SCHLOMO SCHMUEL D.P.M., INC. VS. ISRAEL BASHAREL, ET AL

Tentative Rulings

Case Number: LC103145    Hearing Date: September 03, 2020    Dept: U

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES - NORTHWEST DISTRICT

I. BACKGROUND

Schlomo Schmuel D.P.M., Inc. and Schlomo Schmuel, individually and derivatively on behalf of Diversified Equity Group, LLC and Caspar Management Co., LLC (Plaintiffs), filed this action against Israel Basharel (Basharel), Libi Basharel, and Does 1 through 50 on July 10, 2015. On August 8, 2017, Plaintiffs filed the operative third amended complaint (TAC), alleging claims for: (1) four counts of breach of contract; (2) five counts of breach of implied-in-law contract; (3) four counts of quantum meruit; (4) two counts of declaratory relief: (5) five counts of breach of fiduciary duty; (6) negligence; (7) four counts of conversion; (8) breach of implied covenant of good faith and fair dealing (9) accounting; (10) rescission; (11) cancellation of instrument; (12) tort of another; and (13) constructive trust.

Both Basharel and JAS, LLC (JAS) have filed cross-complaints.

On July 1, 2020, Plaintiffs filed this Motion for Order Establishing Requests for Admissions Deemed Admitted and request for $2,007.28 in monetary sanctions against Caspar and its counsel.

II. LEGAL STANDARD & DISCUSSION

Under California Civil Procedure section 2033.280, a party who fails to serve timely responses to requests for admission waives any objections to the requests, including those based on privilege and work product. The Court can relieve this waiver if: (1) the party subsequently serves a response that is in substantial compliance and (2) the party’s failure to serve a timely response was the result of mistake, inadvertence or excusable neglect. (Code Civ. Proc., § 2033.280(a).) 

The party requesting admissions may move for an order that the genuineness of any documents and the truth of any matters specified in the requests be deemed admitted when the party served with the requests fails to serve its timely response. (Code Civ. Proc., § 2033.280(b).) The party failing to serve timely responses to requests for admissions is also subject to monetary sanctions. (Code Civ. Proc., § 2033.280(b).) 

The Court shall make this order, unless the party failing to timely serve the responses, before the hearing on the motion, serves responses to the requests for admission that are in substantial compliance with California Civil Procedure section 2033.200. However, it is still mandatory that the Court impose a monetary sanction under Chapter 7 on the party whose failure to serve a timely response to requests for admission necessitated this motion. (Code Civ. Proc., § 2033.280(c).) 

Here, on February 25, 2020, Plaintiffs propounded by mail Requests for Admissions on Caspar, in its capacity as cross-defendant named in the first amended cross-complaint filed by JAS and Assis. Thirty days after this date, plus five days for service by mail, established April 1, 2020 as the deadline for Caspar to serve its responses. Defense counsel requested additional time to respond, and Plaintiffs’ counsel granted Caspar an extension to respond until June 19, 2020. (Quintana declaration, ¶ 3.) Despite the extension, Caspar failed to serve its responses to Plaintiffs’ Requests for Admissions by this date.

Caspar contends that its counsel, Barak Isaacs (Isaacs), moved to withdraw as counsel on February 27, 2020, two days after being served with the Requests for Admissions. Ultimately, Isaacs withdrew this motion. However, in early May, Quintana and Isaacs discussed suspending Caspar’s obligation to respond to the discovery and Isaacs was under the impression that such an agreement was reached. Nevertheless, Quintana filed this motion without trying to resolve the issues with Isaacs. Isaacs contacted Quintana, asking him to withdraw this motion, but Quintana did not respond. On July 23, 2020, Caspar served verified responses to Plaintiffs’ requests for admissions.

As Caspar has now served its responses to Plaintiffs’ requests for admissions, the motion for an order establishing the truth of the matters in Plaintiffs’ requests for admissions is moot. The Court finds that Caspar’s mistaken belief that it was not obligated to serve responses was reasonable, so it is entitled to relief from any waiver of its objections to Plaintiffs’ discovery requests.

Via Quintana’s declaration, Plaintiffs also request $2,007.28 in monetary sanctions against Caspar and its defense counsel for having to bring this motion. Quintana declares that he spent three and one-half hours preparing this motion, declaration, and proposed order at an hourly rate of $275. The electronic motion filing fee was $61.65. (Quintana declaration, ¶ 5a.) Counsel anticipates incurring an additional $982.63 reviewing and analyzing any opposition and drafting a reply brief before spending at least three and one-half hours preparing for this hearing and traveling to and from and appearing for the hearing. (Id., ¶ 6.)

While monetary sanctions are mandatory, the Court finds the time spent preparing this simple and routine motion, declaration, and proposed order to be unreasonable and excessive. Therefore, the Court reduces the hours spent preparing the moving papers and reply and appearing on this motion to a total of three hours at an hourly rate of $275. Therefore, the Court orders $886.65 ((3 hours x $275) + $61.65) in monetary sanctions against Caspar and Isaacs.

III. CONCLUSION

For the foregoing reasons, Plaintiffs’ Motion for an Order Establishing the Requests for Admissions be Deemed Admitted is MOOT.

Plaintiffs’ request for sanctions is GRANTED in the amount of $886.65.

Plaintiffs are ordered to give notice of the Court’s ruling.

DATED: September 3, 2020

_____________________

Hon. Theresa M. Traber

Judge of the Superior Court

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES - NORTHWEST DISTRICT

I. BACKGROUND

Schlomo Schmuel D.P.M., Inc. and Schlomo Schmuel, individually and derivatively on behalf of Diversified Equity Group, LLC and Caspar Management Co., LLC (Plaintiffs), filed this action against Israel Basharel (Basharel), Libi Basharel, and Does 1 through 50 on July 10, 2015. On August 8, 2017, Plaintiffs filed the operative third amended complaint (TAC), alleging claims for: (1) four counts of breach of contract; (2) five counts of breach of implied-in-law contract; (3) four counts of quantum meruit; (4) two counts of declaratory relief: (5) five counts of breach of fiduciary duty; (6) negligence; (7) four counts of conversion; (8) breach of implied covenant of good faith and fair dealing (9) accounting; (10) rescission; (11) cancellation of instrument; (12) tort of another; and (13) constructive trust.

Both Basharel and JAS, LLC (JAS) have filed cross-complaints. 

On February 17, 2020, Israel, Leah, and Avraham Basharels (here, the Basharels) served a third-party deposition subpoena (the subpoena) for production of business records on M.R. Grant, CPA (Grant).

On March 9, 2020, Plaintiffs filed this Motion to Quash the Deposition Subpoena served on Grant pursuant to Code of Civil Procedure section 1987.1.  Plaintiffs move on the grounds that the subpoena exceeds the permissible scope of discovery, is unjustly burdensome and oppressive, seeks information protected by the tax privilege, and was not accompanied by the requisite consumer notices.

II. LEGAL STANDARD

California Civil Procedure section 1987.1 states, “when a subpoena requires…the production of [documents], the court, upon motion reasonably made by the party, the witness or any consumer described in Section 1985.3…may make an order quashing the subpoena entirely, modifying it, or directing compliance with it upon such terms or conditions as the court shall declare, including protective orders.” “The court may make any other order as may be appropriate to protect the parties, the witness, or the consumer from unreasonable or oppressive demands including unreasonable violations of a witness’s or consumer’s right of privacy.”  (Ibid.)

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III. DISCUSSION

A. Meet & Confer Requirement

Code of Civil Procedure section 2025.410(c) provides that a motion to quash a deposition notice must be accompanied by a meet and confer declaration. There is no evidence that Plaintiffs’ counsel attempted to meet and confer with defense counsel prior to filing this motion. Rather, the Court notes that Plaintiffs served their objections to the deposition subpoena on the Basharels on the same date they filed this motion.

B. Separate Statement

A motion to quash production of documents at a deposition must be accompanied by a separate statement setting forth the particular documents or demands at issue and the factual and legal reasons why production should not be compelled. (Cal. Rules of Court, rule 3.1345(a)(5).)

C. Procedural Requirements

Subpoenas which seek consumer records, including personal financial information, must adhere to the procedural requirements laid out in Code of Civil Procedure section 1985.3. The subpoena must be served on the consumer at least five days before it is served on the nonparty from whom records are sought, with a five-day extension if served by mail, pursuant to Code of Civil Procedure section 1013. (Code Civ. Proc., § 1985.3(b)(3).) The subpoena must be served on the custodian of records at least fifteen days before the date upon which records are to be produced. (Id., §§ 1985.3(d), 2020.410(c).) Therefore, as a practical matter, the subpoena must be personally served on the consumer at least twenty days before the date upon which records are to be produced. This is extended by an additional five days if service on the consumer is made by mail. (Id., § 1985.3(b)(3).)

Here, Plaintiffs argue that Basharels did not personally service them or third-party Robin Jacobs (Jacobs) with the requisite consumer notice. Additionally, Plaintiffs contend that the Basharels violated Code of Civil Procedure section 1985.3(c) because the release of the subject records has not been authorized by Plaintiffs, their counsel, or Jacobs, and the Basharels failed to serve the parties with the requisite proof of service.

The Basherals counter by noting that the subpoena seeks Caspar’s tax returns, documents, including tax audits, relating to the Highland property, communications between Grant and Schmuel, and communications between Berger and Schmuel about Caspar. The Basherals argue that Schmuel cannot claim that his personal and financial information is being sought because it is only Caspar’s tax information that the subpoena requests, not Schmuel’s personal tax information.

The Basharels’ position is well-taken as Caspar is an entity and not an individual subject to consumer privacy concerns.

D. Substantive Requirements

For discovery purposes, information is relevant if it might reasonably assist a party in evaluating the case, preparing for trial, or facilitating settlement. (Gonzalez v. Superior Court (1995) 33 Cal.App.4th 1539, 1546.) As a general rule, all unprivileged information that is relevant to the subject matter of the action is discoverable if it would itself be admissible evidence at trial or if it appears reasonably calculated to lead to the discovery of admissible evidence. (Code Civ. Proc., § 2017.010; Schnabel v. Superior Court. (1993) 5 Cal.4th 704, 711.) When the information sought to be discovered impacts a person’s constitutional right to privacy, limited protections come into play for that person. (Shaffer v. Superior Court (1995) 33 Cal.App.4th 993, 999.) The protections cover both a person’s personal and financial matters. (Ibid.) The court must balance competing rights — the right of a litigant to discover relevant facts and the right of an individual to maintain reasonable privacy — in determining whether the information is discoverable. (Ibid.)

In Valley Bank of Nevada v. Superior Court (1975) 15 Cal.3d 652, the Supreme Court found that the following factors should be considered by trial courts in balancing the interests between the right of civil litigants to discover relevant facts and the right of bank customers to maintain reasonable privacy regarding their financial affairs: “the purpose of the information sought, the effect that disclosure will have on the parties and on the trial, the nature of the objections urged by the party resisting disclosure, and ability of the court to make an alternative order which may grant partial disclosure, disclosure in another form, or disclosure only in the event that the party seeking the information undertakes certain specified burdens which appear just under the circumstances.” (Id. at 658.)

Although relevance is typically construed liberally (Pacific Tel. & Tel. Co. v. Superior Court (1970) 2 Cal.3d 161, 169.), the standard is more stringent when a party is attempting to discover documents which are constitutionally protected by the right to privacy, such as consumer records. 

[E]ven when discovery of private information is found directly relevant to the issues of ongoing litigation, it will not be automatically allowed; there must then be a careful balancing of the compelling public need for discovery against the fundamental right of privacy.  . . . [I]f an intrusion on the right of privacy is deemed necessary under the circumstances of a particular case, any such intrusion should be the minimum intrusion necessary to achieve its objective . . . [meaning] the least intrusive means to satisfy the interest. Mere convenience of means or cost will not satisfy that test for that would make expediency and not the compelling interest the overriding value.

(Lantz v. Superior Court (1994) 28 Cal.App.4th 1839, 1854-1855.)

This is true even where the party asserting the right to privacy is the party who brought the suit. (Vinson v. Superior Court (1987) 43 Cal.3d 833, 842 [“While the filing of a lawsuit may implicitly bring about a partial waiver of one’s constitutional right of associational privacy, the scope of such waiver must be narrowly rather than expansively construed, so that plaintiffs will not be unduly deterred from instituting lawsuits . . . . [A]n implicit waiver of a party’s constitutional rights encompasses only discovery directly relevant to the plaintiff’s claim and essential to the fair resolution of the lawsuit.”].) 

The burden is on the party seeking the constitutionally protected information to establish direct relevance. (Harris v. Superior Court (1992) 3 Cal.App.4th 661, 665.)

1. Plaintiffs’ Rights

Avraham and Leah Basheral are included among the subpoenaing parties, yet there are no claims between either of them and Plaintiffs, Caspar, or Jacobs. Thus, Plaintiffs reason that the subject documents cannot be reasonably calculated to lead to the discovery of admissible evidence, but rather, are necessarily overbroad and intended to harass.

The tax-related documents sought by way of the subpoena are protected by the California tax-return privilege and the constitutional right to privacy without the application of any of the recognized exceptions.  The Basharels have not tried to secure the tax-related information through alternative, less burdensome means nor requested the information directly from Plaintiffs themselves who have not previously prevented disclosure of sensitive documents.

2. Defendants’ Rights

The subpoena seeks Caspar’s tax returns and tax-related documents, specifically the tax returns subject to the 2010 audit, because the documents include relevant information on the Highland property, whose ownership is a central issue in this matter. The Basherals contend the tax returns contain information relevant to resolve the Highland property ownership dispute.

The Basharels assert that their counsel did meet and confer with Plaintiffs’ counsel prior to this motion being filed. These communications revealed that Grant was retained to audit Caspar’s tax returns for 2010 after the IRS provided notice of its intent to audit in April 2012. Based on this discussion, the Basharels reason that the issuance of the subpoena on Grant should have been expected by Plaintiffs.

3. Balancing of Interests

Plaintiffs submit in their reply that if the Basharels are willing to limit the subpoena to only “(1) Caspar’s tax returns; (2) communications between Berger and Schmuel related to Caspar; and (3) tax audits related to the Highland Property,” then Plaintiffs agree to allow the subpoena to proceed so along as the documents are subject to a protective order. Based on this representation, the Court finds this motion MOOT.

E. Attorneys’ Fees

Code of Civil Procedure section 1987.2(a) provides “the court may in its discretion award the amount of the reasonable expenses incurred in making or opposing the motion, including reasonable attorney's fees, if the court finds the motion was made or opposed in bad faith or without substantial justification . . . .” As used here, “substantial justification,” allowing sanctions to be incurred in opposing a motion made in bad faith or without substantial justification, means that a justification is clearly reasonable because it is well grounded in both law and fact. (Evilsizor v. Sweeney (2014) 230 Cal.App.4th 1304, 1312.)

Pursuing a pending motion to quash after it becomes clear that it is unjustified may be considered “making” a motion allowing for an award of expenses incurred in opposing the motion if the “motion was made” in bad faith or absent substantial justification. (Evilsizor v. Sweeney, supra, 230 Cal.App.4th at 1312.) A trial court can consider a failure to withdraw a motion to quash a subpoena as “making the motion” for purposes of awarding sanctions in the form of attorneys’ fees incurred in opposing the motion, even if the original motion was not in bad faith and was justified. (Id. at 1311.)

The Basharels request that sanctions to compensate them for their attorneys’ fees be ordered against Plaintiffs on the grounds that Plaintiffs filed and proceeded with this motion in bad faith.  It is argued that Plaintiffs have no basis for this motion because the subpoena does not seek Schmuel’s personal tax returns, rather, it only requests those of Caspar. Eliminating any communications made by Jacobs could easily have been resolved without this motion.

Counsel for the Basharels, Bart Ring (Ring), states that he spent 22 hours reviewing this motion, meeting and conferring with opposing counsel, and preparing the Basharels’ opposition. Ring’s hourly rate is $450, therefore, he requests $9,900 in attorneys’ fees (22 hours x $450/hour).

The Court finds that Plaintiffs pursued this motion in bad faith on the grounds that it was filed the same date Plaintiffs’ objections to the subpoena were served on the Basharels and Plaintiffs submit no evidence that they tried to resolve their contentions informally as required by the meet and confer rules. Moreover, for Plaintiffs to agree to the deposition subpoena subject to a protective order after filing this motion, thereby forcing the Basharels to file an opposition, rather than informally attempt this approach in advance, appears to be in bad faith.

That said, the Court finds Ring’s requested attorneys’ fees to be unreasonable. The time purportedly spent meeting and conferring with Plaintiffs’ counsel would likely have been expended even it this motion had never been filed.  The Court reduces the time spent to three hours for having to oppose the motion and appear for the hearing. Therefore, the Court orders $1,356.75 ($450/hour x 3 hours, plus the e-filing fee of $6.75) in monetary sanctions against Plaintiffs Schlomo Schmuel, DPM, Inc. and Schlomo Schmuel, jointly and severally.

F. CONCLUSION

For the foregoing reasons, Plaintiffs’ Motion to Quash Deposition Subpoena is MOOT.

The Basherals’ request for sanctions is GRANTED in the amount of $1,356.75.  Plaintiffs are to pay the Basharels the full sanctions awarded within 30 days of the Court’s ruling.

The Basharels are ordered to give notice of the Court’s ruling.

DATED: September 3, 2020

_____________________

Hon. Theresa M. Traber

Judge of the Superior Court