HM Elecs., Inc. v. R.F. Techs., Inc.

• Citation: 171 F.Supp.3d 1020
• Decision Date: 15 March 2016
• Docket Number: Case No. 12–cv–2884–BAS–MDD
• Parties: HM Electronics, Inc., a California corporation, Plaintiff, v. R.F. Technologies, Inc., an Illinois corporation; and Babak Noorian, an individual, Defendants.
• Court: U.S. District Court — Southern District of California

171 F.Supp.3d 1020

HM Electronics, Inc., a California corporation, Plaintiff,

v.R.F. Technologies, Inc., an Illinois corporation; and Babak Noorian, an individual, Defendants.

Case No. 12–cv–2884–BAS–MDD

United States District Court, S.D. California.

Signed March 15, 2016

Callie A. Bjurstrom, Kathryn Ashley Nyce, Matthew Robert Stephens, Brian David Martin, Michelle Ann Herrera, Pillsbury Winthrop Shaw Pittman LLP, San Diego, CA, Kelly Wong Craven, Pillsbury Winthrop Shaw Pittman LLP, Los Angeles, CA, for Plaintiff.

Allan E. Anderson, David Grant Bayles, Stephen Gerard Larson, Arent Fox LLP, Thomas M. O'Leary, Brian C. Vanderhoof, LeClairRyan LLP, Los Angeles, CA, Mark C. Goldenberg, Goldenberg Heller Antognoli & Rowland, P.C., Edwardsville, IL, for Defendants.

OPINION AND ORDER

Hon. Cynthia Bashant

, United States District Judge

This matter comes before the Court on Defendants R.F. Technologies, Inc. (“RFT”) and Babak Noorian's (“Noorian”), and non-parties LeClairRyan LLP and attorney Thomas O'Leary's (“O'Leary”), (collectively, “Sanctionees”) separate motions objecting to Magistrate Judge Mitchell Dembin's August 7, 2015 order imposing sanctions against them for various discovery abuses. (ECF Nos. 422, 424.) Among other objections, Sanctionees argue that settlement of the underlying case has mooted the issue of costs and fees, rendering any award of compensatory sanctions improper. For the following reasons, the Court GRANTS IN PART Sanctionees' motions in objection (ECF Nos. 422, 424) and VACATES AS MOOT the imposition of compensatory sanctions (ECF No. 420).

I. BACKGROUND

Plaintiff HM Electronics, Inc. (“HME”) brought this now-settled action against Defendants RFT and Noorian (collectively, “RF Defendants”) asserting claims for federal trademark and trade dress infringement, and related claims. (ECF No. 156.) HME designs, manufacturers, and sells digital drive-thru headsets and related products, while RFT specializes in the repair of such products. (Id. ) Plaintiff alleges that RF Defendants engaged in a variety of deceptive marketing practices and violations of intellectual property law—including replacing HME components with RFT components during repair of HME headsets, removing original labeling from HME headsets repaired by RFT, and disseminating to customers a fabricated HME “Structural Failures Report”—to undercut HME's reputation and bolster RFT sales and market share. (Id. at 4–12.)

Almost immediately, a torrent of discovery disputes engulfed the litigation. By the time Magistrate Judge Dembin issued his August 7, 2015 order imposing sanctions (“August 7 Order” or “sanctions order”), previously assigned magistrate judges had held nine discovery conferences, entertained nine motions seeking contempt or sanctions, and considered several other motions seeking discovery-related relief. (ECF No. 420 (“Sanctions Order”), 5, 6.) Indeed, in a July 3, 2014 order, Magistrate Judge Jill Burkhardt found that RFT had violated portions of a discovery order issued earlier that year and granted HME's request for monetary sanctions under Rule 37. (ECF No. 185.)

On February 10, 2015, HME again moved for sanctions under Rule 37, this time against both RFT and Noorian. (ECF No. 288.) Five months later, on July 24, 2015, Judge Dembin issued an order setting oral argument on HME's motion, and notified the parties that the Court was also considering sanctions against Defendants and their attorneys under Rule 26(g) for improper certifications of discovery responses. (ECF No. 414.) The hearing was set for August 5, 2015. Id. On August 3, 2015, two days before the hearing, HME and the RF Defendants (“the parties”) filed a joint notice of settlement and requested the Court vacate the proceedings then on calendar, including the hearing on HME's motion for sanctions. (ECF No. 416.) Judge Dembin vacated an upcoming hearing on motions in limine set for August 10, 2015, and the trial date set for August 18, 2015, but did not vacate the hearing on sanctions. (ECF No. 417.)

At the outset of the August 5 hearing, HME's counsel remarked to Judge Dembin that “We had actually taken—asked to vacate our sanctions motion as part of the settlement of the case, so I, you know, wanted to let the Court know that.” (ECF No. 421, 6:19–21.) Judge Dembin responded that it was not clear that HME was withdrawing its motion for sanctions (as opposed to requesting vacatur of the hearing), and that regardless, the Court's own motion for sanctions under Rule 26 outlived settlement and dismissal of the case. (Id. 6:22–7:7.)

On August 7, 2015, two days after the hearing, Judge Dembin issued a written order finding that RFT, LeClairRyan LLP, and attorney Thomas O'Leary had failed to obey operative discovery orders in violation of Rule 37, and that RF Defendants and attorney O'Leary had improperly certified discovery responses in violation of Rule 26(g)(3). (Sanctions Order, 68:14–18.) Specific sanctionable conduct found by Judge Dembin included: a failure by LeClairRyan and attorney O'Leary to design and implement a litigation hold to preserve relevant documents; Defendant Noorian's apparent instruction to RFT officers to destroy copies of pictures that RFT used in the fabricated “Structural Failures Report”; and the failure of RFT, LeClairRyan, and O'Leary to produce hundreds of thousands of pages of electronically stored information (“ESI”) due to a lack of effective supervision of their ESI vendor. (Id. 2–3.) Judge Dembin awarded HME “compensatory sanctions in the form of all attorneys' fees and costs incurred by Plaintiff in seeking discovery from Defendants” from the date of the first improperly certified discovery response (October 18, 2013) to the date of the order (August 7, 2015). (Id. 68:22–69:3.) Judge Dembin also instructed HME to submit a motion for attorney's fees and costs to be used by the Court in determining the amount of sanctions awarded. HME subsequently moved for approximately $1.3 million in attorney's fees and more than $49,000 in costs. (ECF No. 423.)

Sanctionees timely objected to the August 7 Order. (ECF Nos. 422, 424.) Meanwhile, the parties by September 2015 finalized the settlement agreement that had prompted their request to vacate the August 5 sanctions hearing. Among other things, the settlement agreement requires RFT to make a series of payments to HME; provides for an entry of permanent injunction against RFT and Noorian;¹ and includes a mutual release of claims, including “any and all” claims to compensatory costs and fees. (ECF No. 452, Exh. A (“Agreement”) ¶¶ 2, 3, 6.) On February 17, 2016, the parties voluntarily dismissed the case. (ECF No. 449.)

The Sanctionees object to the August 7 Order on a number of grounds, including that they were denied adequate procedural due process before Judge Dembin imposed sanctions; that the evidence before Judge Dembin did not justify the imposition of sanctions; and that the settlement between the parties has mooted the issue of sanctions. (ECF Nos. 422, 424.) The Court finds Sanctionees' mootness objection dispositive. As such, the Court does not reach other objections presented or determine the correctness of the magistrate's individual legal and factual findings. See W. Coast Seafood Processors Ass'n v. Nat. Res. Def. Council, Inc., 643 F.3d 701 (9th Cir.2011)

(declining to reach merits of the case because appeal was moot); Griffin v. Davies, 929 F.2d 550, 553 (10th Cir.1991) (“We will not undertake to decide issues that do not affect the outcome of a dispute.”); Manning v. Upjohn Co., 862 F.2d 545, 547 (5th Cir.1989) (“Principles of judicial restraint dictate that if resolution of an issue effectively disposes of a case, we should resolve the case on that basis without reaching any other issues that might be presented.”).

II. LEGAL STANDARD

Sanctionees argue that Judge Dembin's imposition of sanctions pursuant to Rule 37 and Rule 26(g)(3) was mooted by the parties' settlement of the action. “Mootness is, of course, a threshold jurisdictional issue” that federal courts have an independent obligation to address. Sea–Land Serv., Inc. v. International Longshoremen's & Warehousemen's Union, 939 F.2d 866, 871 (9th Cir.1991)

; see also

S. Or. Barter Fair v. Jackson County, Oregon, 372 F.3d 1128, 1133 n. 8 (9th Cir.2004) (“[M]ootness goes to the court's power to hear the case[ ] and therefore may be raised at any time by the parties, or even sua sponte by the court under its independent obligation to ensure that it has authority under Article III.”). As such, this question is reviewed de novo. See

Sample v. Johnson, 771 F.2d 1335, 1338 (9th Cir.1985).

Article III of the Constitution restricts the exercise of the judicial power to “actual, ongoing cases or controversies.”

Wolfson v. Brammer, 616 F.3d 1045, 1053 (9th Cir.2010)

(quoting Lewis v. Cont'l Bank Corp., 494 U.S. 472, 477, 110 S.Ct. 1249, 108 L.Ed.2d 400 (1990) ). Thus, “[t]o qualify as a case fit for federal-court adjudication, an actual controversy must be extant at all stages of review, not merely at the time the complaint is filed.” Arizonans for Official English v. Arizona, 520 U.S. 43, 67, 117 S.Ct. 1055, 137 L.Ed.2d 170 (1997) (internal quotation marks and citation omitted). A case or controversy becomes moot, and thus no longer suitable for adjudication, when the issues presented are no longer live or when the parties lack a legally cognizable interest in the outcome. Powell v. McCormack, 395 U.S. 486, 496, 89 S.Ct. 1944, 23 L.Ed.2d 491 (1969).

The focus of the mootness inquiry is whether the court can grant effective relief to a litigant seeking judicial decision in her favor. See NASD Dispute Resolution, Inc. v. Judicial Council of State of Cal., 488 F.3d 1065, 1068 (9th Cir.2007)

(explaining that the test for mootness is whether the court can grant a litigant any effective relief in the event it decides the matter on the merits in the litigant's favor); Nw. Envtl. Def. Ctr. v. Gordon, 849 F.2d 1241, 1244 (9th Cir.1988) (“The...