Case Name: Robert J. Membreno, Trustee of Sai Trust v. Freeport McMoran Resources Partners, et al.

Case No.: 16CV293410

I. Factual Background

This is a breach of contract action brought by plaintiff Robert J. Membreno, Trustee of the Sai Trust (“Plaintiff”) against defendants Freeport McMoran Resource Partners (“Freeport”); Santa Rosa Geothermal Company, L.P. (“Santa Rosa Geothermal”); Sonoma Geothermal Partners, L.P.; Calpine Sonoma, Inc.; Calpine Geysers Company, L.P.; Geysers Power I Company; Geysers Power Company, LLC; and Calpine Corporation (“Calpine”) (collectively “Defendants”). Calpine is the successor-in-interest to Freeport and the remaining defendants are all subsidiaries of Calpine.

As alleged in the Second Amended Complaint (“SAC”), in May 1987, SAI Geothermal, Inc. (“SAI”) and Freeport entered into an agreement for purchase and sale of assets (“Agreement for Purchase”). (SAC, ¶ 15.) Under the Agreement for Purchase, after a geothermal plant known as the West Ford Flat was constructed, Freeport would pay SAI a Net Profits Interest (“NPI”) representing the right to receive a monthly payment of 6 percent of the plant’s Net Income for the month. (Ibid.) The Agreement for Purchase also provided that shortly after the end of each fiscal year, Freeport would provide Plaintiff with a statement certified by its chief financial officer (“CFO”) showing in reasonable detail the calculation of that year’s NPI. (Id. at ¶ 19.)

SAI later assigned its rights to receive 4.55 percent of the NPI to Plaintiff and Freeport assigned its interest in the Agreement for Purchase to Santa Rosa Geothermal. (Id. at ¶¶ 16, 20-21.)

Around 2001, a dispute arose between Plaintiff and some of the Defendants regarding Defendants’ calculation of various line items in the NPI statements. (SAC, ¶¶ 33-35.) Around 2009, Plaintiff sued some of the Defendants for breach of the Agreement for Purchase based on their purported miscalculation of the monthly NPI payments. (Id. at ¶ 37.) The parties to the litigation entered into a settlement agreement (“2009 Settlement Agreement”), which provided that all rights, duties and obligations under the Agreement for Purchase would be maintained and the parties’ business relationship would continue until the Agreement for Purchase expired. (Id. at ¶¶ 38-39.)

Around 2015, Calpine issued a news release announcing that a wildfire had affected some of its geothermal power generation facilities. (Id. at ¶ 51.) Notwithstanding that fact, it stated it was continuing to produce renewable energy and anticipated its insurance would cover much of the repair and replacement costs as well as its revenue losses. (Ibid.) Plaintiff inquired about Defendants’ plans for the West Ford Flat plant, which had been partly damaged by the wildfire, and was informed they were planning to retire it in three to five years. (Id. at ¶ 54.) Defendants further represented they would construct a pipeline that would divert steam from the West Ford Flat steam fields to a neighboring plant in Calistoga. (Id. at ¶ 54.) Despite the fact Plaintiff had not consented to or been given notice of these plans, Defendants also indicated that – with the decommissioning of the West Ford Flat plant – they were no longer obligated to tender monthly NPI payments to Plaintiff under the Agreement for Purchase. (Ibid.) Moreover, even though Defendants had publically represented that insurance proceeds would cover the repair costs and revenue losses for the damaged plants, their subsequent NPI statements to Plaintiff did not reflect application of these proceeds as income for the West Ford Flat plant. (Id. at ¶ 61.)

II. Discovery Dispute

The current matter involves a discovery dispute related to the depositions of five individuals: Zamir Rauf (“Rauf”), an Executive Vice President and the CFO of Calpine; W. Thaddeus Miller (“Miller”), an Executive Vice President and the Chief Legal Officer (“CLO”) of Calpine; and Bruce Carlsen, Tim Conant and James Kluessener (“Employees”) – various Calpine employees. With respect to the Employees, Plaintiff also seeks to compel the production of documents demanded in their deposition notices.

For context, in November 2017, Plaintiff served deposition notices on Rauf, Miller and the Employees. Shortly thereafter, Defendants’ counsel advised Plaintiff’s counsel of his and the deponents’ unavailability on the dates noticed. (Young Decl., Exh. G.) He also objected to the notices of deposition for Rauf and Miller (collectively the “Executives”) on the ground Plaintiff had not met his burden for deposing corporate officers under Liberty Mut. Ins. Co. v. Superior Court (1992) 10 Cal.App.4th 1282 (“Liberty Mutual”). (Ibid.) Defendants’ counsel followed up with Plaintiff’s counsel twice thereafter as he received no response. (Id., Exh. H.) During this correspondence, he also threatened to file a motion for protective order relative to the Executives’ depositions. (Ibid.)

One week later, Plaintiff’s counsel responded stating a motion for protective order would not be necessary to calendar the depositions. (Ibid.) He also requested that Defendants’ counsel provide specific alternative dates for the depositions. (Ibid.) Defendants’ counsel responded that he would work on getting dates for the Employees but maintained his objections as to the Executives’ depositions. (Ibid.) Several days later, Defendants’ counsel reiterated he would work with Plaintiff’s counsel in scheduling the depositions of the Employees and threatened again to move for a protective order for the Executives. (Id., Exh. I.) No alternative deposition dates for the Employees were provided at that time. (Ibid.)

None of the deponents showed up for their noticed depositions and Plaintiff filed the present motion to compel. (See Id., Exh. J.) Several days after the motion was filed, Defendants’ newly associated trial counsel contacted Plaintiff’s counsel to meet and confer regarding a separate discovery request. (Id.; Exh. J.) Over the course of the next month, the parties’ counsel continued meeting and conferring regarding outstanding discovery issues including the depositions of the Executives and Employees. (Id., Exh. L.) In the course of this process, Defendants’ trial counsel maintained the objections to the Executives’ depositions but finally provided Plaintiff’s counsel with possible deposition dates for the Employees – nearly three months after prior counsel indicated he would obtain alternative deposition dates. (See Ibid.)

Currently before the Court is Plaintiff’s motion to compel the deposition attendance of the Executives and the Employees, and the production of documents requested in the Employees’ deposition notices. Defendants oppose the motion.

III. Motion to Compel

Plaintiff seeks an order under Code of Civil Procedure sections 2025.450 (“Section 2025.450”) and 2025.480 (“Section 2025.480”). Section 2025.450 authorizes a motion to compel a deponent’s attendance where he or she failed to appear for a deposition. Both statutes authorize a motion to compel the production of documents requested in a deposition notice.

A. Meet and Confer Efforts

At the outset, Defendants argue the motion should be denied because Plaintiff failed to adequately meet and confer prior to its filing as evidenced by his failure to submit a meet and confer declaration along with his motion.

Under Section 2025.450, subdivision (b)(2), a motion to compel must be accompanied by a meet and confer declaration or, when the deponent fails to attend the deposition, a declaration stating the moving party contacted the deponent to inquire about the nonappearance. As the Executives and Employees failed to attend the deposition, Plaintiff was only required to submit a declaration stating he contacted deponent to inquire about the nonattendance. Here, discussions between the parties’ counsel occurred before the deposition because Defendants objected to the deposition notice and indicated the deponents would not attend. Plaintiff’s counsel complied with the spirit of the statute because he inquired about the deponents’ planned nonattendance in advance of the deposition and asked Defendants’ counsel to provide alternative dates. Even assuming Plaintiff’s counsel was required to do more than inquire about the nonattendance, the record reflects he did so and Defendants’ contention those efforts were inadequate is unsupported.

To adequately meet and confer, the propounding party must make a reasonable and good faith attempt to informally resolve the discovery matters at issue. (Code Civ. Proc., § 2016.040.) This requirement is designed “to encourage the parties to work out their differences informally so as to avoid the necessity for a formal order” which, in turn, “will lessen the burden on the court and reduce the unnecessary expenditure of resources by litigants through promotion of informal, extrajudicial resolution of discovery disputes.” (Townsend v. Sup. Ct. (1998) 61 Cal.App.4th 1431, 1435.) “A reasonable and good-faith attempt at informal resolution entails something more than bickering…the law requires that counsel attempt to talk the matter over, compare their views, consult, and deliberate.” (Id. at p. 1439.)

Defendants argue Plaintiff did not meet and confer in good faith because he “unilaterally noticed” the depositions, did not respond to the substantive issues raised in Defendants’ meet and confer letters and did not meaningfully engage with their attempts to resolve the dispute after the motion was filed. (Opp. at p. 8:23-9:4.) The Court is not persuaded the evidence demonstrates Plaintiff insufficiently met and conferred with Defendants prior to filing this motion.

Though it is true Defendants were more proactive in their efforts to meet and confer regarding the scheduled depositions, Plaintiff’s counsel did respond to their correspondence regarding the planned nonattendance. (See Young Decl., Exh. H.) Specifically, Plaintiff’s counsel requested that Defendants’ counsel provide him with concrete, alternative deposition dates and indicated the dates on which he himself would not be available. (Ibid.) He also responded to the substance of the objections to the Executives’ depositions by stating his belief that each deponent was a “direct factual witness[] to allegations in [the] complaint.” (Ibid.) In response, Defendants’ counsel communicated twice that he would work on getting alternative dates for the depositions of the Employees but these were not provided until three months later – two months after the deponents failed to attend the noticed depositions. (Id., Exhs. H, I, L.)

Taking the circumstances together, this constituted an adequate effort to meet and confer as it does not appear there was anything more Plaintiff’s counsel could have done. Defendants’ counsel promised to provide alternative dates for the Employees’ depositions yet failed to follow through until three months later. Moreover, the fact the parties did not agree with respect to the issue of whether the Executives could be deposed does not mean Plaintiff failed to adequately meet and confer.

B. Merits of the Motion

Section 2025.450, subdivision (a) provides that “[i]f after service of a deposition notice, a party to the action…without having served a valid objection under Section 2025.410, fails to appear for examination or to proceed with it…the party giving the notice may move for an order compelling the deponent’s attendance and testimony.” Under Section 2025.410, a valid objection is generally one based on an error or irregularity in the deposition notice. (Code Civ. Proc., § 2025.410, subd. (a).)

Here, Plaintiff served notices for the depositions to occur on November 29, 2017 for the Executives and on December 5 and 6, 2017 for the Employees. (Healy Decl., ¶ 5; Exh. A-E.) Next, no objection regarding an error or irregularity in the notice was served. Code of Civil Procedure section 2025.410, subdivision (a) authorizes a party served with a deposition notice that “does not comply with Article 2 (commencing with Section 2025.210)” to serve a written objection specifying that error or irregularity. Article 2 covers the requirements of noticing and conducting a deposition, such as when and where a deposition may be taken (Code Civ. Proc., §§ 2025.210, 2025.250), the contents of a deposition notice (Id. at § 2025.220), and the time limit for depositions (Id. at § 2025.290). None of the provisions of Article 2 relate to interposing the type of procedural objection Defendants raised – namely, an objection on the basis that Plaintiff unilaterally set the deposition date. (See Young Decl., Exh. H.) This is not an objection contemplated by Section 2025.410 as Article 2 contains no requirement that a noticing party consult with the deponent before scheduling a deposition date.

As for the Employees, Defendants did not object on any other grounds to the deposition notices. Since this was the sole basis for not proceeding with the Employees’ depositions, the motion to compel is warranted.

As for the Executives, Defendants also objected to the notice on the ground the Executives could not be deposed because Plaintiff had not met his burden of demonstrating: (1) they had unique or superior knowledge of issues in the lawsuit; and (2) Plaintiff had exhausted less intrusive means of discovery before seeking their depositions, citing Liberty Mutual, supra, in support. (Id.) Since this issue goes to whether the Executives were obligated to appear for the depositions, the Court will address its merits.

Under Liberty Mutual, “when a plaintiff seeks to depose a corporate president or other official at the highest level of corporate management, and that official moves for a protective order to prohibit the deposition, the trial court should first determine whether the plaintiff has shown good cause that the official has unique or superior personal knowledge of discoverable information.” (Liberty Mutual, supra, 10 Cal.App.4th at 1289.) If the plaintiff fails to make this showing, the trial court should issue a protective order and first require the plaintiff to obtain discovery through less intrusive methods such as interrogatories directed towards exploring the state of that executive’s knowledge or involvement in the case. (Ibid.) This “apex witness rule” is based on the rationale that a plaintiff should not be able to “leap-frog[] to the apex of the corporate hierarchy” without first seeking discovery from lower level employees more involved in everyday corporate operations. (Id. at 1287.) Though the apex witness rule is typically applied when a party seeks a protective order to prevent the deposition of an executive officer, at least one court has acknowledged that a deposing party may be required to affirmatively make the Liberty Mutual showing when the issue is raised in response to a motion to compel deposition attendance. (See, e.g., Datig v. Dove Books, Inc. (1999) 73 Cal.App.4th 964, 975 fn. 9 [noting the trial court denied a motion to compel deposition attendance pursuant to Liberty Mutual].)

As a threshold issue, the parties do not appear to dispute that, as CFO and CLO of Calpine, the Executives are apex witnesses subject to the showing required under Liberty Mutual. (See Liberty Mutual, supra, 10 Cal.App.4th at 1289 [stating an apex officer is a corporate president or corporate officer at the apex of the corporate hierarchy].) They only argue over whether Plaintiff has met his burden under the apex witness rule.

On the issue of whether the Executives have unique or superior knowledge, Plaintiff argues that Rauf has direct and personal knowledge of issues in the lawsuit. He contends that, as CFO, Rauf is the one that certified the annual NPI statements Defendants sent him and also has knowledge related to their decision to close the West Ford Flat plant. He also asserts that Rauf has unique and superior knowledge regarding Calpine’s decision to not use the insurance proceeds from the wildfire to cover revenue that was lost at the West Ford Flat plant. In opposition, Defendants argue Rauf lacks unique or superior knowledge of the NPI statements because they are prepared by a lower level employee, Guy Tipton (whose declaration is attached to the opposition), and Rauf merely signs the reports. They also contend Rauf is based at the parent corporation in Texas and the issues in the lawsuit relate to power plants in Northern California. Defendants’ point is well-taken with respect to the NPI statements but the Court is not persuaded Plaintiff has not established Rauf may have superior knowledge of the decision to close the West Ford Flat plant and the use of the wildfire insurance proceeds relative to that plant. As a high-level corporate officer, it is reasonable to infer Rauf does, in fact, have unique knowledge of matters relating to broader corporate decisions regarding plant closures and the application of insurance proceeds in the course of the corporation’s financial operations.

With respect to Miller, Plaintiff references some ambiguity that currently exists regarding the issue of whether the proper Calpine entities have been named in this litigation. He contends Miller signed the 2009 Settlement Agreement on behalf of various entities which Defendants now contend did not exist in 2009. As such, Plaintiff seeks to depose Miller as the CLO of Calpine to testify as to the identities of the correct corporate entities. In opposition, Defendants do not address whether Miller possesses superior knowledge of these issues but contend the 2009 Settlement Agreement is wholly unrelated to the present lawsuit. This argument is not well-taken. As CLO of Calpine, whose holdings consist of multiple subsidiaries including most of the Defendants, it is reasonable to infer Miller has superior knowledge regarding the status of these entities and their involvement in the issues raised by this litigation.

Accordingly, Plaintiff has sufficiently demonstrated Rauf and Miller may have unique or superior knowledge regarding discoverable matters.

On the issue of exhaustion of less intrusive means of discovery, Plaintiff does not address this prong of the standard in his motion to compel but vaguely alludes, in his reply, to previous discovery that was served on Defendants. Because the argument regarding previously propounded discovery was raised for the first time on reply, the Court will not consider it. (See REO Broadcasting Consultants v. Martin (1999) 69 Cal.App.4th 489, 500 [courts generally do not consider arguments raised for the first time on reply for the simple reason that opposing counsel is deprived of an opportunity to address them]; Reichardt v. Hoffman (1997) 52 Cal.App.4th 754, 764; In re Tiffany Y. (1990) 223 Cal.App.3d 298, 302-303.) Plaintiff also contends he proposed to withdraw his request for Miller’s deposition if the Defendants that have appeared in this action clearly admitted they were bound by the Agreement for Purchase. He asserts Defendants never responded to this offer of compromise. It is unclear what this line of argument is meant to address but, for purposes of the Liberty Mutual analysis, this fact does not establish Plaintiff has availed himself of other means of discovery before noticing the Executives’ depositions. As such, Plaintiff has not met his burden of showing he has exhausted less intrusive means of discovery before noticing the depositions of the Executives.

For this reason, Plaintiff has not demonstrated good cause for deposing the Executives under the Liberty Mutual standard.

In consideration of the foregoing, Plaintiff’s motion to compel deposition attendance is DENIED as to the Executives but the motion to compel deposition attendance and document production is GRANTED as to the Employees. The Employees shall appear for deposition within 45 days of this Order, unless otherwise agreed, at a mutually decided time and produce all responsive documents at the deposition.