I haven’t seen this talked about much in legal blogs but it seems like an important consideration in whether to bring a case in Federal vs California state court: there may be much broader discovery of financial and technical information in Federal court.
In years of practice in Federal courts, I was used to getting detailed financial and technical information in discovery from the other parties in the case and even from third parties.
When I first started practicing in California state court, I was dismayed to find other parties pushing back on my requests for financial information citing California’s financial data and privacy privileges. There is also a trade secret privilege.
Under FRE 501, federal courts should theoretically apply state privileges to state law actions. But you have a choice to bring federal law actions in California state court. These privileges may provide a key reason why you would or wouldn’t bring, for example, an ADA or Copyright case in Federal vs California court. If you want to protect your client’s data, choose California. If you want broader discovery, choose Federal.
The order on a motion to quash in Pedro Trujililo, et al. v. The Berry Man, Inc., et al., issued today in Santa Barbara State Court, shows the tight limits on discovery of financial and trade secret information in California courts:
The right to privacy is expressly guaranteed by Article 1, Section 1 of the California Constitution and has been interpreted by the courts to extend to one’s confidential financial information, whatever form it takes. Overstock Com, Inc. v. Goldman Sachs Group, Inc. (2014) 231 Cal.App.4th 471, 503. Although the right to privacy is not absolute, the party seeking discovery of private financial information must demonstrate a “compelling need for [the] discovery” and that the compelling need “outweigh[s] the privacy right” of the party from whom the information is sought. Lantz v. Superior Court (1994) 28 Cal.App.4th 1839, 1853-1854. To do this, the party seeking discovery must show that the information sought “is directly relevant and essential to the fair resolution of the underlying lawsuit.” Digital Music News, LLC v. Superior Court (2014) 226 Cal.App.4th 216, 229.
Here, the deposition subpoenas seek documents and information that would violate the privacy rights of Dr. Mounts, Galileo Surgery Center, and Pain Management Systems, including documents reflecting their billing agreements and reimbursement rates with third-party payers, Medicare, and MediCal. (Roberts Dec., ¶¶ 3, 4, 5, Exs. A, B, C.) These documents are personal to moving parties’ business and are protected by their right to privacy. While movants should have to produce records and bills for the care and treatment they provided to plaintiff, their private financial arrangements with other patients and clients are not at issue here and are not discoverable. In California, an injured plaintiff is entitled to recover the lesser of (1) the amount incurred or paid for medical services or (2) the reasonable value of the services rendered. Pebley v. Santa Clara Organics, LLC (2018) 22 Cal.App.5th 1266, 1276. The individual circumstances of other patients and their insurers are therefore private as they have no bearing on the reasonable value of the services rendered to plaintiff.
The deposition subpoenas also seek documents and information that are protected by the trade secret and financial data privileges. Civil Code Section 3426.1 defines a trade secret to mean:
“(d) ‘Trade secret’ means information, including a formula, pattern, compilation, program, device, method, technique, or process, that:
“(1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and
“(2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”