Sg Homecare, Inc. vs. Verio Healthcare, Inc.

Motion to Quash Subpoena

Cal. Super. - 4th Dist.November 12, 2015

© 0 0 d N o o u r B A O w N D R N O R D N N N D N N N R B F R R E R E E l | | ~ ~ o o U U B A W N F P O V W © N N Oo o U l p W N = O o 28 Rutan & Tucker, LLP attorneys at law RUTAN & TUCKER, LLP Richard K. Howell (SBN 144241) rhowell@ rutan.com Gerard M. Mooney (SBN 222137) gmooney@ rutan.com Briana F. Richmond (SBN 301824) brichmond@ rutan.com 611 Anton Boulevard, Suite 1400 Costa Mesa, California 92626-1931 Telephone: 714-641-5100 Facsimile: 714-546-9035 Attorneys for Plaintiff and Cross- Defendant SG HOMECARE, INC. and Cross-Defendant THOMAS RANDALL ROWLEY UNDER SEAL PURSUANT TO STIPULATED PROTECTIVE ORDER AND CRC 2.550(a)(3) SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF ORANGE, CENTRAL JUSTICE CENTER SG HOMECARE, INC., aCalifornia corporation, Plaintiff, VS. VERIO HEALTHCARE, INC., a California corporation; ERIC SCHRIER, an individual; FRANK FREDERICK, an individual; ANGELA MARTINEZ, an individual; and DOES 1 through 20, inclusive, Defendants. AND RELATED CROSS-ACTION CASE NO. 30-2015-00819810-CU-CO-C]C ASSIGNED FOR ALL PURPOSES TO: HON.SHEILA FELL PLAINTIFF SG HOMECARE, INC.’S AND CROSS-DEFENDANT THOMASR. ROWLEY’S NOTICE OF MOTION AND MOTION TO QUASH DEFENDANT VERIO HEALTHCARE,INC.’S DEPOSITION SUBPOENAS FOR THE PRODUCTION OF BUSINESS RECORDS TO BANK OF SOUTHERN CALIFORNIA; MEMORANDUM OF POINTS AND AUTHORITIES; DECLARATIONS OF THOMAS R.ROWLEY AND GERARD M. MOONEY IN SUPPORT THEREOF. Complaint Filed: November 12, 2015 Trial Date: September 10, 2018 Date: April 12,2018 Time: 10:00 a.m. Location: JAMS 500 N. State College Blvd. 14" Floor Orange, CA 92868 -1- sos003270a0000 MOTION TO QUASH DEPOSITION SUBPOENA FOR PRODUCTION OF 11999343.2 20/16/18 BUSINESS RECORDS TO BANK OF SOUTHERN CALIFORNIA © 0 0 d N o o u r B A O w N D R N O R D N N N D N N N R B F R R E R E E l | | ~ ~ o o U U B A W N F P O V W © N N Oo o U l p W N = O o 28 Rutan & Tucker, LLP attorneys at law TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD: PLEASE TAKE NOTICE thaton April 12, 2018 at 10:00 a.m. before the parties’ appointed discovery referee, the Honorable Edward J. Wallin (Ret.) atJAMS, 500 N. State College Blvd., 14" Floor, Orange, CA 92868, plaintiff and cross-defendant SG Homecare, Inc. (“SG”) and cross-defendant Thomas Randall Rowley, will, and hereby do, move to quash defendant and cross-complainant Verio Healthcare, Inc.’s (“Verio”) Deposition Subpoena for the Production of Business Records to Bank of Southern California (the “Subpoena”). This Motion is made pursuant to California Code of Civil Procedure sections 1985(b), 1985.3, 1987.1, 2017.010, 2020.410(a), 2023.010(c) & (h), 2023.030(a) and 3295(c), on the grounds that the Subpoena improperly seeks wholly irrelevant and highly-sensitive financial and otherwise private and confidential information subject to California’s constitutional right to privacy, as well as the privilege for tax information. The documents sought by the Subpoena post- date defendants Eric Schrier, Angela Martinez, and Frank Frederick’s employment at SG. The Subpoena amounts to an intrusive audit of SG’s finances with no connection to any issue in this action. SG and Mr. Rowley respectfully request that the Subpoena be quashed in its entirety. This Motion is based on this Notice of Motion and M otion, the accompanying Memorandum of Points and Authorities, the Declarations of Thomas R. Rowley and Gerard M. Mooney,the files and records in this action, and such other evidence or argument as may be properly presented at the hearing of this matter. Dated: February 16, 2018 RUTAN & TUCKER, LLP RS Briana F. Richmond Attorneys for Plaintiff and Cross-D efendant SG HOMECARE, INC. and Cross- Defendant THOMAS RANDALL ROWLEY 2- soa003270a0000 MOTION TO QUASH DEPOSITION SUBPOENA FOR PRODUCTION OF 11999343.2 20/16/18 BUSINESS RECORDS TO BANK OF SOUTHERN CALIFORNIA 1 TABLE OF CONTENTS 2 Page 31. INTRODUCTIONwootreesetsreesbeebsbere 5 4111. FACTUAL AND PROCEDURAL BACKGROUNDicici6 5 A. The Individual Defendants Obtain Confidential SG Information...........c.cccovvvne. 6 6 B SG Has Extensive Negotiations With Molina Healthcare..........ccoccvvevvcievciecnenne, 7 7 C. The Defendants Surreptitiously Incorporate Verio ......ccccovvvininiiviniencinnieseenns 8 8 D Molina A bruptly Backs Out Of Its Expected Contract With SG And Contracts With Verio, Despite Verio’s Start-Up StatuS.........cccoevvinininniiniiinnnns 8 ? E. SG Files This Action And Mr. Schrier Files His Cross-Complaint........ccccceennen, 9 0 F. Verio Issues Its Subpoena To Bank Of Southern California.......cccccoocveicicnnnne, 11 H II. THE SUBPOENA MUST BE QUASHED BECAUSE IT SEEKS 12 CONSTITUTIONALLY -PROTECTED AND OTHERWISE IRRELEVANT PRIVATE FINANCIAL AND CONFIDENTIAL 13 INFORMATIONcotterrestsesrbebenreser 12 14 A. The Subpoena Seeks Documents Irrelevant To This Action .....ccccevevevcieiciien, 13 15 B. The Subpoena Seeks Private And Confidential Tax And Other Financial INFOrmation ........ccoeeei ce14 ” IV. CONCLUSIONoctet15 18 19 20 21 22 23 24 25 26 27 28 Rutan & Tucker, LLP -3- attorneys at law ||10>704-0001 MOTION TO QUASH DEPOSITION SUBPOENA FOR PRODUCTION OF 11999343.2 a02/16/18 BUSINESS RECORDS TO BANK OF SOUTHERN CALIFORNIA © 0 0 d N o o u r B A O w N D R N O R D N N N D N N N R B F R R E R E E l | | ~ ~ o o U U B A W N F P O V W © N N Oo o U l p W N = O o 28 Rutan & Tucker, LLP attorneys at law TABLE OF AUTHORITIES Page(s) CALIFORNIA CASES Calcor Space Facility, Inc. v. Superior Court (1997) 53 CalLAPPALN 216ovis5,13 Connecticut Indemnity Co. v. Superior Court (2000) 23 CallAth B07worcesterbeeeneben r eee ster eterna rens 14 H & M Associates v. City of EI Centro (1980) 109 CalLAPP.30 399 ii——————————————14 Harding Lawson Associates v. Superior Court (1992) 10 CalLAPPAEN 7 reeereesereer eres r eee reer ens 15 Kleitman v. Superior Court (1999) TA CalLAPP.ALN 324...eeeeeeeereese ere eer rere 12 Schnabel v. Sup. Ct. (1993) SCALATOAo.ooeeereereebeeen b aberrant eraser eae eran 14 Southern Pac. Co. v. Superior Court (1940) 15 Cal.2A 200 ouverteeeeeee rere rere sree eben nr eres sr eraser eran erens 12 Williams v. Superior Court (2017) 3 Cal5EN 531oii—————————————————————————15 CALIFORNIA STATUTES Code of Civil Procedure SECHION 1987. Lu.icicieeebebeeeeabba h aera arse ere ares ares 12 SECHION 2017.000. cui iie itieseres aera sree ere arae ares 13 Penal Code SECHION 490...eterbeterne5 SECON 502...titer1brere6 -4- sos003270a0000 MOTION TO QUASH DEPOSITION SUBPOENA FOR PRODUCTION OF 11999343.2 20/16/18 BUSINESS RECORDS TO BANK OF SOUTHERN CALIFORNIA © 0 0 d N o o u r B A O w N D R N O R D N N N D N N N R B F R R E R E E l | | ~ ~ o o U U B A W N F P O V W © N N Oo o U l p W N = O o 28 Rutan & Tucker, LLP attorneys at law MEMORANDUM OF POINTS AND AUTHORITIES l. INTRODUCTION. On January 19, 2018, defendant and cross-complainant Verio Healthcare, Inc. (“Verio”) issued a Deposition Subpoena for the Production of Business Records (the “Subpoena”) to Bank of Southern California (the “Bank”). (Declaration of Gerard M. Mooney [“M ooney Decl.”], 110, Ex. 17.) The Subpoena seeks irrelevant private financial information pertaining to plaintiff and cross-defendant SG Homecare, Inc. (“SG”or the “Company”) and its owner and principal, cross- defendant Thomas Rowley, and should be quashed in its entirety. (/bid.) Verio contends that SG’s and Mr. Rowley’s financial records are “at issue” because of alleged acts of supposed financial malfeasance that Verio claims occurred (but of which Verio has yet to provide competent evidence, after more than two years of litigation) while defendant and cross-complainant Eric Schrier was President of SG between October 2014 and October 2015.1 (Mooney Decl., 114, Ex. 22 at 12:10-11.) To that end, SG ultimately cooperated with Verio regarding Verio’s subpoenas to two banks from which SG sought financing during Mr. Schrier’s tenure at SG, after the parties agreed upon the scope and process of production. (/d., 113.) However, the documents sought by the Subpoena to the Bank post-date Mr. Schrier’s employment at SG, and are not otherwise related to the circumstances surrounding his departure or SG’s claims in this action. (Rowley Decl., 1922, 27, Ex. 11.) Rather, emboldened by obtaining discovery into other bank information for SG, Verio now transparently seeks to conduct an improper and invasive audit of SG’s and Mr. Rowley’s finances by way of this litigation. (Calcor Space Facility, Inc. v. Superior Court (1997) 53 Cal.App.4th 216, 223 [Although the scope ofcivil discovery is broad, it is not limitless.”].) SG filed this action with the Orange County Superior Court, asserting claims against Mr. Schrier, as well as defendants and former SG officers and managers Angela Martinez and Frank Frederick, for, inter alia, breach of fiduciary duties, misappropriation of trade secrets, intentional interference with prospective economic advantage, and violations of Penal Code sections 496 and 1 Ironically, Mr. Schrier — who claims credit for operating SG with supposedly minimal involvement by Mr. Rowley — would have been the person overseeing the alleged wrongful acts. sos003270a0000 MOTION TO QUASH DEPOSITION SUBPOENA FOR PRODUCTION OF 11999343.2 20/16/18 BUSINESS RECORDS TO BANK OF SOUTHERN CALIFORNIA © 0 0 d N o o u r B A O w N D R N O R D N N N D N N N R B F R R E R E E l | | ~ ~ o o U U B A W N F P O V W © N N Oo o U l p W N = O o 28 Rutan & Tucker, LLP attorneys at law 502. (Mooney Decl., 12, Ex. 13 at 1928-88.) SG’s claims concern the individual defendants’ wrongful conduct while working for SG as its officers and managers; their surreptitious formation of Verio to compete against SG using confidential SG data they gained while at the Company; and their usurping of a multimillion dollar client contract they were negotiating on SG’s behalf up until their clandestine exits to found and work for Verio. (/d. at 11 11-27.) In response to SG’s claims, Mr. Schrier, in conjunction with his now disqualified counsel, Buchalter Nemer, PC, filed a Cross-Complaint making a host of new allegations regarding SG’s purported financial practices and Mr. Rowley’s supposed conduct as CEO of SG, which Mr. Schrier alleges somehow forced his departure from SG to start Verio and compete illegally against SG. (Id., 13, Ex. 14.) By way of the Subpoena, Verio relies on Mr. Schrier’s allegations of improper financial practices that supposedly lead to his resignation to seek financial records which post-date Mr. Schrier’s tenure at SG. (Rowley Decl. 127; Mooney Decl., 111, Ex. 18.) Plainly, what supposedly occurred after Mr. Schrier left SG or conduct otherwise unrelated to Mr. Schrier has no bearing upon Mr. Schrier’s departure from SG, and is not a properbasis for discovery in this litigation. SG raised these issues with Defendants, but Defendants refuse to withdraw the overbroad and invasive Subpoena or otherwise propose any meaningful limitation on the scope of their requests. Rather, itis apparent Verio and Mr. Schrier — who acknowledge they are SG’s competitors — intend to use this litigation to investigate the entirety of SG’s and Mr. Rowley’s finances and business for improper purposes. Because the Subpoena would require the production of sensitive and constitutionally-protected financial information having no bearing on this action, SG and Mr. Rowley respectfully request that the Subpoena be quashed. Il. FACTUAL AND PROCEDURAL BACKGROUND. SG provides the following discussion of the factual and procedural history of this matter to put Defendants’ Subpoena and this Motion into context. A. T he Individual Defendants O btain C onfidential SG Information. Mr. Schrier was a long-time friend of Mr. Rowley’s, whom Mr. Rowley broughtinto an executive position at SG at a substantial salary when Mr. Schrier was experiencing the loss of his -6- sos003270a0000 MOTION TO QUASH DEPOSITION SUBPOENA FOR PRODUCTION OF 11999343.2 20/16/18 BUSINESS RECORDS TO BANK OF SOUTHERN CALIFORNIA © 0 0 d N o o u r B A O w N D R N O R D N N N D N N N R B F R R E R E E l | | ~ ~ o o U U B A W N F P O V W © N N Oo o U l p W N = O o 28 Rutan & Tucker, LLP attorneys at law prior job and potential financial hardship and sought out Mr. Rowley’s assistance. (Rowley Decl., 994-5.) Mr. Rowley made Mr. Schrier SG’s President, and entrusted Mr. Schrier with knowledge of SG’s confidential operational and contracting practices, by which Mr. Rowley built SG into a successful home medical device (“HMD”) business over the past 15 years. (/d., 16.) Ms. Martinez was SG’s Director of Operations, and, like Mr. Schrier, was privy to information regarding SG’s internal operations and procedures. (/d., 17.) Mr. Frederick was a friend of Mr. Schrier’s, whom Mr. Schrier brought into SG with an office at its headquarters and a Company e-mail address for the ostensible purpose of developing business for the Company. (/d., 98.) Mr. Rowley agreed to allow Mr. Frederick to attend SG’s management team meetings, and trusted Mr. Frederick to meet with existing and potential SG customers, on SG’s behalf. (/bid.) B. SG Has Extensive Negotiations With Molina Healthcare. On April 20, 2015, Mr. Frederick — then with SG — e-mailed Molina Health Care (“Molina”) Vice President Michelle Espinoza, following up on a meeting they had on April 18, 2015, to discuss a potential contract between Molina and SG. (/d., 111, Ex. 2.) On April 29, 2015, Ms. Espinoza responded to Mr. Frederick’s e-mail, and she and Mr. Frederick set up a visit by Ms. Espinoza to SG’s facility on May 8, 2015. (/bid.) OnJunel, 2015, Ms. Espinoza e-mailed Mr. Frederick and — referencing a contract between SG and Molina — wrote that she had “discussed this as a new initiative I was approaching for [San Diego] to start,” that her “boss is behind [her],” and that it is “all about the numbers.” (Id., 912, Ex. 3.) Ms. Espinoza wrote that she “would like to proceed with scheduling a meeting in San Diego with the Leadership and having SG do a presentation.” (Ibid.) Mr. Frederick offered to meet with representatives of Molina on July 1, 2015. (/bid.) On June 24, 2015, Ms. Espinoza e-mailed Mr. Schrier and Mr. Frederick to provide information regarding Molina’s durable medical equipment (“DME”) costs for San Diego County, where SG would first be providing its services. (/d., 113, Ex. 4.) In addition, Ms. Espinoza wrote that she would “like to start the contract shortly thereafter,” and she would “pull in one on [her] contracting leads to support [her] on this” so as not to “lose momentum.” (/bid.) As Ms. Espinoza latertestified, she fully expected and intended that SG and Molina would enter into a contract for -7- sos003270a0000 MOTION TO QUASH DEPOSITION SUBPOENA FOR PRODUCTION OF 11999343.2 20/16/18 BUSINESS RECORDS TO BANK OF SOUTHERN CALIFORNIA © 0 0 d N o o u r B A O w N D R N O R D N N N D N N N R B F R R E R E E l | | ~ ~ o o U U B A W N F P O V W © N N Oo o U l p W N = O o 28 Rutan & Tucker, LLP attorneys at law SG to provide services to Molina. (Mooney Decl., 110, Ex. 18.) On July 1, 2015, Mr. Schrier and Mr. Frederick met with M olina representatives, including Ms. Espinoza. (Rowley Decl., 114, Ex. 5.) On July 2, 2015, Mr. Schrier e-mailed Ms. Espinoza regarding “the new DME program.” (/bid.) Mr. Schrier wrote “I absolutely know that we will be able to service the Molina patients better than the current vendors and partner in ways to reduce future costs to Molina.” (Ibid.) On July 8, 2015, Mr. Schrier executed Molina’s NDA and Business Association A greement on behalf of SG. (/d., 115.) Mr. Schrier and Mr. Frederick had further communications with Ms. Espinoza and others at Molina indicating Molina’s intention to contract with SG, including exchanges on July 17, 2015 and July 31, 2015, and thereafter into September 2015, regarding drafting the fine points of their expected contract. (/d., 1916-17, Exs. 6-7; Mooney Decl., 910, Ex. 18.) Throughout this time, Mr. Frederick and Mr. Schrier repeatedly informed Mr. Rowley of their negotiations with Molina, and told Mr. Rowley of their belief that the expected SG-M olina contract would be a significant revenue driver for SG. (Rowley Decl., 118.) Mr. Frederick sent Mr. Rowley text messages with the same enthusiastic appraisals of the expected SG-M olina contract. (/d., 110, Ex. 9.) C. T he Defendants Surreptitiously | ncorporate Verio. On September 15, 2015, Mr. Frederick — still ostensibly representing SG in its marketing efforts, still negotiating with Molina on SG’s behalf, and even signing contracts on behalf of SG — surreptitiously incorporated Verio, without informing Mr. Rowley. (Mooney Decl., 111, Ex. 19.) Mr. Frederick also engaged the same person whom Mr. Schrier hired to create SG’s website and branding — Bradley Girard — to do the same for Verio. (/d., 15.) D. Molina A bruptly Backs Out Of Its E xpected Contract With SG And Contracts With Verio, Despite Verio’s Start-Up Status. On September 18, 2015 — three days after Verio’s incorporation — Ms, Espinoza of Molina e-mailed Mr. Schrier, writing that while she knew SG and Molina “were looking at a 10/1/15 launch,” Molina suddenly and without explanation wanted “to take a step back on proceeding with a contract[.]” (Rowley Decl., 4 21, Ex. 10.) In fact, Molina sought to “take a step back” because Mr. Frederick — while working for SG — informed Ms. Espinoza falsely that SG could not and -8- sos003270a0000 MOTION TO QUASH DEPOSITION SUBPOENA FOR PRODUCTION OF 11999343.2 20/16/18 BUSINESS RECORDS TO BANK OF SOUTHERN CALIFORNIA © 0 0 d N o o u r B A O w N D R N O R D N N N D N N N R B F R R E R E E l | | ~ ~ o o U U B A W N F P O V W © N N Oo o U l p W N = O o 28 Rutan & Tucker, LLP attorneys at law would not perform on the contract he had been negotiating on SG’s behalf. (Mooney Decl., 17, Ex. 15.) Instead, Mr. Frederick told Ms. Espinoza that he — Mr. Frederick — was forming a new company to compete with SG, and asked that M s. Espinoza instead have Molina contract with that new company — Verio. (/bid.) Ms. Espinoza agreed to Mr. Frederick’s proposal, canceling the contract she expected to launch with SG by October 1, 2015. (/bid.) L ess than one month later, on October 16, 2015, M essrs. Frederick and Schrier and Ms, Martinez abruptly resigned from SG to begin working at V erio and compete directly with SG. (Rowley Decl., 922.) Mr. Schrier left behind a pretextual resignation letter alleging supposed wrongful conduct at SG, including never-before-raised allegations regarding SG’s expenses and financial records, as well as innocuous tax return entries and loan application matters that Mr. Schrier now claimed constituted financial misconduct at the Company. (/d., 123, Ex. 11.) In his letter, Mr. Schrier referenced the “‘adjusting” of our internal aging/payables in order to better qualify for a loan from a Bank,” which Mr. Schrier referred to as “an SBA loan.” (Ibid.) Mr. Schrier did not refer to any other “Bank” or “loan” in his letter. (/bid.) Shortly thereafter, SG discovered its computers had been scrubbed of e-mails and other electronic records, and that hard-copy files and other documents — including those pertaining to SG’s negotiations and expected contract with Molina — were missing. (/d., 126.) In fact, Mr. Schrier had taken a substantial number of those records with him when he departed SG, and for undisclosed reasons, provided them to law enforcement authorities (who eventually returned them to Mr. Schrier, without any indication of any wrongdoing by SG). (Mooney Decl., 16.) Effective January 1, 2016, Molina — which had repeatedly stated its intention to enter a contract with SG effective the prior October — contracted with Verio, then in business only a few months, for Verio to provide the services Molina previously said SG would be providing, in exchange for what is expected to be millions of dollars of payment to Verio. (Rowley Decl., 26, Ex. 12.) E. SG Files This Action And Mr. Schrier Files His C ross-C omplaint. SG filed this action on November 12, 2015, and filed its operative First A mended Complaint on November 20, 2015. (Mooney Decl., 12, Ex. 13.) In support of its claims, SG set -9- sos003270a0000 MOTION TO QUASH DEPOSITION SUBPOENA FOR PRODUCTION OF 11999343.2 20/16/18 BUSINESS RECORDS TO BANK OF SOUTHERN CALIFORNIA © 0 0 d N o o u r B A O w N D R N O R D N N N D N N N R B F R R E R E E l | | ~ ~ o o U U B A W N F P O V W © N N Oo o U l p W N = O o 28 Rutan & Tucker, LLP attorneys at law out Defendants’ wrongful conduct,including their usurping of SG’s expected contractual relationship with Molina and potentially other customers. (/d. at 9921, 27, 31.c, 40.b, 45, 58, 67, 77,78, 82 and 87.) On December 24, 2015, Mr. Schrier (and his wife, Bridee Schrier) filed a Cross-Complaint against SG and Mr. Rowley,alleging claims for Wrongful Termination (Constructive Termination), and Intentional Infliction of Emotional Distress. (/d., 13, Ex. 14.) In relevant part, Mr. Schrier alleged that he was compelled to leave SG because, inter alia, Mr. Rowley “began applying for a business loan for . . . [SG],” and secured a “$750,000 line of credit with Union Bank.” (/d. at 36.) Mr. Schrier alleged that “[i]n obtaining the line of credit, . . . [Mr. Rowley] submitted false financials that contained material misstatements in order to create a more positive picture” of SG’s finances, and that Mr. Schrier “confronted” Mr. Rowley and asked Mr. Rowley “to rectify the situation and provide true financials to Union Bank,” which Mr. Rowley “refused.” (Id., 936.) Mr. Schrier did not identify any banks other than Union Bank in his Cross-Complaint. SG propounded Form Interrogatories and Special Interrogatories to Mr. Schrier, as well as Requests for Production, seeking information and documents supporting Mr. Schrier’s claims and defenses in this action. (Mooney Decl., 19.) Mr. Schrier did not refer to Bank of Southern California in his responses to that discovery, or serve documents regarding that Bank. (/d.) Mr. Schriertestified in his deposition on October 3, 2017 that his decision to leave SG and join Verio was based on a number of “factors,” none of which concerned the purported wrongful conduct he now alleges, much less anything having to do with Bank of Southern California: And what did you discuss with Mr. Frederick in that regard? He asked me to potentially join him if he started a company. And did you respond to his request? And what did you say? Q A Q A. Yes. Q A. Becauseit was two and a half years ago, it’s a little difficult to remember exactly what | said. -10- sos003270a0000 MOTION TO QUASH DEPOSITION SUBPOENA FOR PRODUCTION OF 11999343.2 20/16/18 BUSINESS RECORDS TO BANK OF SOUTHERN CALIFORNIA © 0 0 d N o o u r B A O w N D R N O R D N N N D N N N R B F R R E R E E l | | ~ ~ o o U U B A W N F P O V W © N N Oo o U l p W N = O o 28 Rutan & Tucker, LLP attorneys at law Do you recall generally what you said? Generally, | said it depends on a lot of factors. And what were those factors? There’s a pretty long laundrylist. o F » 0 F O And what were they? A. Compensation, my family situation, ownership in the company, potentially, how it would be accomplished. ust like anybody making an enormouslife change, there’s a -- many -- many more things that I can’t recall, but would all play into a decision if | was to leave. (Mooney Decl., 18, Ex. 16 [emphasis added].) Only when prompted later did Mr. Schrier testify that his decision to join Verio also arose out of his allegations of purported misconduct at SG, which, again, Mr. Schrier did not testify involved Bank of Southern California. (/d., at 99:10 — 101:11].) F. Verio Issues Its Subpoena To Bank Of Southern California. On January 19, 2018, after issuing and obtaining records from Union Bank and Chase Bank, Defendants issued the Subpoena to Bank of Southern California. The Subpoena contains the following requests: o All loan applications submitted by SG HOMECARE to YOU in 2015. . AllDOCUMENTS submitted by SG Homecare to Y OU related to any SG HOMECARE loan applications to Y OU in 2015. . AllCOMMUNICATIONS between YOU and SG HOMECARE related to any loan application submitted by SG HOMECARE to YOU in 2015. o All COMMUNICATIONS related to Y OUR processing of all SG HOMECARE loan applications submitted to Y OU in 2015. . AlIDOCUMENTS related to Y OUR decision whether or notto give SG HOMECARE a loan based on any applications SG HOMECARE submitted to you in 2015. . All COMMUNICATIONS between Y OU and any person other than SG HOMECARE related to any loan application submitted by SG HOMECARE to YOU in 2015. (Mooney Decl., 110, Ex. 17.) The Subpoena includes expansive definitions of the capitalized terms, sweeping in a host of financial documents and communications relating to SG’s loan -11- sos003270a0000 MOTION TO QUASH DEPOSITION SUBPOENA FOR PRODUCTION OF 11999343.2 20/16/18 BUSINESS RECORDS TO BANK OF SOUTHERN CALIFORNIA © 0 0 d N o o u r B A O w N D R N O R D N N N D N N N R B F R R E R E E l | | ~ ~ o o U U B A W N F P O V W © N N Oo o U l p W N = O o 28 Rutan & Tucker, LLP attorneys at law applications and supporting documentation provided to or exchanged with the Bank. (/bid.) The parties met and conferred regarding the nature of documents sought by the Subpoena. (Id., 911, Ex. 18.) SG objected to the substantial private, financial information sought by the Subpoenas as well as the wholly irrelevant nature of the requested information, particularly given Mr. Schrier had never before mentioned an issue relating to Bank of Southern California. (/bid.) Ultimately, Defendants refused to withdraw the Subpoena and instead insisted the documents were relevant to the subject matter of the case in a broad sense, viz., that Mr. Schrier raises “financial” issues in this litigation, without explaining how records pertaining to Bank of Southern California itself are relevantto this action. (/bid.) When Verio refused to withdraw the subpoena, SG was left with no choice butto file the instant Motion. Il. THE SUBPOENA MUST BE QUASHED BECAUSE IT SEEKS CONSTITUTIONALLY-PROTECTED AND OTHERWISE IRRELEVANT PRIVATE FINANCIAL AND CONFIDENTIAL INFORMATION. Section 1987.1 of the Code of Civil Procedure grants courts broad power to quash or limit deposition subpoenas. It permits the courts to “make an order quashing the subpoena entirely, modifying it, or directing compliance with it upon those terms or conditions as the court shall declare, including protective orders,” and to “make any other order as may be appropriate to protect the person from unreasonable or oppressive demands, including unreasonable violations of the right of privacy of the person.” (Code of Civ. Proc., § 1987.1.) In ruling on a motion to quash,the relevancy of the evidence sought to be elicited with respect to the material issues in dispute in the case, and whether the requested order for production would constitute an unlawful invasion of privacy, are appropriately considered. (Southern Pac. Co. v. Superior Court (1940) 15 Cal.2d 206, 209.) “Managementof discovery lies within the sound discretion of the trial court,” and will only be reversed for an abuse of that discretion. (K/eitman v. Superior Court (1999) 74 Cal.App.4th 324, 330.) As explained below, the Subpoena seeks sensitive and private financial documents that are neither relevant to the claims in this case nor reasonably calculated to lead to the discovery of admissible evidence. The Subpoena should be quashed in its entirety. -12- sos003270a0000 MOTION TO QUASH DEPOSITION SUBPOENA FOR PRODUCTION OF 11999343.2 20/16/18 BUSINESS RECORDS TO BANK OF SOUTHERN CALIFORNIA © 0 0 d N o o u r B A O w N D R N O R D N N N D N N N R B F R R E R E E l | | ~ ~ o o U U B A W N F P O V W © N N Oo o U l p W N = O o 28 Rutan & Tucker, LLP attorneys at law A. The Subpoena Seeks Documents Irrelevant To T his Action. The Subpoena improperly seeks documents and information that are wholly irrelevant to this action. “Although the scope of civil discovery is broad, itis not limitless,” especially when discovery is sought from third parties. (Calcor Space Facility, supra, 53 Cal.App.4th at 223.) As a general matter in litigation, a party may discover only relevant information, which means evidence that is either admissible or reasonably calculated to lead to the discovery of admissible evidence. (Code Civ. Proc., § 2017.010.) Importantly, the “burden rests upon the party seeking the discovery to provide evidence from which the court may determine these conditions are met.” (Calcor Space Facility, supra, 53 Cal.A pp.4th at 223.) Defendants have not — and cannot — meet this burden. SG obtained a loan from Bank of Southern California after Mr. Schrier’s departure from SG for Verio. (Rowley Decl., 927.) As part of the [oan process, SG was required to provide, and did provide, confidential financial documents to the Bank of Southern California. (/d.) Mr. Schrier had no role in the funding of that loan, and, at any rate, raises no issues in this litigation having to do with this loan or the Bank. (/d. at 1923, 27, Ex. 11.) Defendants have previously asserted that SG and Mr. Rowley’s finances are generally at issue due to alleged acts of financial malfeasance that occurred “while Schrier was president.” (Mooney Decl., 114, Ex. 22 at 12:10-11.) However, Defendants have neither provided any explanation nor identified any allegation to support their right to engage in a fishing expedition into SG and Rowley’s financial records that post-date Mr. Schrier’s resignation, as the records sought by the Subpoena would do. (/d., at 111, Ex. 18.) Defendants are not entitled to such wide- ranging discovery going well beyond the scope of Defendants’ allegations, and well beyond anything Mr. Schrier or the other Defendants raised in real time, before the filing of this action. Indeed, Mr. Schrier’s pretextual resignation letter, his Cross-Complaint, his discovery responses, and his answers to deposition questions, and even his explanation as to why he required records from Union Bank and Chase Bank all confirm that neither his claims nor the Defendants’ responses to SG’s causes of action have any relation to the Bank of Southern California or any loan it provided to SG. (Rowley Decl., 923, Ex. 11; Mooney Decl., 993, 8-9, Exs. 14, 16.) Mr. -13- sos003270a0000 MOTION TO QUASH DEPOSITION SUBPOENA FOR PRODUCTION OF 11999343.2 20/16/18 BUSINESS RECORDS TO BANK OF SOUTHERN CALIFORNIA © 0 0 d N o o u r B A O w N D R N O R D N N N D N N N R B F R R E R E E l | | ~ ~ o o U U B A W N F P O V W © N N Oo o U l p W N = O o 28 Rutan & Tucker, LLP attorneys at law Schrier presumably makes no mention of the Bank of Southern California because he had no involvement with or even knowledge of SG’s loan application to the Bank. Indeed, it appears Defendants only learned of SG’s business dealings with the Bank through the recent deposition of its accountant, J oe Matranga. (Mooney Decl., 11, Ex. 18.) Mr. Schrier’s prior allegations relating to Chase Bank and Union Bank do not open the door to discovery into every loan applications SG has submitted since his resignation. Mr. Schrier and the other Defendants — who are, it should be remembered, competitors of SG — seek nothing less than an audit of SG by way of this litigation. Simply put, the information sought is wholly irrelevant, and the Subpoena should be quashed in its entirety. B. T he Subpoena Seeks Private And Confidential Tax And Other Financial Information. To the extent that V erio’s Subpoena would lead to the production of SG’s or Mr. Rowley’s tax returns, the Subpoenas are improper as such documents are privileged under California law. (Schnabel v. Sup. Ct. (1993) 5 Cal.4th 704, 720 [applying privilege for personal tax returns to corporate tax returns].) As currently drafted, the Subpoenas require production of any tax returns that SG or Mr. Rowley provided in connection with the loan applications. (Mooney Decl., 4 10, Exs. 17.) Ata minimum, the Subpoena should be quashed on that basis. In addition, corporate entities have a right to privacy which must be taken into account in discovery. (H & M Associates v. City of El Centro (1980) 109 Cal.A pp.3d 399, 409-411 [holding that corporation’s right to privacy would be invaded by city’s improper disclosures of information].) That includes SG, a corporation (backed, as itis, by human stockholders and interested persons). (Connecticut Indemnity Co. v. Superior Court (2000) 23 Cal.4th 807, 817-818 [recognizing corporate entities’ right to privacy, despite contrary law]; see, also, H & M Associates v. City of El Centro, supra, 109 Cal.App.3d at 409.) Defendants improperly attempt to invade obtain SG’s private financial records by seeking its loan application and related documents from the Bank. Defendants have not identified and cannot identify any justification for infringing SG’s privacy rights in that manner. Even putting aside SG’s right to privacy, itis plain Mr. Rowley, as an individual, has a -14- sos003270a0000 MOTION TO QUASH DEPOSITION SUBPOENA FOR PRODUCTION OF 11999343.2 20/16/18 BUSINESS RECORDS TO BANK OF SOUTHERN CALIFORNIA © 0 0 d N o o u r B A O w N D R N O R D N N N D N N N R B F R R E R E E l | | ~ ~ o o U U B A W N F P O V W © N N Oo o U l p W N = O o 28 Rutan & Tucker, LLP attorneys at law protectable constitutional right to privacy, as do SG employees and the persons whom SG serves, whose records and information the Subpoenas seek. W here a party demonstrates an invasion of privacy resulting from discovery, the party seeking the discovery must demonstrate the “countervailing interests” that justify the discovery, and the court must weigh those competing interests. (Williams v. Superior Court (2017) 3 Cal.5th 531, 557.) “W hat suffices to justify an invasion will . . . vary according to the context,” and “obvious invasions of interests fundamental to personal autonomy must be supported by a compelling interest[.]” (/bid.) Even when discovery is permitted, “the scope of disclosure must be narrowly circumscribed.” (Harding Lawson Associates v. Superior Court (1992) 10 Cal.A pp.4th 7, 10 [disapproved on other grounds in Williams v. Superior Court, supra, 3 Cal.5th 531].) The Subpoena is thus further improperto the extent Mr. Rowley provided any personal information in connection with SG’s loan applications. Accordingly, the Subpoena must be quashed to avoid this unnecessary intrusion into Mr. Rowley’s private finances. In short, Defendants’ attempted discovery arises from increasingly attenuated, litigation afterthought allegations. SG opposes any attempt by Defendants to conduct a wholesale inquiry into SG and Mr. Rowley’s finances. The Subpoena must be quashed to avoid this intrusive and unnecessary discovery. IV. CONCLUSION For the foregoing reasons, Plaintiff and Cross-D efendant respectfully request that the Subpoena be quashed in its entirety. Dated: February 16, 2018 RUTAN & TUCKER, LLP RICHARD K.HOWELL GERARD M.MOONEY BRIANA F.RICHMOND Lifpmnat. Briana F. Richmond Attorneys for Plaintiff and Cross-D efendant SG HOMECARE, INC. and Cross- Defendant THOMAS RANDALL ROWLEY -15- sos003270a0000 MOTION TO QUASH DEPOSITION SUBPOENA FOR PRODUCTION OF 11999343.2 20/16/18 BUSINESS RECORDS TO BANK OF SOUTHERN CALIFORNIA 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 (SG HOMECARE, INC. v. VERIO HEALTHCARE, INC., OCSC Case No. 30-2015-00819810-CU-CO-CJC)) STATE OF CALIFORNIA, COUNTY OF ORANGE I am employed by the law office of Rutan & Tucker, LLP in the County of Orange, State of California. Iam over the age of 18 and not a party to the within action. My business addressis 611 Anton Boulevard, Suite 1400, Costa Mesa, California 92626-1931. On February 16, 2018, 1 served on the interested parties in said action the within: PLAINTIFF SG HOMECARE, INC.’S AND CROSS-DEFENDANT THOMAS R. ROWLEY’S NOTICE OF MOTION AND MOTION TO QUASH DEFENDANT VERIO HEALTHCARE, INC.’S DEPOSITION SUBPOENAS FOR THE PRODUCTION OF BUSINESS RECORDS TO BANK OF SOUTHERN CALIFORNIA as stated below: Todd C. Theodora, Esq. Corfenaants and Cross. £rndreFrommeEek Verio Healthcare, Inc.,; Eric Schrier; Frank Theodora Oringher PC Frederick; Angela Martinez 535 Anton Boulevard, Ninth Floor Costa Mesa, CA 92626 (BY MAIL) by placing a true copy thereof in sealed envelope(s) addressed as shown above. In the course of my employment with Rutan & Tucker, LLP, I have, through first-hand personal observation, become readily familiar with Rutan & Tucker, LLP’s practice of collection and processing correspondence for mailing with the United States Postal Service. Under that practice, | deposited such envelope(s) in an out-box for collection by other personnel of Rutan & Tucker, LLP, and for ultimate posting and placement with the U.S. Postal Service on that same day in the ordinary course of business. If the customary business practices of Rutan & Tucker, LLP with regard to collection and processing of correspondence and mailing were followed, and I am confident that they were, such envelope(s) were posted and placed in the United States mail at Costa Mesa, California, that same date. I am aware that on motion of party served, service is presumed invalid if postal cancellation date or postage meter date is more than one day after date of deposit for mailing in affidavit. Executed on February 16, 2018, at Costa Mesa, California. I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. , Co. Theresa Fontes (Type or print name) (Signature) 2662/032704-0001 10469912.1 a02/06/18