Capitol Records, LLC v. Redigi Inc.

Filing 166

TRANSCRIPT of Proceedings re: conference held on 11/7/2014 before Judge Richard J. Sullivan. Court Reporter/Transcriber: Patricia Kaneshiro-Miller, [phone]. Transcript may be viewed at the court public terminal or purchased through the Court Reporter/Transcriber before the deadline for Release of Transcript Restriction. After that date it may be obtained through PACER. Redaction Request due 12/26/2014. Redacted Transcript Deadline set for 1/5/2015. Release of Transcript Restriction set for 3/5/2015.(McGuirk, Kelly)

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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CAPITOL RECORDS, LLC, et al.,

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Plaintiffs,

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v.

12 CV 95 (RJS)

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REDIGI, INC., et al.,
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Defendants.
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------------------------------x
New York, N.Y.
November 7, 2014
4:50 p.m.

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Before:
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HON. RICHARD J. SULLIVAN,
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District Judge
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APPEARANCES
COWAN, LIEBOWITZ & LATMAN, P.C.
Attorneys for Plaintiffs
BY: RICHARD S. MANDEL
JONATHAN Z. KING

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HAUSFELD LLP
Attorneys for Defendant Ossenmacher
BY: NATHANIEL C. GIDDINGS

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ADELMAN MATZ P.C.
Attorneys for Defendant Redigi Inc.
BY: GARY P. ADELMAN
SARAH M. MATZ

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SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

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(Case called)

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THE COURT:

With respect to this case, I guess we have

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a dispute that stems back to what we talked about some time

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ago, which is whether or not the individual defendants are sort

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of locked into the positions taken by the corporate defendants

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up through the time of the summary judgment ruling.

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So far so good?

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I think that is the basic issue.

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So there is a legal

dispute clearly as to whether or not the Second Circuit's

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decision in Teltronics, which is factually a little different

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because that's a case where there was a case, a ruling, and

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then a subsequent case involving the individual principals and

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shareholders of the corporate defendant that was found liable

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in the first case, but I think the principle would apply

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equally to both.

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Teltronics is relevant to this situation.

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there is a factual dispute as to whether or not the individual

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defendants, in fact, controlled the corporate defendant and

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directed the litigation up through the time of the summary

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judgment ruling.

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There is a legal dispute as to whether or not
I'm not sure if

Maybe we should start there.

Is there a dispute about whether or not -- not you,
Mr. Mandel.

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MR. MANDEL:

I didn't think so.

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THE COURT:

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MR. GIDDINGS:

Is there a dispute about that?
Yes, your Honor.

SOUTHERN DISTRICT REPORTERS, P.C.

It is something that
[phone]

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we would like discovery on.

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THE COURT:

What sort of discovery do you need to

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determine whether or not your clients were running the

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litigation?

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MR. GIDDINGS:

Let me rephrase, your Honor.

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It is something that we think can be developed further

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and potentially challenged in this litigation.

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would like to develop an argument based on facts --

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THE COURT:

If Capitol

Basically, the easiest way to do this is I

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throw your clients on the stand and we ask them questions about

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what involvement they had with respect to the litigation when

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it was just the corporate defendant and who else is involved in

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running the corporate defendant and running the litigation.

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don't want privileged information, but I think that would be

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relevant to determine whether or not these are people who are

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responsible for the corporate defendant's litigation strategies

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and, therefore, arguably liable to stick with those decisions,

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those prior decisions.

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Is there really a dispute about this?

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MR. GIDDINGS:

I

Your Honor, it is something that we

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didn't focus on in the letters before you.

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would like to explore further, and we would be happy to brief

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it to your Honor.

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It is something we

What we think the issue really is today before the
Court, as you correctly identified, was whether res judicata
SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

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and collateral estoppel applies here, and we think we can reach

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that issue without ever having to get to the privity issue.

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THE COURT:

That may be.

If I rule on the legal issue

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in your favor, then I guess you're right.

I think I'm likely

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to rule the other way on this.

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from the parties somewhat cursorily lay out the positions.

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not criticizing.

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basically, your argument is that the Teltronics case and other

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cases that have been discussed in this context were sort of in

The letters that I received

You had a limited amount of space.

I'm

I think,

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a procedurally different posture and, therefore, are wholly

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inapplicable.

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Mr. Mandel has any choice but to concede that there is a

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procedural difference between where those cases were and where

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this case is.

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agree -- that's a distinction that doesn't make any difference

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for purposes of the legal analysis.

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agree with that.

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more fully, I guess I would give you a chance to do that.

I think I would concede, I don't think

But his point is -- and I think I'm inclined to

I think I'm likely to

If you want to have a chance to develop this

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MR. GIDDINGS:

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THE COURT:

Absolutely, your Honor.

I wouldn't bet the house on changing my

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view on that, just because I think there is not a ton of case

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law, and I think there is only so many ways to slice this.

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MR. GIDDINGS:

Absolutely, your Honor.

Just to

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clarify, Teltronics was a res judicata case, not a collateral

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estoppel case.
SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

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Are you inclined to say that res judicata would apply
here?

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THE COURT:

I'm inclined to say that the principles

articulated in Teltronics would apply here, as well --

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MR. GIDDINGS:

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THE COURT:

Okay.

-- if, in fact, it is true and undisputed

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that the individual defendants were running this defense for

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the corporate client, the corporate defendant, and knew full

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well what they were doing when they decided to not challenge

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certain things, stipulate to certain things, not assert certain

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defenses.

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is equally applicable here.

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wouldn't be applied here.

It would seem to me that the rationale in Teltronics
I can't think of a reason that it

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MR. GIDDINGS:

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four-part test for res judicata.

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that was:

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that judgment must be by a court of competent jurisdiction;

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third, the same party for privity; and fourth, the same cause

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of action.

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Your Honor, Teltronics laid out a
It laid out four factors, and

First, the final judgment on the merits; second,

Now, I think we can let two and three go for right

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now.

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not there has been a final judgment in the merits.

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is pretty well accepted that res judicata, that means it has to

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be in a prior proceeding, a prior action, right?

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Really, what the question is, your Honor, is whether or
I think it

What we have here is the same action, so that
SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

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res judicata would not apply.

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Bank, the Court said, quote, defenses that could have been

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raised by a corporation in a prior action were barred by

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res judicata.

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THE COURT:

For instance, in Marine Midland

That's what it said.

It didn't say in a

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situation like this one that the individual defendants could

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then raise everything anew, right?

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I see the language you're seizing upon, but I don't
think that was the holding of the case; right?

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MR. GIDDINGS:

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that.

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detail, your Honor.

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THE COURT:

I would have to go back and look at

It is something we would be happy to brief in greater

I will give you a chance to brief it.

I

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think, clearly, the language of Teltronics, at pages 190 and

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191, principally those pages, would seem to have equal force

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here as to what went on.

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whether or not the individual defendants really were running

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the litigation, well, then I guess we would have to nail that

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down.

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MR. GIDDINGS:

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THE COURT:

If there is a factual dispute as to

Right.

I think that would be easily done by

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putting them on the stand in front of me and then I could

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assess and make a finding.

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MR. GIDDINGS:

Your Honor, Teltronics also said,

quote, res judicata applies to repetitious suits involving the
SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

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same cause of action.

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suits here.

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THE COURT:

Right?

Again, we don't have repetitious

So your view is that had the suit that I

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granted summary judgment on, if that went to final judgment and

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then they filed a separate action against your clients, then of

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course they would be stuck with what they did here; but because

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it was an amended complaint with the same docket number, that

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makes all the difference in the world?

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MR. GIDDINGS:
THE COURT:

Correct, your Honor.

Okay.

I think that is the kind of

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formalism that I don't find persuasive.

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you a chance to brief it, certainly, but it doesn't strike me

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as that persuasive.

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partial summary judgments are entitled to conclusive effect.

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I think I will give

Certainly, there are cases in which

MR. GIDDINGS:

Your Honor, to be clear about the

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partial summary judgment point, the cases that Capitol cites,

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those are all partial summary judgment orders from a prior

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proceeding, a different action, right.

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order from a district court judge in another district.

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THE COURT:

Hudson involved an

I get all that, but your view is that the

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entire issue turns on whether or not there was an amended

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complaint or whether there was a new complaint with a different

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docket number.

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MR. GIDDINGS:

Correct.

That's what the cases say,

your Honor.
SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

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THE COURT:

But they don't say that.

They don't

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address this issue squarely and say that you have to bring a

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new case; that in a situation in which there's an amended

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complaint, bringing the same cause of action against two new

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defendants, that the result is totally different.

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found a case that says that.

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MR. GIDDINGS:

I haven't

Are you aware of one?

I am not, but I'm not aware of a case

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where res judicata and collateral estoppel have been applied in

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the same proceeding, to preclude that defendant from raising

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those defenses.

Right?

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letter, either.

Again, maybe something better suited for

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further briefing and further explanation, but Capitol has not

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pointed to a single case in which this has been done before.

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THE COURT:

Capitol hasn't pointed to one in their

This is the language from Teltronics:

"In

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light of the individual defendant's continuous and active

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non-party participation and his apparent day-to-day leadership

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role in the prior litigation, we hold that he was in privity

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with Teltronics and is bound by the result in Teltronics'

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litigation arising from this cause of action."

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So you're hanging your hat on the fact that prior
litigation was at issue in that case.
MR. GIDDINGS:

Correct, your Honor.

Actually,

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Teltronics, my reading of the case, is there are three or four

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different subsequent actions prior to the Second Circuit

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decision.

It depends on how you count them.

SOUTHERN DISTRICT REPORTERS, P.C.

Three or four is
[phone]

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a fair assessment at the very beginning of the opinion.

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THE COURT:

The other quote at page 191:

"If a

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stockholder, officer, or director of a corporation controls an

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action brought on its behalf in furtherance of his own

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interests, he is bound by the result of that action."

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I think the issues are pretty clear.

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additional authority, I would love to see it.

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any.

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I haven't found

How long do you think you need to brief it?

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MR. GIDDINGS:

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THE COURT:

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If there is

To submit a brief on it?

A fuller brief than what you have given

me.

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MR. GIDDINGS:

From our perspective, we probably need

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until the first or second week in December, your Honor.

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Thanksgiving is coming up, and I am going to be out of the

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country for a different matter for eight days, six to eight

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days.

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THE COURT:

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scheduling and anything else.

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guess, in response, right?

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MR. MANDEL:

Let me hear what Mr. Mandel has to say on
You want to submit a brief, I

I suppose so, if your Honor wants

briefing.
THE COURT:

I'm going to give them an opportunity to

brief it more fully than a three-page letter.
MR. MANDEL:

That's fine.

SOUTHERN DISTRICT REPORTERS, P.C.

Obviously, we would like
[phone]

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the opportunity to respond if they're going to submit a brief.

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THE COURT:

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MR. GIDDINGS:

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Mr. Giddings, by December 5th.

Thank you.

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THE COURT:

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MR. MANDEL:

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THE COURT:

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So December 19th.

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I think that is fair, your Honor.

How long do you need, Mr. Mandel?
Two weeks.
Two weeks.

That is what I was thinking.

All right.

MR. GIDDINGS:

Your Honor, to be clear, are we going

to be permitted a reply?

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THE COURT:

I'm not sure that I need a reply,

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candidly.

We have sort of teed this up twice already now in

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letters and with oral argument back in December, so I would

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love to get it wrapped up.

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can make a reply by the 23rd.

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MR. GIDDINGS:

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If you want to make a reply, you
Okay.

necessary, your Honor.

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THE COURT:

I don't know if one is going to be

I assume it will be short.

I assume

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you're not going to find anything in their opposition that you

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haven't already seen.

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do it.

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So the 23rd, it gives you five days to

Is that okay?
MR. GIDDINGS:

That sounds great, your Honor.

Thank

you.

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THE COURT:

All right.

Let's do that.

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In the meantime, what else can we or should we be
SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

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doing?
Damages discovery is something I certainly

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contemplated.

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the motions to dismiss and motions for reconsideration of the

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order denying the motions to dismiss.

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We could put that on hold pending resolution of

So, Mr. Mandel, from your perspective, what do we need

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to do with respect to damages?

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MR. MANDEL:

I think we've talked to Mr. Giddings.

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don't need any more discovery from Capitol's perspective.

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Mr. Giddings had talked about, perhaps, until the end of

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February, for them to complete the discovery that they feel

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We

they need.

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THE COURT:

The discovery they feel they need meaning

requests of you?
MR. MANDEL:

Yes.

Discovery that the individual

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defendants are seeking of Capitol to defend the case.

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agreeable to that.

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We're

The one thing I would point out, we think these

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defendants are barred by res judicata and collateral estoppel,

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but even apart from that, I think just in the context of the

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discovery disputes that we briefed in the letters, even if you

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assume that somehow these defenses could stand, I think the

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discovery requests are still way out of bounds and not

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connected to anything that's really reasonable.

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defenses, to be frank, they're very slim.
SOUTHERN DISTRICT REPORTERS, P.C.

I think these

They could
[phone]

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probably -THE COURT:

You're alleging that they infringed on

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your copyrights, what you own?

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MR. MANDEL:

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THE COURT:

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MR. MANDEL:

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THE COURT:

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You've attached to your complaint a couple

of lists of copyrighted material.

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Correct.

Correct.
If we were starting from scratch and they

said, I don't think you really own those copyrights -MR. MANDEL:

I'm not contesting their entitlement to

discovery on ownership.

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THE COURT:

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MR. MANDEL:

What are you talking about?
I'm talking about the few issues that we

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briefed in the letters, which are really primarily geared to

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their so-called defenses, and they relate to things that are

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very far afield.

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THE COURT:

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MR. MANDEL:

What are you talking about?
Every copyright case that Capitol has

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brought for any of these recordings, we have to tell them what

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they are; what the result was; if there was a settlement, how

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much it was for.

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issue that is left to be decided.

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our digital exploitation for all of these recordings, so

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basically all of our contracts.

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It's crazy.

I mean, it has no bearing on any
They're asking for all of

At this point in the case, where we are, I don't know
SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

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what that has to do with any issue that's left.

We produced in

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discovery and they have our contract with Apple, which is

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really the primary relationship that is significant; but at

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this point, for us to start producing all our licenses, all of

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our contracts for digital exploitation, everything relating to

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our policies of digital exploitation, it is a complete fishing

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expedition.

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questions about it and get us to prove that we own it, fine, I

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understand that.

If they want to challenge ownership and ask

But these other topics are so far afield, and

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they try to justify them without even explaining they're

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supposedly related to their unclean hands defense, which they

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have never articulated what unclean hands defense could

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possible exist here, or copyright misuse.

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those defenses are.

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them as a matter of res judicata or collateral estoppel, but

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even if they could, they're totally without any factual or

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legal foundation at this point.

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THE COURT:

I don't know what

I don't think they're entitled to assert

I'm inclined to agree.

I guess I would be

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curious to know what they are, but it may be that the legal

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ruling dispenses the need even to do that.

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Mr. Giddings, do you want to say something?

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MR. GIDDINGS:

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Regarding Mr. Mandel's comment about the end of

Yes, your Honor.

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February, I think your ruling, depending on what it does at the

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briefing, has an impact on that.

That will obviously push the

SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

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discovery or have a very real impact on what discovery the

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individual defendants are able to seek in this action.

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think it may be premature.

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THE COURT:

Maybe.

So I

Why do you think you need to know

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about all the infringement cases they have settled with other

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people?

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MR. GIDDINGS:

Your Honor, my point was that if we are

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precluded, in your view, by res judicata or collateral estoppel

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from asserting any defense as to our liability or certain

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defenses as to the individual defendant's liability, then I

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believe the discovery period that we could negotiate with

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Capitol Records would be much shorter.

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THE COURT:

I agree with that.

I guess I'm asking,

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even if I said you can assert defenses that the corporate

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defendant waived or didn't make, what would be the rationale

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for getting discovering on every infringement action they've

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had with third parties?

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MR. GIDDINGS:

Your Honor, our client believes that it

is pertinent to the way in which --

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THE COURT:

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of no moment to me.

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If your client believes it is pertinent is

relevance?

What is the articulable basis for its

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MR. GIDDINGS:

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THE COURT:

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MR. GIDDINGS:

About prior actions, your Honor?

Yes.
It goes as to how Capitol has enforced

SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

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its copyrights as to other start-ups, as to other users, which

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goes, we think, into the damage calculation or the damage --

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"computation" is not the correct word -- but the equation, if

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you will.

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THE COURT:

I guess I would want to see some authority

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for the proposition that you're entitled to know the settlement

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terms of every infringement case they have ever settled to

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assess the damages.

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MR. GIDDINGS:

To be clear, your Honor, we weren't

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asking for settlement terms.

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list of all their prior enforcement actions or their copyright

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actions as to these asserted claims.

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THE COURT:

I believe the request asks for a

What would that be relevant to in this

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case?

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brought to protect their copyrights?

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A list of other enforcement actions that they have

MR. GIDDINGS:

It does also ask for the outcome of the

claim.

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THE COURT:

Look, I think I'm not likely to allow

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that.

I think the legal question may resolve it without me

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having to do this piecemeal, but I do think at some point we

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may get to the merits of these, and whether this is just

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designed to inflict pain on the other side or whether it is

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just a fishing expedition or a desire to delay further the

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litigation, so I guess I'm not going to resolve that now, but

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I'm skeptical.
SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

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MR. GIDDINGS:

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THE COURT:

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Thank you, your Honor.

Mr. Adelman, this is the quietest I have

ever seen you.

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MR. ADELMAN:

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THE COURT:

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Anything else you want us to cover?

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MR. ADELMAN:

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I appreciate that.

I said it with a smile.

I have lots to say, but not in this

case.
THE COURT:

You have nothing to say today?

MR. ADELMAN:

No, I don't think we have anything to

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say other than we are going to participate, obviously, in the

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discovery process to the extent it goes on, because I think we

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feel, to the extent that -- may I stand?

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THE COURT:

Sure.

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MR. ADELMAN:

While we continue to object to their

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providing certain documents after the close of damages

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discovery in the corporate case proffer, they did disclose

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almost 4,000 pages, and we would like the opportunity to depose

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someone from the plaintiffs --

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THE COURT:

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MR. ADELMAN:

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THE COURT:

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MR. MANDEL:

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With respect to damages?
Yes, with respect to damages.

Mr. Mandel, you're not objecting to that?
No.

I think if, by damages, they mean

ownership -MR. ADELMAN:

Yeah, I mean in the damages, as part of

SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

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the damages phase, yes, as to ownership --

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MR. MANDEL:

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MR. ADELMAN:

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We don't have any problem with that.
I just wanted to make sure that was part

of whatever you decide here today vis-a-vis discovery.
THE COURT:

I think we will resolve the legal issue as

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to what the defendants are going to be able to assert.

Once I

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have done that, then we will decide what discovery remains and

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what it is going to look like.

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terribly long because I think it is going to be fairly

I don't anticipate it lasting

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discrete.

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to damages was done.

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all along was to have some damages discovery, and then we kind

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of got waylaid by the individual defendants submitting

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complaints and the motions to dismiss and reconsider.

I'm not

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faulting anybody, but I think that's what has gone on.

So my

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contemplation was always and remains -- and I think I have the

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discretion to make this happen -- that we're going to have some

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damages discovery, but let's first resolve this last legal

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issue relating to Teltronics and what it means for this case.

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I didn't understand that fact discovery with respect
I mean, my understanding and my intention

I will issue a scheduling order for that briefing, and

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then I think I will likely resolve it very quickly, with or

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without an opinion.

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we can get this back on track.

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The opinion may follow later, just so that
Okay.

It is an interesting case.

It has attracted a lot of

attention, with good reason, but I want to get it moving.
SOUTHERN DISTRICT REPORTERS, P.C.

So

[phone]

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it may be that the Teltronics issue is one where I will rule

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and then explain later.

Okay?

All right.

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Anything else we should cover today?

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MR. MANDEL:

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THE COURT:

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MR. ADELMAN:

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MR. GIDDINGS:

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THE COURT:

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I will issue that short order.

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Not from plaintiffs, your Honor.
All right.
No, your Honor.
Not from our perspective, your Honor.

Thanks very much.

I thank the court reporter, as always, for her talent
and time.
If anybody needs a copy of the transcript, you can
take that up with her now.
(Adjourned)

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SOUTHERN DISTRICT REPORTERS, P.C.

[phone]