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 (EFI) financial condition. On May 21, 2021, Challenge Printing requested documents sufficient to identify EFI’s net worth on several dates from January 1, 2018, through June 1, 2021. EFI objected, including on relevance grounds. The parties later agreed that EFI would produce documents sufficient to show its net worth.

EFI stated that it produced ten pages of what it described as a consolidated financial statement on November 17, 2021, including a balance sheet showing its assets and liabilities. Challenge Printing did not dispute that the production showed assets and liabilities, but argued that it did not sufficiently 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 financial statements showing significantly negative net worth, which Challenge Printing said was inconsistent with public information about the acquisition.

Fact discovery closed on November 19, 2021. The parties were required to file any motion to compel discovery by December 6, 2021, and Challenge Printing filed its motion on that date. Although the parties did not follow the court’s standing-order requirements for discovery disputes, the court decided the dispute because it raised a discovery issue and was filed by the deadline for motions to compel.

Court’s analysis

The parties agreed that evidence of EFI’s current net worth—the value of all assets minus all liabilities—was relevant to Challenge Printing’s punitive-damages claim. The court agreed with EFI that Challenge Printing was not entitled to discovery concerning the financial consequences of the 2019 acquisition. But the court concluded that Challenge Printing was entitled to reliable information about EFI’s current net worth.

The court noted that private companies generally are not required to publicly report their financial statements, but may have other financial-reporting obligations. It explained that audited financial statements reflect an auditor’s independent assessment of whether the statements accurately present the company’s financial performance. The record did not contain EFI’s ten-page production and did not show whether EFI had audited financial statements that it had chosen not to produce.

Order

The court ordered that, if EFI had not already done so, it must produce its most recent audited financial statements sufficient to show the value of 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 instead had to produce unaudited financial statements sufficient to show the value of its total assets and total liabilities as of December 31, 2021, or the close of its most recent fiscal year, whichever was later. EFI’s production was due April 22, 2022.

The order does not expressly state that the motion to extend the discovery cutoff was granted or denied. Its operative ruling is the order requiring EFI to produce the specified financial statements. Judge Virginia K. Demarchi signed the order.