Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_11-cv-01589/USCOURTS-casd-3_11-cv-01589-0/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

GENESIS MERCHANT PARTNERS, 

L. P.,

Plaintiff,

v.

NERY’S USA, et al.,

Defendants.

 

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Civil No. 11-1589-JM(WVG)

ORDER SUSTAINING IN PART AND

OVERRULING IN PART DEFENDANTS’

OBJECTIONS TO PRODUCTION OF

DOCUMENTS

On April 17, 2012, the Court received letters from counsel

regarding Defendants’ objections to producing documents to Plaintiff. Defendants object to producing agreements between themselves

and Blue Line Food Service Distribution, Inc. (“BL”), and between

themselves and Little Caesars Enterprises, Inc. (“LC”).1/

The Court, having reviewed the letters of counsel and GOOD

CAUSE APPEARING, HEREBY SUSTAINS in part and OVERRULES in part

Defendants’ objections to the production of contracts between

1/

Plaintiff’s March 23, 2012 Requests for Production of Documents to Nery’s

(No. 16) and to Defendant Commercial Targa (“Targa”) (No. 11) request production

of “Any contracts between Little Caesars Enterprises, Inc./Blue Line and

(Nery’s/Targa)”

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Defendants and Blue Line Distribution, Inc., and Little Caesars

Enterprises, Inc.

 I

 FACTUAL BACKGROUND

In March 2008, Plaintiff received a promissory note from

Third Party Defendant Nascent Wine Company, Inc. (“Nascent”) in the

amount of $1 million (“Nascent Note”). In February 2010, Nery’s

entered into a Stock Purchase Agreement (“SPA”) with Nascent and

Targa, a wholly owned subsidiary of Nascent. As part of the SPA,

Nery’s acquired almost all of Targa’s stock. In consideration,

Nery’s assumed Targa’s accounts payable not to exceed $150,000, and

executed a promissory note payable to Nascent in the amount of

$1,850,000 (“2nd Note”) which was the balance then due to Plaintiff 

in the Nascent Note. Apparently, all parties involved in the SPA and

the execution of the 2nd Note were aware that Nascent would assign

the 2nd Note to Plaintiff. On February 10, 2010, the assignment of

the 2nd Note was made to secure Nascent’s obligations under the

Nascent Note. Pursuant to the assignment, Nascent directed Nery’s to

make all payments due on the 2nd Note directly to Plaintiff.

Plaintiff’s rights are derivative as the assignee of Nascent.

In 2010, Nery’s stopped making payments to Plaintiff on the

2nd Note. Based on Nery’s failure to pay, Plaintiff filed a Complaint

in this Court, alleging breach of contract, unjust enrichment,

conversion and negligent misrepresentation.

In 2011, Nery’s filed a Third Party Complaint against Nascent

and a Counter-Claim against Plaintiff.2/ The Third Party Complaint

alleges that before the SPA was signed, Nascent failed to completely

2/

On January 6, 2012, the Counter-Claim was dismissed.

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disclose Targa’s liabilities. As a result of the incomplete

disclosure, Nery’s alleges that it was forced to divert its capital

to address Targa’s undisclosed liabilities. Consequently, Nery’s

claims damages for its inability to build Targa’s business and

increase Targa’s value, as it would have done had the disclosure of

Targa’s liabilities been complete.

During the Early Neutral Evaluation Conference (“ENE”)3/ in

this matter, Plaintiff learned that in October 2010, after the SPA

was signed and the assignment of the 2nd Note to Plaintiff, Nery’s

and Targa entered into an agreement with BL/LC. This agreement, the

terms of which will not be fully described in this Order, was a new

business relationship and no prior business arrangement existed

between Nery’s, Targa and BL/LC. Also, during the ENE, Plaintiff

insisted that it needed to know the details of Nery’s and Targa’s

agreement with BL/LC to evaluate potential settlement of this

matter.

 II

 DISCUSSION

As noted above, the Court received letters from counsel

regarding the production of the Nery’s/Targa agreements with BL/LC.

In Defendants’ letter, Defendants informed the Court that they

objected to production of the Nery’s/Targa-BL/LC agreements.

Specifically, Defendants argue that the agreements are not relevant

to any claim or defense in this action and contain proprietary

information that is designated as “Confidential Information.”

Defendants also posit that production of the agreements will not be

3/

Plaintiff’s current counsel did not represent Plaintiff, nor did they

appear, at the ENE.

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protected by the Protective Order in place in this case because

Plaintiff has already announced its intent to contact BL and LC.

A. Relevance

Defendants argue that Plaintiff seeks information pertaining

to a business transaction between themselves and an independent

third party that was executed several months after the SPA and 2nd

Note were executed. Therefore, the agreements memorializing the

transaction have no bearing on Targa’s value at the time the SPA and

2nd Note were executed. Further, Defendants argue that Plaintiff’s

Complaint does not contain any allegations relating to the agreements.

Plaintiff argues that the agreements are relevant and

reasonably could lead to the discovery of admissible evidence.

Specifically, Plaintiff contends that since Defendants have asserted

that they were misled about Targa’s liabilities, and suffered

damages as a result, the amount of damages offset the amount Nery’s

owed to Nascent on the 2nd Note. Consequently, Targa’s post-acquisition performance (including the Nery’s/Targa-BL/LC agreements) are

at issue in this litigation because the agreements will determine

whether Targa has been unable to operate profitably, and expand and

protect its business, and suffered damages which offset the amount

owed under the 2nd Note.

Further, Plaintiff asserts that is reasonable to assume that

before the agreements were executed, BL/LC would have required

information to ascertain Nery’s/Targa creditworthiness. Plaintiff

also suggests that if Nery’s/Targa were financially liable to

others, BL/LC would not have executed the agreements.

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Additionally, Plaintiff argues that it does not have to

accept Defendants’ representations that their agreement with BL/LC

was initiated in October 2010, and that there may have been prior

contracts, or that Defendants and BL/LC were actually conducting

business with each other prior to the memorialization of the

agreement. Therefore, if Nery’s/Targa was discussing a business

arrangement with BL/LC prior to the execution of the agreement, this

fact would have bearing on whether Nery’s was truly misled as to

Targa’s financial condition.

Finally, Plaintiff argues that Defendants disclosed the

existence of the BL/LC agreements at the ENE in this case. Therefore, the agreements are not protected from disclosure due to the

discussions about them at the ENE.

B. The Nery’s/Targa-BL/LC Agreements Are Not Relevant To Any 

 Claim Or Defense In This Action

The Court agrees with Defendants. Nery’s/Targa agreements

with BL/LC were executed months after the SPA and 2nd Note were

executed. Therefore, the agreements are not relevant to Targa’s

value and liabilities at the time the SPA and 2nd Note were executed.

The agreements are nothing more than the memorialization of a

business transaction between Nery’s/Targa and independent third

parties after the SPA and 2nd Note were executed. Consequently, they

are not relevant to any claim or defense in this action and are not

likely to lead to the discovery of admissible evidence. See G.K. Las

Vegas, Ltd. Partnership v. Simon Property Group, Inc., 2008 WL

5083700 (D. NV 2008).

Plaintiff argues, and the Court acknowledges, that the scope

of discovery is broad. Jardin v. Datallegro, Inc., 2011 WL 1769835 

at *1 (S.D. Cal. 2011), Epstein v. MCA, 54 F.3d 1422, 1423 (9th Cir.

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1995). However, while expansive, there are limits to discovery. In

this case, the issues are whether Nery’s breached any obligation it

had under the 2nd Note to pay Plaintiff, the assignee of the 2nd Note

from Nascent, and whether Nery’s misrepresented facts at the time

the assignment was executed. Defendants have argued that the

assignee stands in the shoes of the assignor. Creative Ventures, LLC

v. Jim Ward & Associates, 195 Cal. App 4th 1430, 1447 (2011),

Washington Capitols Basketball Club v. Barry, 304 F. Supp 1193, 1200

(C.D. Cal. 1969). While standing in the assignor’s shoes, the

assignee enjoys the benefits of any rights and remedies the assignor

may have SUBJECT to any defenses the obligor has against the

assignor. Creative Ventures, supra, at 1447. Even Plaintiff

acknowledges this, but only half-way, as set forth in paragraph nos.

39 and 46 of its Complaint. Plaintiff acknowledges that it is

entitled to payments as the assignee, but conveniently ignores the

potential offset defenses available to Nery’s. The facts presented

to the Court clearly indicate that the Nery’s/Targa-BL/LC agreement

was entered into months after the assignment. The Court strains to

understand Plaintiff’s argument, in the context of this case, how

the subsequent agreement is relevant.

If it is true as Defendants have suggested, that they are

entitled to an offset to the amount owed on the 2nd Note, then that

offset flows to Plaintiff as an assignee. Targa’s post-acquisition

financial condition is not relevant to its financial condition at

the time the SPA and 2nd Note were executed. In other words, what

Nery’s did after it discovered it had been misled as to Targa’s

value and liabilities, simply has no bearing on any claim or defense

in this action. Moreover, while it may be reasonable for Plaintiff

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to assume that BL/LC would have required information from

Nery’s/Targa regarding their creditworthiness, such an assertion is

speculative and also has no bearing on any claim or defense in this

action. 

However, even if the agreements themselves are not relevant

to any claim or defense in this action, the Court agrees with

Plaintiff that it does not have to accept Defendants’ representations regarding their business arrangement with BL/LC. When

Nery’s/Targa’s negotiations and business arrangement with BL/LC

began and when the agreements were actually executed, may or may not

have some relevance as to Targa’s financial condition at the time

the SPA and 2nd Note were executed. Therefore, on or before May 22,

2012, Nery’s/Targa shall provide Plaintiff with the dates as noted

above in a declaration signed under penalty of perjury.

The Court’s Notice of ENE in this action clearly states that

all discussions at the ENE are privileged and confidential. The

Court believes that the views and positions taken by counsel at the

ENE, and disclosure of information at the ENE, were confidential,

and cannot be used by either Plaintiff or Defendants in this

litigation, without formally requesting the information. Here,

Plaintiff requested production of the BL/LC agreements, to which

Defendants objected. The Court finds no sinister or unethical

conduct by Plaintiff in requesting the agreements. Also, the Court

agrees entirely with Plaintiff that merely mentioning certain facts

within the confines of an ENE does not shield those facts from

discovery.

Finally, without revealing the communications of counsel and

the parties at the ENE, the Court views Plaintiff’s requests for the

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BL/LC agreements as an attempt to discover whether Defendants can 

satisfy a judgment that may be entered in its favor in the future.

However, courts generally do not allow pre-judgment discovery

regarding a defendant’s financial condition or ability to satisfy a

judgment, on the grounds that such information is not relevant to

the parties’ claims or defenses and is not reasonably calculated to

lead to the discovery of admissible evidence. Sierrapine v. Refiner

Products Mfg., Inc., 275 F.R.D. 604, 609-610 (E.D. Cal. 2011).

As a result of the foregoing, Defendants’ objections to

Plaintiff’s requests for production of the Nery’s/Targa-BL/LC

agreements are SUSTAINED in part and OVERRULED in part.

Consequently, the Court does not reach, nor does it state an 

opinion regarding, Defendants’ argument that the agreements contain

confidential information and should be protected from disclosure for

that reason.

DATED: May 8, 2012

 Hon. William V. Gallo

 U.S. Magistrate Judge

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