Full Tilt Boogie, LLC v. Kep Fortune, LLC
Full Tilt Boogie, LLC v. Kep Fortune, LLC
2021 WL 5563334 (C.D. Cal. 2021)
October 21, 2021
Scott, Karen E., United States Magistrate Judge
Summary
The court found that KEP had failed to provide a comprehensive response to certain requests for production and imposed sanctions, including an adverse inference instruction, an evidence limiting order, and cost-shifting. The court also ordered KEP to supplement its privilege log and produce emails in native format with metadata intact.
Additional Decisions
FULL TILT BOOGIE, LLC
v.
KEP FORTUNE, LLC, et al.
v.
KEP FORTUNE, LLC, et al.
Case No. 2:19-cv-09090 ODW (KESx)
United States District Court, C.D. California
Signed October 21, 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 P.C., Los Angeles, CA, for Defendants.
Scott, Karen E., United States Magistrate Judge
FINAL REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE
*1 This Final 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.[1] This discovery motion is addressed via R&R because it recommends ordering sanctions, including an adverse instruction and limiting the evidence available at trial.
I.
BACKGROUND
Full Tilt Boogie, LLC (“Plaintiff”) entered into a franchise agreement with KEP Fortune, LLC (“KEP”), whose principals are Jeroen and Miray Bik (together with KEP, “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.)
The parties have had a series of discovery disputes. (See, e.g., Dkt. 44, 45, 46, 50, 52, 53, 60, 63, 65, 67, 71, 78.) As relevant here, Plaintiff filed a motion to compel discovery responses on May 14, 2021. (See Dkt. 62, 66, 70.) The Motion sought to compel KEP to (1) supplement its interrogatory (“ROG”) responses and (2) produce additional documents. (Dkt. 62 at 2.)
On June 9, 2021, the Court issued an R&R, which the District Judge, after considering Defendants' objections, accepted on July 1, 2021. (Dkt. 72, 79, 80.) In regards to KEP's interrogatory responses, the Court overruled all of KEP's burdensome, work product, confidentiality/trade secret, and relevancy objections. (Dkt. 72 at 9–11.) The Court overruled KEP's relevancy and vagueness objections to Plaintiff's Requests for Production of Documents (“RFPs”). (Id. at 11–13.) The Court also found that KEP's responses to ROGs 2, 3, 8, 10, 11, 14–19, and 23 and RFPs 10–12, 14, 15, 17, 27, and 28 were deficient and ordered supplemental responses. (Id. at 13–22.)
The Court ordered KEP within ten days to (a) serve supplemental written responses to ROGs 1–8 and 10–24, omitting all objections overruled; (b) serve 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; (c) serve a supplemental production of all responsive, nonprivileged documents not previously produced; and (d) provide Plaintiff with 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. (Dkt. 80 at 2.) The Court further ordered KEP to produce an adequate privilege log. (Dkt. 72 at 12, 23.)
*2 The Court also found that KEP's failure to provide required discovery in support of its crossclaims and counterclaims was neither justified nor harmless. (Dkt. 72 at 24.) Therefore, the Court imposed evidentiary sanctions proscribing KEP from (a) using 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; (b) presenting 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 (c) presenting 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. (Dkt. 80 at 2.)
Fact discovery closed on May 3, 2021. (Dkt. 102 at 5.) Nevertheless, the Court gave KEP until July 12, 2021, to complete the limited discovery ordered on July 1, 2021. (Id.) Plaintiff was given until July 30, 2021, to file any motions related to above-described limited discovery. (Id.) On July 22, 2021, Defendants asserted that they had “fully complied with the court order.” (Dkt. 96 at 8.)
II.
MOTION TO FURTHER COMPEL
On July 30, 2021, Plaintiff filed a Motion to Further Compel, arguing that “KEP has failed to comply with its discovery obligations in this case and has further failed to comply with the Court's order compelling it to do so.” (Dkt. 104 [“Motion”].) Plaintiff requests the Court to compel KEP “to produce further documents, produce a substantive privilege log, to serve proper interrogatory responses, and/or to impose case-dispositive sanctions for its discovery misconduct.” (Id.) Specifically, Plaintiff seeks an order (1) striking KEP's answer, (2) dismissing KEP's counterclaims with prejudice, and (3) dismissing KEP's crossclaims with prejudice. (Dkt. 104-24.) Plaintiff also requests that KEP be ordered to pay Plaintiff the reasonable attorney fees it incurred in filing the Motion. (Id.) On August 12, 2021, Defendants filed its Opposition (Dkt. 124), and on August 19, 2021, Plaintiff filed a Reply (Dkt. 144). The Court conducted a 31//2 hour telephonic hearing on September 2, 2021. (Dkt. 156.)[2]
III.
SUMMARY OF DISPUTED DISCOVERY
A. Interrogatories.
On November 3, 2020, Plaintiff served 24 ROGs on KEP.[3] (Dkt. 62-4.) The ROGs sought facts supporting KEP's 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 (ROGs 6–7); 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 8–9); identification of documents and witnesses relevant to the selection of the location for Plaintiff's shop (ROGs 10–12); identification of documents and witnesses about training (ROGs 13–14); KEP's process for evaluating requests to use alternative suppliers (ROGs 15–17); facts supporting KEP's counterclaim for breach of contract and trade dress infringement (ROGs 18–23); and identification of persons who provided responsive information (ROG 24). KEP responded to the ROGs on December 14, 2020. (Dkt. 62-6.)
KEP supplemented its ROG responses on July 10, 2021. (Dkt. 104-4.) Plaintiff contends that KEP's responses to ROGs 1–3, 10–12, and 15–19 are still deficient. (Dkt. 104–1 at 10–20.)
B. Requests for Production.
*3 On November 3, 2020, Plaintiff also served 31 RFPs on KEP.[4] (Dkt. 62-2.) Generally, the RFPs request documents identified in Defendants' initial disclosures and ROG responses (RFPs 1, 30(a), 30(b)); 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(a)); 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). KEP responded to the RFPs on December 14, 2020, and provided supplemental responses on May 10, 2021. (Dkt. 62-5, 62-14.)
KEP further supplemented its RFP responses on July 10, 2021. (Dkt. 104–5.) Plaintiff argues that KEP's further responses to RFPs 3, 8, 10–15, 21, and 28 are still deficient. (Dkt. 104-1 at 20–28.)
C. Privilege Log.
As noted in the Court's June 9, 2021 R&R, KEP objected to RFPs 5, 8, 30, and 31 on the basis of privilege but did not include a privilege log. (Dkt. 72 at 12.) The Court ordered KEP to produce a privilege log that individually identifies every responsive document withheld on the basis of privilege and provides sufficient information to assess the claim of privilege. (Id.) The Court further admonished KEP that any “[f]ailure to provide an adequate privilege log after any order adopting this R&R is issued will likely result in waiver.” (Id.)
On July 12, 2021, KEP produced a privilege log, which includes a single entry describing the withheld documents as “Chain of email exchanges between KEP & Franchise attorney – Mr. Russell Kinsey – Kinsey Law Office.” (Dkt. 104-7 at 6.) Plaintiff contends that the privilege log is deficient. (Dkt. 104-1 at 29–31.)
D. BATES Numbering.
As noted above, the Court ordered KEP to provide Plaintiff with an index identifying each category of documents produced and the corresponding BATES numbers. (Dkt. 80 at 2.) On July 12, 2021, KEP produced an index of documents, only some of which referenced BATES numbers and others which referenced the shared folder where the electronic documents can be located. (Dkt. 104-7 at 3–6.) Plaintiff asserts that KEP refused to BATES number the over 4,600 emails it produced in native format. (Dkt. 104-1 at 31–32.)
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. “While Rule 33(d) permits a party in certain circumstances to respond to an interrogatory by ‘specifying the records that must be reviewed,’ the responding party must identify the records ‘in sufficient detail to enable the interrogating party to locate and identify them as readily the responding party could.’ ” Kaneka Corp. v. Zhejiang Med. Co., No. CV 11-2389 SJO (SS), 2016 WL 11266869, at *8, 2016 U.S. Dist. LEXIS 195852, at *28 (C.D. Cal. Oct. 18, 2016) (quoting Fed. R. Civ. P. 33(d)(1)). 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. KEP's Supplemental ROG Responses.
1. ROG 1.
*4 ROG 1 seeks the facts upon which KEP's response to Plaintiff's First Set of Requests for Admission was not an unqualified admission. (Dkt. 62-6 at 5.) KEP did not initially respond, instead objecting to ROG 1 as compound, overbroad, unduly burdensome, and vague. (Id.) While Plaintiff did not explicitly raise ROG 1 in its May 2021 Motion to Compel, the Court generally overruled KEP's burdensome objections without specifically addressing ROG 1 or the unique compound objection in ROG 1. (Dkt. 72 at 10.) Despite not being ordered to respond to ROG 1, KEP supplemented its response, dropping all of its objections and providing brief explanations for why it denied RFAs 3–24 and 26–38. (Dkt. 104-4 at 3–4.)
Rule 26(e) provides that parties must supplement or correct interrogatory responses “in a timely manner if the party learns that in some material respect the disclosure or response is incomplete or incorrect, and if the additional or corrective information has not otherwise been made known to the other parties during the discovery process or in writing.” However, KEP's supplemental response to ROG 1 is improper. The Court has already determined that because KEP failed to timely respond to the RFAs, they are each deemed an unqualified admission. (Dkt. 67, 80.) Therefore, KEP's supplemental response to ROG 1 is STRICKEN.
2. ROG 2.
ROG 2 This ROG asks KEP for a “detailed description” of each item of claimed damages. (Dkt. 62-6 at 5) Initial Response KEP responded by objecting that damages discovery was premature because “full damages are subject to proof at trial.” KEP then listed several categories of legal damages and claimed that they added to “a sum in excess of $10 million.” (Dkt. 62-6 at 5.) Court Order If KEP has failed to provide Rule 26(a)(1)(A)(iii) 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. (Dkt. 72 at 17.) Supp. Response KEP would have made at least $50,000 in royalty payments; thus, damages are in excess of $400,000 plus attorney fees. Documents in support of in shared folder 2. (Dkt. 104-4 at 5.)
KEP's supplemental response to ROG 2 sufficiently describes KEP's damages, which are based on the annual royalty payments it would have expected to receive under the franchise agreement. Nevertheless, based on this response, KEP is PRECLUDED from seeking any form of compensatory damages at trial other than unpaid future royalties.
3. ROG 3.
ROG 3 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.) Initial Response KEP's response included “KEP owners and personnel, individuals who have received defamatory accusations regarding KEP, other KEP franchisees.” (Dkt. 62-6 at 6.) Court Order KEP's response is “insufficient to permit Plaintiff to contact these potential witnesses.” (Dkt. 72 at 17.) Supp. Response “Jeroen Bik, Miray Bik, KEP's CPA Carolyn Jennings, Jimmy Kirner.” (Dkt. 104-4 at 5.)
KEP's supplement response to ROG 3 sufficiently describes all of KEP's witnesses. Nevertheless, based on this response, KEP is PRECLUDED from calling any other witnesses at trial.
4. ROGs 10–12.
ROG 10 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 cross-claims and counterclaims. (Dkt. 62-6 at 8.) Initial Response 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. (Dkt. 62-6 at 9.) Court Order KEP does not disclose if it communicated with Full Tilt about this subject by other than email communications, 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. (Dkt. 72 at 13–14.) Supp. Response Email communications. KEP did not negotiate with Simon. At request from the plaintiff, KEP introduced plaintiff to Simon. The records are available and identified in Shared Folder Request 9. (Dkt. 104-4 at 7.)
*5 ROG 11 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. (Dkt. 62-6 at 9.) Initial Response Responding party does not engage in negotiating franchise locations/leases, on behalf of franchisees. (Dkt. 62-6 at 9.) Court Order 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). (Dkt. 72 at 14.) Supp. Response KEP did not negotiate with Simon. At request from the plaintiff, KEP introduced plaintiff to Simon. The records are available and identified in Shared Folder Request 9. (Dkt. 104-4 at 7.)
ROG 12 Describe any negotiations regarding the Caesar's Location You had with Persons You identified in response to Interrogatory No. 10. (Dkt. 62-6 at 9.) Initial Response Responding party did not “negotiate” on behalf of the franchisee. (Dkt. 62-6 at 9.) Court Order N/A Supp. Response KEP did not negotiate with Simon. At request from the plaintiff, KEP introduced plaintiff to Simon. The records are available and identified in Shared Folder Request 9. (Dkt. 104-4 at 7.)
While KEP's supplemental responses to ROGs 10–12 are arguably deficient and fail to meet Rule 33(b) and (d) requirements, KEP's counsel asserted at the hearing that all responsive information has been identified and produced in shared folder 9. Plaintiff's contention that a produced email (Dkt. 104-12) indicating that Bik told Kirner that he “connected” with Simon and would keep Kirner “informed” does not establish that KEP's responses to ROGs 10–12 are deficient.
5. ROGs 15–17.
ROG 15 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. (Dkt. 62-6 at 10.) Initial Response [quoting FDD § 13.1] (Dkt. 62-6 at 10–11.) Court Order 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? (Dkt. 72 at 15.) Supp. Response [quoting FDD § 13.1] (Dkt. 104-4 at 8.)
ROG 16 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 cross-and counterclaims. (Dkt. 62-6 at 11.) Initial Response 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 § 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 § 13.1] (Dkt. 62-6 at 11–12.) Court Order The fact that the alternative supplier needed to be approved does not convey the standard(s) KEP used to make approval decisions. (Dkt. 72 at 15.) Supp. Response The FDD and Operations manual saved in shared folder request 1, also exhibits attached to the complaint filed by this plaintiff. No requests for alternative suppliers were to Franchisor from Full Tilt. However, the standards are reflected in the Franchise Agreement, Addendum, and FDD. [quoting FDD § 13.1] (Dkt. 104-4 at 9.)
*6 ROG 17 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 cross-and counterclaims. (Dkt. 62-6 at 12.) Initial Response 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 § 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 § 13.1] (Dkt. 62-6 at 12–13.) Court Order The fact that the alternative supplier needed to be approved does not convey the standard(s) KEP used to make approval decisions. (Dkt. 72 at 15.) Supp. Response FDD and franchise agreement, addendum [quoting FDD § 13.1] (Dkt. 104-4 at 10.) KEP's supplemental responses to ROGs 15–17 are still deficient. Paragraph 15 of KEP's Cross-Complaint asserts that “on numerous occasions,” Plaintiff, along with James R. Kirner and The Jimmy K, Inc. “purchased goods from unapproved suppliers and also purchased goods of a quality lesser than that required pursuant to the franchise agreement.” (Dkt. 28 at 4.) As the Court previously admonished KEP (Dkt. 72 at 15), merely quoting the FDD and referencing the franchise agreement and addendum does not properly respond to these interrogatories. Therefore, paragraph 15 of KEP's Cross-Complaint is STRICKEN and KEP is PRECLUDED from entering any evidence or arguing that Cross-Defendants “purchased goods from unapproved suppliers and also purchased goods of a quality lesser than that required pursuant to the franchise agreement.”
6. ROGs 18–19.
ROG 18 Identify all KEP franchisees who You believe have breached their franchise agreements, as alleged in paragraph 37 of Your cross-claims and counterclaims. (Dkt. 62-6 at 13. Initial Response 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. (Dkt. 62-6 at 13.) Court Order In KEP's cross- and counterclaims at ¶ 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).” Given these allegations, KEP's response fails to answer ROG 18. (Dkt. 72 at 16.) Supp. Response Same response given. (Dkt. 104-4 at 11.)
ROG 19 Explain how each KEP franchisee You identified in response to Interrogatory No. 17 purportedly breached its franchise agreement. (Dkt. 62-6 at 13.) Initial Response Respondents did not allege that franchisees have breached their franchise agreements. Full Tilt breached its franchise agreement and addendum as alleged in this complaint. (Dkt. 62-6 at 13.) Court Order In KEP's cross- and counterclaims at ¶ 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).” Given these allegations, KEP's response fails to answer ROG 19. (Dkt. 72 at 16.) Supp. Response Same response given. (Dkt. 104-4 at 11.)
KEP's supplemental responses to ROGs 18 and 19 are still deficient. Paragraph 37 of KEP's Cross-Complaint asserts 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).” (Dkt. 28 at 10). Despite the Court admonishing KEP that its responses to ROGs 18 and 19 failed to identify which other franchisees were affected by statements made by James Kirner, KEP did not supplement its responses to these interrogatories. Therefore, paragraph 37 of KEP's Cross-Complaint is STRICKEN and KEP is PRECLUDED from entering any evidence or arguing that “James Kirner has spoken negatively to clients, his staff, and other franchisees regarding KEP” and that his statements caused any other franchisees to do or not to do anything.
B. KEP's Further RFP Responses.
1. RFP 3.
RFP 3 Produce all emails sent and received from James Kirner's KEP email (jimmyk@ kleinepsteinparker.com) from January 1, 2016, to present. (Dkt. 62–14 at 6.) Supp. Response All emails to and from jimmyk@ kleinepsteinparker.com have been produced herein including emails from Miray Bik to James Kirner. (Dkt. 62-14 at 6.) Court Order N/A Further Response All responsive documents have been produced in the shared folder provided to opposing counsel, specifically see shared folders “Request 1” and “Request 3”. (Dkt. 104-5 at 4.)
*7 KEP's further response to RFP 3 is sufficient. The Court did not address RFP 3 in its June 9 order. Nevertheless, KEP revised its response to RFP 3, indicating that all responsive emails have been produced and are either in shared folder 1 or 3. Plaintiff contends that the 89 documents in share folder 3 “absolutely do[ ] not constitute all of the emails in Kirner's email account over more than three years.” (Dkt. 104-1 at 20.) But Kirner is Full Tilt's principal and thus Plaintiff could presumably provide at least one example of a responsive email that was not produced, which it has not done.
2. RFP 8.
RFP 8 Produce all internal Communications You had regarding the estimated initial investment amount included in Item 7 of the FDD. (Dkt. 62–14 at 8.) Supp. Response Responding party has produced Records responsive to this demand. (Dkt. 62–14 at 9.) Court Order N/A Further Response All responsive documents have been produced in the shared folder provided to opposing counsel, specifically see shared folders “Request 1” and “Request 8”. (Dkt. 104-5 at 5.)
KEP's further response to RFP 8 is sufficient. While the Court did not address RFP 8 in its June 9 Order, KEP revised its response, indicating that all responsive information is in shared folder 1 or 8. Plaintiff contends that KEP's response is “wholly nonresponsive” because KEP produced only the franchise agreement. (Dkt. 104-1 at 20.) KEP, however, asserts that it has no “internal communications” other than “the figures and data in the FDD and its attachments” which are included in either shared folder 1 (Rule 16 initial disclosures) or shared folder 8. (Dkt. 124 at 8–9.)
3. RFP 10.
RFP 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. (Dkt. 62–14 at 9.) Supp. Response Responding party has produced Records responsive to this demand. (Dkt. 62-14 at 10.) Court Order It is undisputed that Plaintiff was required to order certain inventory from KEP under the FDD. There should be documents showing (1) what some supplier charged KEP for these items and (2) what KEP charged Plaintiff for these items. (Dkt. 72 at 19.) Further Response No such document exists or ever existed. (Dkt. 104-5 at 5.)
KEP's further response to RFP 10 is still deficient. KEP's supplemental response and further response are internally inconsistent; either there are responsive documents or there are none. KEP's counsel asserted at the hearing that there are no responsive documents because KEP did not derive a profit from Full Tilt's required inventory purchases. But as the Court noted in its June 9 Order, even if KEP derived a zero profit from required inventory purchases, “[t]here should be documents showing (1) what some supplier charged KEP for these items and (2) what KEP charged Plaintiff for these items.” (Dkt. 72 at 19.) Moreover, at the hearing, Plaintiff's counsel indicated that Plaintiff's expert found “profits” when evaluating some of the invoices received in production. Accordingly, if at trial KEP disputes the profits it derived from required inventory purchases, it is PRECLUDED from relying any documents not produced prior to July 30, 2021. This is a sufficient sanction because RFAs 5 and 6, which were deemed admitted, indicate that KEP “charged Full Tilt more for the Inventory Full Tilt was required to purchase from You than the cost You paid for said Inventory” and that KEP “generated revenue from the Inventory You sold to Full Tilt.” (Dkt. 62-3 at 5.)
4. RFP 11.
*8 RFP 11 Produce all Documents evidencing or relating to Your shipment of Inventory or other goods to Full Tilt that Full Tilt did not order. (Dkt. 62-14 at 9.) Supp. Response Responding party has produced Records responsive to this demand. (Dkt. 62-14 at 10.) Court Order 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. The emails, for example, indicate that Plaintiff received “wide ties—more than you ordered Plaintiff also received unordered scarves and unordered socks. There should be documents showing (1) what some supplier charged KEP for these items and (2) what KEP charged Plaintiff for these items. (Dkt. 72 at 19.) Further Response No such document exists or ever existed. (Dkt. 104-5 at 5.)
KEP's further response to RFP 11 is still deficient. KEP's supplemental response and further response are internally inconsistent; either there are responsive documents or there are none. KEP's counsel asserted at the hearing that there are no responsive documents because KEP did not ship any inventory to Plaintiff that Full Tilt did not order. But, as noted in the Court's June 9 order, a relevant email chain has been produced (Dkt. 62-15), indicating that Plaintiff received ties, scarves, and socks that it did not order. (Dkt. 72 at 19.) Accordingly, if at trial KEP disputes information indicating that KEP shipped inventory or other goods to Plaintiff that Full Tilt did not order, KEP is PRECLUDED from relying on any documents not produced prior to July 30, 2021. This is a sufficient sanction because RFA 11, which was deemed admitted, indicates that KEP “sent Inventory to Full Tilt that Full Tilt did not order or request.” (Dkt. 62-3 at 5.)
5. RFP 12.
RFP 12 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. (Dkt. 62-14 at 11.) Supp. Response These records do not exist and never existed. There were no price increases imposed by Responding party to on [sic] the inventory. (Dkt. 62-14 at 11.) Court Order The Complaint alleges, “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. (Dkt. 72 at 20.) Further Response Same response given. (Dkt. 104-5 at 6.)
KEP's further response to RFP 12 is still deficient. On at least one occasion, KEP notified Plaintiff that it has “no other choice than to increase the price of our suits, shirts and polo's.” (Dkt. 104-2 ¶ 56; see Dkt. 104-19, 104-20.) As discussed at the hearing, KEP's counsel unreasonably interpreted RFP 12 as seeking only documents evidencing price increases that were unilaterally imposed by KEP on Full Tilt. Thus, KEP's counsel unreasonably determined that any documents indicating that KEP passed on price increases from its suppliers to Full Tilt were not responsive. Accordingly, if at trial KEP disputes whether it imposed price increases on Full Tilt, KEP is PRECLUDED from relying on any documents not produced prior to July 30, 2021. This is a sufficient sanction because RFA 22, which was deemed admitted, indicates that KEP “increased the amount [it] charged to Full Tilt for required Inventory purchase while [Full Tilt] was a franchisee.” (Dkt. 62-3 at 7.)
6. RFPs 13–15.
*9 RFP 13 Produce all Documents evidencing or relating to Your involvement in, advice regarding, or opinion of the selection of the Caesar's Location for Full Tilt's franchised business. (Dkt. 62-14 at 11.) Supp. Response Responding party has produced Records responsive to this demand. (Dkt. 62-14 at 12.) Court Order N/A Further Response All responsive documents have been produced in the shared folder provided to opposing counsel, specifically see shared folders Request 1 and Request 13. (Dkt. 104-5 at 6.)
RFP 14 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. (Dkt. 62-14 at 12.) RFP 14 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. (Dkt. 62-14 at 12.) Supp. Response Responding party has produced Records responsive to this demand. (Dkt. 62-14 at 12.) Court Order KEP has only produced emails and never confirmed that the documents evidencing responsive communications consist only of emails. (Dkt. 72 at 20–21.) Further Response All responsive documents have been produced in the shared folder provided to opposing counsel, specifically see shared folders Request 1 and Request 4. (Dkt. 104-5 at 6.)
RFP 15 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. (Dkt. 62-14 at 12) Supp. Response These records do not exist and never existed. (Dkt. 62-14 at 13.) Court Order 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. (Dkt. 72 at 21.) Further Response Same response given. (Dkt. 104-5 at 6.)
KEP's further responses to RFPs 13–15 are sufficient. KEP asserts that it was not involved in negotiating the leases at either the Caesar's or Palazzo's locations (Dkt. 124 at 12–13) and that all responsive documents are in shared folders 1, 4, and 13.[5] Plaintiff's contention that a relevant email indicating that Bik told Kirner that he “connected” with Simon and would keep Kirner “informed” (Dkt. 104-12) does not establish that KEP “negotiated” Full Tilt's lease or that any other responsive documents exist. At the hearing, Plaintiff's counsel acknowledged that RFPs 13–15 were “not where the fight is.”
7. RFP 21.
RFP 21 Produce all Documents and Communications evidencing or relating to delays in processing or delivering orders that Full Tilt placed with You from January 1, 2016, to present. (Dkt. 62-14 at 16.) Supp. Response All email communications have been produced. There were no delays on the part of KEP in processing or delivering orders that Full Tilt placed with KEP. (Dkt. 62-14 at 17.) Court Order N/A Further Response No such documents exist or ever existed. (Dkt. 104-5 at 8.)
KEP's further response to RFP 21 is still deficient. As discussed at the hearing, KEP's counsel unreasonably interpreted this request to be seeking only documents evidencing delays caused exclusively by KEP. Thus, KEP's counsel unreasonably determined that any documents evidencing delays caused by KEP's suppliers would not be responsive to this request. In any event, Defendants produced an email indicating that KEP caused at least one delay. (Dkt. 104-22.) Accordingly, if at trial Plaintiff introduces evidence indicating that it experienced delays in receiving orders, KEP is PRECLUDED from relying on any documents not produced by July 30, 2021, to explain such delays.
8. RFP 28.
*10 RFP 28 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. (Dkt. 62-14 at 22) Supp. Response These records do not exist and never existed. (Dkt. 62-14 at 22.) Court Order KEP's supplemental responses indicate that no documented communications exist about the operation or management of the fund. This seems highly unlikely, unless Defendants performed all the tasks related to operation or 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. The Court doubts the truthfulness of this response. (Dkt. 72 at 22.) Further Response Same response given. (Dkt. 104-5 at 9.)
KEP's further response to RFP 28 is still deficient and is inconsistent with the produced index indicating responsive documents are in shared folder 28. (Dkt. 104-7 at 6.) At the hearing, KEP's counsel unreasonably asserted that any transaction reports involving the Systemwide Marketing Fund were not “communications” and did not involve “management and operation” of the Fund. (See also Dkt. 124 at 14.) Thus, counsel unreasonably determined that financial transaction reports involving the Fund were not responsive. Accordingly, Plaintiff is entitled to an ADVERSE INFERENCE, instructing the jury it may infer that KEP did not produce these documents because it believed that this information would help Plaintiff and harm Defendants.
C. Privilege Log.
KEP produced a privilege log, which includes a single entry describing the withheld documents as “Chain of email exchanges between KEP & Franchise attorney—Mr. Russell Kinsey—Kinsey Law Office.” (Dkt. 104-7 at 6.) Given that the chain involves over four months of emails, this single-line entry is arguably insufficient and violates the court's order to “provides sufficient information to assess the claim of privilege.” (Dkt. 72 at 12.) At the hearing, Defendants' counsel asserted that the emails only concerned drafting the franchise agreement and did not include any third parties.
“The party asserting the attorney-client privilege has the burden of proving that the privilege applies to a given set of documents or communications.” In re Grand Jury Investigation, 974 F.2d 1068, 1070 (9th Cir. 1992). This burden “is generally accomplished by the submission of a privilege log which identifies (a) the attorney and client involved, (b) the nature of the document, (c) all persons or entities shown on the document to have received or sent the document, (d) all persons or entities known to have been furnished the documents or informed of its substance, and (e) the date the document was generated, prepared, or dated.” Diamond State Ins. Co. v. Rebel Oil Co., 157 F.R.D. 691, 698 (D. Nev. 1994).
Therefore, within seven days of any order adopting this R&R, KEP shall provide a supplemental privilege log that (1) specifies the topic or subject of the email chain and (2) identifies the names of all persons included in the email chain. KEP shall provide a separate line entry for any particular email which includes someone other than Russell Kinsey, Jeroen Bik, or Miray Bik.
D. BATES Numbering.
KEP's supplemental production included some documents produced with BATES numbering and other documents—emails—produced in native format with metadata intact. Documents produced in native format generally cannot be BATES numbered. Nevertheless, native files are searchable. At the hearing, Plaintiff's counsel declined to state whether he would give up metadata on the current email production just to get BATES numbers. Instead, he requested that he get both metadata and BATES numbering. But a party “need not produce the same electronically stored information in more than one form.” Fed. R. Civ. P. 34(b)(2)(E)(iii). KEP's production of the 4,600 Outlook emails in native format is sufficient.
VI.
RECOMMENDATIONS FOR SANCTIONS
A. Terminating Sanctions.
*11 Plaintiff argues that KEP's “ongoing discovery misconduct warrants the imposition of case-dispositive sanctions.” (Dkt. 104-1 at 32–37.) “Before imposing the ‘harsh sanction’ of dismissal, however, the district court should consider the following factors: (1) the public's interest in expeditious resolution of litigation; (2) the court's need to manage its dockets; (3) the risk of prejudice to the party seeking sanctions; (4) the public policy favoring disposition of cases on their merits; and (5) the availability of less drastic sanctions.” Leon v. IDX Sys. Corp., 464 F.3d 951, 958 (9th Cir. 2006) (citation omitted). “The first two of these factors favor the imposition of sanctions in most cases, while the fourth cuts against a dismissal sanction. Thus the key factors are prejudice and availability of lesser sanctions.” Henry v. Gill Indus., Inc., 983 F.2d 943, 948 (9th Cir. 1993) (citation omitted).
While Plaintiff summarily argues that it has been prejudiced by KEP's ongoing discovery misconduct, Plaintiff does not fully describe the prejudice particularly in light of all the RFAs deemed admitted. (Dkt. 104-1 at 34 [“The prejudice to Full Tilt favors dismissal, as KEP's misconduct has already prejudiced it.”]; Dkt. 144 at 6 [KEP's tardy discovery “undeniably prejudices Full Tilt's ability to prepare its case for trial.”].) Further, any prejudice to Full Tilt can be remedied by lesser sanctions, as discussed below. Therefore, in its discretion, the Court declines to impose case-terminating sanctions.
B. Adverse Inference Instruction.
“It is well established that the Court has broad discretion to fashion, on a case-by-case basis, an appropriate adverse inference jury instruction for discovery violations.” Imagenetix, Inc. v. Robinson Pharma, Inc., No. SACV 15-0599 JLS (JCGx), 2017 WL 570708, at *1, 2017 U.S. Dist. LEXIS 20164, at *3 (C.D. Cal. Feb. 13, 2017) (citation omitted). As discussed supra § V.B.8, KEP failed to produce all documents related to its management and operation of the Systemwide Marketing Fund. Therefore, it is recommended that Plaintiff is entitled to the following adverse inference instruction:
Defendants failed to produce all communications related to KEP's management and operation of the Systemwide Marketing Fund. You may infer that Defendants did not produce this information to Plaintiff because Defendants believed that this information would help Plaintiff and harm Defendants.
C. Evidence Limiting Order.
If a party “fails to obey an order to provide or permit discovery”—as occurred here—the Court may issue a limiting order “prohibiting the disobedient party from supporting or opposing designated claims or defenses, or from introducing designated matters in evidence.” Fed. R. Civ. P. 37(b)(2)(A). This sanction is also available for parties who fail to fully answer interrogatories or respond to requests for production. Fed. R. Civ. P. 37(d)(3). Applying these rules, it is recommended that KEP may not:
1. Seek any form of compensatory damages at trial other than unpaid future royalties.
2. Call any witnesses at trial other than Jeroen Bik, Miray Bik, Carolyn Jennings, or Jimmy Kirner.3. Enter any evidence or argue that Cross-Defendants “purchased goods from unapproved suppliers and also purchased goods of a quality lesser than that required pursuant to the franchise agreement” as described in paragraph 15 of KEP's Cross-Complaint, which shall be stricken.4. Enter any evidence or argue that “James Kirner has spoken negatively to clients, his staff, and other franchisees regarding KEP” and that Kirner's statements caused any other franchisee to do or not do anything, as described in paragraph 37 of KEP's Cross-Complaint, which shall be stricken.
5. Rely on any documents not produced by July 30, 2021,[6] to dispute the profits KEP derived from Full Tilt's required inventory purchases.
*12 6. Rely on any documents not produced by July 30, 2021, to dispute that KEP shipped inventory or other goods to Plaintiff that it did not order.7. Rely on any documents not produced by July 30, 2021, to dispute that KEP imposed price increases on Full Tilt.8. Rely on any documents not produced by July 30, 2021, to dispute that KEP experienced delays in processing or delivering orders.
D. Cost-Shifting.
Because the Court has granted in part Plaintiff's motion to further compel discovery, and KEP's position in resisting discovery was not substantially justified, Plaintiff may recover the reasonable costs Plaintiff incurred in connection with the instant motion. Fed. R. Civ. P. 37(a)(5). Further, because KEP's deficient discovery is in violation of the Court's June 9 Order and was not substantially justified, the Court “must order the disobedient party, the attorney advising that party, or both to pay the reasonable expenses, including attorney's fees, caused by the failure.” Fed. R. Civ. P. 37(b)(2)(C); see also Qualcomm Inc. v. Broadcom Corp., No. 05 CV 1958, 2008 U.S. Dist. LEXIS 911, at *44–45, 2008 WL 66932, at *13 (S.D. Cal. Jan. 7, 2008) (finding discovery misconduct and sanctioning counsel who failed to conduct a reasonable inquiry into the adequacy of their client's document search and production: “Thus, the Court finds it likely that some variation of option four occurred; that is, one or more of the retained lawyers chose not to look in the correct locations for the correct documents, to accept the unsubstantiated assurances of an important client that its search was sufficient, to ignore the warning signs that the document search and production were inadequate, not to press Qualcomm employees for the truth, and/or to encourage employees to provide the information (or lack of information) that Qualcomm needed to assert its non-participation argument and to succeed in this lawsuit.”), vacated in part, 2008 WL 638108, 2008 U.S. Dist. LEXIS 16897 (S.D. Cal. Mar. 5, 2008). Therefore, within 14 days of any order adopting this R&R, Plaintiff shall file a motion to recover attorney fees from KEP and/or KEP's counsel, presenting its request and describing why such fees and costs were reasonably incurred. The Court will thereafter give Defendants and counsel an opportunity to respond.
VII.
CONCLUSION
*13 IT IS THEREFORE RECOMMENDED that the District Court issue an Order: (1) approving and accepting this Final Report and Recommendation, (2) granting in part Plaintiff's motion to further compel (Dkt. 104), (3) ordering KEP to supplement its privilege log within seven days of the Order Adopting, (4) sanctioning KEP with the adverse instruction and evidence limiting described herein, (5) striking KEP's supplement response to ROG 1, and (6) directing Plaintiff to file a motion to recover attorney fees within 14 days of the Order Adopting.
Footnotes
Because this Final R&R is issued only to respond to Plaintiff's objections to the initial R&R (Dkt. 168, 172) and the recommendations remain unchanged, a second objections period is not warranted.
The parties participated in a nine-hour settlement conference on September 15, 2021, which adjourned without a settlement being reached. (Dkt. 164.)
The ROGs end at no. 23, but there are two ROGs labeled as no. 6. (Dkt. 62-4 at 7.) The parties refer to the second one as ROG 7 and have renumbered ROGs 7 through 23 as 8 through 24, respectively.
There are two RFPs labeled as no. 30. (Dkt. 62-2 at 10.) The Court refers to the first one as RFP 30(a) and the second as RFP 30(b).
It appears that there are also responsive documents in shared folder 14. (Dkt. 104-7 at 4.)
In its objections to the initial R&R, Plaintiff contends that in limiting KEP to relying on documents produced by July 30, 2021, the Court “imposes a lesser sanction than the one imposed by the [Court's] July 1 Order.” (Dkt. 172 at 4.) But the Court's July 1 Order precluding KEP from relying on documents produced after May 3, 2021, involved a subject matter distinct from this R&R. The July 1 Order involved documents KEP might use to support its affirmative defenses and counterclaims. (Dkt. 80.) The July 1 Order also ordered additional discovery, which became the subject matter of Plaintiff's instant motion to compel. (Dkt. 80, 104.) Here, the limiting order applies to matters broader than the July 1 Order, including documents to contradict or refute Plaintiff's claims. Indeed, the limiting evidence sanctions recommended here are not intended to weaken the sanctions imposed by the July 1 Order.