Rajeev Chitrabhanu vs Richard Dean Carson; ProHealth Inc (and related Cross-Complaint)
Rajeev Chitrabhanu vs Richard Dean Carson; ProHealth Inc (and related Cross-Complaint)
Case Number
23CV05200
Case Type
Hearing Date / Time
Wed, 08/14/2024 - 10:00
Nature of Proceedings
Motions (3)
Tentative Ruling
For Plaintiff Rajeev Chitrabhanu [“Plaintiff”]: Jeremy Ostrander, Nathan Rogers; Jack E. Pace III, Balaji Venkatakrishnan.
For Defendant Richard Dean Carson [“Carson”]: J. Paul Gignac, Claire K. Mitchell.
For Defendant ProHealth Inc. [“ProHealth”]: Nick S. Pujji, Emma Moralyan.
Acknowledgements
The Court acknowledges and appreciates the professional work done by counsel in the case.[1] The case has been contentious at times.
Issue
3 Motions
RULINGS
For the reasons set out below:
1. ProHealth’s CCP section 128.7 motion and request for sanctions is DENIED.
2. Plaintiff’s requests that the Court grant the motion to compel compliance and issue an order directing ProHealth to produce information responsive to RFPs 1-2, 4-8, 9-28, 30, and 34-36 is GRANTED; the responses are due on 8/30/24. Monetary sanctions against ProHealth and its attorneys in favor of Plaintiff is DENIED.
3. Plaintiff’s requests that the Court grant the motion to compel compliance and issue an order directing Carson to produce information responsive to Request for Production of Documents, Set One (Nos. 2-3, 5-20, 22, and 26-28) is GRANTED; the responses are due on 8/30/24. Monetary sanctions against Carson and his attorneys in favor of Plaintiff is DENIED.
4. The MSC date of 3/14/25 and the Trial Date of 4/9/25 are confirmed; do not stipulate to a continuance; the Court does not invite a motion for continuance. This is not complicated litigation for the lawyers here involved. Although your calendars may be impacted the Court believes this litigation should be completed in the time provided.
5. The CMC of 9/18/24 is confirmed.
Background
On November 21, 2023, Plaintiff filed a complaint against ProHealth and Carson, (“Defendants”), alleging seven causes of action: (1) breach of contract; (2) anticipatory breach of contract; (3) quantum meruit; (4) fraud; (5) negligent misrepresentation; (6) breach of fiduciary duty; (7) accounting.
As alleged in the complaint: Plaintiff is a business advisor and entrepreneur who has built a career devising exit strategies for businesses. Plaintiff is also the founder of Magnetic, a firm based in Mumbai, India. Presently, Plaintiff is directing his efforts as an investor and advisor through Magnetic to develop and grow businesses and to place them in a position for a potential sale.
ProHealth is a corporation located in Carpinteria, California. Carson founded ProHealth in 1988 to market nutritional supplement products containing nicotinamide mononucleotide (NMN). Carson is the owner, shareholder, and Chairman of ProHealth, and has also served as ProHealth’s Chief Financial Officer.
ProHealth has struggled to generate revenue for most of its history. Plaintiff contacted Carson in November 2020 to express excitement for ProHealth and its NMN nutritional supplement products. The two men communicated regularly. At the time, Carson was developing a business venture named ProHealth Longevity with the goal of generating revenue by selling supplement products, including NMN, using ProHealth’s existing network of customers.
In late 2020 and early 2021, Carson communicated to Plaintiff that he wished to leverage Plaintiff’s knowledge and expertise to benefit ProHealth and ProHealth Longevity.
Defendants solicited Plaintiff’s advice on all aspects of ProHealth’s business and operations, including ProHealth’s sales, inventory, finances, marketing, and personnel.
During this period, Plaintiff invested time to learn about and counsel Defendants regarding ProHealth’s business goals. Carson and Plaintiff communicated often and for lengthy periods of time discussing all aspects of ProHealth’s business.
Carson communicated to Plaintiff that he wished to devise an exit strategy with the goal of selling ProHealth and that he wished to use Plaintiff’s experience to accomplish that goal.
Plaintiff told Carson that he would assist with the exit strategy, but that Plaintiff’s involvement would be conditioned on Plaintiff receiving an upfront equity stake in ProHealth in return. Plaintiff told Defendants that it was his regular practice to enter only into those arrangements that provided Plaintiff with equity in the businesses he advised.
Plaintiff communicated this requirement to Defendants in early 2021 and in the spring of 2021.
In the first half of 2021, Defendants told Plaintiff on numerous occasions that Plaintiff would be compensated for advising Defendants by receiving an upfront equity stake in ProHealth. Carson also told ProHealth’s Board of Directors that Plaintiff would receive an equity stake in ProHealth in exchange for Plaintiff’s services. Defendants and Plaintiff ultimately came to an agreement pursuant to which Plaintiff would be provided with an upfront equity interest in ProHealth.
During the summer of 2021, upon Defendants’ request to formalize the partnership between the parties, Defendants finalized the terms of Plaintiff’s ownership in ProHealth.
On June 28, 2021, Plaintiff sent Carson an email titled “Terms of Engagement” (the TOE) stating the terms that Plaintiff and Defendants had discussed regarding Plaintiff’s ownership, equity interest, compensation, and performance obligations in and to ProHealth. The TOE itemized the consideration Plaintiff would receive from Defendants in exchange for Plaintiff’s services and stated Plaintiff’s performance obligations which Defendants and Plaintiff had previously discussed.
Pursuant to the TOE, Defendants agreed that Plaintiff would receive a $5,000 monthly fee beginning in July 2021, a 10 percent upfront equity share in ProHealth, and a guaranteed 40 percent share of sales proceeds if ProHealth was sold at a valuation above $19 million, which was Carson’s best-case scenario as conveyed at the time to Plaintiff. For example, if ProHealth was sold at a $25 million valuation, the parties agreed that Plaintiff would receive $1.9 million (a 10 percent equity share in ProHealth), plus an additional $2.4 million or 40 percent of the sales proceeds above the $19 million mark.
On July 24, 2021, Carson sent an email to Plaintiff regarding the TOE stating “Your message below is nicely summed up and is exactly what we discussed. Good job.” Carson also described Plaintiff as his “business partner” to ProHealth’s board of directors, employees, and third-party business contacts, before and after the TOE.
Plaintiff performed his obligations pursuant to the TOE. To plan for ProHealth’s exit, Plaintiff worked to establish a business advisory board which included efforts by Plaintiff to identify, find, and recruit qualified individuals to populate the business advisory board because Carson and other members of ProHealth’s management lacked experience with corporate finance, growing businesses, and developing exit strategies. Carson described Plaintiff as the “founding member” of ProHealth’s business advisory board.
Plaintiff also worked to expand ProHealth into markets in Asia, improved ProHealth’s marketing strategy which resulted in increased sales on Amazon, evaluated ProHealth’s finances, and advised Defendants on improving cash flow as well as inventory and personnel management. These efforts included Plaintiff negotiating an amicable departure of ProHealth’s former Chief Executive Officer and identifying and hiring a new successor Chief Executive Officer. As a result of Plaintiff’s efforts, ProHealth’s revenues increased to greater than $20 million in 2022.
From November 2020 through February 2022, Plaintiff devoted time and effort to providing advisory and consulting services to Defendants in reliance on Defendants’ commitment to provide an upfront equity stake in ProHealth to Plaintiff in exchange for his services. Defendants paid Plaintiff the $5,000 monthly fee provided in the TOE from August to December 2021.
In late 2021 and early 2022, Defendants disavowed and refused to acknowledge the TOE.
In April 2022, Defendants took the position that the parties never entered an agreement, and, throughout the spring of 2022, Defendants disengaged from communications with Plaintiff. In late November 2021, Carson proposed to Plaintiff that they modify the compensation set out in the TOE from $5,000 per month to an hourly fee of $715.
Defendants have not provided Plaintiff with any payment or remuneration related to his equity interest in ProHealth, including the 10 percent upfront equity stake to which they agreed in June 2021. Defendants also refused to acknowledge Plaintiff’s right to 40 percent of all sales proceeds in the event ProHealth is sold at a valuation above $19 million.
Demurrer and Motion to Strike
On January 12, 2024, ProHealth filed a demurrer to the complaint (the ProHealth Demurrer) and ProHealth filed a motion to strike all allegations for punitive damages against ProHealth.
Also on January 12, 2024, Carson filed a demurrer to the complaint (the Carson demurrer).
Plaintiff opposed the ProHealth demurrer, the motion to strike, and the Carson demurrer.
On 2/21/24 the Court ruled that the demurrer of ProHealth to Plaintiff’s complaint was sustained as to the seventh cause of action, with leave to amend; otherwise, the demurrer of ProHealth was overruled. The demurrer of Carson to Plaintiff’s complaint was sustained as to the first, second, and third causes of action, with leave to amend; otherwise, the demurrer of Carson was overruled. The motion to strike punitive damages of ProHealth was denied. Plaintiff was to file and serve his first amended complaint on or before March 14, 2024.
No amended complaints were filed. The only active counts are (4) fraud; (5) negligent misrepresentation; (6) breach of fiduciary duty.
The Answers and the Cross-Complaint
On 3/25/24 Carson filed a General Denial for his Answer and alleged 12 Affirmative Defenses.
On 4/8/24 ProHealth filed a General Denial for its Answer and alleged 33 Affirmative Defenses. ProHealth also filed a Cross Complaint against Plaintiff Rajeev Chitrabhanu alleging (1) Unjust Enrichment; (2) Breach of Contract; (3) Fraudulent Inducement; (4) Negligent Misrepresentation.
On 5/10/24 Plaintiff filed a General Denial to the Cross Complaint and alleged 19 Affirmative Defenses.
The Motions
Plaintiff’s Motion to Compel against ProHealth.
Plaintiff’s motion to compel ProHealth to comply with its duly served Responses to Plaintiff’s Request for Production of Documents, Set One (Nos. 1-2, 4-8, 9-28, 30, and 34-36) and for monetary sanctions of $6,345 against ProHealth and its counsel Dentons US LLP; filed 6/21/24; 10 pages; [summarized]: After the parties’ met and conferred regarding ProHealth’s deficiencies in its RFP Responses, there are no outstanding disputes as to the scope of ProHealth’s production pursuant to the RFPs; ProHealth simply proposes further delay in production based on its own preferred schedule. Plaintiff has no choice but to file the instant motion to compel compliance for production of documents under CCP Section 2031.320 within ten days of the Court’s order. Plaintiff served the RFPs at issue on ProHealth on February 16, 2024. ProHealth served its Responses and Objections to the RFPs on March 19, 2024, and followed-up with Verifications to its Responses on March 21, 2024. In its Responses, ProHealth stated that it would produce information responsive to RFPs 1-2, 4-5, 9-10, 12-28, and 34-36. With respect to RFPs 6-8, 11, 14-20, 22-26, 30, and 34-36, however, on April 12, 2024, Plaintiff sent a letter to ProHealth regarding deficiencies in its Responses to those RFPs and requested a meet and confer.
On April 15, 2024, ProHealth said a meet and confer would be premature, took positions on certain of the at issue RFPs, and stated that it would amend its responses as necessary along with serving productions. On April 18, 2024, Plaintiff reiterated that a meet and confer would be beneficial, disagreed with ProHealth’s position as to the at issue RFPs, and sought clarification on some of ProHealth’s Responses. On April 19, 2024, ProHealth accepted Plaintiff’s meet and confer offer, and the parties set a telephone meet and confer for April 26, 2024. In its April correspondence, ProHealth took positions on certain of the at issue RFPs and resolved others.
During the meet and confer, the parties resolved some disputes regarding the at issue RFPs, and ProHealth committed to respond in writing with updated positions on the remaining at issue RFPs during the week of April 29, 2024.
ProHealth did not inform Plaintiff about its updated position during the week of April 29, and Plaintiff followed-up with ProHealth on May 1, 2024. On May 3, 2024, Plaintiff again followed-up with ProHealth about the outstanding deficiencies. On May 7, 2024, ProHealth informed Plaintiff about its position as to the remaining deficiencies. Over the course of the next two weeks, the parties discussed their final compromises with respect to the at issue RFPs and on May 16, 2024, Plaintiff accepted ProHealth’s final compromise offers, resolving all outstanding deficiencies. On May 20, 2024, ProHealth also confirmed that all outstanding deficiencies as to the RFPs were resolved, ProHealth committed that it would produce responsive files by the end of May 2024, and requested that it be permitted serve amended responses along with its document productions. Plaintiff agreed to ProHealth’s proposal.
ProHealth did not make any document productions despite its commitment to do so by the end of May 2024.
On June 18, 2024, Plaintiff asked ProHealth for confirmation on when it will complete document productions for the RFPs for which it had already agreed to produce responsive information. On June 19 and 21, 2024, ProHealth indicated that it would delay document productions pending a ruling on its proposed motion practice under C.C.P. Section 128.7, a motion which is not on calendar. Since all outstanding issues were resolved almost a month ago, Plaintiff informed ProHealth of its intention to move to compel.
With this background, Plaintiff requests that the Court grant his motion to compel compliance and order ProHealth to produce the promised information pursuant to the negotiated terms of ProHealth’s Responses to the RFPs and impose monetary sanctions against ProHealth and its counsel in the amount of $6,345.
All that needs to be shown for the Court to grant the motion is that the responding party failed to comply as agreed. 2031.320(a); Standon Co. v. Superior Court, (1990) 225 Cal.App.3d 898, 900. ProHealth took the position that it will unjustifiably further delay the production of documents it has already agreed to produce until after its proposed motion practice based on C.C.P. Section 128.7, yet unfiled, is resolved.
Based on these facts, ProHealth has not complied as agreed and therefore, the Court should grant Plaintiff’s motion to compel compliance. Under CCP 2031.320 Courts must impose monetary sanctions against parties that unsuccessfully oppose a motion to compel compliance, unless the unsuccessful party shows that it acted with substantial justification or that other circumstance make the imposition of sanctions unjust. C.C.P. Section 2031.320(b). It is not necessary that the misuse of the discovery process be willful for monetary sanctions to be imposed, and when a party’s improper actions (even if not willful) in resisting discovery necessitates a Court’s intervention, the losing party presumptively should pay sanctions. ProHealth improperly resists discovery by refusing to comply as agreed, necessitating the Court’s intervention, and justifying an imposition of sanctions. Plaintiff requests that the Court award recovery of his attorneys’ fees and costs of $6,345.
Supported by the Ostrander Declaration; read and considered.
Plaintiff’s Motion to Compel against Carson
Filed 6/21/24; 10 pages; summarized; Plaintiff moves for an order under Code of Civil Procedure Section 2031.320 to compel Carson to comply with his duly served Amended Responses to Plaintiff’s Request for Production of Documents, Set One (Nos. 2-3, 5-20, 22, and 26-28) and for monetary sanctions of $6,345 against Carson and his counsel RIMÔN PC.
Plaintiff served the Request for Production of Documents, Set One (“RFP”), on Carson more than four months ago on February 16, 2024. These RFPs that are the subject of this motion concern, among other things, requests for information regarding Carson’s role at ProHealth dealings with Plaintiff, and dealings with ProHealth’s former CEO. The parties negotiated an agreement on the scope of Carson’s production, and pursuant to his Amended Responses to the RFPs, Carson agreed to produce responsive information beginning May 31, 2024. Carson failed to produce any documents by that date and in response to Plaintiff’s request that Carson commit to a date to even begin his document production, Carson took the position that he would not produce any documents until after Defendants file and the Court resolves a separate, new motion Defendants have threatened to file under C.C.P. Section 128.7, effectively staying discovery and adding months to the present delay in even starting document discovery. If ProHealth files its motion, ProHealth’s request effectively is an unsupported motion to stay discovery based on a misapplication of Section 128.7. ProHealth’s position is that, after finding a document that it believes supports its defense (it does not, as discovery will make clear), instead of using the document with the full context or in cross-examination of Plaintiff’s witnesses, ProHealth proposes to file a new motion to dismiss the Complaint.
After the parties’ met and conferred regarding Carson’s deficiencies in his RFP Responses, there are no outstanding disputes as to the scope of Carson’s production pursuant to the RFPs; Carson simply proposes further delay in production based on his own preferred schedule. As a result, Plaintiff has no choice but to file the instant motion to compel compliance for production of documents under CCP Section 2031.320 within ten days of the Court’s order.
The contentions made in the Carson motion mirror the contentions in ProHealth Motion.
Plaintiff requests that the Court grant the motion to compel compliance and issue an order directing Carson to produce information responsive to RFPs 2-3, 5-20, 22, and 26-28, on or within ten (10) days of the signing of an order. Plaintiff requests monetary sanctions to be awarded in the amount of $6,345, against Carson and its attorneys in favor of Plaintiff for requiring this motion without substantial justification and without any other circumstances that would make imposition of monetary sanctions unjust.
Supported by the Ostrander Declaration; 210 pages; summarized; On April 26, 2024, counsel for Plaintiff and ProHealth met and conferred regarding deficiencies in ProHealth’s Responses to Plaintiff’s Request for Production of Document, Set One, and a potential deadline extension for Plaintiff’s motion to compel. During the meet and confer, counsel for ProHealth confirmed that ProHealth was willing to produce documents responsive to Plaintiff’s Request for Production No. 11. In addition, based on the discussion during the conferral, counsel for ProHealth confirmed that they would circle back with ProHealth’s updated position regarding its response to Plaintiff’s Request for Production Nos. 6-8 and 30 during the week of April 29, 2024. However, during the week of April 29, 2024, ProHealth did not inform Plaintiff of its updated position as committed. ProHealth did not follow through on its commitment to produce information responsive to Plaintiff’s Request for Production of Documents, Set One by the end of May 2024.
ProHealth’s Motion For Sanctions [CCP § 128.7].
Filed 7/8/24; 19 pages; summarized: With the filing of the motion Plaintiff contends the 21 day period to dismiss his Complaint against ProHealth and avoid sanctions will have passed. The Court should impose sanctions against Plaintiff because he was put on notice of the lack of any ProHealth liability and continued to prosecute this lawsuit.
ProHealth requests the Court grant the Motion, dismiss Plaintiff’s Complaint against ProHealth in its entirety with prejudice, strike Plaintiff’s Answer and Affirmative Defenses to ProHealth’s Cross-Complaint, and award sanctions to ProHealth in the total amount of $49,103. ProHealth requests all such further relief as the Court deems just and proper.
ProHealth contends Plaintiff knew before he filed the Complaint that his claims are not based on any non-frivolous factual or legal grounds. ProHealth recently discovered Plaintiff’s multiple written admissions that he had no enforceable agreement with ProHealth. But even though ProHealth filed a Demurrer and a Cross-Complaint, and then presented Plaintiff and his attorneys with Plaintiff’s own admissions, Plaintiff has persisted with his meritless claims. Filing a motion under CCP § 128.7 is a serious matter, reserved for cases so frivolous and/or clearly designed for an improper purpose that sanctions are appropriate.
On April 8, 2024, ProHealth filed its Answer and Affirmative Defenses to Plaintiff’s Complaint, along with its Cross-Complaint. The Answer and Affirmative Defenses denied the Complaint, set forth ProHealth’s non-liability, and asserted 33 affirmative defenses. The Cross-Complaint specifically alleged, inter alia, that while Plaintiff was compensated on a limited basis for “advisory services” at a monthly rate of $5,000 for only the five months of August through December 2021, no valid or enforceable contract was ever entered into between the parties. Instead, ProHealth’s Cross-Complaint alleges that Plaintiff had seen publicity about ProHealth and its founder being a health-compromised individual, recognized Carson was vulnerable with a disability and frail memory, and sought Carson out via a cold LinkedIn message from Mumbai, India, to take advantage of him.
Plaintiff lied that he was the former CEO of Morgan Stanley (JM Financial Services), a member in good standing of a venture capital board that had removed him, and personal friends with influential scientists/academics like the President of Harvard University. Carson was eager to grow ProHealth’s business in the nutritional supplement industry and did not know that Plaintiff’s sole aim was to extract money from ProHealth without providing anything of true value in return.
Plaintiff asked Carson to execute a written contract with him, wherein Plaintiff would be paid a monthly stipend, 10% equity in the entire company, plus 40% of sales proceeds if ProHealth was sold at a valuation above $19 million. Plaintiff attempted to lure ProHealth into his proposed sweetheart deal with false promises about being able to leverage Plaintiff’s fake network and experience to position ProHealth for such an exit strategy. As such, Plaintiff and Carson discussed a potential arrangement via phone calls, emails, and text messages from late 2020 to February 2022.
Although Plaintiff’s Complaint frivolously claims that the June 28, 2021, email was “the contract,” Plaintiff knew that no contract had been formed. It is for this reason that Plaintiff engaged in continued attempted negotiations for the next several months while leading Carson on about Plaintiff’s prestige and efforts for the company. ProHealth paid Plaintiff $25,000 during the five-month period of August to December 2021, during which time Plaintiff was doing nothing of real benefit for ProHealth, until ProHealth and Carson ascertained that Plaintiff was a fraud and put a stop to Plaintiff’s scheme.
On May 10, 2024, Plaintiff answered the Cross-Complaint without filing any demurrer or motion to strike, and generally denied it along with asserting affirmative defenses claiming again the existence of the same June 2021 “contract.”
Thereafter, the parties commenced written discovery, including form and special interrogatories as well as requests for production. While reviewing potentially responsive documents for production, ProHealth and its counsel became aware for the first time of certain texts and emails among Carson, Plaintiff, and ProHealth’s former CEO Nancy Dayton.
Key to this Motion, these communications made by Plaintiff in writing contain crucial admissions, which unavoidably gut his lawsuit and reveal its improper purpose.
By August 3, 2021, a little over a month after the June 2021 informal email that Plaintiff disingenuously alleges to be a “contract” in this lawsuit, ProHealth’s then CEO Nancy Dayton had announced her forthcoming resignation and sought to initiate a transfer of operations to Plaintiff.
Plaintiff quickly responded that same day, and unambiguously declared that he had no “set direction for the company,” stated that he did not intend to run the company, denied that he had any “finalized” equity contract with the company, and denied that he was receiving anything from the company other than the “recent advisory fee” that he described merely as “a gesture”; although this email plainly speaks for itself, two additional communications written by Plaintiff further evidence that he admitted over and over again he had no enforceable contract with ProHealth.
Just the day before the above August 3, 2021, email admission, Plaintiff sent a text to Carson in the form of a talking point that Carson could then pass on to Nancy Dayton, also confirming that: “Nothing with Rajeev is finalized…. The idea was to find a way to incentivize him and leverage his contacts, experience of building large companies. Hence the stake is still being discussed. It may not even happen.”
Even by March 24, 2022, Plaintiff was still acknowledging in writing that the June 28, 2021, email was not a final contract, and that in fact, there was no final contract at all. (“Before we finalize anything it’s imp for you to see the below. FYI. Just to refresh. This was what was discussed.”).)
Plaintiff’s knowing filing of the instant meritless lawsuit, and subsequent factual/procedural history described above, was the next series of events.
On May 24, 2024, ProHealth’s counsel sent Plaintiff’s counsel a letter requesting that Plaintiff’s claims be dismissed with prejudice, attaching the prior quoted August 3, 2021, email. However, on May 31, Plaintiff’s counsel sent a letter refusing to dismiss, but neither citing nor providing any contrary evidence.
On June 14, 2024, ProHealth’s counsel sent Plaintiff’s counsel a second letter, pursuant to the safe-harbor provisions of Section 128.7(c)(1), and which attached an exact copy of the instant Motion.
In response, on July 3, 2024, Plaintiff and his counsel maintained their refusal to withdraw the Complaint, and once again, provided no substantive explanation or citation to contrary evidence.
Plaintiff never had any excuse for filing this lawsuit. Further, upon presentation of ProHealth’s demurrer, Cross-Complaint, and two CCP § 128.7 letters, Plaintiff has no excuse for persisting with Plaintiff’s claims.
These actions have unjustly cost ProHealth significant defense expenses and burdened this Court, and as such warrant sanctions.
Section 128.7 requires that every pleading presented to the Court be certified by the filing party and counsel: (1) that it is not presented for any “improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation”; (2) that the claims and legal contentions “are warranted by existing law”; and (3) that “the allegations and other factual contentions” as well as “denials of factual contentions have evidentiary support.” Cal. Code Civ. Proc. § 128.7(b)(1)-(4); see also Guillemin v. Stein (2002) 104 Cal.App.4th 156, 167 (“Under both Code of Civil Procedure section 128.7 and [FRCP] rule 11, there are basically three types of submitted papers that warrant sanctions: factually frivolous (not well grounded in fact); legally frivolous (not warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law); and papers interposed for an improper purpose.”). “Pleadings” includes the Complaint and Plaintiff’s Answer to ProHealth’s Cross-Complaint. Cal. Code Civ. Proc. § 420. Violation of Section 128.7’s certification requirement subjects the party and the party’s attorney to sanctions. Cal. Code Civ. Proc. § 128.7(c), (d).
This certification creates an affirmative duty of investigation for a party and his counsel as to both law and fact, and thus deters frivolous actions and costly meritless maneuvers. Business Guides, Inc. v. Chromatic Communications Enter., Inc., 498 U.S. 533, 550 (1991) (interpreting Federal Rule 11); see also Cromwell v. Cummings (1998) 65 Cal.App.4th.Supp. 10, n. 6 (since section 128.7 is based in large part on Rule 11 of the Federal Rules of Civil Procedure as amended in 1993, the federal cases interpreting Rule 11 are “persuasive authority with regard to the meaning of § 128.7”).
The violation of the certification requirement is measured under an objective standard. Bockrath v. Aldrich Chemical Co., Inc., 21 Cal.4th 71, 82 (1999) (“The actual belief standard… requires a well-founded belief. We measure the truth finding inquiry’s reasonableness under an objective standard and apply this standard both to attorneys and their clients”). Because an objective standard controls, Section 128.7 “imposes a lower threshold for sanctions” than did the predecessor statute, Section 128.5. Levy v. Blum, 92 Cal.App.4th 625, 639 (2001).
Under the statute, “presenting” papers to the Court specifically include both filing a pleading and “later advocating” a pleading. Cal. Code Civ. Proc. § 128.7(b). A party and its counsel have a continuing obligation to ensure that the claims, answers, denials, and defenses asserted are legally and factually sound. An attorney cannot simply sign a pleading and later disregard facts that demonstrate the claims, answers, denials, and/or defenses do not have evidentiary support. As noted in a leading treatise, there is an ongoing duty to reevaluate:
Plaintiff has violated Section 128.7 by his continued assertion of baseless claims for breach of contract, anticipatory breach, quantum meruit, fraud, negligent misrepresentation, breach of fiduciary duty, and related answers and defenses to ProHealth’s Cross-Complaint.
ProHealth brought these issues to the attention of Plaintiff and his counsel when it filed its Demurrer, Motion to Strike, and Cross-Complaint, as well as submitted its two CCP § 128.7 letters. Plaintiff failed, however, to dismiss his claims or defenses, and rather continued to assert them. This demonstrates that Plaintiff had an improper purpose in initially filing a Complaint that was also frivolous. Furthermore, maintaining Plaintiff’s claims, answers, and defenses when they have no evidentiary support, his own written admissions directly contradict his pleadings, and ProHealth as no legal liability as a result, unavoidably violates Section 128.7.
The Court may very logically infer that Plaintiff’s persistence is an improper attempt to levy and then unnecessarily increase the cost of this litigation to try to pressure ProHealth to settle this meritless action.
ProHealth’s attorneys’ fees and costs for its defense of this lawsuit to date, which includes preparation of its demurrer, motion to strike, Cross-Complaint, and initial written discovery, are $207,347 in attorneys’ fees and $2,689 in costs. These costs are recoverable under Section 128.7(d) because they are indisputably the “direct result” of Plaintiff’s violation of the statute. And ProHealth’s costs and attorneys’ fees in presenting this sanctions motion exceed $27,344. These costs are also recoverable under Section 128.7(c), including future expected expenses for reply briefing and hearing, which currently ProHealth estimates to require an additional $21,758. Again, monetary sanctions can include all fees and costs incurred since the filing of a lawsuit until the ruling on the sanctions motion. Jones, 49 F.3d at 693, 695-696.
Supported by the Declaration of Emma Moralyan; filed 7/8/24; 65 pages: The first two documents cited by ProHealth relate to Mr. Carson’s request that Plaintiff assist with a dispute between ProHealth and its then CEO, Nancy Dayton that arose around the end of July/early August 2021. Exhibits A & B.
From Plaintiff to Nancy Dayton dated 8/3/21; Hi Nancy. Thanks for your email. I would like to set up a call for explaining the current situation. I think their is a misunderstanding. I don’t plan on running ProHealth and I don’t have any set direction for the company. I have not finalised any equity arrangement, besides the recent advisory fee. It was a gesture that Rick proposed for the time that we spend. I will whats app you, and if possible and we will set up a catch up call first. Thanks. Rajeev.
From Nancy Dayton to Plaintiff dated 8/3/21; Hi Rajeev,
Attached is my employment agreement. Rich mentioned that you wanted to review this to help you hire my replacement. Also, I look forward to meeting with you regularly to make sure I| am making the decisions that are in line with the direction you are taking the company. I would like to start a dialogue with you to see how this might work. I am thinking it would be good to send you a weekly email before a scheduled zoom call on items that update you on the key items I| am working on and their progress. I will also include any questions that are not pressing. Through-out the week I will have pressing questions that I would like quick answers on and will communicate these to you with additional emails. Because of the time difference, my preference is to meet via zoom at 7:00 am PT which I believe ls 7:30 pm India Time. I can do this either Monday, Tuesday or Wednesday mornings...which ever day works for you. I can send you the weekly email a day or two before our scheduled zoom meeting. However, please know I can be flexible to reverse this and meet in the evening my time when it works better for you in the morning. Please let me know your thoughts and when you would like to start. I do have questions which I will send in a separate email. Thank you, Rajeev, and I look forward to the next 5 months working alongside you and learning from your wealth of expertise and knowledge. I also look forward to meeting you in person on August 23rd and 24th. Best regards, Nancy Dayton
The third document relied on in the Motion is a March 2022 email from Plaintiff to Mr. Carson (Moralyan Decl. Ex. C). Read and considered.
ProHealth’s Opposition to Plaintiff’s Motion to Compel
Filed 8/1/24; 11 pages; summarized: ProHealth seeks monetary sanctions in the amount of $24,187 against Plaintiff and his counsel jointly and severally pursuant to CCP section 2031.310(h). Plaintiff’s Motion to Compel is a red herring filed simply to distract from ProHealth’s “pending” section 128.7 sanctions motion; entire case lacks merit and evidentiary support and no amount of discovery can overcome Plaintiff’s own written admissions that he never entered or finalized any agreements with ProHealth; Plaintiff should not be entitled to further costly and burdensome discovery, at least not until the Court considers ProHealth’s Sanctions Motion. Requests that the Court impose sanction on Plaintiff and his counsel jointly and severally in the amount of $24,187, or alternatively, encompassing in the Sanctions Motion the fees and expenses ProHealth incurred for being forced to respond to his Motion which was filed without good-faith meet-and-confer efforts or substantial justification.
Supported by the Declaration of Emma Moralyan; filed 8/1/24; 40 pages; summarized: The parties recently commenced written discovery, including form and special interrogatories as well as requests for production. While reviewing thousands of pages for potentially responsive documents for production, ProHealth and its counsel became aware of certain texts and emails, containing crucial admissions by Plaintiff, which unavoidably gut this lawsuit, reveal its improper purpose, and directly refute the existence of the facts and purported contract on which this case is based. On May 24, 2024, ProHealth’s counsel sent Plaintiff’s counsel a letter requesting that Plaintiff’s claims be dismissed with prejudice, attaching the prior-quoted August 3, 2021 email, [“Hi Nancy. Thanks for your email. I would like to set up a call for explaining the current situation. I think their is a misunderstanding. I don't plan on running ProHealth and I don't have any set direction for the company. I have not finalised any equity arrangement, besides the recent advisory fee. It was a gesture that Rick proposed for the time that we spend. I will whats app you, and if possible and we will set up a catch up call first. Thanks. Rajeev.] However, on May 31, Plaintiff’s counsel sent a letter refusing to dismiss, neither citing nor providing any contrary evidence. On July 3, 2024, correspondence from Plaintiff’s counsel maintaining refusal to withdraw the Complaint, once again, providing no substantive explanation or citation to contrary evidence. Total sanctions requested of $24,187.
Carson’s Opposition to Motion to Compel
Filed 8/1/23; 10 pages; summarized: What had been rolling along as a reasonable and cooperative effort by Plaintiff, on the one hand, and Defendants, on the other hand, to coordinate regarding the timing and scope of the production of documents to be made by Defendants in this action suddenly devolved into a flurry of retaliatory and unnecessary motions to compel by Plaintiff when he was called out by Defendants for foul play. As explained in ProHealth’s opposition to the separate (but largely duplicative) Motion to Compel Compliance with Responses to Requests for Production of Documents, Set One, and for Monetary Sanctions Against ProHealth and Its Counsel, in the course of reviewing documents potentially responsive to Plaintiff’s First Set of Requests for Production of Documents to ProHealth Inc., ProHealth’s counsel discovered for the first time certain texts and emails among Carson, Plaintiff, and ProHealth’s then CEO Nancy Dayton which contain crucial written admissions by Plaintiff that he had no agreement with ProHealth or Carson; ProHealth’s counsel informed Plaintiff’s counsel of these documents, containing unequivocal admissions by Plaintiff that gut his entire case, by means of two formal letters, in an attempt to convince Plaintiff to do the right thing: dismiss his baseless and provably frivolous lawsuit without Court intervention or further expenditure of any Court or party resources. Plaintiff has refused. In response, and obviously feeling like he needed to attempt to level the sanctions playing field in anticipation of the motion to be filed by ProHealth pursuant to California Code of Civil Procedure § 128.7, Plaintiff jumped on Defendants’ minor delay in producing documents, insisted that the documents be produced forthwith (without any compelling reason to support the sudden urgency), threatened to file motions to compel and to seek sanctions, rejected out of hand Defendants’ efforts to reach a compromise that would spare the Court and the parties from spending needless time and money briefing and hearing two motions to compel, and filed duplicative motions to compel against Carson and ProHealth. Plaintiff sets forth no good reason for his position in his Motion to Compel. There is no trial urgency as the trial date is on April 9, 2024, still eight months away. The real reason for Plaintiff’s stubborn insistence that the documents be produced in advance of the Court ruling on the CCP § 128.7 Motion is an optical one and an illusory one: the misguided belief that “the best defense is a strong offense” – a tenet that has been proven wrong time and time again.
The volume of Defendants’ aggregate document production is significant. Plaintiff served twenty-nine requests for production of documents on Carson and thirty-seven requests for production of documents on ProHealth. Counsel for Carson estimates that approximately 2400 documents (nearly 1000 documents by Carson) will be produced in response to the sixty-six requests for production of documents that were served by Plaintiff including multi-page email threads, text messages, What’s App communications, and transcriptions of voicemail messages that are being mined from cell phones, email accounts, and electronic apps.
In contrast to the lack of reasonable justification on Plaintiff’s part for filing the Motion to Compel, there is substantial economic justification for Carson’s desire to await the Court’s ruling on the CCP § 128.7 Motion before producing documents. Plaintiff’s counsel failed to meet and confer in good faith, which is a statutory prerequisite that must be satisfied before a party can file a motion to compel discovery. While Carson could request sanctions pursuant to California Code of Civil Procedure § 2031.320(b) for having to oppose the Motion to Compel, in the hope of inspiring future cooperation by Plaintiff’s counsel on discovery-related issues, Carson is electing not to do so.
Carson requests that the Court deny Plaintiff’s Motion to Compel.
Supported by the Declaration of J. Paul Gignac; filed 8/1/24; 16 pages; summarized: The speed with which the Motion to Compel was filed suggests that the meet and confer efforts that occurred just hours before it was filed on June 21, 2024, were simply a ruse by Mr. Ostrander and that the filing of the Motion to Compel was a fait accompli. The volume of Defendants’ aggregate document production is significant. Plaintiff served twenty-nine requests for production of documents on Carson and thirty-seven requests for production of documents on ProHealth; estimates that approximately 2400 documents (nearly 1000 documents by Carson) will be produced in response to the sixty-six requests for production of documents that were served by Plaintiff including multiple page chain emails, text messages, What’s App communications, and transcriptions of voicemail messages that are being mined from cell phones, email accounts, and electronic apps.
Plaintiff’s Opposition to ProHealth’s Motion for Sanctions [CCP 128.7]
Filed 8/1/24; 19 pages; summarized: Defendant ProHealth brings this Motion to challenge Plaintiff’s Complaint, which has already survived a demurrer by both ProHealth and Carson, based solely on three documents that it located in its document review process.
Instead of seeking more information on the purported key evidence cited in the Motion (e.g., through interrogatories or on cross-examination in a deposition or at trial or engaging in discovery at all, Defendants have declined to produce even a single document and instead, ProHealth chose to file its Motion. ProHealth’s Motion claims that the three documents it “recently discovered” show there was in fact no Agreement between ProHealth and Plaintiff. By way of the Motion, ProHealth effectively seeks to have the Court pass summary judgment on the issue of contract formation, a definitive question for a trier of fact (Bustamante v. Intuit, Inc. (2006) 141
Cal.App.4th 199, 208) and force Plaintiff to put forth his entire case without the benefit of discovery.
The Court should decline to do so and deny the Motion, as the facts known to date are more than sufficient to show that the Complaint is objectively reasonable and sufficient to overcome a motion under Section 128.7. (Kumar v. Ramsey (2021) 71 Cal.App.5th 1110, 1121 [“[T]he evidentiary burden to escape sanctions under section 128.7 is light”].) A Complaint does not become “frivolous” or “baseless” (Motion at 10–11) because the parties have disputes about the meaning of underlying facts in the record. The factual context of the three documents cited by ProHealth that is available to Plaintiff, without the benefit of any document discovery from Defendants, shows that Plaintiff always understood there was an Agreement with ProHealth and that he is more than justified in bringing his claims. Indeed, after the parties reached the Agreement in July 2021, Plaintiff and Carson worked closely on a number of projects at ProHealth, with Plaintiff being held out as a “partner” in ProHealth. Plaintiff also received the monthly compensation that was part of their Agreement.
The first two documents cited by ProHealth relate to Carson’s request that Plaintiff assist with a dispute between ProHealth and its then CEO, Nancy Dayton that arose around the end of July/early August 2021. (Moralyan Declaration Exhibits A & B; Declaration of Rajeev Chitrabhanu in support of the Opposition to ProHealth’s Motion for Sanctions)
Discovery will show these documents are not evidence of Plaintiff’s understanding of the parties’ (lack of) Agreement, but that Carson and Plaintiff agreed that because of Ms. Dayton’s sensitivity to Plaintiff’s then new position, Plaintiff would downplay his role and his Agreement with ProHealth in communications with Ms. Dayton. Plaintiff’s involvement with the resolution of the dispute with Ms. Dayton revealed key facts to his case: i.e., that Carson had at least twice previously made offers of equity compensation to Ms. Dayton and to a ProHealth board member in exchange for services to ProHealth that he later failed to fulfill.
As for the third document relied on in the Motion, a March 2022 email from Plaintiff to Mr. Carson (Moralyan Decl. Ex. C), ProHealth is just wrong on the facts. The documentary record of party communications, which is equally in the possession of Carson and ProHealth, shows that this email was sent at the request of Carson after a phone call with Plaintiff in order to refresh Carson on the Agreement reached in July 2021. This email is simply a forward of the communications constituting the Agreement excerpted in the Complaint, which Plaintiff sent in an attempt to stop ProHealth and Carson from attempting to back out of the Agreement in early 2022.
In addition to its failure as a factual matter, the Motion should be denied because it fails as a matter of procedure. A motion under Code of Civil Procedure Section 128.7 must be served in the exact form it will be filed no less than 21 days before the date of filing. (Hart v. Avetoom (2002) 95 Cal.App.4th 410, 414.) The motion served on Plaintiff contained draft text removed in the filing version, and most critically, did not give notice of the hearing date. (Galleria Plus, Inc. v. Hanmi Bank (2009) 179 Cal.App.4th 535, 538 [“The document failed to specify when the motion would be made, rendering it fatally defective.”])
For all these reasons, the Court should deny ProHealth’s Motion.
Supported by the Declaration of Jeremy Ostrander; 98 pages; summarized: Plaintiff served his Requests for Production of Documents (Set One) on ProHealth on February 16, 2024, and ProHealth served its Responses on March 19, 2024, and the related Verifications on March 21, 2024. Among other things, Plaintiff’s requests seek the production of ProHealth documents related to the services performed for ProHealth by Plaintiff, as well as all internal ProHealth communications regarding the formation of the parties’ contract. On May 17, 2024, Plaintiff also served a Second Request for Production of Documents, to which ProHealth responded on June 18, 2024. Plaintiff has continued with his review of documents despite Defendants’ positions. To date, Plaintiff has made two productions on June 27 and July 30, 2024. Then attaches a series of Exhibits A through I,
Supported by the Declaration of Rajeev Chitrabhanu; summarized: For approximately the last five years, my business has been providing advice to early-stage businesses to assist in their growth and expansion. My normal practice in entering an engagement with such companies is to receive an equity ownership share as part of my compensation. The goal of this equity ownership share is to align the interests of the parties in maximizing the value of the company at issue. During our conversations in late 2020 and early 2021, I orally informed Carson of this business practice, and that, given the increasing number of hours needed to assist ProHealth, I would require an equity share if I were to continue to assist ProHealth. The agreement to provide me an equity share of ProHealth was ultimately included in the parties’ written agreement. In my capacity as a partner at ProHealth, Carson asked me to assist in resolving a dispute that had developed between ProHealth and its then CEO, Nancy Dayton who claimed that she had been promised an equity share in ProHealth in the past as part of her compensation at the company. Carson did not agree with Dayton’s interpretation of their agreement and asked that I assist in resolving the dispute. While providing my assistance, I discussed my approach to Dayton with Carson, providing him an overview of talking points. I understand that ProHealth now claims that my talking points, and a subsequent email to Dayton containing a version of those talking points, are evidence that I did not believe I had an agreement with ProHealth in early August 2021. These two documents are attached to the Declaration of Emma Moralyan, ProHealth’s counsel, in support of the Motion for Sanctions. ProHealth’s assertion is simply not correct and out of context. Carson had agreed to, on behalf of ProHealth, the key elements of our agreement in our email exchange in June and July 2021, which was meant to be confidential between Carson, the Board of ProHealth, and myself. In discussing our agreement with Dayton, I assumed I was a shareholder and partner in ProHealth and in that capacity offered to speak with her. My understanding as of my email to Dayton on August 3 was that. Carson and the ProHealth Board were aware of my role and the agreement. (Moralyan Decl. Ex. A.) In talking with Dayton prior to my email, I understood that she feared that I would be replacing her because Carson had not been clear with her that I was a partner and shareholder only. Because I wanted. Dayton to stay on at ProHealth, I proposed, and Carson agreed that it would be best to limit her knowledge of the agreement; the WhatsApp messages relied on by ProHealth show our discussion of the strategy I had proposed. (Moralyan Decl. Ex. B.) My goal was to get Dayton to stay on at ProHealth, as I thought that would be the best for the company at the time as she was the only knowledgeable person at ProHealth on topics like finance, inventory, and client contracts.
Reply of ProHealth to Plaintiff’s Opposition to CCP 128.7
Filed 8/7/24; 12 pages; summarized: Plaintiff’s Opposition underscores that even when Plaintiff puts his “best case forward” it still wholly lacks merit or evidentiary support. It is now undisputed that an enforceable “agreement” between Plaintiff and ProHealth never existed, as Plaintiff has set forth zero evidence of such although it was his burden to do so.
Plaintiff’s self-serving declaration does not factually and cannot legally overcome his fatal pre-lawsuit admissions in writing that he never entered into or finalized any agreements with ProHealth; Plaintiff and his lawyers conceded through this Motion process the authenticity and veracity of these admissions and have only attempted to evade their unavoidable legal import; they cannot do so as a matter of black-letter California law’ he has admitted that none exists by capitalizing on the disability of Carson (references the Cross-Complaint).
Plaintiff does not discuss the present motion in his Opposition until his Section C; he needlessly presents ancillary issues regarding a demurrer that was ruled on February; he is raising red herrings to distract from the issues before the Court.
His references to the pleadings are irrelevant in the face of the Exhibits A, B and C to the Moralyan Declaration; it now appears Plaintiff is insinuating that further discovery will reveal facts contrary to the evidence in the Sanctions Motion; no amount of discovery will show any such facts because Plaintiff himself admitted multiple times there was no enforceable contract between him and ProHealth before he set forth his fabrication in his Complaint.
Even if the case proceeded through summary judgment at great expense to the parties the Court would still be required at that time to defer to Plaintiff’s prior written admissions and conclude that is no substantial evidence of the existence of a triable issue of fact; refers the Court to Peake v Underwood (2014) 227 Cal.App. 4th 428, 432-446.[2] [The Court did not find that case helpful to Defendants because, unlike this case, Ferrell had provided Peake with all the information in his possession, including documents showing possible problems with the subflooring, and noted an agent's statutory duties are limited to a visual inspection. Shaw did not take any action in response to these emails and conducted no affirmative discovery after filing the complaint.]
Contends Plaintiff’s claim that there is a procedural error is incorrect; the record shows that ProHealth provided Plaintiff two notices regarding the Sanctions Motion; but the Moralyan Declaration paras 8 and 10 and Exhibits D & F makes it clear Plaintiff had from May 24 to June 14 to withdraw his pleadings and his case; more than the 21 days required; the blanks in the notices were simply because it was impossible to provide hearing dates.
Requests sanctions to ProHealth for the total amount of attorney fees and costs for defense of the lawsuit of $207,000 + $2,700 and attorneys’ fees and costs in presenting this motion of $49,000 = $260,000 +/-.
Plaintiff’s Reply in Support of his Motion to Compel Against Carson
Filed 8/7/24; 11 pages; summarized: Plaintiff requests that the Court grant the Motion to Compel Compliance and issue an order directing Carson to produce information responsive to RFPs Nos. 2-3, 5-20, 22, and 26-28, on or within ten days of the signing of an order; requests monetary sanctions to be awarded in the amount of $6,345, against Carson and his attorneys in favor of Plaintiff for requiring the motion without substantial justification and without any other circumstances that would make imposition of monetary sanctions unjust.
Carson concedes that the factual basis of Plaintiff’s Motion to Compel Compliance with his Responses to the RFPs and For Monetary Sanctions (“Motion to Compel Compliance”) is accurate; (1) that almost six months have passed since Plaintiff served the RFPs; (2) that almost three months have passed since the parties negotiated an agreement on the scope of Carson’s productions and pursuant to that agreement, Carson agreed to produce responsive information beginning May 31, 2024; (3) that Carson failed to produce any documents by May 31, 2024; and (4) that Carson is yet to produce even a single document to Plaintiff and declined to provide any date by which he would produce documents pending Defendant ProHealth, Inc.’s Sanctions Motion against Plaintiff. Yet, Carson baselessly claims that his improper conduct is justified based on ProHealth’s pending Sanctions Motion, set for hearing on the same day as Plaintiff’s Motion to Compel Compliance, and that his discovery obligations should be unjustifiably delayed until after the Sanctions Motion is resolved, because discovery and document production are expensive, burdensome, and time-consuming.
Carson concedes that all responsive documents have been collected and uploaded by a third-party vendor into an electronic database for ease of review for relevancy, responsiveness, and privilege prior to their production and that Carson estimates that he will produce nearly 1,000 documents, in response to Plaintiff’s RFPs within seven days of the Court’s order on ProHealth’s Sanctions Motion, thus confirming that Carson and ProHealth have already expended the necessary resources to comply with their discovery obligations (i.e., to produce information they have already agreed to provide).
Carson’s improper tactics are the unjustifiably use ProHealth’s Sanctions Motion as a shield to unilaterally pause and delay discovery obligations related to documents Carson has already agreed to produce while ProHealth attempts to use its baseless Sanctions Motion to essentially seek summary judgment based on a minute portion of the record and avoid its own discovery obligations. Plaintiff’s Complaint, which has already survived demurrer by both Carson and ProHealth, based solely on three cherry-picked documents that was located during the document review process.
Despite having apparently nearly completed the document review process, Carson still unilaterally attempts to circumvent the discovery process by using ProHealth’s baseless Sanctions Motion as an excuse to ignore his discovery obligations while ProHealth unjustifiably attempts to request the Court to pass summary judgment on the issue of contract formation, a definitive question for the trier of fact, and to force Plaintiff to put forth his entire case without the benefit of discovery.
If Carson and/or ProHealth had rightfully engaged in the discovery process here, including by producing documents as Plaintiff has, they would have been able to pursue additional discovery regarding the three documents cited in ProHealth’s Sanctions Motion As laid out in the Sanctions Opposition, the factual context available to Plaintiff without the benefit of any document discovery from Defendants shows that Plaintiff always understood that the parties had a contract and that he is more than justified in bringing his claims.
Because of ProHealth’s baseless Sanctions Motion, which not only fails as a factual matter but also fails as a matter of procedure, and Carson’s related position that he will not engage in discovery until after resolution of that motion, Plaintiff had no choice but to file his Motion to Compel Compliance under CCP Section 2031.320.
While Carson argues there are eight months until trial, Carson does not get to decide how and when Plaintiff proceeds with discovery. While Defendants have chosen to delay, Plaintiff has been unable to proceed with analysis of document productions to assess and schedule appropriate third-party and deposition discovery.
Plaintiff reached an agreement with Carson and seeks compliance given that approximately four months remain until the parties’ deadline for noticing summary judgment. Carson has no substantial justification for failing to comply with his discovery obligations and as a result, the Court should grant Plaintiff’s Motion to Compel Compliance and related request for monetary sanctions given that monetary sanctions are mandatory if a party unsuccessfully opposes a motion to compel compliance.
Carson cannot and should not be permitted to determine whether his potential delayed compliance prejudices Plaintiff. Plaintiff is yet to receive a single document production from Carson and ProHealth and is therefore undeniably prejudiced in prosecuting the discovery of his case.
It is no secret that the discovery process (including third-party discovery) takes time, and Defendants’ improper conduct is only likely to make the discovery process more compressed and costly. Carson’s claims that he made a good faith effort to prevent the filing of Plaintiff’s Motion by offering to produce documents within seven days of the Court’s ruling on ProHealth’s baseless Sanctions Motion is misguided and wrong. Plaintiff is not obligated to accept Carson’s unilateral decision to delay his discovery obligations when such a proposal is dependent on improper motion practice and an abuse of the sanctions statute to circumvent the discovery process.
Carson’s correspondence communicating his intention to delay his discovery obligations came almost one month after the parties had resolved all discovery disputes and after Defendants made commitments to start document productions by the end of May 2024; it was clear that Carson intended to disregard the parties’ agreement in relation to Plaintiff’s RFPs; Plaintiff had a substantial justification in filing the Motion to Compel Compliance to prevent Carson from circumventing the discovery process.
Plaintiff’s Reply in Support of his Motion to Compel Against ProHealth
Filed 8/7/24; 12 pages; summarized; Plaintiff requests; that the Court grant the Motion to Compel Compliance and issue an order directing ProHealth to produce information responsive to RFPs 1-2, 4-8, 9-28, 30, and 34-36, pursuant to the parties’ agreement, on or within ten days of the signing of an order; monetary sanctions to be awarded in the amount of $6,345, against ProHealth and its attorneys in favor of Plaintiff for requiring the motion without substantial justification and without any other circumstances that would make imposition of monetary sanctions unjust; that the Court deny ProHealth’s request for monetary sanctions in the amount of $24,187, as the amount is facially unreasonable, because ProHealth had no substantial justification to delay compliance with its discovery obligations, and but for ProHealth failure to comply as agreed, Plaintiff would not have filed the Motion to Compel Compliance.
Under CCP 2031.320 Courts must impose monetary sanctions against parties that unsuccessfully oppose a motion to compel compliance, unless the unsuccessful party shows that it acted with substantial justification or that other circumstance make the imposition of sanctions unjust. ProHealth fails to prove that it was substantially (let alone reasonably) justified in failing to comply with its responses as agreed, and that its reasons for non-compliance—cost and burden—are unfounded given that ProHealth has likely already expended the resources necessary to comply as agreed and has provided no evidence of any purported burden.
ProHealth’s attempts to use its Sanctions Motion as a shield to justify its failure to comply with its discovery obligations as agreed is wholly misguided and improper. ProHealth’s Sanctions Motion is nothing more than an improper tactic aimed at seeking summary judgment based on 3 exhibits and before Plaintiff has received any discovery.
Plaintiff’s Motion to Compel Compliance could have been avoided but for ProHealth’s failure to comply as agreed; ProHealth simply proposes delaying production based on its own preferred schedule. ProHealth concedes that the factual basis of Plaintiff’s Motion to Compel Compliance with its Responses to the RFPs and For Monetary Sanctions is Accurate; (1) that almost six months have passed since Plaintiff served the RFPs; (2) that almost three months have passed since the parties negotiated an agreement on the scope of ProHealth’s production and pursuant to that agreement, ProHealth agreed to produce responsive information by the end of May 2024; (3) that ProHealth failed to produce any documents by the end of May 2024; and (4) that ProHealth is yet to produce even a single document to Plaintiff and declined to provide any date by which it would produce documents pending its Sanctions Motion against Plaintiff. The Court should grant Plaintiff’s Motion to Compel Compliance for these reasons alone.
ProHealth baselessly claims that its improper conduct is justified based on its pending Sanctions Motion, set for hearing on the same day as Plaintiff’s Motion to Compel Compliance, and that its discovery obligations should be unjustifiably delayed until after the Sanctions Motion is resolved, because discovery and document production are expensive, burdensome, and time-consuming.
ProHealth concedes that it has already reviewed “thousands of pages of potentially responsive documents for production,” confirming that ProHealth has likely already expended the necessary resources to begin complying with its discovery obligations (i.e., to produce information it has already agreed to provide); it is clear that ProHealth’s Sanctions Motion is nothing more than an unjustifiable use of the sanctions statute and an improper tactic aimed at seeking summary judgment based on a minute portion of the record and avoiding ProHealth’s discovery obligations.
Despite having apparently nearly completed its document review process, ProHealth still unilaterally attempts to circumvent the discovery process by way of the Sanctions Motion by improperly seeking to have the Court pass summary judgment on the issue of contract formation and to force Plaintiff to put forth his entire case without the benefit of discovery.
Stipulations
On 7/2/24 counsel filed a stipulation and agreed that: Plaintiff filed the Complaint in this action on November 21, 2023; on June 21, 2024 Plaintiff filed Motions to Compel Compliance with Responses to Requests for Production of Documents, Set One, and for Monetary Sanctions against ProHealth and Carson; both Motions were set for hearing on July 31, 2024; ProHealth has conferred with all counsel and the Parties agree to continue the hearings on both Motions to August 14, 2024; Counsel for ProHealth was unavailable on earlier dates.
Defendants Sanctions Motion
On 7/8/24 Defendant ProHealth filed its Sanctions Motion and set it for August 14, 2024.
Analysis
The Timing of the Motions. There has been much said about the timing of these motions and what it means and what the Court should assume. The Court finds that Plaintiff’s analysis is more persuasive. Time is of the essence and as pointed out there is little time to waste with the MSC date of 3/14/24 and the Trial Date of 4/9/25. This production request was commenced 6 months ago in February; the MSC is 7 months away and a trial date only 8 months away; Plaintiff recognizes written discovery should be done prior to third party depositions; a summary judgment motion is clearly in the wind; knows this Court will not favor any continuance request; although Defendants had asserted an intention to file a sanctions motion none was filed until after the stipulation to continue the motions to compel. Clearly Plaintiff had very valid reasons to be concerned and very valid reasons for filing his motions.
The Sanctions Motion. It is essentially a Summary Judgment Motion without any reasonable opportunity for Plaintiff to do discovery that was promised but not forthcoming. ProHealth is yet to produce even a single document to Plaintiff and declined to provide any date by which it would produce documents pending its Sanctions Motion against Plaintiff. Counsel for Carson testifies on June 20, 2024, he offered to make Carson’s production within one week after the Court ruled on the sanction motion; and that at considerable joint expense to Defendants, all responsive documents have been collected and uploaded by a third-party vendor into an electronic database for ease of review for relevancy, responsiveness, and privilege prior to their production.
Plaintiff relies on the three documents attached as Exhibits A, B and C to the Moralyan Declaration. Defendants have made it clear several times that they “recently discovered” Plaintiff’s multiple written admissions that he had no enforceable agreement with ProHealth. The Court could not find what they meant by “recently discovered.” The information was in their hands since August 2021 [Exhibits A and B] and March 2022 [Exhibit C.] The lawsuit was filed in 11/23 and the Demurrer filed in 1/2024; it was never made clear why the Sanctions Motion was not filed until 7/8/24 other than the unexplained claim that the information was “recently discovered.” The Court has not relied upon a resolution of that question in its analysis and is not eliciting an explanation at the hearing by this comment; but it remains perplexing.
Now Plaintiff is charged with countering what is essentially a summary judgment motion without the benefit of virtually any discovery even though it is readily available. That leaves the Court with a sense of unease; concern; foreboding. It is clear the discovery is virtually done, but simply not provided. Why not? Is something hidden? If Defendants are so certain of the justification of their analysis of the facts, then produce the documents.
Although ProHealth contends there is a complete lack of any evidence to support Plaintiff’s claim the Court finds in this proceeding that is not accurate. Plaintiff has testified that the documents attached to the Declaration of Emma Moralyan, in support of the Motion for Sanctions, is simply not correct and out of context. He testifies that Carson had agreed to, on behalf of ProHealth, the key elements of their agreement in their email exchange in June and July 2021, which was meant to be confidential between Carson, the Board of ProHealth, and him. In discussing the agreement with Dayton, he assumed he was a shareholder and partner in ProHealth and in that capacity offered to speak with her. His understanding as of his email to Dayton on August 3 was that Carson and the ProHealth Board were aware of his role and the agreement. In talking with Dayton prior to his email, he understood that she feared that he would be replacing her because Carson had not been clear with her that he was a partner and shareholder only. Because he wanted Dayton to stay on at ProHealth, he proposed, and Carson agreed that it would be best to limit her knowledge of the agreement; the WhatsApp messages relied on by ProHealth show their discussion of the strategy he had proposed. His goal was to get Dayton to stay on at ProHealth, as he thought that would be the best for the company at the time as she was the only knowledgeable person at ProHealth on topics like finance, inventory, and client contracts.
Obviously, Defendants do not accept that as valid reasoning to offset the words used in the three documents relied upon by Defendants; but the case is still lopsided; Defendants have all the documentation and Plaintiff none; although Plaintiff commenced the discovery 6 months ago nothing has been forthcoming. It makes this pro forma summary judgment motion premature.
The Court acknowledges reasonable people can take vastly different views of whether the three exhibits attached to the Moralyan constitutes admissions that should require the terminating sanctions that are now sought. This Court concludes the three exhibits are not decisive.
The Court finds Kumar v. Ramsey (2021) 71 Cal.App.5th 1110, 1121 is helpful. In that very recent case, the Court held that to avoid sanctions under section 128.7, the issue is not merely whether the party would prevail on the underlying factual or legal argument, but rather whether any reasonable attorney would agree that the claim is totally and completely without merit. The evidentiary burden to escape sanctions under section 128.7 is light. Plaintiff must make a sufficient evidentiary showing to demonstrate that he made a reasonable inquiry into the facts and entertained a good faith belief in the merits of the claim. Plaintiff need not amass even enough evidence to create a triable issue of fact as would be required if Defendant had brought a motion for summary judgment, or allege a valid cause of action, as required to overcome a demurrer. (Emphasis added by this Court.)
This Court also looked for an analysis of the wording of the three emails that form the basis of the Sanctions Motion and how they impact the only three counts left in the case; (4) fraud; (5) negligent misrepresentation; (6) breach of fiduciary duty.
The analysis provided by Defendants is a general argument and analysis but not nearly as specific as the Court needs to rule on the Sanctions Motion; it appears to attack a Breach of Contract count even though that Count is no longer in this lawsuit. There is no analysis related solely and specifically to the three remaining counts and the impact of the three recently discovered emails that justify terminating sanctions.
To rule in ProHealth’s favor on their Sanctions Motion the Court would need an analysis of how this newly discovered evidence directly impacts the proof or lack thereof as to each remaining count to be able to grant the terminating sanctions requested. The Court notes that it went to great length to explain the elements of proof needed in each of these remaining counts in the decision it made just a few months ago on 2/21/24 when it analyzed the Demurrer and Motion to Strike.
The Court has considered the use of the process being asserted; that is, the Sanctions Motion; read and considered hundreds of pages of documents; and finds that Defendants have ample opportunities to convince the Court or a jury of the validity of their defense subsequently without making a ruling now that would be a draconian outcome.
The Court has weighed the fact that ProHealth has incurred $260,000 in attorney fees and costs and does not want to incur more expenses under these facts. The Court has no question about the veracity of that contention. But attorney fees to be incurred is only one piece of information that this Court must weigh and here it does not preponderate.
The Plaintiff’s Motions to Respond to Discovery. Carson and ProHealth do not get to decide how and when Plaintiff proceeds with discovery. While Defendants have chosen to delay, Plaintiff has been unable to proceed with analysis of document productions to assess and schedule appropriate third-party and deposition discovery. The Court has not found in the document production issue any excuse made for failure to produce other than the insistence that the Sanction Motion will be terminating the litigation.
Plaintiff’s Sanction Request. Despite ordering the Defendants to respond the Court does not find monetary sanctions against Defendants are appropriate here. Under CCP 2031.320 Courts must impose monetary sanctions against parties that unsuccessfully oppose a motion to compel compliance, unless the unsuccessful party shows that it acted with substantial justification or that other circumstance make the imposition of sanctions unjust. The Defendants had valid reasons to insist on the Court to address their motion and to do it first; it was not free from doubt; there was grist to the motion; on balance the Court has decided that those circumstance make the imposition of monetary sanctions unjust.
This is not a Civil Law Workshop. Counsel is reminded that the calendar call for this matter is not a Civil Law Workshop; it is a Law & Motion Calendar; everyone is invited to respond but new information and new analysis not previously provided is neither permitted nor appropriate.
[1] The Court apologizes for any grammatical and typographical errors in this decision. “
[2] In Peake Defendant filed a sanctions motion after the complaint was filed without filing for a summary judgment motion. A few months after she filed her complaint, Peake stipulated to strike all of her claims against Ferrell except her statutory claim. Ferrell's counsel then sent numerous emails to Peake's counsel (Shaw), explaining the legal and factual deficiencies of Peake's statutory claim and encouraging Shaw to consult with a real estate standard-of-care expert. In the emails, Ferrell's counsel emphasized that Ferrell had provided Peake with all the information in his possession, including documents showing possible problems with the subflooring, and noted an agent's statutory duties are limited to a visual inspection. Ferrell's counsel reminded Shaw of his ongoing duty to reevaluate the merits of Peake's claim, and warned that if Peake did not dismiss her claim, Ferrell would seek sanctions from Peake and Shaw under section 128.7.