Nosirrah Management, LLC v. Franklin Wireless Corp.

Opinion

1 2 3 4 5 6 7 10 11 NOSIRRAH MANAGEMENT, LLC, Case No.: 21-cv-01316-JO-JLB

12 Plaintiff, ORDER REGARDING PLAINTIFF’S 13 v. MOTION FOR PROTECTIVE ORDER 14 FRANKLIN WIRELESS CORP.; O.C.

KIM, 15 [ECF No. 35] Defendants. 16 17 18 Presently before the Court is Plaintiff’s Motion for Protective Order. (ECF No. 35.) 19 Plaintiff seeks an order “forbidding inquiry into Topic Nos. 4–10” of Defendants’ Rule 20 30(b)(6) deposition notice.1 (ECF No. 35-1 at 1.) For the reasons stated below, Plaintiff’s 21 Motion for Protective Order is GRANTED in part and DENIED in part. 22 /// 23 /// 24 25 1 Plaintiff includes as Exhibit A its responses to all 18 of Defendants’ 30(b)(6) 26 deposition topics. (See ECF No. 35-3.) However, Plaintiff only disputes Topic Nos. 4–10. 27 (ECF No. 35-1 at 1.) As represented in an informal Discovery Conference with the Court on May 12, 2022, Plaintiff has agreed to produce a witness for Topic Nos. 1–3 and 11–18. 28 2 Plaintiff commenced the instant action on July 22, 2021. (ECF No. 1.) Plaintiff, a 3 shareholder of Defendant Franklin Wireless Corp. (“Franklin Wireless”) brings only one 4 claim against Defendants for recovery of “short swing” profits under Section 16(b) of the 5 Securities Exchange Act of 1934 (“Section 16(b)”).2 (Id. ⁋⁋ 1, 4, 30–37.) Plaintiff alleges 6 that Defendant O.C. Kim was the president of Franklin Wireless, and therefore an insider 7 of the corporation, when he “purchased and sold Franklin Wireless common stock within 8 a six-month period.” (Id. ⁋⁋ 31, 33.) Plaintiff further alleges that Defendant O.C. Kim 9 “realized profits of $2,000,000.00 in connection with” the purchase and sale of Franklin 10 Wireless, and “has failed to account for and disgorge the entirety of his short swing profits.” 11 (Id. ⁋⁋ 32, 34.) 12 On May 6, 2022, the parties lodged a Joint Discovery Statement in accordance with 13 § V.B. of Magistrate Judge Jill L. Burkhardt’s Civil Chambers Rules. (ECF No. 28.) After 14 an informal Discovery Conference on May 12, 2022, the Court issued a briefing schedule. 15 (ECF No. 30.) On May 13, 2022, Plaintiff timely filed the instant Motion for Protective 16 Order (ECF No. 35). On May 16, 2022, Defendants filed an opposition (ECF No. 36), and 17 Plaintiff filed a reply on May 18, 2022 (ECF No. 38). 19 The Federal Rules of Civil Procedure authorize parties to obtain discovery regarding 20 any nonprivileged matter that is relevant to any claim or defense and proportional to the 21 needs of the case, “considering the importance of the issues at stake in the action, the 22 amount in controversy, the parties’ relative access to relevant information, the parties’ 23 resources, the importance of the discovery in resolving the issues, and whether the burden 24 or expense of the proposed discovery outweighs its likely benefit.” Fed. R. Civ. P. 25 26(b)(1). Relevant information need not be admissible at trial to be discoverable. Id. 26 27 28 1 District courts have broad discretion to determine relevancy for discovery purposes. See 2 Hallett v. Morgan, 296 F.3d 732, 751 (9th Cir. 2002). Similarly, district courts have broad 3 discretion to limit discovery where the discovery sought is “unreasonably cumulative or 4 duplicative, or can be obtained from some other source that is more convenient, less 5 burdensome, or less expensive.” Fed. R. Civ. P. 26(b)(2)(C). 6 Rule 30(b)(6) allows a party to depose an entity. Fed. R. Civ. P. 30(b)(6). The party 7 seeking the deposition must describe with reasonable particularity the matters for 8 examination. Id. The entity must then designate one or more persons to testify. Id. The 9 designees must testify about information known or reasonably available to the 10 organization. Id. 11 Rule 26 requires that courts “limit the frequency or extent of discovery otherwise 12 allowed by these rules or by local rule if it determines that . . . the proposed discovery is 13 outside the scope permitted by Rule 26(b)(1).” Fed. R. Civ. P. 26(b)(2)(C)(iii). Because 14 “pretrial discovery by depositions and interrogatories has a significant potential for abuse,” 15 Seattle Times Co. v. Rhinehart, 467 U.S. 20, 36 (1984), district courts “may, for good 16 cause, issue an order to protect a party or person from annoyance, embarrassment, 17 oppression, or undue burden or expense.” Fed. R. Civ. P. 26(c)(1). “Rule 26(c) confers 18 broad discretion on the trial court to decide when a protective order is appropriate and what 19 degree of protection is required.” Robinson v. Chefs’ Warehouse, 15-cv-05421-RS-KAW, 20 2017 WL 836944, at *1 (N.D. Cal. Mar. 3, 2017) (citing Seattle Times, 467 U.S. at 36, 21 104). For example, district courts may, among other things, forbid discovery, specify the 22 terms for discovery, forbid inquiry into certain matters, or limit the scope of discovery to 23 certain matters. Fed. R. Civ. P. 26(c)(1)(A), (B), and (D). 24 A party seeking a protective order under Rule 26(c) must show that “specific 25 prejudice or harm will result if no protective order is granted.” Phillips ex rel. Estates of 26 Byrd v. Gen. Motors Corp., 307 F.3d 1206, 1210–11 (9th Cir. 2002). “The burden is upon 27 the party seeking the [protective] order to ‘show good cause’ by demonstrating harm or 28 prejudice that will result from the discovery.” Rivera v. Nibco, Inc., 364 F.3d 1057, 1063 1 (9th Cir. 2004) (quoting Fed. R. Civ. P. 26(c)). This burden may be met by showing that 2 the discovery requested is irrelevant, overly broad, burdensome, or oppressive. Del 3 Socorro Quintero Perez v. United States, 13-cv-01417-WQH-BGS, 2016 WL 705904, at 4 *6 (S.D. Cal. Feb. 23, 2016). If the party makes this showing, the court must then 5 determine if an order is necessary by “balanc[ing] the public and private interests” at stake. 6 Phillips ex rel. Estates of Byrd, 307 F.3d at 1211. 8 Plaintiff objects to Topic Nos. 4–10 on multiple grounds, all tied to the position that 9 the topics are not relevant to any claim or defense. (ECF No. 35-1 at 6–9.) In response to 10 Defendants’ position that the topics are relevant to their equitable affirmative defenses 11 (ECF No. 36 at 3), Plaintiff argues that these equitable affirmative defenses are not 12 available in Section 16(b) actions. (ECF No. 35-1 at 6–7.) Plaintiff filed a Motion for 13 Judgment on the Pleadings, or in the alternative, a Motion to Strike directed to Defendants’ 14 equitable affirmative defenses (“Motion to Strike”), citing a number of district court cases 15 for the proposition that equitable defenses are not available in Section 16(b) actions. (See 16 ECF No. 34.) That motion is pending before District Judge Jinsook Ohta. (Id.) 17 Defendant maintains that Topic Nos. 4–10 are relevant to the equitable affirmative 18 defense of unclean hands3 because “Plaintiff bought just one share of Franklin Wireless 19

20 21 3 Defendants filed a single pleading to serve both as their opposition to Plaintiff’s Motion to Strike and their opposition to the Motion for Protective Order. (See ECF Nos. 22 36; 37.) Defendants only assert arguments as to the viability of an affirmative defense of 23 unclean hands and appear to forfeit any claim to the other equitable defenses they raised in their Answer. (See ECF Nos. 17; 36 at 2 (“Defendants need not retain any of their equitable 24 defenses other than unclean hands”)); Hakakha v. CitiMortgage, Inc., No. EDCV 15-1320- 25 JGB-SPx, 2015 WL 4873561, at *8 (C.D. Cal. Aug. 13, 2015) (“The Court construes Plaintiff’s failure to address those arguments as Plaintiff’s concession that they are valid 26 reasons to dismiss those claims.”). Defendants also only assert the unclean hands defense 27 as the basis for the relevancy of the deposition topics at issue. As such, this Court only addresses the merits of Defendants’ argument as to their affirmative defense of unclean 28 1 stock and implemented a computer program which automatically e-mailed a frivolous 2 claim within just minutes of the December 2020 share sale at issue . . . Plaintiff has 3 implemented an entire business model of litigation via blackmail.” (ECF No. 36 at 3.) 4 Defendants offer no further explanation of how the requested information would support 5 Defendants’ unclean hands defense. In their opposition to Plaintiff’s motions, Defendants 6 cite to authority for the general proposition that equitable defenses are available in actions 7 seeking equitable relief. (See id. at 2.) However, Defendants cite no authority for the 8 specific proposition that the defense of unclean hands is available in 16(b) actions. 9 Plaintiff’s Motion to Strike is a motion that will be decided by Judge Ohta—not by 10 the undersigned. This Court does not presume to anticipate how Judge Ohta will rule, nor 11 would this Court usurp her role. However, this Court must rule on the pending discovery 12 motion, and Defendants bear the burden of showing the relevance and proportionality of 13 the deposition topics at issue. See Petconnect Rescue, Inc., et al. v. Salinas, No. 20-cv- 14 00527-LL-DEB, 2022 WL 1322854, at *2 (S.D. Cal. May 3, 2022) (citing Soto v. City of 15 Concord, 162 F.R.D. 603, 610 (N.D. Cal. 1995) (“The party seeking to compel discovery 16 has the burden of establishing relevance.”)). This Court is not persuaded that Defendants’ 17 equitable affirmative defense of unclean hands will survive Plaintiff’s pending Motion to 18 Strike, and Defendants put forward no other arguments as to the relevance of the disputed 19 topics other than that affirmative defense.4 Moreover, Defendants have not endeavored to 20 set forth arguments as to just how the information requested even advances an unclean 21 hands defense. For most of the disputed topics, the connection between the requested 22 information and the affirmative defense is not clear on its face. 23 Defendants have failed to demonstrate that the requested discovery is relevant. 24 Because the discovery has no relevance, virtually any burden to Plaintiff would result in 25

26 27 4 Should Judge Ohta deny Plaintiff’s Motion to Strike, Defendants may file a motion 28 | discovery being overly burdensome. Thus, the Court finds that Plaintiff has met its 2 ||burden to show good cause for the protective order on the bases that the discovery is 3 ||irrelevant, overly broad, and burdensome. See Rivera, 364 F.3d at 1063; Del Socorro 4 || Quintero Perez, 2016 WL 705904, at *6. Therefore, the Court sustains Plaintiffs 5 || objections and grants Plaintiff's request for a protective order as to Topic Nos. 4 through 6 || 10, except that as to Topic No. 6, Plaintiff's 30(b)(6) witness must be prepared to testify as 7 ||to how many shares Plaintiff purchased. 9 For the foregoing reasons, Plaintiffs Motion for Protective Order (ECF No. 35) is 10 || GRANTED in part and DENIED in part. As stated above, Plaintiff's 30(b)(6) witness 11 || must be prepared to testify as to how many shares Plaintiff purchased as set forth in Topic 12 || No. 6. 14 || Dated: May 25, 2022 . i □ Rurkhandtr 16 n. Jill L. Burkhardt ited States Magistrate Judge 17 18 19 20 21 22 23 24 25 26 27 28