MD Helicopters v. Aerometals, Inc. ( 2021 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 MD HELICOPTERS, INC., No. 2:16-cv-02249-TLN-AC 12 Plaintiff, 13 v. ORDER GRANTING DEFENDANT’S MOTION TO BIFURCATE DISCOVERY 14 AEROMETALS, INC., 15 Defendant. 16 17 This matter is before the Court on Defendant Aerometals, Inc.’s (“Defendant”) Motion to 18 Bifurcate Discovery. (ECF No. 137). Plaintiff MD Helicopters, Inc. (“Plaintiff”) has filed an 19 opposition (ECF No. 144), and Defendant has filed a reply (ECF No. 145). For the reasons set 20 forth herein, Defendant’s Motion is GRANTED. (ECF No. 137.) 21 /// 22 /// 23 /// 24 /// 25 /// 26 /// 27 /// 28 /// 1 I. FACTUAL AND PROCEDURAL BACKGROUND 2 Plaintiff is a helicopter manufacturer seeking damages and injunctive relief based on 3 Defendant’s alleged copyright infringement of certain helicopter parts. One of Plaintiff’s most 4 successful product lines is a family of helicopters based on the single engine MD 500 model, 5 which includes civilian and military helicopters. (ECF No. 1 at ¶ 9.) The civilian line is called 6 the “MD 500 Series.” (Id. at ¶ 10.) Plaintiff alleges Defendant used its Original Equipment 7 Manufacturer (“OEM”) drawings, in which it claims intellectual property rights, to compete in the 8 civilian market for MD 500 Series spare and replacement parts.1 (Id. at ¶ 38.) 9 On April 1, 2019, Defendant filed the instant Motion to Bifurcate Discovery, seeking to 10 bifurcate discovery into separate phases for liability and damages. (See ECF Nos. 137, 137-1.) 11 Plaintiff filed an opposition on April 18, 2019 (ECF No. 144), and Defendant filed a reply on 12 April 25, 2019 (ECF No. 145). 13 II. STANDARD OF LAW 14 Federal Rule of Civil Procedure (“Rule”) 42(b) provides a district court with discretion to 15 bifurcate proceedings “[f]or convenience, to avoid prejudice, or to expedite and economize.” 16 Fed. R. Civ. P. 42(b); see also Hangarter v. Provident Life & Acc. Ins. Co., 373 F.3d 998, 1021 17 (9th Cir. 2004); Zivkovic v. S. Cal. Edison Co., 302 F.3d 1080, 1088 (9th Cir. 2002) (“Rule 18 42(b) . . . confers broad discretion upon the district court to bifurcate a trial, thereby deferring 19 costly and possibly unnecessary proceedings pending resolution of potentially dispositive 20 preliminary issues.”). In ruling on a Rule 42(b) motion, the district court is to consider a number 21 of factors, including “complexity of issues, factual proof, risk of jury confusion, difference 22 between the separated issues, and the chance that separation will lead to economy in discovery.” 23 Moreno v. NBCUniversal Media, LLC, No. CV 13-1038 BRO (VBKx), 2013 WL 12123988, at 24 *2 (C.D. Cal. Sept. 30, 2013) (citing Calmar, Inc. v. Emson Research, Inc., 850 F. Supp. 861, 866 25 (C.D. Cal. 1994)). “The Court should also consider whether bifurcation ‘will best serve the 26 27 1 The Court need not recount all background facts of the instant case here, as they are set forth fully in the Court’s November 30, 2018 Order denying Defendant’s Motion to Dismiss and 28 Special Motion to Strike. (ECF No. 95.) 1 convenience of the parties and the court, avoid prejudice, and minimize expense and delay.” Id. 2 (citing In re Innotron Diagnostics, 800 F.2d 1077, 1084 (Fed. Cir. 1986)) (applying those 3 factors); see also Reed v. AutoNation, Inc., No. CV 16-08916-BRO (AGRx), 2017 WL 6940519, 4 at *2 (C.D. Cal. Apr. 20, 2017) (same). 5 Courts have found bifurcation proper “when resolution of a single claim or issue could be 6 dispositive of the entire case.” Clark v. I.R.S., 772 F. Supp. 2d 1265, 1269 (D. Haw. 2009) (citing 7 Drennan v. Maryland Cas. Co., 366 F. Supp. 2d 1002, 1007 (D. Nev. 2005)). Conversely, courts 8 have found bifurcation improper “where the issues are so intertwined that separating them would 9 ‘tend to create confusion and uncertainty.’” Id. (citing Miller v. Fairchild Indus., Inc., 885 F.2d 10 498, 511 (9th Cir. 1989)). The Ninth Circuit has clearly articulated that Rule 42(b) “gives courts 11 the authority to separate trials into liability and damage phases.” Estate of Diaz v. City of 12 Anaheim, 840 F.3d 592, 601 (9th Cir. 2016), cert. denied, 137 S. Ct. 2098 (2017) (citing De Anda 13 v. City of Long Beach, 7 F.3d 1418, 1421 (9th Cir. 1993)). “The party seeking bifurcation bears 14 the burden of establishing that bifurcation will promote judicial economy or avoid inconvenience 15 or prejudice to the parties.” Reed, 2017 WL 6940519, at *2 (internal quotations omitted). 16 III. ANALYSIS 17 Defendant seeks to bifurcate discovery into separate phases for liability and damages on 18 the bases that its defenses will eliminate or reduce the scope of discovery, liability discovery is 19 distinct and separate from damages discovery, it will face a substantial burden if damages 20 discovery proceeds, and Plaintiff will not be prejudiced by bifurcation. (See generally ECF No. 21 137-1.) In opposition, Plaintiff asserts bifurcation is disfavored (as it requires a showing of 22 particularized and specific harm), there are no exceptional circumstances to warrant bifurcation, 23 Defendant fails to show a clear possibility of prevailing on its defenses, and bifurcation would 24 prejudice Plaintiff. (See ECF No. 144.) The Court will consider the parties’ arguments in its 25 evaluation of the factors of “convenience [to] the parties and the court,” “avoid[ing] prejudice,” 26 and “minimiz[ing] expense and delay.” Moreno, 2013 WL 12123988, at *2. 27 /// 28 /// 1 A. Convenience 2 i. Possible Reduction or Elimination of Damages Discovery 3 Defendant argues its defenses are likely to reduce or eliminate the need for damages 4 discovery and cites a litany of case law for its proposition that “complex liability issues” in the 5 instant case “should be resolved before the parties are forced to engage in burdensome and costly 6 damages discovery that may be drastically curtailed or rendered unnecessary.” (ECF No. 137-1 7 at 9–10.) Defendant maintains Plaintiff cannot prove infringement and evaluates the merits of its 8 own affirmative defenses. (Id. at 10–19.) 9 In response, Plaintiff contends there are no exceptional circumstances to warrant 10 bifurcation, as “[c]ourts routinely reject the argument that a future dispositive motion is sufficient 11 grounds to bifurcate damages discovery.” (ECF No. 144 at 8.) Plaintiff asserts each case cited by 12 Defendant “can be distinguished on their facts because they involve exceptional circumstances 13 which are not at issue in this case.” (Id. at 9.) Plaintiff proceeds to note Defendant “fails to show 14 a clear possibility of prevailing on its defenses” and also evaluates the merits of Defendant’s 15 defenses. (Id. at 12–23.) 16 The Court notes at the outset that a considerable portion of both parties’ briefings address 17 the merits of Defendant’s defenses and whether or not they are likely to reduce or eliminate 18 damages discovery. (See ECF No. 137-1 at 10–19; see also ECF No. 144 at 12–23.) Such a 19 discussion is improper in a Rule 42(b) analysis to evaluate whether or not to grant a motion to 20 bifurcate discovery and therefore the Court declines to address the merits of those defenses at this 21 juncture. Indeed, none of the relevant case law relied upon by the parties engages in such a 22 discussion on the merits. See, e.g., Moreno, 2013 WL 12123988, at *1–3; AVIA Group Intern., 23 Inc. v. Nike, Inc., No. 91-326-JU, 1991 WL 340569 (D. Or. Nov. 21, 1991); Giro Sport Design 24 Inc. v. Pro-Tec Inc., No. C-88-20228-RPA, 1989 WL 418774 (N.D. Cal. Mar. 16, 1989); Brooks 25 v. Motsenbocker Advanced Developments, Inc., No. 07cv773 BTM (NLS), 2008 WL 698470 26 (S.D. Cal. Mar. 14, 2008); Pirelli Armstrong Tire Corp. Retiree Med. Benefits Tr. v. Stumpf, No. 27 C 11-2369 SI, 2012 WL 12920191 (N.D. Cal. May 17, 2012); Copper Innovations Grp., LLC v. 28 Nintendo Co., Ltd., No. 07-1752, 2008 WL 11341318 (W.D. Pa. Sept. 12, 2008). 1 Regardless, Defendant is correct that courts grant motions to bifurcate “in copyright 2 infringement cases where the failure to prove liability would eliminate or reduce the need for 3 burdensome damages discovery” or in cases “involving questions of intellectual property liability, 4 where liability issues are complex and the failure to prove infringement would moot damages 5 discovery.”2 (ECF No. 137-1 at 9); see also Moreno, 2013 WL 12123988, at *2 (finding 6 bifurcation of discovery into liability and damages phases “could save both Parties significant 7 time and money); Ocean Atl. Woodland Corp. v. DRH Cambridge Homes, Inc., No. 02 C 2523, 8 2004 WL 609326, 2004 WL 609326, at *2 (N.D. Ill. Mar. 23, 2004) (“Separating the issues of 9 liability and damages for . . . discovery will avoid unnecessary time and expense and further the 10 interest of expedition by expediting the decision on liability.”); Advertise.com, Inc. v. AOL, LLC, 11 No. CV 09-5983-VBF(CWx), 2011 WL 13186156, at *3 (C.D. Cal. Aug. 15, 2011) (concluding 12 that denial of the motion to bifurcate “will require both parties to incur substantial additional 13 expenses for discovery on issues that may be moot if [defendant’s] marks are deemed invalid”); 14 AVIA Grp. Int’l, Inc., 1991 WL 340569, at *2 (“A separate trial on liability will likely result in 15 simplification of damage issues or the elimination of such an inquiry altogether.”); Giro Sport 16 Design, Inc., 1989 WL 418774, at *4 (“Bifurcation of liability and damages issues is warranted in 17 this case in light of the complex nature of [trademark infringement] . . . It will be difficult enough 18 to establish liability without the addition of information relating to damages issue, and the time 19 and money spent on assessing damages may not be necessary if no liability is found.”). 20 Plaintiff attempts to distinguish the facts of these cases as each involving “exceptional 21 circumstances” not present in the instant case, in addition to citing additional case law for the 22 proposition that “[c]ourts routinely reject the argument that a future dispositive motion is 23 sufficient grounds to bifurcate damages discovery.” (See ECF No. 144 at 8–12.) However, 24 Plaintiff’s arguments are unpersuasive. First, the cases Plaintiff cites in support of this 25 proposition are inapposite to the instant case.3 Second, the instant case regarding the alleged 26 2 Many of the cases evaluating Rule 42(b) motions to bifurcate often overlap the factors of 27 convenience, prejudice, and judicial economy (expense and delay). 28 3 In Brooks v. Motsenbocker Advanced Dev., Inc., the magistrate judge denied defendants’ 1 infringement of numerous copyrights involves complex liability issues. As Defendant correctly 2 notes, failure to prove liability may moot further complex damages discovery, which may involve 3 a review of “all of [Defendant’s] sales, financial, and accounting data for more than 200 parts 4 dating back to the initial approval of those parts beginning in 1998.” (ECF No. 137-1 at 21.) The 5 Court is also persuaded that Plaintiff’s damages theory “will require a complicated apportionment 6 analysis to prove . . . what percentage of [Defendant’s] profits (if any) are ‘attributable’ to the 7 alleged infringement, as opposed to a myriad of other factors that could have influenced 8 [Defendant’s] profits over two decades.” (See ECF No. 145 at 5.) Defendant further notes that it 9 will not just be required to provide “an undifferentiated gross revenue number,” but instead 10 “formulate the initial evidence of gross revenue duly apportioned to relate to infringement.” (Id.) 11 Indeed, Plaintiff admits that “[t]he liability issues here are complex.” (ECF No. 144 at 6.) 12 Plaintiff further argues bifurcation is disfavored because it requires the movant to “meet a 13 heavy burden of making a strong showing why discovery should be denied.” (ECF No. 144 at 7 14 (citing White v. E-Lona, Inc., No. C 05-02080 SI, 2006 WL 2850041, at *2 (N.D. Cal. Oct. 5, 15 2006); Gray v. First Winthrop Corp., 133 F.R.D. 39, 40 (N.D Cal. 1990)).) However, in support 16 request to bifurcate liability and damages discovery while the summary judgment motion was 17 pending because it would have involved a consideration of the merits “of the not-fully briefed summary judgment motion” and the request was more appropriate for the district judge to 18 consider. 2008 WL 698470, at *3. In Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust v. 19 Stumpf, the district court denied defendants’ motion to bifurcate discovery with the initial phase limited to demand futility because there was “significant overlap between demand futility and 20 breach of fiduciary duty issues” such that “phase two of discovery would undoubtedly involve duplicative discovery requests and depositions, resulting in inefficiencies and increased costs for 21 all parties.” 2012 WL 12920191, at *1. In Copper Innovations Grp., LLC v. Nintendo Co., Ltd., the magistrate judge found that defendant had not adequately borne its burden as the party 22 seeking bifurcation, as it offered “only conclusory statements” that amounted “to nothing more 23 than speculation,” it failed to submit evidence “to show that the issues and/or discovery in this case are any more complex or complicated than in the typical patent case,” and its concern about 24 “the production of sensitive financial information and the risk of inadvertent disclosure” could be adequately assuaged through a protective order. 2008 WL 11341318, at *2–3. Defendant filed a 25 motion for a protective order in Mlejnecky v. Olympus Imaging America, Inc., which is fundamentally a Rule 26 analysis and the order contained no discussion of Rule 42. No. 2:10-cv- 26 02630 JAM KJN, 2011 WL 489743 (E.D. Cal. Feb. 7, 2011). Quair v. Bega is similar to 27 Mlejnecky — at issue was a motion for a protective order to stay and/or limit the scope of discovery and the order contained no discussion of Rule 42. No. CV F 02 5891 REC DLB, 2005 28 WL 552537 (E.D. Cal. Mar. 7, 2005). 1 of this proposition, Plaintiff uses the incorrect standard. This language is from the courts’ 2 articulation of the legal standard for a Rule 26 motion to stay discovery — not the legal standard 3 for a Rule 42(b) motion to bifurcate. Id. 4 Thus, the Court finds the complexity of liability issues here warrants bifurcation of 5 discovery into separate liability and damages phases, “thereby deferring costly and possibly 6 unnecessary proceedings pending resolution of potentially dispositive preliminary issues.” See 7 Zivkovic, 302 F.3d at 1088. 8 ii. Distinct and Separable Issues 9 Defendant argues liability discovery is distinct and separable from damages discovery. 10 (ECF No. 137-1 at 19.) Specifically, Defendant contends Plaintiff’s claims are analogous to 11 patent infringement claims, where severing the issue of liability from damages “permits the court 12 to focus on the technical issues of validity and infringement without the inevitable distraction” of 13 the damages inquiry. (Id. at 19.) Defendant notes it will focus on evidence such as ownership of 14 intellectual property, what Plaintiff’s “executives and employees knew or should have known 15 over the last two decades regarding [Defendant’s] possession and use of OEM materials,” 16 Defendant’s “reference to OEM material in FAA applications,” and “likely expert testimony 17 regarding those issues to establish that [Defendant’s] use of OEM materials is consistent with 18 industry practice and FAA expectations.” (Id. at 20.) This discovery is not relevant to the 19 damages discovery Plaintiff seeks and bifurcation is thus “the most effective means to ‘expedite 20 and economize’ this case and to limit the burden and expense to the parties and the Court.” (Id.) 21 Plaintiff does not address this issue in its opposition. (See ECF No. 144.) 22 Furthermore, the Court agrees with the arguments set forth by Defendant. The liability 23 inquiry will turn on a discrete issue — whether the copyrights owned by Plaintiff have been 24 infringed by Defendant. This will first involve an evaluation of the validity of the copyrights 25 owned by Plaintiff and then the specifics of Defendant’s allegedly infringing activities. By 26 contrast, as Defendant correctly notes, the damages inquiry is substantially different and will 27 require “produc[ing] sensitive and proprietary sales data going back two decades” and 28 “engag[ing] specialized accounting experts to comb through and analyze the voluminous amounts 1 of sales data and financial information that has been generated over the years.” (ECF No. 137-1 2 at 19.) The parties will then be required to ascertain the amount of damages to which Plaintiff is 3 entitled, if any at all. It is also not uncommon “for courts to bifurcate issues of liability and 4 damages before substantial discovery has occurred and there is time to stay discovery of 5 damages.” See AVIA Group Int’l, Inc., 1991 WL 340569, at *3. The Court thus finds the liability 6 inquiry and damages inquiry are sufficiently distinct so as to be adequately handled in different 7 phases of litigation and are not “so intertwined that separating them would ‘tend to create 8 confusion and uncertainty.’” See Clark, 772 F. Supp. 2d at 1269. 9 Accordingly, the Court finds the convenience factor weighs in favor of bifurcation. 10 B. Prejudice 11 Defendant argues it “will face a significant burden if damages discovery proceeds at this 12 early stage,” as Plaintiff “has requested all of [Defendant’s] sales, financial, and accounting data 13 for more than 200 parts dating back to the initial approval of those parts beginning in 1998.” 14 (ECF No. 137-1 at 21.) Defendant maintains not only that compilation, review, and production of 15 these records “will take a significant amount of time” and require expert analysis, but also that 16 Plaintiff is seeking “some more recent material that is extremely confidential and proprietary.” 17 (Id.) Defendant notes Plaintiff is not harmed by bifurcation, as it will “address liability issues up 18 front so that the scope of damages discovery may be narrowed and focused on the ‘surviving 19 claims,’ if any.” (Id.; ECF No. 145 at 10.) 20 In opposition, Plaintiff asserts Defendant “fails to isolate a true threshold issue or establish 21 that it will prevail on any of its defenses” and bifurcation “would only complicate the proceedings 22 and cause needless delay to [Plaintiff’s] prejudice.” (ECF No. 144 at 24.) Plaintiff contends 23 bifurcation would prevent it “from fully assessing the case, pursuing settlement, and developing 24 priorities for its litigation strategy,” as it “would indefinitely hinder [Plaintiff’s] ability to gather 25 essential evidence and adequately prosecute its case.” (Id.) 26 Here, Defendant has the better argument. The Court notes that “although a normal 27 [lawsuit] seldom requires bifurcation, ‘the issues of validity, title, infringement, and damages in 28 patent and copyright cases may be separately tried, unless this course will inconvenience the court 1 or seriously prejudice the rights of some of the parties.” AVIA Group Int’l Inc., 1991 WL 2 340569, at *2 (quoting Swofford v. B & W, Inc., 34 F.R.D. 15 (S.D. Tex. 1963), aff’d, 336 F.2d 3 406, 415 (5th Cir. 1964)). Plaintiff assumes bifurcation will prevent discovery of the “essential 4 evidence” it seeks to “adequately prosecute its case,” but courts have found that bifurcation may 5 or may not prevent discovery of this evidence. See Giro Sport Design Inc., 1989 WL 418774, at 6 *3. If this “essential evidence” is “relevant to establish [D]efendant’s liability, then [P]laintiff 7 will be allowed discovery of it during the liability portion of the litigation.” Id. Further, the 8 Court is persuaded by Defendant’s argument regarding the burden of complying with Plaintiff’s 9 request for the “sales, financial, and accounting data for more than 200 parts” going back to 1998. 10 In short, production and review of this information would create a significant expense up front for 11 both parties, which can be completed later at the damages phase, if necessary. Plaintiff further 12 argues Defendant must “isolate a true threshold issue or establish that it will prevail on any of its 13 defenses” for the Court to grant bifurcation. However, Plaintiff fails to cite any supporting case 14 law for this contention. Finally, Plaintiff fails to demonstrate damages discovery is necessary to 15 prove liability. 16 Accordingly, the Court finds the prejudice factor weighs in favor of bifurcation. 17 C. Expense and Delay 18 Within the prejudice section of its motion, Defendant contends “[b]ifurcation will 19 streamline the case and provide for a faster and less costly resolution of the many complex 20 liability issues at stake.” (ECF No. 137-1 at 21.) Plaintiff does not address the judicial efficiency 21 argument in its opposition, thereby conceding this point. (See ECF No. 144.) The Court finds 22 that “[b]ifurcation may allow for a more expeditious final resolution,” as a determination in the 23 liability phase that Plaintiff’s copyrights are invalid or that Defendant did not infringe upon 24 Plaintiff’s copyrights may prevent both parties from “incur[ring] substantial additional expenses 25 for discovery on issues that may be moot” and eliminate “the need for further proceedings to 26 determine . . . damages, thereby additionally promoting the interests of judicial economy.” See 27 Advertise.com, Inc., 2011 WL 13186156, at *3; see also Ocean Atl. Woodland Corp., 2004 WL 28 609326, at *2. The Court also notes that a finding of liability may also encourage settlement, 1 | thereby eliminating the need for a second trial on damages. AVIA Group Int’l Inc., 1991 WL 2 | 340569, at *2. Accordingly, the Court finds the expense and delay factor weighs in favor of 3 | bifurcation. 4 Based on the foregoing, the Court finds it an appropriate exercise of its discretion to 5 | bifurcate the discovery into separate phases for liability and damages as it will be “conducive to 6 | expedition and economy.” Fed. R. Civ. P. 42(b). 7 IV. CONCLUSION 8 Based on the foregoing, the Court GRANTS Defendant’s Motion to Bifurcate Discovery. 9 | (ECF No. 137.) There is no Scheduling Order for the instant matter yet and the only schedule on 10 | the docket is the Joint Status Report filed December 2, 2016. (See ECF Nos. 22, 22-1.) It 11 | appears that all the dates contained therein have lapsed. (See id.) Accordingly, discovery that 12 | does not focus on the question of liability will be stayed. The parties are directed to file a Joint 13 | Status Report within thirty (30) days of this Order. The Court will issue a Scheduling Order 14 | shortly thereafter with new pretrial discovery deadlines. 15 After the new deadlines are set, should Defendant require an extension for the stay while 16 it finalizes a dispositive motion, it may file such an application. If the deadline expires without 17 | extension, discovery will proceed with respect to damages. 18 IT IS SO ORDERED. 19 | DATED: March 25, 2021 20 /) 21 “ \/ of Lor 22 ee ZA NL Troy L. Nunley } 23 United States District Judge 24 25 26 27 28 10