District Court Allows Expedited Discovery Where Plaintiff Concerned that Defendant is Hiding Assets


The case is captioned Tungsten Heavy Powder and Parts v. Khem Precision Machining, 17 cv 1882 (S.D. California).

This is a collection case where Tungsten sued Khem for payment for certain tungsten buffer weights. Tungsten sued and requested expedited discovery because it was concerned that the defendant was actively taking measures to dispose of its assets to frustrate the collection action. Normally, under Rule 26(f) discovery does not commence until the parties have had a chance to have a Rule 26 meeting concerning discovery. Tungsten argued that it could not wait that long to obtain discovery into the defendant’s finances and accounting records. The court found that the balance of the factors favored expedited discovery because Tungsten requested financial records and one deposition to determine if the Defendant was wrongfully hiding assets.

The explanation:

The Court finds that the balance of factors favors Tungsten. First, there is no motion for preliminary injunction pending, which weighs against Tungsten. However, Tungsten has a need to determine whether injunctive relief is necessary to ensure Khem does not improperly dispose of its assets. See Interserve, Inc. v. Fusion Garage PTE, Ltd., No. C09-5812-JQ(PVT), 2010 U.S. Dist. LEXIS 6395, at *7, 2010 WL 143665, at *2 (N.D. Cal. Jan. 7, 2010) (“Expedited discovery will allow plaintiff to determine whether to seek an early injunction.”). Preliminary injunctions have been granted in this District in such circumstances. See, e.g., Odyssey Reinsurance Co. v. Nagby, No. 16-CV-3038-BTM(WVG), 2017 U.S. Dist. LEXIS 165582, 2017 WL 4432453 (S.D. Cal. Oct. 4, 2017). Second, the discovery requested is limited to only one deposition and information related to any efforts by Khem to dispose of assets. Third, the deposition and documents sought are narrowly tailored to determining whether Khem has or plans to dispose of assets to prevent any recovery in this litigation. Fourth, the burden on Khem is relatively minimal. Tungsten requests a single deposition and documents that are readily obtainable and, as Khem acknowledges, would have to be produced in the normal course of the litigation. Any burden on Khem is outweighed by the interests of justice. Fifth, discovery in the normal course will commence in the next few months given that Khem has filed an Answer and a combined Early Neutral Evaluation and Case Management Conference has been scheduled. Thus, while the instant request for discovery is early, it is not extraordinarily so. This factor favors neither party.

Expedited discovery can be a useful tool in a collection case filed in federal court. (It is doubtful that expedited discovery could be obtained in any action filed in the courts of the State of Illinois).

This tool is worth considering if you have the right case and the balance of the factors favors your client.

Edward X. Clinton, Jr.

The Clinton Law Firm, LLC

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