Molly v. Deckers Outdoor Corp.

Decision Date08 August 2001
Docket NumberPLAINTIFFS-APPELLEES-CROSS-APPELLANTS,99-36132,Nos. 99-36112,STRONG-BUTT,DEFENDANTS-APPELLANTS-CROSS-APPELLEES,s. 99-36112
Citation259 F.3d 1101
Parties(9th Cir. 2001) YETI BY MOLLY LTD, A MONTANA CORPORATION; MOLLY, v. DECKERS OUTDOOR CORPORATION; JAMES E. GRANVILLE,
CourtU.S. Court of Appeals — Ninth Circuit

[Copyrighted Material Omitted] Counsel Alan J. Lerner, Kalispell, Montana for the plaintiffs-appellees-cross-appellants.

Ward E. Taleff, Alexander, Baucus, Taleff & Paul, Great Falls, Montana for the plaintiffs-appellees-cross-appellants.

Daniel U. Smith, Kentfield, California for the defendants-appellants-cross-appellees.

A. Barry Cappello, Cappello & McCann, Santa Barbara, California for the defendants-appellants-cross-appellees.

William O. Bronson, Great Falls, Montana for the defendants-appellants-cross-appellees.

William E. Ireland, Haight, Brown & Bonesteel Llp, Los Angeles, California for the defendants-appellants-cross-appellees.

Appeal from the United States District Court for the District of Montana Charles C. Lovell, District Court Judge, Presiding D.C. No. CV-95-00027-CCL

Before: Betty B. Fletcher, Melvin Brunetti, and Raymond C. Fisher, Circuit Judges.

Opinion by Judge B. Fletcher

In this diversity action, plaintiffs claim that defendants misappropriated their trade secrets in the design elements of a boot. Following a ten-day trial, a jury returned several verdicts against one of the defendants, Deckers Outdoor Corporation ("Deckers"), and awarded almost $2 million in compensatory damages. Deckers appeals, asserting that many of the jury's verdicts were unsupported by the evidence and that the verdict form was flawed. Plaintiffs cross-appeal, faulting the district court's refusal to award exemplary damages or attorney's fees.

I.

In January 1989, Molly Strong ("Strong") invented what she believed to be a better shoe. It was a winter boot, dubbed "Yeti," incorporating innovations to maximize traction, warmth, and dryness. Strong filed a patent application for Yeti, and a patent issued in her name in September 1992.

In early 1993, Strong incorporated an entity called"Yeti by Molly, Ltd." At about the same time, she sought a partner to help her mass produce her products. She met a man, a self-described "old shoe dog," named James E. Granville ("Granville") who expressed interest in her designs. Strong had Granville sign a nondisclosure agreement before she would discuss anything of substance with him. After he signed the agreement, she provided him with secrets embodied in a yet unrevealed second patent application, samples of her product, and confidential details about the company's attempts to expand production and sales. In response, Granville sent Strong a letter full of praise and hopeful predictions.

In September 1993, unknown to Strong, Granville told Peter Link ("Link"), Vice-President of Deckers Outdoor Corporation ("Deckers") -the maker of the popular Teva line of sandals -about Strong and the Yeti. Link hired Granville as a shoe consultant to Deckers; this was the beginning of a fruitful relationship, and Granville eventually became a Director of Project Development for Deckers.

Link called Strong in September 1993 and told her that Deckers was looking for winter footwear products. Strong had Link sign a nondisclosure agreement in his capacity as Deckers' Vice-President before beginning any discussions. Two months of steady negotiations ensued, during which time Link pleaded with Strong not to sign any deals with other companies until Deckers could evaluate her products and make her an offer. After learning many of Strong's secrets, he made overtures to her about acquiring the company. Many letters were exchanged in an attempt to finalize terms, and on November 8th, Strong and Yeti by Molly accepted what they believed was an oral agreement to do business with Deckers. Strong believed that after a few formalities had been completed, the formal signing would occur. On the strength of that belief, Strong abandoned negotiations with another entity called S&K Electronics ("S&K") to produce the Yeti. Then, the day after Strong presented the Yeti to Deckers' sales representatives, Link and the President of Deckers reneged, telling Strong that they would have to renegotiate. The two sides were never able to come to terms.

In Fall 1994, Strong and Yeti by Molly began to suspect that Deckers had incorporated their trade secrets into its products; they eventually sued Granville and Deckers in federal court alleging breach of contract, contractual and tortious breach of the implied covenant of good faith and fair dealing, fraud, deceit, trade secret misappropriation, and civil conspiracy. After a ten-day trial, a jury found in favor of both plaintiffs against Deckers on the breach of nondisclosure contract, breach of implied covenant of good faith and fair dealing, deceit, misappropriation of trade secrets, and civil conspiracy claims. The jury found in favor of Deckers on the fraud and breach of oral contract claims and in favor of Granville on all claims. It found that Deckers was liable to Yeti by Molly for $1,360,000 and to Strong for $425,000, apportioning these damage awards among the five successful causes of action. The jury found that Deckers had not acted with actual fraud or actual malice, and consistent with this finding, the district court denied punitive damages. The district court also denied plaintiffs' subsequent motion for exemplary damages and attorneys' fees and Deckers' motions for judgment as a matter of law and new trial.

II.

Federal subject matter jurisdiction arises from the diversity of the parties. 28 U.S.C. §§ 1332. Plaintiff Strong is a citizen and resident of Montana, and plaintiff Yeti by Molly is a corporation incorporated under the laws of Montana with a principal place of business in Montana. Defendant Granville is a citizen and resident of California and defendant Deckers is a Delaware corporation with a principal place of business in California.

The district court entered its judgment on May 12, 1999 and denied post-trial motions on October 20, 1999. Deckers' notice of appeal was timely filed on November 4, 1999, and plaintiffs' notice of cross-appeal was timely filed on November 15, 1999. This court has jurisdiction under 28 U.S.C. §§ 1291.

III.
A. Evidentiary Rulings
1. Exclusion of Vuckovich

Deckers appeals the district court's decision to exclude the testimony of Deckers' only damages expert, Dan Vuckovich ("Vuckovich"). Although Deckers disclosed Vuckovich's identity to plaintiffs on August 1, 1997, it failed to provide his expert report for two and a half years. It justified this shortcoming by noting that he would be used only as a rebuttal witness, and that an expert report would be disclosed if Deckers decided to have him testify. In contrast, plaintiffs timely produced and then supplemented the expert report of their damages expert, an economist named Paul Polzin ("Polzin"). Finally, on February 1, 1999, almost two years after the close of discovery, more than one year after Polzin's report was last supplemented, and just 28 days prior to trial, defendants disclosed Vuckovich's report, which was a rebuttal to Polzin's report. Plaintiffs filed a motion in limine pursuant to Rule 37 of the Federal Rules of Civil Procedure asking the district court to exclude Vuckovich from testifying as a sanction for defendants' failure to comply with the discovery deadlines; the district court granted the motion.

We review the imposition of discovery sanctions for an abuse of discretion. Payne v. Exxon Corp., 121 F.3d 503, 507 (9th Cir. 1997). Federal Rule of Civil Procedure 26(a)(2)(B) requires the parties to disclose the identity of each expert witness "accompanied by a written report prepared and signed by the witness." Absent other direction from the court, a rebuttal report shall be filed "within 30 days after the disclosure" of the evidence that the expert is assigned to rebut. Fed. R. Civ. P. 26(a)(2)(C). Rule 37(c)(1) gives teeth to these requirements by forbidding the use at trial of any information required to be disclosed by Rule 26(a) that is not properly disclosed. 1

By excluding Vuckovich, the district court made it much more difficult, perhaps almost impossible, for Deckers to rebut Polzin's damages calculations. Nevertheless, this case is distinguishable from cases in which we have required a district court to identify "willfulness, fault, or bad faith" before dismissing a cause of action outright as a discovery sanction. See Henry v. Gill Indus., Inc., 983 F.2d 943, 946 (9th Cir. 1993); Wyle v. R.J. Reynolds Indus., Inc., 709 F.2d 585, 589 (9th Cir. 1983). These cases do not apply because this sanction, although onerous, was less than a dismissal.

Furthermore, although we review every discovery sanction for an abuse of discretion, we give particularly wide latitude to the district court's discretion to issue sanctions under Rule 37(c)(1). Ortiz-Lopez v. Sociedad Espanola de Auxilio Mutuo Y Beneficiencia de Puerto Rico, 248 F.3d 29, 34 (1st Cir. 2001). This particular subsection, implemented in the 1993 amendments to the Rules, is a recognized broadening of the sanctioning power. Klonoski v. Mahlab, 156 F.3d 255, 269 (1st Cir. 1998) ("[T]he new rule clearly contemplates stricter adherence to discovery requirements, and harsher sanctions for breaches of this rule . . . ."). The Advisory Committee Notes describe it as a "self-executing," "automatic" sanction to "provide[ ] a strong inducement for disclosure of material . . . ." Fed. R. Civ. P. 37 advisory committee's note (1993). Courts have upheld the use of the sanction even when a litigant's entire cause of action or defense has been precluded. Ortiz-Lopez, 248 F.3d at 35 (although the exclusion of an expert would prevent plaintiff from making out a case and was "a harsh sanction to be sure," it was"nevertheless...

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