Sacramento Superior Court Tentative Rulings | Legal News

2018-00244868-CU-OR

Cosis LLC vs. Ken Madhvani

Nature of Proceeding: Motion to Compel Compliance with Subpoena

Filed By: Signorotti, Dominic V.

Plaintiffs Cosis, LLC et al.’s “Motion to Compel Compliance with Subpoena” is ruled on as follows.

The notice of motion does not comply with Code of Civil Procedure §1010 or CRC Rule 3.1110(a).

The notice of motion is by its own terms directed “To the Court, all parties and their attorneys,” even though the moving papers elsewhere indicate plaintiffs seek an order compelling non-parties’ compliance with subpoenas. To add to the confusion, the notice of motion by its own terms indicates that plaintiffs are seeking an order compelling compliance with only a singular subpoena, while the moving papers elsewhere suggest plaintiffs are actually seeking to compel compliance with several subpoenas. Moreover, for unknown reasons, the notice of motion does not identify by name those non-parties whose compliance is being sought here. In light of these glaring deficiencies in the notice of motion, it remains unclear whether any of the unrepresented non-parties reasonably understood that this motion is actually directed at them and seeks to compel their own compliance with plaintiffs’ subpoenas and thus, whether this motion should simply be dropped from calendar due to defective service of notice which deprives the Court of jurisdiction to entertain this motion.

The notice of motion also fails to comply with Code of Civil Procedure §2023.040, specifying that the notice of motion “identify every person, party, and attorney against whom the sanction is sought, and specify the type of sanction sought.”

The moving points & authorities represent on Page 2:18 that none of the subpoenaed individuals has objected to the subpoenas but Page 6:12-13 then indicates that all of them objected to the subpoenas.

Opposing counsel failed to comply with CRC Rule 2.111(1), which requires the first page of each filing to include counsel’s State Bar Number.

Opposing counsel is advised that written objections to evidence should comply with the requirements of CRC Rule 3.1354, so the Court need not waste its finite resources trying to locate the questioned evidence.

Factual Background

This action involves a dispute over ownership interests in real property located in Sacramento County. The operative First Amended Complaint (“1AC”) alleges against defendant Madhvani causes of action for (1) slander of title, (2) quiet title, (3) breach of duty to reconvey, (4) wrongful foreclosure, (5) unjust enrichment, (6) equitable subordination and (7) declaratory relief. In short, plaintiffs allege they have a first priority security interest in the subject property by virtue of a $9.125 Million loan made in 2006 which was secured by a Deed of Trust simultaneously recorded against the property and that in 2018 defendant illegally foreclosed on the property under a void deed of trust which should have been reconveyed in connection with the aforementioned 2006 loan.

According to plaintiffs, defendant Madhvani has been aware his loan was previously paid off since he took no action with respect to his loan until 2018, when Cosis’ principal learned the property was scheduled for a tax sale and contacted defendant to negotiate a purchase of his Loan. However, defendant indicated his loan was not unpaid but shortly thereafter filed a notice of default, eventually foreclosing on the property and obtaining title with a credit bid which extinguished plaintiffs’ security interest. Additionally, although defendant filed for Chapter 11 bankruptcy in 2010, he

never disclosed the existence of this loan in his filings or in his subsequent home loan application or later application for a loan modification.

In an attempt to gather additional evidence purporting to demonstrate defendant Madhvani’s knowledge that his loan against the subject property was paid off long before he proceeded to foreclose and extinguished plaintiffs’ security interest, plaintiffs issued four substantively-identical deposition subpoenas to Mr. and Mrs. Avila and Mr. and Mrs. Krenek, both of whom apparently gave a secured loan to defendant Madhvani back in 2008. Each of these subpoenas sought the following documents:

1. “[A]ny and all DOCUMENTS…relating to the $980,000 loan made by YOU… to Kantilal J. Madhvani on or about November 4, 2008 (the “LOAN”), which was secured by a…Deed of Trust…recorded in…Sacramento County on November 7, 2008…”

2. “[A]ny and all COMMUNICATIONS…between YOU and Kantilal J. Madhvani regarding the LOAN.”

3. “[A]ny and all DOCUMENTS provided by YOU by Kantilal J. Madhvani relating to the LOAN.”
4. “[A]ny and all COMMUNICATIONS between YOU and Kantilal J. Madhvani regarding any loans made by YOU to Kantilal J. Madhvani between January 1, 2004 and December 1, 2018.”

5. “[A]ny and all DOCUMENTS relating any loans made by YOU to Kantilal J. Madhvani between January 1, 2004 and December 1, 2018.”

Although the moving points & authorities represent on Page 2:18 that none of the four subpoenaed individuals has objected to the subpoenas, Page 6:12-13 indicates that all of them actually objected to the subpoenas and previously served identical objections to the subpoenas. The four deponents objected to the subpoenas on various grounds:

1. Plaintiffs failed to comply with Code of Civil Procedure §1985.3(e) and §1985.6(e)’s respective requirements to serve a “Notice to Consumer” on the individuals whose consumer and employment records are being sought by the subpoenas;

2. The financial information and records being sought are “confidential and privileged” and can only be obtained “by complying with…the privacy rights” of those whose information and records are sought;
3. The documents sought are irrelevant and “not reasonably calculated to lead to the discovery of relevant, admissible evidence;”

4. The subpoena is “unnecessarily intrusive to seek bank records…owned by Defendant and/or 3rd Parties that have no relation to this matter;”
5. The subpoena seeks disclosure of “privileged or confidential 3rd party information;” and

6. The subpoena seeks “confidential bank records of defendant and/or of 3rd Party’s [sic] are [sic] irrelevant, unnecessary, and harassing.”

According to plaintiffs, defendant Madhvani’s wife also served objections to the subpoenas and asserted essentially the same objections as the Avilas and the Kreneks.

Moving Papers. In the moving papers, plaintiffs assert that “[t]he reason for the instant motion is that Defendant’s wife…has employed Defendant’s counsel and served unmeritorious objects [sic] to the subpoenas” and “Mrs. Madhvani is the only

affected party to serve objections.” (Mov. Memo. P&A, p.2:16-18.) In the end, plaintiffs maintain that “None of [Mrs. Madhvani’s] objections have [sic] any merit” and the Court should compel the depositions to go forward and compel the deponents to produce the documents requested. Plaintiffs also request an award of monetary sanctions of over $6,900.

Opposition. Mrs. Maria Madhvani is the only one who has opposed to this motion, arguing that “[t]he subponea [sic] seeks documents that are not relevant or likely to lead to relevant [sic] evidence” and that plaintiffs’ “circumstantial evidence” is insufficient to demonstrate defendant Madhvani was paid on his note. (Oppos., p.8:6-7; p.8:24-p.10:2.) The opposition also asserts that Mrs. Madhvani is a “consumer” within the meaning of Code of Civil Procedure §1985.3 and was therefore entitled to a “Notice to Consumer” pursuant to §1985.3(e) especially since the subpoenas seek records from the Avilas and the Kreneks who “were acting as Maria Madhvani’s private banker [sic].” (Oppos., p.10:3-p.12:2.) Mrs. Madhvani further insists the documents sought by the subpoenas are “private, confidential and privileged” and since they fall within the “zone of privacy” protected by the California Constitution, plaintiffs must but cannot establish “direct relevance” and “compelling public need” for the documents identified in the subpoenas. The opposition concludes with a request for monetary sanctions of over $7,600.

Analysis

At the outset, the Court must remind all counsel that given the number of motions such as this which must be addressed on a daily basis, there are simply not enough judicial resources available to resolve each and every discovery dispute that could have and should have been resolved informally. This serves to highlight the critical need for all counsel’s legitimate, reasonable and good faith meet-and-confer efforts before filing any discovery motion. Although it dealt with a motion to compel answers to deposition questions, the decision of Townsend v. Superior Court (1998) 61 Cal.App.4th 1431 is instructive in that it clarifies that the meet-and-confer process is not intended to be some perfunctory formality but rather it “requires…a serious effort at negotiation and informal resolution.” (Id., at 1438.) Nevertheless, despite the number of other matters on this crowded calendar, this Court will address yet another largely unremarkable discovery dispute which could have and should have been resolved by counsel via the meet-and-confer process without the use of finite judicial resources.

“Notice to Consumer” Was Not Required. The Court rejects the opposition’s contention that plaintiffs were required to serve a “Notice to Consumer” pursuant to the provisions of Code of Civil Procedure §1985.3, which governs subpoenas for the production of “personal records” of a “consumer.” Subdivisions (a)(1) and (a)(2) of §1985.3 provide in their entirety:

(1) “Personal records” means the original, any copy of books, documents, other writings, or electronically stored information pertaining to a consumer and which are maintained by any ‘witness’ which is a physician, dentist, ophthalmologist, optometrist, chiropractor, physical therapist, acupuncturist, podiatrist, veterinarian, veterinary hospital, veterinary clinic, pharmacist, pharmacy, hospital, medical center, clinic, radiology or MRI center, clinical or diagnostic laboratory, state or national bank, state or federal association (as defined in Section 5102 of the Financial Code), state or federal credit union, trust company, anyone authorized by this state to make or arrange loans that are

secured by real property, security brokerage firm, insurance company, title insurance company, underwritten title company, escrow agent licensed pursuant to Division 6 (commencing with Section 17000) of the Financial Code or exempt from licensure pursuant to Section 17006 of the Financial Code, attorney, accountant, institution of the Farm Credit System, as specified in Section 2002 of Title 12 of the United States Code, or telephone corporation which is a public utility, as defined in Section 216 of the Public Utilities Code, or psychotherapist, as defined in Section 1010 of the Evidence Code, or a private or public preschool, elementary school, secondary school, or postsecondary school as described in Section 76244 of the Education Code.

(2) “Consumer” means any individual, partnership of five or fewer persons, association, or trust which has transacted business with, or has used the services of, the witness or for whom the witness has acted as agent or fiduciary. (Underline added for emphasis.)

Although the opposition casts the Avilas and Kreneks as Mrs. Madhvani’s “private banker [sic],” there is currently before the Court no evidence whatsoever which establishes that either the Avilas or the Kreneks are a “state or national bank, state or federal association (as defined in Section 5102 of the Financial Code), state or federal credit union, trust company” or were otherwise “authorized by this state to make or arrange loans that are secured by real property” and thus, the subject subpoenas cannot be legitimately considered as seeking the “personal records” of a “consumer” within the meaning of §1985.3 so as to require plaintiffs to comply with the “Notice to Consumer” provisions found in subdivision (e).

The Court notes that despite initially objecting to the subpoenas based on Code of Civil Procedure §1985.6 [relating to subpoenas for “employment records”], Mrs. Madhvani did not include such an argument in her opposition and thus, it could reasonably be deemed waived but regardless, it is clear that the provisions of §1985.6 are inapplicable inasmuch as none of the subpoenas seeks or even purports to seek anyone’s “employment records.”

Mrs. Madhvani’s Remaining Objections. As noted above, Mrs. Madhvani has advanced a number of objections in response to plaintiffs’ subpoenas duces tecum but except as noted below, her objections are largely without merit and do not present a genuine obstacle to plaintiffs’ depositions of Mr. and Mrs. Avila and/or Mr. and Mrs. Krenek. For instance, while Mrs. Madhvani has claimed the information sought by the subpoenas is “privileged,” she has failed to specifically identify any privilege recognized under California law (e.g., attorney-client, attorney work product, etc.) which would arguably apply here and moreover, she has failed to produce any evidence which would enable this Court to conclude that any of the information sought is protected from disclosure by virtue of an established privilege. The opposition also provides no legal basis for characterizing the information sought as “confidential.” Likewise, Mrs. Madhvani’s contention that the documents sought are neither relevant nor admissible is without merit since ground is a valid objection to discovery. Instead, the governing standard for these subpoenas is whether they are reasonably calculated to lead to the discovery of admissible evidence and this Court holds that the information sought easily meets this liberal standard of being reasonably calculated to lead to the discovery of admissible evidence as the information sought, if not admissible in and of itself, will likely lead to evidence bearing on the key issue of whether or not defendant Madhvani’s prior lien against the subject property was

satisfied prior to his commencement of foreclosure proceedings in 2018. That the depositions might lead on to circumstantial evidence of the satisfaction of defendant Madhvani’s lien does not, without more, preclude plaintiffs from proceeding with this discovery. Similarly, the opposition’s insistence that plaintiffs’ subpoenas are “harassing” does not withstand scrutiny inasmuch as they are, at a minimum, reasonably calculated to lead admissible evidence and Mrs. Madhvani has failed to present any evidence of undue burden or oppression which might result from the witnesses compliance with the subpoenas.

The Court must agree with the opposition that the documents plaintiffs have requested the deponents produce do on their face implicate Mrs. Madhvani’s constitutional right to privacy in her personal and financial matters and where privacy rights of a third party are implicated, the party seeking discovery must show more than mere legal relevance or likely to lead to admissible evidence: He/she must first establish that the information sought is not only “directly relevant” to the parties’ claims but also “essential” to a fair resolution of the lawsuit. (See, e.g., Alch v. Superior Court (Time Warner Entertainment Co.) (2008) 165 Cal.App.4th 1412, 1432-1433.) Additionally, in order to pass constitutional scrutiny, any discovery into matters deemed private must be “narrowly tailored” to obtain only the “essential” information and the party seeking the discovery must show there is no less intrusive means to obtain this information. (See, e.g., Tien v. Superior Court (Tenet Healthcare Corp.) (2006) 139 Cal.App.4th 528, 539-540; In re Marriage of Harris (2004) 34 Cal.4th 210, 244.) Even where all these prerequisites are met, there is still no categorical right to conduct discovery into the private matters as the trial court is required to “carefully balance” the rights and interests involved before permitting the proposed invasion of privacy. (See, e.g., Alch, at 1423-1425.)

With respect to the subpoenas at issue, the Court finds that plaintiffs’ attempt to obtain information and documentation relating to the satisfaction of defendant Madhvani’s lien against the subject property prior to his 2018 foreclosure proceedings satisfies the “directly relevant” and “essential” components of the applicable constitutional standard. Likewise, as currently phrased, the specific categories of documents being subpoenaed meet the additional requirement of being “narrowly tailored” to target only that information which is “essential” to plaintiffs’ claims as request Nos. 1-3 are all explicitly limited to those documents and communications which relate only to defendant Madhvani’s 2008 loan from the deponents and which are therefore likely to show whether or not defendant Madhvani’s lien against the subject property was satisfied prior to his commencement of foreclosure proceedings in 2018 or whether he believed it was satisfied. It is currently unclear whether any of the four deponents made any other loan to defendant Madhvani between 2004 and 2018 but if they did, requests Nos. 4-5 will enable plaintiffs to obtain the documents and communications regarding such loans and will therefore tend to show whether defendant Madhvani still had in 2018 a valid lien entitling him to foreclose on the subject property in 2018. Given the unique facts of this case, this Court is also persuaded that plaintiffs have at their disposal no less intrusive means to obtain this information relative the validity of defendant Madhvani’s alleged security interest.

Finally, given that defendant Madhvani’s 2018 foreclosure on a lien of uncertain enforceability effectively extinguished plaintiffs’ multi-million dollar security interest in the subject property and that plaintiffs’ deposition subpoenas otherwise pass constitutional scrutiny, this Court finds that plaintiffs are entitled to an order compelling all four deponents’ compliance with the subpoenas for personal appearance with the

production of all existing documents responsive to the five requests.

Objections to Evidence

Mrs. Madhvani’s written objections to evidence are OVERRULED.

Plaintiffs did not file any written objections to evidence.

Disposition

For the reasons explained above, the present motion to compel Mr. and Mrs. Avila and Mr. and Mrs. Krenek’s respective compliance with plaintiffs’ subpoenas is GRANTED. The depositions along with the production the requested documents shall take place as soon as practicable but no later than 7/1/2019 (unless plaintiffs agree to a later date memorialized in writing).

Plaintiffs’ request for monetary sanctions is denied since the notice of motion fails to comply with Code of Civil Procedure §2023.040, specifying that the notice of motion “identify every person, party, and attorney against whom the sanction is sought, and specify the type of sanction sought.”

Mrs. Madhvani’s request for monetary sanctions is also denied since the present motion is being granted over her objection/opposition, the present motion was not without substantial justification and the imposition of sanctions against plaintiffs would be unjust under the circumstances here.

This minute order is effective immediately. No formal order or other notice is required. (Code Civ. Proc. §1019.5; CRC Rule 3.1312.)

Item 9 2018-00244868-CU-OR

Cosis, LLC vs. Ken Madhvani

Nature of Proceeding: Motion to Expunge Notice of Pendency of Action

Filed By: Deutsch, Martin

Defendant Madhvani’s motion to expunge lis pendens is DENIED, as follows.

Moving counsel failed to comply with CRC Rule 2.111(1), which requires the first page of each filing to include counsel’s State Bar Number.

Plaintiffs’ counsel is advised that written objections to evidence should comply with the requirements of CRC Rule 3.1354, so the Court need not waste its finite resources trying to locate the questioned evidence.

Factual Background

Defendant now moves to expunge the lis pendens recorded by plaintiffs on the grounds that the 1AC fails to plead a “real property claim” within the meaning of Code of Civil Procedure §405.4 (i.e., “cause or causes of action in a pleading which would, if meritorious, affect (a) title to, or the right to possession of, specific real property or (b) the use of an easement identified in the pleading, other than an easement obtained pursuant to statute by any regulated public utility”) and even if it did assert a “real property claim,” plaintiffs cannot to establish the “probable validity” of such claim by a preponderance of the evidence.

Plaintiffs oppose, arguing that they have a first priority security interest in the subject property by virtue of a $9.125 Million loan made in 2006 which was secured by a Deed of Trust simultaneously recorded against the property and that in 2018 defendant illegally foreclosed on the property under a void deed of trust which should have been reconveyed in connection with the aforementioned 2006 loan. The opposition adds that the 1AC clearly asserts a “real property claim” for purposes of Code of Civil Procedure §405.4 and that their evidence is sufficient to demonstrate plaintiffs are more likely than not going to prevail on their “real property claim.”

Analysis

Recent Preliminary Injunction. At the outset, the Court notes that on 4/8/2019 it granted plaintiffs’ motion for a preliminary injunction which prohibits defendant Madhvani from transferring, disposing, assigning, encumbering, or taking any other action whatsoever with respect to the subject real property during the pendency of this action. The following is a summary of portions of this Court’s ruling on plaintiffs’ motion for preliminary injunction.

On 4/25/2006 La Jolla Loans, Inc. (“La Jolla”) extended a $9.125 Million loan to Sycamore Ventures, LLC, which loan was memorialized in a note and secured by a Deed of Trust recorded against the property (“La Jolla DOT”). The La Jolla loan was owned by multiple individual investors, each of whom owned a fractional interest in the La Jolla DOT. In 2018 plaintiff COSIS, LLC purchased a large number of the fractional interests in the La Jolla DOT but each of the other individual plaintiffs still owns a small portion of the La Jolla DOT.

Plaintiffs assert that escrow closed on 4/28/2006 and resulted in the payment of liens against the property, such that the La Jolla loan was the only existing loan secured by the property and would have priority over any other lien. The Escrow Closing Statement shows that three loans were paid off: A $2.6 Million loan and a $1.26 Million loan, both from Vanguard, along with an $800,000 loan from defendant Madhvani (“Defendant Loan”) which was junior to the two loans from Vanguard (“Vanguard Loans”). According to plaintiffs, all three loans were paid off to allow La Jolla to obtain a first priority deed of trust secured by the property and while the preliminary title report included the Vanguard Loans and Defendant Loan, the title insurance policy did not include them as exclusions since the loans were expected to be paid off. Indeed, a reconveyance of the deed of trust for each of the Vanguard Loans was executed and recorded but this was not done for Defendant Loan even though it was paid in full.

Plaintiffs maintain that defendant has been aware his loan was previously paid off since he took no action with respect to his loan until 2018, when COSIS’ principal

learned the property was scheduled for a tax sale and contacted defendant to negotiate a purchase of his Loan. However, defendant indicated his loan was not unpaid but shortly thereafter filed a notice of default, eventually foreclosing on the property and obtaining title with a credit bid which extinguished plaintiffs’ security interest.

Additionally, although defendant filed for Chapter 11 bankruptcy in 2010, he never disclosed the existence of this loan in his filings or in his subsequent home loan application or later application for a loan modification.

Notwithstanding defendant’s opposition to the preliminary injunction, this Court concluded that defendant’s 2018 foreclosure sale was probably wrongful inasmuch as the evidence indicated the Defendant Loan was likely paid off in 2006 when the La Jolla loan originated and plaintiffs are the current beneficiaries under the La Jolla DOT such that they are likely to prevail on the merits of their claims including those for quiet title and slander of title as well as for breach of the duty to reconvey and wrongful foreclosure.

Present Motion to Expunge. Based on defendant’s motion, there are only two issues to be resolved here and the first of those is whether the 1AC includes any “real property claim.” Code of Civil Procedure §405.4 defines this term as any “cause or causes of action in a pleading which would, if meritorious, affect (a) title to, or the right to possession of, specific real property or (b) the use of an easement identified in the pleading, other than an easement obtained pursuant to statute by any regulated public utility.” This Court holds that the 1AC currently pleads multiple causes of action which meet this definition including but not limited to the causes of action for quiet title, breach of the duty to reconvey and wrongful foreclosure since the outcome of these claims will affect plaintiffs’ and defendant’s respective interests, if any, in the subject property.

The second question to be addressed here is whether plaintiffs have established the “probable validity” of one or more of their “real property claims.” For essentially the same reasons set forth in the ruling granting plaintiffs’ motion for preliminary injunction, this Court holds that the admissible evidence is sufficient to establish more likely than not plaintiffs will prevail on one or more of their “real property claims.” The mere fact plaintiffs’ evidence might be characterized as “circumstantial” does not, without more, preclude plaintiffs from having a probability of prevailing on their asserted “real property claims.”

Objections to Evidence

Defendant Madhvani’s written objections to evidence are OVERRULED except for objection No. 4, which is SUSTAINED.

Plaintiffs’ written objections to evidence are SUSTAINED except for objection Nos. 4, 9 and 18, each of which is OVERRULED.

Conclusion

For the reasons explained above, the present motion to expunge lis pendens must be and hereby is denied.

Having prevailed on this motion to expunge, plaintiffs shall be entitled to recoup attorney fees from defendant Madhvani pursuant to Code of Civil Procedure §405.38 in the amount of $4,725, representing of 15 hours of attorney time at $315 per hour.

This minute order is effective immediately. No formal order or other notice is required. (Code Civ. Proc. §1019.5; CRC Rule 3.1312.)