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Fred Kayne et al v. the Grande Holdings Limited

September 2, 2011

FRED KAYNE ET AL., PLAINTIFFS AND RESPONDENTS,
v.
THE GRANDE HOLDINGS LIMITED, DEFENDANT AND APPELLANT.



(Los Angeles County Super. Ct. No. BC363764) APPEAL from a judgment of the Superior Court of Los Angeles County. Mary Ann Murphy, Judge.

The opinion of the court was delivered by: Armstrong, J.

CERTIFIED FOR PUBLICATION

Affirmed.

The Grande Holdings Limited ("Grande") appeals an order granting the motion of plaintiffs Fred Kayne, et al. ("plaintiffs") for discovery sanctions in the amount of $74,809. Finding no error, we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

Plaintiffs filed a lawsuit in the United States District Court for the Central District of California (Kayne, et al. v. MTC Electronic Technologies, Co., Ltd., et al., CV-95-0488) in January 1995, in which they alleged that MTC, Grande's subsidiary, and others violated federal and state laws by failing to disclose material facts in connection with plaintiffs' purchase of MTC securities, among other things. In December 2005, plaintiffs obtained a "net default Partial Final Judgment" in favor of plaintiffs and against MTC in the amount of $37,562,122. In this lawsuit, plaintiffs seek to enforce this judgment, less the amount of certain settlements, against Grande. Plaintiffs allege that MTC, which ceased doing business in 2003, was Grande's alter ego, and that Grande misused or converted MTC's assets over a period of several years before leaving it a judgment-proof shell.

Plaintiffs sought document discovery from Grande in March 2007. Grande responded solely by objecting. Plaintiffs filed a motion to compel on July 2, 2007. The motion was continued, and after Grande's demurrer was overruled, the parties reached an agreement pursuant to which plaintiffs would narrow the request and Grande would produce documents. This agreement, entered as an order by the trial court on July 21, 2008, required Grande to produce 24 categories of documents in its possession, custody or control by August 20, 2008.

Grande produced over 30,600 pages of documents in three tranches, on August 20, October 3 and November 21, 2008. Plaintiffs complained that all but 28 pages were documents which Grande knew plaintiffs already had as a result of discovery demands in other lawsuits against Grande and MTC. Plaintiffs also asserted that entire categories of documents, such as MTC's internal financial and accounting records, or Grande's own ledgers, journals and bank records reflecting transactions with MTC, were not produced. In a series of meet and confer sessions, plaintiffs requested, among other things, that Grande describe its search efforts in response to plaintiffs' discovery request.

On March 5, 2009, after Grande neither produced additional documents nor provided an explanation of its efforts to locate the requested documents, plaintiffs filed a motion to enforce the July 21, 2008 discovery order. While the motion was pending, Grande represented that it would comply with the discovery order and produce additional documents which it had located. In reliance on that representation, plaintiffs agreed to take the motion to enforce off calendar.

Grande thereafter produced approximately 60,000 additional pages of MTC documents in April and May of 2009, which it stated it had only recently uncovered. These consisted of approximately 5,000 pages of a partial computerized general ledger, as well as 55,000 pages of MTC financial, accounting, banking and transaction records, which plaintiffs described as being in complete disorder. When Grande refused plaintiffs' request to label the documents in accordance with Code of Civil Procedure section 2031.280, subdivision (a),*fn1 plaintiffs hired three attorneys to organize the documents by category and date, so that they could use them to prepare for upcoming depositions of Grande witnesses.

In August 2009, plaintiffs filed a motion to enforce the July 21, 2008 discovery order. Plaintiffs sought $74,809 in sanctions under section 2023.010, subdivision (c), claiming that Grande employed a discovery method in a manner or to an extent that caused undue burden and expense. Grande opposed the motion, claiming it had fully discharged its obligations under the discovery statutes, because the documents were produced in the same state that they had been found by Grande, in plastic bags in a file cabinet in office space which MTC once leased from Grande (and which Grande occupied after MTC's demise). It also claimed that the motion was untimely, for while it was styled as a motion to compel compliance with a discovery order, it was in reality a motion to compel further responses.

At a hearing on December 3, 2009, the trial court granted plaintiffs' motion in part, and continued the sanctions motion to February 25, 2010, in order to give Grande an opportunity to provide evidence of the manner in which MTC's documents were kept by Grande between March 2007, when plaintiffs served their discovery request, and their production in 2009.

On January 15, 2010, Grande served the declarations of Bianca Leung, MTC's former controller and a 16-year "Grande Group" employee, and Felicity Porter, Grande's in-house counsel. These declarations did not, however, provide evidence of when and how Grande "discovered" the documents in storage, or how they had been kept while in Grande's possession and control. Neither declarant had any personal knowledge as to the condition in which the documents were found, or had any explanation for the disorganized condition in which they were produced.

The trial court conducted a hearing on the sanctions motion on March 30, 2010. Initially, the court noted that Grande had been in litigation concerning its alter ego liability for the obligations of MTC since 1998, and since December 15, 2000, was on notice that, if and when plaintiffs received a judgment in their litigation against MTC, they intended to sue Grande on an alter ego theory. The trial court further stated: "I specified in the [December 3, 2009] order that I was ordering defendant to file a client declaration by a person with knowledge regarding the manner in which the documents were kept in March 2007 . . . . That is a very specific order, especially given the extremely unusual document production here. On the bell curve of document productions, this one is very near the end of the bell curve. [ΒΆ] Grande has proffered no satisfactory explanation under oath by a person with knowledge as to why the documents were produced in the fashion that the ...


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