Call Delivery Systems, LLC v. Daryl Morgan, et al Case No. 2:20-cv-04637-CBM-PDx United States District Court, C.D. California Filed September 13, 2023 Counsel Alton G. Burkhalter, Joshua A. Waldman, Daniel Kessler, Burkhalter Kessler Goodman and George LLP, Irvine, CA, Dana B. Hasness, Jonathan Landesman, Cohen Seglias Pallas Greenhall and Furman PC, Philadelphia, PA, for Plaintiff. Jesse T Farris, Ashland, NH, Michael P Ring, Michael P Ring and Associates, Santa Barbara, CA, for Defendant. Donahue, Patricia, United States Magistrate Judge Proceedings: (In Chambers) Order Denying Plaintiff's Motion to Compel Defendants to Produce Revenue and Expense Data Broken Down by Client [Dkt. No. 292] *1 Before the Court is Plaintiff's Motion to Compel Defendants to Produce Revenue and Expense Data Broken Down by Client. [Dkt. No. 292.] The parties addressed this issue at the informal discovery conference on August 24, 2023, and the Court set a briefing schedule. [Dkt. No. 290.] The Motion is fully briefed. [Dkt. Nos. 292, 296, 303.] I. Background This case concerns claims for trade secret misappropriation brought by Plaintiff Call Delivery Systems, LLC (“CDS”) against Defendants Daryl Morgan and Call Haven Partners (“CHP”). Defendants also allege several wage-and-hour counterclaims. After an eight-day trial in April 2022, the jury found in favor of Defendants as to all of Plaintiff's claims and found in favor of Plaintiff as to all of Defendants' counterclaims. On September 20, 2022, Plaintiff's Motion for a New Trial was granted. [Dkt. No. 237.] Trial is set for October 3, 2023. Defendants' motion to bifurcate the trial into liability and damages phases was denied on January 31, 2023. [Dkt. No. 260.] Plaintiff's motion to compel Defendants to produce updated discovery on economic damages was also denied without prejudice, and the Court subsequently granted the parties' stipulation setting a deadline for supplemental discovery regarding Plaintiff's claims for economic damages. [Id., Dkt. No. 266.] On March 10, 2023, Plaintiff propounded supplemental discovery requests. After meet and confers, the parties agreed that Defendants would produce revenue and expense information through June 30, 2023, pertaining to certain of Plaintiff's prior customers, and that Defendants could depose Plaintiff's damages expert regarding that additional information and documentation only. [Dkt. No. 290-1.] Defendants produced monthly revenue and expense totals for the pertinent time period,[1] but did not break that data down by customer. II. Motion to Compel Plaintiff moves for an order pursuant to Rule 37(a)(3)(B) compelling Defendants to provide revenue and expense data for the pertinent time period broken down by client. Plaintiff argues that this information is relevant to (1) the damages analysis conducted by Plaintiff's expert, and specifically to allow the expert to conduct a continuous analysis over the last four years of all supplemental information produced, and (2) Plaintiff's claim that Defendants used the client-specific information in stealing clients from Plaintiff. [Dkt. Nos. 292, 303.] Defendants counter that this information is not relevant because (1) the expert's report and trial testimony did not utilize or rely upon customer-specific revenue and expense information, and (2) the clients testified that Defendants did not steal their business from Plaintiff. Defendants also contend that Plaintiff seeks this detailed customer information to find out who Defendants are doing business with, for reasons that do not pertain to the merits of this case. [Dkt. No. 296.] III. Legal Standard *2 Under Federal Rule of Civil Procedure 26, a party may obtain discovery concerning any nonprivileged matter that is relevant to any party's claim or defense and is proportional to the needs of the case. Fed. R. Civ. P. 26(b)(1). Rule 401 of the Federal Rules of Evidence provides that evidence is relevant if: “(a) it has any tendency to make a fact more or less probable than it would be without the evidence; and (b) the fact is of consequence in determining the action.” Fed. R. Evid. 401. Relevant information need not be admissible to be discoverable. Fed. R. Civ. P. 26(b)(1). Rule 37 provides that “[a] party seeking discovery may move for an order compelling an answer, designation, production, or inspection.” Fed. R Civ. P. 37(a)(3). The party seeking to compel production of documents under Rule 34 has the “burden of informing the court why the opposing party's objections are not justified or why the opposing party's responses are deficient.” Best Lockers, LLC v. Am. Locker Grp., Inc., Case No. SACV 12-403-CJC (ANx), 2013 WL 12131586, at *4 (C.D. Cal. Mar. 27, 2013). District courts have broad discretion in controlling discovery. See Hallett v. Morgan, 296 F.3d 732, 751 (9th Cir. 2002). When considering a motion to compel, the Court has similarly broad discretion in determining relevancy for discovery purposes. Surfvivor Media, Inc. v. Survivor Productions, 406 F.3d 625, 635 (9th Cir. 2005) (citing Hallett, 296 F.3d at 751). IV. Discussion A. Expert Witness Damages Analysis In support of the instant motion, Plaintiff submitted an affidavit of its expert witness Chad L. Staller, who prepared a report in 2021 analyzing Plaintiff's economic damages and testified at the 2022 trial. [Dkt. No. 292-1, ¶¶ 8, 9.] Staller's 2021 report refers to CHP's revenue by former customer for the years 2020 and 2021. [Id. at ¶ 11.] The report contains “Table A: Call Haven Partners Revenue,” which lists six customers (i.e, buyers who had a prior relationship with Plaintiff), the revenue for each of those customers in 2020 and 2021, the total for each customer for those two years, the total revenue for all six customers in 2020 and in 2021, and the total revenue for all six customers for both years. [Dkt. No. 292-1 at 14.][2] The report states that, as shown in Table A, between April 1, 2020, and December 31, 2020, CHP generated $499,723 in revenue; from January 1, 2021, to approximately March 17, 2021, CHP generated $145,675 in revenue; and thus, from April 1, 2020 to March 17, 2021, CHP generated $645,398 ($499,723 + $145,675) in revenue. [Dkt. No. 292-1 at 14.] The report notes that Morgan testified that he projects CHP's revenue to increase by approximately 100% in 2021. [Id.] The report then states that, “[a]ccordingly, we provide two estimates of CHP's revenue subject to disgorgement.” [Id.] For each estimate, Staller valued disgorged 2020 revenue at $499,723. [Id.] The first estimate valued annual revenue equal to $645,398, based on the actual revenue set forth above, and the second estimate assumed CHP's revenue would increase by 100% from the $645,398 to $1,209,795. [Id.] Neither estimate breaks out or discusses the specific revenue amount of any customer listed in Table A. Staller's report then addresses the review of Plaintiff's 2017 to 2020 profit and loss statements to determine the gross profit margin, discount rate, and the total amounts of lost profit. [Id. at 14-16.] This analysis also does not break out or discuss the specific revenue amount of any customer listed in Table A. *3 In his affidavit, Staller states that updated revenue by former customer “would be useful for my updated analysis and examination” for two reasons [Dkt. No. 292-1, ¶ 12.] “First, updated revenue by former customer would be useful to allow for a continuous and consistent analysis over the last 4 years versus going from customer specific performance to now broad and general monthly performance.” [Id. at ¶ 13.] Staller does not further explain his reasoning on this point. As discussed above, Staller estimated CHP's revenue subject to disgorgement based on CHP's total revenues over specified time periods. The 2021 report adds up the customer specific data to reach the totals that Staller used to estimate the revenue subject to disgorgement. In his affidavit, Staller does not explain why the updated revenues by former customer would be useful, other than to make the updated table consistent with Table A in his 2021 report. The second reason proffered by Staller is that “updated revenue by former customer would be useful for the examination of potential changes in performance and/or other financial trends of Call Haven Partners.” [Dkt. No. 292-1, ¶ 14.] Staller does not explain how potential changes in performance and/or other financial trends of CHP – beyond any changes and/or trends reflected in the monthly revenue and expense totals that Defendants have produced – would be relevant. The specific items of damages claimed by Plaintiff are unjust enrichment damages, i.e., any benefits or profits that Defendants realized as a result of misappropriation of Plaintiff's trade secrets and breach of fiduciary duty; loss of profit damages to compensate Plaintiff for profits lost as a result of the misappropriation of Plaintiff's trade secrets and breach of fiduciary duty, and punitive damages. [Court's Jury Instruction No. 37, Dkt. No. 160 at 38.] Unjust enrichment is the value of the Defendants' “benefit that would not have been achieved except for their unlawful conduct” less their reasonable business expenses. [Court's Jury Instruction No. 38, Id. at 39.] Lost profits are the gross amount Plaintiff would have received but for Defendants' conduct, less expenses Plaintiff would have had absent that conduct. [Court's Jury Instruction No. 39, Id. at 40.] Staller's report addresses the calculations of both unjust enrichment and lost profits. Defendants' monthly revenue and expense totals are relevant to these calculations. Plaintiff has not shown how the breakdown by customer has any effect on these calculations or is of any consequence in determining the damages. B. Plaintiff's Trade Secret Claims Plaintiff argues that the customer-specific breakdown is relevant to liability because in attempting to establish its trade secret claim at the first trial, Plaintiff questioned Morgan about his alleged use of insider knowledge of specific suppliers' monthly pricing to steal Plaintiff's suppliers. To support this claim, Plaintiff attaches the transcript of the cross-examination of Morgan regarding supplier 732 Numbers, “which is Robert Liff's company”. [Dkt. No. 292-2 at 4.] Morgan testified that 732 Numbers was a longstanding supplier for CDS and it became a supplier for CHP. [Id. at 5-6.] Plaintiff cross examined Morgan about the flat monthly fee that CDS paid 732 Numbers and the higher monthly fee that CHP paid 732 Numbers. [Id. at 10-12.] Plaintiff argues that Morgan testified about these supplier-specific monthly expense figures, and that a reasonable juror could conclude from this testimony that Morgan used information about the monthly amount that CDS paid 732 Numbers – which CDS alleges is a trade secret – to offer Liff more money to induce him to move his business to CHP. However, Liff's testimony undercuts this argument. Liff testified that Morgan did not steal 732 Numbers from CDS. [Dkt. No. 296-2 at 16-17.] Liff testified that he did not leave CDS – that it was not his decision to leave CDS, but that CDS told Liff that they did not want his traffic. [Id. at 11, 12.] Liff testified that this occurred after Morgan had left CDS and that Morgan did not solicit Liff's business. Liff explained that after CDS told him that they no longer needed his traffic, he looked elsewhere, and ultimately CHP was one place to which he sent numbers. [Id.] Liff further testified that he set the price he was willing to accept to supply call traffic to Defendants. [Id. at 12-15.] *4 In any event, Plaintiff already received the customer-specific information in discovery from which it can argue that Morgan used information about the amount Plaintiff paid to each supplier to induce them to switch from CDS to CHP. Plaintiff's allegations arise from Defendant's Morgan's setting up CHP in early 2020, departing CDS in March 2020, and suppliers leaving Plaintiff in the spring of 2020. [Complaint, Dkt. No. 1.] Defendants produced to Plaintiff the customer specific monthly revenue and expenses from April 1, 2020, through March 17, 2021. Plaintiff has this data for the time period in which Plaintiff alleges that Morgan induced the suppliers and buyers away from Plaintiff. Customer-specific revenue and expenses for the period after March 2021 – that is, approximately one year after Morgan is alleged to have induced the suppliers and buyers away from Plaintiff – by definition could not have impacted Morgan's actions in the spring of 2020. Of course, as discussed above, Defendants' total monthly revenue and expenses during this later period are relevant to Plaintiff's damages. And the customer-specific monthly revenue and expenses during the time period when Plaintiff alleges that Defendants used its trade secrets to solicit its suppliers and buyers is relevant to liability. But Plaintiff has not met its burden of showing that the customer-specific revenue and expenses during the later time period are relevant to liability. For the foregoing reasons, Plaintiff's motion is denied. 3 IT IS SO ORDERED. Footnotes [1] At the informal discovery conference, the Court ordered Defendants to produce data regarding revenue and expenses beginning March 2021 through June 30, 2023. [Dkt. No. 290.] [2] The Court uses the page numbers placed on the pleading by the electronic docketing system.