StorageCraft Technology v. Persistent Telecom Solutions
Filing
248
MEMORANDUM DECISION AND ORDER: Defendant Persistents Objection to the Memorandum Decision and Order dated 10/5/16 215 is DENIED. Defendant's Motion to Stay 229 is DENIED as moot. The court orders Defendant Persistent to comply with Magistrate Judge Warners Memorandum Decision and Order within 21 days of the date of this order. Signed by Judge Dale A. Kimball on 11/29/16. (dla)
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH
CENTRAL DIVISION
STORAGECRAFT TECHNOLOGY
CORPORATION, a Utah corporation,
MEMORANDUM DECISION
AND ORDER
Plaintiff/Counterclaim Defendant,
vs.
Case No. 2:14-CV-76-DAK
PERSISTENT TELECOM SOLUTIONS,
INC., a Delaware corporation,
Judge Dale A. Kimball
Defendant/Counterclaim Plaintiff.
This matter is before the court on the Defendant Persistent Telecom Solutions, Inc.’s
(“Persistent’s”) Objection pursuant to Rule 72(a) of the Federal Rules of Civil Procedure to the
Memorandum Decision and Order dated October 5, 2016, issued by Magistrate Judge Paul M.
Warner. The objection has been fully briefed. The court concludes that a hearing would not
significantly aid its determination of the motion. Accordingly, the court issues the following
Memorandum Decision and Order based on the written submissions of the parties and the law
and facts relevant to the pending motion.
BACKGROUND
On February 4, 2014, Plaintiff StorageCraft Technology Corporation (“StorageCraft”)
filed a Complaint alleging that Persistent was engaging in copyright infringement, contributory
copyright infringement, violations of Utah’s Unfair Competition Act, conversion, breach of
contract, and intentional interference with contractual relations. On July 2, 2014, StorageCraft
filed a Stipulated Motion for Protective Order, which the court granted in an order on July 10,
2014. The Stipulated Protective Order allowed the parties to, among other things, designate
materials produced in discovery as “Confidential Attorneys Eyes Only” (“CAEO”).
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On July 18, 2016, StorageCraft filed a Motion to Compel Defendant to De-Designate
Materials. On October 6, 2016, Magistrate Judge Paul M. Warner issued a Memorandum
Decision and Order granting StorageCraft’s Motion to Compel Defendant to De-Designate
Materials. In addition to ordering Persistent to re-designate specific materials, which Persistent
has already complied with, Magistrate Judge Warner’s decision orders Persistent to reexamine its
entire CAEO production, to “produce re-designated or de-designated versions of documents
previously designated as CAEO,” and to “produce a log listing any documents previously
designated as CAEO that [Persistent] has not re-designated or de-designated.” Mem. Decision
and Order, at 2-3, Oct. 5, 2016, ECF No. 206. Magistrate Judge Warner’s decision also ordered
Persistent to pay StorageCraft’s “reasonable expenses incurred in making the motion, including
attorney’s fees.” Id. at 4.
On October 19, 2016, Persistent filed an Objection to Magistrate Judge Warner’s
Memorandum Decision and Order. Persistent specifically objected to the portions of Magistrate
Judge Warner’s Memorandum Decision and Order requiring Persistent to reexamine its entire
CAEO production and requiring Persistent to pay StorageCraft’s reasonable expenses.
StorageCraft filed a response to Persistent’s objection, Persistent filed a reply.
DISCUSSION
Persistent objects to Magistrate Judge Warner’s decision because Persistent argues that
the large burden required to reexamine all of its CAEO production is not justified by the
evidence presented to support the reexamination. Persistent also argues that the award of
attorneys’ fees was not proper because Persistent engaged in a good faith effort to designate each
of its documents and has consistently worked in good faith with StorageCraft. StorageCraft
argues that Persistent has not shown that Magistrate Judge Warner abused his discretion in
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requiring Persistent to reexamine its document production or that Magistrate Judge Warner’s
award of attorneys’ fees was clearly erroneous or contract to law. The court will address the
merits of Persistent’s objections.
STANDARD OF REVIEW
Under Federal Rule of Civil Procedure 72(a), a district court is required to “consider
timely objections [to a nondispositive order from a magistrate judge] and modify or set aside any
part of the order that is clearly erroneous or is contrary to law.” Fed. R. Civ. P. 72(a); see also 28
U.S.C. § 636(b)(1)(A) (“A judge of the court may reconsider any pretrial matter under this
subparagraph (A) where it has been shown that the magistrate judge’s order is clearly erroneous
or contrary to law.”). Under Rule 72, a district court is “required to ‘defer to the magistrate
judge’s ruling unless it [is] clearly erroneous or contrary to law.’” Allen v. Sybase, Inc., 468 F.3d
642, 658–59 (10th Cir. 2006) (quoting Hutchinson v. Pfeil, 105 F.3d 562, 566 (10th Cir. 1997)).
The “clearly erroneous” standard under Rule 72(a) “applies to factual findings.” Brigham Young
Univ. v. Pfizer, Inc., No. 2:06-CV-890-TS-BCW, 2010 WL 3855347, at *2 (D. Utah Sept. 29,
2010). In order for a district court to overturn a magistrate judge’s decision as clearly erroneous,
the court must be left with a “definite and firm conviction that a mistake has been committed.”
Ocelot Oil Corp. v. Sparrow Indus., 847 F.2d 1458, 1464 (10th Cir. 1988) (quoting United States
v. United States Gypsum Co., 333 U.S. 364, 395 (1948)). “Under the ‘contrary to law’ standard,
the district court conducts a plenary review of the magistrate judge’s purely legal determinations,
setting aside the magistrate judge’s order only if it applied an incorrect legal standard.” Williams
v. Vail Resorts Dev. Co., No. 02-CV-16-J, 2003 WL 25768656, at *2 (D. Wyo. Nov. 14, 2003)
(citation omitted). “In sum, it is extremely difficult to justify alteration of the magistrate judge’s
nondispositive actions by a district judge.” Id. (citations omitted).
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REEXAMINATION OF PERSISTENT’S CAEO PRODUCTION
In objecting to Magistrate Judge Warner’s decision to require Persistent to reexamine its
entire CAEO production, Persistent does not appear to be objecting to any of Magistrate Judge
Warner’s factual findings. Instead, Persistent appears to be objecting to the legal standard that
Magistrate Judge Warner applied. Therefore, the court should set aside Magistrate Judge
Warner’s order only if it applied an incorrect legal standard.
The court concludes that Magistrate Judge Warner did not apply an incorrect legal
standard by requiring Persistent to reexamine its entire CAEO production due to the high
percentage of documents that were designated as CAEO. In general, courts have recognized that
“[i]mplicit in the protective order and its provision for designating documents as ‘confidential’ or
[CAEO] is a requirement of good faith.” Paradigm All., Inc. v. Celeritas Techs., LLC, 248
F.R.D. 598, 605 (D. Kan. 2008). “The duty of good faith in the protective order is a duty to
review the documents in good faith before designating them as [CAEO].” Id. This requirement of
good faith is especially significant when a party is seeking to designate materials using the
highly restrictive CAEO designation because “the indiscriminate use of [a CAEO] designation
poses ‘a significant handicap on the restricted litigant’ because ‘[d]iscovery, trial preparation,
and trial are made more difficult and expensive if an attorney cannot make complete disclosure
of the facts to the litigant.’” Procaps S.A. v. Patheon Inc., No. 12-24356-CIV, 2015 WL
4430955, at *6 (S.D. Fla. July 20, 2015) (quoting Arvco Container Corp. v. Weyerhaeuser, No.
1:08–CV–548, 2009 WL 311125, at *6 (W.D.Mich. Feb. 9, 2009)). “Although federal courts do
not seem to have established a specific bright line test to determine when a party’s designation of
discovery as [CAEO] in excess of a certain percentage is deemed presumptively improper,”
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courts have condemned parties who have designated 79% or more of their discovery as CAEO.
Id. at *7 (condemning the designation of 95% of discovery as the equivalent of CAEO); see also
Healthtrio, LLC v. Aetna, Inc., No. 12-CV-03229-REB-MJW, 2014 WL 6886923, at *3 (D.
Colo. Dec. 5, 2014) (finding that “90% is an absurd number” in reference to the designation of
discovery as the equivalent of CAEO); THK Am., Inc. v. NSK Co. Ltd., 157 F.R.D. 637, 645
(N.D. Ill. 1993) (finding that the designation of 79% of discovery as the equivalent of CAEO
was “absurdly high”).
In this case, Magistrate Judge Warner found that “more than 92%” of the “over 40,000”
documents produced by Persistent through discovery had been designated as CAEO. Mem.
Decision and Order, at 2, Oct. 5, 2016, ECF No. 206. As shown above, Magistrate Judge
Warner’s decision that designating 92% of discovery as CAEO is improper is consistent with the
current legal standard.
In addition to correctly applying the current legal standard to find that the high
percentage of designation of discovery as CAEO in this case is improper, Magistrate Judge
Warner also applied the correct legal standard when deciding on the appropriate remedy for the
excessive designation. When courts find that a party has overused a designation in a protective
order, courts frequently require that party to reexamine and re-designate its production, and some
courts also require the party to produce a log justifying its designations. See, e.g., Healthtrio,
LLC v. Aetna, Inc., No. 12-CV-03229-REB-MJW, 2014 WL 6886923, at *5 (D. Colo. Dec. 5,
2014) (requiring the parties to “re-review their production of documents . . . for purposes of redesignating each page’s level of restriction under the [protective order]”); Procaps S.A. v.
Patheon Inc., No. 12-24356-CIV, 2015 WL 4430955, at *6 (S.D. Fla. July 20, 2015) (allowing
affected party to “use all the documents designated . . . as highly confidential, subject to [other
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party’s] good faith re-designation, on a specific, document-by-document basis”); Paradigm All.,
Inc. v. Celeritas Techs., LLC, 248 F.R.D. 598, 605 (D. Kan. 2008) (requiring party to produce “a
log explaining its justification for designating a document as [CAEO]”).
Therefore, the court denies Persistent’s objection to Magistrate Judge Warner’s decision
to require Persistent to reexamine its entire CAEO production due to the high percentage of
documents that were designated as CAEO.
REASONABLE EXPENSES AND ATTORNEY’S FEES
“[M]agistrates have the authority to impose [attorney’s] fees as non-dispositive discovery
sanctions,” and a district court should use “the standard of clearly erroneous or contrary to law . .
. to review those fees.” Ocelot Oil Corp. v. Sparrow Indus., 847 F.2d 1458, 1465 (10th Cir.
1988). Federal Rule of Civil Procedure 37 provides that, if a motion for an order compelling
disclosure or discovery is granted, a court “must, after giving an opportunity to be heard, require
the party . . . whose conduct necessitated the motion . . . to pay the movant’s reasonable expenses
incurred in making the motion, including attorney’s fees.” Fed. R. Civ. P. 37(a)(5)(A). Rule 37
also provides that “the court must not order this payment if . . . (ii) the opposing party’s
nondisclosure, response, or objection was substantially justified; or (iii) other circumstances
make an award of expenses unjust.” Id.
In his Memorandum Decision and Order, Magistrate Judge Warner concluded that
Persistent’s “blanket CAEO designation was not substantially justified,” and, therefore, he
ordered Persistent to pay StorageCraft’s “reasonable expenses incurred in making the motion,
including attorney’s fees.” Mem. Decision and Order, at 4, Oct. 5, 2016, ECF No. 206. Persistent
objects to that decision because it believes Magistrate Judge Warner incorrectly ordered
Persistent to reexamine its entire CAEO production and because it acted in good faith.
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The court concludes that Magistrate Judge Warner’s decision to order Persistent to pay
StorageCraft’s reasonable expenses in bringing its motion was not clearly erroneous or contrary
to law. As discussed above, Magistrate Judge Warner correctly applied the current law to
determine that designating 92% of discovery as CAEO was improper. Using the same reasoning,
Magistrate Judge Warner concluded that Persistent was not substantially justified in designating
92% of its discovery as CAEO. Because he granted StorageCraft’s motion and concluded that
Persistent’s actions were not substantially justified, Magistrate Judge Warner was required by
Rule 37 to order Persistent to pay StorageCraft’s reasonable expenses, including attorney’s fees,
in bringing the motion. Therefore, the court denies Persistent’s objection to Magistrate Judge
Warner’s decision to award reasonable expenses to StorageCraft.
CONCLUSION
For the foregoing reasons, IT IS HEREBY ORDERED that Persistent’s Objection
pursuant to Rule 72(a) of the Federal Rules of Civil Procedure to the Memorandum Decision and
Order dated October 5, 2016 is DENIED. The court does not consider any part of Magistrate
Judge Warner’s order to be clearly erroneous or contrary to law and affirms his rulings in the
order. After filing its objections, Persistent filed a Motion to Stay Magistrate Judge Warner’s
order pending a review of the objections by the court. The court DENIES the Motion to Stay as
moot. The court orders Persistent to comply with Magistrate Judge Warner’s Memorandum
Decision and Order within 21 days of the date of this order.
DATED this 29th day of November, 2016.
BY THE COURT:
_________________________________________
DALE A. KIMBALL
United States District Judge
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