Graco Inc v. Pmc Global Inc

• Decision Date: 14 February 2011
• Docket Number: Civil Action No.: 08-1304 (FLW)
• Parties: GRACO, INC., et al., Plaintiffs, v. PMC GLOBAL, INC., et al., Defendants.
• Court: U.S. District Court — District of New Jersey

GRACO, INC., et al., Plaintiffs,

v.PMC GLOBAL, INC., et al., Defendants.

Civil Action No.: 08-1304 (FLW)

UNITED STATES DISTRICT COURT

DISTRICT OF NEW JERSEY

Dated: February 14, 2011

MEMORANDUM OPINION AND ORDER

ARPERT, U.S.M.J

I. INTRODUCTION

This matter comes before the Court on Motion by Plaintiffs Graco, Inc. and Graco Minnesota, Inc. (collectively "Plaintiffs" or "Graco") to compel the production of documents or, in the alternative, for an in camera review of these documents [dkt. entry no. 465], returnable October 18, 2010. Defendants PMC Global, Inc., PMC, Inc., PMC Europe Investments, S.L., Denis S. Commette ("Commette"), and Gama Machinery USA, Inc. ("Gama USA") (collectively "Defendants" or "PMC") filed opposition on October 4, 2010. For the reasons stated herein, Graco's Motion is granted insofar as the Court will conduct an in camera review.

II. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

Graco filed a Complaint [dkt. entry no. 1] on March 14, 2008 alleging "breach of contract and related duties" (see Pl.'s Complaint, dkt. entry no. 1 at 19-21), "tortious interference" (Id. at 2123), "misappropriation of trade secrets and misuse of confidential business information" (Id. at 2324), violation of the "Lanham Act" (Id. at 24-25), violation of the "New Jersey Fair Trade Act" (Id. at 25-26), "unfair competition" (Id. at 26), and "unjust enrichment" (Id.) related to its acquisition of Gusmer Corporation and Gusmer Europe (collectively, "Gusmer") from PMC by way of two (2) Stock Purchase Agreements ("SPA") (Id. at 7, ¶¶ 28-29). More specifically, Graco alleges that Gama USA, a Delaware corporation and PMC, Inc., subsidiary that "also does business as Gama-Europe and Garraf Maquinaria, S.A." (see Pl.'s Second Amended Complaint, dkt. entry no. 91 at 3, ¶), and Garraf Maquinaria S.A. ("Garraf"), a Spanish corporation with PMC affiliations that "also does business as Gama and Gama-Europe" (see Pl.'s Second Amended Complaint, dkt. entry no. 91 at 3, U 7), "are manufacturing, marketing, and selling spare parts for Gusmer products without Graco's permission...and are using Graco Trade Secrets and Confidential Business Information to manufacture these spare parts" and "are directly soliciting the trade of current customers of Graco...using Graco Trade Secrets and Confidential Business Information". See Pl.'s Complaint at 17-18, ¶ 75, 81; see also id. at 17-18, ¶¶ 76-79, 82-86. Graco filed an Amended Complaint on July 24, 2008 [dkt. entry no. 36] and a Second Amended Complaint on May 22, 2009 [dkt. entry 91]. The Second Amended Complaint sets forth a list of infringing Gama USA and Garraf products then known to Graco. See Pl.'s Second Amended Complaint at 21, ¶ 93. Graco asserts that this is a "nonexclusive" list. [dkt. entry no. 499 at 3]

Graco has alleged that Commette and Carles Royo ("Royo"), Gusmer employees who worked for Graco after execution of the SPA, "participated in and received confidential communications relating to Graco's confidential strategy...which [was] designed to transform and integrate Gusmer operations into Graco's existing business" and "had access to highly sensitive confidential, non-public, proprietary information belonging to Graco and its subsidiaries" including "The Graco Trade Secrets and Confidential Business Information". See Pl.'s Complaint at 11, ¶¶ 43, 44. Thereafter, upon the end of Commette and Royo's employment relationship with Graco and the formation of Gama USA and Garraf, Graco alleges that Gama USA and Garraf developed "consulting relationships with...Commette and Royo" in order "to solicit and obtain the trade of customers" andthat Commette and Royo "inevitably will have to disclose the Graco Trade Secrets and Confidential Business Information". Id at 14-17, ¶¶ 58-59, 63-65, 72-74. Importantly, Graco has asserted that PMC had more than an "arm's-length distributor relationship" with Garraf based upon its allegations that "PMC exercised control over Garraf's operations, helped Garraf to secure a 712, 500€ loan from a PMC affiliated company, and agreed to purchase equipment from Garraf in order to provide it with operating revenue". See Pl.'s Br. at 3.

In its defense, PMC has maintained that "the foundation of Graco's misappropriation conspiracy hinges upon the premise that Royo and PMC violated respective non-compete agreements with Graco" but that "Royo does not have any non-compete obligations" based upon rulings made by Spanish courts and that "PMC does not have any non-compete obligations to Graco" based upon rulings made by this Court. See Def.'s Opp'n Br. at 1; see also Decl. of K. Joon Oh ("Oh"), Exhs. A-B; dkt. entry no. 81 at 28. PMC contends that Graco has failed to cite "any supporting facts...or allegedly false testimony" in order to bolster its claims that "PMC executives testified falsely about the timing of key communications", that "PMC executives denied the existence of a draft written investment agreement between PMC and Garraf", or that "PMC's witnesses also falsely testified they had no knowledge of the designs of the Garraf equipment". Id. at 1-2. PMC asserts that "Graco's conspiracy theory and its [claims] against PMC's executives do not relate to the privilege log issue raised by Graco's Motion". Id. at 2.

At issue here are "documents reflecting agreements, communications, and negotiations between PMC and Garraf". See Pl.'s Br. at 3. Graco claims that PMC originally "failed and refused to produce such documents" because "there was simply a lack of written documentation surrounding this relationship". Id. at 3-4. On July 20, 2010, however, Graco states that "PMC produced a new privilege log that disclosed more than 250 documents reflecting communications between Garraf and PMC...regarding the formation of their business relationship" and simultaneously "attempted to claw back some of the few documents regarding this relationship that...had [been] produced" based upon "a single communication ("Entry No. 7")...that...gave PMC a basis to withhold these documents by claiming that they are protected by the common-interest privilege". Id. at 4-5. On July 30, 2010, Graco states that "PMC produced an updated version of their...privilege logs...[that] revealed for the first time that as many as 122 documents that PMC had...withheld on grounds of attorney-client or work-product privilege were now being withheld by PMC solely under the guise of the common-interest privilege". Id. at 5. Graco maintains that "many of PMC's privilege assertions...are completely unsupportable". Id. at 5-6. Graco notes that it "has made every reasonable effort to assess the validity of PMC's privilege designations", including repeatedly requesting that PMC "provide information" about "70 previously unidentified individuals who sent or received documents that PMC [has] designated as privileged" and requesting that "PMC identify what entities the lawyers listed on Entry No. 7 represented and whether that representation is continuing". Id. at 6-7. Graco states that PMC's response to these requests "was insufficient to permit a proper privilege analysis". Id. at 7.

In its defense, PMC claims that it has "withheld communications among PMC, its legal counsel, and Royo or Manuel Moreno ("Moreno") reflecting PMC's legal advice about potential business arrangements with Royo, Moreno, and Garraf". See Def.'s Opp'n Br. at 2. PMC notes that some of these communications took place "before Graco's lawsuit" while others took place "after the case was filed". Id. PMC maintains that "these communications are based on underlying attorney-client communications or attorney work product" and that, although "Garraf has now been defaulted", the privilege "is not waived by virtue of any disclosure to Royo or Moreno because at the time all parties...had a common legal interest in structuring proposed business arrangements ina way that would comply with the law and avoid litigation". Id. at 2-3. PMC states that "the common interest is not hypothetical or speculative" as Entry No. 7 is "a legal memorandum on this very subject". Id. at 3. PMC notes that it has identified "all other pre-litigation communications withheld on the basis of the parties' common interest in exploring a potential working relationship that would avoid or mitigate this litigation risk based specifically on Entry No. 7". Id. PMC also points out that "Garraf and PMC entered into a joint defense agreement in this lawsuit that...protects their post-litigation legal communications". Id.

On September 24, 2010, Graco filed the instant Motion seeking a Court Order compelling the production of certain documents or, in the alternative, for an in camera review. See Pl.'s Proposed Form of Order, dkt. entry no. 465-1.

A. Graco's Arguments in Support of the Motion to Compel

Initially, Graco asserts that "many of PMC's descriptions of the documents on their privilege logs are so thin as to render meaningful analysis nearly impossible...[and therefore] do not comply with Rule 26(b)(5)(A)" so as to prevent PMC from meeting its "burden to establish the validity of...privilege designations". See Pl.'s Br. at 7-8.

1. Defendants are concealing non-legal business communications behind attorney-client and work-product privilege claims.

(a) The attorney-client privilege cannot protect Defendants' business communications from discovery.

Citing La. Mun. Police Employees Ret. Sys. v. Sealed Air Corp., 253 F.R.D. 300, 306 (D.N.J. 2008) and Leonen v. Johns-Mansville, 135 F.R.D. 94, 99 (D.N.J. 1990), Graco maintains that "communications with attorneys are privileged only if the predominant purpose and content of the communication is to aid in the provision of legal advice" as opposed "to business advice". Id. at 8. Graco contends that PMC "must show that the communications would not have been made but forthe client's need for legal advice or services". Id. Graco argues that PMC "cannot meet that standard" because "on more than one occasion PMC invoked Paragraph 8 of...