Silicon Storage Technology, Inc. v. National Union Fire Insurance Co. of Pittsburgh, PA et al

Filing 129

ORDER GRANTING-IN-PART MOTIONS TO COMPEL by Judge Paul S. Grewal granting-in-part 68 ; granting-in-part 74 (psglc2S, COURT STAFF) (Filed on 7/15/2015)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SAN JOSE DIVISION

United States District Court
For the Northern District of California

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SILICON STORAGE TECHNOLOGY, INC.,

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Plaintiff,
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v.
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NATIONAL UNION FIRE INSURANCE CO. )
OF PITTSBURGH, PA., et al.,
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Defendants.
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)

Case No. 5:13-cv-05658-LHK
ORDER GRANTING-IN-PART
MOTIONS TO COMPEL
(Re: Docket Nos. 68, 74)

Defendant National Union Fire Insurance Co. moves to compel Plaintiff Silicon Storage

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Technology, Inc. to respond further to National Union’s first set of requests for production by

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producing amended written responses, withheld responsive documents and an index detailing

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SST’s production thus far. National Union also moves for an extension of the discovery deadline.

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National Union’s motions to compel are GRANTED-IN-PART. Its request to extend the discovery
deadline is DENIED.

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I.
SST purchased insurance policies from National Union and Defendant XL Specialty

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Case No. 5:13-cv-05658-LHK
ORDER GRANTING-IN-PART MOTIONS TO COMPEL

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Insurance Co. that covered liability for claims arising from SST employees’ wrongful acts. 1 Only

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SST employees are insured under the policy, although SST itself is covered to the extent it

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indemnifies its employees. 2

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In 2011, Xicor, LLC sued SST and two SST employees, Bing Yeh and Amitay Levi, for
misappropriation of trade secrets. 3 Separate and apart from the trade secret litigation, Xicor and
SST were entwined in a patent infringement suit. 4 At the same time, SST’s parent—Microchip
Technology Inc.—had instituted a patent action against Xicor’s parent—Intersil Corp.—before the

United States District Court
For the Northern District of California

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International Trade Commission.5 Following mediation, SST, Yeh, Levi and Xicor settled the

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trade secret action. 6 Soon after, SST, Xicor, Microchip and Intersil settled their respective patent

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suits with a single cross-licensing agreement. 7

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SST brought this suit after National Union and XL refused to cover the settlement payment
on the grounds that some portion of the payment was consideration for settling the patent

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infringement suits, which fall outside the coverage of SST’s insurance policy. 8
II.

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This court has jurisdiction under 28 U.S.C. § 1332. The undersigned was assigned

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discovery matters in this case pursuant to Fed. R. Civ. P. 72(a).

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See Docket No. 1 at ¶ 8.

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See id. at ¶¶ 9-10.

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See id. at ¶ 2.

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See Docket No. 81-3 at ¶ 2.

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See id. at ¶ 3.

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See Docket No. 1 at ¶¶ 30-32.

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See Docket No. 81-3 at ¶ 7.

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See Docket No. 1 at ¶ 34; Docket No. 15 at ¶¶ 48-49.

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Case No. 5:13-cv-05658-LHK
ORDER GRANTING-IN-PART MOTIONS TO COMPEL

III.

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National Union is entitled to relief, but not nearly the full scope of the relief that it seeks.

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First, National Union is not entitled to amended responses and further production

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responsive to RFP Nos. 43, 47-48, 50, 56-61 and 72. Through this subset of RFPs, National Union

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sought information it claims is necessary to assess the value of the cross-licensing agreements that

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settled the previous patent actions. 9 SST objected to each RFP as overbroad, but agreed to produce

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any responsive documents exchanged in discovery during the previous patent actions. 10 National

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United States District Court
For the Northern District of California

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Union now argues SST improperly limited the scope of its production in response to National
Union’s RFPs relating to SST and Microchip’s previous patent actions. 11
Fed. R. Civ. P. 26(b) enables parties to obtain discovery on “any non-privileged matter that

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is relevant to any party’s claim or defense.” While Rule 26(b) is liberally interpreted, courts may

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limit discovery when it is “unreasonably cumulative or duplicative” or “the burden or expense of

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the proposed discovery outweighs its likely benefit.” 12

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Here, National Union’s RFPs are indeed overbroad and unduly burdensome; most of the
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RFPs seek “any and all” documents or communications “referring or relating” to broad subjects

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including all products accused of infringing any of 12 patents 13 and all SST communications about

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the licensing of any of 12 patents. 14 Even National Union’s RFPs for specific types of documents

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are overbroad. For example, while National Union attempts to frame RFP No. 72 as seeking

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See Docket No. 68-4 at 28-29, 32-34, 38-41, 47.

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See Docket No. 68 at 6-8.

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Fed. R. Civ. P. 26(b)(2)(C).

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See Docket No. 68 at 7.

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See id. at 32-33.
See id. at 40.

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Case No. 5:13-cv-05658-LHK
ORDER GRANTING-IN-PART MOTIONS TO COMPEL

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presentations to SST investors and potential investors about SST’s patent rights, 15 the RFP
encompasses all presentations to investors or potential investors regardless of subject matter. 16
Moreover, SST has already produced over one million pages of documents exchanged

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during the previous patent actions. 17 The parties to those actions considered the exchanged

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documents a sufficient basis for negotiating and entering into their settlement agreements. 18 For

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National Union’s stated purpose—assessing the value of the settlement agreements—the

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previously exchanged documents would appear to be adequate. Rather than point to any specific
document or category of documents SST has withheld, National Union speculates that some

United States District Court
For the Northern District of California

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relevant information may not have been exchanged in the prior litigation. 19 Mere speculation

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cannot justify the added expense of such discovery.

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All that being said, RFP No. 71 is a different story altogether. It seeks information about
SST and its employees unrelated to the previous patent actions: “[a]ny and all DOCUMENTS that
identify the number of shares and/or options of Silicon Storage Technology, Inc. or Microchip

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Technology, Inc. stock owned, exercised, or sold each year for LEVI and YEH by YOU.” 20
As an initial matter, the information National Union seeks is clearly relevant. Whether SST

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or its employees earned a profit from misappropriating trade secrets could affect the estimated

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liability or the scope of SST’s insurance coverage. 21 Moreover, none of SST’s objections are

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See Docket No. 68 at 7 (“Request No. 72 related to information provided to investors or potential
investors concerning the value of SST’s patent rights.”).
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See Docket No. 68-4 at 47 (“Any and all DOCUMENTS referring or relating to presentations to
investors or potential investors in Silicon Storage Technology, Inc. stock”).
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See Docket No. 68-1 at ¶ 7.

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See Docket No. 81-3 at ¶¶ 7-9.

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See Docket No. 68 at 7-8 ([B]ut SST has given National Union no reason to believe that all of
the requested information was exchanged by the parties in the underlying cases.”).
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See Docket No. 68-4 at 46.

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See Docket No. 15 at ¶ 52.

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Case No. 5:13-cv-05658-LHK
ORDER GRANTING-IN-PART MOTIONS TO COMPEL

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persuasive; they are merely boilerplate assertions that the RFP is irrelevant, vague and overbroad. 22

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Each term of RFP No. 71 has a clear meaning or is defined, and that the RFP is limited to two

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discreet employees’ stock interests in only two companies shows that the RFP is narrowly drawn. 23

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SST cannot argue that any resulting production will be unduly burdensome. It must produce any

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document responsive to RFP No. 71, subject to valid privilege objections, if any.

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Second, National Union is not entitled to production of certain documents that were

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properly withheld under California’s mediation privilege. California’s mediation privilege statute
provides “[n]o writing . . . that is prepared for the purpose of, in the course of, or pursuant to, a

United States District Court
For the Northern District of California

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mediation or a mediation consultation, is admissible or subject to discovery.” 24 Fed. R. Evid. 501

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provides “in a civil case, state law governs privilege regarding a claim or defense for which state

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law supplies the rules of decision.” This case is a diversity action governed by California law. 25

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As such, the court applies California’s law as to the scope of the mediation privilege. 26

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Fed. R. Evid. 408 provides more limited protections for mediation communications than
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California’s privilege, allowing statements and documents made during mediation for some

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purposes. 27 National Union suggests using Rule 501 as a vehicle to apply California’s mediation

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privilege necessarily conflicts with Rule 408. But courts in the Ninth Circuit consistently apply

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California’s mediation privilege through Rule 501 in diversity actions. 28 To advocate breaking

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See Docket No. 68-4 at 46.

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See id.; Docket No. 68 at 2 n.1, 5 n.6.

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Cal. Evid. Code § 1119(b).

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See Docket No. 1 at ¶ 6.

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Communications that fall under this privilege remain confidential even after mediation ends. See
Cal. Evid. Code § 1126.

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See Fed. R. Evid. 408(b) (“The court may admit this evidence for another purpose, such as
proving a witness’s bias or prejudice, negating a contention of undue delay, or proving an effort to
obstruct a criminal investigation or prosecution.”).
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See Goerner v. Axis Reinsurance Co., 400 Fed. Appx. 226, 228 (9th Cir. 2010) (treating
admission of a mediation brief as error under Cal. Evid. Code § 1119); Doublevision Entm’t, LLC
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Case No. 5:13-cv-05658-LHK
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with circuit precedent, National Union cites to dictum in a footnote of Milhouse v. Travelers

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Commercial Ins. Co. that raises the question of whether California’s mediation privilege might

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conflict with Rule 408. 29 The Milhouse court, however, explicitly declined to answer that

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question, 30 and numerous courts since Milhouse have continued to apply California’s mediation

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privilege through the lens of Rule 501. 31 Ultimately, precedent overwhelmingly shows that Rule

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408 functions as a floor for mediation protections in federal court rather than as a bar precluding
application of more protective state mediation statutes. 32
National Union also argues that a due process exception to California’s mediation privilege

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United States District Court
For the Northern District of California

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entitles it to discover SST’s mediation communications because those communications are

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important to National Union’s defense. But California’s mediation protections are not so easily

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circumvented. California’s legislature intended to encourage “candid disclosures and assessments”

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during mediation by providing “maximum protection for the privacy of communications in the
mediation context.” 33 The California Supreme Court “has refused to judicially create exceptions to

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v. Navigators Spec. Ins. Co., Case No. 14-cv-02848, 2015 U.S. Dist. LEXIS 10425, at *4-10 (N.D.
Cal. Jan. 28, 2015) (applying Cal. Evid. Code § 1119 et seq. to determine the scope of mediation
privilege in a diversity action); Haskins v. Employers Ins. of Wausau, Case No. 14-cv-01671, 2015
U.S. Dist. LEXIS 10645, at *7-11 (N.D. Cal. Jan. 28, 2015) (same); Chavez v. PVH Corp., Case
No. 13-cv-01797, 2014 WL 6617142, at *6 n.4 (N.D. Cal. Nov. 20, 2014) (same); State Nat’l Ins.
Co. v. Khatri, Case No. 13-cv-00433, 2014 U.S. Dist. LEXIS 64549, at *19-23 (N.D. Cal. May 9,
2014) (same).

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See 982 F.Supp.2d 1088, 1105 n.10 (C.D. Cal. 2013).

See id. (“The Milhouses’ untimely objection presents a seemingly rare, but serious tension
between the dictates of Federal Rule of Evidence 408 and Rule 501. . . . [T]he question need not
be resolved here”).
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See Goerner, 400 Fed. Appx. at 228; Doublevision Entm’t, LLC, 2015 U.S. Dist. LEXIS 10425,
at *4-10; Haskins, 2015 U.S. Dist. LEXIS 10645, at *7-11; Chavez, 2014 WL 6617142, at *6 n.4;
State Nat’l Ins. Co., 2014 U.S. Dist. LEXIS 64549, at *19-23.
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The Insurers also argue Rule 501 does not support application of California’s mediation
protections because the statutes creating those protections are not in the division of the California
Evidence Code that governs privilege. The many courts applying California mediation protections
through Rule 501 demonstrate that the formalist criterion of statute placement does not control
what constitutes a privilege within the scope of Rule 501. See id.
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Cassel v. Superior Court, 51 Cal. 4th 113, 132-33 (2011).

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Case No. 5:13-cv-05658-LHK
ORDER GRANTING-IN-PART MOTIONS TO COMPEL

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the statutory scheme, even in situations where justice seems to call for a different result.” 34 At the

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heart of this refusal to deviate from the statutory scheme “is the premise that the mere loss of

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evidence pertinent to the prosecution of a lawsuit for civil damages does not implicate such a

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fundamental interest” to warrant such an exception. 35 While the court is sympathetic to National

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Union’s defense-related concerns about settlement negotiations during mediation, National Union’s
desire to bolster its defense in a civil suit does not justify a due process exception to California’s

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mediation privilege.
National Union’s reliance on Milhouse to support an extension of this due process

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United States District Court
For the Northern District of California

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exception is unpersuasive. In Milhouse, the plaintiffs accused the defendant of acting in bad faith

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during mediation. 36 The court held that due process entitled the defendant to admit evidence of its

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own conduct during the mediation to rebut the plaintiffs’ accusations. 37 The Milhouse court’s

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holding appears to be in conflict with the California Supreme Court’s decision in Cassel that loss
of evidence relevant to a civil suit never implicates interests sufficient to trigger the due process

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exception to California’s mediation privilege. 38 Milhouse also is distinguishable from the present

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case. Unlike the defendant in Milhouse, National Union seeks to discover another party’s

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mediation statements rather than to admit evidence of its own conduct. The Milhouse rule that

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allows a defendant to admit its own mediation statements at trial may not discourage candid

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mediation discussion because parties retain control over disclosure of their own statements. The

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same cannot be said of a rule that allows defendants to discover other parties’ mediation

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Wimsatt v. Superior Court, 61 Cal. Rptr. 3d 200, 210 (2007).

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Cassel, 51 Cal. 4th at 135 (2011).

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See Milhouse, 982 F.Supp.2d at 1106.

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See id. at 1106-08.

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See 51 Cal. 4th at 1095 (“[A]pplication of the mediation confidentiality statutes to legal
malpractice actions does not implicate due process concerns so fundamental that they might
warrant an exception on constitutional grounds. . . . [T]he mere loss of evidence pertinent to the
prosecution of a lawsuit for civil damages does not implicate such a fundamental interest.”).
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statements. Parties that believe their statements can be discovered by others and potentially used

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against them in future civil suits are far less likely to speak openly during mediation. The

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undersigned’s own experience certainly suggests that the last thing we need in mediation is less

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candor. National Union’s proposed extension of the due process exception would directly

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contradict the mediation privilege’s purpose of facilitating candid discussion. 39 Here, SST

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properly withheld communications and documents falling within California’s mediation
privilege. 40
Third, it was proper for SST to withhold production of communications between SST’s

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United States District Court
For the Northern District of California

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attorneys and its employees’ attorneys based on the joint defense privilege. 41 The joint defense

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privilege is an exception to the general rule that disclosure of communications to third parties

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waives privilege protections. 42 It applies to communications between parties that “have in

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common an interest in securing legal advice related to the same matter” when the communication
is designed to further that interest. 43

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Here, the documents that SST withheld were exchanged between SST’s attorneys and its

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employees’ attorneys while SST and its employees were co-defendants in the trade secret litigation.

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At that time, SST and its employees shared a common interest in defending themselves against

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trade secret misappropriation claims. SST even signed joint defense agreements with both

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employees. 44 The communications also were designed to further an interest in securing legal

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See id. at 132-33.

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The mediation privilege granted here only extends as far as Judge Koh’s order that settlementrelated documents created after August 16, 2012 are not privileged. See Docket No. 38. To the
extent SST believes Judge Koh’s order is inconsistent with California law, SST must seek relief
from Judge Koh.

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The joint defense privilege is also referred to as the common interest doctrine.

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See OXY Res. California LLC v. Superior Court, 9 Cal. Rptr. 3d 621, 633 (2004).

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Id. at 636-37.

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See Docket No. 93 at 17 n.2.

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Case No. 5:13-cv-05658-LHK
ORDER GRANTING-IN-PART MOTIONS TO COMPEL

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advice; they contain legal analysis related to the underlying trade secret litigation. 45

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Fourth, National Union is not entitled to in camera review of the documents SST withheld

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on the basis of mediation and joint defense privilege. In United States v. Zolin, the Supreme Court

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recognized excessive court inspection of privileged documents may discourage the very

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communications such privileges are designed to protect. 46 Accordingly, in camera review is only

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appropriate if the party moving for inspection presents evidence that supports a reasonable belief
that in camera review may establish that the privilege does not apply. 47 Even after such a showing,
the court retains discretion to determine whether in camera review is appropriate based on the

United States District Court
For the Northern District of California

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“facts and circumstances of the particular case.” 48 This, National Union has not done. National

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Union has not given the court any reason to believe that SST’s privilege log or its privilege

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designations are improper. Nor has National Union put forth any evidence suggesting that the

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timing of mediation-related communications withheld under the joint defense privilege in any way
implicates their privilege status.

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Fifth, to the extent SST has not already complied with the requirements of

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Fed. R. Civ. P. 34(b), SST must provide an index of its produced documents that satisfies SST’s

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obligations under the Federal Rules. Rule 34(b)(2)(E)(i) requires responding parties to produce

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See Docket No. 74-7. National Union also contends SST has not met its burden of proving that
each withheld communication advanced a common interest. While a party asserting privilege has
the burden of proving the privilege’s applicability, that burden can be satisfied through creation of
a privilege log. See In re Grand Jury Investigation, 974 F.2d 1068, 1070-71 (9th Cir. 1992) (“We
have previously recognized a number of means of sufficiently establishing the privilege, one of
which is the privilege log approach.” (citations omitted)). SST’s privilege log identifies the parties
to each communication, each communication’s creation date and broadly describes the contained
legal analysis. See Docket No. 74-7. This level of detail is sufficient for SST to make a prima
facie showing that privilege applies. See In re Grand Jury Investigation, 974 F.2d at 1071 (holding
a privilege log identifying the nature of the document, all persons shown on the document to have
received or sent the document, the document’s creation date and information on each document’s
subject matter satisfies a party’s burden to demonstrate privilege applicability).

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See 491 U.S. 554, 570-71.

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See id. at 574-75.

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See id. at 572.

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ORDER GRANTING-IN-PART MOTIONS TO COMPEL

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documents “as they are kept in the usual course of business” or to “organize and label them to

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correspond to the categories in the request.” 49 A party electing the former method “must do more

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than merely represent to the court and the requesting party that the documents have been produced

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as they are maintained.” 50 “Providing information about how documents and ESI are kept under

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subsection (i) ‘[a]t a minimum . . . mean[s] that the disclosing party should provide information
about each document which ideally would include, in some fashion, the identity of the custodian or

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United States District Court
For the Northern District of California

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person from whom the documents were obtained, an indication of whether they are retained in hard
copy or digital format, assurance that the documents have been produced in the order in which they
are maintained, and a general description of the filing system from which they were recovered.’” 51
SST produced 14 volumes of documents. 52 Volumes 2-8 and 10-13 contain documents

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exchanged during the previous trade secret and patent litigation. 53 Volume 1 consists of discovery

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requests and responses, public pleadings and hearing transcripts from the underlying actions. 54

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Those documents were produced here as they were produced in the prior litigation and National
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Union appears satisfied with these productions. 55 Only volumes 9 and 14 contain newly collected

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Rule 34(b)(2)(E)(i).

See Pass & Seymour, Inc. v. Hubbell Inc., 255 F.R.D. 331, 334 (N.D.N.Y. 2008) (citing Johnson
v. Kraft Foods N. Am., Inc., 236 F.R.D. 535, 540-41 (D. Kan. 2006); Cardenas v. Dorel Juvenile
Group, Inc., 230 F.R.D. 611, 618 (D. Kan. 2005)); see also Google, Inc. v. Am. Blind & Wallpaper
Factory, Inc., Case No. 03-cv-05340, 2006 WL 5349265, at *3 (N.D. Cal. Feb. 8, 2006).

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See Venture Corp. Ltd. v. Barrett, Case No. 13-cv-03384, 2014 WL 5305575, at *3 (N.D. Cal.
Oct. 16, 2014) (citing Pass & Seymour, Inc., 255 F.R.D. at 337).

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See Docket No. 68-5 at 2-4.

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See id. at 3.

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See id. at 2.

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In its meet and confer letter criticizing SST’s production, National Union sought a corrected
production according to Rule 34(b)(2)(E)(i) for documents “other than those marked in the
underlying lawsuits.” See Docket No. 682-2 at 40. In the same letter, National Union requested a
different organizational guide for the documents exchanged in the earlier lawsuits, see id. at 40-41,
that SST eventually provided. See Docket No. 68-5 at 2. National Union’s brief focuses on
deficiencies in the organizational information provided for volumes 9 and 14. See Docket No. 68
at 14.
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