Solutran, Inc. v. U.S. Bancorp et al

Filing 151

ORDER denying 125 APPEAL/OBJECTION OF MAGISTRATE JUDGE DECISION to District Judge. The Magistrate Judge's October 3, 2016 Text Only Order 115 is AFFIRMED. (Written Opinion) Signed by Judge Susan Richard Nelson on 12/20/2016. (SMD)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA

Solutran, Inc.

Case No. 13-cv-2637 (SRN/BRT)
Plaintiff,

v.
U.S. Bancorp and Elavon, Inc.,
Defendants.
MEMORANDUM OPINION
AND ORDER
U.S. Bancorp and Elavon, Inc.
Counter-claimants,
v.
Solutran, Inc.
Counter-defendant.

David J. Wallace-Jackson, Robert J. Gilbertson, and Sybil L. Dunlop, Greene Espel
PLLP, 222 South Ninth Street, Suite 2200, Minneapolis, Minnesota, for Plaintiff and
Counter-defendant.
Ben D. Kappelman, J. Thomas Vitt, Kenneth E. Levitt, and Peter M. Lancaster, Dorsey &
Whitney LLP, 50 South Sixth Street, Suite 1500, Minneapolis, Minnesota 55402, for
Defendants and Counter-claimants.

SUSAN RICHARD NELSON, United States District Judge
I.

INTRODUCTION
This matter comes before the Court on Defendants’ Objections [Doc. No. 125] to

an order of the magistrate judge 1 denying their motion for leave to amend their invalidity
contentions. (See Oct. 3, 2016 Text Only Order [Doc. No. 115].) For the reasons stated
below, Defendants’ objections are overruled, and the order is affirmed.
II.

BACKGROUND
The facts underlying this patent infringement action are detailed, lengthy, and

complicated.

For purposes of the present matter, however, the relevant facts are

essentially procedural.

Plaintiff Solutran, Inc. (“Solutran”) filed its Complaint on

September 25, 2013. (See generally Compl. [Doc. No. 1].) After a stipulation to extend
the deadline for filing a responsive pleading, Defendants duly filed their Answer on
November 12, 2013, denying infringement and asserting counterclaims for declaratory
judgments of noninfringement and invalidity. (See generally Answer [Doc. No. 9].)
With the parties’ input, Magistrate Judge Steven E. Rau subsequently entered a pretrial
scheduling order providing that Solutran’s initial infringement contention chart would be
due by July 15, 2014. (Pretrial Scheduling Order [Doc. No. 28] at 1.) Defendants were
required to provide a list of all prior art upon which they intended to rely within thirty
days of receipt of the infringement chart. (Id. at 3.) According to the schedule, this case
was intended to be ready for trial by the middle of October, 2015. (Id. at 9.)
As required by the Pretrial Schedule, Solutran served its infringement contentions
on July 15. (Ernstene Aff. [Doc. No. 105] ¶ 2.) Defendants responded with their
invalidity contentions on August 15, 2014, which included exhibits for twenty-one pieces
of alleged prior art. (Id. at ¶ 3.) They then chose to challenge the validity of the patent at
1

The Honorable Becky R. Thorson, United States Magistrate Judge.
2

issue in this suit 2 through a Covered Business Method (“CBM”) proceeding before the
United States Patent and Trademark Office’s Patent Trial and Appeal Board (“PTAB”).
At Defendants’ request, the Court stayed this action pending resolution of the CBM
review. (See generally Sept. 18, 2014 Order.)
On August 5, 2015, the PTAB issued a final, written decision, rejecting
Defendants’ claim that the at-issue patent was invalid. (See Dunlop Aff. [Doc. No. 55],
Ex. A.) As a result of this decision, Solutran asked Defendants to stipulate to lifting the
stay, but Defendants did not agree to do so. (Tr. [Doc. No. 123] at 47:18-19.) Solutran
subsequently asked this Court to lift the stay—a motion Defendants opposed on the basis
that an appeal should first be heard of the PTAB’s decision. 3 Magistrate Judge Thorson
granted Solutran’s motion on January 12, 2016. (See Text Only Order [Doc. No. 62].)
Importantly, however—and as the magistrate judge subsequently observed—Defendants
were previously put on notice by the PTAB’s decision that this action would likely
proceed even before the stay was formally lifted. (Tr. at 47:15-16.) After lifting of the
stay, “the parties were on notice to pick up their discovery efforts immediately.” (Id. at
48:5-6 (emphasis added).) In recognition of this fact, Judge Thorson issued an amended
pretrial scheduling order that allowed Defendants to amend their invalidity chart by April
15, 2016 provided that they could demonstrate good cause to do so. (Am. Pretrial
Scheduling Order [Doc. No. 69] at 4.) As an illustration of what would constitute

2

United States Patent No. 8,311,945.
Defendants did appeal the PTAB’s decision to the Federal Circuit, which summarily
affirmed. See U.S. Bancorp v. Solutran, Inc., No. 2016-1302, 2016 WL 4175177 (Fed.
Cir. Aug. 8, 2016) (mem.).

3

3

sufficient good cause, the magistrate judge stated that “absent undue prejudice to the
other party, good cause could include Defendants’ discovery of material prior art. This
example of good cause assumes diligent search.” (Id.)
On February 24, 2016, more than a month after Judge Thorson lifted the stay
(and more than six months after the PTAB decision), Defendants served the National
Automated Clearing House Association (“NACHA”), an electronic check regulatory
group, with a document subpoena. (Levitt Decl. [Doc. No. 102] ¶ 5.) On April 15, 2016,
in line with Judge Thorson’s Amended Pretrial Schedule, Defendants served Solutran
with updated invalidity contentions. (Ernstene Aff. ¶ 5.) Although NACHA did not
respond to Defendants’ subpoena until May 25, 2016—at which point it produced over
92,000 pages of documents—Defendants did not advise the Court of any need to amend
the Pretrial Schedule to accommodate review of these documents. (Tr. at 55:4-5.)
More than two months later, 4 Defendants’ review of the NACHA documents
revealed a 1995 document written by one Michael Harris, which, according to
Defendants, “describes a system for processing paper checks that anticipates and renders
obvious the system Plaintiff claims as its invention.” 5 (Defs.’ Obj. [Doc. No. 125] at 5.)
Defendants promptly notified Solutran that it intended to move to amend its invalidity
contentions to add the Harris system. (Id.) At approximately the same time—although
unrelated to the NACHA documents—Defendants learned from a re-interview of a U.S.

4

In the interim, on May 31, 2016, Defendants hired new counsel from Dorsey & Whitney
LLP to replace their prior counsel. (Tr. at 48:17-24.)
5
Defendants did not provide the magistrate judge with a copy of the Harris documents as
part of its motion for leave to amend its invalidity contentions. (Tr. at 56:13-15.)
4

Bank employee about another system, known as BankServ, that “also appeared to show
that Plaintiff’s claimed invention was anticipated and obvious.”

(Id.)

Defendants

produced these documents on August 26, 2016. 6 (Id.) In light of these developments,
Defendants formally moved to amend their invalidity and noninfringement contentions to
encompass the Harris and BankServ systems on September 19, 2016. 7 (See generally
Mot. for Leave to Amend Invalidity and Noninfringement Contentions [Doc. No. 98].)
Judge Thorson heard oral argument on Defendants’ motion on October 3, 2016,
and ruled on the matter the same day. (See Text Only Order [Doc. No. 115].) Noting
that leave to amend should only be granted where the movant has shown (1) good cause,
and (2) no unfair prejudice to the other party, the magistrate judge denied Defendants’
request. (See generally Tr. at 52-59.) In particular, Judge Thorson noted that Defendants
had failed to show diligence, had not demonstrated the relevance of the alleged prior art,
and that amendment would unfairly prejudice Solutran. (Id.) Defendants timely filed
objections to the magistrate judge’s ruling, triggering this review. (See generally Defs.’
Obj.)
III.

DISCUSSION
A.

Standard of Review

The standard of review applicable to an appeal of a magistrate judge’s order on a
nondispositive issue is extremely deferential. Edeh v. Equifax Info. Servs., LLC, 295
6

As with the Harris documents, Defendants did not provide the magistrate judge with the
BankServ documents to allow for review of their materiality. (Tr. at 56:13-15.)
7
Notably, Defendants did not move to amend until after serving an expert report on
Solutran that relied heavily on both the BankServ and Harris documents. (Ernstene Aff. ¶
10.)
5

F.R.D. 219, 223 (D. Minn. 2013) (citation omitted). The Court must affirm the order
unless it is “clearly erroneous or contrary to law.” See 28 U.S.C. § 636(b)(1)(A); Fed. R.
Civ. P. 72(a); D. Minn. LR 72.2(a)(3). “A finding is ‘clearly erroneous’ when although
there is evidence to support it, the reviewing court on the entire record is left with the
definite and firm conviction that a mistake has been committed.” United States v. U.S
Gypsum Co., 333 U.S. 364, 395 (1948). Further, magistrate judges “are afforded wide
discretion in handling discovery matters and are ‘free to use and control pretrial
procedure in furtherance of the orderly administration of justice.’” Favors v. Hoover,
No. 13-cv-428 (JRT/LIB), 2013 WL 6511851, at *3 n.3 (D. Minn. Dec. 12, 2013)
(quoting Cook v. Kartridg Pak Co., 840 F.2d 602, 604 (8th Cir. 1988)); accord Luminara
Worldwide, LLC v. Liown Elecs. Co., No. 14-cv-3103 (SRN/FLN), 2016 WL 6774229, at
*4 (D. Minn. Nov. 15, 2016).
As a general matter, courts require a showing of “good cause” before allowing late
amendments to invalidity contentions. See, e.g., Bombardier Recreational Prods., Inc. v.
Arctic Cat, Inc., No. 12-cv-2706 (MJD/LIB), 2014 WL 2945877, at *5 (D. Minn. Apr.
28, 2014); ICON Health & Fitness, Inc. v. Octane Fitness, LLC, No. 09-319
(ADM/SRN), 2010 WL 1839321, at *2 (D. Minn. May 5, 2010).

Although varying

standards exist for assessing the presence of “good cause,” courts in this district have
usually analyzed five main factors: (1) whether the moving party showed diligence; (2)
the relevance and importance of newly discovered prior art; (3) whether the request to
amend is motivated by “gamesmanship;” (4) the difficulty of locating the prior art; and
(5) whether the opposing party will be prejudiced by the amendment. Bombardier, 2014
6

WL 2945877, at *5. Although all five factors are relevant in the analysis, the Federal
Circuit has made clear that a showing of diligence is an absolute requirement. See O2
Micro Int’l Ltd. v. Monolithic Power Sys., Inc., 467 F.3d 1355, 1366 (Fed. Cir. 2006)
(holding that “‘good cause’ requires a showing of diligence”). Thus, this Court may
affirm the magistrate judge’s ruling if it concludes that the magistrate judge did not
clearly err in finding Defendants’ actions demonstrated lack of diligence. Cf. Bradford v.
DANA Corp., 249 F.3d 807, 809 (8th Cir. 2001) (noting that the “primary measure” of
Fed. R. Civ. P. 16(b)’s “good cause” standard is “the moving party’s diligence in
attempting to meet the case management order’s requirements,” and finding “no need” to
go beyond the diligence inquiry where plaintiff had demonstrated only “minimal efforts”
to satisfy the case management schedule).
B.

Diligence Inquiry

It is well-settled that the burden is on the movant to establish diligence, rather than
on the opposing party to establish its lack. See, e.g., Evicam Int’l v. Enforcement Video,
LLC, No. 16-cv-105, 2016 WL 6600605, at *1 (E.D. Tex. Nov. 8, 2016) (citing O2
Micro, 467 F.3d at 1366). As Judge Thorson properly recognized, the diligence inquiry
has two sub-parts: (1) diligence in discovering the basis for amendment; and (2) diligence
in seeking amendment once the basis for amendment has been discovered. See, e.g.,
Positive Techs., Inc. v. Sony Elecs., Inc., No. C 11-2226 SI, 2013 WL 322556, at *2
(N.D. Cal. Jan. 28, 2013). In denying Defendants’ motion, the magistrate judge found
both of these factors to be absent.
As to diligence in discovering the basis for the amendment, Judge Thorson noted
7

that Defendants’ briefing was silent on the matter of the Defendants’ diligence, as
opposed to the diligence of substitute counsel for Defendants. (See Tr. at 53:18-24.)
While the magistrate judge recognized that the record showed activity by new counsel
since taking over the case in May 2016, nothing in the record demonstrated what effort
was made by prior counsel or by the Defendants themselves to diligently discover the
Harris and BankServ prior art documents. (Id. at 53:24-54:3.) The magistrate judge
further observed—correctly—that merely changing attorneys does not constitute good
cause for an extension of deadlines established in the scheduling order. (See id. at 54:4-8
(citing E. Iowa Plastics, Inc. v. PI, Inc., No. C12-2088, 2014 WL 4463232 (N.D. Iowa
Sept. 10, 2014)).)
Turning to the prior art documents specifically, Judge Thorson noted that, even if
the time period when the case was stayed was discounted, Defendants had had more than
one year between the time the Complaint was filed and when they served their original
invalidity contentions to make some effort toward discovery of these documents, but had
not done so. (Tr. at 54:20-55:7.) This was, of course, in addition to the three months
granted for amendment after the stay was lifted. The magistrate judge found no evidence
in the record to support a showing that Defendants had acted diligently in pursuit of the
new prior art, and no communication with the Court to suggest that additional time for
document review might be needed. (Id. at 55:3-7.)
Judge Thorson also found a lack of diligence on the part of Defendants in seeking
leave to amend as soon as the alleged prior art had been discovered. (Id. at 56:2-11.) In
particular, the magistrate judge noted that upon discovering the Harris and BankServ
8

materials, Defendants first focused on incorporating those materials into their expert
report, rather than seeking leave to amend their invalidity contentions. On this basis
alone, Judge Thorson concluded that Defendants could not show diligence in seeking
amendment. (Id.)
Upon review of the magistrate judge’s conclusions, as well as the submissions of
the parties on the matter, this Court concludes that Judge Thorson did not err—let alone
clearly err—in concluding that Defendants had not met their burden of proving diligence
in pursuit of the Harris and BankServ materials, and in seeking amendment once those
materials had been uncovered. The record reflects that Defendants had well over a year
between the date the Complaint was filed and the first deadline to serve invalidity
contentions in which to find and disclose the Harris and BankServ documents, and more
than three months after the lifting of the stay in which to continue the search. The record
further shows that Defendants waited over six weeks from the recommencement of
discovery to subpoena NACHA, and did not re-interview one of their own employees in
order to discover the BankServ system until August—four months after the deadline to
amend invalidity contentions had passed.
What is conspicuously absent from the record presented to the magistrate judge,
however, is any evidence to show that Defendants had used their time actively to pursue
and disclose the alleged new prior art, or why they could not have discovered those
materials sooner. Without such evidence, the Court clearly cannot say that Defendants

9

have met their burden to show diligence. 8 As a result, the Court finds no error in the
magistrate judge’s ruling. Having failed to show good cause to amend their invalidity
contentions, Defendants may not do so now.
IV.

ORDER
Based on the foregoing, and all the files, records, and proceedings herein, IT IS

HEREBY ORDERED that:
1.

Defendants’ Objections to the Magistrate Judge’s Order Denying Their
Motion to Amend Their Invalidity Contentions [Doc. No. 125] are
OVERRULED; and

2.

The Magistrate Judge’s October 3, 2016 Text Only Order [Doc. No. 115] is
AFFIRMED.

Dated: December 20, 2016

s/Susan Richard Nelson
SUSAN RICHARD NELSON
United States District Judge

8

Having found diligence to be lacking here, the Court need not specifically address the
magistrate judge’s conclusions as to the other factors relevant to the good cause analysis.
See supra pp. 6-7. The Court notes, however, that even were it to do so, it would find no
error in any of the findings made by Judge Thorson.
10