167 F.R.D. 90 (D.Colo. 1996), Civ. A. 92-S-0136, Gates Rubber Co. v. Bando Chemical Industries, Ltd.

Docket NºCivil A. 92-S-0136.
Citation167 F.R.D. 90
Opinion JudgeSCHLATTER, United States Magistrate Judge.
Party NameThe GATES RUBBER COMPANY, a Colorado corporation, Plaintiff, v. BANDO CHEMICAL INDUSTRIES, LIMITED, a Japanese company, Bando American, Inc., an Illinois corporation, Bando Manufacturing of America, Inc., a Kentucky corporation, Bando U.S. A., Inc., a Delaware corporation, Allen Hanano, an individual, Steven R. Piderit, an individual Ron Newman, an
AttorneyRodger L. Wilson, Wilson and Mayhan, LLC, Denver, CO. Patrick J. Burke, Denver, CO. Shelley B. Don, Earl S. Wylder, Don & Hiller, P.C., Denver, CO. Stephen S. Dunham, Roxanne Jensen, J. Eric Elliff, Morrison & Foerster, Denver, CO. Robert C. Douglas, Jr., Denver, CO. Jon Bernhardt, Holme Robert &...
Case DateMay 01, 1996
CourtUnited States District Courts, 10th Circuit, District of Colorado

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167 F.R.D. 90 (D.Colo. 1996)

The GATES RUBBER COMPANY, a Colorado corporation, Plaintiff,

v.

BANDO CHEMICAL INDUSTRIES, LIMITED, a Japanese company, Bando American, Inc., an Illinois corporation, Bando Manufacturing of America, Inc., a Kentucky corporation, Bando U.S. A., Inc., a Delaware corporation, Allen Hanano, an individual, Steven R. Piderit, an individual Ron Newman, an individual, Denise Hanano, an individual, and John Does 1-93, Defendants.

Civil A. No. 92-S-0136.

United States District Court, D. Colorado.

May 1, 1996

Page 91

[Copyrighted Material Omitted]

Page 92

[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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Rubber company sought discovery sanctions against company that allegedly stole trade secrets, on grounds of chronic and continuous destruction of evidence. The District Court, Schlatter, United States Magistrate Judge, held that: (1) destruction of word processing files by employee of defendant company warranted sanctions of ten percent of plaintiff company's total attorney fees and costs; (2) discovery sanctions were not warranted for other alleged violations; (3) neither party was entitled to discovery sanctions for failure to produce marketing strategy documents; and (4) plaintiff company should have informed defendant company of related lawsuit filed in state court against defendant company's employee.

So ordered.

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Rodger L. Wilson, Wilson and Mayhan, LLC, Denver, CO.

Patrick J. Burke, Denver, CO.

Shelley B. Don, Earl S. Wylder, Don & Hiller, P.C., Denver, CO.

Stephen S. Dunham, Roxanne Jensen, J. Eric Elliff, Morrison & Foerster, Denver, CO.

Robert C. Douglas, Jr., Denver, CO.

Page 98

Jon Bernhardt, Holme Robert & Owen, LLC, Denver, CO.

Daniel S. Hoffman, McKenna & Cuneo, Denver, CO.

Richard E. Carlton, William M. Dallas, Jr., Richard C. Pepperman, II, Andrew C. Hruska, Sullivan & Cromwell, New York City.

Jeffrey Springer, Denver, CO.

David B. Savitz, Denver, CO.

Gary Lozow, Isaacson, Rosenbau, Woods & Levy, P.C., Denver, CO.

Gene M. Hoffman, Denver, CO.

John M. Richilano, Denver, CO.

ORDER

SCHLATTER, United States Magistrate Judge.

This order addresses the sanctions which have been sought by Gates Rubber Company (Gates) for what the attorneys for Gates have called chronic and continuous destruction of evidence by the defendants. These sanctions proceedings began almost four years ago on July 22, 1992, with the filing by Gates of its first motion for defendants to show cause as to why sanctions should not be imposed. Subsequently, new claims were added in several amended motions, in all of which Gates has asked that default judgment be entered against the defendants.

With the exception of one part of one claim (section A below), Gates has failed to persuade me that the defendants have engaged in any conduct for which sanctions would be appropriate. Gates' motion for sanctions generally is denied, except that Gates is awarded its attorneys' fees and costs with regard to the one part of the claim on which it prevailed. As to the other claims, the parties are either directed to pay their own fees and costs, or, where Gates' claim is found to have lacked justification, Bando is awarded its fees and costs.

I. MOTIONS AT ISSUE

The motions at issue, with their respective filing dates, are as follows: Gates' Amended Motion for Sanctions, filed on December 21, 1992; Gates' Supplement to Amended Motion for Sanctions, filed on July 16, 1993; Gates' Second supplement to Amended Motion for Sanctions, filed on September 20, 1993; and, Gates' Motion for Default Sanctions, filed on August 19, 1994.

Ten months after the conclusion of the sanctions hearing itself, Gates filed an additional motion which sought sanctions because the defendants were discovered to have in their possession a marketing study which was done by Gates: Gates' Motion to Consider Additional Evidence Previously Offered in Support of Gates' Motions for Sanctions, filed on August 24, 1995. The corporate defendants responded to this motion in a motion of their own: Motion of Defendants Bando American, Inc., and Bando Manufacturing of America, Inc., for Sanctions Against Gates for Failure to Produce Document Responsive to Multiple Discovery Requests, filed on September 12, 1995. Finally, as recently as April 9, 1996, Bando has filed a motion in which it asks that I impose sanctions upon Gates for failing to notify Bando of the fact of a filing by Gates of a related lawsuit in state court in Arapahoe County.

II. DEFENDANTS

At this stage of the proceedings, the defendants have been reduced to four main groups: (1) Bando American, Inc., Bando Manufacturing of America, Inc., and Bando USA, Inc. (Bando) These entities are all American corporations, and they are the primary defendants in this case. (2) Bando Chemical Industries, Ltd. (Bando Chemical), is a Japanese company, and it is the parent company of the other Bando entities. The only two individuals who remain in the lawsuit as defendants with potential liability are (3) Steven R. Piderit (Piderit) and (4) Ron Newman (Newman). For ease of reference, when defendants are referred to collectively, they may be referred to simply as " the defendants," or as Bando.

Sanctions are not being sought, or are not available, against some of the defendants. The only parties against whom sanctions may be obtained are Bando (the American entities) and Ron Newman. Claims for sanctions against Steven Piderit and Bando Chemical

Page 99

were dismissed by me at the conclusion of Gates' case-in-chief at the sanctions hearing.

III. BACKGROUND FACTS OF THE CASE

Gates and Bando are both involved in the manufacture of industrial belts. Although they compete against one another in the industrial belt market, Gates is clearly the dominant force. Gates enjoys a market share of approximately 38 percent, while Bando's market share is approximately 7 percent.

This case began when Gates accused Bando of stealing trade secret information. The trade secrets which were initially at issue consisted of two computer programs which were contained on computer disks, or floppy disks. Gates called the programs " Design Flex 4.0" and " Life in Hours."

Design Flex is a program which assists Gates' technicians and sales staff to determine the belt size which would be appropriate for a customer's machinery. Ordinarily, engineers are required to do a complicated set of computations involving numerous variables. The engineers at Gates developed Design Flex, which simplifies the process. With this program, sales personnel from Gates could plug in the information which was supplied by the customer, and the computer would make the necessary calculations to arrive at the proper belt size. Gates held a copyright on Design Flex. Life in Hours performs a similar function in the calculation of the number of hours of life which can be expected from a particular industrial belt.

Several of the named individual defendants are former employees of Bando: Allen Hanano, who left Gates to become chief executive officer for Bando American, and Piderit and Newman, engineers who were hired away from Gates by Hanano in 1988. In June of 1989, Gates learned that persons associated with Bando had demonstrated a computer program called " Chauffer" at a trade convention. This program appeared to emulate exactly the functions of Design Flex, and Gates suspected that the former employees had stolen Design Flex, copied it and were now using it in competition with Gates. The former employees had signed written non-competition, fiduciary agreements. Gates therefore filed this present action on January 4, 1992, charging unfair competition, misappropriation of trade secrets, infringement of copyright, and breach of contract. At various hearings, Gates' lawyers have stated that they believe that the value of their claims is " tens of millions," and even " hundreds of millions" of dollars.

Gates sought a temporary restraining order and a permanent injunction. District Judge Daniel B. Sparr denied the request for the TRO, and held a hearing on March 26, 1992, on Gates' request for injunction. Judge Sparr issued an order on June 24, 1992, in which he found that Bando had infringed Gates' copyright and had willfully and maliciously misappropriated trade secrets. Gates Rubber Co. v. Bando American, Inc., 798 F.Supp. 1499 (D.Colo.1992). Bando appealed to the Tenth Circuit, and that Court affirmed Judge Sparr's opinion on the claim of theft of trade secrets, but remanded for Judge Sparr to clarify his findings with regard to the claim of copyright infringement. Gates Rubber Co. v. Bando Chemical Industries, Ltd., 9 F.3d 823 (10th Cir.1993). On reconsideration of his order, Judge Sparr vacated his conclusions, and on June 12, 1995, issued an order in which he found that no portions of Design Flex were copyrightable.

During the discovery process for these proceedings, Gates learned that Newman had allegedly destroyed files on his computer, and had modified his computer menu program to delete any reference to Life in Hours, one of Gates' computer programs. Gates filed a motion on September 15, 1992, in which it asked the court to grant to Gates expedited discovery pursuant to the provisions of Fed.R.Civ.P. 34. Gates argued that there was evidence which suggested that Bando was engaged in a process of destroying evidence and erasing computer files, and that irreparable harm would result if Gates was not permitted to enter upon the premises of Bando's various entities for the purpose of copying...

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107 practice notes
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    • United States
    • Federal Cases United States District Courts 11th Circuit Southern District of Florida
    • August 10, 1999
    ...the burden of proof in civil trials is by a preponderance of evidence. See, e.g., Gates Rubber Co. v. Bando Chemical Indus., Ltd., 167 F.R.D. 90, 108 (D.Colo.1996) (" The burden of proof under which a trial is governed is ‘ preponderance of the evidence.’ " [22] Plaintiffs concede......
  • Micron Technology, Inc. v. Rambus Inc., 010213 DEDC, 00-792-SLR
    • United States
    • Federal Cases United States District Courts 3th Circuit District of Delaware
    • January 2, 2013
    ...645 F.3d at 1328-29 (citing Shepherd v. ABC, 62 F.3d 1469, 1472, 1477 (D.C. Cir. 1995); Gates Rubber Co. v. Bando Chern. Indus., Ltd., 167 F.R.D. 90, 108 (D. Colo. 1996)). However, the Federal Circuit has indicated that "the presence of bad faith and prejudice, without more, do not jus......
  • Yeung v. Dickman, 121812 AZAPP1, 1 CA-CV 11-0735
    • United States
    • Arizona Court of Appeals of Arizona
    • December 18, 2012
    ...Souza, 191 Ariz. at 250, 955 P.2d at 6; Stubli, 107 Nev. at 313, 810 P.2d at 787; Gates Rubber Co. v. Bando Chemical Indus., Ltd., 167 F.R.D. 90, 102-106 (D.Colo. 1996). Sanctions must be narrowly tailored to impose the least severe sanction required by the specific circumstances of the cas......
  • 881 F.Supp.2d 1132 (N.D.Cal. 2012), C 11-1846 LHK (PSG), Apple Inc. v. Samsung Electronics Co., Ltd.
    • United States
    • Federal Cases United States District Courts 9th Circuit Northern District of California
    • July 25, 2012
    ...information that the disclosing party may use to support its claim or defenses." ); Gates Rubber Co. v. Bando Chem. Indus., Ltd., 167 F.R.D. 90, 104 (D.Colo.1996) (finding that before imposing sanctions, a court must be satisfied that the missing evidence would have had some relevance ......
  • Request a trial to view additional results
99 cases
  • 188 F.R.D. 667 (S.D.Fla. 1999), 91-0986-CIV-GOLD, Allapattah Services, Inc. v. Exxon Corp.
    • United States
    • Federal Cases United States District Courts 11th Circuit Southern District of Florida
    • August 10, 1999
    ...the burden of proof in civil trials is by a preponderance of evidence. See, e.g., Gates Rubber Co. v. Bando Chemical Indus., Ltd., 167 F.R.D. 90, 108 (D.Colo.1996) (" The burden of proof under which a trial is governed is ‘ preponderance of the evidence.’ " [22] Plaintiffs concede......
  • Micron Technology, Inc. v. Rambus Inc., 010213 DEDC, 00-792-SLR
    • United States
    • Federal Cases United States District Courts 3th Circuit District of Delaware
    • January 2, 2013
    ...645 F.3d at 1328-29 (citing Shepherd v. ABC, 62 F.3d 1469, 1472, 1477 (D.C. Cir. 1995); Gates Rubber Co. v. Bando Chern. Indus., Ltd., 167 F.R.D. 90, 108 (D. Colo. 1996)). However, the Federal Circuit has indicated that "the presence of bad faith and prejudice, without more, do not jus......
  • Yeung v. Dickman, 121812 AZAPP1, 1 CA-CV 11-0735
    • United States
    • Arizona Court of Appeals of Arizona
    • December 18, 2012
    ...Souza, 191 Ariz. at 250, 955 P.2d at 6; Stubli, 107 Nev. at 313, 810 P.2d at 787; Gates Rubber Co. v. Bando Chemical Indus., Ltd., 167 F.R.D. 90, 102-106 (D.Colo. 1996). Sanctions must be narrowly tailored to impose the least severe sanction required by the specific circumstances of the cas......
  • 881 F.Supp.2d 1132 (N.D.Cal. 2012), C 11-1846 LHK (PSG), Apple Inc. v. Samsung Electronics Co., Ltd.
    • United States
    • Federal Cases United States District Courts 9th Circuit Northern District of California
    • July 25, 2012
    ...information that the disclosing party may use to support its claim or defenses." ); Gates Rubber Co. v. Bando Chem. Indus., Ltd., 167 F.R.D. 90, 104 (D.Colo.1996) (finding that before imposing sanctions, a court must be satisfied that the missing evidence would have had some relevance ......
  • Request a trial to view additional results
1 firm's commentaries
  • Delaware Decision Imposes Penalties for Spoliation of Evidence
    • United States
    • LexBlog United States
    • January 13, 2009
    ...Re Wechsler, 121 F. Supp. 2d at 423 (citing Schmid, 13 F. 3d at 80). However, the court in Gates Rubber Co. v. Bando Chem. Indus. Ltd., 167 F.R.D. 90 (D. Colo. 1996), raised the bar when it came to dispositive sanctions. As that court explained, because dispositive sanctions “contravene the......
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