Cypress Insurance Company v. SK Hynix America, Inc.

MOTION for Reconsideration the Exclusion of Opinions of Malcolm Penn

W.D. Wash.March 12, 2019

PLAINTIFF CYPRESS INSURANCE COMPANY’S MOTION FOR RECONSIDERATION REGARDING THE TRIAL TESTIMONY AND OPINIONS OF MALCOLM PENN LAW OFFICES OF COZEN O’CONNOR A PROFESSIONAL CORPORATION 999 THIRD AVENUE SUITE 1900 SEATTLE, WASHINGTON 98104 (206) 340-1000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE CYPRESS INSURANCE COMPANY, as subrogee of Microsoft Corporation Plaintiff, vs. HYNIX AMERICA INC. Defendant. ) ) ) ) ) ) ) ) ) ) ) ) Case No. 2:17-cv-00467-RAJ PLAINTIFF CYPRESS INSURANCE COMPANY’S MOTION FOR RECONSIDERATION REGARDING THE TRIAL TESTIMONY AND OPINIONS OF MALCOLM PENN Noted: March 12, 2019 ORAL ARGUMENT REQUESTED Plaintiff, Cypress Insurance Company (“Cypress”), as subrogee of Microsoft Corporation (“Microsoft”), by counsel, hereby moves for reconsideration of the Court’s ruling on the admissibility of the trial testimony and certain of the opinions of Malcolm Penn as follows: Case 2:17-cv-00467-RAJ Document 262 Filed 03/12/19 Page 1 of 9 PLAINTIFF CYPRESS INSURANCE COMPANY’S MOTION FOR RECONSIDERATION REGARDING THE TRIAL TESTIMONY AND OPINIONS OF MALCOLM PENN - 1 LAW OFFICES OF COZEN O’CONNOR A PROFESSIONAL CORPORATION 999 THIRD AVENUE SUITE 1900 SEATTLE, WASHINGTON 98104 (206) 340-1000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 While motions for reconsideration, which are governed by Local Rule 7(h), are generally disfavored, the court will grant such motions upon a showing of manifest error in the prior ruling, a showing of new facts, or a showing of new legal authority which could not have been brought to its attention earlier. The Court has committed manifest error in excluding during the trial of this matter the opinions of Malcolm Penn that: 1) Defendant SK Hynix America, Inc. (“Hynix”) failed to comply with applicable industry standard as to DRAM chip allocation based largely on Hynix’s DRAM chip yields; and 2) Hynix failed to comply with the industry standard for using commercial reasonableness in meeting Microsoft’s 2133 MHz chip requirements. The Court has committed such error in direct contravention of its Order on the Parties’ Motions to Exclude (ECF No. 198) as well as Ninth Circuit legal precedent. The Court’s exclusion of these opinions contravenes controlling law as well as the evidence that has been presented in this case. Coleman v. Evergreen Public Schools, 2018 WL 5886452 (W.D. Wash. Nov. 9, 2018) citing Black’s Law Dictionary 622 (9th ed. 2009). Accordingly, the Court should reconsider its ruling during trial on March 12, 2018 and permit the foregoing opinion testimony of Malcolm Penn. The Court had previously ruled that the opinions of Malcolm Penn relating to DRAM yields were admissible, as well as his opinions relating to industry practices “as detailed in Opinions 6 and 8.” (ECF No. 198, p. 6). Mr. Penn’s Opinion 6 is that Hynix failed to give priority allocation to Microsoft on its purchase order requirements. (Tr. Ex. 248, p. 6). Mr. Penn’s Opinion 8 is that Hynix failed to use commercially reasonable efforts with Microsoft. Id. Thus, Cypress understood that the Court previously ruled that Mr. Penn could testify that Hynix failed to comply with industry standard by failing to give priority allocation to Microsoft, as evidenced by Hynix’s DRAM yields, and that Hynix failed to comply with industry standard in using commercially reasonable efforts to meet Microsoft’s purchase order requirements. The Court ruled that Mr. Case 2:17-cv-00467-RAJ Document 262 Filed 03/12/19 Page 2 of 9 PLAINTIFF CYPRESS INSURANCE COMPANY’S MOTION FOR RECONSIDERATION REGARDING THE TRIAL TESTIMONY AND OPINIONS OF MALCOLM PENN - 2 LAW OFFICES OF COZEN O’CONNOR A PROFESSIONAL CORPORATION 999 THIRD AVENUE SUITE 1900 SEATTLE, WASHINGTON 98104 (206) 340-1000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Penn may not testify as to issues that “touch on issues of law.” During the trial of this matter, and following unnoticed and unprompted briefing by Hynix (with no opportunity for Cypress to respond), the Court stated in its Order dated March 12, 2019 (ECS No. 260, p. 2) that Mr. Penn “may testify regarding ‘priority allocation’ and ‘commercial reasonableness,’ but only as they relate to the semiconductor industry’s standards and practices. However, he may not opine on whether any deviation from industry standards resulted in breach of the parties’ agreement.” (ECF No. 260, p. 2). Nowhere does either the Order indicate that Mr. Penn would be unable to testify as to a deviation of the industry standard by Hynix as long as those opinions do not “impermissibly touch on issues of law.” (ECF No. 198, p. 6). In fact, the Court’s February 14, 2019 Order stated that Mr. Penn is permitted to testify as related to the industry practices “detailed” in Opinions 6 and 8 and the Court’s March 12, 2019 Order, providing that Mr. Penn may opine on deviations from industry standards as long as Mr. Penn does not opine that those deviations “resulted in breach of the parties’ agreement.” (ECF No. 198). The opinions Mr. Penn would have offered at trial, had the Court allowed him to testify as to them, would not have included any opinion testimony relative to a potential breach of the parties’ agreement. Cypress intends to provide Proffer of Penn Testimony. As to the DRAM yields, the Court ruled that Mr. Penn was permitted “to testify on DRAM yields…. Hynix is free to cross-examine Penn on the basis for his analysis, including his reliance on purportedly incorrect data.” (ECF No. 198, p. 6). The Court ruled that Mr. Penn was permitted to express opinions of Hynix’s DRAM yields and the reliance by Mr. Penn on allegedly erroneous information that Hynix changed just prior to the close of fact discovery. The Court previously ruled that Mr. Penn is permitted to testify as to Hynix DRAM yields and the industry practices as pertaining to Hynix with respect to Mr. Penn’s Opinions 6 and 8. The Court now, Case 2:17-cv-00467-RAJ Document 262 Filed 03/12/19 Page 3 of 9 PLAINTIFF CYPRESS INSURANCE COMPANY’S MOTION FOR RECONSIDERATION REGARDING THE TRIAL TESTIMONY AND OPINIONS OF MALCOLM PENN - 3 LAW OFFICES OF COZEN O’CONNOR A PROFESSIONAL CORPORATION 999 THIRD AVENUE SUITE 1900 SEATTLE, WASHINGTON 98104 (206) 340-1000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 however, has apparently reversed its earlier rulings. After receipt of Hynix’s Brief addressing admissibility of three exhibits in which Hynix raised this issue without notice to Cypress or the opportunity for Cypress to respond, the Court now has ruled that Mr. Penn is precluded from testifying on Hynix’s DRAM yields and industry standards as related to Hynix and outlined “as detailed in Opinions 6 and 8.” The Exclusion of Industry Practice Testimony Is Manifest Error Mr. Penn should not be barred from testifying as to the industry practice and the manner in which Hynix may have deviated from that industry practice as long as he does not opine regarding the ultimate issue of whether Hynix breach the contract in this case. As to Opinion Nos. 6 and 8 regarding “priority allocation” and “commercially reasonable efforts,” which were ruled upon as not being excluded by this Court, Mr. Penn opined as “detailed” in this report regarding industry practice with regard to those two topics in numerous respects (See ECF No. 248, p. 11-16). In contravention of its earlier ruling, however, the Court now states that the holding with regard to Mr. Penn is that he is unable to testify as to standard industry practices as related to Hynix’s deviation from those practices, but only in a general sense. In addition, the Court has ruled that Mr. Penn is barred from testifying about capacity and yield issues. This about face has occurred despite the Court’s earlier ruling that Mr. Penn was able to testify regarding industry practices “as detailed in Opinions 6 and 8” and that Hynix was free to cross examine Mr. Penn on the “purportedly incorrect data” as related to the purportedly incorrect yield and capacity data. If the Court intended to exclude the yield and capacity data, then there would be no need to invite Hynix to cross examine on this topic. Further, if the Court believed that Opinion Nos. 6 and 8 were legal opinions, then those opinions would have been stricken, but instead the Court held that Mr. Penn was permitted to testify as to the industry standards “detailed” in those opinions. The Case 2:17-cv-00467-RAJ Document 262 Filed 03/12/19 Page 4 of 9 PLAINTIFF CYPRESS INSURANCE COMPANY’S MOTION FOR RECONSIDERATION REGARDING THE TRIAL TESTIMONY AND OPINIONS OF MALCOLM PENN - 4 LAW OFFICES OF COZEN O’CONNOR A PROFESSIONAL CORPORATION 999 THIRD AVENUE SUITE 1900 SEATTLE, WASHINGTON 98104 (206) 340-1000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Court’s earlier ruling and the one made by the Court during trial are not reconcilable and are manifest error as the rulings go against the long-established legal precedent of the Ninth Circuit. See Spencer v. Peters, 2013 WL 64772 (W.D. Wash. Jan. 4, 2013) (Fed.R.Evid. 702 permits expert testimony comparing conduct of parties to the industry standard) citing Vucinich v. Paine, Webber, Jackson & Curtis, Inc., 803 F.2d 454, 461 (9th Cir.1986); see also U.S. Trust Co. of Delaware v. Sun Life Assur. Co. of Canada, 2014 WL 1681697, *2 (W.D. Wash. April 25, 2014) (expert testimony on the industry standards and whether the parties acted in accordance with those standards is relevant and assists the Court in interpreting the nature of the transaction between the parties); Morales v. Fry, 2014 WL 12042563, *3 (March 25, 2014) (expert permitted to testify as to the relevant standards and whether the defendant’s conduct comports with those standards); Hangarter v. Provident Life and Accident Ins. Co., 373 F. 3d 998, 1016 (9th Cir. 2004) (expert testimony as to the deviation of applicable industry standards is permissible as long as expert did not reach legal conclusion that defendant actually acted in bad faith). These cases all demonstrate that this District as well as the Ninth Circuit permit the admissibility of expert testimony as related to the industry standard as long as the expert does not reach the ultimate conclusion in the case, i.e., that the defendant breached the contract. Here, Mr. Penn, in accordance with well-established precedent should be permitted to testify as to the industry standards set forth in his report and deposition, as well as Hynix’s deviation from those industry standards, as long as he does not testify as to the ultimate issue in this case of whether Hynix breached the contract. The Exclusion of Yield Testimony of Mr. Penn is Both Prejudicial and Manifest Error The Court’s ruling to exclude the opinions of Mr. Penn as to industry practice related to Hynix is prejudicial and in manifest error. This issue arose during motion practice when Hynix Case 2:17-cv-00467-RAJ Document 262 Filed 03/12/19 Page 5 of 9 PLAINTIFF CYPRESS INSURANCE COMPANY’S MOTION FOR RECONSIDERATION REGARDING THE TRIAL TESTIMONY AND OPINIONS OF MALCOLM PENN - 5 LAW OFFICES OF COZEN O’CONNOR A PROFESSIONAL CORPORATION 999 THIRD AVENUE SUITE 1900 SEATTLE, WASHINGTON 98104 (206) 340-1000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 moved to exclude the opinions of Mr. Penn arguing that he stated legal opinions and relied upon inaccurate data. (ECF No. 169). As an initial matter, the Court has committed manifest error in ruling that Mr. Penn’s opinions relating to the production, yield and capacity of Hynix touch on issues of law and should be precluded from trial. With regard to Opinion No. 5, Mr. Penn states that “SK Hynix America failed to provide Microsoft with accurate details of its 2133 4Gb DDR3 DRAM manufacturing capacity and yields.” In opposition, Hynix argued in its motion for the exclusion of Opinion Nos. 5 that it was based upon “counterfactual data” or a typographical error in its interrogatory answers. (ECF No. 169, p. 6). Hynix argued that Opinion 5 should be stricken based on the alleged inaccurate data. Hynix’s motion is devoid of any reference to Opinion 5 as stating an impermissible legal opinion, and the opinion is not a legal opinion. In a similar vein, Cypress’ Response addressed the yield issues as relating solely to the alleged typographical error and not that that opinion is related to Hynix’s arguments that it expresses a legal opinion. (ECF No. 178). Accordingly, there is no basis to Hynix’s argument that the yield information and the failure of Hynix to provide accurate information is a legal opinion that should be stricken. Moreover, in order to render and support his Opinion 6 (Hynix failed to give priority allocation to Microsoft on its purchase order requirements), Mr. Penn relies in part upon the Hynix yield data for this opinion, as set forth in his report (See ECF No. 248, p. 12). There is further no basis for Hynix’s argument because the Hynix yield issues also are encompassed within the industry standards set forth in his Opinion No. 8. Mr. Penn stated that “They never told Microsoft that the vast majority of its 4Gb DDR3 DRAMs met Microsoft’s 2133 speed requirement and that the real reason for shortages was because Microsoft parts were being diverted to 1866 and 1600-speed customers.” The Court previously ruled that issues of industry standard as detailed in Mr. Penn’s report are permissible. Thus, the yield issue falls squarely within the Court’s prior ruling in that the Court indicated the testimony on DRAM yields are Case 2:17-cv-00467-RAJ Document 262 Filed 03/12/19 Page 6 of 9 PLAINTIFF CYPRESS INSURANCE COMPANY’S MOTION FOR RECONSIDERATION REGARDING THE TRIAL TESTIMONY AND OPINIONS OF MALCOLM PENN - 6 LAW OFFICES OF COZEN O’CONNOR A PROFESSIONAL CORPORATION 999 THIRD AVENUE SUITE 1900 SEATTLE, WASHINGTON 98104 (206) 340-1000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 permitted as well as the details contained in Opinion 8 which also contains yield opinions. Moreover, the Court has held that the “commercially reasonable” standard is a necessary component of the Agreement and the Ninth Amendment. Hynix has offered evidence that its yields were some unsubstantiated number. Hynix has further offered evidence that it provided 99% of the 2133 DRAM chips to Microsoft. With the exclusion of the evidence as related to yields and capacity, the Court has limited Cypress from offering any evidence to rebut Hynix’s assertions. Yet, Hynix intends to present testimony on this very topic by its expert Joseph C. McAlexander III. In his report, McAlexander’s report is replete with references to Hynix-specific yields (ECS No. 55). If the Court does not reverse its ruling of March 12, 2019, prohibiting Mr. Penn from testifying at trial as to Hynix’s DRAM yields in the context of Hynix failing to comply with industry standard within Opinions 6 and 8, then the Court will be allowing Hynix to offer expert testimony into evidence on critical, case-dispositive issues, while simultaneously disallowing Cypress from offering expert testimony on those same issues. In its Order on the Parties’ Motion to Exclude, as to Hynix’s expert Mr. Alexander the Court ruled: “. . . because McAlexander offers relevant testimony on DRAM chips, speed grades, wafer yields, and industry standards, the Court will not exclude him. (ECS No. 198, p. 3). This outcome would result in extreme prejudice to Cypress, which could not be cured in any manner during the trial. WHEREFORE, Plaintiff Cypress Insurance Company respectfully requests that this Court grant its Motion to Reconsider the Exclusion of Opinions of Malcolm Penn, and accordingly permit Mr. Penn to testify at trial that: 1) Hynix failed to comply with applicable industry standard as to DRAM chip allocation, including based on Hynix’s DRAM chip yields; and 2) Hynix failed to comply with the industry standard for using commercial reasonableness in meeting Microsoft’s 2133 MHz chip requirements. Case 2:17-cv-00467-RAJ Document 262 Filed 03/12/19 Page 7 of 9 PLAINTIFF CYPRESS INSURANCE COMPANY’S MOTION FOR RECONSIDERATION REGARDING THE TRIAL TESTIMONY AND OPINIONS OF MALCOLM PENN - 7 LAW OFFICES OF COZEN O’CONNOR A PROFESSIONAL CORPORATION 999 THIRD AVENUE SUITE 1900 SEATTLE, WASHINGTON 98104 (206) 340-1000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DATED this 12th day of March 2019 COZEN O’CONNOR By: /s/ Mark S. Anderson Mark S. Anderson, WSBA 17951 999 Third Avenue Suite 1900 Seattle, WA 98104 Telephone: 206.340.1000 Toll Free Phone: 800.423.1950 Facsimile: 206.621.8783 Email: manderson@cozen.com James B. Glennon (Pro Hac Vice) George D. Pilja (Pro Hac Vice) FORAN GLENNON PALANDECH PONZI & RUDLOFF PC 222 North LaSalle Street, Suite 1400 Chicago, Illinois 60601 Phone: (312) 863-5000 Facsimile: (312) 863-5099 Email: jglennon@fgppr.com Email: gpilja@fgppr.com Diana R. Lotfi (Pro Hac Vice) FORAN GLENNON PALANDECH PONZI & RUDLOFF PC 450 Newport Center Drive, Suite 630 Newport Beach, California 92660 Phone: (949) 791-1060 Facsimile: (949) 791-1070 Email: dlotfi@fgppr.com Attorneys for Plaintiff Case 2:17-cv-00467-RAJ Document 262 Filed 03/12/19 Page 8 of 9 PLAINTIFF CYPRESS INSURANCE COMPANY’S MOTION FOR RECONSIDERATION REGARDING THE TRIAL TESTIMONY AND OPINIONS OF MALCOLM PENN - 8 LAW OFFICES OF COZEN O’CONNOR A PROFESSIONAL CORPORATION 999 THIRD AVENUE SUITE 1900 SEATTLE, WASHINGTON 98104 (206) 340-1000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CERTIFICATE OF SERVICE I hereby certify that on this day I electronically filed the foregoing with the Clerk of the Court using the CM/ECF system which will send notification of such filing to the following: Alex A. Baehr, WSBA No. 25320 Summit Law Group PLLC 315 Fifth Avenue South, Suite 1000 Seattle, WA 98104-2682 alexb@summitlaw.com Timothy B. Yoo, CA Bar No. 254332 Ekwan E. Rhow, CA Bar No. 174604 Jennifer C. Won, CA Bar No. 307807 Bird, Marella, Boxer, Wolpert, Nessim Drooks, Lincenberg & Rhow, P.C. 1875 Century Park West, 23rd Floor Los Angeles, CA 90067-2561 tyoo@birdmarella.com jwon@birdmarella.com erhow@birdmarella.com Attorneys for Defendant Dated: this 12th day of March, 2019 /s Renita Cook Renita Cook Legal Assistant Case 2:17-cv-00467-RAJ Document 262 Filed 03/12/19 Page 9 of 9