Challenge Printing Company, Inc. v. Electronics For Imaging Inc.

Background

Challenge Printing asked the court to extend the fact-discovery deadline so it could obtain additional information about Electronics for Imaging Inc.’s financial condition. The requested information related to EFI’s current net worth, which the parties agreed was relevant to Challenge Printing’s punitive-damages claim.

In May 2021, Challenge Printing requested documents sufficient to identify EFI’s net worth on several dates. EFI objected, including on relevance grounds. The parties later resolved the dispute by agreeing that EFI would produce documents sufficient to show its net worth. EFI said it produced ten pages of consolidated financial statements, including a balance sheet showing its assets and liabilities. Challenge Printing argued that the production was insufficient because it did not adequately explain the financial consequences of EFI’s acquisition by a private equity firm for $1.7 billion in 2019. Challenge Printing also argued that EFI had produced only unaudited statements showing significantly negative net worth.

Fact discovery closed on November 19, 2021. The deadline for motions to compel discovery was December 6, 2021, and Challenge Printing filed its motion on that date. Although the parties had not followed the court’s standing-order requirements for presenting discovery disputes, the court decided the dispute on its merits because the motion raised a discovery dispute and was filed by the applicable deadline.

Court’s Analysis

The court agreed that evidence of EFI’s current net worth—the value of its assets minus its liabilities—was relevant. It agreed with EFI, however, that Challenge Printing was not entitled to discovery about the financial consequences of the 2019 acquisition. The court concluded that Challenge Printing was entitled to reliable information about EFI’s current net worth.

The record did not include EFI’s earlier ten-page production, and it did not establish whether EFI had audited financial statements that it had not produced. The court explained that unaudited financial statements are not automatically unreliable, but audited statements reflect an auditor’s independent assessment of whether the statements accurately show the company’s financial performance.

Order

If EFI had not already done so, the court ordered it to produce its most recent audited financial statements sufficient to show its total assets and total liabilities, preferably as of the end of its fiscal year. If EFI did not have audited financial statements for any period in 2021 or 2022, it was instead required, if it had not already done so, to produce unaudited financial statements sufficient to show its total assets and total liabilities as of December 31, 2021, or the close of its most recent fiscal year, whichever was later. The production was due April 22, 2022.

In all other respects, the court denied Challenge Printing’s motion. Judge Virginia K. Demarchi signed the order.