Case Name:??? City of San Jose v. San Jose Cannabis Buyers Club, et al.
Case No.:??????? 2014-1-CV-272371
Motion by Plaintiff City of San Jose to Compel Defendant David Hodges to Provide Further Responses to Requests for Production of Documents
Factual and Procedural Background
??????????? This is an action to collect unpaid marijuana business taxes. Defendant San Jose Cannabis Buyers Club, LLC dba All American Cannabis Club, A2C2 Stockton, and A2C2 Bascom (?SJCBC?) is a California limited liability company operating in San Jose. (First Amended Complaint (?FAC?), ? 2.) Defendant David Hodges (?Hodges?) is an individual residing and/or doing business in San Jose. (Id., at ? 3.) SJCBC and Hodges (collectively, ?Defendants?) own, operate, manage, and/or control a marijuana business operating out of multiple locations in San Jose. (Id., at ?? 7, 15, 22.) The marijuana business is allegedly subject to plaintiff City of San Jose?s (?Plaintiff?) marijuana business tax. (Id., at ? 7.) However, Defendants failed and refuse to pay marijuana business taxes to Plaintiff in the total amount of $189,156.58. (Id., at ?? 17-18, 24-25, Prayer, 1.) Defendants have also incurred penalties in the amount of $94,578.34 as a result of their failure to pay the taxes owed to Plaintiff. (Id., at ?? 19, 26, Prayer, 2.)
Consequently, Plaintiff filed the operative FAC against Defendants, alleging two causes of action for collection of marijuana business taxes, penalties, and interest pursuant to San Jose Municipal Code sections 466, 4.66.300, 1.17.150, 1.17.120, and 1.08.015.5. Hodges filed an answer to the FAC, generally denying the allegations of the FAC and alleging various affirmative defenses
Currently before the Court is the motion by Plaintiff to compel Hodges to provide further responses to requests for production of documents, set one (?RPD?).
Discovery Dispute
??????????? In January 2016, Plaintiff served Hodges with the RPD. (Vanni Dec., ? 5.) Plaintiff granted Hodges an extension of time to respond to the requests and Hodges timely served Plaintiff with his responses in March 2016. (Vanni Dec., ? 6.)
In early April 2016, Plaintiff?s counsel sent Hodges? counsel a detailed meet and confer letter, outlining perceived deficiencies in Hodges? responses. (Vanni Dec., ? 6, Ex. 2.) A few weeks later, Hodges? counsel responded to the meet and confer letter, arguing that Hodges? objections to the requests were well-taken because the discovery sought was irrelevant. (Vanni Dec., Ex. 3.)
Since the parties reached an impasse regarding Hodges? discovery responses, on April 26, 2016, Plaintiff filed the instant motion to compel Hodges to provide further responses to RPD Nos. 1-11. Hodges filed papers in opposition to the motion on May 26, 2016. Plaintiff filed a reply on June 2, 2016.
Discussion
??????????? Plaintiff moves to compel further, verified responses to RPD Nos. 1-11, arguing that Hodges? objections to the requests lack merit and his substantive responses are not code-compliant. Hodges opposes the motion, arguing that his objections to the requests are well-taken because the discovery sought is irrelevant.
- Legal Standard
If a party demanding a response to a request for production of documents deems that a statement of compliance with the demand is incomplete, a representation of inability to comply is inadequate, incomplete, or evasive, or an objection in the response is without merit or too general, that party may move for an order compelling a further response. (See Code Civ. Proc., ? 2031.310, subd. (a).) On a motion to compel further responses to requests for production, it is the moving party?s burden to demonstrate good cause for the discovery sought. (Kirkland v. Super. Ct. (?Kirkland?) (2002) 95 Cal.App.4th 92, 98.) ?Good cause? requires a showing or both relevance to the subject matter (e.g., how the information in the documents would tend to prove or disprove some issue in the case) and specific facts justifying discovery (e.g., why such information is necessary for trial preparation or to prevent surprise at trial). (Glenfed Develop. Corp. v. Super. Ct. (1997) 53 Cal.4th 1113, 1117.) Once good cause has been shown, the burden shifts to the responding party to justify any objections or failure to provide a code-compliant response. (Kirkland, supra, 95 Cal.App.4th at p. 98.)
- Analysis
??????????? RPD Nos. 1-11 ask Hodges to produce all documents relating to: all revenue, equitable contributions, and monetary transactions between SJCBC and it members from March 2011 to August 2013; any agreement between SJCBC and its members, including all versions of the membership agreement in effect from March 2011 to August 2013; all revenue generated at SJCBC?s Bascom location from March 2011 to August 2013; all revenue generated at SJCBC?s Stockton location from March 2011 to August 2013; revenue generated at SJCBC?s Bascom location as the result of dispensing marijuana from March 2011 to August 2013; revenue generated at SJCBC?s Stockton location as the result of dispensing marijuana from March 2011 to August 2013; all owners, investors, shareholders, or any other person or entity with a financial interest in SJCBC; agreements entered into by SJCBC for the ownership or lease of any real property used for the cultivation of medical marijuana; documents received from the Internal Revenue Service regarding SJCBC?s payment or non-payment of any federal tax, including permits, audits, statements, correspondence, memoranda, filings, tax returns, and legal pleadings; documents received from the State of California regarding SJCBC?s payment or non-payment of any state tax, including permits, audits, statements, correspondence, memoranda, filings, tax returns, and legal pleadings; and Hodges? contention that SJCBC does not engage in the sale of medical marijuana.
In his responses to the RPD, Hodges objected to each request on the ground of relevance. Hodges also objected to RPD Nos. 3-6 as vague and RPD No. 7 as unduly burdensome. Hodges further objected to RPD Nos. 9-10 on the grounds of privacy and tax return privilege. In addition to his objections, Hodges provided substantive responses to RPD Nos. 5-6 stating that that he does not possess any documents responsive to the requests. Hodges also provided a substantive response to RPD No. 10 stating that he was producing a letter attached to his responses as Exhibit A. Lastly, Hodges provided a substantive response to RPD No. 11 referring Plaintiff to ?all pleadings and papers filed in related case, A2C2 v. City of San Jose, Case no 1-15-2777173.? (Sep. Stmt., p. 13.)
- Good Cause
While Plaintiff does not explicitly address good cause for the discovery sought, relevance is discussed by Plaintiff in connection with Hodges? objections to the requests. Plaintiff argues that the discovery sought by the RPD (i.e., documents relating to SJCBC?s revenue and taxes) is relevant to its claims for collection of marijuana business taxes, penalties, and interest because: it will be required to prove that SJCBC was a medical marijuana collective generating ?gross receipts? that are taxable under San Jose Municipal Code section 4.66; and the definition of ?gross receipts? under San Jose Municipal Code section 4.66.090 is so broad as to include any and all amounts received as revenue. Plaintiff also points out that Hodges generally denied the allegations of the FAC in his answer and alleged affirmative defenses that ?the underlying taxes are illegal; the underlying ordinances are unconstitutional; the Plaintiff?s action is barred by unclean hands; and the Plaintiff?s action is barred by estoppel.? (Mem. Ps. & As., p. 1.) Plaintiff indicates that based on the general denial and affirmative defenses asserted in the answer, it believes that Defendant may attempt to collaterally attack its tax assessments and raise factual challenges to the validity of its marijuana business tax. Plaintiff contends that any argument by Hodges that the administrative tax assessments are entitled to res judicata, and function as a bar to discovery, is inconsistent with Hodges? pleading of a general denial and affirmative defenses. Plaintiff further points out that Hodges has not stipulated or otherwise agreed to be bound by res judicata with respect to the tax assessments.
In opposition, Hodges argues that the discovery sought is not relevant because Plaintiff contends, and at some point in time in the future it may be found, that the administrative tax assessments are entitled to a res judicata effect such that the validity or amount of the marijuana business taxes is not at issue. Hodges also asserts that if he attempts to collaterally attack the administrative tax assessments, he will be limited to the administrative record and, therefore, the discovery is precluded.
Here, the discovery pertaining to SJCBC?s revenue and taxes is clearly relevant to Plaintiff?s prima facie case because Plaintiff must prove that SJCBC generated ?gross receipts? that were subject to its marijuana business tax. (See San Jose Muni. Code, ?? 466, 4.66.090.) Additionally, Hodges generally denies the allegations of the FAC?that Plaintiff is entitled to payment of taxes in the amount of $189,156.58. Therefore, Plaintiff is entitled to conduct discovery to support its allegation that Defendants generated gross receipts and are obligated to pay taxes in the amount of $189,156.58. Hodges? argument that the discovery sought is irrelevant in light of the possible res judicata effect of the administrative tax assessments is not well-taken. Hodges fails to cite any legal authority showing that the doctrine of res judicata operate as bars to discovery. Moreover, it is entirely possible that Plaintiff may never raise the issue of res judicata and instead attempt to prove the elements of its claims by offering evidence supporting the same. To date, there has been no determination that the doctrine of res judicata applies to this case. Furthermore, Hodges? argument that the doctrine of res judicata applies is not properly addressed on a discovery motion as it goes to the merits of the FAC and/or the answer.? Hodges? argument regarding a possible collateral attack on the validity of the administrative tax assessments fails for substantially similar reasons.
Accordingly, the Court finds that there is good cause for the discovery sought.
- Objections
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In his opposition papers, Hodges only attempts to defend his relevance objections to RPD Nos. 1-11 and his tax return privilege objections to RPD Nos. 9-10.
The Court finds the undefended objections to be without merit and, consequently, overruled. (See Coy v. Super. Ct. (Wolcher) (1962) 58 Cal.2d 210, 220-221 [burden is on the responding party to justify any objections or failure to fully answer].)
Moreover, for the reasons stated above, Hodges? relevance objections lack merit and are, therefore, overruled.
Finally, with respect to Hodges? objections based on the tax return privilege, taxpayers are privileged to withhold copies of their federal and state tax returns from disclosure. (See Webb v. Standard Oil Co. (1957) 49 Cal.2d 509, 513.) The privilege extends to the tax return and specific entries therein, as well as documents that must be attached to, and constitute an integral part of, the return. (See Sav-On Drugs, Inc. v. Super. Ct. (1975) 15 Cal.3d 1, 4-5.). It appears that Hodges? tax return privilege objections may have merit as the requests call for the production of tax returns. However, Hodges? responses to RPD Nos. 9-10 do not provide Plaintiff with sufficient facts to determine whether the tax return privilege applies to specific documents responsive to the requests. Thus, as Plaintiff persuasively argues, Hodges should produce a privilege log if he intends to rely on the tax return privilege so Plaintiff may determine whether the claim of privilege has any merit with respect to particular responsive documents. (See Code Civ. Proc., ? 2031.240, subd. (c)(1) [?[i]f an objection is based on a claim of privilege ?, the response shall provide sufficient factual information for other parties to evaluate the merits of that claim, including, if necessary, a privilege log?].)
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- Substantive Responses
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??????????? As indicated above, Hodges only provided substantive responses to RPD Nos. 5-6 and 10-11. In response to RPD Nos. 5-6, Hodges stated that that he does not possess any documents responsive to the requests. In response to RPD No. 10, Hodges stated that he was producing a letter attached to his responses as Exhibit A. Finally, in response to RPD No. 11, Hodges referred Plaintiff to ?all pleadings and papers filed in related case, A2C2 v. City of San Jose, Case no 1-15-2777173.? (Sep. Stmt., p. 13.)
Plaintiff argues that Hodges? substantive responses to RPD Nos. 5-6 are not code-compliant because Hodges does not state that he conducted a diligent search and reasonable inquiry to attempt to locate responsive documents; he does not explain why he does not possess responsive documents; and he does not provide the contact information for any person who he believes may have responsive documents. With respect to RPD No. 10, Plaintiff argues that Hodges? substantive response is not code-compliant because Hodges only produced a single document, he did not provide a statement of compliance, and in light of the asserted objections it appears that documents are being withheld from production. Finally, regarding RPD No. 11, Plaintiff argues that Hodges? substantive response is not code-compliant because Hodges merely referred it to pleadings and papers filed in another case.
In opposition, Hodges does not address the sufficiency of his substantive responses to RPD Nos. 5-6; rather, he merely asserts that he does not possess the requested documents. With regard to RPD Nos. 10-11, Hodges does not address his substantive responses in any manner.
The Court finds that Hodges? substantive responses to RPD Nos. 5-6 are not code- complaint. A representation of inability to comply with the particular demand for inspection must affirm that a diligent search and a reasonable inquiry has been made in an effort to comply with that demand; specify whether the inability to comply is because the particular item or category has never existed, has been destroyed, has been lost, misplaced, or stolen, or has never been, or is no longer, in the possession, custody, or control of the responding party; and set forth the name and address of any natural person or organization known or believed by that party to have possession, custody, or control of that item or category of item. (Code Civ. Proc., ? 2031.230.) Hodges? substantive responses merely state that he is not in possession of responsive documents. The responses fail to state whether he has never been or is merely no longer in possession of responsive documents. Additionally, Hodges fails to state that he made a diligent search and a reasonable inquiry in an effort to comply with that demand and he does not set forth the contact information of any natural person or organization known or believed to have possession, custody, or control of responsive documents. Thus, further responses are warranted to RPD Nos. 5-6.
The Court also finds that Hodges? substantive response to RPD No. 10 is not code-compliant. While Hodges states that he will produce a document in response to the request, he does not indicate his intention to comply with the request or his inability to do so. (See Code Civ. Proc., ? 2031.240, subd. (a) [?If only part of an item or category of item in a demand for inspection, copying, testing, or sampling is objectionable, the response shall contain a statement of compliance, or a representation of inability to comply with respect to the remainder of that item or category.?].) Therefore, a further response is warranted to RPD No. 10.
Lastly, the Court finds that Hodges? substantive response to RPD No. 11 is not code-compliant. Hodges fails to indicate his intention to comply with the request or his inability to do so; rather, he merely refers Plaintiffs to other documents. (See Code Civ. Proc., ? 2031.240, subd. (a) [?If only part of an item or category of item in a demand for inspection, copying, testing, or sampling is objectionable, the response shall contain a statement of compliance, or a representation of inability to comply with respect to the remainder of that item or category.?].) Therefore, a further response is warranted to RPD No. 11.
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III.?????? Conclusion
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??????????? For the reasons set forth above, Plaintiff?s motion to compel Hodges to provide further responses to RPD Nos. 1-11 is GRANTED. Accordingly, within 20 days of the date of the filing of the Order, Hodges shall serve Plaintiff with code-compliant, verified further responses to RPD Nos. 1-11, without objection (except tax return privilege objections with respect to RPD Nos. 9-10), and produce documents in accordance with his responses. To the extent Hodges withholds documents from production based on the assertion of the tax return privilege, he shall serve Plaintiff with a privilege log that identifies each document withheld and sets forth sufficient facts for Plaintiff to evaluate the merits of the asserted objection.