Verigy US, Inc. v. Mayder, et al

Filing 434

ORDER by Magistrate Judge Howard R. Lloyd granting in part and denying in part 295 defendants' motion to compel production of documents. (hrllc2, COURT STAFF) (Filed on 11/21/2008)

1 2 3 4 5 6 7 8 9 10 NOT FOR CITATION IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION VERIGY US, INC., v. Plaintiff, No. C07-04330 RMW (HRL) ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO COMPEL PRODUCTION OF DOCUMENTS [Re: Docket No. 295] *E-FILED 11/21/2008*

United States District Court

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For the Northern District of California

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ROMI OMAR MAYDER, WESLEY MAYDER, SILICON TEST SYSTEMS, INC., and SILICON TEST SOLUTIONS, LLC, Defendants. /

Defendants move for an order compelling a further production of documents in response to their second and third sets of requests for documents. Plaintiff Verigy US, Inc. ("Verigy") opposes the motion. At the motion hearing, Verigy was directed to, and did, submit the disputed documents to this court for an in camera review. Having completed its review of those documents, and upon consideration of the moving and responding papers and the arguments of counsel, this court grants the motion in part and denies it in part. Verigy sues for alleged trade secret misappropriation by its former employee Romi Mayder and the new companies he formed, Silicon Test Systems, Inc. ("STS, Inc.") and Silicon Test Solutions LLC ("STS LLC") (collectively, the "STS Entities"). Non-party Robert Pochowski, a former employee of Verigy's predecessor, Agilent, Inc., reportedly helped Mayder found STS LLC. According to defendants, STS LLC was never made operational because of disagreements between Pochowski and Mayder about financial

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matters, among other things. Pochowski now says that Mayder misled him into believing that Verigy did not own any of the intellectual property used by STS LLC. (Id., ¶ 7). Additionally, Pochowski reportedly asserted ownership of some of the intellectual property claimed by STS (including inventions claimed in a utility patent on which Pochowski is identified as an inventor). According to Pochowski, during these discussions, Mayder threatened to sue him. (Pochowski Decl., ¶ 6). Although Pochowski is not a party to this litigation, Verigy claims that he is a key witness to, and was involved in, certain material events and transactions. Verigy has entered into a "Common Interest and Joint Defense Agreement" (Stebbins Decl., Ex. A) with him and has exchanged documents and communications with Pochowski and his counsel. There is no apparent dispute as to the relevance of these documents and communications. However, Verigy has withheld them as privileged or work product and has described them on a privilege log. (Stebbins Decl., Ex. B). Defendants doubt that these documents qualify for protection under the attorney-client privilege or the attorney work product doctrine. Even assuming some privilege or protection applies, the parties dispute whether Verigy nonetheless may continue to withhold these documents and communications based on the "common interest" doctrine. The "common interest" doctrine is not a privilege in and of itself. Rather, it is an exception to the rule on waiver where communications are disclosed to third parties. Nidec Corp. v. Victor Co. of Japan, 249 F.R.D. 575, 578 (N.D. Cal. 2007). "Of course, since it is an anti-waiver exception, it comes into play only if the communication at issue is privileged in the first instance." Id. A basic requirement of the common interest exception is "that the parties must have `a common legal, as opposed to commercial, interest.'" Id. at 579 (quoting Bank Brussels Lambert v. Credit Lyonnais (Suisse), S.A., 160 F.R.D. 437, 447 (S.D.N.Y. 1995)). Thus, "[t]he common interest doctrine does not encompass a joint business strategy which happens to include as one of its elements a concern about litigation." Bank Brussels Lambert, 160 F.R.D. at 447. Based upon its in camera review of the documents, this court finds that no privilege or work product protection attaches to the following documents: 2

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PRIV0003-00091 PRIV0031-0035 PRIV0049 PRIV0065-0075 PRIV0080-0093 PRIV0102-0106 PRIV0128-0148 PRIV0153-0167 PRIV0200 PRIV0210-0217 PRIV0224 PRIV0250-0254 PRIV0261-0264 PRIV0310-0315 PRIV0330-0331 PRIV0339 PRIV0345 Verigy shall produce these documents within ten days from the date of this order. The remainder of the disputed documents appear to constitute or include attorney-client privileged communications and attorney work product. This court therefore must consider whether Verigy properly may continue to withhold these documents under the common interest doctrine. The common interest doctrine "applies where (1) the communication is made by separate parties in the course of a matter of common interest; (2) the communication is designed to further that effort; and (3) the privilege has not been waived." United States v. Bergonzi, 216 F.R.D. 487, 495 (N.D. Cal. 2003). It "does not require a complete unity of interests among the participants, and it may apply where the parties' interests are adverse in substantial respects." Id. There need not be actual litigation for the doctrine to apply. See Nidec Corp., 249 F.R.D. at 578 (citing Union Carbide Corp. v. Dow Chemical Co., 619 F. Supp. 1036, 1047 (D. Del. 1985)).

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Verigy's privilege log entry for PRIV0001-0002 does not match the document bearing that identification number. The document stamped PRIV0001-0002 appears to be an internal communication within plaintiff's counsel's firm on an administrative matter having no bearing on the substantive issues under consideration here. It shall not be produced. The email described in Verigy's privilege log entry No. 1 appears to be included in the email stamped PRIV0003-0005 (described in privilege log entry No. 2) that is being ordered produced. While there is no page stamped PRIV0007 among the documents submitted by Verigy, it is not apparent that any pages are missing from this range. So, the court assumes that the PRIV0007 was inadvertently skipped.
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"The critical inquiry is whether a sufficient commonality of interests exists between the parties such that the privilege may be asserted." In re Imperial Corp. of America, 179 F.R.D. 286, 289 (S.D. Cal. 1998) (citations omitted). At the motion hearing, Verigy agreed that the mere fact that two or more persons or entities agree that they have common interests does not establish grounds for application of the doctrine. Instead, a common interest sufficient to invoke the anti-waiver exception of the doctrine has been found in three general situations. Typically, a sufficient common interest will be found where a single attorney acts for multiple clients or where parties share a common defense (e.g. co-defendants in the same action or defendants sued in separate actions by the same plaintiff). Nidec Corp., 249 F.R.D. at 578; Bank Brussels Lambert, 160 F.R.D. at 447. In the third, and perhaps most expansive circumstance, the common interest doctrine has been said to apply to "`interested third parties who have a community of interests with respect to the subject matter of the communications.'" Nidec Corp., 249 F.R.D. at 578 (quoting RICE, ATTORNEY-CLIENT PRIVILEGE IN THE UNITED STATES § 4:35, at 199-201)). However, "that legal assistance must pertain to the matter in which the parties have a joint interest, and the communications must be designed to further that specific legal interest." Id. Verigy asserts that it shares the following "common interests" with Pochowski: (1) (2) (3) (4) (5) (6) establishing that Mayder misappropriated Verigy's claimed trade secrets; refuting Mayder's claims of ownership over intellectual property, including inventions claimed in defendants' patent applications; preserving Verigy's claimed trade secrets; avoiding or eliminating the risk of litigation by Mayder; eliminating or reducing the risk that Mayder will contend that either Pochowski or Verigy use intellectual property he claims to own; and reducing the costs of this litigation.

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For their part, defendants contend that Pochowski disavowed any common legal interest with Verigy during his first deposition on October 2, 2007. (See Hale Decl., Ex. 4). Defendants further assert that Verigy has consistently claimed to own all of the intellectual property that defendants say they developed, and that Verigy's and Pochowski's purported 4

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shared interests in the same must therefore be adverse. They argue that the withheld documents are relevant to show bias. Defendants believe that Pochowski is merely testifying under threat of legal action by Verigy and that Verigy is now trying to hide that fact under the guise of "common interest." This court finds that the six so-called "common interests" proffered by Verigy really boil down to three ­ none of which are sufficient to invoke the common interest exception to waiver under the circumstances presented here. The first and third "common interests" ­ establishing that Mayder misappropriated Verigy's claimed trade secrets and preserving Verigy's claimed trade secrets ­ are really one and the same. Pochowski says that he anticipates a possible legal dispute with Mayder pertaining to their dispute about STS LLC. Pochowski adds that he wishes to maintain his longstanding business relationship with Verigy. For its part, at oral argument, Verigy stated that its position is aptly summarized by the policy doctrine: "The enemy of my enemy is my friend." In other words, Verigy and Pochowski wish to see Verigy prevail in this action because they both have disputes with Mayder. However, a shared desire to see a party succeed in an action is insufficient to invoke the "common interest" doctrine. See generally Gulf Islands Leasing, Inc. v. Bombardier Capital, Inc., 215 F.R.D. 466, 473 (S.D.N.Y. 2003) (citing cases). Moreover, Verigy and Pochowski's desire to maintain a cordial business relationship is a commercial, not legal, interest. Verigy's second, fourth and fifth proffered "common interests" fare no better. In essence, Verigy and Pochowski say that they own intellectual property claimed by defendants and wish to avoid or eliminate the risk that Mayder will sue them for using intellectual property that he claims to own. Here, Verigy and Pochowski explain that they both have an interest in continuing to develop products and services in the automated test equipment ("ATE") industry. Curiously, in his first deposition, Pochowski seemed to disclaim any common interest with Verigy; and, he did not identify the reported shared interest in intellectual property until he was deposed again over a month later. (See Hale Decl., Exs. 4 and 7). In any event, this court finds these three "common interests" are really just different ways of saying one thing: Verigy and 5

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Pochowski want to continue to conduct business in the ATE industry while reducing or eliminating the risk of litigation with Mayder over intellectual property. This strikes the court as little more than a business strategy that happens to include a concern about litigation. Nor has Verigy managed to convince that the shared desire to reduce the costs of this litigation amount to a common interest exception to waiver. Here, Verigy says that Pochowski's cooperation enabled them to avoid the expense of proceeding with the formalities of non-party discovery. To be sure, this is a desire shared by all litigants in any lawsuit. On the record presented here, this court finds no reason to deem it a commonality of interest sufficient to invoke the doctrine. Accordingly, this court concludes that the common interest doctrine does not apply under the particular circumstances presented here. Verigy shall produce the following documents within ten days from the date of this order: PRIV0177-0187 PRIV0199 PRIV0201-0209 PRIV0218-0220 PRIV0284-0285 PRIV0301-0302 As for the remaining documents, this court finds that they constitute attorney work product as to which there has been no waiver. Accordingly, they need not be produced. See Samuels v. Mitchell, 155 F.R.D. 195, 201 (N.D. Cal. 1994) ("[T]he work product privilege is not automatically waived by any disclosure to third persons. . . . Rather, the courts generally find a waiver only if the disclosure `substantially increases the opportunity for potential adversaries to obtain the information.'") (quoting In Re Grand Jury, 561 F. Supp. 1247, 1257 (E.D.N.Y. 1982)); see also Nidec Corp., 249 F.R.D. at 580 (same). SO ORDERED. Dated: November 21, 2008 HOWARD R. LLOYD

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UNITED STATES MAGISTRATE JUDGE

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5:07-cv-4330 Notice electronically mailed to: Christopher Joseph Sargent [e-mail] Colin Geoffrey McCarthy [e-mail], [e-mail] Daniel J. Bergeson [e-mail], [e-mail] Donald P. Gagliardi [e-mail], [e-mail] Hway-Ling Hsu [e-mail], [e-mail] Jack Russo [e-mail] John A.D. Kelley [e-mail] John W. Fowler [e-mail], [e-mail] Melinda Mae Morton [e-mail], [e-mail] Michael William Stebbins [e-mail], [e-mail] Tim C. Hale [e-mail] Counsel are responsible for distributing copies of this document to co-counsel who have not registered for e-filing under the court's CM/ECF program.

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