Demodulation, Inc. v. United States

In the United States Court of Federal Claims
No. 11-236C
(Filed: August 13, 2015)
*************************************
*
DEMODULATION, INC., * Patent Infringement Case; Rule 37
* Sanctions; Dismissal of Trade
Plaintiff, * Secret Claims; Reasonable Costs
* and Attorneys’ Fees under 28
v. * U.S.C. § 1927; Protective Order
* Violations; End of Fact Discovery
THE UNITED STATES, * Period; Rule 59 Motion for
* Reconsideration.
Defendant. *
*
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Sean R. Callagy, with whom was Samuel S. Saltman, Callagy Law, P.C., Paramus, New
Jersey, for Plaintiff.1
Gary L. Hausken, with whom were Benjamin C. Mizer, Principal Deputy Assistant
Attorney General, John Fargo, Director, and Alice Suh Jou, Of Counsel, Commercial
Litigation Branch, Civil Division, U.S. Department of Justice, Washington, D.C., for
Defendant.
OPINION AND ORDER CONFIRMING AUGUST 10, 2015
BENCH RULINGS ON OUTSTANDING MOTIONS
WHEELER, Judge.
Plaintiff Demodulation, Inc. (“Demodulation”) filed a complaint in this Court on
April 14, 2011 alleging patent infringement, breach of contract, and misappropriation of
trade secrets by the United States. The claims at issue involve amorphous microwire, the
1
Benjamin D. Light, formerly of Callagy Law, P.C, was the original attorney of record for Plaintiff in this
case. Most of the violations of court orders and discovery misconduct described herein were the result of
Mr. Light’s actions. Mr. Light left the Callagy law firm on June 12, 2015. On June 16, 2015, Plaintiff
substituted Sean Callagy as attorney of record. Mr. Callagy and his associate, Samuel Saltman, filed all of
Plaintiff’s motions and pleadings since June 16, 2015. However, as of the date of this decision, the Callagy
law firm no longer represents Plaintiff. On August 7, 2015, Plaintiff filed a motion to substitute new
counsel, which is currently pending because the proposed counsel is not yet admitted to the Court’s bar.
diameter of which is thinner than a human hair, and electronic article surveillance
technology that uses microwire. Before the litigation ensued, Demodulation held twelve
patents for various applications of microwire, all of which have now expired. The decision
here primarily concerns events that occurred during fact discovery, and confirms the bases
for the Court’s rulings on eight outstanding motions during a recent August 10, 2015
hearing.
The events in this case that led up to the August 10, 2015 hearing and this decision
began in October 2014. On October 2, 2014, Demodulation filed a motion to compel
discovery from the Government of five classified reports concerning microwire. On
October 31, 2014, the Government filed a motion to compel responses to its First Set of
Interrogatories and First Set of Requests for Production because Demodulation did not
submit adequate answers to these discovery requests, and in particular failed to identify its
trade secret claims. On December 15, 2014, the Court granted both motions. The motions
now resolved in this decision are primarily the result of events that occurred after the Court
granted these two motions to compel.
The first problem occurred when the Government produced the five classified
reports in redacted form. These reports were protected material under the Protective Order
in the case. Plaintiff’s counsel, Mr. Light, blatantly disregarded the Protective Order by
failing to file under seal a motion that included the protected information, and also by
providing the Government’s five reports to a non-qualified expert, Dr. Deborah Chung. As
a result of Mr. Light’s two violations of the Protective Order, the Government filed a
motion requesting Plaintiff to return all protected material. After the Court learned that
Mr. Light also distributed the protected information to defendants in a parallel New Jersey
litigation, the Court required Plaintiff to identify all recipients of the protected material.
Mr. Light’s identification of the recipients of the protected material revealed further
violations of the Protective Order. The Court learned that Mr. Light distributed the
protected information to Demodulation itself, including its Chief Executive Officer, Mr.
James O’Keefe. Plaintiff then filed a motion for reconsideration of the Court’s order
directing the return all protected information, which the Court now DENIES.
The second problem concerns Plaintiff’s inability to identify its trade secret claims
and furnish adequate discovery responses to the Government. As of the date of this
decision, Demodulation still has not provided adequate responses to the Government
identifying what its trade secrets are, despite three court orders directing Demodulation to
identify its trade secret claims. The Government has now filed three motions for sanctions
regarding Plaintiff’s failure to identify its trade secrets. The Government requests
dismissal of the trade secret claims, and the recovery of its costs and attorneys’ fees under
28 U.S.C. § 1927 for vexatious multiplication of proceedings. After review of the parties’
arguments, the Court finds Mr. Light’s repeated failure to respond to the Court’s orders
and the Government’s discovery requests worthy of sanctions and thus, DISMISSES all of
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Plaintiff’s trade secret claims. The Court also finds that Mr. Light unreasonably and
vexatiously multiplied the litigation in this case and thus, awards the Government its
reasonable costs and attorneys’ fees for each of the three motions for sanctions it had to
file.
Finally, this decision resolves Demodulation’s request to extend the discovery
period, and the Government’s cross-motion for protection from further discovery. The
Court GRANTS the Government’s cross-motion finding that Demodulation has not shown
good cause in seeking to extend the discovery period. The substitution of new counsel
does not constitute good cause as Demodulation unreasonably delayed in serving its
deposition and written discovery requests, particularly where fact discovery was being
conducted for over two years. Moreover, Demodulation’s counsel unreasonably served on
the Government 500 requests for admissions, several hundred requests for production of
documents, and approximately 80 interrogatories, including subparts, on the last day of
discovery. Fact discovery is closed and the Government has no obligation to respond to
any of Demodulation’s requests served on the last day of discovery. Plaintiff’s deposition
requests are also DENIED.
Factual and Procedural Background
There have been extensive motions in this case, stemming from a long discovery
battle and multiple violations of Court orders by Plaintiff’s counsel. The extent of the
proceedings is reflected by the Court’s docket sheet, which currently contains 165 entries.
The Court will not repeat all of the background of the case here, but instead, will limit the
background of this decision to those docket entries that are relevant to the current disputes
and the motions decided by the Court on August 10, 2015. The facts here primarily concern
three discovery disputes. The first concerns Mr. Light’s repeated failure to identify
Demodulation’s trade secret claims, and the deficient answers to the Government’s
interrogatories. The second involves the production of the Government’s five classified
reports and Mr. Light’s conduct in providing the classified reports to non-qualified
individuals in violation of the Court’s Protective Order. The last dispute concerns
Demodulation’s request to extend discovery, including its overly broad and unreasonable
discovery requests that were served on the Government on the last day of fact discovery.
A. The Trade Secret Claims
On October 31, 2014, the Government filed its Motion to Compel Answers to its
First Set of Interrogatories and First Set of Requests for Production and for attorneys’ fees,
because Demodulation failed to identify what its trade secret claims were and only
provided one page of responsive material. Def.’s Mot. to Compel, Dkt. No. 74. After
Demodulation failed to respond to the Government’s Motion to Compel by the December
1, 2014 deadline despite being granted an extension by the Court, the Government filed its
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Motion to Enter Order Compelling Discovery and to Show Cause, Dkt. No. 77. The Court
granted the Government’s Motion to Compel and ordered Demodulation to provide a
complete response to the Government’s First Set of Interrogatories and First Set of
Requests for Production by January 5, 2015 and also ordered Demodulation to show cause
why it should not be sanctioned. See Order Granting Def.’s Mot. to Compel, Dkt. No. 79.
On January 5, 2015, then counsel of record for Plaintiff, Mr. Light, furnished a declaration
to the Court specifying why he or Demodulation should not be sanctioned. Decl. of Mr.
Benjamin D. Light, Dkt. No. 81. Due to the continued inadequacy of Plaintiff’s responses
to the Government’s discovery requests, however, the Court ordered Demodulation to
submit supplemental discovery responses and to provide all responsive documents by
February 11, 2015. Order, Dkt. No. 83.
However, Demodulation’s supplemental responses (Dkt. No. 91-1) remained
inadequate and still did not address its incomplete document production or its incomplete
answers to the Government’s interrogatories. See Def.’s Resp. to Pl.’s Resp. to Show
Cause Order at 1, Dkt. No. 84. Because of the inadequacies of Demodulation’s responses,
the Government filed its Renewed Motion to Compel Discovery and for Sanctions. See
Def.’s Renewed Mot. for Sanctions at 1, Dkt. No. 91 (“Demodulation’s answers are still
non-responsive to Interrogatory No. 1 and do not address Interrogatories No. 2 through No.
6 at all.”). On April 21, 2015, the Government filed a cross-motion for additional sanctions
against Plaintiff’s counsel seeking costs and attorneys’ fees under 28 U.S.C. § 1927,
asserting that “Demodulation [still] has not produced the amended interrogatories and
additional documents that it no longer contests.” Def.’s Cross-Motion at 16-17, Dkt. No.
113.
B. The Five Classified Reports
On October 2, 2014, Demodulation filed a motion to compel the production from
the Government of five classified reports concerning microwire. Pl.’s Mot. to Compel at
2, Dkt. No. 72. On December 15, 2014, the Court granted Demodulation’s Motion to
Compel and ordered the Government to produce the five classified reports to
Demodulation. Order Granting Pl.’s Mot. to Compel at 1, Dkt. No. 78. The classified
reports were produced in redacted form to Demodulation on April 3, 2015. Def.’s Resp.
to Court’s Apr. 2, 2015 Order at 1, Dkt. No. 105. Prior to that date, the Government’s
obligation to produce the classified reports had been stayed by court order because of
Plaintiff’s continued failures to respond to the Government’s discovery requests. See
Order Staying Def.’s Resp. to Disc., Dkt. No. 93. However, the stay was lifted on April 2,
2015 following a status conference with the parties. See Order Lifting Stay of Def.’s Disc.
Obligations, Dkt. No. 103. Notably, the classified reports were protected information that
were subject to the Court’s Protective Order. See Protective Order, Dkt. No. 85-1. The
Protective Order made clear that without permission from the Government, only the
attorneys in this litigation could have access to the Government’s protected information.
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Id. ¶ 16. It also specified certain steps that Demodulation had to take to have its experts
admitted under the Protective Order. Id. ¶ 20.
Despite the Protective Order, following the Government’s distribution of the
formerly classified reports in redacted form to Demodulation’s counsel, the Court soon
learned that the five classified reports had been produced to one of Plaintiff’s experts, Dr.
Chung, even though she was not admitted under the Protective Order. See Def.’s Third
Mot. for Sanctions at 1-3, Dkt. No. 114. The Government and the Court discovered the
violation after Plaintiff filed its Memorandum of Law in Opposition to the United States’
Motion for Partial Summary Judgment and Cross-Motion for Partial Summary Judgment
and to Compel Discovery, Dkt. No. 111. In its filing to the Court, Demodulation’s counsel
had attached Dr. Chung’s report as an exhibit, which revealed that Dr. Chung had reviewed
“the formerly classified reports and other reports from DOW/BWXT concerning their
microwire efforts” in violation of the Protective Order. Pl.’s Cross-Motion and Resp. to
Def.’s Partial Mot. for Summ. J. at PA 334, Dkt. No. 111-10. Further, Demodulation’s
counsel failed to file its Memorandum of Law under seal, which constituted another
violation of the Protective Order. Def.’s Third Mot. for Sanctions at 1, 5, Dkt. No. 114.
The Government then filed a Third Motion for Sanctions after learning of these two
violations of the Protective Order. Id. at 1. As a consequence of the violations, the Court
ordered Demodulation to return all protected information to the Government, including the
classified reports. See Order for Return of Protected Material at 1-2, Dkt. No. 123.
Two more violations were discovered after the Government filed its Third Motion
for Sanctions and after the Court issued its order directing Demodulation to return all
protected information. First, the Court learned that Demodulation provided Dr. Chung’s
report, which included information from the five classified reports, to the defendants in a
parallel New Jersey litigation, Demodulation, Inc. v. Corning, Inc., et al., No. 11-296
(D.N.J.). See Def.’s Mot. to Identify Recipients of Protected Information at 2-3, Dkt. No.
127. Second, following the Court’s order directing Plaintiff to identify all persons to whom
the classified reports were given, the Court learned that Plaintiff had provided the report to
the following five individuals: Mr. James O’Keefe, President and CEO of Demodulation,
Dr. Wesley King, former Operations Manager of Demodulation, Mr. Michael Slavin,
former consultant for Demodulation, Dr. John Hnatio, Chief Executive Officer of the
Institute of Complexity Management (“ICM”) and Mr. Bruce Becker, Chief Operating
Officer of ICM. See Pl.’s Resp. to Order Requiring Identification of Recipients of
Protected Information at 6-7, Dkt. No. 130. None of these five individuals had been
admitted under the Protective Order.
C. Plaintiff’s Request to Extend Discovery
In addition to the violations of the Protective Order and the motions for sanctions,
the Court has other outstanding discovery motions. On June 23, 2015, Demodulation filed
a motion for an extension of time to complete discovery that was limited to depositions and
5
document requests related to the depositions. Pl.’s Mot. for Extension of Time to Complete
Disc., Dkt. No. 141. However, on the last day of discovery, Demodulation also served the
Government with “500 requests for admissions, several hundred requests for production of
documents, and approximately 80 interrogatories, including subparts.” Def.’s Cross-
Motion for Protection from Further Disc. at 1, Dkt. No. 146. Not surprisingly, the
Government cross-moved for protection from further discovery. See id. at 1-2.
In total, there are eight fully briefed motions that are subject to this decision and that
were ruled upon at the August 10, 2015 hearing. The motions are as follows:
1. Demodulation’s Motion to Extend the Discovery End Date Limited to
Depositions and Document Discovery Related Thereto and for Clarification of
the Schedule for Expert Testimony (Dkt. No. 141).
2. The Government’s Cross-Motion for Protection from Further Discovery (Dkt.
No. 146).
3. Renewed Motion of the United States to Compel Discovery and for Sanctions
(Dkt. No. 91).
4. The Government’s Third Motion for Sanctions (Dkt. No. 114).
5. Demodulation’s Motion for Reconsideration of the Court’s May 13, 2015 Order
(Dkt. No. 134).
6. Demodulation’s Cross-Motion to Compel Testimony (Dkt. No. 111).
7. Demodulation’s Motion to Withdraw and Amend Demodulation’s Response to
Defendant’s May 29, 2015 Requests for Admissions (Dkt. No. 145).
8. Cross-Motion of the United States for Additional Sanctions Against Plaintiff’s
Counsel Pursuant to 28 U.S.C. § 1927 (Dkt. No. 113).
The Court will provide further detail on each of its rulings, addressing each of the
eight motions in turn.
Analysis of the Motions Resolved at the August 10, 2015 Status Conference
A. Demodulation’s Motion to Extend the Discovery End Date Limited to
Depositions and Document Discovery Related Thereto and For Clarification of
the Schedule for Expert Testimony and the Government’s Cross-Motion for
Protection from Further Discovery.
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As a preliminary matter, the Court finds that fact discovery in the case ended as of
June 29, 2015.2 Fact discovery has been available for over two years, which should have
afforded both parties ample time to complete discovery and resolve any discovery disputes.
The Court initially gave the parties a 234-day fact discovery period, ending on June 23,
2014. Scheduling Order, Dkt. No. 40. The Court later granted two extensions of the fact
discovery period, giving both parties an additional year to complete fact discovery. See
Scheduling Order, Dkt. No. 71; Order Extending Discovery Period, Dkt. No. 89. Even
though Demodulation had sufficient time to complete fact discovery, Demodulation and
its counsel engaged in dilatory discovery tactics, waiting until the last day to serve the
Government with 500 requests for admissions, several hundred requests for production of
documents, and approximately 80 interrogatories. Def.’s Cross-Motion for Protection
from Further Disc. at 1, Dkt. No. 146. Demodulation also was tardy in scheduling the
depositions of Government officials or filing motions to compel their depositions since it
knew as early as November 2012 it would possibly need to depose these individuals. See
id. at 3. Despite knowing these officials might have discoverable information,
Demodulation sat on its hands rather than taking the depositions of these witnesses. See
id. at 3-4 (explaining that Demodulation waited until June 26, 2015, three days before fact
discovery was set to close to take the deposition of Major General Harencak, a high ranking
Government official, and failed to attempt to take any depositions for eighteen months from
June 2013 through November 2014).
Demodulation claims that the change in lead counsel on June 16, 2015 and the need
for the classified reports constitute good cause to extend the discovery period. Pl.’s Reply
to Mot. for Extension of Time to Complete Disc. at 1-3, Dkt. No. 161. However, neither
of these arguments has any merit. First, it is of no avail that new counsel took over the
case when fact discovery had been ongoing for over two years. Second, the delay in serving
the discovery requests cannot be attributed to the need for the classified reports. As the
Government pointed out in its Reply to Demodulation’s Opposition to the Government’s
Cross-Motion for Protection from Further Discovery, Docket No. 163, “the voluminous
discovery requests were drafted before the Court ordered Demodulation to turn over the
protected information to the Court.” Id. at 6. Thus, Demodulation could have served its
discovery requests well before the fact discovery deadline. Yet, Demodulation chose to
wait. It must now face the consequences of that decision.
The Court also finds that the discovery requests that Demodulation served on the
Government on the last day of discovery were overly broad and unreasonable, violated the
Court’s rules, and sought to delay this case needlessly for months, if not years.
Demodulation violated Rule 6.1(b) by failing to identify any “meet and confer” effort to
resolve the discovery dispute without the need for court intervention, and violated Rule
2
Counsel for Plaintiff and the Government did agree to a one-day enlargement of discovery to June 30,
2015, to allow Mr. Frank Downs’s deposition. Def.’s Resp. to Pl.’s Mot. for Extension of Disc. at 1, Dkt.
No. 146.
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5.4(a)(5)(B) by not filing its opposition to the Government’s cross-motion with its reply to
the Government’s Opposition. Further, the Court finds under Hickman v. Taylor, 329 U.S.
495, 507-08 (1947) that Demodulation’s discovery practices are being conducted in bad
faith with the purpose to “annoy, embarrass, or oppress” the Government. The Court will
not permit such abusive discovery practices.
The case has been ongoing in this Court for over four years and the delay in the
proceedings must end. Accordingly, the Court GRANTS the Government’s Cross-Motion
for Protection from Further Discovery (Dkt. No. 146), and DENIES Plaintiff’s Motion to
Extend the Discovery End Date Limited to Depositions and Document Discovery Related
Thereto (Dkt. No. 141). The Government has no obligation to respond to any of
Demodulation’s requests that it submitted to the Government on the last day of fact
discovery. Demodulation will not be permitted to take the depositions of any of the
witnesses or Government officials3 it wished to depose. See Pl.’s Cross-Motion and Resp.
to Def.’s Partial Mot. for Summ. J. at 29, Dkt. No. 111; Mot. for Extension of Time to
Complete Disc. at 1, Dkt. No. 141. Fact discovery is now over. Demodulation’s deposition
notices for those witnesses are hereby DENIED.
B. Renewed Motion of the United States to Compel Discovery and for Sanctions
and Cross-Motion of the United States for Additional Sanctions Against
Plaintiff’s Counsel Pursuant to 28 U.S.C. § 1927.
The Government’s next motion concerns Demodulation’s trade secret claims,
which, if granted, would affect Counts One, Two, Four, and Five of Plaintiff’s Third
Amended Complaint. See Def.’s Renewed Mot. to Compel Disc. & for Sanctions at 9-10,
Dkt. No. 91. During the discovery period, the Government requested Demodulation to
“[d]escribe each and every trade secret that Demodulation claims that it ‘possessed’ or
possesses in Paragraph 70 of its Second Amended Complaint in sufficient detail to allow
the Government to locate all information that it received from Demodulation that is
currently or may be in the future at issue in this litigation.” Id. Demodulation submitted
inadequate boilerplate responses to the Government’s interrogatories and accordingly, the
Court ordered Demodulation to provide supplemental responses. See Order Granting
Def.’s Mot. to Compel, Dkt. No. 79. However, Demodulation still failed to respond to the
Government’s discovery requests. Instead, it submitted a response simply stating that the
3
The Government officials that Demodulation wished to depose are: Mr. David K. Mee, Mr. Neville
Howell, Mr. Ronald Thompson, Mr. Downs, Mr. Daniel Gutierrez, and Major General Harencak. See Pl.’s
Mot. for Extension of Time to Complete Disc. at 1, Dkt. No. 141. Demodulation also wished to take
depositions of Ms. Julianne Levings, Mr. Roger Lewis, Ms. Nathalie Lemmon, and Dr. Dale Sivils. Id.Plaintiff was able to take the depositions for Mr. Downs and Mr. Lewis, but has not taken any other
depositions of the above named individuals. Pl.’s Resp. to Mot. for Extension of Time to Complete Disc.
at 4, Dkt. No. 161.
8
trade secrets could be found among 2,360 pages of its own documents, many of which are
unreadable. Def.’s Renewed Mot. to Compel Disc. & for Sanctions at 4-5, Dkt. No. 91.
To this day, Demodulation’s responses to the Government’s request remain entirely
inadequate. It is Plaintiff who is asserting the trade secret claims in this litigation and it
should know what those trade secrets are. Demodulation cannot put the burden on the
Government to find the trade secrets simply by pointing out where they can be found. “At
the very least, a defendant is entitled to know the bases for plaintiff’s charges against it.
The burden is upon the plaintiff to specify those charges, not upon the defendant to guess
at what they are.” Xerox Corp. v. Int’l Bus. Machines Corp., 64 F.R.D. 367, 371 (S.D.N.Y.
1974). Because Demodulation has been unable to describe its trade secret claims with any
sufficient detail, the Court concludes that Plaintiff has no trade secrets to be protected, and
thus, the Government could not have misappropriated any of Plaintiff’s trade secrets. The
Court also finds that it would be unfair to the Government to allow such claims to go
forward. By not identifying its trade secrets, the Government is unable to determine which,
if any, trade secret has been misappropriated, and accordingly, cannot develop an adequate
defense. See Def.’s Renewed Mot. to Compel Disc. & for Sanctions at 7, Dkt. No. 91.
Dismissal of all the trade secret claims is entirely warranted here. Demodulation did not
act merely negligently in its failure to respond to the Government’s interrogatories. See
Ingalls Shipbuilding, Inc. v. United States, 857 F.2d 1448, 1451 (Fed. Cir. 1998) (“A
party’s simple negligence, grounded in confusion or sincere misunderstanding of the
Court’s orders, does not warrant dismissal.”) (internal citations omitted). Demodulation
was given multiple chances to correct and amend its responses, and its conduct was not
merely the product of a misunderstanding of the Court’s orders. Accordingly, the
Government’s “Renewed Motion of the United States to Compel Discovery and for
Sanctions” is GRANTED. All of Plaintiff’s trade secret claims as they are contained in
Counts One, Two, Four, and Five of Plaintiff’s Third Amended Complaint are hereby
dismissed.
The Court also finds that Plaintiff unreasonably and vexatiously multiplied the
proceedings in this case, and accordingly, GRANTS the Government’s Cross-Motion for
Additional Sanctions under 28 U.S.C. § 1927. The Government is awarded its costs and
reasonable attorneys’ fees for its three sanction motions concerning the inadequacy of
Plaintiff’s responses to the Government’s discovery requests. See Def.’s Renewed Mot. to
Compel Disc. & for Sanctions, Dkt. No. 91; Def.’s Third Mot. for Sanctions, Dkt. No. 114;
Def.’s Cross-Motion for Additional Sanctions under 28 U.S.C. § 1927, Dkt. No. 113. The
Court has the inherent power to impose sanctions under Rule 37 and 28 U.S.C. § 1927.
See Multiservice Joint Venture, LLC v. United States, 85 Fed. Cl. 106, 112 (2008). Under
28 U.S.C. § 1927, “[a]ny 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.” Before
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a court can award attorneys’ fees, it must find bad faith. A finding of bad faith is
“warranted where an attorney knowingly or recklessly pursues a frivolous claim or engages
in litigation tactics that needlessly obstruct the litigation of non-frivolous claims.” Amlong
& Amlong, P.A. v. Denny’s Inc., 500 F.3d 1230, 1242 (11th Cir. 2006).
Here, the Court finds that Mr. Light’s conduct rises to the level of bad faith. By not
identifying any trade secret claims, it suggests to the Court that Plaintiff has no trade secrets
to be protected. Thus, without any trade secrets, its claims for misappropriation of trade
secrets were entirely frivolous. Id. The continued maintenance of the frivolous trade secret
claims and the failure to respond adequately to discovery requests unreasonably and
vexatiously multiplied the proceedings in the case. Such conduct cannot be condoned. The
Court hereby requests counsel for the Government to file a Bill of Costs and its claim for
reasonable attorneys’ fees in accordance with the Court’s rules on or before August 27,
2015.
C. Plaintiff’s Motion for Reconsideration of the Court’s May 13, 2015 Order.
Next the Court addresses its bench ruling that denied Demodulation’s motion for
reconsideration of the Court’s May 13, 2015 Order directing Plaintiff to return all protected
information. Demodulation seeks reconsideration of the Court’s May 13, 2015 Order to
prevent “manifest injustice” and argues that the sanctions imposed were disproportionate
under the circumstances. Pl.’s Mot. for Reconsideration at 3, Dkt. No. 134. Demodulation
claims its violations of the Protective Order “[were] not willful or reckless but occurred
because the protective order itself contained an error in referencing other applicable
paragraphs.” Id. According to Demodulation, because paragraph 5(e) of the Protective
Order incorrectly referred to paragraph nineteen instead of paragraph twenty, it did not
need to seek permission of the Government or the Court before giving protected
information to its experts, among others. Pl.’s Resp. to Def.’s Third Mot. for Sanctions at
1, Dkt. No. 117. Plaintiff’s argument is frivolous and does not acknowledge the
seriousness of the violations.
A decision on whether to grant a motion for reconsideration is within the sound
discretion of the trial court. Only by showing “exceptional circumstances justifying relief,
based on a manifest error of law or mistake in fact” should such a motion be granted.
Webster v. United States, 93 Fed. Cl. 676, 679 (2010) (citing Henderson Cty. Drainage
Dist. No. 3 v. United States, 54 Fed. Cl. 334, 337 (2003)). Exceptional circumstances
include: (1) an intervening change in the controlling law; (2) availability of previously
unavailable evidence; or (3) preventing manifest injustice. Shirlington Limousine &
Transp., Inc. v. United States, 78 Fed. Cl. 27, 29 (2007). In seeking reconsideration based
upon “manifest injustice,” the moving party must demonstrate that the injustice is
“apparent to the point of being almost indisputable.” Webster, 93 Fed. Cl. at 679 (quoting
Pac. Gas & Elec. v. United States, 74 Fed. Cl. 779, 785 (2006)).
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None of the exceptional circumstances is present here to justify granting
Demodulation’s motion for reconsideration. As of the date of this decision, the Court is
aware of at least four violations of the Protective Order by Demodulation’s counsel. First,
Demodulation filed an unsealed Memorandum of Law in Opposition to the United States’
Motion for Partial Summary Judgment and Cross-Motion for Partial Summary Judgment
and to Compel Discovery, Docket No. 111, to which it attached a number of documents
subject to the Protective Order including the formerly classified reports. Second,
Demodulation provided the protected information to its expert, Dr. Chung, without
properly requesting admission of Dr. Chung to the Protective Order. Dr. Chung did not
provide a declaration agreeing to be bound by the Protective Order, she did not provide her
curriculum vitae and a list of cases in which she has testified before, and the Government
did not approve of her admittance to the Protective Order. All of these conditions had to
be met before Dr. Chung could have access to the Government’s protected information.
Third, Dr. Chung’s report, which contained the protected information, was provided to the
defendants in Demodulation, Inc. v. Corning, Inc., et al., No. 11-296 (D.N.J.), a parallel
litigation brought by Plaintiff against unrelated private parties. Finally, after the Court
issued an order directing Demodulation to disclose all recipients of the Government’s
protected information, Mr. Light revealed that he had provided the protected information
to Mr. O’Keefe, Dr. King, Mr. Slavin, Dr. Hnatio, and Mr. Becker, without applying for
any of these individuals to be admitted under the Protective Order.
Even though the Protective Order contains a typographical error, the error does not
excuse the conduct of Plaintiff’s counsel. It is clear from the face of the Protective Order
the steps Demodulation had to take to gain admittance of independent experts or
individuals not listed in paragraphs 5(a)-(d) and 5(g) under the Protective Order so that
they could be granted access to the Government’s protected information. It is also clear
that no individual could be provided the protected information unless they were admitted
under the Protective Order or were one of the individuals listed in paragraphs 5(a)-(d) and
(g). The Protective Order is not ambiguous. Although paragraph 5(e), which pertains to
experts, incorrectly refers to paragraph nineteen, instead of paragraph twenty, paragraph
nineteen provides: “[n]othing in this Protective Order shall prevent disclosure of
Proprietary Information if the Owner consents to such disclosure or if the Court, after
notice to the Owner and an opportunity to be heard, orders such disclosure.” Protective
Order ¶ 19, Dkt. No. 85-1. Nothing in paragraph nineteen or the entire Protective Order
itself suggests that Demodulation had free rein to disseminate the protected information to
non-qualified individuals. Further, had Demodulation’s counsel simply read the next
paragraph, paragraph twenty, he would have realized the steps he needed to take to gain
admittance of independent experts. Id. ¶ 20. Thus, the Protective Order is clear that if an
individual was not one of those listed in paragraph 5(a)-(d) or (g), such as an independent
expert, that person must be admitted to the Protective Order by complying with paragraph
twenty, by order of the court, or by written agreement of the parties, provided that the
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person seeking to be admitted to the Protective Order first signed a declaration. See id. at
7-8.
The violations committed by Mr. Light are not minor infractions and are more
egregious than the violations cited by Demodulation in its reply brief. Demodulation
claims that its actions were less serious than in other cases such as Pacific Gas & Electric
Co. v. United States, 82 Fed. Cl. 474, 484-85 (2008). However, Demodulation’s counsel
vastly understates the severity of Mr. Light’s actions in claiming that his conduct was less
severe than that of attorneys in other cases. For example, in Pacific Gas, plaintiff’s counsel
filed protected documents in another case (Dairyland) under seal. Plaintiff’s counsel
refused to withdraw the documents and the Government filed a successful motion to strike.
Pacific Gas, 82 Fed. Cl. at 477-78. The court in Pacific Gas granted attorneys’ fees but
refused to require plaintiff to return or destroy all protected documents or bar plaintiff’s
future use of the protected documents. Id. at 485.
Plaintiff overlooks that counsel in Pacific Gas committed only one violation of the
protective order. Here, there were at least four violations. Plaintiff also points out that the
court in that case stated that it “does not believe that the PG&E plaintiff should be punished
for actions its counsel took while representing another client in another case.” Id. But
here, Demodulation’s counsel was representing only Demodulation. Thus, the Court is not
punishing Plaintiff for counsel’s unrelated conduct. Further, the disclosure to Mr. O’Keefe,
Dr. King, Mr. Slavin, Dr. Hnatio and Mr. Becker cannot be characterized as “simple
negligence,” as Plaintiff claims. Demodulation was on notice that it had already violated
the Protective Order through the Government’s Motion to Seal its Memorandum of Law
and its Motion for Sanctions after it learned of Demodulation’s disclosure of the protected
information to Dr. Chung.
The Court’s Protective Order must be enforced, and the Court notes that it does not
take lightly multiple willful or reckless violations of its orders. See, e.g., Lion Raisins, Inc.
v. United States, 64 Fed. Cl. 536, 542 (2005) (“Enforcement of protective orders implicates
the rule of law.”); see also Precision Pine & Timber, Inc. v. United States, No. 98-720C,
2001 WL 1819224, at *3 (Fed. Cl. 2001) (“[T]he Rules of the Court provide for the
imposition of sanctions whenever a party abuses the discovery process or violates an order
of the Court.”). The conduct of Plaintiff’s counsel rises far beyond the level of
inadvertence or negligence, particularly where, as here, counsel repeatedly provided
information to non-qualified individuals despite the unambiguous language of the
Protective Order. Accordingly, Plaintiff’s motion for reconsideration of the Court’s May
13, 2015 Order directing Plaintiff to return all protected material in this case is DENIED.
D. The Government’s Third Motion for Sanctions.
Next, the Court addresses the Government’s Third Motion for Sanctions filed on
April 30, 2015, Docket No. 114. The Court granted the Government’s motion in part, when
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it required Plaintiff to return all protected material in its possession or in the possession of
its agents, see Order for Return of Protected Material, Dkt. No. 123, and when it later
required Plaintiff to identify all persons who were provided access to or received the
Government’s protected information, see Order Requiring Identification of Recipients of
Protected Material, Dkt. No. 129. Thus, to the extent that the Government’s Third Motion
for Sanctions seeks identification of persons who received the protected information or
requests the Court to order the destruction of or the return of the protected information, that
portion of the motion is moot.
The Court notes that the Government also requested the Court to enter default
judgment against Demodulation on all claims as part of its Third Motion for Sanctions.
See Def.’s Third Mot. for Sanctions at 6, Dkt. No. 114. That portion of the Government’s
request is DENIED. Many of the claims have already been dismissed by this decision
based upon Plaintiff’s failure to identify its trade secrets. To the extent that the Government
seeks further sanctions, the Court finds dismissal of those claims a disproportionate
sanction for Demodulation’s conduct. Dismissal of claims is a harsh remedy and “reserved
for only the most severe abuses of the discovery process.” Genentech, Inc. v. U.S. Int’l
Trade Com’n, 122 F.3d 1409, 1423 (Fed. Cir. 1997) (quoting Hendler v. United States, 952
F.2d 1364, 1382 (Fed. Cir. 1991)). The Court finds that Demodulation’s conduct, while
abusive enough to warrant dismissal of all the trade secret claims, is not at the level where
dismissal of all claims would be warranted. Further, Demodulation’s misconduct occurred
in the hands of a law firm no longer representing the Plaintiff. Accordingly, the remainder
of the Government’s Third Motion for Sanctions is DENIED.
E. Motion to Withdraw and Amend Demodulation’s Response to Defendant’s May
29, 2015 Requests for Admissions.
Finally, the last motion addressed by this decision is Plaintiff’s Motion to Withdraw
and Amend its Responses to the Government’s May 29, 2015 Requests for Admission,
Dkt. No. 145. Plaintiff did not submit answers to the Government’s Requests for
Admissions by the deadline of June 29, 2015 and therefore, the matters are deemed to be
admitted under Rule 36(a)(3). The Government responded that it did “not oppose
Demodulation’s motion to withdraw its admissions and replace the earlier admissions with
the proposed responses provided in Docket No. 145-1.” Def.’s Resp. to Pl’s Mot. to
Amend Responses to Requests for Admis. at 1, Dkt. No. 151. Accordingly, Plaintiff shall
be permitted to withdraw and amend its responses to Defendant’s May 29, 2015 Requests
for Admission with the responses provided in Docket No. 145-1.
Conclusion
All of Plaintiff’s trade secret claims as they are included in Counts One, Two, Four,
and Five are hereby dismissed. Fact discovery is over. The Court awards the Government
its reasonable costs and attorneys’ fees under 28 U.S.C. § 1927 incurred in filing its three
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motions for sanctions. The Government should submit its claim on or before August 27,
2015. The Callagy law firm and Mr. Light are responsible for payment of the attorneys’
fees and costs, not Demodulation.
The next step in this case will be for a Markman claim construction hearing and
briefing process to be proposed by the parties. Counsel should submit their proposed
Markman procedures on or before August 27, 2015. Expert discovery will not proceed
until after the Markman hearing and ruling.
IT IS SO ORDERED.
s/Thomas C. Wheeler
THOMAS C. WHEELER
Judge
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