Lukenheimer Company et al v. Tyco Flow Control Pacific Pty Ltd. et al

Filing 146

ORDER ON ISSUES RAISED IN ANTICIPATION OF THE JANUARY 27, 2015 DISCOVERY DISPUTE CONFERENCE. Signed by Judge Timothy S. Black on 2/12/2015. (mr1)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
THE LUNKENHEIMER COMPANY,
et al.,
Plaintiffs,
vs.
TYCO FLOW CONTROL PACIFIC
PARTY LTD., et al.,
Defendants.

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Case No. 1:11-cv-824

Judge Timothy S. Black

ORDER ON ISSUES RAISED IN ANTICIPATION OF THE JANUARY 27, 2015
DISCOVERY DISPUTE CONFERENCE
Pursuant to Southern District of Ohio Civil Rule 37.1, and at the request of
Intervenor/Counter Defendant Nilmini Klur, this civil action came before the Court for an
informal discovery dispute conference on January 27, 2015. 1
I.

BACKGROUND

Klur alleges that PFCP refuses to fully comply with the Court’s October 20, 2014
Order (“Discovery Order”) (Doc. 137). Klur also alleges that PFCP has failed to
preserve, or satisfactorily search for and produce, evidence relating to this action. Klur
asks the Court to impose the following sanctions:

1

Prior to this conference, Intervenor Klur (on behalf of herself and Plaintiffs/Counter Defendants)
submitted two letters to the Court. Defendant/Counterclaimant Tyco Flow Control Pacific Pty Ltd. (now
known as Pentair Flow Control Pacific Pty Ltd.) (“PFCP”) submitted two letters in response. Those
letters, and the exhibits attached thereto, have been docketed under seal. (See Docs. 140 to 144). In light
of the length of the submissions and the number of issues raised therein, the Court declined to settle the
disputes in the context of a telephonic conference. Instead, the Court issues this Order.

• Strike PFCP’s counterclaims;
• Hold that PFCP materially breached the License by (1) underpaying royalties;
(2) selling competing products; (3) sublicensing without permission;
(4) improperly disclosing Lunkenheimer confidential information to its Indian
and Chinese affiliates; (5) failing to annually disclose the Tyco Developments;
and (6) exploiting Tyco Developments for PFCP’s benefit, including the
patenting of at least one such development, excusing Plaintiffs’ performance of
the sales option of the License;
• Hold that PFCP damaged Plaintiffs in connection with its breaches in the
amount of $24,727,709.83; and
• Award Klur the costs and expenses associated with her applications.
II.
A.

ANALYSIS

PFCP’s Compliance with the Discovery Order
1.

Klur’s Interrogatory Nos. 4, 5, 9, and 10

The Discovery Order states, in relevant part, as follows:
“The Court recognizes that Klur’s Interrogatories are broad. However,
Federal Rule of Civil Procedure 33(d) states:
If the answer to an interrogatory may be determined by examining,
auditing, compiling, abstracting, or summarizing a party's business records
(including electronically stored information), and if the burden of deriving
or ascertaining the answer will be substantially the same for either party,
the responding party may answer by: (1) specifying the records that must be
reviewed, in sufficient detail to enable the interrogating party to locate and
identify them as readily as the responding party could; and (2) giving the
interrogating party a reasonable opportunity to examine and audit the
records and to make copies, compilations, abstracts, or summaries.
(emphasis added). “Relevant factors in the burden analysis are: (1) the cost of the
necessary research, (2) the nature of the relevant records, and (3) the interrogated
party’s familiarity with its own records.” HandiCraft Co. v. Action Trading S.A.,
2004 WL 6043510, *5 (E.D.Mo. 2004).
In light of the foregoing, the Court orders PFCP to appropriately respond to Klur’s
Interrogatory Nos. 4, 5, 9, and 10 within fourteen days of the date of this Order.
2

The Court notes that the provision of responsive compilations of information (in
lists, databases or otherwise), to the extent these exist, would be appropriate.”
(Doc. 137 at 12) (emphasis in original).
Klur claims that PFCP violates the Discovery Order by refusing to correct its
responses to these interrogatories, which identify thousands of pages of documents. 2
Klur argues that PFCP could easily extract the information sought by Interrogatory Nos.
4, 5, and 9 from its records, and, by identifying thousands of pages of documents where
the burden of ascertaining the answer is not the same for either party, PFCP violates Rule
33(d).
PFCP argues that the Court did not make a ruling on the propriety of its responses
and maintains that it has appropriately responded. PFCP claims that all information
requested is set forth clearly in the financial documents provided, in OCR searchable
form. PFCP argues that it cannot fully, adequately, and truthfully respond without
designating all documents which include all of the requested information, given the broad
scope of the interrogatories posed.
The Court was not impressed with the number of documents PFCP identified in
response to these interrogatories, but the Court did not make a specific ruling on the
propriety of these responses in the Discovery Order. The Court does so now.

2

PFCP’s initial interrogatory responses identified 7,050 pages of documents in response to Interrogatory
No. 4; 6,266 pages of documents in response to Interrogatory No. 5; 7,100 pages of documents in
response to Interrogatory No. 9; and 6,120 pages of documents in response to Interrogatory No. 10.
3

a.

Interrogatory No. 4

Klur’s Interrogatory No. 4 states as follows: “Identify all payments made to
Lunkenheimer pursuant to the License including, but not limited to, the payor, payee,
date and amount of each payment.” (Doc. 140-1, Ex. 2).
PFCP represents that its production contains product sales summaries,
computations of royalty calculations, wire transfers, and underlying source documents
evidencing the basis for such calculations and payments, which set forth the:
(a) payments, (b) payors, (c) payees, (d) dates, and (e) amounts. According to PFCP,
the volume of documents identified in response to this interrogatory reflects the length
of the parties’ relationship and the detail of PFCP’s accounting. PFCP claims that that
the burden of deriving the answer to this interrogatory is the same for Klur and PFCP,
because the documents are OCR searchable for both parties.
Klur’s dissatisfaction with PFCP’s response signals that she has a specific
production format in mind (e.g., a report listing all payments made to payee
Lunkenheimer). However, the interrogatory does not specify a production format, and
the Court finds that the response is appropriate, given the interrogatory as worded. If
Klur seeks a report listing all payments made to payee Lunkenheimer, or some other
specific production format, she shall request that specifically. PFCP shall provide such a
compilation if it already exists or is readily accessible. 3
3

Klur concedes that PFCP has produced some spreadsheets containing some sales data but argues that
PFCP apparently recognizes that those spreadsheets do not fully and accurately answer her
interrogatories. Klur may ask PFCP whether it has any reason to believe that particular compilations do
not accurately, or entirely, capture the information they purport to. PFCP shall answer these inquiries.

4

b.

Interrogatory No. 5

Klur’s Interrogatory No. 5 states as follows: “Identify each Licensed Product
along with the identity of the business entity that Exploited it.” (Doc. 140-1, Ex. 2).
With this interrogatory, Klur seeks to (1) identify the Lunkenheimer-branded products
PFCP sold; and (2) determine whether PFCP breached the contractual limitations on
sublicensing the Licensed Intellectual Property (“IP”). Klur claims that PFCP does not
identify which Licensed Products were sold or which PFCP entities manufactured and
sold Licensed Products. 4
PFCP argues that every customer invoice and Excel document summarizing the
sales of each Licensed Product from 2002 until 2012 is responsive to this interrogatory.
PFCP claims that the entity that exploited the Licensed Products can be ascertained by
looking at the entity named on each invoice. (See, e.g., Doc. 141-1, Ex. C). Accordingly,
OCR searchable documents identifying (a) each Licensed Product and (b) each business
entity have been produced.
In the sample invoice provided by PFCP, the part number and the part description
are provided. According to PFCP, the entity that exploited the Licensed Product is the
entity identified on the invoice (in the example, Tyco Flow Control Pacific Pty.

4

Klur notes that while PFCP reproduced a sizable portion of its production and removed the redactions of
the internal part numbers for the products sold or repaired, it has not provided a key matching the part
numbers to their descriptions, as ordered by this Court. (See Doc. 137 at 7). PFCP claims that Klur’s
counsel acknowledged that the unredacted invoices were even better than a key and made provision of a
key entirely unnecessary. Because the Court ordered PFCP to provide a key matching part numbers to
part descriptions, and because Klur does not concede that the unredacted invoices are sufficient in lieu of
a key in her letters to the Court, PFCP shall provide a key forthwith.
5

Ltd.). 5 Thus, the information requested has been provided. Again, Klur’s dissatisfaction
with PFCP’s response signals that she has a specific production format in mind (e.g., a
list of the Licensed Products, as set forth in the schedule attached to the License, with an
annotation of the entities that exploited each). However, the interrogatory does not
specify a production format, and the Court finds that the response is appropriate, given
the interrogatory as worded. If Klur seeks a list of Licensed Products, as set forth in the
schedule attached to the License, with an annotation of the entities that exploited each, or
some other specific production format, she shall request that specifically. PFCP shall
provide such a compilation if it already exists or is readily accessible.
c.

Interrogatory No. 9

Klur’s Interrogatory No. 9 states as follows:
Identify, by individual valve, part or service and not collectively, each (1)
Licensed Product sold by Tyco or a Tyco Affiliate; (2) Klein Product that was sold
by Tyco or a Tyco Affiliate to a Customer together with one or more Licensed
Products; (3) spare part sold by Tyco or a Tyco Affiliate relating to a Licensed
Product; or ( 4) the refurbishment or maintenance services provided by Tyco or a
Tyco Affiliate relating to a Licensed Product or a Klein Product that was sold to a
Customer together with one or more Licensed Products, identifying (a) the payor;
(b) the payee; (c) the date of the payment; (d) the amount of the payment; (e) the
invoice or contract price for the valve, part or service; (f) and any usual trade and
quantity discounts allowed and taken, returns, rebates and allowances actually
taken, freight charges, insurance costs; or taxes imposed upon or relating to the
sale or supply of the relevant product or service.
(Doc. 140-1, Ex. 2). With this interrogatory, Klur seeks to test the calculation of Net
Sales on which PFCP owed royalties.

5

The Court assumes that any entities (including affiliated companies or subsidiaries) who exploited the
Licensed Product used their own invoice form, and did not simply use Tyco Flow Control Pacific Pty.
Ltd.’s form. If PFCP has any reason to believe that this is not the case, it shall notify Klur forthwith.
6

PFCP argues that every invoice produced from 2002 until 2012 is responsive to
this interrogatory, which requests detailed information. In addition to these invoices,
PFCP produced and identified invoice registers containing summaries of this information
in native Excel format, in OCR searchable form. 6
In this interrogatory, Klur specifically notes that she requests identification “by
individual valve, part or service and not collectively” (emphasis added). Therefore,
individual invoices are an appropriate response to Klur’s inquiry. The Rule 33(d)
requirement that the burden of deriving or ascertaining the answer will be substantially
the same for either party is met.
d.

Interrogatory No. 10

Klur’s Interrogatory No. 10 states as follows: “Identify each Tyco
Development.” 7 (Doc. 140-1, Ex. 2). Over half of the documents produced in response
to this interrogatory are invoices and most of the remainder are sales and payment related
documents. 8 According to Klur, PFCP does not deny that Tyco Developments exist—it
just will not produce them.

6

To the extent Klur questions the accuracy of the compilations provided, she may utilize the procedure
set forth in note 4, supra.

7

“Tyco Development” is defined in the License Agreement. (Doc. 140-1, Ex. 3). The term refers to “all
developments, Improvements, enhancements, adaptations and new discoveries, inventions, applications
and Know How, whether patentable or otherwise, in relation to the Licensed Product or the Licensed [IP],
which during the Term are made or acquired by Tyco, its employees, agents or contractors.” (Id.)

8

With this interrogatory, Klur seeks to test whether PFCP complied with its contractual obligation to
“deliver to Lunkenheimer a CD-ROM containing CAD files in respect of all Tyco Developments relating
to the Licensed Product during that Fee Period.” (Doc. 140-1, Ex. 3). Counsel has instructed PFCP to
produce the Tyco Developments CDs that were preserved. (Doc. 143). If it has not already done so,
PFCP shall produce these CDs forthwith.

7

PFCP notes that because each Licensed Product valve is custom-made, each one is
arguably a “Tyco Development,” and, accordingly, PFCP identified all invoices, which
contain the product description, for each valve sold from 2002 to 2012, in OCR
searchable format. The manufacture of each valve requires hundreds, if not thousands, of
technical drawings and documents. PFCP objected to the production of all of these
drawings and documents but offered to make them available for inspection by counsel in
Australia, where they are maintained.
The Court finds that PFCP’s response to this interrogatory is appropriate, given
the broad meaning of the term “Tyco Development” and the imprecision of this
interrogatory. To the extent that Klur seeks all of the technical drawings and documents,
the Court finds that inspection, as opposed to production, is reasonable. To the extent
that Klur seeks some discrete subset of information about Tyco Developments, she shall
clarify her interrogatory forthwith. 9
2.

Record Sampling

The Discovery Order states, in relevant part, as follows:
“The Court recognizes that Klur hopes to obtain documentation of all of
PFCP’s slurry valve sales so that she can determine if any sales that would trigger
royalties under the license were omitted. The Court also recognizes that Klur’s
Request No. 54 is quite broad. The allegations in this case necessitate a
calculation of royalties. So that Klur can test the reliability of the invoices
9

Klur cites two cases from this district in support of the proposition that, by identifying thousands of
documents, PFCP violated Rule 33(d). See Kline v. Mortgage Electronic Security Systems, No. 3:08-cv408, 2014 WL 4928984 (S.D. Ohio Oct. 1, 2014); Castillo v. Morales, Inc., No. 2:12-cv-650, 2013 WL
2253207 (S.D. Ohio May 22, 2013). These cases are distinguishable because PFCP provided specific
categories of documents: Invoices, Wire Transfers, Annual Royalty Calculations, Invoice Registers, etc.,
directly responsive to each interrogatory. Further, the scope of Klur’s interrogatories is much broader
than those posed in the cited cases. For these reasons, and those set forth above, the Court finds that
PFCP’s responses are sufficient, absent clarification of the scope of the interrogatories by Klur.

8

produced by PFCP, PFCP shall allow Klur to sample records of PFCP’s slurry
valve sales which were not produced to determine whether any relevant sales were
omitted from royalty calculations. The parties shall meet and confer to determine
how this process will proceed.”
(Doc. 137 at 7-8) (emphasis in original). 10 The parties proposed different samples but
could not reach agreement. 11
The Court’s intent in ordering random sampling was to allow Klur to test whether
all of the Licensed Products sales that should have been counted were indeed counted—
in other words, a record keeping audit. PFCP’s proposed sample would not accomplish
this end. While it would be difficult to require that a sample be precisely evenly
distributed, PFCP can offer a sample that, instead, would not be limited by any of the
metrics Klur identifies. Accordingly, the Court finds that sampling of a small percentage
of PFCP’s slurry valve sales records across the years at issue, is sufficient for a basic
record keeping audit and shall be allowed. Forthwith, the parties shall meet and confer
regarding how to implement this procedure. 12
10

Request No. 54: “The separate and complete records and books of account maintained by Tyco relating
to Net Sales.”

11

PFCP offered to provide a sample of data for three products for three months for three years between
2002 and 2014. Klur finds this proposed sample to be inadequate and lacking in factual basis. Klur
proposed a randomly selected sample of at least 8% of the records relating to the sales, repair, and
maintenance of all other slurry valves produced or sold by Tyco or any affiliate in the past twelve years,
ensuring that the sample is equally distributed over time, product, customer, seller, type of transaction
(sale, repair, or maintenance), country of sale and any other dimension along which the sample would not
otherwise be homogeneous. PFCP argues that Klur’s proposal is impossible to implement because it
simultaneously expects PFCP to provide a randomly selected sample, but also requires PFCP to equally
distribute the sample over time, product, customer, seller, type of transaction, and country of sale. PFCP
argues that this procedure would generate an abnormal and significant burden and expense.

12

Klur claims that marketing materials show that PFCP sold non-Lunkenheimer slurry valves for the
same uses as Lunkenheimer valves. (See Doc. 140-1, Ex. 8). The Court addresses “competing products”
as a separate issue in Part II.A.3, infra. If Klur seeks records related to competing products only, and
does not wish to pursue the record-keeping audit outlined above, she may forego the audit.
9

3.

Competing Products

The Discovery Order states, in relevant part, as follows:
“Upon review of the amended complaint, the Court notes that Plaintiffs have
alleged breach of contract. (Doc. 89 at 8). Further, as an affirmative defense to
the counterclaims, Klur asserts that PFCP’s own material breach causes its
counterclaims to fail. (Doc. 133 at 32). For these reasons, the sale of competing
products is relevant to the litigation, and PFCP is ORDERED to provide
documents responsive to Klur’s Request No. 51. If Klur identifies valves which
she believes competed in violation of the License Agreement, the parties shall
meet and confer to discuss how they will proceed.”
(Doc. 137 at 7) (emphasis in original). 13 Klur has identified over a dozen products that
she believes competed with the Licensed Products and suspects there are more. PFCP
refuses to produce any documents regarding these products.
PFCP argues that Klur’s identifications appear to be based solely on the fact that
the products are “slurry valves,” like the Licensed Products. PFCP submits an affidavit
from Andrew Leyshon, PFCP’s financial controller of manufacturing operations, in
which he explains that the valves Klur identifies have different specifications, features,
and uses than the Licensed Products and, therefore, cannot be substituted for the Licensed
Products. (Doc. 141-1, Ex. D). 14 PFCP argues that Klur must be required to make some

13

Request No. 51: “All Documents concerning Tyco’s efforts to promote the sale of Licensed Products.”
Request No. 52: “All Documents concerning Tyco’s manufacture or sale of any product competing with a
Licensed Product.” The Court addresses Klur’s claim that PFCP’s search for and production of such
marketing materials was insufficient in Part II.B.5.e, infra.

14

PFCP claims that Klur’s counsel was provided with this information and was asked to explain why
Klur still believed that the products she identified competed with the Licensed Products. PFCP represents
that it received no response; and Klur does not respond in her submissions to this Court either.

10

reasonable showing that the products are actually competing products before PFCP is
required to search for and produce documents related to these products. 15
The Court finds that the Leyshon Affidavit helpfully distinguishes the claimed
competing products (various Butterfly Valves, Knifegate Valves, and Klein valves) from
the Licensed Products. Further, Leyshon notes that most of the claimed competing
products were sold prior to the execution of the License and the Klein valve products are
specifically excluded under License except where they are sold with a Licensed
Product. 16
Parties may obtain discovery regarding any nonprivileged matter that is relevant to
any party's claim or defense . . . . For good cause, the court may order discovery of
any matter relevant to the subject matter involved in the action. Relevant
information need not be admissible at the trial if the discovery appears reasonably
calculated to lead to the discovery of admissible evidence.
Fed. R. Civ. P. 26(b)(1). The Court declines to find, at this time, that discovery Klur
seeks regarding the on the products she identifies as “competing” is reasonably calculated
to lead to the discovery of admissible evidence. To the extent Klur needs documentation
to test Leyshon’s contentions, PFCP shall provide it. If, after seeing the supporting
15

PFCP claims that no Plaintiff ever pled or claimed in discovery that PFCP breached the License by
selling competing products, so (1) no party has been subject to Rule 11 regarding this claim; (2) PFCP has
been denied the opportunity to take discovery on this claim; and (3) PFCP has been denied the
opportunity to move to dismiss this claim. (Doc. 143-1, Ex. H). In resolving the parties’ discovery
disputes, the Court does not made a specific ruling on whether this claim was adequately pled by
Plaintiffs or Intervenor Klur.
16

The Licensing Agreement contains the following provision:
4.4 Non-competition
(a) Tyco may at any time during the Term Exploit an Excluded Product.
(b) Subject to clause 4.4(a), Tyco must not, during the Term, manufacture or sell any
product which competes with a Licensed Product.

(Doc. 140-1, Ex. 3). “Competes” is not defined. (Id.)
11

documentation, Klur still believes the identified products to be competing, she shall set
forth the basis for her belief in writing and petition the Court for a conference.
B.

PFCP’s Preservation of and Search for Evidence
Pursuant to the Discovery Order, Klur conducted a Rule 30(b)(6) deposition of

Andrew Leyshon on topics related to PFCP’s preservation of and search for evidence.
(See Doc. 137 at 2). Klur claims that Leyshon’s testimony shows PFCP’s massive failure
to preserve, search for, and produce evidence.
1.

Duty to Preserve

The parties dispute when PFCP’s obligation to preserve evidence began. A duty
to preserve “may arise when a party should have known that the evidence may be
relevant to future litigation.” Byrd v. Alpha Alliance Ins. Corp., 518 F. App'x 380, 383
(6th Cir. 2013) (quoting Beaven v. U.S. Dep't of Justice, 622 F.3d 540, 553 (6th Cir.
2010)).
Klur argues that PFCP’s duty to preserve began no later than October 1, 2002,
about a month after the License had been signed. On that date, Greg Lewis, a
PFCP executive, e-mailed Dr. DeSilva and explained as follows: “We have put this
matter with Tyco legal pending the resolution of who owns the assets and IP. There
is conflicting evidence of ownership, with Roy, Leon and others disputing the proposed agreement. There will be no further payments until this is resolved.” (Doc 142-1,

12

Ex. 20). 17 Klur claims that, from at least that date, the parties were in constant dispute
over the existence of, and PFCP’s compliance with, the License.
PFCP argues that any duty to preserve under U.S. law could not have arisen before
August 3, 2012, the date when PFCP answered the complaint and consented to U.S.
jurisdiction, and, even if it had, it was not before PFCP was served on December 8,
2011. 18 PFCP notes that, throughout the nine years prior to Plaintiffs’ filing of this
lawsuit on November 22, 2011, Plaintiffs: (a) continued to accept regular, substantial
royalty payments (over $1.6 million) for five years while PFCP continued openly to use
the IP prior to the exercise of the Option in 2007, (b) took no action for another four
years while PFCP continued to use the IP and (c) never sent a dispute notice, termination
notice, or had the senior executives meeting as required by the License. (See Doc. 140-1,
Ex. 3, ¶¶ 13.3, 15-16).
PFCP is an Australian company with offices and facilities only in Australia.
(Doc. 143-1, Ex. B). Australian Law governs the License and was the anticipated
jurisdiction for License-related disputes. (See Doc. 140-1, Ex. 3, ¶ 18.1). No significant

17

Klur explains that, early on, a dispute arose regarding who should sign the License. From late 2002
until the action commenced in 2011, the parties attempted to finalize the License. Dr. DeSilva
complained on many occasions about late royalty payments, PFCP’s failure to provide information, and
PFCP’s possible sale of competing products. (Doc 142-1 Exs. 21-22). Indeed, Dr. DeSilva told PFCP
several times that he considered them in breach and directed them to stop using the licensed IP. (Id. Exs.
23-24).
18

Even if PFCP’s duty began earlier, it preserved detailed, physical files (“Lever Arch” files) containing
documents dating back to 2001, which was its ordinary custom regarding acquisitions. PFCP points out
that much of the history of this transaction predates Zubulake IV (Oct. 7, 2003), the Fed. R. Civ. P. ESI
Rules amendment (Dec. 1, 2006), and common usage of electronic communication in business
transactions.
13

sales of Licensed Products were made into the U.S., and PFCP had (and has) no U.S.
presence. (Doc. 143-1, Ex. B).
PFCP is not excused from an obligation to preserve evidence simply because it is a
foreign company. See Reino de Espana v. Am. Bureau of Shipping, No. 03 CIV. 3573,
2006 WL 3208579, at *8 (S.D.N.Y. Nov. 3, 2006). However, the only place litigation
might at some point have been anticipated was in New South Wales, Australia—not Ohio
or anywhere else in U.S. Accordingly, notwithstanding the fact that it may not have had
jurisdiction over the PFCP until 2012, and in the absence of evidence that PFCP should
have reasonably anticipated litigation in the United States any earlier, the Court finds that
the duty to preserve began on December 8, 2011. 19
2.

Alleged Deficiencies—Generally

Klur argues that Leyshon admitted in the Rule 30(b)(6) deposition that PFCP
employees were never told to preserve evidence relevant to this action. She also notes
that Leyshon testified that PFCP employees were never shown Klur’s document demands
or interrogatories and that Leyshon was unaware of any PFCP employees asking any
steps to answer the questions posed therein.
PFCP claims that, as of September 21, 2007, its employees had already retained all
documents relevant to the License because: (1) from 2001 to present, Greg Lewis, Paul
Kunkler, and Andrew Leyshon were responsible for maintaining all documents relevant

19

The power of a U.S. Court to require compliance with U.S. discovery obligations does not arise until
and unless the Court has jurisdiction. See. e.g., In re Uranium Antitrust Litigation, 480 F. Supp. 1138
(N.D. Ill. 1979); see also Rashbaum, et al., “U.S. Legal Holds Across Borders; A Legal Conundrum,”
13 N.C.J.L. & Tech 69 (Fall 2011).
14

to the original acquisition, License, and the relationship with the Licensor, and did so
from 2001 to present both in twelve Lever Arch files and via certain electronic data;
(2) in 2007, prior to exercising the Option, PFCP searched for and organized all relevant
documents in order to make a well-informed decision on the Option; and (3) in spring
2011, PFCP, working with Tyco in-house counsel and outside counsel from Australia and
the U.S., again searched for and organized all relevant documents in order to decide, on a
worldwide basis, what to do about its former Licensor. Defense counsel represents that
PFCP’s key employees/custodians retained, gathered, organized all relevant documents,
were aware and reminded repeatedly by counsel to retain them, and did so.
The Court finds that PFCP’s claims are supported by Leyshon’s testimony and that
Klur overstates the import of selections from that testimony. Leyshon testified that he
was not aware of any directive given to PFCP employees to retain documents. (Doc. 144
at 35:1-37:1). However, there’s evidence that documents were retained by Leyshon and
others. 20 Klur points to no authority requiring that PFCP employees be shown the
document demands and interrogatories, and the Court declines to find an impropriety
with PFCP’s discovery responses on this ground.

20

Q. . . . When were Tyco employees asked to collect and produce evidence relating to this lawsuit?
A. Relating to this lawsuit? The timing of this lawsuit commenced when? November 2000, when? 2011?
MR. TILLERY: December 8th of 2011, if that helps.
A. So from that point onwards, that’s when the request would have come in, to collect the data and to
provide whatever assistance we could […] And provide the assistance to our counsel. And, again, I
believe that documentation was part of the discoverable process that you undertake in the U.S. So, prior
to that point, the documents are the documents that we have.
(Doc. 144 at 37:6-38-2).
15

3.

E-mails

PFCP switched e-mail software in 2009. Klur notes that Leyshon did not search
or review any e-mails from 2009 or earlier. Of the e-mails that were searched, PFCP
limited the search to those of a few custodians: Andrew Leyshon, Trevor Shanks, Bruce
Campbell and Chris Stevens. Accordingly, Klur argues, PFCP failed to preserve and/or
search for evidence from a number of relevant individuals.
PFCP responds that the twelve “Lever Arch” files that were produced contain all
correspondence, from 2001 to present, that was preserved as of August 3, 2012. Leyshon
testified that these files were meticulously kept, updated, and retained by him and his
predecessors and that no correspondence related to this transaction was excluded. (Doc.
144 at 50:11-51:2). Leyshon, Shanks, and Paul Kunkler preserved their Lotus Notes email files that predate 2009 but Leyshon cannot view or search them because PFCP does
not maintain a license for this software. (Id. 16:5-17:3). PFCP argues that these e-mails
are not reasonably accessible because it would need to obtain a license for Lotus Notes to
search these e-mails. Further, PFCP argues that such e-mails were likely retained in hard
copy and produced.
As explained above, the Court finds that PFCP’s duty to preserve did not attach
until December 8, 2011, so PFCP was not required to preserve its e-mails in 2009. Rule
26(b)(2)(B) guides the Court’s analysis regarding Leyshon, Kunkler, and Shanks’s

16

archived e-mails. 21 PFCP shall, within fourteen days of this Order, submit to the Court
an affidavit setting forth more specifically the burden and/or cost associated with
accessing these archived e-mails.
4.

Specific Persons

Klur’s claims that PFCP failed to preserve and/or search for evidence for the
following persons: Noel Ross Kelly (PFCP’s former managing director); Greg Lewis
(PFCP’s former finance director); Paul Kunkler (PFCP’s former financial controller);
Tracey Roper (PFCP’s former counsel); Mike Taylor (who “manag[ed] all of the
operational matters related to Lunkenheimer manufacturing and sales); David Pettigrew
(Taylor’s replacement); John Fehon (PFCP’s former finance director); Ron Hockey
(PFCP’s former GM of Pacific manufacturing operations); Geoff Armstrong (worked in
Global marketing—mining).
PFCP admits that it did not reach out to its former employees for responses and
argues that it has no obligation to do so because those employees were not under PFCP’s
“possession, custody or control” when the duty to preserve arose. PFCP notes that it
produced thousands of documents, dating back over thirteen years ago, which reference,
and are “to” and “from,” many of these and other former employees. 22 As Leyshon

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“Specific Limitations on Electronically Stored Information. A party need not provide discovery of
electronically stored information from sources that the party identifies as not reasonably accessible
because of undue burden or cost. On motion to compel discovery or for a protective order, the party from
whom discovery is sought must show that the information is not reasonably accessible because of undue
burden or cost. If that showing is made, the court may nonetheless order discovery from such sources if
the requesting party shows good cause, considering the limitations of Rule 26(b)(2)(C). The court may
specify conditions for the discovery.” Fed. R. Civ. P. 26(b)(2)(B).

22

PFCP also notes that Tracey Roper was not a PFCP employee.
17

testified, data from three key individuals (Lewis, Ross Kelly, and Kunkler) was retained
in either physical or electronic format and produced.
PFCP shall reach out to any of the above-named individuals who are currently
employed by PFCP or were so employed as of 2011 to locate any relevant evidence that
has not yet been produced. To the extent Klur believes any of the other above-named
individuals have information that was not retained or produced by PFCP, she shall
subpoena those individuals directly.
5.

Specific Categories of Documents

Klur also claims that PFCP never searched for certain documents. The Court
addresses these claims below.
a.

Documents Concerning the Ownership of the IP

Klur claims that PFCP took no steps to search for documents concerning the
ownership of the IP at issue. 23 PFCP claims it never had documents related to any trusts.
It was not until PFCP subpoenaed Robert Buechner, Dr. DeSilva trusts and estates
attorney, that it uncovered such documents. However, other searches relating to
ownership of the IP were conducted, and documents were preserved and produced.
Again, the Court finds that Klur overstates the import of Leyshon’s testimony. He
essentially testified that he did not know whether searches for documents concerning the
ownership of the IP had been conducted. (Doc. 144 at 65:18-66:18). The Court relies on

23

Klur explains that this information is relevant to her statute of limitations defense because it shows that
PFCP was on inquiry notice that various DeSilva-controlled entities had an interest in the IP by at least
2002. (See, e.g., Doc 142-1, Ex. 12-13).

18

counsel’s representation that documents uncovered in searches relating to ownership of
the IP were produced. To the extent Klur seeks to prove that PFCP was on inquiry notice
that various DeSilva-controlled entities had an interest in the IP by at least 2002, and this
is not already borne out by the documents produced, Klur may subpoena former
employees.
b.

Annual Statements

Klur claims that PFCP did not produce Annual Statements providing an
accounting of Net Sales for “each item” sold as required by the License. (See Doc.
140-1, Ex. 3, ¶ 7.3). PFCP claims that all Annual Statements were provided both in
discovery and each year during the term of the License.
Forthwith, PFCP shall identify the Bates Numbers at which the above-referenced
Annual Statements can be found. To the extent Klur seeks financial reports setting forth
the Net Sales for “each item,” and this is not what the documents identified by PFCP
provide, Klur shall request such reports specifically. PFCP shall provide such
compilations if they already exist or are readily accessible. 24
c.

Indian and Chinese Entities and Sublicenses

Klur claims the Indian and Chinese entities that were involved in manufacturing
and selling Lunkenheimer products are still affiliated with PFCP and, except for some
invoices that PFCP obtained from its Indian affiliate, PFCP made no efforts to obtain
evidence from the Indian or Chinese affiliates. Klur also claims that PFCP made no

24

In the context of this discovery dispute, the Court need not determine what information the License
required to be set forth in the Annual Statements
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effort to search for and produce sublicenses allowing the affiliates to manufacture and
sell the Lunkenheimer IP. (See generally Doc. 144 at 73:3-82:10).
PFCP claims that it produced and preserved all invoices and native, excel files
related to any sales from any subsidiaries related to the royalty calculations due under the
License. PFCP argues that Klur does not identify any category of documents that she or
Plaintiffs need from the subsidiaries to support any claim or defense. 25 Finally, PFCP
claims that no sublicenses exist, and one license governing the relationship between
PFCP and its Indian sister company exists, was preserved, and was produced.
If PFCP cannot search for and produce evidence on behalf of these entities, Klur
will need to subpoena them directly. 26 PFCP represents that there were no sublicenses.
Whether sublicenses were required by the License is a question of contract interpretation
that is not before the Court at this time.
d.

Roy Pack documents

Klur claims that PFCP never searched for the Lunkenheimer legal files that Roy
Pack turned over to PFCP, beyond looking in the office file it already had searched, even
though PFCP’s possession and use of those files was specifically addressed in the
Discovery Order.
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Klur claims that PFCP breached the License by allowing its Indian affiliate to manufacture and sell
products covered by the License without Lunkenheimer’s permission. Specifically, Klur claims PFCP
breached its duty of good faith and fair dealing and its obligation under Section 10.1 of the License not to
disclose Lunkenheimer’s confidential information. In resolving these disputes, the Court does not make a
specific ruling on whether claims were adequately pled by Plaintiffs or Intervenor Klur.

26

PFCP claims that the entities in India and China are sister companies, but PFCP does not have the legal
right, authority, or ability to control either. (Doc 143-1, Ex. B); see also Pitney Bowes, Inc. v. Kern lnt'l,
Inc., 239 F.R.D. 62 (D. Conn. 2006); Uniden Am. Corp. v. Ericsson. Inc., 181 F.R.D. 302 (M.D.N.C.
1998). Within fourteen days, PFCP shall produce evidence supporting its conclusion.

20

PFCP claims that Leyshon and PFCP’s counsel electronically searched all
documents for “Pack” and manually reviewed them to determine if any communications
existed, which contained privileged information. It was determined that no such
documents existed. As Leyshon explained, PFCP cannot search for files it does not have,
and there is simply no other place to look besides the “Lever Arch” files and electronic
documents already produced. (Doc. 144 at 92:19-102:23).
The Court finds that PFCP has undertaken a sufficient search for these documents.
Klur may subpoena former employees who she believes may have received such files.
e.

Marketing Materials/Website

Under the License, PFCP was required to “use all reasonable endeavors to
promote the sale of Licensed Products.” (See Doc. 140-1, Ex. 3, ¶ 4.2). Despite being
required by the Discovery Order to produce evidence of its promotion of the Licensed
Products, PFCP produced only (1) a color copy of a marketing brochure Klur previously
had produced to PFCP and (2) a short handout on alumina processing. PFCP referred
Klur to its current website for additional material and claimed that archived copies of its
website showing marketing material were accessible via the Wayback Machine. Klur
claims that the Wayback Machine does not contain archived copies of PFCP’s slurry
valve web pages prior to 2013.
PFCP claims it has produced and preserved its promotional materials. PFCP
agreed to search for and produce any copies of its old website that are reasonably
accessible. To the extent it has not does so, PFCP shall produce any archived copies of
its website that are reasonably accessible within fourteen days of this Order.
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C.

Sanctions
Klur claims that PFCP should be sanctioned (1) under Fed. R. Civ. P. 37 to the

extent that it failed to search for or produce evidence covered by the Discovery Order;
and (2) for spoliation of evidence.
This Court has the inherent authority to sanction bad faith conduct without regard
to whether such conduct could be sanctioned under other applicable rules or statutes.
First Bank of Marietta v. Hartford Underwriters Ins. Co., 307 F.3d 501, 513 (6th Cir.
2002). Determination of the correct sanction for discovery misconduct is left to the broad
discretion of the trial court. Nat’l Hockey League v. Metro. Hockey Club, 427 U.S. 639,
642 (1976). Courts must consider the state of mind of a party who destroys evidence
when determining whether the imposition of sanctions is appropriate. Courts evaluate
conduct on a “continuum of fault,” ranging “from innocence through the degrees of
negligence to intentionality.” Adkins v. Wolever, 554 F.3d 650, 652 (6th Cir. 2009)
(quoting Welsh v. United States, 844 F.2d 1239, 1246 (6th Cir. 1988)). Absent
exceptional circumstances, courts generally do not dismiss an action or give an adverse
inference instruction without consideration of whether the party acted in bad faith. (Id.)
1.

Rule 37

Rule 37 allows for a motion to compel discovery when a party fails to answer
interrogatories submitted under Rule 33 or to provide proper response to requests for
production of documents under Rule 34. Rule 37(a) expressly provides that “an evasive

22

or incomplete disclosure, answer, or response is to be treated as a failure to disclose,
answer, or respond.” Fed. R. Civ. P. 37(a)(3).
As set forth above, the Court does not find that PFCP failed to search for or
produce evidence in violation of the Discovery Order. The Court finds PFCP’s responses
to Interrogatory Nos. 4, 5, 9, and 10 were acceptable, given the broad scope of the
inquiries posed. While the Court ordered the parties to meet and confer regarding how
record sampling might proceed, the parties reached impasse. The Court has provided
further guidance on this procedure herein and anticipates that the parties will be able to
move forward without the need for further Court intervention. Finally, the Court did not
order PFCP to provide discovery on products Klur identified as competing; it ordered the
parties to meet and confer, which they did. For the reasons set forth herein, the Court
declines to sanction PFCP pursuant to Rule 37.
2.

Spoliation

A district court may sanction a litigant for spoliation of evidence if the following
conditions are satisfied: “First, the party with control over the evidence must have had an
obligation to preserve it at the time it was destroyed. Second, the accused party must have
destroyed the evidence with a culpable state of mind. And third, the destroyed evidence
must be relevant to the other side's claim or defense.” Byrd v. Alpha Alliance Ins. Corp.,
518 F. App'x 380, 383–84 (6th Cir.2013). “The party seeking the sanction bears the
burden of proof in establishing these facts.” Id. at 384. The Court must be mindful to
“impose a sanction that is proportionate to the seriousness of the infraction” under the
particular facts of the case. In re Smartalk Teleservices, Inc., 487 F.Supp.2d 947, 950
23

(S.D. Ohio 2007). The least severe sanction must be imposed, one that is commensurate
with the degree of prejudice to the nonoffending party. Pullins v. Klimley, No. 3:05cv82,
2008 U.S. Dist. LEXIS 3467, at *6, 2008 WL 68945 (S.D. Ohio Jan. 7, 2008).
The Court finds that PFCP did not have an obligation to preserve until December
8, 2011. Thus, PFCP cannot be held to preservation requirements prior that date. All
evidence relevant to the claims and defenses, as of at least September 21, 2007, has been
and is still being preserved. Therefore, the Court declines to sanction PFCP for spoliation
of evidence.
III.

CONCLUSION

Accordingly, based on the foregoing:
1. Intervenor Klur’s request for sanctions is DENIED;
2. Intervenor Klur is entitled to additional discovery as set forth herein.
IT IS SO ORDERED.
Date: 2/12/15

s/ Timothy S. Black
Timothy S. Black
United States District Judge

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