On April 29, 2009, Apple filed an Administrative Request for An Order Permitting the Filing Under Seal of Confidential Portions of Letter Brief Dated April 29, 2009 (PDF file linked). Wow, exciting, right? Okay, let me explain exactly what is happening as it is a bit juicy. Remember that I am NOT an attorney, and any thoughts are my own lay-opinion. A legal opinion would have to be obtained from a properly licensed qualified attorney.

Short Recap of Necessary Background History

The last filing in the case was March 4, 2009 when Apple filed its Answer to Psystar’s First Amended Counterclaims. My commentary on that filing can be found here. On the previous day the Court had entered an Order Approving Stipulated Protective Order Subject to Stated Conditions . My commentary on that order can be found here. If you recall, at that time I had concluded:

Reading between the lines: Judge Alsup will NOT look favourably upon any gamesmanship during discovery.

At that point the case entered the “discovery” process during which the parties take depositions, perform inspections, exchange documents (Requests for Production), answer written questions under oath (Interrogatories), obtain documents from non-parties (Subpoenas Duces Tecum), and narrow the issues to be proven at trial (Requests for Admissions). Unlike State Court (at least in Florida where I live, and most likely California as well), discovery is not filed with the Court. The only time any filings regarding discovery will be brought before the Court is when there is a dispute between the parties. The most common filing in this regard would be a Motion to Compel one party to adequately answer certain discovery requests which the other party believes were answered inadequately. The Case Management Scheduling Order in this case was docketed as stating:

CASE MANAGEMENT SCHEDULING ORDER: Discovery due by 6/26/2009. Jury Trial set for 11/9/2009 07:30 AM in Courtroom 9, 19th Floor, San Francisco. Motions due by 8/20/2009. Pretrial Conference set for 10/26/2009 02:00 PM in Courtroom 9, 19th Floor, San Francisco. Signed by Judge William Alsup on 11/7/2008. (whasec, COURT STAFF) (Filed on 11/7/2008)

A copy of the complete Scheduling Order may be found here.

So, it is quite expected that things would appear to settle down as far as the Court docket is concerned until the expiration of the discovery deadline of June 26, 2009. After that date the really exciting, potentially dispositive pleadings will be filed. There is nothing like a good Motion for Summary Judgment for a great read. Yes, I am a legal geek.

I hope that made things clear so far.

Federal Rules of Civil Procedure 30(b)(6) Depositions

The Federal Rules deal with the issue of obtaining the deposition of businesses which will bind the business to testimony. Below is the Rule in question:

Rule 30. Deposition by Oral Examination

(a) When a Deposition May Be Taken.
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(b) Notice of the Deposition; Other Formal Requirements.
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(6) Notice or Subpoena Directed to an Organization.
In its notice or subpoena, a party may name as the deponent a public or private corporation, a partnership, an association, a governmental agency, or other entity and must describe with reasonable particularity the matters for examination. The named organization must then designate one or more officers, directors, or managing agents, or designate other persons who consent to testify on its behalf; and it may set out the matters on which each person designated will testify. A subpoena must advise a nonparty organization of its duty to make this designation. The persons designated must testify about information known or reasonably available to the organization. This paragraph (6) does not preclude a deposition by any other procedure allowed by these rules.

In plain English, in this case it means, for example, Apple can provide notice that it wishes to take the deposition of a Psystar representative with the most knowledge concerning certain listed areas of inquiry and documents. The organization to be deposed can designate one or more persons to testify on behalf of the organization. With large corporations it is common for several people to be so designated. For example, I work with insurance companies. The person with the most knowledge of underwriting may not be the same person with the most knowledge of the claim in question. A sample of some Rule 30(b)(6) areas of inquiry may be found here. Obviously those questions would not be the ones in this case, but it gives you an idea of how the areas of inquiry are specified so that the other party can make an informed decision who to designate, and it limits the scope of that deposition.

Are you still with me?

Psystar Appears to be Playing Games


With the above information in hand, you are in a better position to understand what yesterday’s filing means. Apple is requesting that the Court accept under seal a letter brief with redacted portions, one un-redacted document (Exhibit C). and three other documents redacted in full (Exhibits A, B, and D). Even though the letter brief is redacted, it is VERY interesting. Here is a link to the PDF file of the letter. I am going to reproduce the un-redacted portions here with asterisks (***) inserted where redaction occurs.

Apple’s Letter to Judge Alsup Dated April 29, 2009

Dear Judge Alsup:

Despite numerous meet and confer sessions, defendant Psystar Corporation (“Psystar”) has failed to provide, either through documents or testimony, clearly relevant financial information. Psystar has produced no monthly profit and loss statement, balance sheets or other financial statements and only a small subset of revenue and cost-related receipts. Moreover, at the 30(b)(6) deposition regarding Psystar’s revenues, profits, asserts and liabilities (including investors, lenders or other sources of financial support), taken on March 20, 2009, Psystar’s CEO and founder Rudy Pedraza, the person designated by Psystar to testify on this topic, would not answer basic questions about Psystar’s financials. *** Mr. Pedraza, who runs this small company, stated approximately 90 times during the deposition that he did not know or recall answers to basic questions about Psystar’s sales, its general costs and profits, its costs and profits by product line, how it determined its prices and profit margins, ***.

***

*** Yet, as of the March 20 deposition, no customer purchase receipts or order documents had been produced by Psystar. Indeed, despite a supplemental production on April 13, 2009, Psystar still has not produced customer purchase receipts/invoices from at least April 2008, when it began selling its computers, to October 2008. Additionally, only a subset of vendor invoices3, from December 2008 to March 2009, were produced (and those just one day before the deposition). Similar documents from April to November 2008 are still missing. Due to these deficiencies in both Psystar’s document production and its 30(b)(6) testimony (along with others described below), Apple submits this letter brief requesting an order compelling Psystar to (1) produce financial documents sufficient to determine Psystar’s revenues, costs, profits, assets and liabilities and (2) to make available a knowledgeable 30(b)(6) designee for another deposition on this topic at Psystar’s expense.

I. Procedural Background

On November 4 and 11, 2008 Apple served its First and Second Requests for Production in which it requested Psystar documents related to sales, revenue, costs, profits, asserts, liabilities and financial projection. (RFP Nos. 25, 31, 33–34, 42, 49 and 58&ndash63, language reproduced in Ex. B.)4. After numerous meet and confer sessions on December 17 and 19, 2008 and February 13 and 20, and March 9, 2009, Psystar stated that it would produce documents responsive to these requests after entry of a protective order.5 On March 16, 2009, Apple again reminded Psystar that it had not produced any financial documents (other than a few purchase records through a payment processor) and demanded production before the upcoming 30(b)(6) deposition. One day before the deposition, Psystar produced only a small subset of the vendor invoices mentioned above. After the deposition, Apple sent another letter identifying the documents Mr. Pedraza had testified were produced or may exist at Psystar. (Ex. D.) One week later, and three weeks after the deposition, Psystar produced purchase receipts from October 2008 through March 2009. No additional relevant documents have been produced even though Psystar has been selling computers since April 2008 and Mr. Pedraza testified that Psystar had not destroyed any documents. (Ex. A at 46:14–16.)

II. Categories of Missing Documents

P&L Statements, Balance Sheets and Other Financial Statements. Psystar should be compelled to produce its financial statements. *** Psystar has not produced that data or any financial statement. Moreover Psystar has not produced information that would allow Apple to conduct its damages analysis ***.

Underlying Documentation to Show Sales, Revenue, Costs, Etc. Psystar should also be compelled to produce underlying documentation that is necessary to create a profit and loss statement or balance sheet. *** Based on third-party productions, it is also evident that Psystar exchanged documents with its payment processors that show Psystar’s sales and returns along with the fees paid to those payment processors. Psystar has not produced documents showing all of its sales and revenues from April 2008 to the present.

Furthermore, Psystar has not produced any summary document sufficient to show its costs from when it first began selling products in April 2008 through the present. Even if Psystar does not have a summary document, it should then produce documentation that would allow Apple to determine Psystar’s costs. Psystar has not produced any documents that show its operating costs or overhead costs, including payroll. It has not even produced all the invoices from its own vendors and consultants.6 Rather, Psystar has produced only a smattering of invoices that cover products purchased from December 2008 through March 2009. *** These documents are important to determine Psystar’s profits and margins and must be produced.

Financial Projections. Apple also requested financial projections for Psystar’s products (RFP No. 25). Psystar has produced one financial projection but has not produced the drafts of that financial projection. (See PSY009277.) Those drafts clearly exist. In fact, Psystar has produced emails sending such drafts *** as attachments to e-mails. Psystar, however, has not produced any attachments to e-mails in this case. Psystar should be required to produce the drafts of financial projections and all attachments to e-mails.

Apple respectfully requests pursuant to Rule 37(c) that Psystar be compelled to produce all documents responsive to the categories described above, to provide another knowledgeable witness to complete the 30(b)(6) deposition, and to pay Apple reasonable expenses, including attorney’s fees caused by Psystar’s inordinate failure to produce and testify.

Editorial Commentary

The reader can examine the footnotes in the linked PDF file of the document as well as the exhibit which sets forth the requests that were propounded to Psystar (Exhibit C). Basically what this boils down to is an alleged willful and knowing failure of Psystar to produce complete financial information. I personally find this very interesting in light of the issue of the still-unidentified ten “John Doe” defendants. Apple may be attempting to obtain that information in this parenthetical statement:

(including investors, lenders or other sources of financial support)

Taking the above-letter as absolutely true and unbiased for the sake of argument; it certainly appears that Psystar has run afoul of good-faith discovery. Federal Court Judges usually have little tolerance for such tactics. If it is indeed true that Rudy Pedraza either would not, or could not, answer financial information 90 times that would be bad for Psystar. If Rudy doesn’t know, who does? Is he protecting someone?

In a bit of trivia, it appears that at least nearly 10,000 documents have either been produced so far or marked by Apple as pertinent to the case. How do I know this? Did you notice the statement referring the Court to “PSY009277.” That is a Bates-stamping convention. The document referred to is number 9277 of a batch identified with the prefix “PSY.” I can’t speak for the legal assistants on this case, but that prefix is how I would usually identify documents produced by the opposing party and not internal documents or documents provided by the client.

What’s Next Regarding This Issue?

Psystar will likely file a response or the Court will request a hearing to sort out this dispute. If things are as they appear, I would not be at all surprised to see Psystar monetarily sanctioned as requested by Apple.

Here is a link to the list of all of the prior commentary articles I have written on this case. However, I would draw the reader’s particular attention to the following:

Apple Petitions Court for Leave to Amend Its Complaint Against Psystar [Updated]

Did Psystar Really Deny the Involvement of Others?