North County Communications v. Vaya Telecom CA4/1 ( 2015 )

Filed 12/8/15 North County Communications v. Vaya Telecom CA4/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication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.
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
NORTH COUNTY COMMUNICATIONS D066629
CORPORATION,
Plaintiff and Appellant,
(Super. Ct. No.
v. 37-2011-00083845-CU-BC-CTL)
VAYA TELECOM, INC.,
Defendant and Respondent.
APPEAL from an order of the Superior Court of San Diego County,
Judith F. Hayes, Judge. Affirmed.
Law Offices of Dale Dixon and R. Dale Dixon, Jr. for Plaintiff and Appellant.
iCommLaw and Anita C. Taff-Rice for Defendant and Respondent.
I.
INTRODUCTION
North County Communications Corporation (North County)1 filed this lawsuit
against Vaya Telecom, Inc. (Vaya) to recover compensation for certain telephone call
termination services2 that North County contended it had provided to Vaya. North
County allegedly provided the services to Vaya in connection with calls made by Vaya's
customers to North County's affiliates HFT and Jartel.3 While the litigation was pending,
Vaya attempted to obtain discovery necessary to prove its defense that North County,
HFT, and Jartel engaged in a practice referred to in the industry as "access stimulation" or
"traffic pumping." According to Vaya, "access stimulation" or "traffic pumping" occurs
where "a carrier enters into an agreement with a provider of high call volume operations
such as chat lines, adult entertainment calls and conference calling companies, which
offer free services designed to artificially stimulate inbound traffic to the traffic pumping
carrier." Vaya contended that North County and its affiliates engaged in "traffic
pumping" that resulted in Vaya purportedly owing North County greater amounts than it
otherwise would have owed for call termination services.
1 North County stated in its brief that it recently amended its complaint to reflect its
proper corporate name, North County Communications Corporation of California.
2 According to Vaya, "carriers serving the calling parties pay the carriers serving the
called party to complete the call or 'terminate' the traffic."
3 The complaint is not in the record. We therefore base our description of the
underlying lawsuit on the trial court's order that is the subject of North County's appeal.
2
A discovery referee and the trial court issued several orders determining that
records related to the business and financial relationships among North County, HFT and
Jartel were discoverable. North County refused to comply with these orders. Eventually,
the trial court entered an order imposing monetary sanctions in the amount of $74,653
and costs in the amount of $18,313.45 on North County and its president, Todd Lesser,
"due to their repeated willful misuse of the discovery process which has prevented Vaya
from discovering facts essential to defend itself against [North County's] claims for
compensation." The trial court also imposed an issue sanction against North County
establishing that "[North County] has for 100 percent of the traffic at issue in this case,
and for all periods at issue, . . . engaged in access stimulation ('traffic pumping') . . . ."
North County appeals the monetary sanction order. North County contends that
monetary sanctions are improper because Vaya did not need the discovery. Specifically,
North County notes that because North County elected not to carry its burden to prove
that it was not engaged in access stimulation and was also precluded from doing so by the
imposition of an issue sanction, Vaya was not required to prove the defense of access
stimulation. As a result, North County maintains the monetary sanctions were improper.
North County also maintains that the monetary sanctions were impermissibly punitive
and that the amount of sanctions is not reasonable. We conclude that North County's
claims are entirely without merit and that the trial court acted well within its discretion in
imposing monetary sanctions in the amount of $92,966.45 due to North County's
3
recalcitrant refusal to comply with its discovery obligations.4
II.
FACTUAL AND PROCEDURAL BACKGROUND
North County filed the underlying action against Vaya in January 2011. Although
the complaint is not in the record, it is undisputed that North County sought to recover
payment for call termination services that it allegedly provided to Vaya.
During the discovery portion of the litigation, Vaya sought to obtain evidence that
North County engaged in access stimulation with HFT and Jartel. According to the trial
court, such evidence could have application with respect to various issues in the case,
including potentially "defeat[ing] [North County's] claim entirely." Vaya's efforts to
obtain such discovery were largely thwarted by North County and Lesser's repeated
misuse of the discovery process, which included repeated failures to comply with
discovery orders issued by both a discovery referee and the trial court.5
In May 2014, Vaya filed a motion for sanctions with the discovery referee against
North County and Lesser. Vaya outlined numerous discovery abuses in its motion,
including that North County had failed to comply with the trial court's April 14, 2014
4 Although the trial court's order imposed the monetary sanction jointly against both
North County and Lesser, Lesser did not file a notice of appeal. North County's notice of
appeal states that it is appealing the "July 15, 2014 Order Imposing Monetary Sanctions
on North County Communications Corporation." However, in its brief on appeal, North
County seeks reversal of the order as to both North County and Lesser. In light of our
affirmance of the order, we need not consider whether a reversal of the sanction against
North County would have affected the sanction order as to Lesser.
5 In June 2013, the trial court directed the parties to resolve discovery disputes
through a discovery referee.
4
order compelling production of various accounting records detailing the financial
relationships between North County, and HFT and Jartel. Vaya requested that the court
impose terminating sanctions against North County and monetary sanctions against North
County and Lesser in the amount of $127,842.21, consisting of $109,528.76 in attorney
fees and $18,313.45 in costs. Vaya supported its motion with declarations from its
counsel outlining the attorney fees that Vaya had incurred in connection with its attempt
to obtain relevant discovery as well as copies of relevant discovery pleadings and court
orders. Among those documents were North County's responses to Vaya's interrogatories
in which North County stated, "No documents show revenue sharing because there is no
revenue sharing."
In response, North County provided the discovery referee with copies of a March
2014 motion that it had filed with the trial court seeking a stay of further production of
documents.6 In this motion, North County contended that it was unreasonable to require
it to produce records pertaining to revenue sharing between North County and HFT,
arguing:
"Vaya wants to prove revenue sharing between Mr. Lesser, [North
County], and the free calling service company, HFT. The very fact
that Mr. Lesser is the sole shareholder of [North County] and HFT
means that all revenues are for the benefit of Mr. Lesser."
As an alternative to requiring the production of discovery related to access
stimulation, North County contended that the court could "simply find that [North
6 On April 14, 2014, the trial court denied the motion for the stay, ruling that
"document production" was a discovery matter to be resolved by the discovery referee.
5
County] has not met its burden of disproving revenue sharing and, subsequently, that it
has engaged in access stimulation."
Vaya filed a proposed order granting monetary and terminating sanctions that
outlined North County's repeated failures to comply with discovery orders. In its
proposed order, Vaya also stated that North County's recent admission that it engaged in
revenue sharing with HFT and Jartel was contrary to North County's previous discovery
responses and that North County made the admission only after being "faced with the
obligation to produce relevant records."
The discovery referee held a hearing on the motion for sanctions. After the
hearing, the referee issued a report recommending monetary sanctions in the amount of
$92,966.45, consisting of $74,653 in attorney fees and $18,313.45 in costs. The referee
also recommended that the trial court deny the request for terminating sanctions, but
impose an issue sanction establishing that North County had engaged in access
stimulation with respect to 100 percent of the call traffic at issue in the case.
In support of its order, the referee noted that both it and the trial court had issued
numerous orders directing North County to provide various types of discovery, and that
North County had repeatedly failed to comply with such orders. For example, the referee
noted that on April 14, 2014, the trial court adopted the referee's ruling compelling North
County, HFT and Jartel to produce all of the following financial records:
"[D]ocuments from 2009 to the present that reflect, refer or relate to
any payments or financial transfers to, from, by or between [North
County], HFT and Jartel that occurred during that period per prior
. . . Order of Court dated 12/30/2013. . . . "
6
The referee also stated that, on April 14, the trial court ordered North County:
"to produce a 'General Ledger Detail Report' as well as a complete
'QBB File' without deletions from all QuickBooks systems which
contain financial dat[a] of [North County], HFT, Inc. and or Jartel,
however they are maintained and regardless if they also contain
other accounting data from Mr. Lesser or any other entities. This
produced data shall be from January 1, 2009 to present, however, if
it is not possible to limit those productions by the date then the entire
data will be produced without time limitation."
The referee found that North County had failed to comply with these orders.
North County filed an objection to the referee's recommendation, Vaya filed a
response to North County's objection, and the trial court held a hearing at which the
parties were given the opportunity to address the referee's recommended sanctions.7
On July 15, 2014, the trial court issued an order adopting the referee's
recommendation to impose issue and monetary sanctions, without modification. North
County appeals the July 15 order.8
III.
DISCUSSION
The trial court did not abuse its discretion in
imposing monetary sanctions in the amount of $92,966.45
North County claims that the trial court erred in imposing monetary sanctions in
the amount of $92,966.45.
7 We grant Vaya's unopposed request to augment the record with the reporter's
transcript of the hearing in the trial court.
8 The order is appealable. (See Code Civ. Proc., § 904.1, subd. (a)(12) [making
appealable "an order directing payment of monetary sanctions by a party or an attorney
for a party if the amount exceeds five thousand dollars ($5,000)"].)
7
A. Governing law and standard of review
Code of Civil Procedure section 2023.0109 outlines several misuses of the
discovery process, including "[d]isobeying a court order to provide discovery,"
(§ 2023.010, subd. (g)) and "[m]aking or opposing, unsuccessfully and without
substantial justification, a motion to compel or to limit discovery." (Id., subd. (h).)
Section 2023.030 authorizes a trial court to impose sanctions, including monetary
sanctions, for the misuse of the discovery process. Section 2023.030 provides in relevant
part:
"To the extent authorized by the chapter governing any particular
discovery method or any other provision of this title, the court, after
notice to any affected party, person, or attorney, and after
opportunity for hearing, may impose the following sanctions against
anyone engaging in conduct that is a misuse of the discovery
process:
"(a) The court may impose a monetary sanction ordering that one
engaging in the misuse of the discovery process, or any attorney
advising that conduct, or both pay the reasonable expenses,
including attorney's fees, incurred by anyone as a result of that
conduct. The court may also impose this sanction on one
unsuccessfully asserting that another has engaged in the misuse of
the discovery process, or on any attorney who advised that assertion,
or on both. If a monetary sanction is authorized by any provision of
this title, the court shall impose that sanction unless it finds that the
one subject to the sanction acted with substantial justification or that
other circumstances make the imposition of the sanction unjust."
" ' "[T]he purpose of discovery sanctions 'is not "to provide a weapon for
punishment, forfeiture and the avoidance of a trial on the merits," ' . . . but to prevent
9 Further statutory references are to the Code of Civil Procedure unless otherwise
noted.
8
abuse of the discovery process and correct the problem presented . . . ." ' [Citation.]
Monetary sanctions encourage 'voluntary compliance with discovery procedures by
assessing the costs of compelling compliance against the defaulting party.' " (Pratt v.
Union Pacific Railroad Co. (2008) 168 Cal.App.4th 165, 183 (Pratt).)
"When imposing discovery sanctions, the trial court has broad discretion [citation]
and its order will not be reversed on appeal in the absence of a manifest abuse of
discretion that exceeds the bounds of reason, resolving all evidentiary conflicts in favor
of its ruling." (Pratt, supra, 168 Cal.App.4th at p. 183.)
B. Application
North County raises three arguments in support of its contention that the trial court
erred in imposing monetary sanctions against it. We consider each argument in turn.
First, North County contends that the imposition of monetary sanctions was
improper and amounted to "double punishment" because it elected not to carry its burden
of proving that it had not engaged in access stimulation, and the trial court also imposed
an issue sanction establishing that the call traffic at issue in this case resulted from access
stimulation.
While North County contends that it "made a strategic business decision not to
meet its burden" of proving that it had not engaged in access stimulation, it did so only
after repeatedly failing to comply with discovery orders compelling it to provide
discovery relevant to this issue. The monetary sanction was imposed in order to
compensate Vaya for the expenses that it incurred in attempting to obtain discovery to
which it was entitled. (See Pratt, supra, 168 Cal.App.4th at p. 183 ["Monetary sanctions
9
encourage 'voluntary compliance with discovery procedures by assessing the costs of
compelling compliance against the defaulting party.' "].) The trial court's imposition of
an issue sanction did not compensate Vaya for such expenses, but rather, relieved Vaya
of having to obtain the evidence necessary to establish a defense that it sought to
establish at trial. The court's imposition of a monetary sanction in addition to an issue
sanction thus does not amount to double punishment.10
North County also claims that the trial court's imposition of sanctions constitutes
improper punishment. In support of this contention, North County argues that "[d]espite
ruling that Vaya's initial [discovery] requests were drafted in an overly broad manner, the
Discovery Referee and the Superior Court awarded monetary sanctions where they
previously refused to provide Vaya with sanctions." The trial court's order imposing
sanctions extensively and precisely details the discovery abuses for which it was
sanctioning North County, including North County's failure to respond to requests for
certain documents, its failure to produce requested documents at Lesser's deposition, and
HFT and Jartel's failure to respond to Vaya's nonparty subpoenas.11 Even assuming that
some of Vaya's initial discovery requests were overly broad, the trial court's order
10 North County also asserts that "the existence of access stimulation is irrelevant for
evaluating termination rates for non-interstate toll traffic," and contends that it has
"consistently argued against discovery concerning non-interstate traffic issues." (Italics
added.) However, North County presents no intelligible argument concerning the
significance of such assertions and they therefore provide no basis for reversing the
sanction order.
11 It is undisputed that Lesser is the sole shareholder of North County, and in its
order, the trial court noted that HFT and Jartel are "affiliates of [North County] that are
also wholly owned by Mr. Todd Lesser."
10
outlined numerous legitimate bases for the imposition of sanctions. North County has not
established that the sanctions amounted to improper punishment.12
Finally, North County argues that the amount of sanctions is not reasonable. Vaya
supported its motion for sanctions with "detailed evidence of substantial costs and
attorney's fees incurred by Vaya" related to North County's discovery abuses. Further,
the trial court declined to award Vaya the full amount of attorney fees that it sought,
awarding it $34,875.76 less than the $109,528.76 in fees that Vaya requested in its
motion.
North County has not demonstrated that any portion of the fee award was
unreasonable. North County contends that "despite the fact that the initial [discovery]
hearing and related filings addressed many issues raised by both sides, the Order
provided Vaya with $27,665 in fees and $2,682.89 in costs for matters related to that
hearing," and that it is "fundamentally unfair for Vaya to recover all of its fees and costs
related to that discovery hearing." (Italics added.) This argument fails for a number of
reasons. First, as North County acknowledges in its brief, the trial court's order does not
"allocate [the awarded] fees and costs to any particular motions or hearings." North
County is thus incorrect in asserting that the court awarded Vaya $27,665 in fees and
12 North County also contends that sanctions based on North County's denials of
requests for admissions were inappropriate under Stull v. Sparrow (2001) 92 Cal.App.4th
860 (Stull). Stull involved a question of whether sanctions were appropriate under former
section 2033, subdivision (o) (current § 2033.420), which authorizes sanctions in
instances in which a party denied a request for an admission "if the party requesting that
admission thereafter proves the genuineness of that document or the truth of that
matter . . . ." (Stull, supra, at p. 862, fn. 2.) Stull is inapposite because the trial court did
not impose any sanctions pursuant to section 2033.420.
11
$2,682.89 in costs related to the initial discovery hearing. Second, Vaya did not seek all
of its fees and costs related to the initial discovery hearing, but rather, sought fees related
to its request for production of documents that North County failed to produce. Third,
while Vaya sought $27,665 in fees related to its attempt to discover these documents, the
request was not limited to the initial hearing, but also included time billed related to the
ensuing motions to compel related to that request.
North County also contends that the "Order . . . provides Vaya with $40,280.26 in
attorneys' fees and $9,900.85 in costs for Vaya's two-day deposition of Mr. Lesser," an
amount that North County characterizes as "outrageous." This argument fails because the
trial court made detailed findings in its April 14, 2014 order concerning Lesser's "non-
responsive" deposition testimony and North County fails to demonstrate that these
findings are without basis.13
Finally, North County maintains that the trial court erred in awarding sanctions
related to Vaya's third party subpoenas to HFT and Jartel and various discovery hearings
because North County filed oppositions that resulted in modifications of Vaya's discovery
requests. North County fails to establish that the modifications that it obtained were of
any significance or that the modifications establish that the trial court abused its
discretion in awarding monetary sanctions against North County in light of its repeated
failure to comply with its discovery obligations.
13 The deposition is not in the record. North County's argument also fails because, as
stated in the text, the trial court did not allocate its fee and cost award to specific
hearings, motions, or depositions.
12
IV.
DISPOSITION
The July 15, 2014 order is affirmed. Vaya is entitled to costs on appeal.
AARON, J.
WE CONCUR:
McINTYRE, Acting P. J.
O'ROURKE, J.
13