ELSV, LLC v. Benny Ko, et al.		CASE NO. 113CV254835
DATE: 16 January 2015	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 408.882.2310 and the opposing party no later than 4:00 PM Thursday 15 January 2015.  Please specify the issue to be contested when calling the Court and counsel.

On 16 January 2015, the motion by plaintiff ELSV, LLC (“Plaintiff”) to compel defendants North America Capital, LLC (“NAC”), North America Asset Management Corporation (“NAAMC”), and North America Asset Management, LLC (“NAAM”) (collectively the “North America Defendants”) to comply with their responses to requests for production of documents and non-party Tsai-Luan Shelby Ho (“Ms. Ho”) to comply with a business records subpoena, and for an award of monetary sanctions was argued and submitted.  Both the North America Defendants and Ms. Ho filed formal oppositions to the motion.

All parties are reminded that all papers must comply with California Rules of Court, rule 3.110(f).[1]

1. Statement of Facts

Plaintiff filed this action to recover damages caused by the alleged operation of a “Ponzi scheme” by defendants Benny Ko (“Mr. Ko”), Lucy Gao (“Ms. Gao”), Liberty Asset Management Corporation (“LAMC”), and Sunshine Valley, LLC (“SV”).  Plaintiff is an investment company headquartered in Santa Clara County that invests in real estate properties.  (See Complaint, ¶¶ 14, 29.)  Plaintiff alleges that Mr. Ko, Ms. Gao, LAMC, and SV fraudulently induced it to transfer money to them, using false promises that they would use the money to obtain real estate and other investments for Plaintiff when in fact Mr. Ko and Ms. Gao, who own LAMC and SV, diverted the money for their own use.  (See Complaint, ¶ 28.)

Specifically, Plaintiff alleges five transactions that resulted in the damages at issue in the complaint: (1) Plaintiff and LAMC entered into a “Distressed Real Estate Assets Management Agreement” (“DREAMA”) on 2 June 2010, whereby Plaintiff paid LAMC $5 million to acquire the majority interest in a number of distressed real estate assets, manage the assets, and sell the assets for a profit on Plaintiff’s behalf (see Complaint , ¶¶ 15-17); (2) two of Plaintiff’s members loaned NAC approximately $5.5 million based on Mr. Ko’s representations that NAC would use the money to purchase a bank and initiate a bank holding business for NAC (the “Bank Holding Loan”) (see Complaint, ¶ 21), and NAC, LAMC, and SV later promised Plaintiff in a written Letter of Intent that they would repay that sum; (3) LAMC and NAC agreed to transfer two retail spaces located in San Jose, California (the “Two 88 East San Fernando Condos”) to Plaintiff in partial satisfaction of their outstanding obligations to Plaintiff under the DREAMA (see Complaint , ¶ 22); (4) Plaintiff’s members paid LAMC and SV to acquire a 40 percent interest in a property located in Pasadena, California (the “Lake Avenue Condos”), and LAMC and SV promised Plaintiff to provide returns and an accounting for the property (see Complaint, ¶ 23); and (5) Plaintiff paid LAMC to acquire a 90 percent ownership in a property located in San Francisco, California (the “O’Farrell Property”) and, after LAMC acquired the O’Farrell Property, LAMC encumbered it with a loan in the approximate amount of $4 million without Plaintiff’s knowledge (the “O’Farrell Loan”).  (See Complaint, ¶ 24.)

Plaintiff also alleges that Ms. Ho, a real estate broker, is a business partner of Mr. Ko, Ms. Gao, LAMC, and SV and controls the North America Defendants.  Ms. Ho and the North America Defendants allegedly helped Mr. Ko, Ms. Gao, LAMC, and SV carry out their scheme by serving as the broker for each of the above-listed transactions.

On 18 October 2013, Plaintiff filed its complaint against Mr. Ko, Ms. Gao, LAMC, SV, and the North America Defendants, alleging causes of action for: (1) breach of contract; (2) breach of fiduciary duty; (3) negligence; (4) conversion; (5) fraud; (6) “Violation of Penal Code § 496 – Receiving Stolen Property;” (7) unjust enrichment; (8) unfair business practices; (9) interference with prospective economic advantage; (10) fraudulent transfer; (11) constructive trust; (12) injunctive relief; (13) violation of state securities law; (14) violation of federal securities law; (15) slander of title; and (16) declaratory relief.

1. Discovery Dispute

On 26 June 2014, Plaintiff served the North America Defendants via U.S. mail with first sets of requests for production of documents (“RPD”).  (See Wang Dec., ¶¶ 2-4, Exs. A-C.)  The North America Defendants requested an extension of time to respond to the RPD to 15 August 2014, which Plaintiff granted.  (See Wang Dec., ¶ 6, Ex. E.)

Subsequently, on 6 August 2014, Plaintiff electronically served Ms. Ho with a business records subpoena, specifying a document production date of 26 August 2014.  (See Wang Dec., ¶ 5, Ex. D.)  The business records subpoena set forth 25 requests for documents, seeking the production of all documents and communications relating to: Mr. Ko; any “Ko Entity;” Ms. Gao; any “Gao Entity;” Sonia Chiou; any “Chiou Entity;” any “Tsang Family Member;” the DREAMA; the Bank Holding Loan; the Letter of Intent; the purchase agreement for the Lack Avenue Property; governing documents for LAMC, SV, the North America Defendants, the San Francisco O’Farrell Project, LLC, and Gold River Valley, LLC; any money disbursed from East West Bank pursuant to the O’Farrell Loan; the O’Farrell Property; the Lake Avenue loan and condos; and the Two 88 East San Ferenando Condos.  (See id.)

Counsel for the North America Defendants and Ms. Ho then requested that Plaintiff grant his clients an extension of time to 29 August 2014, to respond to the outstanding discovery, which Plaintiff granted.  (See Wang Dec., ¶ 8, Ex. G.)

On 29 August 2014, the North America Defendants served Plaintiff with their responses to the RPD.  (See Wang Dec., ¶¶  9-11, Exs. H-J.)  In their responses to RPD Nos. 1, 2, 8, 14, and 20, the North America Defendants stated that they would produce all responsive documents in their possession, custody and control.  (See Wang Dec., Exs. H at pp. 5:4-5, 6:3-4, 12:2-3, 14:18-19, and 16:12-14, I at pp. 5:5-6, 6:4-5, 12:3-4, 14:17-19, and 16:10-12, and J at pp. 5:5-6, 6:4-5, 12:3-4, 14:16-18, and 16:10-12.)

“With the same mailing in which he sent North America Defendants’ … responses to … [the RPD], George Eshoo [(“Mr. Eshoo”)], counsel for the North America Defendants and Ms. Ho … sent a 46-page document production to [Plaintiff].”  (Mem. Ps & As., p. 5:12-15; see also Wang Dec., ¶ 12, Ex. K.)  The document production consisted of documents that North America Defendants filed with the California Secretary of State, Plaintiff’s complaint, and a copy of the Bank Holding Loan.  (See id.)  Although not entirely clear, it appears that this production was responsive to both the RPD and the business records subpoena to Ms. Ho.

On 3 September 2014, Plaintiff’s counsel sent Mr. Eshoo a meet and confer email, indicating that Plaintiff had received the North America Defendants’ discovery responses and document production, but the document production did not include any emails.  (See Wang Dec., ¶ 17, Ex. 0.)

The following day, Plaintiff’s counsel and Mr. Eshoo engaged in a telephone conference regarding the absence of emails from the document production.  (See Wang Dec., ¶ 18.)  Mr. Eshoo stated that he “would ask his clients to search for and produce all such documents no later that September 8, 2014.”  (Id.)

Plaintiff did not receive any additional document production and, consequently, Plaintiff’s counsel sent Mr. Eshoo emails on 9 September 2014, 11 September 2014, and 17 September 2014, inquiring as to the status of the same.  (See Wang Dec., ¶¶ 18-20, Ex. O.)  On 22 September 2014, Plaintiff’s counsel sent Mr. Eshoo another email, stating that she believed that “Ms. Ho should also have text messages that are responsive to [Plaintiff’s] document requests” and requesting that Mr. Eshoo “ensure that [Ms. Ho] also works on gathering and producing those.”  (Wang Dec., ¶ 21, Ex. O.)

Mr. Eshoo did not provide any response to Plaintiff’s counsel’s emails and no further documents were produced to Plaintiff.  (See Wang Dec., ¶ 23.)

On 19 December 2014, Plaintiff filed the instant motion to compel the North America Defendants to comply with their responses to the RPD and Ms. Ho to comply with the business records subpoena.  Both the North America Defendants and Ms. Ho filed papers in opposition to the motion on 5 January 2015.  Plaintiff filed a reply on 9 January 2015.

III.     Discussion

1. Plaintiff’s Request for Judicial Notice

Plaintiff requests that the Court take judicial notice of its complaint filed on 18 October 2014, and the 1 December 2014 court order on a prior discovery motion.  A court may take judicial notice of court records that are relevant to a pending issue.  (See Evid. Code, § 452, subd. (d); see also People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 422, fn. 2 [only relevant matters subject to judicial notice].)  Plaintiff’s complaint is a court record and is relevant to the issues involved in this motion.  While the 1 December 2014 court order is a court record, it is unrelated to the instant discovery motion because it does not involve the RPD or business records subpoena at issue here.  Accordingly, Plaintiff’s request for judicial notice is GRANTED IN PART and DENIED IN PART.  Plaintiff’s request is GRANTED as to the complaint and DENIED as to the 1 December 2014 court order.

1. Compliance with the North America Defendants’ Responses to the RPD

Plaintiff moves to compel compliance with the North America Defendants’ responses to RPD Nos. 1, 2, 8, 14, and 20 pursuant to Code of Civil Procedure section 2031.320.[2]

1. Legal Standard – Compliance

If a party demanding a response to a request for production of documents believes that the responding party’s production of documents is incomplete, it may bring a motion to compel compliance with responses to requests for production of documents under Code of Civil Procedure section 2031.320.  (See Code Civ. Proc., § 2031.320.)  Unlike a motion to compel further responses made pursuant to Code of Civil Procedure section 2031.310, a motion to compel compliance does not require the moving party to set forth specific facts showing good cause justifying the discovery sought by the inspection demand.  (See id.)  “All that has to be shown is the responding party’s failure to comply as agreed.”  (See Weil & Brown et al., Cal. Prac. Guide: Civ. Pro. Before Trial (The Rutter Group 2014) ¶ 8:1508.1, p. 8H-50.)

2. Analysis

RPD No. 1 asks the North America Defendants to produce all documents and communications relating to: documents signed by Plaintiff and/or any of Plaintiff’s members; the DREAMA; the Bank Holding Loan; the Letter of Intent; and the “Liberty Asset Management Corporation, Disclosure Acknowledgement and Commitment to Purchase and Sell Real Property Agreement” (the “Lake Avenue Purchase Agreement”) entered into between LAMC and Gold River Valley, LLC.  (See Wang Dec., Exs. H at p. 4:2-5:7, I at p. 4:2-5:8, and J at p. 4:1-5:8.)

In response to RPD No. 1, the North America Defendants asserted several objections and, without waiving their objections, stated: “Responding Party will produce all documents in its possession, custody and control.  Additional documents may be in the possession, custody and control of one or more of the defendants named in this action or in the possession, custody and control of the Plaintiff.”  (Id.)

RPD Nos. 2 and 8 ask the North America Defendants to produce all documents and communications relating to any real property identified in Schedule 1 of the DREAMA or the Letter of Intent.  (See Wang Dec., Exs. H at pp. 5:9-6:6, 10:24-12.6, I at pp. 5:9-6:7, 10:25-12:7, and J at pp. 5:9-6:7, 10:25-12:7.)

In response to RPD No. 2, the North America Defendants asserted several objections and, without waiving their objections, stated: “Responding Party will produce all documents in its possession, custody and control.  Additional documents may be in the possession, custody and control of one or more of the defendants named in this action or in the possession, custody and control of the Plaintiff.”  (Id.)  The North America Defendants’ response to RPD No. 8 is virtually identical except they indicated that additional documents may also be in the possession, custody, and control of the 88 San Fernando, LLC.  (See id.)

RPD No. 14 asks the North America Defendants to produce all of their governing documents.  (See Wang Dec., Exs. H at p. 14:13-20, I at p. 14:11-19, and J at p. 14:10-18.)  RPD No. 20 asks the North America Defendants to produce all document and communications that they referred to in their responses to form interrogatory, set one, No. 17.1.  (See Wang Dec., Exs. H at p. 15:28-16:14, I at p. 15:26-16:12, and J at p 15:26-16:12.)

In response to RPD Nos. 14 and 20, the North America Defendants asserted several objections and, without waiving their objections, stated that they would produce all responsive documents in their possession, custody and control.  (See id.)

Plaintiff argues that the North America Defendants have not produced all responsive documents in accordance with their statements of compliance because their document production consisted of only 46 pages and did not include any emails or texts messages.  Plaintiff asserts that numerous responsive emails and text messages exist that should be in the possession of the North America Defendants and Ms. Ho, the managing member of the North America Defendants.

Specifically, Plaintiff asserts that text messages relating to it and the North America Defendants exist because its manager, Steven Tsang (“Mr. Tsang”), sent and received such text messages from Ms. Ho, many of which it previously produced to Mr. Ko, Ms. Gao, LAMC, and SV in response to their document requests in this case.  (See Wang Dec., ¶ 24, Ex. Q; see also Tsang Dec., ¶ 10.)  Additionally, Plaintiff asserts that responsive emails exist because “hundreds of emails sent to or received from Ms. Ho at her account shelby88@gmail.com” and “[d]ozens of emails sent to Ms. Ho at her account shelby@northamericacmc.com have also been produced in this litigation,” and Mr. Tsang has personally seen Ms. Ho using those email accounts for her business dealings.  (See Wang Dec., Exs. R and S; see also Tsang Dec., ¶¶ 4, 8-9, Ex. A.)

In opposition, the North America Defendants argue that Plaintiff’s motion should be denied because: the emails sought are already in Plaintiff’s possession and were previously produced by Mr. Tsang, who is a 40 percent owner of NAC, from his email address steven@northamericacmc.com during the course of discovery; Ms. Ho was not the sender or direct recipient of many of the sought after emails and they were merely copied to her at her personal email address; the North America Defendants “cannot be compelled to produce emails which were sent to [Ms. Ho] … at her personal email address since those are not business records of any of the [North America Defendants]”; Ms. Ho does not have control over the email accounts steven@northamericacmc.com or shelby@northamericacmc.com and does not know who to operate the North America Defendants’ website; Ms.  Ho “has had problems with her computer for some months,” “[m]any of the emails went into her spam or junk folder and/or may have been deleted,” and “it is not possible for her to go through her entire, personal email account to locate emails she did not generate or respond to;” and  Ms. Ho “does not retain any text messages, since they are automatically deleted after a short period of time, from her cell phone” and Plaintiff has already obtained many these text messages from other sources over the course of discovery.  (Mem. Ps & As., pp. 5:19-24, 12:10-13.)

The North America Defendants also submit a declaration from Ms. Ho in which she states that: she is the current managing member of the North America Defendants; she has “now produced whatever emails that [she] could find” and the documents she produced are attached to her declaration; she has now produced the governing documents of the North America Defendants that were in her possession; and she does “not have any text messages since [her] cell phone does not store text messages for any length of time, and it has not stored text messages from 2011– 2013.”  (Ho Dec., ¶¶ 19-21.)

In reply, Plaintiff asserts that the North America Defendants and Ms. Ho “have either spoliated documents in violation of their duties to preserve evidence, or else they are flatly misrepresenting to this Court that they have produced all responsive documents in their possession, custody or control.”  (Reply, p. 1:2-6.)  Plaintiff contends that “Ms. Ho and the North America Defendants had a duty to preserve the messages that [it] seeks in its motion to compel” and Ms. Ho’s “claims that she has lost many such messages are not plausible, and this Court should compel her to make her cell phone(s) and email accounts available to [Plaintiff] for further examination.”  (Reply, p. 1:13-15.)  Plaintiff also states that “[i]f such examination confirms that Ms. Ho and the North America Defendants truly have no further responsive documents stored within them, this Court should permit [Plaintiff] to seek evidentiary sanctions against them.”  (Reply, p. 1:15-17.)

Upon review of Ms. Ho’s declaration and the documents attached thereto, it appears that despite their protestations that the subject emails could not and should not be produced, the North America Defendants have now produced any responsive emails that they were able to locate.  (See Ho Opp’n Dec., ¶ 19 [“I have now produced whatever emails that I could find. The emails that I have located are attached hereto as Exhibit A. They have been produced to the plaintiff, but were already in plaintiff’s possession.”], 21 [“To summarize, I have produced business records of NA Defendants that I was able to obtain.”], Ex. A, Bates No. 47-227.)  Moreover, Ms. Ho declares that she does not have any responsive text messages because her phone deletes text messages automatically after a short period of time.  (See Ho Opp’n Dec., ¶ 19 [“I do not have any text messages since my cell phone does not store text messages for any length of time, and it has not stored text messages from 2011-2013.”].)  Therefore, it does not appear that the North America Defendants are withholding any responsive emails or text messages from their document production.

While Plaintiff contends that it does not believe Ms. Ho’s assertion that she has produced all responsive documents in her possession, custody, and control, the Court is not in a position to question the veracity of Ms. Ho’s declaration and the fact that Plaintiff does not believe Ms. Ho’s statements does not make the document production inadequate. If at some later time it comes to light that certain statements in Ms. Ho’s declaration are false (e.g., the North America Defendants attempt to introduce responsive emails or text messages at trial that they did not previously produce), there are various remedies that Plaintiff can pursue.  (See Vallbona v. Springer (1996) 43 Cal.App.4th 1525, 1544-1545 [discovery sanctions at trial upheld where the sanctioned party falsely claimed that the requested documents were nonexistent or missing or that all relevant documents had already been produced]; see also Pate v. Channel Lumber Co. (1997) 51 Cal.App.4th 1447.)  Similarly, if Plaintiff believes that spoliation of evidence occurred, it may pursue the remedies available to it under the law.  (See Cedars-Sinai Med. Center v. Super. Ct. (1998) 18 Cal. 4th 1, 12 ([in which the California Supreme Court has held that destroying responsive evidence after litigation has commenced constitutes a misuse of discovery within the meaning of Code Civil Procedure section 2023, as would such destruction in anticipation of a discovery request]; see also Evid. Code, § 413 [allowing a trier of fact to draw inferences from a party’s willful suppression of evidence].)

Accordingly, Plaintiff’s motion to compel the North America Defendants to comply with their responses to the RPD is DENIED.

1. Compliance with the Business Records Subpoena Issued to Ms. Ho

Plaintiff moves to compel Ms. Ho to comply with the business records subpoena issued to her pursuant to Code of Civil Procedure section 1987.1 and 2025.480.

1. Legal Standard

If a non-party disobeys a subpoena for business records by failing to produce responsive documents, the subpoenaing party may move to compel compliance with the subpoena.  (See Code Civ. Proc., §§ 1987.1, subds. (a) and (b)(2), 2025.480, subd. (a); see also Unzipped Apparel, LLC v. Bader (2007) 156 Cal.App.4th 123, 132–133.)  A showing of good cause is not required on a motion to compel a nonparty to comply with a deposition subpoena for document production.  (See Weil & Brown, Cal. Prac. Guide: Civ. Proc. Before Trial (The Rutter Group 2014), p. 8E-78.1 at ¶ 8:609.3.)  The objecting party must justify their objections to the subpoena or they will be overruled.  (See Fairmont Ins. Co. v. Super. Ct. (2000) 22 Cal.4th 245, 254; see also Monarch Healthcare v. Superior Court (2000) 78 Cal.App.4th 1282, 1290.)

2.             Analysis

Plaintiff’s motion does not specifically address the 25 categories of documents sought by the business records subpoena.  Instead, Plaintiff contends that Ms. Ho has failed to comply with the business records subpoena for the same reasons that the North America Defendants purportedly failed to comply with their responses to the RPD, i.e., Ms. Ho did not produce various emails from her email accounts shelby88@gmail.com and shelby@northamericacmc.com or text messages from her cell phone regarding the transactions at issue in this lawsuit.

As articulated above, Ms. Ho declares that she has now produced to Plaintiff copies of the subject emails that she was able to locate.  (See Ho Dec., ¶ 20.)  She further declares that she does not have any responsive text messages since her phone deletes text messages after a short period of time.  (See id.)

Since the documents that Plaintiff seeks to compel have either been produced to Plaintiff by Ms. Ho or cannot be produced because they are not in her possession, the motion to compel Ms. Ho’s compliance with the business records subpoena is DENIED.           

1. Plaintiff’s Request for Monetary Sanctions

Plaintiff requests an award of monetary sanctions against Ms. Ho and the North America Defendants in the amount of $2,750 pursuant to Code of Civil Procedure sections 2031.320, subdivision (b) and 2025.480, subdivision (j).

Code of Civil Procedure section 2031.320, subdivision (b) provides that “the court shall impose a monetary sanction … against any party, person, or attorney who unsuccessfully makes or opposes a motion to compel compliance with a demand, 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.”  Similarly, Code of Civil Procedure section 2025.480, subdivision (j) provides that “[t]he court shall impose a monetary sanction … against any party, person, or attorney who unsuccessfully makes or opposes a motion to compel an answer or production [to a subpoena], 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.”

The Court finds that Plaintiff is not entitled to an award of monetary sanctions because it was not wholly successful on its motion.  While the filing of the instant motion resulted in the production of the responsive emails sought by the motion, Plaintiff also sought the production of various text messages that Ms. Ho and the North America Defendants do not have in their possession even after Ms. Ho submitted her declaration advising Plaintiff of the same.

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

 

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1. Conclusion and Order

Plaintiff’s request for judicial notice is GRANTED IN PART and DENIED IN PART.  Plaintiff’s request is GRANTED as to the complaint and DENIED as to the 1 December 2014 court order.

Plaintiff’s motion is DENIED.

Plaintiff’s request for monetary sanctions is DENIED.

________________­­­____________ DATED:

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

[1] “Each exhibit must be separated by a hard 81/2 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.  Pages from a single deposition and associated exhibits must be designated as a single exhibit.”

[2] The Court notes that Plaintiff’s notice of motion indicates that Plaintiff is moving to compel compliance with the North America Defendants’ responses to RPD Nos. 1, 2, 8, 14, and 15.  The reference to RPD No. 15 and omission of RPD No. 20 appears to be a typographical error as Plaintiff’s memorandum of points and authorities and separate statement do not reference RPD No. 15 and both discuss RPD No. 20.