Monterey Bay Military Housing, LLC et al v. Pinnacle Monterey LLC et al
Filing
383
ORDER Re: Discovery Dispute Joint Report #9 250 . Signed by Magistrate Judge Howard R. Lloyd on 7/17/2015. (hrllc1, COURT STAFF) (Filed on 7/17/2015)
*E-Filed: July 17, 2015*
1
2
3
4
5
6
7
8
UNITED STATES DISTRICT COURT
9
NORTHERN DISTRICT OF CALIFORNIA
10
United States District Court
Northern District of California
11
MONTEREY BAY MILITARY HOUSING,
LLC, et al.,
Plaintiffs,
12
13
14
15
16
v.
Case No. 14-cv-03953-BLF (HRL)
ORDER RE DISCOVERY DISPUTE
JOINT REPORT #9
Re: Dkt. No. 250
PINNACLE MONTEREY LLC, et al.,
Defendants.
Plaintiffs sue Defendants for fraud relating to Defendants’ management of military housing
17
at the Presidio of Monterey and Fort Irwin. Defendants American Management Services LLC
18
(“AMS”) and American Management Services California Inc. (“AMSC”) (formerly dba
19
“Pinnacle”) serve as Plaintiffs’ property managers under two Property Management Agreements
20
(“PMAs”) at Fort Irwin and the Presidio of Monterey. According to Plaintiffs, the PMAs, as well
21
as the Clark Pinnacle Operating Agreements at the projects, prohibit any transfer of property
22
management duties to a different manager without Plaintiffs’ consent. Plaintiffs assert that in
23
2014, Plaintiffs learned that the Pinnacle Defendants had transferred substantially all of the assets
24
of AMS and AMSC to a new company, Pinnacle Property Management Services (“PPMS”).
25
According to Plaintiffs, the transfer left AMS and AMSC as mere shell companies. Plaintiffs
26
27
28
assert that AMS’s COO, Larry Goodman, and Executive Vice President, Eric Schwabe, were two
of four senior AMS executives allowed to “redeem” their membership interests in AMS (for no
consideration to Defendant) and to obtain an approximately 21% combined equity stake in PPMS.
1
Plaintiffs assert that Larry Goodman and Schwabe each received significant “bonuses” paid by
2
AMS, which depleted the proceeds of the sale, based on the amount of time and effort Larry
3
Goodman and Schwabe contributed to the sale.
Plaintiffs initially sought discovery related to the 2014 asset sale and requested documents
4
5
connected to Larry Goodman and Schwabe, in their Requests for Production (Set 14 and Set 15).
6
Defendants objected to these Requests for Production. See 11/10/14 Def. Resp. to Pl. Requests for
7
Production (Set 14) and 2/26/15 Def. Resp. to Pl. Requests for Production (Set 15).
8
After discovering this alleged fraudulent transfer of assets, Plaintiffs filed a motion for
9
leave to file a fifth amended complaint, seeking to introduce additional claims and allegations
10
United States District Court
Northern District of California
11
12
13
14
15
16
17
based on Defendants’ alleged fraudulent transfer of assets. Specifically, Plaintiffs sought to add
four new claims against AMS, AMSC, John Goodman, and Harrelson based on this allegedly
fraudulent transfer. Plaintiffs also sought to supplement their existing claim against Defendants
for violation of the RICO statute, 8 U.S.C. §§ 1961 et seq., by adding the alleged fraudulent
transfer as an additional predicate act of wire and/or mail fraud. In an order dated April 13, 2015,
Judge Beth Labson Freeman denied Plaintiffs’ motion to the extent they sought to introduce four
new claims for relief against Defendants. Judge Freeman granted the motion to the extent
Plaintiffs sought to supplement the allegations with respect to their RICO claim and to make other
minor changes. The court found “that the relevant factors weigh in favor of permitting Plaintiffs
18
to supplement their civil RICO claim. However, the proposed new claims based on the alleged
19
fraudulent transfer are futile without the joinder of indispensable parties and adding such claims at
20
21
22
23
24
25
26
27
this stage in the litigation would severely prejudice the existing defendants.” Dkt. No. 172, at 3.
The court also allowed the parties to take discovery “[t]o the extent the parties require additional
discovery on the amended allegations,” and directed the parties to submit a discovery plan. Id. at
6.
Plaintiffs filed their Fifth Amended Complaint on April 16, 2015. In addition, Plaintiffs
renewed their efforts to have Defendants comply with previously served Requests for Production
(Set 14 and Set 15). Plaintiffs sought production of responsive documents which hit on mutually
agreed search terms from custodians including the four AMS executives—Rick Graf, John
28
2
1
Carrosino, Larry Goodman, and Schwabe—who were involved in the sale of AMS’s assets to
2
PPMS. However, Defendants refused to produce documents from Larry Goodman and Schwabe,
3
arguing that the requested discovery was irrelevant, duplicative, and unduly burdensome. See Dkt.
4
No. 188-2.
Presently before the Court is Discovery Dispute Joint Report #9. Dkt. No. 250. Plaintiffs
5
6
request that the court order Defendants to produce responsive documents from Larry Goodman
7
and Schwabe. Plaintiffs argue that Larry Goodman and Schwabe have documents relating to their
8
individual negotiations of their own bonuses and to the redemption of their equity interests in
9
AMS.
10
United States District Court
Northern District of California
11
12
13
14
15
16
17
In addition, Plaintiffs argue that searching for the requested documents would not be
unduly burdensome because Defendants have already agreed to the requested search terms and
have already imaged Larry Goodman and Schwabe’s computers, which gives Defendants access to
any electronic folders related to the transaction as well as to the individuals’ custodian emails.
Defendants argue that the discovery Plaintiffs seek is irrelevant and unduly burdensome.
Parties may obtain discovery about any nonprivileged matter that is relevant to any party’s
claim or defense. Fed. R. Civ. P. 26(b)(1). “Relevance under Rule 26(b)(1) is construed more
broadly for discovery than for trial.” Truswal Sys. Corp. v. Hydro-Air Eng’g, Inc., 813 F.2d 1207,
1211 (Fed. Cir. 1987). “Relevant information need not be admissible at the trial if the discovery
appears reasonably calculated to lead to the discovery of admissible evidence.” Fed. R. Civ. P.
18
26(b)(1).
19
Here, the April 13 Order only allowed Plaintiffs to add allegations that the allegedly
20
fraudulent transfer of assets to PPMS was an additional predicate act in support of their RICO
21
22
23
24
claim. When the court granted Plaintiffs leave to file their supplemental RICO allegations based
upon the alleged fraudulent transfer, the court modified its scheduling order by allowing the
parties to take limited discovery related to Plaintiffs’ newly added RICO allegations. Dkt. No.
172. See Hardin v. Wal-Mart Stores, Inc., No. 08-CV-0617 AWI BAM, 2012 WL 2921226, at *2
25
(E.D. Cal. July 17, 2012) (“The decision to modify a scheduling order is within the broad
26
discretion of the district court.”). The court did not reopen discovery.
27
The discovery sought by Plaintiffs is irrelevant. Larry Goodman and Schwabe are not
28
3
1
defendants in this action, and Plaintiffs have not alleged that they took part in the alleged RICO
2
enterprise that engaged in the transaction. Dkt. No. 186 ¶ 179. There is no evidence that Larry
3
Goodman and Schwabe played any significant role in the asset sale. The only evidence Plaintiffs
4
point to of Larry Goodman and Schwabe’s involvement in the transaction is that these executives
5
participated in two meetings. See 3/11/15 Carrosino Depo. at 22-23.
6
Moreover, Plaintiffs already know the value of the bonuses and redemptions, which is the
7
only information relevant to determining whether the sale was for a less than reasonably
8
equivalent value. Plaintiffs have received substantial written discovery about the asset sale and
9
deposed the key officers involved in the transaction. Dkt. No. 202. Plaintiffs know how much
10
United States District Court
Northern District of California
11
12
13
14
15
16
17
18
each executive received from the transaction and the interest each executive now holds in PPMS.
Id. Plaintiffs recently deposed George Petrie, the person (along with John Goodman) responsible
for approving the bonuses and membership interest for the executives. See 5/19/15 Petrie Depo. at
54-57. Petrie testified that the purpose of the bonus payments was to incentivize the executives to
remain focused on running AMS’s business during the sale process and work to achieve a higher
sale price. Id. at 55-56. His testimony is corroborated by Goodman and Carrosino. Dkt. No. 2023, at 45; Dkt. No. 202-4, at 61-62. Plaintiffs cannot articulate why further written discovery of
Larry Goodman and Schwabe would lead to any probative evidence. Indeed, the court has already
denied Plaintiffs’ request to take their depositions. See Dkt. No. 205.
In addition, producing the requested discovery would be unduly burdensome. “A party
19
need not provide discovery of electronically stored information from sources that the party
20
21
22
23
24
25
26
27
identifies as not reasonably accessible because of undue burden or cost.” Fed. R. Civ. P. 26.
Here, Defendants do not have access to the custodial files of Larry Goodman and Schwabe.
Defendants imaged and archived the computers of the former AMS executive team. However, the
email data for Larry Goodman and Schwabe was never processed and the data is not in an
accessible format. To provide Plaintiffs with the discovery they seek, Defendants would incur the
significant cost of processing the imaged computers of both Larry Goodman and Schwabe. eBay
Inc. v. Kelora Sys., LLC, No. C 10-4947 CW (LB), 2013 WL 1402736, at *3 (N.D. Cal. Apr. 5,
2013) (recognizing that “the processing costs for electronically-stored information (‘ESI’) are
28
4
1
2
3
4
5
relatively high”).
Accordingly, Plaintiffs’ request that the court order Defendants to produce responsive
documents from Larry Goodman and Schwabe is denied.
IT IS SO ORDERED.
Dated: July 17, 2015
6
________________________
HOWARD R. LLOYD
United States Magistrate Judge
7
8
9
10
United States District Court
Northern District of California
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
5
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?