IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION
April 22, 2005
HYNIX SEMICONDUCTOR INC., HYNIX SEMICONDUCTOR AMERICA INC., HYNIX SEMICONDUCTOR U.K. LTD., AND HYNIX SEMICONDUCTOR DEUTSCHLAND GMBH, PLAINTIFFS,
RAMBUS INC., DEFENDANT.
The opinion of the court was delivered by: Ronald M. Whyte United States District Judge
ORDER DENYING HYNIX'S MOTION TO DISMISS PATENT CLAIMS FOR UNCLEAN HANDS ON THE BASIS OF COLLATERAL ESTOPPEL
Plaintiffs Hynix Semiconductor Inc., Hynix Semiconductor America Inc., Hynix Semiconductor U.K. Ltd., and Hynix Semiconductor Deutschland Gmbh ("Hynix") seek to dismiss the patent claims of defendant Rambus Inc. under the doctrine of "unclean hands" on the basis of collateral estoppel. On March 1, 2005, Judge Robert Payne in the Eastern District of Virginia dismissed Rambus's patent claims in Rambus, Inc. v. Infineon Technologies AG,No. 3:00CV524, stating "I have concluded that [Infineon] has proved, by clear and convincing evidence, a spoliation that warrants dismissal of [the patent infringement case] as the only appropriate sanction after having considered the alternatives." Infineon Trial Transcript ("ITT") Vol. 6 (Mar. 1, 2005), Hynix's Collateral Estoppel Evidence Volume 1, tab Rambus v. Infineon Trial Volume 6 at 1139. Hynix asserts that Judge Payne's ruling collaterally estops Rambus from relitigating the issue of spoliation and requires this court to likewise dismiss Rambus's patent counterclaims in the instant action. Rambus opposes the motion, contending that the requirements for collateral estoppel are not met for either the issue of spoliation or the dismissal of its patent claims on the basis of unclean hands. For the reasons set forth below, the court denies Hynix's motion to dismiss Rambus's patent claims on the basis of collateral estoppel.
After a four-day evidentiary hearing, Judge Payne dismissed Rambus's patent claims, ruling from the bench. He stated, "An opinion will issue in due course with findings of facts and conclusions of law, but since you are preparing for a trial, it seems to me it's incumbent upon the court that you know its parameters. It will not include a patent infringement trial." Id. Judge Payne's written opinion never issued because Rambus and Infineon settled the case between them. On March 21, 2005, final judgment of dismissal of all claims between Rambus and Infineon with prejudice was entered pursuant to the parties' stipulation.
A. Collateral Estoppel
1. Collateral Estoppel Issues
Collateral estoppel bars the re-litigation of issues that were actually litigated and necessarily decided by a final judgment in another case. Offshore Sportswear, Inc. v. Vaurnet Int'l B.V., 114 F.3d 848, 850 (9th Cir. 1997). The elements that the party asserting collateral estoppel must show are: "(1) there was a full and fair opportunity to litigate the issue in the previous action; (2) the issue was actually litigated in that action; (3) the issue was lost as a result of a final judgment in that action; and (4) the person against whom collateral estoppel is asserted in the present action was a party or in privity with a party in the previous action." Pena v. Gardner, 976 F.2d 469, 472 (9th Cir. 1992).
Although the parties do not dispute that the first and fourth elements for collateral estoppel are met, Rambus asserts that the issues in the present litigation either are different from those in Infineon or were not "lost as a result of a final judgment" in the Infineon action.
Hynix argues that this court must give Judge Payne's finding of spoliation and his dismissal of Rambus's patent claims preclusive effect in this action. Because the question of whether Rambus engaged in spoliation has been litigated three times by the Infineon court and has now resulted in the final dismissal of Rambus's claims as a sanction for spoliation of evidence in that action, Hynix asserts that all elements necessary for collateral estoppel are present. It points to this court's November 24, 2004 Order on Motion to Dismiss as a Sanction for Litigation Misconduct ("November 24 Order") in support of its contention that Judge Payne's oral ruling that Infineon had proved that Rambus engaged in spoliation sufficient to warrant dismissal of its patent claims supplied the missing piece: a final judgment.
2. Issue Actually Litigated
This court's November 24 Order acknowledged that there was identity of issues between the question of spoliation in the Infineon case and the present litigation. As set forth above, Hynix cites that order for the proposition that there has already been a binding ruling that there is sufficient identity of issues to warrant the application of collateral estoppel. However, Hynix overstates the scope of the court's ruling in that order. The court commenced its discussion by setting aside the issue of dismissal on the basis of unclean hands for Rambus's spoliation and considered whether Judge Payne's previous spoliation findings could be the basis for finding that Rambus had engaged in spoliation sufficient to pierce Rambus's attorney-client privilege. November 24 Order at 2.
In the November 24 Order, the court applied the four factors in Kamilche Co. v. United States, 53 F.3d 1059, 1062, amended by 75 F.3d 1391 (9th Cir. 1996), to determine that Judge Payne's spoliation findings were actually litigated and (had there been a final judgment) would have been sufficient to apply collateral estoppel to the issue of whether there had been a sufficient prima facie showing of spoliation to pierce Rambus's attorney-client privilege.
As Rambus points out, however, this court did not determine that the issue of unclean hands had been previously litigated. Nor could it have: at that point, the question of the application of collateral estoppel was necessarily limited to the question of spoliation as Judge Payne had not issued a ruling on the basis of unclean hands. Thus, this court must now determine whether the issue of unclean hands was actually litigated in the Infineon action.
Although it is clear that Judge Payne made his determination to dismiss based upon unclean hands, Rambus contends that the application of the doctrine of unclean hands is inherently case and claim specific and should not be given preclusive effect. The unclean hands doctrine "closes the doors of a court of equity to one tainted with inequitableness or bad faith relative to the matter in which he seeks relief." Jarrow Formulas, Inc. v. Nutrition Now, Inc., 304 F.3d 829, 841 (9th Cir. 2002) (citing Precision Instr. Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806, 814 (1945)). "Application of the unclean hands doctrine requires a finding of inequitableness or bad faith by the party to be dismissed." Rent-A-Center, Inc. v. Canyon Television and Appliance Rental, Inc., 944 F.2d 597, 602 (9th Cir. 1991).
The doctrine of unclean hands does not apply to any misconduct in the abstract, but requires that the misconduct is related to the claim to which it is asserted as a defense. Republic Molding Corp. v. B. W. Photo Utilities, 319 F.2d 347, 349 (9th Cir. 1963) ("What is material is not that the plaintiff's hands are dirty, but that he dirtied them acquiring the right he now asserts, or that the manner of dirtying renders inequitable the assertion of such rights against the defendant"). The alleged misconduct "must pertain to the very subject matter involved." Id. (citation omitted); accord Dollar Sys., Inc., 890 F.2d at 173 (citation omitted) ("It is fundamental to the operation of the doctrine that the alleged misconduct by the plaintiff relates directly to the transaction concerning which the complaint is made."); Wash. Capitols Basketball Club, Inc. v. Barry, 419 F.2d 472, 478 -79 (9th Cir. 1969) ("The party against whom the doctrine is sought to be invoked directly 'infected' the actual cause of action before the court, and is not merely guilty of unrelated improper past conduct." (citation omitted)).
Absent findings of fact and conclusions of law, this court simply cannot glean from Judge Payne's oral ruling in Infineon the required elements to apply the doctrine of unclean hands in this litigation. Hynix must show that Rambus's misconduct is related to this litigation. Although Hynix's briefing on its motion to dismiss compares the spoliation evidence presented in the Infineon litigation with evidence of Rambus's conduct pertaining to the Hynix litigation, the comparison alone is insufficient for application of collateral estoppel on the unclean hands issue. It is simply not possible to determine what findings Judge Payne made and how he applied those findings to determine Rambus had committed spoliation warranting dismissal of its patent claims in the Infineon litigation, thus this court cannot evaluate those findings to determine the impact on this litigation.
3. Finality of the Ruling
The court also finds that Judge Payne's ruling cannot serve as a final judgment for purposes of applying collateral estoppel to the issue of spoliation. Only a final judgment that is "sufficiently firm" can be issue preclusive. Robi v. Five Platters, Inc., 838 F.2d 318, 326 (9th Cir. 1988) (citing Luben Indus. v. United States, 707 F.2d 1037, 1040 (9th Cir. 1983)). In Robi, the Ninth Circuit considered the following factors, drawn from the Restatement (Second) of Judgments section 13, comment g, to determine whether the final judgment was sufficiently firm: the parties were fully heard, the court supported its decision with a reasoned opinion, and that opinion is the proper subject of appellate review. Id. at 327.
Hynix argues that Judge Payne's bench ruling is sufficiently firm to serve as a basis for collateral estoppel in this court and that a written ruling is not required to give his judgment preclusive effect. While there is no question that Judge Payne was sufficiently settled in his decision that he was willing to dismiss Rambus's patent claims at the conclusion of the evidentiary hearing on spoliation, he never issued a reasoned opinion, either written or oral, explaining his ruling. Before Judge Payne could issue such a ruling, Infineon and Rambus settled the action between them, stipulating to a dismissal with prejudice.
Hynix protests that Rambus should not be permitted to rob Judge Payne's decision of its preclusive effect with regard to the issues of spoliation and unclean hands by settling with Infineon in advance of his written ruling. It contends that U.S. Bancorp Mortgage Co. v. Bonner Mall P'ship, 513 U.S. 18, 26-27 (1994), precludes this court from allowing the parties to treat the judicial precedent established by the Eastern District of Virginia as "the property of private litigants," and requires that court's decision to "stand unless a court concludes that the public interest would be served by a vacatur." Id. Citing Hartley v. Mentor, 869 F.3d 1469 (Fed. Cir. 1989), Hynix contends that, in order to avoid the preclusive effect of Judge Payne's ruling, Rambus would have had to have the Eastern District of Virginia vacate its order in conjunction with its settlement with Infineon. Nevertheless, without the benefit of the findings of fact and conclusions of law reached by Judge Payne, this court does not find that the Eastern District's decision can be treated as "judicial precedent" under Bonner Mall or as a final judgment for purposes of dismissing Rambus's patent claims for unclean hands. The court is not blind to the fact that Rambus settled the Infineon litigation, at least in part, to avoid the risk that Judge Payne's unclean hands findings and dismissal thereon would have collateral estoppel effect. However, that does not mean that the court should conclude that Judge Payne made findings sufficient to justify dismissal of Rambus's claims against Hynix.
Although it is clear from the trial transcripts submitted by Hynix that the parties were fully heard on the issue of spoliation and unclean hands, the other Restatement factors are not present. While it is clear he intended to produce a final written decision, absent Judge Payne's findings of fact and conclusions of law or some other more detailed order setting forth the basis for his ruling on spoliation, this court cannot find that Judge Payne's judgment is "supported with a reasoned decision." Furthermore, as Rambus correctly points out, Judge Payne's judgment does not meet the Rule 52 standard for appeal. Absent a judgment that is sufficiently firm, this court declines to apply collateral estoppel to either the issue of Rambus's spoliation of evidence or dismissal of its claims on the basis of unclean hands.
B. The Court's Discretion
Even if the court were to find that the elements of collateral estoppel were met here, it would still, in its discretion, decline to apply preclusive effect to Judge Payne's ruling. As Rambus points out, the use of offensive collateral estoppel is less favored than the use of defensive collateral estoppel. See, e.g., Parklane Hosiery v. Shore, 439 U.S. 322, 330 (1979) ("Since a plaintiff will be able to rely on a previous judgment against a defendant but will not be bound by that judgment if the defendant wins, the plaintiff has every incentive to adopt a 'wait and see' attitude, in the hope that the first action by another plaintiff will result in a favorable judgment."). Offensive collateral estoppel "occurs when a plaintiff seeks to foreclose a defendant from relitigating an issue the defendant has previously litigated unsuccessfully in another action against the same or a different party." United States v. Mendoza, 464 U.S. 154, 159 (1984) (citing Parklane Hosiery, 439 U.S. at 326 n.4). Defensive collateral estoppel "occurs when a defendant seeks to prevent a plaintiff from relitigating an issue the plaintiff has previously litigated unsuccessfully in another action against the same or a different party." Id.*fn1 The Supreme Court cited two primary reasons for caution in the application of offensive collateral estoppel: (1) rewarding plaintiffs who could have joined in a previous action but did not hoping for a more favorable ruling and (2) unfairness to the defendant. Id.
The court does not believe that the first rationale cited by the Supreme Court applies in this case. Rather, it is concerned with fairness. Primarily, and as set forth above, the court has reservations about the fairness of applying Judge Payne's oral ruling without the benefit of his specific factual findings and legal conclusions.
Secondarily, there has been a prior finding that no relevant and material documents were destroyed. "Allowing offensive non-mutual collateral estoppel may be unfair to a defendant 'if the judgment relied upon as a basis for the estoppel is itself inconsistent with one or more previous judgments in favor of the defendant.'" Appling v. State Farm Mut. Auto. Ins. Co., 340 F.3d 769, 776 (9th Cir. 2003) (citing Parklane Hoisery, 439 U.S. at 330); see also Robi, 838 F.2d at 330 (holding that the district court abused its discretion by applying collateral estoppel to preclude appellant from relitigating an issue where the judgment that generated issue preclusion was inconsistent with a judgment appellant obtained against the appellee, on whose behalf issue preclusion was asserted). Although not a prior inconsistent judgment, the FTC's Chief Administrative Law Judge, after a three-month trial, found that there was no indication that any documents relevant and material to the issues before the FTC were destroyed. In re Rambus, Inc., 2004 WL 390647 at 244 (FTC Feb 23, 2004). Hynix points out that this conclusion is not inconsistent with Judge Payne's ruling because it is the destruction of documents in anticipation of litigation that constitutes unclean hands and not whether relevant and material documents were actually destroyed. Although Hynix's argument has some merit, consideration of the relevance and materiality of any documents likely destroyed may be at least relevant to fashioning an equitable remedy for any unclean hands. See Republic Molding Corp. v. B.W. Photo Utils., 319 F.2d. 347, 350 (9th Cir. 1963).
The court also believes the circumstances surrounding the discovery of the allegedly recently discovered back up tapes, and the contents of those tapes, may shed additional light on the unclean hands issue. This evidence was not before Judge Payne.
For the forgoing reasons, the court denies Hynix's motion to dismiss Rambus's patent claims for unclean hands on the basis of collateral estoppel.