Opinion
NO. 2014-CV-000604
07-15-2015
Vention Medical Advanced Components, Inc., d/b/a Advanced Polymers, a Vention Medical Company v. Nikolas D. Pappas and Ascend Medical, Inc.
ORDER
Plaintiff, Vention Medical Advanced Components, Inc., d/b/a Advanced Polymers, a Vention Medical Company ("Advanced Polymers"), has moved to compel responses to certain interrogatories and production requests from the Defendants, Nikolas D, Pappas and Ascend Medical, Inc. (collectively "Pappas"). In turn, the Defendants move to compel answers to interrogatories which would require the Plaintiff to specify the trade secrets that it alleges that the Defendants have improperly utilized. The Defendants have declined to provide discovery principally on the ground that the Plaintiff's description of its trade secrets is inadequate, and they should not be required to produce discovery until the Plaintiff produces an adequate designation. The Defendants have also moved to compel an adequate designation. For the reasons stated in this order, the Plaintiff's Motion to Compel is GRANTED, and the Defendants' First Motion to Compel is DENIED.
Additionally, the Defendants have filed a Second Motion to Compel, seeking documentation regarding valuation of Advanced Polymers' intellectual property. That Motion is DENIED without prejudice, based upon the representations in the Plaintiff's Objection.
Finally, the Plaintiff has filed a Motion to Modify Designations, seeking an order requiring the Defendants to modify their production and limit the amount of documents that may be produced as confidential, attorneys' eyes only documents pursuant to the stipulated protective order in place. The Court heard oral argument on all these motions and requested the parties to meet and confer regarding this matter. Given the volume of documents at issue in this case, the Court advised them that if they could not reach an agreement, the Court would review a sample of documents and decide whether the Defendants designation is overbroad. The parties have not been able to resolve the dispute; therefore, the Court orders the Plaintiff to produce for the Courts inspection the following documents: NP003151 through NP003160; NP00328 through NP00339; NP00227 through NP00228; and NP003353 through NP003356. Within five days of filing the documents, both parties may file substantive memorandum of up to five (5) pages on why the documents are, or are not, properly designated.
I
The Plaintiff's Motion to Compel and the Defendants' First Motion to Compel rise and fall on the same issue: whether the Plaintiff has adequately specified its trade secrets. The Plaintiff's Motion to Compel was filed on May 29, 2015. Defendants' Motion to Compel was filed on May 4, 2015. The Plaintiff asserts that the Defendants have refused to answer interrogatories 2, 4 and 5, which requested information regarding the products Pappas has manufactured since he left Advanced Polymers. (Pl.'s Mot. to Compel ¶ 1.) The Defendants have provided a limited response to interrogatories but have refused to make further response until the Plaintiff provides further substantive discovery responses. (Id. ¶ 7.) The Defendants do not dispute that they have failed to respond to the Plaintiff's discovery requests; rather, they assert that they are entitled to defer their response because a defendant in a trade secret case must be fully apprised of the trade secret alleged to have been misappropriated before it can be required to engage in discovery and produce its own information that it considers confidential.
A
Numerous state and federal courts have required parties claiming misappropriation of trade secrets to disclose their trade secrets at the outset of discovery. See, e.g., IKON Office Solutions, Inc. v. Konica Minolta Business Solutions, U.S.A., Inc., No. 3:o8-CV-539-RLV-DCK, 2009 WL 4429156, at *4-5 (W.D.N.C. Nov. 25, 2009); Dura Global Techs., Inc. v. Magna Donnelly. Corp., No. 07-CV-10945, 2007 WL 4303294, at *5 (E.D. Mich. Dec. 6, 2007); Del Monte Fresh Produce Co. v. Dole Food Co., Inc., 148 F. Supp. 2d 1322, 1326 (S.D. Fla. 2001). As one court recently noted, requiring a plaintiff to identify with specificity the allegedly misappropriated trade secrets furthers important policy considerations:
(1) it promotes investigation of claims prior to suit and discourages the filing of meritless trade secret complaints; (2) it prevents plaintiff from using the discovery process as a means to obtain the defendant's trade secrets; (3) it frames the appropriate scope of discovery; and (4) it enables the defendant to form complete and well-reasoned defenses.Delphon Industries, LLC v. Int'l Test Solutions, Inc., No. C 11-01338 PSG, 2012 U.S. Dist. LEXIS 659, at 8 (N.D. Cal. Jan. 4, 2012).
Although Delphon Industries LLC was decided under California Code of Civil Procedure Section 2019.201, the court noted that federal courts have long applied Section 2019.201 "under either the Erie doctrine or simply as a case management tool." Id. at *7, n. 2.
The majority rule enunciated in these cases is common sense. "Where, as here, a plaintiff in a trade secret case seeks to discover the trade secrets and confidential proprietary information of its adversary, the plaintiff will normally be required to first identify with reasonable particularity the matter which it claims constitutes a trade secret before it will be allowed (given a proper showing of need) to compel discovery of its adversary's trade secrets." L -3 Communications Corp.v. Reveal Imaging Technologies, Inc., No. 035810BLS, 2004 WL 2915743, at *13 (Mass. Super. Ct., Dec. 2, 2004) (citing Engelhard Corp. v. Savin Corp., 505 A.2d 30, 33 (Del. Ch. 1986)); GT Crystal Systems, LLC and GT Solar Hong Kong, Ltd. v. Chandra Khattak. Dedar Gupta and Advanced Renewable Energy Co., LLC., Merrimack County Superior Ct., No. 217-2011-CV-332, (Mar. 30, 2012) (Order, McNamara, J.). As the court noted in DeRubeis v. Witten Technologies, Incorporated, a number of policies support requiring a plaintiff to disclose its trade secret first to ensure that "it will not mold its cause of action around the discovery it receives." 244 F.R.D. 676, 679 (N.D.Ga. 2007) (citation omitted). Commentators have expressed the view that "[i]f [a] plaintiff is not forced to define his alleged disclosures before he gets into defendant's files, he may simply claim whenever he finds there." Jerome Doyle & Alan S. Joselyn, The Role of Counsel in Litigation Involving Technologically Complex Trade Secrets, 6 B.C. Indus. & Comm. L. Rev. 743, 747 (1965).
There are, however, other considerations. First, a plaintiff has a broad right to discovery. Second, the plaintiff in a trade secret case may have no way of knowing what trade secrets have been misappropriated until it receives discovery and how the defendant is operating. Until discovery is afforded, a plaintiff must rely exclusively upon circumstantial evidence. See DeRubeis, 244 F.R.D. at 681 (citing and quoting Kevin R. Casey, Identification of Trade Secrets During Discovery: Timing and Specificity, 24 AIPLA Q.J. 191, 201 (1996)). The DeRubeis court noted that "competing policies can make resolving this type of dispute difficult" and concluded that "the proper approach is clearly fact dependent." Id. at 681. With these principles in mind, the Court turns to the trade secret dispute here.
B
The Defendants' Objection to the Plaintiff's Motion to Compel and their own First Motion to Compel essentially are grounded upon the same argument: that the Plaintiff has not made an adequate disclosure of its trade secrets, because its trade secrets do not relate to the manufacturer of nylon heat shrink tubing:
Mr. Pappas responded to plaintiff's sworn allegations with an Affidavit and a Verified Answer in which he acknowledged that, after leaving plaintiff's employment, he developed a process to manufacture nylon heat shrink tubing. Mr. Pappas, however, denied that he was using plaintiff's PET heat shrink tubing processes, identified some of the significant differences between his process and plaintiff's PET heat shrink tubing process, and described his efforts to build his own equipment and to develop his own process independently.(Defs.' Obj. to Pl.'s Mot. to Compel ¶¶ 4, 5) (emphasis supplied)
In the seven (7) months since this case was commenced, no evidence of any use by Mr. Pappas of plaintiff's alleged extrusion technology, or of plaintiff's alleged PET technology, has emerged. Thus, the critical issues in the case boil down to whether plaintiff ever manufactured nylon heat shrink tubing while Mr. Pappas was employed there (as it alleges under oath in the Verified Petition); whether it owns any trade secrets in that manufacturing technology; and, whether Mr. Pappas misappropriated any of those secrets. The starting point of any discovery into these issues is an identification by plaintiff of its nylon heat shrink tubing manufacturing activities and a clear statement of the alleged trade secrets involved in the same.
Much of the Defendants' objection consists of an argument over the evidence presented at the preliminary injunction hearing, and whether or not the Plaintiff's representations were accurate. The Defendants also argue that the trade secret disclosure is not sufficiently specific and contains too much information. (Defs.' Obj. to Pl.'s Mot. to Compel, ¶¶ 22-24.)
This basic argument—that this case involves only nylon heat shrink tubing—is the basis of Defendants' First Motion to Compel:
The Motion to Compel is necessary because, despite the fact that this action is now more than seven (7) months old, plaintiff continues to refuse to state clearly, specifically and unequivocally what, exactly, it claims as a "trade secret"; because plaintiff continues to refuse to provide any evidence that it has ever manufactured nylon heat shrink tubing; and because, many of the other sworn allegations and offers of proof made by plaintiff remains unsubstantiated. All of the information sought is discoverable.(Defs.' Reply to Pl.'s Obj. to Defs.' First Mot. to Compel ¶ 1) (emphasis supplied).
But the Defendants' argument that this case is solely about nylon heat shrink tubing is vigorously disputed by the Plaintiff. It argues:
Plaintiff's claims are based on confidential information/trade secrets improperly exploited by defendants when defendants developed its strategy, produced, marketed and sold its products. Those products sold so far happen to consist of Nylon 12 and Pebax heat shrink tubing. But plaintiff's claims in this case—as plaintiff has made abundantly clear—is that defendants exploited various pieces of confidential/trade secret information including, but by no means limited to, processes that are applicable to more than Nylon 12 and Pebax heat shrink tubing.(Pl.'s Obj. to Defs.' First Mot. to Compel ¶ 2) (emphasis supplied).
The Plaintiff also asserts that it has, in fact, researched and developed products and has sold non-PET heat shrink tubing, including Pebax and nylon heat shrink tubing. (Id.) The Plaintiff provides specific citation to documents reflecting development of these products. (Id. ¶¶ 3-4.) Defendants' reply seeks to avoid the Plaintiff's argument by reciting that the Plaintiff is conflating balloon manufacturing with its alleged proprietary process for manufacturing heat shrink tubing. (Defs.' Reply to Pl.'s Mot. to Compel ¶ 20.) The Plaintiff affirmatively asserts in its Amended Trade Secret Disclosure that its process, which it considers to be a trade secret, is applicable to nylon and Pebax.
The Court need not resolve the issue of whether the Plaintiff's technology is applicable to nylon and Pebax to resolve the dispute. The reason for requiring a trade secret disclosure by a plaintiff before obtaining discovery from a defendant is so that a plaintiff cannot misappropriate technology from the defendant. At the very least, the technology at issue is identified here. The Plaintiff claims that its trade secret is a process; Defendants claim their trade secrets involve a different product, which may or may not be manufactured by using a different process. Discovery is appropriate at this point, because the Plaintiff has specifically alleged what it claims is protected and the Defendants have set forth what they claim is protected. The Defendants can plainly protect themselves from misuse of their trade secrets by the Plaintiff in light of the clear and divergent positions of the parties.
C
The Defendants also object to the trade secret disclosure made by the Plaintiff. A plaintiff must disclose its trade secret with "reasonable particularity." DeRubeis, 244 F.R.D. at 679. "Reasonable particularity" means a description of trade secrets that is sufficient to put the defendant on notice of the claims against him, and that allows a defendant to discern the relevancy of any requested discovery. Id. The Defendants allege that the Plaintiff's disclosure is overbroad and that the Plaintiff has provided a disclosure which "directs defendants to thousands of pages of documents which purportedly deal with experimental balloons; describes processes for making balloons made out of materials other than nylon or PEBAX; and otherwise does no more than suggest that 'trade secrets' for making nylon and PEBAX heat shrink tubing is buried somewhere in all of its disclosures." (Defs.' First Mot. to Compel ¶ 20.)
The Plaintiff disputes this claim, and, by specific reference to portions of the trade secret disclosure, sets forth its arguments. It refers to specific portions of its disclosure with the detailed specifications. The Plaintiff asserts:
Moreover, each and every spec produced by plaintiff (and identified for defendants) include very specific process parameters for the particular product identified in that spec and/or includes specific process parameters relating to a specific part of the process necessary to manufacture such product(s). For example, Extrusion Specifications identify the process parameters that relate to how to make plaintiff's different extruded/starter tubes;(Pl.'s Obj. to Defs.' First Mot. to Compel ¶ 8.)
Defendants' arguments are once again premised on their claim that the trade secret is limited to nylon and Pebax. That claim is the ultimate issue that must be decided in this case and is not the standard for allowing discovery. The analysis the Court must apply is a functional one. The trade secret disclosure, given the purpose for which a plaintiff must produce a trade secret in a case of this nature, is sufficient.
II
Defendants have filed a Second Motion to Compel, which seeks to require the Plaintiff to produce documents in response to its request for production number 3. That request seeks, in relevant part:
[A]ll documents concerning the acquisition of Advanced Polymers by Vention Medical Holdings, Inc. in the spring of 2010, as alleged in paragraph 18 of the Petition, including all due diligence documents and all other documents concerning "the value . . . of Advanced Polymers' . . . medical balloon and medical heat shrink tubing technology products."The Plaintiff objected on the grounds of relevancy; however, notwithstanding its objection, the Plaintiff produced the closing binder for the acquisition of Advanced Polymers pursuant to the stipulated protective order, under an attorneys' eyes only designation. Without citation to authority, the Defendants also assert that production should include files from the attorneys who performed due diligence for the transaction, including corporate counsel for Vention Medical and corporate counsel for Advanced Polymers, who are different from litigation counsel in this case.
Notwithstanding its relevancy objection, the Plaintiff has produced the closing binder for the acquisition of it by Vention Medical and has apparently conceded that it is required to provide documents in the possession of its parent, Vention Medical. (Pl.'s Obj. to Defs.' Second Mot. to Compel ¶ 3.) The Plaintiff has also represented that it will produce witnesses for deposition on assessment of value. (Id.) It objects to Defendants' demand that its parent, Vention Medical, produce the files of the attorneys involved in the legal work for the acquisition of Advanced Polymers, noting that this demand was made for the first time in the Second Motion to Compel.
Much of the difficulty in deciding this Motion surrounds the fact that the parties are apparently filing supplements to the pending Motion as they continue to negotiate and learn about the case. The Defendants have filed two supplements and the Plaintiff has filed one. In their First supplement to their Motion to Compel, the Defendants attached certain documents that had been produced. They complain that documents which have been produced are unresponsive and purportedly demonstrate that additional documents are being improperly withheld. Much of the Defendants' argument is based upon their assertion that critical documents must have been prepared for tax purposes by Advanced Polymers' corporate parent, and these documents have not been produced. (Defs.' First Mot. to Compel, ¶¶ 3, 4.) Defendants argue:
It is patently unbelievable that a "national company" (as plaintiff describes(Id. ¶ 7.)
it) would spend over $100,000,000 for a purported technology company, with no due diligence whatsoever regarding the ownership of the technology or the value thereof. It is equally unbelievable that not even a single email exists regarding these topics. There simply must be due diligence information and other documentation which was generated as part of plaintiff's acquisition of Advanced Polymers which would be relevant and material to plaintiff's sworn allegation in paragraph 18 of the Verified Petition, which asserted that its technology had been valued at well over $50,000,000.
In the Second Supplement to its Motion to Compel, the Defendants respond to Plaintiff's statement at oral argument that the Plaintiff does not control the documents relating to its acquisition. The Defendants argue that documents in possession of a parent company are within the control of the subsidiary where the senior management of the two entities is interlocked. (Defs.' Supp. to Mot. to Compel ¶ 2) (citing 8B Wright & Miller, Federal Practice & Procedure § 2210). However, the Plaintiff claims that the entity from which discovery is sought is KRG Capital Partners ("KRG"), which is not the owner or even shareholder of Vention Medical, the parent of the Plaintiff. The documents filed in support of the Plaintiff's Supplement to its Objection to the Second Motion to Compel tend to support the argument that KRG is a separate entity from the Vention Medical.
Because of the way the parties have approached this issue, the record is hardly a model of clarity. A few principles, however, are obvious. A court cannot order that a lawyer produce documents that a party claims does not exist. A court can, however, preclude a party from introducing any documents contradicting that representation. If the Plaintiff claims that the documents produced are the only documents responsive to request for production number 3, it will be bound by that response. Similarly, a court cannot order a non-party to litigation to participate in discovery. The Defendants have provided no authority for the proposition that a party has an obligation to produce documents in the possession of one of its shareholders. On the current record before the Court, the Defendants' Second Motion to Compel must be DENIED without prejudice.
While the information sought by the Defendants may be discoverable, it is obtainable by appropriate discovery directed at proper parties. --------
III
The Plaintiff has filed a Motion to Modify Designations, arguing that the Defendants have over-designated documents as privileged, attorneys' eyes only documents under the stipulated protective order. The Defendants object. At oral argument, the Court expressed concern over the volume of documents in the parties' dispute, and the parties agreed to meet and confer to determine whether they could resolve the issue. They have informed the Court that they cannot do so.
The number of documents disputed is voluminous, and the Court's schedule would not allow it to review all of them. The Court is reluctant to impose the cost of a discovery master on the parties. At the hearing, the Court suggested that if the parties could not agree, it would choose 30 documents at random and rule based on those documents. The Plaintiff has filed a pleading indicating that no agreement has been reached, and asserting that the Court should proceed in that fashion. The Defendants have not objected.
Accordingly, the Court orders that the Plaintiff shall produce for the Court's inspection documents stamped NP003151 through NP003160; NP00328 through NP00339; NP00227 through NP00228; and NP003353 through NP003356. Both parties may file a memorandum of up to five (5) pages explaining their position. Within five days of filing the documents, both parties may file substantive memorandum on why the documents are, or are not, properly designated.
SO ORDERED
7/15/15
DATE
s/Richard B . McNamara
Richard B. McNamara,
Presiding Justice
RBM/