Court Opinion

ID: 4380607
Source: CourtListenerOpinion
Date Created: 2019-03-25 19:41:57.03589+00
Date Added: 2024-06-11T14:49:54.733997
License: Public Domain

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

 SAFE ACQUISITION, LLC, a
 Washington corporation; LUCIDY, LLC,             No. 77507-3-I
 a Washington corporation; and SCOTT
 FONTAINE, an individual,                         DIVISION ONE

                     Appellants,                  UNPUBLISHED OPINION

               V.

 GF PROTECTION INC., dlbla
 GUARDIAN FALL PROTECTION, a
 Washington corporation,

                     Respondent.                  FILED: March 25, 2019

      APPELWIcK, C.J.   —   SAFE sued GFP, alleging that GFP breached the

parties’ contracts in failing to market and sell SAFE’s products. In the ongoing

litigation, SAFE moved to strike a contractual provision between GFP and its

former president, Marquardt, barring Marquardt from assisting SAFE in its lawsuit.

The trial court denied the motion. After the discovery period ended, SAFE moved

for an order to compel GFP to produce documents relating to the sale of its

company and “to produce” GFP’s alleged owner for a deposition. The trial court

denied the motion. We affirm the order denying SAFE’s motion to strike, and

decline to grant discretionary review of the order denying SAFE’s motion to compel

GFP to produce documents.
 IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

 SAFE ACQUISITION, LLC, a
 Washington corporation; LUCIDY, LLC,             No. 77507-3-I
 a Washington corporation; and SCOTT
 FONTAINE, an individual,                         DIVISION ONE

                     Appellants,                  UNPUBLISHED OPINION

              V.

 CF PROTECTION INC., dibla
 GUARDIAN FALL PROTECTION, a
 Washington corporation,

                     Respondent.                  FILED:   ______________

      APPELWICK, C.J.   —   SAFE sued GFP, alleging that GFP breached the

parties’ contracts in failing to market and sell SAFE’s products. In the ongoing

litigation, SAFE moved to strike a contractual provision between GFP and its

former president, Marquardt, barring Marquardt from assisting SAFE in its lawsuit.

The trial court denied the motion. After the discovery period ended, SAFE moved

for an order to compel GFP to produce documents relating to the sale of its

company and “to produce” GFP’s alleged owner for a deposition. The trial court

denied the motion. We affirm the order denying SAFE’s motion to strike, and

decline to grant discretionary review of the order denying SAFE’s motion to compel

GFP to produce documents.
No. 77507-3-1/2

                                     FACTS

       SAFE Acquisition LLC and Lucidy LLC (hereafter collectively called SAFE)

are companies Scott Fontaine created to patent certain construction products he

invented. In August 2013, SAFE signed contracts with GE Protection Inc. (GFP)

for GFP to manufacture, market, and sell the products in exchange for royalty

payments to SAFE.

       SAFE sued GFP in June 2016, alleging that GFP breached the license

agreements by failing to make reasonable efforts to market and sell the products.

GFP discovered that its former president, Edward Marquardt, was actively sending

e-mails to SAFE, leading GEP to subpoena Marquardt for a deposition. Due to

scheduling conflicts, Marquardt chose the deposition date of August 7, 2017, the

last day of discovery.

       Near the end of the deposition on August 7, SAFE asked Marquardt to

confirm that he had ‘signed some sort of agreement” with GFP.          Marquardt

acknowledged that he was bound by an agreement with GFP, restricting him from

discussing confidential information that he was “exposed to during [his] tenure

there as an employee.” During the deposition, GEP’s counsel stated,

      I’ll allow you to ask. about terms of the settlement agreement with
                           .   .

      Mr. Marquardt which impact this litigation, but if you want to talk
      about, you know, the terms of, other terms of settlement of dispute
      between Guardian and Mr. Marquardt, that’s off limits by the court’s
      order.
After Marquardt stated that he was restricted from “talking about anything

confidential,” SAFE affirmed that GFP was going to provide the pertinent clauses

and moved to a different subject.

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No. 77507-3-1/3

       Within three days following the deposition, GFP provided SAFE with the

relevant provision from the settlement agreement with Marquardt. GFP did not

provide the entire agreement, because it felt that the remainder was outside the

scope of discovery.

       The provision states,

       “Other Litigation. Marquardt agrees that he shall not assist, directly
       or indirectly, SAFE, Lucidy, or Scott Fontaine in separate litigation or
       other proceeding adverse to GFP and/or its officers and directors.
       For purposes of this agreement, assist includes, but is not limited to,
       providing advice, information, and serving as a witness. Marquardt
       may respond to a properly served and noticed subpoena by making
       statements in a deposition pursuant to such subpoena or producing
       documents in direct response to such subpoena. Marquardt shall
       provide no assistance to this litigation voluntarily, or without notice to
       GFP consistent with the rules governing subpoenas. This paragraph
       does not diminish or lessen Marquardt’s ongoing obligations to not
       disclose Confidential Information to competitors such as SAFE, as
       further set forth in a paragraph 11(D), above.”
(Boldface omitted.)

       On August 11, 2017, GFP executed an equity purchase agreement with

buyer Gemini Acquisition Corporation (Gemini). Under the agreement, Gemini

acquired the patent license agreements between SAFE and GFP. On August 25,

2017, SAFE asked GFP to produce documents and information about the sale of

the license agreements. GFP agreed to provide a redacted version of the equity

purchase agreement to confirm the transfer of the contracts and to show what

rights and liabilities GFP retained regarding this litigation.

       Unsatisfied with the redacted documents, on September 7, 2017, SAFE

moved the trial court to compel GFP to produce (1) a complete, unredacted copy

of the equity purchase agreement, (2) copies of all communications and other

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No. 77507-3-1/4

documents relating to this acquisition and the licensed products and/or SAFE, and

(3) Darrin Erdahl1 for a two hour deposition regarding the details of the acquisition

as it relates to SAFE and the licensed products. The trial court denied the motion,

stating, “The documents and communications [SAFE] seek[s] are beyond the

scope of their discovery requests, not relevant to the claims and issues in this case,

and [SAFE has] failed to establish good cause to conduct additional discovery after

the discovery cutoff.”

       On September 8, 2017, SAFE moved to strike GFP’s contract provision

prohibiting Marquardt from “assisting” SAFE in the lawsuit. In denying the motion,

the trial court stated, “To the extent that someone might interpret the contractual

prohibition as prohibiting Ed Marquardt from answering a subpoena to testify at

trial, the court finds that it does not do so.”

       SAFE sought discretionary review of the order denying the motion to strike

GFP’s contract provision prohibiting Marquardt from assisting SAFE in this lawsuit.

Review was granted. It also seeks review of the order denying its motion to compel

GFP to produce the complete equity purchase agreement, related documents, and

the Erdahl deposition.2

       1  SAFE alleges that Erdahl is the owner of GFP and replaced Marquardt as
president, after Marquardt was fired. In its answer, GFP did not confirm that Erdahl
was the owner or the president, but admitted that Marquardt was fired. In his
declaration, Erdahl refers to himself as the “chairman of CF Transition Inc.,
formerly known as [GFPJ.”
        2 Commissioner Neel granted review of the order denying the motion to

strike, but referred to the court to decide if it will grant discretionary review of the
order denying SAFE’s motion to compel production.

                                                  4
No. 77507-3-1/5

                                     DISCUSSION

          SAFE makes two arguments. First, it argues that the trial court erred in

denying its motion to strike the “non-cooperation clause” in Marquardt’s settlement

agreement with GFP. Second, it argues that the trial court erred in denying its

motion to compel GFP to produce relevant documents about the sale of GFP.

  I.      Motion to Strike Noncooperation Clause

          SAFE argues first that the trial court erred in upholding a noncooperation

clause in Marquardt’s settlement agreement with GFP.           It contends that the

“restriction barring Mr. Marquardt from ‘assisting’ or ‘serving as a witness’ for

[SAFE] contravenes public policy because it interferes with the free and fair

administration of justice, and allows one party to restrict access of the other party

to a key witness.”

       A. Standard of Review and Standing

          The parties disagree over the proper standard of review. SAFE argues that,

because it is “purely a question of law,” this court should review de novo whether

the noncooperation clause violates public policy. GFP argues that, because “the

motion to strike sought discovery,” this court should determine whether the trial

court abused its discretion “[un declining to invalidate a contract in which [SAFE

was] not a party.”

         Appellate courts determine legal issues de novo. Island County v. State,

135 Wn.2d 141, 160, 955 P.2d 377 (1998). And, this court reviews the trial court’s

conclusions of law pertaining to contract interpretation de novo. Viking Bank v.

Firgrove Commons 3, LLC, 183 Wn. App. 706, 712, 334 P.3d 116 (2014).

                                              5
No. 77507-3-1/6

       An appellate court reviews a trial court’s discovery order for an abuse of

discretion. T.S. v. Boy Scouts of Am., 157 Wn.2d 416,423, 138 P.3d 1053 (2006).

We will find an abuse of discretion only on a clear showing that the court’s exercise

of discretion was manifestly unreasonable, or exercised on untenable grounds, or

for untenable reasons. ki.

       At the outset, GFP asserts, as it did below, that SAFE does not have

standing to challenge Marquardt’s settlement agreement with GFP.

       The doctrine of standing prohibits a litigant from asserting another’s legal

right. Miller v. U.S. Bank of Wash., N.A., 72 Wn. App. 416, 424, 865 P.2d 536

(1994). A contract can be enforced only against those party to it. Gall v. McDonald

Indus., 84Wn. App. 194, 201, 926 P.2d 934 (1996). Dismissal of a contract action

is proper when the litigant is not a party to the contract and thus lacks standing.

West v. Thurston County, 144 Wn. App. 573, 576, 183 P.3d 346 (2008).

       SAFE contends that it has standing under the Uniform Declaratory

Judgment Act (UDJA), chapter 7.24 RCW. The UDJA permits a party to bring an

action to determine the validity of a contract, among other instruments, as long as

that party’s rights, status, or other legal relations are affected by the instrument in

question. RCW 7.24.020. In order to have standing to seek declaratory judgment

under the Act, a person must present a justiciable controversy: (1) an actual,

present and existing dispute, or the mature seeds of one, as distinguished from a

possible, dormant, hypothetical, speculative, or moot disagreement, (2) between

parties having genuine and opposing interests, (3) which involves interests that

must be direct and substantial, rather than potential, theoretical, abstract or

                                              6
No. 77507-3-1/7

academic, and (4) a judicial determination of which will be final and conclusive.

Branson v. Port of Seattle, 152 Wn.2d 862, 877, 101 P.3d 67 (2004).

       SAFE is not a party to the contract. Marquardt, who is the subject of the

challenged provision in the contract, is not a party to this lawsuit. SAFE did not

seek a declaratory judgment below. Instead, it moved ‘to strike” the provision of

GFP’s settlement agreement with Marquardt that “prohibits” Marquardt from

assisting SAFE in the litigation. In its motion, SAFE asked the trial court to hold

that, because it violated public policy, the provision “should be declared invalid” so

that it could not be used to prevent Marquardt from participating in SAFE’s litigation

with GFP.

       The trial court interpreted the agreement provision as allowing Marquardt to

testify. As a result, the trial court did not need to, and did not address, the

questions of whether the language had to be stricken and whether SAFE had

standing to challenge it. The issue before this court is the correctness of the trial

court’s interpretation of the contractual language. The proper standard of review

is de novo.

   B. Public Policy                          V

       SAFE alleges that the contractual clause violates public policy and the fair

administration of justice. It asserts that the provision “allows one party to restrict

access of the other party to a key witness.” SAFE further claims that the trial court

“sanctioned witness tampering” in approving the clause. (Boldface omitted.)

      As a matter of law, contract terms are unenforceable on grounds of public

policy when the interest in its enforcement is clearly outweighed by a public policy

                                                 7
No. 77507-3-1/8

against the enforcement of such terms. LK Orerating, LLC v. Collection Grp., LLC,

181 Wn.2d 48, 85, 331 P.3d 1147 (2014). In general, a contract which is not

prohibited by statute, condemned by judicial decision, or contrary to the public

morals contravenes no principle of public policy. State Farm Gen. Ins. Co. v.

Emerson, 102 Wn.2d 477, 481, 687 P.2d 1139 (1984).

        In denying SAFE’s motion to strike, the trial court stated, “To the extent that

someone might interpret the contractual prohibition as prohibiting Ed Marquardt

from answering a subpoena to testify at trial, the court finds that it does not do so.”

SAFE argues that, in interpreting the clause in this matter, the trial court engaged

in inappropriate “blue-lining” of the contract.

       The original provision states,

       Marquardt agrees that he shall not assist, directly or indirectly, SAFE,
       Lucidy, or Scott Fontaine in separate litigation or other proceeding
       adverse to GFP and/or its officers and directors. For purposes of this
       agreement, assist includes, but is not limited to, providing advice,
       information, and serving as a witness. Marquardt may respond to a
       properly served and noticed subpoena by making statements in a
       deposition pursuant to such subpoena or producing documents in
       direct response to such subpoena. Marquardt shall provide no
       assistance to this litigation voluntarily.
Because the clause states that Marquardt is free to respond to a subpoena, the

trial court did not improperly alter the provision in its interpretation.

       Citing Wright v. Grp. Health Hosp., 103 Wn.2d 192, 691 P.2d 564 (1984),

SAFE asserts that, “If a party cannot bar its current employees from cooperating

in litigation against it, it cannot bar its former employees either.”

       In Wright, the issue before the court was whether a defendant hospital

corporation may prohibit its current employees from conducting ex parte interviews

                                                8
No. 77507-3-1/9

with plaintiffs’ attorneys.     k~. at 193.   The court held that current employees

authorized to speak for a corporation would be considered “parties” with whom

opposing counsel could not speak ex parte. k1. at 196, 200-01. But, it held that

opposing counsel could interview employees of the corporation ex parte so long

as such employees were not authorized to speak for the corporation or in a

management status. ki. at 202-03. And, it held that “[s]ince former employees

cannot possibly speak for the corporation,” opposing counsel could also interview

them ex parte. ~ k~. at 201. The court emphasized, “This opinion shall not be

construed in any manner, however, so as to require an employee of a corporation

to meet ex parte with adverse counsel. We hold only that a corporate party, or its

counsel, may not prohibit its nonspeaking/managing agent employees from

meeting with adverse counsel.” jçj~ at 203 (emphasis in original).

       Because an employee or former employee is not required to agree to speak

with adverse counsel, the employee is free to decline to do so voluntarily.

Logically, the employee is also free to agree with the employer/former employer

that they will decline to engage in that communication voluntarily. There is no

evidence in the record that Marquardt did not voluntarily enter into the settlement

agreement in which he agreed not to communicate voluntarily with SAFE. GFP

did not unilaterally block SAFE’s access to Marquardt. This does not violate the

policy articulated in Wriqht.

       Here, the clause at issue explicitly states that “Marquardt may respond to a

properly served and noticed subpoena by making statements in a deposition

pursuant to such subpoena or producing documents in direct response to such

                                                9
No. 77507-3-1/10

subpoena.” GFP did not block SAFE’s access to Marquardt, as it claims. He is

free to testify pursuant to a subpoena, at which time counsel for GFP would be

present to object to any disclosure of confidential information or information

protected by the attorney-client privilege.

       Because the provision at issue does not bar Marquardt’s participation in the

underlying proceeding, it does not offend public policy, or contravene the holding

of Wright. There was no legal error, and the trial court did not err in denying the

motion. We affirm the order denying SAFE’s motion to strike.

 II.   Motion to Compel Production

       SAFE argues second that the trial court erred in denying its motion to

compel relevant documents about the sale of GFP and SAFE’s licenses. It asserts

that this court should grant review of this issue and reverse the trial court’s

decision.    This court accepts discretionary review only in the following

circumstances:

             (1) The superior court has committed an obvious error which
       would render further proceedings useless;
              (2) The superior court has committed probable error and the
       decision of the superior court substantially alters the status quo or
       substantially limits the freedom of a party to act;
               (3) The superior court has so far departed from the accepted
       and usual course of judicial proceedings, or so far sanctioned such
       a departure by an inferior court or administrative agency, as to call
       for review by the appellate court; or
               (4) The superior court has certified, or that all the parties to
       the litigation have stipulated, that the order involves a controlling
       question of law as to which there is substantial ground for a
       difference of opinion and that immediate review of the order may
       materially advance the ultimate termination of the litigation.

                                              10
No. 77507-3-I/il

RAP 2.3(b).

       A discovery order of the trial court is reviewable only for an abuse of

discretion, which exists only when no reasonable person would have decided the

way the judge did. Howell v. Spokane & Inland Empire Blood Bank, 117 Wn.2d

619, 629, 818 P.2d 1056 (1991).

       SAFE makes three arguments for why the trial court abused its discretion

in denying its motion. First, it argues that the trial court erred in concluding that

the sale is “beyond the scope of [its] discovery requests,” because the “discovery

deadline is not a valid reason for the trial court to have permitted [GFP] to refuse

basic discovery.” But, in stating that the request was beyond the scope of SAFE’s

discovery requests, the trial court did not rely on the discovery deadline. It found

that GFP’s sale agreement was beyond the scope of information SAFE sought in

its production requests. The sale occurred well after filing the lawsuit and became

known to SAFE after the close of the discovery period. SAFE could not have

knowingly included discovery requests about the sale within the deadline.

       The trial court did not commit obvious or probable error necessitating

discretionary review by denying the motion on the basis that the material was

beyond the scope of the discovery requests made.

       SAFE argues next that the trial court erred in concluding that the information

sought was “not relevant to the claims and issues in this case.” SAFE argues that

it sought documents related to the sale of the licenses “that are at the center of this

litigation and expressly mention either Plaintiffs or their licensed products.”

                                              11
No. 77507-3-1/12

       In its motion, SAFE moved to compel GFP to produce (1) a ‘complete,

unredacted copy of the Equity Purchase Agreement;” (2) “copies of all

communications and other documents relating to this acquisition and the Licensed

Products and/or Plaintiffs in this case;” and (3) “Darrin Erdahl for a two-hour

deposition   .   .   .   regarding the details of this acquisition as it relates to the Plaintiffs

and the Licensed Products.” It did not ask the trial court for an in camera review

of the documents.

       But, SAFE alleged in its complaint that GFP—not Gemini—breached the

contracts and owes damages. SAFE has not established that further information

about the equity purchase agreement is relevant to determine whether breach of

contract occurred nor any damages caused by the alleged breach.

       The trial court did not commit obvious or probable error necessitating

discretionary review by denying the motion on the basis of relevance.

       SAFE argues third that the trial court erred in concluding that SAFE “‘failed

to establish good cause to conduct additional discovery.” It contends, “There was

(and is) no trial date set; there would have been no (and is no) prejudice to GFP;

Plaintiffs had been diligent and could not possibly have foreseen the need for

additional discovery earlier; and the information sought is plainly relevant.”

       The GFP sale was not made known to SAFE until August 23, too late to

have been a specific focus of discovery. And, the trial court ruled the agreement

was outside the scope of the discovery actually sought. So, permission from the

court was required for additional discovery. See Buhr v. Steward Title of Spokane,

LLC, 176 Wn. App. 28 34, 308 P.3d 712 (2013) (“[T]he rule contemplates a court

                                                       12
No. 77507-3-1/13

order establishing a plan and schedule for discovery. A schedule for discovery

may be altered or amended ‘whenever justice so requires’” (quoting CR 26(F))).

However, a September trial date was in place when the motion for additional

discovery was made. The trial date was stayed pending this appeal.

          SAFE asserted that it needed to know the parties at issue and “whether

GFP   .    .   .   will be able to satisfy any judgment against it, including a judgment

terminating the licenses.” It also raised the valuation of the licenses as an example

of a document that was relevant, implying that it had a right to see the sale

agreement on that premise.              It is clear from the redacted equity purchase

agreement that GFP retained all liability and assets with respect to this litigation.

And, as for SAFE’s concern about valuation, the Erdahl declaration states that

SAFE’s contracts were not separately valued as part of the transaction between

GFP and Gemini, and had no independent impact on the purchase price. If the

information in the declaration were in doubt, SAFE could have requested in camera

review by the trial court. It did not. No other information in the record suggests

the declaration is not true. In addition, SAFE does not show how this information

would inform whether GFP breached its contract or the amount of any damages

related to that breach. The court need not address whether production would

prejudice GFP.

          The trial court did not commit obvious or probable error necessitating

discretionary review by denying the motion on the basis of lack of a showing of

good cause.

                                                  13
No. 77507-3-1/14

        We decline to grant discretionary review on the trial court’s order denying

SAFE’s motion to compel GFP to produce documents.

 Ill.   Attorney Fees

        GFP requests that this court award it attorney fees “under CR 37(b) and the

fee provision in the contracts at issue.” GFP does not cite to the record for the fee

provision in the contracts. Because this provision does not appear to be in the

record before this court, we cannot review it.

        A trial court has broad discretion under CR 37 to impose sanctions for

noncompliance with a discovery order. Rhinehart v. KIRO, Inc., 44 Wn. App. 707,

710, 723 P.2d 22 (1986). But, this court has denied a party’s fee request for

defending an appeal, where the appeal is “without merit but not one that this court

deem[s] frivolous or interposed to harass or for purposes of delay.” ki. at 711    In

line with the reasoning in Rhinehart, we decline to grant fees to GFP, as this appeal

is not frivolous or designed to harass or to delay.

        We affirm the order denying SAFE’s motion to strike and decline to grant

discretionary review of the order denying SAFE’s motion to compel.

WE CONCUR:                                                                              V

           I

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