Case Number: 22STCV29636 Hearing Date: September 18, 2024 Dept: 68
D.ept. 68
Date: 9-18-24 a/f 10-22-24 (7-3-24 minute order)
Case Number: 22STCV29636
Trial Date: 2-24-24 c/f 11-4-24 c/f 4-8-24
DISCOVERY REFEREE AND TRIAL CONTINUANCE
MOVING PARTY: Plaintiffs, Flyer Next, LLC, et al.
RESPONDING PARTY: Defendant, Marvin Engineering Co., Inc., et al.
RELIEF REQUESTED
Motion for Appointment of Discovery Referee and Trial Continuance
SUMMARY OF ACTION
Oded Nechushtan And Amit Nechushtan founded the Flyer entities, which includes Flyer Defense LLC, an entity wholly owned by Flyer Next, LLC, and Flyer Technologies, LLC, a separate entity 50% owned by Flyer Technologies. In 2000, Flyer Technologies entered into a joint venture agreement with Marvin Engineering Co., Inc. for a project involving the developments and sale of lightweight tactical all-terrain vehicles to the United States Marine Corps. Flyer agreed to license its intellectual property to Marvin Engineering, and transferred its subsidiary, Flyer Defense, LLC. Flyer Technologies retained a right to a 50-50 split of royalties and equal board voting power.
In 2018, following the retirement/discontinued involvement of former “head” of Marvin Engineering, Jerry Friedman, the partied entered in a new agreement, whereby Flyer Defense was transferred to a new entity identified as Flyer Next, LLC, with joint ownership between Flyer Technologies and Marvin Engineering. Oded Nechushtan was also designated with the title of Manager, granting “sole power to manage the business, property, and affairs of Flyer Next and … Flyer Defense.” Flyer Technologies also agreed to an $18,000,000 “priority return” to Marvin Engineering “upon the occurrence of specified liquidity events.”
Plaintiffs allege Defendants provided misrepresenting information, which led to now determined unsupported terms for the revised agreement. Plaintiffs allege a multitude of allegations, including improper money withdrawals to pay other debts, concealment of certain debts, nonpayment of outstanding payments to Flyer Defense, and estruction of data. David Gussman and Howard Gussman serve as president and chief operating officer, and chief executive officer and director of Marvin Engineering, and conducted the negotiations.
On September 12, 2022, Plaintiffs Flyer Defense LLC, Flyer Technologies, LLC and Flyer Next, LLC (Flyer) filed their complaint for Declaratory Relief, Accounting, Breach of Contract (contribution and assignment agreement), Money Had and Received, Breach of Fiduciary Duty, and Breach of Contract (22STCV29636). On September 14, 2022, Marvin Engineering Co., Inc. filed a complaint for (1) Breach of Fiduciary Duty; (2) (Derivative) Breach of Fiduciary Duty; (3) Breach of Contract; (Operating Agreement) (4) Breach of Contract (Services Agreement); (5) Breach of the Obligation of Good Faith And Fair Dealing; (6) Breach of the Obligation of Good Faith and Fair Dealing; (7) Theft Pursuant To Cal. Penal Code § 496; (8) Aiding and Abetting Breach of Fiduciary Duty; (9) (Derivative) Aiding And Abetting Breach Of Fiduciary Duty; (10) Demand for Accounting; and (11) Declaratory Relief against the Flyer plaintiffs and Oded Nechushtan And Amit Nechushtan (22STCV30079).
On October 5, 2022, the court deemed the cases related, with 22STCV29636 deemed the lead case.
On October 7, 2022, the Flyer plaintiffs filed their first amended complaint for Breach of Contract, Conversion, Declaratory Relief, Accounting, Breach of Contract (contribution and assignment agreement), Money Had and Received, Breach of Fiduciary Duty, Breach of Contract (services agreement), and Breach of Contract (Line of Credit Agreement). on October 28, 2022, defendants Flyer Defense LLC, Flyer Technologies, LLC and Flyer Next, LLC answered the first amended complaint of Marvin Engineering Co., Inc. On October 28, 2022, Oded Nechushtan And Amit Nechushtan answered the Marvin Engineering Co., Inc. complaint.
On November 14, 2022, Marvin Engineering Co., Inc. answered the Flyer plaintiffs first amended complaint. On the same date, Marvin Engineering Co., Inc. filed a cross-complaint against Flyer Defense LLC, Flyer Technologies, LLC, Flyer Next, LLC, Oded Nechushtan and Amit Nechushtan for (1) Breach of Fiduciary Duty; (2) (Derivative) Breach of Fiduciary Duty; (3) Breach of Contract; (Operating Agreement) (4) Breach of Contract (Services Agreement); (5) Breach of the Obligation of Good Faith And Fair Dealing; (6) Breach of the Obligation of Good Faith and Fair Dealing; (7) Theft Pursuant To Cal. Penal Code § 496; (8) Aiding and Abetting Breach of Fiduciary Duty; (9) (Derivative) Aiding And Abetting Breach Of Fiduciary Duty; (10) Demand for Accounting; and (11) Declaratory Relief. On December 22, 2022, Marvin Engineering Co., Inc. dismissed its cross-complaint without prejudice.
On May 16, 2023, the court entered the parties’ stipulation for leave to file a second amended complaint of Flyer plaintiffs complaint. On May 17, 2023, Plaintiffs filed their second amended complaint for Breach of Contract, Conversion, Declaratory Relief, Accounting, Breach of Contract (contribution and assignment agreement), Money Had and Received, Breach of Fiduciary Duty, Breach of Contract (services agreement), Breach of Contract (Line of Credit Agreement), Fraudulent Concealment, Fraudulent Misrepresentation, Trespass to Chattels, Conversion, and Unauthorized Access to Computers. The second amended complaint added in new defendants David Gussman and Howard Gussman as well.
On May 25, 2022, the court ordered the cases consolidated. On the June 21, 2023, the Gussman parties and Marvin Engineering Co., Inc. answered the second amended complaint.
On July 5, 2023, the writs and receivers court denied the motion of Marvin Engineering for a writ of attachment against Flyer Defense, LLC and Flyer Next, LLC.
RULING: Granted as to Referee Appointment/Moot as to Trial Continuance.
Plaintiffs Flyer Next, LLC and Flyer Defense, LLC move for appointment of a discovery referee and continuance of the trial date. Plaintiffs move for relief on grounds that the numerous discovery disputes would constitute a burdensome task for the court, and the parties seek an orderly completion of the outstanding issues. Plaintiffs also request a concurrent trial continuance in order to allow timely completion of discovery.
Defendant Marvin Engineering Co., Inc. (Marvin) challenges the appointment of a referee on grounds that moving parties own dilatory conduct led to the motion; the issues are not sufficiently complex; and, with the trial continuance to February 2024, sufficient time to address all outstanding items remains. Defendant maintains all document production either occurred or will occur, thereby negating support for the motion on this particular basis. Marvin also submits “documents” under seal, but no accompanying motion to seal was timely submitted. (Cal. Rules of Court, rule 2.551.) The court will therefore not consider the lodged documents.
Plaintiffs in reply state the necessity for a referee in fact comes from the “weaponization” of discovery by Marvin, due to the service of at least 1,914 discovery requests and motions to compel. Plaintiffs reiterate the need to timely complete the discovery before the trial date. Plaintiffs deny any dilatory conduct. Plaintiffs challenge any claim of unaffordability by Marvin.
On July 3, 2024, the court entered the stipulation of the parties to continue the trial date from November 4, 2024 to February 24, 2025. The subject motion was filed on June 18, 2024, and in specially advancing the motion, the court advanced the entire motion. It remains unclear whether Plaintiffs still seek a trial continuance given the stipulation. The court assumes the motion to continue is now moot for purposes of the subject motion, given the lack of any response in opposition or follow-up in reply, and will therefore only address the referee motion.
Absent agreement of all parties, courts may not make blanket referrals, except “in the unusual case where a majority of factors” favor reference, including: “(1) there are multiple issues to be resolved; (2) there are multiple motions to be heard simultaneously; (3) the present motion is only one in a continuum of many; (4) the number of documents to be reviewed (especially in issues based on assertions of privilege) make the inquiry inordinately time-consuming. (Taggares v. Superior Court (1998) 62 Cal. App. 4th 94, 105.) “Where one or more of the above factors unduly impact the court’s time and/or limited resources, the court is clearly within its discretion to make an appropriate reference.” (Id. at 106.)
The court considers the underlying subject matter as to both the complexity and required court resources. Five scheduled motions currently appear on the docket, including a motion to compel further deposition testimony, a motion for privilege determination, a motion to compel further responses on third party subpoenas, and motions compel both production of financial records and party documents. The first scheduled motion is set on September 23 with hearings continuing through December 18, 2024. While Marvin downplays the complexity angle, and also maintains document production will continue to occur, the argument lacks specific address to all but one of the identified motions.
Three of the five identified motions are in fact brought by Marvin. The deposition, privilege determination, and third party document motions seek rulings on specific and carefully made privilege objections requiring categorical review of individual documents. The third party document request brought by Plaintiff concerns objections by said third parties, thereby raising the party complexity quotient. The opposition to the instant motion presents 18 exhibits alone just on the single motion regarding further production of documents in support of the proof of prior and ongoing production. [Declaration of Thi Ho.] Again, while not the subject matter presents nothing particularly unfamiliar and unique, individual review and reliance on both Defendants and third parties to coordinate, equates to greater complexity.
The financial entanglement of the parties through decades’ history of the parties, privilege objections, and potential concerns over proprietary information, while not a cutting-edge area of concern, are by no means simplistically adjudicated. Blame for dilatory conduct or other potential concerns leading to the subject motion and (third) trial continuance in order to complete said discovery in no way alleviates the necessity for review.
Even assuming less complicated work by subject matter criteria, complexity in no way constitutes the exclusive criteria for determining burden and necessity. (Taggares v. Superior Court, supra, 62 Cal. App. 4th at p. 105; DeBlase v. Superior Court (1996) 41 Cal.App.4th 1279, 1284; Hood v. Superior Court (1999) 72 Cal.App.4th 446, 449.) The court assumed this case in January of 2024, and must continue the balance the needs of the parties with the several hundred other cases also inherited by the court with pending trial dates, voluminous discovery demands, and inordinate amounts of law and motion continuously scheduled, which leads to near regular weekly ex parte requests to advance hearings in a period of overly impacted and congested court calendars.
The court therefore finds support for the appointment of a referee for purposes of handling the outstanding scheduled motions and potential ongoing issues in order to resolve the discovery issues within time to prepare for latest trial date. (Taggares v. Superior Court, supra, 62 Cal.App.4th. at p. 106.) The court bases its finding due to the complexity as a result of the history, number of parties, third parties, sheer volume of documents and other resource intense review required, and the inordinate burden on court resources in undertaking hearings on each and every item, including anticipated vociferous oral argument and potential submissions. The motion to appoint the referee is therefore GRANTED as to all discovery. (Code Civ. Proc., § 639(a)(5).)
If the referee is appointed under section 639(a)(5) to hear and determine discovery motions and disputes relevant to discovery, the order must state that the referee is authorized to set the date, time, and place for all hearings determined by the referee to be necessary; direct the issuance of subpoenas; preside over hearings; take evidence; and rule on objections, motions, and other requests made during the course of the hearing.” (California Rules of Court, rule 3.922(e).) The parties may also elect to allow for supervised depositions if deemed useful to expediting potential disputes.
Because the referee is appointed pursuant to Code of Civil Procedure section 639, the court cites to Code of Civil Procedure section 651.1, subdivision (b): “When a referee is appointed pursuant to Section 639, at any time after a determination of ability to pay is made as specified in paragraph (6) of subdivision (d) of Section 639 , the court may order the parties to pay the fees of referees who are not employees or officers of the court at the time of appointment, as fixed pursuant to Section 1023 , in any manner determined by the court to be fair and reasonable, including an apportionment of the fees among the parties. For purposes of this section, the term ‘parties’ does not include parties’ counsel.”
“The trial court has the responsibility to adopt a ‘fair means’ of resolving disputes which takes into consideration the financial status of parties.” (Taggares v. Superior Court (1998) 62 Cal.App.4th at p. 101.) In considering the financial status the court considers the court seeks to protect against the imposition of an unfair advantage against the party of lesser means. (Id.;
Hood v. Superior Court, supra, 72 Cal.App.4th 446, 450; Solorzano v. Superior Court (1993) 18 Cal.App.4th 603, 616.) No party, including Marvin, has established an actual economic inability to pay a pro rata share of the referee’s fee. Fees are to be split evenly. (Taggares v. Superior Court, supra, 62 Cal.App.4th. at p. 106.)
The court also acknowledges the requirement for the order to specify the maximum hourly rate and hours spent. (Cal. Rules Ct., rule 3.922(f)(1).) The parties may determine limits and hours spent. “The fees of referees are such reasonable sum as the court may fix for the time spent in the business of the reference; but the parties may agree, in writing, upon any other rate of compensation, and thereupon such rates shall be allowed.” (Code Civ. Proc., § 1023.)
Given the multiple parties, the court, in its discretion, alternatively allows the parties to consider allowing the referee to determine allocation of fees per submitted matter. The parties may elect to only require any fees split among the participating parties. The parties may also agree to order the referee with authority to award costs in favor of the prevailing party to any motion. Absent any agreement, again, fees are to be split evenly.
Given the set parameters, the court orders the parties to meet and confer over the selection of the referee. The parties should strongly consider availability in order to timely address all submitted disputes and insure time for presentation of the report to the court. Upon selection of a referee and hours, fees, and allocation of costs, the court orders Plaintiffs to submit an order appointing the referee in compliance with all statutory rules, within 10 days of this agreed upon referee. The parties are to meet and confer within the next 10 days.
If the parties are unable to agree, the court orders the parties to submit a list of no more than two candidates per Defendant, and no more than three candidates for Plaintiffs, within 5 calendar days of the lapse of the deadline (e.g. 15 days from the date of this order). Plaintiff will be allowed to strike one of the referees from each defendant’s individual lists, and Defendants may each strike one of three on Plaintiffs list.
The court will select the referee from the remaining candidates. The clerk will send notice via mail and electronically post the order. The court will set a hearing 15 days from the date of the order. Should any party elect to exercise a challenge to a potential court appointed referee upon notice of the order, any party will have five (5) before the hearing. (Code Civ. Proc., § 639, subd. (b)(B).) Once both parties have exhausted all challenges, the referee will still be selected by the court. Plaintiff will then draft the order upon confirmation and clerk’s notice of the court selected candidate within five (5) days of service of the order by the clerk.
The parties may waive discovery deadlines, as necessary in order to complete discovery. The court will expedite any review of the referee report, if necessary. Delays and obstreperous conduct will only shorten the time frame and increase the urgency to complete the discovery on time.
The discovery motions beginning with the September 23, 2024, motion to compel further deposition testimony shall go off-calendar. A motion for summary adjudication is currently reserved for December 5, 2024, but not yet filed. The court will reserve a new date for the motion, if requested, but reserves the right to sua sponte continue the motion, due to calendar impacts as well, if necessary.
Plaintiffs Flyer Next, LLC and Flyer Defense, LLC to give notice.