E & J GALLO WINERY, Plaintiff, v. ENCANA ENERGY SERVICES, INC., et al., Defendants CASE NO. CV-F-03-5412 AWI LJO United States District Court, E.D. California Filed on January 28, 2005 Counsel D. Greg Durbin, Timothy John Buchanan, McCormick Barstow Sheppard Wayte & Carruth, LLP, William H. Littlewood, Dowling Aaron Inc., Fresno, CA, G. Kip Edwards, Law Offices of G. Kip Edwards, Kings Beach, CA, Joseph W. Cotchett, Cotchett, Pitre & McCarthy, LLP, Burlingame, CA, Steven N. Williams, Joseph Saveri Law Firm, Inc., San Francisco, CA, for Plaintiff. David A. Battaglia, Heather L. Richardson, J. Christopher Jennings, James P. Fogelman, Richard P. Levy, Jason C. Lo, Matthew A. Hoffman, Gibson, Dunn & Crutcher LLP, Los Angeles, CA, Duane R. Lyons, Quinn Emanuel Urquhart Oliver and Hedges, LLP, Louis E. Shoch, III, Maier Shoch LLP, Hermosa Beach, CA, Stephen R. Cornwell, Cornwell & Sample, LLP, William C. Hahesy, Law Offices of William C. Hahesy, Fresno, CA, for Defendants O'Neill, Lawrence J., United States Magistrate Judge ORDER ON DEFENDANTS' FURTHER DISCOVERY MOTIONS INTRODUCTION *1 Defendants Encana Corporation (“Encana Corp.”) and WD Energy Services, Inc. (“WD Energy”) seek discovery orders in this action alleging natural gas price fixing and brought by plaintiff E. & J. Gallo Winery (“Gallo”). Gallo seeks to impose sanctions to oppose Encana Corp. and WD Energy's (collectively “defendants’ ”) motions. This Court discusses defendants' discovery motions below and issues the following orders based on the record and without oral argument. See Local Rule 78-230(h). BACKGROUND Gallo's Claims Gallo and Gallo Glass Company produce wine and wine bottles using natural gas. Gallo is one of California's largest consumers of natural gas used to operate its furnaces. Encana Corp., a Canadian company, is North America's largest independent natural gas producer and seller and does business in California through its subsidiaries. Encana Energy Services, Inc. (“EES”) was Encana Corp.'s indirect subsidiary and sales and marketing arm in the United States. Encana Corp. used EES to trade, hedge and speculate in natural gas, natural gas transportation contracts and natural gas market-based derivatives. EES changed its name to WD Energy Services Inc.[1] in early 2003. During April 2001 to June 2003, EES was Gallo's sole marketer.[2] Gallo claims that when EES “ostensibly” worked with Gallo, EES conspired with natural gas marketers to artificially inflate natural gas prices and related commodities contracts. On April 9, 2003, Gallo filed this action to pursue against defendants price fixing claims under the Sherman Act, 15 U.S.C. § 1, and the Cartwright Act, Cal. Bus. & Prof. Code, §§ 16700, et seq., and claims for unfair business practices (Cal. Bus. & Prof. Code, §§ 17200 et seq.), and unjust enrichment, constructive trust and fraudulent transfer under California Civil Code, §§ 3439, et seq. Gallo alleges defendants manipulated and grossly inflated California natural gas prices and derivative markets. The parties have engaged in extensive discovery, and numerous discovery disputes have arisen. In December, defendants filed their notices of motions to address Gallo's e-mail and electronic data destruction, searches of Gallo computers, and handling and confidentiality of defendants' trader tapes, and to compel deposition testimony and further responses to interrogatories and document requests. In January, the parties filed their joint discovery dispute statements and related papers. MOTION REGARDING GALLO'S E-MAIL AND ELECTRONIC DATA DESTRUCTION Pursuant to Gallo's policy, “E-mails may not be kept longer that sixty (60) days,” except “[d]ocuments pertaining to litigation in which the Company is involved as a party or to known specific claims by or against the Company” and “[d]ocuments authorized by the Legal Department to be retained beyond sixty (60) days.” Defendants believe “substantial, material electronic information appears to have been destroyed by Gallo during the pendency of this action” and a prior energy-related action entitled Dry Creek Corporation v. El Paso Natural Gas Company, et al., (“El Paso action”). Defendants point out that Gallo's discovery responses identify 10 individuals who have information which supports Gallo's claims or is relevant to this action. Defendants identify 74 additional individuals whom they claim “played a role in Gallo's numerous decisions concerning the energy crisis.” Defendants contend that depositions reveal “that electronic communications and other data from most, if not all, of the ... individuals were not preserved.” Defendants understand that electronic data is destroyed automatically unless destruction is canceled by Gallo's information technology department, that Gallo did not cease automatic destruction of data during this action or the El Paso action, that e-mail and electronic data regarding the energy situation and natural gas costs no longer exist, and that Gallo did not preserve hard drives of key employees who left during this action. Defendants argue that “adequate measures have not been taken to preserve all responsive electronic information, including e-mails, from all persons at Gallo with knowledge of the energy situation and natural gas, including those individuals who participated in management decisions regarding the natural gas situation.” *2 Defendants seek an order to require Gallo to: 1. Itemize all hard drives, servers and e-mail boxes of 84 Gallo employees and which have been deleted or erased since June 2000; 2. Explain when and how such materials were deleted or erased, why the materials were not preserved, and why automatic destruction did not cease when Gallo recognized a potential natural gas dispute; and 3. Recover hard drives, servers or e-mails of the employees and which have been destroyed and to search for responsive documents once recovered. Gallo responds that its Supplier Development Department received and generated all documents relating to Gallo's natural gas purchases, saved its e-mails, and produced all responsive documents, including e-mails. Gallo claims its Supplier Development Department “retained all e-mails pertaining to its natural gas purchases during the conspiracy period.” Gallo notes it has produced financial records, including electronic records, relating to natural gas purchases. Gallo is unaware of potentially responsive documents which are not available. According to Gallo, although it is does not know the contents of deleted e-mails outside the Supplier Development Department, “it appears highly unlikely that there was anything of consequence.” Gallo contends that since defendants have “failed to bring forward any scintilla of evidence of spoliation ... it would be impossible to determine e-mail (if any) has been deleted.” Gallo concludes that since its Supplier Development Department preserved its e-mails, defendants have failed to establish Gallo's obligation to suspend its automatic e-mail deletion or to preserve its backup tapes or purported unreasonable failure to preserve electronic documents. Discussion The gist of defendants' motion is the scope of Gallo's duty to preserve documents and information. As a starting point, a corporation, recognizing the threat of litigation, is not obligated to “preserve every shred of paper, every e-mail or electronic document, and every backup tape” since such an obligation would “cripple large corporations.” Zubulake v. UBS Warburg LLC, UBS, 220 F.R.D. 212, 217 (S.D.N.Y. 2003). “[A]nyone who anticipates being a party or is a party to a lawsuit must not destroy unique, relevant evidence that might be useful to an adversary.” Zubulake, 220 F.R.D. at 217. “While a litigant is under no duty to keep or retain every document in its possession ... it is under a duty to preserve what it knows, or reasonably should know, is relevant in the action, is reasonably calculated to lead to the discovery of admissible evidence, is reasonably likely to be requested during discovery, and/or is the subject of a pending discovery request.” William T. Thompson Co. v. General Nutrition Corp., 593 F.Supp. 1443, 1455 (C.D. Cal. 1984). The duty to preserve should extend to documents or tangible things made by individuals “likely to have discoverable information that the disclosing party may use to support its claims or defenses.” Zubulake, 220 F.R.D. at 217-218 (quoting F.R.Civ.P. 26(a)(1)(A)). The duty includes documents prepared for those individuals to the extent those documents can be “readily identified,” for instance, from the “to” field in e-mails. Zubulake, 220 F.R.D. at 218. The duty extends to “information that is relevant to the claims or defenses of any party, or which is ‘relevant to the subject matter involved in the action.’ Thus, the duty to preserve extends to those employees likely to have relevant information – the ‘key players' in the case.” Zubulake, 220 F.R.D. at 218 (quoting F.R.Civ.P. 26(b)(1)). *3 “[D]eleted computer files, whether they be e-mails or otherwise, are discoverable.” Antioch v. Scrapbook Borders, Inc., 210 F.R.D. 645, 652 (D. Minn. 2002). When a party “reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a ‘litigation hold’ to ensure the preservation of relevant documents. As a general rule, that litigation hold does not apply to inaccessible backup tapes (e.g., those typically maintained solely for the purpose of disaster recovery), which may continue to be recycled on the schedule set forth in the company's policy.” Zubulake, 220 F.R.D. at 218 (Bold added). To establish spoliation of evidence, a movant must show that: (1) the adverse party had a duty to preserve evidence; and (2) it nevertheless intentionally destroyed the evidence. Rambus, Inc. v. Infineon Technologies Ag, 220 F.R.D. 264, 281 (E.D. Va. 2004); Trigon Ins. Co. v. United States, 204 F.R.D. 277, 284 (E.D. Va. 2001). Gallo correctly points out that defendants fail to establish Gallo's destruction of relevant, unique documents or data. Defendants go on and on regarding Gallo's destruction of e-mails after 60 days. Defendants fail to discuss relevant documents or information which may have existed but has not been produced. Defendants make no attempt to connect the 84 identified Gallo employees to missing relevant information or information to assist defendants. Defendants offer no meaningful connection of the individuals to natural gas. Defendants leave it to this Court to speculate as to what may be missing. Gallo has demonstrated that it has retained the key documents and data subject to discovery. Gallo's e-mail destruction does not constitute spoliation of evidence in the absence of Gallo's intention to destroy meaningful, relevant, discoverable evidence. Defendants fail to demonstrate Gallo breached its duty to preserve documents and data to justify the onerous tasks they seek to impose on Gallo. Sanctions To address defendants' motion, Gallo seeks to impose on defendants a sanction of $4,562.50 compromising: 1. $2,062.50 (5.5 hours multiplied by $375 hourly partner rate); and 2. $2,500 (10 hours multiplied by $250 hourly partner rate). If a motion to compel is denied, the court “shall, after affording an opportunity to be heard, require the moving party or the attorney filing the motion or both of them to pay to the party ... who opposed the motion the reasonable expenses incurred in opposing the motion, including attorney's fees, unless the court finds that the making of the motion was substantially justified or that other circumstances make an award of expenses unjust.” F.R.Civ.P. 37(a)(4)(B). F.R.Civ.P. 37(a) “was designed to protect courts and opposing parties from delaying or harassing tactics during the discovery process.” Cunningham v. Hamilton County, 527 U.S. 198, 208, 119 S.Ct. 1915 (1999). The standard for an award of expenses is whether there was substantial justification for the losing party's conduct. Reygo Pac. Corp. v. Johnston Pump. Co., 680 F.2d 647, 649 (9th Cir. 1982). The rationale for fee-shifting statutes, such as F.R.Civ.P. 37(a)(4) “is that the victor should be made whole – should be as well off as if the opponent had respected his legal rights in the first place.” Rickels v. City of South Bend, Indiana, 33 F.3d 785, 787 (7th Cir. 1994). A court “is afforded great latitude in imposing sanctions under Rule 37” and sanctions are reviewed “only for abuse of discretion.” Reygo, 680 F.2d at 649; David v. Hooker, Ltd., 560 F.2d 412, 428-429 (9th Cir. 1977). *4 With its September 23, 2004 order, this Court required defendants, no later than October 7, 2004, “to notify Gallo of specific discovery addressing missing or deleted e-mail, and the particular e-mail, if possible.” Gallo notes that defendants have failed to reasonably comply with the order. The tone of the motion reflects an absence of genuine meeting and conferring. This Court is left with the impression that defendants manufactured this discovery dispute in response to Gallo's attempts to seek discovery regarding tapes, e-mails and computers of defendants' traders. This Court views defendants' motion as a harassing tactic to distract Gallo. Defendants' motions pending before the Court reveal their practice to counter a Gallo motion with a similar motion of their own, meritorious or not. This Court has repeatedly warned defendants to cease abusive retaliatory discovery and motion practices. Although a sanction is warranted, the amount sought by Gallo is excessive. Gallo has failed to substantiate a $375 hourly rate. The $250 rate is more appropriate. In addition, devotion of 15.5 hours to oppose the motion is excessive. An appropriate sanction is $1,250 (five hours multiplied by $250 hourly rate). Order This Court: 1. DENIES defendants' motion regarding e-mail and electronic data destruction; and 2. ORDERS defendants and their counsel jointly, no later than February 11, 2005, to pay Gallo $1,250 as a sanction. MOTION TO COMPEL COMPUTER SEARCHES This Court's December 16, 2004 order required defendants to search hard drives of eight EES traders for 66 terms identified by Gallo and the traders' communications with 90 identified EES employees and to produce documents responsive to the searches. After Judge Ishii denied defendants' request to reconsider the order, the parties entered into a stipulation for the computer searches and production of documents. With this motion, defendants seek to search the computer hard drives, servers and other electronic data of 11 Gallo employees whom defendants characterize as “involved in Gallo's energy decisions, policies and purchases.” More specifically, as to the 11 Gallo employees, defendants seek 83 specifically identified word searches and searches for their e-mail communications with 73 other individuals whom defendants attribute Gallo as identifying as “witnesses participating in the energy situation, including participating in various meetings and decisions and receiving various memoranda.” The time frame for the proposed searches is 1999-2002. Defendants note the 83 search terms are derived from: (1) those proposed by Gallo for search of WD Energy trader computers; (2) defendants' names and key employees who dealt with Gallo; (3) Gallo's outside advisors or consultants on the energy situation; (4) government entities which addressed the energy situation; and (5) energy and pricing terminology. Defendants claim all “terms were derived from documents produced by Gallo” and “thus are reasonably calculated and expected to lead to further admissible evidence.” Gallo contends the support for defendants' “remarkably vague motion” is that Gallo should perform computer searches because defendants agreed to search their computers. Gallo argues that defendants fail to justify searches of Gallo's computers and that defendants' motion is not “reciprocal.” According to Gallo, defendants “cannot justify intrusion into Gallo's operations they demand” and fail to “articulate exactly what kinds of information” would arise from computer searches. Gallo claims defendants' position “reflects no analysis whatsoever of the nature of the case, and in particular ignores the vast differences in the scope of information the parties' would logically possess on their computer systems.” Discussion *5 Defendants' papers reveal this motion retaliates for Gallo's successful motion to search the traders' computers. This motion mimics Gallo's motion, except that it lacks support or merit. The gist of defendants' position is that since the traders' computers will be searched, Gallo should endure searches. However, defendants fail to attempt to justify a search of Gallo's computers let alone its unfathomable scope, especially given that Gallo produced the relevant Supplier Development Department documents and data. Attempting to equate defendants' proposed searches with the searches of the trader computers insults this Court's intelligence. In its December 16, 2004 order, this Court noted the traders' e-mail communications “surely contain relevant and discoverable material.” Defendants provide nothing to support such a conclusion regarding the data subject to their motion. Sanctions Gallo seeks to impose on defendants a sanction of $2,750 comprising: 1. $750 (Two hours multiplied by $375 hourly partner rate); and 2. $2,000 (Eight hours multiplied by $250 hourly partner rate). Defendants' motion is miserable and ill-fated and promotes no legitimate discovery interest. In the absence of the slightest support for the motion, defendants' motives are to harass Gallo. As noted above, the $375 hourly rate is unsubstantiated. In addition, devotion of 10 hours to defendants' unsupported motion appears excessive. An appropriate sanction is $1,250 (five hours multiplied by $250 hourly rate). Order This Court: 1. DENIES defendants' motion regarding computer searches; and 2. ORDERS defendants and their counsel jointly, no later than February 11, 2005, to pay Gallo $1,250 as a sanction. MOTION REGARDING STIPULATION ON HANDLING AND COPYING OF TRADER TAPES On November 22, 2004, the parties entered into a stipulation regarding the copying and handling of tapes of recorded telephone conversations of WD Energy traders. The stipulation provides, among other things, that: 1. The original tapes will remain in WD Energy's possession; 2. Gallo will provide a declaration that it did not alter tapes when copying them; 3. Gallo will be granted access “only to channels that WD previously agreed that Gallo may access”; 4. Gallo will access only those channels agreed upon by the parties in writing or “to which the Court may determine that Gallo is entitled to access”; 5. Defendants have designated all tape recordings as confidential pursuant to the parties' stipulated protective order; 6. Production of the tapes does not constitute waiver of applicable privileges; and 7. Gallo will inform defendants of recorded conversations which appear privileged and will not attempt to use such conversations. Defendants claim they believe the stipulation would be entered as an order to provide for prompt and just enforcement of it. Gallo contends the stipulation is “an artifice defendants used to delay compliance with this Court's several orders that [defendants] turn over their trader tapes to Gallo.” Gallo claims that it entered the stipulation based on the parties' agreement it would not be an order and that defendants entered the stipulation knowing Gallo's position. Gallo argues defendants have failed to justify the need to enter the stipulation as an order. Discussion Defendants fail to justify grounds to enter the stipulation as an order. The absence of a proposed order for the stipulation demonstrates the parties did not contemplate the stipulation would be entered as an order. In the absence of grounds to warrant entering the stipulation as an order, this Court fears defendants' motives to seek such an order. Sanctions Gallo seeks to impose on defendants a sanction of $1,500 comprising: 1. $750 (two hours multiplied by $375 hourly partner rate); and 2. $750 (three hours multiplied by $275 hourly partner rate). Defendants fail to refute that the parties contemplated only a stipulation and not an order thereon. Defendants seek an end run around Gallo's position and bring this baseless motion to the Court. Again, there is no evidence of defendants' meaningful meeting and conferring or attempts to resolve this dispute. Gallo is entitled to a $750 sanction based on the lower hourly partner rate and devotion of three hours to address defendants' motion. Order *6 This Court: 1. DENIES defendants' motion regarding stipulation on handling and copying trader tapes; and 2. ORDERS defendants and their counsel jointly, no later than February 11, 2005, to pay Gallo $750 as a sanction. MOTION TO MAINTAIN CONFIDENTIALITY OF TRADER TAPES This Court entered a June 21, 2004 Amended Stipulated Protective Order (“protective order”) to address designation of confidential materials. The protective order defines “Confidential Information” as information which the parties claim to be “trade secrets” as defined by California Civil Code section 3426.1(d). To dispute a confidential designation, a “disputing party,” pursuant to the protective order, must give notice and “set forth a brief statement explaining why each document is not properly designated as confidential.” This Court's August 6, 2004 order required WD Energy to produce its trader tapes or to provide Gallo access to them and subject to a non-waiver of applicable privileges. Defendants have designated the WD Energy trader tapes as “confidential” pursuant to the protective order and produced the trader tapes subject to a non-waiver of applicable privileges. Defendants claim that a “substantial number” of the WD Energy trader tapes “reveal commercially sensitive information, privileged information, and information that implicates the privacy rights of WD's employees, former employees, and customers.” Defendants contend the trader tapes should remain confidential because: 1. Gallo has failed to follow procedures to challenge the confidential designation, pursuant to the protective order; 2. The trader tapes include communications subject to the attorney-client privilege, the identity and purchasing of WD Energy's customers, and personal, private information about WD Energy personnel; 3. Dissemination of the trader tapes “could taint a prospective jury pool” and could “circumvent limitations on discovery in similar cases” brought by Gallo's counsel; and 4. Gallo will not be prejudiced by maintaining the tapes confidentiality. Thus, defendants seek to preclude Gallo and its counsel “from disseminating or publicly disclosing the tapes, and any information contained on the tapes, to non-parties.” Defendants fear that the use of Gallo's counsel of “discovery obtained in this proceeding to litigate other cases – and perhaps to share with other plaintiffs' attorneys who've brought similar cases – would circumvent the rights of the defendants in those cases to object to the plaintiffs' discovery demands.” Gallo contends WD Energy has failed to demonstrate that portions of the disputed trader tapes constitute trade secret information and that good cause exists to modify the protective order. Gallo notes it has produced to defendants transcripts of tapes to challenge the confidentiality designation. Gallo challenges the confidential designation to reduce its expense and effort to file documents under seal and to obtain sealing orders. Gallo notes that defendants fail to identify specific documents or materials which they contend are subject to protection and legal basis for such protection. Discussion *7 California Civil Code section 3426(d) defines “trade secret” as “information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (1) [d]erives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) [i]s the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” As Gallo points out, the trader tapes consist of conversations with other third-party companies to strip them of trade secrecy. Defendants have failed to demonstrate the need for a blanket protective order or further protection beyond the non-waiver of privileges provided by this Court's August 6, 2004 order, which addresses defendants' concerns raised here. A blanket protective order, of the type sought by defendants, would create a mine field of compliance issues given the common issues of this and related litigation. Sanctions Gallo seeks to impose a sanction of $1,812.50 comprising: 1. $562.50 (1.5 hours multiplied by $375 hourly partner rate); and 2. $1,250 (Five hours multiplied by $250 hourly partner rate). Gallo complains that defendants failed to meet and confer on the confidentiality issues to force Gallo to respond to this motion. Defendants provide no evidence of meeting and conferring on this issue despite this Court's repeated admonitions to engage in genuine meet and confer efforts. In fact, this Court's September 23, 2004 order addressed the trader tapes' confidentiality and implored the “parties to engage in genuine, good faith meeting and conferring to address the confidential designation and disclosure of the trader tapes.” By all appearances, defendants ignored this clear order. As such, a $750 sanction (three hours multiplied by $250 hourly rate) is appropriate. Order This Court: 1. DENIES defendants' motion to maintain confidentiality of trader tapes; and 2. ORDERS defendants and their counsel jointly, no later than February 11, 2005, to pay Gallo $750 as a sanction. MOTION TO COMPEL DEPOSITION TESTIMONY REGARDING COMMUNICATIONS WITH STANISLAUS FOODS Defendants seek to compel deposition testimony regarding Gallo executives' communications with a Stanislaus Foods executive to which Gallo asserts a common interest or joint litigation privilege. At his August 13, 2004 deposition, Joseph E. Gallo (“Joseph Gallo”), president of Gallo and Dry Creek Corporation, testified he met in early 2003 with Ernest Gallo, Jr. (“Earnest Gallo”), Gallo's senior manager of product innovation, Jack Owens (“Mr. Owens”), Gallo's general counsel, and Dino Cortopassi (“Mr. Cortopassi”), owner of Stanislaus Foods which has pursued natural gas claims against defendants. Joseph Gallo testified the meeting's purpose was to discuss a lawsuit. Asserting privileges, Joseph Gallo declined to answer questions regarding the meeting, discussions during the meeting, and settlement of Stanislaus Foods' claims. At his October 24, 2004 deposition, Ernest Gallo testified that he participated in the meeting and that he recalled that Gallo counsel Kip Edwards (“Mr. Edwards”) and counsel for Stanislaus Foods also participated in the meeting. Asserting privileges, Ernest Gallo declined to answer questions regarding the meeting, discussions during the meeting, and settlement of Stanislaus Foods' claims. In his deposition, Mr. Owens testified he was aware of an agreement between Gallo and Stanislaus Foods related to a “joint prosecution privilege” and a “joint work product understanding.” Mr. Owens noted that Stanislaus Foods' counsel had discussed a joint prosecution agreement between Stanislaus Foods and Gallo prior to the meeting. Mr. Owens confirmed that as a result of discussions, Gallo and Stanislaus Foods reached a joint prosecution agreement to address potential joint prosecution of claims and that the agreement remains in effect. *8 Defendants argue that the common interest or joint litigation privilege is inapplicable in that Gallo cannot establish that it jointly pursued claims with Stanislaus Foods. Defendants point out that in connection with its settlement with defendants, Stanislaus Foods is subject to liquidated damages if it cooperates or exchanges information about defendants. Defendants seek to compel Gallo “to answer deposition questions and to produce information regarding communications, conversations or other disclosures of information between Gallo and Stanislaus Foods regarding the energy situation of the EnCana Defendants, including ... conversations between Joseph Gallo, Ernest Gallo, Jr. and Dino Cortopassi during meetings in early 2003.” Gallo contends that the Gallo/Stanislaus Foods' meeting(s) addressed legal issues regarding “energy litigation” in which Gallo and Stanislaus Foods have common interests. Gallo notes it and Stanislaus Foods “have contemplated litigation against the same energy companies over the same claims. As the substance of these discussions consisted of communications between Gallo's representatives and its counsel regarding litigation, they are protected by the attorney-client privilege. As Stanislaus Foods and Gallo had a joint prosecution agreement and the purpose of the meetings was to discuss potential joint interests in the prosecution of claims, the presence of Dino Cortopassi and counsel for Stanislaus Foods does not break the privilege, and the common interest privilege applies.” Discussion Scope Of Discovery The purpose of discovery is to make trial “less a game of blind man's bluff and more a fair contest with the basic issues and facts disclosed to the fullest practicable extent possible,” United States v. Procter & Gamble, 356 U.S. 677, 683, 78 S.Ct. 983, 987 (1958), and to narrow and clarify the issues in dispute, Hickman v. Taylor, 329 U.S. 495, 501, 67 S.Ct. 385, 388 (1947). F.R.Civ.P. 26(b) establishes the scope of discovery and states in pertinent part: Parties may obtain discovery regarding any matter, not privileged, that is relevant to the claim or defense of any party, including the existence, description, nature, custody, condition, and location of any books, documents, or other tangible things and the identity and location of persons having knowledge of any discoverable matter. For good cause, the court may order discovery of any matter relevant to the subject matter involved in the action. Relevant information need not be admissible at trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence. (Bold added.) The “broad right of discovery is based on the general principle that litigants have a right to ‘every man's evidence’ and that wide access to relevant facts serves the integrity and fairness of the judicial process by promoting the search for the truth.” Shoen v. Shoen, 5 F.3d 1289, 1292 (9th Cir. 1993) (quoting United States v. Bryan, 339 U.S. 323, 331, 70 S.Ct. 724 (1950)). “The party who resists discovery has the burden to show that discovery should not be allowed, and has the burden of clarifying, explaining, and supporting its objections.” Oakes v. Halvorsen Marine Ltd., 179 F.R.D 281, 283 (C.D. Cal. 1998); Nestle Foods Corp. v. Aetna Casualty & Surety Co., 135 F.R.D. 101, 104 (D. N.J. 1990). Defendants contend that communications between Gallo and Stanislaus Foods regarding the energy situation are “highly relevant.” Defendants speculate that “Gallo and Stanislaus Foods likely exchanged information relating to causes of the energy crisis and the economic effects experienced by each” and that “Stanislaus Foods may have provided Gallo with information it obtained through discovery.” Gallo counters that defendants pursue such discovery based on “their unfounded belief that Stanislaus Foods may have violated its settlement agreement” with defendants. *9 This Court is unconvinced that the testimony and information sought by defendants is relevant to the claims, defenses or subject matter involved in this action or appears reasonably calculated to lead to discovery of admissible evidence. Defendants do little to veil their apparent motives to address whether Stanislaus Foods violated its settlement agreement with defendants. Defendants make no meaningful showing that the communications at issue bear discoverable information. By other discovery, defendants have sought from Gallo information regarding the energy crisis and its economic effects. Attorney-Client Privilege Gallo contends the attorney-client privilege applies to “communications between Gallo's representatives and its counsel that were shared with Stanislaus Foods.” This action involves federal question and pendant state claims. “[I]n federal question cases where pendent state claims are raised the federal common law of privileges should govern all claims of privilege raised in the litigation.” Perrignon v. Bergen Brunswig Corp., 77 F.R.D. 455, 459 (N.D. Cal. 1978). “In a federal question case, the law of privilege is governed by ‘the principles of the common law as they may be interpreted by the courts of the United States in the light of reason and experience.’ ” Religious Technology Center v. Wollersheim, 971 F.2d 364, 367, n. 10 (9th Cir. 1992) (citing F.R.Evid. 501). Issues concerning the application of the attorney-client privilege in the adjudication of federal law are governed by federal common law. Clarke v. American Commerce Nat'l Bank, 974 F.2d 127, 129 (9th Cir. 1992); see United States v. Zolin, 491 U.S. 554, 562, 109 S.Ct. 2619, 2625 (1989); F.R.Civ.P. 501. Under the attorney-client privilege, confidential communications made by a client to an attorney to obtain legal services are protected from disclosure. Fisher v. United States, 425 U.S. 391, 403, 96 S.Ct. 1569, 1577 (1976); Clarke, 974 F.2d at 129; United States v. Hirsch, 803 F.2d 493, 496 (9th Cir. 1986). The privilege's central concern is “to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice.” Zolin, 491 U.S. at 562, 109 S.Ct. at 2625 (quoting Upjohn Co. v. United States, 449 U.S. 383, 389, 101 S.Ct. 677 (1981)). The attorney-client privilege “applies to communications by any corporate employee regardless of position when the communications concern matters within the scope of the employee's corporate duties and the employee is aware that the information is being furnished to enable the attorney to provide legal advice to the corporation.” Admiral Ins. Co. v. U.S. Dist. Court for Dist. of Ariz., 881 F.2d 1486, 1492 (9th Cir. 1989) (citing Upjohn, 449 U.S. at 394, 101 S.Ct. at 685). The burden of proving that the attorney-client privilege applies rests with the party asserting it. Weil v. Investment/Indicators, Research & Management, Inc., 647 F.2d 18, 25 (9th Cir. 1981); United States v. Landof, 591 F.2d 36, 38 (9th Cir. 1978). “A party seeking to withhold discovery based upon the attorney-client privilege must prove that all of the communications it seeks to protect were made ‘primarily for the purpose of generating legal advice.’ ” Griffith v. Davis, 161 F.R.D. 687, 697 (C.D. Cal. 1995) (quoting McCaugherty v. Siffermann, 132 F.R.D. 234, 238 (N.D. Cal. 1990)). “[W]here attorney-client privilege is concerned, hard cases should be resolved in favor of the privilege, not in favor of disclosure.” United States v. Mett, 178 F.3d 1058, 1065 (9th Cir. 1999). *10 Gallo has made a proffer that the communications at issue addressed Gallo and Stanislaus Foods' common legal issues. The gist of the communications at issue were to facilitate legal services of common interest to Gallo and Stanislaus Foods. Defendants offer nothing of substance to challenge Gallo's characterization of the communications. As such, attention turns to application of the common interest rule. Common Interest Rule Gallo further asserts the communications among Joseph and Ernest Gallo, Mr. Cortopassi and counsel are protected by the common interest rule, an extension of the attorney-client privilege which developed as the “joint defense privilege.” See Waller v. Financial Corp. of America, 828 F.2d 579, 583, n. 7 (9th Cir. 1987); United States v. Zolin, 809 F.2d 1411, 1417 (9th Cir. 1987). The gist of the privilege is to protect “communications made when a nonparty sharing the client's interests is present at a confidential communication between attorney and client.” Zolin, 809 F.2d at 1417. “Under the joint defense privilege, ‘communications by a client to his own lawyer remain privileged when the lawyer subsequently shares them with co-defendants for purposes of a common defense.’ ” Waller, 828 F.2d at 583, n. 7 (quoting United States v. McPartlin, 595 F.2d 1321, 1326 (7th Cir. 1979)). Communications are subject to the common interest rule “to the extent that they concern common issues and are intended to facilitate representation in possible subsequent proceedings.” Hunydee v. United States, 355 F.2d 183, 185 (9th Cir. 1965). The Fourth Circuit Court of Appeals has explained the development of the common interest rule: Because “ ‘[t]he need to protect the free flow of information from client to attorney logically exists whenever multiple clients share a common interest about a legal matter’ ” ... courts have extended the joint defense privilege to civil co-defendants ... companies that had been individually summoned before a grand jury who shared information before any indictment was returned ... potential co-parties to prospective litigation ... plaintiffs who were pursuing separate actions in different states ... and civil defendants who were sued in separate actions .... Thus ... today the joint defense privilege is “more properly identified as the ‘common interest rule.’ ” ... ... Whether an action is ongoing or contemplated, whether the jointly interested persons are defendants or plaintiffs, and whether the litigation or potential litigation is civil or criminal, the rationale for the joint defense rule remains unchanged: persons who share a common interest in litigation should be able to communicate with their respective attorneys and with each other to more effectively prosecute or defend their claims. In re Grand Jury Subpoenas, 902 F.2d 244, 249 (4th Cir. 1990) (citations omitted); see Continental Oil Co. v. United States, 330 F.2d 347, 350 (9th Cir. 1964) (The privilege “is a valuable and an important right for the protection of any client at any stage of his dealings with counsel. It is a vital and important part of the client's right to representation by counsel.”) Gallo has substantiated application of the common interest rule to the communications at issue. The clear import of the communications was to discuss a common issue – pursuit of natural gas manipulation claims. Gallo and Stanislaus Foods entered into an agreement to foster their common interest, pursued similar litigation, and contemplated further litigation against entities other than defendants. The parties' attorneys participated to facilitate common goals. This Court is not in a position to second guess Gallo and Stanislaus Foods' joint litigation strategy developed with counsel under confidentiality expectations. *11 Defendants contend the common interest rule does not apply because the communications were not subject to an ongoing joint effort. Gallo and Stanislaus Foods' agreement negates defendants' claim of the lack of a joint effort. Moreover, the effort appeared ongoing surrounding the time of the communications at issue. Order This Court DENIES defendants' motion to compel deposition testimony regarding communications with Stanislaus Foods. MOTION TO COMPEL FURTHER INTERROGATORY ANSWERS AND DOCUMENT PRODUCTION This Court's August 6, 2004 order required Gallo to provide complete, straightforward answers to WD Energy's Interrogatory Nos. 3, 5, 7 and 10. The order further required Gallo to produce certain documents. WD Energy contends that Gallo's further responses to interrogatories and document production are insufficient. Disputed Supplemental Interrogatory Responses WD Energy's Interrogatory No. 3 seeks facts to base Gallo's allegation that “continuing to this day, EES and EnCana have engaged in conspiracy with horizontal competitors who are separate business entities and are unnamed participants.” Gallo provided a four-page further answer which states in part: EES natural gas traders regularly asked for, received and provided information regarding past, current and future prices of natural gas and natural gas derivatives from and to purported competitors and brokers. These traders used price information from online sites, principally Enron Online, and price information they obtained from purported competitors and brokers as the basis for “marking” the EES forward curves and as the basis for quoting prices to customers and executing transactions with customers. They did so with the knowledge and understanding that EES' purported competitors were engaging in the same conduct.... EES engaged in “wash” trades with Reliant Services, its purported competitor, in a manner where EES and Reliant Energy Services simultaneously bought and sold the same product in the same quantity at the same price.... EES entered into “wash” trades with Duke Energy, Reliant and others. EES's parent corporation, EnCana Corporation, publicly admitted to these “wash” trades in July 2002 ... ... EES and its purported competitors gave false reports to the companies that publish gas and gas-related indices that are used to price transactions and that provide industry participants with current market conditions.... Gallo's answer further refers to Securities and Exchange Commission and Commodities and Futures Trading Commission proceedings and identifies 17 entities which an EES trader contacted for price information. WD Energy contends that the answer lacks specifics by failing to list all competitors with whom WD Energy entered into wash trades and all online sites that WD Energy traders used for price information. WD Energy argues that the response provides no facts that defendants' conspiracy continues “to this day” and that Gallo fails to provide support for its allegation that Encana Corp. engaged in a conspiracy with horizontal competitors and fails to identify evidence of an agreement to fix prices. Gallo contends defendants' ongoing discovery obstruction prevents Gallo to identify all of defendants' co-conspirators and online sites which WD Energy used for “marking” its forward price curve and quoting prices to customers. Gallo notes it has identified no less than 17 co-conspirators. *12 As to Interrogatory No. 3, Gallo's answer is thorough, detailed. Defendants engage in mindless nitpicking and fail to demonstrate insufficiencies given their discovery road blocks. Order This Court DENIES WD Energy's motion to compel as to Interrogatory No. 3. WD Energy's Interrogatory No. 5 seeks facts to base Gallo's allegation that “Defendants directly control a portion of this pipeline capacity, and defendants and the unnamed co-conspirators control the aggregate transportation capacity. The defendants have market power over the pricing of firm and interruptible transportation capacity, over the bundled price of natural gas delivered to California, and over the derivatives supposedly based on those prices, commonly known as ‘swaps.’ ” Gallo responded by incorporating by reference its further response to Interrogatory No. 3. WD Energy contends that Gallo's answer fails to address its allegation that “unnamed co-conspirators” control the aggregate transportation capacity. Gallo offers no meaningful explanation for its response which chiefly addresses the allegation subject to Interrogatory No. 3. Gallo attempts to turn the tables and complain of defendants' discovery transgressions. If a responding party is unable to supply requested information, “the party may not simply refuse to answer, but must state under oath that he unable to provide the information and ‘set forth the efforts he used to obtain the information.’ ” Hansel v. Shell Oil Corp., 169 F.R.D. 303, 305 (E.D. Pa. 1996) (quoting Milner v. National School of Health Tech., 73 F.R.D. 628, 632 (E.D. Pa. 1977)). Gallo's response is insufficient and offers no meaningful insight to support its allegation. Gallo must provide a further response with its available information or explain why it cannot meaningfully respond and the efforts used to obtain information to respond. Order This Court ORDERS Gallo, no later than February 11, 2005, to serve a complete, straightforward response to Interrogatory No. 5 or to serve an answer to state it is unable to provide the information and to set forth the efforts used to obtain the information. WD Energy's Interrogatory No. 7 seeks facts to base Gallo's allegation that “Defendants and the unnamed co-conspirators also agreed to do ‘wash’ transactions under which they simultaneously bought and sold from each other the same natural gas and natural gas ‘basis’ swaps and other commodities at the same price on the same day. The ‘wash trades’ also served as a method of communicating collusive price information and collusively manipulating the supposedly independent third party published indexes of prices used to determine the settlement amount of natural gas contracts and natural gas derivatives, including ‘basis’ swaps.” Gallo responded by incorporating by reference its further response to Interrogatory No. 3. WD Energy contends that the response fails to address how wash trades served to collusively manipulate the supposedly independent third party published indexes of prices used to determine the settlement amount of natural gas contracts and natural gas derivatives, including basis swaps. WD Energy argues that Gallo provides no information regarding which indexes were allegedly manipulated. *13 Gallo contends that defendants' “refusal to turn over responsive evidence makes an identification of specific reports impossible” and “it does not appear that WD has produced all documents concerning its reports to the indices.” Gallo's response devotes a paragraph to generally address wash trades. The response lacks specifics. Gallo can rest on its general answer and face it at trial pursuant to F.R.Civ.P. 26(c). Or, it can supplement its response pursuant to F.R.Civ.P. 26(e)(2), and if it does not, it will face evidence preclusion at trial if Gallo attempts to introduce something further. Order This Court ADMONISHES Gallo to comply with its F.R.Civ.P. 26(e)(2) obligations and that this Court will preclude evidence, pursuant to F.R.Civ.P. 26(c)(1), if Gallo fails to comply with such obligations. WD Energy's Interrogatory No. 10 seeks facts to base Gallo's allegation that Gallo “has been and continues to be forced to source the natural gas vital to its business operation at prices artificially inflated by defendants and the unnamed co-conspirators' unlawful conduct. Gallo has been and continues to be severely harmed as a result.” Gallo responded: “Because of defendants and the unnamed co-conspirators' unlawful conduct, Gallo was forced to enter into a natural gas purchasing contract with defendants at inflated prices for natural gas. This natural gas purchasing contract terminated in June of 2003. For further information see Exhibit A attached to Defendants' Reply at pp. 56-69.” Gallo's supplemental response stated: “There is no reasonable substitute for natural gas available to Gallo and, as a result, Gallo had and has no choice but to purchase natural gas at whatever prices were and are available. Gallo purchased the natural gas required for its operations from defendants and their co-conspirators at prices that were artificially manipulated and inflated as a result of the conspiracy and, as a result, was damaged and harmed. See also Amended and Supplemental Responses to Interrogatory Nos. 1-3, and 20-21.” WD Energy contends the response fails to address Gallo's allegation that it has been forced to source natural gas. Gallo contends the response “adequately explains Gallo's position that the prices Gallo paid WD and others for natural gas during the conspiracy period were inflated because of Defendants' conduct.” Gallo's response generally addresses Gallo's allegation that it has been forced to source natural gas. The response lacks specifics. Gallo can rest on its general answer and face it at trial pursuant to F.R.Civ.P. 26(c). Or, it can supplement its response pursuant to F.R.Civ.P. 26(e)(2), and if it does not, it will face evidence preclusion at trial if Gallo attempts to introduce something further. Order This Court ADMONISHES Gallo to comply with its F.R.Civ.P. 26(e)(2) obligations and that this Court will preclude evidence, pursuant to F.R.Civ.P. 26(c)(1), if Gallo fails to comply with such obligations. Disputed Supplemental Responses To Documents Requests And Document Production WD Energy asserts that Gallo's supplemental responses to Document Request Nos. 6, 8, 18-21, 23 and 28-33 “are completely disingenuous.” Gallo's supplemental responses stated that it: (1) “shall produce all responsive, non-privileged documents in its possession, custody and control ... which may be located through a diligent search”; or (2) “has conducted a reasonably diligent search and has produced all non-privileged responsive documents within the scope of the Court's August 6, 2004 order.” WD Energy claims the deposition of Steward Baily (“Mr. Baily”), the controller of Gallo Glass Company, contradicts Gallo's responses in that he testified he gathered only pricing documents. According to WD Energy, Mr. Baily's testimony suggests he has a general ledger used to collect expenses for utilities, monthly financial reports/statements which reflect utility costs, and financial statement packages which include comments drafted or reviewed by Mr. Baily relating to natural gas. *14 Gallo responds that WD Energy refers to “in very general terms the documents they believe Mr. Baily had or should have had, without reference to the subject matters of the requests or the very clear parameters this Court has established for discovery of Gallo's financial documents.” WD Energy fails to establish that Mr. Baily is the proper person to produce documents. Gallo is correct that WD Energy provides no guidance on the applicability of Mr. Baily's testimony to Gallo's purported insufficient responses and document production. WD Energy points to no concrete deficiency in Gallo's supplemental responses. In short, WD Energy fails to articulate what this Court should do and why. Order This Court DENIES WD Energy's motion to compel regarding Gallo's supplemental responses to WD Energy's document requests. Sanctions Gallo seeks to impose a sanction of $1,125 comprising: 1. $375 (one hour multiplied by $375 hourly partner rate); and 2. $750 (three hours multiplied by $250 hourly partner rate). WD Energy raised pertinent issues to negate imposition of sanctions. MOTION TO COMPEL FURTHER RESPONSE TO DAMAGES INTERROGATORY WD Energy's Interrogatory No. 20 asks Gallo to state all damages Gallo claims to “have allegedly suffered as a result of the defendants' conduct identified in the COMPLAINT.” This Court's October 26, 2004 order stated: This Court has stressed that Gallo's alleged damages and their calculation are critical to require Gallo as comprehensively as possible to identify its alleged damages and calculation in response to WD Energy's Interrogatory No. 20. As such, this Court ORDERS Gallo, no later than November 3, 2004 at 12 p.m., to serve a further answer to Interrogatory No. 20 to provide a precise damages figure and calculation, or if such information cannot possibly be provided, to explain the process upon which Gallo uses to calculate damages and why Gallo is unable to provide a precise damages figure. Gallo's further answer must include all information known to date and identify further information which Gallo requires and how Gallo intends to acquire it. Gallo served an 8½-page third amended and supplemental response to Interrogatory No. 20 to address, among other things: 1. The legal basis for its antitrust damages; 2. The factual basis for its antitrust damages resulting from overcharges; 3. The overcharge period running June 2000 to December 31, 2001; 4. Basis for calculation of overcharges arising from the “difference between what the market price was and what the market price would have been given the relevant factors and but for Defendants' price fixing conspiracy”; 5. Gallo's gas purchases, including monthly itemizations from January 2000 to December 2002 and Gallo's hedged positions; and 6. Further information required and means of acquisition. Gallo's response concluded that “subject to expert analysis and opinion, Gallo estimates the overcharge to have been between $16,002,323 and $19,610,331. Adding those numbers to Gallo's $397,490 loss on its November 2001 resale of hedged positions, plus its $1,680,274 in mitigation costs, yields a total range of pretrebling damages of between $18,080,087 and $21,688,095.” Defendants contend Gallo's response fails to identify damages caused by defendants as a result of alleged misconduct and the basis for damages. Defendants complain the response fails to segregate defendants' actions from market forces. *15 Gallo has in great detail set forth the grounds for its damages claims, underlying support for its alleged damages, and calculation of and methodology for its alleged damages. The interrogatory seeks a statement of damages. It does not ask Gallo to explain causation, a separate issue. The response addresses this Court's concerns noted in prior orders. Defendants fail to reasonably articulate what more Gallo can do other than respond to matters not subject to the interrogatory. Sanctions Gallo seeks to impose a sanction of $1,687.50, comprising: 1. $562.50 (1.5 hours multiplied by $375 hourly partner rate); and 2. $1,125 (4.5 hours multiplied by $250 hourly partner rate). Defendants have demonstrated no legitimate grounds to challenge Gallo's response to warrant imposition of a sanction. Gallo seeks an excessive sanction to oppose defendants' motion. An appropriate sanction is $750 based on devotion of three hours at the $250 rate. Order This Court: 1. DENIES defendants' motion to compel Gallo's further response to Interrogatory No. 20; and 2. ORDERS defendants and their counsel jointly, no later than February 11, 2005, to pay Gallo $750 as a sanction. IT IS SO ORDERED. 66h44d Footnotes [1] WD Energy was sued in this action as EnCana Energy Services, Inc. [2] Gallo entered into an April 26, 2001 natural gas sale and purchase agreement with Encana Corp.'s predecessor.