Heroic Era, LTD. v. Evony, LLC et al

Filing 143

ORDER by Magistrate Judge Bernard Zimmerman DENYING #109 Motion for Sanctions. Signed by Magistrate Judge Bernard Zimmerman, on 11/21/11 (bzsec, COURT STAFF) (Filed on 11/21/2011) Modified on 11/22/2011 (jlm, COURT STAFF).

1
2
3
4
5
6
7
8

UNITED STATES DISTRICT COURT

9

NORTHERN DISTRICT OF CALIFORNIA

10
11

HEROIC ERA, LTD,

12
13
14
15

)
)
)
)
)
)
)
)
)
)

Plaintiff(s),
v.
EVONY, LLC, et al.,
Defendant(s).

No. C10-2458 SBA (BZ)
ORDER DENYING SANCTIONS

16
17

Evony, LLC and Regan Mercantile, LLC (collectively

18

“Evony”) have moved for an order imposing sanctions against

19

Derek A. Newman (“Newman”) and Derek Linke (“Linke”), counsel

20

for plaintiff and counterdefendant, Heroic Era, Ltd. (“Heroic

21

Era”), pursuant to 28. U.S. § 1927.

22

the court to find Newman and Linke personally responsible for

23

fees and costs incurred by Evony after July 30, 2010, in the

24

amount of $368,385.15.

25

Evony’s motion is DENIED.

By its motion, Evony asks

For the reasons set forth below,

26

On June 3, 2010, Heroic Era sued Evony seeking a

27

declaratory judgment that Heroic Era did not misappropriate

28

Evony’s trade secrets in the development of Heroic Era’s
1

1

Ceasary game, and did not infringe on Evony’s copyright

2

interests, and seeking relief for tortious interference with

3

business relations.

4

Evony counterclaimed for (1) copyright infringement under 17

5

U.S.C. §§ 501 et seq.; and (2) misappropriation of copyright.

6

(Docket No. 19.)

(Docket No. 1.)

On August 13, 2010,

7

I previously found that Heroic Era, almost from the

8

outset of this litigation, failed to comply with its discovery

9

obligations.

(See Docket No. 108.)

Based on its non-

10

compliance, I ordered Heroic Era to produce certain documents

11

and a Rule 30(b)(6) witness for deposition by March 9, 2011.

12

(Docket No. 78.)

13

abide by my Order could result in sanctions pursuant to Rule

14

37(b)(2)(A), such as the entry of Heroic Era’s default on

15

Evony’s counterclaims.

16

counsel notified the court that Heroic Era would not produce

17

documents or a corporate witness - a direct violation of my

18

Order.

19

action against Evony with prejudice.

20

struck Heroic Era’s answer to the counterclaim and ordered

21

Evony to move for a default judgment to prove-up its damages.

22

After Judge Armstrong referred that motion to me (Docket Nos.

23

92, 93), I issued a Report and Recommendation.

24

Armstrong adopted it and entered judgment in favor of Evony on

25

its counterclaims in the amount of $608,213.37.

26

125.)

27

in attorneys’ fees and costs.

28

filed this motion to have its attorneys’ fees and costs

I also warned Heroic Era that failure to

(Id.)

On March 9, 2011, Heroic Era’s

I then struck Heroic Era’s complaint and dismissed its
(Docket No. 89.)

I also

Judge

(Docket No.

Part of that judgment included an award of $368,385.15
(Docket No. 108.)

2

Evony then

1

imposed as sanctions against Newman and Linke.

2

referral from

3

Mssrs. Newman and Linke appeared.

4

Following a

Judge Armstrong, I held a hearing at which

Under 28 U.S.C. § 1927, “[a]ny attorney . . . who so

5

multiplies the proceedings in any case unreasonably and

6

vexatiously may be required by the court to satisfy personally

7

the excess costs, expenses, and attorneys’ fees reasonably

8

incurred because of such conduct.”

9

Imposition of costs under this statute requires a finding of

28 U.S.C. § 1927.

10

recklessness on the part of the attorney sanctioned.

11

Lahiri v. Universal Music & Video Distribution Corp., 606 F.3d

12

1216, 1219 (9th Cir. 2010).

13

See

A court also has the inherent authority to sanction

14

parties for bad faith conduct in the course of litigation.

15

See Chambers v. NASCO, Inc., 501 U.S. 32, 45-46 (1991).

16

authority is independent of, and not constrained by, statutory

17

sources of authority for imposing such sanctions.

18

In order to sanction a party pursuant to this inherent

19

authority, a court must find that the party acted in bad

20

faith.

21

F.3d 644, 648 (9th Cir. 1997).

22

or attorney acted “vexatiously, wantonly, or for oppressive

23

reasons.”

24

knowingly or recklessly raises a frivolous argument, or argues

25

a meritorious claim for the purpose of harassing an opponent.”

26

In re Keegan Mgmt. Co., Sec. Litig., 78 F.3d 431, 436 (9th

27

Cir. 1996).

28

disrupting the litigation.”

This

Id. at 50.

See Primus Auto. Fin’l Servs., Inc. v. Batarse, 115

Id.

Bad faith means that the party

“Bad faith is present when an attorney

Bad faith can also consist of “delaying or
Hutto v. Finney, 437 U.S. 678,
3

1

689 n.14 (1978).

2

Initially, Evony recites a number of discovery abuses

3

perpetrated by Heroic Era and seeks to hold counsel liable for

4

them.

5

discovery process by failing to produce responsive documents

6

in response to Evony’s requests for production, refusing to

7

meet and confer regarding witness depositions, and waiting

8

until the proverbial eleventh hour before informing Evony that

9

no 30(b)(6) witness would appear for deposition as expected.

Evony asserts that Newman and Linke impeded the

10

Evony further argues that even after the court’s March 9, 2011

11

Order requiring Heroic Era to produce all documents withheld

12

on privilege grounds, no documents were produced (presumably

13

because no investigation by counsel was performed concerning

14

the merits of the noninfringement claim).

15

In response, Newman and Linke point out they provided

16

substantive discovery responses to Evony’s written demands,

17

and that Heroic Era provided Evony with “several gigabytes of

18

computer data” as well as interrogatory responses and the

19

graphic files Heroic Era used to create the Caesary game,

20

among other documents and data.1

21

As I stated during the hearing, I am troubled by what appears

(See Pl.’s Opp. p. 3.)

22
23
24
25
26
27
28

1

At the hearing, Evony argued that the computer data
produced was “garbage.” Evony’s counsel provided the court
with a copy of the production, which the court has reviewed.
There are a number of files on the CD that the court could not
open, either because they are corrupt or because they require a
special program. While the production does not appear to be as
substantive as Linke represented it to be, it does contain what
appear to be responsive documents and graphics, and Linke
represented to the court during the hearing that he worked with
Heroic Era to collect responsive documents and produced
everything in his possession.
4

1

to have been discovery gamesmanship on the part of both

2

parties’ counsel.

3

many wrongs, and from the court’s recollection, neither party

4

is absolved from having utilized overly-aggressive or ill-

5

conceived techniques.2

6

such as canceling a meet and confer session only four minutes

7

prior to its scheduled time was inconsistent with the manner

8

in which this court expects its attorneys to conduct

9

themselves.

They have regularly accused each other of

I previously warned Linke that conduct

Nonetheless, I find that sanctions pursuant to

10

section 1927 are not warranted.

Based on Linke’s

11

representations regarding the reasons for the discovery

12

difficulties encountered in this case, I find insufficient

13

evidence of the bad faith or abuse required to impose

14

sanctions under section 1927 or this court’s inherent powers.

15

While Linke’s approach to this lawsuit was at times

16

questionable, his conduct was not so egregious to warrant the

17

imposition of sanctions. See Lahiri v. Universal Music and

18

Video Distrib. Corp., 606 F.3d 1216, 1223 (9th Cir. 2010)

19

(“The district court’s authority to sanction attorneys under §

20

1927 and its inherent disciplinary power must be exercised

21

with restraint and discretion.”).

22

occurred is undisputed; that is why Evony obtained a default

23

judgment for over $600,000.

24

that it was Linke and Newman, and not Heroic Era, who were

That discovery abuses

What Evony has not established is

25
26
27
28

2

For example, Evony’s motion to compel Heroic Era’s
Rule 3-16 corporate disclosure statement (Docket No. 37) as a
means for obtaining discovery was, as stated at that hearing,
one of the least meritorious disputes that the court has ever
had to resolve.
5

1

responsible for the “blatant discovery abuses and litigation

2

misconduct.”

3

(Def.’s Mot. p. 3.)

Second Evony claims that Newman and Linke continued to

4

litigate Heroic Era’s noninfringement claim without any

5

evidentiary support and “in the face of uncontroverted

6

evidence undermining the claim.”

7

asserts that soon after Heroic Era’s complaint was filed,

8

Evony provided Newman and Linke with excerpts of an expert

9

analysis (the “Frappier Analysis”) that demonstrated that

(Def.’s Mot. p. 6.)

Evony

10

Heroic Era’s Caesary game infringed Evony’s copyrighted code.3

11

Nevertheless, Evony claims that Newman and Linke continued to

12

pursue Heroic Era’s noninfringement claim and made “no effort

13

to investigate whether the claim” had any merit.

14

p. 8.)

(Def.’s Mot

15

Evony also asserts that Newman and Linke should have

16

dismissed Heroic Era’s tortious interference claim after they

17

received the Frappier Analysis.

18

tortious interference claim is dependent on the

19

noninfringement claim, and that because the Frappier Analysis

20

demonstrated there was no viable claim for noninfringement,

21

there was also no viable claim for tortious interference.

Evony asserts that the

In response, Newman and Linke claim that the Frappier

22
23

Analysis was not a full report, and that the report’s limited

24

synopsis, which Newman and Linke were not permitted to share

25
3

26
27
28

The Frappier Analysis was provided to Newman and
Linke on or about July 30, 2010. (Def.’s Mot. p. 24.) Evony
asserts that the Frappier Analysis demonstrated that the source
code utilized to create the Caesary game was identical to the
source code utilized to create Evony’s game, so much so that
the typographical errors in the source codes matched.
6

1

with their client, was not sufficient grounds to abandon

2

Heroic Era’s noninfringement claim.4

3

Linke argue that they were under no obligation to accept the

4

Frappier Analysis as “gospel” and dismiss Heroic Era’s

5

complaint.

6

that he did in fact investigate the noninfringement claim by

7

(1) reviewing the Frappier Analysis and discussing it with

8

Heroic Era; (2) logging online to play both the Caesary game

9

and Evony’s game to compare the games; and (3) locating

10

approximately twenty witnesses with knowledge of how the

11

Caesary game was created and disclosing those names to Evony.5

12

As I stated at the hearing, I do not believe that Linke’s

Simply put, Newman and

During the hearing, Linke represented to the court

13

approach to this case resulted in a duplication or

14

multiplication of proceedings.

15

that Heroic Era was under no obligation to dismiss its lawsuit

16

based on the Frappier Analysis given that it was only a

17

partial report drafted by Evony’s expert witness, and that

18

Heroic Era disputed its analysis.

19

a favorable result; Heroic Era’s complaint was stricken and a

20

judgment against Heroic Era was entered in the amount of

21

$608,213.37.

22

is adequate to redress Evony for any difficulties it may have

I agree with Newman and Linke

Ultimately, Evony obtained

I believe that the relief granted under Rule 37

23
4

24
25
26
27
28

Newman also states that he never reviewed the
Frappier Analysis and only had limited involvement in the case.
5

After the hearing, the court issued an order
requiring Linke to submit his time records for the periods of
May 2010 to August 2010 and November 15, 2010 to December 20,
2010. The records reflect that Linke did have multiple
discussions with his contact at Heroic Era regarding discovery
responses and deposition preparation, consistent with the
representations he made to the court during the hearing.
7

1

encountered in this case and therefore decline to impose

2

additional sanctions.

3

in subjective bad faith, which is a necessary finding before

4

the court can support a sanction of attorneys’ fees under

5

section 1927.

6

2010 U.S. Dist. LEXIS 69194, at *6 (N.D. Cal. July 12, 2010)

7

(declining to impose sanctions because “[s]uspicions are not

8

sufficient to warrant imposition of Section 1927 sanctions ...

9

and the sworn record here is too thin to support a finding

I also do not believe that Linke acted

Lobato v. Bank of Am., N.A., Case No. 10-106,

10

that subjective bad faith has motivated [counsel’s] conduct in

11

this proceeding”); see also In Re Keegan Management Co., 78

12

F.3d 431, 436 (9th Cir. 1196).

13
14

It is therefore ORDERED that Evony’s motion is DENIED.
Dated: November 21, 2011

15
16

Bernard Zimmerman
United States Magistrate Judge

17
G:\BZALL\-REFS\HEROIC ERA V. EVONY\BZ SANCTIONS ORDER.wpd

18
19
20
21
22
23
24
25
26
27
28
8