Kranz & Associates Holdings, LLC v. Lain

Background

Kranz & Associates Holdings, LLC, described as Lain’s former employer, sued Kimberly Lain. Kranz alleged that Lain misused its confidential information during and after her employment. Lain owned Tekvantage, Inc., while her husband, Timothy Dowerty, owned Teknowledgies, LLC. Neither company was a party to the lawsuit, and Lain, Dowerty, Tekvantage, and Teknowledgies were represented by the same counsel.

Kranz served subpoenas for documents on Tekvantage and Teknowledgies. The subpoenas sought, among other things, communications about financial consulting services, documents concerning business offerings that competed with Kranz, and records concerning compensation paid to Lain.

Tekvantage subpoena

The court treated Kranz’s submission as a motion to compel. It found that Tekvantage’s responses to requests for production were contradictory. Tekvantage initially stated that no responsive documents existed and that it would not supplement its response. Later, the Lain Parties represented to the court that Tekvantage had produced approximately 256 documents responsive to one request. The court also found that documents identified as responsive to one request appeared instead to relate to another request.

The court questioned the assertion that no business-related text messages existed because Kranz had produced texts authored by Lain concerning business meetings, contracts, billing rates, project management, and other business matters. The court also considered evidence that Tekvantage had entered a consulting agreement with RS2 and had received approximately $1.4 million for services between 2021 and 2023. The court stated that Tekvantage’s counsel had improperly made a merits determination about whether documents were relevant and refused production on that basis.

The court restated its ruling from the September 10 hearing: Tekvantage had to make all of its employees immediately available for deposition by Kranz. The court stated that a later hearing could order further production and impose consequences on Tekvantage and its counsel if the depositions or other evidence showed that Tekvantage had concealed responsive information.

As to the compensation request, the Lain Parties stated that Tekvantage had produced pay stubs and that Lain had produced additional bank records. Kranz did not dispute that production or argue that it was inadequate in its later briefing.

Teknowledgies subpoena and spousal privilege

Teknowledgies claimed that communications between Lain and Dowerty were protected by California’s marital-communication privilege. The court explained that California Evidence Code section 980 protects confidential communications between spouses, and section 917 presumes that a claimed marital communication was confidential unless the opposing party proves otherwise.

The court rejected the proposed broad application of the privilege to communications made in the course of business between two separate legal entities merely because the entities were operated by spouses. The court concluded that the subpoenaed communications concerned the provision of financial consulting services by Teknowledgies, rather than confidential marital communications. The court specifically addressed 190 emails identified in the privilege logs as concerning marketing work for Kranz.

The court also ruled that the privilege had been waived. It found that Teknowledgies had produced communications between Dowerty and Lain concerning the same type of business services, and that the Lain Parties did not dispute that those communications had been disclosed. The waiver was narrowly limited to communications between Lain and Teknowledgies concerning the provision of financial consulting services; it did not extend to other communications between Lain and Dowerty.

Disposition

The court granted the discovery motion in part and denied it in part. Regarding the Tekvantage subpoena, Kranz could immediately take the ordered employee depositions. Regarding the Teknowledgies subpoena, the court overruled both Lain’s and Dowerty’s claim of spousal privilege and required Teknowledgies to produce all relevant documents responsive to the request. The order was signed by IAM ALSUP, United States District Judge.