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Sundance Image Technology, Inc. v. Testimony of Arthur

March 7, 2007

SUNDANCE IMAGE TECHNOLOGY, INC., A CALIFORNIA CORPORATION, ET AL., CONE EDITIONS PRESS, LTD., A VERMONT CORPORATION, ET AL., PLAINTIFFS,
v.
TESTIMONY OF ARTHUR DEFENDANTS.



The opinion of the court was delivered by: Hon. Jeffrey T. Miller United States District Judge

ORDER (1) DENYING MOTION (2)SUSTAINING OBJECTIONS TO DIAMOND, AND (3) GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION FOR PARTIAL SUMMARY JUDGMENT REGARDING LIBEL AND TRADE LIBEL FOR PRECLUSION SANCTIONS, [See Docket Nos. 439, 440, 445]

And Related Cross-claims

This case arises out of a soured business relationship between the parties who at some point in time agreed to sell ink products designed for fine digital photographic printing. Pending before the court is Defendants' Motion for Partial Summary Judgment ("MSJ") on Plaintiffs' libel and trade libel claims. Related to the MSJ are Defendants' motion for preclusion sanctions and motion to preclude Plaintiff's expert Arthur Diamond from testifying on causation with respect to the trade libel claim. On March 2, 2007, counsel for the parties appeared before the court to argue the motions. After considering the papers and the oral argument of counsel, the court hereby DENIES the motion for preclusion sanctions, SUSTAINS Defendants' objections to Arthur Diamond's testimony,*fn1 and GRANTS IN PART and DENIES IN PART the motion for partial summary judgment for the reasons set forth below.

I. BACKGROUND

After a long and tortured procedural history, the pertinent parties and claims in this case have been whittled down to the following. Plaintiffs R9 Corporation ("R9") and Sundance Image Technology, Inc. ("Sundance") are Nevada corporations doing business in San Diego County. R9 is the creator and copyright owner of software for wide format printers. Sundance manufactures printer inks. Defendants are Inkjetmall.com ("IJM"), a Vermont corporation doing business in San Diego County, and Jonathon Cone ("Cone"), an individual. Cone is the founder and owner of IJM until IJM was incorporated in 2001. This court has jurisdiction pursuant to 28 U.S.C. § 1332(a) in that no defendant is a citizen of the same state as any plaintiff and the amount in controversy exceeds $75,000.

In December 1999, defendant Cone entered into a software licensing agreement whereby plaintiff R9's software was to be sold by non-party Cone Editions Press ("CEP"), an entity owned by Cone, through defendant IJM. IJM is the agent of and online presence for CEP. In February 2000, Cone entered into an agreement with plaintiff Sundance whereby CEP agreed to sell Sundance's inks through IJM. The ink and software were "bundled" and designed to work together.

The agreements above were so-called private label agreements, which means that although Plaintiffs produced the products, the products were sold under Defendants' brand names.

In 2002, the business relationship deteriorated and the parties ended their agreements. Thereafter, this suit was filed. Plaintiffs now allege that for a period of time, defendant Cone posted libelous statements on the Internet about Plaintiffs' products, causing Plaintiffs' revenues to fall dramatically. Plaintiffs also allege that Defendants without permission altered Plaintiffs' products before resale. According to Plaintiffs, these alterations caused the products to experience performance problems, problems which Defendants then wrongfully blamed on Plaintiffs in published Internet postings.

The Modified Consolidated Third Amended Complaint ("TAC") alleges libel, trade libel, and unfair trade practices in violation of California Business & Professions Code section 17200 and § 43(a) of the Lanham Act. See Docket No. 404. Plaintiffs allege that the following six statements are libelous:

(1) that Plaintiffs had caused Defendants $200,000.00 in damage;

(2) that Sundance lacked responsibility, or was otherwise irresponsible in handling its business affairs, refused to respond and/or cure purported problems;

(3) under aliases, including without limitation a purported "PhD" credentials [sic], which CONE did not have, and knowing that "BWGUYS" was a website belonging to Plaintiffs, or either one of them, accused Plaintiffs of being illegitimate or otherwise false suppliers of their product, and was so understood by those who read the publication(s) because the website identified Sundance as the Operator of the website;

(4) accused Plaintiffs of a lack of integrity, unprofessional, dishonest practices and/or questionable business conduct or methods in the conduct of its business/trade; outwardly announcing a general disqualification in those respects which occupation requires;

(5) accused Plaintiffs of fraud, deception and unfair dealing with their customers, taking advantage of them, and banking at their expense, and abandoning them;

(6) unprofessional and questionable business conduct or methods, at a very least, if not totally unconscionable conduct and unfair dealing.

TAC ¶ 107. Statement (1) was allegedly made in an internal company email from defendant Cone to other employees. See Dyson Decl., Ex. 11 at 3 (copy of email). All other statements Cone allegedly made either in a report posted on the Internet or in various Internet chat rooms.

Because the court's decision on Defendants' motion for preclusion sanctions could dispose of Plaintiffs' trade libel claim, thereby mooting the MSJ with respect to that claim, the court will address that motion first.

II. MOTION FOR PRECLUSION SANCTIONS*fn2

Defendants argue that Plaintiffs have repeatedly failed to comply with discovery orders and therefore should be precluded from introducing any evidence on the issue of causation in connection with the trade libel claim.

A court may refuse to allow a party who has disobeyed discovery orders "to support or oppose designated claims or defenses, or [prohibit] that party from introducing designed matters in evidence[.]" Fed. R. Civ. P. 37(b)(2)(B). Whether the disobedient party's evidence should be precluded pursuant to Rule 37 depends on 1) the public's interest in expeditious resolution of litigation; 2) the court's need to manage its docket; 3) the risk of prejudice to the defendants; 4) the public policy favoring disposition of cases on their merits; 5) the availability of less drastic sanctions. Wendt v. Host Intern., Inc., 125 F.3d 806, 814 (9th Cir. 1997); Malone v. United States Postal Serv., 833 F.2d 128, 130 (9th Cir. 1987) (same).

During discovery, Defendants asked each plaintiff to identify persons who did not purchase plaintiff's product because of a derogatory statement by a defendant. Plaintiffs responded by referencing 1690 pages of documents previously produced by IJM listing all IJM customers during 2000-2005 and hundreds of internet postings. See Mot at 2; Sklar Decl., Ex. E at 45, 51. On Defendants' motion to compel, Magistrate Judge Anthony J. Battaglia ordered Plaintiffs to supplement the response. Oct. 16, 2006 Order at 7. Judge Battaglia also imposed sanctions in the form of attorney's fees because "Plaintiffs have blatantly disregarded the Court's direction in answering Document Requests and Interrogatories in this current discovery request." Id. at 13.

Thereafter, Plaintiffs supplemented their response by identifying all persons who were IJM customers who, at some point in time, did not purchase inks from Sundance. See Sklar Decl., Ex. E at 55, 60. Defendants argue this supplemental response is also non-responsive. Mot. at 3. Defendants further argue that Plaintiffs have identified in their supplemental response persons who have already been deposed and who have already testified that they had never heard of Sundance and have never read anything derogatory about Sundance. Id.; Sklar Decl., Ex. F.

Plaintiffs argue that they adequately supplemented their response by specifically identifying the relevant names and even summarizing them in an Appendix C ("AC"). See Oppo. at 3; Dyson Decl., Ex. 106. Plaintiffs contend that the AC identifies documents previously produced which are relevant to R9 and those which are relevant to Sundance, see Dyson Decl., Ex. 106 at 16, 21, but it is not clear whether the AC is responsive to the interrogatory.

It is apparent that the purpose behind Defendants' motion is to avoid any unfair surprise that may result if a heretofore undisclosed witness were to be called by Plaintiffs during trial. Although it is a stretch to say that Plaintiffs' supplemental response complied with the letter and spirit of Judge Battaglia's order of October 16, 2006, precluding Plaintiffs from presenting any evidence on causation is too drastic a sanction under the circumstances. This is especially so since both parties have had the opportunity to depose some of the relevant witnesses on causation.

Therefore, as proposed by the court during oral argument and assented to by counsel thereto, the following compromise solution is appropriate. The court DENIES the motion for preclusion sanctions and ORDERS that any witness who Plaintiffs propose as a putative purchaser who avoided Plaintiffs' products, who has not already ...


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