Collaborative Imaging Technology, LLC vs CMI Management LLC et al
Collaborative Imaging Technology, LLC vs CMI Management LLC et al
Case Number
24CV05224
Case Type
Hearing Date / Time
Mon, 02/09/2026 - 10:00
Nature of Proceedings
1) CMC; 2) Motion: Quash to Quash Deposition Subpoenas to Proskauer Rose LLP and King & Spalding LLP, and to Pay Sanctions; 3) Motion: Sanctions re: Motion to Stay; 4) MOtion: Stay Compliant
Tentative Ruling
Collaborative Imaging Technology, LLC, v. CMI Management, LLC, et al.
Case No. 24CV05224
Hearing Date: February 9, 2026
HEARING: (1) Motion of Collaborative Imaging Technology to Quash Deposition Subpoenas to Proskauer Rose LLP and to King & Spaulding LLP (filed June 13, 2025)
(2) Motion of Defendants to Stay Complaint (filed May 15, 2025)
(3) Motion of Collaborative Imaging Technology for Sanctions re Motion to Stay (filed July 18, 2025)
ATTORNEYS: For Plaintiff and Cross-Defendant Collaborative Imaging Technology: Nilay U. Vora, Jeffrey A. Atteberry, Tamara Wiesebron, Andrew I. Campa, The Vora Law Firm, P.C.
For Defendants and Cross-Complainants CMI Management, LLC, Pueblo Radiology Medical Group, Inc., and Pueblo Radiology Associates, Inc.: Christopher B. Queally, Imran F. Vakil, Gordon Rees Scully Mansukhani, LLP
For Cross-Defendant Collaborative Imaging, LLC: Elizabeth Fellmeth, Freeman Mathis & Gary, LLP
TENTATIVE RULING:
(1) The resolution of plaintiff and cross-defendant Collaborative Image Technology, LLC’s Motion to Quash Subpoenas to Proskauer Rose LLP and King & Spalding LLP, and to Pay Sanctions (re motion filed June 13, 2025) is deferred pending a final recommendation from the Discovery Referee and the presentation of objections, if any. The hearing on such motion, recommendation, and objections, is continued to April 6, 2026.
(2) For the reasons set forth herein, the motion of defendants CMI Management, LLC, Pueblo Radiology Medical Group, Inc., and Pueblo Radiology Associates, Inc. to stay plaintiff’s complaint is denied without prejudice.
(3) For the reasons set forth herein, the motion of plaintiff for an award of sanctions pursuant to Code of Civil Procedure sections 128.5 and 128.7 is denied.
Background:
The procedural history of this matter is as follows:
On September 19, 2024, plaintiff Collaborative Imaging Technology, LLC, (CIT) filed its original complaint in this action asserting three causes of action against defendants CMI Management, LLC, (CMIM), Pueblo Radiology Medical Group, Inc. (PRMG), and Pueblo Radiology Associates, Inc. (PRA) (collectively, defendants or Pueblo): (1) breach of contract; (2) declaratory relief; and (3) promissory fraud. The complaint was initially lodged with the court provisionally under seal, but was unsealed and filed in the public record following the court’s denial of CIT’s motion to seal.
On November 21, 2024, defendants filed their motion to compel arbitration of their breach of contract claims and to stay the balance of the action.
On January 8, 2025, defendants made an ex parte application to stay discovery pending disposition of their motion to compel arbitration, which was partially granted by the court on January 9 to stay discovery to February 24 or further order of the court.
On February 18, 2025, the parties filed their initial stipulation, entered as the court’s order, withdrawing the pending motion to compel arbitration and setting deadlines for responsive pleadings.
On February 21, 2025, the parties filed an amended stipulation, entered as the court’s order, again withdrawing the pending motion to compel arbitration and setting deadlines for responsive pleadings.
On February 27, 2025, defendants filed their answer to the complaint, generally denying the allegations of the complaint and asserting 23 affirmative defenses. Defendants concurrently filed their cross-complaint against cross-defendants CIT and Collaborative Imaging, LLC (CI), asserting six causes of action: (1) breach of contract (specific performance); (2) breach of contract (damages); (3) breach of the implied covenant of good faith and fair dealing; (4) accounting; (5) breach of fiduciary duty; and (6) tortious interference with contractual relations.
On April 17, 2025, defendants filed their first amended answer to the complaint, generally denying the allegations of the complaint and asserting 19 affirmative defenses.
On April 25, 2025, CIT filed its demurrer to the fourth, fifth, and sixth causes of action of Pueblo’s cross-complaint. Also on April 25, CIT filed a motion to strike portions of the Pueblo’s cross-complaint, and a motion for protective order relating to the number of special interrogatories.
On April 30, 2025, CIT filed a declaration of demurring party stating that CIT intended to file a demurrer to Pueblo’s answer to the complaint to support an automatic extension of time.
On May 15, 2025, Pueblo filed a motion to stay CIT’s complaint on the grounds that CIT has conducted intrastate business and has failed to register to do business in California.
On May 28, 2025, Pueblo filed its second amended answer (SAA) to CIT’s complaint, generally denying the allegations of the complaint and asserting 19 affirmative defenses. Also on May 28, Pueblo filed a motion to seal portions of its motion to stay the complaint.
On June 11, 2025, CIT filed its motion to compel arbitration of the cross-complaint.
On June 13, 2025, CIT filed its motion to quash deposition subpoenas to Proskauer Rose LLP and to King & Spaulding LLP.
On June 18, 2025, CI filed its joinder in CIT’s motion to compel arbitration.
On July 7, 2025, Pueblo filed its combined motion to stay the deposition of, or quash the notice of deposition of, Laura Traube, M.D., and for protective order.
On July 10, 2025, CIT filed its demurrer to Pueblo’s SAA. CIT concurrently filed a motion to strike portions of the SAA.
On July 18, 2025, CIT filed its motion for sanctions under Code of Civil Procedure sections 128.7 and 128.5.
On July 21, 2025, Pueblo filed an ex parte application to stay all discovery pending disposition of the motion to compel arbitration. The ex parte application was heard and granted on July 22, staying discovery pending the future hearing of all pending motions.
Also on July 21, 2025, CIT filed motions to compel further responses to interrogatories, further responses to requests for admissions, and further responses to requests for production of documents.
On July 22, 2025, Pueblo filed opposition to the demurrer to the cross-complaint, motion to strike portions of the cross-complaint, motion for protective order, and motion to compel arbitration. Also on July 22, CIT filed opposition to the motion to stay complaint, combined motion as to the deposition of Traube, and motion to quash deposition subpoenas as to Proskauer Rose and King & Spaulding.
Also on July 22, 2025, Pueblo filed a motion to seal certain documents lodged provisionally under seal in support of Pueblo’s motion to quash.
On July 28, 2025, CIT filed replies to the demurrer to the cross-complaint, motion to strike, motion to compel arbitration, motion to quash subpoenas as to Proskauer Rose and King & Spaulding (with reply declarations), and motion for protective order. Also on July 28, Pueblo filed replies as to the combined motion as to the deposition of Traube, and the motion to stay complaint (with reply declarations, a request for judicial notice, and objections to evidence).
On August 4, 2025, the court denied the motion of CIT, joined by CI, to compel arbitration. The court ordered the parties to meet and confer to discuss whether the denial of the motion to compel arbitration affected any other pending motion. The court continued all other then-pending motions to September 22.
On August 29, 2025, in response to the court’s orders of August 4, the parties filed a joint status report regarding their existing disputes in light of the court’s denial of the motion to compel arbitration.
On September 15, 2025, CIT filed replies to the motion for sanctions, demurrer to the SAA, motion to strike portions of the SAA, motion to compel further responses to requests for production of documents, motion to compel further responses to requests for admission, and motion to compel further responses to interrogatories.
On September 16, 2025, Pueblo filed opposition to the demurrer to the SAA, and to the motion for sanctions.
On September 22, 2025, the court made a number of rulings, including: (1) CIT’s
demurrer to the cross-complaint of Pueblo was sustained, with leave to amend, as to the sixth cause of action (tortious interference with contract), and was in all other respects overruled; (2) the motion of CIT to strike portions of the cross-complaint was denied in its entirety; (3) CIT’s demurrer to the SAA was sustained, with leave to amend, as to the seventh (litigation privilege) and ninth (uncertainty) affirmative defenses and was in all other respects overruled; (4) the motion of CIT to strike portions of the SAA was denied in its entirety; (5) the motion of Pueblo, filed May 28, 2025, to file certain documents under seal was denied; and (6) the motion of Pueblo, filed July 22, 2025, to file under seal portions of certain documents was granted. The court also stated its intention to appoint a discovery referee. All other matters set for hearing on that calendar were continued to November 24.
On September 29, 2025, Pueblo filed its notice pursuant to the court’s September 22 order electing to file in the public record those documents for which its motion to seal was denied.
On October 1, 2025, the court entered its order on the stipulation of the parties appointing R.A. Carrington as Discovery Referee extending to all matters concerning discovery in this action. The order transferred all pending discovery motions to the referee.
On October 7, 2025, Pueblo filed its third amended answer to CIT’s complaint.
On October 13, 2025, CIT filed its answer to Pueblo’s cross-complaint, generally denying the allegations thereof and asserting 26 affirmative defenses.
On November 3, 2025, Discovery Referee Carrington filed five reports and an attachment: (1) Recommendations on Plaintiff’s Motion for Protective Order and for Sanctions (re motion filed Apr. 25); (2) Recommendations Re Plaintiff and Cross-Defendant Collaborative Image Technology, LLC’s Motion to Quash Subpoenas to Proskauer Rose LLP and King & Spalding LLP, and to Pay Sanctions (re motion filed June 13); (3) Recommendation on Defendants’ Combined (a) Motion to Stay Deposition/ Quash Deposition Notice of Laura Traube, M.D., and (b) Motion for a Protective Order as to the Deposition of Laura E. Traube M.D. Issued by Plaintiff Collaborative Image Technology, LLC (re motion filed July 7); (4) (i) Recommendations Re Plaintiff’s Interrogatory and Requests for Admission Motions (re motions filed July 21) and (ii) Attachment to the Recommendations; and (5) Recommendations Re Plaintiff’s Production Demand Motion (re motion filed July 21).
On November 13, 2025, CIT filed its objections to the Recommendations Re Plaintiff and Cross-Defendant Collaborative Image Technology, LLC’s Motion to Quash Subpoenas to Proskauer Rose LLP and King & Spalding LLP, and to Pay Sanctions (re motion filed June 13). In support of these objections, CIT filed the declaration of attorney Tamara Wiesebron. Also on November 13, CI filed its joinder to CIT’s objections.
On November 17, 2025, CIT filed a sur-reply in support of its motion for sanctions under Code of Civil Procedure sections 128.7 and 128.5 against defendants.
On November 24, 2025, the court made a number of rulings, including adopting and making as orders of the court, the recommendations of the Discovery Referee as set forth in: (1) Recommendations on Plaintiff’s Motion for Protective Order and for Sanctions (re motion filed Apr. 25, 2025), filed November 3, 2025; (2) Recommendation on Defendants’ Combined (a) Motion to Stay Deposition/ Quash Deposition Notice of Laura Traube, M.D., and (b) Motion for a Protective Order as to the Deposition of Laura E. Traube M.D. Issued by Plaintiff Collaborative Image Technology, LLC (re motion filed July 7), filed November 3, 2025; (3) Recommendations Re Plaintiff’s Interrogatory and Requests for Admission Motions (re 2 motions filed July 21) , filed November 3, 2025, and (4) Attachment to the Recommendations, filed November 3, 2025; and (5) Recommendations Re Plaintiff’s Production Demand Motion (re motion filed July 21), filed November 3, 2025, with minor corrections and date changes. (Minute Order, filed Nov. 24, 2025, pp. 1, 5.)
The court also adopted recommendation No. 4 of the Discovery Referee’s Recommendations Re Plaintiff and Cross-Defendant Collaborative Image Technology, LLC’s Motion to Quash Subpoenas to Proskauer Rose LLP and King & Spalding LLP, and to Pay Sanctions (re motion filed June 13) requiring further briefing to the Discovery Referee. The court deferred resolution of all other matters pending the Discovery Referee’s completed recommendations. The court also set deadlines for further briefing and continued the hearing on any objections to this hearing.
The court further continued the hearing on the motion of defendants to stay the complaint and the motion of plaintiff for sanctions re motion to stay to this hearing.
Analysis:
(1) Discovery Motion
The parties have filed further briefing with Discovery Referee Carrington regarding plaintiff and cross-defendant Collaborative Image Technology, LLC’s motion to quash subpoenas to Proskauer Rose LLP and King & Spalding LLP, and to pay sanctions (re motion filed June 13). The court has not received a final recommendation from the Discovery Referee and, correspondingly, the time for objection to that not-yet-filed recommendation has not passed. The hearing on orders and objections to that motion to quash will be continued.
(2) Motion to Stay
Defendants move to stay the prosecution of CIT’s complaint on the grounds that CIT, a foreign limited liability company, is engaging in intrastate commerce without having qualified to do business in California. (Note: The court has reviewed all of the evidence and arguments of the parties in reaching this determination, whether or not particularly discussed herein.)
“A foreign limited liability company transacting intrastate business in this state shall not maintain an action or proceeding in this state unless it has a certificate of registration to transact intrastate business in this state.” (Corp. Code, § 17708.07, subd. (a).)
“A foreign limited liability company that enters into repeated and successive transactions of business in this state, other than in interstate or foreign commerce, is considered to be transacting intrastate business in this state within the meaning of this article.” (Corp. Code, § 17708.03, subd. (a).)
“Without excluding other activities that may not be considered to be transacting intrastate business in this state within the meaning of this article, activities of a foreign limited liability company that do not constitute transacting intrastate business in this state include all of the following:
“(1) Maintaining or defending any action or suit or any administrative or arbitration proceeding, or effecting the settlement of those, or the settlement of claims or disputes.
“(2) Carrying on any activity concerning its internal affairs, including holding meetings of its members or managers.
“(3) Maintaining accounts in financial institutions.
“(4) Maintaining offices or agencies for the transfer, exchange, and registration of the limited liability company’s own securities or maintaining trustees or depositories with respect to those securities.
“(5) Selling through independent contractors.
“(6) Soliciting or procuring orders, whether by mail or electronic means or through employees or agents or otherwise, if the orders require acceptance outside this state before they become contracts.
“(7) Creating or acquiring indebtedness, evidences of indebtedness, mortgages, liens, or security interests in real or personal property.
“(8) Securing or collecting debts or enforcing mortgages or other security interests in property securing the debts and holding, protecting, or maintaining property so acquired.
“(9) Conducting an isolated transaction that is completed within 180 days and is not in the course of a number of repeated transactions of a like nature.
“(10) Transacting business in interstate commerce.” (Corp. Code, § 17708.03, subd. (b).)
“This section does not apply in determining the contacts or activities that may subject a foreign limited liability company to service of process, taxation, or regulation under the law of this state other than this article.” (Corp. Code, § 17708.03, subd. (e).)
There are no published California cases construing Corporations Code section 17708.03. Section 17708.03, governing foreign limited liability companies, is similar to section 2105, governing foreign corporations. (See Corp. Code, § 2105, subd. (a) [“A foreign corporation shall not transact intrastate business without having first obtained from the Secretary of State a certificate of qualification.”].) “A foreign corporation … which transacts intrastate business without complying with Section 2105 shall not maintain any action or proceeding upon any intrastate business so transacted in any court of this state, commenced prior to compliance with Section 2105 ….” (Corp. Code, § 2203, subd. (c).) The definition of “transact intrastate business” under section 2105 is essentially the same as in section 17708.03. (Corp. Code, § 191, subd. (a) [“ ‘transact intrastate business’ means entering into repeated and successive transactions of its business in this state, other than interstate or foreign commerce.”].)
The case of United Medical Management Ltd. v. Gatto (1996) 49 Cal.App.4th 1732 (United Medical) is instructive. In United Medical, the plaintiff medical management company, a Nevada corporation, provided management and other health care related services to physicians. (Id. at p. 1738.) The plaintiff entered into a contract with defendant physician and physician entities in which the plaintiff agreed to provide $200k in capital to the defendants to open a medical facility in Long Beach, California. (Ibid.) The defendants defaulted on the debt and the plaintiff filed a complaint for breach of contract. (Ibid.) The defendants moved to dismiss the complaint on the grounds that the plaintiff had not qualified to do business in California. (Ibid.) Shortly after the motion was filed, the plaintiff obtained a certification of qualification from the California Secretary of State. (Ibid.) The trial court dismissed the complaint without prejudice for failing to comply with section 2203, subdivision (c). (Ibid.) The plaintiff filed a new complaint, which was then subject to the same motion to dismiss. (Id. at p. 1739.) The defendants presented the certificate of qualification, but did not present receipts for payments of fees, penalties, and taxes. (Ibid.) The trial court dismissed the action and defendants appealed. (Ibid.)
On appeal, the United Medical court explained the underlying principles:
“A foreign corporation transacting intrastate business which has failed to qualify with the Secretary of State may nevertheless defend an action brought against it in state court. [Citations.] A foreign corporation transacting intrastate business which has failed to qualify with the Secretary of State may also commence an action in state court. [Citation.] A foreign corporation transacting intrastate business which has failed to qualify may not, however, maintain an action commenced prior to qualification, except upon the satisfaction of certain conditions.” (United Medical, supra, 49 Cal.App.4th at p. 1739.)
“The failure of a foreign corporation to qualify to transact business prior to commencing an action is a matter of abatement of the action. [Citation.] Once a nonqualified foreign corporation commences an action regarding intrastate business, the defendant may assert by demurrer or as an affirmative defense in the answer the lack of capacity to maintain an action arising out of intrastate business. [Citation.] This abatement procedure enables the foreign corporation to obtain a judicial determination as to whether it is in fact transacting intrastate business. The defendant bears the burden of proving: (1) the action arises out of the transaction of intrastate business by a foreign corporation; and (2) the action was commenced by the foreign corporation prior to qualifying to transact intrastate business. [Citation.] If the defendant establishes the bar of the statute, then the foreign corporation plaintiff must comply with section 2203, subdivision (c). Ordinarily, the matter should be stayed to permit the foreign corporation to comply. If the foreign corporation plaintiff complies with section 2203, subdivision (c), by qualifying and paying fees, penalties and taxes, it may maintain the action. If the foreign corporation fails to comply, the matter should be dismissed without prejudice. A plaintiff whose action is dismissed on procedural grounds, such as noncompliance with statutory requirements, is not precluded by the doctrine of res judicata from bringing a second action, subject to the applicable statute of limitations, after compliance with the statute. [Citation.] Thus, a plaintiff, whose first action upon intrastate business is dismissed for failure to qualify to transact intrastate business prior to commencing the action, may, subject to the applicable statutes of limitations, bring a second action after so qualifying.” (United Medical, supra, 49 Cal.App.4th at p. 1740.)
“Section 2203, subdivision (c) is to be narrowly construed to effect its remedial purpose. [Citation.] Section 2203, subdivision (c) imposes a penalty upon the foreign corporation which does not qualify to transact intrastate business as required by section 2105 and merely provides that until it does so, it shall not maintain any suit or action in any court of this state; it simply forbids the exercise of a small part of the corporate powers, except on the specified conditions. [Citation.]” (United Medical, supra, 49 Cal.App.4th at pp. 1740-1741.)
“The purpose of the certificate of qualification is to facilitate service of process and to protect against state tax evasion. [Citation.] The qualification statute assures responsible and fair dealing by foreign corporations and equalizes the regulation of foreign and domestic corporations. [Citation.] The qualification statute is enforced, in part, by temporarily halting lawsuits. The objective of the lawsuit suspension enforcement mechanism is to encourage qualification, rather than to penalize the failure to qualify earlier.” (United Medical, supra, 49 Cal.App.4th at p. 1741.) “The qualification statute also serves the purpose of preventing tax evasion by foreign corporations, but it is not primarily a taxation measure. Revenue and Taxation Code section 23301 is a taxation measure and precludes a foreign corporation which has failed to pay its taxes from bringing or defending an action. A foreign corporation which does not pay its taxes may have its corporate powers forfeited by the Franchise Tax Board. [Citation.] However, a foreign corporation which has qualified to do business does not forfeit its corporate powers merely because it has not paid its taxes. The forfeit of corporate powers occurs only at the time of the notice of forfeiture by the Franchise Tax Board. [Citation.] Thus, the mere failure to pay taxes does not prevent a foreign corporation from bringing or defending an action.” (United Medical, supra, 49 Cal.App.4th at p. 1741.)
The United Medical court concluded that because the plaintiff had qualified to transact intrastate business prior to filing the second complaint, the dismissal of that complaint was improper. (United Medical, supra, 49 Cal.App.4th at pp. 1741-1742.)
In determining what a defendant must show in a motion to dismiss in the corporate context, the United Medical court stated one element as “the action arises out of the transaction of intrastate business by a foreign corporation.” (United Medical, supra, 49 Cal.App.4th at p. 1740.) This tracks section 2203, subdivision (c), which, as quoted above, limits the maintenance of an action to an action upon an intrastate business transaction. By contrast, section 17708.07, subdivision (a), as also quoted above, does not limit the maintenance of an action to actions arising out of the intrastate transaction, but applies generally to a foreign limited liability company transacting intrastate business. This difference in treatment between foreign corporations and foreign limited liability companies is not on its face unreasonable given the differences between those entities, including differences in California tax treatment.
This distinction is significant because CIT relies, in part, upon United Medical’s formulation of the defendant’s burden as requiring that the action arise out of the intrastate business transaction, incorrectly stating that section 17708.07 includes the same language. (Opposition, at pp. 5, 9.) CIT’s complaint arises out of obligations in the Transition Services Agreement (e.g., Complaint, ¶ 1; Opposition Request for Judicial Notice [Opposition RJN], exhibit 1), by which the earlier business arrangements of the parties were to be concluded. (See Opposition, at pp. 1-2.) Pueblo’s cross-complaint arises out of the broader business transactions of the parties. (Motion, at pp. 5-9.)
“The purpose of statutory interpretation is to ascertain and effectuate legislative intent. [Citation.] Statutory interpretation is guided by the so-called ‘plain-meaning’ rule. ‘Words used in a statute ... should be given the meaning they bear in ordinary use. [Citations.] If the language is clear and unambiguous there is no need for construction, nor is it necessary to resort to indicia of the intent of the Legislature (in the case of a statute).... [Citation.] [¶] But the “plain meaning” rule does not prohibit a court from determining whether the literal meaning of a statute comports with its purpose or whether such a construction of one provision is consistent with other provisions of the statute. The meaning of a statute may not be determined from a single word or sentence; the words must be construed in context, and provisions relating to the same subject matter must be harmonized to the extent possible. [Citation.].’ [Citation.]” (United Medical, supra, 49 Cal.App.4th at p. 1739.)
Looking at the text of section 17708.07, subdivision (a), the prohibition is to maintain an action unless it has a certificate to transact business. The prohibition applies to a foreign limited liability company “transacting” intrastate business. The focus of this language is on the present and future, not the past. This text is contrasted with section 2203, subdivision (c), in which the action refers to the past “business so transacted.” This language demonstrates that the determination as to intrastate business under section 17708.07 is to be made at the time of the motion rather than at the time of the events giving rise to the action that is being maintained. And, following the discussion above, the determination as to intrastate business is not limited under section 17708.07 to transactions giving rise to the action.
Additionally, the court does not find that defendants have shown that business activity of CI is, in this context, imputed to CIT. At least as late as the Transition Services Agreement, CI and CIT are identified by all parties as separate entities for which CIT is a successor in interest. (Opposition RJN, exhibit 1.) CIT’s present activities relative to California must be examined separately from activities of CI for purposes of section 17708.07. (Cf. Corp. Code, § 17708.03, subd. (c) [activities of related entities not considered].)
Section 17708.03, subdivision (a)’s definition of “transacting intrastate business in this state” does not provide much guidance in distinguishing intrastate business from interstate business. The nature of CIT’s operations under the Transition Services Agreement itself demonstrates that CIT engages in repeated and successive transactions of business in this state. The open question is whether such transactions are “other than in interstate … commerce.” (Corp. Code, § 17708.03, subd. (a); see also subd. (b)(10) [“activities … that do not constitute transacting intrastate business in this state include” “ [t]ransacting business in interstate commerce.”].)
Returning to first principles, interstate commerce concerns more than one state and intrastate commerce is confined within one state. (See Minnesota Rate Cases (1913) 230 U.S. 352, 398 [33 S.Ct. 729, 57 L.Ed. 1511].) It is important to distinguish at this point between “transacting business in interstate commerce” within the meaning of section 17708.03 and other contexts. Section 17708.03 does not apply the test for determining minimum contacts for personal jurisdiction purposes (Corp. Code, § 17708.03, subd. (e)) or the federal constitutional test to determine the extent of the Commerce Clause power in “those activities that substantially affect interstate commerce” (see National Federation of Independent Business v. Sebelius (2012) 567 U.S. 519, 536 [132 S.Ct. 2566, 183 L.Ed.2d 450]). Moreover, a foreign entity may do business in this state without transacting intrastate business. (Carl F. W. Borgward G. M. B. H. v. Superior Court In and For Los Angeles County (1958) 51 Cal.2d 72, 76.) Conversely, the fact that a foreign entity transacts interstate business does not imply that all business transacted by that foreign entity is interstate business; by negative implication, the foreign entity may also transact intrastate business.
Thus, in the context of services of the sort at issue in this matter, transactions in interstate commerce are those between a Californian and a non-Californian; transactions in intrastate commerce are those between Californians. Where CIT, a foreign entity, is providing services directly to a California entity, such services would appear as transactions in interstate commerce. Where CIT is providing services on behalf of a California entity in transacting business with another Californian, such services would appear as transactions in intrastate commerce.
With this understanding, the evidence presented by defendants shows that CIT may be transacting intrastate business in California but not that CIT is transacting intrastate business. Particularly with respect to the evidence of negotiating, structuring employment relationships, and onboarding physician contract on behalf of other California entities, the nature of the activity appears as transacting intrastate business, but the particular evidence is too general for the court to determine that CIT is transacting intrastate business. (See, e.g., Queally decl., exhibits E, F.) The court finds that the evidence now presented is insufficient to meet defendants’ burden in this motion. At the same time discovery is at an early stage and has been the subject of numerous disputes among the parties. Accordingly, the court will deny the motion to stay without prejudice to a later motion based upon more specific evidence.
The court further notes that even if the court were to agree with defendants that the evidence now presented were sufficient to invoke section 17708.07, the effect would be, if anything, on the judgment, but not on the progress of the litigation. CIT is both a plaintiff and cross-defendant. As a cross-defendant, CIT has asserted a defense of set-off, which presumably includes the damages it seeks by way of its complaint. Under section 17708.07, a foreign limited liability company transacting intrastate business but not qualified to do so may not maintain an action, but is not disabled from defending an action. Defending against the cross-complaint includes asserting its defense of set-off. Thus, the scope of litigation would not be affected by such a stay, but may only affect the ability to CIT ultimately to recover affirmative relief if the disability of section 17708.07 is later found to be applicable.
The parties have requested that the court take judicial notice of documents appearing in the court record. (Opposition RJN, exhibits 1, 2; Defendants’ Reply Request for Judicial Notice, exhibits A, B.) The court grants these requests. (See Evid. Code, § 452, subd. (d)(1).) Judicial notice does not extend to the truth of factual matters set forth in court records. (Sosinsky v. Grant (1992) 6 Cal.App.4th 1548, 1569.)
(3) Motion for Sanctions
In response to defendants’ motion to stay, CIT filed a motion under Code of Civil Procedure sections 128.7 and 128.5 for sanctions against defendants and their counsel on the grounds that the motion to stay is frivolous and filed for an improper purpose.
“A trial court may order a party, the party’s attorney, or both, to pay the reasonable expenses, including attorney’s fees, incurred by another party as a result of actions or tactics, made in bad faith, that are frivolous or solely intended to cause unnecessary delay.” (Code Civ. Proc., § 128.5, subd. (a).) “ ‘Frivolous’ means totally and completely without merit or for the sole purpose of harassing an opposing party.” (Id., subd. (b)(2).)
“By presenting to the court, whether by signing, filing, submitting, or later advocating, a pleading, petition, written notice of motion, or other similar paper, an attorney or unrepresented party is certifying that to the best of the person’s knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, all of the following conditions are met:
“(1) It is not being presented primarily for an improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation.
“(2) The claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law.
“(3) The allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery.
“(4) The denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on a lack of information or belief.” (Code Civ. Proc., § 128.7, subd. (b).)
A court may impose sanctions for violation of Code of Civil Procedure section 128.7, subdivision (b). (Code Civ. Proc., § 128.7, subds. (c), (d).)
As discussed above in the context of the motion to stay, the court finds that the evidence presented by defendants is insufficient for the court to grant the motion because it fails to meet the burden of proof, but that the evidence presented suggests that the factual assertions may have evidentiary support after a reasonable opportunity for further investigation or discovery. Whether or not that eventually proves to be true, defendants’ motion is not frivolous. As also discussed above, the motion has not caused, and is not reasonably calculated to cause, delay in the litigation of the issues in this matter. The motion for sanctions will be denied.