Loop AI Labs Inc. v. Gatti

Full title: LOOP AI LABS INC, Plaintiff, v. ANNA GATTI, et al., Defendants.

Court: UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

Date published: Feb 29, 2016

Case No. 15-cv-00798-HSG (DMR) (N.D. Cal. Feb. 29, 2016)

Opinion

Case No. 15-cv-00798-HSG (DMR)

02-29-2016

LOOP AI LABS INC, Plaintiff, v. ANNA GATTI, et al., Defendants.

Donna M. Ryu United States Magistrate Judge

ORDER ON DEFENDANTS' MOTION FOR PROTECTIVE ORDER

Re: Dkt. No. 295

Plaintiff Loop AI Labs Inc. ("Loop") and Defendants Anna Gatti, IQSystem LLC, and IQSystem Inc. filed a joint letter in which these three Defendants move for a protective order as to five subpoenas issued by Loop.¹ [Docket No. 295 (Joint Letter).] The court has determined that this matter is suitable for resolution without oral argument pursuant to Civil Local Rule 7-1(b). For the following reasons, Defendants' motion is granted in part and denied in part.

1 For ease of reference, the court refers collectively to the three moving defendants as "Defendants," even though there are other defendants in this case. No other defendant joined in this motion.

I. BACKGROUND

Loop filed this action in February 2015 against Defendants Almawave USA; Almaviva S.p.A. ("Almaviva") and Almawave S.r.l. (together, the "Almaviva Defendants"); Gatti; IQSystem LLC; and IQSystem Inc. Loop is a startup that develops artificial intelligence technology. It alleges that Gatti, its former CEO, conspired with the Almaviva Defendants to misappropriate Loop's trade secrets and sabotage its investor negotiations. According to Loop, while pretending to work full time for Loop, Gatti took a concurrent CEO position with Almawave USA and allegedly established IQSystem LLC and IQSystem Inc. "to funnel the money that she was receiving as compensation" for her illegal activities. [Docket No. 210 (2d Am. Compl.) ¶¶ 26, 42, 43.] In its second amended complaint, Loop brings seventeen claims against some or all of the Defendants, including, inter alia, violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962 et seq., violations of the Computer Fraud and Abuse Act ("CFAA"), 18 U.S.C. § 1030 et seq., misappropriation of trade secrets, unfair competition, and various torts.

Loop issued five subpoenas for documents to the following third parties: 1) AT&T Communications ("AT&T"); 2) Google, Inc. ("Google"); 3) WI Harper Group, Inc. ("WI Harper"); 4) Carr & Ferrell, LLP ("Carr & Ferrell"); and 5) Bank of the West. Joint Letter Exs. 1-5. Defendants Gatti, IQSystem LLC, and IQSystem Inc. move for a protective order as to each of the five subpoenas, arguing that they improperly seek their private and privileged information that is irrelevant to this action.

II. LEGAL STANDARD

Federal Rule of Civil Procedure 45 governs discovery of nonparties by subpoena. Fed. R. Civ. P. 45. The Advisory Committee Notes to Rule 45 state that "the scope of discovery through a subpoena is the same as that applicable to Rule 34 and the other discovery rules," which in turn is the same as under Rule 26(b). Advisory Committee Notes to 1970 Amendment. Rule 26(b) allows a party to obtain discovery concerning

any nonprivileged matter that 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). "Information within this scope of discovery need not be admissible in evidence to be discoverable." Id.

Rule 45 provides that "on timely motion, the court for the district where compliance is required must quash or modify a subpoena that . . . requires disclosure of privileged or other protected matter, if no exception or waiver applies; or . . . subjects a person to undue burden." Fed. R. Civ. P. 45(c)(3)(A)(iii), (iv). "[A] court determining the propriety of a subpoena balances the relevance of the discovery sought, the requesting party's need, and the potential hardship to the party subject to the subpoena." Gonzales v. Google, 234 F.R.D. 674, 680 (N.D. Cal. 2006) (citation omitted). The party who moves to quash a subpoena bears the "burden of persuasion" under Rule 45(c)(3). Moon v. SCP Pool Corp., 232 F.R.D. 633, 637 (C.D. Cal. 2005) (citations omitted).

A party generally lacks standing under Federal Rules of Civil Procedure Rule 45(c)(3) to challenge a subpoena issued to a non-party "unless the party claims a personal right or privilege with respect to the documents requested in the subpoena." In re REMEC, Inc. Sec. Litig., No. CIV 04CV1948 JLS AJB, 2008 WL 2282647, at *1 (S.D. Cal. May 30, 2008) (citing Nova Prods., Inc. v. Kisma Video, Inc., 220 F.R.D. 238, 241 (S.D.N.Y. 2004); In re Cree Inc. Sec. Litig., 220 F.R.D. 443 (M.D.N.C. 2004)); see also Moon, 232 F.R.D. at 636 ("A party cannot object to a subpoena duces tecum served on a nonparty, but rather, must seek a protective order or make a motion to quash."). "A party can move for a protective order in regard to a subpoena issued to a non-party if it believes its own interests are jeopardized by discovery sought from a third party and has standing under Rule 26(c) to seek a protective order regarding subpoenas issued to non-parties which seek irrelevant information." In re REMEC, 2008 WL 2282647, at *1.

III. DISCUSSION

As a preliminary matter, Defendants² appear to object to all five subpoenas on the ground that Loop has failed to comply with California Code of Civil Procedure section 2019.210. Loop alleges a claim for misappropriation of trade secrets pursuant to California Civil Code section 3426, California's Uniform Trade Secrets Act ("CUTSA"). Section 2019.210 provides that in any action alleging misappropriation of trade secrets under CUTSA, "before commencing discovery relating to the trade secret, the party alleging the misappropriation shall identify the trade secret with reasonable particularity subject to any orders that may be appropriate under Section 3426.5 of the Civil Code." Cal. Civ. Proc. Code § 2019.210. Although it is not clearly stated, it appears that Defendants' position is that unless and until Plaintiff identifies its alleged trade secrets with particularity, Plaintiff is not entitled to discovery.

2 The joint letter does not always make clear on whose behalf the objections are made, whether it be Gatti, IQSystem LLC, or IQSystem Inc., or some combination thereof. Therefore, the court will refer to the objections as "Defendants' objections," meaning Gatti, IQSystem LLC, and IQSystem Inc. collectively.

This argument is without merit. After the parties filed the instant joint letter, the undersigned granted in part and denied in part Defendant IQSystem Inc.'s motion to compel Loop to provide a particularized trade secret disclosure pursuant to section 2019.210 and to stay discovery until Loop provides such disclosure. [Docket No. 331.] The court concluded that section 2019.210 applies in this case and that Loop had failed to sufficiently identify the trade secrets at issue. However, the court denied IQSystem Inc.'s motion to stay all discovery in this case pending Loop's compliance with section 2019.210, holding that section 2019.210 only supports a stay of "discovery related to the trade secret[s]." Id. at 7. The court stayed discovery as to Loop's CUTSA claim only, and ordered that Loop could proceed with such discovery upon filing a statement identifying with reasonable particularity the trade secrets at issue in this lawsuit. Id.

Loop filed a statement regarding its trade secrets on January 11, 2016. Without expressing an opinion on the sufficiency of Loop's disclosure, the court notes that to date, no party has moved to challenge Loop's disclosure. Moreover, there is no argument or indication that the five subpoenas at issue relate solely to Loop's CUTSA claim. Accordingly, Defendants' objections to the five subpoenas based on section 2019.210 are overruled.

A. Subpoena to AT&T

Loop's subpoena to AT&T seeks "all records reflecting the incoming and outgoing call history, text or other data messages, and data transfer from March 1, 2013 through the present" for five specified phone numbers that are associated with accounts held by Gatti, IQSystem LLC, and IQSystem Inc. The subpoena also asks for the same information for any other phone numbers held by Gatti. Loop argues that the records of communications by Gatti, IQSystem LLC, and IQSystem Inc. are highly relevant to its allegations about Gatti's participation in a conspiracy involving wire fraud. In its second amended complaint, Loop alleges that "Gatti utilized a wide variety of communications means including in-person meetings, teleconference meetings, telephone calls, emails, text messages, and social media messages" in order "[t]o carry out as well as conceal her fraudulent activities and wrongdoings." 2d Am. Compl. ¶ 143. It also argues that Gatti justified "repeated disappearances" from work on the basis of personal reasons, and that these records will confirm "her true whereabouts and activities" during her employment with Loop.

Defendants object on the ground that the subpoena potentially calls for attorney-client communications and documents protected by California's right to privacy, such as communications between Gatti and her physician. They also argue that the subpoena may not be enforced to the extent that it violates the federal Stored Communications Act ("SCA"), 18 U.S.C. §§ 2701-2712. Further, Defendants argue that the subpoena is overbroad as to time and scope and calls for documents not relevant to any party's claim or defense, since it seeks information about communications that post-date the allegations in the operative complaint.

Defendants' privacy objections appear solely based on their reading of the subpoena as calling for the substance of potentially privileged or protected communications. This is contrary to Loop's intent, since Loop contends that it does not seek the content of the communications. According to Loop, it simply seeks "a list of technical data of the date/time the communication was made or received, the numbers called, and other technical data." Jt. Letter at 3. It argues that disclosure of such data—and not the contents of communications themselves—is expressly permitted by the SCA.

Civil subpoenas are subject to the prohibitions of the SCA. See Theofel v. Farey-Jones, 359 F.3d 1066, 1071-72, 1077 (9th Cir. 2004). The SCA generally prohibits "'providers' of communication services from divulging private communications to certain entities and/or individuals." Quon v. Arch Wireless Operating Co., Inc., 529 F.3d 892, 900 (9th Cir. 2008), rev'd on other grounds by City of Ontario v. Quon, 560 U.S. 746 (2010). It permits an electronic communications service provider to "divulge a record or other information pertaining to a subscriber to or customer of such service (not including the contents of communications . . . ) . . . to any person other than a governmental entity." 18 U.S.C. § 2702(c)(6). The Ninth Circuit has held that wireless communications providers such as AT&T are properly classified as "electronic communication service[s]." Quon, 529 F.3d at 901; see Mintz v. Mark Bartelstein & Assocs., Inc., 885 F. Supp. 2d 987, 992 (C.D. Cal. 2012). Because Loop is not a governmental entity, AT&T may disclose to it the subscriber information requested by the subpoena. See id. at 992-93 (holding SCA permits AT&T to disclose subscriber information pursuant to subpoena, including date, time, originating and receiving telephone number for specified date range); see also Obodai v. Indeed, Inc., No. 13-80027-MISC EMC (KAW), 2013 WL 1191267, at *3 (N.D. Cal. Mar. 21, 2013) ("Since subscriber information is not protected by the SCA, [litigant] may obtain non-content information pursuant to a valid, civil subpoena."). AT&T may not provide the content of any communications, including text messages, consistent with the SCA.³ See Mintz, 885 F. Supp. 2d at 993. To the extent that Loop's subpoena could be read to request the content of the requested communications, this order explicitly holds that AT&T is prohibited from providing the content of any communications.

3 Since the content of Defendants' communications is not at issue, Defendants' privacy objections are overruled.

As to the scope of the subpoena, Loop seeks the requested information from March 1, 2013 through the present.⁴ Loop argues that the time frame is appropriate since Gatti's scheme "continues to date as alleged in the Second Amended Complaint." Jt. Letter at 2. It also argues that Gatti has continued to improperly solicit Loop's confidential investors and advisors by phone and text messages "as recently as a few weeks ago." Id. Loop gives no other information about these allegedly improper activities. In the second amended complaint, Loop makes a number of allegations about Gatti's continued wrongdoing, including the allegation that after her termination from Loop, Gatti continued to make false and misleading communications with Loop's employees and investors "with the intent to cause further damage to [Loop]." 2d Am. Compl. ¶ 36. It alleges that before and after Gatti's termination, she has "continued to use text messaging to solicit [Loop's] confidential contacts, witnesses, past, current and prospective investors, advisors and their families," and that Gatti "recently" solicited by text messages "key individuals in investment funds" at issue in this action. Id. at ¶ 143; see also ¶¶ 147, 149, 226 ("Defendants' [racketeering] activities were ongoing for at least one year, and continued through her termination from [Loop] on February 3, 2015."). Given Plaintiff's allegations about Gatti's continued wrongdoing, the court finds that the appropriate time period for the information requested in the AT&T subpoena is March 1, 2013 through September 23, 2015, the date Loop filed its second amended complaint.

4 Defendants ask the court to limit the time period to June 1, 2012 through February 23, 2015, the date Loop filed its complaint. However, the AT&T subpoena does not seek data prior to March 1, 2013. --------

B. Subpoena to Google

Loop's subpoena to Google requests four categories of information, two of which are subject to Defendants' objections: 1) all documents and communications concerning Gatti's employment with Google and Youtube, Inc. ("Youtube"), including her complete employee/personnel file (Request for Production (RFP) 1); and 2) any documents related to any application for unemployment benefits made by Gatti for which Google or Youtube received notification (RFP 3). Defendants argue that the requested information, including the "day to day ins and outs of Gatti's employment with Google," is not relevant to any party's claims or defenses, and that Gatti's employment file is private.

In response, Loop argues that Gatti's employment records are "critically at issue in this case," because Loop alleges that Gatti made material misrepresentations regarding her past employment, compensation, and academic history in order to fraudulently induce Loop into giving her a large percentage of company shares and a high salary. Jt. Letter at 4. While Loop alleges a claim of fraud in the inducement against Gatti based upon alleged misrepresentations about her education and prior employment at the University of California, Berkeley and Skype, it makes no allegations about any misrepresentations by Gatti about her employment with Google or Youtube in connection with that or any other claim. See 2d Am. Compl. ¶¶ 258-262. Moreover, to the extent that Loop seeks to confirm details about Gatti's employment with Google and Youtube, such as the dates of employment and compensation, it does not need the contents of Gatti's personnel file to do so; it can obtain this information through less burdensome sources, including depositions of Gatti and/or her former supervisors. Since Gatti's personnel file from Google and/or Youtube are of minimal relevance and are not proportional to the needs of the case, Defendants' motion to quash the subpoena to Google is granted as to RFP 1. See Fed. R. Civ. P. 26(b)(1). This ruling is made without prejudice to Loop re-serving the portion of its subpoena seeking Gatti's personnel file from Google and/or YouTube should Loop learn facts in discovery that establish the clear relevance of those personnel files.

As to any application by Gatti for unemployment benefits, Loop offers no argument about the relevance of such documents. Accordingly, the motion to quash the subpoena is granted as to RFP 3.

C. Subpoena to WI Harper Group

Loop's subpoena to WI Harper Group seeks 24 categories of information. Defendants object to the following four categories: 1) all documents and communications related to, referring to, or in any way discussing or including the name Anna Gatti or any of Gatti's contact information (RFP 3); 2) all text messages between anyone at WI Harper Group and Gatti, including any text messages to or from Shahi Ghanem (RFP 4); 3) all LinkedIn, Facebook, and any other social media messages to or from Anna Gatti and anyone at WI Harper Group, including any message or request sent to Peter Liu (RFP 6); and 4) all documents and communications regarding or relating to IQSystem Inc. and IQSystem LLC (RFP 16).

Loop explains that WI Harper was one of Loop's business relationships that "was destroyed by Gatti directly and through the other Defendants," and that Gatti improperly continued to solicit WI Harper after her termination. Loop contends that Gatti admitted that she has waived objections to this subpoena since she did not assert objections to the Almaviva Defendants' subpoena to WI Harper seeking "all documents related to Anna Gatti." Jt. Letter at 5.

Although not clearly stated, it appears that Defendants object to these four categories of information on privacy and overbreadth grounds. However, they provide no support or explanation for these objections, merely incorporating by reference their arguments related to the AT&T subpoena, which do not appear applicable. They also do not respond to Loop's assertion, and therefore concede that Defendants waived their objections to the subpoena. Accordingly, the motion to quash the WI Harper subpoena is denied.

D. Subpoena to Carr & Ferrell

Loop's subpoena to the Carr & Ferrell law firm seeks thirteen categories of documents. Defendants object to the following categories: 1) correspondence by attorney Jeffrey Capaccio regarding Loop, its employees, Gatti, Tony DiNapoli, Gennaro DiNapoli, and the Almaviva Defendants, and documents from Capaccio's files regarding the same (RFP 2); 2) all documents regarding IQSystem Inc. and IQSystem LLC (RFP 3); 3) documents regarding payments to Capaccio from Gatti, Tony DiNapoli, or any of the defendants (RFP 4); 4) all documents related to the Almaviva Defendants or the IQSystem Defendants' goals for, expectations of, and requirements for Carr & Ferrell in connection with its work as a contractor for the Almaviva Defendants (RFP 5); 5) communications with Gatti from March 1, 2013 through the present (RFP 6); and communications by or to Capaccio regarding this litigation (RFP 10). Defendants also object to RFP 1, which seeks all engagement letters between Carr & Ferrell and any of the defendants in this action and/or Tony DiNapoli. Loop contends that Capaccio is Gatti's co-conspirator, and a close friend of Gatti's boyfriend and alleged co-conspirator Tony DiNapoli. It alleges that Capaccio schemed with Gatti to force Loop to sell its intellectual property at a bargain price. See 2d Am. Compl. ¶¶ 211-13. Loop alleges that Capaccio and DiNapoli "have a tried and true modus operandi for seeking to force start-ups to sell on the cheap to other companies." Id. at 211.

Defendants again incorporate by reference their arguments related to the AT&T subpoena. They baldly assert that the subpoena calls for attorney-client privileged communications and documents protected by the attorney work product doctrine, without providing any information or context about the relationship between Carr & Ferrell, Capaccio, and any of the defendants in this case. They ask the court to limit the time period to June 1, 2012 to February 23, 2015, and to limit the scope to documents excluding privileged communications and documents containing attorney work product and documents concerning Loop and the Almaviva Defendants, "excluding attorney-client privileged communications between Almaviva's counsel and Gatti as Almaviva's agent and other Almaviva agents/employees." Jt. Letter at 7. In response, Loop argues that Defendants do not, and cannot allege that they ever retained Carr & Ferrell as counsel for any matter, and that they have no basis to block the production of these highly relevant documents.

Federal privilege law applies in this federal question case. Fed. R. Evid. 501; see also Loop AI Labs Inc. v. Gatti, No. 15-cv-00798 HSG (DMR), 2016 WL 730211, at *2 (N.D. Cal. Feb. 24, 2016). The attorney-client privilege protects from discovery "confidential communications between attorneys and clients, which are made for the purpose of giving legal advice." United States v. Richey, 632 F.3d 559, 566 (9th Cir. 2011) (citation omitted). The privilege is "narrowly and strictly construed," and the party asserting it bears the burden of proving that it applies. Vasudevan Software, Inc. v. IBM Corp., No. 09-5897-RS (PSG), 2011 WL 1599646, at *1 (N.D. Cal. Apr. 27, 2011) (citations omitted); accord United States v. Bergonzi, 216 F.R.D. 487, 493 (N.D. Cal. 2003) (holding that party asserting privilege "must make a prima facie showing" that privilege applies) (citing In re Grand Jury Investigation, 974 F.2d 1068, 1071 (9th Cir. 1992)); see Richey, 632 F.3d at 566. Here, Defendants have made no showing that the privilege applies, as they do not assert that Carr & Ferrell or Capaccio ever represented them in any capacity. Moreover, as to Loop's request for engagement letters between Carr & Ferrell and any of the defendants in this action and/or Tony DiNapoli, the Ninth Circuit has held that the attorney-client privilege usually does not protect from disclosure "the identity of the client, the amount of the fee, the identification of payment by case file name, and the general purpose of the work performed." Clarke v. Am. Commerce Nat'l Bank, 974 F.2d 127, 129 (9th Cir. 1992).

The work product doctrine protects from discovery "materials prepared by an attorney in anticipation of litigation," be they "by or for the attorney." Bergonzi, 216 F.R.D. at 494 (citations omitted); accord Richey, 632 F.3d at 567. To qualify for work-product protection, materials must "(1) be prepared in anticipation of litigation or for trial and (2) be prepared by or for another party or by or for that other party's representative." Richey, 632 F.3d at 567 (citation omitted). When a document was not prepared exclusively for litigation, it will receive protection if "in light of the nature of the document and the factual situation in the particular case, the document can be fairly said to have been prepared or obtained because of the prospect of litigation." Id. at 568 (citation omitted). As with their attorney-client privilege objection, Defendants make no showing that the work product doctrine applies to the documents requested by Loop's subpoena.

The court notes its concern that Defendants did not respond to any of Loop's assertions about the lack of an attorney-client relationship between Defendants and Capaccio. Further, even though it appears that Capaccio represented the Almaviva Defendants at some point, the Almaviva Defendants did not move to quash the subpoena or participate in the instant joint letter. Since the attorney-client privilege is "narrowly and strictly construed," the court declines to quash the subpoena on attorney-client privilege and attorney work product protection grounds. However, in an abundance of caution, the court will allow for the possibility that Carr & Ferrell may withhold certain documents based on privilege. To the extent that Carr & Ferrell withholds documents in response to Loop's subpoena, it must promptly provide a privilege log in conformance with this court's Standing Order. [See Docket No. 401 (Notice of Amended Discovery Procedures).] Carr & Ferrell may only withhold documents based on an objectively reasonable assertion of attorney-client privilege and/or attorney work product protection.

As to the scope of the subpoena, Loop seeks the requested information for various time frames, including 2012 to the present, June 1, 2013 to the present, January 2014 to the present, and March 1, 2013 to the present. Loop argues that Capaccio and DiNapoli's alleged modus operandi is continuous and ongoing. See 2d Am. Compl. ¶¶ 211-13, 228-31. The court orders Carr & Ferrell to produce the responsive information starting from the dates requested in the subpoena through September 23, 2015.

E. Subpoena to Bank of the West

Loop's subpoena to Bank of the West seeks 15 categories of information, including the identification of bank accounts held by Gatti, Tony DiNapoli, IQSystem Inc., IQSystem LLC, the Almaviva Defendants, Almawave USA, and others, and documents associated with opening such accounts; communications between Gatti and specific Bank of the West employees or representatives; documents and communications related to specific instances of cash pick-ups; and documents and communications related to Loop and/or this litigation. Loop argues that the requested information is relevant to its allegations that Gatti used the assistance of specific Bank of the West employees to conduct her unlawful activities related to the Almaviva Defendants and used bank accounts to obtain and make fraudulent payments. 2d Am. Compl. ¶¶ 27, 43, 50, 151-54, 234. It also argues that the information requested is relevant to review the funds Gatti received while she was supposed to be exclusively working for Loop.

Defendants object to nine RFPs, again incorporating by reference their arguments related to the AT&T subpoena. They also argue that their personal financial information is private and that the subpoena is overbroad and should be limited to documents concerning Loop and the Almaviva Defendants only. Defendants seek to limit the scope to documents and information from June 1, 2012 through February 23, 2015.

As noted above, federal privilege law applies in this case. Defendants provide no support for their claim that the information sought is protected from discovery, and no explanation why their privacy would not be sufficiently protected if sensitive financial information is designated as "confidential" or "highly confidential—attorneys' eyes only" pursuant to the parties' protective order. [Docket No. 230.] See, e.g., In re Heritage Bond Litigation, No. CV 02-1475-DT(RCX), 2004 WL 1970058, at *5 n.12 (C.D. Cal. July 23, 2004) ("Any privacy concerns Kasirer defendants have in their bank records and related financial statements are adequately protected by the protective order, and are not sufficient to prevent production in this matter.") (citing Sneirson v. Chemical Bank, 108 F.R.D. 159, 162 (D. Del. 1985); accord In re Yassai, 225 B.R. 478, 483 (Bankr. C.D. Cal. 1998). As to the scope of the subpoena, Loop does not seek documents or information prior to June 1, 2012. The court finds that the appropriate time period for the information requested in the Bank of the West subpoena is June 1, 2012 through September 23, 2015.

IV. CONCLUSION

For the foregoing reasons, Defendants' motion for a protective order and/or to quash Loop's subpoenas to AT&T, Google, WI Harper Group, Carr & Ferrell, and Bank of the West is granted in part and denied in part.

IT IS SO ORDERED. Dated: February 29, 2016

/s/_________

Donna M. Ryu

United States Magistrate Judge