Youngevity International, Corp. v. Smith et al

Filing 605

ORDER ADOPTING REPORT AND RECOMMENDATION AND VACATING ORDER AWARDING ATTORNEYS FEES 557 561 . The award of attorneys fees in the Magistrate Judges order 557 is VACATED. Wakayas motion for sanctions re 337 is DENIED. The Report and Recommendation as to not granting other sanctions is ADOPTED. Signed by Judge Barry Ted Moskowitz on 1/10/2019. (sjm)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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Case No.: 16-cv-704-BTM-JLB
Youngevity International, et al.,

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Plaintiffs,

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v.

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Todd Smith, et al.,

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ORDER ADOPTING REPORT AND
RECOMMENDATION AND
VACATING ORDER AWARDING
ATTORNEY’S FEES

Defendants.

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[ECF Nos. 557, 561]

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Before the Court are the objections filed by Plaintiffs and Counterclaim

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Defendants Youngevity International, Corp. et al. (“Youngevity” or Plaintiffs), (see

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ECF No. 561 (“Objs. to Am. R. & R. & Order” or “the Objections”)), to the

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Amended Report and Recommendation and Order, issued on July 2, 2018 by the

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Magistrate Judge, awarding attorney’s fees to Defendants Wakaya Perfection,

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LLC., et al. (“Wakaya” or Defendants) under Federal Rule of Civil Procedure

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37(b)(2)(C), (see ECF No. 557 (“Am. R. & R. & Order” or “the Magistrate Judge’s

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order”).) For the reasons discussed below, the Court ADOPTS the R. & R. and

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VACATES the order awarding attorney’s fees to Wakaya.

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//
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16-cv-704-BTM-JLB

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BACKGROUND
The Magistrate Judge observed that the parties had mistrust for one

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another. (Am. R. & R. & Order at 2.) That is an understatement. The parties

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have engaged in scorched earth litigation reminiscent of Mad Magazine’s cartoon

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Spy vs. Spy. Over 70 depositions have been taken. Over 110 motions have

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been filed, including 37 motions for summary judgment. In this judge’s thirty-two

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years on the federal bench, I have seen nothing like this. Youngevity and

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Wakaya are seeking to use the litigation to inflict a mortal wound on each other’s

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businesses. The attorneys have unfortunately taken up their clients’ attitude.

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Each side is lying in wait for the other to make a mistake so that it can then jump

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out, proclaiming gotcha. The objections to the Magistrate Judge’s order arise

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from this background.

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Under Federal Rule of Civil Procedure Rule 37(b)(2)(C), a court can award

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sanctions for violation of a protective order. Rule 37(b)(2)(C) provides that with

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respect to payment of expenses for failure to comply with a court order,

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the court must order the disobedient party, the attorney advising that
party, or both to pay the reasonable expenses, including attorney's
fees, caused by the failure, unless the failure was substantially
justified or other circumstances make an award of expenses unjust.
Fed. R. Civ. P. 37(b)(2)(C).

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Here, Wakaya seeks sanctions for Youngevity’s violation of the protective

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order for three disclosures designated as “Confidential—Attorney’s Eyes Only.”

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Wakaya alleges that Youngevity violated the protective order by (1) publicly filing
the start dates of two Wakaya sales representatives, (2) disclosing the start date
of a distributor to deponents during their depositions, and (3) disclosing sales
data, contained in an expert report prepared by Youngevity’s own expert but
based on discovery produced by Wakaya, to Plaintiff and Counterclaim
Defendant Steve Wallach, Youngevity’s CEO. (See Am. R. & R. & Order at 2

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16-cv-704-BTM-JLB

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(citing ECF No. 420, 3-5).) The Magistrate Judge recommends the denial of

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sanctions other than an award of attorney’s fees to Wakaya, and Wakaya did not

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object. The Court adopts this part of the R. & R.

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STANDARD
The Court has reviewed the Magistrate Judge’s order, the Objections, and

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the briefing by both parties that followed, pursuant to Federal Rule of Civil

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Procedure 72(a), which provides that with respect to nondispositive matters,

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“[t]he district judge in the case must consider timely objections and modify or set

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aside any part of the order that is clearly erroneous or is contrary to law.”

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Fed. R. Civ. P. 72(a); 28 U.S.C. § 636(b)(1)(A) (“A judge of the court may

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reconsider any pretrial matter [first determined by a magistrate judge] where it

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has been shown that the magistrate judge’s order is clearly erroneous or contrary

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to law.”). The Ninth Circuit has reaffirmed that “[a] district judge may reconsider

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a magistrate[] [judge’s] order in a pretrial matter if that order is ‘clearly erroneous

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or contrary to law.’” Osband v. Woodford, 290 F.3d 1036, 1041 (9th Cir. 2002);

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see also Brown v. Wesley’s Quaker Maid, Inc., 771 F.2d 952, 954 (6th Cir. 1985)

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(noting that the magistrate judge may rule directly on a “non-dispositive pretrial

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motion such as a discovery motion” and that “[t]he scope of review is the ‘clearly

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erroneous’ standard”)).

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DISCUSSION

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Youngevity objects to the Magistrate Judge’s order, asserting that it is

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based on clearly erroneous fact finding. The Court need not and does not reach

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those objections, because the award of fees is vacated on other grounds.

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Rule 37(b)(2)(C) authorizes attorney’s fees for violation of a protective

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order unless “other circumstances make an award of expenses unjust.”

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Fed. R. Civ. P. 37(b)(2)(C). In the Ninth Circuit, sanctions under Rule 37(b)(2)(C)

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are “appropriate only in ‘extreme circumstances’ and where the violation is ‘due

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to willfulness, bad faith, or fault of the party.’” Fair Hous. of Marin v. Combs, 285
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16-cv-704-BTM-JLB

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F.3d 899, 905 (9th Cir. 2002) (citing U.S. for the Use & Benefit of Wiltec Guam,

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Inc. v. Kahaluu Constr. Co., 857 F.2d 600, 603 (9th Cir. 1988)); see also

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Paterson v. Dunham, 645 F. App’x. 535, 536 (9th Cir. 2016) (citing Fair Hous. of

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Marin, 285 F.3d at 905) (holding that the district court did not abuse its discretion

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in partially denying appellant’s motion for sanctions because “sanctions are only

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appropriate in extreme circumstances where the violation is due to willfulness,

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bad faith, or fault of the party”). While “[d]isobedient conduct not shown to be

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outside of the litigant’s control” meets the Ninth Circuit’s standard for granting

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sanctions as a general matter, see Fair Hous. of Marin, 285 F.3d at 905, the

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Ninth Circuit also recognizes that “not all disobedient conduct is of the same

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order,” see In re Phenylpropanolamine Prods. Liab. Litig., 460 F.3d 1217, 1248

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n.19 (9th Cir. 2006).

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Here, Wakaya produced about 116,000 documents and designated about

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114,000 as confidential under the protective order. Even if Youngevity did make

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improper disclosures in the few instances of which Wakaya complains in the

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present motion, the circumstances are not sufficiently extreme as to warrant

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sanctions. Indeed, the sheer volume of documents produced, ninety-eight

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percent of which was deemed confidential, relative to the very minimal alleged

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disclosures in the present motion, constitutes precisely the kind of circumstance

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provided for in Rule 37(b)(2)(C) that would make an award of attorney’s fees

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unjust. Moreover, there is no showing of bad faith or prejudice. Given

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Youngevity’s adherence to the protective order otherwise, sanctions in the form

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of attorney’s fees would not be just.

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This is not to say that the Court countenances violations of a court order or

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rule. Youngevity’s counsel are hereby admonished. All counsel for both

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Plaintiffs and Defendants are admonished to follow rules and orders, especially

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this district’s Local Civil Rule 83.4, which details the standards and expectations

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of professionalism required by lawyers who practice before this court. In
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particular, the Court warns the parties to avoid the conduct that Rule 83.4 warns

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against, including the prescriptions that attorneys must not “[k]nowingly

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participate in litigation or any other proceeding that is without merit or is designed

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to harass or drain the financial resources of the opposing party,”

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CivLR 83.4(a)(2)(c), nor “[s]eek sanctions against or the disqualification of any

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other attorney for any improper purpose,” CivLR 83.4(a)(2)(e).

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All counsel are warned that willful violations of rules or orders may result in

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pro hoc vice authorization being revoked or disciplinary proceedings for those

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already members of the bar of this court.

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CONCLUSION

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For the foregoing reasons, the award of attorney’s fees in the Magistrate

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Judge’s order (ECF No. 557) is VACATED. Wakaya’s motion for sanctions (ECF

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No. 337) is DENIED. No motion for reconsideration will be filed without leave of

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the Court. In light of Wakaya’s pending motion for terminating sanctions, or, in the

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alternative, issue, evidentiary, and monetary sanctions (ECF No. 552) based in

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part on the disclosures addressed above that Wakaya argues are improper, this

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Order is without prejudice to granting sanctions based on the record for that

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motion. The Report and Recommendation as to not granting other sanctions is

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ADOPTED.

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IT IS SO ORDERED.

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Dated: January 10, 2018

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