Skillz Platform Inc. v. AviaGames Inc. ( 2023 )

1 2 3 UNITED STATES DISTRICT COURT 4 NORTHERN DISTRICT OF CALIFORNIA 5 SAN JOSE DIVISION 6 7 SKILLZ PLATFORM INC., Case No. 21-cv-02436-BLF 8 Plaintiff, ORDER CONTINUING TRIAL 9 v. [Re: ECF No. 439] 10 AVIAGAMES INC., 11 Defendant. 12 13 Before the Court is Defendant AviaGames Inc.’s motion to continue or bifurcate the trial. 14 ECF No. 439 (“Mot.”). Plaintiff Skillz Platform Inc. opposes the motion. ECF No. 466 (“Opp.”). 15 The Court heard oral argument on the motion at the pretrial conference, at which the Court ruled 16 from the bench. See ECF No. 489. 17 For the reasons stated below and at the pretrial conference, the Court GRANTS IN PART 18 AviaGames’ motion and continues the trial until February 2, 2024. 19 20 I. BACKGROUND 21 On August 23, 2023, the Court ordered that discovery be reopened for the purpose of 22 investigating AviaGames’ use of “bots”—that is, non-human, non-real-time players. ECF No. 23 224. In the course of discovery, Skillz levied allegations that AviaGames had engaged in a crime 24 or fraud in using and concealing its use of bots. See ECF No. 307 at 4. These allegations caused 25 AviaGames’ executives, Vickie Chen and Peng Zhang, to retain separate criminal defense counsel 26 on October 3, 2023. Id. 27 Most recently, Skillz received a Grand Jury subpoena from the United States Attorney’s 1 ECF No. 438-3 (“Wang Decl.”) ¶ 2. In response, AviaGames also retained separate criminal 2 defense counsel, who appeared in this case on November 3, 2023. See ECF Nos. 458–61. 3 4 II. LEGAL STANDARDS 5 A. Stay of Proceedings Pending the Outcome of Criminal Proceedings 6 In determining whether to stay or continue a civil proceeding pending the outcome of a 7 criminal proceeding, courts in this district consider: “(1) the extent to which Defendant’s Fifth 8 Amendment rights are implicated, (2) the plaintiff’s interest and any prejudice to plaintiff of a 9 delay, (3) the burden on defendant, (4) the efficient use of judicial resources, (5) the interests of 10 nonparties to the civil suit, and (6) public interest in the civil litigation.” Garcia v. City of King 11 City, No. 14-CV-01126-BLF, 2015 WL 1737936, at *4 (N.D. Cal. Apr. 8, 2015) (citing Keating v. 12 Office of Thrift Supervision, 45 F.3d 322, 324–25 (9th Cir.1995)). “The party requesting a stay 13 bears the burden of showing that the circumstances justify an exercise of that discretion.” Nken v. 14 Holder, 556 U.S. 418, 433–34 (2009). 15 16 B. Bifurcation of Trial 17 Federal Rule of Civil Procedure 42(b) states that “[f]or convenience, to avoid prejudice, or 18 to expedite and economize, the court may order a separate trial of one or more separate issues, 19 claims, crossclaims, counterclaims, or third-party claims.” “Under Rule 42(b), a district court has 20 broad discretion in separating issues and claims for trial as part of its wide discretion in trial 21 management.” Gardco Mfg., Inc. v. Herst Lighting Co., 820 F.2d 1209, 1212 (Fed. Cir. 1987). 22 23 C. Continuance of Trial Under Rule 16 24 A court has inherent power to control its own docket to ensure that cases proceed in a 25 timely and orderly matter. Continuing pretrial and trial dates is within the discretion of the trial 26 judge. See King v. State of California, 784 F.2d 910, 912 (9th Cir. 1986); Rios-Barrios v. I.N.S., 27 776 F.2d 859, 862–63 (9th Cir. 1985). Case schedules may be modified for “good cause.” Fed. R. 1 party was diligent.” DRK Photo v. McGraw-Hill Glob. Educ. Holdings, LLC, 870 F.3d 978, 989 2 (9th Cir. 2017). “Although the existence or degree of prejudice to the party opposing the 3 modification might supply additional reasons to deny a motion, the focus of the inquiry is upon the 4 moving party’s reasons for seeking modification.” Johnson v. Mammoth Recreations, Inc., 975 5 F.2d 604, 609 (9th Cir. 1992). “If that party was not diligent, the inquiry should end.” Id. 6 7 III. DISCUSSION 8 In light of Grand Jury investigation, AviaGames has moved to continue the trial or, in the 9 alternative, bifurcate the trial such that liability issues would be tried first and willfulness and 10 damages second. Mot. at 2. AviaGames originally requested a continuance of 90-days or more 11 under Keating, which considers a stay of civil proceedings pending the outcome of criminal 12 proceedings. See id. at 3–8 (discussing the Keating factors). At the hearing, AviaGames clarified 13 that it seeks a continuance to allow its counsel to prepare for the civil trial in light of the Grand 14 Jury investigation. ECF No. 489 at 19:8–10. 15 16 A. Stay of Proceedings Pending the Outcome of Criminal Proceedings 17 AviaGames argues it will be unable to fully present its defenses at trial because without 18 time for witnesses and counsel to understand the nature of the Grand Jury investigation, its 19 employee witnesses will likely assert their Fifth Amendment rights. Mot. at 5–6. AviaGames 20 further argues that Skillz will not be prejudiced by a stay because the stay will not lead to the 21 unavailability of witnesses or the loss of evidence, and AviaGames will be prejudiced without a 22 stay because it will not have adequate time to prepare for trial. Id. at 6–7. AviaGames also argues 23 that a stay would serve judicial efficiency because allowing AviaGames more time to prepare will 24 reduce the risk that witnesses will rely on their Fifth Amendment rights. Id. at 7. Finally, 25 AviaGames argues that third parties and the public would not be adversely impacted by a 26 continuance. Id. at 8. 27 Skillz responds that no AviaGames employees have been indicted, AviaGames has no 1 to the Fifth Amendment privilege would help its defense on the merits. Opp. at 3. Skillz argues 2 that it would be prejudiced by a continuance because witnesses may flee and memories may fade. 3 Id. at 3–4. Skillz agues that AviaGames would not be burdened because it was aware of Skillz’s 4 fraud allegations for months and AviaGames has retained separate counsel for the criminal 5 investigation. Id. at 4. Skillz argues that judicial efficiency would not be served by a stay because 6 there is no indication that the criminal proceedings will be concluded in a reasonable amount of 7 time. Id. at 4–5. Finally, Skillz argues that third parties’ and the public’s interests are adversely 8 affected by AviaGames’ fraudulent conduct. Id. at 5–6. 9 The Court finds that the balance of the Keating factors weighs against granting a stay 10 pending the outcome of criminal proceedings. The first Keating factor weighs strongly against a 11 stay because none of AviaGames’ employees has been indicted and AviaGames does not have 12 Fifth Amendment rights to assert. See Fed. Sav. & Loan Ins. Corp. v. Molinaro, 889 F.2d 899, 13 903 (9th Cir. 1989) (“The case for staying civil proceedings is ‘a far weaker one’ when ‘[n]o 14 indictment has been returned[, and] no Fifth Amendment privilege is threatened.’” (alterations in 15 original) (quoting Sec. & Exch. Comm’n v. Dresser Indus., Inc., 628 F.2d 1368, 1376 (D.C. Cir. 16 1980))); see also Russell v. Maman, No. 18-CV-06691-RS, 2019 WL 13211182, at *2 (N.D. Cal. 17 June 19, 2019) (finding that infringement on the defendants’ Fifth Amendment rights was minimal 18 where there was no indictment and the corporate defendants had no Fifth Amendment rights to 19 assert). The third Keating factor also weighs against a stay. To the extent that AviaGames argues 20 that it would be burdened by witnesses asserting their Fifth Amendment rights, such prejudice is 21 insufficient for this factor to weigh in favor of a stay. See Est. of Morad v. City of Long Beach, 22 No. CV1606785MWFAJWX, 2017 WL 5187826, at *9 (C.D. Cal. Apr. 28, 2017) (“Simply being 23 forced to invoke the Fifth Amendment, and accordingly incurring an adverse inference, is not by 24 itself the sort of prejudice that categorically favors a stay.”); Russell, 2019 WL 13211182, at *4 25 (similar). The second and fourth Keating factors weigh against a stay of the case pending the 26 outcome of the criminal proceedings. A stay pending the criminal proceedings, which are in their 27 infancy, could last many years, which would substantially prejudice Skillz and would not serve 1 stay would likely not serve any third party or public interest. Skillz largely invokes third parties’ 2 and the public’s interest in avoiding crime and fraud, but these interests would be vindicated by 3 the criminal proceedings, rather than this patent case. See Wimbledon Fund v. Graybox, LLC, No. 4 CV15-6633-CAS(AJWX), 2017 WL 11628850, at *6 (C.D. Cal. Jan. 9, 2017) (finding the public 5 interest factor was at best neutral). 6 Accordingly, the Court finds that a stay of this case pending the conclusion of the Grand 7 Jury investigation is inappropriate and DENIES AviaGames’ motion with respect to this issue. 8 9 B. Bifurcation of Trial 10 In the alternative to a stay, AviaGames requests that the Court bifurcate the trial and have a 11 trial on liability—which would not include evidence of bots—and another trial on willfulness and 12 damages. Mot. at 8–10. AviaGames argues that the trial on liability may proceed without 13 inflammatory evidence of fraud or criminal acts, would reduce the risk of jury confusion, and 14 would serve judicial efficiency by narrowing the relevant issues for the willfulness and damages 15 trial. Id. Skillz argues that the proposed bifurcation is unworkable because evidence of bots is 16 vital to Skillz’s infringement arguments and Skillz’s rebuttal to AviaGames’ theories of 17 noninfringement. Opp. at 7–8. Skillz further argues that bifurcation would delay Skillz’s request 18 for injunctive relief, and AviaGames witnesses that might assert the Fifth Amendment are still 19 needed to testify at the trial on liability, even without testimony of bots. Id. at 8–9. Finally, Skillz 20 argues that any risk of jury confusion can be addressed through less severe means, such as limiting 21 instructions. Id. at 9–10. 22 The Court agrees with Skillz. Evidence of bots is relevant to liability, so Skillz would be 23 prejudiced if it were precluded from using evidence of bots at the proposed liability trial. To the 24 extent that AviaGames argues that evidence of bots is prejudicial to AviaGames or risks jury 25 confusion, these are evidentiary objections that AviaGames may make at trial. Further, 26 AviaGames’ request is really for severance because two juries would be required due to the 27 substantial gap in time between the separate portions of the case. Judicial efficiency is not served 1 Gardco Mfg., 820 F.2d at 1212. 2 3 C. Continuance of Trial Under Rule 16 4 At the pretrial conference, counsel for AviaGames clarified that their motion seeks to 5 continue the trial to give counsel time to prepare for the trial in light of the pending criminal 6 investigation. Counsel clarified that “[w]e need the time to adjust and to learn what we can and 7 can’t do based on all these activities that are going on in the Grand Jury investigation.” ECF No. 8 489 at 19:8–10. Thus, the Court considers whether a continuance would be appropriate under the 9 good cause standard of Fed. R. Civ. P. 16(b)(4). 10 The Court finds good cause to modify the case schedule and continue the trial to February 11 2, 2024. First, the Court finds that AviaGames has been diligent in seeking a continuance of trial. 12 See DRK Photo, 870 F.3d at 989. Although AviaGames has been aware of Skillz’s allegations of 13 fraud with respect to bot use since August 2023, Skillz’s assertion of the crime-fraud exception to 14 attorney-client privilege and the Grand Jury investigation were initiated within the last two 15 months. AviaGames brought its motion to continue the trial one week after it was notified about 16 the Grand Jury subpoena served on Skillz. See Wang Decl. ¶ 2; Mot. Second, the Court finds that 17 Skillz will not be substantially prejudiced by a brief continuance of proceedings. The continuance 18 will allow both parties more time to prepare for trial and will better allow AviaGames employees 19 to assess whether assertions of their Fifth Amendment rights are necessary. 20 As stated at the pretrial conference, the Court further finds that a continuance of this length 21 poses a risk to Skillz’s potential recovery, should recovery be warranted by a jury verdict. As 22 such, the Court finds it appropriate to protect those interests by conditioning the continuance on 23 AviaGames’ posting a bond in the amount of $5 million as security for Skillz’s potential damages 24 from any infringement. See Cadence Design Sys. v. Avant!, Inc., NO. C 95-20828 RMW(PVT), 25 1997 U.S. Dist. LEXIS 24147, *9 (N.D. Cal. July 22, 1997). 26 Accordingly, the Court finds good cause to grant a continuance until February 2, 2024, 27 conditioned upon AviaGames’ posting a bond in the amount of $5 million. IV. ORDER For the foregoing reasons, IT IS HEREBY ORDERED that: 2 1. Defendant AviaGames Inc.’s Motion to Continue the Trial or in the Alternative to 3 Bifurcate (ECF No. 439) is GRANTED IN PART and DENIED IN PART. 4 2. The trial in this case SHALL be continued to February 2, 2024. 5 3. Defendant AviaGames Inc. SHALL post a bond in the amount of $5 million with 6 the Clerk of Court for the Northern District of California for deposit to court's registry, no later 4 than November 17, 2023. The bond amount is to be released to AviaGames upon the 8 commencement of trial. 9 Dated: November 16, 2023 11 BETH LABSON FREEMAN United States District Judge 12 15 16 = 17 Z 18 19 20 21 22 23 24 25 26 27 28