Case Number: BC558200 Hearing Date: July 20, 2016 Dept: 37

CASE NAME: MuniServices, LLC, et al. v. Hinderliter, de Llamas & Associates, et al.
CASE NO.: BC558200
HEARING DATE: 7/20/16
DEPARTMENT: 37
CALENDAR NO.: 10
TRIAL DATE: 4/25/17
NOTICE: OK
SUBJECT: Motion for Terminating and Issue Sanctions or Alternatively a Monetary Sanction
MOVING PARTY: Defendants Hinderliter, de Llamas & Associates, Inc.; HdL Coren & Cone, Inc.; HdL Software LLC; Anton Unger, III; and Joshua A. Davis
OPPOSING PARTY: Plaintiffs MuniServices, LLC and Portfolio Recovery Associates, Inc.

COURT’S TENTATIVE RULING

The motion is denied without prejudice as to the requested terminating and issue sanctions. Plaintiffs are directed to make all responsive documents available for inspection at Plaintiffs’ counsel’s office within 15 days. In the event Plaintiffs fail to do so, Defendants may renew their motion for terminating and issue sanctions. The motion for additional monetary sanction is denied but the $1,500 previously awarded shall be paid within 30 days. Plaintiffs’ request for a monetary sanction is denied. Counsel for Defendants to give notice.

STATEMENT OF THE CASE

The factual background to this case is set forth in the court’s prior written rulings. In this action, Plaintiffs MuniServices, LLC and Portfolio Recovery Associates, Inc. allege that Defendants Anton Unger, III and Joshua A. Davis were longtime employees who resigned from their positions as managers, took Plaintiffs’ trade secrets and confidential information, began working for a competitor—Defendants Hinderliter, de Llamas & Associates, Inc., HdL Coren & Cone, Inc., and HdL Software LLC (the HDL Companies)—and used the misappropriated trade secrets and confidential information for the benefit of their new employer. Plaintiffs allege Messrs. Unger and Davis violated their employment agreements and breached their fiduciary duties.

DISCUSSION

Plaintiffs have not complied with the court’s May 19, 2016 order requiring them to produce by June 20, 2016 the documents responsive to the HDL Companies’ requests for production of documents, set two, numbers 106-147. The factual background leading to the May 19 order is as follows:

On January 20, 2016, Defendants served on each plaintiff requests for production of documents, set two. Plaintiffs served responses and supplemental responses to the requests on February 26, 2016, and March 18, 2016, respectively. The parties engaged in meet-and-confer correspondence, and on March 24, 2016, and on April 8, 2016, the parties attended status conferences to address, among other things, the adequacy of Plaintiffs’ responses. On April 27, 2016, Defendants filed a motion to compel Plaintiffs’ production of documents responsive to the requests for production, set two, numbers 106-147. As part of the motion, Defendants also sought a monetary sanction and an issue sanction based on the alleged failure to identify or produce any of the trade secrets at issue in this case.

The court ruled on the motion on May 19, 2016. The court determined that Defendants had complied with their meet-and-confer obligations and made a sufficient showing to support the discovery they sought. (Declaration of Adam M. Weg, Exh. O, pp. 3:16-4:2.) The court then stated as follows:

The information sought in these requests [is] the most basic type of information that is necessary in litigation of this nature and goes to the key questions. It is the trade secret and steps [that] have been taken to protect it and have it classified as such and whether there has been any misappropriation.

The defendants are entitled to the information they seek. And the plaintiffs must serve a code compliant response pursuant to CCP 2031.210, 2031.220, and 2031.230. The responses, which I have reviewed are not compliant and have not been simply produced. To the extent the documents do not exist, the party must say they do not exist in a code-compliant fashion. To the extent the attorney/client privilege is asserted, the law must be presented. [FN1]

[¶] . . . [¶]

Because the discovery is warranted and a need has been shown and the responses are inadequate, the motion is granted as to the request for production, set two, 106 through 147. . . .

(Weg Decl., Exh. O, p. 4:2-28.) The court then directed Plaintiffs to comply by June 20, 2016. (Weg Decl., Exh. O, p. 20:8-10.) In so doing, the court noted, “It’s important that we get compliance quickly with this issue. This issue has been percolating for a long time. It’s the basic issue of the case.” (Weg Decl., Exh. O, p. 20:1-4.) (FN2)

A minute order was entered in May 19, 2016, reflecting the proceedings at the hearing. In pertinent part, the minute order states, “Motion is GRANTED, excluding the portion regarding sanctions—pending compliance, which shall occur by: 6-20-16. Non-monetary sanctions are DENIED.” (5/19/16 Minute Order.) Thus, the minute order reflects that the motion to compel the production of documents was granted, and that Plaintiffs were to comply by June 20, 2016.

Plaintiffs understood the May 19, 2016 order, as evidenced by the writ of mandate petition seeking to overturn the order. On June 15, 2016, Plaintiffs petitioned the Court of Appeal for a writ of mandate directing this court to temporarily stay the May 19, 2016 order. In the petition, Plaintiffs summarized the May 19, 2016 order as follows:

Under the Order, Petitioners must provide further responses and produce documents by June 20, 2016, or face sanctions in the amount of $1,500. The sanctions were stayed pending compliance.

(Weg Decl., Exh. R, emphasis added.) Thus, Plaintiffs understood that they were obligated to produce documents, not merely serve amended supplemental responses. The Court of Appeal denied the petition. (Weg Decl. ¶ 20.)

Plaintiffs did not produce documents by June 20, 2016. Instead, on that date they served amended supplemental responses to the requests for production of documents. The responses include the objections that the court already addressed in its May 19, 2016 ruling. On this issue, the court advised Plaintiffs that to the extent they believed they had already produced responsive documents, they were obligated to identify the documents. (Weg Decl., Exh. O, pp. 12-15.) The new responses did not identify any previously produced documents as being responsive to the requests.

Plaintiffs’ June 20, 2016 responses also contained the following statement, expressing the intention to produce all responsive documents at a future date:

Subject to and without [waiving] any objections, Responding Party will produce all non-privileged documents believed to be responsive to the request to the extent it exists, in Responding Party’s custody, possession or control. To the extent this request seeks electronically stored information that may be relevant to this case, counsel for Responding Party is willing to further meet and confer with counsel for defendants to discuss an appropriate protocol for the discovery of such.

(Declaration of Lawrence C. Hinkle, II, Exh. A.) In opposition to this motion, Plaintiffs contend that this response complies with the May 19, 2016 order and also puts Defendants on notice that Plaintiffs’ production was available for inspection. The court disagrees. The May 19, 2016 order obligated Plaintiffs to produce all responsive documents, which Plaintiffs did not do. In addition, the above statement does not indicate that documents are available for inspection. It states that Plaintiffs “will produce” the responsive documents.

Notwithstanding the fact that Plaintiffs did not comply with the May 19, 2016 order, the court notes there have been developments since the filing of this motion. For instance, on June 27, 2016, Defendants’ counsel received 403 pages of documents. Counsel states, however, that none of the documents included any of the documents identified in Plaintiffs’ trade secret identification or any other documents that could be considered a trade secret. (Weg Decl. ¶ 26.)(FN3) On July 5, 2016, Plaintiffs produced another 61 pages of documents. Plaintiffs’ opposition does not claim that these documents comply with the May 19, 2016 order, and according to defense counsel, the documents are not trade secrets and do not comply with the order. (Supplemental Weg Decl. ¶¶ 8-9.)

In connection with the July 5, 2016 production, Plaintiffs’ counsel sent a letter stating that defense counsel could go to Virginia to inspect some of the trade secret documents. According to Plaintiffs’ counsel, the letter was an effort to informally resolve the dispute. (Hinkle Decl. ¶ 10.) In the letter, Plaintiffs’ counsel states as follows:

The balance of the documents responsive to the Requests, all of which are designated by Plaintiffs as “HIGHLY CONFIDENTIAL—ATTORNEYS’ EYES ONLY”, are being produced for inspection by Plaintiffs in Norfolk, Virginia at Plaintiffs’ offices. Please provide proposed dates and times to coordinate this inspection. All of those documents available for inspection concern the software source codes, the software logic and customer relationship management content

With this production, Plaintiffs have fully complied with the Order concerning the production of documents. As you know, Plaintiffs provided to you the written responses on June 20, 2016.

(Hinkle Decl., Exh. D.) It appears that since this letter, Plaintiffs’ counsel has stated that some of Plaintiffs’ trade secret documents are available for inspection in Norfolk, Virginia since that is where they are kept in the usual course of Plaintiffs’ business. In addition, Plaintiffs’ counsel has indicated that that the inspection of these items would be subject to an ESI protocol. (Supplemental Weg Decl. ¶ 11.)

In light of the foregoing events, the court determines that the following course is appropriate. The motion for terminating and issue sanction is denied without prejudice. Because Plaintiffs did not comply with the May 19, 2016 order, but they maintain that some of their trade secrets are available for inspection in Virginia, Plaintiffs are directed to make all responsive documents available for inspection at Plaintiffs’ counsel’s office in Los Angeles within 15 days. In the event Plaintiffs fail to do so, Defendants may renew their motion for terminating and issue sanctions. (FN4)

The court concludes that additional monetary sanctions, i.e., apart from the $1,500 previously ordered, are not appropriate for the following reasons. The May 19 order required compliance by June 20, 2016 and the motion was filed one week later on June 27, 2016. Both of the attorneys responsible for handing this matter at Plaintiff’s counsel were out of the office on vacation and unavailable for all, or almost all, of that period. (Hinkle Decl.¶3) There was no way under the circumstances that the parties could meet and confer to try avoid a motion. Since the filing of the motion, at least some steps have been taken towards compliance and it is conceivable that a motion could have been avoided with additional dialogue. In addition, the order on this motion sets a final deadline for full compliance. Accordingly, the previous sanctions of $1,500 shall be due within 30 days because of the failure to comply with the May 19, 2016 order, but no additional sanctions will be ordered at this time.
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1. The court intended this reference to be to a privilege log for documents withheld on a claim of privilege.

2. The court also denied the motion as to the issue sanction and granted the motion as to the monetary sanction in the amount of $1,500, but that portion of the ruling pending compliance with the order. (Weg Decl., Exh. O, p. 18:1-11.)

3. Plaintiffs’ opposition does not respond to this point or contend that the 403 documents complied with the May 19, 2016 order.

4. Generally, the demanding party may select the time and the place for the inspection. (Code Civ. Proc., § 2031.030, subd. (c)(2)-(3).) The time and place are subject to the court’s control by protective order or on a motion to compel. (Code Civ. Proc., § 2031.060.) Although generally the time, place, and conditions are worked out by stipulation between counsel, since Plaintiffs did not comply with the May 19, 2016 order, the court is directing Plaintiffs to produce the remaining documents for inspection at Plaintiffs’ counsel’s office. (See Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2014) ¶¶ 8:1446-8:1447.)