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Mga Entertainment, Inc., A California Corporation; the Little Tikes v. National Products Ltd.

September 14, 2012

MGA ENTERTAINMENT, INC., A CALIFORNIA CORPORATION; THE LITTLE TIKES COMPANY, INC., AN OHIO CORPORATION, PLAINTIFFS,
v.
NATIONAL PRODUCTS LTD., A HONG KONG CORPORATION; PLAYMIND LTD., A HONG KONG CORPORATION; THE PLAYMIND GROUP, A HONG KONG CORPORATION; AND DOES 1 THROUGH 10, INCLUSIVE, DEFENDANTS.



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

MEMORANDUM AND ORDER DENYING DEFENDANTS' MOTION FOR LEAVE TO FILE MOTION FOR SANCTIONS IN CONNECTION WITH PLAINTIFFS' ACTIONS REGARDING THE JANUARY 31, 2012 NEWELL RUBBERMAID PERSON(S) MOST KNOWLEDGEABLE DEPOSITION (Dkt. No. 462)

On August 2, 2012, Defendants filed a "Motion for Leave to File Motion for Sanctions in Connection with Plaintiffs' Actions Regarding the January 31, 2012 Newell Rubbermaid Person(s) Most Knowledgeable Deposition." (Dkt. No. 462). On August 15, 2012, the District Judge referred the Motion to the Magistrate Judge for determination. (Dkt. No. 495). The Court held a telephonic hearing on the Motion on September 11, 2012. For the reasons stated below, the Motion is DENIED.

I. FACTUAL BACKGROUND AND THE PARTIES' CONTENTIONS

Defendants' request for leave to file a motion for sanctions, as presented in the Motion, arises out of the attempted deposition of Newell Rubbermaid, a corporation. Plaintiff MGA acquired The Little Tikes Company, whose trademark is at issue in this suit, from Newell Rubbermaid in November 2006. (Motion at 2). On January 20, 2012, Defendants noticed the deposition of Newell Rubbermaid's person most knowledgeable for January 31, 2012 in Atlanta, Georgia. (Id. at ii, 3; id. Exh. B at 1). On January 30, 2012, the District Judge ordered the Newell Rubbermaid deposition to proceed as noticed. (Id. Exh. A at 2 (Dkt. No. 280)). On the evening of January 30, 2012, after Defendants' counsel had already flown to Atlanta, Plaintiffs informed Defendants via email that they intended to seek a protective order to prevent Newell Rubbermaid from producing the stock purchase agreement between MGA and Newell Rubbermaid on the ground that the document contained confidential business information. (Id. at 5). However, no such protective order was obtained.

At the deposition, Plaintiffs' counsel, appearing via videoconference, objected to questions relating to provisions in the agreement covered by the confidentiality clause. (Id. at 6; id. Exh. E at 10 (excerpts of Mark W. Johnson deposition)). According to Defendants, "[b]ased on that objection, Newell Rubbermaid refused to produce the document, or to give any testimony on the transfer of Little Tikes from Newell Rubbermaid to MGA." (Id. at 6; see also id. Exh. E at 11). Plaintiffs' challenge this assertion, claiming that the deposition was cancelled because the witness was an inadequate 30(b)(6) witness.

After an hour of questions, Defendants cancelled the deposition. Plaintiffs eventually withdrew their objection to production of the agreement and provided a copy of the stock purchase agreement to Defendants on February 7, 2012. (Id. at 5). On June 1, 2012, Defendants resumed the deposition in Atlanta, this time with a different witness as Newell Rubbermaid's person most knowledgeable. (Id. at ii; id., Exh. O (excerpts of Andrew Rudd deposition)).

Defendants seek $7,575.38 in sanctions against Plaintiffs and their attorneys for "wrongfully obstructing" the January 31, 2012 Newell Rubbermaid deposition. (Id. at ii). Defendants contend that Plaintiffs "knew or should have known" that the confidentiality provision of the stock purchase agreement had lapsed no later than November 2011, well before the January 31, 2012 deposition, and therefore Plaintiffs' objections were frivolous. (Id. at 8, 13). Defendants further contend that even if the agreement did contain confidential information, Plaintiffs waived their right to object to its discoverability by failing to notify Defendants of their intent to move for a protective order until the evening of January 30, 2012, after Defendants' counsel had flown to Atlanta for the January 31 deposition. (Id. at 17).

At the hearing, Plaintiffs conceded that their objection at the deposition based on the confidentiality of the Newell Rubbermaid stock purchase agreement was in error. However, Plaintiffs explained that Defendants' counsel cancelled the January 31 deposition not because Newell Rubbermaid refused to produce a copy of the stock purchase agreement or testify about its contents, but because Defendants' counsel determined that the witness, Mark Johnson, was not prepared to address some or all of the 30(b)(6) topics. In support of their argument, Plaintiffs read to the Court extended portions of the Johnson deposition transcript that were not included in the excerpts attached to Defendants' Motion. These passages revealed that Defendants repeatedly expressed concern in the latter part of the deposition that Mr. Johnson was unable to respond knowledgeably about certain topics. Plaintiffs further argued that to the extent that Mr. Johnson was unprepared, Defendants are largely responsible because they did not respond to Newell Rubbermaid's efforts to confer before the deposition about the topics Defendants intended to pursue and which witness Newell Rubbermaid should prepare.

II. DISCUSSION

A. The Court Has Authority To Impose Sanctions For Discovery Abuses Under Its Inherent Power To Oversee Discovery And Under Rule 37, But A Motion For Sanctions Must Be Timely

Two sources of authority permit a district court to sanction a party for discovery-related abuses: (1) the inherent power of federal courts to levy sanctions in response to "abusive litigation practices," Fielstad v. Am. Honda Motor Co., 762 F.2d 1334, 1337--38 (9th Cir. 1985), and (2) Rule 37's authorization to sanction a party who "fails to obey an order to provide or permit discovery." Fed. R. Civ. P. 37(b)(2)(C).

"[D]istrict courts enjoy very broad discretion to use sanctions where necessary to insure . . . that lawyers and parties . . . fulfill their high duty to insure the expeditious and sound management of the preparation of cases for trial." Lee v. Max Int'l, LLC, 638 F.3d 1318, 1320 (10th Cir. 2011) (internal citation and quotation marks omitted). Under its "inherent powers," in contrast to more specific statutory sanction provisions, a district court may sanction a "broad range of improper litigation tactics," Knupfer v. Lindblade (In re Dyer), 322 F.3d 1178, 1196 (9th Cir. 2003), when a party or counsel acts "in bad faith, vexatiously, wantonly, or for oppressive reasons." Primus Auto. Fin. Servs., Inc. v. Batarse, 115 F.3d 644, 648 (9th Cir. 1997). "[A]n inherent powers sanction is meant to do something very different than provide a substantive remedy to an aggrieved party. An inherent powers sanction is meant to 'vindicate judicial authority.'" Mark Indus. v. Sea Captain's Choice, 50 F.3d 730, 733 (9th Cir. 1995) (quoting Chambers v. NASCO, Inc., 501 U.S. 32, 55, 111 S. Ct. 2123, 115 L. Ed. 2d 27 (1991)).

"[S]anctions imposed under the district court's inherent authority require a bad faith finding." Lahiri v. Universal Music & Video Distrib. Corp., 606 F.3d 1216, 1219 (9th Cir. 2010). A party "demonstrates bad faith by delaying or disrupting the litigation or hampering enforcement of a court order." Primus Auto. Fin. Servs., 115 F.3d at 649 (internal quotation marks omitted). "[A] finding of bad faith 'does not require that the legal and factual basis for the action prove totally frivolous; where a litigant is substantially motivated by vindictiveness, obduracy, or mala fides, the assertion of a colorable claim will not bar the assessment of attorney's fees.'" In re Itel Sec. Litig., 791 F.2d 672, 675 (9th Cir. 1986) (quoting Lipsig v. Nat'l Student Mktg. Corp., 663 F.2d 178, 182 (D.C. Cir. 1980) (per curiam)); see also Fink v. Gomez, 239 F.3d 989, 992 (9th Cir. 2001) ("[S]anctions are justified when a party acts for an improper purpose -- even if the act consists of making a truthful statement or a non-frivolous argument or objection."). The bad faith requirement ensures that the district court's exercise of its broad power is properly restrained, and "preserves a balance between protecting the court's integrity and encouraging meritorious arguments." Primus Auto. Fin. Servs., 115 F.3d at 649.

In addition to the Court's inherent powers to impose sanctions, "[a] district court has wide discretion to impose sanctions, including severe sanctions, under Federal Rule of Civil Procedure 37, and its ruling will be reversed only if it constitutes an abuse of discretion." Design Strategy, Inc. v. Davis, 469 F.3d 284, 294 (2nd Cir. 2006). Unlike sanctions imposed under a court's inherent powers, Rule 37 sanctions generally do not require a showing of bad faith or willfulness unless the sanction is case-dispositive. See Hyde & Drath v. Baker, 24 F.3d 1162, 1171 (9th Cir. 1994) ("We have not required a finding of bad faith on the part of the attorney before imposing sanctions under Rule 37. . . . While a finding of bad faith is not a requirement for imposing sanctions, good or bad faith may be a consideration in determining whether imposition of sanctions would ...


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