Case Name: Charles Kuta v. ColorTokens, Inc.

Case No.: 18CV338604

According to the allegations of the complaint, plaintiff Charles Kuta contends that he was wrongfully terminated by his former employer Defendant ColorTokens, Inc. (“ColorTokens”), that ColorTokens breached its contract with him and that ColorTokens retaliated against him when he requested a loan that was approved under his employment contract. ColorTokens filed an answer alleging various defenses and a cross-complaint alleging that Kuta failed to pay back a loan that was due when Kuta separated from employment with ColorTokens. Defendant ColorTokens served several discovery requests on Kuta and has filed the instant motion to compel further discovery responses. The requested responses are targeted at discovering information regarding Linkaj, a competing company ColorTokens alleges Kuta and several of his coworkers created while they were still employed with ColorTokens. Kuta opposes the motion to compel.

ColorTokens’ Motion to Compel Discovery Responses

ColorTokens moves to compel several items relating to Kuta’s involvement with Linkaj, a company that would compete with ColorTokens and that ColorTokens believed Kuta and other ColorTokens coworkers formed while they were employees of ColorTokens. The requests will be discussed in more detail below.

i. Requests for Production of Documents
ii.

Request for Production No. 84: Any and all documents that relate to any investor presentations or demonstrations about Linkaj.

Request for Production No. 85: Any and all communications with Bharat Sastri that relate to Linkaj in 2017.

Request for Production No. 86: Any and all communications with Bharat Sastri that related to Linkaj in 2018.

Request for Production No. 89: Any and all communications with Bryce Jonasson that relate to Linkaj in 2017.

Request for Production No. 90: Any and all communications with Bryce Jonasson that relate to Linkaj in 2018.

Request for Production No. 93: Any and all communications with Ryan Farjadi that relate to Linkaj in 2017.

Request for Production No. 94: Any and all communications with Ryan Farjadi that relate to Linkaj in 2018.

Request for Production No. 97: Any and all communications with Ankush that relate to Linkaj in 2017.

Request for Production No. 98: Any and all communications with Ankush that relate to Linkaj in 2018.

Request for Production No. 113: Any and all documents and communications in the HP laptop that relate to, or otherwise mention, the investor demos and presentations for Linkaj that you referenced during your July 30, 2019 deposition.

Request for Production No. 114: Any and all documents and communications that relate to, or otherwise mention, the investor demos and presentations for Linkaj that you referenced during your July 30, 2019 deposition.

Defendant ColorTokens requests further responses to all of the requests for production of documents listed above. A motion for an order compelling further responses “shall set forth specific facts showing good cause justifying the discovery sought by the inspection demand.” (Code Civ. Proc., §2031.310, subd. (b)(1); Kirkland v. Sup. Ct. (2002) 95 Cal.App.4th 92, 98 (Kirkland).) To establish “good cause,” the burden is on the moving party to show both relevance to the subject matter (e.g., how the information in the documents would tend to prove or disprove some issue in the case) and specific facts justifying discovery (e.g., why such information is necessary for trial preparation or to prevent surprise at trial). (Glenfed Develop. Corp. v. Sup. Ct. (1997) 53 Cal.4th 1113, 1117.) Where the moving party establishes “good cause,” the burden shifts to the responding party to justify its objections. (Kirkland, supra, 95 Cal.App.4th at p. 98.)

Plaintiff Kuta objects to all requests for production of documents as irrelevant because Kuta and his colleagues developed Linkaj and advertised it to investors after their termination from ColorTokens. Kuta further objects citing the trade secret privilege under Evidence Code section 1060. Additionally, Kuta explains that the arbitrator in his coworker, Shastri’s unlawful termination case against ColorTokens has concluded that ColorTokens may not compel production of documents involving Linkaj after May 2018, when Kuta and his coworkers involved in Linkaj were terminated from ColorTokens.

This court agrees with Kuta that communications relating to Linkaj that occurred after Kuta was terminated are not relevant to ColorTokens’ claims of unclean hands and after-acquired evidence. “The after-acquired-evidence doctrine serves as a complete or partial defense to an employee’s claim of wrongful discharge. It comes into play when, after an employee’s termination, the employer learns of employee wrongdoing that would have resulted in the employee’s discharge in any event.” (Murillo v. Rite Stuff Foods, Inc. (1998) 65 Cal.App.4th 833, 842.) Here, ColorTokens contends that Kuta was engaged in creating a competing company while he was employed with ColorTokens and that ColorTokens discovered that fact after Kuta’s employment with ColorTokens ceased. Accordingly, evidence that Kuta began to form the company and prepared to solicit investors while he was still employed at ColorTokens is relevant to the defenses presented in this case. But, ColorTokens has not shown that evidence that Kuta formed Linkaj after his employment with ColorTokens was terminated would be relevant. Thus, the Court concludes that ColorTokens has shown good cause for discovery of the items listed above to the extent they occurred or were created during the time period Kuta was employed with ColorTokens.

This Court is not bound by the decisions of an arbitrator in another case and is not persuaded by the fact that the arbitrator will not order Kuta to turn over certain of the requested documents to ColorTokens.

The Evidence Code provides for a trade secret privilege: “If he or his agent or employee claims the privilege, the owner of a trade secret has a privilege to refuse to disclose the secret, and to prevent another from disclosing it, if the allowance of the privilege will not tend to conceal fraud or otherwise work injustice.” (Evid. Code, § 1060.) For the purposes of Evidence Code section 1060, et seq., “ ‘[t]rade secret’ means information, including a formula, pattern, compilation, program, device, method, technique, or process, that: [¶] (1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and [¶] (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” (Civ. Code, § 3426.1, subd. (d); Evid. Code, § 1061, subd. (a)(1); see Bridgestone/Firestone, Inc. v. Superior Court (1992) 7 Cal.App.4th 1384, 1389 (Bridgestone).)

A party invoking a trade secret privilege bears the initial burden of submitting evidence demonstrating the existence of a trade secret. (Bridgestone, supra, 7 Cal.App.4th at p. 1393.) “Thereafter, the party seeking discovery must make a prima facie, particularized showing that the information sought is relevant and necessary to the proof of, or defense against, a material element of one or more causes of action presented in the case, and that it is reasonable to conclude that the information sought is essential to a fair resolution of the lawsuit.” (Ibid.) If such showing is made, the burden shifts back to the holder of the privilege to demonstrate that its trade secret concern cannot be appropriately addressed through a protective order. (Ibid.) Either party may also propose less intrusive alternatives to disclosure of the trade secret, but the burden is upon the trade secret claimant to demonstrate an alternative to disclosure will not be “unduly burdensome to the opposing side and that it will maintain the same fair balance in the litigation that would have been achieved by disclosure.” (Ibid.)

According to the Law Revision Commentary to Evidence Code section 1060, the trade secret “privilege is granted so that secret information essential to the continued operation of a business or industry may be afforded some measure of protection against unnecessary disclosure. Thus, the privilege prevents the use of the witness’ duty to testify as the means for injuring an otherwise profitable business where more important interests will not be jeopardized. [Citation.]” Thus, ColorTokens contends that Kuta has failed to prove the existence of a trade secret because Linkaj never moved past the planning stage into a successful business.

Kuta contends that the items requested include “highly valuable intellectual property and source code” and that ColorTokens requests the items in order to gain a competitive advantage among its competitors. (Opposition to motion to compel at p. 5.) The trade secret objection is overruled because ColorTokens adequately demonstrates the information sought is relevant to a material element of one or more causes of action in the case, and is essential to the fair resolution of the lawsuit. The information sought will reveal whether Kuta and his coworkers created Linkaj, which ColorTokens contends would have been its competitor, prior to their separation from ColorTokens, which is therefore relevant to ColorTokens’ defenses of unclean hands and after-acquired evidence. Further, Kuta has failed to produce a privilege log detailing “with particularity each document the responding party claims is protected from disclosure by a privilege and provide sufficient factual information for the propounding party and court to evaluate whether the claim has merit.” (Catalina Island Yacht Club v. Superior Court (2015) 242 Cal.App.4th 1116, 1130.) Finally, Kuta has failed to advance any persuasive arguments demonstrating his concerns cannot be adequately addressed by a protective order. In fact, Kuta has moved for a protective order with respect to subpoenas duces tecum that ColorTokens served on Ryan Farjadi, Bryce Jonasson, and Ankush Saxena on the ground that the items requested may contain trade secrets. Kuta contends that the stipulated protective order the parties have agreed to with respect to those subpoenas is insufficient to protect its trade secrets in the items requested in the motion to compel. Due to Kuta’s concerns that ColorTokens could gain an unfair business advantage with the items requested, this court will order that the parties agree to a protective order with an “attorney’s eyes only” provision and consistent with the Model Confidentiality Order endorsed by the Complex Division of this Court. (See Code Civ. Pro. 2031.060, subd. (b).)

Accordingly, ColorTokens’ motion to compel Kuta’s further response to Requests for Production Nos. 85, 89, 93, and 97 is GRANTED. Kuta shall provide further response, in compliance with the Code of Civil Procedure, and produce documents responsive to Requests for Production Nos. 85, 89, 93, and 97. ColorTokens’ motion to compel Kuta’s further response to Requests for Production Nos. 84, 86, 90, 94, 98, 113, and 114 is GRANTED IN PART, in that, Plaintiff Kuta is ordered to turn over any responsive items that have not already been produced for the time period up to May 1, 2018, the date he was terminated from ColorTokens. The court finds that communications that occurred after Kuta was terminated from ColorTokens are irrelevant to the unclean hands and after-acquired evidence defenses. The items above are granted subject to the parties’ agreement that the parties agree to a protective order with an “attorney’s eyes only” provision and consistent with the Model Confidentiality Order endorsed by the Complex Division of this Court within 10 calendar days. Kuta must produce the requested items within 20 calendar days of the date of this order.

iii. Requests to Compel Further Responses to Special Interrogatories
iv.

Special Interrogatory No. 17: Identify all potential investors who were contacted about Linkaj.

Special Interrogatory No. 18: For each potential investor in your response to Special Interrogatory No. 17, state the date on which that potential investor was first contacted about Linkaj.

The objecting party bears the burden of justifying any objections raised. (Kirkland v. Superior Court (2002) 95 Cal.App.4th 92, 98.) Kuta objects to the motion to compel further responses to special interrogatories Nos. 17 and 18 claiming the information sought is irrelevant to the lawsuit as all meetings with investors occurred after he was terminated from ColorTokens. He also contends that disclosing the names of investors would provide ColorTokens with an unfair advantage with respect to its competitors.

With respect to both of the special interrogatories, ColorTokens contends the requested items are relevant for the same reasons as the other requests, namely, because ColorTokens contends that Kuta and his coworkers created Linkaj, a competing company, while they were employed at ColorTokens. “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. Admissibility is not the test, and it is sufficient if the information sought might reasonably lead to other, admissible evidence.” (TBG Ins. Services Corp. v. Superior Court (2002) 96 Cal.App.4th 443, 448; emphasis original.) This Court concludes that both items are relevant. The names will show whether Linkaj solicited customers of ColorTokens and the dates on which investors where first contacted are relevant because, if those dates occurred prior to Kuta’s termination, this would help to establish ColorTokens’ after-acquired evidence and unclean hands defenses. Further, although Kuta objects to the production of this information because releasing it would give ColorTokens an unfair advantage with respect to its competitors, he makes no argument as to why a protective order with an “attorney’s eyes only” provision would not assuage his concerns. Accordingly, the motion to compel further responses to special interrogatory nos. 17 and 18 is GRANTED. The items above are granted subject to the parties’ agreement that the parties agree to a protective order with an “attorney’s eyes only” provision and consistent with the Model Confidentiality Order endorsed by the Complex Division of this Court within 10 calendar days. Kuta must produce the requested items within 20 calendar days of the date of this order.

v. Request to Compel Further Response to Form Interrogatory
vi.

Form Interrogatory No. 50.6: Is any agreement alleged in the pleadings ambiguous? If so, identify each ambiguous agreement and state why it is ambiguous.

Kuta initially objected to this request arguing that it calls for a legal conclusion. However, it is improper for a party responding to an interrogatory to object on the ground that the discovery sought calls for a legal conclusion. (See CCP, § 2030.010, subd. (b) [“An interrogatory is not objectionable because an answer to it involves an opinion or contention that relates to fact or the application of law to fact, or would be based on information obtained or legal theories developed in anticipation of litigation or in preparation for trial.”].) Kuta has since agreed to supplement his response to this interrogatory. Accordingly, the request to compel further response to form interrogatory No. 50.6 is GRANTED to the extent the response has not already been turned over.

Request for Judicial Notice

Kuta requests for the purposes of the motion to compel that this Court take judicial notice of the declaration of Charles Kuta in support of the motion for protective order under Evidence Code section 452, subdivision (d). The declaration sets forth the efforts taken by Kuta and the other founder of Linkaj to protect its confidential documents and communications. As the trade secret objection has been overruled, the request for judicial notice is DENIED.

Requests for Monetary Sanctions

ColorTokens requests sanctions against “plaintiff” for attorneys’ fees incurred in preparing the instant motion in the amount of $7,056.00. Counsel contends that he spent 22.2 hours researching and preparing the motion at a rate of $280 per hour, resulting in attorneys’ of $6,216.00. The additional amount is for anticipated costs incurred in drafting a reply and preparing for and attending the hearing on the motion. The Court does not award anticipatory time. (See Cal. Code Civ. Proc. § 2023.030, subd. (a); Tucker v. Pacific Bell Mobile Services (2010) 186 Cal.App.4th 1548, 1551.) Further, ColorTokens did not file a reply to Kuta’s opposition. Accordingly, the anticipated attorneys’ fees are not compensable.

However, the Court shall impose a monetary sanction against a party who unsuccessfully opposes a motion unless it finds the party “acted with substantial justification” or “other circumstances make the imposition of the sanction unjust.” (Code Civ. Proc., §§ 2030.290, subd. (c), 2031.300, subd. (c).) Kuta’s opposition to these motions was unsuccessful, it was not substantially justified, and no other circumstances make the imposition of sanctions unjust. Further, counsel for ColorTokens asserts that Kuta’s counsel failed to meet and confer regarding the items sought in the instant motion to compel. Kuta has not disputed this claim. Kuta has not disputed this claim. Thus, the Court will award monetary sanctions against Kuta for the time already spent. This Court concludes, however, that the number of hours expended is not reasonable under the circumstances, particularly in light of the relatively limited number of requests and the fact that Kuta’s objections and ColorTokens’ responses were identical or nearly so for several of the requests. ColorTokens’ request for sanctions against Kuta is GRANTED

Kuta and his counsel shall pay ColorTokens, through ColorTokens’ counsel, $2,800 within 30 calendar days of the Court’s order.

The Court continued Kuta’s Motion for Protective Order /Order Quashing Subpoena from February 13, 2020 to February 20, 2020 because there was substantial overlap between that motion and ColorToken’s motion to compel. The Court declines to Quash the Subpoenas directed to Ryan Farjadi, Bryce Jonasson and Ankush Saxenz. However, only relevant information, as described above, must be produced. Communications relating to Linkaj/ Net X Projects can be produced up until date Kuta was terminated May 1, 2018 but not thereafter. As stated above, Kuta’s trade secret objection is overruled because relevancy has been established. And as referenced above, the parties can agree to a protective order with an “attorney’s eyes only” provision which is consistent with the Model Confidentiality Order endorsed by the Complex Division of this Court.

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