United States District Court, S.D. California
ORDER RE: (1) DEFENDANT'S MOTIONS FOR AN ORDER TO SHOW CAUSE WHY PLAINTIFF AND THIRD PARTY
COMMERCIAL ELECTRONICS, INC. SHOULD NOT BE HELD IN CONTEMPT, (2) JOINT
MOTION RE DISCOVERY OF PLAINTIFF'S FINANCIAL RECORDS, (3) PLAINTIFF'S MOTION RE
VIOLATION OF PROTECTIVE ORDER AND MOTIONS FOR LEAVE TO FILE DOCUMENTS UNDER SEAL
IN SUPPORT AND IN OPPOSITION, and (4) DEFENDANT'S MOTION TO EXCLUDE PLAINTIFF'S
SUPPLEMENTAL DISCLOSURES AND MOTION FOR LEAVE TO FILE DOCUMENTS UNDER SEAL [ECF Nos. 203, 204, 209, 217, 219, 222, 224, 225]
MITCHELL D. DEMBIN, Magistrate Judge.
Discovery in this case has been contentious. The parties seem to have forgotten or have chosen to ignore that discovery should be self-executing under the Federal Rules of Civil Procedure, requiring little court intervention. The magistrate judges assigned to this case collectively have held at least seven discovery conferences in vain attempts to resolve disputes. The court has reminded the parties of their mutual obligations to act professionally under Local Rules 83.4(1)(e), 83.4(1)(g), and 83.4(2)(d), without any apparent improvement in their conduct. In the last three months, the parties have filed fourteen motions arising from discovery disputes.
Even more alarming, motions for contempt or sanctions for violating a court order-a rarity on most court dockets-have become routine in this action. The frequency of contempt and sanctions motions are a sure sign that the parties are demanding a disproportionate share of the court's time compared to litigants in other cases, but are less willing to comply with the orders the court has issued at the parties' urging.
In an effort to move this case beyond gamesmanship and bickering and towards the most "just, speedy, and inexpensive determination" that is possible in this case, the Court resolves in this order all of the pending motions that have been referred to this Court. Specifically, the Court rules upon Defendant's motions for contempt and sanctions against Plaintiff and Plaintiff's third party subsidiary (ECF Nos. 203, 204), a joint motion re discovery of Plaintiff's documents (ECF No. 209), Plaintiff's motion re Defendants' alleged violation of the Protective Order (ECF No. 219), Defendants' motion to exclude Plaintiff's supplemental disclosures (ECF No. 224), and a series of related motions to seal (ECF Nos. 217, 222, 225).
A. Nature of the Case
This action involves Plaintiff HM Electronic's claim of damages arising from Defendant's alleged trademark and trade dress infringement of certain "drive-thru headset systems." (ECF No. 1). Plaintiff's First Amended Complaint ("FAC") asserts claims for trademark infringement, false designation of origin, trade dress infringement, trade libel, unfair competition and interference with prospective economic advantage. (ECF No. 156). Plaintiff alleges that Defendant has violated the Lanham Act by using Plaintiff's trademarks and trade dress in advertising and promotional materials, falsely suggesting an association with or sponsorship by Plaintiff in connection with its marketing campaigns, and re-branding Plaintiff's products as Defendant's products and attempting to pass those products off as its own. The FAC further alleges that Defendant has published false information regarding the quality, durability and reliability of Plaintiff's products, and unsubstantiated claims that Plaintiff's products that have been repaired and refurbished by Defendant are stronger and more durable than Plaintiff's OEM (Original Equipment Manufacturer) products. Defendant repairs drive-thru headset products manufactured by Plaintiff and by others (most notably, 3M and Panasonic).
By the time this Court inherited this case, the docket-now spanning over 240 entries-was riddled with discovery disputes. Magistrate Judge McCurine, then assigned to this case, held telephonic discovery conferences on November 25, 2013 and December 12, 2013, and subsequently ordered Defendant's attorney to serve an affidavit that explained his client's process of collecting and storing repair requests. (ECF Nos. 56, 61, 60). Judge McCurine held two more telephonic conferences, one on December 19, 2013, and another on January 10, 2014. (ECF Nos. 62, 65). On January 13, 2014, Judge McCurine issued an order essentially regulating the meet and confer discussions between the parties about the Defendants' inadequate document production. (ECF No. 64). Judge McCurine held another telephonic status conference on January 23, 2014. (ECF No. 76). Judge McCurine held yet another telephonic discovery conference the following Monday. (ECF Nos. 71, 77). After that conference, Judge McCurine issued an order requiring Defendant to complete the production and privilege log by dates specified in the order. (ECF No. 71).
In the meantime, Plaintiff filed a Motion for an Order to Show Cause Why Defendant R.F. Technologies, Inc. Should Not Be Held In Contempt for violating a preliminary injunction imposed by the assigned District Judge. (ECF No. 72).
On January 31, 2014, upon the retirement of Judge McCurine, the case was reassigned to Magistrate Judge Brooks. (ECF No. 80). On February 25, 2014, Judge Brooks ordered the parties to meet and confer in person before February 28, 2014, and set an attorneys' only discovery conference for March 10, 2014. (ECF Nos. 83, 84).
On March 4, 2014, Plaintiff filed an ex parte motion to continue third party depositions. (ECF No. 88). Judge Brooks granted the motion to stay, but admonished "[t]he parties are reminded of the mutual obligations pursuant to Local Rules 83.4(1)(e), (g) and 84.4(2)(d)." (ECF No. 89). Those Local Rules pertain to professionalism and civility in the meet and confer process. Civ. L. R. 83.4(1)(e), (g), and (2)(d).
The next day, Defendants filed a motion to quash Plaintiff's third party subpoenas. (ECF No. 90). Judge Brooks determined that the motions to quash were not properly filed in this District, because they required compliance outside of the Southern District. (ECF No. 93).
Shortly after that, District Judge Anello issued a tentative ruling on Plaintiff's Motion for Contempt and Sanctions against Defendant regarding Defendant's alleged violation of the preliminary injunction issued by District Judge Anello. (ECF No. 94). Judge Anello held a hearing on the contempt motion on March 10, 2014. (ECF No. 97). During the hearing, Judge Anello determined that Defendant had not complied with a preliminary injunction order, but set a continued hearing and requested additional evidence regarding Defendant's ability to comply and what the impact of coercive sanctions would be on Defendant. (ECF Nos. 99, 100).
On the same day, Judge Brooks held a discovery conference. (ECF No. 98). Judge Brooks issued an order concluding that the discovery disputes could not be resolved at the conference, and permitting the parties to file motions regarding those disputes. ( Id. ). Accordingly, Plaintiff filed a motion for sanctions against Defendant for failure to comply with Judge McCurine's discovery order, and Defendant filed motions to compel Plaintiff and third party Commercial Electronics, Inc. to produce documents. (ECF Nos. 101, 105, 106). Meanwhile, the case was reassigned from Judge Brooks to Magistrate Judge Burkhardt, who replaced Judge McCurine. (ECF No. 109).
On April 11, 2014, Judge Anello issued a new tentative ruling granting the Plaintiff's motion for contempt against Defendant relating to the preliminary injunction. (ECF No. 122). Judge Anello held the continued hearing on April 14, 2014, and issued the final ruling finding Defendant in contempt for violating the preliminary injunction. (ECF Nos. 126, 127, 132). Judge Anello's Order imposed a daily fine of $2, 500 against Defendant to compel compliance with the preliminary injunction. (ECF No. 127). Only then did Defendant purge itself of contempt. (ECF Nos. 133, 134). Afterwards, the case was reassigned from Judge Anello to District Judge Bashant. (ECF No. 42). Plaintiff then filed motions for attorneys' fees incurred in the contempt proceedings, and to disgorge the profits Defendant earned by flouting the preliminary injunction. (ECF Nos. 144, 147).
On July 3, 2014, Judge Burkhardt issued three orders, an order granting in part and denying in part Plaintiff's motion for sanctions against Defendant for violating Judge McCurine's discovery order (ECF No. 185), an order granting in part and denying in part Defendant's motion to compel Plaintiff to produce documents (ECF No. 186), and an order granting in part and denying in part Defendant's motion to compel third party Commercial Electronics, Inc. ("CE") to produce documents (ECF No. 187). Judge Burkhardt's Orders requiring Plaintiff and CE to produce documents (ECF Nos. 186, 187) govern several of the disputes decided in this Order. After Judge Burkhardt issued those Orders, the case was reassigned to this Court. (ECF No. 188).
On September 5, 2014, Defendant filed the instant motions for sanctions and contempt against Plaintiff and CE for failing to comply with Judge Burkhardt's July 3, 2014 Orders to produce financial documents. (ECF Nos. 203, 204). Less than a month later, the parties filed the instant joint motion in which Defendant seeks to compel Plaintiff to produce additional documents. (ECF No. 209).
On the eve of the discovery and motion cutoff, the parties each fired their last volleys of discovery-related motions. Plaintiff filed the instant ex parte motion to set a conference to address Defendant's alleged violation of the Protective Order, along with a motion to seal. (ECF Nos. 217-219). Defendant filed two ex parte motions to strike or exclude Plaintiff's "Belated Supplemental Disclosures, " along with a motion to seal, and a later motion to strike the first incorrectly filed motion. (ECF Nos. 220-224). Plaintiff also filed a motion to exclude Defendant's expert's testimony, which motion is before the District Judge, and a motion for sanctions and an adverse inference instruction against Defendants for spoliating evidence, which was stricken by the District Judge. (ECF Nos. 233, 235-237).
Having reviewed the motions and related papers, the Court finds the aforementioned motions pending before this Court suitable for resolution on the papers without oral argument, in accordance with Local Rule 7.1.d.1.
A. Defendant's Motions for Contempt and Sanctions Against Plaintiff and CE [ECF Nos. 203, 204]
I. Procedural History for Motions for Contempt and Sanctions
On September 8, 2014, Defendant moved the Court for orders finding Plaintiff and third party CE in violation of discovery orders issued by Judge Burkhardt on July 3, 2014 as ECF Nos. 186 and 187. (ECF Nos. 203, 204). On September 21, 2014, this Court issued an order requiring Defendant to serve third party CE with proper notice of this motion. (ECF No. 205). Defendant did so, and filed a certificate of service with the Court. (ECF No. 206). Plaintiff and CE each filed their oppositions on September 29, 2014. (ECF Nos. 207, 208). On October 6, 2014, Defendant filed a combined reply. (ECF No. 212).
Defendant asserts that Plaintiff and CE both violated Judge Burkhardt's July 3, 2014 Orders requiring Plaintiff and CE to produce financial documents by August 4, 2014. (ECF Nos. 203, 204). Judge Burkhardt's Orders explain that "the Court must consider Plaintiff's operative pleading - the FAC, " and note:
Plaintiff alleges in its FAC that "Defendants' unauthorized use of the HME marks is causing irreparable harm to [Plaintiff] by... diverting sales away from [Plaintiff] and its authorized dealers and distributors." (ECF No. 156 at ¶ 16.) Further, Plaintiff alleges, "Defendants' unauthorized use of the HME marks is causing irreparable harm to [Plaintiff] by diverting service revenues away from [Plaintiff] and its authorized repair centers." (ECF No. 156 at ¶ 19.) Additionally, Plaintiff's FAC contains a cause of action for Intentional Interference with Prospective Economic Advantage (Sixth Cause of Action), as part of which Plaintiff alleges, "Defendants did disrupt existing and prospective business relationships between [Plaintiff] and its customers and contacts in the quick service restaurant industry [and]... [Plaintiff] has been damaged in an amount to be established according to proof at trial." (ECF No. 156 at ¶ 71.)
(ECF No. 186 at 15-16; ECF No. 187 at 16-17 (varies slightly)). Judge Burkhardt ordered:
So long as Plaintiff's operative pleading contains causes of action and allegations that put Plaintiff's finances at issue, and so long as Plaintiff has not, in any binding way, limited its measure of damages to the disgorgement of Defendant's profits, Plaintiff's and CE's financial documents are relevant to an extent. The Court is sensitive to the fact that CE is a third party. However, CE is responsible for the large majority, if not all, of the repair and maintenance work for Plaintiff's headset products. And again, the Court notes that there is a Protective Order already in place. (ECF No. 58.) If the Parties feel that the Protective Order is inadequate, they are free to seek amendment. Accordingly, Defendant's Motion to Compel to GRANTED as to Request Nos. 35-37 and 39.
(ECF No. 187 at 16:27-28, 17:9-17). The Orders require Plaintiff and CE to produce the documents by August 4, 2014. (ECF Nos. 186 at 17:13-14, 187 at 18:11-12).
According to Defendant, Plaintiff has not produced the documents responsive to requests 119 and 120, and CE has not produced the financial records responsive to requests 35, 36, and 37. (ECF No. 204-1 at 7:18-27). Defendant requests that Plaintiff and CE be found in contempt of court, each be ordered to pay a per diem fine of $1, 000 payable immediately to the Court for each day Plaintiff and CE fail to comply with Judge Burkhardt's Orders, and that Defendant be awarded its fees and costs in bringing these motions in the amount of $11, 350 ($8, 875 for motion against Plaintiff, $2, 475 for motion against CE). (ECF No. 212 at 11).
Plaintiff and CE each assert that they are in full compliance with Judge Burkhardt's Orders. (ECF No. 208 at 6:6-16, 10:16-12:7). Plaintiff and CE have not produced the financial documents. ( Id. ). Instead, Plaintiff and CE argue that they were excused from producing the financial documents by Plaintiff's proposal of a Second Amended Complaint ("SAC") and Plaintiff's election of disgorgement of Defendant's profits as a remedy. ( Id. ). Plaintiff and CE claim that Judge Burkhardt's Orders were conditional, and excused them from producing financial documents "if HME amended its operative pleading to remove the causes of action and allegations identified by Judge Burkhardt as placing HME's and CE's finances at issue, and unequivocally elected Defendants' profits as HME's exclusive measure of damages." ( Id. at 11:2-6). Plaintiff and CE contend that Plaintiff followed both directives (amend complaint, and damages election). (ECF No. 207 at 12-13; ECF No. 208 at 6, 8-9; ECF No. 203-7 at 3). Plaintiff and CE argue in the alternative that even if they violated the Orders, they cannot be held in contempt because their interpretations of the Orders are reasonable, and they took all reasonable steps within their power to comply. ( Id. at 6:6-16, 10:16-12:7).
Defendant counters that the FAC remains the operative complaint, and that Plaintiff and CE were not excused from their duties to produce documents by the mere proposal of the SAC. (ECF No. 204-1 at 9-10). Defendant also contends that Plaintiff and CE would still be violating Judge Burkhardt's Orders even if Plaintiff had filed the proposed SAC, because the SAC still includes causes of action and allegations that put Plaintiff's and CE's finances at issue. ( Id. at 10-14). Defendant asserts that it is prejudiced by every passing day of Plaintiff's and CE's failure to comply, because the documents are crucial to Defendant's defense and trial is fast approaching. ( Id. at 15:1-6).
A magistrate judge has authority to impose discovery sanctions. See Grimes v. City & Cnty. of San Francisco, 951 F.2d 236, 241 (9th Cir. 1991). Rules 37 and 45 authorize the court to impose a wide range of sanctions when a party or nonparty fails to comply with the rules of discovery or with court orders enforcing those rules. Wyle v. R.J. Reynolds Indus., Inc., 709 F.2d 585, 589 (9th Cir. 1983) (citing Nat'l Hockey League v. Metro. Hockey Club, Inc., 427 U.S. 639, 643 (1976) and U.S. v. Sumitomo Marine & Fire Ins. Co., 617 F.2d 1365, 1369 (9th Cir. 1980)).
Rule 37(b)(2)(D) provides for civil contempt instead of, or in addition to, other sanctions. Fed.R.Civ.P. 37(b)(2)(D). Magistrate judges themselves do not have authority to make any findings of contempt, so must certify their findings to the district judge. 28 U.S.C. § 636(e); Bingman v. Ward, 100 F.3d 653, 656-657 (9th Cir. 1996).
Plaintiff and CE
"interpreted Judge Burkhardt's order as providing [Plaintiff and] CE with two options, depending on what HME elected to with its operative pleading: (1) if HME chose not to amend its operative pleading, the First Amended Complaint, [Plaintiff and] CE would be required to produce documents..., (2) if HME amended its operative pleading to remove the cause of action and allegations identified by Judge Burkhardt as placing HME's and CE's finances at issue, and unequivocally elected ...