Ai-Daiwa, Ltd. v. Apparent, Inc. et al

Filing 76

Order by Magistrate Judge Laurel Beeler denying 72 Discovery Letter Brief.(lblc1, COURT STAFF) (Filed on 7/28/2014)

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UNITED STATES DISTRICT COURT

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Northern District of California

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San Francisco Division
AI-DAIWA, LTD,

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For the Northern District of California

UNITED STATES DISTRICT COURT

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No. C 13-04156 VC (LB)
Plaintiff,

v.

ORDER RE DISCOVERY DISPUTE
AT ECF NO. 72

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APPARENT, INC., et al.,
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Defendants.
_____________________________________/

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APPARENT, INC., et al.,

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Counter-claimants,
v.

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AI-DAIWA, LTD, et al.,

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Counter-defendants.
_____________________________________/

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INTRODUCTION

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In this case involving Apparent’s alleged breach of contract by failing to pay for products (solar

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power microgrid inverters or “MGi devices”) that it bought from AI-Daiwa, see Joint CMC

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Statement, ECF No. 48 at 1,1 the parties have discovery disputes about the timing of a deposition,

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the disclosure of financial information, and the production of ESI. See Joint Discovery Dispute

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Citations are to the electronic case file (ECF) with pin cites to the electronically-generated
page numbers at the top of the page.
ORDER
C 13-04156 VC (LB)

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Letter, ECF No. 72. The court finds this matter suitable for determination without a hearing under

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Civil Local Rule 7-1(b) and rules as follows.

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ANALYSIS
I. TIMING OF STEFAN MATAN’S DEPOSITION
AI-Daiwa wanted the deposition on July 30, 2014. See id. Apparently the parties had problems

important witness – was ill, and Apparent was securing new counsel. See id. Apparent now

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commits to August 12, 2014. See id. This should solve the problem. If it does not, and given

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Apparent’s new counsel’s previously-scheduled commitments during the weeks of July 12 and 28,

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the court orders the parties to have a scheduling telephone call (as opposed to the usual exchange of

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emails) during the week of August 4, 2014 with all participants who will be at the deposition.

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scheduling the deposition because Mr. Matan – Apparent’s chief technology officer and an

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UNITED STATES DISTRICT COURT

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Everyone must have their calendar available. This will allow the parties to schedule the deposition.

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If they cannot agree on a time for the call, it will be on August 5, 2014, at 5:00 p.m. PDT. This time

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will not interfere with any previously-scheduled court appearances, will not unduly inconvenience

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anyone’s vacation, and will permit the participation of anyone in Hong Kong (if that is important)

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without any undue inconvenience given the time difference.

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II. APPARENT’S FINANCIAL DOCUMENTS

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AI-Daiwa seeks an order compelling Apparent to produce discovery responses relating to its

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financial information, including “Ms. deSouza’s ownership and compensation.” See id. at 3. Ms.

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deSouza is counsel of record in the case (although new counsel associated in on July 14, 2014). See

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id.; Stipulation, ECF No. 73 at 5. She also is Apparent’s corporate secretary and, according to AI-

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Daiwa, an important percipient witness. Joint Letter Brief, ECF No. 72 at 3. Id. AI-Daiwa cites

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“RFPD No. 8 and RFA No. 2” as the discovery requests that Apparent has not responded to, but it

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does not attach them or excerpt them in the letter brief. See Joint Letter Brief, ECF No. 72 at 3. AI-

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Daiwa says that Apparent agreed to produce its tax returns for the year 2011 to 2013 during the

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parties’ recent meet-and-confer. Id. It argues that Apparent’s counterclaims – specifically breach of

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contract and fraud – put at issue its financial condition. Id. It also suggests (by its quotation from

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Oakes v. Halvorsen Marine Ltd., 179 F.R.D. 281, 286 (C.D. Cal. 1998)) that the financial

ORDER
C 13-04156 VC (LB)

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information is relevant to a punitive damages claim. Id. Finally, it suggests that the reality of

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Apparent’s financial condition is an important component of AI-Daiwa’s analysis of the case and

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may facilitate settlement. Id. at 3-4.

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Apparent counters argues that its income in 2011 to 2013 is not relevant to any punitive award

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rendered in 2015, particularly given that AI-Daiwa did not provide any product for it until 2012. Id.

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at 4. To address AI-Daiwa’s interest in settlement, it agreed to produce its corporate tax returns for

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2013. Id. It argues that AI-Daiwa otherwise needs to establish (1) a compelling need for Apparent’s

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tax returns for 2011 and 2012 and for Ms. DeSouza’s compensation and ownership interest and (2)

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that it cannot obtain the information through other means. Id. Ms. deSouza’s relationship with

unprivileged files. Id. at 4-5. It says that AI-Daiwa argued at the meet-and-confer that her

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Apparent can be established through her deposition testimony, and she has produced her

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financials are relevant to her credibility (an argument that AI-Daiwa does not reiterate in the joint

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letter brief) but it cannot be the rule that any employee who testifies must disclose her compensation.

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Id.

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First, the court cannot tell what information AI-Daiwa requested beyond the items addressed in

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the letter brief. If anything else is implicated, the court’s joint letter brief process requires an

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excerpt of the precise discovery request propounded by the party. See ECF No. 69-1 at 2-3, ¶ 6.

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Second, as to Apparent, the court cannot see the relevance or the compelling need. While parties

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can put their income at issue by their damages claims, AI-Daiwa has not said what it wants beyond

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the tax returns, it did not say why it could not get the relevant financial information from other

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sources (such as other financial statements or even specific schedules), and it did not discuss the

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compelling needs test that applies to disclosure of federal tax returns. See William W. Schwarzer,

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A. Wallace Tashima & James M. Wagstaffe, Cal. Prac. Guide: Fed. Civ. Pro. Before Trial § 11:1015

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(The Rutter Group 2012) (“Rutter Guide”). On this record, Apparent’s production of its 2013 tax

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returns is sufficient. That being said, given the amount at stake in the litigation, the ability to protect

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financial information by protective orders, and AI-Daiwa’s saying that it needs the information to

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evaluate the case for settlement, Apparent might consider whether it matters if it discloses the

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information. The court will not order the information on this record, but as a practical case

ORDER
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management issue, perhaps Apparent can consider whether – given AI-Daiwa’s characterization of

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the parties’ agreement at the recent meet-and-confer – it wants to produce the information (or its

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equivalent) anyway rather than litigating the issue in a subsequent letter brief.

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Third, as to Ms. deSouza, AI-Daiwa does not say what it wants specifically, why it needs it, and

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why it matters (beyond saying that Ms. deSouza is counsel for Apparent, an important percipient

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witness, and the corporate secretary). Whatever her position is, the court assumes it has been

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disclosed. Maybe she is an important percipient witness, but the case is about alleged defects in the

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products, and the court assumes her role would be about the contract, possibly the purchase orders,

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and subsequent discussions about the alleged breach. Perhaps her stake in the corporation is

procedures Apparent offers (including Ms. deSouza’s deposition and her disclosure of non-

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relevant to bias, but the court cannot tell why AI-Daiwa cannot get relevant information through the

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privileged files). Apparent cites authority that in a diversity case, California privacy law protects

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Ms. deSouza’s financial information, but AI-Daiwa did not address this argument. See Rutter Guide

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§§ 1192-93 (discussing this point and citing Cal. Civ. Code § 3295 and the compelling interest test

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that applies to disclosure of private financial information). On this record, the court denies AI-

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Daiwa’s motion.

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III. ESI ISSUES

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AI-Daiwa cites seven problems with Apparent’s ESI production: (1) self-collecting of ESI by

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custodians; (2) no privilege log; (3) non-native file production for files kept that way and missing

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metadata; (4) modification of some documents; (5) no production numbers; (6) no confidentiality

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designations; and (7) no use of a competent vendor. Joint Discovery Letter Brief, ECF No. 72 at 5.

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It wants an order compelling Apparent to hire a qualified vendor. Id.

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Apparent agrees to (1) “re-produce all documents addressing the identification of the documents

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and produc[e] any redacted documents in hard copy,” (2) provide a privilege log; and (3) do these

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things by July 24, 2014. Id. at 5-6. Apparently the redactions are customer names and personal

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information. See id. at 6.

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AI-Daiwa’s arguments are broad and do not support (on this record) the potentially expensive
outcome of a private vendor. Apparent also is addressing the problem of identifying the documents

ORDER
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and producing a privilege log.
That being said, generally documents should be produced electronically (not in hard copy), and

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native file production (or at least processed ESI that contains relevant metadata) is better than paper

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production. Apparent appears to be redacting private information (such as customer names) and that

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is fine, but information in spreadsheets can be collapsed to avoid disclosure. The court does not

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know the volume of the redacted information, and that can be relevant, too, to the appropriateness of

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hard-copy production. If the production is modest, then producing hard-copies may be less

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consequential (although perhaps everyone’s interest are better served by an electronic, OCR’d

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production).

to products sold or ordered during the relatively short period from December 2011 to August 2012.

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The other factor militating against a private vendor in the case is about product defects relating

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The complaint alleges that the contract was negotiated in December 2012, product was shipped

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under six invoices dated from February 2012 to April 2012 totaling $669,023.60, and AI-Daiwa

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suspended shipments in August 2012. First Amended Complaint, ECF No. 5, ¶¶ 9-10 & Ex. A.

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There also may be communications and documents relating to AI-Daiwa’s alleged preparation of

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additional products. See FAC ¶ 11. Thus, the document universe is fairly limited, even assuming

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end-user complaints. Overspending on discovery risks creating litigation costs that are out of

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proportion to the possible returns.

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If the form of the latest document production does not allow AI-Daiwa adequate insight, then the

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parties must meet and confer, preferably in person and at least by telephone, and they must include

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their technical people (including in-house IT people who know how information is stored, how it

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can be produced, and how it can be redacted to meet privacy needs). If this does not solve any

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production issues, the parties may submit another letter brief, and the court will hold a case

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management conference. The letter brief should provide insight into the discovery at issue (e.g.,

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contracts, customer lists, consumers, emails among these custodians about product defects) so that

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the court can better resolve any ESI issues.

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ORDER
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CONCLUSION

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This disposes of ECF No. 72.

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IT IS SO ORDERED.

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Dated: July 28, 2014

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_______________________________
LAUREL BEELER
United States Magistrate Judge

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For the Northern District of California

UNITED STATES DISTRICT COURT

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ORDER
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