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

Filing 143

ORDER by Magistrate Judge Bernard Zimmerman denying 109 Motion for Sanctions (bzsec, COURT STAFF) (Filed on 11/21/2011)

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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

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