Paschini v. Wavecrest Payment Services of the Americas, Inc.

• Court: District Court, S.D. California
• Decided: April 20, 2020
• Docket: 3:19-cv-00033
• Status: Unknown

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 MILES PASCHINI, Case No.: 19cv33-L (NLS)

12 Plaintiff, ORDER ON JOINT MOTION FOR 13 v. DETERMINATION OF DISCOVERY DISPUTE NO. 2 14 WAVECREST PAYMENT SERVICES

OF THE AMERICAS, Inc.; and DOES 1 15 [ECF No. 55] through 20, inclusive, 16 Defendants. 17

18 Before the Court is the parties’ Joint Motion for Determination of Discovery 19 Dispute No. 2, wherein Plaintiff Miles Paschini (“Plaintiff”) asks the Court to compel 20 Defendant WaveCrest Payment Services of the Americas, Inc. (“WaveCrest”) to further 21 respond to certain interrogatories and requests for production. ECF No. 55. Upon 22 consideration and for the reasons stated below, the Court GRANTS IN PART and 23 DENIES IN PART the motion to compel. 24 I. BACKGROUND 25 In his complaint, Plaintiff alleges that he was employed as WaveCrest’s Chief 26 Revenue Officer from 2015 to 2017. ECF No. 1-1 at ¶ 6. Based on his employment 27 contracts, Plaintiff alleges that he was due certain commissions and bonuses that would 28 1 be calculated from WaveCrest’s actual gross profit and a bonus structure based on 2 achievement of certain objectives and deliverables. Id. 3 On January 12, 2018, prior to WaveCrest paying Plaintiff any of the commissions 4 and bonuses, Plaintiff alleges that he was terminated without cause. Id. at ¶ 7. Plaintiff 5 alleges that WaveCrest then adjusted its actual gross profit down by over a million 6 dollars, specifically by including a “Provision of Legal Fees” in the amount of $540,000 7 and a “Provision for Restructuring” in the amount of $708,000. Id. at ¶ 8. Plaintiff 8 alleges that WaveCrest made this adjustment to eliminate any commissions and bonuses 9 that would have been due him, and that WaveCrest has not paid him any to date. Id. 10 The present motion relates to discovery requests propounded in Plaintiff’s First Set 11 of Interrogatories and First Set of Requests for Production of Documents. See ECF No. 12 55-3. Plaintiff propounded these requests on July 3, 2019 and WaveCrest responded on 13 August 12, 2019. ECF No. 55-2 at ¶¶ 2-4. However, Plaintiff states that WaveCrest 14 objected broadly to the requests and did not produce any documents. Id. at ¶ 5. Plaintiff 15 then filed a Motion for Determination of Discovery Dispute No. 1 with the Court. ECF 16 No. 36. Due to a substitution of counsel for WaveCrest, the Court ordered the parties to 17 meet and confer with new counsel and gave the parties several extensions thereafter to 18 resolve the issues. See ECF Nos. 39, 44-48. Finally, the Court granted Plaintiff’s motion 19 to compel. ECF No. 49. The Court ordered WaveCrest to provide supplemental 20 responses to the discovery and produce documents by February 7, 2020 and gave the 21 parties a deadline to file any substantive dispute as to the discovery if any remained at 22 issue. Id. at 2-3. Plaintiff now brings this motion to address the substantive issues that 23 remain for a number of specific interrogatories and requests for production. 24 II. LEGAL STANDARD 25 Federal Rule of Civil Procedure 26 permits discovery of “any nonprivileged matter 26 that is relevant to any party’s claim or defense and proportional to the needs of the case, 27 considering the importance of the issues at stake in the action, the amount in controversy, 28 the parties’ relative access to relevant information, the parties’ resources, the importance 1 of the discovery in resolving the issues, and whether the burden or expense of the 2 proposed discovery outweighs its likely benefit.” Fed. R. Civ. P. 26(b)(1). Information 3 need not be admissible to be discoverable. Id. Once the propounding party establishes 4 that the request seeks relevant information, “[t]he party who resists discovery has the 5 burden to show discovery should not be allowed, and has the burden of clarifying, 6 explaining, and supporting its objections.” Superior Commc’ns v. Earhugger, Inc., 257 7 F.R.D. 215, 217 (C.D. Cal. 2009); see Blankenship v. Hearst Corp., 519 F.2d 418, 429 8 (9th Cir. 1975) (requiring defendants “to carry heavy burden of showing why discovery 9 was denied”). 10 “The 2015 amendments to Rule 26(b)(1) emphasize the need to impose ‘reasonable 11 limits on discovery through increased reliance on the common-sense concept of 12 proportionality.’” Roberts v. Clark Cty. Sch. Dist., 312 F.R.D. 594, 603 (D. Nev. 2016) 13 (internal citation omitted). The fundamental principle of amended Rule 26(b)(1) is “that 14 lawyers must size and shape their discovery requests to the requisites of a case.” Id. 15 Both discovery and Rule 26 are intended to provide parties with “efficient access to what 16 is needed to prove a claim or defense, but eliminate unnecessary or wasteful discovery.” 17 Id. 18 The Court has broad discretion in determining relevancy for discovery purposes. 19 Surfvivor Media Inc. v. Survivor Prods., 406 F.3d 625, 635 (9th Cir. 2005); see U.S. 20 Fidelity and Guar. Co. v. Lee Investments L.L.C., 641 F.3d 1126, 1136 (9th Cir. 2011) 21 (“District courts have wide latitude in controlling discovery, and [their] rulings will not 22 be overturned in the absence of a clear abuse of discretion.”) (internal quotation and 23 citations omitted). To the extent that the discovery sought is “unreasonably cumulative 24 or duplicative, or is obtainable from some other source that is more convenient, less 25 burdensome, or less expensive,” the court is directed to limit the scope of the request. 26 Fed. R. Civ. P. 26(b)(2). Limits should also be imposed where the burden or expense 27 outweighs the likely benefits. Id. How and when to so limit discovery, or to “issue an 28 1 order to protect a party or person from annoyance, embarrassment, oppression, or undue 2 burden or expense,” remains in the court’s discretion. Fed. R. Civ. P. 26(c)(1). 3 III. DISCUSSION 4 a. Interrogatory No. 12 5 Interrogatory No. 11 seeks the following information: 6 Does WaveCrest contend that Paschini was not due any or all of his “Management Based Objectives ‘MBO’ Achievement Payout” for 2017, as 7 defined in section 4.2( c) of the Second Amendment to Employment 8 Agreement dated January 1, 2017? 9 Interrogatory No. 12 then requests: 10 If your answer to the preceding interrogatory was in the affirmative, state all 11 facts that support your response. 12 For this request, WaveCrest has agreed to supplement its response and stated that it 13 will provide further details regarding the reasons Plaintiff did not earn an MBO bonus for 14 2017. ECF No. 55 at 11. Accordingly, the motion to compel on this interrogatory is 15 DENIED AS MOOT. 16 b. Interrogatories 18 & 19 17 These interrogatories seek the following information: 18 No. 18: Please describe how WaveCrest arrived at the amount of $540,000, set 19 forth in the “Credit Note,” in connection with the line item of “2017 GP adjustments - 20 Provision for Legal Fees.” 21 No. 19: Please describe how WaveCrest arrived at the amount of $708,000, set 22 forth in the “Credit Note,” in connection with the line item of “2017 GP adjustments - 23 Provision for Restructuring.” 24 The parties do not dispute the relevance of the information sought in these 25 requests. Rather, Plaintiff argues that WaveCrest’s response—namely that “[t]his 26 adjustment was made at the direction of the Company’s third-party auditor, Ernst & 27 Young, at the time this Credit Note was prepared. Defendant has not yet received audited 28 financial statements from Ernst & Young that may shed further light on this issue”—is 1 not sufficient. ECF No. 55 at 3-4. WaveCrest responds that the company ceased 2 operating in the United States and Gibraltar, where personnel and financial records were 3 stored, and getting information has been difficult because relevant personnel are no 4 longer employed and there is no staff to review files. Id. at 11. WaveCrest argues that it 5 has produced many documents that show why the adjustments to gross profit was made 6 and it has requested the final audited financial statements but has not yet received them. 7 Id. at 11-12. 8 While cognizant of the practical challenges WaveCrest may face, this case has 9 been pending, and in particular these discovery requests, for over 8 months at this time. 10 The audit report, in particular, has been at issue for over a year, since the Early Neutral 11 Evaluation Conference was held in February 2019. After that conference, the Court 12 ordered WaveCrest to produce the audited financial statements from Ernst and Young by 13 March 28, 2019. ECF No. 12. The Court subsequently granted several extensions to 14 WaveCrest to produce the audited financial statements because they were not ready. See 15 ECF No. 22 (granting extension until May 10, 2019); ECF No. 24 (granting extension up 16 to August 8, 2019). On August 8, 2019, shortly before the deadline, WaveCrest 17 submitted a statement stating that the audit was still not ready and would be produced 18 when it was ready. Now, 8 months after this last status report, WaveCrest does not 19 provide any explanation of why it still does not yet have the audit from Ernst and Young 20 and why it has taken such a long time to obtain. If WaveCrest is claiming these 21 adjustments based on what Ernst and Young calculated during the audit, then it needs to 22 provide this information to Plaintiff so he can prosecute his case effectively as this 23 information goes to the heart of the dispute. This case is no longer at an early stage—all 24 discovery has closed, substantive motions have been filed, and a pretrial conference is set 25 in just two months. 26 Accordingly, the Court GRANTS the motion to compel as to these interrogatories. 27 WaveCrest must provide a substantive explanation for how these numbers were 28 calculated and cannot simply state that it was based on the audit results. 1 c. Requests for Production Nos. 6, 19-22, 23-26 2 These requests for production seek the following documents: 3 No. 6: WaveCrest’s Financial Statements from 2015 to the present. 4 No. 19: Any and all documents relating to WaveCrest’s “Credit Note,” 5 attached hereto as Exhibit A, and specifically documents relating to WaveCrest’s “2017 GP adjustments - Provision for Legal Fees” in the 6 amount of $540,000. 7 No. 20: Any and all documents relating to WaveCrest’s “Credit Note,” 8 attached hereto as Exhibit A, and specifically documents relating to WaveCrest’s “2017 GP adjustments - Provision for Restructuring” in the 9 amount of $708,000. 10 No. 21: Documents reflecting any incurred costs associated with 11 WaveCrest’s “Provision for Restructuring,” as set forth in WaveCrest’s 12 “Credit Note” attached hereto as Exhibit A. 13 No. 22: Documents reflecting any incurred legal fees associated with WaveCrest’s “Provision for Provision for Legal Fees,” as set forth in 14 WaveCrest’s “Credit Note” attached hereto as Exhibit A. 15 No. 23: Documents reflecting WaveCrest’s actual gross profits for 2018. 16 No. 24: Documents reflecting WaveCrest’s adjusted gross profits for 2018. 17 18 No. 25: Documents reflecting WaveCrest’s actual gross profits for 2017. 19 No. 26: Documents reflecting WaveCrest’s adjusted gross profits for 2017. 20 Like interrogatories 18 and 19 above, these requests for production target financial 21 information from WaveCrest. Plaintiff argues that requests 19-22 go directly to the issue 22 of whether the adjustments made to WaveCrest’s gross profit for legal costs and 23 restructuring are supported. ECF No. 55 at 6-7. Requests 6, 23-26 relate to WaveCrest’s 24 gross profits, which are used to calculate Plaintiff’s bonuses and commissions. Id. at 4-5, 25 7-8. The Court agrees that these are relevant to the case. 26 WaveCrest objects on the same grounds as above. First, that it has ceased 27 operations in the United States and Gibraltar where its financial records are located. ECF 28 No. 55 at 14. Second, that it has produced documents including contracts with business 1 partners that formed the basis of litigation against the company, resulting in the need for 2 legal fees, and correspondence regarding its business license with Visa and regulatory 3 investigations, which prompted loss of business and restructuring of the business. Id. 4 Also, WaveCrest argues that its sole employee, John Racine, should be deposed and 5 Plaintiff can obtain relevant information from him. Id. 6 While the Court understands the burden, the information that Plaintiff seeks here is 7 at the core of the issues raised in this lawsuit. As explained above, the request for the 8 audit materials has been pending for over a year at this point, without a clear explanation 9 of why it has taken so long. Moreover, the documents that WaveCrest explains it has 10 produced does not take the place of the audit that would explain the loss calculations, or 11 the financial statements and gross profit documents. While deposing John Racine may 12 provide some information, the information sought here—which likely involve 13 complicated financial calculations—are not the type where a deposition would be an 14 equal alternative. Given the importance of the documents to this litigation, the Court 15 finds that the balance weighs in favor of production. Accordingly, the Court GRANTS 16 the motion to compel as to these requests for production. 17 d. Requests for Production Nos. 9-16, 18 18 These requests for production seek the following documents: 19 No. 9: Any and all documents and communications concerning Paschini’s Gross Profit Growth Target Payout, as defined in section 4.2(a) of the 20 Second Amendment to Employment Agreement dated January 1, 2017. 21 No. 10: Any and all documents and communications concerning Paschini’s 22 Gross Profit Overperformance Payout, as defined in section 4.2(b) of the 23 Second Amendment to Employment Agreement dated January 1, 2017. 24 No. 11: Any and all documents and communications concerning Paschini’s Management Based Objectives “MBO” Achievement Payout, as defined in 25 section 4.2( c) of the Second Amendment to Employment Agreement dated 26 January 1, 2017. 27 The remainder of the requests, Nos. 12-16 and 18, request “Any and all communications 28 between Miles Paschini” and certain individuals “between January 2015-January 2018.” 1 For these requests, WaveCrest has agreed to produce documents, but Plaintiff 2 objects to the privacy and confidentiality objections that WaveCrest is asserting, 3 concerned that documents may be withheld on those bases. ECF No. 55 at 6. Plaintiff 4 argues that these objections are untimely and are waived. 5 WaveCrest replies that its privacy objection targets documents with information 6 related to financial information of other employees and disciplinary action of other 7 employees. Id. at 12. For example, because Plaintiff’s bonus and incentive 8 compensation depends on the efforts of his sales team, many responsive documents may 9 contain third party financial information. Id. WaveCrest that even if untimely, privacy 10 objections to protect third party privacy should be sustained. Id. at 12-13. WaveCrest 11 also represents that it has not withheld any documents simply because they contain 12 confidential or proprietary information other than private personal financial information, 13 and has marked any documents containing confidential company information as 14 “confidential” pursuant to the protective order. Id. at 13. 15 While WaveCrest’s concerns about third party privacy is legitimate, this concern 16 may be alleviated by redacting information rather than wholesale withholding of 17 documents. First, to the extent that documents are responsive to Request Nos. 12-16 and 18 18, these documents should be produced in their entirety, with appropriate confidentiality 19 markings under the protective order. Because these requests seek communications 20 between Plaintiff and certain individuals, Plaintiff has already received and been privy to 21 any private information in these responsive documents. There is no reason to withhold 22 them now as long as they are properly marked. Under the protective order in place, any 23 sensitive information may be labeled confidential and could be protected from disclosure 24 beyond the purpose of this litigation. See Mohideen v. Calnet, Inc., No. 13CV799 MMA 25 NLS, 2014 WL 1028638, at *3 (S.D. Cal. Mar. 14, 2014). To the extent documents are 26 responsive to the other requests, Nos. 9-11, any private information may be appropriately 27 redacted. If the documents contains information private to a third party that is not of use 28 in this litigation (for example, social security numbers or private home addresses), that 1 information may be redacted before production. The identity of the third party may also 2 be redacted and replaced with information sufficient to identify the position of the person 3 as relevant to this litigation. For example, a specific name may be redacted and replaced 4 with information such as “member of Paschini’s sales team.”1 Accordingly, the motion 5 to compel as to these requests is GRANTED IN PART, consistent with this order. 6 e. Request for Production No. 17 7 This request for production seeks the following documents: 8 No. 17: Any and all communications between Miles Paschini and Russ DeLeon between January 2015 - January 2018. 9 10 Plaintiff describes Russ DeLeon as the “beneficial owner” of WaveCrest and 11 objects to WaveCrest’s privacy and confidential objections at to this request. ECF No. 55 12 at 6. WaveCrest argues the Russ DeLeon is not an employee of WaveCrest, and that this 13 request is overbroad because it includes no limitation as to time or subject matter. Id. at 14 13. WaveCrest also asserts the same third party privacy concerns it did for Request Nos. 15 9-16 and 18 above. 16 As a threshold matter, if Russ DeLeon is truly not an employee of WaveCrest and 17 has never been, his emails cannot be said to be in the possession, custody, or control of 18 WaveCrest. What WaveCrest does not state in the motion is whether Mr. DeLeon ever 19 had an email account associated with WaveCrest, for example, stored on servers 20 controlled and accessible by WaveCrest. If Mr. DeLeon ever had such an email account, 21 then the Court will order Defendant to produce emails related to this account, subject to 22 the limitations below. If Mr. DeLeon never had an email account associated with 23 WaveCrest, then the Court sustains WaveCrest’s objections and will not require any 24 documents to be produced. 25 26 1 This is only an example of how information may be redacted to balance the privacy of 27 the individual and the need for the information for this litigation. Both parties and counsel for the parties are sophisticated and capable, and the Court expects them to 28 1 As to substance, the Court agrees that this request as worded is too broad as it is 2 without limitation to subject matter or time. Thus, the request should be limited to the 3 timeframe of Plaintiff’s employment with WaveCrest (2015-2017) and be limited to 4 communications that relate to Plaintiff’s employment contracts, termination, and 5 compensation, including bonuses and commissions. As to WaveCrest’s privacy 6 objection, documents must still be produced, with appropriate redactions and markings, 7 as the previously discussed for Request Nos. 9-11 above, in Section III.d. Accordingly, 8 the motion to compel as to these requests is GRANTED IN PART, consistent with this 9 order. 10 f. Requests for Production Nos. 32-33 11 These requests for production seek the following documents: 12 No. 32: Any and all documents that tracked and/or accounted for Paschini’s entitlement to bonuses and commissions at WaveCrest in 2017. 13 14 No. 33: Any and all documents that tracked and/or accounted for Paschini’s entitlement to bonuses and commissions at WaveCrest in 2016. 15 As to these requests, Plaintiff argues that WaveCrest may be withholding 16 documents based on privacy and confidentiality concerns. As to this issue, the Court 17 orders WaveCrest to produce documents, with appropriate redactions and markings, as 18 the previously discussed for Request Nos. 9-11 above, in Section III.d. 19 Additionally, Plaintiff states that WaveCrest used a “MBO tracker” document kept 20 in excel format to show which objectives had been met at a given time. ECF No. 55 at 8. 21 This document would have many iterations over a given year, but Plaintiff states that 22 only one was produced. Id. If there are other iterations of the MBO tracker document 23 that exist during the relevant time frame, the Court orders WaveCrest to produce them. 24 Accordingly, the motion to compel as to these requests is GRANTED IN PART, 25 consistent with this order. 26 // 27 // 28 I IV. REQUEST FOR SANCTIONS 2 Plaintiff also requests that the Court impose monetary and evidentiary sanctions. 3 || ECF No. 55 at 8-9. Because the Court is compelling WaveCrest to produce and further 4 ||supplement several interrogatories and requests for production as discussed above, the 5 || Court will not impose evidentiary sanctions at this time. This request for evidentiary 6 sanctions is DENIED WITHOUT PREJUDICE. Plaintiff may raise this issue again 7 ||should WaveCrest fail to comply with this order. 8 Plaintiff also request monetary sanctions for the hours spent on meeting and 9 conferring and preparing this motion. This motion was expressly contemplated by the 10 || Court’s previous order, which granted the parties the ability to bring another motion on 11 substance of the discovery requests. Thus, in its discretion, the also Court declines to 12 ||impose monetary sanctions at this time as well. 13 Vv. CONCLUSION 14 For the foregoing reasons, Plaintiff's motion to compel as to the above 15 || Interrogatories and Requests for Production are GRANTED IN PART and DENIED IN 16 PART. WaveCrest must supplement its discovery responses as outlined above in the 17 || order within 30 days of this order. 18 IT ISSO ORDERED. 19 || Dated: April 20, 2020 20 Mie. Lome 7] Hon. Nita L. Stormes United States Magistrate Judge 22 23 24 25 26 27 28