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Big Baboon Corp. v. Dell

October 8, 2010

BIG BABOON CORPORATION, A DELAWARE CORPORATION, PLAINTIFF,
v.
DELL, INC., A DELAWARE CORPORATION, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Suzanne H. Segal United States Magistrate Judge

MEMORANDUM DECISION AND ORDER GRANTING PLAINTIFF'S MOTION TO QUASH [DOCKET NOS. 268, 336]

On August 9, 2010, Plaintiff Big Baboon Corporation ("Plaintiff") and Defendants Dell and UPS ("Defendants") filed a "Stipulation Regarding Dell and UPS Defendants' Subpoenas to UTI and Honda" (the "Stipulation"). In the Stipulation, the parties collectively requested that the Court renew Plaintiff's prior Motion to Quash a similar subpoena. (Stipulation at 1). The current subpoena seeks to compel Plaintiff to produce a copy of its settlement agreement with former defendant American Honda Motor Co., Inc. ("Honda"). On September 7, 2010, this Court issued an order requiring Plaintiff to file a copy of its settlement agreement with Honda under seal for in camera inspection. On September 15, 2010, Plaintiff filed a sealed copy of the Honda settlement agreement pursuant to the Court's order. For the reasons stated below, Plaintiff's Motion to Quash the subpoena requesting the Honda settlement agreement is GRANTED.

I. Summary Of The Discovery Dispute

On June 22, 2010, Plaintiff filed a Motion to Quash a June 14, 2010 subpoena, issued by Honda, requesting production of Plaintiff's settlement agreement with defendant UTi. ("Quash. Stip.", Docket No. 268). Honda settled its dispute with Plaintiff before the Court ruled on the motion, however, and on July 30, 2010, this Court dismissed Plaintiff's Motion to Quash as moot. In the instant Stipulation, the parties adopted the substantive arguments set forth in the briefing filed in connection with Plaintiff's prior Motion to Quash. (Stipulation at 1). Honda's arguments in the Joint Stipulation relating to the production of the UTi settlement agreement are therefore imputed to Defendants in their request for production of the Honda settlement agreement. Similarly, Plaintiff's arguments against the production of the UTi settlement agreement will be read as though they referred to the Honda settlement agreement.

Plaintiff argues that its settlement agreement with Honda in this matter should not be discoverable because (1) the settlement agreement is privileged and confidential, and, in accordance with the "strong public interest in the efficient settlement of disputes," should be protected from disclosure by the "settlement negotiation privilege"; and (2) the agreement is not relevant or reasonably calculated to lead to the discovery of admissible evidence. (Quash Stip. at 1-2). Defendants argue that (1) there is no federally recognized settlement negotiation privilege; (2) even if the agreement is not admissible at trial, it is discoverable; and (3) the agreement is relevant to the determination of a reasonable royalty for the patents-in-suit in this case. (Id. at 3-4).

II. Settlement Agreements Are Not Privileged Under Ninth Circuit Law

A. Ninth Circuit Law Controls This Discovery Dispute

Because this discovery dispute is not one that occurs in the unique context of patent litigation and because settlement discussions are themselves not a substantive patent law issue, the law of the Ninth Circuit pertaining to discovery applies. See, e.g., Dorf & Stanton Communs., Inc. V. Molson Breweries, 100 F.3d 919, 922 (Fed. Cir. 1996) ("Because an order compelling discovery is not unique to patent law, we agree that [local circuit] law must be considered . . .").

B. Federal Law Favors A Broad Scope Of Discovery Limited By Relevance Concerns

Pursuant to the Federal Rules of Civil Procedure, "[p]arties may obtain discovery regarding any non-privileged matter that is relevant to any party's claim or defense" and this "[r]elevant information need not be admissible at trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence." Fed. R. Civ. P, 26(b)(1). Ninth Circuit law generally favors a broad scope of discovery. "[W]ide access to relevant facts serves the integrity and fairness of the judicial process by promoting the search for truth." Epstein v. MCA, Inc., 54 F.3d 1422, 1423 (9th Cir. 1995).

The broad scope of permissible discovery is limited by any relevant privileges that may apply, but any proposed privilege must promote a public interest that is "sufficiently important . . . to outweigh the need for probative evidence." Trammel v. United States, 445 U.S. 40, 51, 100 S.Ct. 906, 63 L.Ed. 2d 186 (1980). The recognition of privileges should be judged on a case-by-case basis and weighed against the public interest. Jaffee v. Redmond, 518 U.S. 1, 8, 116 S.Ct. 1923, 135 L.Ed. 2d 337 (1996).

C. The Ninth Circuit Does Not Recognize A Broad Settlement Privilege

Federal Rule of Evidence 408(a) prohibits the admission of compromises or offers to compromise as evidence "when offered to prove liability for, invalidity of, or amount of a claim that was disputed as to validity or amount, or to impeach through a prior inconsistent statement or contradiction." Fed. R. Evid. 408(a). According to the Ninth Circuit, "[t]wo principles underlie Rule 408: (1) '[t]he evidence [of compromise] is irrelevant, since the offer may be motivated by desire for peace rather than from any concession of weakness of position;' (2) '[a] more consistently impressive ground is promotion of the public policy favoring the compromise and settlement of disputes.'" Hudspeth v. C.I.R., 914 F.2d 1207, 1213-14 (9th Cir. 1990) (citing Fed. R. Evid. 408 advisory committee's note). However, by its terms, Rule 408 limits the admissibility of settlement agreements, not their discovery. See Fed. R. Evid. 408. Furthermore, Rule 408(b) specifically states that it "does not require exclusion if the evidence is offered for purposes not prohibited by subdivision (a)." Id. Defendants' stated purpose of discovery is "the determination of a reasonable royalty rate for the patents-in-suit," which does not fall under the prohibited uses listed in Rule 408(a). (Quash Stip. at 4).

Plaintiff argues that Rule 408 is evidence of a strong public policy of encouraging efficient settlements and that Federal Rule of Evidence 501, which provides the general guidelines by which courts may recognize the existence of privileges limiting the discoverability of evidence, has been used to recognize a settlement negotiation privilege. (Quash Stip. at 6). Plaintiff's claim of privilege relies heavily on Goodyear Tire & Rubber Co. v. Chiles Power Supply, Inc., 332 F.3d 976, (6th Cir. 2003), ...


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