Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_16-cv-00929/USCOURTS-casd-3_16-cv-00929-1/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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UNITED STATES DISTRICT COURT 

SOUTHERN DISTRICT OF CALIFORNIA 

LF CENTENNIAL LIMITED, a British 

Virgin Islands corporation,

Plaintiff,

v.

Z-LINE DESIGNS, INC., a Nevada 

corporation; and DOES 1-100, inclusive,

Defendant.

Case No.: 16cv929 JM (NLS)

ORDER DETERMINING JOINT 

MOTION FOR DETERMINATION 

OF DISCOVERY DISPUTE No. 3 

AND GRANTING LFCL’S MOTION 

TO COMPEL AND FOR 

SANCTIONS [Dkt. Nos. 68, 70].

***REDACTED***

 

This is an action for breach of a Licensing Agreement that resulted from patent 

litigation between the predecessor of plaintiff LF Centennial, LTD (LFCL) and defendant 

Z-Line Designs. In the Licensing Agreement LFCL 

 LFCL believes that not all royalties are being paid and is now suing for 

breach of contract and an accounting. By way of this motion LFCL seeks to (1) compel 

Z-Line to produce a Rule 30(b)(6) witness for deposition who is sufficiently educated and 

knowledgeable regarding the noticed topics to provide proper testimony; and (2)

attorney’s fees and costs for the deposition. For the following reasons, the court 

GRANTS LFCL’s motion to compel and for sanctions. 

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Relevant Background. 

 On March 15, 2017 LFCL conducted two Rule 30(b)(6) depositions. It deposed ZLine’s CFO Marcie Martinez on six deposition topics related to the Licensed Products 

and payment of royalties. It also deposed Z-Line’s president James Sexton regarding the 

purported oral agreement between Mr. Sexton and Ken Whalen, the late president of 

Whalen Furniture Manufacturing, Inc. (WFM), the predecessor of LFCL, where they 

allegedly agreed to LFCL complains that neither 

deponent prepared for the depositions, including by reviewing any documents. Further, 

as explained below, LFCL could not question Ms. Martinez about outstanding documents 

because they had not yet been produced.1

 As to Ms. Martinez, she did not appear to know which of Z-Line’s products were 

covered under the License Agreement. Dalton Decl. Ex. 5, Martinez Depo., 12:5-15:18. 

She testified that even though she is the one who decides whether to include certain 

products in the report, she could not explain why certain products were included on the 

spreadsheet documenting royalty payments. Id. at 38: 1-13; 15:16-16:11; 37: 7-25; 39:5-

40:7; 40:25-42:23. As for Mr. Sexton’s deposition, he testified that he did not know 

when the oral agreement was made, who else knew about it and whether it was ever 

discussed with other employees. Dalton Decl. Ex. 6, Sexton Depo., 19:2-19; 20:19-25; 

30:11-18; 35:9-37:9. 

Meanwhile, on March 17, 2017 the parties filed Joint Discovery Motion No. 2.

Dkt. No. 56. That dispute involved a motion to compel where LFCL sought financial 

information necessary to determine whether Z-Line paid sufficient royalties under the 

Licensing Agreement. Specifically, LFCL served Requests for Production (RFPs) that 

asked for all documents regarding licensed products that reflect sales (No. 1), revenue 

(No. 2), allowances and credits (No. 3), tax and shipping charges or returns (No. 4), net 

 

1

 The court notes that the depositions went forward on March 15, even without the 

documents, because the fact discovery cutoff was March 17, 2017. 

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sales amount (No. 5), and communications pertaining to those categories of documents 

(Nos. 6-10). In response, Z-Line produced a 5800 spreadsheet that refers to all of its 

products without identifying the licensed products subject to the Licensing Agreement. It 

did not produce any source documents such as purchase orders, invoices or other 

documents relevant to sales, revenues or the net sales amounts for the licensed products. 

Z-Line generally argued that it could not produce the source documents themselves 

because they sold hundreds of products in large volumes and it would be burdensome to 

produce the invoices. Jt. Disc. Mtn. No. 2 (Dkt. No. 56), p.13. But they did not provide 

any specifics as to burden. Instead, they focused their opposition on these points: (1) the 

joint motion was filed late; (2) the spreadsheet was sufficiently responsive to allow LFCL 

to conduct an audit; and (3) LFCL could have authenticated the spreadsheet during the 

CFO’s deposition. Id., pp.11-17. 

 The court granted LFCL’s motion to compel because it found that Z-Line failed to 

carry its burden to show why the court should deny discovery of the highly relevant 

information. The court ordered Z-Line to fully respond to RFP Nos. 1-10 by April 28, 

2017. Z-Line did not file a motion for reconsideration or Rule 72 objections with the 

District Judge in response to the court’s order. And it did not produce the court-ordered 

discovery. 

Legal Standards for Discovery. 

Parties can obtain discovery of non-privileged information so long as it 

is relevant to any party’s claim or defense and proportional to 

the needs of the case, considering the importance of the issues 

at stake in the action, the amount in controversy, the parties’ 

relative access to relevant information, the parties’ resources,

the importance of the discovery in resolving the issues, and 

whether the burden or expense of the proposed discovery 

outweighs its likely benefit. 

Fed. R. Civ. P. 26(b)(1). Discoverable information need not be admissible. Id. Once the 

propounding party establishes that the request seeks relevant information, “[t]he party 

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who resists discovery has the burden to show discovery should not be allowed, and has 

the burden of clarifying, explaining, and supporting its objections.” Superior Commc'ns 

v. Earhugger, Inc., 257 F.R.D. 215, 217 (C.D.Cal.2009); see Blankenship v. Hearst 

Corp., 519 F.2d 418, 429 (9th Cir.1975) (requiring defendants “to carry heavy burden of 

showing why discovery was denied”). 

 A responding party has a duty to prepare for a Rule 30(b)(6) deposition: 

When a party receives a Rule 30(b)(6) deposition notice, it must 

designate a knowledgeable person to fully prepare and 

“unevasively answer questions about the designated subject 

matter.” Bd. of Trs. of the Leland Stanford Junior Univ. v. Tyco 

Int'l Ltd., 253 F.R.D. 524, 526 (C.D. Cal. 2008) (internal 

quotations omitted). “[B]ecause Rule 30(b)(6) explicitly 

requires a company to have persons testify on its behalf as to 

all matters reasonably available to it, . . . the Rule ‘implicitly 

requires persons to review all matters known or reasonably 

available to [the corporation] in preparation for the [Rule] 

30(b)(6) deposition.’” Id. The deponent need not have personal 

knowledge of the designated subject matter. Id.

F.C.C. v. Mizuho Medy Co., Ltd., 257 F.R.D. 679, 681 (S.D. Cal. 2009) (Stormes, J.) 

(emphasis in original). 

Discussion. 

1. Additional Deposition Regarding Royalty Payments. 

 Ms. Martinez was designated to testify as to these topics on behalf of Z-Line as its 

person most knowledgeable: 

1. Z-Line Designs’ sales of the “Licensed Products” (as that term 

is defined in the July 26, 2013 Settlement and License 

Agreement (“the Agreement”)) in the United States from July 

26, 2013 to the present. 

2. Z-Line Designs’ revenues from sale of the “Licensed 

Products...” 

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3. The royalties paid by Z-Line Designs to LF Centennial Limited 

and Whalen Furniture Manufacturing, Inc. relating to Z-Line’s 

sales of the “Licensed Products...”

4. Z-Line Designs’ “allowances and credits” (as discussed in 

paragraph 3.1 of the Agreement) relating to Z-Line’s sale of the 

“Licensed Products...”

5. Z-Line Designs’ “tax or shipping charges or returns” (as 

discussed in paragraph 3.1 of the Agreement) relating to ZLine’s sale of the “Licensed Products...”

6. Z-Line Designs’ “net sales amount” (as discussed in paragraph 

3.1 of the Agreement) relating to Z-Line’s sale of the “Licensed 

Products...”

Dalton Decl., Ex. 2. 

LFCL argues that Ms. Martinez’s failure to prepare for the deposition compels a 

further deposition where she is adequately prepared to testify on behalf of the company. 

Z-Line argues that it was LFCL who was not prepared to ask questions it needed to 

prosecute this case. Z-Line also complains that its CFO—who testified that she created 

the spreadsheet that details the royalty payments—should not have been expected to 

testify as to what is a “Licensed Product” because the deposition notice did not list that as 

a topic. 

According to case law in this circuit interpreting Rule 30(b)(6), LFCL is entitled to 

the corporation’s knowledge from the corporation’s person most knowledgeable as to the 

noticed topic. See, e.g., Louisiana Pacific Corp. v. Money Market 1 Institutional 

Investment Dealer, 285 F.R.D. 481, 485-486 (N.D. Cal. 2012) (stating “The corporation 

has a duty to educate its witnesses so they are prepared to fully answer the questions 

posed at the deposition”) (citation omitted). “The designee's role is to provide the entity's 

interpretation of events and documents.” Id. at 486 (citation omitted). As to scope, “the 

‘reasonable particularity’ requirement of Rule 30(b)(6) cannot be used to limit what is 

asked of the designated witness at a deposition.” Id. (citation and quotations omitted). 

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Rather, the “notice establishes the minimum about which the witness must be prepared to 

testify, not the maximum.” Id. (emphasis added). 

It is hard to imagine how Ms. Martinez, the CFO of Z-Line and the person 

responsible for royalty payments, would not be qualified to respond as to what is a 

Licensed Product. All topics noticed for this deposition refer to royalty payments based 

on sales of the Licensed Products. The complaint centers on whether past royalty 

payments were correct. See, e.g., Compl. ¶ 61 (stating LFCL cannot confirm “the precise

amount of royalties due to LFCL because of improper calculations of past royalties ZLine paid to LFCL without viewing Z-Line’s books and records). Given the noticed 

topics, this deposition appears to be—for both LFCL and Z-Line—the most important 

deposition in this case. Considering that Z-Line asserts that all the information LFCL 

needs to do an audit and calculate the royalty payments is included in the spreadsheet it 

provided, it is curious that when asked if she reviewed the spreadsheet before the 

deposition, Ms. Martinez responded, “no.” Dalton Decl. Ex. 5, Martinez Depo., 16:7-9. 

The court finds that LFCL’s Rule 30(b)(6) notice described with reasonable 

particularity the topics Ms. Martinez should have prepared for the deposition. And this is 

LFCL’s deposition, so the court is not swayed by Z-Line’s proposals for how LFCL 

could have improved the questioning. The court finds that the lack of preparation on the 

part of Ms. Martinez violated Z-Line’s duty to properly prepare a Rule 30(b)(6) 

deponent, and thus grants LFCL’s request for a continued deposition on topic nos. 1-6 in 

the Rule 30(b)(6) deposition notice. 

2. Additional Deposition Regarding Oral Agreement. 

LFCL argues that it should get a continued deposition on the oral agreement 

because Mr. Sexton did not prepare for it. Z-Line argues that while he did not prepare, he 

did testify to the best of his knowledge as to the oral agreement and thus there is no need 

to continue his deposition. 

As stated above, LFCL is entitled to the corporation’s knowledge from the 

corporation’s person most knowledgeable as to the noticed topic. Z-Line designated its 

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President—who allegedly had the conversation with LFCL’s now deceased President—

regarding the oral agreement. Not only does Mr. Sexton have personal knowledge of the 

oral agreement but it is also reasonable to see how, as the company’s President who was 

party to the purported agreement, he would be designated as the person most 

knowledgeable on this topic. But Mr. Sexton admittedly did nothing to prepare for the 

corporation’s deposition. At a minimum, he could have conversed with some of the 

people Z-Line asserted in an interrogatory response had knowledge of the oral agreement. 

Dalton Decl. Ex. 6, Sexton Depo., 35:9-37:9. Instead, when read the names “John, 

Marcie, Morgan and Jane Wu” from Z-Line’s interrogatory response, Mr. Sexton replied 

that he did not know if they knew about the oral agreement. Id. at 37:3-9. A discussion 

with any of these people could have given Mr. Sexton a definitive answer as to whether 

they knew of the oral agreement, or might have sparked some other memory about the 

oral agreement. Mr. Sexton could have also searched for any documentation that may 

have memorialized the oral agreement. Such is the duty of the Rule 30(b)(6) witness. 

Stanford, 253 F.R.D. at 526. 

Specifically, a party must educate itself and 

provide knowledgeable answers reasonably available to the 

corporation, which include information ascertainable from 

project files and documents in the repository, information from 

past employees, witness testimony and exhibits, or any other 

sources available to the corporation, including factual 

information learned through or from its counsel. 

Great American Ins. Co. of New York v. Vegas Const. Co., Inc., 251 F.R.D. 534, 541 (D. 

Nev. 2008). If Mr. Sexton had prepared and then given the same answers that he had no 

recollection regarding who might have known about the agreement, then LFCL could 

take that answer as the corporation’s best response. But that is not what happened here. 

Mr. Sexton admittedly did nothing to prepare: 

Q. Have you done anything in preparation for your 

deposition today to prepare yourself? 

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A. No. 

Q. Nothing at all? 

A. Nothing. 

Q. Have you reviewed any documents? 

A. No. 

Q. Any phone records? 

A. No. 

Dalton Decl. Ex. 6, Sexton Depo., 10:5-13. 

 The court finds that the lack of preparation on the part of Mr. Sexton violated ZLine’s duty to properly prepare a Rule 30(b)(6) deponent, and thus grants LFCL’s request 

for a continued deposition on topic no. 7 in the Rule 30(b)(6) deposition notice. 

3. Request for Sanctions. 

Courts may impose, under Rule 37(d), “various sanctions for a party's failure to 

comply with Rule 30(b)(6).” Great American Ins. Co., 251 F.R.D. at 534, 542 (citing 

several examples of courts imposing sanctions for failure to produce an adequately 

prepared Rule 30(b)(6) deponent). The court finds that limited sanctions are appropriate 

here based on its findings that the two Rule 30(b)(6) deponents failed to prepare for the 

depositions. Z-Line must reimburse LFCL for the costs and attorney’s fees incurred by 

LFCL at the March 15, 2017 Rule 30(b)(6) depositions.2

4. Production of Documents. 

LFCL filed this motion for leave to conduct further Rule 30(b)(6) depositions. Yet 

the heart of Z-Line’s opposition is dedicated to how the court “misunderstood” and was 

“mislead” in Joint Discovery Motion No. 2 based on LFCL’s false claims about the 

documents Z-Line provided. Jt. Mtn., pp.11-16. It spends more than five pages 

 

22 The court will not order that fees be paid for the March 14, 2017 non-appearances for 

the depositions. The court takes Z-Line’s word that the travel impediments were beyond 

its control. 

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discussing how LFCL “inappropriately obtained [the] Order” before it addresses the 

subject of this dispute, the continued depositions and request for sanctions.3

Z-Line never asked for reconsideration of the April 6 Order and did not file Rule 

72 objections to it. The court order to respond to RFP Nos. 1-5 with source documents 

remains in effect. These source documents must be produced before the continued 

deposition of Ms. Martinez. 

While the question of document production is not an express issue in this motion, 

the court reiterates its ruling that source documents are highly relevant to the claims at 

issue and proportional to the needs of the case. As LFCL’s expert explains:

73. The purpose of a royalty audit is to discover the unknown, not to prove 

what has been provided. ...

74. A typical royalty audit requires access to, at a minimum, the following 

data. ...: 

i. Complete sales records for all products, not just licensed 

products. Such sales records must include customers, price per 

unit, units sold, other amounts charged on the invoice, credits 

and allowances offered against the sale by category. 

ii. Financial statements. 

iii. General ledgers. 

iv. Inventory records including inventory roll forwards and 

subledgers. 

v. Production and manufacturing records. 

vi. Vendor agreements. 

vii. Invoices. 

viii. Credit memos. 

ix. Employees for interview such as those who prepare the royalty 

reports and have custodianship of the records. 

x. Detail report of all credits and allowances taken. 

xi. Sales catalogs and other marketing materials. 

 

3

 The court advises counsel for Z-Line to review Civil Local Rule 83.4 on 

Professionalism, and in particular the section on “Conduct to Avoid.”

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75. A royalty audit would be essentially worthless with the information that 

was provided by Z-Line and there is no way to identify the value of 

unreported sales. 

LFCL’s Export Report.

 In contrast, Z-Line’s expert says:

Without a compelling basis to doubt the completeness of the 

sales ledger reports, which as stated above are generated from 

the same data source as the sales invoices and financial 

statements, it is reasonable to rely upon the sales ledgers and 

the Royalty Summary Spreadsheet to commence a productive 

analysis of royalties due to LF Centennial. 

Z-Line’s Expert Declaration ¶ 25 (emphasis added). This case is founded on the 

suspected incompleteness of Z-Line’s reporting to LFCL. Ms. Martinez highlighted ZLine’s confusion as to what Licensed Products are subject to the royalty payment, thus

giving LFCL a compelling basis to doubt the completeness of the sales ledger reports: 

Q. How do you – how do you know when an item is to be 

included on the report? Like does somebody tell you, 

“Hey, we have a new ”

A. Yes. 

Q. Who tells you? 

A. Marketing. 

***

Q. To your knowledge, have you received from marketing a 

list of item names that are not included on 1.2? 

A. Yes. 

Q. And which items are those? 

A. I would have to look into it. 

Q. You did not do that today in preparation for your 

deposition? 

A. No. 

Dalton Decl. Ex. 5, Martinez Depo., 40:25-41:5; 42:15-23.

 The court’s previous ruling that compels Z-Line to respond to RFP Nos. 1-5

stands, as the information is discoverable. 

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Order. 

For good cause shown, the court: 

1. ORDERS Z-Line to produce the source documents in response to RFP Nos. 1-5 

by August 18, 2017. 

2. GRANTS LFCL’s request for an order compelling Z-Line to produce a Rule 

30(b)(6) witness who is sufficiently educated and knowledgeable regarding the 

noticed topics to provide proper testimony. The continued deposition for topic 

Nos. 1-6 contemplates that it will be taken after the production of source 

documents, and no later than September 15, 2017. The continued deposition 

for topic No. 7 must take place by June 30, 2017. 

3. Supplemental Expert Reports that consider the to-be-produced documents must 

be exchanged by September 29, 2017. Rebuttal expert reports must be 

exchanged by October 20, 2017. 

4. By June 7, 2017, LFCL must tell Z-Line the amount of its asserted attorney’s 

fees and costs incurred during the March 15, 2017 depositions. Z-Line must 

pay that amount to counsel for LFCL by June 21, 2017. 

The court will issue an amended scheduling order by separate order. 

IT IS SO ORDERED. 

Dated: May 31, 2017 

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