Sherrie Anderson v. Coldwell Banker Residential Brokerage Company, et al.
Case No: 18CV04422
Hearing Date: Tue Sep 17, 2019 9:30

Nature of Proceedings: Motion Compel Production of Documents (Set Two)

Motion to compel production of documents

ATTORNEYS:

John C. Eck of Griffith & Thornburgh, LLP for plaintiff

Jana S. Johnston / Lisa Faye Petak of Mullen & Henzell LLP for

defendants Coldwell Banker Residential Brokerage Co., Susan

Burns, Susan Conger, and Kathleen Marvin

RULING: The motion is granted.

Background:

Plaintiff filed her original complaint on September 7, 2018, naming as defendants Coldwell Banker Residential Brokerage Company and its agents or employees, Susan Burns, Susan Conger, and Kathleen Marvin. In her operative First Amended Complaint she alleges causes of action for (1) violations of Civil Code sections 1102, (2) fraudulent concealment, (3) breach of fiduciary duty, and (4) financial elder abuse. She alleges that, with defendant Marvin as her agent, she purchased property at 3511 Sea Ledge Lane in the Hope Ranch area of Santa Barbara. Defendants Burns and Conger, also with Coldwell Banker, represented the sellers of the property. The claims relate to the late 2013 or early 2014 clearing of a path, and construction of steps, by the sellers of the property and another Sea Ledge Lane property owner, on property over which there was a historical beach access easement. A 1973 landslide had destroyed previously existing stairs along the easement. The work was done without applying for or obtaining any permits, and the Coastal Commission would not issue a permit for path and stairs without provision of public access. Those facts were actively concealed by Coldwell Banker and its agents.

Prior to filing the complaint, plaintiff, defendants, and the sellers (the Budingers) unsuccessfully mediated the dispute. After the complaint was filed only against Coldwell Banker and its agents or employees, defendants learned that plaintiff had resolved her claims against the Budingers, and had entered into a confidential Settlement Agreement with them. The agreement was not produced in response to a first document request, although its existence was confirmed by plaintiff’s attorney. To avoid any dispute with respect to the scope of the original discovery requests, defendants propounded a specific request for production of the Settlement Agreement. In responding to the request, plaintiff objected based upon her right to financial privacy, and stated she would not be producing any documents responsive to the request. During meet-and-confer efforts, defendants offered to enter into a protective order to protect plaintiff’s financial privacy claims. Plaintiff would only agree to provide the settlement agreement pursuant to such a protective order if the settlement amount was redacted.

This motion to compel followed, in which defendants contend that neither the confidentiality clause nor plaintiff’s right to financial privacy are sufficient to overcome their legitimate and countervailing interests in discovering the agreement. Plaintiff opposes.

ANALYSIS

The motion must be granted. Plaintiff must be ordered to produce the Settlement Agreement she entered into with the Budingers, in its original unredacted form, but subject to a protective order to be agreed upon by the parties.

Plaintiff has refused to produce the settlement agreement she executed with the Budingers, first contending that the demand for production of the unredacted confidential settlement agreement is not reasonably calculated to lead to the discovery of admissible evidence, largely relying upon Kruse Technology Partnership v. DMAX, Ltd. (C.D. Cal. 2010) 2010 WL 11519425. Even if found relevant, plaintiff contends that her right to financial privacy overrides defendants’ interest in the discovery of the settlement agreement, relying upon Hinshaw, Winkler, Draa, Marsh & Still v. Superior Court (1996) 51 Cal.App.4th 233.

1. Relevance.

Plaintiff’s first argument against production of the Settlement Agreement appears to contend that confidential settlement agreements are not relevant or discoverable in litigation.

Pursuant to Code of Civil Procedure section 2017.010, any party may obtain discovery regarding any matter, not privileged, that is relevant to the subject matter involved in the pending action or to the determination of any motion made in that action, if the matter either is itself admissible in evidence or appears reasonably calculated to lead to the discovery of admissible evidence. Relevancy to the subject matter of the litigation is a much broader concept than relevance to the precise issues presented by the pleadings. (Pacific Tel. & Tel. Co. v. Superior Court (1970) 2 Cal.3d 161, 172.) The “subject matter of the action” is the circumstances and facts out of which the cause of action arises; it is the property, contract, or other thing involved in the dispute; it is not the act or acts which constitute the cause of action, but describes physical facts in relation to which the suit is prosecuted. (Darbee v. Superior Court (1962) 208 Cal.App.2d 680, 688.) Information is “relevant to the subject matter” if its discovery will tend to promote settlement or assist the party in preparing for trial. (Norton v. Superior Court (1994) 24 Cal.App.4th 1750, 1760.) Substantial leeway is allowed at the discovery stage, in determining whether discovery is reasonably calculated to lead to the discovery of admissible evidence, and doubts are resolved in favor of permitting discovery. (Pacific Tel. & Tel. Co. v. Superior Court, supra, 2 Cal.3d at pp. 172-173.) Further, wherever possible, objections to discovery should be resolved by protective orders addressing the specific harm, as opposed to a more general attack on the relevancy of the information the proponent seeks to discover. (Id., at p. 171.)

Citing Norton, supra, defendants’ motion argues that settlement agreements are not de facto barred from production, as plaintiff appears to contend. In Norton, a trial court refused to compel production of legal malpractice plaintiffs’ settlement with their own insurer for the same property damage that was the subject of their underlying lawsuit, because it was inadmissible under the collateral source rule. The Court of Appeal reversed, finding that although the agreement would be inadmissible at trial of the malpractice action under the collateral source rule, discovery rules are broader than simply being governed by admissibility. Although the settlement documents were inadmissible to mitigate damages, they might be admissible for another purpose, or might lead to the discovery of admissible evidence, including being helpful in reaching a settlement or preparing for trial, leading to evidence regarding the extent of the plaintiffs’ injuries from the alleged malpractice, the plaintiffs’ motives in bringing the malpractice action, or their bias or credibility as witnesses. Further, the amount of that settlement could be relevant to calculating the malpractice damages for loss of the underlying claim. The Norton court therefore remanded the matter to the trial court, to determine whether the settlement agreement was relevant to an issue other than mitigation of damages, or would lead to the discovery of admissible evidence.

In this case, defendants contend that every provision of the settlement agreement, including the settlement amount, is necessary for them to be able to prepare for trial. They argue that they need to be able to assess both plaintiff’s credibility and the Budingers’ credibility, as well as assess the “injuries plaintiff claims she has suffered.” They need the agreement, including the amount, to understand plaintiff’s motives in bringing this suit, and to calculate her damages. Defendants need the information to prepare for trial, not just to gain an upper hand in settlement negotiations, as plaintiff claims.

Plaintiff asserts that the fact that she has offered to provide the settlement terms and conditions under a protective order, with the settlement amount redacted, eliminates the need to go through this analysis in this case, since all of these inquiries are answered by the other terms of the settlement agreement. She contends that offset is not an issue in this case, because defendants did not plead comparative negligence, and failed to file a cross-complaint for indemnity against the sellers. Defendants respond that they did, in fact, allege the negligence of others and resulting entitlement to offset as a defense in their answer, and that there is no requirement that they file a cross-complaint before seeking an offset. Further, entitlement to offset is an issue in this case. Consequently, the amount of plaintiff’s settlement with the Budingers for the same damage as she is seeking compensation for in this action, is directly relevant to the matters at issue in this action.

The Court is inclined to agree. This is not a case in which the settlement payment was made by an insurer, such that it fell within the collateral source rule and the amount of the settlement was thereby rendered irrelevant. Here, plaintiff’s claims against the Budingers and her claims against defendants are both for the same injurious conduct and damages, i.e., her purchase of the property after the Budingers and defendants—all of whom had a legal duty to disclose, in fact concealed the accurate information with respect to the beach access easement and the construction of the path and stairs across it. As a result, the amount purportedly paid by the Budingers was for the identical conduct and the identical harm. The amount those parties paid in settlement therefore appears to be relevant to the nature and amount of actual harm sustained by plaintiff, plaintiff’s credibility, plaintiff’s motives in bringing this action, and the ultimate calculation of damages.

Plaintiff relied on Kruse Technology Partnership v. DMAX, Ltd. (C.D. Cal. January 6, 2010) 2010 WL 11519425, for the rather startlingly broad proposition that confidential settlement agreements with non-parties are not reasonably calculated to lead to the discovery of admissible evidence. (Opposition at p. 3, lines 21-23.) The parties dispute whether the case is citable, given that it is an unpublished federal district court opinion. The California Rules of Court only address a party or a court’s citation to or reliance on unpublished California state court opinions. (Cal. Rules of Court, Rule 8.1115, subd. (a).) They do not prohibit citation to unpublished federal cases, which may be persuasive, but not binding, authority. (Western Heritage Insurance Company v. Frances Todd, Inc. (2019) 33 Cal.App.5th 976, 989, fn. 6.) Of course, one common problem with federal district court (i.e., federal trial court level) cases—and particularly those that are unpublished—is that they frequently have very little persuasive value, given that they exist in abundance in support of contradictory and conflicting legal principles, and it is often possible to find one to support just about any principle one could imagine.

Another common problem is that unpublished federal district court decisions—particularly interim discovery orders such as is at issue in Kruse—frequently do not contain enough information about the background of the case at issue to provide any context from which to apply the legal principles they discuss. That is most definitely true in Kruse, which contains almost no information about the nature of the case in which the discovery order (to compel production of a confidential settlement agreement, but only with the amount of the settlement redacted) was entered, the subject matter of the prior action that was resolved by the settlement agreement, any relationship the parties to the current case might have to the parties to the earlier case, or other factual context that might provide illumination with respect to the district court’s finding that the amount of the prior settlement was not relevant to the issue of damages in the current case, and was not relevant to any claim or defense involved in the second case. There are brief references to patents, but that provides no assistance in evaluating the decision’s findings. The decision also makes clear that the Court would be inclined to reconsider its decision if certain events occurred, further making clear that its broad, sweeping statements about the non-discoverability of the settlement amount were limited to the factual context that existed in that action, but which was not clearly articulated in or discernable from the decision. Because of the absence of critical context information, the Court simply finds Kruse to be of no value in determining the discoverability of the unredacted settlement agreement in this action.

As a consequence, the fact that the arguments made by defendants in this action mirror those made by the party in Kruse, has no tendency to require the conclusion that the unredacted settlement agreement should be similarly undiscoverable here. The Kruse court’s statement that litigants have a multitude of reasons for entering settlement agreements, also does not impact the potential relevance of this specific agreement in this specific case.

Discovery of the entire settlement agreement, including the settlement amount, would appear to this Court to be relevant to the subject matter involved in the action, and either itself admissible in evidence, or reasonably calculated to lead to the discovery of admissible evidence.

Consequently, unless the privacy analysis weighs in favor of plaintiff’s right to privacy, the entire settlement agreement would appear to be discoverable. (Code Civ. Proc., § 2017.010.)

2. Privacy.

As confirmed by the California Supreme Court in Williams v. Superior Court (2017) 3 Cal.5th 531, 552-558, the framework for evaluating potential invasions of privacy was set forth in Hill v. National Collegiate Athletic Association (1994) 7 Cal.4th 1. The party asserting a privacy right must establish a legally protected privacy interest, an objectively reasonable expectation of privacy in the given circumstances, and a threatened intrusion that is serious. The party seeking information may then raise whatever legitimate and important countervailing interests disclosure serves, while the party seeking protection may identify feasible alternatives that serve the same interests or protective measures that would diminish the loss of privacy. A court must then balance these competing considerations. (Williams, supra, 3 Cal.5th at p. 552, citing Hill, supra, 7 Cal.4th at pp. 35-40.) The Williams court further clarified that, in conducting the analysis, a compelling interest is required to justify an obvious invasion of an interest fundamental to personal autonomy, but that when lesser interests are at stake, the strength of the countervailing interest sufficient to warrant disclosure of private information varies according to the strength of the privacy interest itself, the seriousness of the invasion, and the availability of alternatives and protective measures. (Williams, supra, 3 Cal.5th at p. 556, citing Hill, supra, 7 Cal.4th at pp. 35-40.) To the extent that cases decided subsequent to Hill require a party seeking discovery of private information to always establish a compelling interest or compelling need, without regard to the other considerations articulated in Hill, the Williams court expressly disapproved them. (Williams, supra, 3 Cal.5th at p. 557.)

In seeking the entire Settlement Agreement, including the amount which was paid by the Budingers in settlement of plaintiff’s claims against them, defendants acknowledge that, pursuant to Hinshaw, Winkler, Draa, Marsh & Still v. Superior Court (1996) 51 Cal.App.4th 233, 241, confidential settlement agreements are entitled to at least as much privacy protection as bank account or tax information. As such, the first standard set forth in Hill has been met, i.e., plaintiff has a legally protected privacy interest.

Where the parties diverge in their analysis, is whether plaintiff has an objectively reasonable expectation of privacy in the given circumstances, and a threatened intrusion that is serious. Plaintiff contends that the fact that she and the Budingers sought to protect the privacy interest in the confidential settlement agreement, in and of itself, satisfies the requirement that she had a reasonable expectation of privacy. Certainly, that may be true as against the rest of the world, but under Hill and Williams, the requirement is much more than merely an “expectation of privacy.” Rather, that expectation of privacy must be objectively reasonable in the given circumstances. Those circumstances include, in this case, the relationship of all the parties to each other, and in particular the fact that plaintiff is seeking damages from defendants for the very same conduct and the very same harm that her settlement with the Budingers was intended to compensate. Her expectation of privacy in these given circumstances may well not be objectively reasonable, as required by Hill in order to support the existence of a legitimate privacy objection. Hill

Any reliance on Hinshaw, Winkler, Draa, Marsh & Still v. Superior Court, supra, to support the privacy objection in the settlement amount is misplaced. Certainly, the Hinshaw case properly stands for the proposition that a party’s constitutional right to privacy in financial information extends to the settlement amount in a confidential settlement. However, it is both legally and factually distinguishable from the current case. The Hinshaw court first discussed Norton v. Superior Court, supra, noting that the case suggests that the amount of a settlement can be pertinent to calculating damages in a legal malpractice action for loss of the underlying claim. It distinguished Norton, however, based upon the fact that Norton did not involve third party privacy interests, as were present in Hinshaw.

In Hinshaw, two doctors who were part of a class action by a group of doctors against Kaiser related to the purchase of a hospital, for some reason (which was in factual dispute; the case elsewhere describes them as having been “dropped” by the class attorneys) dismissed their claim against Kaiser with prejudice. The remaining doctors eventually settled. When another group of doctors sued for similar claims, the original two sought to join, but were prevented from doing so because their previous action had been dismissed with prejudice. That action was also ultimately settled. The two doctors sued their former attorneys, and sought to subpoena the settlements brokered on behalf of the two classes. The Hinshaw court distinguished Norton, on the basis that it did not involve third party privacy interests, since the settlement amount related to the precise claim at issue in the malpractice action, i.e., the property damage sustained by the plaintiffs, and therefore was pertinent to calculating damages for loss of the claim for such damage. In Hinshaw, on the other hand, the damages compensated in the settlement were based upon the damage to each doctor’s practices because of Kaiser’s conduct. Each doctor’s damages were therefore different, since they were based upon the nature and scope and financial aspects of their individual practices and their own conduct in relation to Kaiser. Consequently, there was no justification in invading those doctors’ privacy rights by disclosing the individual confidential financial settlement information. That information would have no relationship to the issues presented by the two doctors in their malpractice action against the attorneys.

Here, plaintiff’s claims against the Budingers and her claims against defendants are for the same claim and damages, i.e., her purchase of the property based upon concealment of the accurate information with respect to the beach access easement and the construction of the path and stairs across it. This case is therefore far closer to the circumstances present in Norton than it is to the circumstances present in Hinshaw, where the settlement amounts sought were amounts received by unrelated persons with separate claims and privacy interests. Indeed, the circumstances in the present case appear to this Court to much more strongly weigh in favor of disclosure of plaintiff’s settlement amount with the Budingers, than was true in Norton. In Norton, the settlement was with the plaintiff’s insurer and, while potentially relevant for some purposes (to be determined by the trial court on remand), the settlement amount would be inadmissible at trial under the collateral source rule. Here, the causes of action alleged against the broker/agent defendants relate to the disclosure obligations of sellers and real estate professionals upon the transfer of real property, and the breach of those obligations by failing to fully inform plaintiff with respect to the beach access easement and the improvements thereon. These are the identical claims which plaintiff could have made against the Budingers, and which in fact were the subject of the pre-litigation attempt to mediate a global settlement of the dispute which included both the sellers and the real estate professionals. The settlement is for the Budingers’ liability for the precise harm at issue in this case, based upon identical conduct as is alleged against the real estate professionals in this case. While plaintiff asserts in an offhand manner that the amount is not relevant because there is no offset here, the Court finds that statement both legally and factually unsupported.

While plaintiff may have a financial privacy interest in the amount of the confidential settlement she entered into with the Budingers, the Court finds that she has no reasonable expectation of privacy with respect to that amount in the context of this action, and that the strength of her privacy interest in maintaining its confidentiality is insufficient to overcome the strength of the defendants’ countervailing interests in its disclosure.

Finally, the Court finds that plaintiff’s financial privacy rights are adequately protected by the production of the unredacted settlement agreement pursuant to a protective order limiting its use to this action, and its disclosure only to those whose knowledge of it would be required for the proper defense of the claims being asserted against defendants. The Court will allow the parties to determine the terms of such protective order, and will only intervene upon the request of a party (by noticed motion) should the parties be unable to agree.