Heat and Control, Inc. v. Hester Industries, Inc.

Citation228 USPQ 926,785 F.2d 1017
Decision Date04 March 1986
Docket NumberNo. 85-2553,85-2553
Parties, 4 Fed.R.Serv.3d 625 HEAT & CONTROL, INC., Appellant, v. HESTER INDUSTRIES, INC., Appellee. Appeal
CourtUnited States Courts of Appeals. United States Court of Appeals for the Federal Circuit
San Francisco, Cal., argued, for appellant. With them on brief, was Donald N. MacIntosh

Lawrence R. Brown, Arlington, Va., argued, for appellee. With him on brief, was Oscar M. Bean, Bean & Bean, Moorefield, W.Va.

Before MARKEY, Chief Judge, FRIEDMAN, Circuit Judge, and MILLER, Senior Circuit Judge.

JACK R. MILLER, Senior Circuit Judge.

This is an appeal by Heat & Control, Inc. from a May 22, 1985, order of the United States District Court for the Northern District of West Virginia, 1 quashing a deposition subpoena issued by the same court on February 8, 1985. We vacate the order and remand the case to the district court for further proceedings.

BACKGROUND

Heat & Control's patents relate to an apparatus (a convection oven termed a "counterflow oven" ("CFO") by the parties) and method for cooking solid food products in circulating steam. 2

Hester Industries, Inc. ("Hester") is a small corporation in Moorefield, West Virginia (within the jurisdiction of the Northern District of West Virginia), which commercially processes chickens. The processing includes cooking and freezing. Stein Associates, Inc. ("Stein") manufactures and sells CFOs.

When Heat & Control's oven and process inventions were being developed in 1972-73, an employee, Loew, was privy to information concerning the design, construction, and operation of Heat & Control's oven. Loew's employment was subsequently terminated, and he thereafter formed a company which manufactured ovens for commercial use. Hester contracted with Loew to manufacture, at its request, steam-circulating ovens. However, before they were manufactured, Loew's business went bankrupt. Hester then contracted with Stein, who purchased the assets of Loew's company (including the drawings and designs for the Hester oven), to construct the oven designed by Loew. In 1982, Stein manufactured two CFOs, which were delivered and installed at Hester's plant. Both allegedly infringe Heat & Control's patents.

Stein filed a declaratory judgment action against Heat & Control in the United States District Court at Toledo, Ohio. Heat & Control counterclaimed for infringement, and the action was later transferred to the United States District Court at San Francisco, where it is now pending. Stein seeks, inter alia, to have declared invalid Heat & Control's patents. A preliminary skirmish in the form of an appeal taken by Stein from an interlocutory order of the California District Court, denying Stein's motion for a preliminary injunction, is reported at 748 F.2d 653, 223 USPQ 1277 (Fed.Cir.1984).

Heat & Control sought discovery, in the United States District Court in West Virginia, from Hester concerning the operation of the CFOs it purchased from Stein. In February, 1985, Heat & Control was issued a subpoena by the district court for deposition of Hester's officers and production of documents related to the allegedly infringing ovens.

Hester filed a motion to quash and both in its memorandum in support and at the hearing on the motion, argued that (1) the information sought constitutes proprietary trade secrets, the disclosure of which would seriously harm its business and (2) that the information sought was more conveniently available from other sources. Hester moved and argued in the alternative for a protective order under Fed.R.Civ.P. 26(c). Heat & Control opposed the motion to quash the subpoena, asserting that discovery was relevant and necessary to the main (infringement) suit pending in California, because Heat & Control needed to The hearing on the motion to quash was held by a conference call on May 3, 1985. After the parties had argued, the court concluded the hearing by vacating the subpoena. The court stated that, on a matter ancillary to the main litigation in another forum, it should be hesitant to decide what constitutes relevant evidence under Fed.R.Civ.P. 26(b)(1). It analyzed Fed.R.Civ.P. 26(b)(1), as amended in 1983, and concluded that the rule requires that "use of discovery methods ... be limited by the court if it determines the discovery is obtainable from some other source that is more convenient and less expensive and less burdensome." Although the court recognized the possibility of granting a protective order under which discovery could proceed, as an alternative to the grant of the motion to quash, it did not fully explore that possibility.

know the operating conditions in order to determine whether they fall within the Heat & Control patent claims and to assess damages if the ovens infringe. Counsel for Heat & Control also suggested to the court the issuance of a protective order.

In its order to quash, the court stated that the information sought by discovery could be obtained from other sources more conveniently, less burdensomely, and less expensively; that the deposition posed a serious threat to the "processes" of Hester; and that Hester had shown good cause to have the subpoena vacated.

ANALYSIS
A. Jurisdiction and Appealability

The jurisdiction of the West Virginia district court is based on 28 U.S.C. Sec. 1338. Subject matter jurisdiction in this court under 28 U.S.C. Sec. 1295(a)(1) is not contested by the parties. However, generally an appellate court lacks jurisdiction to review an order granting a motion to quash a subpoena, because the order would be reviewable for error after final judgment on the merits.

Title 28 United States Code, section 1295 (with pertinent language identical to that found in 28 U.S.C. Sec. 1291 covering appeals from the geographical circuits), provides that "[t]he United States Court of Appeals for the Federal Circuit shall have exclusive jurisdiction--(1) of an appeal from a final decision of a district court" in a case involving a patent (emphasis supplied). Panduit Corp. v. All States Plastic Co., 744 F.2d 1564, 1571, 223 USPQ 465, 468 (Fed.Cir.1984). Cf. Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 546-47, 69 S.Ct. 1221, 1225-26, 93 L.Ed. 1528 (1949) (addressing the "final" language in section 1291). This "final order rule" reflects "a strong congressional policy against piecemeal reviews and against obstructing or impeding an ongoing judicial proceeding by interlocutory appeals." United States v. Nixon, 418 U.S. 683, 690, 94 S.Ct. 3090, 41 L.Ed.2d 1039 (1974) (citations omitted). However, it is well established that some orders, which do not terminate the underlying litigation, are appealable as a collateral order "exception" to the finality requirement, Richardson-Merrell, Inc. v. Koller, --- U.S. ----, 105 S.Ct. 2757, 2761, 86 L.Ed.2d 340 (1985); Coopers & Lybrand v. Livesay, 437 U.S. 463, 468, 98 S.Ct. 2454, 2457, 57 L.Ed.2d 351 (1978); Panduit Corp., 744 F.2d at 1571-72, 223 USPQ at 469, because they are final in effect.

Appealability of orders is not decided by rote. Horizons Titanium Corp. v. Norton Co., 290 F.2d 421, 423 (1st Cir.1961). To determine appealability of an order, an appellate court must balance the " 'inconvenience and costs of piecemeal review' against 'the danger of denying justice by delay.' " Premium Service Corp. v. Sperry & Hutchinson Co., 511 F.2d 225, 227 (9th Cir.1975), citing Gillespie v. United States Steel Corp., 379 U.S. 148, 152-53, 85 S.Ct. 308, 311, 13 L.Ed.2d 199 (1964). See Richardson-Merrell, Inc., 105 S.Ct. at 2763. The Court in Cohen first set forth the three-part test for determining whether an order is final enough to be appealable:

[T]he order must conclusively determine the disputed question, resolve an important issue completely separate from the merits of the action, and be effectively unreviewable on appeal from a final judgment.

Coopers & Lybrand, 437 U.S. at 468, 98 S.Ct. at 2458 (footnote omitted). See Baker Perkins, Inc. v. Werner & Pfleiderer Corp., 710 F.2d 1561, 1564, 218 USPQ 577, 578-79 (Fed.Cir.1983). 3 Heat & Control's appeal meets the first two of the criteria because the district court determined a discovery issue concerning a nonparty to the infringement and validity suit in a proceeding ancillary to the main action in a different jurisdiction. Thus, the question here is "whether the party unsuccessfully seeking the subpoena has any other means of obtaining review." Horizons Titanium Corp., 290 F.2d at 424 (citation omitted).

A discovery order incident to a pending action is ordinarily not subject to appeal, and an order quashing a subpoena is typically not a final judgment. Ariel v. Jones, 693 F.2d 1058, 1059 (11th Cir.1982). If the district court granting Hester's motion to quash were the same court in which the main action is being litigated, Heat & Control could seek review, as an error of the court, when and if it appeals from the final judgment. However, such a review is unavailable in this case, where the West Virginia district court has granted a motion to quash a subpoena relating to litigation pending in the California district court, which has no jurisdiction over Hester. Absent the California district court's jurisdiction over Hester, Heat & Control cannot effectively challenge the West Virginia district court's action on appeal from the California district court's final judgment. Thus, the order quashing the subpoena entered by the West Virginia district court appears to meet all three criteria for finality and is, therefore, appealable. See Northrop Corp. v. McDonnell Douglas Corp., 751 F.2d 395, 399 n. 5 (D.C.Cir.1984); CF & I Steel Corp. v. Mitsui & Co. (U.S.A.), Inc., 713 F.2d 494, 496 (9th Cir.1983); Ariel, 693 F.2d at 1059; 9 Moore's Federal Practice p 110.13, and cases cited. The jurisdictional question comes down to whether this judicially-created test or 28 U.S.C. Sec. 1295 may be construed differently because...

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