Case Name: Ying Xiong, et al. v. Pingyi Yan, et al.
Case No.: 2016-CV-292330

Motion to Compel Deposition Testimony by Defendants Micropoint Bioscience, Inc. and Nan Zhang and Request for Monetary Sanctions by Plaintiff Yunlong Wang

Factual and Procedural Background

This is an action for fraud and rescission of stock purchase agreements brought by plaintiffs Ying Xiong (“Xiong”) and her husband Yunlong Wang (“Wang”) (collectively, “Plaintiffs”) against defendants Pingyi Yan (“Yan”), Nan Zhang (“Zhang”), Micropoint Bioscience, Inc. (“Micropoint”), and Shenzhen Micropoint Bioscience, Inc. (“SMBI”). In brief, Yan and Zhang, who were officers of SMBI and Micropoint, convinced Plaintiffs to sell their shares of stock in both companies for significantly less than their true value based on false representations about the valuation of the companies. (First Amended Complaint (“FAC”), ¶ 1.)

Micropoint is a California corporation with its principal place of business in Santa Clara, California. (FAC, ¶ 8.) SMBI is a Chinese corporation with its principal place of business in Shenzhen, China. (FAC, ¶ 9.) Micropoint is a subsidiary of SMBI. (FAC, ¶ 8.) Micropoint researches and develops biomedical technology that SMBI then sells in China. (FAC, ¶ 13.)

Wang was a corporate officer of both Micropoint and SMBI and held 24 percent of the shares issued and outstanding in each company. (FAC, ¶ 15.) Zhang, a cofounder and director of SMBI and Chief Executive Officer of Micropoint, told Wang that SMBI and Micropoint needed to raise additional capital in order to remain solvent, but purportedly had no offers for financing from venture capital firms. (FAC, ¶ 16.) Shortly thereafter, Yan, the chairman of the boards of Micropoint and SMBI, approached Wang about purchasing his shares in each company. (FAC, ¶¶ 17-19.) At the time, Yan held 43.99 percent of the shares issued and outstanding in both companies. (FAC, ¶ 20.) Yan offered to purchase all of Wang’s shares for a low price based on false representations that both businesses were worth only 4 million dollars. (FAC, ¶¶ 21-23.) Wang sold Yan his shares, but subsequently learned the companies were worth nearly twice as much and that there were in fact venture capital firms interested in providing funding. (FAC, ¶¶ 27-33.)

Plaintiffs assert causes of action for: (1) breach of fiduciary duty (against Yan and Zhang); (2) fraud (against Yan and Zhang); (3) negligent misrepresentation (against Yan and Zhang); (4) constructive fraud (against Yan and Zhang); (5) rescission (against Yan, Micropoint, and SMBI); and (6) unfair competition (against Yan and Zhang).

Discovery Dispute

On February 26 and 27, 2018, counsel for defendants Micropoint and Zhang (collectively, “Defendants”) took the deposition of plaintiff Wang. (Declaration of Jay Pomerantz, ¶ 3.) During deposition, defense counsel asked Wang a series of questions regarding his efforts to obtain false information and documents in connection with investment property he purchased with proceeds from his Micropoint stock. In doing so, defense counsel twice specifically asked Wang “did you provide any false information to the lender on your San Ramon house?” (Id., Exhibit 2; Separate Statement, p. 10.) In response, plaintiff Wang’s attorney objected to the question on Fifth Amendment grounds and instructed his client not to answer. (Ibid.) Wang did not provide any response to this question and his counsel did not permit any further questions on this topic. (Separate Statement, p. 11.) The deposition thus concluded for the day but defense counsel indicated the deposition would remain open. (Ibid.)
Defendants believed Wang’s refusal to answer this single question based on the self-incrimination objection was improper. On March 5, 2018, defense counsel commenced meet and confer negotiations with plaintiff Wang’s attorney, explaining Defendants’ position that the self-incrimination objection was improper as the privilege had been waived by Wang’s extensive testimony on the topic. (See Declaration of Jay Pomerantz, ¶ 7.) Thus, defense counsel requested that plaintiff Wang answer the question at issue. Counsel on both sides continued to meet and confer but were unable to informally resolve the dispute as to whether plaintiff Wang may refuse to answer the deposition question based on his privilege against self-incrimination. (Id., ¶¶ 8-11.)

Motion to Compel Deposition Testimony

Currently before the Court is Defendants’ motion to compel answers to deposition questions because the objection based on the Fifth Amendment privilege against self-incrimination is without merit. (See Code Civ. Proc., § 2025.480, subd. (a).) Plaintiff Wang filed written opposition and seeks an award of monetary sanctions. Defendants filed reply papers.

Legal Standard

“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).) “This motion shall be made no later than 60 days after the completion of the record of deposition, and shall be accompanied by a meet and confer declaration under [Code of Civil Procedure] Section 2016.040. (Code Civ. Proc., § 2025.480, subd. (b).)

“If the court determines that the answer or production sought is subject to discovery, it shall order that the answer be given or the production be made on the resumption of the deposition.” (Code Civ. Proc., § 2025.480, subd. (i).)
Fifth Amendment Privilege
Defendants seek an order from the Court compelling plaintiff Wang to answer the following question: “Did you provide any false information to the lender on your San Ramon house?” Defendants argue that an order compelling answers is warranted because the self-incrimination privilege objection lacks merit. More specifically, Defendants contend that any such objection based on privilege is waived given Wang’s extensive testimony on the topic. In opposition, plaintiff Wang argues the objection based on self-incrimination was timely asserted and that his testimony regarding collateral matters did not waive the privilege.

Code of Civil Procedure section 2017.010 allows discovery into “any matter, not privileged, that is relevant to the subject matter involved in the pending action.” (Code Civ. Proc., § 2017.010.) Evidence Code section 940 excludes from discovery information which may tend to incriminate a party. (Pacers, Inc. v. Super. Ct. (1984) 162 Cal.App.3d 686, 688.) This principle has been construed to allow for the assertion of the privilege against self-incrimination in both civil and criminal proceedings. (Ibid.) “Privileged matters thus lie beyond the reach of discovery and trial courts may not compel individuals to make responses that they reasonably believe could tend to incriminate them or subject them to criminal prosecution. [Citations.]” (Fuller v. Super. Ct. (2001) 87 Cal.App.4th 299, 305.)

“To invoke the privilege, a witness need not be guilty of any offense; rather, the privilege is properly invoked whenever the witness’s answers ‘would furnish a link in the chain of evidence needed to prosecute’ the witness for a criminal offense.” (People v. Cudjo (1993) 6 Cal.4th 585, 617, quoting Hoffman v. United States (1951) 341 U.S. 479, 486 (Hoffman).) To satisfy this standard, “it need only be evident from the implications of the question, in the setting in which it is asked, that a responsive answer to the question or an explanation of why it cannot be answered might be dangerous because injurious disclosure could result.” (Hoffman, supra, at pp. 486-487.)

In response to a motion to compel deposition answers, the burden is on the deponent asserting the privilege to show that the discovery sought would tend to incriminate him or her by demonstrating that his or her “fear of incrimination is reasonable and not advanced fancifully or merely imagined.” (Warford v. Medeiros (1984) 160 Cal.App.3d 1035, 1043-1045.) The court must make a “particularized inquiry” as to whether the deponent has met the burden with respect to each deposition question at issue, and the court should consider (1) the nature of the information sought, (2) implications derived from the question, (3) the nature and verifiability of any investigation or proceeding claimed to justify the fear of incrimination or the possibility that such investigation or proceeding may be commenced, (4) matters disclosed by counsel in argument, and (5) other evidence in the case. (Id., at p. 1045, fn. 8.)

As a threshold matter, plaintiff Wang does not meet his burden in opposition as he fails to show that the subject question has a tendency to incriminate him. Based on the subject matter, plaintiff Wang presumably fears any potential criminal prosecution for bank fraud. Plaintiff Wang however fails to articulate any connection between the question posed by Defendants and any subsequent prosecution for bank fraud. Therefore, plaintiff Wang has not demonstrated any harm which may result to him from providing a response to the question at issue.

Even if plaintiff Wang had met his burden with respect to the Fifth Amendment privilege against self-incrimination, Defendants persuasively argue that any such privilege has been waived. “It is well established that a witness, in a single proceeding, may not testify voluntarily about a subject and then invoke the privilege against self-incrimination when questioned about the details.” (Mitchell v. U.S. (1999) 526 U.S. 314, 321 (Mitchell); People v. Williams (2008) 43 Cal.4th 584, 615 [same]; see also Rogers v. United States (1951) 340 U.S. 367, 374 [a witness may not invoke the privilege as to details after voluntarily disclosing incriminating facts].)

As stated above, defense counsel asked Wang a series of questions during deposition about Wang’s efforts to obtain false information and documents in connection with investment property he purchased with proceeds from his Micropoint stock. During deposition, defense counsel referenced three emails from September, November, and December 2009 produced by Wang during discovery. With respect to these emails, Wang testified at deposition that he was looking for fake pay stubs, a false employment verification, and false information regarding his employment status for the purpose of submitting false information to the lender. (See Separate Statement at pp. 2-8.) The following excerpts between defense counsel and Wang during his deposition illustrate this point:

Q: “Am I correct that you wanted to—you wanted the pay stub to show that you were still working at Micropoint?

A: Presume—presumably, yeah.

Q: Wouldn’t that be cheating, if you told a – a lender that you were still working at Micropoint?

A: That was considered – that – yeah, probably. Um-hmm.”

(Separate Statement at p. 6:6-8 [Wang Depo at p. 333:1-8].)

…

Q: “Okay. So you were asking her [Dr. Zhang] to fill out a false request for verification of employment, correct?

A: Yes.

Q: And you were doing that because you were trying to cheat on your loan application, correct?

A: Or you can say that.”

(Separate Statement at p. 7:16-21 [Wang Depo at p. 335:-10].)

…

Q: “My question is – let me finish my question – in this email, you were asking Nan and Jenny to lie for you about your employment status to a Bank of America official; correct?

A: Yes, sir.

Q: The lender that loaned you the money to buy the house in San Ramon, correct?

A: Yes, sir.”

(Separate Statement at p. 8:20-24 [Wang Depo at pp. 336:21-337:1-3].)

Following this last exchange, defense counsel immediately asked whether Wang had purchased the loan while providing false information to the lender. (See Separate Statement at p. 8:25 [Wang Depo at p. 337:4-5].) Based on the above testimony, Wang already testified on this subject regarding his efforts to obtain false information for the purpose of cheating the lender. In other words, Wang had testified to incriminating information prior to being asked whether he provided false information to the lender. Contrary to points raised in opposition, such testimony does not constitute collateral matters but appears to be directly connected to the issue at hand. Specifically, Wang’s attempts to obtain false information to provide to lenders. Having testified on the issue at deposition, plaintiff Wang cannot now shield himself from further testimony or details by way of the Fifth Amendment. (See Mitchell, supra, 526 U.S. at p. 322 [“A witness may not pick and choose what aspects of a particular subject to discuss without casting doubt on the trustworthiness of the statements and diminishing the integrity of the factual inquiry.”].) Consequently, the Court overrules the objection based on the Fifth Amendment privilege against self-incrimination.

Accordingly, the motion to compel deposition testimony is GRANTED. The parties shall meet and confer on a date, time and location to resume plaintiff Wang’s deposition to take place within 20 days of this Order (or on such other date agreed to by both parties). Plaintiff Wang is directed to appear and provide further testimony regarding his efforts to use the proceeds from his 2009 Micropoint stock sales to purchase a real estate property as an investment, and any further questions that follow from the question he refused to answer.

Request for Monetary Sanctions

In opposition, counsel for plaintiff Wang seeks an award of monetary sanctions in the amount of $3,325 for opposing this motion. (See Declaration of Andrew Watters, ¶ 3.) The court shall impose a monetary sanction against any party, person, or attorney who unsuccessfully makes or opposes a motion to compel an answer or production, unless it finds that the one subject to the sanction acted with substantial justification or that other circumstances exist which make the imposition of the sanction unjust. (Code Civ. Proc., § 2025.480, subd. (j).) As stated above, Defendants prevailed on the merits of their motion to compel deposition testimony. Accordingly, the request for monetary sanctions by plaintiff Wang is DENIED.

The Court will prepare the Order.