Civil Procedure
Federal Magistrate Shuts Down Socially Distanced Live Depositions
Earlier this month, a federal magistrate judge in the Northern District of Illinois granted a defendant’s request for a protective order to avoid in-person depositions of its experts, by requiring that the depositions instead be conducted remotely in light of the COVID-19 pandemic. The court’s ruling is relevant to all IP litigators, as it is consistent with a growing trend during the pandemic to conduct depositions and other aspects of legal proceedings remotely to address the health concerns of all those involved, while ensuring that cases are not grinding to a halt. Background The underlying lawsuit was brought in 2016 by Sonrai Systems, LLC (“Sonrai”), an information technology company operating in the waste hauling industry, against its former vice-president (Romano); Romano’s new employer, The Heil Co. (“Heil”); and Sonrai’s former business partner, Geotab, Inc. (“Geotab”). Sonrai alleges, among other things, that Romano engaged in a scheme with the other defendants to use Sonrai’s confidential technology and information to assist Heil in launching a product first developed by Sonrai. The case has now lasted four years, and the parties are nearing the end of discovery. Sonrai sought to take in-person depositions of Geotab’s experts either in Chicago, where the case is venued, or in North Carolina, where the experts are located. Geotab’s counsel, located in Boston, moved for a protective order to require that the depositions instead be conducted remotely in light of the pandemic. The Court’s Order on the Motion for a Protective Order The Magistrate granted the motion, exercising the court’s broad discretion under FRCP 26(c) to decide when a protective order is appropriate and to what degree protection is required, as well as its discretion under FRCP 30(b)(4) to order that a deposition “be taken by telephone or other remote means.” Unsurprisingly, the court found that pandemic-related health concerns provide “good cause” for remote video conferencing depositions under the circumstances, and any prejudice to Sonrai was not sufficient to overcome these health risks. In so ruling, the Magistrate began by reiterating that a national emergency has been declared due to the spread of the COVID-19 virus, and the CDC has noted that the best way to prevent illness is to minimize person-to-person contact. To protect all involved in litigation, courts around the country have authorized video teleconferencing for both criminal and civil proceeding and courts continue to advise caution when proceeding with litigation. These guidelines remain in effect and are changing rapidly as the pandemic continues to evolve around the United States. The Magistrate went on to outline certain heightened risks, and impracticability, in the present case, including: (a) Geotab’s counsel, who would need to travel for the deposition, has regular contact with immediate family members in high risk categories; (b) Geotab’s counsel would be required to self-quarantine for 14 days upon his return to Massachusetts from the depositions; (c) North Carolina, where the experts were located, has experienced a recent surge in COVID-19 cases and hospitalizations; and (d) Geotab’s experts, upon traveling to Illinois for the depositions, would need to self-quarantine for 14 days before sitting for the depositions, making the deposition impracticable. The Magistrate then went on to address Sonrai’s prejudice arguments, which were based upon two main concerns that: (1) it would be prejudiced by the inability to meet and assess Geotab’s experts and their testimony in person; and (2) remote depositions would be too cumbersome given the number of documents that will be referenced throughout the depositions. The court recognized these as valid concerns, but found they were not sufficient to overcome the good cause shown to conduct the depositions remotely. With respect to the first concern, the Magistrate noted that many other courts have found that remote videoconferencing depositions offer the deposing party a sufficient opportunity to evaluate a deponent’s nonverbal responses, demeanor, and overall credibility. In fact, the court reasoned that Sonrai’s ability to assess witness credibility might actually be impeded during an in-person deposition given the face mask mandates in place in the relevant jurisdictions; an impediment that presumably would not be present for a remote deposition. With respect to the second concern, while indicating he was sympathetic to the logistical concerns, the Magistrate again found that this was insufficient to outweigh the health risks involved, particularly given the advancements in remote deposition technology, and Geotab’s offer to make its LiveLitigation platform available to all parties during the deposition. In granting the protective order, however, the Magistrate ruled that Geotab must bear the additional costs (including those associated with the LiveLitigation platform) that are created by use of the videoconferencing format. Practice Points Although the court was careful to note that its holding “is not tantamount to a finding that concerns raised regarding COVID-19 will always suffice to support… requiring remote videoconferencing,” it’s apparent that remote depositions have become the new normal during the pandemic. Parties who face objections from opposing counsel to requests to proceed by video would be wise to study this decision.
July 30, 2020
by Benjamin Greenberg
Civil Procedure
Federal Magistrate Judge Tells Cautionary Tale About How Not to Conduct Discovery in Federal Court
Earlier this month, a federal magistrate judge in the Eastern District of New York, Judge Lois Bloom, issued a report and recommendation ("R&R") that the ultimate sanction of default judgment be entered against certain defendants that had engaged in wide-scale discovery misconduct, that Judge Bloom found ultimately amounted to fraud on the Court. While federal courts strongly prefer to resolve cases on the merits rather than issuing case-ending discovery sanctions, Judge Bloom found the defendants’ pervasive and egregious discovery conduct to constitute an extreme case that warranted such action. The underlying lawsuit was brought by Abbott Laboratories, Abbott Diabetes Care Inc., and Abbott Diabetes Care Sales Corp. (collectively “Abbott”) against hundreds of distributors and pharmacies for, among other claims, trademark and trade dress infringement, unfair competition, and trademark dilution. The lawsuit seeks to stop the sale of Abbott’s FreeStyle blood glucose test strips in the United States that are intended to be used in other countries, and which are illegal to sell in the United States. Abbott contends that the defendants in the case are conspiring to import diverted FreeStyle test strips whose labeling has not been cleared by regulators for sale in the United States, and are passing these unapproved strips off to unsuspecting U.S. consumers in order to receive undeserved reimbursement payments from insurance companies. In November 2015, Abbott won a preliminary injunction barring the sale of the strips, which the Second Circuit upheld a year later. The defendants that are the subject of Judge Bloom’s recommended sanctions are distributor H&H Wholesale Services, Inc., its principal, Howard Goldman, and its marketing manager and Mr. Goldman’s wife, Lori Goldman (collectively the “H&H Defendants”). In her R&R, Judge Bloom found that the H&H Defendants had engaged in continuous bad faith discovery misconduct, which began with the H&H Defendants formulating search terms to run against their documents that were designed to fail (namely failing to include well-known shorthand used by the H&H Defendants in relation to relevant transactions) in deliberate disregard of Judge Bloom’s discovery orders compelling certain specific discovery from the parties. Judge Bloom also found that the H&H Defendants deliberately withheld responsive documents, including all communications with its largest supplier of the Freestyle test strips, and any documents referencing H&H’s owner or his wife (the Goldmans). The withholding of these responsive documents was only discovered when the Court entered a seizure order in a separate counterfeiting action, authorizing Abbott to seize, among other things, H&H’s e-mail server. Abbott, who had previously raised concerns with the H&H Defendants’ initial production before receiving the e-mail server, voiced new concerns that the H&H Defendants had failed to produce documents responsive to the Court’s discovery orders. The Court then ordered the H&H Defendants to re-run the document search outlined in its previous orders, which resulted in the H&H Defendants producing significantly more responsive documents. Judge Bloom also found that the number of responsive documents produced later did not comport with the H&H Defendants’ earlier representations to the Court regarding the number of responsive documents, and the accompanying burden of producing those documents. Based on these earlier representations, the Court narrowed the scope of the H&H Defendants’ required production. The H&H Defendants submitted numerous explanations throughout the course of the proceeding attempting to explain the diverging document count numbers. The Court found that the varying explanations were inconsistent. In fact, the H&H Defendants had five different law firms represent them throughout the course of the proceeding, and Judge Bloom found that the explanation given by the H&H Defendants’ current counsel for the withheld documents – which largely attempted to lay the blame at the feet of H&H’s original counsel – was inconsistent with the positions taken by the other law firms previously representing the H&H Defendants. To add significant fuel onto the proverbial fire, Judge Bloom waded through the deposition testimony of several key representatives of the H&H Defendants concerning issues surrounding the withheld documents. The Magistrate found portions of the testimony to be inconsistent and evasive, at best, and other testimony to have been perjured. As one might expect from the severe sanction recommended by Judge Bloom, this was not the first time that the H&H Defendants had been reprimanded for discovery misconduct during the litigation. In 2017, the H&H Defendants were found to have violated a protective order based on having Mr. Goldman surreptitiously listen to remote 30(b)(6) depositions, for which H&H’s former counsel took responsibility and agreed to pay reasonable expenses incurred by the other parties relating to the violation. Also, based on the same above-discussed document withholding issues, Judge Bloom previously ruled in 2018 that the crime-fraud exception to the attorney-client privilege prevented the H&H Defendants from claiming privilege with respect to communications with counsel about its earlier production. Based on the full record in the case, Judge Bloom found that there was clear and convincing evidence that the H&H Defendants had perpetrated a fraud on the Court. Clearly concerning to Judge Bloom was the fact that “had [Abbott] never seized H&H’s server . . . H&H would have gotten away with their fraud upon this Court. H&H only complied with the Court’s orders and their discovery obligations when their backs were against the wall.” The Court went on to analyze certain factors that must be considered when determining what sanction should be imposed. The Court reasoned that several factors weighed in favor of imposing a case-ending sanction, including the bad faith that can be inferred from the H&H Defendants’ deliberate and strategic non-compliance with discovery, selective withholding of documents, and perjured and deceptive deposition testimony. The discovery misconduct was calculated and pervasive and started early on, and continued even after the H&H Defendants were “caught red handed.” Judge Bloom also found that Abbott’s progress in the litigation was significantly impeded by the H&H Defendants’ discovery fraud. Further, Judge Bloom determined that this discovery misconduct must be appropriately punished to deter such abuse of the Court’s process by other litigants. Thus, the Court found that the H&H Defendants committed fraud upon the Court, and that the harshest sanction of a default judgment against the H&H Defendants was warranted. As Judge Bloom warned in her R&R, the H&H Defendants’ conduct presents “a cautionary tale about how not to conduct discovery in federal court.” For starters, while it should be obvious, misrepresentations to the court, or perjured testimony, should never be countenanced. It appears, however, that these later misrepresentations were an attempt to cover up earlier discovery misconduct regarding insufficient document searches and withholding documents relating to, among others, key decision-makers at the company. To avoid these early pitfalls, litigants should ensure that they are transparent in discussions with opposing counsel from very early on in the litigation about the appropriate scope of discovery, search terms, custodians, and foreseeable discovery issues. Taking a proactive approach to discovery at the outset of a litigation, as opposed to when the litigant’s back is up “against the wall,” is not only a recommended practice, but is required under the federal rules. For example, litigants should spend appropriate time and diligence in providing initial disclosures as well as in formulating a discovery plan with opposing counsel. Otherwise, litigants, such as the H&H Defendants, often find themselves continually crawling out of a discovery hole of their own making. This too often results in incurring unnecessary expense to respond to discovery motions and to produce discovery that the litigant initially attempted to evade. As seen in the case of the H&H Defendants, discovery misconduct can also lead to discovery sanctions; these can range from monetary sanctions, to adverse inferences or evidence preclusion at trial, to the most drastic result of a case-ending sanction. The H&H Defendants have until later this month to lodge objections to Judge Bloom’s R&R. The TMCA will be monitoring this case and will keep you posted with any key developments.
May 23, 2019
by Benjamin Greenberg
Civil Procedure
Eleventh Circuit: Arbitration Clauses Are Like Makeup – They Only Cover So Much
The Kardashians, America’s favorite celebrity family, have been having a tough time of late, with Kim Kardashian being robbed at gunpoint in her Paris apartment, and her husband Kanye West attracting criticism for his support of Donald Trump. A federal appeals court has recently added to the Kardashians’ woes. In a pun-laden opinion, the Eleventh Circuit Court of Appeals affirmed the district court’s ruling in Kroma Makeup EU, LLC v. Boldface Licensing + Branding, Inc. that the Kardashian sisters Kim, Kourtney, and Khloe (the “Kardashians”) could not rely on the doctrine of equitable estoppel to compel Plaintiff Kroma Makeup EU, LLC (“Kroma EU”) to arbitrate its claims. The Eleventh Circuit noted that at “first blush, the issue appears to require application of Florida’s doctrine of equitable estoppel under which a party to an agreement who relies on it in a dispute with a non-party can be required by that non-party to comply with other terms of the agreement, including the arbitration clause.” However, as the court put it, “there is a wrinkle in this case: the arbitration clause which the non-party to the agreement is seeking to enforce is explicitly limited to disputes between the parties.” Where the arbitration clause is so limited, the Eleventh Circuit held that the non-party (the Kardashians) could not “re-sculpt what appears on the face of a contract” to force a party to the agreement (Kroma EU) to arbitrate its claims against the Kardashians. Background Back in 2004, the make-up company By Lee Tillett, Inc. (“Tillett”) developed and registered the Kroma trademark for a cosmetics line. In 2012, Tillet entered into an agreement giving Kroma EU the exclusive rights to sell and distribute Kroma products in the EU. The agreement contained an arbitration clause, stating in relevant part that “the Parties agree that disputes arising between them . . . should be considered [in] independent arbitration in the State of Florida, United States.” While the Kroma EU agreement was in effect, the Kardashians entered into a licensing agreement with Boldface Licensing + Branding, Inc. (“Boldface”) to create a Kardashian makeup line named “Khroma.” Boldface filed a lawsuit against Tillet for a declaratory judgment of non-infringement, and Tillett asserted counterclaims against Boldface and the Kardashians for trademark infringement. After that suit settled, Tillett refused to share any of the settlement proceeds with Kroma EU. As a result, Kroma EU brought claims for trademark infringement and tortious interference with contract against Boldface, claims for vicarious liability for trademark infringement against the Kardashians, and a claim for promissory estoppel against Tillett. The district court granted Tillett’s motion to compel Kroma EU to arbitrate, but denied the Kardashians’ motion to compel Kroma EU to arbitrate its claims against them. The Kardashians appealed to the Eleventh Circuit. Analysis The Eleventh Circuit first clarified that although federal law generally governs arbitration agreements, the “issue of whether a non-signatory to an agreement can use an arbitration clause in that agreement to force a signatory to arbitrate a dispute between them is controlled by state law,” and that the parties “agree that Florida law controls on that issue.” The Kardashians argued that even though they are non-signatories to the agreement between Kroma EU and Tillett, they could nonetheless compel Kroma EU to arbitrate its claims by relying on Florida’s doctrine of equitable estoppel. Under that doctrine, a defendant who is a non-signatory to an agreement containing an arbitration clause can force arbitration of a signatory’s claims when “the signatory . . . must rely on the terms of the written agreement in asserting its claims against the non-signatory.” As the court explained, however, a “non-signatory cannot invoke the doctrine to compel arbitration of claims that are not within the scope of the arbitration clause.” Relying on the Florida District Court of Appeal’s decision in Koechli v. BIP International, Inc., 870 So. 2d 940 (Fla. 1st DCA 2004), the Eleventh Circuit held that, to invoke equitable estoppel, the Kardashians would need to show not only that Kroma EU was relying on the agreement to assert its claims against them, but also that the scope of the arbitration clause covered the dispute. The court then turned to the arbitration clause at issue, which by its own terms was limited to disputes between the “Parties.” Because the Kardashians were not “Parties” to the agreement within the scope of the arbitration clause, the court held that they were barred from relying on equitable estoppel to compel arbitration of the claims against them. In doing so, the court rejected the Kardashians’ argument that such a conclusion ignores the “equitable nature” of the doctrine of equitable estoppel, which (in the Kardashians’ view) should operate to permit a non-signatory who is not bound by an agreement to enforce it notwithstanding the fact that the claims are outside the scope of the arbitration clause. Indeed, the court found that “[s]uch a holding would be, well, inequitable” because it would “effectively be rewriting the agreement between the signatories about which disputes they would arbitrate to require one of them to arbitrate disputes that they had not agreed to.” As the court explained, “Kroma EU never consented to arbitrate any disputes between it and the Kardashians or any other non-signatory. All it consented to arbitrate were disputes between it and the other party, which was Tillett.” By contrast, if the arbitration clause was not limited to disputes between the parties, but covered “any disputes concerning the validity, interpretation, etc., of the contract . . ., the Kardashians may have been able to use equitable estoppel to require Kroma EU to arbitrate the dispute between it and them. Given the rash of pro-arbitration decisions from the federal courts in recent years, the Kroma EU decision might seem surprising. It should not be, however, since the court did no more than affirm the basic contract law principle familiar to all first-year law school students: contracts are generally limited by their terms, and may not be rewritten by courts (or parties to a litigation). As the Eleventh Circuit artfully concluded: “Like makeup, Florida’s doctrine of equitable estoppel can only cover so much . . . . The district court correctly denied the Kardashians’ motion to compel Kroma EU to arbitrate the dispute between them.”
February 9, 2017
by Kaleb McNeely
