Grease Monkey Racing v. Fortune Market Media
Filed 2/6/13 Grease Monkey Racing v. Fortune Market Media
CA2/4
NOT TO BE PUBLISHED IN THE
OFFICIAL REPORTS
California
Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or
relying on opinions not certified for publication or ordered published, except
as specified by rule 8.1115(b). This
opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FOUR
GREASE MONKEY
RACING, INC., et al.,
Plaintiffs, Cross-defendants, and
Respondents,
v.
FORTUNE MARKET
MEDIA, INC., et al.,
Defendants, Cross-complainants,
and Appellants.
B235291 (cons. w/B236390)
(Los Angeles County
Super. Ct. No. BC385305)
APPEAL
from a judgment of the Superior Court of
County, Rita Miller, Judge.
Affirmed.
Law Offices of Carlos F.
Negrete and Carlos F. Negrete for Defendants and Appellants.
Law Offices of George A.
Kaufman and George A. Kaufman for Plaintiffs and Respondents.
>
Plaintiffs
in this case are Grease Monkey Racing, Inc. (Grease Monkey), doing business as
Sigalsport, a sports car racing team, and Grease Monkey’s owner and president,
Gene Sigal. The trial court imposed
appellants Fortune Market Media, Inc., Fortune Market Financial Network, Inc.,
BZCOM Marketing, Inc., Galinda Vaynter, Vadim Vaynter, Arthur Kats, and Ryan
Tomlinson (collectively defendants). The
court found that defendants engaged in a pattern of willful discovery
abuse. It entered a default judgment
against defendants. The court also
dismissed with prejudice defendants’ cross-complaint, which was brought against
plaintiffs and several other cross-defendants not parties to the discovery,
Trista Sigal, Emmanuel Lupe, and ELO, Inc. (collectively the nonpropounding
cross-defendants). Defendants contend
the imposition of terminating sanctions was an abuse of discretion, the trial
court erred in allowing the nonpropounding cross-defendants to benefit from the
sanctions, and it failed to follow proper procedures in setting the monetary
amount of the default judgment. Because
we conclude the court’s orders were not an abuse of discretion and the default
judgment was properly entered, we shall affirm the judgment and orders under
review.
The
first amended complaint (the charging
pleading) alleges 12 causes of action based on several agreements entered into
by plaintiffs and defendants. In
December 2006, defendants Galina and Vadim Vaynter, owners of defendant BZCom
Marketing, Inc. (BZCom), entered into a written agreement with plaintiffs, by
which BZCom would sponsor and finance the Grease Monkey race team. In October 2007, after financial difficulties
arose for the Vaynters, the parties entered into a subsequent agreement under
which Grease Monkey would be absorbed into Fortune Market Media, Inc. (FMM), a
company recently purchased by the Vaynters and run by their sons-in-law, defendants
Kats and Tomlinson. In November 2007,
FMM became publicly traded. The
agreement required defendants to provide specified funding to FMM. Galina Vaynter issued a
respect to this agreement.
Over
the following months, defendants assured plaintiffs that the agreed upon funds
would be provided. However, payments
were not made, and defendants failed to fulfill their outstanding contractual
obligations.
The
first amended complaint alleges causes of action for fraud, negligent
misrepresentation and breach of contract
based on the BZCom agreement. It makes
identical claims arising out of the merger agreement. A cause of action for breach of the
promissory note also was included in the first amended complaint. A series of claims for negligent interference
with prospective economic advantage and invasion of privacy also were alleged. In August 2008, a cross-complaint was filed
by defendants against plaintiffs and other associated parties.
In
September 2008, the trial court made its first discovery ruling, ordering
defendants to provide responses to various discovery requests and to produce
requested documents. The court declined to
impose any sanctions at that time. The
following week, the trial court granted plaintiffs’ motion to compel the
depositions of Galina Vaynter, Kats, and Tomlinson. This time, monetary sanctions were imposed on
defendants.
In October 2008, the Honorable
Alan B. Haber (ret.) was appointed as a discovery referee.
January 2009. In it, he found the
evidence before him established a failure on the part of defendants to comply
with the trial court’s order requiring production of responsive documents by a
specific date. This failure lacked “any
justification on the part of the defendants.â€
Judge Haber recommended monetary sanctions against defendants. He also recommended additional monetary
sanctions due to defendants’ failure to respond in a timely manner to special
and form interrogatories, noting that defendants had been “extremely slow in
responding†to “reasonable†and “relevant†requests from plaintiffs. Judge Haber’s recommendations were adopted by
the court.
Judge
Haber issued a second report later that month regarding further discovery
disputes. He recommended that the trial
court order defendants FMM and Vadim Vaynter to turn over requested financial
documents. He further recommended that
defendants Tomlinson, Kats, and the Vaynters be ordered to produce documents
requested by plaintiffs, citing the relevance of the documents requested. Judge Haber also recommended that the court
order plaintiffs to respond to discovery requests from defendants, but this
recommendation was limited to a portion of defendants’ requests, those he found
appropriate. Judge Haber concluded that
the volume of interrogatories served by defendants was “unduly burdensome.†The court adopted Judge Haber’s
recommendations.
Judge
Haber issued a third report in June 2009.
He recommended that defendants Galina Vaynter and Tomlinson be ordered
to attend another date for deposition and that monetary sanctions be imposed
upon them. He further recommended that
the court order defendant BZCom to produce its general ledger, noting there had
been “no meaningful response†to plaintiffs’ requests for that document, and
advising the court to impose monetary sanctions. Judge Haber recommended that defendant FMM be
ordered to produce shareholder information and lists due to its lack of
“significant responses†to outstanding requests. This was accompanied by a recommendation for
monetary sanctions against defendant FMM.
Judge Haber also stated that plaintiffs were entitled to information
regarding payments between defendants and that defendants should be ordered to
provide a detailed privilege log for documents withheld together with an
explanation for failing to produce them.
Monetary sanctions were recommended against all defendants. Judge Haber also recommended certain
documents be turned over by plaintiffs to defendants. The trial court adopted Judge Haber’s
recommendations.
Judge
Haber’s final report was submitted in December 2009. He summarized the history of discovery and the
evidence before him up to that point.
Judge Haber found defendants continuously objected to and failed to
respond to plaintiffs’ discovery requests despite court orders to comply. Examples were given, including defendants’
failure to “respond appropriately†to the discovery request for general ledger
information for all defendant entities.
Judge Haber made findings of fact regarding defendants’ behavior. He found “continuous disobedience†of court
orders over the previous year and a half, “continuous unmeritorious
objections,†and failure to respond to authorized methods of discovery. Judge Haber found the evidence established
that defendants’ conduct lacked justification, constituting a “substantial
misuse of the discovery process.†This
resulted in substantial delay and economic costs. Although monetary sanctions had been
repeatedly ordered against defendants, none had been paid. Judge Haber concluded that although he understood
terminating sanctions were a drastic measure, given defendants’ “egregious
conduct,†such an order was fair and justified in this case. He recommended that defendants’ answer to the
complaint be stricken and default judgment entered against them. He also recommended dismissal of defendants’
cross-complaint.
The
trial court ordered the parties to prepare binders laying out the relevant
evidence for a hearing on the motion and recommendation for terminating
sanctions. It heard argument and
received and reviewed extensive evidence over four days of hearing that
extended from late 2010 into early 2011.
The trial court concluded terminating sanctions were warranted due to
defendants’ “continuous and willful misuse of the discovery process,†including
repeated failure to respond to authorized means of discovery and to obey court
orders and employing “oppressive and burdensome discovery.†It determined defendants’ actions during the
litigation fell within the behavior described by Code of Civil Procedure
section 2023.010 as conduct subject to sanctions.
defendants’ answer to the first amended complaint be stricken and default
entered. It also dismissed the
cross-complaint with prejudice.
A
prove-up hearing was held on the default.
Plaintiffs submitted a request for judgment and a declaration itemizing
the damages sought. This included
damages for breach of contract on the three agreements underlying the action,
plus interest and attorney fees. The
amounts were calculated based on the first amended complaint, the agreements
attached to them (including the payment schedule agreed upon by all parties),
subtracting amounts already paid by defendants and defendants’ expected
commission per the contract. Punitive
damages were waived by plaintiffs. No
damages were sought on the claims for negligent interference with prospective
economic advantage and invasion of privacy.
After considering the documents presented and the first amended
complaint, the trial court awarded $3,291,454.40 to plaintiffs. Any duplication in the award on the contract
and fraud causes of action was eliminated.
This appeal followed.
Defendants
contend the trial court abused its discretion in imposing terminating
sanctions. They argue the court exceeded
the bounds of reason by taking so drastic a measure without making its own
factual findings regarding specific discovery abuses and identifying which
specific defendants were responsible for them.
They support this contention by pointing to the trial court’s failure to
find defendants willfully committed the abuses.
Section
2023.030 is the applicable discovery sanctions statute. Subdivision (d) provides the court with the
power to impose a terminating sanction by orders dismissing the action or
rendering a judgment by default against any party engaging in the misuse of the
discovery process. Section 2023.010
lists examples of conduct amounting to misuse of the discovery process. These include employing discovery in a manner
that causes unwarranted annoyance or oppression, failing to respond or submit
to authorized methods of discovery, making unmeritorious objections to
discovery, disobeying court orders to provide discovery, or making evasive
responses to discovery. (§ 2023.010,
subds. (c)-(g).) “[A]bsent unusual
circumstances, such as repeated and egregious discovery abuses, two facts are
generally prerequisite to the imposition of a nonmonetary sanction. There must be a failure to comply with a
court order and the failure must be willful.
(Biles v. Exxon Mobile Corp. (2004)
124 Cal.App.4th 1315, 1327.)†(
1553, 1559.)
The
trial court has broad discretion when imposing a discovery sanction and its
order will be upheld on appeal absent a manifest abuse of discretion, i.e., a
ruling that exceeds the bounds of reason.
(Lee v. Lee,
Defendants
argue they complied in good faith and the court failed to make a specific
finding of willfulness regarding the abuses.
Thus, they contend terminating sanctions were an abuse of discretion. We disagree.
First,
the court did find that the offending conduct was willful, as well as without
justification. The question on review is
not whether a less drastic sanction might have been imposed, but rather whether
the trial court abused its discretion in imposing the sanction it chose. (Collisson
& Kaplan v. Hartunian (1994) 21 Cal.App.4th 1611, 1619-1620.) Defendants’ claim of “good faith complianceâ€
finds little if any support in the record.
Rather, the record shows that defendants engaged in continuous
misconduct as identified by Judge Haber and the trial court. Monetary sanctions were imposed time and
again to no evident effect. The
discovery abuse did not end. None of the
sanctions were paid. This supports the
trial court’s conclusion that additional monetary sanctions would have been
inadequate. In addition, defendants were
given an opportunity at the hearing on the motion for terminating sanctions to
propose a sanction short of terminating sanctions, including evidentiary or
issue sanctions. They presented no
valid, alternative remedy.
Defendants
contend the trial court abused its discretion by failing to make findings
regarding specific discovery abuses and the individual defendants responsible
for them. First, the statutes dealing
with discovery sanctions do not require the court to “‘recite in detail’†the
reasoning behind imposing terminating sanctions. (Ghanooni
v. Super Shuttle (1993) 20 Cal.App.4th 256, 261.) Indeed, “the trial court is not required to
make findings at all.†(
Here, the trial court reviewed Judge Haber’s reports, the court’s file
of the case, the voluminous materials submitted by the parties, and conducted a
four day hearing on the motion for sanctions.
The trial court probed into each of the discovery issues cited and
consistently stopped the hearing to properly identify which defendants engaged
in the abuses alleged. It found all
defendants engaged in a continuous pattern of discovery misuse including employing
discovery in a manner that caused unwarranted annoyance and oppression, failing
to respond or submit to authorized methods of discovery, making unmeritorious
objections to discovery, disobeying court orders to provide discovery, and
making evasive responses to discovery.
(§ 2023.010, subds. (c)-(g).)
The
trial court called defendants’ attention to their repeated “foot dragging†and
“stonewalling†regarding their discovery obligations, leading to delay and
eventual suspension of the trial date.
It concluded the abuse was willful and without justification. (Biles
v. Exxon Mobile Corp., supra, 124 Cal.App.4th at p. 1327.) In addition, defendants’ replacement counsel
admitted at the hearing on the terminating sanctions motion that he could not
provide an explanation or justification for defendants’ failure to
appropriately respond to the interrogatories propounded, even after a court
order. The trial court afforded
defendants many opportunities to comply with the discovery orders over the
years of this litigation. Based on the
record before the trial court, including the reports submitted by Judge Haber,
we find it was not an abuse of discretion to impose terminating sanctions on
all defendants for their willful misconduct and failure to obey court orders
over the course of this litigation.
Defendants
further argue plaintiffs suffered no prejudice as a result of the alleged
abuses, and thus, terminating sanctions were unwarranted. However, the trial court repeatedly inquired
into and received evidence regarding the negative impact of defendants’ conduct
on plaintiffs’ claims and defenses.
Judge Haber’s reports and the trial court’s orders specifically cite the
prejudice suffered by plaintiffs as a result of defendants’ discovery abuse. A major issue in this litigation was the
financial dealings of defendants, which were relevant to both the initial
complaint and the cross-complaint. In
order to prove their case and defend against the cross-complaint, plaintiffs
needed information about what funds defendants could access, what the financial
dealings between them were, and information regarding the sale and resale of
stock from the newly formed defendant corporation. Plaintiffs, as well as the remaining
cross-defendants, were significantly restricted from putting on their case and
defending against the cross-complaint as a result of defendants’ obfuscation
and misconduct. We find sufficient
prejudice to warrant the sanctions imposed.
In
addition to plaintiffs, defendants named several other parties in their
cross-complaint : Trista Sigal; Emmanuel
Lupe; and ELO, Inc. The cross-complaint
alleged that Lupe, acting as an individual and through his company,
cross-defendant ELO, acted as agent for plaintiffs and managed the day-to-day
affairs of plaintiff Grease Monkey. It
further alleged Trista Sigal influenced and controlled the activities and
affairs of plaintiff Grease Monkey.
Defendants contend the court abused its discretion by striking the
cross-complaint against these additional cross-defendants who did not propound
the discovery leading to the sanctions.
They argue the nonpropounding cross-defendants were not prejudiced in
any way by the discovery disputes at issue and that there was not a sufficient
unity of interest between plaintiffs and the nonpropounding cross-defendants to
justify dismissal of the cross-complaint.
A
party to litigation who is not directly involved in the discovery leading to
sanctions may nonetheless benefit from those sanctions under certain
circumstances. (See Parker v. Wolters Kluwer United States, Inc. (2007) 149 Cal.App.4th
285, 301-302.) These circumstances
include instances where the nonpropounding party and a co-party are so aligned
that it would be a “useless duplication of effort for both parties to pursue the
same discovery and invoke the same remedies.â€
(Id. at p. 301.) So long as their interests are close enough
that the other party suffers prejudice as a result of the discovery abuse,
discovery sanctions can justifiably be awarded.
(Ibid., fn. 46.)
Defendants
argue the position of the nonpropounding cross-defendants did not justify the
order. They overlook the significant
overlap between the information needed and requested by plaintiffs to prove
their own case and that information needed to defend against the
cross-complaint. It would have been
useless to force each of the nonpropounding cross-defendants to propound the
same discovery on defendants in order for them to benefit from the sanctions
imposed. Defendants themselves detail
how tightly unified the interests of the various cross-defendants were with the
named plaintiffs. The cross-complaint
itself alleged there existed “such a unity of ownership and interest†between
plaintiffs and the nonpropounding cross-defendants that the “individuality and
separateness of the entities ceased to exist.â€
As stated above, plaintiffs and the remaining cross-defendants were
significantly restricted from putting on their case and defending against the
cross-complaint as a result of defendants’ misconduct. Given the common prejudice and the sufficient
unity of interest between plaintiffs and the nonpropounding cross-defendants,
we find dismissal of the cross-complaint a proper exercise of the trial court’s
discretion.
Defendants
further argue that only one form of terminating sanctions is authorized in a
particular matter. Thus, they contend it
was error for the trial court to strike the answer as well as dismiss the
cross-complaint. However, courts have the
discretion to impose terminating sanctions through various orders. (§ 2023.030, subd. (d).) “[T]he court may impose a terminating
sanction by striking out the pleading of [a] party and/or rendering a judgment by default against that party.†(Van
Sickle v. Gilbert (2011) 196 Cal.App.4th 1495, 1516, italics added;
see also Lang v. Hochman (2000)
77 Cal.App.4th 1225, 1240-1241 [striking defendant’s answer and dismissing
the cross-complaint based on egregious discover misuse].) The trial court’s order below, striking
defendants’ answer and dismissing their cross-complaint is a proper exercise of
its discretion.
Defendants
contend the trial court failed to follow proper default prove-up procedure,
resulting in prejudicial, reversible error.
They argue the monetary default judgment was not supported by the record
and that the allegations in the complaint, used in determining the award, were
not properly pleaded. We disagree.
When
a defendant’s answer is struck as a sanction for misuse of discovery, it is
treated as if no answer was filed in the first instance; default judgment can
be entered in favor of the plaintiff. (
Cal.App.4th 1495, 1500, 1521.) Properly
pleaded allegations of a complaint are treated as true upon default; a
plaintiff has no further obligation to provide evidence supporting them. (Kim v.
Westmoore Partners, Inc. (2011) 201 Cal.App.4th 267, 281.) The general rule that the complaint’s demand
sets a ceiling on recovery upon default is applicable here. (Matera
v. McLeod (2006) 145 Cal.App.4th 44, 60; § 580.) The purpose for that limitation is to ensure
defaulting defendants are on notice of their potential liability. (Matera
v. McLeod, at p. 61.)
We
review the evidence provided to the trial court at the default judgment hearing
to determine whether the damages awarded are unconscionable and without
justification. (Scognamillo v. Herrick (2003) 106 Cal.App.4th 1139, 1150.)
The
first amended complaint laid out allegations concerning three agreements
entered into between plaintiffs and defendants.
The allegations included specific dollar amounts and were based on
plaintiffs’ own personal participation in the agreements. Additionally, the prayer for relief
adequately put defendants on notice as to their potential liability. (Matera
v. McLeod, supra, 145 Cal.App.4th
at p. 61.) The punitive damages sought
in the first amended complaint would likely have been the most contentious
issue, since no specific dollar amount was alleged, but plaintiffs waived their
right to such damages, making the issue moot.
The trial court reviewed the allegations, accepted them as true, and
reviewed plaintiffs’ demands at the default judgment hearing. It properly avoided duplicative awards and
awarded damages well below the figures stated in the first amended
complaint. We conclude the record
adequately supports the default judgment for $3,291,454.40.
>
The
judgment is affirmed. Respondents to
have their costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL
REPORTS
EPSTEIN,
P. J.
We concur:
MANELLA, J.
SUZUKAWA, J.
name="_ftn1" title="">[1] The minute order indicating Judge Haber’s appointment
is dated October 1, 2009. Based on the chronology of the case, we
assume this was in error, and the minute order should have indicated the
appointment was made in 2008.
name="_ftn2" title="">[2]
further statutory citations are to the Code of Civil Procedure.
