Paige Gesualdo vs John A "Jay" Ruskey et al

Case Number

23CV05305

Case Type

Hearing Date / Time

Mon, 08/19/2024 - 10:00

Nature of Proceedings

Motion: Quash

Tentative Ruling

Paige Gesualdo v. John A. “Jay” Ruskey, et al.        

Case No. 23CV05305         

Hearing Date: August 19, 2024                                              

HEARING:              Defendant Frinj Coffee, Inc.’s Motion to Quash Deposition Subpoena for Production of Business Records or, in the Alternative, for Entry of a Protective Order and Request for Expenses and Fees in the Amount of $4,200.00

ATTORNEYS:        For Plaintiff Paige Gesualdo: Andrew I. Shadoff

                                     For Defendants John A. “Jay” Ruskey, Andy Donald Mullins, Kari Shafer, and Frinj Coffee, Inc.: Wendy M. Thomas

                                   

TENTATIVE RULING:

The motion of defendant Frinj Coffee, Inc. to quash deposition subpoena for production of business records is denied.

Background:

This action commenced on December 1, 2023, by the filing of the complaint by plaintiff Paige Gesualdo (“Gesualdo”) against defendants John A. “Jay” Ruskey (“Ruskey”), Andy Donald Mullins (“Mullins”), Kari Shafer (“Shafer”), and Frinj Coffee, Inc. (“Frinj”) setting forth 20 causes of action.

As alleged in the complaint: Ruskey is the founder, CEO, and controlling shareholder of Frinj. (Compl., ¶ 5.) Mullins is a co-founder of Frinj and from at least 2017 until late 2021 or early 2022, Mullins was the COO of Frinj. (Compl., ¶ 6.) Shafer is the Vice President and Controller of Frinj. (Compl., ¶ 7.)

Frinj was incorporated in May 2017, and is headquartered at Good Land Organics (“GLO”), a farm that was founded in 1992 by Ruskey’s family. (Compl., ¶¶ 12, 13.)

The complaint alleges that plaintiff was fraudulently induced to invest $1,200,000.00 into Frinj by Ruskey and that Mullins and Shaffer aided and abetting in the fraud. Plaintiff also alleges violations of the Labor Code and California’s Equal Pay Act.  Additional specific allegations will be addressed below as appropriate.

On January 18, 2024, this action was stayed as to Frinj due to a bankruptcy filing. It remains stayed as to Frinj.

On May 23, 2024, plaintiff’s counsel emailed a copy of the deposition subpoena for production of business records of Frinj (“the subpoena”) and asked counsel for Frinj if she would accept service. (Thomas Dec., ¶ 4 & Exhs. 3, 4.) The subpoena contains 112 categories of documents.

On May 29, 2024, plaintiff’s counsel again asked Frinj’s counsel if she would accept service of the subpoena. (Thomas Dec., ¶ 6 & Exh. 5.) On the same day, counsel for Frinj sent an email to plaintiff’s counsel informing him that she would not accept service of the subpoena and that plaintiff was precluded from conducting discovery on Frinj while the automatic stay is in effect. (Thomas Dec., ¶ 7 & Exh. 6.)

Later on May 29, 2024, plaintiff’s counsel sent an email to Frinj’s counsel acknowledging that plaintiff “cannot presently serve discovery on Frinj as if it was an active party, the automatic stay does not apply to third-party subpoenas that are served as part of discovery regarding claims that are not stayed, i.e., the claims against the individual defendants.” (Thomas Dec., ¶ 8 & Exh. 7.)

On June 3, 2024, plaintiff’s counsel informed Frinj’s counsel that Frinj was served with the subpoena via its Agent for Service of Process. (Thomas Dec., ¶ 9 & Exh. 8.) In response, Frinj’s counsel sent an email to plaintiff’s counsel attaching a 46-page meet and confer letter which set forth legal authorities, explained why Frinj believes each request is improper during the stay, and requested that the subpoena be withdrawn by close of business on June 6, 2024, or Frinj would move for reasonable expenses and attorney’s fees pursuant to Code of Civil Procedure section 1987.2. (Thomas Dec., ¶¶ 11, 12 & Exhs. 10, 11.)

Counsel for plaintiff and Frinj exchanged additional emails regarding the validity of the subpoena but were unable to informally resolve the dispute. (Thomas Dec., ¶¶ 14-17 & Exhs. 13-15.)

Frinj now moves to quash the subpoena or, in the alternative, for entry of a protective order. Frinj also seeks expenses and fees in the amount of $4,200.00.

Plaintiff opposes the motion.

On August 9, 2024, the parties entered into, and filed, a stipulation and protective order.

Analysis:

“If a subpoena requires the attendance of a witness or the production of books, documents, electronically stored information, or other things before a court, or at the trial of an issue therein, or at the taking of a deposition, the court, upon motion reasonably made by any person described in subdivision (b), or upon the court’s own motion after giving counsel notice and an opportunity to be heard, may make an order quashing the subpoena entirely, modifying it, or directing compliance with it upon those terms or conditions as the court shall declare, including protective orders. In addition, the court may make any other order as may be appropriate to protect the person from unreasonable or oppressive demands, including unreasonable violations of the right of privacy of the person.” (Code Civ. Proc., § 1987.1, subd. (a).)

California Rules of Court, rule 3.1345(a)(5) requires a separate statement for a motion to quash. Frinj has provided the required separate statement. Subdivision (c)(3) requires that the separate statement set forth the factual and legal reasons for the motion. The entire crux of Frinj’s argument is that the subpoena is improper due to the automatic stay imposed by the bankruptcy filing. Although there is a comment, in footnote 4 to the motion, that there are “other reasons” that the subpoena is improper, no other actual arguments are set forth regarding the propriety of the categories of documents. In essence, Frinj is making the argument that plaintiff is entitled to no information from Frinj. Frinj does not separately address each of the 112 categories of documents by way of its separate statement. Rather, Frinj simply cuts and pastes the identical argument regarding the bankruptcy stay for every one of the categories. The boilerplate objections in the separate statement are not explained, factually tied to the specific category, or otherwise justified.

“Upon the filing of a bankruptcy proceeding, federal bankruptcy law imposes an automatic stay on all state and federal proceedings outside the bankruptcy court against the debtor and the debtor’s property. [Citations.]” “ ‘The automatic stay is self-executing and is effective upon filing the bankruptcy petition. [Citation.]’ [Citation.] Section 362(a)(3) of title 11 of the United States Code provides for an automatic stay of ‘any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.’ ” (Shaoxing County Huayue Import & Export v. Bhaumik (2011) 191 Cal.App.4th 1189, 1196; accord, Kertesz v. Ostrovsky (2004) 115 Cal.App.4th 369, 373 [section 362(a) “stays a wide range of actions that would affect or interfere with property of the estate, property of the debtor or property in the custody of the estate”].) “ ‘Section 362 is “extremely broad in scope” and “should apply to almost any type of formal or informal action against the debtor or the property of the estate.’ ” ” (Kertesz, at p. 374.)

“The purpose of the automatic stay “ ‘is to give the debtor a breathing spell from his creditors, to stop all collection efforts, harassment and foreclosure actions. [Citations.] The automatic stay also prevents piecemeal diminution of the debtor’s estate.’ ” ” (Cavanagh v. California Unemployment Ins. Appeals Bd. (2004) 118 Cal.App.4th 83, 90; accord, In re Levine (C.D.Cal. 2018) 583 B.R. 231, 235 [“the automatic stay helps ensure the orderly distribution of estate property in a way that will maximize the benefit to creditors”].)

“As a general rule, “ ‘[t]he automatic stay of section 362(a) protects only the debtor, property of the debtor or property of the estate. It does not protect non-debtor parties or their property. Thus, section 362(a) does not stay actions against guarantors, sureties, corporate affiliates, or other non-debtor parties liable on the debts of the debtor.’ ” [Citations.]” (In re Chugach Forest Products, Inc. (9th Cir. 1994) 23 F.3d 241, 246.)

“[S]ection 362(a) does not preclude generation of information regarding claims by or against a non-debtor party, even where that information could eventually adversely affect the Debtor.” (In re Miller (9th Cir. BAP 2001) 262 B.R. 499, 505.)

Plaintiff argues that the subpoena is drafted to seek information related to the case as it pertains to the non-debtor defendants, to which the stay does not apply.

Frinj seems to argue that the subpoena is improper if it would include any information at all that could be averse to Frinj. The court has reviewed all of the authority cited to by both parties and Frinj’s argument is simply incorrect. “Information is information, and we believe the discovery of it as part of the development of a case against non-debtor parties is permissible, even if that information could later be used against the party protected by the automatic stay.” (Ibid.)

The automatic stay does not protect a debtor from complying with discovery requests in a multi-defendant action where the debtor is a defendant, but where the requests for discovery pertain to claims against other non-debtor defendants. (Id. at p.504.)

Likewise, Frinj’s argument that plaintiff is required to seek the lifting or modification of the stay in bankruptcy court is incorrect. The stay, as it applies to Frinj, remains in place and in full force and effect. By way of the subpoena, plaintiff is seeking information from Frinj as a third-party that has discoverable information regarding the other defendants.

The causes of action asserted against Ruskey, who is alleged to be the founder, CEO, and controlling shareholder of Frinj, include fraud, negligent misrepresentation, several employment-based causes of action, and breach of contract. They are the same causes of action alleged against Frinj. The causes of action against Shafer, who is alleged to be vice president and controller of Frinj, include aiding and abetting fraud and the employment-based causes of action. The cause of action against Mullins, who is alleged to be a co-founder of Frinj and, at some point COO, is aiding and abetting fraud.

As the causes of action, and the relationships of the parties, are so closely tied to each of the defendants, there is going to be information that pertains to all of the defendants. Plaintiff is entitled to discover that information and proceed against the defendants who are not shielded by the automatic stay. As the entity that is central to plaintiff’s claims, Frinj is the entity most likely to be in possession of discoverable information. While making conclusory statements regarding the subpoena only seeking information pertaining to Frinj, Frinj fails to explain in what way the subpoena does so. On the other hand, by way of the opposition, plaintiff explains why the requests are relevant as they pertain to the non-debtor defendants. Reviewing the requests, in conjunction with the allegations of the complaint, there are clearly requests that pertain to the claims asserted against the non-debtor defendants.

Frinj has failed to meet its burden of showing that the subpoena is improper and will be ordered to provide responses. Because the parties have already entered into a stipulation and protective order, the court need not address that issue.

No fees or costs will be ordered in favor of or against either plain