HILL v. BEST MEDICAL INTERNATIONAL, INC.
Filing
190
MEMORANDUM OPINION re: 168 MOTION for Attorney Fees filed by JOHN DAVID SCHERCH, MARCUS D. BITTMAN, DAVID SPELLMAN, and 170 MOTION for Attorney Fees filed by ACCURAY, INC. Signed by Judge William L. Standish on 12/22/2011. (md)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
ROBERT W. HILL,
Plaintiff,
vs.
BEST MEDICAL INTERNATIONAL,
INC. ,
Civil Action No. 07-1709
(Related to CA No. 08-1404
and CA No. 09-1194)
Defendant.
BEST MEDICAL INTERNATIONAL,
INC. ,
Plaintiff,
vs.
DAVID SPELLMAN, JOHN DAVID
SCHERCH and MARCUS D. BITTMAN,
Civil Action No. 08-1404
(Related to CA No. 07-1709
and CA No. 09-1194)
(All cases consolidated at
CA No. 07 -1 7 09)
Defendants.
BEST MEDICAL INTERNATIONAL,
INC. ,
Plaintiff,
vs.
ACCURAY, INC., a corporation,
ROBERT HILL, DAVID SPELLMAN,
JOHN DAVID SCHERCH, MARCUS
BITTMAN, JOHN DOE ONE, JOHN
DOE TWO, JOHN DOE THREE, JOHN
DOE FOUR and JOHN DOE FIVE,
individually,
Civil Action No. 09 1194
(Related to CA No. 07-1709
and CA No. 08-1404)
(All cases consolidated at
CA No. 0 7 1 7 0 9 )
Defendants.
MEMORANDUM OPINION
On October 25,
and Order
(Doc.
2011,
Nos.
this Court issued a Memorandum Opinion
164 and 165)
granting summary judgment in
favor
of
Robert
Plaintiff
Hill,
in
Hill
v.
Best
Medical
International, Inc., CA No. 07-1709; in favor of Defendants David
Spellman, John David Scherch, and Marcus D. Bittman,
the
"Spellman
International,
favor
of
Defendants")
Inc.
Accuray,
in
a
suit
{"Best Medical"},
Inc.
Defendants 1 at CA No.
("AccurayH),
09-1194,
brought
by
at CA No.
Hill,
(collectively,
Best
Medical
08-1404; and in
and
the
Spellman
also brought by Best Medical.
monetary judgment was entered in favor of Hill.
A
(Doc. No. 167, as
amended at No. 169.)
The
Spellman
Defendants
and
Accuray
have
now
moved
for
attorneys' fees and expenses, arguing that Best Medical filed suit
against them in bad faith and without reasonable investigation.
(Doc. Nos. 168 and 170.)
The facts of these cases are set out in
detail in the October 25, 2011 Memorandum Opinion ("Opinion") and
will not be reiterated here.
However, a summary of the procedural
history is provided because
is a factor in the Court's decision
to grant the pending motions.
I.
PROCEDURAL HISTORY
Hill filed a single-count suit in this Court on December 14,
2007,
alleging
breach
of
contract
arising
from
Best
Medical's
refusal to pay severance benefits to which he believed he was
1 As noted in the October 25,
2011 Opinion, in addition to claims against
Hill, the Spellman Defendants, and Accuray, Best Medical also brought
sui t against John Does 1 through 5 who were apparently employees of
Accuray. (See Opinion at 9, n.4.)
2
entitled after leaving his employment with Best Medical ("the Hill
Case.")
On February IS,
2008,
Best Medical filed its answer and
affirmative defenses, along with four counterclaims, the third of
which was that Hill had violated the Pennsylvania Uniform Trade
Secrets
Act,
12
misappropriating
Pa.
C.S.
5301
§
confidential
and
seq.
et
trade
("PUTSA"),
secret
belonging to Best Medical when he left its employ.
On March 25,
2008,
by
information
(Doc. No.3.)
Hill and Best Medical entered into a
stipulated motion for a permanent injunction which prohibited Hill
from using any of Best Medical's "confidential and proprietary
information and trade secrets" in any way,
course of his new employment with Accuray.
Stipulation.")
including during the
(Doc. No.7, "the Hill
Hill also agreed to return all hard copies of Best
Medical documents in his possession and to provide to a third-party
computer forensics examiner all of his computers and electronic
data storage media which might contain "Confidential Information"
as
that
term was
defined
in
the
stipulated order.
With
some
agreed-upon privilege restrictions in place, the forensics examiner
would
search
the
computerized
data
to
identify
Best
Medical
information and any correspondence between Hill and Accuray dating
from
July
I,
2007,
to
October
resigned from Best Medical.
computers
had been made
4,
the
date
on which
he
After a bit-by-bit image of Hill's
and placed
control of Hill's attorneys,
2007,
in a
locked box
under
the
Hill would permit the examiner to
3
overwrite all information belonging to Best Medical on any computer
or storage media he retained.
Best Medical did not object to Hill
continuing to work for Accuray despite the fact that he had entered
into
non-compete
predecessor.
agreements
with
both
Best
Medical
and
its
At no time during the course of this litigation has
Best Medical ever protested that Hill violated the stipulation of
March 25, 2008, in any way.
A case management
order entered on April
post-discovery conference for October 7, 2008.
Best Medical filed suit against Spellman,
(Best
Medical
Int' 1
v.
Spellman
et
al.,
24,
2008,
set a
On October 6, 2008,
Scherch,
and Bittman.
"the Spellman Case. fI)
Counts I through VI alleged the Spellman Defendants had breached
various employment agreements with Best Medical when they went to
work for Accuray and Count VII alleged that all three had violated
the PUTSA by providing Accuray with confidential and trade secret
information.
On November 4, 2008, the Spellman Defendants and Best
Medical entered into an agreement containing essentially the same
terms and conditions as those in the Hill Stipulation and which
allowed the Spellman Defendants
to continue working at Accuray
except in four specifically described areas.
( Doc. No. 14.)
Based on the representations of the parties that they were
engaging in serious settlement negotiations, the Court temporarily
suspended discovery deadlines in both cases on December 3,
and again on February 25,
2009.
2008,
Joint mediation eventually took
4
place on June 19, 2009; it was unsuccessful.
A status conference
was set for July 14, but when Best Medical changed counsel on July
13, the conference was postponed until September 10, 2009.
On September 2,
this
time against
(See Best
Case.")
2009,
Hill,
Medical Int' I
Best Medical filed another complaint,
the
v.
Spellman
Accuray,
Defendants,2
and Accuray.
et al.,
"the Accuray
Inc.,
The Hill and Spellman Cases were again stayed until the
pleadings in the Accuray Case were closed.
February 18,
2010,
March 16, 2010.
The stay was lifted on
and a case management conference was held on
At that time,
a joint case management order was
entered, directing the cases to be consolidated for all pre-trial
proceedings.
On May 13, 2010, Accuray filed the first of a series
of motions seeking to compel Best Medical to identify with the
requisi te
specificity
the
trade
secrets
alleged
to
misappropriated by its former employees and Accuray.
have
been
The cases
were once more referred to mediation to be held on June 3,
2010.
That day, Best Medical filed a motion to amend its complaint in the
Accuray Case, seeking to add a claim for patent infringement (Doc.
No. 51), which the Court denied on June 24, 2010.
More than a
compel,
two
year
later,
depositions
following
of
Best
a
(Doc. No. 61.)
number of motions
Medical's
to
corporate
representatives, and extensive briefing, the Court granted summary
Collectively, Hill, Bittman, Scherch, and Spellman will be referred to
as the "Individual Defendants."
2
5
judgment in favor of Hill, the Spellman Defendants, and Accuray in
all three cases.
On November 21, 2011, Best Medical appealed the
decisions
to the United States Court of Appeals
Circuit.
In the meantime,
filed
motions
responded.
for
for
the Third
the Spellman Defendants and Accuray
attorneys'
fees,
to
which
Best
Medical
has
The parties having fully briefed their positions, the
matter is now ripe for decision.
II.
APPLICABLE LAW
Rule 54(d) (2) of the Federal Rules of Civil Procedure provides
that
except
under
some
conditions
not
appl icable
here,
wi thin
fourteen days after entry of judgment the prevailing party may file
a
motion
expenses."
claiming
Fed.
R.
"attorney's
Civ.
P.
fees
and
54(d)(2)(A)
related
and
nontaxable
(B)(i).
The motion
must "specify the judgment and the statute, rule, or other grounds
entitling the movant to the award" and "state the amount sought or
provide a fair estimate of it."
Id. at
(B) (ii)
and
(iii).
The
opposing party must be given an opportunity to state its objections
to the motion.
Id. at (C).
Here, summary judgment was granted in favor of Defendants on
all claims as of October 25,
timely
led on November 8.
2011,
and Defendants' motions were
Best Medical was given the opportunity
to respond to each motion and has done so.
175.)
(See Docs. No. 174 and
In each motion, Defendants rely on three alternative bases
for their claims:
Section 5305 of the PUTSA, 28 U.S.C.
6
§
1927, and
the inherent power of the court.
A.
Attorneys'
Fees and Expenses under PUTSA
The Pennsylvania Uniform Trade Secrets Act, which closely
follows the model Uniform Trade Secrets Act ("UTSA") as adopted by
numerous other states, allows a court to
award reasonable attorney fees, expenses and costs to the
prevailing party:
(1) if a claim of misappropriation is made in bad faith;
(2) a motion to terminate
resisted in bad faith; or
an
injunction
is
made
or
(3) willful and malicious misappropriation exists.
12 Pa. C.S.
§
5305.
Defendants' claims for fees and expenses are brought under §
5305(1).
As the parties acknowledge, no reported Pennsylvania case
has discussed this specific issue 3 and the term "bad faith" is not
defined in the PUTSA.
In the context of discerning the meaning of
the term as applied under 28 U.S.C. § 1927 (discussed below), the
Third Circuit Court of Appeals has stated that indications of bad
faith include evidence that the claims advanced were meritless or
that the motive for filing the suit was for an improper purpose
such as harassment.
In re Prudential Ins. Co. Am.
Litig. Actions, 278 F.3d 175, 188
(3d Cir. 2002).
Sales Practice
Other federal
Yountie v. Macy's Retail Holding, Inc., 653 F. Supp.2d 612, 630-631
(E.D. Pa. 2009), and Fisher Bioservices, Inc., v. Bilcare, Inc., CA No.
06-567, 2006 U.S. Dist. LEXIS 34841, *50-*54 (E.D. Pa. May 31, 2006),
both discuss the award of attorneys' fees under § 5305(3).
3
7
courts have provided similar definitions in the context of claims
brought under their versions of the UTSA.
See, e.g.,
v. Computational Dynamics N. Am., Ltd., CA No.
Dist.
LEXIS 13993,
*7
(D.
N.H.
Feb.
10,
ANSYS, Inc.
09-284,
2011),
2011 U.S.
concluding that
under New Hampshire law, "[a] party pursues a claim in bad faith if
the claim is
frivolous,"
i. e.,
one which "lacks any reasonable
basis in the facts provable by evidence, or any reasonable claim in
the law as it is, or as it might arguably be held to be"}; and Sun
Media
Inc. v. KDSM
2008),
587 F. Supp.2d 1059, 1072 (S.D. Iowa
noting that under Iowa law,
a suit brought in bad faith
carries the connotation of being "frivolous, unduly prolonged and
harassing in nature," as compared to being "the result of sincere
difference of opinion or interpretation of fact or law."
The California Uniform Trade Secrets Act
("CUTSA")
contains
language almost identical to that of § 5305 of the PUTSA.
See Cal.
Civ. Code § 3426. 4
In addressing the issue of what constitutes bad
faith of the type and degree sufficient to support an award of
attorneys'
fees,
establishing
elements:
and
(2)
claim."
(1)
bad
the
California
faith
under
the
Court
CUTSA
of
Appeal
requires
held
proof
of
that
two
"obj ecti ve speciousness of the plaintiff s claim,"
"subjective
I
bad
faith
in
bringing
or
maintaining
the
Gemini Aluminum Corp. v. Cal. Custom ShaQes, Inc., 95 Cal.
App. 4th 1249, 1262 (Ct. App. 2002)
,4
Other courts from numerous
Although the PUTSA does not contain a provision directly relating to
8
jurisdictions
have
followed
provision of the UTSA.
this
test
in
considering
the
same
See, in addition to cases from California
state and district courts,
CRST Van Expedited,
Inc.,
v.
Werner
Enters., Inc., 479 F.3d 1099, 1111 (9 th Cir. 2007); Rent Info Tec.,
Inc. v. Home Depot U.S.A.
U.S.
App.
LEXIS
4675,
Inc., Nos.
*8-*9
06-55829 and 06-56259,
(9 th Cir.
Feb
28,
2008)
2008
(applying
Georgia UTSA and affirming application by district court of the
Gemini
Aluminum
test);
Contract
Materials
Processing,
Kataleuna GmbH Catalysts, 222 F. Supp.2d 733,
744
Inc.
(D. Md.
v.
2002);
Norwood Operating Co. v. Beacon Promotions, Inc., CA No. 04-1390,
2006 U.S. Dist. LEXIS 80237, * 4 (D. Minn. Oct. 31, 2006); Degussa
Admixtures,
Inc. v. Burnett,
471 F. Supp.2d 848,
2007), aff'd, 2008 U.S. App. LEXIS 10017, *10-*11
857
(W.D. Mich.
(6 th Cir. May 5,
2008); and Sun Media Sys., 587 F. Supp.2d at 1072-1073.
"Objective speciousness exists where there is a complete lack
of evidence supporting plaintiff's claims.1I
222 F.
Supp.2d at 744,
Contract Materials,
quoting Computer Econs.,
Inc.
v.
Gartner
Group, Inc., CA No. 98-0312, 1999 U.S. Dist. LEXIS 22205, *17 (S.D.
Cal.
Dec.
14,
1999).
"Subjective
misconduct
exists
where
a
statutory construction, the enactments of the UTSA by other states
frequently include language directing that the statute is to be "applied
and construed to effectuate its general purpose to make uniform the law
wi th respect to [trade secrets] among the states enacting it."
See,
e.g., Cal. Civ. Code § 3426.8, 6 Del. C. § 2008, or Conn. Gen. Stat. §
35-58. In keeping with this understanding, we have been guided by the
reasoning of courts from other jurisdictions, especially since the Third
Circui t Court of Appeals and the Pennsylvania Supreme Court have not
spoken on the issues addressed herein.
9
plaintiff knows or is reckless in not knowing that its claim for
trade
secret misappropriation has
no merit."
computer Econs.,
Inc., id. at *18.
The Court finds the Gemini Aluminum test is applicable herein
and will employ its two-prong test in determining whether Plaintiff
acted in bad faith with regard to its trade secrets claims.
B.
28 U.S.C. § 1927
Section 1927 of Title 28 provides that
Any attorney or other person admitted to conduct cases in
any court of the United States or any Territory thereof
who
so
multiplies
the
proceedings
in
any
case
unreasonably and vexatiously may be required by the court
to satisfy personally the excess costs, expenses, and
attorneys' fees reasonably incurred because of such
conduct.
28 U.S.C. § 1927.
"[TJhe principal purpose of imposing sanctions under 28 U.S.C.
§
1927 is the deterrence of intentional and unnecessary delay in
the proceedings."
294, 297
Zuk v. Eastern
ric Inst.
~~~~~~~~-~~~~~~-~~~~~~
(3d Cir. 1996)
(internal quotation omitted.)
103 F.3d
Our Court of
Appeals has noted that it is "well settled in the Third Circuit
that 28 U.S.C. § 1927 requires a finding of four elements for the
imposition
of
sanctions:
unreasonably and vexatiously;
the
proceedings;
misconduct.'"
22475,
*2
(4)
with
In re Beers,
(3d Cir. Oct.
, (1)
(3)
multiplied
faith
No.
10-1105,
10
(2 )
thereby increasing the cost of
bad
29, 2010),
proceedings;
or
with
2010 U.S.
intentional
App.
LEXIS
quoting LaSalle Nat'l Bank v.
First Conn. Holding Group, LLC, 287 F.3d 279, 288
(3d Cir. 2002);
see also In re Prudential Ins. Co., 278 F.3d at 188.
In determining if the action of the attorney or law firm was
unreasonably
or
vexatious,
the
court
must
keep
in
mind
that
"misunderstanding, bad judgment, or well-intentioned zeal" are not
sufficient
Bank,
reasons
for
applying
287 F. 3d at 289.
such sanctions.
LaSalle Nat'l
Nor can the sanction be applied if the
attorney has been no more than negligent.
Zuk,
103 F.3d at 298.
Instead, sanctions under § 1927 "must be supported by a finding of
subjective bad faith," meaning that the attorney has "knowingly or
recklessly raise[d] a frivolous argument or argue[d] a meritorious
claim for the purpose of harassing an opponent."
Mgmt.
Co.,
omitted.)
78 F.3d 431,
436
(3d Cir.
1996)
Moore v. Keegan
(internal quotations
In addition, the court must also be mindful that § 1927
applies only to unnecessary filings after the suit has been filed
and not to initial pleadings.
imposed under §
1927
are
Id.
at 435.
limited to excess
incurred "because of such conduct."
Finally,
costs
sanctions
and expenses
LaSalle Nat'l Bank, 287 F.3d
at 288, further noting that courts should exercise this power "only
in instances of a serious and studied disregard for the orderly
process of justice."
C.
The
(Internal quotation omitted.)
Inherent Power to S
ion
A court has the inherent authority to sanction parties
for
refusing to comply with its orders and in order to control
11
Adams v. Corr. Corp. of Am., CA No. 10-259,
litigation before it.
2011 O.S. Dist. LEXIS 120705, *6 (M.D. Pa. Oct. 19, 2011), citing
Tracinda Corp. v. DaimlerChrysler AG,
2007),
and
Chambers
v.
NASCa,
502 F.3d 212, 242
Inc.,
501
O.S.
32,
(3d Cir.
43
(1991).
However, "[b]ecause of their very potency, inherent powers must be
exercised with restraint and discretion."
44.
Chambers,
501 O.S. at
Instead, a court should first determine if another rule- or
statute-based sanction is "up to the task."
Participating Sav.
2001).
attorneys'
Where
fees
Plan v.
the
to
Bulger,
sanction
the
losing party,
losing party exhibited bad faith.
citing Langdon v.
Corp.,
Hunt,
243 F. 3d 773,
contemplated
allowed under the American Rule,
Westinghouse Elec.
43
938
Montrose Med. Group
a
785
(3d Cir.
includes
shifting
practice
the court must
Republic of
F.3d 65,
F.2d 450,
74
454
n.11
normally not
find that the
Philippines v.
(3d Cir.
(3d Cir.
1994),
1991),
and
Chambers, id. at 45-46.
The Court of Appeals has clearly outlined the situations in
which a court may invoke its inherent powers to sanction a party or
attorney appearing before it.
As stated in Prudential
In~.
Circumstances that may justify sanctions pursuant to a
court's inherent power include cases where a party has
acted in bad faith, vexatiously, wantonly, or for
oppressive reasons..
.The imposition of sanctions in
this instance transcends a court's equitable power
concerning relations between the parties and reaches a
court's inherent power to police itself, thus serving the
dual purpose of vindicating judicial authority without
resort to the more drastic sanctions available for
contempt of court and making the prevailing party whole
12
Co.,
for expenses caused by his opponent's obstinacy.
Therefore, generally, a court's inherent power should be
reserved for those cases in which the conduct of a party
or an attorney is egregious and no other basis for
sanctions exists.
Id.,
278
F.3d
at
188-189
(internal
citations
and
quotations
omitted. )
III. ANALYSIS AND CONCLUSIONS
As noted in Section I
above,
Best Medical has consistently
claimed that Hill and the Spellman Defendants "wrongfully copied
and
retained
confidential,
proprietary
trade
and
secret
information" belonging to Best Medical and shared this information
with Accuray in violation of the Pennsylvania Uniform Trade Secrets
(Accuray Case,
Act.
Complaint,
4jPII
45-46.)
In a nutshell,
the
Court concluded at summary judgment that Best Medical had failed to
establish a
namely,
critical element
of such a
misappropriation claim,
the existence of a trade secret.
Not only had Plaintiff
failed to establish that any of the alleged trade secrets were
found
on
the
computers
or
other
electronic
belonging to the Spellman Defendants,
storage
devices
but the two Best Medical
representatives proffered to testify "with particularity" about the
trade secrets in support of the PUTSA claim were unable to explain
why the information found on Hill's computer constituted protected
information.
Therefore,
in
all
three
cases,
the
PUTSA
misappropriation claims were dismissed in their entirety.
Accuray and the Spellman Defendants argue that Best Medical's
13
bad faith in initiating the suits against them is reflected in (1)
its failure to mediate the case in good faith;
(2) the failures of
the company and its attorneys to comply with discovery obligations
and Court orders; and (3) the failure to voluntarily withdraw its
claims after the deposition of Dr. George Cernica, its second Rule
30 (b) (6)
witness,
whose testimony clearly established that Best
Medical's misappropriation claims were "terminally deficient."
A.
The Spellman Case
As discussed at length in the Opinion, Bittman, Scherch,
and Spellman all left Best Medical between October 2007 and June
2008
and went
to work
for
Accuray.
On October
6,
2008,
Best
Medical sued the Spellman Defendants, claiming that it had learned
of their new employment during the course of discovery in the Hill
Case.
As noted above,
on November 4,
2008,
the parties entered
into a stipulation which required the Spellman Defendants to return
all hard copies of documents originating with Best Medical and to
provide copies of their computer hard drives and other storage
devices to Plaintiff's computer forensic examiner, but permitted
them
to
continue
complained
that
working
any
of
for
the
Accuray.
Spellman
Best
Medical
Defendants
has
never
breached
that
stipulated agreement.
The Spellman Defendants argue that the deposition testimony of
Best
Medical's
Cernica,
Rule
30 (b) (6)
witnesses,
0' Neal
Mistry
and
Dr.
supports their position that Plaintiff did little or no
14
investigation prior to filing suit against them.
168,
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