Opinion
CV-21-00597-PHX-SPL
10-26-2022
Top Brand LLC, et al., Plaintiffs, v. Cozy Comfort Company LLC, et al., Defendants.
ORDER
HONORABLE STEVEN P. LAGAN, DISTRICT JUDGE
On July 22, 2022, Plaintiffs filed a Motion for Discovery Dispute Resolution (Doc. 177). Although the Court has since resolved the discovery dispute at issue in Plaintiff's Motion, (see Doc. 183), Defendants raised a second, independent discovery dispute in their Response to the Motion. (See Doc. 179 at 3-5). The Court ordered Plaintiffs to file a Response as to the second discovery dispute. (Doc. 183 at 5). On August 10, 2022, Plaintiffs timely filed such a Response (Doc. 186). On October 18, 2022, a Discovery Dispute Hearing (the “Hearing”) was held; at the Hearing, counsel for the parties provided additional argument as it relates to the dispute. (See Doc. 195). Having fully reviewed and considered the arguments made by the parties in their briefing and at the Hearing, the Court now issues this Order resolving the discovery dispute in Defendants' favor.
I. BACKGROUND
The pending discovery dispute relates to certain financial information which Defendants allege that Plaintiffs have only partially disclosed or withheld entirely. Specifically, Defendants request that the Court order Plaintiffs to produce the following financial information:
(i) spreadsheets showing sales from all platforms;
(ii) spreadsheets and QuickBooks files showing sales, costs, fees, overhead, and profit, on a company-by-company bases;
(iii) financial statements for the last five years for each of the Plaintiff companies;
(iv) general ledgers for the last three years for each of the Plaintiff companies;
(v) federal tax returns for the last five years for each of the Plaintiff companies;
(vi) bank statements for the last six months for each of the Plaintiff companies' bank accounts.
(Doc. 179 at 4). Plaintiffs respond that they have “fully complied” with their discovery duties “to produce and supplement as necessary all relevant financial information in relation to sales of accused products” and that they have not withheld any discoverable information or documents at any point during this case. (Doc. 186 at 2-4). With respect to each of Defendants' six discovery requests, Plaintiffs argue more specifically that (i) they have already made the disclosure; (ii) the documents requested do not exist; (iii) the documents requested are irrelevant; (iv) the discovery requests are not proportional to the needs of the case; or (v) some combination of these arguments. (Id.).
II. LEGAL STANDARD
The purpose of discovery is to make trial “less a game of blind man's bluff and more a fair contest with the basic issues and facts disclosed to the fullest practicable extent possible,” United States v. Procter & Gamble, 356 U.S. 677, 683 (1958), and “to narrow and clarify the basic issues [in dispute] between the parties.” Hickman v. Taylor, 329 U.S. 495, 501 (1947); see also Stevens v. Corelogic, Inc., 899 F.3d 666, 678 (9th Cir. 2018) (“[T]he whole point of discovery is to learn what a party does not know or, without further information, cannot prove.”); Pac. Fisheries Inc. v. United States, 484 F.3d 1103, 1111 (9th Cir. 2007) (“[T]he purpose of discovery is to aid a party in the preparation of its case.”). Necessarily, the scope of discovery is generally very broad. Under Rule 26(b)(1), “[p]arties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case.” Fed.R.Civ.P. 26(b)(1). “Information within this scope of discovery need not be admissible in evidence to be discoverable.” Id.
Rule 37(a)(3) of the Federal Rules of Civil Procedure provides that a party may seek to compel discovery disclosures or responses if the party to whom the discovery requests were propounded fails to properly disclose or respond. A failure to disclose or respond includes evasive or incomplete answers. Fed.R.Civ.P. 37(a)(4). “[T]he party seeking to compel discovery has the initial burden of establishing that its request satisfies the relevancy requirements of Rule 26(b).” Doe v. Swift Transp. Co., Inc., No. 2:10-cv-00899 JWS, 2015 WL 4307800, at *1 (D. Ariz. July 15, 2015). This is “a relatively low bar,” Cont'l Cirs. LLC v. Intel Corp., 435 F.Supp.3d 1014, 1018 (D. Ariz. 2020), as relevance in the discovery context is “defined very broadly.” EEOC v. Scottsdale Healthcare Hosps., No. CV-20-01894-PHX-MTL, 2021 WL 4522284, at *2 (D. Ariz. Oct. 4, 2021) (quoting Garneau v. City of Seattle, 147 F.3d 802, 812 (9th Cir. 1998)); see also Cont'l Cirs., 435 F.Supp.3d at 1018-19 (citation and internal quotations omitted) (“[C]ourts generally recognize that relevancy for purposes of discovery is broader than relevancy for purposes of trial.”). Under Rule 401 of the Federal Rules of Evidence, information having “any tendency” to make a fact in dispute “more or less probable” is relevant. Fed.R.Evid. 401. If the movant meets its burden of establishing relevancy, “the party opposing discovery has the burden to demonstrate that discovery should not be allowed due to burden or cost and must explain and support its objections with competent evidence.” Doe, 2015 WL 4307800, at *1.
Rule 37(a)(1) requires a motion to compel to include “a certification that the movant has in good faith conferred or attempted to confer with the [] party failing to make disclosure or discovery in an effort to obtain it without court action.” Here, Defendants raised the discovery dispute in their Response to Plaintiffs' Motion concerning a separate discovery dispute. (See Doc. 179 at 3-5). Plaintiffs filed the original Motion (Doc. 177) unilaterally and Defendants contend that Plaintiffs intentionally omitted the discovery dispute they raise in their Response. (Doc. 179 at 2). As a result, Defendants have not filed a “formal” Rule 37 Motion to Compel, nor have they filed the accompanying certification of good faith conferral. Despite the parties' procedural missteps in bringing this dispute to the Court's attention, the Court will nonetheless treat the dispute as if it were a Rule 37 Motion to Compel filed by Defendants because Defendants' request that this Court compel certain discovery is analogous to such a motion. Additionally, the Court overlooks the parties' failure to file a certification of good faith conferral because the parties have clearly conferred on this dispute on several occasions. At the least, the parties conferred in good faith prior to the Hearing, (see Doc. 192, “Joint Notice” regarding parties' pre-Hearing meet-and-confer), and at the Hearing (see Doc. 195, “Minute Entry” noting that parties were ordered to confer during a recess at the Hearing to resolve the disputed issues). The parties have been unable to resolve the dispute, necessitating the Court's present Order.
III. DISCUSSION
Defendants acknowledge that Plaintiffs have already produced certain reports showing Plaintiffs' sales data. Defendants contend, however, that the sales data provided thus far is not separated by individual company but rather compiled as aggregate sales and other financial data from all the Plaintiff entities. Defendants now seek the sales data on a company-by-company basis and request other financial data underlying the reports already disclosed. Defendants assert that company-specific financial data is necessary for them to determine which company profited from which products and thereby what damages should be allocated to each Plaintiff in the event Defendants obtain a judgment. Moreover, Defendants have noticed certain discrepancies in the sales data that Plaintiffs have already provided to them. Based on these discrepancies, Defendants are concerned that the accused products were not only sold by the Plaintiff companies, but also by other entities that are not parties in this suit. Defendants suspect that one or more of the companies at issue are acting as an “alter ego” or “shell company” and that profits have been moved between the companies in a manner that makes it difficult for Defendants to fully comprehend the nature of Plaintiffs' business activities. Thus, Defendants contend that the discovery now requested will allow them to sort through the discrepancies and otherwise verify the financial data they have already obtained.
The Court is persuaded by Defendants' argument and finds that the discovery requested by Defendants is sufficiently relevant such that it is appropriate for this Court to compel Plaintiffs to provide such discovery. The spreadsheets and QuickBooks files showing sales and other financial data on a company-by-company basis are relevant to Defendants' efforts to understand how much money was made by each of the Plaintiff companies and, in turn, to determine the appropriate damages in this case. Plaintiffs argue that such company-specific data is not obtainable from Amazon but fail to offer any concrete evidence to support this. At the Hearing, Plaintiffs' counsel stated that he believed it was at least “possible” to separate the financial data by company but added that it would not be an easy task. The Court finds that the relevancy of such company-specific data and financial information outweighs any burden on Plaintiffs to produce them.
As to Defendants' request for financial statements, Plaintiffs' primary argument is that the financial statements are irrelevant because such statements are maintained on a company-wide basis rather than with respect to the accused products. The Court is unpersuaded, as company-wide financial statements would still be useful to Defendants in determining how profits were moved and otherwise distributed among the Plaintiff companies. Thus, the Court will order Plaintiffs to produce any available financial statements for each of the Plaintiff companies for the last five years. As to general ledgers, Plaintiffs flatly assert that none of the Plaintiff companies maintain a general ledger. Plaintiffs further argue that, even if they did maintain a general ledger, a general ledger would not provide any relevant information to Defendants because general ledgers track the companies' financial transactions at a high level and do not contain any information with respect to the accused products. As with the financial statements, the Court finds that Plaintiffs' general ledgers would provide relevant information to Defendants even if they do not specifically relate to the accused products. The Court has no reason to doubt Plaintiffs' contention that they do not maintain general ledgers in the ordinary course of business but notes that Plaintiffs' counsel indicated at the Hearing the general ledgers could likely be produced. Therefore, the Court orders Plaintiffs to create, if necessary, and to disclose a general ledger for each Plaintiff company for the last three years.
Finally, the Court finds that the federal tax returns and bank statements for each of the Plaintiff companies would provide Defendants with a better understanding of Plaintiffs' finances, including whether and how profits are being reported and how they are being distributed amongst the companies. The Court recognizes that the tax returns and bank statements would provide ways for Defendants to cross-check the other financial data provided by Plaintiffs. Additionally, the Court finds that Defendants have appropriately narrowed their request for bank statements to only the last six months and for tax returns to only the last five years. In sum, the Court finds that Plaintiffs' federal tax returns and bank statements are relevant and discoverable.
IV. CONCLUSION
Accordingly, IT IS ORDERED that the discovery dispute raised in Defendants' “Response to Plaintiffs' Motion for Discovery Dispute Resolution” (Doc. 179) is resolved in Defendants' favor. Plaintiffs are therefore ordered to produce the following:
(i) spreadsheets showing sales from all platforms, separated on a company-by-company bases;
(ii) spreadsheets and QuickBooks files showing sales, costs, fees, overhead, and profit, on a company-by-company bases;
(iii) financial statements for the last five years for each of the separate Plaintiff companies;
(iv) general ledgers for the last three years for each of the separate Plaintiffcompanies;
(v) federal tax returns for the last five years for each of the separate Plaintiff companies;
(vi) bank statements for the last six months for each of the separate Plaintiff companies' bank accounts.