Case Name: TX Trading v. Jack Xu, et al.
Case No.: 2016-CV-295764

Factual and Procedural Background

This is an action for fraud and breach of contract. Cross-Complainants Jack Xu (“Xu”) and Susan Teng (“Teng”) were principals of Chuangjia International Co., dba TX Trading & TX Solution (“TX Trading”), a company engaged in semiconductor PCB (printed circuit board) design with a principal place of business in Fremont, California. (See Fourth Amended Cross-Complaint [“4ACC”] at ¶ 18.) TX Trading used to contract out design services to cross-defendant Shenzhen Co., Ltd. (“Shenzhen Co.”), a company located in Shenzhen, China. (Id. at ¶ 19.) Since 2011, Shenzhen Co. had been trying to develop its own business and market share in the United States. (Id. at ¶ 20.) Thus, Shenzhen Co. set up a subsidiary in California and was sending its Chinese employees to work in the United States on B1/B2 visas (visitor for business and tourist visas) without proper visas. (Ibid.)

After cross-defendant Hansheng Ke (“Ke”) received an L-1 visa, he approached Xu to discuss closer cooperation to set up a joint venture (“JV”) with TX Trading so both sides could secure better business. (See 4ACC at ¶ 23.) As a result, Xu, Teng, and Shenzhen Co. decided to form a JV, cross-defendant Edadoc USA, Inc. (“EUSA”). (Id. at ¶ 24.) On October 11, 2013, TX Trading and Shenzhen Co. signed a cooperation agreement (N. TX-EDACOC-001) in Chinese (“JV Agreement”). (See Id. at ¶ 25, Exhibit A.) Under the JV Agreement, Shenzhen Co. would own 60% of EUSA and TX Trading would own 40%. (Id. at ¶ 26.)

After signing the JV Agreement, Ke and Xu decided that they should jointly retain a California lawyer to convert the JV Agreement into a formal agreement in English to comply with all the laws of California and the United States. (See 4ACC at ¶ 31.) They ultimately hired attorney and cross-defendant Danning Jiang (“Jiang”) because he was fluent in Chinese and for the ease of communications between attorney and clients. (Id. at ¶ 33.) Xu believed that Jiang represented both TX Trading and Shenzhen Co. in this matter and that Jiang’s job was to faithfully convert the parties’ agreements into a contract of compliance with all of the laws of California and the United States. (Ibid.)

During the period of time when Jiang was drafting the English version of the JV Agreement, the parties agreed to change two major terms of the agreement. (See 4ACC at ¶ 39.) They agreed that the total investment by the parties be increased from $100,000 to $166,666 while maintaining the 60/40 division, i.e., Shenzhen Co. would put into the JV $100,000 and TX Trading $66,666. (Ibid.) The parties also agreed to replace TX Trading with Xu and Teng as the signing parties, with each of them holding 20% of the JV shares. (Ibid.) Both amendments, as well as some additional minor changes, of the JV Agreement were explicitly conveyed by the parties to Jiang orally or by emails. (Ibid.) Jiang also summarized these amendments in emails to the parties. (Ibid.)

In January 2014, cross-defendant Changmao Tang (“Tang”), the CEO for Shenzhen Co., invited Xu and Teng to have a meeting at Jiang’s office, along with Ke. (See 4ACC at ¶ 48.) At the meeting, the English version of the JV Agreement (“English Contract”) was signed. (Ibid.; Exhibit B.) However, Jiang did not disclose to Xu or Teng that he was not acting as their counsel or that he had completely changed the essential terms of the JV Agreement to their detriment. (Id. at ¶¶ 42, 43, 44, 50.) Nor did Jiang advise Xu or Teng that they should seek their own counsel before signing the English Contract. (Id. at ¶ 50.)

In March 2016, Shenzhen Co., through its CEO Tang, demanded an early termination of the JV. (See 4ACC at ¶ 56.) Tang claimed that he wanted to break up the JV because Xu had a lackluster performance and did not achieve the revenue goal for 2015. (Ibid.) Conversely, Xu and Teng believed that Tang wanted to break up the JV because he could not make the easy money of 10% anymore from the JV orders, and because Teng and Xu had embarrassed him in demanding the manufacturers’ invoices. (Id. at ¶ 47.) Xu and Teng wanted to conduct the dissolution according to the dissolution clause of the JV Agreement, which meant Shenzhen Co. should leave the JV with a certain compensation. (Id. at ¶ 58.) Tang refused. (Ibid.) Ultimately, Xu and Teng agreed to revise the JV Agreement with a new agreement that specified the terms of dissolution of the JV, which was signed by the parties on March 31, 2016. (Id. at ¶ 60.)

On August 24, 2017, cross-complainants Xu, Teng, and TX Trading (collectively, “Cross-Complainants”) filed a motion for leave to file a 4ACC which was granted by the Court. The operative 4ACC alleges the following causes of action for: (1) breach of contract [against Shenzhen Co. and EUSA]; (2) fraud [against Shenzhen Co., EUSA, Tang, and Ke]; (3) breach of fiduciary duty [against Shenzhen Co., EUSA, and Jiang]; (4) declaratory relief [against EUSA and Shenzhen Co.]; and (5) unfair competition in violation of California Business and Professions Code Section 17200 [against Shenzhen Co., EUSA, Tang, Ke, and Jiang]. The 4ACC was filed with the Court on September 28, 2017.

The following motions are presently before the Court: (1) Cross-Complainants’ motion to compel further responses to request for production of documents (set one) (“RPD”); (2) Cross-Complainants’ motion to compel deposition testimony; and (3) the motion for sanctions by cross-defendants EUSA, Ke, and Jiang (collectively, “Cross-Defendants”). The parties have filed oppositions and reply papers to the motions. No trial date has been set.

Motion to Compel Further Responses to RPD

Discovery Dispute

Cross-Complainants served Jiang with RPD regarding his communications, as counsel, for the parties involved in the JV. Jiang served discovery answers interposing objections with factual responses. Thereafter, the parties met and conferred regarding this discovery and Cross-Complainants requested supplemental responses to RPD Nos. 5-20 and 29. (See Declaration of Andrew Pierz at ¶¶ 6-9, Exhibits C, D, E, F.) The parties were unable to informally resolve the discovery dispute and thus Cross-Complainants now seek intervention from the Court.

Cross-Complainants move to compel a further response to RPD Nos. 5-20 because the objections lack merit. (Code Civ. Proc., § 2031.310.)

Timeliness

In opposition, Cross-Defendants argue that the motion is untimely because it was filed beyond the 45-day deadline. “Unless notice of this motion is given within 45 days of the service of the verified response, or any supplemental verified response, or on or before any specific later date to which the demanding party and the responding party have agreed in writing, the demanding party waives any right to compel a further response to the demand.” (Code Civ. Proc., § 2031.310, subd. (c); see Vidal Sassoon, Inc. v. Super. Ct. (Halpern) (1983) 147 Cal.App.3d 681, 685 [court lacks jurisdiction to order further answers after 45 days].)

According to the opposition, Cross-Complainants served RPD on April 26, 2017. (See Declaration of Danning Jiang at ¶ 4, Exhibit 1.) Thereafter, Jiang served his discovery responses on May 31, 2017. (Id. at Exhibit 2.) Thus, Cross-Defendants claim that any motion to compel further responses must be timely filed on or before July 20, 2017. (Id. at ¶ 5.) Since the motion was filed on September 14, 2017, Cross-Defendants assert that the motion is untimely filed.

However, on July 7, 2017, the Court granted Cross-Complainants’ ex parte request, which among other things, ordered the motion to compel production to be filed on or before August 31, 2017. (See Declaration of Andrew Pierz at Exhibit K.) On August 30, 2017, the Court granted a second ex parte request which now ordered the motion to compel further production to be filed on or before September 14, 2017. (Id. at Exhibit L.) In opposition, Cross-Defendants argue that the July 7th ex parte order is unrelated to the deadline for any motion to compel involving this discovery. (See Declaration of Danning Jiang at ¶ 7.) In reply, Cross-Complainants contend that the ex parte request was intended to postpone motions to compel “for all discovery responses” so new counsel could have a chance to review the case files. (See Reply at p. 2.) Indeed, neither the July 7th order nor the August 31st order appear to be limited to any particular discovery response. Rather, the orders generally extend deadlines to any “motion to compel further production.” Therefore, having filed the motion to compel further responses on September 14, 2017, in accordance with the Court’s order, the motion to compel is timely and will be addressed.

Separate Statement

In opposition, Cross-Defendants also argue that the motion should be denied as the separate statement is defective.

“Any motion involving the content of a discovery request or the responses to such a request must be accompanied by a separate statement.” (Cal. Rules of Court, rule 3.1345(a).) “A separate statement is a separate document filed and served with the discovery motion that provides all the information necessary to understand each discovery request and all the responses to it that are at issue.” (Cal. Rules of Court, rule 3.1345(c).) The separate statement must include: (1) the text of the request or inspection demand; (2) the text of each response, answer or objection; and (3) a statement of the factual and legal reasons for compelling any further responses or production. (Ibid.)

Cross-Complainants submit a separate statement incorporating the subject request, the response given by Jiang, and factual and legal reasons for compelling a further response. Cross-Defendants contend that the separate statement is defective as it fails to include the set number for the RPD or the date of service. The argument with respect to the service date lacks merit as it is not supported by any legal authority. It is true that the separate statement does not include the set number for the RPD. However, this defect is not fatal as it appears that Cross-Complainants filed only one set of discovery with respect to the RPD. Accordingly, the Court finds that the separate statement is sufficient and will address the merits of the motion.

Legal Standard

A responding party to an inspection demand must respond separately to each item in the demand by stating one of the following: (1) an agreement to comply; (2) a representation of inability to comply, or (3) objections. (Code Civ. Proc., § 2031.210.) If a party demanding a response to an inspection demand deems: (1) a statement of compliance with the demand is incomplete; (2) a representation of inability to comply is inadequate, incomplete, or evasive; or (3) an objection in the response is without merit or too general, that party may move for an order compelling further response to the demand. (Code Civ. Proc., § 2031.310; Weil & Brown, California Practice Guide: Civil Procedure Before Trial (Rutter Group 2017) at § 8:1490.)

RPD Nos. 5, 6, 7, 8

Good Cause Requirement

A motion to compel further responses to RPD must “set forth specific facts showing good cause justifying the discovery sought by the demand.” (Code Civ. Proc., § 2031.310, subd. (b)(1).) The moving party establishes good cause by showing: (1) relevance to the subject matter of the case; and (2) specific facts justifying discovery. (Kirkland v. Super. Ct. (2002) 95 Cal.App.4th 92, 98 [the party who seeks to compel production has met his burden of showing good cause simply by a fact-specific showing of relevance].) Discovery is allowed for any matters that are not privileged and relevant to the subject matter, and a matter is relevant if it appears reasonably calculated to lead to the discovery of admissible evidence. (Code Civ. Proc., § 2017.010.) Moreover, for discovery purposes, information is “relevant to the subject matter” if it might reasonably assist a party in evaluating the case, preparing for trial, or facilitating settlement thereof. (Gonzalez v. Super. Ct. (1995) 33 Cal.App.4th 1539, 1546.)

Here, RPD Nos. 5, 6, 7, and 8 request communications between cross-defendant Tang, the CEO for Shenzhen Co., and Jiang’s law office regarding the JV Agreements and the Stock Subscription Agreement. Any such communications would appear to be relevant with respect to circumstances surrounding the JV Agreement and Stock Subscription Agreement which are central to claims alleged in the 4ACC. The Court thus finds that Cross-Complainants have established good cause for production. Having done so, the burden shifts to cross-defendant Jiang to justify his objections to document production.

Non-Party Objection

Cross-Defendant Jiang objects on the ground that the request is directed to a non-party, Law Offices of Danning Jiang, and thus no documents will be produced absent service of a proper deposition subpoena. (See Code Civ. Proc., §§ 2020.010-2020.510.) This argument lacks merit as the RPD are addressed to cross-defendant Jiang, not to the Law Offices of Danning Jiang. As Jiang is a party to this action, he may be properly served with a request for production. (See Code Civ. Proc., § 2031.010.) Thus, to the extent that Jiang has any such documents in his possession, custody, or control, he should be required to produce them. The Court therefore overrules the objection.

Attorney-Client Privilege

Cross-Defendant Jiang also objects on the ground that any such communications are protected under the attorney-client privilege.

“The [attorney-client] privilege authorizes a client to refuse to disclose, and to prevent others from disclosing, confidential communications between attorney and client. [Citation.] Clearly, the fundamental purpose behind the privilege is to safeguard the confidential relationship between clients and their attorneys so as to promote full and open discussion of the facts and tactics surrounding individual legal matters. [Citation.] In other words, the public policy fostered by the privilege seeks to insure ‘the right of every person to freely and fully confer and confide in one having knowledge of the law, and skilled in its practice, in order that the former may have adequate advice and a proper defense.’ [Citation.]” (Mitchell v. Super. Ct. (1984) 37 Cal.3d 591, 599.)

However, “[i]n a lawsuit between an attorney and a client based on an alleged breach of a duty arising from the attorney-client relationship, attorney-client communications relevant to the breach are not protected by the attorney-client privilege.” (Anten v. Super. Ct. (2015) 233 Cal.App.4th 1254, 1256; see Evid. Code, § 958.) This is because “[i]t would be unjust to permit a client…to accuse his attorney of a breach of duty and to invoke the privilege to prevent the attorney from bringing forth evidence in defense of the charge.” (Solin v. O’Melveny & Myers (2001) 89 Cal.App.4th 451, 463-464.) Here, as stated above, Cross-Complainants and Ke hired Jiang to assist them in converting the JV Agreement into English to comply with the state law and the laws of the United States. (See 4ACC at ¶ 31; see also Declaration of Andrew Pierz at Exhibit G [Xu Declaration at ¶¶ 8-11].) Cross-Complainants allege that Jiang breached his fiduciary duty to them with respect to his conduct surrounding the JV Agreement. Therefore, they should be entitled to discovery regarding Jiang’s communications with Tang in order to support their breach of fiduciary claim. (See Wortham & Van Liew v. Super. Ct. (1987) 188 Cal.App.3d 927, 931 [“[A]lthough the attorney-client privilege is important, even more important is the relationship which the privilege is intended to protect, namely the relationship of an attorney to his client and his fiduciary obligations to his client.”].)

In addition, “[w]here two or more clients have retained or consulted a lawyer upon a matter of common interest, none of them, nor the successor in interest of any of them, may claim a privilege under this article as to a communication made in the course of that relationship when such communication is offered in a civil proceeding between one of such clients (or his successor in interest) and another of such clients (or his successor in interest).” (Evid. Code, § 962.) This is known as the joint clients exception to the attorney-client privilege. In opposition, Cross-Defendants argue that this exception is not applicable as (1) Jiang was never counsel to Cross-Complainants and (2) the communications sought after are not related to a common interest of the parties. (See OPP at pp. 7-9.) However, as stated above, the 4ACC alleges that Xu, Teng, and Ke engaged Jiang to assist them in converting the JV Agreement to English. Cross-Complainants have also submitted evidence in support of that contention. (See Declaration of Andrew Pierz at Exhibit G [Xu Declaration at ¶¶ 8-11].) The fact that the parties allegedly retained Jiang to convert the JV Agreement to English provides a matter of common interest in support of the joint clients exception.

Based on the foregoing, the objection based on the attorney-client privilege is overruled.

Remaining Objections

Cross-Defendant Jiang further objects to RPD on the ground that the requests are not limited by time or subject matter. (See Cross-Defendants’ Response to Separate Statement.) This appears to be an overbroad objection. Since Jiang did not assert this objection to the RPD in his original responses, he waived this basis for objection and cannot now assert it for the first time in opposition to a motion to compel. (See Scottsdale Ins. Co. v. Super. Ct. (1997) 59 Cal. App. 4th 263, 273 [waiver occurs where the responding party fails to timely raise an objection in its initial response]; see also Code Civ. Proc., § 2031.240, subd. (b)(2) [responses shall set forth any objections].)
Finally, Jiang objects on the basis that it would cause significant burden for his law office to respond. (See Cross-Defendants’ Response to Separate Statement.) An “objection based upon burden must be sustained by evidence showing the quantum of work required.” (West Pico Furniture Co. v. Super. Ct. (1961) 56 Cal. 2d 407, 417.) Jiang fails to submit supporting evidence to justify his burdensome objection. (See Coy v. Super. Ct. (1962) 58 Cal.2d 210, 220-221 [if a timely motion to compel has been filed, the burden is on responding party to justify any objection].) Therefore, the burdensome objection is overruled.

Disposition

Accordingly, the motion to compel a further response to RPD Nos. 5, 6, 7, and 8 is GRANTED. Cross-Defendant Jiang shall serve verified code-compliant further responses, without objections, and produce all responsive documents within 20 calendar days of this Order.

RPD Nos. 9-20

RPD Nos. 9-20 request Jiang to produce communications between the Law Offices of Jiang and cross-defendant Ke, EUSA, and Shenzhen Co. with respect to the JV Agreements and Stock Subscription Agreement. For the reasons stated above, the Court finds good cause for production. Jiang objects on the same grounds addressed to RPD Nos. 5, 6, 7, and 8. For the same reasons stated above, the objections are overruled.

Therefore, the motion to compel a further response to RPD Nos. 9-20 is GRANTED. Cross-Defendant Jiang shall serve verified code-compliant further responses, without objections, and produce all responsive documents within 20 calendar days of this Order.

Motion to Compel Answers to Deposition Questions

Cross-Complainants also move to compel cross-defendants Jiang and Ke to respond to certain questions raised during their depositions. (See Cross-Complainants’ Separate Statement at pp. 10-11.) “If a deponent fails to answer any question or to produce any document, electronically stored information, or tangible thing under the deponent’s control that is specified in the deposition notice or a deposition subpoena, the party seeking discovery may move the court for an order compelling that answer or production.” (Code Civ. Proc., § 2025.480, subd. (a).)

As a preliminary matter, a motion to compel answers to deposition questions requires a separate statement in compliance with California Rules of Court, rule 3.1345. As the opposition points out, the separate statement is defective as it fails to include the text for each deposition question and the text of each response. The separate statement includes factual and legal reasons for compelling a further response but it is not connected to any particular deposition question. In addition, a motion to compel answers to deposition questions must be made no later than 60 days after completion of the record of the deposition. (Code Civ. Proc., § 2025.480, subd. (b).) Here, the completion of deposition for cross-defendant Ke occurred on May 24, 2017 and for cross-defendant Jiang on June 1, 2017. (See Declaration of Danning Jiang at Exhibits 7-8.) The motion to compel however was not filed until September 14, 2017, beyond the 60-day period required by statute. Furthermore, there is nothing on the ex parte orders to suggest that the Court intended to extend the deadline for filing any motion to compel answers to deposition questions.

Consequently, the motion to compel cross-defendants Jiang and Ke to respond to deposition questions is DENIED.

Request for Monetary Sanctions

In opposition to the motions to compel, Cross-Defendants request an award of monetary sanctions in the amount of $4,340. (See Code Civ. Proc., §§ 2031.310, subd. (h), 2025.480, subd. (j).) The Court finds that sanctions are not appropriate as Cross-Defendants were not substantially justified in opposing the motion. Cross-Defendants also request sanctions on the ground that Cross-Complainants failed to meet and confer. (See Code Civ. Proc., § 2023.020.) Based on this record, the parties engaged in some degree of meet and confer before filing the motion. While the parties could have benefitted from additional meet and confer efforts, the failure to do so does not justify an award of monetary sanctions.

Accordingly, the request for monetary sanctions is DENIED.

Motion for Sanctions

Cross-Defendants move for an award of sanctions under Code of Civil Procedure sections 128.5 and 128.7 based on false representations made by Cross-Complainants’ counsel in the ex parte application for August 30, 2017. With this application, Cross-Defendants seek the following relief: (1) monetary sanctions in the amount of $4,565; (2) a penalty assessed by the Court and to be paid to the Clerk of the Court; (3) vacate the ex parte order dated August 30, 2017; and (4) other nonmonetary remedies as the Court deems appropriate.

Section 128.5

Code of Civil Procedure section 128.5 provides that “[a] trial court may order a party, the party’s attorney, or both to pay the reasonable expenses, including attorney’s fees, incurred by another party as a result of bad-faith actions or tactics that are frivolous or solely intended to cause unnecessary delay.” (Code Civ. Proc., § 128.5, subd. (a).) For purposes of this section, “actions or tactics” include, but are not limited to, the making or opposing of motions or the filing and service of a complaint, cross-complaint, answer, or other responsive pleading. (Code Civ. Proc., § 128.5, subd. (b)(1).) “Frivolous” means totally and completely without merit or for the sole purpose of harassing an opposing party. (Code Civ. Proc., § 128.5, subd. (b)(2).)
Cross-Defendants argue that sanctions are warranted as counsel for Cross-Complainants’ ex parte application on August 30, 2017 misrepresented the deadline for filing motions to compel discovery. As a preliminary matter, section 128.5 is not applicable to disclosures and discovery requests, responses, objections, and motions. (See Code Civ. Proc., § 128.5, subd. (e).) Thus, there is a question as to whether sanctions can be imposed here with respect to an ex parte request involving discovery. Even if section 128.5 is applicable, the argument lacks merit given that the Court previously ruled in its July 7, 2017 ex parte order that the deadline for filing any motions to compel production be extended to August 31, 2017. Therefore, this contention does not provide for a basis to impose sanctions.

As a secondary argument, Cross-Defendants assert that the August 30th ex parte application was made in bad faith for the following reasons: (1) attorney Pierz made the ex parte application knowing Jiang was unavailable; (2) the ex parte application misrepresented that Jiang had not responded to counsel’s meet and confer; and (3) attorney Pierz failed to inform the Court that the August 30th ex parte application was contested. (See Memo of P’s & A’s at p. 6.) Despite these contentions, the Court does not find that the actions taken by counsel for Cross-Complainants were done in bad faith or intended to cause unnecessary delay or harassment. In fact, the evidence submitted reveals that Jiang was aware of the August 30th ex parte application and thus informed opposing counsel that he would be unavailable to attend. (See Declaration of Andrew Pierz at ¶ 7, Exhibit C.) For that reason, attorney Jiang requested that attorney Pierz read Jiang’s email to the Court to support his opposition to the ex parte request. (Ibid.) It is true that attorney Pierz failed to inform the Court of Jiang’s absence or read the email. However, as Pierz explains, this failure appears to be inadvertent and not the product of bad faith motives. (Id. at Exhibit E.) In the absence of any bad faith, the Court is not inclined to impose sanctions under Code of Civil Procedure section 128.5.

Section 128.7

Code of Civil Procedure section 128.7 authorizes a court to award sanctions, including monetary sanctions, against a party and/or a party’s counsel in certain circumstances provided in subdivision (b). If the court determines that subdivision (b) has been violated, it may impose an appropriate sanction upon the attorneys or parties who committed the violation or are responsible for it. (Code Civ. Proc., § 128.7, subd. (c).)

Cross-Defendants incorporate the same arguments in support of sanctions under section 128.7. The Court notes that section 128.7 also does not apply to disclosures and discovery requests, responses, objections, and motions. (See Code Civ. Proc., § subd., (g).) Thus, to the extent that the ex parte application be construed as a “motion,” this section would not be applicable. In addition, for the reasons stated above with respect to section 128.5, the Court similarly finds that sanctions are not warranted under section 128.7.

Disposition

The motion for sanctions is DENIED.

Request for Monetary Sanctions

In opposition to Cross-Defendants’ motion for sanctions, Cross-Complainants request that monetary sanctions be imposed against cross-defendant Jiang under Code of Civil Procedure section 128.5. (See OPP at p. 8-10.) The request is deficient however as Cross-Complainants fail to provide an attorney declaration supporting an amount of costs and fees to be awarded. (See Code Civ. Proc., § 2023.040.)

Consequently, the request for monetary sanctions is DENIED.