Princeton Digital Image Corporation v. Office Depot Inc.

Filing 260

MEMORANDUM ORDER: Adobe's motion to disqualify Mr. O'Kelly (C.A. No. 13-239-LPS D.I. 240; C.A. No. 13-287-LPS D.I. 240; C.A. No. 13-288-LPS D.I. 240; C.A. No. 13-289-LPS D.I. 243; C.A. No. 13-326-LPS D.I. 241; C.A. No. 13-330-LPS D.I. 237; C.A. No. 13-331-LPS D.I. 239; C.A. No. 13-404-LPS D.I. 242; C.A. No. 13-408-LPS D.I. 255) is GRANTED. PDIC's motion to strike Dr. Becker's supplemental expert report (C.A. No. 13-239-LPS D.I. 241; C.A. No. 13-287-LPS D.I. 242; C.A. No. 13- 288-LPS D.I. 242; C.A. No. 13-289-LPS D.I. 240; C.A. No. 13-326-LPS D.I. 238; C.A. No. 13-330-LPS D.I. 240; C.A. No. 13-331-LPS D.I. 242; C.A. No. 13-404-LPS D.I. 240; C.A. No. 13-408-LPS D.I. 258) is GRANTED. PDIC's motion for summary judgment (C.A. No. 13-239-LPS D.I. 234; C.A. No. 13-287-LPS D.I. 234; C.A. No. 13-288-LPS D.I. 234; C.A. No. 13-289-LPS D.I. 233; C.A. No. 13-326-LPS D.I. 231; C.A. No. 13-330-LPS D.I. 231; C.A. No. 13-331-LPS D.I. 233; C.A. No. 13-404-LPS D.I. 232; C.A. No. 13-408-LPS D.I. 249) is DENIED. Signed by Judge Leonard P. Stark on 8/17/17. Associated Cases: 1:13-cv-00239-LPS et al. (ntl)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
PRINCETON DIGITAL IMAGE
CORPORATION,
Plaintiff,

v.

C.A. No. 13-239-LPS

OFFICE DEPOT INC.,
Defendant.
PRINCETON DIGITAL IMAGE
CORPORATION,
Plaintiff,
v.

· C.A. No. 13-287-LPS

J.C. PENNEY COMPANY, INC.,
Defendant.
PRINCETON DIGITAL IMAGE
CORPORATION,
Plaintiff,

v.

C.A. No. 13-288-LPS

QVC INC.,
Defendant. ,
PRINCETON DIGITAL IMAGE
CORPORATION,
Plaintiff,
v.

C.A. No. 13-289-LPS

SEARS HOLDINGS COMPANY,
Defendant.

PRINCETON DIGITAL IMAGE
CORPORATION,
Plaintiff,

v.

C.A. No. 13-326-LPS

LIMITED BRANDS, INC.,
Defendant.
PRINCETON DIGITAL IMAGE
CORPORATION,
Plaintiff,
v.

C.A. No. 13-330-LPS

GAP INC.,
Defendant.
PRINCETON DIGITAL IMAGE
CORPORATION,
Plaintiff,
v.

C.A. No. 13-331-LPS

WILLIAMS-SONOMA INC.,
Defendant.
PRINCETON DIGITAL IMAGE
CORPORATION,
Plaintiff,
v.

C.A. No. 13-404-LPS

COSTCO WHOLESALE CORP.,·
Defendant.

PRINCETON DIGITAL IMAGE
CORPORATION,
Plaintiff,

v.

C.A. No. 13-408-LPS

NORDSTROM.COM LLC,
NORDSTROM.COM INC., and NORDSTROM
INC.
Defendants.

MEMORANDUM ORDER
At Wilmington this 17th day of August, 201 7, having reviewed the parties' briefs on
Adobe's motion to disqualify PDIC's counsel Sean O'Kelly (D.I. 240, 246, 256), PDIC's motion
to strike the supplemental expert report of Dr. Becker (D.I. 241, 247, 257), and PDIC's motion
for summary judgment (D.I. 234), as well as additional briefing recently filed by the parties, 1
IT IS HEREBY ORDERED that:
1.

Adobe's motion to disqualify Mr. O'Kelly (D.I. 240) is GRANTED.

2.

The Court· has the inherent authority to supervise the professional conduct of

attorneys appearing before it, including the power to disqualify an attorney from a representation.

See United States v. Miller, 624 F.2d 1198, 1201 (3d Cir. 1980). Motions to disqualify are
"generally disfavored" and, therefore, require the moving party to show clearly that "continued
representation would be impermissible." Talecris Biotherapeutics, Inc. v. Baxter Int'/ Inc., 491
F. Supp. 2d 5l0, 513 (D. Del. 2007). However, because "[t]he maintenance of public confidence

1

All references to the docket index ("D.I.") are to C.A. No. 13-239, unless otherwise

noted.
1

in the propriety of the conduct of those associated with the administration of justice is so
important," a court may disqualify an attorney "for failing to avoid even the appearance of
impropriety." Kabi Pharmacia AB v. Alcon Surgical, Inc., 803 F. Supp. 957, 960 (D. Del. 1992).
Resolving the question of whether to disqualify counsel requires the Court to "carefully sift all
the facts and circumstances," Nemours Found. v. Gilbane, Aetna, Fed. Ins. Co., 632 F. Supp.
418, 423 (D. Del. 1986) (internal quotation marks omitted), which the Court approa~hes with
"cautious scrutiny," mindful of a litigant's right to the counsel of its choice, Laker Airways, Ltd.

v. Pan Am. World Airways, 103 F.R.D. 22, 28 (D.D.C. 1984).
3.

Attorney conduct is governed by the ethical standards of the court before which

the attorney appears. See In re Corn Derivatives Antitrust Litig., 748 F.2d 157, 160 (3d Cir.
1984). The District of Delaware has adopted the Model Rules of Professional Conduct of the
American Bar Association ("Model Rules"). See D. Del. LR 83.6(d). Applicable here is Model
Rule 3.7(a), which provides:
A lawyer shall not act as advocate at a trial in which the lawyer is
likely to be a necessary witness unless: (1) the testimony relates to
an uncontested issue; (2) the testimony relates to the nature and
value of legal services rendered in the case; or (3) disqualification
ofthe lawyer would work substantial hardship on the client.
4.

The Court finds that Mr. O'Kelly, PDIC's trial counsel, is likely to be a necessary

witness at trial and does not fall into one of the exceptions of Rule 3.7(a). 2 Mr. O'Kelly appears
on both PDIC and Adobe's "may call" witness lists and has personal knowledge of relevant facts,
including about PDIC's conduct before and after filing the infringement suits, which is probative

2

Although PDIC expressed some concerns about Adobe's lead trial counsel, Ms. Elliott
(D.I. 239), PDIC did not request any relief from the Court (D.I. 249), despite being provided an
express opportunity to do so (D.I. 245).
2

of whether PD IC-breached the covenant-not-to sue and whether any such breach was in good or
bad faith. Mr. O'Kelly also has unique, first-hand knowledge about the cases that PDIC's other
witnesses, including Mr. Meagher, do not. (See D.I. 256 at 2; D.I. 190 Ex. 2 at 45) 3 With respect
to the exceptions set out in Rule 3.7(a), Mr. O'Kelly's testimony does not relate to an
uncontested issue or the nature and value oflegal services. Nor is the Court persuaded that Mr.
O'Kelly's disqualification will work substantial hardship on PDIC Mr. Pazuniak has been lead
(and often seemingly sole) counsel for PDIC since 2015 and can continue to serve in that role.
Further, while Mr. O'Kelly will not be permitted to sit at counsel table or have a presence in the
courtroom distinct from that of other fact witnesses, the Court's decision today does not preclude
him from providing out-of-court assistance to Mr. Pazuniak. Finally, while the Court recognizes
that disqualification is not commonly warranted, and that attempts to disqualify trial .counsel on
the eve of trial may often be reflective of bad faith, here it is plain that Adobe has proceeded in
good faith with respect to this sensitive issue and, for the reasons explained above, its motion is
meritorious. 4

3

PDIC appears to recognize that Mr. O'Kelly may have unique information, but it
contends that such evidence is irrelevant, as the only moment that is relevant to Adobe's breachof-contract claim is when the suits against Adobe's customers were filed. (See D.I. 246 at 2) ("If
the covenent not to sue was breached, the breach could only have occurred when the cases were
filed. The conduct of the litigation, which is all that Adobe refers to in its motion, cannot
constitute a breach of the Agreement as a matter of law .... ") But the conduct of the litigationand, more generally, the thought processes and actions (taken and not taken) before and after the
filing of the lawsuits -is relevant, as that evidence is probative of whether PDIC committed a
breach and whether such breach was in bad faith or obvious. Thus, the Court agrees with Adobe
that "this case is about whether PDIC breached the agreement through the filing of lawsuits
against Adobe customers, including PDIC's actions (or inactions) both before and after filing
suit." (D.I. 256 at 1)
4

While Rule 3.7(a) is itself a sufficient and compelling basis for disqualifying Mr.
O'Kelly, the Court further agrees with Adobe's explanation of the reasoning for the Rule and
3

5.

PDIC's motion to strike Dr. Becker's supplemental report (D.I. 241) is

GRANTED.
6.

In determining whether to exclude evidence such as an expert report, the C_ourt

may consider: (1) the importance of the information withheld; (2) the prejudice or surprise to the
party against whom the evidence is offered; (3) the likelihood of disruption of the trial; (4) the
possibility of curing the preju.dice; (5) the explanation for the_ failure to disclose; and (6) the
presence of bad faith or willfulness in not disclosing the evidence (the "Pennypack factors"). See
Konstantopoulos v. Westvaco Corp., 112 F.3d 710, 719 (3d Cir. 1997) (citing Meyers v.
Pennypack Woods Home Ownership Ass 'n, 559 F.2d 894, 904-05 (3d Cir. 1977)). Generally,

"exclusion of critical evidence is an extreme sanction, not normally to be imposed absent a
showing of willful deception or flagrant disregard of a court order by the proponent of the
evidence." In re Paoli R.R. Yard PCB Litig., 35 F.3d 717, 791-92 (3d Cir. 1994) (internal
quotation marks omitted). The determination of whether to exclude evidence is committed to the
discretion of the Court. See id. at 749.
7.

The Court agrees with PDIC that Dr. Becker's supplemental report is not

compliant with the Court's summary judgment opinion (D.I. 220) and the order accompanying it,
which directed Adobe to serve a supplemental expert report consistent with the Court's rulings
(D.I. 221). In the summary judgment opinion, the Court made clear that "Adobe cannot collect

why it is important to enforce it here. "Mr. O'Kelly's dual role will only serve to confuse or
mislead the jurors who, unlike a judge, may find it difficult to distinguish between the role of a
fact witness and the role of counsel. ... Even if Mr. O'Kelly does not testify, it is too prejudicial
for him to serve as an advocate while his name and representations on behalf of PDIC are at the
epicenter of the disputes to be tried, replete in the record, and will be assessed by the jury as party
admissions." (D.I. 240 at 3)
4

as damages for the breach of contract any attorney fees Adobe incurred in the affirmative
breach-of-contract suit," finding these fees to be "the classic type of attorney fees that Adobe, in
attempting to vindicate its contract rights, must bear itself." (D.I. 220 at 13) The Court also held
that Adobe may be entitled recover as breach-of-contract damages its "defense fees - that is,
those Adobe incurred in defending Defendants from PDIC's infringement suit[s], suits that were
brought in alleged violation of the covenant not to sue." (Id.) Because Adobe indicated that "Dr.
Becker could split out Adobe's damages" (D.I. 198 at 19) - i.e., separate out affirmative fees
from defense fees - the Court exercised its discretion to provide Adob_e the opportunity to
"disaggregate its defense fees from its affirmative fees" (D.I. 220 at 14).
8.

Dr. Becker's supplemental report does not separate Adobe's defense fees from its

affirmative fees. Instead, Dr. Becker presents a damages theory - for the first time - "that as
long as there were cases pending against Adobe customers who formally requested
indemnification and/or defense from an infringement suit filed by PDIC, Adobe's legal fees were
incurred in furtherance of its ongoing efforts to get PDIC to dismiss the wrongfully filed
lawsuits, and are thus 'defense fees' under the Court's recent order." (D.I. 250 Ex. A

at~

7) Dr.

Becker then concludes that all legal fees incurred by Adobe through December 7, 2016 are
defense fees. (Id. at ~~ 7-8) This analysis does not separate defense fees from affirmative fees
but merely claims all fees as defensive so long as they were incurred while at least one Defendant
(who requested indemnification) was still involved in litigation with PDIC. The Court, in its
summary judgment opinion, rejected Adobe's all-or-nothing approach to damages. But Dr.
Becker's supplemental report simply reprises that approach with an earlier cutoff date. Thus, Dr.
Becker's report - which does not separate defense and affirmative fees, does not review whether

5

the fees claimed before December 6, 2016 were incurred in defending against the underlying
infringement suits, and merely opines in conclusory fashion that all fees through December 6
should be considered defense fees - does not comply with the Court's order to serve a report
identifying only defense fees.
9.

Furthermore, the Pennypack factors favor excluding Dr. Becker's supplemental

report. 5 Dr. Becker's failure to separate defense fees from affirmative fees was willfully
noncompliant with the Court's order. Adobe has provided no meritorious, persuasive
explanation for its failure. Further, Dr. Becker presents a new theory of what purportedly
constitutes defense damages - a theory Adobe did not articulate in its summary judgment papers
-which, if presented at trial (scheduled to begin less than four days from now), would unfairly
surprise and prejudice PDIC and/or disrupt the long-scheduled trial. While the supplemental
report is surely important evidence, the Court does not perceive a way to cure the unfair prejudice
to PDIC in any manner other than to preclude Dr. Becker from testifying to the opinions in the
supplemental report; nor has Adobe proposed an alternative cure.
10.

Adobe's contention that Dr. Becker's report is compliant with the Court's order is

predicated, at least in part, on Adobe's view that New Jersey law allows a party to recover
affirmative fees as defense fees when the fees are inextricably intertwined. This position is
unavailing for numerous reasons. First, Dr. Becker does not actually opine that the defense fees
and affirmative fees Adobe incurred are inextricably intertwined, that "any precise allocation of
expenses [as between affirmative and defense fees] would be impossible," or anything similar.

5

Despite PDIC's contention that the Pennypack factors are not relevant (D.I. 257 at 2), the
Court explicitly ordered the parties (at the pretrial conference) to address those factors in the
motion to strike briefing.
6

Voorhees v. Preferred Mut. Ins. Co., 588 A.2d 417, 425 (N.J. Super. Ct. App. Div. 1991); see
also Diamond v. John Martin Co., 753 F.2d 1465, 1467 (9th Cir. 1985) ("[A]lthough
time-keeping and billing procedures may make a requested segregation difficult, they do not,
without more, make it impossible."). Thus, Dr. Becker's supplemental .report- even if it were
not stricken-provides no basis on which a reasonable juror could find that all of Adobe's fees
before December 7, 2016 are defense fees.
11.

Moreover, the Court does not agree with Adobe's conclusions about New Jersey

law. (See D.I. 243, 248, 255) The cases on which Adobe relies do not address the pertinent
question: does New Jersey law permit a party to recover the attorney fees that party incurs in an
affirmative action (by which that party seeks to recover money damages) when those affirmative
fees are "inextricably intertwined" with fees that same party incurred in connection with
defending (itself or others; a "defense" which may include prosecuting counterclaims in the
"defensive" action) in other litigation. Almost all of Adobe's cases arise in the insurance context
(which appears to be a relevant distinction)- and, more importantly, they all use the labels
"affirmative" and "defensive" in a different manner than is pertinent here. Adobe has shown that
in the insurance context, courts (including those applying New Jersey law) have held that an
insurance company with a duty to defend an insured in an underlying action involving a
third-party may be obligated to pay for the insured' s legal fees arising from that underlying
litigation - which includes both "defense fees" (associated with the insured being sued by a third
party) and "affirmative fees" (associated with the insured asserting a counterclaim in the
underlying litigation against a third party) when those fees are inextricably intertwined with one
another. See, e.g., Voorhees, 588 A.2d at 419, 425; Safeguard Scis., Inc. v. Liberty Mut. Ins. Co.,

7

766 F. Supp. 324, 333-34 (E.D. Pa. 1991). Here, the Court determined in the summary judgment
opinion that Adobe is potentially entitled to all fees arising from the underlying infringement
actions (which the Court calls defense fees) but no fees arising from Adobe's breach-of-contract
claim (which the Court calls affirmative fees). (See D.I. 220 at 10-14) That the breach-ofcontract fees were incurred in the same lawsuits as the defense fees (due to Adobe being
permitted to intervene in the underlying infringement actions and its decision to file a complaint
in intervention asserting breach-of-contract) does not change the fundamental fact that New
Jersey law does not permit Adobe to recover fees incurred in pursuing its, affirmative, breach-ofcontract claim. What Adobe is attempting to achieve is analogous to an insured seeking to
recover the attorney fees the insured incurs in the action the insured files against the insurer
arising from the insurer's breach of contract in not paying the insured's attorney fees incurred in
an underlying action with a third party. Adobe has pointed the Court to no case applying New
Jersey law that-authorizes such a recovery. (See D.I. 257 at 2) (PDIC: "No case cited by Adobe
[or] other authority suggests that fees generated to provide a monetary recovery for Adobe can be
viewed as defensive, r~gardless of any potential incidental benefit or relatedness to other
issues.") And Adobe's attempt to recover such affirmative fees, even if inextricably intertwined
with defense fees, is precluded by the Court's summary judgment opinion. 6
12.

Given that the Court has stricken Dr. Becker's supplemental report, the Court

turns to PDIC's latest motion for summary judgment (D.I. 234), which the Court DENIES. PDIC

6

Adobe also cites cases involving fee-shifting statutes, which are explicit rejections of the
American Rule. See Diamond, 753 F.2d at 1466; Norton v. Wilshire Credit Corp, 36 F. Supp. 2d
216, 218 (D.N.J. 1999); Arthur D. Little Int'!, Inc. v. Dooyang Corp., 995 F. Supp. 217, 221 (D.
Mass. 1998). But Adobe does not invoke a fee-shifting statute to support its claimed damages.
8

contends that ''[w]ithout that report, there can be no record to support Adobe's damage claims."
(Id. at 7) Relatedly, PDIC asserts that Dr. Becker "is the only witness identified in the pretrial

order to testify that Adobe's claimed fees were reasonable and appropriate, or on damages
generally," and that the "pretrial order [does] not identify any record by which Adobe can now
make a damage claims consistent with the Court's Order." (Id. at 7-8) The Court disagrees.
There is sufficient evidence of record of Adobe's purely defensive fees, including Adobe's
billing records, on which a reasonable juror could find that Adobe has proven the damages
element of its breach-of-contract claim. Further, Adobe explained at the pretrial conference that
Dana Rao, its Rule 30(b)(6) witness, could testify about Adobe's legal fees and identify those
that are defense fees. Accordingly, it is appropriate to deny summary judgment.
13.

Having stricken Dr. Becker's supplemental report and denied PDIC's motion for

summary judgment, the more difficult question becomes how to proceed from here. Although
the Court agrees with Adobe that there is sufficient evidence in the record to determine the
amount of Adobe's fees that are purely defense fees, the total amount of defense fees that Adobe
asserts as damages (i.e., the actual bottom-line total dollar figure) is not in the record, and Adobe
has studiously avoided disclosing an amount that is consistent with the Court's rulings. It is also
far too late to permit Adobe yet another opportunity to serve an expert report to support such a
figure. However, because the Court is persuaded that there is factual evidence in the record (e.g.,
bills, Rao testimony) from which Adobe could prove it incurred some damages (i.e., defense
fees), because PDIC has long had this evidence, and because both parties stated at the pretrial
conference they wish to proceed to trial as scheduled (and have not subsequently asked for a
continuance), the Court will exercise its discretion to permit Adobe one final opportunity to

9

supplement its damages disclosures.
14.

Accordingly, by no later than noon on August 19, 2017, Adobe. shall file a letter

with the Court, copying PDIC, (i) disclosing the total amount (in dollars) of defense fees Adobe
is seeking as breach-of-contract damages (i.e., only those fees that Adobe incurred in defending
its customers in the infringement suits and no fees associated with Adobe's breach-of-contract

claim; defense fees that are "inextricably intertwined" with affirmative fees are not recoverable),
and (ii) identifying with particularity the record bases (e.g., the specific legal bills) on which
Adobe intends to rely to support its calculation of the amount of damages it is seeking. 7
15.

Provided that Adobe comp~ies with the preceding paragraph of this Order, trial

will begin, as scheduled, on Monday, August 21, 2017, with counsel appearing at 8:30 a.m. Each
side will be allocated a total of seven (7) hours for its trial presentation, as the Court continues to
believe that this amount of time will be more than adequate to permit each side a full and fair
opportunityto present its case on the limited material issues in dispute. 8

7

The parties are reminded that any submissions made outside of normal business hours,
including on weekends and holidays, must be accompanied by a courtesy copy sent to the
following electronic mail address: [e-mail].
8

To summarize, the Court's rulings on the pending motions are as follows: (1) Adobe's
motion to disqualify Mr. O'Kelly (C.A. No. 13-239-LPS D.I. 240; C.A. No. 13-287-LPS D.I.
240; C.A. No. 13-288-LPS D.I. 240; C.A. No. 13-289-LPS D.I. 243; C.A. No. 13-326-LPS D.I.
241; C.A. No. 13-330-LPS D.I. 237; C.A. No. 13-331-LPS D.I. 239; C.A. No. 13-404-LPS D.I.
242; C.A. No. 13-408-LPS D.I. 255) is GRANTED; (2) PDIC's motion to strike Dr. Becker's
supplemental expert report (C.A. No. 13-239-LPS D.I. 241; C.A. No. 13-287-LPS D.I. 242; C.A.
No. 13-288-LPS D.I. 242; C.A. No. 13-289-LPS D.I. 240; C.A. No. 13-326-LPS D.I. 238; C.A.
No. 13-330-LPS D.I. 240; C.A. No. 13-331-LPS D.I. 242; C.A. No. 13-404-LPS D.I. 240; C.A.
No. 13-408-LPS D.I. 258) is GRANTED; and (3) PDIC's motion for summary judgment (C.A.
No. 13-239-LPS D.I. 234; C.A. No. 13-287-LPS D.I. 234; C.A. No. 13-288-LPS D.I. 234; C.A.
No. 13-289-LPS D.I. 233; C.A. No. 13-326-LPS D.I. 231; C.A. No. 13-330-LPS D.I. 231; C.A.
No. 13-331-LPS D.I. 233; C.A. No. 13-404-LPS D.I. 232; C.A. No. 13-408-LPS D.I. 249) is
DENIED.
10

HON. LEONARD P. STARK
.UNITED STATES DISTRICT JUDGE

11