SINAIKO HEALTHCARE CONSULTING, INC.

v. PACIFIC HEALTHCARE CONSULTANTS

Filed 3/8/07

CERTIFIED FOR PARTIAL PUBLICATION*

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FIVE

APPEAL from an order of the Superior Court of Los Angeles County. Mary Ann Murphy, Judge. Affirmed.

Law Offices of Patricia A. Painter, Patricia A. Painter; Law Offices of Steven Mark Klugman and Steven M. Klugman for Objector and Appellant Steven M. Klugman.

Fisher, Sparks, Grayson & Wolf, David R. Fisher; Greines, Martin, Stein & Richland and Robert A. Olson for Plaintiff and Respondent Sinaiko Healthcare Consulting, Inc.

___________________

This appeal[1]from an order imposing a monetary discovery sanction of $8,786.36 raises the issue of whether, under the California Civil Discovery Act (Code Civ. Proc. 2016.010 et seq.),[2]the trial court has the authority to hear a motion to compel responses to written interrogatories under section 2030.290 when the party on whom the interrogatories were served fails to serve any response within the required time, thereby waiving all objections, but after the motion is served, provides an untimely response that the propounding party deems inadequate. In the published portion of this opinion, we hold that the mere service of an untimely interrogatory response, which may or may not reflect a good faith effort to comply with the partys discovery obligations, does not divest the trial court of authority to hear and grant a motion to compel responses under section 2030.290, subdivision (b). Whether the trial court should proceed with a motion to compel responses under section 2030.290 when there has been an untimely interrogatory response is within the sound discretion of the trial court.

BACKGROUND

In December 2004, plaintiff and respondent Sinaiko Healthcare Consulting, Inc. (Sinaiko) sued defendants[3]for breach of contract, unfair competition, misappropriation of trade secrets, interference with prospective economic advantage and interference with contractual relations. Sinaiko alleged that it and its predecessor had engaged Kirchwehm, first as an employee and then (through Zeppelin and Pacific) as an independent contractor, to provide financial advisory services to Sinaikos clients in the healthcare industry. Sinaiko alleged that, as a result, Kirchwehm had access to Sinaikos proprietary client database; that after Kirchwehm ended his relationship with it in July 2004, Sinaiko discovered that Kirchwehm had solicited at least one of its clients with which Kirchwehm had no previous contact; and that Kirchwehm had solicited other Sinaiko clients utilizing confidential information improperly obtained from Sinaiko.

Sinaikos complaint included eight causes of action, one of which alleged a breach of contract. In its first cause of action, entitled Breach of Oral Contract, Sinaiko alleged that, In or about August, 2002, the parties orally agreed that defendants, and each of them, would provide advisory and financial services to SINAIKOs clients for which SINAIKO would compensate defendants. Defendants agreed that they would provide SINAIKO with the underlying materials supporting the opinion letters prepared upon SINAIKOs request, due to the fact that said materials were at all times the property of SINAIKO. Sinaiko further alleged that, Beginning in or about August, 2002, and continuing to the present, defendants, and each of them, breached the above-referenced oral agreement[.]

On February 14, 2005,[4]Sinaiko served on each of Kirchwehm, Zeppelin and Pacific one set of official form written interrogatories[5](the interrogatories), pursuant to section 2030.020, subdivision (a), and one set of inspection demands to produce and permit the inspection and copying of documents (the document requests), pursuant to section 2031.020, subdivision (a). Among the interrogatories propounded by Sinaiko were form interrogatories 50.1 through 50.6. Form interrogatory 50.1 requested that, [f]or each agreement alleged in the pleadings, defendants (a) identify each document that was part of the agreement; (b) state each part of the agreement not in writing; (c) identify all documents that evidenced any part of the agreement not in writing; (d) identify all documents that were part of any modification to the agreement; (e) state each modification not in writing; and (f) identify all documents that evidenced any modification not in writing. Form interrogatory 50.1 also requested that defendants provide the name, address and telephone number of each person who either possessed the documents identified in defendants response, or who had agreed to any of the oral agreements or oral modifications identified in defendants response.

Interrogatories 50.2 through 50.6 provided as follows:

50.2 Was there a breach of any agreement alleged in the pleadings? If so, for each breach describe and give the date of every act or omission that you claim is the breach of the agreement.

50.3 Was performance of any agreement alleged in the pleadings excused? If so, identify each agreement excused and state why performance was excused.

50.4 Was any agreement alleged in the pleadings terminated by mutual agreement, release, accord and satisfaction, or novation? If so, identify each agreement terminated, the date of termination, and the basis of the termination.

50.5 Is any agreement alleged in the pleadings unenforceable? If so, identify each unenforceable agreement and state why it is unenforceable.

50.6 Is any agreement alleged in the pleadings ambiguous? If so, identify each ambiguous agreement and state why it is ambiguous.

Sinaikos document requests sought 23 categories of documents, including the documents identified in defendants response to form interrogatory 50.1, documents pertaining to work that defendants had done for clients on Sinaikos behalf, and documents pertaining to advisory or financial services provided by defendants independent of their relationship with Sinaiko. Sinaiko served the interrogatories and document requests by mail, and as to each required a response by March 21. ( 1013, subd. (a); 2030.260, subd. (a); 2031.260.)

Defendants, all of whom were represented by appellant Klugman, did not respond to the discovery requests by March 21. On March 24, counsel for Sinaiko wrote a letter to Klugman demanding responses to the discovery requests, without objection, by March 30. Klugman did not respond to the letter, and defendants did not respond to the discovery requests by March 30. As a result, on March 31, Sinaiko served all three defendants (by personal service on their attorney, Klugman) with motions to compel responses to the form interrogatories and document requests, and requesting monetary sanctions. Because March 31 was a court holiday, Sinaiko did not file the motions until April 1.

Later on March 31 after Sinaiko had served the motions defendants prepared their responses to Sinaikos form interrogatories and faxed them to Sinaikos counsel. Each of the defendants responded to form interrogatories 50.1 through 50.6 in precisely the same way: Defendant has filed a demurrer as to all of the contractual allegations contained in the plaintiffs complaint. The demurrers are both general, and special due to uncertainty. As indicated in the demurrers, defendant cannot at this time determine which contract, oral or written, if any, is or has been identified as at issue in this complaint and action. As such, this interrogatory requests information that may or may not exist at this time. Defendant cannot respond to this interrogatory at this time given the uncertainty of the identification of the terms and provisions of any contract, written or oral. The hearing on defendants general and special demurrers . . . is currently scheduled for April 21[.] Defendants did not serve responses to Sinaikos document requests or produce any documents.

Not satisfied with defendants responses to the interrogatories, and having no response to the document requests, Sinaiko did not take its motions to compel responses off calendar. Defendants, however, did not file any opposition to the motions. One week before the hearing, Sinaiko filed and served a reply memorandum, in which Sinaiko reiterated its request that the trial court order defendants to fully respond, without objection to both the interrogatories and the document requests. In a declaration submitted with the reply, counsel for Sinaiko informed the trial court that, On March 31, defendants served untimely and deficient responses to the First Set of Form Interrogatories, in that they failed to respond substantively to Form Interrogatory Nos. 50.1 through 50.6. To date, defendants have not served a written response to the First Requests for Production of Documents or served any documents responsive to the Requests for Production.

On April 26, the trial court heard Sinaikos motions to compel responses. Defendants did not appear at the hearing. As reflected in the trial courts minute order (the April 26 Order), the trial court granted the motions to compel responses against all three defendants as to both the interrogatories and the document requests and ordered defendants to respond without objection and produce all documents within 20 days. The trial court also awarded monetary sanctions totaling $2,208.89 against defendants, to be paid within 20 days. Sinaiko served upon defendants its notice of the order compelling responses that same day. The next day, April 27, the trial court overruled defendants demurrers.

On May 6, defendants moved for reconsideration of the April 26 Order. The motion for reconsideration was set for hearing on June 13, nearly four weeks after the deadline to comply with the April 26 Order. On May 13, defendants first served verified responses to Sinaikos document requests. The responses, however, stated that defendants would withhold certain categories of documents as trade secrets and proprietary information, and purported to incorporate a privilege log. Defendants produced no documents, and did not tender payment of the monetary sanctions. On May 17 the very last day that defendants had to comply with the April 26 Order defendants applied ex parte to stay the April 26 Order until the trial court heard the motion for reconsideration. The trial court granted the stay.

On May 31, Sinaiko filed its opposition to defendants motion for reconsideration and requested additional monetary sanctions of $4,200.00. On June 6, the parties stipulated to a protective order (entered by the trial court on June 15) regarding documents designated confidential or proprietary. On June 10, the Friday before the Monday hearing on the motion to reconsider, defendants, for the first time, produced documents in response to Sinaikos document requests.

The parties appeared for defendants motion for reconsideration on June 13. After the hearing began (and after the trial court reproved defense counsel for failing to follow court rules in the motion), defendants withdrew the motion. Klugman explained that he thought the motion for reconsideration was moot because defendants had provided all the answers requested and produced all of the requested documents that are in our possession. The stay on the trial courts April 26 Order expired, and the trial court directed defendants to pay the monetary sanctions within 20 calendar days. The trial court denied Sinaikos request for additional sanctions.

On June 28, after reviewing the documents produced by defendants prior to the hearing, counsel for Sinaiko wrote a letter to counsel for defendants detailing numerous deficiencies in defendants document production. Sinaiko asserted, among other things, that defendants had produced virtually no e-mail correspondence, even though such documents were responsive, and Sinaiko had produced tens of thousands of pages of e-mail correspondence with defendants. Sinaiko also claimed that defendants had not produced the requested work papers, notes, analysis, models or . . . other information underlying the financial opinions and valuations that defendants had conducted on behalf of (and for which they had been paid by) Sinaiko.

On July 5, after a further exchange of contentious correspondence, defendants paid Sinaiko $1,589.26 of the $2,208.89 in sanctions awarded by the trial court on April 26, and produced in Klugmans words 10,000 additional pages that may or may not be responsive to any and all of [Sinaikos] requests for production of documents. Defendants also served another written response to the document requests. With respect to requests 17 through 22, defendants refused to produce documents relating to an entity called Da Vita Corporation, on the sole ground that Sinaiko had subpoenaed those documents from Da Vita Corporation. Further, even though the trial court had entered the stipulated protective order regarding confidential documents, defendants refused to produce documents relating to any of its clients independent of Sinaiko on the ground that such documents were proprietary information of defendants clients. Defendants produced a handwritten priveledge [sic] log and confidential log purporting to identify documents withheld, but the log does not identify any specific documents with particularity.[6] Defendants never sought an additional protective order with respect to any of the documents withheld.

On August 11, Sinaiko filed and personally served upon defendants counsel its motion for terminating sanctions based on defendants failure to comply with the April 26 Order. The trial court ordered the hearing set for Friday, September 2. As with Sinaikos original motion to compel responses, defendants failed timely to oppose the motion. Sinaiko nevertheless filed a reply memorandum on August 26, in which it informed the court that defendants counsel had telephoned on Wednesday, August 24 two days after defendants opposition was due to give notice that defendants intended to apply ex parte to continue the September 2 hearing. Defendants, in fact, did apply ex parte on August 29 to continue the hearing, and for an extension of time to file their opposition. The trial court refused to continue the hearing. Instead, the trial court admonished defense counsel for his delay in requesting leave to file defendants opposition and his failure to provide the opposition to Sinaikos counsel in a timely manner. Nevertheless, the trial court accepted defendants opposition for late filing, permitted Sinaiko to file a reply on September 1, and did not order sanctions.

The trial court heard Sinaikos motion for terminating sanctions on September 2. In a minute order of that date (the September 2 Order), the court found that defendants had violated the April 26 Order with respect to form interrogatories 50.1 through 50.6 and document requests 2 through 22, and had shown no substantial justification for their failure to comply. The trial court denied terminating sanctions, but granted monetary sanctions against defendant [sic] and attorney in the amount of $8,786.36, payable within 45 days.[7] Defendants and Klugman timely appealed.[8]

DISCUSSION

A. Standard of Review

The award of a monetary sanction in excess of $5000 is directly appealable. ( 904.1, subd. (a)(12).) We review the trial courts order imposing the sanction for abuse of discretion. (Sears, Roebuck & Co. v. National Union Fire Ins. Co. of Pittsburgh (2005) 131 Cal.App.4th 1342, 1350.) We resolve all evidentiary conflicts most favorably to the trial courts ruling (ibid.), and we will reverse only if the trial courts action was arbitrary, capricious or whimsical[.] (Vallbona v. Springer (1996) 43 Cal.App.4th 1525, 1545, quoting Do It Urself Moving & Storage, Inc. v. Brown, Leifer, Slatkin & Berns (1992) 7 Cal.App.4th 27, 36.) It is [appellants] burden to affirmatively demonstrate error and, where the evidence is in conflict, this court will not disturb the trial courts findings. (Laguna Auto Body v. Farmers Ins. Exchange (1991) 231 Cal.App.3d 481, 487, disapproved on other grounds in Garcia v. McCutchen (1997) 16 Cal.4th 469, 478, fn. 4.) To the extent that reviewing the sanction order requires us to construe the applicable discovery statutes, we do so de novo, without regard to the trial courts ruling or reasoning. (People ex rel. Lockyer v. Superior Court (2004) 122 Cal.App.4th 1060, 1071.)

B. The Civil Discovery Act

The Civil Discovery Act provides litigants with the right to broad discovery. In general, any party may obtain discovery regarding any matter, not privileged, that is relevant to the subject matter involved in the pending action or to the determination of any motion made in that action, if the matter either is itself admissible in evidence or appears reasonably calculated to lead to the discovery of admissible evidence. ( 2017.010.) In establishing the statutory methods of obtaining discovery, it was the intent of the Legislature that discovery be allowed whenever consistent with justice and public policy. [Citation.] The statutory provisions must be liberally construed in favor of discovery and the courts must not extend the statutory limitations upon discovery beyond the limits expressed by the Legislature. (Irvington-Moore, Inc. v. Superior Court (1993) 14 Cal.App.4th 733, 738-739.) Civil discovery is intended to operate with a minimum of judicial intervention. [I]t is a central precept of the Civil Discovery Act . . . that discovery be essentially self-executing[.] (Obregon v. Superior Court (1998)67 Cal.App.4th 424, 434, quoting Townsend v. Superior Court (1998) 61 Cal.App.4th 1431, 1434.)

Generally, the parties may modify the statutory discovery procedures by written stipulation ( 2016.030), and, unless restricted by the trial court, are free to utilize any of the prescribed discovery methods during the action in any sequence ( 2019.010, 2019.020). Neither a propounding partys demands nor a responding partys responses are filed with the trial court. (See, e.g., 2030.280, subd. (a), 2031.290, subd. (a)). Accordingly, the trial court does not usually consider either the propriety of a partys discovery demand or the adequacy of a partys response unless a dispute arises.

When discovery disputes arise as to interrogatories and document requests, the trial court may intervene in the discovery process in three circumstances. First, a responding party may move for a protective order to challenge a discovery demand. To prevail, it bears the burden ( 2019.030, subd. (b)) to demonstrate that the discovery sought is unreasonably cumulative or duplicative, or is obtainable from some other source that is more convenient, less burdensome, or less expensive ( 2019.030, subd. (a)(1)), or that the selected method of discovery is unduly burdensome or expensive. ( 2019.030, subd. (a)(2); 2030.090 [motion for protective order on interrogatories]; 2031.060 [motion for protective order on inspection demands].) The responding party must also demonstrate that it made a reasonable and good faith attempt at an informal resolution of each issue presented by the motion for a protective order. ( 2016.040; 2019.030, subd. (b); 2030.090, subd. (a); 2031.060, subd (a).) This is sometimes referred to as an obligation to meet and confer. ( 2016.040.)

Second, if a propounding party is not satisfied with the response served by a responding party, the propounding party may move the court to compel further responses. ( 2030.300[9][interrogatories]; 2031.310 [inspection demands].) The propounding party must demonstrate that the responses were incomplete, inadequate or evasive, or that the responding party asserted objections that are either without merit or too general. ( 2030.300, subd. (a)(1)(3); 2031.310, subd. (a)(1)(3).) The propounding party must bring its motion to compel further responses within 45 days of the service of the response ( 2030.300, subd. (c); 2031.310, subd. (c)), and must demonstrate that it complied with its obligation to meet and confer. ( 2016.040; 2030.300, subd. (b); 2031.310, subd (b)(2).) In addition, a party moving to compel further responses to an inspection demand must establish good cause justifying the discovery sought by the inspection demand. ( 2031.310, subd. (b)(1).)

Third, and of particular relevance to this case, the trial court may intervene when a party fails to serve a timely response[.] ( 2030.290 [interrogatories];[10]2031.300 [inspection demands].) A party that fails to serve a timely response to the discovery request waives any objection to the request, including one based on privilege or the protection of attorney work product. ( 2030.290, subd. (a); 2031.300, subd. (a).) The trial court may relieve the party of its waiver, but that party must first demonstrate that (a) it subsequently served a response to the demand; (b) its response is in substantial compliance with the statutory provisions governing the form and content of the response; and (c) [t]he partys failure to serve a timely response was the result of mistake, inadvertence, or excusable neglect. ( 2030.290, subd. (a)(1)(2); 2031.300, subd. (a)(1)(2).) The propounding party can move the trial court for an order compelling a party to respond to the discovery request. ( 2030.290, subd. (b); 2031.300, subd. (b).) Unlike a motion to compel further responses, a motion to compel responses is not subject to a 45-day time limit, and the propounding party does not have to demonstrate either good cause or that it satisfied a meet-and-confer requirement. (See generally, Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2006) 8:1137 to 8:1144, pp. 8F-59 to 8F-60,  8:1483 to 8:1489, pp. 8H-29 to 8H-30 (Weil & Brown); see also Cal. Rules of Court, rule 3.1020(b) [A separate statement is not required when no response has been provided to the request for discovery].)

If a party fails to serve a timely response, and the propounding party moves for and obtains a court order compelling a response, the trial court must impose a monetary sanction against the delinquent party unless that party acted with substantial justification or the sanction would otherwise be unjust. ( 2030.290, subd. (c); 2031.300, subd. (c).) In addition, if that party subsequently disobeys the courts order compelling a response, the trial court may then make those orders that are just, including the imposition of an issue sanction, an evidence sanction, or a terminating sanction. In lieu or in addition to any of those sanctions, the trial court may impose a monetary sanction under section 2023.030. ( 2030.290, subd. (c); 2031.300, subd. (c).) Section 2023.030[11]authorizes a trial court to impose a monetary sanction against any party or attorney, or both, who has engaged in misuse of the discovery process. Misuses of the discovery process include, among other things, failing to respond or to submit to an authorized method of discovery; making, without substantial justification, an unmeritorious objection to discovery; making an evasive response to discovery; and disobeying a court order to provide discovery. ( 2023.010.)

TO BE CONTINUED AS PART II..

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* Pursuant to California Rules of Court, rules 8.1100 and 8.1110, this opinion is certified for publication with the exception of Discussion, Part D.

[1]Defendants Bryan J. Kirchwehm (Kirchwehm), Zeppelin Corporation (Zeppelin) and Pacific Healthcare Consultants (Pacific) (collectively the defendants) dismissed their appeal after oral argument. Attorney Steven M. Klugman (Klugman), one of the persons against whom the trial court awarded the monetary sanction at issue, has not dismissed his appeal. An attorney against whom a monetary sanction has been awarded has standing to appeal. (Imuta v. Nakano (1991) 233 Cal.App.3d 1570, 1585-1586.) Klugman asserts that the issues raised by his appeal are not moot. We have been presented with no motion to dismiss the appeal as to Klugman and no evidence that the issues raised by Klugmans appeal are moot. (See Cal. Rules of Court, rule 8.54(a)(2) [motion based on matters outside the record must be supported by declarations or other supporting evidence]; see also In re Matthew C. (1993) 6 Cal.4th 386, 394 [when the propriety of an appeal is not free from dubiety, the better practice is to  . . . permit the appeal to be determined on the merits], quoting Bailey v. Fosca Oil Co., Ltd. (1962) 211 Cal.App.2d 307, 309.) Accordingly, Klugmans appeal remains. Our resolution of the issues on this appeal concerns only Klugman.

[2]All statutory references are to the Code of Civil Procedure. The Civil Discovery Act of 2004 (the 2004 Act or the Civil Discovery Act) became effective July 1, 2005 ( 2016.010), after the discovery at issue here was served. The 2004 Act reorganized and renumbered the provisions of the Civil Discovery Act of 1986, but the 2004 Act was not intended to effect any substantive changes in the law. (Stats. 2004, ch. 182, 61 [Nothing in this act is intended to substantively change the law of civil discovery].) For ease of reference, and because the parties have largely done so, we refer to the relevant statutory provisions as renumbered and reorganized by the 2004 Act.

[3]According to the Certificate of Interested Parties filed with this court, Kirchwehm is the majority stockholder of Zeppelin, and Zeppelin is the proprietor of Pacific.

[4]All date references hereafter are to 2005.

[5]Judicial Council Form No. FI120. (See  2033.7102033.740.)

[6]The log states nothing more than broad date ranges coupled with general document categories. For example, item 1 under the heading confidential log states, (2/04present): Healthcare valuation analyses, and item 2 states, (6/04present): Healthcare valuation analyses.

[7] The trial court also granted evidentiary and issue sanctions that are not at issue in this appeal. ( 904.1, subd. (a)(12).) The September 2 Order does not specify the statutory basis for the monetary sanction. Sinaikos Notice of Ruling states that the award was pursuant to section 2023.030, subdivision (a) (monetary sanction against one engaging in the misuse of the discovery process, or any attorney advising that conduct or both). Defendants did not object to the notice. The conduct here constitutes a misuse of the discovery process. ( 2023.010, subd. (g).)

[8]As noted above, defendants dismissed their appeal. Klugman has not done so.

[9]Section 2030.300. subdivision (a) provides: On receipt of a response to interrogatories, the propounding party may move for an order compelling a further response if the propounding party deems that any of the following apply:
(1) An answer to a particular interrogatory is evasive or incomplete.
(2) An exercise of the option to produce documents under Section 2030.230 is unwarranted or the required specification of those documents is inadequate.
(3) An objection to an interrogatory is without merit or too general.

[10]Section 2030.290 provides: If a party to whom interrogatories are directed fails to serve a timely response, the following rules apply:
(a) The party to whom the interrogatories are directed waives any right to exercise the option to produce writings under Section 2030.230, as well as any objection to the interrogatories, including one based on privilege or on the protection for work product under Chapter 4 (commencing with Section 2018.010). The court, on motion, may relieve that party from this waiver on its determination that both of the following conditions are satisfied:
(1) The party has subsequently served a response that is in substantial compliance with Sections 2030.210, 2030.220, 2030.230, and 2030.240.
(2) The party's failure to serve a timely response was the result of mistake, inadvertence, or excusable neglect.
(b) The party propounding the interrogatories may move for an order compelling response to the interrogatories.
(c) The court shall impose a monetary sanction under Chapter 7 (commencing with Section 2023.010) against any party, person, or attorney who unsuccessfully makes or opposes a motion to compel a response to interrogatories, unless it finds that the one subject to the sanction acted with substantial justification or that other circumstances make the imposition of the sanction unjust. If a party then fails to obey an order compelling answers, the court may make those orders that are just, including the imposition of an issue sanction, an evidence sanction, or a terminating sanction under Chapter 7 (commencing with Section 2023.010). In lieu of or in addition to that sanction, the court may impose a monetary sanction under Chapter 7 (commencing with Section 2023.010).

[11]Section 2023.030 provides in pertinent part: To the extent authorized by the chapter governing any particular discovery method or any other provision of this title, the court . . . may impose the following sanctions against anyone engaging in conduct that is a misuse of the discovery process: [] (a) The court may impose a monetary sanction ordering that one engaging in the misuse of the discovery process, or any attorney advising that conduct, or both pay the reasonable expenses, including attorneys fees, incurred by anyone as a result of that conduct. . . . If a monetary sanction is authorized by any provision of this title, the court shall impose that sanction unless it finds that the one subject to the sanction acted with substantial justification or that other circumstances make the imposition of the sanction unjust.