W. Air Charter v. Schembari
W. Air Charter v. Schembari
2018 WL 6537158 (C.D. Cal. 2018)
April 9, 2018
Stevenson, Karen L., United States Magistrate Judge
Summary
The court found that the ESI requested was financial data relevant to the claims and defenses in the action, and proportional to the needs of the case. The court ordered Plaintiff to serve a thorough and complete supplemental response to Interrogatory No. 1, and to produce documents reflecting its most recent balance sheet, income statement, and statement of cash flows. The court denied both parties' requests for sanctions.
WESTERN AIR CHARTER
v.
Paul SCHEMBARI, et al
v.
Paul SCHEMBARI, et al
Case No. CV-17-420-AB (KSx)
United States District Court, C.D. California
Filed April 09, 2018
Counsel
Mona Z. Hanna, Todd Harrison Stitt, Taylor Crellin Foss, Michelman and Robinson LLP, Irvine, CA, Sanford L. Michelman, Jesse S. Krompier, Matthew F. Murray, Peter L. Steinman, Robert David Estrin, Michelman and Robinson LLP, Los Angeles, CA, for Western Air Charter.Courtney L. Baird, Duane Morris LLP, San Diego, CA, Angela Hebberd, Dan Terzian, Romtin Parvaresh, Duane Morris LLP, Los Angeles, CA, Lawrence H. Pockers, Pro Hac Vice, Thomas T. Loder, Pro Hac Vice, Duane Morris LLP, Philadelphia, PA, for Paul Schembari, et al.
Stevenson, Karen L., United States Magistrate Judge
Proceedings: ORDER RE: DEFENDANTS' MOTION TO COMPEL PLAINTIFF TO PROVIDE FURTHER DISCOVERY RESPONSES
*1 Before the Court is Defendants' Motion to Compel Plaintiff Western Air Charter, Inc. to Further Respond to Discovery Requests (“Motion”) filed on March 1, 2018 in the joint stipulation format under Local Rule 37-2. (Dkt. No. 109.) On April 4, 2018, the Court held oral argument on the Motion and took the matter under submission. (Dkt. No. 124.)
PROCEDURAL BACKGROUND
On March 2, 2017, Plaintiff Western Air Charter, Inc., dba Jet Edge International (“Jet Edge”), filed the First Amended Complaint (“FAC”), the operative pleading in this action. (Dkt. No. 26.) Plaintiff is a provider of “jet charter, maintenance, and management services” with global operations. (FAC ¶ 1.) Plaintiff sued defendants Paul Schembari (“Schembari”); ACP Jet Charters, Inc., dba Phenix Jet; Phenix Jet LLC; and Cosa Di Famiglia Holdings, LLC, for numerous causes of action arising from alleged theft of Plaintiff's confidential business information by Shembari, a former management employee of Plaintiff. (FAC at ¶ 2.) The FAC alleges that while still employed by Plaintiff, Schembari set up a competing venture, Phenix Jet, using Plaintiff's confidential and trade secret business and customer information. (Id. at ¶ 6.)
The FAC initially asserted ten causes of action against Defendants: (1) breach of contract; (2) intentional interference with contractual relations; (3) breach of the duty of loyalty; (4) intentional interference with prospective business advantage; (5) negligent interference with prospective business advantage; (6) trade secret misappropriation; (7) violation of California Penal Code § 502; (9) declaratory relief; and (10) injunctive relief. On March 30, 2017, Defendants filed an Answer to the FAC and their First Amended Counterclaims. (Dkt. No. 46.) On October 6, 2017, the Honorable Andre Birotte dismissed with prejudice Plaintiff's Second, Third, Fourth, Fifth, Seventh, and Eighth causes of action. (Dkt. No. 89.) Thus, Plaintiff's remaining claims in the FAC are for breach of contract (First Cause of Action), trade secrets misappropriation (Sixth Cause of Action), declaratory relief (Ninth Cause of Action), and injunctive relief (Tenth Cause of Action). (Id.)
On February 7, 2018, the Court held an informal teleconference with counsel for the parties regarding a discovery dispute about the adequacy of Plaintiff's supplemental responses to Defendants' Interrogatory No. 1 and Plaintiff's objections to producing documents in response to Defendants' Request for Production (“RFP”) No. 63. (Dkt. No. 104.) At that conference, the Court determined that briefing was necessary on these two discovery issues and directed the Defendants to submit a Motion to Compel in the joint stipulation format required under Local Rule 37-2. (Id.) On March 1, 2018, Defendants filed the Motion and set the matter for hearing on April 4, 2018. (Dkt. No. 109.) On March 21, 2018, Defendants filed a Supplemental Memorandum in Support of Their Motion to Compel (Dkt. No. 116) and Plaintiff filed a Supplemental Brief in Opposition to the Motion. (Dkt. No. 117.)
*2 The undersigned has carefully considered the Motion, the parties' declarations and related exhibits, the oral argument of counsel, and relevant portions of the record in this case and for the reasons discussed below, the Motion is GRANTED.
THE REQUESTS AND RESPONSES AT ISSUE
Issue 1: Identification of Jet Edge Trade Secrets
Defendants' Interrogatory No. 1:
Identify with precision and specificity each item Jet Edge claims is a trade secret that has been misappropriated by any Defendant, in a manner such that the exact boundaries and elements of each such item are completely set forth in writing and can be distinguished from non-secret information generally known to the trade.
Plaintiff's Second Supplemental Response to Interrogatory No. 1:
.... Subject to and without waiving these and the general objections, Jet Edge responds as follows: Jet Edge's trade secret information includes information not known to the public relating to:
A. The identity and preferences of Jet Edge's charter jet customers and the terms of charter jet operations and flights.
B. The negotiated terms of agreements between Jet Edge and its suppliers and service providers, including but not limited to (1) fuel purchases, including documents and information pertaining to pricing, method of payment, and rebates; (2) FBO Services, including documents and information pertaining to hangars, ramps, de-icing, and various other services; (3) aircraft insurance, including documents and information pertaining to the breadth and scope of coverages, premiums, incentives; (4) pilot training, including documents and information pertaining to recurrent and initial events, cost per event, access to slots, incentives; (5) international handling and flight planning services, including documents and information pertaining to service level pricing, administrative fees, and payment terms; (6) engine and parts programs, including documents and information pertaining to hourly rates and terms; (7) domestic and international Wifi Services, including documents and information pertaining to pricing and programs; (8) maintenance tracking programs, including documents and information pertaining to pricing and terms; and (9) maintenance services, including documents and information pertaining to negotiated pricing for scheduled inspections and unscheduled work.
C. Jet Edge's pilot training procedures and policies.
Discovery is continuing.
(Declaration of Dan Terzian (“Terzian Decl.”), Ex. A.)
Issue 2: Production of Jet Edge Financial Statements
Defendants' RFP No. 63:
All financial statements prepared on behalf of Jet Edge within the past six years, including but not limited to statements of income and balance sheets.
Jet Edge's Response to RFP No. 63:
Jet Edge objects to this request on the grounds that it is overbroad and seeks documents that contain attorney-client or work product privileged information. Jet Edge further objects to this request on the grounds that it seeks documents that contain confidential, financial and proprietary information.
(Terzian Decl., Ex. F.)
LEGAL STANDARD
Under Rule 26 of the Federal Rules of Civil Procedure, a party may obtain discovery concerning any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case. FED. R. CIV. P. 26(b)(1). As amended in December 2015, Rule 26(b)(1) identifies the following factors to be considered when determining if the proportionality requirement has been met: the importance of the issues at stake in the action; the amount in controversy; the parties' relative access to the relevant information; the parties' resources; the importance of the discovery in resolving the issues; and whether the burden or expense of the proposed discovery outweighs its likely benefit. (Id.) Relevant information need not be admissible to be discoverable. (Id.)
*3 District courts have broad discretion in controlling discovery. See Hallett v. Morgan, 296 F.3d 732, 751 (9th Cir. 2002). When considering a motion to compel, the Court has similarly broad discretion in determining relevancy for discovery purposes. Surfvivor Media, Inc. v. Survivor Prods., 406 F.3d 625, 635 (9th Cir. 2005) (citing Hallet, 296 F.3d at 751) (superseded by statue on other grounds).
DISCUSSION
Issue No. 1: Plaintiff Must Identify Its Trade Secrets With Greater Specificity
Plaintiff asserts a claim for Trade Secret Misappropriation under California's Uniform Trade Secrets Act (“CUTSA”) (FAC at ¶¶ 69-79). California Civil Code section 3426.1 defines a trade secret as:
Information, including a formula, pattern, compilation, program, device, method, technique, or process, that:
(1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and
(2) Is the subject of efforts that are reasonable under the circumstances to maintain it secrecy.
Cal. Civ. Code § 3426.1(d).
A party seeking to support a claim for misappropriation of trade secrets “must identify the trade secrets and carry the burden of showing that they exist.” MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511, 522 (9th Cir. 1993) (citations omitted). There is no bright line rule for the amount of particularity needed to identify claimed trade secrets, but a plaintiff “should describe the subject matter of the trade secret with sufficient particularity to separate it from matters of general knowledge in the trade or of special knowledge of those persons ... skilled in the trade.” Universal Analytics, Inc. v. MacNeal–Schwendler Corp., 707 F. Supp. 1170, 1177 (C.D.Cal.1989) (citation omitted), aff'd, 914 F.2d 1256 (9th Cir. 1990).
In the Motion, Defendants contend that Plaintiff's generic descriptions and “catchall” language do not identify Plaintiff's trade secrets with sufficient specificity. In particular, Defendants, relying on Loop AI Labs, Inc. v. Gatti, 195 F. Supp. 3d 1107 (N.D. Cal. 2016) and other authorities both published and unpublished, argue that Plaintiff's response is insufficient because it describes only general categories of business information and contains “catchall” language such as “including but not limited to.” (Motion at 7.)
Plaintiff argues that Loop AI Labs is not applicable in this action because “the trade secrets at issue here do not involve highly technical software or technology requiring an ‘exacting level of particularity.’ ” (Motion at 12.) During oral argument, Plaintiff's counsel emphasized that Loop AI is also not applicable because that decision involved an order to enforce pre-discovery trade secret disclosure under California Code of Civil Procedure section 2019.210 and that state procedural statute has not been invoked here.[1]
*4 Plaintiff is correct that section 2019.210's pre-discovery disclosure requirement has not been invoked in this litigation. Nonetheless, the reasoning in Loop AI Labs that “[i]t is critical to any CUTSA cause of action – and any defense – that the information claimed to have been misappropriated be clearly identified” is pertinent here. See Loop AI Labs, 195 F. Supp. 3d at 1111 (citing Silvaco Data Sys. v. Intel Corp., 184 Cal. App. 4th 210, 220-21 (2010)) (emphasis added). Courts in this circuit have regularly held that generic descriptions of business information are insufficient to identify protectable trade secrets. See, e.g., Vesta Corp. v. Amdocs Mgmt. Ltd., et al., 147 F. Supp. 3d 1147, 1155-56 (D. Or. 2015) (finding listing of broad categories of information “too general and generic to satisfy the reasonable particularity standard”); N. Am. Lubricants Co. v. Terry, No. CIV S-11-1284 KJM GGH, 2011 WL 5828232, at *6 (E.D. Cal. Nov 18, 2011) (requiring plaintiff to provide information identifying specific customers, where interrogatory response included boilerplate list of “customer lists, business plans, [and] formula[s]”). In North American Lubricants, the court also found greater detail was required where the plaintiff had generally described its business methods and marketing materials as trade secrets:
Any ... “business model,” “business plan,” and “marketing materials,” as well as any of the other “boilerplate” items must be described with particularity (e.g., by author(s), date of creation, subject matter, basis for trade secret claim, etc.) or be removed from the response to this interrogatory.
In addition, the Ninth Circuit has held that an interrogatory response that used a “catchall” phrase to describe certain of a party's trade secrets as “including” additional general elements, was not sufficiently specific “because it does not clearly refer to tangible trade secret material,” but rather referred to information “which potentially qualifies for trade secret protection.” Imax Corp. v. Cinema Techs., Inc., 152 F.3d 1161, 1167 (9th Cir. 1998) (emphasis in original) (“Imax's Fourth Supplemental Responses failed to indicate precisely which dimensions and tolerances were trade secrets.”).
The Court finds the reasoning in these decisions persuasive in addressing the instant Motion. Simply identifying broad categories of “strategic business information” as “trade secrets” does not identify a party's alleged trade secrets with particularity.[2] While Plaintiff objects that the particularity requirements for identifying trade secrets only apply to matters involving complex technology systems or cases involving a “secret formula” (see Motion at 3), Plaintiff cites no authority that supports that proposition. Accordingly, Plaintiff's Second Supplemental Response to Interrogatory No. 1 is insufficient.
Plaintiff identifies broad categories of information such as “customer base,” “terms of agreements”, “aircraft insurance,” and “flight planning services,” but does not identify any specific customers, vendors, or contents of specific agreements that are unique to Plaintiff. Moreover, the response does not identify any confidential information regarding Jet Edge's business activities, such as pricing information, costs, insurance policies, or premiums, that reflect competitively sensitive or proprietary information. The general categories of information that Plaintiff describes in its response are not themselves particularized trade secrets. See Loop AI Labs, 195 F. Supp. 3d at 1114 (“listing general concepts or categories of information is plainly insufficient”).
*5 The Court is keenly aware that the question of whether Plaintiff has sufficiently stated a claim for trade secret misappropriation under CUTSA is a substantive issue in this litigation. To the extent the Motion is an effort by Defendants to get a determination of whether Plaintiff has stated a claim for trade secret misappropriation, that determination cannot be obtained through a motion to compel. However, as a matter of compliance with the discovery requirements under Rules 26(b) and 33, Defendants are entitled to discover, with reasonable particularity, what trade secrets form the basis of Plaintiff's claims in this lawsuit.
Accordingly, the Motion is GRANTED as to Interrogatory No. 1. Plaintiff must provide a complete response identifying with specificity the particular trade secrets at issue as further outlined below. The parties' Protective Order provides robust mechanisms to protect the disclosure of such confidential information. (See Dkt. No. 90.)
Issue No. 2: Defendants' Request for Production No. 63
The original RFP 63 sought six years of financial information from Jet Edge, but Defendants indicate they offered to narrow the scope of the RFP to “annual and quarterly income statements and balance sheets from January 1, 2013, to December 31, 2017.” (Motion at 15; Terzian Decl., Ex. E.) Plaintiff again objected that the information sought was overbroad and not relevant. In response to Plaintiff's objections to the narrowed request, Defendants state that they are willing to further narrow the request to Plaintiff's “most recent financial statements – specifically, its most recent balance sheet, income statement and statement of cash flows.” (Id.) Defendants argue that the information is “relevant to the issue of punitive damages on Schembari's counterclaim for intentional interference with prospective economic advantage.” (Id.)
Plaintiff objects that to the extent Defendants have “narrowed” the scope of the request in RFP 63 to Jet Edge's “most recent” financial statements, this constitutes a brand new RFP on which the parties did not meet and confer before Defendants raised the “new” RFP in the instant Motion. (Motion at 17.) Plaintiff also objects that prior to bringing the Motion, Defendants never “raised the issue of Jet Edge's financial records as they might relate to a claim for punitive damages.” (Id. at 18.)
The Court finds that the financial information requested in RFP No. 63, when limited to Plaintiff's most current financial data, is relevant to the claims and defenses in this action and proportional to the needs of the case. FED. R. CIV. P. 26(b)(2). Insofar as Plaintiff acknowledges that the parties met and conferred about a narrowing of the temporal scope of RFP 63 from six years to four years, Plaintiff's objection that further limiting the request to only the most recent balance sheet, income statement and cash flow information for Jet Edge is somehow an entirely new request is without merit. Further, the Court finds no “sleight of hand” in Defendants' representation that the limited financial information is relevant to punitive damages on Schembari's counterclaim. Information is discoverable if it is relevant to any claim or defense in the action. FED. R. CIV. P. 26(b).
Accordingly, the Court finds that RFP No. 63, as limited to Plaintiff's most recent balance sheet, income statement, and statement of cash flows warrants a further response.
The Parties' Requests for Sanctions
Federal Rule of Civil Procedure 37 provides that if a motion to compel is granted, the Court “must, after giving an opportunity to be heard, require the party ... whose conduct necessitated the motion, the party or attorney advising that conduct, or both to pay the movant's reasonable expenses incurred in making the motion” unless the opposing party's nondisclosure, response, or objection was substantially justified. FED. R. CIV. P. 37(a)(5). “There is no bright line standard for ‘substantial justification,’ and courts must use discretion” when deciding whether to impose sanctions under Rule 37. Brown v. Iowa, 152 F.R.D. 168, 173 (S.D. Iowa 1993).
*6 Defendants maintain that Plaintiff's nondisclosure was unjustified and request an award of legal fees “of at least $12,414” as sanctions against Plaintiff. (Motion at 19.) Plaintiff argues that Defendants and their counsel should be sanctioned in the amount of $17,418.50 to reimburse Jet Edge for having to oppose the Motion. (Motion at 20.)
Here, even though the Court is granting the Motion, the Court exercises its discretion and DENIES both parties' sanction requests. The Court concludes that Plaintiff's objections to providing a further supplemental response to Interrogatory No. 1 and to disclosing its financial information in response to RFP No. 63 was not substantially unjustified. Likewise, Defendants' pursuit of further discovery responses to Interrogatory No. 1 and RFP No. 63 by bringing the Motion was also not unjustified. Accordingly, the Court declines to award expenses as a sanction against either party or their counsel.
CONCLUSION
For the foregoing reasons, the Court hereby GRANTS the Motion with respect to Interrogatory No. 1 and RFP No. 63 as follows:
A. In light of the May 1, 2018 non-expert discovery cut-off (see Dkt. No. 102), within ten (10) days of the date of this Order, Plaintiff must serve a thorough and complete supplemental response to Interrogatory No. 1, in which
a. as to Part A of its Supplemental Response, Plaintiff must identify the specific jet charter customers, and terms and conditions of confidential contracts for charter jet operations that Plaintiff contends are trade secrets at issue in this litigation;
b. as to Part B of the Supplemental Response, Plaintiff must identify specific confidential agreements between specific suppliers and service providers that Plaintiff contends are trade secrets at issue in this litigation, and identify specific confidential training procedures and policies that Plaintiff contends are trade secrets;
c. as to Part C of the Supplemental Response, Plaintiff must identify the specific pilot training procedures and policies that Plaintiff contends are trade secrets; and
d. Plaintiff must omit from its further supplemental response the generic language, “including but not limited to.”
B. Plaintiff must produce documents reflecting its most recent balance sheet, income statement, and statement of cash flows.
IT IS SO ORDERED.
Footnotes
Section 2019.210 requires that in any action alleging misappropriation of trade secrets under CUTSA, “before commencing discovery relating to the trade secret, the party alleging the misappropriation shall identify the trade secret with reasonable particularity subject to any orders that may be appropriate under Section 3425.5 of the Civil Code.” While not invoked in this case, in Loop AI Labs, the district court acknowledged that “section 2019.210 applies to CUTSA claims brought in federal court. Loop AI Labs Inc., 195 F. Supp. 3d at 1110 (citation omitted).
To the extent that Plaintiff maintains that the Court previously found its supplemental interrogatory response to be “proper” (Motion at 5), the Court notes that its comments were made in the context of an informal discovery conference where the Court had not had the opportunity to make a close review of the authorities relied on by both parties in this dispute. Indeed, the Court ordered briefing precisely because the dispute was not readily resolved through the informal discovery process. (Dkt. No. 104.)