Tentative Ruling

Judge Colleen Sterne
Department 5 SB-Anacapa
1100 Anacapa Street P.O. Box 21107 Santa Barbara, CA 93121-1107

CIVIL LAW & MOTION
Stan Kanarowski v. Bruker Nano, Inc.
Case No: 19CV02277
Hearing Date: Mon Feb 24, 2020 9:30

Nature of Proceedings: Motion Compel Requests for Admissions/Sanctions; Compel Requests for Inspection of Documents/Set One/Sanctions; Compel Responses to Interrogatories/Set One/Sanctions

# 19CV02277 Stan Kanarowski v. Bruker Nano, Inc.

Hearing Date: 2/24/2020

HEARING: Plaintiff’s motion to compel further responses to interrogatories and for sanctions of $5,223.50

Plaintiff’s motion to compel further responses to requests for inspection of documents, to compel production, and for sanctions of $5,439

Plaintiff’s motion to compel further responses to requests for admissions and for sanctions of $5,243.50

ATTORNEYS:

Mark L. Eisenhut / Samuel G. Brooks of Call & Jensen for plaintiff

Anthony J. Barron / Conor C. McNamara of Nixon Peabody LLP for defendant

TENTATIVE RULINGS: All three motions are granted, in the manner articulated below. Further supplemental responses, as provided below, shall be served by Bruker on or before March 16, 2020. Bruker and/or its attorneys are ordered to pay sanctions in the total amount of $7,500.

Background: This is a breach of contract action, brought by plaintiff Stan Kanarowski, in his capacity as agent and attorney-in-fact for former Securityholders of Vutara, Inc. The complaint alleges that on February 6, 2013, Vutara entered into a confidentiality agreement with defendant Bruker Nano, Inc., for the purpose of exploring Bruker’s acquisition of Vutara. On March 11, 2014, Bruker provided a Letter of Intent proposing that Bruker purchase Vutara. The Letter of Intent anticipated a $5.65 million up-front payment, coupled with additional “earn out” payments based on Vutara’s revenues in the years 2015, 2016, and 2017. After a period of due diligence and negotiation, the parties reached an agreement for Bruker to purchase Vutara. Pursuant to the agreement, Bruker formed Vutara Mergerco, Inc. for the purpose of the transaction, and the parties executed an Agreement and Plan of Merger (the “Merger Agreement”). The Merger Agreement closed on July 25, 2014. The Merger Agreement reduced the up-front payment to $3.9 million and added two potential milestone earn-outs, in addition to the previously contemplated revenue earn-outs.

Both the letter of intent and the final Merger Agreement required Bruker to commit to a specific staffing plan, and to budget for internal capital expenditures for four demonstration systems to be deployed in the field-selling process during the calendar years 2014 and 2015. Kanarowski alleges that Bruker did not perform its obligations under the Merger Agreement to provide proper staffing and internal capital expenditures for Vutara. Because of Bruker’s failure to provide the agreed upon staff and delays caused by Bruker, Vutara was prevented from completing the actual manufacture of three systems by the December 31, 2014 deadline, causing the Securityholders’ loss of a milestone earn-out payment of $1,125,000. Bruker also failed to make efforts to reach the second milestone, causing the Securityholders’ loss of another milestone earn-out payment of $1,125,000. Bruker’s breaches of the Merger Agreement also caused losses of revenue earn-out payments.

Plaintiff propounded discovery upon Bruker on August 22, 2019, including first sets of Requests for Admissions, Requests for Production, Special Interrogatories, and Form Interrogatories. Bruker served its responses and objections on September 26, 2019. Extensions of time to move to compel were granted, ultimately extending that date to January 13, 2020, to allow Bruker to complete its production of documents pursuant to the request. After meet and confer efforts took place in late December and early January, these motions to compel were filed. Bruker has opposed the motions.

The parties entered into a stipulated protective order, which was signed by the Court on January 24, 2020, and filed on January 27, 2020.

ANALYSIS: All three motions are granted, in the manner articulated below. Further supplemental responses, as provided below, shall be served by Bruker on or before March 16, 2020. Bruker and/or its attorneys are ordered to pay sanctions in the total amount of $7,500.

The Court notes that, in opposing the motion, defendant Bruker made considerable comments about plaintiff’s conduct in responding to Bruker’s discovery. That discovery is not currently before the Court, and will not be before the Court unless motions to compel are filed. Additionally, while meet and confer efforts were delayed until weeks before the deadline by which motions to compel had to be filed, the Court does not find that the meet and confer efforts were necessarily deficient, particularly given the nature of Bruker’s responses to the motions.

Motion to compel further answers to interrogatories Plaintiff moved to compel further responses to Form Interrogatory Nos. 15.1 and 17.1, and Special Interrogatory No. 1.

In response to the motion to compel, Bruker agreed to provide further responses to Form Interrogatory Nos. 15.1 and 17.1 which address plaintiff’s concerns. The Court deems this to be an acknowledgment that the original responses were deficient, and will grant the motion to compel further responses to Nos. 15.1 and 17.1.

Special Interrogatory No. 1 asked Bruker to “identify” (defined to include the content of the statement, and when, where, how, and to whom it was made) every false representation Bruker alleged Stan Kanarowski made that it claims it relied upon, and/or which it claims caused it to sign the Merger Agreement, as alleged in the Sixteenth Affirmative Defense. Bruker responded with general objections that the interrogatory was vague, ambiguous, unduly burdensome, and overbroad, and then discussed a series of Kanarowski representations which it contends were responsive to the interrogatory.

Plaintiff moved to compel a further response, contending that the false representations were stated generally and not with particularity, and that the response failed to state when, where, how, and to whom the representations were made. Bruker opposed, contending that it had responded with sufficient detail, including the clients impacted, the product information which was the subject of the false statement, and the amount of money at issue with respect to one of the false statements. It contends that the additional information demanded by plaintiff is not reasonably accessible to it at this time, citing to Code of Civil Procedure section 2030.220(a).

The Court finds Bruker’s descriptions of the representations it contends were falsely made by plaintiff, to be adequately particularized. However, to the extent that Bruker truly believes that the additional information it did not provide in its response to the interrogatory (when, where, how, and to whom the representations were made) is not reasonably available or accessible to it at the current time, it should have made that statement in its verified answer to the interrogatory.

Bruker is therefore ordered to provide a further verified response to Special Interrogatory No. 1, either providing the additional information (i.e., when, where, how, and to whom the false representations were made), or as much of that information as is reasonable available to it at this time, and/or verifying under penalty of perjury that such information is not currently reasonably available to it after reasonable and good faith inquiry, and that it will supplement its response when such information becomes available.

Motion to compel further responses to requests for admission Plaintiff moved to compel further responses to Request for Admission Nos. 1, 2, 4, 9, 13, 15, 17, and 18. For the reasons articulated below, the Court will grant the motion to compel further response to each of these Requests for Admission.

A party responding to discovery owes a duty to respond in good faith as best as he or she can. (Deyo v. Kilbourne (1978) 84 Cal.App.3d 771, 783.)

Each response to a request for admission must be as complete and straightforward as the information reasonably available to the responding party permits. (Code Civ. Proc., § 2033.220, subd. (a).) If any portion of the request is true, the party must admit that portion, either as expressed in the request itself, or as reasonably and clearly qualified by the responding party. (Code Civ. Proc., § 2033.220, sub. (b)(1).) Similarly, the responding party may deny so much of the matter involved in the request as is untrue. (Id.) The denial of all or any portion of the request must be unequivocal. (See American Federation of State, County & Municipal Employees v. Metropolitan Water District of Southern California (2005) 126 Cal.App.4th 247, 268.) However, reasonable qualifications and explanations are not improper. (St. Mary v. Superior Court (2014) 223 Cal.App.4th 762, 780-781.) A party may respond by claiming an inability to admit or deny the matter stated in the request because it lacks sufficient knowledge or information. (Code Civ. Proc., § 2033.220, subd. (b)(3).) However, if the responding party does so, it must also state that a reasonable inquiry was made to obtain sufficient information, and that the information known or readily obtainable is insufficient to enable the party to admit the matter. (Code Civ. Proc., § 2033.220, subd. (c).)

Rather than admitting or denying a request, the party may object to the particular request. (Code Civ. Proc., § 2033.210, subd. (b).) If only a part of the request is objectionable, however, the remainder must be answered. (Code Civ. Proc., § 2033.230, subd. (a).) The specific ground for objection must be set forth clearly in the response. (Code Civ. Proc., § 2033.230, subd. (b).) Upon the filing of a motion to compel, the burden is on the objecting party to justify the objection. (Coy v. Superior Court (1962) 58 Cal.2d 210, 220-221.)

Bruker contends that it previously agreed to provide amended responses to Request Nos. 1, 2, and 18. The Court deems this to be an acknowledgment that the original responses were deficient, and will grant the motion to compel further responses to Nos. 1, 2, and 18.

With respect to Nos. 4, 9, 13, 15, and 17, Bruker responded only with objections, largely contending that the requests were vague and ambiguous in certain respects, not reasonably calculated to lead to the discovery of admissible evidence, not relevant to any claim or defense, or, in response to No. 9, that the request lacked foundation. With respect to Nos. 15 and 17, Bruker also contends it requested that plaintiff clarify “evolving cutting edge technology” (the specific term was actually only found in No. 15) in meet and confer efforts, but plaintiff failed to provide a substantive response to the request.

The Court has evaluated these requests, and Bruker’s objections thereto. Rather than making any effort to sustain its objections based upon relevance or the contention that the request was not reasonably calculated to lead to the discovery of admissible evidence, Bruker simply reiterated the objections in its responsive separate statement, without explanation. Under California law, a civil litigant’s right to discovery is broad. Any party may obtain discovery regarding any matter, not privileged, that is relevant to the subject matter involved in the pending action if the matter either is itself admissible in evidence or appears reasonably calculated to lead to the discovery of admissible evidence. (Williams v. Superior Court (2017) 3 Cal.5th 531, 541.) The right includes an entitlement to learn the identity and location of persons having knowledge of any discoverable matter. (Ibid.) Statutes governing discovery must be liberally construed in favor of disclosure unless the request is clearly improper by virtue of well-established causes for denial. This means that disclosure is a matter of right unless statutory or public policy considerations clearly prohibit it. (Ibid.) “For discovery purposes, information is relevant if it “might reasonably assist a party in evaluating the case, preparing for trial, or facilitating settlement….” [Citation.] Admissibility is not the test and information unless privileged, is discoverable if it might reasonably lead to admissible evidence. [Citation.] These rules are applied liberally in favor of discovery [citation], and (contrary to popular belief), fishing expeditions are permissible in some cases.” (Lopez v. Watchtower Bible and Tract Society of New York, Inc. (2016) 246 Cal.App.4th 566, 591, quoting Garamendi v. Golden Eagle Ins. Co. (2004) 116 Cal.App.4th 694, 712, fn. 8.)

The Court is not conversant with the intricacies of the dispute between the parties, and has no information before it—other than that provided by plaintiff in moving to compel further responses—with respect to the relevance of the requests, or whether they are reasonably calculated to lead to the discovery of admissible evidence. The Court finds that Bruker has failed to justify the objections based on relevance or the contention that the requests were not reasonably calculated to lead to the discovery of admissible evidence, and will overrule them.

With respect to the vagueness and ambiguity objections, the Court has also evaluate the requests and Bruker’s claims of ambiguity. Just as with other discovery devices, that a request is ambiguous is not a ground for objection, unless the request is so ambiguous that the responding party cannot in good faith frame an intelligent reply. (See, e.g., Cembrook v. Superior Court (1961) 56 Cal.2d 423, 429.) If that means the party can only respond to a request for admission based upon its understanding of a term used in the request, it must respond, but is fully free to qualify its response based upon its understanding of the term.

Here, Bruker largely failed to articulate the manner in which each of these requests is vague or ambiguous and, in lieu of making a good faith effort to provide a response, even if required to qualify the response based upon its understanding of a term used in the request, Bruker simply refused to respond.

The Court overrules the objection to No. 4 based on vagueness and ambiguity. The simple fact that the term “purpose” is not defined in the Merger Agreement does not make it impossible for Bruker to respond to the request asking it to admit or deny that timely achievement of the milestones described in § 2.7(d) of the agreement were among the purposes of the agreement. The term is one of common usage and understanding. The Court will compel further response.

The Court also overrules the objection to No. 9 based on vagueness and ambiguity, as well as the objections that the request was compound, and lacked foundation. The objections are particularly not well taken because the very basis for Bruker’s objections (to a request asking it to admit that its failure to provide staffing had a significant negative effect on Vutara’s revenues during the earn out period) made on these bases is a denial that it failed to provide staffing. In asserting objections, it has basically articulated the very qualification that would permit it to respond in good faith to the request. The Court will compel further response.

The Court also overrules the objection to No. 13 based on vagueness and ambiguity. The Court does not find the request to admit that two separate products have “a different customer base” to be vague or ambiguous at all, much less so ambiguous that Bruker could not in good faith frame an intelligent reply. The Court will compel further response.

The Court also overrules the objection to No. 15 based on vagueness and ambiguity. The terms objected to have common sense meanings, and in any event are not so ambiguous that Bruker could not in good faith frame an intelligent reply, whether through use of a qualification to its response, or otherwise. The Court will compel further response.

Finally, the Court overrules the objection to No. 17 based on vagueness and ambiguity. Once again, the term objected to has a common sense meaning, and is not so vague or ambiguous that Bruker could not in good faith frame an intelligent reply, whether through use of a qualification to its response or otherwise. The Court will compel further response.

Motion to compel further responses and document production Plaintiff has sought to compel further responses to Demand Nos. 1-7, and 9-31. Plaintiff has also objected to the manner in which documents have been produced pursuant to the request.

A. Categories for which Bruker has agreed to provide further responses.

With respect to Demand Nos. 3, 13, 16, and 18-31, after asserting various objections, Bruker responded that it would produce non-privileged documents responsive to the requests. Plaintiff sought to compel further responses, contending that defendant must either provide a privilege log, or confirm that responsive materials are not being withheld. Bruker asserts that it has agreed to provide supplemental responses to Nos. 3, 13, 16, and 18-31, to reflect that any documents it withholds on privilege grounds will be identified in a privilege log, which it will provide to plaintiff “at a mutually agreed upon time and place.”

With respect to Demand Nos. 12 and 17, defendant had responded, after asserting objections, that it was unaware of any responsive documents. Plaintiff sought to compel further responses, because the responses did not state whether a reasonable search had been made, or explain the basis for defendant’s inability to comply, as required by Code of Civil Procedure section 2031.230. Defendant asserts that it has agreed to provide supplemental responses to Nos. 12 and 17, to include language that, following a diligent search, it is unaware of and has not located any responsive documents.

These categories are not further addressed in plaintiff’s reply. The Court therefore deems defendant’s agreement to provide supplemental responses to Nos. 3, 12-13, and 16-31, to be an acknowledgment that the original responses were deficient, and will grant the motion to compel further responses to these demand categories.

B. Resolution of objections to production.

This leaves Demand Nos. 1-2, 4-7, 9-11, and 14-15, to be addressed by the Court. For the reasons articulated herein, the Court overrules the objections made to the production of documents within these categories, and rejects the time limitation on the documents to be produced, which Bruker imposed upon Category Nos. 1-2, 4-6, 10-11, and 15. The Court will therefore require further response and production of documents with respect to each of these categories.

In each of these demands, defendant raised attorney-client privilege and attorney work product objections. To the extent further response is ordered, defendant will be required to provide a privilege log with respect to any documents not produced on these grounds. The Court and the parties will then be in a position to evaluate the propriety of the claims of privilege.

In each of the demands, Bruker also raised the objection that the demand called for proprietary, confidential, or financial business information. Given that the parties entered into a stipulated protective order, Bruker will not be permitted to refuse to produce documents on any of these grounds.

In response to several of these demands (Nos. 1, 2, 4, 5, 9, 10, 11, and 15), Bruker asserted objections based upon the burden of responding. As noted by the California Supreme Court in Williams v. Superior Court, supra, Code of Civil Procedure section 2017.020(a) permits a trial court to limit the scope of discovery if it determines that the burden, expense, or intrusiveness of the discovery clearly outweighs the likelihood that the information sought will lead to the discovery of admissible evidence. However, the party opposing discovery has an obligation to supply the basis for the determination. (Id, at p. 549.) An objection based upon burden must be sustained by evidence showing the quantum of work required. (Ibid.) Here, Bruker has provided no evidence to sustain its burden objection, requiring that the objection be overruled.

In response to a number of the demands (Nos. 1, 2, 4, 5, 6, 10, 11, and 15), Bruker agreed to produce non-privileged documents, but only during a reduced time period, from 2014 through 2015, or 2014-2016, which it contends is the relevant time period for this action. None of these demands except No. 6 specified a time period for the relevant documents. The responses are worded in a manner that makes it unclear, and inconsistent from response to response, whether Bruker has agreed to produce only documents from those years (i.e., generated in those years—see No. 10, agreeing to produce “non-privileged documents from 2014-2015”), or documents related to conduct or matters which occurred during those years, but which may have been generated in anticipation of that time period, or subsequent to that time period reflecting back on conduct or matters occurring within the time period. (See, e.g., No. 6, agreeing to produce documents “relating to hiring and staffing for the Vutara business unit from 2014-2016.”)

In moving to compel further response, plaintiff noted that Bruker had not explained why only documents within the specified time frames were relevant, and records before or after that time period were not. In opposing the motion, Bruker provides no further information to clarify the reason for its time restriction.

The Court notes that the complaint alleges conduct commencing on February 6, 2013, when Vutara entered into a confidentiality agreement with defendant Bruker for the purpose of exploring Bruker’s acquisition of Vutara. It notes that the agreement included an upfront payment, revenue earn out payments to be based on Vutara’s revenues in years 2015, 2016, and 2017, and conduct by Bruker which plaintiff contends caused the Security holders’ to lose the additional milestone earn-out payments included in the final agreement.

While it is possible that responsive documents for several of the categories may only exist during the time frame which Bruker specified in its response, the very fact that it specified a responsive time frame for the documents it would agree to produce indicates that this may not be true. Given the fact that Bruker has articulated no basis for, and provided no evidence to support, its limitation of what it contends is the relevant time period for responsive documents, the Court will order Bruker to provide all responsive documents, regardless of their date or the period of time to which they refer.

C. Manner of production and actual production

Plaintiff’s motion makes several objections to the manner in which defendant has produced the documents which it has produced to date.

First, plaintiff objected that it sought electronically stored information (ESI) in its native format, that defendant did not object, but that defendant failed to do so and converted much of that ESI to PDF format prior to production. The motion seeks to have documents produced in the form specified. In opposition to the motion, Bruker represented that it had already agreed to re-produce its first batch of ESI in native format, and to produce the remainder of its ESI in native format. It further represented that it would be producing additional documents in native format prior to the hearing on this motion.

The Court has no information on whether Bruker has complied with its agreement to produce ESI in its native format. As a result, to the extent ESI has not been produced in its native format, Bruker is ordered to do so. Further, to the extent any further ESI is produced, ESI is ordered to produce it in its native format.

Second, plaintiff’s motion asserts that Bruker failed to properly label or organize its document production.

Prior to January 1, 2020, and at the time the Demand for Production was served, Code of Civil Procedure section 2031.280(b) required documents produced in response to a demand for production to be produced either as they are kept in the usual course of business, or be organized and labeled to correspond with the categories in the demand. As of January 1, 2020, the subsection has been amended to eliminate the provision allowing production in the manner in which the documents are kept in the usual course of business, and to require that they be labeled to correspond with the categories in the demand. Specifically, it provides:

“Any documents or category of documents produced in response to a demand for inspection, copying, testing, or sampling shall be identified with the specific request number to which the documents respond.”

Plaintiff’s motion contends that defendant did neither, and requests that the court order defendant to comply with the current version of Section 2031.280, by identifying each of the documents or categories of documents in its production with the specific request numbers to which they respond.

Defendant’s opposition does not particularly refute the contention that it did not comply with either standard, with respect to the documents it has already produced. While Bruker agrees that, going forward, it will need to comply with the new standards, it argues that is should not have to do so in response to discovery requests served prior to the amendment’s effective date. It argues (but provides no evidence) that it began gathering and reviewing documents shortly after the document request was propounded, and that counsel has reviewed approximately 15,000 documents, marking them for responsiveness, and preparing them for production, a task which took “a huge amount of time and resources to accomplish.” It argues that, to require it to re-review those materials would be unjust. Just as with its burden arguments, however, Bruker provided no evidence to support its contention to support its contention that it would be unduly burdened by being required to comply with the identification requirement.

Section 2031.280(b) applies to documents produced in response to a demand, not to documents produced in response to a demand that was propounded prior to January 1, 2020. The Court further notes that the requirement that documents produced be identified with the specific request number to which the documents respond, is not a new requirement. Rather, responding parties formerly were permitted to either comply with that standard, or to produce the documents in the manner they are kept in the usual course of business.

Here, defendant has not refuted plaintiff’s contention that it did not comply with either standard, and it simply objects to the time and expense of complying. This is an important case, with a lot at stake. Particularly in light of Bruker’s failure to provide evidence to establish its contention regarding the burden involved, the Court cannot find that the burden outweighs the benefit of complying with the current requirements.

To the extent that defendant can verify, under penalty of perjury, that the documents already produced were in the manner they are kept in the usual course of business, the Court will not require it to do anything further with respect to Section 2031.280. If it cannot make such a verification, Bruker must comply with the identification requirement.

To the extent that any of the documents have not yet been produced, defendant must comply with the 2020 version of Section 2018.280(a), and must identify each document or category of documents produced, with the specific request number to which the documents respond.

Certainly, the same will be required of any document production to be made by plaintiff in response to demands for production propounded by defendant.

Sanctions While some of defendant’s objections and conduct appear to the court to be substantially justified, others appear to be more calculated to avoid providing any response. The Court will therefore award partial sanctions to plaintiff, and will order Bruker and/or its attorneys to pay sanctions to plaintiff in the amount of $7,500.