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J2 Global Communications, Inc. v. Protus IP Solutions

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA


March 31, 2009

J2 GLOBAL COMMUNICATIONS, INC., PLAINTIFF,
v.
PROTUS IP SOLUTIONS; JOSEPH NOUR; SIMON NEHME; AND THOMAS J. MARTIN, DEFENDANTS.

The opinion of the court was delivered by: Dean D. Pregerson United States District Judge

ORDER DENYING MOTION TO BIFURCATE

[Motion filed on March 6, 2009]

Plaintiff and Counterclaim Defendant j2 Global Communications, Inc. ("j2") and Defendant and Counterclaim Plaintiff Protus IP Solutions ("Protus") are competitors who both provide electronic faxing services. j2's Complaint alleges that Protus violated the Telephone Consumer Protection Act ("TCPA"), 47 U.S.C. § 227 & 47 C.F.R. § 68.318, committed trespass to chattels, and engaged in unfair business practices in violation of California Business & Professions Code § 17200. In its Counterclaim, Protus alleges that j2 violated the TCPA, committed trespass to chattels, and engaged in unfair business practices. Protus also alleges that j2 violated the Lanham Act, 15 U.S.C. § 1125(a), committed trade libel and defamation, and tortiously interfered with Protus's prospective economic advantage. Before the Court is j2's Motion to Bifurcate Defamation Counterclaims for Trial and Stay All Related Discovery. Protus opposes this motion. After reviewing the materials submitted by the parties and hearing oral argument, the Court denies the Motion to Bifurcate and Stay.

I. BACKGROUND

j2 and Protus are competitors in two aspects of electronic faxing. Both parties offer a service in which they provide a fax number to customers. When a fax is sent to that number, the company converts the fax to an imaged document that is forwarded to the customer as an email attachment. Counterclaim, ¶¶ 4, 8-9; Answer to Counterclaim, ¶¶ 8-9. Additionally, both parties offer a service to customers sending "broadcast" or "blast" faxes to multiple fax numbers. Under certain circumstances, a company's or individual's participation in unsolicited faxing may violate federal law, the TCPA. j2 filed this case on January 20, 2006. j2 alleges that Protus has been knowingly and integrally involved in sending a high volume of junk faxes to j2's customers and over j2's fax lines without either the customers' or j2's consent. Compl. ¶¶ 11, 13, 15. j2 seeks relief on the basis of four causes of action: (1) violation of the TCPA, 47 U.S.C. § 227; (2) violation of the TCPA, 47 C.F.R. § 68.318(d); (3) trespass to chattels; and (4) unfair business practice, California Business & Professions Code § 17200 et seq.

With leave from the Court,*fn1 Protus filed a Counterclaim on September 12, 2007. The first four causes of action contained in Protus's Counterclaim are similar to j2's claims against Protus.

In particular, Protus alleges that j2 was involved its clients' mass, unsolicited faxing to Protus customers. Countercl., ¶¶ 8-21. Protus alleges that j2 (1) violated the TCPA, 47 U.S.C. § 227; (2) violated the TCPA, 47 C.F.R. § 68.318(d); (3) committed trespass to chattels; and (4) engaged in unfair business practices, Cal. Bus. & Prof. Code § 17200.*fn2

Protus's Counterclaim also alleges four additional causes of action. The fifth through eighth counterclaims center on Protus's allegation that j2 has made false and misleading statements regarding Protus, Protus's products or services, and j2's products and services, and that those statements have harmed Protus. Countercl., ¶ 24. According to the Counterclaim, the allegedly defamatory and/or misleading statements generally fall into the following categories: (1) that j2 is a leader in the fight against unsolicited advertising, including junk faxing, and has instituted litigation against junk faxers, (2) that Protus is one of the largest senders of junk faxes in the United States, and (3) that while Protus would send junk faxes to its customers, j2 would not. Protus alleges that these statements occurred through press releases and statements by Protus representatives in online support. Id., ¶¶ 25, 49. In the Fifth Claim for Relief, Protus alleges that j2 engaged in false advertising as proscribed by the Lanham Act, 15 U.S.C. § 1125(a). In the Sixth and Seventh Claims for Relief, Protus alleges that j2's statements constituted trade libel and defamation, respectively. In the Eighth Claim for Relief, Protus alleges that j2 tortiously interfered with Protus's prospective economic advantage through its statements. j2 filed its Answer to the Counterclaim on October 9, 2007. See Docket Entry No. 174. In connection with both the Complaint and the Counterclaim, the parties have heavily litigated discovery issues in front of Magistrate Judge Wistrich. j2 filed this Motion on March 6, 2009. Through it, j2 seeks to bifurcate the Fifth through Eighth Claims for Relief in Protus's Counterclaim from a trial on the junk fax claims. j2 argues that bifurcation would be beneficial because (1) a trial on the junk fax claims may resolve Protus's statement-related causes of action; (2) bifurcation would simplify the issues in an already complex case; and (3) bifurcation may save the parties money on discovery. Protus opposes the motion. Protus argues that efficiency benefits would be limited to nonexistent, that it will be prejudiced, and that j2 is engaged in improper tactics.*fn3

II. DISCUSSION

j2 moves to bifurcate Protus's fifth through eighth claims for relief, the claims centered on j2's statements about Protus's and its own tactics and products. While the Court does not consider j2's motion to be meritless, the Court is not convinced that bifurcation of these issues would serve the expeditious administration of justice.

A. Legal Standard

Pursuant to Federal Rule of Civil Procedure 42(b), a district court has the power to bifurcate a single lawsuit and order a separate trial of particular issues or claims. Specifically, Rule 42(b) provides that "[f]or convenience, to avoid prejudice, or to expedite and economize, the court may order a separate trial of one or more separate issues, claims, crossclaims, counterclaims, or third-party claims." Fed. R. Civ. P. 42(b).

A district court has "broad discretion" -- limited principally by constitutional issues the parties do not raise here -- in deciding whether or not to bifurcate a case. Zivkovic v. S. Cal. Edison Co., 302 F.3d 1080, 1088 (9th Cir. 2002). Relevant considerations as a court exercises that discretion include convenience, potential prejudice that would result from trying the cases together or apart, judicial economy, the potential to reduce the risk of jury confusion, and the existence of separable issues. William A. Schwarzer et al., Federal Civil Procedure Before Trial § 16:160.4 (2008) (listing considerations); Bates v. United Parcel Service, 204 F.R.D. 440, 448 (N.D. Cal. 2001)(citing Schwarzer et al. and listing considerations); De Anda v. City of Long Beach, 7 F.3d 1418, 1421 (9th Cir. 1993) (holding that district court abused its discretion in bifurcating trial such that plaintiff was prevented from putting on case). Because bifurcation rests in principles of judicial economy, additional considerations include (1) whether evidence offered in the proposed phases will overlap, see Hangarter v. Provident Life & Acc. Ins. Co., 373 F.3d 998, 1021 (9th Cir. 2004), and (2) whether bifurcation will "permit deferral of costly and possibly unnecessary proceedings pending resolution of potentially dispositive preliminary issues," Jinro America, Inc. v. Secure Investments, Inc., 266 F.3d 993, 998 (9th Cir. 2001). The usual course is that all claims in a case -- even if founded on different causes of action -- are tried together, as such an approach is generally considered the most efficient for the court and the parties. 9A Charles Alan Wright & Arthur R. Miller, Fed. Prac. & Proc. Civ. 3d § 2388. The party requesting bifurcation has the burden to show that "bifurcation will promote judicial economy and avoid inconvenience or prejudice to the parties." Spectra-Physics Lasers, Inc. v. Uniphase Corp., 144 F.R.D. 99, 101 (N.D. Cal. 1992). Overall, "[i]t is the interest of efficient judicial administration that is to be controlling." 9A Wright & Miller at § 2388.

B. Bifurcation of the Fifth through Eighth Counterclaim Claims for Relief

As mentioned above, j2 seeks bifurcation into two phases: a trial on the junk fax claims, and a trial on the fifth through eighth counterclaims. A trial on the junk fax claims will determine whether Protus and j2 are "junk faxers." The resolution of the TCPA-related claims will require a jury to decide whether j2 or Protus was integrally involved in the sending of junk faxes by considering relevant fax technology and business practices of the companies, and how many junk faxes were sent. The fifth through eighth counterclaims, on the other hand, generally will require proof that the allegedly defamatory or misleading statements about Protus and j2 were in fact false or misleading, public/commercial, and privileged, and that those statements caused harm to Protus.

The Court is not persuaded that bifurcation is appropriate in this case. Starting from the general rule that usually the most expeditious way to resolve a case is to try all issues in one trial, the Court finds that the circumstances do not warrant departure from that default rule.

1. Efficiency Concerns

Viewed holistically, the junk fax claims and the fifth through eighth counterclaims involve related, though not in all ways overlapping, facts. Whether j2 and/or Protus are junk faxers, issues that are central to the junk fax claims, are also central to the fifth through eighth counterclaims. As a result, at least some evidence will be relevant to both sets of claims. j2's claims and Protus's counterclaims all concern, as a general matter, the tactics and involvement of the parties in sending out spam faxes. The elements of junk fax claims and the fifth through eighth counterclaims perhaps contain only one directly overlapping issue -- whether j2 and Protus are junk faxers; however, some attendant issues, such as the activities of the two companies and how they run their businesses, will be relevant for a jury to understand as it considers both sets of claims. Thus, there is some likelihood that, if the court were to bifurcate the claims, the parties would need to present evidence in the second trial that had also been presented in the first trial.*fn4 Even if some facts were established conclusively in the first trial, a second jury would be required to learn the same (or substantially related) information as that considered by the first jury. Having one trier of fact likely will avoid duplicative time and effort, and will serve the jury's understanding by giving the jury fuller context.

The Court is not convinced that an initial trial on the junk fax claims will greatly serve the efficient administration of justice in other ways. The heart of j2's bifurcation motion is its argument that a trial on only the junk fax claims may render moot a trial Protus's false advertising, defamation, trade libel, and intentional interference claims. See Webb v. Hyman, 861 F. Supp. 1094, 1119 (D.D.C. 1994) (quoting 9A Wright & Miller at § 2388). According to j2, whether Protus violated the TCPA may be dispositive to the fifth through eighth counterclaims because, j2 argues, each of those counterclaims includes a requirement that j2's statements about Protus be false. See Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1139 (9th Cir. 1997) (listing the elements of a Lanham Act false advertising claim as including "(1) a false statement of fact by the defendant in a commercial advertisement about its own or another's product"); Hejmadi v. AMFAC, Inc., 202 Cal. App. 3d 525 (1998) (truth is an absolute defense to defamation claims). Bifurcation is common in cases where the resolution of one issue may completely resolve a later issue, particularly where the case is otherwise complex. If j2 established in a first phase of trial that Protus was a sender of junk faxes, it is likely that such a determination would eliminate at least part of Protus's fifth through eighth counterclaims, and it may encourage the settlement of the entirety of those claims. It appears to the Court, however, that such a finding would not completely resolve them: the allegedly defamatory statements do not only state that Protus was a sender of junk faxes, see, e.g., Countercl., ¶¶ 29 & 31, and the Lanham Act claims allege false statements about j2's products and services in addition to Protus's, see, e.g., Countercl., ¶ 38.*fn5 Additionally, even if the Court were persuaded that a finding that Protus was a junk faxer would establish a complete defense to the fifth through eighth counterclaims, that potential benefit must be considered in light of the potentially extended litigation and expenditure of resources that would result should j2 not make its showing. j2 emphasizes that the fifth through eighth claims will require additional evidence and may present complicated choice of law issues. The Court is not persuaded that these potential complications outweigh the benefits of resolving this case all at once. The Court is regularly asked to decide substantive motions in an attempt to narrow and clarify the issues in a case. Additionally, different statutes routinely require proof on different elements, and yet the general rule is that a single trial is the preferred way to resolve a case. j2 notes that on the basis of Protus's disclosures and j2's discovery responses, j2 has identified over one hundred potential witnesses, many of whom reside in India. The Court finds it doubtful that the parties will find each of these individuals necessary or useful to the case, and notes that the parties can work together to narrow the issues and limit expenses. More importantly, the fact that additional evidence will be required is not particularly persuasive where the Court is not convinced that the resolution of the first set of claims will preclude the necessity of the second trial: a stay in discovery may merely delay the expenditure of resources until the future, when the events at issue in the case will be temporally remote.

2. Risk of Confusion

j2 also argues that bifurcation will reduce the risk of jury confusion. While bifurcation may inherently decrease the risks of jury confusion by limiting the number of issues for the jury to decide, the Court does not consider the risk of jury confusion to be significantly enhanced by the presence of defamation-related issues. Indeed, j2's argument rests less on the complexity of defamation and more on the complexity of the junk fax claims. Essentially, j2 argues that the issues before the jury will already be complex; accordingly, j2 argues, ensuring that fewer issues are before the jury will help avoid confusion. The additional issues raised by the defamation and false advertising arguments -- the publication of statements and how they were used -- do not present issues that are particularly likely to confuse. Although damages determinations likely will have some complexity, the substantive factual issues raised by the fifth through eighth counterclaims will not present a wholly separate set of questions: rather, issues having to do with the nature of the companies and their businesses will be presented in both trials.*fn6 Jurors are often tasked with the job of making difficult determinations, and numerous tools exist to assist them in performing those duties, including the organized presentation of skillful advocates. Cf. Boston Scientific Corp. v. Johnson & Johnson, 2006 WL 3455009, *4 (N.D. Cal. November 29, 2006) (Illston, J.).

3. Prejudice

Moreover, j2's only argument that it will be prejudiced by a single trial is unsupported. j2 suggests that the trial of Protus's counterclaims may result in "delay" of j2's affirmative claims. See Pl.'s Mem. at 17:21-18:3. The basis for this suggestion is unclear to the Court: j2 emphasizes that it will be ready to proceed to trial on all issues in March 2010, see Pl.'s Reply at 13:12-14:6, and j2 did not oppose Protus's motion for leave to file its Counterclaim. j2 has identified no prejudice that will result from trying the cases in the same trial. That is, it has not argued that introducing evidence as to the false advertising, defamation, trade libel, and intentional interference claims at the same time the jury is considering the junk fax claims would be unduly prejudicial to it, particularly when a jury is guided by appropriate instructions. Rather, j2 argues that bifurcating the issues will not be prejudicial to Protus. This consideration does not counsel in favor of bifurcation, in light of the other circumstances.

III. CONCLUSION

The Court recognizes that bifurcation might have potential benefits: it would allow a smaller number of issues to be presented to the jury and a ruling in j2's favor on its junk fax claims would likely either encourage resolution of Protus's fifth through eighth counterclaims, or resolve some of them. The Court does not hold that bifurcation if these claims would unduly prejudice Protus; indeed, these claims need not have been asserted in this action. After considering the relevant circumstances and issues, however, the Court declines to bifurcate. With efficiency as the central consideration, it makes better sense to try these claims together. Both of the proposed phases of trial will involve related issues, though not completely overlapping evidence.

Additionally, while trial on the junk faxing claims may go a significant way toward encouraging settlement on the fifth through eighth counterclaims should j2 succeed on its claims that Protus is a junk faxer, the Court is not convinced that it would fully moot Protus's claims, a conclusion which mitigates the strength of j2's efficiency arguments. Many of the potential benefits are inherent in every potential bifurcation; bifurcation, however, is not usual course. The Court therefore denies the motion to bifurcate, and denies the Motion to Stay related discovery as moot.

IT IS SO ORDERED.


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