Memorandum Points and Authorities

Cal. Super. - 6th Dist.February 24, 2021

OLOOOVQU'l-POON-L NNNNNNNNNAAAAAAAAAA meU‘l-POON-LotomeU'l-POON-L 21 CV376460 Santa Clara - Civil Daniel W. Ballesteros (SBN 142003) dan.ballesteros@hogefenton.com Ashlee N. Cherry (SBN 312731) ashlee.cherry@hogefenton.com HOGE, FENTON, JONES & APPEL, INC. 55 South Market Street, Suite 900 San Jose, California 951 13-2324 Phone: 408.287.9501 Fax: 408.287.2583 Attorneys for Plaintiffs JANET BOCEK, et al. A. Flores 3 Electronically Filed by Superior Court of CA, County of Santa Clara, on 8/4/2021 5:21 PM Reviewed By: A. Floresca Case #21 CV376460 Envelope: 6998460 SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF SANTA CLARA JANET BOCEK, GARY LAINE, JUDY LAINE, TOM PARE, DIANA PARE, CATHERINE HUNG, TOD FUKUSHIMA, LOURDES MARTINEZ, APN4, LLC, HEYMAN FAMILY TRUST, and SHORESIDE DIRECTED TRUST, Plaintiffs, v. VAHE TASHJIAN, an individual, DUTCHINTS DEVELOPMENT LLC, a California Limited Liability Company, 5150 ECR GROUP LLC, a California Limited Liability Company, 5150 ECR GROUP MANAGER, LLC, a Delaware Limited Liability Company, and DOES 1 through 20, inclusive, Defendant. 4509368 Case No. 21 CV376460 PLAINTIFFS JANET BOCEK, ET AL.’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS VAHE TASHJIAN, ET AL.’S MOTION TO QUASH SERVICE OF DEPOSITION SUBPOENA FOR PRODUCTION OF BUSINESS RECORDS ON WELLS FARGO BANK AND REQUEST FOR MONETARY SANCTIONS Date: August 17, 2021 Time: 9:00 a.m. Dept: 20 Judge: Honorable Socrates Manoukian OPPOSITION TO DEFENDANTS’ MOTION TO QUASH SERVICE OF SUBPOENA ON WELLS FARGO BANK AND REQUEST FOR MONETARY SANCTIONS OLOOOVQU'l-POON-L NNNNNNNNNAAAAAAAAAA meU‘l-POON-LotomeU'l-POON-L TABLE OF CONTENTS Page INTRODUCTION ............................................................................................................... 4 STATEMENT OF FACTS .................................................................................................. 6 A. Plaintiffs Invest in 5150 ECR Group, LLC. ................................................... 6 B. Tashjian Solicits Funding to Conceal the LLC's Alleged Insolvency and Significantly Diminishes the Value of Plaintiff Investor Group's Capital Investment ........................................................................................ 6 C. The Instant Lawsuit and Subject Subpoena. ................................................ 9 1. The Instant Lawsuit ........................................................................... 9 2. The Subject Subpoena .................................................................... 1O LEGAL ANALYSIS ........................................................................................................... 1 1 A. Defendants’ Procedural Objection to the Subpoena Exalts Form Over Substance. ........................................................................................ 1 1 B. Plaintiffs are Absolutely Entitled to 5150 ECR Group’s Financial Records Pursuant to Corporations Code section 17704.1 O and the Operating Agreement. ................................................................................ 12 C. 5150 ECR Group, LLC’s Corporate Privacy Rights Do Not Outweigh the Plaintiffs’ Right to Discovery. ................................................................ 12 D. Defendant 5150 ECR Group, LLC’s Tax Returns Are Not Absolutely Privileged. .................................................................................................. 14 E. Defendants’ Objections Based on Relevance and Breadth are Meritless. .................................................................................................... 15 F. Defendants Failed to Meet and Confer with Plaintiffs in Good Faith Regarding the Scope of the Subpoena. ..................................................... 16 G. Defendants are Not Entitled to Recover Sanctions. ................................... 17 H. Plaintiffs are Entitled to Monetary Sanctions for Having to Oppose Defendants’ Frivolous Motion. .................................................................... 17 CONCLUSION ................................................................................................................. 18 4509368 -2- OPPOSITION TO DEFENDANTS’ MOTION TO QUASH SERVICE OF SUBPOENA ON WELLS FARGO BANK AND REQUEST FOR MONETARY SANCTIONS OLOOOVQU'l-POON-L NNNNNNNNNAAAAAAAAAA meU‘l-POON-LotomeU'l-POON-L TABLE OF AUTHORITIES Page(s) Cases Ameri-Medical Corp. v. Workers’ Comp. Appeals Bd., (1996) 42 Cal.App.4th 1260 ....... 12 SCC Acquisitions, Inc. v. Superior Court, (2015) 243 Cal.App.4th 741 ..................... 12, 13 Schnabel v. Superior Court, (1 993) 5 Cal.4th 704 ........................................................... 14 Webb v. Standard Oil Company of California, (1 957) 49 Cal.2d 509 ............................... 14 Weingarten v. Superior Court, (2002) 102 Cal.App.4th 268 ............................................ 14 Williams v. Superior Court, (201 7) 3 Cal.5th 531 ............................................................. 16 Statutes California Code of Civil Procedure § 1987.2, subd. (a) .................................................... 17 California Code of Civil Procedure § 1985.3, subdivision (g) ........................................... 11 California Code of Civil Procedure § 2023.030 ................................................................ 17 California Code of Civil Procedure §§ 1987.2, subd (a) and 2023.030, subd (a) ......... 6, 18 California Corporations Code § 17704.1 O .................................................................... 2, 12 California Corporations Code, § 17704.10, subd. (b)(2) ........................................ 5, 12, 15 4509368 -3- OPPOSITION TO DEFENDANTS’ MOTION TO QUASH SERVICE OF SUBPOENA ON WELLS FARGO BANK AND REQUEST FOR MONETARY SANCTIONS OLOOOVQU'l-POON-L NNNNNNNNNAAAAAAAAAA meU‘l-POON-LotomeU'l-POON-L INTRODUCTION At issue in Defendants’ Motion is Plaintiffs JANET BOCEK, GARY LAINE, JUDY LAINE, TOM PARE, DIANA PARE, CATHERINE HUNG, TOD FUKUSHIMA, LOURDES MARTINEZ, APN4, LLC, HEYMAN FAMILY TRUST, and SHORESIDE DIRECTED TRUST’S (collectively “Plaintiffs” or the “Plaintiff Investor Group”) subpoena to Wells Fargo Bank, N.A. (the “Subpoena”), which seeks financial documents for Defendant 5150 ECR GROUP, LLC (“5150 ECR Group”)-an LLC in which each of the named Plaintiffs has a membership interest. Specifically, the Subpoena seeks: (1) documents (including but not limited to bank statements, deposit slips, check registers, and checks) pertaining to any bank accounts held by Defendant 5150 ECR Group with Wells Fargo; (2) documents relating to any loan made to 5150 ECR Group; and (3) tax documents relating to any accounts held by 5150 ECR Group. Plaintiffs are individual investors in 5150 ECR Group, which owns the real property located at 5150 El Camino Real in Los Altos (the "Property"). Specifically, in April 2018, the Plaintiff Investor Group invested over $3 million dollars of their personal funds- including their personal savings, retirement savings, 401 (k) accounts, and Roth IRA accounts-in exchange for Class A membership interests in 5150 ECR Group. The Plaintiff Investor Group was enticed to make these investments by Vahe Tashjian, who made numerous specific representations including that investors could expect to receive a 50% profit on their investment annually, and that investments were expected to be for a two-year term, with all investors expecting to be paid out when the Property was awarded a tentative map. To date, nearly three years later-and over one year after the Property was awarded its tentative map-the Plaintiff Investor Group has not received any return on their investment, despite the fact that there have been numerous offers on the Property for as much as $85 million. They are faced with the risk of losing their entire investment, as the Property is in foreclosure because 5150 ECR Group is allegedly insolvent and has defaulted on its $41 million loan from its secured lender, LCC 4509368 -4- OPPOSITION TO DEFENDANTS’ MOTION TO QUASH SERVICE OF SUBPOENA ON WELLS FARGO BANK AND REQUEST FOR MONETARY SANCTIONS OLOOOVQU'l-POON-L NNNNNNNNNAAAAAAAAAA meU‘l-POON-LotomeU'l-POON-L Warehouse ||| LLC. This is unfathomable, as 5150 ECR Group has raised approximately $13.7 million in capital in several rounds of fundraising and has nothing to show for it. The documents requested in Plaintiffs’ subpoena are directly relevant to Plaintiffs’ allegation that Defendants misappropriated $13.7 million in investor funds for Defendants’ own use and benefit. Initially, Defendants objected to the Subpoena based on a clerical error in the case number on the subpoena. The case number reflects a different action (one against 51 50 ECR Group by its lender and in which Plaintiffs have successfully intervened) rather than this case number. Plaintiffs immediately clarified this error three months ago on May 5, 2021 by reissuing corrected captions and Notices to Consumer. Defendants then filed the instant Motion alleging numerous pretextual objections to the Subpoena-none of which they had met and conferred about with Plaintiffs-and as a result, to date, Wells Fargo has not produced any documents in response to the Subpoena. Defendants’ Motion represents Defendants’ latest tactic to completely stonewall 5150 ECR Group’s members’ access to financial information. Since April 2020, Defendants have continually obstructed Plaintiffs’ right to review any documentation pertaining to 5150 ECR Group’s financials-despite the fact that Plaintiffs are entitled (pursuant to California Corporations Code section 17704.1 O, subdivision (b)(2)) to review same as members of 5150 ECR Group. 5150 ECR Group’s Operating Agreement also explicitly permits Plaintiffs to review 5150 ECR Group’s financial documents upon request. The documents sought in the Subpoena specifically pertain to 51 50 ECR Group’s finances and are critical to evaluating what happened to Plaintiffs’ $3 million capital investment. Defendants’ Motion is a blatant attempt to obstruct Plaintiffs’ from gaining any information regarding 51 50 ECR Group’s finances-presumably to conceal Defendant Tashjian’s mismanagement of same. Such gamesmanship should not be tolerated. For these reasons, Plaintiffs respectfully request that this Court issue an Order: (1) denying Defendants’ Motion in its entirety; (2) denying Defendants’ request for monetary sanctions; (3) compliance with the Subpoena and the production of the 4509368 -5- OPPOSITION TO DEFENDANTS’ MOTION TO QUASH SERVICE OF SUBPOENA ON WELLS FARGO BANK AND REQUEST FOR MONETARY SANCTIONS OLOOOVQU'l-POON-L NNNNNNNNNAAAAAAAAAA meU‘l-POON-LotomeU'l-POON-L disputed records; and (4) requiring Defendants and their counsel, jointly and severally, to pay $4,462.50 in monetary sanctions pursuant to California Code of Civil Procedure sections 1987.2, subdivision (a) and 2023.030, subdivision (a). STATEMENT OF FACTS A. Plaintiffs Invest in 5150 ECR Group, LLC. In or around April 2018, a group of 33 investors invested $13,700,000.00 million into 5150 ECR Group exchange for a membership interest and entered into the 5150 ECR Group LLC Operating Agreement Dated as of April 9, 201 8 (the "Operating Agreement"). (Complaint, 1119.) These investors included Plaintiffs, who collectively invested $3,080,297.00 into 5150 ECR Group, LLC; this investment was comprised, in part, of Plaintiff Investor Group's retirement savings, 401 (k), IRA and Roth IRA accounts. In exchange for this capital contribution, the Plaintiff Investor Group became members of 5150 ECR Group and received 3,080,297 Class A member units. (Complaint, 111119-21 .) Per the terms of the Operating Agreement, Class A members were to receive voting rights in 5150 ECR Group, as well as first priority for profit distributions after 5150 ECR Group's lenders. (Complaint, 111122-23.) Orally, Tashjian represented to the Plaintiff Investor Group that: (1) the Property was worth as much as $85 million; (2) the Plaintiff Investor Group could expect to earn a 50% profit on their investment annually; and (3) investments were expected to be for a two year term, with all investors to be paid out when the Property was awarded on a tentative map. (Complaint, 1120.) Based on these representations and the benefits afforded to Class A members, the Plaintiff Investor Group was induced to invest in 51 50 ECR Group. B. Tashjian Solicits Funding to Conceal the LLC's Alleged Insolvency and Significantly Diminishes the Value of Plaintiff Investor Group's Capital Investment. In or around April 2020, after learning that 5150 ECR Group had not been timely paying its vendors, the Plaintiff Investor Group learned that 5150 ECR Group was allegedly insolvent, and has been insolvent since at least April 201 9 (and possibly even 4509368 -6- OPPOSITION TO DEFENDANTS’ MOTION TO QUASH SERVICE OF SUBPOENA ON WELLS FARGO BANK AND REQUEST FOR MONETARY SANCTIONS OLOOOVQU'l-POON-L NNNNNNNNNAAAAAAAAAA meU‘l-POON-LotomeU'l-POON-L earlier).‘ (Complaint, 1126.) As a result of the alleged insolvency, 5150 ECR Group has defaulted on a $41 million loan from its lender and the Property is now in foreclosure. (Complaint, 1127; Request for Judicial Notice (“RJN”), Ex. 1.) To date, it remains unclear what, exactly, Tashjian has done with the nearly $13 million that he raised in Class A funds. While concealing this alleged insolvency, Tashjian continued to solicit investments from members of 5150 ECR Group as well as third-parties, as well as private loans. These private loans total approximately $6.4 million. (Complaint, 1128.) The Plaintiff Investor Group understands that, in exchange for these loans, Tashjian represented that he would give investors a membership interest in 5150 ECR Group in exchange for their money, that he has failed to give these investors their promised membership interest in 5150 ECR Group, and that he has further failed to repay these loans; accordingly, these loans form the basis for some of the 14 lawsuits currently pending against Tashjian, 51 50 ECR Group, and Dutchints Development LLC. (Complaint, 1129.) Upon learning that 5150 ECR Group was allegedly insolvent, the Plaintiff Investor Group demanded to see the LLC‘s financial records and statements. (Complaint, 1130.) To date, after numerous requests, Tashjian refuses to allow the Plaintiff Investor Group to review the company's financial records, despite the fact that they have a contractual right to review same pursuant to the terms of the Operating Agreement. (Complaint, 1130; see also Exhibit 1 to the Complaint, Section 7.3.) Presumably, this is because such a review would demonstrate Tashjian's gross mismanagement of 51 50 ECR Group's capital and misappropriation of same for his own use and benefit. 1 This alleged insolvency is absurd. As evidenced by the 14 pending lawsuits pending against Tashjian and his entities, Tashjian is clearly "robbing Peter to pay Paul," and/or lining his own pockets with investor funds. In a separate lawsuit filed by Bell Investment Partners, LLC against Vahe Tashjian and Dutchints Development LLC, Plaintiff's counsel was able to prove that Tashjian stole $3.6 million. (RJN, Exhibit 2.) These funds represented the proceeds from the sale of a piece of real property. Exhibit 2 demonstrates that Tashjian transferred these funds primarily into his personal family trust account as well as Dutchints Development LLC's account. 4509368 _7_ OPPOSITION TO DEFENDANTS’ MOTION TO QUASH SERVICE OF SUBPOENA ON WELLS FARGO BANK AND REQUEST FOR MONETARY SANCTIONS OLOOOVQU'l-POON-L NNNNNNNNNAAAAAAAAAA meU‘l-POON-LotomeU'l-POON-L On or about May 9, 2020, Tashjian demanded a capital call to recapitalize 51 50 ECR Group. (Complaint, 1131 .) Understandably, many of the pre-existing investors were hesitant to invest additional capital. Accordingly, Tashjian created a Class C membership in 5150 ECR Group, which is memorialized in the Third Amendment to Operating Agreement for 5150 ECR Group, LLC (the "Third Amendment"). (Complaint, 1131; see also Exhibit 2 to the Complaint.) The Third Amendment modifies the Operating Agreement to provide Class C members with priority for profit distributions and a guaranteed 21% annual rate of return on Class C members' capital investments for a minimum of 9 months. (Complaint, 1132.) Additionally, the Third Amendment dilutes Class A members' voting rights by awarding voting rights to Class C members. (Complaint, 1133.) Ultimately, the Class C unit capital raise only raised $425,000.00 in additional capital. (Complaint, 1134.) Several months later, on or about December 23, 2020, Tashjian intimidated the Plaintiff Investor Group into voting to create a Class D membership in 5150 ECR Group by refusing to grant access to pertinent financial records until after they agreed to create the Class D member units, and threatening litigation. (Complaint, 111135-37.) The creation of the Class D membership is memorialized in the Fourth Amendment to Operating Agreement for 5150 ECR Group, LLC (the "Fourth Amendment"). (Complaint, 1138; see also Exhibit 3 to the Complaint.) The Fourth Amendment dilutes the Class A members' membership interest, voting rights, and profit interest in 5150 ECR Group; specifically, it modifies the Operating Agreement to provide Class D members with priority for profit distributions and a guaranteed 100% annual rate of return on Class D members' capital investments for a minimum of 12 months. (Complaint, 1139.) Additionally, Class D members were afforded two votes for every Class D member unit; Class A and C members were only afforded one vote per member unit. (Complaint, 1140.) The Class D capital raise raised $31 2,347.36. On or about February 22, 2021, Tashjian proposed further diluting the benefits of a Class A membership by creating a Class E membership class consisting of 2,000,000 4509368 -8- OPPOSITION TO DEFENDANTS’ MOTION TO QUASH SERVICE OF SUBPOENA ON WELLS FARGO BANK AND REQUEST FOR MONETARY SANCTIONS OLOOOVQU'l-POON-L NNNNNNNNNAAAAAAAAAA meU‘l-POON-LotomeU'l-POON-L units. (Complaint, 1142.) Pursuant to Tashjian's proposal, Class E members were to receive priority for profit distributions and a guaranteed 400% rate of return on Class E members‘ capital investments guaranteed for a minimum of 12 months. (Complaint, 1142.) Additionally, Class E members would be afforded five votes for every Class E member unit. (Complaint, 1142.) Ultimately, the members of 5150 ECR Group did not vote to create a Class E membership. C. The Instant Lawsuit and Subject Subpoena. 1 . The Instant Lawsuit Given Tashjian’s gross mismanagement of 5150 ECR Group, LLC’s capital and given that the Plaintiff Investor Group’s personal and retirement savings are at stake, on February 24, 2021, Plaintiffs filed the instant lawsuit to try and save their-and all other investors‘-capital. On or about February 26, 2020, this Court issued a temporary restraining order prohibiting 5150 ECR Group, LLC, as well as the other named defendants, from: (1) transferring, disposing, or further encumbering the real property located at 5150 El Camino Real, Los Altos, California; (2) further modifying and/or diluting Plaintiffs’ Class A membership interest in Defendant 5150 ECR Group, LLC; and (3) taking any action that will negatively impact Plaintiffs’ membership interest and economic interest in Defendant 5150 ECR Group, LLC. On April 28, 2021, this Court issued a preliminary injunction that was identical to the temporary restraining order. 5150 ECR Group, LLC’s financial situation became so dire that its lender, LCC Warehouse ||| LLC (the "Lender"), filed a lawsuit and requested an Order ex parte appointing a receiver. (RJN, Ex. 1.) On April 27, 2021, this Court issued an Order appointing a receiver in the Lender’s lawsuit. (RJN, Ex. 3.) On June 24, 2021, this Court permitted the Plaintiff Investor Group to intervene in the Lender’s lawsuit. (RJN, Ex. 4.) The Lender has also initiated the foreclosure process and recorded a Notice of Trustee’s Sale to occur on July 21, 2021; however, on June 24, 2021, this Court issued an Order staying the foreclosure sale for a period of 90 days to allow the receiver to 4509368 _9_ OPPOSITION TO DEFENDANTS’ MOTION TO QUASH SERVICE OF SUBPOENA ON WELLS FARGO BANK AND REQUEST FOR MONETARY SANCTIONS OLOOOVQU'l-POON-L NNNNNNNNNAAAAAAAAAA meU‘l-POON-LotomeU'l-POON-L pursue leads to sell the property? (RJN, Ex. 4.) Plaintiffs understand that pursuant to the Court’s Order, the Lender continued the foreclosure sale until mid-September. 2. The Subiect Subpoena Given that Defendants have completely stonewalled Plaintiffs from accessing 5150 ECR Group’s financials since April 2020-despite their contractual right to do so pursuant to the Operating Agreement andtheir statutory right to access same pursuant to the Corporations Code-on or about April 6, 2021, Plaintiffs issued six subpoenas to obtain the documents to which they are entitled. (Declaration of Daniel Ballesteros (“Ballesteros Decl.”), 112.) Though the subpoenas refer to the correct case name, they refer to the incorrect case number-the subpoenas cite to Santa Clara County Case No. 21 CV378563 (the Lender’s lawsuit referenced above in which Plaintiffs have intervened and 5150 ECR Group, LLC is a named defendant) rather than Santa Clara County Case No. 21CV376460 (the instant lawsuit). (Ballesteros Dec|., 113.) On or about May 4, 2021, Defendants demanded that Plaintiffs withdraw their subpoenas based on this scrivener’s error. (Ballesteros Dec|., 114.) Plaintiffs declined to do so but on May 5, 2021, Plaintiffs re-served corrected captions and Notices to Consumer upon learning of their error. (Ballesteros Dec|., 115.) Defendants then filed the instant Motion and, in addition to objecting to the subpoena based on the reference to the incorrect case number-a defect which was cured as of the date of the filing of the motion-Defendants raised numerous substantive objections to the subpoenas for the first time. Put differently, Defendants did not meet and confer with Plaintiffs regarding the substance of their subpoenas at all. Defendants’ Motion is the latest in a series of tactics to conceal 51 50 ECR Group’s financials and the Defendants’ gross mismanagement of same. For the reasons set forth below, Defendants’ Motion should be denied and discovery regarding 5150 ECR Group’s financials should be permitted. /// 2 This was the same Order permitting Plaintiffs’ intervention in the Lender’s lawsuit. 4509368 _1 O_ OPPOSITION TO DEFENDANTS’ MOTION TO QUASH SERVICE OF SUBPOENA ON WELLS FARGO BANK AND REQUEST FOR MONETARY SANCTIONS OLOOOVQU'l-POON-L NNNNNNNNNAAAAAAAAAA meU‘l-POON-LotomeU'l-POON-L LEGAL ANALYSIS A. Defendants’ Procedural Objection to the Subpoena Exalts Form Over Substance. Defendants first contend that Plaintiffs’ subpoena should be quashed in its entirety because it contains a reference to the incorrect case number-the subpoenas cite to Santa Clara County Case No. 21 CV378563 (the Lender’s lawsuit referenced above in which Plaintiffs have intervened and 5150 ECR Group, LLC is a named defendant) rather than Santa Clara County Case No. 21 CV376460. (Defendants’ Motion, 5:20-26.) Such an argument is absurd. Given that Defendants filed their motion to quash in this lawsuit rather than the LCC Warehouse III LLC action, Defendants are obviously aware that the subpoenas pertain to this lawsuit, regardless of the case number originally cited therein.3 Moreover, upon learning of their scrivener’s error on or about May 5, 2021, Plaintiffs notified Defendants that they would immediately issue corrected captions and Notices to Consumer-and they did so that same day. (Ballesteros Decl, 115.) Finally, Defendants’ contention that Plaintiffs cannot issue a subpoena in a case in which they are not a party is moot given that this Court issued an Order permitting the Plaintiffs to intervene in the LCC Warehouse Ill LLC action. (RJN, Ex. 4.) Further, Defendants’ procedural objection to the subpoena is not weII-taken given that Defendants failed to timely file their motion. Pursuant to California Code of Civil Procedure section 1985.3, subdivision (g), a consumer whose personal records are sought by a subpoena must serve notice of his motion to quash five days prior to the date for production. Though the date of production in the subpoena at issue was May 12, 2021, Defendants did not serve notice of their motion until May 10, 2021-only two days prior to the date for production. In failing to timely file their Motion, Defendants are asking this Court to apply a double standard to the Plaintiffs and Defendants. But what is sauce for the goose is sauce for the gander. 3 Defendants did not file a motion to quash in the LCC Warehouse Ill LLC action. (Ballesteros Decl., 116.) 4509368 _1 1_ OPPOSITION TO DEFENDANTS’ MOTION TO QUASH SERVICE OF SUBPOENA ON WELLS FARGO BANK AND REQUEST FOR MONETARY SANCTIONS OLOOOVQU'l-POON-L NNNNNNNNNAAAAAAAAAA meU‘l-POON-LotomeU'l-POON-L For these reasons, Defendants’ procedural objection to Plaintiffs’ subpoena is baseless and accordingly, Defendants’ motion should be denied. B. Plaintiffs are Absolutely Entitled to 5150 ECR Group’s Financial Records Pursuant to Corporations Code section 17704.10 and the Operating Agreement. Defendants’ Motion fails to grasp that as members of 5150 ECR Group, Plaintiffs are absolutely entitled to the documents sought by the Subpoena. Plaintiffs’ right to review 51 50 ECR Group’s financial records is explicitly affirmed by the Corporations Code: (b) Each member, manager, and transferee has the right, upon reasonable request, for purposes reasonably related to the interest of that person as a member, manager, or transferee, to each of the following: (2) To obtain in writing from the limited liability company, promptly after becoming available, a copy of the limited liability company's federal, state, and local income tax returns for each year. (Cal. Corporations Code, § 17704.10, subd. (b)(2).) Additionally, 51 50 ECR Group’s Operating Agreement specifically entitles the Plaintiffs to receive copies of 5150 ECR Group’s records, including tax returns and reports, financial statements, and any other LLC records such member may request. (See Complaint, Exhibit 1, Section 7.3.) Plaintiffs have a statutory and contractual entitlement to the requested records and Defendants have offered no authority to suggest that Plaintiffs’ entitlement has been somehow superseded. Accordingly, Defendants’ Motion must be denied. C. 5150 ECR Group, LLC’s Corporate Privacy Rights Do Not Outweigh the Plaintiffs’ Right to Discovery. Corporations have limited privacy rights. (SCC Acquisitions, Inc. v. Superior Court (201 5) 243 Cal.App.4th 741, 756.) Further, corporate privacy rights “are not stagnant, but depend on the circumstances.” (Ameri-Medical Corp. v. Workers’ Comp. Appeals Bd. (1 996) 42 Cal.App.4th 1260, 1288.) When there is a discovery dispute implicating corporate privacy rights, courts must utilize a balancing test to determine 4509368 -1 2- OPPOSITION TO DEFENDANTS’ MOTION TO QUASH SERVICE OF SUBPOENA ON WELLS FARGO BANK AND REQUEST FOR MONETARY SANCTIONS OLOOOVQU'l-POON-L NNNNNNNNNAAAAAAAAAA meU‘l-POON-LotomeU'l-POON-L whether disclosure is permissible: The discovery‘s relevance to the subject matter of the pending dispute and whether the discovery appears reasonably calculated to lead to the discovery of admissible evidence is balanced against the corporate right of pnvacy. (SCC Acquisitions, Inc. v. Superior Court, supra, 243 Cal.App.4th at 756 (internal citations omitted).) Here, Defendants argue that the subpoena “does not even satisfy the basic threshold of seeking documents that are relevant to the subject matter of the action, much less any test that involves a higher level of relevancy and particularity of need and purpose for the documents.” (Defendants’ Motion, 7:3-6.) Of course, Plaintiffs need not establish “a higher level of relevancy” or a “particularity of need and purpose for the documents”-rather, they need only demonstrate that the discovery sought is relevant to the instant litigation and appears reasonably calculated to lead to the discovery of admissible evidence. Plaintiffs’ can easily make this showing given that they have an absolute entitlement to the records sought and 5150 ECR Group’s financial condition is a central issue to this case. As set forth in Plaintiffs’ Complaint-as well as several of the other 14 lawsuits pending against Tashjian-alleges that Defendants: (1) misappropriated investor funds; (2) solicited investments to conceal Defendant 5150 ECR Group, LLC’s insolvency; and (3) continues to deplete 5150 ECR Group, LLC’s funding without member consent. (See, e.g., Complaint, 111126-45.) More specifically, 5150 ECR Group, LLC contends that it is insolvent; thus, despite having raised $13.7 million-$3 million of which came from PIaintiffs-5150 ECR Group, LLC has nothing to show for it. Further, 5150 ECR Group, LLC has defaulted on its $41 million loan from its Lender and the Property-5150 ECR Group, LLC’s sole asset-is now in a receivership and in foreclosure. The discovery sought in Plaintiffs’ subpoena is critical to determining what happened to Plaintiffs’ $3 million capital investment and where those funds went; put differently, the requested records are directly relevant to this lawsuit. 4509368 -1 3- OPPOSITION TO DEFENDANTS’ MOTION TO QUASH SERVICE OF SUBPOENA ON WELLS FARGO BANK AND REQUEST FOR MONETARY SANCTIONS OLOOOVQU'l-POON-L NNNNNNNNNAAAAAAAAAA meU‘l-POON-LotomeU'l-POON-L Finally, and critically, Defendants’ have offered no justification whatsoever in their Motion as to why their corporate privacy rights should trump the Plaintiffs’ right to discovery. Rather, Defendants merely conclude that 5150 ECR Group’s privacy rights are implicated and that the documents sought are irrelevant. Not only is this demonstrably false-again, the allegations in the Complaint put 51 50 ECR Group’s financial condition directly at issue in this litigation-but Defendants have failed to provide any facts demonstrating that 5150 ECR Group’s privacy rights outweigh Plaintiffs’ right to discovery. Accordingly, any balancing test overwhelmingly favors Plaintiffs’ right to discovery of the records sought. Defendants’ Motion should therefore be denied. D. Defendant 51 50 ECR Group, LLC’s Tax Returns Are Not Absolutely Privileged. There is an implied privilege protecting tax returns from disclosure; critically, however, the privilege is not absolute. (Webb v. Standard Oil Company of California (1 957) 49 Cal.2d 509, 513-514; Schnabel v. Superior Court (1993) 5 Cal.4th 704, 721 .) The privilege will not be upheld when: (1) the circumstances indicate an intentional waiver of the privilege; (2) the gravamen of the lawsuit is inconsistent with the privilege; or (3) a public policy greater than that of the confidentiality of tax returns is involved. (Schnabel, supra, 5 Cal. 4th at 721 .) Finally, a trial court has broad discretion in determining whether the tax return privilege applies. (Weingarten v. Superior Court (2002) 102 Cal.App.4th 268, 274.) Here, the subpoena seeks “[a]|| tax documents RELATING TO any accounts held by 5150 ECR Group, LLC.” Defendants self-servingly argue that “[t]here is simply no relevancy of any purported ‘tax documents.” (Defendants’ Motion, 8:1 -3.) Such an argument belies the central issue of this case. Again, Plaintiffs allege that the Defendants have misappropriated their $3 million capital investment (and all other capital investments into the LLC), which has resulted in the LLC defaulting on its $41 million loan and becoming allegedly insolvent. 5150 ECR Group’s financial condition-and documents related to the same-are therefore central to this litigation, and Defendants’ misappropriation of 5150 ECR Group investor capital is the gravamen of this case. Given 4509368 -1 4- OPPOSITION TO DEFENDANTS’ MOTION TO QUASH SERVICE OF SUBPOENA ON WELLS FARGO BANK AND REQUEST FOR MONETARY SANCTIONS OLOOOVQU'l-POON-L NNNNNNNNNAAAAAAAAAA meU‘l-POON-LotomeU'l-POON-L that 5150 ECR Group has nothing to show for the more than $13 million in funds it has solicited, disclosure of 51 50 ECR Group’s tax documentation is critical to assess 51 50 ECR Group’s contention that it is insolvent and how much money the LLC has reported as income. Moreover, Defendants fail to grasp that as members of the LLC, Plaintiffs have a contractual and statutory entitlement to review 51 50 ECR Group’s tax documentation. (See Complaint, Exhibit 1, Section 7.3; see also Cal. Corporations Code, § 17704.10, subd. (b)(2).) Plaintiffs tried to exercise this right numerous times pre-Iitigation to no avaiI-to date, Defendant Tashjian has refused to share any documentation pertaining to 5150 ECR Group’s financials. Presumably, this is to conceal his gross mismanagement of 5150 ECR Group’s capital investments. Defendants provide no authority in their Motion to support their position that the tax return privilege supersedes an LLC member’s contractual and/or statutory right to review the company’s financial documents. For these reasons, Defendants’ argument that 5150 ECR Group, LLC’s tax returns are absolutely privileged is baseless. E. Defendants’ Objections Based on Relevance and Breadth are Meritless. In their Motion, Defendants’ object that: (1) Plaintiffs’ subpoena is overbroad with respect to time, as the subpoena seeks documents dating back to January 1, 201 7-one year prior to Plaintiffs’ investment into 51 50 ECR Group; (2) the documents sought are irrelevant to Plaintiffs’ claims in this lawsuit; and (3) Plaintiffs could potentially use these documents to “subject defendants, and perhaps even business associates, to further scrutiny over matters that are completely immaterial to this case.” (Defendants’ Motion, 8:12-10:21 .) Defendants further speculate that “Plaintiffs could . . . wreak havoc against 5150 ECR Group, LLC . . . to cause it economic damage.” (Defendants’ Motion, 10:19- 21 .) Of course, it is well settled that the standard for discovery is broad and that courts are instructed to construe discovery statutes liberally so as to uphold the right to discovery: 4509368 -1 5- OPPOSITION TO DEFENDANTS’ MOTION TO QUASH SERVICE OF SUBPOENA ON WELLS FARGO BANK AND REQUEST FOR MONETARY SANCTIONS OLOOOVQU'l-POON-L NNNNNNNNNAAAAAAAAAA meU‘l-POON-LotomeU'l-POON-L In the absence of contrary court order, a civil litigant's right to discovery is broad. “[A]ny party may obtain discovery regarding any matter, not privileged, that is relevant to the subject matter involved in the pending action if the matter either is itself admissible in evidence or appears reasonably calculated to lead to the discovery of admissible evidence . . Section 201 7.01 O and other statutes governing discovery “must be construed liberally in favor of disclosure unless the request is clearly improper by virtue of welI-established causes for denial.” This means that “disclosure is a matter of right unless statutory or public policy considerations clearly prohibit it.” (Williams v. Superior Court (201 7) 3 Cal.5th 531, 541 (emphasis added, internal citations omitted).) As set forth above, the documents sought are directly relevant to Plaintiffs’ claims, as they pertain to 51 50 ECR Group’s finances-and Defendants’ mismanagement of same. Financial documents pre-dating Plaintiffs’ investment in 5150 ECR Group are relevant to determine what 51 50 ECR Group’s financial condition was at the time that the Plaintiffs invested-i.e., whether 51 50 ECR Group was insolvent at the time that Plaintiffs invested or, alternatively, whether the LLC had a surplus of funds that, due to Tashjian’s mismanagement and seIf-dealing, have since evaporated. Documents post-dating Plaintiffs’ investment into the Company are relevant to evaluating what happened to 51 50 ECR Group’s $13 million in investor capital. Further, Defendants suspicion that Plaintiffs will use this documentation to engage in some sort of nefarious conduct is absurd. As a practical matter, Plaintiffs have no incentive to harm 5150 ECR Group given that they have invested $3 million into the LLC. Put differently, Plaintiffs would only be harming themselves if they took any action to harm the company. Every step that Plaintiffs have taken in the litigation thus far has been to save Defendants from themselves, and specifically to save 51 50 ECR Group from Tashjian’s gross mismanagement. F. Defendants Failed to Meet and Confer with Plaintiffs in Good Faith Regarding the Scope of the Subpoena. As set forth above, the sole objection to the Subpoena that the Defendants identified prior to filing their Motion was based on a scrivener’s error that Plaintiffs immediately corrected. Defendants filed the instant Motion and raised several pretextual 4509368 -1 6- OPPOSITION TO DEFENDANTS’ MOTION TO QUASH SERVICE OF SUBPOENA ON WELLS FARGO BANK AND REQUEST FOR MONETARY SANCTIONS OLOOOVQU'l-POON-L NNNNNNNNNAAAAAAAAAA meU‘l-POON-LotomeU'l-POON-L substantive objections to the Subpoena for the first time, as Defendants failed to meet and confer with Plaintiffs. Had Defendants engaged in such a process, this Motion could have been avoided. Though Plaintiffs are unquestionably entitled to 51 50 ECR Group’s financial records as members of the LLC, the parties could have discussed stipulating to this Court’s model protective order to assuage any of Defendants’ concerns regarding the disclosure of their financial information. Instead, Defendants ran to the courthouse and precluded any opportunity for an informal resolution of the parties’ dispute. G. Defendants are Not Entitled to Recover Sanctions. Defendants seek $2,800.00 in monetary sanctions in this specific Motion, and $14,355.00 total in its four Motions. Defendants request for sanctions must fail. First, Defendants are entitled to sanctions because they filed the instant Motion solely to stonewall Plaintiffs right to discovery. Not only are the documents sought relevant to Plaintiffs’ claims, but Plaintiffs are stautorily and contractually entitled to the documents sought as members of 51 50 ECR Group, LLC. Defendants therefore had no substantial justification for bringing this Motion. Second, the amount of monetary sanctions that Defendants request is unjustifiably and unreasonably high given that Defendants’ four motions are largely identical. California Code of Civil Procedure section 2023.030 authorizes the award of “reasonable expenses.” Defendants’ request for monetary sanctions therefore fails on this basis. H. Plaintiffs are Entitled to Monetary Sanctions for Having to Oppose Defendants’ Frivolous Motion. California Code of Civil Procedure section 2023.030 authorizes monetary sanctions against one who “unsuccessfully assert[s] that another has engaged in the misuse of the discovery process, or on any attorney who advised that assertion, or both. . (See also Cal. Code of Civ. Proc., § 1987.2, subd. (a) (authorizing monetary sanctions against any party or attorney who unsuccessfully makes a motion to quash a subpoenay) 4509368 -1 7- OPPOSITION TO DEFENDANTS’ MOTION TO QUASH SERVICE OF SUBPOENA ON WELLS FARGO BANK AND REQUEST FOR MONETARY SANCTIONS OLOOOVO3CJ'I-POON-L NNNNNNNNNAAAAAAAAAA meU‘l-POON-LOCOWVQU'I-PWNA As set forth more fully above, Defendants’ Motion fails for two reasons: (1) it seeks to prevent the disclosure of documents that are directly relevant to Plaintiffs’ claims; and (2) it seeks to prevent the disclosure of documents that Plaintiffs are contractually and statutorily entitled to review as members of 5150 ECR Group, LLC. Defendants filed this Motion simply to stonewall Plaintiffs’ right to discovery. Not only is such gamesmanship an abuse of the discovery process, but it is sanctionable conduct. For these reasons, this Court must award sanctions against Defendants and their counsel, jointly and severally. Plaintiffs have incurred $4,462.50 in total in connection with opposing Defendants’ four duplicative Motions. (Ballesteros Dec|., {[7.) CONCLUSION The records sought in Plaintiffs’ Subpoena to Wells Fargo include bank statements, loan documents, and tax documents relating to accounts held by 51 50 ECR Group. There is no basis to quash the Subpoena given that: (1) Plaintiffs are entitled to these documents as members of the LLC; and (2) the documents sought are directly relevant to Plaintiffs’ claims. For these reasons, Plaintiffs respectfully request that this Court issue an Order: (1) denying Defendants’ Motion in its entirety; (2) denying Defendants’ request for monetary sanctions; (3) compliance with the Subpoena and the production of the disputed records; and (4) requiring Defendants and their counsel, jointly and severally, to pay $4,462.50 in monetary sanctions pursuant to California Code of Civil Procedure sections 1987.2, subdivision (a) and 2023.030, subdivision (a). DATED: August 4, 2021 HOGE, FENTON, JONES & APPEL, INC. Daniel w.’Bauesteros Ashlee N. Cherry Attorneys for Plaintiffs JANET BOCEK, et al. 4509368 -1 8- OPPOSITION TO DEFENDANTS’ MOTION TO QUASH SERVICE OF SUBPOENA ON WELLS FARGO BANK AND REQUEST FOR MONETARY SANCTIONS