Crocs, Inc. v. Cheng's Enterprises, Inc. et al
ORDER. Dawgs' Rule 72 Objection to Magistrate Judge Tafoya's Order Compelling Dawgs to Produce Further Financial Information (Doc #701) 730 is OVERRULED. Dawgs' Motion to District Judge Under D.C.COLO.LCivR 30.2(b) to Stay Magistrate Judge's Order to Produce Discovery 747 is DENIED as MOOT. By Judge Philip A. Brimmer on 11/28/17. (pabsec)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Philip A. Brimmer
Civil Action No. 06-cv-00605-PAB-KMT
(Consolidated with Civil Action No. 16-cv-02004-PAB-KMT)
Civil Action No. 06-cv-00605-PAB-KMT
HOLEY SOLES HOLDINGS, LTD.,
DOUBLE DIAMOND DISTRIBUTION, LTD., and
U.S.A. DAWGS, INC.,
Civil Action No. 16-cv-02004-PAB-KMT
U.S.A. DAWGS, INC. and
DOUBLE DIAMOND DISTRIBUTION, LTD.,
THOMAS J. SMACH,
GEORGE B. BOEDECKER, JR.,
MICHAEL E. MARKS,
JOHN P. MCCARVEL,
SARA HOVERSTOCK, and
JOHN AND JANE DOE DEFENDANTS 1-30,
This matter is before the Court on defendant Dawgs’ Rule 72 Objection to
Magistrate Judge Tafoya’s Order Compelling Dawgs to Produce Further Financial
Information (Doc # 701) [Docket No. 730] and Dawgs’ Motion to District Judge Under
D.C.COLO.LCivR 30.2(b) to Stay Magistrate Judge’s Order to Produce Discovery
[Docket No. 747]. 1 On October 17, 2017, Magistrate Judge Kathleen M. Tafoya issued
an order granting in part and denying in part Crocs’s Motion to Compel Production of
Financial, Organizational and Ownership Information [Docket No. 600]. Docket No.
701. Defendant filed an objection to the order on October 31, 2017 and m oved for a
limited stay of the order pending this Court’s resolution of the objection. Docket No.
730; Docket No. 731. On November 14, 2017, the magistrate judge denied defendant’s
motion for a limited stay and ordered defendant to produce its 2016 and 2017 f inancial
statements within fourteen days. Docket No. 743. On November 15, 2017, defendant
filed a motion with this Court pursuant to D.C.COLO.LCivR 30.2(b), requesting a stay of
the magistrate judge’s order to produce such financial statements pending resolution of
defendant’s Fed. R. Civ. P. 72(a) objection. Docket No. 747. Plaintiff filed a response
“Defendant” is used in this order to refer to both U.S.A. Dawgs, Inc. and Double
Diamond Distribution, Ltd.
to defendant’s objection on November 21, 2017. Docket No. 758. Defendant filed its
reply on November 26, 2017. Docket No. 767.
Defendant’s objection pertains to a non-dispositive discovery matter. When
reviewing a party’s objection to a magistrate judge’s order on a non-dispositive matter,
the Court “must consider timely objections and modify or set aside any part of the order
that is clearly erroneous or is contrary to law.” Fed. R. Civ. P. 72(a); Hutchinson v.
Pfeil, 105 F.3d 562, 566 (10th Cir. 1997). The clearly erroneous standard “requires that
the reviewing court affirm unless it ‘on the entire evidence is left with the definite and
firm conviction that a mistake has been committed.’” Ocelot Oil Corp. v. Sparrow
Industries, 847 F.2d 1458, 1464 (10th Cir. 1988) (quoting United States v. United
States Gypsum Co., 333 U.S. 365, 395 (1948)).
Defendant asserts that the magistrate judge’s order compelling the production of
defendant’s financial statements is clearly erroneous and contrary to law on three
grounds: (1) defendant has already produced all the information relevant to plaintiff’s
claims; (2) defendant’s financial statements are not relevant; and (3) defendant has a
legitimate concern that its financial statements will be misused if produced. See Docket
No. 730 at 3-8. 2
Defendant also suggests error based on the magistrate judge’s failure to make a
finding that defendant’s financial statements are relevant to the issues in the case. See
Docket No. 730 at 6; Docket No. 747 at 4. Although defendant appears to be correct
that the magistrate judge did not make an express factual finding as to the relevance of
defendant’s financial statements, the transcript of the proceedings demonstrates that
the magistrate judge considered the issue. See Docket No. 730-1 at 13-14, 23-25,
220:10-221:22 (discussing relevance of financial statements in absence of anti-trust
claims), 230:18-232:8 (discussing value of financial statements to patent case).
Specifically, the magistrate judge asked plaintiff’s counsel to explain the relevance of
the financial statements outside of the antitrust, alter ego, and fraudulent transfer
Defendant first argues that it has produced all information relevant to plaintiff’s
calculation of damages, including financial statements through May 31, 2015 and a
summary of the unit sales, revenues, and costs for the allegedly infringing products.
Docket No. 730 at 3; Docket No. 621-1 at 2, ¶ 3; Docket No. 594-8 at 2-3. At the
hearing on Crocs’s motion to compel, the magistrate judge asked plaintiff’s counsel why
defendant’s production of summary sales information was insufficient. Docket No. 7301 at 24-25, 231:23-232:1. Counsel responded that the statem ents were “confirmatory
evidence” of defendant’s profits and costs and therefore relevant to plaintiff’s damages
claim. Id. at 25, 232:2-8. Defendant’s objection does not address this contention. Nor
does it cite any authority for the proposition that the production of summary sales
information precludes discovery of the underlying financial statements.
Defendant’s argument that its financial statements are no longer relevant to the
issues in the case is equally unavailing. Fed. R. Civ. P. 26(b)(1) permits discovery of
“any nonprivileged matter that is relevant to any party’s claim or defense and
proportional to the needs of the case.” Before ruling on plaintiff’s motion to compel, the
magistrate judge heard argument that defendant’s financial statements are relevant to
contexts. See id. at 14, 24, 221:6-9, 231:13-19. She f urther inquired into the necessity
of the financial statements given defendant’s prior production of sales information. Id.
at 24-25, 231:23-232:1. Finally, the magistrate judge expressly found that prejudgment
discovery of a party’s financial information is generally not permitted unless the
information is relevant to a claim or defense. Id. at 26-29, 233:7-236:6. Thus, the
record demonstrates that the magistrate judge thoroughly considered the parties’
arguments as to the relevancy of the financial statements and concluded that
prejudgment discovery of a party’s financial condition is not permitted unless relevant to
the issues in the case. Because the transcript of the hearing is sufficient to permit the
Court’s review of the magistrate judge’s order, the magistrate judge’s failure to make an
express factual finding as to the relevance of the financial statements does not,
standing alone, warrant sustaining defendant’s objection.
plaintiff’s claim for disgorgement. See Docket No. 730-1 at 14, 16, 25, 221:6-22,
223:18-21, 232:2-8. 3 In its objection to the magistrate judge’s ruling, defendant cites
various authorities for the proposition that a party’s financial status is not discoverable
under Fed. R. Civ. P. 26(b)(1) until final judgment has been entered. See Docket No.
730 at 5. But these cases state only the general rule. See, e.g., Saint Paul
Commodities, LLC v. Crystal Creek Cattle Co., 2012 WL 3135574, at *2-4 (N.D. Tex.
Aug. 1, 2012) (addressing whether claims for fraudulent transfer, civil and criminal
fraud, fraudulent concealment, civil conspiracy, unjust enrichment, and constructive
trust were barred by the doctrine of res judicata when information regarding party’s
financial condition was not discoverable in prior breach of contract suit); Sierrapine v.
Refiner Prods. Mfg., Inc., 275 F.R.D. 604, 605, 609-10 (E.D. Cal. 2011) (f inding that
information about defendant’s financial condition was not relevant to any claims or
defenses in breach of contract action); Lincoln Elec. Co. v. MPM Techs., Inc., 2009 WL
2413625, at *3 (N.D. Ohio Aug. 5, 2009) (holding that financial information sought for
purposes of evaluating defendant’s ability to satisfy judgment was not relevant to issues
in breach of contract case). In patent infringement suits, courts have routinely held that
an infringer’s financial information is relevant to the patent holder’s claim for damages.
As noted previously, the magistrate judge did not make a specific finding
regarding the relevance of the financial statements to plaintiff’s damages claims.
However, the magistrate judge heard argument that the financial statements were
“confirmatory evidence” of defendant’s profits and thus relevant to plaintiff’s claim for
damages. See id. at 25, 232:2-8. Moreover, the magistrate judge rejected plaintiff’s
alternative argument that the financial statements are discoverable based on their
relevance to potential claims of fraudulent transfer and alter ego. See id. at 26-29,
233:3-236:6. The record thus demonstrates that the only possible basis for the
magistrate judge’s order compelling the production of defendant’s financial statements
is a finding that those statements are relevant to plaintiff’s claim for damages.
See, e.g., Zvelo, Inc. v. SonicWALL, Inc., No. 06-cv-00445-PAB-KLM, 2013 WL
2338352, at *4 (D. Colo. May 29, 2013) (stating that “information about Defendant’s
profits resulting from its alleged infringing activity” was “Plaintiff’s only way to establish
damages” in patent infringement action); Nordock Inc. v. Sys. Inc., 2012 WL 4760784,
at *1-2 (E.D. Wis. Oct. 5, 2012) (granting motion to compel production of financial
records after finding that information regarding defendant’s profits was relevant to claim
for disgorgement under 35 U.S.C. § 289); Kimberly-Clark Worldwide, Inc. v. First
Quality Baby Prods., LLC, 2011 WL 3033033, at *3 (M.D. Pa. July 25, 2011) (stating
that “financial data [pertaining to allegedly infringing product lines] would be relevant to
issues of liability and damages in . . . patent infringement and patent validity litigation”);
Mintz v. Dietz & Watson, Inc., 2008 WL 5147234, at *1 (S.D. Cal. Dec. 5, 2008)
(characterizing request for “quantity and sales price of all the accused products” as “a
straightforward and fundamental request in a patent infringement matter”).
Defendant contends that its financial statements cannot be relevant because
plaintiff has refused to articulate a specific theory of recovery. See Docket No. 730 at
7. However, defendant fails to explain how such a refusal bears on the issue of
relevance under Rule 26(b)(1). See Greenkeepers, Inc. v. Nike, Inc., 2009 WL
3581817, at *4-5 (E.D. Pa. Oct. 29, 2009) (requiring parties to “exchange all documents
containing underlying records which may be relevant on the topic of amount of
damages, such as sales records and financial statements” even though plaintiff had not
disclosed damages theory it intended to pursue). 4 Moreover, by arguing that plaintiff
The Court further notes that plaintiff’s complaint alleges a claim for
disgorgement under 35 U.S.C. § 289. Docket No. 473 at 11, ¶ E.
has failed to establish a clear link between its damages claims and the requested
financial data, defendant improperly shifts the burden of proof onto plaintiff. See
Bonanno v. Quizno’s Franchise Co., LLC, 255 F.R.D. 550, 552 (D. Colo. 2009) (“W hen
the discovery sought appears relevant, the party resisting the discovery has the burden
to establish the lack of relevancy by demonstrating that the requested discovery . . .
does not come within the scope of relevance as defined under Fed. R. Civ. P. 26(b)(1) .
. . .” (quoting Simpson v. Univ. of Colorado, 220 F.R.D. 354, 359 (D. Colo. 2004))).
Finally, defendant asserts that its financial data may be misused if subject to
discovery. Docket No. 730 at 8. The Court notes, as an initial matter, that this
argument was not raised in defendant’s opposition to plaintiff’s motion to compel, and
thus the Court is not required to consider it. See United States v. Ledford, No. 07-cv01568-WYD-KMT, 2010 WL 749843, at *8 (D. Colo. Mar. 3, 2010) (“[A]rguments not
provided to the attention of the magistrate judge will not be considered in connection
with review of nondispositive motions.” (citing Claytor v. Comput. Assocs. Int’l, Inc., 211
F.R.D. 665, 667 (D. Kan. 2003)). 5 Even considering the argument on the merits, the
Court finds it unpersuasive. Although defendant alleges that plaintiff previously used
customer lists produced in discovery to threaten defendant’s customers with suit, see
Docket No. 730 at 8, defendant does not explain how the information contained in the
financial statements would be misused. Additionally, defendant has already produced
Defendant claims it could not have waived its argument regarding plaintiff’s
potential misuse of the financial statements because plaintiff’s misuse of previously
disclosed information did not occur until October 6, 2017, af ter briefing on plaintiff’s
motion to compel was complete. See Docket No. 767 at 4. However, defendant does
not explain why it did not raise the argument at the October 17, 2017 hearing on
plaintiff’s motion to compel. See Docket No. 730-1 (transcript of hearing).
its financial statements through May 31, 2015. See Docket No. 730 at 3. Defendant
does not assert that those statements have been used for improper purposes6 or that
the more recent statements contain sensitive information not previously disclosed.
For the foregoing reasons, the Court finds that defendant has failed to establish
that the magistrate judge’s order was clearly erroneous or contrary to law. It is
ORDERED that Dawgs’ Rule 72 Objection to Magistrate Judge Tafoya’s Order
Compelling Dawgs to Produce Further Financial Information (Doc #701) [Docket No.
730] is OVERRULED. It is further
ORDERED that Dawgs’ Motion to District Judge Under D.C.COLO.LCivR 30.2(b)
to Stay Magistrate Judge’s Order to Produce Discovery [Docket No. 747] is DENIED as
DATED November 28, 2017.
BY THE COURT:
s/Philip A. Brimmer
PHILIP A. BRIMMER
United States District Judge
Defendant does contend that plaintiff has misused its financial information to
“falsely insinuate that [defendant] is or may become insolvent.” Docket No. 730 at 8.
However, the Court is not persuaded that the use of discovered information to support a
litigating position constitutes “misuse” of discovery.
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