[EDRM Editor’s Note: The opinions and positions are those of Michael Berman.]
Kranz & Associates Holdings, LLC v. Lain, 2024 WL 4476655 (N.D. Cal. Oct. 11, 2024), appeared to be a run-of-the-mine trade secrets dispute. When it came to discovery, it wasn’t.
Kranz, a former employer, sued Kimberly Lain, a former employee, alleging misuse of confidential information. Ms. Lain also owned Tekvantage, Inc. Her husband, Timothy Dowerty, owned Teknowledgies, LLC.
Tekvantage and Teknowledgies are not parties to this litigation. Lain, Dowerty, and their respective corporate entities are represented by the same counsel, who refers to the group as the “Lain Parties.” Kranz, Tekvantage, and Teknowledgies appear to provide broadly similar services to a common clientele. The gist of Kranz’s theory is that defendant Lain funneled Kranz’s confidential information to her and her husband’s competing enterprises.
Id. at *1.
It seems that Tekvantage proposed a multi-year, multi-million dollar consulting contract to RS2.
Krantz issued third-party subpoenas to Tekvantage and Teknowledgies.
While much of the Kranz & Associates decision focuses on a rejected assertion of spousal privilege in response to the subpoena to the husband’s company, this blog focuses on the Tekvantage subpoena to Ms. Lain’s entity.
RFP 1: “NO SUCH DOCUMENTS EXIST”
Generally, when an attorney signs a discovery response under Fed.R.Civ.P. 26, stating that no responsive documents exist, that ends the matter, absent a factual predicate to the contrary.[1]
However, in Kranz & Associates, the “no documents exist” response was insufficient.
RFP 1 sought communications between Ms. Lain and her company regarding provision of financial consulting services. Tekvantage initially wrote that “no such documents exist.” It later wrote that no non-privileged documents exist and none would be produced.
The court wrote:
As an initial matter, it is difficult to square Tekvantage’s representations to opposing counsel (that no responsive documents exist and none will be produced) with Tekvantage’s later representation to the Court (that it has produced 90 or more documents responsive to RFP 1). Both cannot be true. This contradiction came to the fore at the September 10 hearing. Counsel failed to offer any explanation then and has not done so in his subsequent briefing…. [emphasis added].
Id.
But, there was more. The Lain parties’ brief stated: “Ms. Lain does not keep paper files and does not use text messaging … for business….”
The court then wrote:
[Plaintiff] Kranz has now produced a lengthy series of texts authored by Lain, in which she scheduled business meetings and exchanged business-related information via text, including video captures and screenshots of Excel spreadsheets…. Lain’s texts also contain discussions of contracts, billing rates, monthly billing totals, project management concerns, discussions held with vice presidents of client entities, and so forth….[2]
Id.
The court added that it was “unlikely” that production of 90 documents was an “adequate response” where Tekvantage offered to provide another entity with consulting services from five types of employees for approximately $1.4 million over two years. Id. at *2. The court wrote that:
It stretches credulity that an enterprise operating at a scale sufficient to warrant billing a single client $1.4 million in a two-year span has generated a total of 256 non-privileged documents between its chief executive and her employees concerning the provision of those services.
Id.
Should plaintiffs establish, through those depositions or any other means, that Tekvantage has hid the ball, a subsequent hearing will order production and impose appropriate consequences on both Tekvantage and its counsel.
Kranz & Associates Holdings, LLC v. Lain, 2024 WL 4476655, at *4 (N.D. Cal. Oct. 11, 2024).
RFP 2: NO SUCH DOCUMENTS EXIST
RFP 2 asked for documents relating to any “business offering” involving a competitor of plaintiff. Tekvantage responded that no such document existed. Sweeping aside a truncated definition of “business offering,” the court wrote:
It is unclear how Tekvantage, an entity that counsel suggests did not provide its own business offerings in the relevant period, managed to pen a consulting agreement with, and bill $1.4 million to, a client in that same time.
Id. at *3.
RFP 6: “A VERY, VERY SMALL ENTITY”?
RFP 6 sought documents relating to Ms. Lain’s compensation over four years. Ms. Lain and her company produced 143 documents. Id. at *3.
[C]ounsel for Tekvantage insisted that “Tekvantage is a very, very small entity,” and that “it does not have large staff. It does not have administrative staff … it’s not a large entity that has well-documented and retained documents. It was just some people providing some consulting services” …. According to counsel, “it’s not the kind of organization that created or kept extreme documentation.”
Id. at *3.
The court retorted:
[Tekvantage’s] Counsel is wrong that it “is not incredible that no such documents exist” …. Either Tekvantage is operating out of a shed, absent records, or it employs five levels of staff who billed a single client $1.4 million over the course of two years. Both cannot be true. Counsel does not challenge the veracity of the latter in its three briefs.
Id. at *4 (emphasis added).
The court reiterated that all of those employees should be made available for deposition and: “Should plaintiffs establish, through those depositions or any other means, that Tekvantage has hid the ball, a subsequent hearing will order production and impose appropriate consequences on both Tekvantage and its counsel.”
Notes
[1] Usually, arguing that “there must be more” documents is mere speculation that is insufficient to support a motion to compel. Discovery is the Lawyer’s X-Ray; However, an MRI May Not Be Reasonable (Sep. 4, 2024); see, e.g., Where Producing Party Represents That It Fulfilled Its Duty to Produce, a Motion to Compel Additional Production Cannot Be Based on Speculation (Jul. 27, 2021)(“there must be more” arguments are unsuccessful); Sometimes Discovery Disputes Do Not Bring Out the Best in Us (Apr. 10, 2024)(stating a “once in a while” exception to general rule that “[o]rdinarily the representation of the responding party’s attorney that no additional documents exist is sufficient to defeat a motion to compel absent credible evidence that the representation is inaccurate….”); cf. ESI 101: Don’t Spoliate Evidence That’s Been Photographed (May 7, 2023)(defendants initially denied that a tablet existed; however, there was photographic evidence of it).
[2] The court’s opinion does not describe the source of these text messages.
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