| Heritage Bank of Commerce v. 12A Technologies, et al. | CASE NO. 113CV252904 | |
| DATE: 3 October 2014 | TIME: 9:00 | LINE NUMBER: 10 |
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 Heritage Bank of Commerce to compel Paulinis Nlemigbo to produce documents responsive to a deposition notice and for monetary sanctions was argued and submitted. Defendant 12A Technologies, Inc. filed formal opposition to the motion.
All parties are reminded that all papers must comply with Rule of Court 3.1110(f).
I. Statement of Facts
On December 23, 2010, defendant 12A Technologies, Inc. (“12A”) and plaintiff Heritage Bank of Commerce (“HBC”) executed a business loan agreement under which 12A obtained a commercial loan from HBC. (Complaint at ¶ 5.) A promissory note (the “Note’) was executed that same day in the principle sum of $1,830,000 that was to be paid back, with interest, over a ten year period. (Id. at ¶ 6.) Defendant Ann Batinovich also executed a guaranty for the entire amount of the loan. (Id. at ¶ 9.)
Beginning on September 5, 2012, 12A defaulted under the Note by, among other things, failing to make the monthly payment due in full. (Complaint at ¶ 20.) Thereafter, 12A made certain payments and partial payments, which satisfied prior amounts due and owing but failed to bring its obligations under the Note current. (Id.) Since June 5, 2013, 12A failed to make any monthly payments. (Id.)
On September 12, 2013, HBC filed the Complaint asserting the following causes of action: (1) breach of promissory note; (2) breach of guaranty; (3) judicial foreclosure; and (4) claim and delivery.
II. Discovery Dispute
On July 25, 2014, HBC served 12A with a Notice of Deposition of Paulinis Nlemigbo with Requests for Production of Documents. (Declaration of Stephen J. Kottmeier in Support of Motion to Compel Production (“Kottmeier Decl.”), ¶ 3 and Exhibit A.) The deposition notice contained ten production requests. (Id.) The original date for the deposition was rescheduled to August 28, 2014 to accommodate 12A’s counsel’s schedule. (Id.)
On August 28, 2014, Paulinis Nlemigbo (“Nlemigbo”), who handles accounts payable and accounts receivable for 12A, appeared for his deposition. (Kottmeier Decl., ¶ 5.) During the deposition, 12A’s counsel did not object to production of any of the documents requested. (Id. at ¶ 6.) During the deposition, it became apparent that Nlemigbo had failed to produce responsive documents that were available to him. (Id. at ¶ 9.) On the record, HBC’s counsel (Mr. Kottmeier) requested to opposing counsel (Mr. Jones) that documents responsive to request no. 2 be produced. (Id.) 12A’s counsel asked that something be sent to him in writing to remind him. (Id.) Consequently, later that afternoon, Mr. Kottmeier sent a letter to Mr. Jones requesting that Nlemigbo produce documents in response to request nos. 2, 3 and 5, among others, by September 3, 2014. (Id. at Exhibit E.)
On September 3, 2014, Mr. Kottmeier received an email from opposing counsel indicating that Nlemigbo would not produce any additional documents. (Kottmeier Decl., § 10 and Exhibit F.)
The following day, Mr. Kottmeier spoke with Mr. Jones and advised him that the documents requested were relevant because they pertained directly to HBC’s collateral, which is part of the instant action to enforce HBC’s loan rights. (Kottmeier Decl., ¶ 11.) Mr. Jones refused to produce the records. (Id.) As a result, Mr. Kottmeier sent another meet and confer letter reiterating the relevancy of the requested documents. (Id. and Exhibit G.) There was no response to this letter.
On September 9, 2014, HBC filed the instant motion to compel Nlemigbo to produce documents responsive to request nos. 2, 3 and 5. On September 22, 2014, 12A filed its opposition. On September 26, 2014, HBC filed its reply.
III. Discussion
A. HBC’s Request for Judicial Notice
In support of its motion to compel production, HBC requests that the Court take judicial notice of the verified complaint in this matter (Exhibit A), HBC’s Notice of Motion and Motion for Authority to Conduct Auction Sale of Collateral on 12A’s Premises and Injunction in Aid of the Auction (Exhibit B) and Notice of Settlement Conference and Trial in this case setting the trial date for December 8, 2014 (Exhibit C). These items are all court records and therefore properly subjects of judicial notice pursuant to Evidence Code section 452, subdivision (d). Accordingly, HBC’s request for judicial notice is GRANTED.
B. HBC’s Motion to Compel Production
HBC moves to compel Nlemigbo to produce documents responsive to request nos. 2, 3 and 5 in the deposition notice served on July 25, 2014.
As a general matter, if a deponent fails to answer or produce documents specified in the deposition notice at a deposition, the party seeking discovery may move to compel the production of the documents. (Code Civ. Proc., § 2025.480, subd. (a).)
1. Good Cause
A motion to compel production of documents described in a deposition notice must be accompanied by a showing of “good cause.” (Code Civ. Proc., §§ 2025.450, subd. (b)(1) and 2025.480, subd. (a).) The moving party satisfies this burden “simply by a fact-specific showing of relevance” to the subject matter. (Glenfed Develop. Corp. v. Superior Court (1997) 53 Cal.App.4th 1113, 1117.) In the context of discovery, evidence is relevant if it might reasonably assist a party in evaluating its case, preparing for trial, or facilitating a settlement. (Id.) If good cause is shown, the burden shifts to the responding party to justify any objections. (Kirkland v. Superior Court (2002) 95 Cal.App.4th 92, 98.)
As set forth above, HBC moves to compel production of documents responsive to three particular requests in the deposition notice, nos. 2, 3 and 5. These requests seek the following items:
- Documents which evidence the name, billing address, phone number, email address, and contact person, if any, of each account debtor shown in the accounts receivable aging of 12A produced pursuant to Request for Production No. 1 (Request No. 2);
- Documents which constitute each open invoice reflected in the accounts receivable aging of 12A produced pursuant to Request for Production No. 1 (Request No. 3);
- All documents which constitute, summarize or record each written or oral communication [Nlemigbo had had] with any employee, officer or other representative of HBC at any time regarding HBC’s loan to 12A. (Request No. 5).
Contrary to 12A’s insistence to the contrary, HBC has demonstrated that good cause exists for items responsive to these requests. Requests 2 and 3 seek documents that are relevant to HBC’s third cause of action for judicial foreclosure in which it seeks to foreclose on its security interest in the collateral securing the loan. This collateral is alleged to include, among other things, 12A’s personal property assets including all machinery, equipment, accounts, inventory and proceeds therefrom. The requested items may provide HBC with information needed to recover and liquidate the collateral and successfully enforce its rights under the loan documents. HBC’s ability to evaluate, recover and liquidate the collateral that secures the Note relates to its ability to evaluate its case in toto and prepare for trial.
The fact that the Court (Hon. Huber), on September 12, 2014, granted HBC’s motion for authority to conduct an auction sale of collateral on 12A’s premises does not lesson the potential import of the documents requested. Further, 12A provides no authority for the proposition that HBC must wait until after it prevails at trial to seek discovery of items that might be useful in realizing on the collateral and/or determining the deficiency remaining in whatever judgment it obtains.
Request no. 5 seeks communications that may relate to 12A’s affirmative defenses and its contention that HBC did not “deal with [12A] openly, fairly, and in good faith [because] HBC never once told responding party that the guaranteed portion of its SBA loan had been sold on the secondary market, or more importantly, that a deferral would ever been [sic] agreed to.” (Kottemeier Decl., ¶ 8, Exhibit D at 5:9-19.) During his deposition, Nlemigbo testified to having been copied on email communications between HBC and 12A, but he did not remember the content of many of them. Production of these emails or other responsive documents will provide information regarding the nature of the interactions between the parties and what may or may not have been communicated by HBC to 12A.
As HBC has demonstrated that good cause exists for the materials sought by request nos. 2, 3 and 5, the burden shifts to 12A/Nlemigo to justify any objections. (See Kirkland v. Superior Court (2002) 95 Cal.App.4th 92, 98.)
2. Objections
During Nlemigbo’s objection, no objections were asserted by him/12A in response to any of the production requests contained in the deposition notice. When asked about request no. 2 and why he had not brought with him documents responsive to the request, Nlemigbo testified that 12A’s accounting system had “crashed” a few months prior. (Kottmeier Decl., ¶ 5, Exhibit B at 24:12-27:5.) When asked if he had hard copies of invoices or how he was tracking customer payments, he testified that he might have invoices or packing lists responsive to the request but he did not look for them. (Id.) Nlemigbo’s counsel agreed to produce the documents within two or three days. (Id. at 27:20-27:24.) The documents were never produced.
Nlemigbo identified the system crash as the reason why he did not bring any documents responsive to request no. 3 with him, stating “it’s taking slow- it’s taking some time to produce- to manually create these invoices.” (Kottmeier Decl., ¶ 5, Exhibit B at 41:19-42:20.)
When asked about request no. 5, Nlemigbo testified both that he had no documents responsive to the request and, in response to HBC’s counsel’s question of whether he had searched his email communications for responsive documents, that he “tried” to search his email communications for responsive materials but was unable to do so because of the system crash. (Kottmeier Decl., ¶ 5, Exhibit B at 44:10-45:17.)
Nlemigbo/12A did not assert any objections to these requests at his deposition, and does not justify any objections in their opposition, as is their burden. 12A insists that the motion to compel should be denied because (1) the requests are unnecessary, (2) certain responsive items, in particular email communications, are already in the bank’s possession because they were previously produced by 12A in discovery, and (3) the bank already has the right to inspect the collateral as it wishes and thus obtain the information it is requesting 12A produce. These contentions are unavailing.
First, 12A’s claim that HBC can simply exercise its contractual rights and inspect the collateral to obtain the information it seeks is suspect given the fact that HBC was forced to bring a motion to compel 12A to cooperate with such inspection and auction of some of the collateral in the first place. In other words, the ease with which 12A characterizes HBC as being able to obtain the requested information questionable. Second, the fact that 12A may have already produced materials in early discovery that are also responsive to the subject requests does not relieve Nlemigbo of his obligation to produce all responsive materials. Lastly, for the reasons articulated above, the documents sought by the requests are relevant to HBC’s lawsuit and its ability to prepare for trial and evaluate its case.
Given the fact that good cause exists for the items sought by request nos. 2, 3 and 5, and Nlemigbo/12A have not justified any objections to the requests, HBC’s motion to compel is granted.
C. HBC’s Request for Monetary Sanctions
HBC seeks monetary sanctions against Nlemigbo, 12A and their counsel in the amount of $6,590 pursuant to Code of Civil Procedure sections 2025.480, subd. (j), 2025.450, subd. (g)(1) and 2023.030, subd. (a). Code of Civil Procedure sections 2025.450, subdivision (g)(1) and 2025.480, subd. (j) provide that if a motion to compel production of items described in a deposition notice is granted, the court shall impose a monetary sanction against the deponent or party with whom the deponent is affiliated unless it finds that the one subject to the sanction acted with substantial justification or other circumstances exist which would make the imposition of sanctions unjust. Code of Civil Procedure section 2023.030, subdivision (a)[1] permits the imposition of sanctions against any party that engages in misuse of the discovery process; HBC contends that 12A, Nlemigbo and their counsel have done so here by failing to respond to the subject requests.
12A argues that sanctions are not warranted given the system crash and the resulting loss and destruction of the information sought by HBC. It submits the declaration of its president and CEO, Victor Batinovich, who states that as a result of the damage to the company’s computing system, the information the bank is seeking is not available via computer and must be manually created. (Declaration of Victor Batinovich in Support of Opposition to Motion to Compel, ¶¶ 5, 7.) 12A insists that it would be cost prohibitive to pull employees from their daily responsibilities to produce the information that HBC seeks, and directs the Court to Code of Civil Procedure section 2025.410, subdivision (e)(1)[2] in support of its contention that sanctions should not be imposed.
12A’s reliance on Code of Civil Procedure section 2025.410, subdivision (e)(1) is misplaced. This code section provides safe harbor against sanctions for a party who loses a motion to quash a deposition notice where that party’s failure to provide electronically stored information (“ESI”) was the result of the ESI being “lost, damaged, altered, or overwritten as a result of the routine, good faith operation of an electronic information system.” The instant motion is to compel production for items described in a deposition notice and not a motion to quash. Accordingly, this section is inapplicable.
However, Code of Civil Procedure section 2025.450, subdivision (i)(1), provides the same safe harbor as the foregoing code section for motions to compel the production of documents described in a deposition notice. Thus, based on the representation of Batinovich under penalty of perjury that the main computer system where all of 12A’s accounting and sensitive customer information was located and stored was completely destroyed and lost in March of 2014, the Court finds that the imposition of sanctions is not warranted.
However, the events of March 2014 do not absolve 12A from its obligation to preserve discoverable information (see Code Civ. Proc., § 2025.450, subd. (i)(2)), particularly the materials from which the information HBC is seeking can be manually recreated, and make that information available to HBC for inspection, or produce responsive materials which were created subsequent to the system destruction in March. Moreover, Nlemigbo testified at his deposition that he might have responsive documents to Request No. 2 and agreed to produce those materials. The promised production never occurred. 12A is compelled to produce and/or make available for inspection the information sought.
IV. Conclusion and Order
HBC’s request for judicial notice is GRANTED.
HBC’s motion to compel is GRANTED. Nlemigbo/12A shall respond to the discovery without objection and within 20 days of the date of the filing of this Order. Where responsive items have been destroyed due to the system crash in March 2014, the materials from which the information sought can be recreated shall be made available to HBC for inspection. Further, Nlemigbo/12A shall produce responsive items created subsequent to the system crash.
HBC’s request for monetary sanctions is DENIED.
| ____________________________
DATED: |
_________________________________________________
HON. SOCRATES PETER MANOUKIAN Judge of the Superior Court County of Santa Clara |
[1] “Section 2023.030 authorizes a court to impose the specified types of sanctions, “[t]o the extent authorized by the chapter governing any particular discovery method or any other provision of this title.” (Ibid.) This means that the statutes governing the particular discovery methods limit the permissible sanctions to those sanctions provided under the applicable governing statutes.” (New Albertsons, Inc. v. Superior Court (Shanahan) (2008) 168 Cal.App.4th 1403, 1422.) As such, section 2023.030 does not provide an independent basis for an award of sanctions and thus is not self-executing. In other words, to invoke section 2023.030 as a basis for sanctions, the moving party must first be authorized to seek sanctions under the provisions in the Civil Discovery Act applicable to the discovery requests at issue.
[2] “Notwithstanding subdivision (d), absent exceptional circumstances, the court shall not impose sanctions on any party, person, or attorney for failure to provide electronically stored information that has been lost, damaged, altered, or overwritten as the result of the routine, good faith operation of an electronic information system.”
Link to this page