Case Name: Garden City, Inc., et al. v. Eric Swallow, et al.
Case No.: 2016-CV-295297

Motion to Quash Deposition Subpoena for Production of Business Records and Request for Monetary Sanctions by Defendant and Cross-Complainant Eric Swallow

Factual and Procedural Background

This action initiated by plaintiffs Garden City, Inc. (“GCI”), Peter V. Lunardi III, and Jeanine Lunardi against defendants Eric Swallow (“Swallow”), Team View Player Associates, LLC (“Team View”), and others arises out of a dispute between business partners.

According to the third amended complaint (“TAC”), GCI operates a licensed card room in San Jose, California. (TAC, ¶ 1.) From 2007 to June 26, 2016, Swallow was a director and secretary of GCI. (Id. at ¶ 5.) In addition, until June 9, 2017, Swallow held 12,500 shares in GCI, equaling fifty percent of the outstanding shares. (Ibid.) At that time, Peter V. Lunardi III and Jeanine Lunardi (collectively, “the Lunardis”), on behalf of the Lunardi Family Living Trust (the “Trust”), owned the remaining fifty percent of shares in GCI and served as its directors. (Id. at ¶¶ 2-3.)

As a shareholder, officer, and director of a licensed card room, Swallow was required to hold two gaming licenses, one issued by the State of California and another issued by the City of San Jose. (TAC, ¶ 13.) On May 2, 2014, the Bureau of Gambling Control (“Bureau”), an arm of the California Department of Justice, issued an “Accusation” against Swallow, GCI and the Lunardis. (Id. at ¶ 14.) The Accusation alleged Swallow engaged in a variety of acts that are antithetical to the privilege of holding a gaming license in the State of California. (Ibid.) Amongst other relief, the Accusation prayed for the revocation of Swallow’s license, which would prevent him from continuing to own shares in GCI. (Ibid.)

GCI, the Lunardis, and Swallow all retained counsel in response to the Accusation. (TAC, ¶ 15.) The attorney’s fees incurred by each party were initially covered by GCI’s insurance or paid by GCI. (Ibid.) While GCI has paid a portion of Swallow’s attorney’s fees, he has many outstanding attorney’s bills, which he demands be paid by GCI. (Ibid.)

GCI and the Lunardis settled with the Department of Justice, thereby resolving the Accusation. (TAC, ¶ 16.) The settlement required them to pay a fine and comply with certain regulatory requirements. (Ibid.) On the other hand, Swallow was unable to reach a settlement with the Department of Justice and the Accusation proceeded to trial against him. (Id. at ¶ 17.) The Administrative Law Judge subsequently rendered her proposed decision, finding Swallow received illegal kickbacks from multiple vendors, including Team View. (Ibid.) The Lunardis then learned Swallow instructed current and former employees of GCI to alter and falsify company records to assist his defense of the Accusation. (Id. at ¶ 18.) For example, Swallow instructed a current GCI employee to allow a former vendor to access the computer network to alter digital records, intending to use those records to mislead the Administrative Law Judge. (Ibid.)

Thereafter, the California Gambling Control Commission (the “Commission”) issued its “Decision and Order After Nonadoption” (the “Commission Order”), which constituted the final decision on the Accusation. (TAC, ¶ 21.) The Commission Order determined that Shallow was not suitable to hold a gaming license, revoked his existing license, and imposed a financial penalty of over $13.6 million. (Ibid.)

During the pendency of the Accusation proceedings, GCI was subject to an “Amended Emergency Order” which precluded payment of shareholder distributions to Swallow, except those for payment of taxes which were subject to preapproval. (TAC, ¶ 22.) During that time, GCI held $12,521,580.00 (the “Fund”) as distributions attributable to Swallow’s shares, which he is not entitled to now obtain. (Id. at ¶¶ 24-5.)

There is also a dispute over the sale of Swallow’s shares. Prior to this dispute, the Lunardis and Swallow entered into an agreement governing the transfer of shares in GCI and including a right of first refusal in the event a shareholder desired to sell their shares to a third party (“Buy-Sell Agreement”). (TAC, ¶ 26.) After the Accusation proceeding and in disregard of that agreement, Swallow entered into a stock purchase agreement with John Park (“Park Agreement”) to sell his shares and refused to sell them to the Lunardis. (Id. at ¶¶ 27-28.) The parties thereafter stipulated to expedited arbitration, which concluded with the arbitrator finding the Buy-Sell Agreement was fully enforceable and Swallow failed to comply with its terms in bad faith. (Id. at ¶¶ 29-30.) Following receipt of the arbitration award, Swallow amended the Park Agreement, increasing the selling price and requiring that a substantial sum be paid in cash. (Id. ¶¶ 32-33.) Once again, the Lunardis gave written notice they intended to exercise their right of first refusal, to which Swallow objected. (Id. at ¶ 34.) The parties went to arbitration for a second time, where Swallow was again ordered to sell his shares to the Lunardis. (Id. at ¶ 35.)

On October 6, 2017, GCI and the Lunardis filed the operative TAC against Swallow alleging causes of action for breach of fiduciary duty, indemnity and reimbursement, fraud, “tort of another,” declaratory relief, and breach of contract.

On February 19, 2019, Swallow filed the operative second amended cross-complaint (“SACC”) setting forth causes of action for: (1) breach of fiduciary duty; (2) breach of contract; (3) common count – money had & received; (4) fraud; (5) indemnification; (6) conversion; and (7) accounting.

Discovery Dispute

On May 8, 2018, GCI served a subpoena for production of business records on U.S. Legal Support, Inc. (Vakili Decl. at ¶ 5, Ex. 4.) The subpoena seeks production of transcripts of Swallow’s deposition in the dissolution proceeding involving his wife, Deborah Swallow, pending in Los Angeles County Superior Court since October 2013. (Id. at ¶¶ 2, 5.) The subpoena also requests all exhibits to these transcripts and all other deposition transcripts in the dissolution proceeding. (Id. at ¶ 5.) The date set for production was June 5, 2018. (Ibid.)

On May 18, 2018, Swallow served the following objections to the subpoena: (1) the documents sought are subject to a protective order in the dissolution proceeding and neither GCI nor the Lunardis nor their counsel were persons designated to receive such confidential information; (2) production of documents would violate first and third party privacy rights; and (3) the requests are overbroad. (Vakili Decl. at ¶ 6, Ex. 5.)

The parties thereafter engaged in meet and confer efforts regarding the subject subpoena. (Vakili Decl. at ¶¶ 7-15; O’Hara Decl. at ¶¶ 4-18.) Swallow stood by his objections, arguing primarily the requested transcripts and exhibits were designated “confidential” and were not subject to production because of the protective order in the dissolution proceeding. Swallow also claimed GCI could obtain the requested information using discovery tools like special interrogatories or document requests. (Vakili Decl. at Ex. 10.) GCI clarified its position stating it was not seeking any confidential deposition transcripts from the dissolution proceeding. (Id. at Ex. 14.) And, to the extent any confidential materials are produced from the dissolution proceeding, GCI argues such documents would be treated in accordance with the protective order entered in this case. (Ibid.) Despite meet and confer efforts, the parties were unable to resolve this discovery dispute and Swallow now seeks intervention from the Court.

Motion to Quash Deposition Subpoena for Production of Business Records

Currently before the Court is the motion to quash deposition subpoena for production of business records by defendant and cross-complainant Swallow. (Code Civ. Proc., 1987.1.) GCI filed written opposition to the motion and submitted a request for judicial notice. Swallow filed reply papers. Both sides request an award of monetary sanctions in conjunction with the motion.

Request for Judicial Notice

In opposition, GCI requests judicial notice of the following: (1) The Memorandum of Points and Authorities in support of the “Request for Order to Enforce Non-Party Deponent RSM US LLP’s Compliance with Deposition Subpoena dated October 11, 2018 issued to RSM US LLP” filed by Swallow on or about April 12, 2019 in Swallow’s divorce action (Exhibit 1); and (2) The “Responsive Declaration to Request for Order” of Gary Fishbein and Exhs. 5-8 thereto, filed by Swallow on or about April 20, 2018 in Swallow’s Divorce Action (Exhibit 2). The exhibits here constitute records of the superior court in Los Angeles County and thus are subject to judicial notice under Evidence Code section 452, subdivision (d). (See Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001) 91 Cal.App.4th 875, 882 [“[W]hile courts are free to take judicial notice of the existence of each document in a court file, including the truth of results reached, they may not take judicial notice of the truth of hearsay statements in decisions and court files”].) There is no opposition to the request. In addition, the exhibits appear relevant to issues raised in the opposition. (See Gbur v. Cohen (1979) 93 Cal.App.3d 296, 301 [judicial notice is confined to those matters which are relevant to the issue at hand].)

Accordingly, the request for judicial notice is GRANTED.

Legal Standard

The court may, “upon motion reasonably made by a [party] … make an order quashing [a] subpoena entirely, modifying it, or directing compliance with it upon those terms or conditions as the court shall declare …” (Code Civ. Proc., § 1987.1, subds. (a) and (b)(1).) The party objecting to a discovery request bears the burden of explaining and justifying its objection. (See Fairmont Ins. Co. v. Super. Ct. (2000) 22 Cal.4th 245, 255.)

The Motion Quash Deposition Subpoena for Production of Business Records is GRANTED IN PART and DENIED IN PART.

The subpoena for business records seeks production of the following categories of documents: (1) Deposition Transcript for Eric Swallow, Volume I, Deposition Date – December 18, 2017; (2) Deposition Transcript for Eric Swallow, Volume II, Deposition Date – January 24, 218; (3) all exhibits produced and included in Volume I and Volume II of the Deposition Transcript for Eric Swallow; and (4) all other Deposition Transcripts in the dissolution proceeding (In the Matter of Swallow v. Swallow, case no. YD 063964) in the Superior Court of California, Los Angeles County.

Categories 1-3

With respect to Categories 1-3, defendant and cross-complainant Swallow first argues that production of these deposition transcripts and exhibits would violate the protective order in the divorce case. Since the documents identified in Categories 1-3 have been marked “confidential,” Swallow contends they cannot be produced under the protective order.

But, as the opposition points out, this position is undermined by the fact that Swallow allowed his deposition testimony in the divorce action to be filed publicly in The “Responsive Declaration to Request for Order” of Gary Fishbein. (See Request for Judicial Notice at Ex. 2.) Having done so, an objection on this ground would appear to be waived. (See Markwell v. Sykes (1959) 173 Cal.App.2d 642, 648 [“it is well settled that once the privilege is waived it is gone for good”].) In other words, Swallow cannot publicly disclose his deposition testimony from the divorce action in one setting while later hiding behind the confidentiality provision in the protective order in another proceeding. In fact, Swallow does not dispute this except to argue the publicly filed deposition testimony did not involve the third privacy rights of his adult children who are not parties to this action. (See Vakili Decl. at ¶ 9.) Along these lines, Swallow also objects to production based on third party privacy rights. GCI however admits it is not seeking documents related to Swallow’s children or his marital relationship. (See OPP at pp. 9, 12.) Nor does Swallow articulate why the protective order in this action would not adequately safeguard the privacy interests of any third parties. Accordingly, the objections on these grounds are overruled.

Finally, during meet and confer, counsel for GCI claimed paragraph 54 in the prior First Amended Cross-Complaint (“FACC”) as well as the claim for “Aiding and Abetting Breach of Fiduciary Duty” alleged in that pleading put the dissolution proceeding at issue in this action. (See Vakili Decl. at ¶ 9.) As these allegations have been omitted from the now operative SACC, Swallow asserts the deposition testimony and exhibits requested in Categories 1-3 are not relevant to this action. In opposition, GCI persuasively argues the requested information is relevant to allegations in the TAC as the dissolution proceeding substantially overlaps with this case. In addition, Swallow brought GCI into the divorce action by deposing GCI’s former auditor Rebecca So (“Ms. So”) of Meloni Hribal Tratner LLP and serving two subpoenas duces tecum on GCI’s auditor in the divorce proceeding, seeking the entirety of its GCI file. (See OPP at p. 10; O’Hara Decl. at ¶¶ 20-21.) Swallow deposed Ms. So for two days in his divorce action with her testimony addressing the financials of GCI. (O’Hara Decl. at ¶ 20.) Based on the foregoing, the requested deposition testimony and exhibits appear relevant, or at least reasonably calculated to lead to the discovery of admissible evidence in this action. (Glenfed Development Corp. v. Super. Ct. (1997) 53 Cal.App.4th 1113, 1117.) Consequently, the relevance objection is overruled.

Category 4

With respect to Category 4, GCI seeks production of all other transcripts in the dissolution proceeding. The remaining deposition transcripts arise from three individual attorneys who represented the Swallows in connection with their family estate planning. Swallow thus argues the transcripts are not subject to production as they contain attorney-client communications. While GCI admits it is not seeking attorney-client communications, it does not articulate why these transcripts are relevant or reasonably calculated to lead to admissible evidence in this action. As a consequence, the Court sustains the objection based on relevance.

Requests for Monetary Sanctions

Both sides request an award of monetary sanctions in conjunction with the motion to quash. The court may, in its discretion, award the amount of the reasonable expenses, incurred in making or opposing the motion, including reasonable attorney’s fees, if the court finds the motion was made or opposed in bad faith or without substantial justification or that one or more of the requirements of the subpoena was oppressive. (Code Civ. Proc., § 1987.2, subd. (a).) Given the ruling on the motion, the Court is not inclined to grant the requests for monetary sanctions.

Consequently, the requests for sanctions are DENIED.

Disposition

The motion to quash subpoena for production of business records is GRANTED IN PART AND DENIED IN PART. The motion is granted as to Category 4. The motion is denied as to Categories 1-3.

The requests for monetary sanctions are DENIED.

The Court will prepare the Order.