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M Seven Systems Limited v. Leap Wireless International, Inc.

United States District Court, S.D. California

August 11, 2014

M SEVEN SYSTEMS LIMITED, Plaintiff,
v.
LEAP WIRELESS INTERNATIONAL, INC. et al, Defendants.

ORDER DENYING MOTION [FOR ORDER TO SHOW CAUSE HEARING] TO HOLD DEFENDANTS CHRIS YOUNG CHOI, YONGSIK "STANLEY" PARK, AND ACTSCOM USA, INC. IN CONTEMPT FOR FAILURE TO COMPLY WITH JUDGE MAJOR'S MARCH 17, 2014 ORDER [ECF NO. 110]; ORDER GRANTING JOINT MOTION TO SEAL EXHIBITS 5-9 TO VAN LOON DECLARATION IN SUPPORT OF MOTION TO HOLD DEFENDANTS CHRIS YOUNG CHOI, YONGSIK "STANLEY" PARK, AND ACTSCOM USA, INC. IN CONTEMPT FOR FAILURE TO COMPLY WITH JUDGE MAJOR'S MARCH 17, 2014 ORDER [ECF NO. 111]

RUBEN B. BROOKS, Magistrate Judge.

On May 11, 2014, Plaintiff M Seven System Limited ("M Seven") filed a "Motion to Hold Defendants Chris Young Choi, Yongsik Stanley' Park, and Actscom USA, Inc. in Contempt for Failure to Comply with Judge Major's March 17, 2014 Order [ECF No. 110]" (the "Motion for Contempt") along with a Memorandum of Points and Authorities, declarations from Erica Van Loon and Robert Stillerman, and several exhibits.[1] Plaintiff M Seven asks that the Court find Defendants Chris Young Choi, Stanley Park, and Actscom USA, Inc. (collectively, the "Choi Defendants") in civil contempt for their failure to comply with United States Magistrate Judge Barbara L. Major's "Order Granting in Part Plaintiff's Motion to Compel Production of Documents from Defendants Actscom USA, Inc., Chris Young Choi, and Stanley Park [ECF No. 71]." (Mot. Contempt Attach. #1 Mem. P. & A. 4, ECF No. 110.)[2] On the same day, M Seven and Defendant Cricket Communications, Inc. ("Cricket") filed a joint motion to file documents under seal [ECF No. 111], along with several proposed sealed exhibits [ECF Nos. 112-116]. The Choi Defendants, on May 28, 2014, filed an "Opposition to M7's Motion to Hold Defendants in Contempt for Failure to Comply with Judge Major's March 17, 2014 Order [ECF No. 125]" (the "Opposition"), with declarations from Choi and Park, and several exhibits. Defendant Cricket filed an "Opposition to M7's Motion for Contempt and Sanctions [ECF No. 127]" on the same day, with declarations and exhibits. On June 4, 2014, Plaintiff filed a "Reply in Support of Plaintiff M Seven System Limited's Motion to Hold Defendants Chris Young Choi, Yongsik Stanley' Park, and Actscom USA, Inc. in Contempt for Failure to Comply with Judge Major's March 17, 2014 Order [ECF No. 131]" (the "Reply") and a "Reply to Defendant Cricket Communications, Inc.'s Opposition to Motion for Contempt and Sanctions [ECF No. 135]."

The Court requested supplemental briefing from M Seven and Choi [ECF No. 140]. Plaintiff filed its supplemental brief on June 12, 2014 [ECF No. 141], and Defendant filed his supplemental brief on June 19, 2014 [ECF No. 150]. The Motion for Contempt is suitable for resolution on the papers. See S.D. Cal. Civ. R. 7.1(d)(1). For the reasons explained below, the Motion for Contempt [ECF No. 110] is DENIED, and an order to show cause will not be issued.

I. FACTUAL AND PROCEDURAL BACKGROUND

The following factual and procedural background is taken from Judge Major's "Order Granting in Part Plaintiff's Motion to Compel Production of Documents From Defendants Actscom USA, Inc., Chris Young Choi, and Stanley Park":

Plaintiff filed a complaint in the instant matter on June 12, 2012. ECF No. 1. In the complaint, Plaintiff alleges misappropriation of trade secrets, copyright infringement, violation of the Digital Millennium Copyright Act, violation of California Penal Code § 502, unfair competition, civil conspiracy to misappropriate trade secrets, and civil conspiracy to unfairly compete. Id. at 1. Specifically, Plaintiff, a R&D company providing wireless solutions to customers in "emerging and established telecommunications markets worldwide, " developed the M7 source code for the CDM7126 mobile phone, which was launched in March 2008. Id. at 4. The phone contained Advanced Wireless Services ("AWS") which gave Plaintiff a "unique and competitive advantage in the AWS marketplace." Id. at 4-5. Plaintiff "is the owner, by work for hire and by way of assignment, of copyrights in the M7 Source Code." Id. at 5. Defendant Choi was a general manager at Plaintiff's with access to trade secrets concerning the CDM7126 phone. Id . Defendant Choi subsequently went to work as the Senior Director of Device Development and Design for Defendant Cricket. Id . Plaintiff alleges that while working for Defendant Cricket, Defendant Choi was "responsible for the procurement and deployment of the CDM7126 phone being supplied by [Plaintiff] at that time." Id. at 6. In March 2008, Defendant Choi offered to purchase M7 source code and hardware design from Plaintiff. Id . Plaintiff refused and two months later other former employees of Plaintiff formed ACTScom Korea, of which Defendant Choi was the CEO. Id . In September 2008, Defendant Park left Plaintiff and went to work as the Chief of Software Engineering, Chief of Project Management, Chief of Marketing and Chief of Product Management of ACTScom Korea. Id . Defendant Cricket and Defendant ACTScom Korea "entered into a development and supply contract for AWS mobile phones" in October 2008. Id.
In January 2009, Defendant ACTScom USA was incorporated in San Diego with Defendant Choi as the primary investor and CEO and Defendant Park as the CFO. Id. at 7. One month later, Defendant Cricket commercially launched the A100 phone, which Plaintiff alleges contains "the stolen M7 Source Code and Hardware Design." Id . Plaintiff further alleges that Defendant "ACTScom [USA] would not have been able to offer AWS phones at the $61.99 price point, less than a year after its incorporation and with only a few months of research and development, if it had conducted its own original research and development." Id.Defendant Cricket replaced Plaintiff with ACTScom USA and began selling phones supplied by ACTScom USA. Id . Plaintiff alleges that Defendant ACTScom USA supplied Defendant Cricket with phones incorporating the stolen Source Code and Hardware Design, including models A100, A200, A300, A310, and A210. Id.
On July 30, 2012, Defendant Cricket Wireless filed a motion to dismiss [ECF No. 21] as did Defendants [ECF No. 22]. Both motions were granted in part and denied in part on June 26, 2013. ECF No. 33. All Defendants answered the complaint on August 1, 2013 [ECF Nos. 34 & 35] and participated in a telephonic Early Neutral Evaluation Conference on September 9, 2013 [ECF Nos. 38 & 39]. The parties participated in a telephonic Case Management Conference on October 7, 2013 [ECF Nos. 44 & 45] and the Court entered the parties' protective order on October 21, 2013 [ECF No. 49].
On February 3, 2014, counsel for all parties jointly contacted the Court regarding a discovery dispute brought by Plaintiff concerning Defendants and their objections to Plaintiff's discovery requests for various versions of source code. ECF No. 58.

(Order Granting Part Pl.'s Mot. Compel 1-3, ECF No. 71 (footnote omitted).)

M Seven filed a "Motion to Compel Production of Documents from Defendants Actscom USA, Inc., Chris Young Choi, and Stanley Park [ECF No. 59]" (the "Motion to Compel") before Judge Major on February 10, 2014. There, Plaintiff moved to compel production of the source code for five different phones - models A100, A200, A210, A300, and A310. (Mot. Compel 6, ECF No. 59.) On February 21, 2014, a "Motion by Defendants Actscom USA, Inc., Chris Choi, and Yongsik Park for Summary Judgment, and/or to Dismiss or Stay [ECF No. 63]" was filed. The Choi Defendants filed an "Opposition to Plaintiff's Motion to Compel" [ECF No. 66], and M Seven filed its "Reply in Support of Plaintiff's Motion to Compel Production of Documents" [ECF No. 68]. In connection with their dispositive motions, the Choi Defendants filed an ex parte application to stay discovery [ECF No. 95], and on April 14, 2014, United States District Court Judge Cathy Ann Bencivengo granted their request [ECF No. 106].

On March 17, 2014, Judge Major granted in part and denied in part the Plaintiff's Motion to Compel [ECF No. 71]. She directed the Defendants to produce the source code for the A200, A210, A300, and A310 phones. (Order Granting Part Pl.'s Mot. Compel 8, ECF No. 71.) If Defendants were unable to obtain and produce the source code, each Defendant was directed to provide a declaration outlining what efforts were made to do so. (Id.) The case was subsequently transferred to the undersigned [ECF No. 84]. Defendants Choi, Park, and Actscom USA, Inc. filed declarations in accordance with Judge Major's order on April 11, 2014 [ECF Nos. 103, 104]. On May 11, 2014, Plaintiff filed the Motion for Contempt [ECF No. 110].

While this motion was pending, Judge Bencivengo granted summary judgment on claim preclusion grounds in favor of Defendant Choi on June 4, 2014, dismissing the claims against him [ECF No. 137]. She held that a final judgment had been entered against Choi in an action in South Korea, precluding M Seven from seeking relief in this Court. (Order Granting Part Dispositive Mot. 8, 11, ECF No. 137.) She also noted that since the filing of the "Motion by Defendants Actscom USA, Inc., Chris Choi, and Yongsik Park for Summary Judgment, and/or to Dismiss or Stay, " a final judgment had been entered against Defendant Park in South Korea. (Id. at 11.) The request of Park and Actscom USA for a dismissal or stay was deemed withdrawn in light of the entry of judgment against Park in South Korea. (Id.) Park and Actscom USA, Inc. were allowed to file additional dispositive motions by June 13, 2014. (Id. (citing Order Setting Br. Schedule 2, ECF No. 126).)

M Seven objected to the Choi Defendants' declarations filed in opposition to the Plaintiff's motion to hold them in contempt [ECF Nos. 132, 133], and the Defendants objected to the evidence supporting the Plaintiff's Reply [ECF No. 144]. Each side responded to the objections [ECF Nos. 147, 148, 152]. On June 5, 2014, in light of the dismissal of the claims against Choi, supplemental briefing was requested from Plaintiff and Choi regarding whether this Court could find a dismissed party in contempt. (Mins., June 5, 2014, ECF No. 140.) M Seven and Choi filed their supplemental briefs on June 12 and 19, 2014, respectively [ECF Nos. 141, 150]. Park and Actscom USA, Inc. filed a Motion for Summary Judgment on June 13, 2014 [ECF No. 142]. Plaintiff has appealed the "Order Granting in Part the Dispositive Motion of Defendants Chris Young Choi, Stanley Park, and Actscom USA, Inc. [ECF No. 137]" to the Ninth Circuit Court of Appeals on June 30, 2014 [ECF No. 162].[3] On July 14, 2014, the Ninth Circuit gave Plaintiff twenty-one days to voluntarily dismiss the appeal because "[i]t appear[ed] that the district court's order challenged in this appeal did not dispose of the action as to all claims and all parties." (Order 1, ECF No. 174.) In the alternative, Plaintiff was allowed to "show cause why [the appeal] should not be dismissed for lack of jurisdiction." (Id. (citation omitted).)

II. LEGAL STANDARDS

Generally, "proceedings for civil contempt are instituted by the issuance of an Order to Show Cause... why a contempt citation should not issue and a notice of a date for the hearing." Hawecker v. Sorenson, 2013 WL 3805146, at *3 (citation omitted) (internal quotation marks omitted). In the Ninth Circuit, "a civil contempt proceeding is a trial within the meaning of Fed.R.Civ.P. 43(a) rather than a hearing on a motion within the meaning of Fed.R.Civ.P. 43(e)[;]... the issues may not be tried on the basis of affidavits.'" Pennwalt Corp. v. Durland-Wayland, Inc. , 708 F.2d 492, 495 (9th Cir. 1983) (quoting Hoffman Beer Drivers & Salesman's Local Union No. 888, 536 F.2d 1268, 1277 (9th Cir. 1976)). The responding party may present live testimony and cross-examine witnesses and declarants. See Rodriguez v. Cnty. of Stanislaus, No. 1:08-CV-00856 OWW GSA, 2010 WL 3733843, at *5 (E.D. Cal. Sept. 16, 2010). If "affidavits offered in support of a finding of contempt are uncontroverted, a full evidentiary hearing is not essential to due process and the trial court may treat the facts set forth in the uncontroverted affidavits as true." Id.

"Civil contempt... consists of a party's disobedience to a specific and definite court order by failure to take all reasonable steps within the party's power to comply." Reno Air Racing Ass'n v. McCord , 452 F.3d 1126, 1130 (9th Cir. 2006) (quoting In re Dual-Deck Cassette Recorder Antitrust Litig. , 10 F.3d 693, 695 (9th Cir. 1993)). Rule 37(b) of the Federal Rules of Civil Procedure authorizes district courts to impose a wide range of sanctions, including contempt, on a party that fails to comply with a discovery order. Fed.R.Civ.P. 37(b)(2)(A)."Contempt power should not be used where there is uncertainty." Sunbeam Corp. v. Black & Decker (U.S.) Inc., 151 F.R.D. 11, 15 (D. R.I. 1993).

"Civil contempt is a refusal to do an act the court has ordered for the benefit of a party; the sentence is remedial. Criminal contempt is a completed act of disobedience; the sentence is punitive to vindicate the authority of the court." Bingman v. Ward , 100 F.3d 653, 655 (9th Cir. 1996) (quoting In re Sequoia Auto Brokers Ltd. , 827 F.2d 1281, 1283 n. 1 (9th Cir. 1987)). In the Ninth Circuit, a contempt order is for civil contempt if the sanction coerces compliance with a court order or compensates the injured party for losses sustained. Koninklijke Philips Elecs., N.V. v. KXD Tech., Inc. , 539 F.3d 1039, 1044 (9th Cir. 2008). "The party alleging civil contempt must demonstrate that the alleged contemnor violated the court's order by clear and convincing evidence, ' not merely a preponderance of the evidence." In re Dual-Deck Cassette Recorder Antitrust Litig. , 10 F.3d at 695 (citing Vertex Distrib., Inc. v. Falcon Foam Plastics, Inc. , 689 F.2d 885, 889 (9th Cir. 1982)). Therefore, a court may impose a civil contempt sanction only if there is clear and convincing evidence that "(1) the contemnor violated a court order, (2) the noncompliance was more than technical or de minimis (substantial compliance is not punishable as contempt), and (3) the contemnor's conduct was not the product of a good faith or reasonable interpretation of the violated order." 7 James Wm. Moore et al., Moore's Federal Practice § 37.51[7][b], at 37-109 (3rd ed. 2013) (footnotes omitted); see United States v. Bright , 596 F.3d 683, 694 (9th Cir. 2010) (quoting Labor/Cmty. Strategy Ctr. v. L.A. Cnty. Metro. Transp. Auth. , 564 F.3d 1115, 1123 (9th Cir. 2009)). "Any doubts as to whether these requirements have been met in a particular case must be resolved in favor of the party accused of the civil contempt." 7 James Wm. Moore et al., Moore's Federal Practice § 37.51[7][b], at 37-109 (footnote omitted).

III. DISCUSSION

A. The Joint Motion to File Documents Under Seal

With the Motion for Contempt, Plaintiff and Defendant Cricket filed a "Joint Motion to Seal Exhibits 5-9 to Van Loon Declaration in Support of Motion to Hold Defendants Chris Young Choi, Yongsik Stanley' Park, and Actscom USA, Inc. in Contempt for Failure to Comply with Judge Major's March 17, 2014 Order [ECF No. 111], " (the "Joint Motion to Seal Exhibits") and several proposed sealed exhibits [ECF Nos. 112-116]. Cricket and M Seven request to file under seal confidential "hardware and software release notes involving the Cricket A100, A200, A210, A300, and A310 cell phone models." (Joint Mot. Seal Exs. 2, ECF No. 111.) The terms of the protective order in this case allow either ...


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