach of contract, breach of fiduciary duty, dissolution of partnership, constructive trust, conversion and accounting. Plaintiffs have not demonstrated any interest that outweighs the privilege against disclosure of tax information.

Plaintiffs place heavy reliance on Schnabel, but that was a family law case in which “there is a strong legislative policy in favor of fair child and spousal support awards and a fair division of community assets.” 5 Cal.4th at 722; see Fam. Code §3552 (permitting discovery of tax returns in child or spousal support proceedings). Nothing like that is involved here.

The motion is denied for tax information; i.e. Carolla RFP Nos. 24-27, Lotzi Digital RFP Nos. 14-15, and Carolla SIs 23 & 25.

Discovery of Lotzi Inc. Information –
Plaintiffs seek discovery of corporate records and financial data for Lotzi, such as articles of incorporation, bylaws, financial records, accounting records, and bank records. Defendants objected to the discovery on the ground (among others) of privacy by a nonparty.

Most of the discovery responses at issue are requests for production of documents. On a motion to compel further responses to a document request, the moving party must demonstrate good cause justifying the discovery. CCP §2031.319(b)(1); Kirkland v. Superior Ct. (2002) 95 Cal.App.4th 92, 98. And when a nonparty asserts a privacy objection, the moving party must demonstrate a “compelling need” for the discovery. This requires a showing that the nonparty information is “directly relevant” and “essential to the fair resolution” of the action. Britt v. Superior Ct. (1978) 20 Cal.3d 844, 859; Alch v. Superior Ct. (2008) 165 Cal.App.4th 1412, 1427.

The evidence shows that Lotzi is a corporation that Carolla has used for all of his business activities. It is wholly owned by Carolla, and existed well before the dispute involved in this lawsuit. Lotzi Digital is a corporation that was formed in 2009. It is wholly owned by Lotzi, and it was used for business activities specifically related to Carolla’s daily podcasts.

Plaintiffs claim that money generated by Carolla’s podcasts and related activity was improperly allocated between Lotzi and Lotzi Digital, and there were improper transfers between the two corporations. Plaintiffs claim it is necessary to examine Lotzi’s financial records in order to trace income generated by podcast activity, and it is not possible to do so without the discovery they have requested. In response, Defendants contend the discovery requests are too broad and should be limited to transfers between the two corporations.

Plaintiffs have sustained their burden for Lotzi’s financial records; documents such as financial statements, balance sheets and bank records directly address financial transactions relating to income generated by podcast activity. The motion is granted for Carolla RFP Nos. 14-23, Lotzi Digital RFP No. 3, and Carolla SIs 9, 11, 13, 20 & 21. Plaintiffs have not sustained their burden for Lotzi’s corporate records; it is undisputed that Carolla owns and controls Lotzi, and Plaintiffs have not shown how documents such as articles of incorporation, bylaws and similar corporate records would shed light on financial transactions relating to podcast activity. The motion is denied for Carolla RFP Nos. 8, 10 & 12.

Sanctions –
Both parties have requested sanctions CCP §§2031.310 & 2030.300. Sanctions are denied, as there was substantial justification for the parties’ positions.