Case Name: Bedolla v. LIL, Inc., et al.
Case No.: 18CV325918

According to the allegations of the complaint, plaintiff Kevin C. Bedolla (“Plaintiff”) is an attorney who represented defendant LIL, Inc. (“LIL”) for 19 months in the Alameda County Superior Court case; however, when Plaintiff attempted to collect fees for representing it in March 2015, defendant and controlling officer of LIL, Adam Wang (“Adam”), terminated Plaintiff and refused to pay him. (See complaint, ¶¶ 5-6.) On May 5, 2015, Plaintiff filed a collection action in Santa Clara County, Bedolla v. LIL, Inc. (Super. Ct. Santa Clara County, 2015, No. 1-15-CV-280180). (See complaint, ¶ 7.) LIL, through defendant controlling officers Jennifer Wang (“Jennifer”) and Adam (collectively, with LIL, “Defendants”), and represented by Adam, filed a cross-complaint against Plaintiff, alleging four causes of action. (See complaint, ¶ 9.) Adam had LIL abandon two of its four causes of action on the eve of trial, and abandoned a third when the case was submitted to the jury, thereby leaving only a single cause of action for breach of fiduciary duty. (See complaint, ¶¶ 12-13.) The jury found in favor of Plaintiff and against LIL. (See complaint, ¶ 17.) Defendants Adam, Jennifer and LIL acted without probable cause in bringing and prosecuting the cross-complaint because they did not have an honest and reasonable belief that there were grounds for the cross-complaint which was solely brought to pressure Plaintiff into dropping his complaint, and seeks the fees and interest required to defend the cross-complaint in the Santa Clara action. (See complaint, ¶¶ 18-21.) On April 2, 2018, Plaintiff filed the instant action for malicious prosecution.

On July 10, 2018, Defendants filed a special motion to strike pursuant to Code of Civil Procedure section 425.16. Defendants argued that Plaintiff’s complaint clearly arises from protected activity, and that Plaintiff cannot demonstrate a probability that he will prevail because: directors of a non-profit corporation are ordinarily immune from personal liability; the complaint is barred by res judicata and collateral estoppel; Plaintiff cannot demonstrate that Defendants lacked probable cause because the denial of the 128.5 motion by Plaintiff in the underlying action demonstrates that they had probable cause; and, Plaintiff cannot demonstrate that Defendants lacked probable cause because the denial of the Plaintiff’s motion to strike the cross-complaint in the underlying action demonstrates that they had probable cause.

On August 20, 2018, after the hearing on the special motion to strike was continued, Plaintiff issued a subpoena on Bank of America regarding LIL’s profits and financial condition. Defendants move to quash the subpoena; and, on August 31, 2018, the Court ordered their motion to quash was set for October 23, 2018, and gave leave to Plaintiff to file a motion to allow discovery. On October 1, 2018, Plaintiff filed a motion to grant discovery pursuant to section 425.16, subdivision (g). Both Plaintiff’s motion for discovery and Defendant’s motion to quash the deposition subpoena are set for hearing on October 23, 2018.

Defendants’ motion to quash the subpoena

Defendants argue that Plaintiff improperly sought discovery as he served subpoenas despite the fact that Code of Civil Procedure section 425.16 mandates an automatic stay. Indeed, section 425.16, subdivision (g) states that “All discovery proceedings in the action shall be stayed upon the filing of a notice of motion made pursuant to this section… [and] shall remain in effect until notice of entry of the order ruling on the motion.” (Code Civ. Proc. § 425.16, subd.(g).) However, the last sentence of subdivision (g) states that “[t]he court, on noticed motion and for good cause shown, may order that specified discovery be conducted notwithstanding this subdivision.” (Id.)
Here, Plaintiff has filed such a motion with permission from the Court, which anticipated such a motion. Defendants apparently acknowledge that this argument is dependent on the motion for limited discovery. (See Defs.’ memorandum of points and authorities in support of motion to quash, pp.6:7-26, 7:1-13 (arguing that “Plaintiff’s motion to lift the automatic stay of discovery should only be granted if 1) the information sought is not privileged and 2) the information sought actually proves the elements of malicious prosecution”).) For reasons elaborated in the discussion of Plaintiff’s motion, this argument is without merit.

Defendants also argue that a party’s financial affairs fall under a protected zone of privacy under Article I of the California Constitution. As a preliminary matter, the parties are ordered to parties are ordered to present to the Court a stipulated protective order. The Court directs use of the Model Confidentiality Order approved by the Complex Division of this Court. Although there is a right of privacy as to a party’s confidential financial affairs (see Cobb v. Super. Ct (Tleel) (1979) 99 Cal.App.3d 543, 550), the protective order shall ameliorate concerns regarding third party privacy rights. Further, the information sought is directly relevant to the action and essential to the opposition to the special motion to strike. They are limited by time and only pertain to defendant LIL. Contrary to Defendants’ argument, a corporation’s right to privacy is not constitutional. (See Roberts v. Gulf Oil Corp. (1983) 147 Cal.App.3d 770, 791-797; see also SCC Acquisitions, Inc. v. Super. Ct. (Western Albuquerque Land Holdings, LLC (2015) 243 Cal.App.4th 741, 755-756 (stating “corporations do not have a right of privacy protected by the California Constitution”).) Regardless, in weighing the competing interests of the Defendants’ right of privacy and the need for discovery, and the protective order that parties are ordered to present to the Court, the Court hereby OVERRULES Defendants’ objection on the ground of privacy as to the documents sought by the subpoena.

Defendants lastly argue that “[t]here is absolutely no correlation between the allegations in the Complaint and the evidence in the anti-SLAPP motion to LIL Inc.’s financial records.” (Defs.’ memorandum of points and authorities in support of motion to quash, p.10:1-2.) Defendant states that “there are two principal arguments in the anti-SLAPP motion[:] (1) that the Malicious Prosecution Action is barred by the doctrines of res judicata and collateral estoppel; and (2) that the cross-complaint in the Underlying action had probable cause.” (Id. at p.9:23-26.) Defendants asks in their memo: “What does this have to do with LIL Inc.’s non-profit status?” The answer is demonstrated by Plaintiff’s opposition and a review of Defendants’ special motion to strike. Although the special motion to strike does discuss Defendants’ arguments regarding res judicata and collateral estoppel and Defendants’ belief that the trial court in the underlying action already determined that Defendants had probable cause to pursue its cross-claims, Defendants conveniently omit that they also asserted that “Director Defendants Jennifer and Adam are immune … [because] Directors of a Non-Profit are ordinarily immune from personal liability.” (Defs.’ memorandum of points and authorities in support of special motion to strike, pp.10:12-24, 14:10-15, citing and quoting Corp. Code § 7231, subd. (c).) Whether such immunity does not apply because LIL is not a non-profit corporation that affords such immunity to director defendants is clearly a subject of the special motion to strike. Defendants’ argument to the contrary lacks merit. Defendants’ motion to quash the deposition subpoena is DENIED.

Defendants also move for a protective order “prohibiting discovery or introduction of evidence of defendant’s profits or financial condition” (Defs.’ Notice of motion to quash, p.2:1-7), pursuant to Civil Code section 3295 despite Defendants’ acknowledgement that “Plaintiff has explicitly denied he is seeking financial discovery under Cal.Civ.Code § 3295(c).” (Defs.’ memorandum of points and authorities in support of motion to quash, p.8:10-11.) As previously stated, the parties are ordered to present to the Court a stipulated protective order, and directs use of the Model Confidentiality Order approved by the Complex Division of this Court. As stated above, this protective order shall protect Defendants’ right to privacy while still allowing for discovery of the protected information. Moreover, although the information sought by the subpoena is indeed financial information, it is not sought for the purpose of assessing punitive damages—it is to assess Defendants’ asserted immunity.

It should be noted that, in passing, Defendants note that Plaintiff has on multiple occasions communicated directly with the individual defendants, despite knowing that they are represented. (See Defs.’ memorandum of points and authorities in support of motion to quash, pp.3:5-24, 10:11-22; see also Defs.’ Opposition to motion for financial discovery, p.3:14-18 (“[d]espite being warned not to directly communicate with Defendants, Plaintiff has refused to stop by claiming he is permitted to do so because he in pro per”).) Although this is not germane to the issue regarding the discovery of financial information, Plaintiff is admonished for such communication as this is in violation of Rule of Professional Conduct 2-100, which states “[w]hile representing a client, a member shall not communicate directly or indirectly about the subject of the representation with a party the member knows to be represented by another lawyer in the matter, unless the member has the consent of the other lawyer.” (Rules Prof. Conduct 2-100 (A).)

The motion for protection order to prohibit discovery or introduction of evidence of defendant’s profits or financial condition is DENIED.

In connection with the motion, Defendants request monetary sanctions in the amount of $3750.75. Defendants’ request for monetary sanctions is likewise DENIED.

In their memorandum, “Defendants also request monetary sanctions in the amount of $3660 against Plaintiff for refusing to withdraw subpoena and directly communicating with a represented party, as well as his misuse of confidential information and threats of criminal prosecution in order to coerce a settlement.” The request for sanctions is not code-compliant and is not in the notice of motion. Moreover, a party may not obtain monetary sanctions for the opposing counsel’s violation of the Rules of Professional Conduct; such enforcement may only be done by the State Bar. This request for monetary sanctions is also DENIED.

Plaintiff’s motion for limited discovery pursuant to Code of Civil Procedure section 425.16, subdivision (g)

Plaintiff moves for limited discovery pursuant to Code of Civil Procedure section 425.16, subdivision (g), seeking:
• the bank records that are the subject of the subpoena discussed above;
• emails exchanged between Plaintiff and Defendants from January 1, 2013 to the present; and,
• to take the depositions of Adam and Jennifer on any issue related to the special motion to strike.

As stated above, the bank records are relevant. The Court also finds that there is good cause for the emails exchanged between parties as they are necessarily relevant in determining whether LIL had probable cause to file the cross-complaint. Additionally, there is good cause for limited deposition testimony by Jennifer and Adam that is related to the special motion to strike.

As a preliminary matter, Defendants assert that the motion was served late and that they “are extremely prejudiced and do not have adequate time to oppose the above Motion.” (Defs.’ Opposition to motion for limited discovery, p.2:7-19.) Defendants nevertheless filed an opposition to the motion and do not otherwise explain the purported prejudice.

Defendants argue that the financial information sought by the deposition subpoena is protected by their privacy rights. As explained above, after carefully weighing Defendants’ right to privacy and the Plaintiff’s right to discovery, the fact that the information is directly relevant to the action and essential to opposing the special motion to strike, the Court overrules the objection.

Defendants argue that it does not matter whether LIL is a for-profit corporation or a non-profit corporation because directors of both are afforded immunity. However, the pleading to which Plaintiff must respond is the special motion to strike which only asserts the immunity afforded pursuant to Corporations Code section 7231, subdivision (c). Defendants may not now make new arguments not contained in the special motion to defeat a motion for limited discovery pursuant to section 425.16, subdivision (g).

Defendants also argue that Plaintiff fails to demonstrate good cause because although he states that he lost “these emails due to corrupted storage on my computers” and that the evidence supports his assertions regarding LIL’s lack of probable cause, “Plaintiff is clearly aware of the contents of his own email communications with Defendants.” They also note that Plaintiff has not stated that he has destroyed any hard copies of exhibits in the underlying action, and that he should not burden Defendants with searching for all emails when he likely has some emails as exhibits submitted in the underlying action. As to burden, Defendants do not present any evidence demonstrating any undue burden. Moreover, Plaintiff is seeking an electronic version of the emails, and it is likely less of a burden for Defendants to provide all emails rather than having to search for those emails and then omit from production those produced as exhibits in the underlying action. Defendants’ arguments lack merit. Plaintiff has good cause for the requested documents.

As to the depositions of Adam and Jennifer, the Court agrees that the depositions must strictly be limited to the scope of issues of Plaintiff’s burden in the special motion to strike to demonstrate a probability of prevailing on the merits. Moreover, the depositions of both Adam and Jennifer shall be limited to a collective total of 4 hours.

Plaintiff’s motion for limited discovery pursuant to Code of Civil Procedure section 425.16, subdivision (g) is GRANTED as to the bank records and email communications, and GRANTED in part as to the depositions of Adam and Jennifer, in accordance with the limitations stated in the above paragraph.

If the Defendants do not cooperate in providing the discovery ordered by the Court, Defendants are advised that it may be necessary to again continue the hearing on the Anti-SLAPP motion now set for December 4, 2018. The parties are ordered to meet and confer to agree on dates for the depositions of Adam and Jennifer.

The Court will prepare the Order.