Outlaw Laboratory, LP v. DG in PB, LLC

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 IN RE: OUTLAW LABORATORIES, LP Case No.: 18CV840 GPC (BGS) LITIGATION, 12 ORDER DENYING TAULER . 13 SMITH’S MOTION TO COMPEL COMPLIANCE WITH SUBPOENAS 14

15 [ECF 255] 16 17 18 I. INTRODUCTION 19 Third-party defendant Tauler Smith LLP (“Tauler Smith”) has filed a Motion to 20 Compel Compliance with Subpoenas. (ECF 255.) The Subpoenaed Parties1 have filed a 21 Joint Opposition and Counter Motion to Quash and Tauler Smith has filed a Reply in 22 support of its Motion. (ECF 259, 264.)2) 23

24 25 1 The Joint Opposition identifies it as being filed on behalf of Trepco Imports and Distribution, Ltd. (dba Kennedy Wholesale and Trepco El Cajon Cash and Carry), Ayad 26 Mansour aka Jeff Mansour, Wail Al Paulus, Wiam Paulus, Margart Paulus, Dominic 27 Arabo, and Steven A. Elia, Esq. (incorrectly identified as Stephen Elia) of the Elia Law Firm, APC, the “Subpoenaed Parties” and San Diego Cash & Carry. (ECF 259 at 1.) 28 1 For the reasons set forth below, the Motion to Compel is DENIED. 2 II. BACKGROUND 3 A. Claims in Consolidated Action 4 The Court has summarized the claims, counterclaims, and third-party claims of this 5 consolidated action in detail in numerous prior orders on discovery disputes. The Court 6 incorporates those summaries here and only briefly summarizes the case here. (ECF 177 7 at I.; ECF 215 at II.; ECF 230 at II.; ECF 246 at II; ECF 265 at II.) 8 This consolidated action encompasses two cases brought by Outlaw Laboratory, 9 LP against retail stores. (Case Nos. 18cv840 (“DG in PB”) and 18cv1882 (“SD Outlet”).) 10 Three stores, Roma Mikha, NMRM, Inc., and Skyline Market, Inc. (collectively the 11 “Stores”) have filed counterclaims as a class action on behalf of themselves and other 12 targeted stores against Outlaw and its former counsel, Tauler Smith, under the Racketeer 13 Influenced and Corrupt Organizations Act (“RICO”) along with a rescission claim. 14 (“Second Amended Counter Claims (“SACC”) [ECF 114].) 15 Outlaw’s claims were premised on the defendant stores selling “male-enhancement 16 pills, . . . ‘the Enhancement Products’” with packaging indicating they were all natural, 17 but allegedly containing undisclosed drugs with Outlaw claiming it lost out on sales of its 18 products to those products. (ECF 147 at 1, 3-6; ECF 209 (San Diego Outlet action).) 19 Summary Judgment was granted to defendants in the DG in PB action, and a motion for 20 judgment on the pleadings and subsequent motion for reconsideration in the San Diego 21 Outlet action were granted dismissing with prejudice all of Outlaw’s claims. (ECF 147, 22 209, 251.) 23 The Stores counterclaims under RICO are being brought on behalf of a class of 24 similarly situated stores. (ECF 114.) The SACC alleges Outlaw, Tauler Smith, and 25 Outlaw’s principles, Michael Wear and Shawn Lynch, have engaged in a scheme that 26 includes sending demand letters to small businesses that threaten the store could be held 27 liable for over $100,000 based on false and misleading statements about potential liability 28 for the sale of certain products by the stores. (SACC ¶¶ 2, 26, 82-88.) The SACC alleges 1 Outlaw employs “investigators,” some hired by Outlaw’s counsel Tauler Smith, who 2 identify stores selling the products, take pictures of storefronts and shelves in the store 3 with the products and provide that information to others participating in the scheme to 4 target these stores. (SACC ¶¶ 66, 73, 86, 92.) The SACC alleges that Outlaw and its 5 attorneys then send the demand letters that falsely indicate Outlaw sells a competitive 6 product, TriSteel, in retail stores through the United States and that the store is illegally 7 selling products in violation of RICO and the Lanham Act. (SACC ¶¶ 2, 15, 23-24, 26- 8 52, 66-68, 84-86, 88, 92.) The demand letters also allegedly include pictures taken of 9 receipts for purchase of the products by investigators. (SACC ¶¶ 68, 73, 91.) Follow-up 10 communications then offer to settle for increasingly lower amounts, including as low as 11 $2,500. (SACC ¶¶ 3-4, 56, 72, 87, 98.) 12 III. DISCUSSION 13 A. Parties Positions 14 Tauler Smith seeks to compel compliance with the subpoenas, however, Tauler 15 Smith never explains in its Motion what it seeks in the subpoenas. It very briefly 16 indicates it “must obtain documents and testimony” to establish the Subpoenaed Parties’ 17 role in the sale of the “SUBJECT PRODUCTS.” (ECF 255-1 at 3.) Although not 18 entirely clear, it appears Tauler Smith is arguing it is seeking evidence that Trepco is 19 engaged in a RICO conspiracy with stores that are selling Trepco’s products and that this 20 conspiracy is a defense for Tauler Smith in this case. (Id. at 4.) Tauler Smith also argues 21 sales of the subject products may show sales to the stores continued after the stores 22 received the demand letters. This, Tauler Smith asserts, would mean the stores suffered 23 no damages, presumably from lost sales. Tauler Smith also asserts it has not been able to 24 obtain this information from the Stores. (Id.) Tauler Smith cites the Stores’ response to a 25 Request for Production of Documents (“RFP”), Exhibit H, and asserts it indicates that the 26 Stores have claimed they have no responsive documents. (Id.) Tauler Smith asserts the 27 information it seeks can easily be generated from “spin reports” and transaction history. 28 (Id. at 4-5.) Tauler Smith does quote deposition testimony that indicates “spin reports” 1 can be run, although as to transaction history at stores, it only indicates transactions are 2 recorded when scanned at the cash register. (Id. at 5 n.4.) There is no explanation where 3 that information is compiled or how it would be extracted. 4 As discussed in more detail below, the Subpoenaed Parties oppose the Motion for 5 numerous reasons. They argue the information and documents sought are not relevant, 6 are subject to attorney-client privilege, should have been obtained from the parties in this 7 case rather than the non-parties subpoenaed, some were not properly served, and some 8 are unenforceable as to certain subpoenaed parties for violating Rule 45’s 100-mile 9 requirement. (ECF 259 at 6-8 (no relevance), 8-9 (should have been obtained from 10 parties), 10-12 (attorney-client privilege), 12-13 (service), 14 (beyond 100 miles).) 11 Additionally, they argue Tauler Smith has attempted to circumvent the untimeliness of 12 this Motion in two respects. First, Tauler Smith reissued subpoenas in May that were 13 originally issued in March 2020 and objected to in April 2020 to restart the time to raise 14 the exact same dispute. (Id. at 2-3, 4-5, 14.) Second, even as to the second set of 15 subpoenas, Tauler Smith raised this dispute a second time, thirty days after the first time 16 it was raised, to avoid its untimeliness. (Id. at 3-5, 14-16.) 17 B. Analysis 18 The Court begins with the two issues Tauler Smith and the Subpoenaed Parties 19 both, at least in part, address in their briefing: (1) whether the discovery sought it relevant 20 and (2) whether Tauler Smith could have obtained this discovery from a party in this case 21 rather than burdening non-parties. Because the Court finds the sought discovery is not 22 relevant and some of it could have been obtained from the parties in this case, the Court 23 need not reach the additional issues of service and whether that challenge was waived, 24 untimeliness by Tauler Smith, and whether the discovery sought it subject to attorney 25 client privilege. The Court also notes that there may be other issues with these subpoenas 26 or responses that have not been raised in the briefing. However, the Court is not going to 27 create arguments for the Subpoenaed Parties or Tauler Smith that they have not made for 28 themselves. 1 “The scope of discovery through a subpoena under Rule 45 is the same as the 2 scope of discovery permitted under Rule 26(b).” Intermarine, LLC v. 3 Bevrachtingskantoor, B.V., 123 F. Supp. 3d 1215, 1217 (N.D. Cal. 2015); see also Fed. 4 R. Civ. P. 26(b)(1) (describing the scope of discovery). In this respect, parties cannot 5 obtain discovery through a Rule 45 subpoena that is not within the scope of Rule 26(b)(1) 6 and (2). “A party or lawyer responsible for issuing and serving a subpoena therefore 7 must take reasonable steps to avoid imposing undue burden or expense on a person 8 subject to the subpoena.” Id. (citing Fed. R. Civ. P. 45(d)(1)). 9 “An evaluation of undue burden requires the court to weigh the burden to the 10 subpoenaed party against the value of the information to the serving party and, in 11 particular, requires the court to consider . . . such factors as relevance, the need of the 12 party for the documents, the breadth of the document request, the time period covered by 13 it, the particularity with which the documents are described and the burden imposed.’” 14 Moon v. SCP Pool Corp., 232 F.R.D. 633, 637 (C.D. Cal. 2005) (quoting Travelers 15 Indem. Co. v. Metro. Life Ins. Co., 228 F.R.D. 111, 113 (D. Conn. 2005)) 16 In determining whether a subpoena imposes an undue burden, the Court may also 17 evaluate whether the discovery sought through a Rule 45 subpoena of a nonparty is 18 available from a party in the case. See e.g. Moon, 232 F.R.D. at 638 (finding subpoena 19 imposed undue burden because discovery sought could be obtained from a party in the 20 case) (citing Dart Indus. Co., Inc. v. Westwood Chem. Co., 649 F.2d 646, 649 (9th 21 Cir.1980) and Haworth, Inc. v. Herman Miller, Inc., 998 F.2d 975, 978 (Fed. Cir. 1993)) 22 (emphasis added). “Courts are particularly reluctant to require a non-party to provide 23 discovery that can be produced by a party.” Amini Innovation Corp. v. McFerran Home 24 Furnishings, Inc., 300 F.R.D. 406, 410 (C.D. Cal. 2014). “[N]onparties subject to 25 discovery requests deserve extra protection from the courts.” Intermarine, 123 F. Supp. 26 3d at 1218-19 (“[T]he Court notes that the Ninth Circuit has long held that nonparties 27 subject to discovery requests deserve extra protection from the courts.”) (quoting High 28 1 Tech Med. Instrumentation, Inc. v. New Image Indus., Inc., 161 F.R.D. 86, 88 2 (N.D.Cal.1995). 3 Rule 26(b)(1) provides that “[p]arties may obtain discovery regarding any non- 4 privileged matter that is relevant to any party’s claim or defense and proportional to the 5 needs of the case, considering the importance of the issues at stake in the action, the amount 6 in controversy, the parties’ relative access to relevant information, the parties’ resources, 7 the importance of the discovery in resolving the issues, and whether the burden or expense 8 of the proposed discovery outweighs its likely benefit.” Fed. R. Civ. P. 26(b)(1). “District 9 courts have broad discretion in controlling discovery” and “in determining relevancy.” 10 Laub v. Horbaczewski, 331 F.R.D. 516, 521 (C.D. Cal. 2019) (citing Hallett v. Morgan, 11 296 F.3d 732, 751 (9th Cir. 2002) and Surfvivor Media, Inc. v. Survivor Prods., 406 F.3d 12 625, 635 (9th Cir. 2005)). Rule 26(b)(2) also requires the court, on motion or on its own, 13 to limit the frequency or extent of discovery otherwise allowed by the rules if it determines 14 that (1) “the discovery sought is unreasonably cumulative or duplicative, or can be obtained 15 from some other source that is more convenient, less burdensome, or less expensive;” (2) 16 “the party seeking discovery has had ample opportunity to obtain the information by 17 discovery in the action;” or (3) “the proposed discovery is outside the scope permitted by 18 Rule 26(b)(1).” Fed. R. Civ. P. 26(b)(2)(C)(i)-(iii). 19 Tauler Smith provides no explanation or description of what it seeks in the 20 subpoenas and the Subpoenaed Parties simply describe them as seeking “business records 21 of the Subpoenaed Parties for the ‘SUBJECT PRODUCTS.’”3 (ECF 259 at 7.) The 22 Court’s own review of them indicates they seek a broad range of records for a four-year 23 period regarding more than 20 products. (ECF 255-2.) For example, the records sought 24 encompass all documents and any communications between the subpoenaed party and 25 anyone else regarding the products, including sales of the products, documents showing 26 27 3 As to Tauler Smith this is not a result of the Court’s page limit. The Court allowed 15 28 1 gross profits from them, documents showing all SKU numbers, every supplier of the 2 products, and all communications with every supplier. 3 Although a bit unclear, it appears Tauler Smith is arguing that it needs this 4 discovery to establish the Subpoenaed Parties have been engaged in a RICO conspiracy 5 with the Stores to sell these products. Tauler Smith claims, without explanation or 6 citation to any authority that this would constitute a “complete defense to the case.” 7 (ECF 255-1 at 4.) Tauler Smith argues that if the Subpoenaed Parties “have in fact 8 engaged in a RICO offense, then it cannot also be true that [Tauler Smith’s] sending of 9 demand letters contained false allegations as the Stores allege.” (ECF 264 at 4.) 10 However, the Subpoenaed Parties accurately point out that these records are not 11 relevant because they would not show what Outlaw and Tauler Smith knew when they 12 sent the demand letters. To succeed on a RICO claim: 13 a plaintiff must prove (1) conduct, (2) of an enterprise, (3) through a pattern, (4) of racketeering activity (known as “predicate acts”), (5) 14 causing injury to the plaintiff’s “business or property” by the conduct 15 constituting the violation. See Living Designs, Inc. v. E.I. Dupont de Numours & Co., 431 F.3d 353, 361 (9th Cir. 2005). 16 One type of predicate act of racketeering activity recognized by 17 RICO, 18 U.S.C. § 1961(1) is mail fraud under 18 U.S.C. § 1341. A mail fraud violation consists of (1) the formation of a scheme or 18 artifice to defraud; (2) use of the United States mails or causing a use 19 of the United States mail in furtherance of the scheme; and (3) specific intent to deceive or defraud. See Schreiber Distrib. Co. v. 20 Serv-Well Furniture Co., Inc., 806 F.2d 1393, 1400 (9th Cir. 1986); 21 Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 647, 128 S. Ct. 2131, 170 L.Ed.2d 1012 (2008) (“Mail fraud occurs whenever a 22 person, “having devised or intending to devise any scheme or artifice 23 to defraud,” uses the mail “for the purpose of executing such scheme or artifice or attempting so to do.” (quoting 18 U.S.C. § 1341)). 24

25 In re Outlaw, LP Litig., 352 F. Supp. 3d 992, 1000 (S.D. Cal. 2018). The requirement of 26 specific intent under this statute is satisfied by “the existence of a scheme which was 27 ‘reasonably calculated to deceive persons of ordinary prudence and comprehension,’ and 28 this intention is shown by examining the scheme itself.” United States v. Green, 745 F.2d 1 1205, 1207 (9th Cir. 1984) (quoting United States v. Bohonus, 628 F.2d 1167, 1172 (9th 2 Cir. 1980)). The conduct of the stores that received letters asserting they faced $100,000 3 in liability for RICO and Lanham Act violations, is not an element of the RICO claim 4 against Tauler Smith. The elements of the claim focus on the conduct of the scheme 5 itself, not those it targeted by the scheme. Even when the Court looks to the particular 6 facts of this case, at best, it appears Tauler Smith is trying to make its baseless threats of 7 RICO and Lanham Act liability less baseless after the fact. Essentially, it seeks to burden 8 nonparties with overbroad subpoenas in hopes of finding out its baseless threats were 9 actually true. Not only is it a fishing expedition, but it is one that the Court is not 10 convinced would have any relevance. Even if there were some conspiracy to sell these 11 products, Tauler Smith did not know that when it was sending demand letters. 12 Tauler Smith also argues the discovery sought may show that sales of the subject 13 products to the Stores continued after the Stores received the demand letters and this 14 could mean the Stores suffered no damages. Again, this argument is not explained in any 15 detail, but it appears Tauler Smith is arguing that if the Stores continued to sell the 16 products despite the letters they received then they did not suffer damages in lost sales 17 from pulling products from their shelves as alleged in the SACC. (SACC ¶¶ 33-35.) 18 At the outset, to be clear, this information about stores beyond Roma Mikha, 19 NMRM, Inc., and Skyline Market, Inc., it is untimely. Class discovery in this case closed 20 on March 17, 2020, almost two months prior to the reissued subpoenas raised here that 21 were issued on May 12, 2020, and more than a week before these subpoenas were first 22 issued on March 26, 2020. However, even limited to the three Stores, these discovery 23 requests are vastly overbroad in seeking this information for a four-year period when the 24 only time that sales could be remotely relevant would be immediately after the demand 25 letter was received and the products removed from the shelves for the loss. But even if 26 narrowed, records showing the Stores purchased these products from the Subpoenaed 27 Parties would not show whether they were sold in the individual stores or pulled from the 28 shelves after receiving a demand letter. Additionally, the Subpoenaed parties indicate 1 that they do not have information on the Stores’ sales. Given this is the only information 2 that could possibly be relevant to the Stores’ lost sales damages, that information would 3 have to be obtained from the Stores themselves. 4 This is another reason Tauler Smith cannot obtain this discovery from the 5 Subpoenaed Parties. It should have obtained this discovery from the parties in this case. 6 On this point, the Court must first address Tauler Smith’s representation to this Court on 7 this issue. Tauler Smith states “[r]egarding the ability to obtain the records from the 8 Stores, however, they have stated that no records exist.” (ECF 255-1 at 4.) The Motion 9 then quotes its RFP seeking any documents and communications relating to the Stores 10 purchase of the subject products. (Id.) Then Tauler Smith states “[t]he Stores responded 11 that they had no responsive documents. A copy of the Stores’ Responses is enclosed as 12 Exhibit H.” (Id.) However, as the Subpoenaed Parties point out in Opposition, that 13 statement was not accurate when made. By the time Tauler Smith filed this Motion and 14 these representations were made, the Stores had not only provided an amended response 15 to this RFP indicating that they would provide responsive documents, they had also 16 already made invoices available and those invoices had been copied. (ECF 259 at 9 17 (citing Decl. of Mark Poe ¶¶ 3-4, Ex. A.) In Reply, Tauler Smith does not explain this 18 apparent misrepresentation to the Court, but instead complains that the records it received 19 from the Stores were not useful because the “Stores did not prepare any Trepco records 20 for copying beforehand.” (ECF 264 at 5.) Although not entirely clear, it appears that the 21 documents were likely provided “as they are kept in the usual course of business” under 22 Federal Rule of Civil Procedure 34(b)(2)(E)(i). 23 Second, Tauler Smith’s dissatisfaction with this production does not mean it could 24 not obtain this discovery from parties in this case. Tauler Smith has or could have 25 deposed all the Stores and questioned them about whether they removed any products 26 from the shelves to determine whether they actually lost sales in response to the demand 27 letters. It is not necessary to burden nonparties with responding to subpoenas for 28 information on individual stores’ sales of its products. 1 CONCLUSION 2 The Court finds the subpoenas are overbroad and seek discovery that is either not 3 ||relevant or could have been obtained from the parties in this case. Accordingly, Tauler 4 ||Smith request to compel the Subpoenaed Parties to comply with the subpoenas is 5 || DENIED. Because the Court denies the motion for these reasons, the Court need not 6 ||reach the Subpoenaed Parties’ additional arguments regarding improper service, 7 || untimeliness of this Motion, and attorney-client privilege. 8 IT IS SO ORDERED. 9 || Dated: October 22, 2020 p / 10 on. Bernard G. Skomal 11 United States Magistrate Judge 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 10