Barry Elkins, et al. v. Heritage Bank of Commerce, et al.		CASE NO. 114CV265103
DATE: 7 November 2014	TIME: 9:00	LINE NUMBER: 11

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 6 November 2014.  Please specify the issue to be contested when calling the Court and counsel.

On 7 November 2014, the following motions were argued and submitted: (1) the motion of defendant Heritage Bank of Commerce (“Heritage”) to compel plaintiffs Barry Elkins (“Elkins”) and Robert Nigra (“Nigra”) as co-trustees of the Hoven Foundation Trust (collectively, “Plaintiffs”) to provide further responses to special interrogatories, set one, (“SI”) and for monetary sanctions, and (2) Heritage’s motion to compel Plaintiffs to provide further responses to demand for inspection of documents, set one, (“RPD”)  and for monetary sanctions. Plaintiffs filed formal oppositions to both motions.

1. Statement of Facts

This action arises out of the alleged misappropriation of trust funds by defendant Leo J. Kennedy (“Kennedy”), a former employee and boyfriend of professional trustee, Christine Backhouse (“Backhouse”).To manage the various trusts for which she acted as a fiduciary, Backhouse established a master account with Heritage. In 2009, Backhouse and Heritage executed a wire transfer agreement that required both Kennedy and Backhouse to approve wire transfers from any trust account. In February 2012, Backhouse discovered that Kennedy had misappropriated funds from trusts she managed by executing a number of wire transfers from accounts at Heritage. Plaintiffs allege that Heritage approved transfers from their trust account even though Backhouse did not authorize them as required by the 2009 wire transfer agreement.

In the operative first amended complaint, Heritage is named as a defendant to the second through tenth causes of action for: (2) breach of contract – third part beneficiary, (3) fraud and deceit, (4) breach of fiduciary duty, (5) negligence, (6) aiding and abetting fraud, (7) aiding and abetting breach of fiduciary duty, (8) breach of statutory duty, (9) breach of statutory duty – California Uniform Commercial Code (“CUCC”) sections 11202, subdivisions (b)(i) –(ii) and 11202, subdivision (c), and (10) breach of statutory duty – CUCC section 11202, subdivision (b)(ii).

1. Discovery Dispute

On 17 July 2014, Heritage served on Plaintiffs the SI and RPD. Plaintiffs served unverified responses to the SI and RPD, consisting of both substantive responses and objections, on 22 August 2014.

Dissatisfied with these responses, on 26 August 2014, Heritage’s counsel sent a meet and confer letter to Plaintiffs’ counsel, indicating that the responses to the SI and RPD were defective. On 9 September 2014, Heritage’s counsel sent another letter, indicating that Heritage had yet to receive any documents responsive to the RPD.

Having received no response from Plaintiffs, Heritage filed the instant motions to compel further responses on 6 October 2014. On 27 October 2014, Plaintiffs filed their oppositions. Heritage filed its replies on 31 October 2014.

 

III.    Discussion

1. Motions to Compel Further Responses to the SI and RPD

Heritage seeks an order compelling Plaintiffs to provide verified further responses to the SI and RPD, production of documents responsive to the RPD, and a privilege log.

1. Mootness

Plaintiffs argue that the motions to compel further responses to the SI and the RPD are moot because Plaintiffs served on Heritage further responses to the SI and RPD on 13 October 2014, signed verifications to the SI and RPD on 23 and 27 October 2014, and all nonprivileged documents responsive to the RPD in their possession, custody and control and a privilege log on 23 October 2014.

When discovery responses are served after a motion to compel is filed, the court has substantial discretion in deciding how to rule in light of the particular circumstances presented. (See Sinaiko Healthcare Consulting, Inc. v. Pacific Healthcare Consultants (2007) 148 Cal.App.4th 390, 408-409.) In its discretion, the court might deny the motion to compel as moot and just impose sanctions, or examine the responses to determine if they are code-compliant. (Id. at p. 409.)

In its reply in support of its motion to compel further responses to the RPD, Heritage does not assert that the responses to the RPD remain defective. Instead, it merely requests that the Court award sanctions. Accordingly, the Court exercises its discretion to deny the motion to compel further responses to the RPD as MOOT.

In contrast, in its reply in support of the motion to compel further responses to the SI, Heritage contends that Plaintiffs merely re-served their original responses to the SI with verifications and did not change their responses at all. As a result, it asserts that the substantive responses remain incomplete and/or evasive and the objections still lack merit. Accordingly, the Court exercises its discretion to examine the responses to the SI to determine if they are code-compliant.

1. Motion to Compel Further Responses to the SI

Heritage moves to compel further responses to SI Nos. 1-7. The SI seek facts concerning Kennedy’s unauthorized transfers of money out of Plaintiffs’ trust (SI Nos. 1-5) and the wire transfer agreement between Heritage and Backhouse (SI Nos. 6-7). Plaintiffs responded to all of the SI at issue with objections and substantive responses.

Heritage argues further responses are warranted because the objections lack merit and the substantive responses to SI Nos. 1-2 and 4-7 are incomplete and/or evasive. In opposition, Plaintiffs assert that their responses and objections are code-compliant.

1. Legal Standards

A party propounding interrogatories may move for an order compelling further responses if that party deems an objection is without merit or too general or a response is evasive or incomplete.  (Code Civ. Proc., § 2030.300, subd. (a).)  The statute does not require any showing of good cause in support of a motion.  (See Code Civ. Proc., § 2030.300, subd. (a); see also Coy v. Superior Court. (1962) 58 Cal.2d 210, 220-221.)  The burden is on the responding party to justify any objections or failure to fully answer.  (Coy v. Superior Court, supra, 58 Cal.2d at pp. 220-221.)

2. Objections

Plaintiffs raise numerous objections to each individual SI.[1] In its opposition, Plaintiffs do not attempt to justify any of their objections. Thus, all of the objections to the SI are overruled. (See Coy v. Superior Court, supra, 58 Cal.2d at pp. 220-221.)

3. Substantive Responses

Plaintiffs provided substantive responses to all of the SI at issue. Heritage contends that further responses are warranted because the substantive responses to SI Nos. 1-2 and 4-7 are incomplete and/or evasive.

1. SI Nos. 1 and 4-7

Plaintiffs responded to SI Nos. 1 and 4-7 by referencing three attached documents, Exhibits A, B, and C. Heritage contends that these responses are patently incomplete.

“Answers must be complete and responsive. Thus, it is not proper to answer by stating, ‘See my deposition,’ ‘See my pleading,’ or ‘See the financial statement.’ Indeed, if a question does require the responding party to make reference to a pleading or document, the pleading or document should be identified and summarized so the answer is fully responsive to the question.” (Deyo v. Kilbourne (1978) 84 Cal.App.3d 771, 783-784.) As Plaintiffs’ responses to SI Nos. 1 and 4-7 do not summarize Exhibits A, B and C, these responses are incomplete.

In opposition, Plaintiffs argue that they properly responded to the interrogatories pursuant to Code of Civil Procedure section 2030.230, which provides, in pertinent part, that “it is a sufficient answer to that interrogatory to refer to this section and to specify the writings from which the answer may be derived or ascertained.” Here, Plaintiffs’ responses to SI Nos. 1 and 4-7 do not refer to section 2030.230. Thus, Plaintiffs’ references to Exhibits A, B, and/or C are not code-complaint on this basis. Accordingly, further responses to SI Nos. 1 and 4-7 are warranted.

1. SI No. 2

SI No. 2 asks that Plaintiffs state, for each unauthorized transfer they identified, the facts upon which they base their contention that the transfer was unauthorized.

In response, Plaintiffs state that, in violation of the wire transfer agreement between Backhouse and Heritage, Kennedy employed three methods to misappropriate Plaintiffs’ funds. Under the first method, Kennedy faxed completed wire transfer forms containing his signature to Heritage. When Heritage called to confirm the transfer with Backhouse, Kennedy would state that Backhouse was unavailable and he was authorizing the transfer in her stead. Under the second method, Kennedy would transfer funds from Plaintiffs’ trust account to other accounts at Heritage. Under the third method, Kennedy would forge checks.

Heritage contends that a further response should be compelled because it is not clear which method of misappropriation applies to which transfer. This argument is persuasive. An interrogatory response must be as complete and straightforward as the information available to the responding party permits.  (Code Civ. Proc., § 2030.220, subd. (a).)  The responding party must make a reasonable and good faith effort to obtain the information by inquiry to other persons or organizations, and if the responding party lacks sufficient personal knowledge to fully respond to a request, it shall so state. (Code Civ. Proc., § 2030.220, subd. (c).)

Here, Plaintiffs do not indicate which method Kennedy used for each unauthorized transfer, which is the call of the question, or that they lack sufficient personal knowledge to fully respond. As such, a further response to SI No. 2 is warranted.

4. Conclusion

In light of the foregoing, Heritage’s motion to compel further responses to the SI is GRANTED IN PART and DENIED IN PART. The motion is DENIED as to SI No. 3.[2] The motion is GRANTED as to SI Nos. 1-2 and 4-7.

1. Heritage’s Requests for Monetary Sanctions
2.             Monetary Sanctions with Regard to the RPD Motion

In connection with its motion to compel further responses to the RPD, Heritage first requests monetary sanctions pursuant to Code of Civil Procedure section 2023.030. This section indicates that a court may award sanctions against a party that misuses the discovery process, but only “[t]o the extent authorized by the chapter governing any particular discovery method or any other provision of this title.” Thus, this provision does not provide an independent basis for an award of sanctions.

Next, Heritage seeks monetary sanctions pursuant to Code of Civil Procedure section 2023.020, which states: “Notwithstanding the outcome of the particular discovery motion, the court shall impose a monetary sanction ordering that any party or attorney who fails to confer as required pay the reasonable expenses, including attorney’s fees, incurred by anyone as a result of that conduct.” Heritage contends that this section provides a basis for monetary sanctions because Plaintiffs’ counsel did not respond to its meet and confer letters. This argument is not persuasive. Section 2023.020 applies only if a party or attorney “fails to confer as required.” A party is not required to meet and confer prior to opposing motions to compel further responses to requests for production of documents. (See Code Civ. Proc., § 2030.310, subd. (b)(2) [meet and confer requirement only for party moving to compel further responses].) Thus, this section does not provide a basis for monetary sanctions.

In light of the foregoing, Heritage’s request for monetary sanctions in connection with its motion to compel further responses to the RPD is DENIED.

1. Monetary Sanctions with Regard to the SI Motion

In connection with the motion to compel further responses to the SI, Heritage requests monetary sanctions pursuant to Code of Civil Procedure section 2030.300, subdivision (d), which provides, in pertinent part, that “[t]he court shall impose a monetary sanction … against any party, person, or attorney who unsuccessfully makes or opposes a motion to compel a further response to interrogatories, unless it finds that the one subject to the sanction acted with substantial justification or that other circumstances make the imposition of the sanction unjust.”

Here, Plaintiffs unsuccessfully opposed Heritage’s motion to compel further responses to the SI. Therefore, Heritage is entitled to monetary sanctions unless Plaintiffs acted with substantial justification or other circumstances make the imposition of sanctions unjust.

In opposition, Plaintiffs contend that they have acted with substantial justification because they assumed that any discovery disputes in this action would be resolved via a discovery referee. In this regard, they assert that this action will soon be consolidated with the related case of Little, et al. v. Heritage Bank of Commerce, et al, case number 1-13-CV-24174 (the “Little action”).[3] In the Little action, the parties agreed to resolve their discovery disputes via the selection of a mutually agreeable discovery referee. Plaintiffs, therefore, assumed that all discovery disputes, including those in the instant action, would be resolved by the discovery referee in the Little action once he or she was appointed.

Plaintiffs’ argument is not persuasive. First, Plaintiffs’ argument is premised on events that have yet to take place. In addition, they provide no authority for the proposition that, under these circumstances, the appointment of a discovery referee in a separate case relieves a party from its obligation to provide code-compliant, verified responses to discovery. Thus, Plaintiffs did not act with substantial justification and no other circumstances render the imposition of sanctions unjust.

Heritage requests $5,000 in monetary sanction against Plaintiffs and their counsel. In his declaration, Heritage’s counsel, Joseph N. Demko (“Demko”), declares that Heritage incurred more than $5,000 in attorney’s fees meeting and conferring, reviewing the discovery responses, and preparing this motion. He further declares that his hourly rate is $635 per hour and the hourly rate of his associate, Erin E. Daly (“Daly”), is $340 per hour.

As an initial matter, the Court does not award sanctions for expenses incurred for reviewing discovery responses and meeting and conferring. (See Code Civ. Proc., § 2023.030, subd. (a); Tucker v. Pacific Bell Mobile Services (2010) 186 Cal.App.4th 1548, 1551.) Consequently, attorney’s fees attributable to these expenses are not compensable. While the Demko and Daly’s hourly rates are reasonable, Demko does not indicate the total amount of time spent preparing the motion or apportion that time between himself and Daly. As such, the Court is not in a position to determine the amount of reasonable expenses Heritage actually incurred. (See Code Civ. Proc., § 2023.030 [court may only award reasonable expenses actually incurred].)

Accordingly, Heritage’s request for monetary sanctions is DENIED.

1. Conclusion and Order

Heritage’s motion to compel further responses to the RPD is DENIED as MOOT.

Heritage’s request for monetary sanctions in connection with the motion to compel further responses to the RPD is DENIED.

Heritage’s motion to compel further responses to the SI is GRANTED IN PART and DENIED IN PART. The motion is DENIED as to SI No. 3. The motion is GRANTED as to SI Nos. 1-2 and 4-7. Accordingly, within 20 days of the date of the filing of this Order, Plaintiffs shall provide Heritage with verified, code-compliant further responses, without objection, to SI Nos. 1-2 and 4-7.

Heritage’s request for monetary sanctions in connection with the motion to compel further responses to the SI is DENIED.

 

 

________________­­­____________ DATED:

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

[1] Some of the objections were boilerplate objections asserted at the outset of the responses to the SI, and Heritage argues that those objections are improper.  While a responding party must separately assert its objections in each individual interrogatory response (Code Civ. Proc., § 2030.210), asserting objections at the outset of the responses and incorporating them into, or restating them within, each individual response does not somehow render the objections invalid.  Here, Plaintiffs restated all of the preliminary objections in each individual response to the SI. Thus, it is inconsequential that the objections are also set forth at the outset.  We will

[2] Although the objections to SI No. 3 are overruled, Plaintiffs’ substantive response is independently adequate such that no further response is required. In this regard, Heritage does not argue that the substantive response is incomplete or evasive and there is no indication that any responsive information was withheld due to the objections interposed.

[3] A motion to consolidate the two cases is set for hearing on November 21, 2014 in Department 1.