660 BVD LLC v. Ultimate Brands, Inc., et al.
Case No: 19CV01139
Hearing Date: Mon Aug 19, 2019 9:30

Nature of Proceedings: Motion: Compel Further Resp. from Deft 2Ultimate Brands, Inc. to Plaintiff’s Req. for Prod. Set One/Sanctions; Compel Req. for Prod. of Ultimate Franchises, Inc. to Set One/Sanctions

CASE: 660 BVD, LLC v. Ultimate Brands, Inc., et al., Case No. 19CV01139 (Judge Sterne)

HEARING DATE: August 19, 2019

MATTER:

Motion to Compel Defendant Ultimate Franchises, Inc. to Provide Further Responses to Request for Production of Documents, Set One, and Request for Sanctions; Motion to Compel Defendant 2Ultimatebrands, Inc. to Provide Further Responses to Request for Production of Documents, Set One, and Request for Sanctions

ATTORNEYS:

Ryan D. Zick for Plaintiff 660 BVD, LLC

John A. Delis for Defendants Ultimate Brands, Inc., Ultimate Franchises, Inc., and 2Ultimatebrands, Inc.

TENTATIVE RULING: Plaintiff’s two motions to compel further discovery responses from defendants Ultimate Franchises, Inc. and 2Ultimatebrands, Inc. are ordered stayed pending resolution of the bankruptcy petition filed by defendant Ultimate Brands, Inc.

BACKGROUND:

This is an action for breach of contract and breach of written guaranty agreements. On December 23, 2016, plaintiff’s predecessor in interest Santa Barbara Community Bank loaned the principal sum of $653,466.27 to defendant Ultimate Brands, Inc. (“Ultimate”). The loan was documented by a promissory note and business loan agreement that called for monthly payments of principal and interest beginning January 2017 and continuing through November 2018 and one balloon payment in December 2018. Defendants Ultimate Franchises, Inc. (“UF”) and 2Ultimatebrands, Inc. (“2UB”) both guaranteed the loan pursuant to separate commercial guaranties. After Ultimate failed to make the balloon payment in December 2018, plaintiff provided notice of default to UF and 2UB, but defendants failed to tender payment in satisfaction of the amount due under the note.

On March 1, 2019, plaintiff filed its complaint for (1) breach of contract, (3) breach of guaranty, (3) judicial foreclosure of security interest in personal property, and (4) common count. Defendants answered the complaint with a general denial and twenty-eight affirmative defenses on April 29, 2019. On June 28, 2019, Ultimate filed a Chapter 11 Bankruptcy Petition in the United States Bankruptcy Court, Central District of California, entitled In re Ultimate Brands, Inc., Case No. 8:19-bk-12516-TA. On July 9, 2019, a notice of stay of all proceedings was filed in this action. On July 1, 2019, prior to the notice of stay being filed, this court granted plaintiff’s application for right to attach orders against defendants in the amount of $528,047.32. Writs of attachment were thereafter issued against UF and 2UB after plaintiff posted an undertaking in the amount of $10,000.00.

On March 22, 2019, plaintiff served UF and 2UB with Requests for Production of Documents, Set One. On May 10, 2019, after receiving an extension, UF and 2UB served their responses to the discovery. Plaintiff contends that the responses are evasive and lacking in substance. The parties met and conferred, but were unable to resolve the dispute and in separate motions plaintiff now moves to compel further responses and for sanctions in the amount of $2,850.00.

ANALYSIS:

Request for Judicial Notice

Plaintiff requests that the court take judicial notice of the Chapter 11 Bankruptcy Petition of debtor Ultimate Brands, Inc., pending in the United States Bankruptcy Court, Central District of California, styled In re Ultimate Brands, Inc., Case No. 8:19-bk-12516-TA. Judicial notice may be taken of the “[r]ecords of (1) any court of this state or (2) any court of record of the United States or of any state of the United States.” Evid. Code §452, subd. (d). Accordingly, the court will take judicial notice of the referenced bankruptcy petition, Exhibit A.

Motions to Compel Further Responses from UF and 2UB

On receipt of a response to a demand for inspection of documents, the demanding party may move for an order compelling a further response to the demand “if the demanding party deems that . . . [a] statement of compliance with the demand is incomplete . . . [or an] objection in the response is without merit or too general.” Code Civ. Proc. §2031.310, subd. (a). The motion to compel must be accompanied by a declaration showing “a reasonable and good faith attempt” to resolve the issues outside of court. Code Civ. Proc. § 2016.040. The motion must also set forth “specific facts showing good cause” for the discovery. Code Civ. Proc. §2031.310, subd. (b)(1). If good cause is shown, the burden is then on the responding party to justify any objections or the failure to respond fully to the discovery. Fairmont Insurance Company v. Superior Court (2000) 22 Cal.4th 245, 255.

On March 22, 2019, plaintiff served UF and 2UB with Requests for Production of Documents, Set One. (Zick Dec., ¶2, Ex. A.) Among other items, the forty-three (43) requests sought production of any and all documents related to communications between UF and 2UB, payments made under the note and guaranties, modifications of the note and guaranties, and defendants’ assets and liabilities. On May 6, 2019, UF and 2UB provided documents in response to four of the requests. (Zick Dec., ¶3, Ex. C.) On May 10, 2019, UF and 2UB served written responses and documents to thirty-eight of the requests. (Zick Dec., ¶3, Ex. E.) Plaintiff contends that many of the responses are evasive and contain inapplicable objections. On June 11, 2019, and then again on July 1, 2019, plaintiff’s counsel sought to meet and confer with defendants’ counsel to address the discovery issues, but no resolution could be reached. (Zick Dec., ¶6.) Plaintiff now moves to compel further responses. The requests for production that remain at issue are Nos. 18, 24, 27, 29, 40, 41, 42, and 43.

UF and 2UB object and oppose plaintiff’s motions to compel on the ground that they should not be heard and ruled upon until the bankruptcy of Ultimate is completed. “Once triggered by a debtor’s bankruptcy petition, the automatic stay suspends any non-bankruptcy court’s authority to continue judicial proceedings then pending against the debtor.” Maritime Electric Company, Inc. v. United Jersey Bank (3rd Cir. 1991) 959 F.2d 1194, 1206; see also, Ellis v. Consolidated Electric Corporation (10th Cir. 1990) 894 F.2d 371, 373 (trial court “lacked power” to enter order in violation of automatic bankruptcy stay). Although UF and 2UB are not named as debtors in the bankruptcy petition, defendants contend that Ultimate is an indispensable party and the action cannot proceed without it. The court agrees. As alleged in plaintiff’s complaint, UF and 2UB are jointly and severally obligated to pay the full amount of Ultimate’s indebtedness. The action cannot be stayed as to Ultimate only since Ultimate is the borrower on the loan documents that gave rise to the guaranties.

The motions must be stayed for the additional reason that any action taken against UF and 2UB might have a significant adverse impact upon the debtor, Ultimate. See, Queenie, Ltd. v. Nygard International (2nd Cir. 2003) 321 F.3d 282, 287 (the automatic stay can apply to non-debtors where a claim against the non-debtors might have immediate adverse economic consequences for the debtor’s estate). Here, the bankruptcy petition names UF and 2UB as other businesses in which Ultimate has an interest. (RJN, Ex. A, Bankruptcy Petition, p. 35.) Specifically, the petition alleges that Ultimate has an interest in UF and 2UB as “an owner, partner, member, or otherwise a person in control within 6 years before filing [the petition].” (Ibid.) Thus, any ruling on the two discovery motions and an order awarding sanctions might deprive Ultimate’s bankruptcy estate of a property interest related to the non-debtors, UF and 2UB. That interest might include an ownership interest, partnership interest, membership interest, a development interest, or a pass through interest.

Based on the foregoing, plaintiff’s motions to compel are ordered stayed until the bankruptcy stay is lifted.