Terry et al v. Register Tapes Unlimited, Inc. et al

Filing 52

ORDER signed by Magistrate Judge Allison Claire on 7/28/2017 GRANTING in part and DENYING in part 47 Motion to Compel. DENIED as to information related to the inadvertently disclosed email; GRANTED as to RFP Nos. 38, 44, 54-64, and 88-91 regarding post-2003 communications between RTUI and Safeway; Otherwise DENIED as to post-2003 communications between RTUI and Safeway; GRANTED to the extent that defendants shall, if they wish to assert trade secret privilege in conjunction with their response s to the discovery ordered regarding to post-2003 communications between RTUI and Safeway, produce a privilege log that conforms to the requirements of the Federal Rules of Civil Procedure. The parties shall file a stipulated protective order that complies with Local Rule 141.1 within 14 days of the date of this order. (Washington, S)

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UNITED STATES DISTRICT COURT

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FOR THE EASTERN DISTRICT OF CALIFORNIA

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ROBERT TERRY, et al.,

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No. 2:16-cv-0806-WBS-AC

Plaintiffs,
v.

ORDER

REGISTER TAPES UNLIMITED, INC.,
et al.,
Defendants.

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This matter is before the court pursuant to Local Rule (“LR”) 301(c)(1), on plaintiffs’

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(“Terry’s”) motion to compel, ECF No. 47, which is supported by various exhibits and

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declarations. Defendant (“RTUI”) submitted a response indicating declarations would be filed

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separately. ECF No. 48 at 1. Several days later, RTUI filed an amended opposition with the

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attached declaration. ECF No. 49. Terry filed a reply, objecting to the timeliness of RTUI’s

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response. ECF No. 50. The motion was heard on July 26, 2017. ECF No. 51.

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As a preliminary matter, this motion was improperly submitted by Terry on a shortened

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calendar. Pursuant to Local Rule 251, the motion should have been submitted through the joint

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statement process. In the interest of efficiency, the court proceeded with the matter, but the

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parties are cautioned to follow the procedure set forth by the Local Rules for any future filings.

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Because this motion was improperly noticed, the court rejects plaintiff’s objections based on

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timeliness, and proceeds to the substance of the motion.
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I.

RELEVANT FACTUAL AND PROCEDURAL HISTORY

This matter was removed from California State Court on the basis of diversity and federal

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question jurisdiction on April 19, 2016. ECF No. 1. On May 16, 2017, Terry filed a Second

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Amended Complaint (“SAC”), leaving only state claims. ECF No. 36. The SAC is the operative

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complaint in this matter. According to the SAC, Terry was, at all relevant times, an employee of

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RTUI and a citizen of California. ECF No. 36 at 2. RTUI is allegedly a Texas corporation

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engaged in the business of selling advertising space on grocery store receipts to businesses in

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Texas and California. Id. at 2, 4-5.

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From 1998 to 2004, Terry alleges to have entered into contracts with RTUI to sell

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advertising space on RTUI’s behalf, negotiate grocery store servicing contracts on RTUI’s behalf,

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assign grocery store servicing contracts he had previously obtained to RTUI, and provide sales

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training to RTUI staff. Id. at 5-7. The contracts between the parties allegedly provide that RTUI

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would pay plaintiff various percentages of its revenues as compensation for his services and

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assignment of contracts. Id. At issue in this case are contracts with grocery stores HOWES and

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Safeway. Id. at 7. Plaintiff alleges he has not been properly compensated under the contracts,

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and that RTUI has regularly failed to provide proof of profits necessary for plaintiff to ascertain

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whether proper payments have been made. Id. at 7. As recently as 2013, plaintiff asked RTUI to

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pay him what he was owed on the Safeway agreement, and RTUI allegedly refused. Id. at 8.

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Plaintiff also alleges that he has been an employee of RTUI and has been the victim of

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discrimination since sustaining a traumatic brain injury in 2010. Id. at 9-12. Related to these

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claims, plaintiff alleges that on September 15, 2014, RTUI’s HR director William Krocak

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erroneously sent plaintiff an e-mail intended for and addressed to RTUI’s attorney, “Dave.” This

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email quoted RTUI’s CEO Edward Endsley asking Krocak and the attorney to “figure out how to

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get rid of [plaintiff] without being sued.’” Id. at 11, ¶ 37. RTUI asserts that Terry was aware that

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“Dave” was RTUI’s attorney because Terry had filed a claim with the California Labor

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Commissioner in November of 2013 and RTUI’s attorney, Dave, attended the “claim and

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conference” meeting and introduced himself to Mr. Terry as RTUI’s attorney. ECF No. 48 at 5.

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Less than an hour after the September 2014 email was sent, Krocak sent a second e-mail to Terry,
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stating that Terry had received an e-mail to which attorney-client privilege applied. ECF 47-1 at

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4. The second e-mail did not specifically reference the first. Id.

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The parties have been engaging in discovery. Defendants have objected to questions

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regarding the Krocak email in the depositions of both Mr. Krocak and Mr. Endsley on the

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grounds of attorney-client privilege. ECF No. 48 at 2. RTUI has also objected to all forms of

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discovery related to post-2003 communications with Safeway. At Endsley’s May 2017

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deposition, he was asked, “And what were the circumstances surrounding RTUI getting the

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Safeway agreement back?” and “Did you go after Safeway, or did they come back to you?” ECF

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No. 47-2 at ¶ 5. Endsley refused to answer both questions on the grounds of trade secret privilege

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and relevance. Id., ECF No. 47-6, 218:17-219:12. On the same grounds, defendant refused to

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produce documents related to its post-2003 communications with Safeway, instead responding to

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several requests for production (“RFP” Nos. 38, 44, 54-64, 75-79, 83-87, 88-91, 92-119) with

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only pre-2003 documents, if anything. ECF No. 47-1 at 4, 47-5. Despite RTUI’s numerous

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assertions of privilege, and Terry’s repeated requests, no privilege log was produced in this matter

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as of the hearing date. ECF No. 47-1 at 4-5. There is no standing protective order in this case.

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On July 11, 2017 the parties filed a stipulation to extend discovery deadlines. ECF

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No. 45. In this stipulation, the parties stated that they “have been engaged in and attempting to

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informally resolve a discovery dispute (Defendants assert that certain testimony and documents

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are protected by trade secret and the attorney-client privilege)” but that “despite the Parties’ meet

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and confer efforts, Plaintiff anticipates that a motion to compel may be required to fully resolve

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certain discovery issues[.]” Id. at 3. An extension of time was granted by District Judge

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William B. Shubb on July 11, 2017, and entered into the docket on July 12, 2017. ECF No. 46.

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Later on July 12, 2017, plaintiff filed the motion at bar. ECF No. 47.

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II.

THE MOTION

Plaintiff makes three assertions in the motion to compel: (1) plaintiff is entitled to

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defendant’s testimony regarding an inadvertently disclosed pre-litigation e-mail sent by

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defendant’s agent directly to plaintiff describing defendant’s attempts to fire him; (2) plaintiff is

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entitled to discovery as to defendant’s communications with Safeway after 2003; and (3) plaintiff
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is entitled to a privilege log describing all post-2003 documents regarding communications

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between Safeway and defendants. ECF No. 47-1 at 1-2.

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III.

ANALYSIS

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A. Application Of Attorney-Client Privilege to E-Mail

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Plaintiff is not entitled to discovery regarding defendant’s inadvertently disclosed email.

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Federal Rule of Evidence 501 states that “in a civil case, state law governs privilege regarding a

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claim or defense for which state law supplies the rule of decision.” See, e.g., Davis v. Leal,

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43 F. Supp. 2d 1102, 1108 (E.D. Cal. 1999). The California Evidence Code protects attorney-

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client privileged materials. Cal. Evid. Code, §§ 952, 954. However, Cal. Evid. Code § 912,

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subdivision (a) provides that “... the right of any person to claim a privilege provided by Section

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954 (lawyer-client privilege) ... is waived with respect to a communication protected by such

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privilege if any holder of the privilege, without coercion, has disclosed a significant part of the

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communication or has consented to such disclosure made by anyone. Consent to disclosure is

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manifested by any statement or other conduct of the holder of the privilege indicating consent to

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the disclosure, including failure to claim the privilege in any proceeding in which the holder has

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the legal standing and opportunity to claim the privilege.”

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Although this language exists in the Code, California courts have made very clear “that

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‘waiver’ does not include accidental, inadvertent disclosure of privileged information by the

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attorney.” State Comp. Ins. Fund v. WPS, Inc., 70 Cal. App. 4th 644, 654 (1999). The California

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Supreme Court has extended this waiver exception to inadvertent disclosures made by the

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privilege-holding client. Ardon v. City of Los Angeles, 62 Cal. 4th 1176, 1188 (2016) (“To be

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sure, the holding in State Fund was limited to the situation in which the attorney, rather than the

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client as the holder of the privilege, inadvertently discloses privileged material. But in repudiating

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the ‘“gotcha” theory of waiver, in which an underling’s slip-up in a document production

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becomes the equivalent of actual consent,’ the court recognized that the disclosure contemplated

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in Evidence Code section 912 involves some measure of choice and deliberation on the part of the

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privilege holder.”) The inadvertence exception to waiver applies to disclosures that took place

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prior to the commencement of litigation. McDermott Will & Emery LLP v. Superior Court,

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10 Cal. App. 5th 1083, 1109 (2017).

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Because the e-mail at issue apparently relates to plaintiff’s state law employment claims

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(SAC at ¶ 49-89), and the operative SAC contains only state law claims, state privilege law

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governs here. Plaintiff argues in his motion that he is entitled to discovery on the inadvertently

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disclosed e-mail because privilege was waived by the disclosure, but he does not address the

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inadvertence exception. ECF No. 47-1 at 5-6. The inadvertent disclosure exception to waiver

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applies to the e-mail at issue. Plaintiff relies on Continental Casualty Co. v. St. Paul Surplus

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Lines Ins. Co., 265 F.R.D. 510 (E.D. Cal. 2010), for the proposition that privilege is waived when

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communications are sent to a third party. ECF No. 47-1 at 7. However, Continental does not

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address inadvertence at all. Further, Continental is factually distinct from the case at bar, in that it

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deals with disclosure to a party’s insurer. 265 F.R.D. at 527. Accordingly, Continental is

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inapplicable here; the California case law on inadvertence controls.

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Though plaintiff does not make any argument directly related to inadvertent disclosure

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under California evidence rules, he argues that even if the Federal Rules of Evidence apply, the

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federal inadvertent disclosure exception to waiver does not apply because the e-mail was sent

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directly to plaintiff, and it was not clear from the e-mail itself that it was intended for defendant’s

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attorney. Id. at 6-7. This argument is disingenuous. Plaintiff’s SAC itself acknowledges that the

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e-mail was “erroneously sent” to plaintiff and was “intended for RTUI’s attorney.” ECF No. 36

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at 11. Plaintiff acknowledges that after he received the e-mail, he received another e-mail from

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the same sender notifying him that an attorney-client privileged email was previously sent to him

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in error. Dkt. No. 47-1 at 5. Although defendant’s claw-back of the e-mail could have been

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clearer, it is highly unlikely that plaintiff did not know which e-mail defendant intended to retract.

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The inadvertent disclosure exception to waiver applies to the e-mail in question, and plaintiff’s

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motion to compel is DENIED as to testimony related to the email.

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B. Discoverability of Post-2003 Communications with Safeway

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Plaintiff is entitled to limited discovery on post-2003 communications between defendant

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and Safeway because trade secret privilege has not been established, and because certain
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communications are relevant to the claims and defenses in this matter. In general, parties “may

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obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or

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defense and proportional to the needs of the case,” unless otherwise limited by court order.

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Fed. R. Civ. P. 26(b)(1). The California Evidence Code protects trade secrets, stating that “the

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owner of a trade secret has a privilege to refuse to disclose the secret, and to prevent another from

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disclosing it, if the allowance of the privilege will not tend to conceal fraud or otherwise work

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injustice.” Cal. Evid. Code § 1060 (West).

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“Allowance of the trade secret privilege may not be deemed to ‘work injustice’ within the
meaning of Evidence Code section 1060 simply because it would protect information generally

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relevant to the subject matter of an action or helpful to preparation of a case.”

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Bridgestone/Firestone, Inc. v. Superior Court, 7 Cal. App. 4th 1384 (1992), reh’g denied and

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opinion modified (July 23, 1992). Instead, “a court is required to order disclosure of a trade

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secret unless, after balancing the interests of both sides, it concludes that under the particular

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circumstances of the case, no fraud or injustice would result from denying disclosure. What is

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more, in the balancing process the court must necessarily consider the protection afforded the

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holder of the privilege by a protective order as well as any less intrusive alternatives to disclosure

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proposed by the parties.” Id. at 1393. The party asserting trade secret privilege has the initial

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burden of establishing its existence, and thereafter the party seeking discovery must make a

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“prima facie, particularized showing” that the information is necessary to prove or defend against

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a “material element of one or more causes of action in the case, and that it is reasonable to

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conclude that the information sought is essential to a fair resolution of the lawsuit.” Id. If this

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showing is made, the privilege holder must demonstrate any claimed disadvantages of a

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protective order. Id. “Either party may propose or oppose less intrusive alternatives to disclosure

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of the trade secret, but the burden is upon the trade secret claimant to demonstrate that an

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alternative to disclosure will not be unduly burdensome to the opposing side and that it will

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maintain the same fair balance in the litigation that would have been achieved by disclosure.” Id.

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Defendant has not met its initial burden of demonstrating a trade secret exists; it is not
enough to simply make the blanket, conclusory assertion that all post-2003 communications are
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subject to trade secret protection. ECF No. 48 at 6. As RTUI confirmed at the hearing on this

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matter, their primary objection can more accurately be described as a general relevance argument.

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Id. at 6-7. Plaintiff asserts that the post-2003 communications are necessary to gather relevant

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information about the breakdown and subsequent rehabilitation of the Safeway-RTUI

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relationship, as this information is related to profits post-2003 and plaintiff’s potential entitlement

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thereto. ECF No. 47-1. Defendant contends that, though it did rehabilitate its relationship with

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Safeway in 2009, plaintiff is only entitled to profits from the contract that ended in 2003, and is

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not entitled to profits under the later contract. ECF No. 48 at 7. Based on an evaluation of the

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SAC and all arguments presented on this matter, the court has determined that certain limited

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information regarding the post-2003 relationship between RTUI and Safeway is potentially at

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issue in this case, and is relevant such that plaintiff is entitled to discovery.

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Although some portions of post-2003 communications are relevant to this case, Terry’s

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requests are overbroad. Numerous RFPs seek documents related to business transactions having

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nothing to do with register tape. See, e.g., RFPs 92-119 at ECF No. 47-5. Terry is entitled only

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to information related to his potential damages post-2003 (including information related to gross

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profits, losses, costs, and commissions), information related to negotiations and contractual

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agreements as to register tapes between Safeway and RTUI post-2003, and information indicating

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that RTUI was improperly withholding information related to Terry’s contractual rights from

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Terry after 2003. Specifically, RTUI must respond to RFP Nos. 38, 44, 54-64, and 88-91. RTUI

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need not respond to overbroad, irrelevant requests, including RFPs 75-79, 83-87, and 92-119.

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Thus, Plaintiff’s motion on this point is GRANTED IN PART.

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C. Privilege Log for Withheld Post-2003 Communications with Safeway

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Plaintiff is entitled to a privilege log recording all discoverable documents withheld due to

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a claim of privilege. The Federal Rules of Civil Procedure require that a party withholding

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otherwise discoverable information based on a claim of privilege expressly make the claim and

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describe the nature of the information not disclosed such that the other party will be able to assess

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the privilege claim. Fed. R. Civ. P. 26(b)(5)(A). “The party asserting the privilege bears the

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burden of establishing all necessary elements.” Apple Inc. v. Samsung Elecs. Co., 306 F.R.D.
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234, 237 (N.D. Cal. 2015). The asserting party must produce a privilege log, and failure to do so

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may result in a waiver of privilege. Id. Defendant has made no argument as to why it should be

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exempted from its responsibility, as the asserting party, to produce a privilege log. Plaintiff’s

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motion to compel defendant to produce a privilege log for all documents withheld on assertion of

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privilege is GRANTED.

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D. Preventing Further Discovery Disputes

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As discussed in the hearing on this matter, the court is available telephonically to address

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simple and discrete discovery disputes. The procedures for utilizing this resource can be found

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on the court’s website, at http://www.caed.uscourts.gov/caednew/index.cfm/judges/all-

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judges/united-states-magistrate-judge-allison-claire-ac/.

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The parties appear to be in agreement that discovery in this case is likely to involve

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sensitive and confidential (if not privileged) business information. The parties represent that they

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have already agreed a protective order would be appropriate, but have yet to submit a stipulated

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order to the court. ECF No. 48 at 8. There is currently no protective order on file in this case.

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Because it is relatively clear that confidentiality concerns will be an ongoing issue in this case, the

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court finds a protective order is necessary for the parties to effectively move forward with

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discovery. The parties are therefore required to submit a stipulated protective order that complies

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with Local Rule 141.1 within 14 days from the date of this order.

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IV.

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CONCLUSION

Accordingly, it is HEREBY ORDERED as follows:

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1. Plaintiff’s motion to compel discovery, ECF No. 47, is GRANTED IN PART AND
DENIED IN PART as follows:

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a. DENIED as to information related to the inadvertently disclosed email;

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b. GRANTED as to RFP Nos. 38, 44, 54-64, and 88-91 regarding post-2003
communications between RTUI and Safeway;

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c. Otherwise DENIED as to post-2003 communications between RTUI and Safeway;

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d. GRANTED to the extent that defendants shall, if they wish to assert trade secret
privilege in conjunction with their responses to the discovery ordered regarding to

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post-2003 communications between RTUI and Safeway, produce a privilege log
that conforms to the requirements of the Federal Rules of Civil Procedure;

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2. The parties shall file a stipulated protective order that complies with Local Rule 141.1
within 14 days of the date of this order; and

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3. The parties shall bear their own costs related to this discovery dispute.

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DATED: July 28, 2017.

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