Minerva26

E-Corp v. Pacificspan LLC

2022 WL 11861117 (D. Ariz. 2022)

January 26, 2022

Silver, Roslyn O., United States District Judge

Download PDF

To Cite List

Summary

The court ordered Defendants to undertake all reasonable efforts to regain access to ESI, such as the Quickbooks database, that they have a legal right to access but no longer know how to access. If the information is not recoverable, Defendants must provide a statement to Plaintiff, sworn under penalty of perjury, stating that they do not have the requested information. If the Court finds prejudice, it may order measures to cure the prejudice or presume the lost information was unfavorable to the spoliating party.

E-Corp, Plaintiff,
v.
Pacificspan LLC, et al., Defendants

No. CV-20-01997-PHX-ROS

United States District Court, D. Arizona

Signed January 26, 2022

Counsel

Jason Arthur McNeill, Pro Hac Vice, Judson D. Stelter, Pro Hac Vice, McNeill Von Maack, Salt Lake City, UT, Kennedy D. Nate, Pro Hac Vice, Ray Quinney & Nebeker, Salt Lake City, UT, Michael J. Holden, Nelson Alexander Floyd Mixon, Holden Willits PLC, Phoenix, AZ, for Plaintiff.
Chase E. Halsey, Richard B. Murphy, Murphy Cordier Casale Axel PLC, Phoenix, AZ, David P. Brooks, Brooks & Affiliates PLC, Mesa, AZ, Nathan Burdsal, Pro Hac Vice, Pacific Legal Group, Provo, UT, for Defendants.

Silver, Roslyn O., United States District Judge

ORDER

*1 Plaintiff E-Corp alleges Defendants Pacificspan LLC and its President, John Lee, fraudulently withheld funds that should have been paid to Plaintiff under the parties’ Joint Venture Agreement. (Doc. 16). In 2015, the parties agreed to enter into a joint venture to perform federal government contracts, which was formed on January 29, 2016. (Doc. 16 at 3). Between August 2016 and March 2018, the parties procured and performed twenty-six government projects. (Doc. 16 at 7). Plaintiff alleges that, during the period beginning May 2018 and ending August 2019, the Defendants withdrew funds from the Joint Venture's operating account and withheld funds that were designated to be paid to Plaintiff under the Joint Venture Agreement. (Doc. 16 at 10-12).

On November 8, 2021, the Court ordered the parties to file a joint statement regarding a discovery dispute disclosed to the Court on November 5. (Doc. 55). Pursuant to this order, the parties filed a statement in which they dispute whether Defendants are required to produce records sought by E-Corp in fourteen requests for production of documents. (Doc. 57 at 2-3). The Court holds Defendants are obligated to produce some, but not all, of the requested records.

BACKGROUND

I. The requests for production

The parties dispute the following requests for production of documents:

REQUEST NO. 3: Produce all documents that reflect any communications with, or about, E-Corp.
REQUEST NO. 9: Produce all communications Pacificspan or Lee has had with the Small Business Administration or any other governmental agency referring to E-Corp or any contract for which E-Corp helped acquire or perform.
REQUEST NO. 12: Produce all documents that reflect, refer or relate to the transfer of any monies from the JV [joint venture] to Pacificspan or Lee between November 1, 2015 and the present, including without limitation, checks, bank statements, financial statements, audited financial statements, receipts, assignments, purchase agreements, wire transfer confirmations, or internal accounting documents (such as QuickBooks reports).
REQUEST NO. 13: Produce all documents that reflect, refer or relate to the transfer of any monies from Pacificspan to Lee or the JV between August 1, 2015 and the present, including without limitation, checks, bank statements, financial statements, audited financial statements, receipts, assignments, purchase agreements, wire transfer confirmations, or internal accounting documents (such as QuickBooks reports).
REQUEST NO. 14: Produce all documents that reflects any accounting, calculation, or methodology of how Defendants allocated or determined the amount of money to be paid to Pacificspan versus E-Corp for any work done by either of them on any project identified in paragraphs 45 and 97 of the Complaint.
REQUEST NO. 15: For the time January 1, 2018 through the present, produce documents sufficient to identify all creditors and the nature, date, and amount of each creditor claim against the JV or Pacificspan.
*2 REQUEST NO. 16: Produce all documents, including communications, which mention, refer, reflect or relate to any payments the JV made to Pacificspan, Lee, Plaintiff, or any other creditor.
REQUEST NO. 17: For the time November 1, 2015 through the present, produce all documents that reflect the JV's payment for any invoice, debt or liability belonging to the JV, Pacificspan or Lee.
REQUEST NO. 18: For the time August 1, 2015 through the present, produce all documents that reflect Pacificspan's payment for any invoice, debt or liability belonging to the JV or Lee.
REQUEST NO. 19: For the time August 1, 2015 to the present, produce a copy of all documents, including spreadsheets, that identify the assets (whether real or personal property) that is or was owned by the JV or Pacificspan, including without limitation, any vehicle, equipment, or inventory lists.
REQUEST NO. 20: For the time January 1, 2018 through the present, produce a copy of all documents that reflect, refer or relate to a transfer, sale, assignment, conveyance or other disposition of any JV monies or other JV asset, to Pacificpsan, Lee, any insider (as that term is defined under A.R.S. § 44-1001 et seq.), or any other third party, and any value received by the JV in return for such transfer, sale, assignment, conveyance or disposition.
REQUEST NO. 21: For the time January 1, 2018 through the present, produce a copy of all documents that reflect, refer or relate to a transfer, sale, assignment, conveyance or other disposition of any Pacificspan monies or other Pacificspan asset, to Lee, any insider (as that term is defined under A.R.S. § 44-1001 et seq.), or any other third party, and any value received by Pacificspan in return for such transfer, sale, assignment, conveyance or disposition.
REQEST NO. 22: For each year (and for each quarter where possible), and during the time January 1, 2016 to the present, produce all the JV's and Pacificspan's audited and unaudited financial statements, including profit and loss statements, balance sheets, cash flow statements, and statements of shareholders equity.
REQUEST NO. 23: Produce a copy of the Quickbooks or other financial management software file, used by Pacificpsan and/or the JV, for the period January 1, 2018 through the present.

II. The Dispute

Defendants object to the above requests. Defendants object that Request 3 is too vague and has no time limitations. (Doc. 57 at 7). Defendants object that Requests 9 and 16 are unduly burdensome in light of the information Plaintiff already has. (Doc. 57 at 7). Defendants also claim not to have access to much of the requested information because Lee deleted his e-mails and no longer has access to “the cloud station database created and managed by Plaintiff” where the information was stored. (Doc. 57 at 7). Defendants raise some objections to the other requests, Nos. 12-15 and 17-23, but explain the ultimate reason they have not responded more fully to those requests is that Defendants no longer have access to most of the requested information. (Doc. 57 at 7-8).

Plaintiff complains Defendants have not adequately produced relevant information in response to the requests. (Doc. 57 at 4-6). In particular, Plaintiff states Defendants have produced only one email and four documents in response to Requests 3, 9, and 16, which Plaintiff argues “is impossible unless Defendants did not put a litigation hold in place.” (Doc. 57 at 5). Plaintiff further complains that Defendants should be able to produce requested financial information but have failed to do so. (Doc. 57 at 5). Plaintiff notes that Defendants should, at the very least, have more information than they have produced because Defendants have not produced information related to a project that ended within the last two months—long after litigation had begun. (Doc. 57 at 5). Plaintiff has not requested a remedy pursuant to Federal Rule of Civil Procedure 37.

LEGAL STANDARD

*3 Under the Federal Rules of Civil Procedure, “[p]arties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case.... Information within this scope of discovery need not be admissible in evidence to be discoverable.” Fed. R. Civ. P. 26(b). Objections to requests for production of documents must “state whether any responsive materials are being withheld on the basis of that objection.” Fed. R. Civ. P. 34(b)(2)(C).

ANALYSIS

I. Scope of This Order

The Court begins with an observation that will limit the scope of Defendants’ discovery responsibility in the wake of this Order: the Court cannot order a party to produce documents it does not possess and to which it does not have access. Cf. Fed. R. Civ. P. 34 (a)(1) (providing a party may request production of discoverable documents within the responding party's possession, custody, or control). To the extent Plaintiff seeks documents Defendants truly do not have and do not have a right to obtain, Defendants are not obligated to produce those documents. The Court, however, emphasizes that if it is demonstrated Defendants had access to materials discoverable under this Order which were not produced, Plaintiff will be entitled to the appropriate remedies set forth in Federal Rule of Civil Procedure 37(b) and (e), including a presumption that the information was unfavorable to Defendants, attorneys’ fees, contempt of court, and default judgment. See Fed. R. Civ. P. 37(b), (e). Further, it will be ordered that the individual Defendants—not the attorneys—are, if appropriate in response to the discovery request, to state under penalty of perjury that they do not have access to the records and that they do not have the method and means to obtain access.

II. Request Nos. 3, 9 and 16 Must Be Answered

Requests for production numbered 3, 9, and 16 seek communications made by the Defendants regarding E-Corp or payments made by the JV. (Doc. 57 at 2-3). Defendants object that the requests are vague and burdensome in light of the information Plaintiff already possesses. (Doc. 57 at 7). Defendants also state they have already produced all responsive communications in their possession, and they are currently attempting to determine whether there are more responsive communications that must be produced. (Doc. 57 at 7). Plaintiff states Defendants have produced only one e-mail and four documents because Defendant Lee deleted all other communications. (Doc. 57 at 4-5). Plaintiff claims Defendants could not possibly have deleted all communications except the one email and four documents absent spoliation. (Doc. 57 at 5).[1]

Request Nos. 3, 9, and 16 seek information that may be relevant to Plaintiff's case because they may show how Defendants complied, or did not comply, with the parties’ contract, how Defendants spent joint venture funds, and whether Defendants were insolvent at the time of the alleged fraud. (Doc. 57 at 5). Defendants’ objection that these requests are unduly burdensome is belied by Defendants’ own admission that the requested documents do not exist or are no longer accessible. (Doc. 57 at 7). There is no burden imposed if there is no longer discoverable information, but if some documents do exist, Defendants have not only misled the Court and the opposing party but have also failed to carry their burden of demonstrating that each and every document is unduly burdensome to produce. Defendants therefore must produce any responsive materials they have in their possession, custody, or control. See Fed. R. Civ. P. 26, 34(a)(1). If no additional responsive materials exist, counsel or Defendants must provide a signed statement to that effect as contemplated by Federal Rule of Civil Procedure 26(g).[2] See Fed R. Civ. P. 26(g).

III. Some Financial Records Must Be Produced

*4 Requests for production numbered 12, 13, 14, 15, 17, 18, 19, 20, 21, 22, and 23 seek financial information about the JV and the Defendants. (Doc. 57 at 2-3). Defendants object that these requests are unduly burdensome because Plaintiff already possesses potentially responsive documents, including the bank records for the JV, Pacificspan, and Lee. (Doc. 57 at 7-8). Defendants further claim they do not have access to some of the requested information, such as the Quickbooks database. (Doc. 57 at 8). Plaintiff responds by accusing Defendants of spoliation.[3] (Doc. 57 at 5-6).

Defendants will be required to produce non-duplicative documents in their possession, custody, or control and those they have a legal right to acquire, if not in their immediate possession. See Soto v. City of Concord, 162 F.R.D. 603, 619 (N.D. Cal. 1995) (“[A]ctual possession of the requested documents is not required. A party may be ordered to produce a document in the possession of a non-party entity if that party has a legal right to obtain the document or has control over the entity who is in possession of the document.”).

A. Request Nos. 14, 15, 19, 20, 21, and 23 must be answered

Requests for production numbered 14, 15, 19, 20, 21, and 23 seek financial information about the JV's assets and liabilities. (Doc. 57 at 2-3). Much of the information sought in these requests, such as accounting calculations, lists of creditors by name and amount, and inventory lists, is not ordinarily contained in bank records. Therefore, Plaintiff may not presently possess this information. But Defendants have failed to demonstrate that producing requested information not already possessed by Plaintiff is burdensome. The JV's assets and liabilities are relevant because fraud and breach of contract are alleged. Defendants will therefore be required to answer requests 14, 15, 19, 20, 21, and 23 with all relevant documents in their possession, custody, or control.

To the extent this Order requires Defendants to produce documents that still exist but are no longer accessible, such as the Quickbooks database information that Defendant Lee claims is no longer accessible (Doc. 57 at 8), Defendants will be required to undertake all reasonable efforts to regain access. If it is possible for Defendants to produce this electronically stored information, such as by reacquiring the username and password through technological means or by contacting a former employee who served as custodian of the Quickbooks account, they must do so. Counsel are to meet and confer regarding whether there are methods or means of recovering this information allegedly lost or destroyed and agree whether and how it is to be recovered.

B. Request Nos. 12, 13, 17, 18, and 22 are duplicative

*5 Requests for production numbered 12, 13, 17, 18, and 22 seek financial information regarding the JV's and the Defendants’ finances, debts, and liabilities. (Doc. 57 at 2-3). Unlike the requests discussed above, these requests seek information—such as payments made by the JV or the Defendants—that would ordinarily be reflected in the financial statements Plaintiff already possesses. Plaintiff has not explained why these requests might produce new discoverable information. Without such a showing by Plaintiff, the Court will not order production. Records are not required to be produced that are “unreasonably cumulative or duplicative, or can be obtained by from other source that is more convenient, less burdensome.” Fed. R. Civ. P. 26(b)(2)(C)(i); cf. Valenzuela v. Equifax Info. Servs. LLC, 2015 WL 1097315 (D. Ariz. Mar. 5, 2015).

Accordingly,

IT IS ORDERED Defendants shall provide all discoverable materials within their possession, custody, or control in response to the following discovery requests no later than February 9, 2022:

REQUEST NO. 3: Produce all documents that reflect any communications with, or about, E-Corp.
REQUEST NO. 9: Produce all communications Pacificspan or Lee has had with the Small Business Administration or any other governmental agency referring to E-Corp or any contract for which E-Corp helped acquire or perform.
REQUEST NO. 14: Produce all documents that reflects any accounting, calculation, or methodology of how Defendants allocated or determined the amount of money to be paid to Pacificspan versus E-Corp for any work done by either of them on any project identified in paragraphs 45 and 97 of the Complaint.
REQUEST NO. 15: For the time January 1, 2018 through the present, produce documents sufficient to identify all creditors and the nature, date, and amount of each creditor claim against the JV or Pacificspan.
REQUEST NO. 16: Produce all documents, including communications, which mention, refer, reflect or relate to any payments the JV made to Pacificspan, Lee, Plaintiff, or any other creditor.
REQUEST NO. 19: For the time August 1, 2015 to the present, produce a copy of all documents, including spreadsheets, that identify the assets (whether real or personal property) that is or was owned by the JV or Pacificspan, including without limitation, any vehicle, equipment, or inventory lists.
REQUEST NO. 20: For the time January 1, 2018 through the present, produce a copy of all documents that reflect, refer or relate to a transfer, sale, assignment, conveyance or other disposition of any JV monies or other JV asset, to Pacificpsan, Lee, any insider (as that term is defined under A.R.S. § 44-1001 et seq.), or any other third party, and any value received by the JV in return for such transfer, sale, assignment, conveyance or disposition.
REQUEST NO. 21: For the time January 1, 2018 through the present, produce a copy of all documents that reflect, refer or relate to a transfer, sale, assignment, conveyance or other disposition of any Pacificspan monies or other Pacificspan asset, to Lee, any insider (as that term is defined under A.R.S. § 44-1001 et seq.), or any other third party, and any value received by Pacificspan in return for such transfer, sale, assignment, conveyance or disposition.
REQEST NO. 22: For each year (and for each quarter where possible), and during the time January 1, 2016 to the present, produce all the JV's and Pacificspan's audited and unaudited financial statements, including profit and loss statements, balance sheets, cash flow statements, and statements of shareholders equity.
REQUEST NO. 23: Produce a copy of the Quickbooks or other financial management software file, used by Pacificpsan and/or the JV, for the period January 1, 2018 through the present.

*6 IT IS FURTHER ORDERED Defendants shall undertake all reasonable efforts to regain access to requested documentation, such as Quickbooks database information, that Defendants have a legal right to access but no longer know how to access. If Defendants reacquire access to such documentation, they shall provide it to Plaintiff no later than 3 days after Defendants reacquire access.

IT IS FURTHER ORDERED counsel for the parties shall meet and confer regarding whether there is a method or means of recovering the technological information allegedly lost or destroyed and reach an agreement on how it is to be recovered, if it is possible to do so. If the information is not recoverable or is only partially recoverable, Defendants are to provide a statement to Plaintiff, sworn under penalty of perjury, stating that Defendants do not have the requested information and that there are no methods or means by which Defendants can obtain access.

Dated this 26th day of January, 2022.

Footnotes

[1]

Defendant Lee admits he deleted emails. (Doc. 57 at 6).

[2]

This statement should clearly explain, under oath, why they do not have access to the requested records, why the records were deleted, what attempts Defendants have made to recover the records, and why Defendants have been unable to recover the records.

[3]

“A federal trial court has the inherent discretionary power to make appropriate evidentiary rulings in response to the destruction or spoliation of relevant evidence.” Glover v. BIC Corp., 6 F.3d 1318, 1329 (9th Cir. 1993). Federal Rule of Civil Procedure 37(e) provides a range of remedies available in the event of spoliation or destruction of electronically stored evidence. If such evidence was lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or recovered, the Court is presented with two options. First, if the Court finds prejudice to the other party from loss of the information, but not that the spoliating party acted with intent to deprive another party of the information's use in litigation, the Court may order “measures no greater than necessary to cure the prejudice.” Fed. R. Civ. P. 37(e)(1). Second, if the Court finds prejudice and the spoliating party acted with the intent to deprive another party of the information's use in litigation, the Court may: presume the lost information was unfavorable to the spoliating party, instruct the jury that it may or must presume the information was unfavorable to that party, dismiss the action, or enter default judgment. Fed. R. Civ. P. 37(e)(2)(A)-(C). Similar sanctions are available under Federal Rule of Civil Procedure 37(b) in the event that a party fails to obey an order to provide or permit discovery. See Fed. R. Civ. P. 37(b)(2)(A)(i)-(vii).