On Command Video v. Lodgenet Entertainment Corp., C95-0546 SBA.

• Decision Date: 08 August 1997
• Docket Number: No. C95-0546 SBA.,C95-0546 SBA.
• Citation: 976 F.Supp. 917
• Parties: ON COMMAND VIDEO CORPORATION, a Delaware Corporation, Plaintiff, v. LODGENET ENTERTAINMENT CORPORATION, a Delaware corporation, Defendant.
• Court: U.S. District Court — Northern District of California

976 F.Supp. 917

ON COMMAND VIDEO CORPORATION, a Delaware Corporation, Plaintiff, v. LODGENET ENTERTAINMENT CORPORATION, a Delaware corporation, Defendant.

No. C95-0546 SBA.

United States District Court, N.D. California.

August 8, 1997.

COPYRIGHT MATERIAL OMITTED

David Fairbairn, Kinney & Lange, P.A., Minneapolis, Minnesota.

Carrie L. Walthour, Limbach & Limbach, San Francisco, Gillin, Jacobson, Ellis, Larsen & Doyle, Richard Doyle, Jr., Luke Ellis, Berkeley, CA.

ORDER SUSTAINING IN PART AND OVERRULING IN PART DEFENDANT'S OBJECTIONS TO THE FINDINGS AND RECOMMENDATIONS OF MAGISTRATE JUDGE JAMES

ARMSTRONG, District Judge.

This action is a patent infringement suit brought by plaintiff On Command Video ("plaintiff" or "OCV") against defendant LodgeNet Entertainment Corporation ("defendant" or "LodgeNet"). The parties are presently before the Court on defendant's Objections to the Magistrate's Report and Recommendations ("the Report"). Having read and considered the papers filed, and having reviewed the record, the Court SUSTAINS in part and OVERRULES in part defendant's objections.¹

BACKGROUND

Plaintiff alleges that defendant has infringed and continues to infringe its patent which encompasses the technology for a video movie delivery system. On June 5, 1995, at the outset of this case, the parties submitted to the Court a stipulated Protective Order governing the exchange of confidential discovery materials. Paragraph 11 of the Protective Order provided as follows:

Any information designated as Confidential Information shall not be used by the other party for any purpose other than in connection with preparation of the parties [sic] analysis of issues presented in this litigation.

The Court approved the Protective Order on June 8, 1995 and the Order was filed on June 9, 1995.

On February 27, 1996, plaintiff used materials produced by defendant during discovery and subject to the Protective Order as the basis for filing a separate lawsuit against defendant in San Francisco County Superior Court. Viewing plaintiff's actions to be in violation of the Protective Order, defendant filed a Motion to Enforce Protective Order before the Court. Plaintiff responded by serving a Motion for Sanctions against defendant pursuant to Federal Rule of Civil Procedure 11. The Court referred these matters to Magistrate Judge Maria-Elena James for findings and recommendations.

On April 3, 1997, the Magistrate issued her Report in which she concluded, inter alia, that plaintiff did not violate the Protective Order and that there was no basis for imposing contempt sanctions or enjoining the state court lawsuit. Defendant now presents the following objections to the Magistrate's Report:

• The Magistrate erred as a matter of law by refusing to recommend enforcement of the plain language of the Protective Order. The Magistrate's interpretation of the Protective Order is clearly erroneous.

• The Magistrate's conclusion that the purpose of the Protective Order is not evident from the face of the Protective Order is clearly erroneous.

• The Magistrate erred as a matter of law by recommending that OCV be allowed to invoke the substantial compliance defense.

• The Magistrate's conclusion that OCV substantially complied with the Protective Order is clearly erroneous.

• The Magistrate's conclusion that the Court is barred by the Anti-Injunction Act from issuing an injunction to prevent OCV from pursuing its state court action is clearly erroneous.

• The Magistrate's recommendations not to fine OCV's attorneys, and not to award attorneys' fees to LodgeNet are clearly erroneous.

• The Magistrate erred as a matter of law in stating that LodgeNet's subsequent motion to enforce the Protective Order did not appear to have been filed within the safe harbor period.

(Def.'s Obj. at 2-3.) Defendant also requests that the Court render an advisory opinion concerning whether it would exercise supplemental jurisdiction over the state court action. (Id. at 11.)

STANDARD OF REVIEW

A magistrate judge's findings and recommendations on matters which are dispositive of a claim or defense are reviewed de novo. See 28 U.S.C. § 636(b)(1)(C); Fed. R.Civ.P. 72(b). A magistrate's determination of non-dispositive matters is entitled to deference unless it is clearly erroneous or contrary to law. Grimes v. City & County of San Francisco, 951 F.2d 236, 241 (9th Cir. 1991) (citing 28 U.S.C. § 636(b)(1)(A) and Fed.R.Civ.P. 72(a)).

Issues related to a protective order are collateral to the substantive issues in the litigation, and hence, are deemed nondispositive. C.f., Hutchinson v. Pfeil, 105 F.3d 562, 566 (10th Cir.1997). Similarly, the decision of whether to impose Rule 37 sanctions for discovery violations is also considered a nondispositive matter. See Ocelot Oil Corp. v. Sparrow Indus., 847 F.2d 1458, 1465 (10th Cir.1988).² However, because only a district court may hold a party in contempt, Grimes, 951 F.2d at 240, the Magistrate's findings on the issue of civil contempt will be reviewed de novo.³

DISCUSSION

A. ENFORCEMENT OF THE PROTECTIVE ORDER

The salient question presented is whether plaintiff violated the parties' Protective Order by using discovery obtained thereunder for the purpose of initiating a separate state court lawsuit. A protective order should be read in a reasonable and common sense manner so that its prohibitions are connected to its purpose. In re Dual-Deck Video Cassette Recorder Antitrust Litig., 10 F.3d 693, 695 (9th Cir.1993).

The Magistrate determined that there was no such violation. In reaching this conclusion, the Magistrate reasoned, inter alia, that there was "no express provision which states that the filing of a subsequent action, which is based on protected confidential information, violates the Protective Order." (Report at 15.) She also found that "there is no express provision which states that the filing of a subsequent lawsuit based on protected confidential information without prior amendment, or attempt to amend, the pleadings or the Protective Order, violates the Protective Order." (Id.)

The Court disagrees with the Magistrate's analysis of the Protective Order. Contrary to the findings of the Magistrate, paragraph 11 of the Protective Order unequivocally bars all uses of confidential materials except one — "[the] analysis of issues presented in this litigation." (Emphasis added). Although the Magistrate is technically correct that the filing of a state court action based on confidential information disclosed in this action is not expressly precluded, to construe the language of paragraph 11 as permitting plaintiff to engage in such conduct would render said provision meaningless. Indeed, as defendant correctly points out, it would have been impractical to attempt to articulate every conceivable impermissible use of discovery subject to the Protective Order. (See Def.'s Obj. at 5.)⁴

Plaintiff argues that a "literal" interpretation of the Protective Order is overly restrictive and would, in effect, immunize defendant for any wrongful acts uncovered during this litigation. (Pl.'s Opp'n at 6 (citing Report at 18 n. 14).) The Magistrate also expressed this concern, reasoning that the use of the term "presented" modifies "issues presented in this litigation", such that evidence of wrongful conduct could be used only in conjunction with claims which were already pleaded. (Report at 18 n. 14.) The Court finds such an interpretation of the Protective Order untenable, as there are no restrictions in the Protective Order concerning the addition of claims to this litigation nor is there any plausible basis therefor.

Finally, the parties dispute the purpose of the Order. The Court notes that the Protective Order does not expressly state its purpose. Nevertheless, the Court agrees with defendant that from the plain language of the Order, it is readily apparent that it is intended to limit the use of confidential information to this case. Plaintiff asserts that the purpose is to protect commercial secrets. (Mag.'s Rep. at 10.) Unfortunately for plaintiff, there are no terms in the Protective Order to corroborate such an interpretation.

At bottom, the Court finds, based on a common sense, plain reading of paragraph 11 of the Protective Order, that plaintiff has violated the Protective Order and that defendant is entitled to its enforcement. The purpose of the Order is to limit the use of confidential information to this case. By using such information to file a separate lawsuit in another forum, plaintiff violated the plain terms of the Protective Order. As such, plaintiff is barred from using any confidential information subject to the Protective Order except in the instant litigation. C.f., Winkler v. Eli Lilly & Co., 101 F.3d 1196, 1203 (7th Cir.1996) ("we hold that the Anti-Injunction Act does not bar courts with jurisdiction ... from issuing injunctions to protect the integrity of their rulings, including pretrial rulings like discovery orders...."). Defendant's objections to the Magistrate's recommendation to not enforce the Protective Order is SUSTAINED.

B. CIVIL CONTEMPT FOR VIOLATION OF THE PROTECTIVE ORDER

1. Applicable Law

The next issue presented is whether the Magistrate erred in recommending that plaintiff not be held in civil contempt. "A court has the power to adjudge in civil contempt any person who willfully disobeys a specific and definite order requiring him to do or to refrain from doing an act." Shuffler v. Heritage Bank, 720 F.2d 1141, 1146 (9th Cir.1983); Fed.R.Civ.P. 37(b)(2)(D). "[T]o succeed on its motion for civil contempt, [defendant] had to show by clear and convincing evidence that [plaintiff] violated the [Protective Order] beyond substantial compliance, and that the violation was not based on a good faith and reasonable interpretation of the [Protective Order]." Wolfard Glassblowing Co. v. Willy Vanbragt, Mary Vanbragt d/b/a Zodiac Expressions, 118 F.3d 1320, 1322 (9th Cir.1...