Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_14-cv-00880/USCOURTS-cand-3_14-cv-00880-4/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1330 Breach of Contract

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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

San Francisco Division

STELLA SYSTEMS, LLC, et al.,

Plaintiffs,

v.

MEDEANALYTICS, INC.,

Defendant.

Case No. 14-cv-00880-LB 

ORDER ON DISCOVERY LETTER

[Re: ECF No. 126]

INTRODUCTION

The parties‘ current discovery dispute (ECF No. 126)1covers three subjects in which the 

plaintiff (―Stella‖) has sought information, and the defendant (―Mede‖) has refused to supply it. 

The court finds this matter suitable for determination without oral argument. See Civ. L.R. 7-1(b).

After considering the parties‘ arguments, the court rules as follows.

ANALYSIS

―[B]road discretion is vested in the trial court to permit or deny discovery, and its decision to 

deny discovery will not be disturbed except upon the clearest showing that denial of discovery 

results in actual and substantial prejudice to the complaining litigant.‖ Dichter-Mad Family 

Partners, LLP v. United States, 709 F.3d 749, 751 (9th Cir. 2013) (quoting Hallett v. Morgan, 296 

 

1 Record citations are to material in the Electronic Case File (―ECF‖); pinpoint citations are to the 

ECF-generated page numbers at the tops of the documents.

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F.3d 732, 751 (9th Cir. 2002) (alteration omitted in Dichter-Mad); see also, e.g., Crawford-El v. 

Britton, 523 U.S. 574, 598 (1998) (―Rule 26 vests the trial judge with broad discretion to tailor 

discovery . . . .‖).

I. MEDE’S “ATTEMPTS TO SELL ITSELF”

The first group of discovery requests involve what Stella calls Mede‘s ―attempts to sell itself.‖ 

(See ECF No. 126 at 1-3.) There are five disputed requests in this category. Interrogatory #7 asks 

Mede to ―identify all third parties‖ with whom Mede ―communicat[ed],‖ from January 1, 2012 to 

the present, about the ―possible sale, acquisition or merger‖ of Mede. (Id. at 9) (capitals removed).

Request for Admission #113 asks Mede to admit or deny that during 2014 it communicated with 

third parties about ―the possible sale, acquisition or merger‖ of Mede. (Id. at 10.) Two requests for 

production (#30, #31) respectively ask for communications with, and documents authored by,

―any potential acquirer‖ regarding ―any consideration of selling‖ Mede to that potential buyer. 

(Id.) Finally, more narrowly, in Request for Production #29, Stella asks Mede to produce ―all 

documents‖ regarding ―Oracle Corporation‘s decision, in the fourth quarter of 2012 not to 

acquire‖ Mede. (Id. at 9.) As a compromise, Stella has offered to narrow the document requests to 

those created after January 1, 2012, and to limit them to a list of specific custodians. (Id. at 3.)

These documents are relevant, in Stella‘s view, to Mede‘s motive for (allegedly) ―poaching‖ 

Stella employees so that Mede would look more valuable to potential buyers. (Id. at 1-2.) Motive, 

Stella says, is ―central‖ to its intentional-interference claim and relevant to its request for punitive 

damages. (Id.) Mede responds (in sum) that it has already produced the information that should 

answer these concerns and that it is a ―fishing expedition‖ for Stella to pry generally into all of 

Mede‘s ―possible‖ transactions with third parties. (See id. at 2-3.) Mede states that it has already:

1. produced non-privileged documents from email searches of key custodians that contain 

key terms such as ―Oracle‖ and ―solicit‖;

2. agreed to produce non-privileged documents that refer or relate to the business decision to 

disengage from Stella and any impact that decision would have on Mede‘s operation, 

profitability, or attractiveness as an acquisition target; and 

3. agreed to produce non-privileged documents relating to any decision to solicit or hire 

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Stella employees.

(Id. at 2.)

The court agrees with Mede that this material would encompass anything responsive to 

Stella‘s requests — if, as Stella says, those requests pertain to Mede‘s motive to improve its 

attractiveness to buyers. The documents that Mede says it has already produced, or agreed to 

produce, do seem to answer Stella‘s stated needs for propounding these requests. To the extent 

that they go beyond what Stella‘s stated needs (to prove motive) justify, they go too far into 

Mede‘s general business. There is one qualification: If Mede has already produced emails related 

to the abortive Oracle sale, as it says it has, then it should be willing to produce other documents 

related to that proposed deal. Those documents should be produced — assuming any exist, and, of 

course, subject to any evidentiary protections. Otherwise, the court would not compel Mede to 

respond to the discovery requests in this group.

II. MEDE’S VALUATION

The second group of requests seeks information concerning Mede‘s value. Two interrogatories 

ask for Mede‘s estimated value as of December 31, 2012 and September 30, 2014. (ECF No. 126 

at 11.) Two requests for production ask Mede to produce ―all communications‖ with, and ―all 

documents authored by,‖ Bain Capital Ventures, regarding Mede‘s value or ―potential acquisition . 

. . by a third party.‖ (Id. at 11-12.) A last request seeks ―all documents‖ relating to Mede‘s value 

from January 1, 2011 to the present. (Id. at 12.)

Stella gives three reasons that Mede should be required to produce this information. First, 

Stella says that Mede‘s value ―is relevant to motive.‖ (Id. at 3.) As above, Mede has produced or 

agreed to produce anything that would tend to show that Mede had a motive (of the kind that 

Stella suggests: namely, to increase its value) for ―poaching‖ Stella‘s employees or breaching its 

contract with Stella. Nothing about Mede‘s overall value as a company speaks usefully to Stella‘s 

allegations or ―motive‖ contentions. (To the extent that Requests for Production #26 and #27 ask

for information regarding the ―potential acquisition‖ of Mede by third parties, those requests are 

covered by the reasoning in Part I, supra.)

Second, Stella contends that Mede‘s ―changing valuation‖ will help establish its tort damages. 

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(Id. at 3-4.) Stella writes:

Stella‘s damages expert will present a figure to the jury regarding 

the value to Stella of its lost engineers. In supporting that figure, that 

expert may use as a data point the increase in Mede‘s valuation . . . 

and show how much of that increase is attributable to the acquisition 

of ex-Stella personnel.

(Id. at 4) (emphasis added). This is not a tenable measure of damage. Mede gets the essential point 

correct: ―[A]ny change in Mede‘s valuation does not bear‖ on Stella‘s claimed losses. (See id. at 

4.) The presumed increase in Mede‘s value does not describe any loss that Stella suffered, under a 

contract or tort theory. Assume, for instance, that Stella is correct about Mede ―poaching‖ its 

workers: The value of former Stella engineers while working for Mede says nothing about their 

value while working for Stella. Too many variables affect how any given employee will aid one 

company, as opposed to another, to make a casual correlation between the two situations more 

than abstract, remote, and merely conceivable. The value of those engineers ―to Stella‖ and their 

value to Mede are two different beasts. On the current record, in any event, the court cannot say 

that their value to the two companies is so alike that the increased value they brought to one 

company (Mede) is a better than speculative measure of the loss that their departure caused the 

other (Stella).

Third, and last on this issue, Stella correctly argues that Mede‘s value ―is relevant to Stella‘s 

request for punitive damages.‖ (Id. at 4.) It is in fact more than relevant: Proof of Mede‘s value is 

indispensable to Stella‘s request for punitive damages; and the burden of introducing that proof is 

upon Stella:

In a federal diversity action based on California law, plaintiff has the 

burden of proof on each element required for an award of punitive 

damages, including defendant’s financial condition. Under 

California law, proof of defendant‘s finances is prerequisite to a 

punitive[-]damages award.

W. Schwarzer et al., Cal. Practice Guide: Fed. Civil Procedure Before Trial § 1:1070 (Rutter 

Group 2014) (emphasis in original) (citing Adams v. Murakami, 54 Cal.3d 105, 119-21 (1991)).

The question whether such information is subject to discovery at this juncture, however, is 

more complicated. ―In state[-]court actions, plaintiff cannot obtain discovery as to defendant‘s 

wealth without a court order; and such order can be issued only after plaintiff has shown a 

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 ̳substantial probability‘ of recovering punitive damages.‖ Schwarzer, supra, § 1:1062 (citing Cal. 

Civ. Code § 3295(c)). This does not bind the federal court, but federal courts in diversity may 

apply the rule as one of state-law privilege or privacy protection. Schwarzer, supra, § 1:1063. The 

federal rules confirm the court‘s broad discretion to control the discovery, introduction, and timing 

of such evidence when relevant to punitive damages. Cf., e.g., Am. Computech, Inc. v. Nat’l Med. 

Care, Inc., 959 F.2d 239 (9th Cir. 1992) (federal law governed bifurcation of defendant‘s wealth 

from liability phase of trial); Hungarter v. Provident Life & Acc. Ins. Co., 373 F.3d 998, 1021 (9th 

Cir. 2004) (trial court had discretion in declining to bifurcate evidence of defendant‘s financial 

condition from compensatory phase of trial).

This case is in its early stages. Mede‘s value appears to be relevant only to Stella‘s request for 

punitive damages; it is not as intimately bound up with liability theories as such evidence 

sometimes is. This court is sitting in diversity and applying California substantive law, which 

(apart from its most procedural aspects) includes California law on punitive awards. Taking all 

these facts into consideration, the court declines to require Mede to respond to these discovery 

requests at this time. When other evidence has developed, if Stella can show a ―substantial 

probability‖ that it will prevail on its punitive-damages request, see Cal. Civ. Code § 3295(c), the 

court will entertain a motion to compel Mede to produce the requested information, as then seems 

appropriate. For now, the court concludes that Mede should not be made to respond to these 

requests.

III. “IMMIGRATION ISSUES”

The last set of requests asks Mede to produce information ―regarding Mede‘s practices of 

issuing immigration visa applications for ex-Stella employees.‖ (ECF No. 125 at 5.) Requests for 

Production #20, #34, and #35 cover documents related to exactly that topic; Request #36, 

somewhat differently, asks for ―all Form W-2s‖ that Mede has issued for former Stella employees. 

(See id. at 13-14.)

Stella maintains that the immigration information is relevant in two ways. First, it is supposed 

to show Mede‘s motive for ―poaching‖ Stella employees. The reasoning here is a bit convoluted. 

According to Stella, Mede has accused it of refusing to send its employees to the United States, 

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apparently for training. (See ECF No. 126 at 5.) Stella claims that it ―objected to Mede‘s attempt 

to bring over Stella employees on B1/B2 (not H-1B) visas and have them illegally perform work 

in the U.S. under those visas.‖ (Id.) This objection, contends Stella, gave Mede the ―impetus‖ to 

―directly solicit Stella‘s employees.‖ (Id.) Second, relatedly, Stella argues that the requested visa 

information will show that Mede‘s alleged interference in the Stella employment contracts was 

―wrongful‖ because it was prompted by Stella‘s ―refusal to violate U.S. immigration laws.‖ (Id. at 

5-6.)

Mede offers several responses. It first notes that Stella‘s rationale for needing this information 

has changed — and now goes beyond the bounds of the complaint. ―The Complaint‘s only support 

for this request,‖ Mede writes, and the ―only relevance theory‖ that Stella advanced in conferring 

with Mede, was its allegation that Mede used ―offers of immigration to entice Stella employees to 

join Mede.‖ (Id. at 6.) ―Yet Mede already agreed to produce all solicitation-related documents or 

communications with then-Stella employees‖; this ―would encompass any discussion of 

immigration.‖ (Id.) Furthermore, Mede has ―agreed to answer Stella‘s immigration-related RFAs, 

Nos. 105-108.‖ (Id.) Neither party explains specifically what those RFAs cover. Finally, Mede 

correctly points out that California interference law requires Stella to prove that Mede engaged in 

an ―independently wrongful act . . . that induced the at-will employee to leave‖ Stella. (Id.)

(quoting Reeves v. Hanlon, 33 Cal. 4th 1140, 1145 (2004) (emphasis by Mede)). Mede sees ―no 

logic‖ in Stella‘s theory that a violation of immigration law induced Stella employees to leave for 

Mede. Furthermore, Mede concludes, ―Stella has not provided even a hypothetical theory as to 

how Mede‘s conduct was  ̳wrongful‘ or in violation of any immigration law.‖ (Id.)

The court understands Mede‘s position. Stella‘s argument — that its unwillingness to agree to 

(what in its view were) inappropriate B1/B2 visas, under which Mede would train Stella 

employees in the U.S., prompted Mede to hire these employees outright — does appear strained. 

Hiring those workers outright would, after all, require the very H-1B visas that Stella says Mede 

wanted to avoid. Nor is it clear how Mede‘s bringing the employees to train in the U.S. on the 

―wrong‖ visa — assuming that characterization is correct — can have ―induced‖ these employees 

to leave Stella. Reeves, 33 Cal. 4th at 1145. All that said, on the basis of what is before it, the court 

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cannot say that the visa-application material that Stella requests will not lead to the discovery of 

admissible evidence. Evidence, moreover, that includes material beyond the ―solicitation-related‖ 

documents that Mede has agreed to produce. The material that Stella requests — if it is not in the 

center of the ballpark described by the parties‘ immigration-related issues — seems to be at least 

in the surrounding neighborhood.

One qualification applies to the W-2s. The court assumes that Stella is asking for these 

because receiving a W-2 implies that a former Stella employee was in this country on an H-1B 

work visa. But that much will be shown by the fact that a given employee was issued a W-2 at all. 

The court does not see how a W-2‘s further details — for example, a person‘s income — bear on 

any immigration question. Details like that may be redacted from the W-2s; indeed, information 

personal to these employees in any document covered by these requests may be subject to 

redaction for, broadly speaking, reasons of confidentiality. It may be that privacy concerns can be 

addressed adequately by a protective order.

CONCLUSION

The court reaches the following conclusions regarding the subject discovery: 1) Mede need not 

respond to any of the requests concerning its efforts to ―sell itself‖ — except that, inasmuch as it 

has already produced emails related to the Oracle deal, it should be willing to produce other such 

documents; 2) Mede need not respond to any of the requests concerning its ―valuation‖; and 3) 

Mede should respond to all the requests concerning immigration, except that it may redact 

people‘s private information (beyond their basic identity) from the W-2s.

IT IS SO ORDERED.

Dated: February 25, 2015

______________________________________

LAUREL BEELER

United States Magistrate Judge

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