Full Tilt Boogie, LLC v. Kep Fortune, LLC
Full Tilt Boogie, LLC v. Kep Fortune, LLC
2021 WL 4535350 (C.D. Cal. 2021)
June 9, 2021
Scott, Karen E., United States Magistrate Judge
Summary
The court ordered the defendant to supplement their responses to requests for production and requests for admissions, produce a privilege log, and provide supplemental responses to certain requests for admissions. The court also noted the importance of ESI and ordered the defendant to provide any such information that may be relevant to the case.
Additional Decisions
FULL TILT BOOGIE, LLC, Plaintiff,
v.
KEP FORTUNE, LLC, et al., Defendants
v.
KEP FORTUNE, LLC, et al., Defendants
Case No. 2:19-cv-09090 ODW (KESx)
United States District Court, C.D. California
Signed June 09, 2021
Counsel
Ryan Andrew Ellis, Ryan Ellis Law, San Diego, CA, Jennifer Renee Lloyd, Howard and Howard Attorneys PLLC, Las Vegas, NV, Steven Edman Kish, III, Howard and Howard Attorneys PLLC, Beverly Hills, CA, for Plaintiff.Ann Anooshian, Al Mohajerian, Mohajerian PC, Los Angeles, CA, for Defendants.
Scott, Karen E., United States Magistrate Judge
REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE
*1 This Report and Recommendation (“R&R”) is submitted to the Honorable Otis D. Wright, II, United States District Judge, pursuant to the provisions of 28 U.S.C. § 636 of the United States District Court for the Central District of California. This discovery motion is addressed via R&R because it recommends ordering (1) some limited discovery past the discovery cutoff date and (2) sanctions limiting the evidence available at trial.
I.
INTRODUCTION
Full Tilt Boogie, LLC (“Plaintiff”) entered into a franchise agreement with KEP Fortune, LLC (“KEP”) and its principals, Jeroen and Miray Bik (collectively, “Defendants”) to operate a Klein, Epstein & Parker store selling made-to-order suits. In October 2019, Plaintiff sued Defendants, alleging that they failed to provide complete and truthful disclosures about the financial obligations of franchisees and breached the parties' franchise agreement. (Dkt 1.) After setting aside Defendants' default, Defendants counterclaimed alleging breach of the franchise agreement and trade dress infringement. (Dkt. 25, 28.)
On April 14, 2021, Plaintiff filed an ex parte application to shorten time to hear a motion to compel Defendants to provide further responses to discovery. (Dkt. 44, 45 [proposed motion].) On April 28, the Magistrate Judge conducted a telephonic hearing and suggested strategies for pausing case management deadlines, exchanging additional discovery, and pursuing mediation. (Dkt. 53.) The parties conferred again with the Magistrate Judge on May 10, 2021. (Dkt. 60.) Observing no substantial progress, the Magistrate Judge granted the ex parte application to shorten time and set a briefing schedule for Plaintiff's motion. (Id.)
As directed, Plaintiff filed an updated motion on May 14 (Dkt. 62 [the “Motion”]), which Defendants opposed (Dkt. 66 [the “Opposition”]). Plaintiff filed a reply on May 26 (Dkt. 70 [the “Reply”]). The Motion seeks to compel KEP to (1) supplement its interrogatory (“ROG”) responses and (2) produce additional documents.[1] (Dkt. 62 at 2.) The Motion also seeks sanctions in the form of entering a default judgment against Defendants and striking their crossclaims and counterclaims. (Id. at 25-26.) Alternatively, the Motion seeks an adverse inference jury instruction, which would presume that “any missing documents would prove Full Tilt's claims” and/or an order prohibiting Defendants “from relying on any evidence they have not produced in discovery.” (Id. at 26.) The Motion also seeks recovery of the fees and costs Plaintiff reasonably incurred to bring the Motion and ex parte application. (Dkt. 62-16 [proposed order].)
II.
SUMMARY OF DISPUTED DISCOVERY
A. Interrogatories.
*2 On November 3, 2020, Plaintiff served 24 interrogatories (“ROGs”) on KEP.[2] (Dkt. 62-4.) The ROGs ask KEP for facts supporting its denial of any RFAs (ROG 1); facts, witnesses, and experts supporting KEP's damages claims (ROGs 2-4); a list of payments KEP received from Plaintiff (ROG 5); identification of documents that show KEP's costs for certain items or services (ROG 6); identification of documents/witnesses supporting KEP's basis for certain statements in the Financial Disclosure Document (“FDD”) that induced Plaintiff to purchase the franchise (ROG 7, 8); identification of documents/witnesses relevant to the selection of the location for Plaintiff's shop (ROGs 9-11); identification of documents/witnesses about training (ROGs 12-13); KEP's process for evaluating requests to use alternative suppliers (ROGs 14-16); facts supporting KEP's counterclaim for breach of contract and trade dress infringement (ROGs 17-22); and identification of persons who provided responsive information (ROG 23).
B. Requests for Production.
On November 3, 2020, Plaintiff also served 31 requests for production (“RFPs”) on KEP.[3] (Dkt. 62-2.) Generally, the RFPs request documents identified in Defendants' initial disclosures and ROG responses (RFPs 1, 30); agreements between KEP and Plaintiff (RFP 2); Defendants' communications with Plaintiff or about Plaintiff (RFPs 3-5, 7, 20-24, 29); documents on which Defendants relied to prepare the FDD (RFPs 6, 8, 26); documents evidencing KEP's sales and shipments of inventory to Plaintiff, such as order records and invoices (RFPs 9, 11); documents evidencing KEP's profits on such sales, such as records of costs, pricing, revenues, and shipping charges (RFPs 10, 12, 17-19); documents evidencing Defendants' involvement in the selection of the location for Plaintiff's shop (RFPs 13-15, 30); documents evidencing Plaintiff's attempts to obtain KEP's approval of alternative suppliers (RFP 16); and documents related to other franchisees in Arizona or Nevada (RFPs 25, 27-28).
III.
PROCEDURAL HISTORY
KEP served written responses to the ROGs and RFPs in December 2020. (Dkt. 62-5 [RFPs] and 62-6 [ROGs].) As to nearly every ROG, KEP objected that it was “unduly burdensome and calls for privileged defense preparation.” (Dkt. 62-6.) When asked to identify documents evidencing its costs, KEP objected that “protected trade secret information and will be responded to only with a court order, stipulation for confidentiality and extensive redaction.” (Id. at 7-8 [ROGs 6, 7].) KEP raised the same objection when asked to identify documents on which it relied to draft the FDD. (Id. at 8 [ROG 8].) KEP answered ROGs about who conducted training but refused to identify responsive documents. (Id. at 9-10 [ROGs 13-14].) KEP described its process for evaluating requests to use alternative supplies by quoting from the FDD, an answer that was non-responsive. (Id. at 10-13 [ROGs 15-17].) When asked to explain its counterclaims, KEP referred to the pleadings and also provided additional facts. (Id. at 13–23 [ROGs 19, 22].)
As for the RFPs, KEP represented that some documents had been or would be produced. (Dkt. 62-5 at 5-7, 10-11, 14-16, 19-20 [RFPs 1-5, 7, 13-15, 21, 24, 29, 30].) As to other RFPs, KEP represented that no responsive documents existed. (Id. at 8-9, 11-13, 15-16 [RFPs 10-11, 16-18, 22, 25].) As to RFP 6, KEP represented, “Subject to a protective order issued by the court, responding party will agree to provide further documents which would not violate trade secrets or privacy rights of franchisor or its suppliers. (Id. at 6-7.) As to others, KEP provided non-responsive information or objections only. (Id. at 8-9, 13-14, 15-19 [RFPs 9, 12, 19-20, 23-24, 26-28].)
Regarding production, KEP provided some documents via a shared electronic folder on December 14, 2020, representing “The rest of the documents will be produced by the end of the week.” (Dkt. 62-7 at 2.) When no additional documents were received by December 22, Plaintiff's counsel sent an inquiring email. (Id.) She followed up on December 31, having received no response. (Dkt. 62-8 at 2.) On January 8, defense counsel re-sent the link for the shared electronic folder and represented that “all documents have been produced.” (Dkt. 62-9 at 2.) That was not true.
*3 On February 3, 2021, Plaintiff's counsel sent a letter describing deficiencies in KEP's ROG and RFP responses. (Dkt. 62-10.) The letter discusses why the responses to ROGs 10, 11, and 14-19 are substantively insufficient. (Id. at 5-6.) It also challenges objections made to ROGs 1-4, 6, 7, 11, 12, 14-20, and 23. (Id. at 3.) The letter challenges KEP's objections based on trade secrets and offered, “While we believe KEP's assertion of these rights to be improper under the circumstances, ... we are nonetheless willing to enter into a stipulated protective order to ameliorate KEP's concerns. If KEP desires to do so, please provide the proposed protective order by Monday, February 8, 2021.” (Id. at 4.) Regarding the RFPs, the February letter noted that the production on January 8 contained only the same 24 documents KEP had previously produced on December 14. (Id. at 2.) The letter describes certain emails that are missing or to which Plaintiff no longer has access. (Id. at 3.) The letter also describes why nearly all of KEP's objections to the RFPs do not apply. (Id. at 3-4.) Counsel asked to be advised “at your soonest opportunity whether the responses will be supplemented to address these issues, and if not when you are available for a telephonic meet-and-confer to discuss ....” (Id. at 2.)
On February 15, defense counsel emailed, “I am in receipt of your letter, we'll provide supplemental responses by March 10, 2021.” (Dkt. 62-11 at 2.) The email does not ask to meet and confer or address Plaintiff's request that KEP provide a proposed protective order.
By asking for an extension until mid-March to produce supplemental responses and documents, Defendants were asking Plaintiff to wait until it would be nearly too late to bring a regularly noticed motion to compel under Local Rule 37-1 if Defendants failed to make good on their offer to supplement. Per the Scheduling Order, discovery motions “must be heard sufficiently in advance of the discovery cut-off date to permit the responses to be obtained before that date if the motion is granted.” (Dkt. 37 at 2-3.) For parties proceeding under Local Rule 37-1 to have a hearing before May 3, 2021 (i.e., on April 27, 2021, the last Tuesday for law and motion on the Magistrate Judge's calendar before the May 3 discovery cutoff), the joint stipulation would need to be filed no later than April 6, which means that the Rule 37-1 “meet and confer” letter and subsequent conference of counsel that precedes preparation of the joint stipulation would have needed to happen in March. See L.R. 37-1.
Nevertheless, Plaintiff took Defendants at their word and waited until March 2021. When Defendants failed to provide anything new by March 10, Plaintiff emailed an inquiry on March 16. (Dkt. 44-1 ¶ 17.) Plaintiff's counsel attempted to contact defense counsel again on March 26 but received no response. (Id. ¶ 18.) Defendants responded on March 31, offering to produce additional documents when there was a protective order in place but still not circulating a draft; Defendants said nothing about supplementing KEP's ROG and RFP responses. (Id. ¶ 19 & Dkt. 44-12.)
When Defendants again failed to provide a draft proposed stipulated protective order on April 14, 2021, Plaintiff filed an ex parte application to shorten time to hear a motion to compel supplemental responses. (Dkt. 44.) This led the Magistrate Judge to set a discovery status conference for April 28. (Dkt. 49.) At the conference, the parties did not discuss the ROGs, focusing instead on the document requests as more critical to potential mediation efforts. (Dkt. 62-13 [transcript].) Defendants agreed to produce cost-related documents by May 7 to facilitate mediation and to work with Plaintiff to file a proposed stipulated protective order by April 30. (Id. at 33) After exchanging drafts of a proposed protective order on April 28 and 29, however, defense counsel stopped responding to Plaintiff's counsel. (Dkt. 62-1 ¶¶ 26-27.) Plaintiff finally submitted the draft protective order to the Court on May 7 without knowing if Defendants objected to any of its terms. (Id. ¶¶ 28-29; Dkt. 55.) The Court entered the protective order on May 10 after defense counsel represented at the hearing that he did not object. (Dkt. 61.)
*4 On Saturday, May 8, Defendants produced 14 new PDF files. (Dkt. 62-1 ¶ 30.) Defense counsel described the production in a declaration saying, “On May 8, 2021, ... I forwarded three emails with attachments and key statements to [Plaintiff's] counsel .... I released the documents responsive to the document demands and the items she raised at the last hearing [i.e., April 28] for purpose of mediation.” (Dkt. 59 ¶ 3.) But per the later-filed declaration of Mr. Bik, the May 8 production did not contain any cost-related documents, which were the primary kind of document discussed on April 28. (Compare Dkt. 62-13 at 13-17, with Dkt. 66-1 ¶¶ 5, 7.)
On May 10, KEP served supplemental written responses to the RFPs.[4] (Dkt. 62-14.) As to most categories, KEP stated that it had produced responsive documents.
IV.
LEGAL STANDARDS
Counsel should employ civil discovery rules “to secure the just, speedy, and inexpensive determination of every action ....” Fed. R. Civ. P. 1. Even before they receive discovery demands from the opposing party, federal litigants must provide initial disclosures. Fed. R. Civ. P. 26(a). “If a party fails to provide information or identify a witness as required by Rule 26(a) or (e), the party is not allowed to use that information or witness to supply evidence on a motion, at a hearing, or at a trial, unless the failure was substantially justified or is harmless.” Fed. R. Civ. P. 37(c)(1).
When responding to ROGs and RFPs, litigants must provide responsive written answers or objections with substantial legal justification. Fed. R. Civ. P. 33, 34. Further, “[a]n objection must state whether any responsive materials are being withheld on the basis of that objection.” Fed. R. Civ. P. 34(b)(2)(C). If the responding party fails to comply with Rule 33 or 34, the opposing party may move to compel a further response. Fed. R. Civ. P. 37(a)(3)(B). In a motion to compel discovery, the party resisting discovery bears the burden of persuasion. Cable & Computer Tech., Inc. v. Lockheed Saunders, Inc., 175 F.R.D. 646, 650 (C.D. Cal. 1997) (“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.”). The Court shall award cost-shifting sanctions to a successful moving party if the opposing party's position lacks substantial justification. Fed. R. Civ. P. 37(a)(5). If a party fails to comply with a court's discovery order, additional sanctions are available. Fed. R. Civ. P. 37(b)(2).
V.
DISCUSSION
A. Objections.
1. ROGs.
Undue Burden: KEP objected to every ROG except nos. 9 and 21 as unduly burdensome. (Dkt. 62-6.) For example, KEP objected to ROG 24 (asking KEP to identify everyone who assisted with responding to the ROGs) as unduly burdensome. (Id. at 24.) KEP's Opposition brief does not discuss the basis of its burdensome objections. (Dkt. 66.) The supporting declaration from Mr. Bik, however, attempts to explain why responding to discovery about KEP's costs would be burdensome. (Dkt. 66-1.)
Two ROGs asked about KEP's costs. ROG 6 asked KEP to “Identify all Documents evidencing or relating to the cost KEP incurred cutting, measuring, and trimming suits for Full Tilt from January 1, 2016, to present.” (Dkt. 62-6 at 7.) The related ROG 7 asked KEP to “Identify all Documents evidencing or relating to the amount KEP paid third parties to cut, measure, and trim suits for Full Tilt from January 1, 2016, to present.” (Id.) One would expect some set of invoices to be responsive to ROG 6, while some set of payment records (like receipts or invoices marked “paid”) to be responsive to ROG 7.
*5 About these cost records, Mr. Bik declares as follows:
The challenge with collecting the invoices from suppliers is that these are European suppliers and due to COVID it's been a challenge contacting them. These invoices submitted to us include all purchases for corporate stores and our franchisees, but these invoices were submitted through email attachments. These invoices were never maintained in a separate folder. Therefore retrieving these invoices one by one from the attachments has been a taunting [sic] task. Our ability to access and collect these suppliers' emails and retrieving the attached invoices have been hampered by lack of available support staff. We used to have a CFO who was in charge of these type of matters. He is no longer with us. Currently, we are still retrieving these records and unfortunately, we require further time to gather these invoices we received from our European suppliers.
***
I should have all the invoices from Europe (our suppliers) compiled and produced to Plaintiff on or before June 10, 2021.
(Dkt. 66-1 ¶¶ 5, 7.)
This does not explain why responding to ROGs 6 and 7 (which merely asked KEP to identify documents, not produce them) would be unduly burdensome. All of KEP's burdensome objections to the ROGs are OVERRULED.
Work Product: KEP objected to ROGs 1-4, 6, 11-12, 14-20, and 23 as “calls for privileged defense preparation.” (Dkt. 62-6 at 5-7, 9-14, 23.) Again, KEP's opposition brief does not address this objection. Logically, the Court does not see how many of the ROGs could be interpreted as seeking privileged work product. ROG 6, as discussed above, asks KEP to identify documents that show its costs for cutting, measuring, and trimming suits. (Id. at 7.) ROGs 11 and 12 asked KEP to identify persons “at Simon Properties or any other entity acting on behalf of Forum Shops at Caesar's with whom You had contact in connection with the Caesar's Location” and “describe any negotiations” Defendants conducted with the identified people. (Id. at 9.)
Because KEP inserted this objection where it did not apply and failed to explain why it ever applied, the Court OVERRULES all of KEP's work product objections to the ROGs.
Trade Secrets: KEP objected to ROGs 6-8 as asking for “KEP's private business financial information which is protected under privacy laws of California and the United States and is protected trade secret information.” (Dkt. 62-6 at 7-8.) In its Opposition, KEP neither cites the definition of a “trade secret” under California or federal law nor explains why the requested information would qualify. Plaintiff persuasively argues that it would not. (Dkt. 70 at 13-15.) In any event, the Court has since entered a stipulated protective order which adequately addresses these concerns. (Dkt. 61.) As a result, all confidentiality/trade secret objections to the ROGs are OVERRULED.
Relevance: KEP objected to ROGs 6, 8, 20, 21, and 24 as seeking irrelevant information. (Dkt. 62-6 at 7-8, 13-14, 24.) ROG 6 seeks information about KEP's costs, which is relevant to Plaintiff's claim of undisclosed mark-ups. (Id. at 7.) ROG 8 seeks information about how KEP arrived at financial estimates in the FDD, which is relevant to Plaintiff's claim that KEP provided false or incomplete information in the FDD. (Id. at 8.) ROGs 20 and 21 seek information about the failure of other franchisees, more information relevant to Plaintiff's claim that KEP failed to provide accurate and complete disclosure of relevant financial facts and also related to KEP's counterclaims. (Id. at 13-14.) ROG 24 asks who assisted in preparing the ROG responses, information that might identify potential witnesses. (Id. at 24.) KEP's relevancy objections to the ROGs are OVERRULED.
2. RFPs.
*6 Burden: KEP objected to every RFP as “unduly burdensome, oppressive and harassing.” (Dkt. 62-5.) These boilerplate objections are OVERRULED for the same reasons as stated for the ROGs. Regarding RFP 17 and 18 (which ask for production of the cost-related document identified in ROGs 6 and 7, discussed above), Mr. Bik's declaration fails to show an undue burden. The need to review individual emails to look for responsive attachments to produce is not an undue burden, particularly when KEP has had since November 2020 to look for these records.
Relevance: KEP objected to RFPs 5, 13-15, 17-20, and 26 as seeking irrelevant documents. (Dkt. 62-5 at 6, 10-14, 16-17.) For example, RFPs 14 and 15 seek information evidencing KEP's involvement in the selection of the location for Plaintiff's shop, which is relevant to Plaintiff's claim that the work needed to lease the Caesar's location was substantially greater than the estimate contained in the FDD and is relevant to KEP's counterclaim contending that it provided several “written warnings” to Plaintiff against leasing the space. (Dkt. 62-14 at 12-13.) RFPs 27 and 28 seek information related to the systemwide marketing fund, which is relevant to Plaintiff's claim that Defendants had a duty—but failed—to disclose how the systemwide marketing fund was used and whether the fund was audited. (Id. at 21.) Because KEP did not attempt to justify any of its relevancy objections, KEP's relevancy objections to the RFPs are OVERRULED.
Privilege: KEP objected to RFPs 5, 8, 30, and 31 on the basis of privilege, but refused to identify any documents withheld on that basis, stating instead, “Responding party will not be including a privilege log for privileged material subsequent to the material breaches of franchisee unless ordered to do so by the court.” (See, e.g., Dkt. 62-5 at 6 [RFP 5].) Privilege logs are required by Rule 26(b)(5). A responding party lacks substantial justification for refusing to provide a privilege log until the opposing party spends the resources required to file a motion to compel and procure a court order. Failing to produce a timely privilege log can result in waiver of privilege claims. Burlington N. & Santa Fe Ry. v. U.S. Dist. Ct. for Dist. Of Mont., 408 F.3d 1142, 1147 (9th Cir. 2005). While this R&R does not deem all KEP's privilege claims waived, it does require KEP to produce a privilege log. KEP's privilege log must individually identify every responsive document withheld on the basis of privilege. For each document, KEP shall provide sufficient information to assess the claim of privilege (including the document's author, recipients, date, the type of document [e.g., email, memo, draft lease], the RFP(s) to which it is responsive, and the applicable privilege(s)). Failure to provide an adequate privilege log after any order adopting this R&R is issued will likely result in waiver.
Vague and Ambiguous: KEP objected to RFPs 6-8, 11-21, 25, 27-28, and 30 as vague and ambiguous. (Dkt. 62-5 at 7, 9-14, 16, 18-19.) For example, KEP objected to the phrase “did not order” in RFP 11, the phrase “basis for increase” in RFP 12, the phrase “involvement in” in RFP 14, and the term “believe” in ROG 23. (Dkt. 62-5 at 9-10; Dkt. 62-6 at 23.) All of KEP's vagueness objections are OVERRULED. The ROGs and RFPs can be understood based on the common meaning of the words used. Some of the phrases to which KEP objected (like differentiating between inventory Plaintiff “ordered” or did not order), Defendants used in their own email communications with Plaintiff. (See Dkt. 62-15.)
B. ROG Responses.
*7 This R&R first considers whether a supplemental response should be ordered to the ROGs identified as deficient in Plaintiff's February letter (i.e., ROGs 10, 11, and 14-19). (Dkt. 62-10.)
ROG 10 (Dkt. 62-6 at 8-9)
Objections
Identify all Documents evidencing or relating to any Communications to Full Tilt by You recommending against Full Tilt leasing the Caesar's Location, as alleged in paragraphs 13, 16, and 17 of Your crossclaims and counterclaims.
Response
Responding party objects to this interrogatory on the grounds it is unduly burdensome and asks for documents in the possession of propounding party.
Franchise Agreement, Addendum, FDD; all email communications have been produced by Franchisor. Responding party reserves the right to amend this response if and when further information is discovered or comes to light.
This is a typical ROG asking about documents that support allegations in a pleading. As Plaintiff explained in its February 2021 meet and confer letter, Plaintiff no longer has access to its corporate email accounts provided by KEP, so the objection that all responsive documents are already in Plaintiff's possession is OVERRULED.
KEP represents that it has produced “all email communications.” KEP does not disclose, however, if it communicated with Full Tilt about this subject by other written means, such as text messages or paper letters, or whether it would have other documents evidencing telephonic communications, such as recorded voicemail messages, phone message slips, or appointment calendar pages reflecting scheduled calls. KEP's response is incomplete.
ROG 11 (Dkt. 62-6 at 9)
Objections
Identify all Persons and representatives at Simon Properties or any other entity acting on behalf of Forum Shops at Caesar's with whom You had contact in connection with the Caesar's Location.
Responding party objects to this interrogatory on the grounds it is unduly burdensome and calls for privileged defense preparation in this matter.
Response
Responding party does not engage in negotiating franchise locations/leases, on behalf of franchisees. Responding party reserves the right to amend this response if and when further information is discovered or comes to light.
This ROG asks KEP to identify people with whom its employees “had contact,” presumably so that Plaintiff can contact them to see if their recollection matches the Biks'. KEP's response, which refers only to negotiations, is non-responsive and therefore fails to comply with Federal Rule of Civil Procedure 33(b)(3).
ROG 14 (Dkt. 62-6 at 10)
Objections
Identify all documents evidencing or relating to training Full Tilt, as You alleged in paragraph 14 of Your cross-claims and counterclaims.
Response
Responding party objects to this interrogatory on the grounds it is unduly burdensome and calls for privileged defense preparation in this matter.
Franchise Agreement, Addendum, FDD. Responding party reserves the right to amend this response if and when further information is discovered or comes to light.
A responsive answer might identify training manuals, PowerPoint presentations, or records showing who conducted or attended the training. Again, KEP's answer is non-responsive and therefore fails to comply with Rule 33(b)(3).
ROG 15 (Dkt. 62-6 at 10-11)
Objections
Explain the process by which You approve or disapprove a franchisee's request to use a supplier of Inventory other than You, including the quality standards referenced in paragraph 15 of Your crossclaims and counterclaims.
Response
Responding party objects to this interrogatory on the grounds it is unduly burdensome and calls for privileged defense preparation in this matter.
[quoting FDD section 13.1]
ROG 16 (Dkt. 62-6 at 11-12)
Objections
Identify all Documents evidencing or relating to the standards You had for approving or disapproving Full Tilt's requested suppliers of Inventory, as referenced and alleged in paragraph 15 of Your crossand counterclaims.
Response
Responding party objects to this interrogatory on the grounds it is unduly burdensome and calls for privileged defense preparation in this matter.
No requests for alternative suppliers were made to Franchisor from Full Tilt. However the standards are reflected in the Franchise Agreement, Addendum and FDD. FDD section 13.1 provides: If required by Franchisor, any such items or services shall be purchased only from “Approved Suppliers” that Franchisor designates or approves (which might include, or be limited to, Franchisor or an Affiliate). [quoting FDD section 13.1]
ROG 17 (Dkt. 62-6 at 12-13)
Objections
Identify all Documents evidencing or relating to the standards You had for approving or disapproving Full Tilt's requests to purchase third-party goods, Inventory, and/or products, as referenced and alleged in paragraph 15 of Your crossand counterclaims.
Response
Responding party objects to this interrogatory on the grounds it is unduly burdensome and calls for privileged defense preparation in this matter.
[same response as ROG 16]
Plaintiff contends that while the FDD and franchise agreement technically allowed franchisees to use alternative suppliers, KEP needed to approve those suppliers but never did so, essentially creating an undisclosed monopoly on franchisees' supply chain. The quoted sections of the FDD about how a franchisee could request KEP's approval of an alternative supplier are not entirely responsive to ROG 15. ROG 15 seeks information about KEP's process for evaluating such requests. For example, what criteria did KEP use? What, if anything, was done to investigate the proposed supplier? Who made the final decision? ROGs 16 and 17 seek the same kinds of information. The fact that the alternative supplier needed to be approved does not convey the standard(s) KEP used to make approval decisions. Thus, KEP's answers are again non-responsive.
ROG 18 (Dkt. 62-6 at 13)
Objections
Identify all KEP franchisees who You believe have breached their franchise agreements, as alleged in paragraph 37 of Your cross-claims and counterclaims.
Response
Responding party objects to this interrogatory on the grounds it is unduly burdensome and calls for privileged defense preparation in this matter.
Respondents did not allege that franchisees other than Full Tilt have breached their franchise agreements. Responding party is aware of Full Tilt as a party who has breached the franchise agreement, addendum and FDD. Responding party reserves the right to amend this response if and when further information is discovered or comes to light.
ROG 19 (Dkt. 62-6 at 13)
Objections
Explain how each KEP franchisee You identified in response to Interrogatory No. 17 purportedly breached its franchise agreement.
Response
Responding party objects to this interrogatory on the grounds it is unduly burdensome and calls for privileged defense preparation in this matter.
Respondents did not allege that franchisees have breached their franchise agreements. Full Tilt breached its franchise agreement and addendum as alleged in this complaint. Responding party reserves the right to amend this response if and when further information is discovered or comes to light
Plaintiff explains,
In response to Interrogatories Nos. 18 and 19, KEP averred that “Respondents did not allege that franchisees other than Full Tilt have breached their franchise agreements.” But, in your cross-and counterclaims at paragraph 37, KEP alleges that “Counter claimant is informed that James Kirner has spoken negatively to clients, his staff, and other franchisees regarding KEP. This has resulted in other franchisees ending communication with KEP, withholding royalties, breaching the agreement and changing the business at the franchise location (a similar strategy as that employed by Plaintiff).” ... Accordingly, your clients must respond to Interrogatories Nos. 18 and 19 ....
(Dkt. 61-10 at 6) (emphasis omitted). Given KEP's allegations, KEP's responses failed to answer ROGs 18 and 19.
Plaintiff's motion also requests that KEP supplement its responses to ROGs 2, 3, 8, and 23. (Dkt. 62 at 19.) While these ROGs were not specifically discussed in the February meet and confer letter, the R&R considers these arguments because defense counsel never arranged to meet and confer with Plaintiff's counsel in February or March 2021.
*9 ROG 2: This ROG asks KEP for a “detailed description” of each item of claimed damages. KEP responded by objecting that damages discovery was premature because “full damages are subject to proof at trial.” (Dkt. 62-6 at 5.) KEP then listed several categories of legal damages and claimed that they added to “a sum in excess of $10 million.” (Id.)
As noted above, the civil discovery rules require parties to disclose “a computation of each category of damages claimed by the disclosing party—who must also make available for inspection and copying as under Rule 34 the documents or other evidentiary material, unless privileged or protected from disclosure, on which each computation is based, including materials bearing on the nature and extent of injuries suffered.” Fed. R. Civ. P. 26(a)(1)(A)(iii). If KEP has failed to provide such disclosures and documents in support of its crossclaims and counterclaims during the discovery period, then KEP cannot use them to defeat a summary judgment motion or prove up damages at trial.
ROG 3: Plaintiff notes that when asked to “IDENTIFY” people, KEP did not provide adequate identifying information. (Dkt. 62 at 20-21.) For example, this ROG asked KEP to “Identify each and every Person You believe has knowledge or information regarding the claims, counterclaims, defenses, allegations, and any issues involved in this action.” (Dkt. 62-6 at 6.) KEP's answer included “KEP owners and personnel, individuals who have received defamatory accusations regarding KEP, other KEP franchisees.” (Id.) This is insufficient to permit Plaintiff to contact these potential witnesses.
Again, even before receiving any ROGs, parties are required to disclose “the name and, if known, the address and telephone number of each individual likely to have discoverable information—along with the subjects of that information—that the disclosing party may use to support its claims or defenses.” Fed. R. Civ. P. 26(a)(1)(A)(i). If KEP has failed to provide such disclosures during the discovery period identifying witnesses who will support its crossclaims and counterclaims or its affirmative defenses, then KEP cannot call those witnesses at trial.
ROG 8: This ROG asked KEP to “Identify all Documents evidencing or relating to the estimated initial investment amount included in Item 7 of the FDD.” (Dkt. 62-6 at 8.) KEP did not identify any documents on which its estimate was based; it merely identified the FDD itself. (Id.) Again, this was non-responsive.
ROG 23: This ROG asked KEP to “Identify all Marks and trade dress You believe Full Tilt continues to use, as alleged in paragraph 69 of Your cross-claims and counterclaims.” (Dkt. 62-6 at 23.) KEP responded, “Each and every Mark and trade dress owned by KEP, has been used and continues to be used by cross-defendants and each of them, prior to and after the violation(s) of the franchise agreement and alleged recission [sic] by Full Tilt. Cross-defendants removed no Marks or trade dress which were present at the beginning of the franchise's operations.” (Id.)
Plaintiff complains that by identifying “all” the trade dress as the trade dress Plaintiff allegedly infringed, KEP has failed to identify what it contends constitutes its trade dress so that Plaintiff can investigate if/how Plaintiff used that trade dress. (Dkt. 62 at 21.) The response contains no facts about how the marks and trade dress “continue to be used” despite Plaintiff no longer operating a KEP store. Yet again, this was non-responsive.
C. RFP Responses.
*10 Plaintiff contends that KEP's responses to RFPs 10, 11, 12, 14, 15, 17, 27, and 28 are still deficient. (Dkt. 62 at 17-18.)
RFP 10 (Dkt. 62-14 at 9-10)
Produce all Documents evidencing or relating to the profit You derived from Full Tilt's required Inventory purchases from You, including those derived from shipping charges, from January 1, 2016, to present.
1st Response
Responding party has conducted a complete and exhaustive search of its records and cannot produce responsive documents because no such documents exist and thus are not in its custody, control or possession. Franchisor did not keep a record of this information
Supp. Response
Responding party has produced Records responsive to this demand.
RFP 11 (Dkt. 62-14 at 10)
Produce all Documents evidencing or relating to Your shipment of Inventory or other goods to Full Tilt that Full Tilt did not order.
1st Response
Responding party has produced the franchise agreement, FDD, addendum, and all inventory shipments sent to Full Tilt who authorized via the franchise agreement, addendum and FDD all assortment of inventory and KEP accessories to be sold in his Las Vegas franchise location, and communications from KEP to James Kirner. To the extent this request seeks only items Full Tilt ‘did not order’, responding party has conducted a complete and exhaustive search of its records and cannot produce responsive documents because no such documents exist and thus are not in its custody, control or possession. No shipments exist which were not ordered.
Supp. Response
Responding party has produced Records responsive to this demand.
RFPs 10 and 11: For both RFPs, KEP went from saying no responsive documents exist to saying all responsive documents have been produced. Plaintiff points out that responsive documents must exist because Plaintiff and KEP communicated by email about products KEP shipped to Plaintiff's store and invoiced to Plaintiff, even though Plaintiff had not requested them. (Dkt. 62 at 17-18; see Dkt. 62-15 [emails discussing items KEP sent Plaintiff that Plaintiff had not requested].) The emails, for example, indicate that Plaintiff received “wide ties—more than you ordered.” (Dkt. 62-15 at 3.) Plaintiff also received unordered scarves and unordered socks. (Id.) There should be documents showing (1) what some supplier charged KEP for these items and (2) what KEP charged Plaintiff for these items. KEP's supplemental responses appear to be false, because the first type of document had not been produced when the responses were verified (and apparently still has not been produced).
RFP 12 (Dkt. 62-14 at 9-11)
Produce all Documents and Communications evidencing or relating to any price increase You imposed on the Inventory items Full Tilt was required to purchase from You, including but not limited to, identification of affected Inventory, amount of increase, and basis for increase in price.
1st Response
Responding party has produced the franchise agreement, FDD, addendum which provide for the right of the franchisor to periodically increase the price of inventory sold to franchisees, which documents were executed by Full Tilt.
Supp. Response
These records do not exist and never existed. There were no price increases imposed by Responding party to on [sic] the inventory.
*11 RFP 12: The first response affirmed KEP's right to increase prices, while the second response states that KEP never increased prices. The Complaint, however, alleged, “KEP has recently begun raising the prices that it charges Full Tilt for inventory items without a corresponding increase in KEP's actual costs.” (Dkt. 1 ¶ 37.) Plaintiff characterized them as “massive price increases on items it is forced to purchase from KEP.” (Id. ¶ 38.) One would expect Plaintiff to know if Plaintiff received invoices for the same inventory items that reflected new, higher prices. The Court, therefore, disbelieves KEP's supplemental response to RFP 12.
RFP 14 (Dkt. 62-14 at 12)
Produce all Documents evidencing or relating to Your involvement in, advice regarding, or opinion of the negotiation and execution of Full Tilt's lease at the Caesar's Location.
1st Response
Responding party has produced the franchise agreement and addendum, FDD, and any email communications which include franchisee's communications regarding his choice to open his franchise in the Forum Shops and his choice to execute the Forum Shops lease.
Supp. Response
Responding party has produced Records responsive to this demand.
RFP 15 (Dkt. 62-14 at 12- 13)
Produce all Documents evidencing or relating to Your involvement in, advice regarding, or opinion of the negotiation and execution of Full Tilt's lease at the Palazzo Location.
1st Response
Responding party has produced the franchise agreement and addendum, FDD, and any email communications which include franchisee's communications regarding his choice to open his franchise in the Palazzo location and his choice to execute the Palazzo lease.
Supp. Response
These records do not exist and never existed.
RFPs 14 and 15: KEP's initial responses were non-responsive. KEP now indicates that it has produced all responsive documents about the Caesar's Palace location, but as noted earlier, KEP has only produced emails and never confirmed that the documents evidencing responsive communications consist only of emails. Regarding the Palazzo location, the same reason to doubt the completeness and accuracy of KEP's response exists.
RFP 17 (Dkt. 62-14 at 13-14)
Produce all Documents evidencing or relating to the cost KEP incurred in cutting, measuring, and trimming suits made from high-end fabrics for Full Tilt from January 1, 2016, to present.
1st Response
Responding party has conducted a complete and exhaustive search of its records and cannot produce responsive documents because such documents do not exist, and thus are not in its custody, control or possession. Franchisor has produced the FDD, franchise agreement and addendum to evidence the agreement between the parties.
Supp. Response
Responding party has produced Records responsive to this demand.
RFP 17: KEP's supplemental response is clearly false, since Mr. Bik declared that he could not produce these cost-related documents until June 10. (Dkt. 66-1 ¶¶ 5-7.)
RFP 27 (Dkt. 62-14 at 21)
Produce all Documents relating to the management and operation of the System-wide Marketing Fund, including, but not limited to, amounts collected from franchisees and expenditures from January 1, 2016, to present.
1st Response
Responding party has produced the FDD, franchise agreement and addendum which relate to the system-wide marketing fund; and all documents reflecting Full Tilt's monthly payments to the marketing fund if any pursuant to the franchise agreements and FDD.
Supp. Response
Responding party has produced Records responsive to this demand.
RFP 28 (Dkt. 62-14 at 21)
Produce all Communications relating to the management and operation of the Systemwide Marketing Fund You had with any Person from January 1, 2016, to present.
1st Response
Responding party has produced the FDD, franchise agreement and addendum which are “communications” that relate to the system-wide marketing fund; and all documents reflecting communications relating to Full Tilt's monthly payments to the marketing fund pursuant to the franchise agreements and FDD.
Supp. Response
These records do not exist and never existed
*12 RFPs 27 and 28: The Complaint alleges that Defendants had a duty to disclose, but failed to disclose, how the system-wide marketing fund was used and whether the fund was audited. (Dkt. 1 ¶ 60(b).) KEP's relevance objections are therefore OVERRULED.
KEP's supplemental responses indicate that KEP has produced all documents related to the operation/management of the fund, but no documented communications exist about the operation/management of the fund. This seems highly unlikely, unless Defendants performed all the tasks related to operation/management of the fund themselves and did not communicate amongst themselves about it via email or text. It would also mean that Defendants never communicated with auditors about the fund and never provided disclosures to other franchisees about the fund. Again, the Court doubts the truthfulness of these responses.
VI.
RECOMMENDATIONS FOR FURTHER DISCOVERY
For the above-stated reasons, KEP shall provide within ten days of any order adopting this R&R:
1. Supplemental written responses to ROGs 1-8 and 10-24, omitting all objections overruled;
2. Supplemental written responses to all RFPs, omitting all objections overruled and truthfully stating either that all responsive documents have been produced or that none exist;
3. A supplemental production of all responsive, non-privileged documents not previously produced;
4. An index identifying each category of documents produced (e.g., location-related communications, documents relied on to draft the FDD, documents reflecting KEP's cost for inventory sold to Plaintiff, etc.) and the corresponding BATES numbers;[5] and
5. A privilege log identifying each document withheld on the basis of privilege.
VII.
RECOMMENDATIONS FOR SANCTIONS
A. Terminating Sanctions.
The Court declines to impose case-terminating sanctions on all Defendants, as Plaintiff requests. KEP was the only Defendant on which Plaintiff served discovery. The instant motion is the first motion to compel discovery filed by Plaintiff.
B. Adverse Inference Instruction.
For the same reasons, the Court also declines to impose this sanction. To the extent Plaintiff is seeking electronically stored information that it contends KEP failed to preserve, Plaintiff's motion fails to discuss the legal standard under Rule 37(e).
C. Evidence Limiting Order.
As noted above, “If a party fails to provide information or identify a witness as required by Rule 26(a) or (e), the party is not allowed to use that information or witness to supply evidence on a motion, at a hearing, or at a trial, unless the failure was substantially justified or is harmless.” Fed. R. Civ. P. 37(c)(1). The Ninth Circuit gives “particularly wide latitude to the district court's discretion to issue sanctions under Rule 37(c)(1).” Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1106 (9th Cir. 2001). Indeed, Rule 37(c)(1) is a “self-executing, automatic sanction to provide a strong inducement for disclosure of material.” Id. (citation omitted). Unless the sanction results in an outright dismissal of a cause of action, the district court does not have to make a finding of willfulness, fault, or bad faith. See R & R Sails, Inc. v. Ins. Co. of Pennsylvania, 673 F.3d 1240, 1248 n.1 (9th Cir. 2012) (“We noted that the case was distinguishable from cases in which we have required a district court to identify willfulness, fault or bad faith before dismissing a cause of action outright as a discovery sanction because the sanction at issue, although onerous, was less than a dismissal.”) (citation omitted). Here, KEP's failure to provide required discovery in support of its crossclaims and counterclaims was neither justified nor harmless. See Yeti by Molly, 259 F.3d at 1107 (“the burden is on the party facing sanctions to prove harmlessness”). Applying this rule, it is recommended that KEP may not:
*13 1. Use any document KEP did not produce during the discovery period to support its claims or defenses, except for documents already in Plaintiff's possession, custody, or control;
2. Present expert testimony (either in court or via declaration) to support its claims or defenses that relies on documents KEP did not produce during the discovery period, except for documents already in Plaintiff's possession, custody, or control; and
3. Present percipient testimony (either in court or via declaration) to support its claims or defenses from any witness who was not identified by name in KEP's initial disclosures or ROG responses.
D. Cost-Shifting.
Because the Court has granted Plaintiff's motion to compel further discovery, and KEP's position in resisting discovery was not substantially justified, Plaintiff may recover the reasonable costs Plaintiff incurred in connection with the ex parte application, stipulated protective order, and the instant motion. Fed. R. Civ. P. 37(a)(5).
After any order adopting this R&R is issued, Plaintiff shall draft a letter brief presenting its demand and describing why such fees and costs were reasonably incurred. Within 3 working days of defense counsel receiving the letter, counsel shall meet and confer. If counsel cannot agree on the reasonable amount of Plaintiff's fees and costs, then Plaintiff may file its letter brief with the Court and include time spent drafting the letter brief and conferring with counsel. The Court will give KEP an opportunity to file a responding letter brief, after which the Magistrate Judge will decide the reasonable amount of Plaintiff's fee award.
VIII.
CONCLUSION
IT IS THEREFORE RECOMMENDED that the District Court issue an Order: (1) approving and accepting this R&R, (2) granting Plaintiff's motion to compel further discovery (Dkt. 62), (3) ordering KEP to provide the discovery described herein within ten days of the Order Adopting; (4) sanctioning KEP by imposing the evidentiary sanctions described herein; (5) and directing the parties to meet and confer over Plaintiff's reasonable fees and costs.
Footnotes
Because the Motion challenges KEP's objections to Plaintiff's requests for production of documents (“RFPs”), the Court views the Motion as also seeking to compel KEP to supplement its RFP responses. The Motion also requests that Plaintiff's requests for admission (“RFAs”) be deemed as admitted. (Dkt. 62 at 2.) This issue was addressed separately in the Court's May 24, 2021 R&R. (Dkt. 67.)
The ROGs end at no. 23, but there are two ROGs labeled as no. 6. (Dkt. 62-4 at 7.)
There are two RFPs labeled as no. 30. (Dkt. 62-2 at 10.)
The Proof of Service is undated, but the verification form is dated May 10. (Dkt. 62-14 at 25-26.)
The Court has “wide discretion” in controlling discovery and ordering remedial measures. Little v. City of Seattle, 863 F.2d 681, 685 (9th Cir. 1988). While an “index” is not explicitly required by Rule 34, the Court finds that it would be useful in this situation where KEP has previously misrepresented what it has produced.