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Sun Pacific Marketing Cooperative, Inc. v. Dimare Fresh

December 3, 2009


The opinion of the court was delivered by: Gary S. Austin United States Magistrate Judge


(Docs. 84 and 86)

I. Introduction

On August 11, 2009, Appellant, Sun Pacific Marketing Cooperative, Inc., ("Sun Pacific"), filed the instant Motion to Compel which seeks responses to numerous interrogatories and requests for production of documents. (Doc. 84). On August 17, 2009, Appellee, DiMare Fresh Inc., ("DiMare"), filed the instant Motion for a Protective order in response to Sun's Pacific's Motion to Compel, as well as to recently served Notices of Depositions and a Notice of Subpoena Duces Tecum. (Doc. 86). On September 1, 2009, the parties filed a Joint Statement Regarding Discovery Disagreements ("Joint Statement") in compliance with Local Rule 37-251(c). (Doc. 89). Based on a review of the pleadings, the Court determined that the matter was suitable for decision without oral argument pursuant to Local Rule § 78-230 (h). Upon consideration of the Joint Statement, Sun Pacific's Motion to Compel is granted and denied in part. Similarly, DiMare's Motion for a Protective Order is granted and denied in part.

II. Relevant Background

This action is an appeal from a Decision and Order of the Secretary of Agriculture ("the Secretary") in a Reparation Proceeding under the Perishable Agricultural Commodities Act ("PACA"). 7 U.S.C. § 499g(c). The Secretary of Agriculture concluded that Sun Pacific Marketing Cooperative, Inc., ("Sun Pacific") breached a contract to supply tomatoes to DiMare Fresh Inc., ("Dimare") and awarded DiMare damages. Specifically, on June 5, 2006, the parties entered into a contract ("Original Contract") in which DiMare agreed to buy a set quantity of various types of tomatoes at set prices from July 17, 2006 through October 31, 2006 from Sun Pacific. The contract specified that, "In the event of a product shortage caused by an Act of God, natural disaster, or other incident that could not be foreseen and is beyond the control of Sun Pacific, then the performance under this contract shall be excused." By letter dated September 4, 2006, Sun Pacific notified DiMare that it was cancelling performance of the Original Contract under the Act of God provision due to tomato shortages caused by heat and rain during July and August in Central California. At that time, the shortage had caused the market price of tomatoes to rise to over $28.00 per carton - significantly higher than the prices in the Supply Contract (which ranged between $4.45 and $7.95 per carton). Despite these reduced yields, DiMare contended that Sun Pacific was not excused from performance under the Original Contract.

Between September 7 and September 12, 2006, Sun Pacific continued to sell DiMare tomatoes. Sun Pacific contends that the sales were made pursuant to a new understanding between the parties at a higher sales price ("Provisional Agreement"). Di Mare argues that the sales were made pursuant to the Original Contract and paid Sun Pacific based on the prices contained therein. No other tomato sales were made after September 12, 2006. DiMare entered into contracts to purchase tomatoes from other companies ("cover tomatoes" or "cover contracts") on the open market for the remainder of the Original Contract term at a cost in excess of $1.1 million dollars. DiMare first brought suit on September 14, 2006, against Sun Pacific alleging breach of contract and seeking performance. DiMare v. Sun Pacific, CIV 06-1265 AWI. On September 25, 2006, DiMare voluntarily dismissed the suit without prejudice. On October 11, 2006, Sun Pacific filed suit against DiMare in the instant action. Sun Pacific's operative complaint has five loosely organized counts 1) declaratory relief that the weather events during the summer of 2006 qualify under the Act of God provision in the Original Contract; 2) violation of duty to pay promptly under PACA; 3) breach of the Provisional Agreement; 4) declaratory relief that receipt of tomatoes under the Provisional Agreement created a PACA trust; and 5) enforcement of payment through the PACA trust. DiMare filed an answer and counterclaim in this case on December 5, 2006. The counterclaim alleges both breach of the Original Contract and PACA causes of action for failure to deliver in accordance with the terms of the contract.

On January 8, 2007, DiMare filed a formal Reparation Complaint pursuant to 7 U.S.C. § 499f(a), seeking damages for breach of the original contract, with the United States Department of Agriculture ("USDA"). On April 19, 2007, the instant action was stayed pending the resolution of the Reparation Proceeding. The Reparation Proceeding was commenced on August 22, 2008. William Jenson, a Judicial Officer for the USDA, ruled in favor of DiMare and awarded it $1,136,599 (plus interest at the rate of 2.18% starting from November 1, 2006 until paid) and the $300 Reparation Complaint filing fee. On September 19 and 22, 2008, Sun Pacific filed a notice of appeal, petition, and bond pursuant to 7 U.S.C. § 499g(c) in this court. The parties are contesting the scope of discovery permitted as part of the review of the Secretary's decision.

III. The Parties' Motions

Sun Pacific's Motion to Compel seeks to obtain substantive responses to Interrogatories Numbers 2, 3, 5, and 15, as well as Production of Document Requests Numbers 1, and 5 through 34.*fn1 DiMare's Motion for Protective Order seeks to: 1) quash subpoena duces tecum to DiMare's customers which seek to obtain documents regarding pricing and contracts between DiMare and its customers during 2006,*fn2 2) prohibit the deposition requests of three of the corporate representatives of the customers listed above, 3) limit the depositions of DiMare representatives so they do not include questions regarding the disposition of the cover tomatoes, and 4) that Sun Pacific's Motion to Compel be denied as to any information or documents regarding the disposition of the cover tomatoes.

IV. Discussion

A. The Scope of Discovery

Fed.R.Civ.P. 26(b) establishes the scope of discovery and states in pertinent part: Parties may obtain discovery regarding any matter, non privileged, that is relevant to any party's claim or defense, including the existence, description, nature, custody, condition, and location of any books, documents, or other tangible things and the identity and location of persons having knowledge of any discoverable matter. For good cause, the court may order discovery of any matter relevant to the subject matter involved in the action. Relevant information need not be admissible at trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence. Id. Thus, discovery is appropriate of any matter relevant to the subject matter involved in the action. "The party who resists discovery has the burden to show that discovery should not be allowed, and has the burden of clarifying, explaining, and supporting its objections." Oakes v. Halvorsen Marine Ltd., 179 F.R.D 281, 283 (C.D. Cal. 1998); Nestle Foods Corp. v. Aetna Casualty & Surety Co., 135 F.R.D. 101, 104 (D. N.J. 1990).

B. Protective Order Standards

DiMare seeks a protective order pursuant to Rule 26(c) of the Federal Rules of Civil Procedure, which provides: A party or any person from whom discovery is sought may move for a protective order in the court where the action is pending - or as an alternative on matters relating to a deposition, in the court for the district where the deposition will be taken. The motion must include a certification that the movant has in good faith conferred or attempted to confer with other affected parties in an effort to resolve the dispute without court action. The court may, for good cause, issue an order to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense . . .. Protective orders provide a safeguard for parties and other persons in light of the otherwise broad reach of discovery. United States v. CBS, Inc., 666 F.2d 364, 368-369 (9th Cir. 1982). In order to establish good cause for issuance of a protective order, the party seeking protection bears the burden of showing that specific prejudice or harm will result if no protective order is granted. See Beckman Indus., Inc. v. International Ins. Co., 966 F.2d 470, 476 (9th Cir. 1992) (holding that broad allegations of harm, unsubstantiated by specific examples or articulated reasoning, do not satisfy the Rule 26(c) test); see also San Jose Mercury News, Inc. v. United States Dist. Court, 187 F.3d 1096, 1103 (9th Cir. 1999) (holding that to gain a protective order the party must make a particularized showing of good cause with respect to any individual document). In determining whether good cause exits for the protective order, the Court must balance the interests in allowing discovery against the relative burdens to the parties and non parties. In re Coordinated Pretrial Proceedings, 669 F.2d 620, 623 (C.A. Okl. 1982). With these protective order standards in mind, the Court turns to DiMare's objections and its Motion for Protective Order.

DiMare's Position

DiMare contends that the items sought by Sun Pacific related to the disposition of the "cover tomatoes" is irrelevant to this litigation because under California law, if a buyer makes cover purchases in response to a seller's breach of contract, that buyer may recover the difference between the cost of the cover contract and the contract price from the seller. This gives the buyer the benefit of the bargain. What the seller chooses to do with that bargain is not relevant to the determination of damages. DiMare relies on KGM Harvesting Co., v. Fresh Network, 36 Cal. App 4th 376, 389, 42 Cal Rptr 2d. 286 (1995) in support of this argument. Additionally, DiMare contends that the discovery will cause DiMare and its customers annoyance, embarrassment, oppression, and undue burden and expense. Sun Pacific's Position Sun Pacific argues that DiMare has not met the burden of showing that specific harm or prejudice will result if no protective order is granted. Moreover, the requested information is relevant to issues of liability. Specifically, Sun Pacific contends that the information is necessary to determine whether there was a shortage under the contract, whether Sun Pacific breached the contract, or whether there was a modification of the contract. Sun Pacific also argues that the requested information is relevant to damages because there was never any discovery in the U.S.D.A. proceedings regarding whether DiMare ever purchased the cover tomatoes in order to fulfill its contract, what profits DiMare expected to make, or whether DiMare was excused from preforming some or all of its obligations under existing contracts. Sun Pacific contends that it needs this information so that damages can be properly calculated.


DiMare's Request for Protective Order

DiMare has requested a protective order to: 1) quash subpoenas duces tecum, 2) prohibit the deposition requests of DiMare's customers, and 3) to preclude any questions of DiMare representatives and other discovery requests regarding the cover tomotes. The Court is not persuaded by DiMare's argument that Sun Pacific's discovery requests surrounding the cover tomatoes and damages is not relevant to these proceedings. Sun Pacific argues that when a buyer has a resale contract and the damages calculated would result in a windfall to the buyer, those damages can be limited under U.C.C § 1-106. In particular, Sun Pacific contends that if DiMare purchased cover tomatoes in order to fulfill its contracts with its customers and DiMare modified, or was excused from performing these contracts, DiMare's damages would be significantly reduced or eliminated, thereby limiting the damages claim. In reply, DiMare has done nothing more than state that KMG Harvesting Co. v. Fresh Network discusses Sun Pacific's arguments regarding damages and explains why the discovery Sun Pacific seeks is irrelevant. DiMare has failed to explain how KMG Harvesting Co. v. Fresh Network specifically relates to the instant proceedings, or how that case undermines Sun Pacific arguments that § 1-106 of the U.C.C. applies to these proceedings. Section 1-106 of the U.C.C. provides as follows The remedies provided by this Act shall be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed but neither consequential or special nor penal damages may be had except as specifically provided in this Act or by other rule of law.

Moreover, § 2-712 of the U.C.C. provides that after a breach, the buyer may enter into "cover" contracts to purchase goods in substitution for those due from the seller. UCC § 2-712 (1). Under these circumstances, the amount of the damages is the difference between the cost of the cover and the contract price together with any incidental or consequential damages. UCC §2-712 (2); See also, California Uniform Commercial Code § 2712(2). Here, the parties are disputing whether there was a breach of contract, the extent of any damages, as well as which law related to damages will apply. Although DiMare has cited KMG Harvesting Co. v. Fresh Network, this is a decision issued by the Fourth District California Court of Appeal. Whether this case will ultimately be binding in this litigation is yet to be determined. Accordingly, for purposes of discovery, damages regarding the cost of the cover tomatoes, and whether DiMare was able to pass those costs on to its customers are all relevant at this stage of the proceedings. In addition, information related to the cover tomatoes and DiMare's contracts with its other customers is also relevant to determining DiMare's intent when it negogiated the contract, as well as whether there was any modification to the contract. Sun Pacific argues that the parties re-negotiated the contract during September 7 and September 12, 2006. Information regarding DiMare's contracts with their customers during this time period would be relevant to determine whether DiMare believed the price of the tomatoes with Sun Pacific had changed from the Original Contract.

Finally, the court agrees with Sun Pacific's argument that the information with regard to contracts DiMare made with customers is relevant to determining whether DiMare renegotiated its prices as a result of the heat wave. If DiMare did so, it would undermine DiMare's contention that Sun Pacific erroneously instituted the Act of God Clause in the contract. As the resisting party, Defendant has the burden or clarifying, explaining, or supporting its objections. Blankenship v. Hearst Corp., 519 F. 2d 418, 429 (C.A. Cal. 1975); Keith H. V. Long Beach Unified Sch. District, 228 F.R.D. 652, 655-656 (C.D. Cal. 2005). DiMare has failed to do so. As Judge Ishii noted in his order denying DiMare's Motion for Summary Judgment, 7 U.S.C. § 499(g) "does not impose any limitation on Plaintiff's ability to submit evidence in this de novo proceeding." Genecco Produce, Inc., Sandia Deport, Inc.,. 386 F. Supp. 2d 165, 171 (W.D.N.Y 2005); Doc. 75 at pg. 4.

Notably, Judge Ishii held that additional discovery in this case was warranted. Doc. 75. Here, the parties are disputing whether there was a breach of contract, the extent of any damages, as well as which law related to damages will apply. These are issues that will be litigated in this course of these proceedings. Relevancy is "construed broadly to encompass any matter that bears on, or that reasonably could lead to other matter that could bear on, any issue that is or may be in a case." Oppenheimer Fund, Inc., v. Sanders, 437 U.S. 340, 351 (1978). (Emphasis added). "Generally, the purpose of discovery is to remove surprise from trial preparation so the parties can obtain evidence necessary to evaluate and resolve their dispute." Moon v. SCP Pool Corp., 232 F.R.D. 633, 635 (C.D. Ca. 2005) (quoting Oakes v. Halvorsen Marine Ltd, 179 at 281.). "Toward this end, Rule 26(b) is liberally interpreted to permit wide-ranging discovery of information even though the information may not be admissible at trial. Id. Although the court finds the requested materials relevant, it does note that information related to the contracts between DiMare and its customers, as well as information related to the cover contracts may include confidential business information or trade secrets. "Confidential business information has long been recognized as property." Carpenter v. United States, 4848 U.S. 19, 26, 108 S.Ct. 316, 320 (1987). Fed. R. Civ. P. 26(c)(G) provides that a court may prevent the release of trade secrets or other confidential information, or limit the release of this information in a specific way. Although DiMare has requested that Sun Pacific be completely precluded from obtaining the requested information, it has not made the requisite showing. Therefore, DiMare's requests to quash the subpoenas, and limit deposition testimony and other discovery requests with regard to cover tomatoes are therefore denied. However, given the confidential nature of the material, coupled with the fact that this information involves non-parties, the requested information shall be subject to protective order such that any information is limited to the parties' counsel, experts, consultants, their respective staff and/or employees, court reporters and others agreed upon by the parties. Fed. R. Civ. P Rule 26(C)(1)(B). Moreover, any documents submitted to the court shall be filed under seal. The parties shall meet and confer and submit a proposed stipulated protective order for the court's approval to formalize these provisions. Notwithstanding the above, some of Sun Pacific's interrogatory requests and requests for production of documents are objectionable. Accordingly, DiMare's obligation to respond to each of Sun Pacific's specific requests is limited as set forth below. The discovery requests have been grouped together because of the commonality of issues and/or the similarity of the objections.

C. Interrogatory Standards

Functions of interrogatories include obtaining evidence, information which may lead to evidence and admissions, and to narrow issues to be tried. United States v. West Virginia Pulp and Paper Co., 36 F.R.D. 250, 252 (S.D.N.Y. 1964). The party answering interrogatories must furnish "such information as is available to the party." F.R.Civ.P. 33(a). F.R.Civ.P. 33(b)(1) requires an interrogatory to be answered "separately and fully in writing under oath, unless it is objected to, in which event the objecting party shall state the reasons for objection and shall answer to the extent the interrogatory is not objectionable." An "evasive or incomplete . . . answer, or response is to be treated as a failure to . . . answer, or respond." F.R.Civ.P. 37(a)(3). Further, the responding party has a duty to supplement any responses if the information sought is later obtained or the response provided needs correction. Fed. R. Civ. P. 26(e)(A).

1. Sun Pacific's Disputed Interrogatories

Interrogatory No. 2.

Identify all people who have any direct knowledge of the facts and circumstances relating to the subject matter of this lawsuit. For each, include a description of the subject matter of that person's knowledge.

Interrogatory No. 3

For each and every oral or written communication between Sun Pacific and DiMare related to 20 the negotiation, formation, execution, performance, breach or termination of the Contract. For each, identify

a. The date of the communication;

b. The form of the communication (oral or written);

c. If the communication was written:

1. Identify the author of the communication;

2. Identify each person who possesses the original and all copies of the communication;

3. Please state the contents of the communication verbatim, or attach a copy of said communication hereto.

d. If the communication was oral:

1. State whether the communication was in person, over the telephone or by other mechanical means;

2. Identify all parties to the communication;

3. Identify each person witnessing all or part of the communication;

4. State in detail the substance of the communication;

5. Identify all documents evidencing, referring, or relating to the communication, and identify each ...

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