In re Gonzalez
In re Gonzalez
2021 WL 9794644 (S.D. Fla. 2021)
December 16, 2021

Reid, Lisette M.,  United States Magistrate Judge

28 U.S.C. § 1782
Legal Hold
Privilege Log
Possession Custody Control
Sanctions
Mobile Device
Third Party Subpoena
Forensic Examination
Failure to Produce
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Summary
The court ordered a third-party forensic examination of two email servers used by Verfruco U.S.'s employees, consultants, and owners to determine if any documents or communications had been deleted. The court rejected Verfruco U.S.'s motion to stay, finding that control may be established where affiliated corporate entities have actually shared responsive information and documents in the normal course of their business dealings.
Additional Decisions
In re Application of EDUARDO GONZALEZ, Applicant, Pursuant to 28 U.S.C. § 1782 for Judicial Assistance in Obtaining Evidence for Use in Foreign International Proceedings
CASE NO. 20-24628-MC-GAYLES
United States District Court, S.D. Florida
Signed December 15, 2021
Entered December 16, 2021

Counsel

Cristina Boullon Rodriguez, Liana De La Noval, WolfePincavage, Miami, FL, Alejandra Barcenas, Pro Hac Vice, Jordan Tank, Pro Hac Vice, Lipe Lyons Murphy Nahrstadt & Pontikis, Ltd., Chicago, IL, for Verfruco Foods, Inc.
David Lopez, Pro Hac Vice, Cacheaux, Cavazos & Newton, L.L.P., San Antonio, TX, Scott Allan Cole, Cole Scott & Kissane, Miami, FL, for Victor Sebastian Mauricio, Jaime Sebastian Mauricio.
Reid, Lisette M., United States Magistrate Judge

ORDER DENYING VERFRUCO FOODS, INC.’S MOTION FOR PARTIAL STAY PENDING APPEAL

*1 This matter is before the Court on Respondent Verfruco Foods, Inc.’s (“Verfruco U.S.”) Motion for Partial Stay Pending Appeal. [ECF No. 103]. This case involves an ex parte Application for Judicial Assistance under 28 U.S.C. § 1782, filed by Eduardo Gonzalez requesting the issuance of subpoenas directed to Verfruco U.S., to obtain documentary and testimonial evidence for use in contemplated legal proceedings in Mexico. [ECF No. 1]. To date, Verfruco U.S. has appealed to the Eleventh Circuit Court of Appeals three district court rulings in this case: (1) the District Judge Order granting Gonzalez's § 1782 Application [ECF No. 8]; (2) the Order denying Verfruco U.S.’s motion to vacate and motion to quash [ECF No. 33]; and (3) the Order granting Gonzalez's motion to compel [ECF No. 99].
In the Motion for Partial Stay Pending Appeal, Verfruco U.S. requests that the Undersigned stay the third order, ECF No. 99, in part. The order required a third-party forensic examination of email servers used by Verfruco U.S.’s employees, consultants, and owners for documents in response to Eduardo Gonzalez's Application for Judicial Assistance pursuant to 28 U.S.C. § 1782. This case has been referred to the Undersigned for a ruling on all pre-trial, non-dispositive matters. [ECF No. 69].
Verfruco U.S.’s current motion follows a series of motions to stay discovery or limit discovery in this case. For reasons explained in this order, this Motion is DENIED.
I. Background
Gonzalez and the Sebastian-Mauricio Brothers were partners in Verfruco Mexico, S. de R.L. de C.V. (“Verfruco Mexico”). [ECF No. 1]. On November 11, 2020, Gonzalez filed an ex parte Application for Judicial Assistance under 28 U.S.C. § 1782, requesting the issuance of subpoenas directed to Verfruco U.S., to obtain documentary and testimonial evidence for use in contemplated legal proceedings in Mexico. [Id.]. Gonzalez's Application describes the Sebastian-Mauricio Brothers purported decade-long effort to deprive him of his 8% equity interest in Verfruco Mexico.
In the Application, Gonzalez claimed that the Sebastian-Mauricio Brothers, as partial owners of Verfruco Mexico, transferred its assets to other companies owned and/or controlled by them, including Verfruco U.S., and Mexican companies, Freshcourt, S. de R.L. de C.V. (“Freshcourt”), Novafoods, S. de R.L. de C.V. (“Novafoods”), and FI Avocados, S. de R.L. de C.V. (“FI Avocados”). [ECF Nos. 1; 1-1]. According to Gonzalez, these companies and Verfruco Mexico form the Verfruco business group. See [ECF No. 63].
Ultimately, the Court entered an ex parte Order granting Gonzalez's Application (“Order Granting Gonzalez's § 1782 Application”), and the Clerk of Court was ordered to issue the requested subpoenas. [ECF No. 8]. In one subpoena, Gonzalez sought the following documents from Verfruco U.S.:
(1) All documents and communications, showing, reflecting, discussing, or relating to the assets, revenues and profits of Verfruco Mexico, Novafoods, Freshcourt, and FI Avocados, including but not limited to audited and unaudited financial statements and balance sheets;
*2 (2) All documents and communications showing, reflecting, discussing or relating to any transfers or assets or cash from Verfruco Mexico, Novafoods, Freshcourt, and FI Avocados, to the Sebastian-Mauricio Brothers or to companies owned and/or controlled by them; and,
(3) All documents and communications showing, reflecting, discussing or relating to Mr. Gonzalez's ownership interest in Verfruco Mexico, Novafoods, Freshcourt, and FI Avocados as well as all documents and communications showing, reflecting, discussing or relating to any efforts to deprive Mr. Gonzalez of his ownership interest.
[ECF Nos. 1 at 20; 1-3 at 25, 39].
In the other subpoena, Gonzalez sought deposition testimony from Verfruco U.S. regarding the following:
(1) The assets, revenues and profits of Verfruco Mexico, Novafoods, Freshcourt, and FI Avocados;
(2) Any transfer of assets or cash from Verfruco Mexico, Novafoods, Freshcourt, and FI Avocados to the Sebastian-Mauricio Brothers or to companies own and/or controlled by them; and,
(3) Mr. Gonzalez's ownership interest in Verfruco Mexico, Novafoods, Freshcourt, and FI avocados as well as any efforts to deprive Mr. Gonzalez of his ownership interest.
[ECF No. 1-3 at 40, 47].
Verfruco U.S. moved to vacate the ex parte Order [ECF No. 13], and quash the subpoenas issued pursuant to the Order [ECF No. 15] (collectively, “motions”), arguing that the discovery sought by Gonzalez regarding the Mexican companies was not within Verfruco U.S.’s possession, custody, or control because the Mexican companies were located outside the United States. The motions included a declaration by Juan Molano (“Molano”), Verfruco U.S.’s Director of Sales and Product Management, claiming that Verfruco U.S. had “examined all of the electronic and paper records in its possession, custody, or control and determined that it does not have documents responsive to [Gonzalez's subpoenas].” [ECF No. 13-2 ¶ 5]. In fact, at various times during this case Molano signed declarations stating that “Verfruco U.S. did not have any documents responsive to Gonzalez's subpoenas.” [ECF No. 40-1, ¶8; 35-2 ¶¶ 8-10].
On April 14, 2021, the Undersigned denied the motions and ordered Verfruco U.S. to produce all documents within its possession, custody, or control and provide information in its possession, custody, or control responsive to the subpoenas (“April 14, 2021 Order”). [ECF No. 25]. Verfruco U.S. objected to the Undersigned's April 14, 2021 Order and also moved to stay compliance with the subpoenas until after the District Judge ruled on its objections. [ECF Nos. 34; 35].
The District Judge denied Verfruco U.S.’s motion to stay. [ECF No. 41]. Additionally, the District Judge overruled Verfruco U.S.’s objections to the April 14, 2021 order, requiring Verfruco U.S. to comply with the subpoenas [ECF No. 67]. On August 24, 2021, Verfruco U.S. appealed to the Eleventh Circuit Court of Appeals. [ECF No. 78].
Next, when Verfruco U.S. still failed to comply with the subpoenas, Gonzalez filed his first motion to compel. [ECF No. 42 at 1]. After a June 1, 2021 hearing, the Undersigned entered an order granting Gonzalez's request, ordering that Verfruco U.S. produce all documents responsive to the subpoenas, regardless of their physical location. [ECF No. 52 at 1] (emphasis in original). The order cautioned Verfruco U.S. that failure to comply with the Court's orders will likely result in sanctions pursuant to Fed. R. Civ. P. 37. [Id. at 3].
*3 On June 22, 2021, Gonzalez deposed Molano, whom Verfruco U.S. had designated as the corporate representative. See [63-1]. The day before Molano's deposition, Verfruco U.S. filed its response to Subpoena to Produce Documents, stating that “Verfruco U.S. has not identified any documents responsive to the Subpoena.” [ECF No. 59 at 2]. Verfruco U.S. also explained that, on an unknown date in June 2021, it engaged an e-discovery vendor to “search all of Verfruco U.S.’s electronic records on the companies’ three computers and three mobile devices for documents responsive to Gonzalez's subpoena” and found only two financial statements. [Id. at 4-5]. Other than these two financial statements, Verfruco U.S. did not produce any documents responsive to Gonzalez's subpoena. [Id. at 29-30, 33-34].
At deposition, Molano stated that Verfruco U.S. is a $50-million-a-year operation. [ECF No. 63-1 at 112:20-113:6], and that it owned 99 percent of the shares of Freshcourt. [Id. at 116:10-17]. The company employed only three employees who sell avocado pulp in the United States and worldwide [Id. at 123:17]. He testified that his company travel expenses and computer equipment expenses are paid by Freshcourt. [Id. at 125:8-25].
As evidenced by the deposition transcript, Molano had no knowledge of Verfruco U.S.’s electronic document storage policies and practices, let alone the process used to collect, search for, and produce responsive documents in this matter. [ECF No. 63-1 at 29:23-30:16]. Specifically, Molano did not know where the Sebastian-Mauricio Brothers stored company documents, and he did not have knowledge about Verfruco U.S.’s payment of invoices, bank accounts, or whether the company had accountants. [Id. at 42:20-45:23, 54:10-58:7, 71:10-72:17, 73:12-21; 74:21-75:2]. Molano also revealed that there were several emails to or from the Sebastian-Mauricio Brothers, which were responsive to the subpoena, but had not been produced by Verfruco U.S. [Id. at 93-152, Ex.’s 1-16].
Moreover, Molano was not even sure when a litigation hold was issued or if there was a formal document indicating a litigation hold, and he admitted that Verfruco U.S. did not activate a litigation hold function in its email server. [Id. at 64:21-24, 65:6-14, 68:4-14]. Finally, Molano testified that Verfruco U.S.’s directors, officers, and employees, including the Sebastian-Mauricio Brothers, use either the @freshcourt.com or @bestproduce1.com email accounts. [Id. at 16:25-17:4, 171:6-172:9].
Despite Verfruco U.S.’s repeated claims that it possessed no documents responsive to Gonzalez's request, on June 30, 2021, following Molano's deposition, Verfruco U.S. filed a supplement to its Response to Subpoena to Produce Documents, identifying three documents responsive to Gonzalez's subpoena: a letter, an email thread, and a spreadsheet. [ECF No. 61].
Finally, Gonzalez moved for a third-party forensic expert to conduct an examination of Verfruco U.S.’s records in a second motion to compel. [ECF No. 63]. On November 8, 2021, at 4:51 p.m., nearly a year after this litigation commenced and the evening before the evidentiary hearing on the motion, Verfruco U.S. filed a “Supplementary Declaration of Juan P. Molano.” [ECF No. 97]. In the Declaration, Molano admitted that both Victor and Jaime Sebastian-Mauricio conducted a “good faith search” of their personal mobile phones for any documents or communications responsive to Gonzalez's Subpoena, and the searches identified 3,032 “hits.” [Id. at 1].
After the hearing, the Undersigned granted Gonzalez's request to appoint a neutral third-party expert to access and independently review the two email servers that Verfruco U.S.’s directors, officers, employees, independent contractors, and/or consultants use (the “@freshcourt.com” email server and the “@bestproduce1.com” email server) for any documents responsive to Gonzalez's subpoena and to determine whether any documents or communications had been deleted.
*4 In accordance with the Undersigned's rulings, the neutral third-party expert requested by Gonzalez, FTI Consulting, Inc., was appointed with the following parameters:
1. The parties shall meet and confer within 7 days of the date of this Order to agree upon the specific search terms for the third-party forensic expert to use in its search of the email servers, in accordance with the language set forth in Gonzalez's subpoena, and as discussed in open court;
2. The third-party forensic expert shall turn over all documents responsive to the subpoena to Verfruco U.S. Once Verfruco U.S. receives the documents from the forensic expert, Verfruco U.S. shall promptly produce those documents that are responsive to the subpoena;
3. The documents responsive to the subpoena shall also include any document in which Verfruco U.S. has brokered a purchase or sale of goods or services relating to any company owned or controlled by the Sebastian-Mauricio Brothers and/or the Mexican companies;
4. Should Verfruco U.S. find any document to be privileged, Verfruco U.S. shall indicate such within a privilege log that will be turned over to Gonzalez. Any privilege log must strictly comply with the Local Rules for the Southern District of Florida;
5. The third-party forensic expert shall be compensated by Verfruco U.S.; and,
6. If the third-party forensic expert should determine that any documents or communications have been deleted, it should inform all parties and provide a report to the Court.
The Court reserved ruling on Gonzalez's request for contempt sanctions pursuant to Federal Rule Civil Procedure 37(b).
To date, Verfruco U.S. has appealed three rulings in this case: (1) the District Judge Order granting Gonzalez's § 1782 Application [ECF No. 8], (2) the Order denying Verfruco U.S.’s motion to vacate and motion to quash [ECF No. 33], and (3) the Order granting Gonzalez's motion to compel [ECF No. 99]. As Gonzalez correctly notes, the Eleventh Circuit Court of Appeals will review all of these orders using an abuse of discretion standard. Sergeeva v. Tripleton Int'l Ltd., 834 F.3d 1194, 1198 (11th Cir. 2016) (“We apply an abuse of discretion standard in reviewing district court decisions resolving applications for assistance pursuant to § 1782.”).
II. Legal Standards
The issuance of a stay pending appeal is an “extraordinary relief.” Garcia-Mir v. Meese, 781 F.2d 1450, 1455 (11th Cir. 1986). The Supreme Court observed that “[a] stay is not a matter of right, even if irreparable injury might otherwise result.” Nken v. Holder, 556 U.S. 418, 433 (2009) (citing Virginian Ry. Co. v. United States, 272 U.S. 658, 672 (1926)). Rather, the court may exercise judicial discretion to stay the lower court's decision pending appeal “dependent upon the circumstances of the particular case.” Id. (quoting Virginian Ry. Co., 272 U.S. at 672-73). “The party requesting a stay bears the burden of showing that the circumstances justify an exercise of that discretion.” Id. at 433-44. Specifically, the movant must show:
1) that the movant is likely to prevail on the merits on appeal;
2) that absent a stay the movant will suffer irreparable damage;
3) that the adverse party will suffer no substantial harm from the issuance of the stay; and
*5 4) that the public interest will be served by issuing the stay.
Garcia-Mir, 781 F.2d at 1453; see also Nken, 556 U.S. at 434.
Ordinarily, the first factor is the most important. Garcia-Mir, 781 F.2d at 1453. “But the movant may also have his motion granted upon a lesser showing of a ‘substantial case on the merits’ when ‘the balance of the equities [identified in factors 2, 3, and 4] weighs heavily in favor of granting the stay.’ ” Id. (quoting Ruiz v. Estelle, 650 F.2d 555, 565 (5th Cir. 1981)).
III. Discussion
Verfruco U.S. has not established that it is likely to prevail on the merits on appeal. Verfruco U.S. claims that it seeks to limit its compliance to the order to “emails and devices that are actually within its control.” It explains that the email servers the company and its employees and consultants use are physically located in Mexico, so should not be made available for inspection, and any documents in the “exclusive possession” of its Mexican affiliates and third parties are not within Verfruco U.S.’s control. This contention--that Verfruco U.S. is only required to produce evidence physically located in the United States--was addressed and rejected in the April 14, 2021 Order Verfruco U.S.’s motion to vacate. [ECF No. 33 at 5, 11]. Sergeeva dictates that “the location of responsive documents and electronically stored information—to the extent a physical location can be discerned in this digital age—does not establish a per se bar to discovery under § 1782.” Sergeeva, 834 F.3d at 1200 (emphasis in original); see also In re del Valle Ruiz, 939 F.3d 520, 531 (2d Cir. 2019). As Gonzalez points out, the email servers used by Verfruco U.S.’s employees, owners, and consultants, are clearly accessible from the United States, regardless of where they may be physically located. [ECF No. 108 at 9].
Verfruco U.S. can be required to “produce responsive documents and information located outside of the United States -- so long as [it has] possession, custody, or control of such responsive material (‘Control Requirement’).” Sergeeva, 834 F.3d at 1200 (emphasis in original). For discovery purposes, “control” has been broadly construed as “the legal right to obtain the documents requested upon demand.” Id. at 1201 (quoting SeaRock v. Stripling, 736 F.2d 650, 653-54 (11th Cir. 1984)). Under this principle of broad construction, “discovery can be sought from one corporation regarding materials that are in the physical possession of another, affiliated corporation.” Sanho Corp. v. KaiJet Tech. Int'l Ltd., Inc., No. 1:18-CV-05385-SDG, 2020 WL 4346881, at *10 (N.D. Ga. July 29, 2020) (quoting Batista v. Nissan N. Am., Inc., No. CV 14-24728-CIV, 2015 WL 10550409, at *2 (S.D. Fla. Dec. 8, 2015)). “Accordingly, ‘[c]ourts have found control by a parent corporation over documents held by its subsidiary, by a subsidiary corporation over documents held by its parent, and by one sister corporation over documents held by another sister corporation.’ ” In re Sergeeva, No. 113CV03437SCJRGV, 2013 WL 12169388, at *8 (N.D. Ga. Nov. 22, 2013), objections overruled, No. 1:13-CV-3437-LMM-RGV, 2015 WL 12866970 (N.D. Ga. Feb. 6, 2015) (quoting S.E.C. v. Credit Bancorp., Ltd., 194 F.R.D. 469, 472 (S.D.N.Y. 2000)). Further, “the legal right to obtain documents requested upon demand” may be established where affiliated corporate entities—who claim to be providers of complimentary and international financial services—have actually shared responsive information and documents in the normal course of their business dealings.” Sergeeva, 834 F.3d at 1201.
*6 Verfruco U.S. next argues that, nevertheless, a stay is appropriate because Mexican law would forbid the company from complying with a U.S. court order requiring the forensic examination. [ECF No. 103, 111]. The Eleventh Circuit has advised district courts against detailed analyses of foreign law in § 1782 cases, as such analysis is “costly, time-consuming, and inherently unreliable.” In re Sergeeva, 2013 WL 12169388 at *5. In any event, a review of the legal opinion rendered by Verfruco U.S.’s attorneys in a letter written to the Sebastian-Mauricio Brothers, does not support Respondent's claim. The letter states that Verfruco U.S. is entitled to get “financial statements” from Freshcourt and FI Avocados “... at an annual meeting convened by the management body of the company.” [See ECF No. 61-4]. The document also alleges that Verfruco U.S. has “no right to request information” from Verfruco Mexico and Novafoods because it is not a “partner” of these companies, and that the Sebastian-Mauricio Brothers “have no power to demand information from any of the aforementioned companies” in accordance with the Mexican Constitution. However, the letter explains that “information can only be disclosed or delivered by request of a competent judicial authority, having been duly founded and justified.” [Id.]. The document does not suggest that Mexican law would prevent the U.S. company from obtaining its own financial records, corporate documents, correspondence, texts, and emails it sent to or received other entities. [ECF No. 111 at 3]. The letter acknowledges that documents can be turned over subject to a court order. Verfruco U.S. has made no showing that Mexican law would subject the Sebastian-Mauricio Brothers or anyone else related to the Mexican companies to criminal penalties for complying with this Courts’ orders.
Next, Verfruco U.S. has made no showing of irreparable injury. In fact, Respondent has claimed that Gonzalez can obtain the subpoenaed documents through the use of Letters Rogatory and should use that route instead of § 1782. [ECF No. 45]. It makes no sense that the company should now claim irreparable injury would result from the production of the requested documents. Further, “courts have persuasively explained why responding to discovery during a pending appeal is an insubstantial harm in the context of § 1782.” In re Gyptec S. A., No. 16-CV-20810, 2017 WL 10978838, at *1 (S.D. Fla. Nov. 2, 2017); In re Roz Trading Ltd., No. 1:06-CV-02305-WSD, 2007 WL 120844, at *3 (N.D. Ga. Jan. 11, 2007) (characterizing “potential ‘injury’ ” as “minimal” because “[r]espondent must only search for and produce materials responsive to Petitioner's requests”); see also In re Gushlak, No. 11-MC-0218 NGG JO, 2012 WL 2564466, at *7 (E.D.N.Y. Jan. 30, 2012), R&R adopted, No. 11-MC-218 NGG, 2012 WL 1514824 (E.D.N.Y. Apr. 30, 2012) (denying a motion to stay discovery pending appeal because “compelled production of non-privileged discovery material, standing alone, does not constitute irreparable injury warranting a stay pending appeal.”).
As to the third requirement for issuance of a stay, Gonzalez claims that additional delay will harm him in his ability to bring his claims in a foreign proceeding. Indeed, this case has been pending for over a year with minimal discovery produced. Instead, Respondent has filed notices of appeal.
Finally, as the district judge noted in denying Respondent's initial motion to stay discovery pending appeal, the public interest is not implicated by this case. [ECF No. 41 at 8].
IV. Conclusion
In accordance with the foregoing, it is ORDERED and ADJUDGED that the Motion to Stay [ECF No. 103] is DENIED.
DONE AND ORDERED at Miami, Florida on this 15th day of December, 2021.