Invention Capital Partners v. Phoenix Technologies Ltd.		CASE NO. 113CV242491
DATE: 3 October 2014	TIME: 9:00	LINE NUMBER: 6

This matter will be heard by the Honorable Judge Socrates Peter Manoukian in Department 19 in the Old Courthouse, 2nd Floor, 161 North First Street, San Jose.  Any party opposing the tentative ruling must call Department 19 at 408.808.6856 and the opposing party no later than 4:00 PM Thursday 2 October 2014.  Please specify the issue to be contested when calling the Court and counsel.

On 3 October 2014, the motion of plaintiff Invention Capital Partners (“ICP”) to compel the production of documents was argued and submitted.  Defendants Phoenix Technologies Ltd. (“Phoenix”), Marlin Equity Partners (“Marlin”), Richard Geruson, Nick Kaiser, and Bart Foster (collectively, “Defendants”) filed a formal opposition to ICP’s motion.

ICP is reminded that all papers must comply with California Rules of Court, rule 3.1110(f).[1]

I.     Statement of Facts

ICP is an intellectual property broker that contracted with Phoenix to sell Phoenix’s portfolio of patents.  ICP alleges that it secured a $15 million offer for Phoenix’s portfolio from Transpacific IP, which Phoenix represented that it would accept.  However, Phoenix later declined this offer, ignored ICP’s proposals to seek a higher price from Transpacific IP, and terminated its contracts with ICP.  Phoenix then pursued a deal with Transpacific IP on its own and ultimately concluded a sale for $30 million.  Phoenix did not pay ICP the fee called for by the parties’ contracts, which was 10% of the portfolio’s sale price.

On 7 March 7 2013, ICP filed its complaint against Phoenix; Phoenix’s President and CEO, Mr. Geruson; Marlin, a firm which provided equity financing to Phoenix; and Mr. Kaiser and Mr. Foster, who are partners in Marlin and directors of Phoenix.  The complaint alleges causes of action for (1) breach of contract against Phoenix and Marlin and (2) fraud against each of the Defendants.

On 10 April 2013, Phoenix cross-complained against ICP, asserting causes of action for (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, and (3) declaratory relief.  Phoenix alleges that it properly terminated the parties’ contracts based on ICP’s material breach of its obligations under those agreements.  On 10 April 2014, Phoenix filed its operative second amended cross-complaint, in which it asserts the same claims.

On 20 February 2014, Phoenix filed a second cross-complaint against ICP’s founder, Vincent Pluvinage (“Pluvinage”), in his individual capacity, claiming (1) trade secret misappropriation, (2) unjust enrichment, and (3) breach of contract.  In this cross-complaint, Phoenix alleges that Pluvinage breached the parties’ Non-Disclosure Agreement (the “NDA”) associated with Phoenix’s engagement of ICP to sell its patent portfolio.

II.     Discovery Dispute

In April 2013, ICP and Defendants served discovery requests, including requests for the production of documents, upon each other, and in June 2013, they each served responses to this discovery.  Thereafter, the parties began to produce documents responsive to one another’s requests, and they substantially completed their productions on 20 December 2013.  The parties agreed to exchange privilege logs identifying the documents withheld from their respective productions on 15 April 2014, and completed the exchange on or around that date.

Five weeks later, counsel for ICP sent Defendants’ counsel a letter challenging Defendants’ withholding, on the basis of the attorney-client privilege, of over 200 documents identified in their privilege log.  Defendants reviewed these documents and served an amended privilege log on 9 June 2014, along with correspondence further detailing the bases for withholding particular documents.  One month later, counsel for ICP requested that Defendants stipulate to an in camera review of a number of documents.  Defendants declined to agree to this procedure, and instead re-reviewed the disputed documents, served a second amended privilege log, and sent an additional letter detailing their position on 4 August 2014.  Counsel for the parties met and conferred concerning their dispute on 15 August 2014, but were unable to come to agreement.

On 5 September 2014, ICP filed the instant motion to compel the production of documents.  On 22 September, Defendants filed papers in opposition to ICP’s motion.  On 26 September, ICP filed reply papers in support of its motion.

III.     Discussion

ICP moves to compel the production of the following categories of documents identified by Defendants in their privilege log: (1) internal emails between non-attorney employees of Phoenix (withheld document nos. 13, 16, 21-22, 116, 209, 218, 245, 251, 257, 394, 438, 443, 444, 532, 681, 682, 686, 693, 723, 725, 733, and 734); (2) emails on which Phoenix’s general counsel, Tim Chu, is “cc’d” (withheld document nos. 195, 198, 201-204, 231, 541, 543, 659, 689, 695, 698, 713, 716-718, 724, 1403, and 1440); and (3) communications between Mr. Chu and third parties (withheld document nos. 57-60, 62-64, 66, 67, 152, 153, 331, 340-343, 361-363, 768-771, 776, 814, 835, 892, 899, 929, 947-949, 957, 975-977, 984, 985, 987, 988, 990, 995-999, 1016, 1017, 1020, 1021, 1056, 1165, 1166, 1169-1174, 1379-1381, 1387, 1497-1500, 1527,1567, and 1583).

ICP alternatively requests that the Court undertake an in camera inspection of these documents to determine whether they are truly privileged.

A.  Legal Standard

As an initial matter, ICP does not specify the authority pursuant to which it seeks to compel the production of the documents at issue in this motion.  Given that it is Defendants’ compliance with their apparent commitment to produce non-privileged documents in response to ICP’s discovery requests that is at issue here, rather than the content of Defendants’ responses thereto, the pending motion is properly construed as one pursuant to Code of Civil Procedure (“CCP”) section 2031.320, subdivision (a).

Pursuant to that section, if a party responding to discovery fails to produce documents in accordance with a statement of compliance, the propounding party may move for an order compelling compliance.  (CCP, § 2031.320, subd. (a).)  A motion to compel compliance need only demonstrate the responding party’s failure to comply as agreed.  (Standon Co., Inc. v. Super. Ct. (Kim) (1990) 225 Cal.App.3d 898, 903.)

Where a party claims that information is protected from disclosure by the attorney-client privilege, that party “has the burden of establishing the preliminary facts necessary to support [the] exercise [of the privilege], i.e., a communication made in the course of an attorney-client relationship.”  (Costco Wholesale Corp. v. Super. Ct. (Randall) (2009) 47 Cal.4th 725, 733.)  “Once that party establishes facts necessary to support a prima facie claim of privilege, the communication is presumed to have been made in confidence and the opponent of the claim of privilege has the burden of proof to establish the communication was not confidential or that the privilege does not for other reasons apply.”  (Id.)

B.  Internal Emails Between Non-Attorney Employees

Defendants contend that the internal emails among non-attorneys that it withheld request, provide, and/or reflect legal advice and are consequently privileged.  ICP argues that it is not clear whether these emails truly discuss or contain legal advice, and if so, whether the entirety of each document or merely a portion thereof is privileged.

Communications among corporate employees discussing the legal advice or strategy of counsel are privileged so long as they involve employees who are included “to further the interest of the client in the consultation or those to whom disclosure is reasonably necessary for the transmission of the information or the accomplishment of the purpose for which the lawyer is consulted … .”  (Zurich American Ins. Co. v. Super. Ct. (Watts Industries, Inc.) (2007)155 Cal.App.4th 1485, 1503 (hereinafter, “Zurich”), quoting Evid. Code, § 952.)

As urged by Phoenix, Defendants fail to establish that these emails discuss or contain legal advice, which is a preliminary fact necessary to support their claim of privilege given that the emails do not include counsel.  (See Costco Wholesale Corp. v. Super. Ct., supra, 47 Cal.4th at p. 733.)  Defendants’ conclusory statements in their brief and privilege log are insufficient to meet their burden.

Nevertheless, the Court acknowledges that it would be difficult or impossible for Defendants to meet their burden under the circumstances without disclosing potentially privileged information.  As Phoenix suggests, it is therefore appropriate for the Court to conduct and in camera review of these documents to discern whether Defendants’ assertions as to their content withstand scrutiny.  (See Cornish v. Super. Ct. (Capital Bond & Insurance Co., et al.) (1989) 209 Cal.App.3d 467, 480 [court may review assertedly privileged documents in camera  in order to verify facts stated as the basis for application of the attorney-client privilege or to determine whether an exception to the privilege applies]; Moeller v. Super. Ct. (Sanwa Bank) (1997) 16 Cal.4th 1124, 1135[a litigant may be required “to reveal some information in camera to permit the court to evaluate the basis for the claim” of privilege].)  Accordingly, the Court will perform an in camera review of these documents as described below.

With respect to the second aspect of the approach set forth in Zurich—the determination of whether Defendants have waived any privilege in these communications by including individuals unnecessary to the transmission of the information or the accomplishment of the purpose for which counsel was consulted—it is noted that ICP bears the burden on this issue.  (See Costco Wholesale Corp. v. Super. Ct., supra, 47 Cal.4th at p. 733 [once the proponent establishes facts necessary to support a prima facie claim of privilege, the opponent has the burden to establish the communication was not confidential or that the privilege does not for other reasons apply].)  Defendants assert that the individuals involved in these emails were officers or directors of Phoenix and administrative assistants.  These individuals would appear to fall within the “broad definition” of those to whom disclosure is reasonably necessary (Zurich American Ins. Co. v. Super. Ct., supra, 155 Cal.App.4th at p. 1503), a point which ICP does not dispute in its reply papers.  Consequently, there is no basis for the Court to find that Defendants waived any privilege that initially attached to these documents.

C.  Internal Emails Copying Phoenix’s General Counsel

Defendants assert that the communications in this group of internal emails involving Mr. Chu also request or provide legal advice.  Again, however, they provide no facts substantiating this conclusion.  “[O]therwise routine, nonprivileged communications between corporate officers or employees transacting the general business of the company do not attain privileged status solely because in-house or outside counsel is ‘copied in’ on correspondence or memoranda.”  (Zurich, supra, 155 Cal.App.4th at p. 1504.)  While Defendants state that they have never asserted that Mr. Chu was “merely copied” on this group of emails, a review of the privilege log they provided reveals that Mr. Chu was in fact identified as a “copyee” to the emails in this group rather than a direct “recipient.”

Again, it is appropriate under the circumstances for the Court to undertake an in camera review of these documents as ICP requests in order to determine whether they in fact pertain to legal advice or merely to general business matters.  The Court will thus review these documents in camera as described below.

D.  Emails with Third Parties

Withheld document nos. 814, 835, 892, 899, 929, 947-949, 984, 985, 987, 988, 990, 995-999, 1567, and 1583 are communications between Mr. Chu and Tyson Carter, an employee of Continuum Capital Partners (“Continuum”), which is an investor in Phoenix.[2]  Withheld document nos. 57-60, 62-64, 66, 67, 152, 153, 331, 340-343, 361-363, 768-771, 776, 957, 975-977, 1016, 1017, 1020, 1021, 1056, 1165, 1166, 1169-1174, 1379-1381, 1387, 1497-1500, and 1527 are communication between Mr. Chu and Marlin employees Amy Bailey and Julie Trinh.  Defendants contend that these communications are privileged under the common interest doctrine.

The common interest doctrine is “an exception to the general rule that a privilege is waived upon voluntary disclosure of the privileged information to a third party,” pursuant to which “parties who possess common legal interests may share privileged information without losing the protection afforded by the privilege.”  (OXY Resources California LLC v. Super. Ct. (EOG Resources, Inc.) (2004) 115 Cal.App.4th 874, 887-888.)  “[A] party seeking to rely on the common interest doctrine does not satisfy its burden to justify a claim of privilege simply by demonstrating that a confidential communication took place between parties who purportedly share a common interest. Rather, the party … must first establish that the communicated information would otherwise be protected from disclosure by a claim of privilege.”  (Id. at p. 890.)  “The next step in the analysis is to determine whether disclosing the information to a party outside the attorney-client relationship waived any applicable privileges.”  (Id.)

Here, Defendants contend that the communications at issue request or provide legal advice or information sought by counsel for the purpose of rendering legal advice.  However, Mr. Chu testified at his deposition that he never provided legal advice to Marlin, Continuum, or Mr. Carter.  Given that the emails at issue do not involve Phoenix or any other client of Mr. Chu’s, it does not appear that they were privileged in the first instance.

Even if they had been, waiver would result unless the email participants had “a reasonable expectation that information disclosed [would] remain confidential” and “disclosure of the information [was] reasonably necessary for the accomplishment of the purpose for which [Mr. Chu] was consulted.”  (OXY Resources California LLC v. Super. Ct., supra, 115 Cal.App.4th at p. 891 [for the common interest doctrine to attach, most courts require that the parties had a common interest in securing legal advice related to the same matter and the communications at issue were made to advance this interest].)  Defendants assert that the communications at issue here “were made with the reasonable expectation that the information disclosed within would remain confidential” (Opp. at p. 10), but offer no specific facts supporting this conclusion.

Further, although Defendants contend that Mr. Carter was involved in the negotiation of the NDA that is the subject of Phoenix’s second cross-complaint, while Marlin and Phoenix “have shared interests in securing legal advice on many common matters, not the least of which is the above-captioned litigation” (Opp. at pp. 11-12), they do not confirm that the communications at issue actually pertain to these subjects.[3]  Thus, Defendants have satisfied neither the confidentiality nor the necessity requirement discussed above.

Putting these unsuccessful arguments aside, Defendants’ assertion that these communications are privileged is based entirely upon Continuum’s and Marlin’s status as investors in Phoenix.  Defendants cite Insurance Co. of North America v. Super. Ct. (GAF Corp.) 108 Cal.App.3d 758, 767 (hereinafter, “GAF”) for the proposition that “if a corporation with a legal interest in an attorney-client communication relays it to another related corporation, the attorney-client privilege is not thereby waived.”

However, GAF more specifically involved the maintenance of the privilege among a corporation and its wholly-owned subsidiaries, not entities that merely had a financial stake in the corporation like those at issue here.  (See id. at pp. 769-770 [“We conclude, at least in the instance of wholly owned subsidiaries and affiliates, that the presence of a representative of a parent or affiliated company at a legal briefing of a subsidiary, and vice versa, does not destroy confidentiality of communication between counsel and client.”].)  To the extent that GAFcould be seen to establish a general rule that legal advice on any subject that is shared among parents and subsidiaries is subject to the common interest doctrine, the Court does not find it appropriate to apply such a rule in the context of less closely related entities.  Further, in GAF, the communications at issue clearly would have been privileged but for the presence of the affiliate representatives, given that they comprised direct briefings by counsel to a client.  Here, as discussed above, the emails at issue are among Phoenix’s counsel and third parties, and do not involve Phoenix itself.

In light of the above, Defendants have not established that the emails from Mr. Chu to Continuum or Marlin are privileged.  Defendants are consequently ordered to produce them as described below.

E.   Crime/Fraud Exception.

In an ex parte application heard on Thursday, 2 October 2014, Defendant and Cross Complainants this Court to strike and/or disregard the beleaguered crime/fraud arguments made in Plaintiff’s Reply Brief.  The papers presented on the export application are almost half an inch thick.  This is pertaining to some verbiage found on pages 4 and 5 of the reply brief which cites Evidence Code, § 956.

This Court makes two observations:

               1.            Points Raised for the First Time in Reply Papers Might Not Be Considered

“It is a mistake to leave key arguments and citations for the reply brief on the theory that this will give you ‘the last word’ with the court.  The court may refuse to consider arguments first raised in reply papers or grant the other side time for further briefing.”  (California Practice Guide, Civil Procedure Before Trial (Weil & Brown), § 9:106.1.)

The Court declines to consider the argument pertaining to Evidence Code, 956 as it was offered as evidence in support of Defendants’ motion for the first time in Defendants’ reply papers. (See REO Broadcasting Consultants v. Martin (1999) 69 Cal.App.4th 489, 500 [points raised for the first time in a reply brief will generally not be considered];  See Proctor v. Vishay Intertechnology, Inc. (2013) 213 Cal. App. 4th 1258, 1273-1274 [“[o]bvious considerations of fairness in argument demand that the [moving party] present all of his points in the opening brief [. . .] [t]o withhold a point until the closing brief would deprive the respondent of his opportunity to answer it or require the effort and delay of an additional brief by permission [. . .] [h]ence the rule is that points raised in the reply brief for the first time will not be considered, unless good reason is shown for failure to present them before]; REO Broadcasting Consultants v. Martin (1999) 69 Cal.App.4th 489, 500 [“This court will not consider points raised for the first time in a reply brief for the obvious reason that opposing counsel has not been given the opportunity to address those points”].)

               2.            Surreply Briefs

California Rules of Court, Rule 3.1300(a) provides that, “[u]nless otherwise ordered or specifically provided by law, all moving and supporting papers must be served and filed in accordance with Code of Civil Procedure section 1005.” Code of Civil Procedure section 1005 authorizes the filing of moving papers 16 days prior to a noticed hearing, opposition papers 9 days prior to the hearing, and reply papers 5 days prior to the hearing.

Section 1005 does not authorize the filing of surreplies.  While there does not seem to be express authority for the filing of a surrepply brief in law and motion matters, there is appellate authority providing some support for doing so.  See  Strathvale Holdings v. E.B.H. (2005) 126 Cal.App.4th 1241, 1247; Low v. Golden Eagle (2003) 110 Cal.App.4th 1532, 1542.

The ex parte papers filed will be considered as a surreply brief which was filed by Defendant and Cross Defendants.  The brief has been considered by this Court.

3.            Having said all of this, the Court disregarded any consideration of the crime fraud exception here and considered the citation of this in the reply papers as a matter of example only.

 

IV.   Conclusion and Order

ICP’s motion is GRANTED IN PART and DENIED IN PART.

ICP’s motion is GRANTED as to withheld document nos. 814, 835, 892, 899, 929, 947-949, 984, 985, 987, 988, 990, 995-999, 1567, and 1583.  Defendants shall produce these documents within 20 calendar days of the filing of this Order.

ICP’s motion is also GRANTED to the extent that it seeks an order providing for the in camera review of withheld document nos. 13, 16, 21-22, 116, 195, 198, 201-204, 209, 218, 231, 245, 251, 257, 394, 438, 443, 444, 532, 541, 543, 659, 681, 682, 686, 689, 693, 695, 698, 713, 716-718, 723-725, 733, 734, 1403, and 1440.  Defendants shall submit these documents to the Court for in camera inspection within 20 calendar days of the filing of this Order.  Following the in camera inspection of the documents, the Court will issue an order indicating whether Defendants shall be required to produce these documents to Plaintiffs.

ICP’s motion is DENIED insofar as it seeks the immediate production of these documents.

 

 

________________­­­____________ DATED:

_________________________­­­________________________ HON. SOCRATES PETER MANOUKIAN Judge of the Superior Court County of Santa Clara

 

[1] “Each exhibit must be separated by a hard 8 1/2 x 11 sheet with hard paper or plastic tabs extending below the bottom of the page, bearing the exhibit designation. An index to exhibits must be provided.”

[2] This Court observes that there are motions to seal exhibits and briefing regarding this motion that will be heard later in October.  There is one item of testimony that has been lodged under seal that this Court needed to refer to in the order and which could not be rephrased to avoid a direct reference.  This area pertains to Mr. Chu’s testimony that he never provided legal advice to Marlin, Continuum, or Mr. Carter.  This Court wonders if this testimony should ultimately be sealed, given that there does not seem to be anything confidential about it.

[3] With respect to the emails involving Mr. Carter, Defendants merely observe that the emails “fall within [the] time frame” of the NDA negotiations.  (Opp. at p. 11.)  As to the Marlin emails, Defendants’ suggestion that the emails may have been exchanged in anticipation of this litigation seems to be in conflict with the privilege log’s description of many of the emails as pertaining to “intellectual property issues.”