Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_06-cv-04135/USCOURTS-cand-5_06-cv-04135-10/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Other Contract

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United States District Court

For the Northern District of California

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1

 Subpoenas were also served on Silicon Valley Bank's attorney (William Shoenholtz)

and its Chief Compliance Officer (Suanne Mingrone). However, for convenience, the third

parties are here referred to in the singular as "SVB."

*E-filed 3/18/08*

NOT FOR CITATION 

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

21X CAPITAL, LTD. and DAVID A.

BREWER,

Plaintiffs,

v.

ROBERT WERRA and JOHN WERRA,

Defendants. /

Case No. C06-04135 JW (HRL)

ORDER ON THIRD PARTIES' (1)

MOTION FOR PROTECTIVE ORDER

QUASHING OR MODIFYING

DEFENDANTS' SUBPOENAS AND (2)

REQUEST FOR SANCTIONS

Re: Docket No. 63

This case began with an earlier state court action involving the sale of Sunrise

Technologies ("Sunrise"). Judgment was entered in that case in favor of 21X Capital ("21X")

on its cross-claim against RJW Acquisitions ("RJW"). In the current action (removed on the

basis of diversity), Plaintiffs sue to collect that state court judgment from individuals alleged to

be alter egos of RJW. 

Defendants recently served third party subpoenas on Silicon Valley Bank ("SVB").1

 

SVB now moves for a protective order to either quash or modify the subpoenas served upon it

by Defendants and for sanctions. Plaintiffs join the motion. 

Case 5:06-cv-04135-JW Document 91 Filed 03/19/08 Page 1 of 5
United States District Court

For the Northern District of California

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BACKGROUND

Originally, the motion addressed the entire subpoena request. Since then, the dispute

has been largely narrowed by agreement. See Tiller Decl. (Opp. Brief, Ex. D). As such, the

resolved aspects of the protective order motion are now DENIED AS MOOT. SVB also agreed

to withdraw its motion for sanctions, which is, therefore, also DENIED AS MOOT. The only

remaining dispute is over the production of Plaintiff David Brewer's personal financial records. 

MOTION FOR PROTECTIVE ORDER

The Werras want SVB to turn over financial statements pertaining to Brewer (either

personally or related to Brewer's companies, e.g., 21X) that were submitted to SVB in

connection with a loan to Sunrise. SVB moved for the protective order because Plaintiffs

objected under California's right to financial privacy. Plaintiffs argued the motion. 

Legal Standard

The parties agree that, for purposes of this motion, California law applies. Furthermore,

there really is no dispute that this is the type of information protected by California's

constitutional financial right to privacy. See Cal. Const., art. I, § 1; also see Valley Bank of

Nevada v. Sup. Ct. (Barkett), 15 Cal.3d 652, 656-57 (1975) (noting that a bank customer

entertains a reasonable expectation of privacy with respect to financial information disclosed to

the bank); and see Fortunato v. Sup. Ct. (Ingrassia), 114 Cal.App.4th 475, 481 (2003)

(emphasizing the various forms that a right to privacy in confidential customer information may

take: e.g., tax returns, checks, statements, or other account information). 

The disagreement is over whether this discovery should be permitted despite the

constitutional protection. Because these privacy interests are not absolute, courts are to engage

in a "careful balancing of the right of civil litigants to discover relevant facts, on the one hand,

with the right of bank customers to maintain reasonable privacy regarding their financial affairs,

on the other." Valley Bank, 15 Cal.3d at 656-57. 

Once a right to privacy is established, the first consideration is whether the right has

been waived. The mere filing of a lawsuit does not effect a complete waiver. Vinson v. Sup. Ct.

Case 5:06-cv-04135-JW Document 91 Filed 03/19/08 Page 2 of 5
United States District Court

For the Northern District of California

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28 2

 It is currently disputed which state's alter ego theory should apply, but both parties

are willing to assume arguendo that California theory applies for resolution of this motion. 

3

(Peralta Community College Dist.), 43 Cal.3d 833, 841-42 (1987). Rather, the court should

look to whether the discovery at issue is "directly relevant to the plaintiff's claim and essential

to the fair resolution of the lawsuit." Id. at 842 [citation omitted]. The burden of establishing

direct relevance is on the Werras. See Davis v. Sup. Ct. (Williams), 7 Cal.App.4th 1008, 1017

(1992) [citation omitted]. 

If a court determines that a right to privacy has been implicitly waived, the discovery

"will not be automatically allowed." Id. at 1014 [citation omitted]. The court must then

consider if there is a "compelling and opposing state interest" that justifies the discovery. Id.

In other words, there should be a "careful balancing of the compelling public need for discovery

against the fundamental right of privacy." Id. Finally, if discovery is permitted after this

analysis, then the "[t]he scope of any disclosure must be narrowly circumscribed, drawn with

narrow specificity, and must proceed by the least intrusive manner." Id.

Discussion

Did Brewer implicitly waive his right to privacy? California courts have consistently

required a relatively strong showing in order to prove that constitutionally protected information

is "directly relevant." See id. at 1017 (noting that in cases where direct relevance is found, "all

appear to include specific averments or reasonable interpretations drawn from the pleading

which clearly place the subject of the privacy interest at issue"). It is within this framework that

the court considers the Werras' argument that Plaintiffs waived constitutional protection for this

information because Brewer placed his wealth "vis-a-vis the Werras' at issue." 

Under California's alter ego theory,2

 Brewer must prove that "failure to disregard the

corporate entity would sanction a fraud or promote injustice." According to Defendants,

Plaintiffs allege "injustice" by claiming that the Werras used their relative financial might to

maliciously prosecute the state court action in order to financially pressure Brewer into

abandoning his rights to Sunrise property. Thus, Defendants want these financial records to

prove that Brewer was wealthy enough to withstand the expensive state court lawsuit. 

Case 5:06-cv-04135-JW Document 91 Filed 03/19/08 Page 3 of 5
United States District Court

For the Northern District of California

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3 Defendants' final effort, an offer to accept production subject to a strict

confidentiality designation, also fails. Such measures do not overcome the constitutional

protection. See Davis, 7 Cal.App.4th at 1018 (trial court's limitation of the scope of

disclosure and confidentiality provision did not cure the constitutional defect). 

4

However, whether or not Brewer is (or was) objectively wealthy seems irrelevant to

Plaintiffs' claims. If Brewer's financial wherewithal is relevant at all, what matters is what

Defendants thought with respect to his wealth, in pursuing the state court action as they did. 

Thus, Defendants have not met the heavy burden that the discovery is "essential to the fair

resolution" of this alter ego case. Vinson, 43 Cal.3d at 841-42. 

Compelling state interest justifying the discovery? Even assuming the Werras met their

burden on the waiver issue, this court would still have to consider whether there is a compelling

state interest justifying disclosure. Here, the Werras say that the subpoena should be enforced

because of the compelling public interest in "facilitating the ascertainment of truth in

connection with legal proceedings." Citing Planned Parenthood v. Sup. Ct.(Foti), 83

Cal.App.4th 347, 359-60 (2000). Specifically, they point to the state interest in ensuring that

there is full disclosure of relevant information in the civil litigation discovery process. 

However, the California Court of Appeal expressly rejected this as a sufficient "standalone" compelling public policy. Fortunato, 114 Cal.App.4th at 483 (analyzing both the tax

return privilege and the constitutional right to financial privacy). The court noted that if this

assertion of public policy were considered sufficient to overcome an established privilege, then

"such an exception would swallow the rule." Id.

ORDER

 The motion for a protective order with respect to the financial records is GRANTED.3

Dated: 

HOWARD R. LLOYD

UNITED STATES MAGISTRATE JUDGE

3/18/08

Case 5:06-cv-04135-JW Document 91 Filed 03/19/08 Page 4 of 5
United States District Court

For the Northern District of California

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THIS IS TO CERTIFY THAT A COPY OF THIS ORDER WILL BE MAILED TO:

Thomas H. Carlson tcarlson@rjop.com, smarcus@rjop.com 

Daniel E. Jackson djackson@kvn.com 

Julian William Mack pmack@buchalter.com 

Kevin Thayer Reed kreed@kvn.com, dmiller@kvn.com, efiling@kvn.com 

Aaron Paul Silberman aps@rjop.com, fyh@rjop.com 

Jon Burgess Streeter jstreeter@kvn.com, efiling@kvn.com, mcanales@kvn.com,

sharmison@kvn.com 

Khari Jamil Tillery kjt@kvn.com, dbm@kvn.com, efiling@kvn.com 

Courtney Towle ctowle@kvn.com, efiling@kvn.com, sgiminez@kvn.com 

5:06-cv-4135 Notice has been delivered by other means to: 

Peter Gerard Bertrand 

Buchalter Nemer

333 Market St 25th Fl

San Francisco, CA 94105-2130

Counsel are responsible for transmitting this order to co-counsel who have not signed up for efiling.

Dated: 3/18/08 /s/ KRO 

 Chambers of Magistrate Judge Howard R. Lloyd

Case 5:06-cv-04135-JW Document 91 Filed 03/19/08 Page 5 of 5