Case Name: Aemetis, Inc. v. Edeniq, Inc., et al.

Case No.: 16-CV-299385

This action initiated by plaintiff Aemetis, Inc. (“Plaintiff”), a publicly-traded biotechnology company, against defendants Edeniq, Inc. (“EIQI”), a privately-held biofuel company specializing in cellulosic ethanol technology, and its Chief Executive Officer, Brian D. Thome (“Thome”), arises out of an unconsummated merger between the companies.

According to the allegations in the second amended complaint (“SAC”), in 2012, Plaintiff and EIQI entered into a written agreement whereby the parties would undertake a joint feasibility study for the conversion of cellulosic and other biomass to ethanol using EIQI’s technology, construct and operate a plan to evaluate that conversion, and conduct a commercial demonstration of it. (SAC, ¶ 21.) EIQI was obligated under the agreement to obtain the U.S. Environmental Protection Agency’s (“EPA”) approval of its technology. (Id. at ¶ 23.) EIQI and Thome repeatedly represented to Plaintiff they were on the verge of obtaining EPA approval. (Id. at ¶ 25.)

While the parties awaited EPA approval, Plaintiff and EIQI executed a written agreement (the “Merger Agreement”) to govern Plaintiff’s acquisition of EIQI. (SAC, ¶ 7.) The Merger Agreement and amendment thereto authorized either party to terminate the merger in the event the transaction was not consummated by the closing date through no fault of the terminating party. (Id. at ¶ 10.) Two days before the closing date, EIQI sent Plaintiff the Payment Spreadsheet for the transaction, but omitted the required EIQI shareholder elections. (Id. at ¶¶ 12-13.)

After the closing date passed, EIQI asked Plaintiff to waive the election requirement. (SAC, ¶ 14.) Plaintiff declined to proceed to closing without the shareholder elections and sent a letter to EIQI documenting its failure to furnish the same. (Id. at ¶¶ 14-15.) Thereafter, Thome sent Plaintiff a notice of termination of the merger. (Id. at ¶ 15.) Plaintiff responded by informing EIQI it did not have authority to terminate the Merger Agreement because it caused the transaction to fail by withholding the shareholder elections. (Id. at ¶ 17.)

Meanwhile, Plaintiff became aware EIQI was making multiple misrepresentations to it. First, it had misrepresented the status of its application to the EPA for approval of its technology. (SAC, ¶ 35.) In addition, EIQI misrepresented its motive for merging with Plaintiff. EIQI represented it wanted to merge with Plaintiff in order to facilitate obtaining the EPA approval and to have its help with the approval process. (Id. at ¶ 36.) As soon as the EPA ultimately granted its approval and EIQI no longer needed Plaintiff’s resources, it terminated the merger. (Id. at ¶ 34.)

Plaintiff asserts two causes of action for breach of contract and fraud.

EIQI subsequently filed a cross-complaint. The operative amended-cross complaint asserts causes of action against Plaintiff and Third Eye Capital Corporation (“Third Eye”) for fraud, negligent misrepresentation, intentional interference with contractual relations, intentional interference with prospective economic advantage, violations of the Lanham Act, and unfair competition. EIQI alleges Plaintiff actively concealed certain facts regarding its funding to induce it into signing the Merger Agreement, intentionally interfered with its relationship with customers, and used its trademark in a misleading way causing a mistaken belief that there is an ongoing relationship between the parties.

The present matter involves a discovery dispute. EIQI served three sets of requests for production of documents on Plaintiff, to which Plaintiff timely responded with both objections and statements it would provide responsive documents. (Berces Decl., ¶¶ 3-5.) It is undisputed that although Plaintiff began producing documents at the end of August 2017, months after some of the requests were served, it still has not produced all responsive documents. Unable to agree on a concrete timetable for production, EIQI moves to compel compliance and for an award of monetary sanctions. Plaintiff opposes the motion.[1]

  1. Preliminary Matters
    1. Meet and Confer

Plaintiff contends this motion should be denied because EIQI failed to adequately meet and confer prior to filing it as required under Civil Code of Procedure section 2016.040. Plaintiff asserts EIQI failed to meaningfully discuss the adequacy of the production because it had produced approximately 22,000 pages of documents in 22 days and served written responses to some of the discovery at issue only seven business days prior to the filing of this motion. Plaintiff’s argument is problematic for two reasons.

First, there is no statutory requirement to meet and confer prior to moving to compel compliance with an agreement to produce documents. While the Civil Discovery Act requires a moving party to meet and confer prior to filing various types of motions, such as one to compel further responses to interrogatories (Code Civ. Proc., § 2030.300, subd. (b)) or inspection demands (Code Civ. Proc., § 2031.310, subd. (b)), it does not require a party to do so prior to moving to compel compliance (Code Civ. Proc., § 2031.320). Further, the statute Plaintiff cites in support, section 2016.040, does not require EIQI to meet and confer prior to filing this motion; it simply states “[a] meet and confer declaration in support of a motion shall state facts showing a reasonable and good faith attempt at an informal resolution of each issue presented by the motion.”

Next, even if there were a meet and confer requirement, EIQI adequately attempted to informally resolve the dispute prior to filing this motion. The meet and confer process is designed “to encourage the parties to work out their differences informally so as to avoid the necessity for a formal order” which, in turn, “will lessen the burden on the court and reduce the unnecessary expenditure of resources by litigants through promotion of informal, extrajudicial resolution of discovery disputes.” (Townsend v. Sup. Ct. (1998) 61 Cal.App.4th 1431, 1435.) The communications between the parties reflect they had been attempting to informally resolve the dispute for months prior to Plaintiff filing this motion. It appears the parties were at an impasse as they could not agree on specific language to use in an agreement relating to electronically stored information (“ESI”), and Plaintiff maintained it could not quickly produce documents absent such an agreement. EIQI advised Plaintiff of the deficiencies in its production numerous times and attempted to talk over the matter. The fact the parties could not resolve the dispute does not mean they failed to adequately meet and confer.

Consequently, the Court will not deny the motion for lack of sufficient meet and confer efforts.

  1. Request to Reset Mediation

For the first time in reply, EIQI states Plaintiff unilaterally cancelled the mediation ordered by the court during a case management conference on the basis discovery was incomplete and requests the Court “compel [it] to reset the mediation so that, if unsuccessful, the parties can proceed expeditiously to trial setting and summary judgment.” (Reply, p. 3:9-11.)

The Court will not consider EIQI’s request at this time because it is unrelated to the instant motion. The scheduling of mediation is a matter properly addressed at a case management conference and not in reply to a motion to compel compliance.

  1. Merits of the Motion

EIQI moves to compel Plaintiff to produce documents responsive to RPD Nos. 4-9 and 11-38.[2]

A party responding to an inspection demand may respond by representing that he or she is able to comply with the demand by the date set for the inspection. (Code Civ. Proc., § 2031.210, subd. (a)(1)-(2).) If the responding party fails to permit inspection in accordance with its agreement to comply, the demanding party’s remedy is to file a motion compelling compliance. (Code Civ. Proc., § 2031.320.) All that has to be shown is the responding party’s failure to comply as agreed. (Ibid.; Standon v. Sup. Ct. (1990) 225 Cal.App.3d 898, 903).

EIQI argues Plaintiff agreed to produce documents responsive to RPD Nos. 4-9 and 11-38 and has not produced all responsive documents. EIQI acknowledges Plaintiff has produced approximately 1,200 documents, but contends more responsive documents exist. As an example, EIQI states that at a recent deposition of one of Plaintiff’s witnesses, Plaintiff introduced unproduced internal documents. EIQI claims Plaintiff still has not produced those documents. EIQI also insists Plaintiff has not produced any documents responsive to RPD Nos. 11-14, 16, 21, 24-25, 28-30, and 32-38, despite having agreed to comply with the demands.

In opposition, Plaintiff recognizes it has not yet finished production and urges this motion should be denied because it is continuing to produce responsive documents. Plaintiff explains the delay is due to ongoing discussions between the parties as to the specific wording in an ESI agreement and what search words to use in its system to find all responsive documents. Plaintiff additionally states the production has been delayed because the parties disagreed over the correct formats to use in document production and EIQI was unhappy it failed to produce documents with hash values.[3] Plaintiff avers EIQI is not prejudiced by the delay because no trial date has been set, the parties are still challenging the adequacies of the pleadings, and one party has yet to appear in the case. Because of the difficulties in production, Plaintiff requests the Court deny the motion and “assist the parties in agreeing upon an operable timeline for the production of documents.” (Opp., p. 10:14-15.)

Although the Court understands the challenges associated with producing thousands of documents, there is no legal authority allowing a party to postpone production for months due to those challenges. As Plaintiff stated it would comply with the requests, it was under an obligation to respond by the date set for inspection. (See Code Civ. Proc., § 2031.210, subd. (a).) EIQI set the production date as 30 days within service of the requests. (Berces Decl., Exh 1.) Plaintiff did not produce documents by that date. On this basis alone, the motion may be granted. (See Standon v. Sup. Ct., supra, 225 Cal.App.3d at p. 903.) The Court notes there is otherwise good reason to compel compliance because it does not appear Plaintiff is adhering to its own production schedule. When Plaintiff first raised issues regarding the timeliness of its production, EIQI continuously waited to file this motion as Plaintiff represented it would produce all responsive documents by August 25, 2017. (Id. at Exh. 13.) Plaintiff did not produce them by that date and only began production on August 30, 2017. (Id. at Exh. 14.) Plaintiff has not indicated when it will produce all remaining responsive documents. It thus appears a court order is necessary to facilitate the production of responsive documents.

EIQI requests the documents be produced within 7 days of the entry of the order. This request seems unreasonable in light of Plaintiff’s efforts to produce responsive documents and obstacles preventing production. An additional 30 days to produce responsive documents strikes the appropriate balance given the length of time Plaintiff has already had to comply and the effort required to search for relevant documents.

Accordingly, the motion to compel compliance is GRANTED. Plaintiff shall produce all documents responsive to RPD Nos. 4-9 and 11-38 within its possession, custody, and control within 20 calendar days of this Order.

  • Request for Sanctions

EIQI requests an award of monetary sanctions pursuant to Code of Civil Procedure sections 2033.290, subdivision (d) and 2023.010. EIQI’s request is problematic for two reasons. First, EIQI did not provide notice of its request. Pursuant to Code of Civil Procedure section 2023.040, a request for sanctions shall, “in the notice of motion, identify every person, party, and attorney against whom the sanction is sought, and specify the type of sanction sought.” Here, EIQI did not indicate in its notice of motion that it was seeking an award of monetary sanctions. Next, even if had EIQI provided adequate notice, it failed to cite a statutory provision authorizing an award of sanctions. Code of Civil Procedure section 2033.290, subdivision (d) permits a party to seek an award of sanctions in connection with a motion to compel further responses to requests for admission. There are no requests for admission at issue here. Code of Civil Procedure section 2023.010 defines acts constituting misuses of the discovery process, and does not itself set forth any provisions regarding the issuance of a monetary sanction. Consequently, EIQI’s request for sanctions is DENIED.

 

The Court will prepare the Order.

[1] Plaintiff acknowledges it was required to file its opposition by September 26, but filed it one day late on September 27. (Bunnell Decl., ¶ 10.) Plaintiff states this was an oversight and calendaring mistake due to the office’s failure to account for October 9 being a court holiday. Although EIQI presumably received the opposition papers late, it does not suggest the opposition should be disregarded. Furthermore, EIQI apparently has not been prejudiced as it was able to file reply papers addressing the substantive issues. The Court will thus overlook this procedural violation and address the merits of the opposition.

[2] The Court notes EIQI does not identify the specific requests at issue in the notice of motion or the motion. The subject requests are only identified in the separate statement filed in support of the motion. There, EIQI does not otherwise indicate in which of the three sets of requests for production the subject requests were propounded. In the future, EIQI should clearly identify the subject requests in the motion. (See Cal. Rules of Court, rules Rule 3.1112(d) [motion must identify relief sought]; 3.1345(d) [motion concerning inspection demands must identify them by set and number].)

[3] A hash value is a unique numerical identifier that can be assigned to a file based on a mathematical algorithm applied to that file’s data set. (Lorraine v. Markel American Ins. Co. (D. Md. 2007) 241 F.R.D. 534, 546–47.) Hash values may be used to authenticate an original data set and as an electronic equivalent to a Bates stamp used on paper. (Ibid.)