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LegalForce RAPC Worldwide P.C. v. Demassa

United States District Court, N.D. California

October 22, 2019

LEGALFORCE RAPC WORLDWIDE P.C., Plaintiff,
v.
CHRIS DEMASSA, Defendant.

          ORDER GRANTING IN PART AND DENYING IN PART RENEWED MOTION FOR SANCTIONS RE: DKT. NO. 118

          THOMAS S. HIXSON UNITED STATES MAGISTRATE JUDGE

         I. INTRODUCTION

         Plaintiff LegalForce RAPC Worldwide, P.C., moves for sanctions pursuant to Federal Rule of Civil Procedure 37(b) after Defendant Chris Demassa failed to comply with two orders compelling him to produce financial records to LegalForce's outside counsel. ECF No. 118. Demassa filed an opposition. ECF No. 125. LegalForce did not file a reply. The Court finds this matter suitable for disposition without oral argument and VACATES the October 31, 2019 hearing. See Civ. L.R. 7-1(b). Having considered the parties' positions, relevant legal authority, and the record in this case, the Court GRANTS LegalForce's motion for sanctions in part and DENIES it in part for the following reasons.

         II. BACKGROUND

         LegalForce, a law firm that practices patent and trademark law, alleges Demassa operates trademark preparation websites that advertise legal services performed by lawyers, when in fact they have no lawyers. Sec. Am. Compl. ¶¶ 2-4, 8, ECF No. 94. LegalForce further alleges it competes with Demassa to provide small businesses with affordable access to legal services that allow them to protect their marks through preparation and filing with the U.S. Patent and Trademark Office. Id. ¶ 3. Both use technology and innovation to provide these services for hundreds of dollars instead of the thousands of dollars that traditional law firms charge. Id. However, LegalForce alleges Demassa is cheating because his advertisements - that trademark attorneys provide his services - are false and that he is engaged in the unauthorized practice of law. Id. ¶¶ 4, 6. Not hiring actual lawyers lets Demassa charge less than LegalForce, diverting business from it to him. Id. ¶ 6. The firm sues for false advertising under the Lanham Act and for violations of California Business and Professions Code sections 17200 and 17500. Id. ¶¶ 60-88.

         Demassa, who is pro se, says “[n]o one has ever confused the fact that staff are not attorneys” because he provides access “to independent trademark attorneys for legal analysis of trademark reserach [sic] and to answer all legal questions client's [sic] may have about the subject of trademarks.” Answer to Sec. Am. Compl. at 2, ECF No. 95. He claims LegalForce's lawsuit is “designed to weaken and put out of business” all LegalForce competitors. Id. at 6.

         On April 14, 2019, LegalForce filed a motion to compel the production of financial documents. ECF No. 79. LegalForce served its requests for production (“RFPs”) on February 21, 2019. Abhyanker Decl., Ex. 1 (RFPs), ECF No. 79-2. RFP No. 8 seeks financial statements and tax returns (federal and state) since 2008 that identify, at a minimum, revenue and profit from trademark application filing, trademark search, and other services (e.g., responding to office actions, correcting trademark applications, etc.), cost of sales, and advertising expenses. RFP 10 seeks documents that demonstrate, on a month-by-month basis, the total number of visits to Demassa's websites from 2008 to the present, including the number of visits to sections of those websites that provide trademark filing and related services. RFP 12 requests Demassa's general ledgers since 2008. RFP 13 requests his annual profit and loss and/or income statements since 2008, which include his revenues, cost of goods sold, gross margin, general and administrative expenses, EBITDA, net income and profit. RFP 14 asks for Demassa's balance sheets since 2008.

         Demassa did not serve a written response, Abhyanker Decl. ¶ 4, but he did orally tell LegalForce that he did not want to provide the requested documents because they are competitors. Mot. to Compel at 5. At the hearing on LegalForce's motion, Demassa argued that except for tax returns, he does not have any of these things. ECF No. 90. He says he runs a small business and does not maintain financial statements, general ledgers, P&L statements, income statements, or balance sheets. Demassa did say he and his bookkeeper have records that show how much revenue his business has earned, what his business expenses are, and the profit his business earns. In fact, he had to assemble those records for the audit of his finances that occurred in connection with the parties' settlement discussions.

         On May 23, 2019, the Court granted in part and denied in part LegalForce's motion. ECF No. 91. The Court excused Demassa's failure to serve written objections, finding it clear that he orally objected to providing his financial information to a competitor before the deadline to serve written objections had expired, so there actually was no delay in communicating the substance of his objection, there was no apparent bad faith or prejudice to LegalForce, and that the discovery requests themselves were partially overreaching.[1] The Court also noted that Demassa's objection to producing financial documents to his competitor was understandable because the attorneys representing LegalForce in this case are LegalForce attorneys (i.e., the firm is representing itself), so if Demassa produced his financial information to them, it would go to his competitors. Id. at 3. However, the Court found the stipulated protective order resolved that problem because it defines certain items as “confidential” and provides that confidential information may be provided only to LegalForce's outside counsel, his employees, LegalForce's outside accountant, and the Court and its personnel. Id. (citing ECF No. 84). Further, as the definition of confidential information in the protective order did not include all the things LegalForce sought in its motion, the Court modified it so that everything Demassa produced in response would be deemed “confidential” under the protective order. Id.

         As to the merits, the Court found LegalForce's requests relevant because they would show Demassa's profits from the business that LegalForce claims is being falsely advertised, which LegalForce could potentially recover as Lanham Act damages if it wins the case on the merits. Id. at 4. However, the Court found LegalForce's request for Demassa's tax returns was overreaching because the returns presumably include personal information unrelated to the business activities he is being sued over and LegalForce could obtain the relevant information from the underlying business records used to create the tax returns. Id. The Court also found the time frame of the requests - 2008 to the present - overreaching. Id. Accordingly, the Court ordered Demassa to produce documents that show how much revenue his business has earned, what his business expenses have been, and the profit his business earned from January 2014 to the present.[2] Id. at 5. The Court ordered him to produce the documents to outside counsel, Bruno Tarabichi, within 30 days. Id.

         On July 17, 2019, LegalForce filed its initial motion for sanctions, arguing that Demassa still refused to produce any documents. ECF No. 99. LegalForce requested the Court enter coercive sanctions against Demassa in the form of a daily $500 fine until he produces the ordered financial documents in full. Id. at 6. It also argued Demassa should be forced to pay its attorneys' fees incurred in this discovery dispute. Id. LegalForce also requested the Court hold Demassa in civil contempt because his violation of the discovery order is not based on any good faith and reasonable interpretation - he simply refuses to produce the financial documents. Id. at 7. In response, Demassa argued: “The Court keeps perpetuating this case for no reason. I cannot afford an attorney. I have to stumble though [sic] these motions, hoping I am doing them correctly. I lose sleep, sales, attorneys and staff because of the imbalance this lawsuit has impacted my business.” ECF No. 100 at 2. As to the merits of LegalForce's motion, Demassa stated he “was going to meet with Bruno Tarabichi until I learned he was not really an independent attorney, as mutually agreed, . . . but instead incorporated into [LegalForce]'s legal team.” Id. at 6. Demassa cited the Notice of Electronic Filing he received in this case for ECF No. 92, which is the Notice of Appearance of Bruno Tarabichi as co-counsel of record for LegalForce. Id. Demassa argued that showing Tarabichi the requested information “seemed like the same as showing it directly” to LegalForce. Id. at 11. As to the documents the Court ordered him to produce, Demassa stated the records LegalForce seeks “never existed” as he is a “sole proprietor with no need to spend money on reports from my bookkeeper. I have used such data in the past, but now [sic] for at least 20 years. There is nothing to see but tax returns and bank statements.” Id. at 19.

         On August 12, 2019, the Court denied LegalForce's motion without prejudice. ECF No. 103. As to Demassa's argument regarding Tarabichi, the Court again noted that the parties' stipulated protective order resolves any problem regarding confidentiality because confidential information may be provided only to LegalForce's outside counsel, Tarabichi. Id. at 6. Thus, everything Demassa produces to Tarabichi is deemed confidential under the protective order and cannot be seen by LegalForce. Id. at 6-7. As to Demassa's argument that he does not maintain the kinds of financial records LegalForce seeks, the Court noted he already raised this argument at the hearing on LegalForce's motion to compel. At that time, Demassa informed the Court that he and his bookkeeper have records that show how much revenue his business has earned, what his business expenses are, and the profit his business earns, and he had to assemble those records for the audit of his finances that occurred in connection with the settlement conference in this case. Id. at 7. However, given Demassa's pro se status and his declared confusion regarding Tarabichi's status, the Court found it was not clear that sanctions were warranted and thus gave Demassa a “final opportunity” to comply with its order compelling production. Id. The Court ordered Demassa to produce documents “that show how much revenue his business has earned, what his business expenses have been, and the profit his business earned from January 2014 to the present” to Tarabichi by August 27, 2019. Id. The Court warned him that it “will likely find sanctions, including those requested by LegalForce in the present motion and any attorney's fees it accrues as a result of Demassa's continued failure to comply after this order, are warranted if he continues to withhold the information the Court ordered him to produce.” Id.

         On September 11, 2019, LegalForce filed its renewed motion for sanctions, arguing that Demassa has produced only some financial documents for 2014 to 2017 and has produced no documents for 2018 and 2019. Mot. at 3. LegalForce requests the Court impose a coercive daily sanction in the amount of $500 until Demassa produces the ordered financial documents in full, require him to pay its attorneys' fees incurred in this discovery dispute, and hold him in civil contempt for violation of the Court's previous orders. Id. at 6-8.

         In response, Demassa argues Tarabichi “was in fact given full disclosure for all financial information agreed upon at the Settlement Conference with Judge Beeler as well as ordered by you, Judge Hixson.” Opp'n at 2. At the same time, he argues “[t]his case is NOT about 2018, but I would have given 2018 financial information IF it existed, just so to demonstrate to Plaintiff and the Court I am presenting myself in good faith, with full disclosure. However, we do not have information for 2018 yet, as our tax returns for 2018 have not yet been compiled.” Id. at 2-3. Demassa states “[w]e use spreadsheets to compile income and expense data and this data is not yet complete.” Id. at 3. Demassa also argues the merits of LegalForce's case, stating it “is incapable of competing in the marketplace - even a bad marketplace” and that “because they cannot ...


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