Case Name: Specialty A/C Products, Inc., et al. v. Andrew Osborn, et al.
Case No.: 16CV301486

I. Factual Background and Discovery Dispute

A. Factual Background

This trade-secrets lawsuit arises from a dispute between partner companies who sell cooling systems for server farms and data centers and their former salesperson.
Plaintiffs Specialty A/C Products, Inc. (“Specialty”) and Pacific Coast Sales & Services, Inc. (“Pacific Coast”) (collectively, “Plaintiffs”) supply heating, ventilation, and air conditioning (“HVAC”) systems. (Compl., ¶ 8.) In 1999, they hired defendant Andrew Osborn (“Osborn”) as an independent contractor to sell these systems to companies in several counties throughout Northern California. (Compl., ¶ 11.)

Osborn executed identical independent-contractor agreements with Specialty and Pacific Coast agreeing that “correspondence, blueprints, quotations, plans, and other written information reasonabl[y] necessary to carry on the sales” belonged to them and promising not to divulge trade secrets and customer information or compete with them upon termination of his contract. (Compl., ¶¶ 12–15 & Exs. A–B.)

In December 2015, Specialty asked its salespeople to sign an additional nondisclosure agreement to protect third-party information. (Compl., ¶ 16.) Osborn refused to sign the agreement and claimed the agreement covered information that, in fact, belonged to him. (Compl., ¶ 16.) Although Specialty corresponded with Osborn in an attempt to clarify the scope of the agreement and encourage him to sign it, he still refused. (Compl., ¶ 18.)

Shortly thereafter, Osborn terminated his working relationship with Specialty to launch his own competing businesses, namely defendants Ascent HVAC, Inc. (“Ascent”) and Osborn Management. (Compl., ¶¶ 19–22.) In his termination letter, he explicitly claimed ownership of Specialty’s trade secrets and threatened to compete with it on a significant customer’s request for proposal for a custom cooling system. (Compl., ¶¶ 19–22.) When Specialty asked him to return its proprietary information in accordance with his contract, he refused and stated such information belonged to him and his new companies. (Compl., ¶¶ 22–23.)

Subsequently, Specialty followed up on its demand and advised Osborn that it knew he had already attempted to steal the sale of the custom cooling system, including by usurping its contracts with suppliers needed to complete that project. (Compl., ¶¶ 25–26.) Osborn effectively continued to refuse to return Specialty’s trade secrets by simultaneously claiming he would return its information while maintaining that the information, in fact, belonged to him. (Compl., ¶ 29.) He additionally stated that he still intended to compete with Specialty. (Compl., ¶ 30.)

Specialty alleges Osborn stole customer lists that included contact information for key personnel, pricing lists and bidding information, a system design and related supplier information for a significant customer’s custom cooling system, customer preferences and technical requirements, and private requests for proposals. (Compl., ¶¶ 31–49.)

Pacific Coast alleges Osborn’s course of conduct jeopardized its ability to compete using the proprietary hardware and software it developed to optimize the performance of HVAC systems developed and sold in collaboration with Specialty. (Compl., ¶¶ 50–52.)

Plaintiffs assert the following causes of action against Osborn and both of his companies (collectively, “Defendants”): (1) misappropriation of trade secrets (against Defendants); (2) breach of contract (against Osborn); (3) interference with contract (against Defendants); (4) interference with prospective economic advantage (against Defendants); and (5) violation of California’s Unfair Competition Law (the “UCL”) (against Defendants).

Defendants thereafter filed a cross-complaint alleging Plaintiffs withheld commissions Osborn was owed and withheld those commissions, in part, to retaliate for his decision to terminate his contract and compete against them. Defendants assert causes of action against Plaintiffs for: (1) breach of contract; (2) violation of Civil Code section 1738.10; (3) declaratory relief regarding Osborn’s contract; (4) declaratory relief regarding trade secrets; (5) declaratory relief regarding private information; and (6) violation of the UCL.

B. Discovery Dispute

The parties have had a number of discovery disputes to date that resulted in Plaintiffs and Defendants filing motions to compel. On February 6, 2019, the Court issued an order on the parties’ previous motions that resolved the majority of their discovery disputes. Due to a number of problems with the parties’ presentations, the Court was unable to resolve their dispute over certain requests for admissions—particularly requests for admissions, set two (“RFA”) —that Defendants had directed to Plaintiffs. Significantly, Defendants did not present evidence of and discuss the substance of Plaintiffs’ responses to the RFA in presenting their motion to compel. Incidentally, Plaintiffs represented they would file and did file a motion for a protective order concerning the RFA. And so, the Court denied Defendants’ motion to the extent they sought to compel further responses to the RFA. Plaintiffs’ motion for a protective order excusing them from responding to the RFA is now before the Court along with accompanying requests for monetary sanctions by both parties.

Upon reviewing the parties’ briefing, the Court observes there are a number of discrepancies between what the parties previously stated about their dispute over the RFA and what they now assert.
As presented in connection with Plaintiffs’ current motion, the parties’ dispute arose as follows. In September 2018, Defendants served Plaintiffs with the RFA. Plaintiffs did not serve responses to these requests. They assert they should not be required to respond to the RFA because the requests exceed the number authorized by statute due to Defendants’ deficient declaration of necessity, implicate the attorney-client privilege, and are unduly burdensome.

Previously, Defendants proceeded as though Plaintiffs served responses to the RFA. They moved to compel Plaintiffs to provide further responses, purported to set forth the text of Plaintiffs’ initial responses in their separate statement, and argued these responses were evasive and inadequate. (Not. of Mot. at pp. 2–3; Sep. Stat. at p. 67; Mem. of Pts. & Auth. at p. 11:6–10.) But Defendants now admit Plaintiffs did not serve responses to these requests. (Opp. at p. 8:22–23.) Additionally, Plaintiffs previously argued Defendants served too many RFA and suggested no declaration of necessity had been served. (Opp. at p. 12:8–9.) But Plaintiffs now admit they received a declaration of necessity and argue it is legally deficient. (Mem. of Pts. & Auth. at pp. 3:23–4:3.) Although Plaintiffs acknowledged at the hearing on the previous motions that this was an omission, it is otherwise unclear how these discrepancies can be reconciled. Accordingly, counsel shall appear at the hearing on Plaintiffs’ current motion to explain them.

The Court, nevertheless, resolves the present motion below based on the facts now disclosed, namely that Defendants served a declaration of necessity and Plaintiffs did not serve responses.

II. Discussion

A. Merits of Motion

Plaintiffs move for a protective order under Code of Civil Procedure section 2033.080, which states: “The court, for good cause shown, may make any order that justice requires to protect any party from unwarranted annoyance, embarrassment, oppression, or undue burden and expense.”

Although not clearly articulated by Plaintiffs, their motion rests on two distinct grounds. The first ground for their motion is that Defendants’ declaration of necessity is insufficient to warrant additional requests beyond the 35 authorized by statute. (See Code Civ. Proc., §§ 2033.030–050, 2033.080, subd. (b)(2).) The second ground for their motion is that the RFA are oppressive and unduly burdensome. (Code Civ. Proc., § 2033.080, subd. (b).) The Court addresses each ground in turn.

Code of Civil Procedure section 2033.030, subdivision (a) states “[n]o party shall request, as a matter of right, that any other party admit more than 35 matters that do not relate to the genuineness of documents.” This limit may only be exceeded if the requests are accompanied by a declaration for additional discovery that complies with Code of Civil Procedure section 2033.050. (Code Civ. Proc., § 2033.030, subd. (b).) “If the responding party seeks a protective order on the ground that the number of requests for admission is unwarranted, the propounding party shall have the burden of justifying the number of requests for admission.” (Code Civ. Proc., § 2033.040, subd. (b).)

The RFA seek information about attorney Michael Druyanoff’s role at Specialty. It appears Defendants propounded these requests to determine whether he served as legal counsel or merely as a business executive who is incidentally licensed to practice law. Because these RFA do not concern the genuineness of documents and exceed the 35-request limit, Plaintiffs need not respond to these requests unless Defendants served a declaration of necessity establishing the additional requests are warranted.

Defendants served a declaration stating they needed to propound the additional requests because:

[T]his case involves detailed allegations including: (a) allegations involving an 18-year contractual relationship between Plaintiffs/Cross-Defendants and Defendants/Cross-Complainants; (b) numerous alleged trade secrets using varying descriptions alleged in Defendants’ Complaint and Motion for Preliminary Injunction and Defendants/Cross-Complainants are entitled to discovery for each alleged trade secret, including whether they qualify as trade secrets, whether they were misappropriated by Defendants/Cross-Complainants, whether Defendants/Cross-Complainants had a right to use the items listed and whether Plaintiffs have any legal right or basis to prevent Defendants/Cross-Complaints from obtaining or using such information; (c) detailed allegations regarding breach of contract, interference and unfair competition; (e) a Cross-Complaint asserting commissions owed to Cross-Complainants Andrew Osborn and Osborn Management, Inc. by both Cross-Defendants; and (f) new disputes have arisen between the parties regarding the role of Michael Druyanoff in this case, necessitating additional discovery.
(Poorman Decl., Exs. C–D, [Gillick Declaration, ¶ 8].)

To summarize, Defendants’ statement of need consists of the conclusion that the allegations are detailed followed by a vague summary of the parties’ dispute. Defendants’ declaration is deficient because they fail to “state the reasons why the complexity or the quantity of issues in the instant lawsuit” justify propounding requests beyond the statutory limit. (Code Civ. Proc., § 2033.050.) Their generic summary of allegations is not a statement of reasons. Additionally, the only asserted reason—that there are “detailed allegations”—is not tantamount to an explanation of how the case is complex or involves an inordinate number of issues.

In opposition, Defendants do not provide a reasoned explanation or any legal authority to support the conclusion that their declaration is sufficient and the additional requests are warranted. Instead, they focus on whether they need information about Mr. Druyanoff in a vacuum and without regard for the size or complexity of this case. Even assuming Defendants legitimately need information about Mr. Druyanoff, it is unclear how that justifies propounding all of the RFA. Defendants do not explain why they needed to propound so many additional requests on the same issue, why they needed to direct requests to Pacific Coast in addition to Specialty, or why they could not have obtained this information without exceeding the statutory limit.

Based on the foregoing, there is no justification for these additional requests. Plaintiffs’ motion for a protective order is GRANTED. The Court directs that the RFA are unwarranted and need not be answered.

B. Requests for Monetary Sanctions

Plaintiffs request an award of monetary sanctions against Defendants in the amount of $3,400, while Defendants argue they are, in fact, entitled to an award of monetary sanctions in the amount of $6,142.25. Pursuant to Code of Civil Procedure section 2033.080, subdivision (d): “The court shall impose a monetary sanction under Chapter 7 (commencing with Section 2023.010) against any party, person, or attorney who unsuccessfully makes or opposes a motion for a protective order under this section, 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.” Because Defendants unsuccessfully opposed the motion, they are not entitled to an award of monetary sanctions. Although Plaintiffs prevailed, the Court finds the imposition of a sanction would be unjust under the circumstances. Consequently, Plaintiffs’ and Defendants’ requests for monetary sanctions are DENIED.