Charlotte B Milliner et al v. Mutual Securities, Inc.

Filing 89

ORDER Granting in Part and Denying in Part 81 Defendant's Motion to Compel. Case Management Statement due by 5/8/2017. Further Case Management Conference set for 5/15/2017 01:30 PM in Courtroom 12, 19th Floor, San Francisco. Case Referred Back to Magistrate Judge Laurel Beeler for Discovery. Signed by Judge Thelton E. Henderson on 3/24/17. (tehlc2, COURT STAFF) (Filed on 3/24/2017)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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CHARLOTTE B. MILLINER, et al.,

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Plaintiffs,
v.

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MUTUAL SECURITIES, INC.,

Case No. 15-cv-03354-TEH
ORDER GRANTING IN PART AND
DENYING IN PART DEFENDANT’S
MOTION TO COMPEL

Defendant.

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On February 8, 2017, the Defendant Mutual Securities, Inc. (“MSI”) filed a Motion

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United States District Court
Northern District of California

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to Compel Plaintiffs’ Production of Documents. ECF No. 81 (“Mot.”). Plaintiffs timely

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opposed the motion, ECF No. 83 (“Opp’n”), and Defendant timely replied, ECF No. 86

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(“Reply”). The Court heard oral arguments on the motion on March 20, 2017. After

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carefully considering the parties’ written and oral arguments, the Court GRANTS IN

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PART AND DENIES IN PART Defendant’s motion for the reasons set forth below.

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I. BACKGROUND
As the parties are familiar with the factual background of this case, the Court

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provides only a brief summary of the facts.
This class action is related to another class action separately filed in this Court:

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Milliner v. Bock Evans Financial Counsel, Ltd., No. 15-cv-1763 TEH (the “Bock Evans

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Class Action”).1 The Bock Evans Class Action was brought by the same Plaintiffs as the

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present class action, to challenge the “‘one size fits all’ investment approach implemented

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by their investment advisor, Defendant Bock Evans Financial Counsel, Ltd. (‘BEFC’).”

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Compl. ¶ 1 (EFC No. 1). Plaintiffs brought the present class action against MSI because of

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MSI’s relationship with BEFC. Specifically, BEFC required that clients hire MSI as their

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broker-dealer. Id. ¶ 9. Plaintiffs allege one reason BEFC required clients to use MSI is

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Default has been entered in the Bock Evans Class Action. No. 15-cv-1763 TEH, ECF
No. 66 (N.D. Cal. May 18, 2016).

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because Thomas Bock (“Bock”) and Mary Evans (“Evans”), the principal executive

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officers of BEFC, were registered representatives of MSI. Id. ¶ 9. In other words, Bock

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and Evans were “dually registered as registered representatives and commissioned brokers

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of MSI and as investment advisors and principals of BEFC.” ECF No. 32, at 1:27–2:1.

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Plaintiffs allege BEFC “plac[ed] 100% or nearly 100% of their assets in high risk and

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highly speculative foreign mining stocks, including over-the counter and penny stocks”

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resulting in the value of BEFC’s portfolios going “from $60 million to $4.17 million in just

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a few years, a drop of roughly $55.83 million, or 93%.” Compl. ¶¶ 1–2.
Through prior orders, the Court has established: “MSI owed Plaintiffs a contractual

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duty to ‘determine the suitability of any investment recommendations and advice’ in

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United States District Court
Northern District of California

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accordance with the express terms of their Brokerage Agreement,” ECF No. 38, 4:27–5:3;

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MSI had a duty to supervise the outside advisory investment activities of Bock and Evans

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pursuant to FINRA rules, ECF No. 52, at 12; and MSI breached its duty under FINRA

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rules to determine suitability, ECF No. 87 at 8:23–24.
Presently before the Court is MSI’s Motion to Compel Plaintiffs’ Production of

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Documents. MSI alleges that the Plaintiffs have not produced any documents in response

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to its Requests for Production and seeks an order from the Court compelling Plaintiffs to

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do so.

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II. LEGAL STANDARD

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A party may bring a motion to compel discovery when another party has failed to

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respond adequately to a discovery request. Fed. R. Civ. P. 37(a)(3). A party “may obtain

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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, considering the importance of the issues

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at stake in the action, the amount in controversy, the parties' relative access to relevant

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information, the parties' resources, the importance of the discovery in resolving the issues,

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and whether the burden or expense of the proposed discovery outweighs its likely

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benefit.” Fed. R. Civ. P. 26(b). As the moving party, MSI must inform the court which

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discovery requests are the subject of the motion to compel, why Plaintiffs’ objections are
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not justified or why the response provided is deficient, and how proportionality and the

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other requirements of Federal Rule of Civil Procedure 26(b)(2) are met. See Civil L.R. 37-

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2. “A district court has wide latitude in controlling discovery . . . .” Lane v. Dep’t of

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Interior, 523 F.3d 1128, 1134 (9th Cir. 2008) (citation and internal quotation marks

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omitted).

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III. DISCUSSION

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a. Scope of Relief

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In its motion, MSI specifically asks the Court to order the Plaintiffs to produce

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documents in response to MSI’s Requests for Production Nos. 1–78. Mot. at 1:7–10.
However, in its reply, MSI asks the Court to “order Plaintiffs to produce the documents

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United States District Court
Northern District of California

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responsive to MSI’s narrow 18 categories of requests.” Reply at 12:2–4.2 Because MSI

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voluntarily narrowed its requests in good faith before the motion to compel and because

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MSI’s reply only asks for an order relating to these 18 categories, the Court only considers

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these 18 categories for purposes of the motion.
b. Requests for Productions Regarding Plaintiffs’ Non-MSI Accounts, Tax

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Returns, and Financial Statements are Relevant.

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Federal Rule of Civil Procedure 26(b)(1) allows parties to obtain discovery on “any

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nonprivileged matter that is relevant to any party’s claim or defense and proportional to the

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needs of the case.” Here, Plaintiffs object to MSI’s requests for the production of

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Plaintiffs’ non-MSI accounts, tax returns, and financial statements on the basis that these

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records are not relevant to case. Opp’n at 7:14–16, 8:11. Notably, however, while

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Plaintiffs’ objections focused on arguing that these requests are not relevant to suitability –

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Plaintiffs failed to refute MSI’s suggestion that the requests are relevant to issues of class

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certification (e.g., typicality of claims and Plaintiffs’ adequacy to represent the class).

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Because the Plaintiffs’ financial profiles and investment experience could raise unique

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MSI’s declaration in support of the motion suggests that the parties had a telephonic meet
and confer on October 19, 2016, pursuant to Judge Beeler’s discovery order during which
MSI narrowed its 78 requests for production to 18. ECF No. 81-1 at 84 (“Exh. H”).
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defenses for MSI against Plaintiffs’ specific claims, see, e.g., Navellier v. Sletten, 262 F.3d

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923, 941 (9th Cir. 2001), the Court finds these requests are relevant to determining class

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certification issues. Accordingly, Plaintiff’s objections to these requests based on

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relevance are rejected.

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c. Plaintiff’s Proportionality Objections are Unavailing

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In responding to MSI’s motion, Plaintiffs contend that MSI’s demand “fail[s] to

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meet the proportionality requirements of Rule 26(b)(2), since the vast majority of the

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documents Defendant seeks to compel are Defendant’s own documents.” Opp’n at 1:18–

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19. In support of this argument, Plaintiffs cite Rule 26(b)(1), which requires courts to
consider the “the parties’ relative access to relevant information,” and Rule 26(b)(2)(C)(i),

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Northern District of California

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which permits a court to limit discovery if it determines that the requested information

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“can be obtained from some other source that is more convenient, less burdensome, or less

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expensive.” Plaintiffs’ theory is that because this case focuses on MSI’s alleged

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misconduct, MSI’s own documents are the focus of discovery, not the Plaintiffs’. See

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Opp’n at 3:13–26. Furthermore, Plaintiffs suggest MSI is likely to have the requested

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documents because it “cannot provide any declaration stating that it does not have these

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documents.” Id. at 11–14. These arguments fail. Plaintiffs cite no case law supporting

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this position. In fact, MSI’s cited case law directly rejects Plaintiffs’ arguments. A party

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is “required to produce documents he [or she] has in his possession, custody or control,

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regardless of whether he [or she] believes [the opposing party] already has those

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documents.” Walt Disney Co. v. DeFabiis, 168 F.R.D. 281, 284 (C.D. Cal. 1996). See

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also Hitachi, Ltd. v. AmTRAN Technology Co. Ltd., 2006 WL 2038248, at *3 (N.D. Cal.

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July 18, 2006) (same); Fort Washington Resources, Inc. v. Tannen, 153 F.R.D. 78, 79

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(E.D. Cal. 1994) (“[I]t is not a bar to the discovery of relevant material that the same

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material may be in the possession of the requesting party or obtainable from another

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source. . . . Thus, Defendant must produce the requested documents regardless of their

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existence in the possession of Plaintiff or of their accessibility through the sub-

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contractors.”).
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During oral arguments, the Plaintiffs attempted to distinguish these cases by citing

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the 2015 amendment to Rule 26, which added language on the need to consider the

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proportionality of discovery requests. But the Committee Notes on the 2015 amendment

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explain that the amendment “does not change the existing responsibilities of the court and

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the parties to consider proportionality,” rather the amendment simply reinforces this

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obligation. Fed. R. Civ. P. 26, Committee Notes on Rules –2015 Amendment.

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Additionally, the Committee stated the amendment was not “intended to permit the

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opposing party to refuse discovery simply by making a boilerplate objection that it is not

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proportional.” Id. Here, Plaintiffs have failed to show how MSI’s discovery requests are
disproportionate. This is especially true in light of MSI’s narrowed requests and its

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United States District Court
Northern District of California

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willingness to bear the cost of producing these discovery requests. The fact that MSI’s

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requests for production may include many documents that MSI already possesses does not

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mean Plaintiffs can simply refuse to produce any documents. Lastly, Rule 26(b)(1)

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requires the Court to also consider the case’s amount in controversy when determining

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proportionality. Here, where Plaintiffs are seeking compensatory damages for “tens of

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millions of dollars,” Compl. ¶ 17, the Court finds Plaintiffs’ proportionality objections

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unpersuasive.

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d. Facially Overbroad Requests are Denied

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Even though Plaintiffs did not address the Court’s question during oral arguments

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on whether any of MSI’s 18 requests needed to be eliminated or further narrowed, the

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Court finds requests 8–9, 11, 13, and 15 to be facially overbroad.3 Accordingly, MSI’s

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motion to compel production on these requests is DENIED. This order, however, does not

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preclude MSI from narrowing the denied requests and re-seeking production.

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Although MSI’s 18 requests were not numbered, see ECF No. 81-1 at 84, the Court
identifies each request by its numerical order of appearance (i.e., “All BEFC/MSI account
statements” is Request #1; “Communications including electronic communications and
notes from telephone calls, between Plaintiffs and BEFC, Tom Bock, and/or Mary Evans”
is Request #2; etc.).
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e. Plaintiffs Must Allow Inspection and Copying

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The parties also dispute whether Plaintiffs are required to produce copies of the

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requested productions to MSI. However, “[a] party producing documents will ordinarily

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not be put to the expense of making copies for the requesting party. Rule 34(b) merely

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requires that the responding party make documents available for inspection and copying.”

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7 Moore’s Federal Practice § 34.14[5] at 34-92 (2016). Accordingly, the Plaintiffs may

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fulfill their obligation under Rule 34(b) by allowing MSI to inspect its documents.

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IV. CONCLUSION
In sum, the information MSI seeks is relevant to its claims and defenses, and

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Plaintiffs’ objections are unpersuasive. Accordingly, the Court GRANTS IN PART MSI’s

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United States District Court
Northern District of California

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motion to compel responses by requiring Plaintiffs’ to allow MSI to inspect and copy any

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documents included in requests 1–7, 10, 12, 14, and 16–18. The motion is DENIED in all

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other respects.

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The enforcement of this Order and all further discovery disputes shall be referred
back to Magistrate Judge Laurel Beeler.
The parties shall meet and confer and file a joint case management statement on or

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before May 8, 2017, and appear for a case management conference on May 15, 2017, at

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1:30 PM.

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IT IS SO ORDERED.

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Dated: 3/24/17

_____________________________________
THELTON E. HENDERSON
United States District Judge

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