On 14 March 2014, the motion of Plaintiff Wells Fargo Insurance Services USA, Inc. to compel the deposition testimony of non-party Jill Hetherington was argued and submitted. Non-party Jill Hetherington filed a formal opposition to the motion.

Statement of Facts

Wells Fargo Insurance Services USA, Inc. (“Plaintiff” or “Wells Fargo Ins.”) brings this breach of contract and unfair competition action against ABD Insurance & Financial Services, Inc. (“ABD”), Brian Hetherington, Rod Sockolov, Darren Brown, Renee Polk, Keith Martinsen, Dulcey Lester, and Casey Rhodes (collectively “Defendants”). Wells Fargo Ins. is a non-bank insurance agency affiliate of Wells Fargo & Company. Plaintiff alleges that, in 1993, Greater Bay Bank acquired ABD for approximately $100 million. In 2007, Wells Fargo & Company acquired Greater Bay Bank, including ABD and the “ABD” name, for $1.5 billion. When Wells Fargo & Company acquired ABD, Brian Hetherington and the other named defendants became employees of Wells Fargo Ins.

According to the allegations of the complaint, Brian Hetherington and the other individual defendants were employed in various executive and management positions at Wells Fargo Ins. until the summer of 2012. In January 2012, Wells Fargo Ins. and Brian Hetherington entered into a departure agreement, which imposed various obligations on the parties. The agreement required, among other things, that Brain Hetherington refrain from competing with Plaintiff while receiving compensation from Wells Fargo Ins., refrain from assisting anyone in engaging in or entering into the insurance business while receiving compensation from Wells Fargo Ins., and not soliciting Wells Fargo Ins. employees while receiving compensation from Wells Fargo Ins.

In July 2012, Brian Hetherington left Wells Fargo Ins. and accepted the position of Chief Executive Officer/Co-Chairman and Founding Principal at ABD. Plaintiff alleges that Brian Hetherington and the other individual defendants engaged in an unlawful scheme of utilizing Plaintiff’s information and their positions as employees at Wells Fargo Ins. to compete against Plaintiff by diverting accounts and soliciting individuals to leave Plaintiff’s employ.

Based on these allegations, Plaintiff initiated the instant lawsuit on 31 July 2012. Plaintiff filed a Third Amended Complaint (“TAC”) on 13 September 2013. The TAC asserts seven causes of action for: (1) breach of fiduciary duty; (2) breach of duty of loyalty; (3) breach of contract; (4) false promise; (5) intentional interference with prospective economic relationships; (6) unfair competition under California Business and Professions Code section 17200; and (7) interference with contract.

Discovery Dispute

On 12 November 2013, Plaintiff noticed the deposition of non-party Jill Hetherington for 9 December 2013. Jill Hetherington is Brian Hetherington’s wife and a Vice President at ABD.

On 22 November 2013, counsel for Defendants (also representing Jill Hetherington) contacted Plaintiff’s counsel seeking a continuance of the deposition and indicating that the date noticed for the deposition “will not give us enough time to gather, review, and produce any responsive documents that she may have.” (Declaration of Keith D. Yandell in Support of Pl.’s Motion to Compel Deposition Testimony (“Yandell Decl.”), Ex. H.)

On 3 December 2013, defense counsel informed Plaintiff’s counsel that “Jill is available for deposition January 9, 14, 15, or 16.” (Id.) The parties agreed that Jill Hetherington’s deposition would take place on 15 January 2014. (Id.)

On 7 January 2014, Jill Hetherington produced over 18,000 pages of documents, including e-mails between her and Brian Hetherington, responsive to the deposition notice.

On 13 January 2014, two days before the deposition, defense counsel sent Plaintiff’s counsel an email indicating that Jill Hetherington was asserting the spousal testimonial privilege under Evidence Code section 970 and would not be testifying at the deposition. (Id., Ex. J.) The same day, Plaintiff’s counsel responded to defense counsel’s email, asserting that the spousal testimonial privilege does not apply. (Id.) Specifically, Plaintiff’s counsel cited Evidence Code section 973, which provides that the spousal testimonial privilege does not apply where an action is being defended by a married person for the “immediate benefit” of his spouse. (Evid. Code, § 973, subd. (b).) Plaintiff’s counsel also asserted that by initially agreeing to the deposition and producing documents, Jill Hetherington waived her right to assert the privilege. (Yandell Decl., Ex. J.)

Jill Hetherington did not appear at the deposition and, on 20 February 2014, Plaintiff filed the motion presently before the Court seeking an order compelling Jill Hetherington’s deposition testimony. Jill Hetherington, represented by defense counsel, filed an opposition on 3 March 2014. Plaintiff filed its reply on 7 March 2014.

Discussion

I. Plaintiff’s Motion to Compel Deposition Testimony

Plaintiff seeks an order compelling the deposition testimony of non-party Jill Hetherington. Jill Hetherington refuses to testify because her husband, Brian Hetherington, is a defendant in this action. She contends that any testimony given against her husband is covered by the spousal testimonial privilege under Evidence Code section 971.

Plaintiff argues that the privilege is inapplicable in this case under Evidence Code section 973. Additionally, Plaintiff argues that by initially agreeing to the deposition and producing documents, Jill Hetherington waived her right to assert the privilege.

For the reasons set forth below, the Court agrees with Plaintiff that Evidence Code section 973, subdivision (b), applies in this case and that Jill Hetherington must comply with the deposition subpoena.

A. Statutory Basis for Plaintiff’s Motion

Personal service of a deposition subpoena obligates any resident of California to appear, testify, and produce whatever documents or things are specified in the subpoena. (Code Civ. Proc. [“CCP”], § 2020.220, subd. (c).) If a deponent fails to comply with the deposition subpoena, the party seeking the discovery may move for an order compelling the attendance of the witness. (CCP, § 1987.1, subd. (a).)

B. Analysis

Evidence Code section 971 provides that “a married person whose spouse is a party to a proceeding has a privilege not to be called as a witness by an adverse party to that proceeding.”

Evidence Code section 973, subdivision (b) provides an exception to the spousal testimonial privilege and precludes a person from invoking the marital privilege in a civil proceeding “brought or defended by a married person for the immediate benefit of his spouse or of himself and his spouse.”

The question presented is whether Plaintiff’s claims against Brian Hetherington—which seek redress for Mr. Hetherington’s alleged breach of fiduciary duties, breach of contract, and unfair competition—are being defended by Mr. Hetherington for the “immediate benefit” of his spouse.

The case law on this issue is sparse. Only two cases exist in which California courts have addressed the immediate benefit requirement contained in Evidence Code section 973, subdivision (b)—Hand v. Superior Court (1982) 134 Cal.App.3d 436 and Duggan v. Superior Court (1981) 127 Cal.App.3d 267. Further complicating the issue is the fact that the secondary sources that speak to this issue suggest that the two cases are conflicting. (See Wegner et al., Cal. Practice Guide: Civil Trials and Evidence (The Rutter Group 2011) ¶ 8:2342, p. 8E-108 [referring to Hand and Duggan, and noting that “there is conflicting authority on how this ‘immediate benefit’ test should be applied”].) Having carefully reviewed the applicable authorities, and for the reasons discussed below, the Court finds that the cases are not in conflict and both cases support a finding that the spousal testimonial privilege is inapplicable under the circumstances presented in this case.

1. Waters v. Superior Court

Both Hand and Duggan rely upon the California Supreme Court’s decision in Waters v. Superior Court (1962) 58 Cal.2d 885. The Court will begin its discussion with that case.

In Waters, attorney Frank Waters filed an action against Howard Hughes, Hughes Tool Company, Hughes Aircraft Company, and Howard Hughes Medical Institute to recover over $1 million as fees for professional services. (Waters, supra, 58 Cal.2d at p. 889.) Waters only affected service of the complaint on Hughes Tool Company. (Id.) Without serving the other named defendants, Waters noticed the deposition of Howard Hughes. (Id.) Hughes Tool Company objected to the deposition notice, asserting that none of the other defendants had been served with a summons in the case and that Waters had not obtained a court order to take the deposition. (Id.) Waters then applied to the court for an order to take the depositions of Howard Hughes, Robert Maheu, Richard Nixon, Norris Poulson, William Gay, Gregson Bautzer, and Lee Murrin. Waters filed the motion pursuant to former Code of Civil Procedure section 2019, subdivision (a)(4), which, at the time, authorized the taking of depositions without giving notice to parties where the deponent is a person for whose immediate benefit an action is prosecuted or defended. (Id., p. 890.) The trial court denied the motion and Waters appealed.

On appeal, the question before the court was whether Howard Hughes was “a person for whose immediate benefit [the] action or proceeding is prosecuted or defended” under Code of Civil Procedure section 2019. (Id., p. 897.) The court first noted that the phrase “for whose immediate benefit an action or proceeding is prosecuted or defended” has no counterpart in the federal system. (Id.) The court then looked at New York state law cases from the 1800’s that were concerned with the competency of witnesses. Under New York law at the time, if a witness was a person for whose immediate benefit the action was prosecuted or defended, the witness was deemed incompetent to testify. (Id., citing Fitch v. Bates (1851) N.Y. Misc. LEXIS 1.) Under the New York cases, the phrase “person for whose immediate benefit an action is prosecuted” was held to mean a person who would have an immediate right to the amount recovered or some portion of it as soon as it was recovered. (Id., citing Butler v. Patterson (1855) 13 N.Y. (3 Kern.) 292.) “Similarly[,] in an action defended for the immediate benefit of a person, the liability must be immediate and direct.” (Id., citing Fitch, supra, at pp. 4-6.) Based on the New York interpretation, the court in Waters held that “[t]he liability of a shareholder or a shareholder’s right to corporate funds does not become direct merely because he is the sole shareholder.” (Id.) “On the other hand, in a situation in which the corporation acts as the alter ego of its sole shareholder, the corporate entity may be disregarded and the shareholder treated as the person for whose immediate benefit the action is prosecuted or defended.” (Id., pp. 897-898, emphasis in original.) Because Waters had not shown that Hughes Tool Company was the alter ego of Howard Hughes, the court affirmed the order of the trial court denying the motion to compel Howard Hughes’ deposition without prejudice to Waters making the necessary showing. (Id., p. 898.)

In Fitch, one of the New York cases relied upon by the court in Waters, the court made several statements that are instructive for the purposes of this case. The court stated that the participation by a witness in the prosecution or defense of a case, unless so as to be made liable for costs, is not enough to give rise to an “immediate benefit.” (Fitch, supra, at p. 17.) The court further indicated that an immediate benefit may arise in two cases: “first, where [the witness] had a direct and immediate benefit from the event of the suit itself; and secondly, where [the witness] may avail himself of the benefit of the verdict in support of his claim in a future action.” (Id., p. 18.) Ultimately, the court held that, “if the result of the cause will directly and immediately affect any right or interest of the person proposed as a witness, and adversely if against the party calling him, then he is inadmissible; as where the judgment, per se, must necessarily create or take away a right, or enlarge or diminish a fund in which he has a direct interest, or vest in him or divest him of an estate.” (Id., p. 20.)

2. Hand and Duggan

The California Court of Appeal first addressed the immediate benefit requirement contained in Evidence Code section 973 in Duggan v. Superior Court (1981) 127 Cal.App.3d 267. In that case, the plaintiff instituted an action to dissolve a partnership, seeking an accounting and damages for fraud against his partner. (Duggan, supra, 127 Cal.App.3d at p. 269.) The defendant partner sought to depose the plaintiff’s wife, the plaintiff asserted the spousal testimonial privilege under Evidence Code section 973, and the trial court granted the defendant’s motion to compel the deposition. (Id.) The plaintiff sought a writ of prohibition.

The defendant argued that, because any recovery obtained would be community property, the plaintiff’s spouse would receive an immediate benefit from the prosecution of the lawsuit. The court of appeal in Duggan disagreed. The court framed the issue as follows: “whether the action brought by [the plaintiff], which seeks to establish a 15 percent ownership interest in 7 parcels of real property acquired on behalf of the partnership and held of record by real parties in interest, defendants in the action, is prosecuted for the ‘immediate benefit’ of [plaintiff’s] spouse.” (Id.) After discussing the Waters case, the court held that the action was not prosecuted for the immediate benefit of the plaintiff’s spouse.

The court emphasized that the plaintiff’s spouse was not a named party, not a signatory to the partnership agreement at issue, and not a record holder of any of the real property at issue. Given these facts, the court held that the spouse was not a person for whose immediate benefit the action was brought, “solely by virtue of a potential community property interest in any recovery which petitioner might obtain.” (Id., p. 270, emphasis in original.) Concerning the alleged community property interest, the court noted that under the Corporations Code, “[a] partner’s right in specific partnership property is not subject to dower, curtesy, or allowances to widows, heirs, or next of kin, and is not community property.” (Id., p. 272, quoting Corp. Code, § 15025, subd. (2)(e), emphasis in original.) Ultimately, the court held that the plaintiff’s spouse did not have an immediate benefit in the prosecution of the action and the exception to the spousal testimonial privilege therefore was not applicable.

Six months after the court of appeal decided Duggan, the court again addressed the issue in Hand v. Superior Court (1982) 134 Cal.App.3d 436. In that case, the plaintiff brought a malpractice action against a doctor and the doctor sought to depose the plaintiff’s wife. (Hand, supra, 134 Cal.App.3d at p. 438.) The wife refused to testify based on the spousal testimonial privilege. (Id.) The defendant filed a motion to compel the deposition. The trial court denied the motion and the defendant appealed.

On appeal, the court framed the issue as follows: “whether the spouse of the plaintiff in a personal injury action may be deposed as a person for whose ‘immediate benefit’ the action is brought by virtue of her community property interest in any damages to be recovered.” (Id., p. 437.) In other words, the issue before the court was whether the plaintiff’s personal injury action was a proceeding for the immediate benefit of the plaintiff’s wife. The court held that it was. (Id., p. 439.) The court first looked to the Waters decision, which stated that “immediate benefit” means “an immediate right to the amount recovered or some portion of it as soon as it was recovered. (Id., quoting Waters, supra, 58 Cal.2d at p. 897.) The court then discussed whether damages in a personal injury action are community property. Because the community property laws applicable at the time deemed damages received from a cause of action arising during marriage community property, the court held that the case was being prosecuted for the immediate benefit of the plaintiff’s spouse. Based upon that conclusion, the court found Evidence Code section 973 applicable and issued a writ of mandate compelling the superior court to vacate its order denying the motion to compel the plaintiff’s wife’s deposition.

3. Application to This Case

As stated above, Evidence Code section 973 provides an exception to the spousal testimonial privilege. The section provides that “[t]here is no privilege under this article in a civil proceeding brought or defended by a married person for the immediate benefit of his spouse or of himself and his spouse.” (Evd. Code, § 973, subd. (b).) Under the above cited authorities, the phrase “for the immediate benefit of [the party’s] spouse” means either (1) a direct and immediate benefit from suit itself (such as a community property interest in the damages recovered or defended) or (2) a benefit derived from a right that the married person holds in connection with the action (such as being able to avail him or herself of the verdict in a future action).

Plaintiff argues that this action is being defended by Brian Hetherington for the immediate benefit of Jill Hetherington because (1) a Wells Fargo Ins. victory in this case would result in the recovery of community property, and (2) although she is not a named defendant in this action, Jill Hetherington participated in the tortious conduct giving rise to this action and Mrs. Hetherington could use a verdict in favor of the defense as res judicata in any future actions brought by Wells Fargo Ins. against Jill Hetherington. The Court agrees with the first proposition and need not reach the second.

Plaintiff points out that Brian Hetherington is a principal of ABD with a substantial ownership interest in the company. (See Yandell Decl., Ex. K, [showing Mr. Hetherington’s ownership interest in ABD].) Plaintiff asserts that Mr. Hetherington’s interest in ABD is community property. Jill Hetherington does not contest this proposition. Plaintiff further points out that Brian Hetherington received more than $450,000 in salary from Well Fargo Ins. while working for ABD. Plaintiff asserts that this too is community property. Mrs. Hetherington does not contest this proposition. According to Plaintiff, if Brian Hetherington is found liable in this action, his ownership interest in ABD will be devalued and Wells Fargo Ins. will be able to enforce any judgment against both Brian and Jill Hetherington.

The Court agrees that Mr. Hetherington’s ownership interest in ABD and his salary received from Wells Fargo Ins. are community property. (See Fam. Code, § 760; see also Marriage of Harrison (1986) 179 Cal.App.3d 1216, 1226 [party’s earnings during marriage are community property].) The Court further finds that, at least in regards to Brian Hetherington’s salary paid by Wells Fargo Ins., a judgment against Mr. Hetherington would be enforceable against the community estate to the extent his tortious actions were for the benefit of the community. (See Fam. Code, §, 1000, subd. (b)(1) & (2).) Because a Wells Fargo Ins. victory in this case would result in the recovery of community property, the Court finds that the action is being defended for the immediate benefit of Jill Hetherington.

Jill Hetherington’s argument that the holding in Duggan requires a different result is not well-taken. In Duggan, the court expressly found that partnership assets were not community property under the Corporations Code. (Duggan, supra, 127 Cal.App.3d at p. 272.) In contrast, the Hetheringtons’ community property is at issue in this case. Moreover, the court in Duggan pointed out that the plaintiff’s wife had absolutely no connection to the case other than the alleged community property interest. In contrast, in this case, Plaintiff asserts that Jill Hetherington was integrally involved in the factual circumstances giving rise to this case. For instance, Plaintiff points out that Jill Hetherington is a Vice President of ABD. Mrs. Hetherington does not contest this assertion. Plaintiff further points out that, although she is not currently a named defendant, Jill Hetherington participated in the tortious conduct giving rise to this action. Specifically, Plaintiff alleges that Mrs. Hetherington, among other things, participated in Defendants’ attempt to extort Wells Fargo Ins. into selling the business and directed her husband to perform several tasks for ABD that she knew violated his contract with Wells Fargo Ins. (Pl.’s Mem. of Ps & As, p. 3.) Indeed, Plaintiff claims that, based upon the discovery responses in this case, Jill Hetherington may be added as a defendant.

The exception to the spousal testimonial privilege codified in Evidence Code section 973, subdivision (b), was enacted to “preclude[] married persons from taking unfair advantage of their marital status to escape their duty to give testimony under [Evidence Code] Section 776[,]” which allows persons associated with a party or who will receive an immediate benefit from the prosecution of defense of the action to be called as adverse witnesses during trial. (See Cal. Law Revision Com. com., Deering’s California Codes Annotated (2014) foll. Evid. Code § 973.) Similarly, in the federal system, some circuit courts of appeal have developed an exception to the spousal testimonial privilege in criminal cases where the spouse refusing to testify participated in the criminal conduct allegedly committed by the defendant spouse. (See United States v. Van Drunen (7th Cir. 1974) 501 F.2d 1393 [discussing joint participation exception to spousal testimonial privilege].) Indeed, the frequently quoted statement of British philosopher and jurist Jeremy Bentham, expressing his opposition to the very existence of the spousal testimonial privilege over a century and a half ago, seems apropos in this case:

Let us, therefore, grant to every man a license to commit all sorts of wickedness, in the presence and with the assistance of his wife: let us secure to every man in the bosom of his family, and in his own bosom, a safe accomplice: let us make every man’s house his castle; and, as far as depends upon us, let us convert that castle into a den of thieves. (J. Bentham, 5 Rationale of Judicial Evidence, 332, 340 (1827), citing in 8 J. Wigmore, Evidence, § 2228 at 218 (McNaughton rev. 1961).)

The Court believes that Evidence Code section 973, subdivision (b), was enacted, at least in part, in response to the perceived evils of the marital privilege identified in Bentham’s treatise on evidence.

Because the Court finds that this action is being defended for the immediate benefit of Jill Hetherington, Evidence Code section 973, subdivision (b), applies in this case and Mrs. Hetherington may not invoke the spousal testimonial privilege. Accordingly, Plaintiff’s motion to compel Jill Hetherington’s deposition testimony is GRANTED.

Conclusion and Order

Plaintiff’s motion to compel Jill Hetherington’s deposition testimony is GRANTED. Mrs. Hetherington shall appear and be deposed within 30 calendar days of the filing of this Order at a date and time that is mutually agreed upon by Plaintiff and Mrs. Hetherington.