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PLATYPUS WEAR, INC. v. K.D. CO.

November 14, 1995

PLATYPUS WEAR, INC., a California Corporation, Plaintiff,
v.
K.D. COMPANY, INC., a New Mexico Corporation; JOHN DAVOUDZADEH, an Individual, Defendants.



The opinion of the court was delivered by: BATTAGLIA

 Counsel for Plaintiff has filed a Motion to Compel Further Deposition Testimony by Alan Weiner. The Court has received and reviewed of all of the moving, opposition, and reply papers of both parties. In addition, a discovery conference was held before Magistrate Judge Anthony J. Battaglia on November 2, 1995. Kevin Cahill and John Moot appeared on behalf of Plaintiff. Jennie Behles and Cynthia Fissel appeared on behalf of Defendants. Taking into consideration all the arguments of both parties, the Court hereby GRANTS Plaintiff's Motion to Compel, but orders that further testimony from Mr. Weiner is stayed pending resolution by Judge Rhoades of Plaintiff's Motion to Amend.

 Discussion

 Mr. Weiner was formerly employed by Defendants as a bookeeper/accountant. He was subpoenaed by Plaintiff to give testimony corroborating that of another of Defendants' former employees, Tamara Jahn, relative to commingling of corporate and personal assets by the Davoudzadeh Family Members. Plaintiff argues that this information is directly relevant to Plaintiff's alter ego allegations. *fn1"

 At Mr. Weiner's deposition, counsel for Plaintiff posed questions relative to five particular issues: (1) checks not paid by K.D. to third parties; (2) the handling of the petty cash account at K.D.; (3) the insolvency or bankruptcy of K.D.; (4) commingling of funds between personal and business uses at K.D.; and (5) check writing practices at K.D. Counsel for Defendants, in response to these questions, interposed an objection, claimed a privilege on behalf of Defendants under New Mexico's accountant-client privilege, *fn2" and instructed Mr. Weiner not to answer the questions based upon the assertion of the accountant-client privilege. Counsel for Plaintiff argues that the New Mexico privilege does not apply in this case and that Mr. Weiner may respond to the questions.

 1. Is This the Proper Court To Address the Motion to Compel?

 Initially Counsel for Defendants argue that this Court cannot properly determine the issue of claim of privilege because Mr. Weiner is a not a party to this case, is a resident of New Mexico, and was being deposed in New Mexico. To the extent that Counsel for Defendants argue that the deposition subpoena should have been issued out of the District Court in New Mexico, they are correct. Pursuant to Fed. R. Civ. P. 45(a)(2), "[a] subpoena for attendance at a deposition shall issue from the court for the district designated by the notice of deposition as the district in which the deposition is to be taken." Similarly, Fed. R. Civ. P. 37(a)(1) provides that a motion to compel discovery should be brought before the court in the district in the district where the discovery is being, or is to be, taken. However, this is a moot issue because Mr. Weiner did appear to testify and remains willing, according to his declaration filed as Exhibit A to Plaintiff's Reply, to reappear and answer the questions which are the issue of this motion. Plaintiff does not seek an order compelling Mr. Weiner to appear and testify, but rather it seeks an order overruling Defendants' claim of the accountant-client privilege. Such motion is properly brought in this Court. See Fed. R. Civ. P. 37(a)(1) ("An application for an order to a party shall be made to the court in which the action is pending."); Fed. R. Civ. P. 30(d)(3) ("At any time during a deposition, on motion of a party or of the deponent and upon a showing that the examination is being conducted in bad faith or in such a manner as unreasonably to annoy, embarrass, or oppress the deponent or party, the court in which the action is pending or the court in the district where the deposition is being taken may order the officer conducting the examination to cease forthwith, or may limit the scope and manner of the taking of the deposition as provided in Rule 26(c).") Therefore, this is the appropriate Court to decide the motion.

 2. Does The New Mexico Privilege Apply in this Case?

 Before the Court even reaches the question of whether the New Mexico accountant-client properly applies to Mr. Weiner, it must determine if the New Mexico privilege applies to this case. In order to determine whether the New Mexico privilege law may be applied by this Court, two questions must be answered: (a) does state or federal common law of privilege govern; and (b) if state law applies, does the law of California or New Mexico govern.

 a. Does State or Federal Privilege Law Apply?

 It is clear that State law governs a claim of privilege in a pure diversity case, and that in pure federal question cases the federal common law of privilege governs. However, it is not settled what privilege law should be applied to a case, such as this, which is primarily based upon state law diversity claims, with one federal claim as part of the counterclaim. Plaintiff's complaint alleges breach of contract, fraud, negligent misrepresentation, intentional and negligent interference with economic advantage, and unfair competition. Defendants' third amended counterclaim alleges violation of the Lanham Trademark Act, unfair competition under California's Business and Professions Code and common law, defamation, breach of contract, breach of covenant of good faith and fair dealing, fraud, and conversion.

 Counsel for Plaintiff argues that because this case contains one federal claim, all assertion of privileges must be determined based upon the federal common law. To the contrary, Counsel for Defendant argues that because this is primarily a diversity lawsuit, involving state law claims, state privilege law should apply. Unfortunately, the Ninth Circuit has not addressed the issue of what privilege law should be applied in cases involving both state and federal claims.

 The cases cited by Plaintiff in support of applying the federal law of privilege, are not controlling on this issue. In Wm. T. Thompson Co. v. General Nutrition Corp., 671 F.2d 100 (3d Cir. 1982), the plaintiff raised primarily claims of federal antitrust violations. The state law claims overlapped the federal claims such that the same evidence would be necessary as to all issues. For that reason, and because the court found that the application of both state and federal privilege law to the same evidence would be unworkable, the court held that the federal common law would prevail. Likewise, in Coastal Fuels of Puerto Rico, Inc. v. Caribbean Petroleum Corp., 830 F. Supp. 80 (D. Puerto Rico 1993), the claims raised were primarily federal antitrust violations, with ...


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