Orbit Irrigation Prods. v. Sunhills Int'l, Case No. 2:10-CV-113 TS

• Decision Date: 02 April 2014
• Docket Number: Case No. 2:10-CV-113 TS
• Parties: ORBIT IRRIGATION PRODUCTS, a Utah Corporation, Plaintiff, v. SUNHILLS INTERNATIONAL, a California limited liability company, et al., Defendants.
• Court: U.S. District Court — District of Utah

ORBIT IRRIGATION PRODUCTS, a Utah Corporation, Plaintiff, v. SUNHILLS INTERNATIONAL, a California limited liability company, et al., Defendants.

Case No. 2:10-CV-113 TS

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH

Dated: April 2, 2014

MEMORANDUM DECISION AND

ORDER ADOPTING IN PART THE

MAGISTRATE JUDGE'S REPORT AND

RECOMMENDATION

This matter is before the Court on Magistrate Judge Evelyn J. Furse's Order Certifying Facts Regarding Contempt Under 28 U.S.C. § 636(e)(6) and Granting, in Part, Orbit's Motion for Sanctions (the "Report and Recommendation").¹ Defendants Jun Luo, Zhejiang Hongchen Irrigation Equipment Co., Ltd. ("Hongchen"), and Taizhou Dongfang Light Decorations Co., Ltd. ("Dongfang") (collectively the "Hongchen Defendants") filed an objection to the Report and Recommendation. A hearing on the Report and Recommendation and the Hongchen Defendants' Objection was held on March 20, 2014. At that hearing, the Court heard argument from the parties regarding the Hongchen Defendants' Objection.

Having considered the evidence and arguments presented by the parties, the Court will adopt in part the Report and Recommendation and grant Plaintiff's Motion for Terminating Sanctions.

I. BACKGROUND

Plaintiff brought the instant suit against the Hongchen Defendants on January 14, 2011, alleging claims of patent infringement, breach of contract, breach of the duty of good faith and fair dealing, specific performance, and related declaratory relief. Due to the similarity of the claims against the Hongchen Defendants and a prior case brought by Plaintiff against Sunhills International, the two suits were consolidated. Plaintiff subsequently amended its complaint to reflect the consolidation of the actions.²

On May 1, 2012, Plaintiff moved to compel the production of documents pursuant to its "Request for Documents Nos. 9-82, 86-89, 94-100, 103-115, 117-128, and 132-138."³ The Hongchen Defendants opposed the motion to compel on the basis that a criminal indictment with identical allegations had been brought against Hongchen and Jun Luo. The Hongchen Defendants and their co-defendants also sought to stay this matter pending completion of the criminal proceedings. The Magistrate Judge denied Defendants such a stay.⁴

The Magistrate Judge granted Plaintiff's motion to compel discovery responses from the Hongchen Defendants on March 18, 2013.⁵ The Magistrate Judge ordered that the Hongchen Defendants provide all documents responsive to Plaintiff's request for production of documents numbers 9-82, 86-89, 94-100, 103-115, 117-128, and 132-138 within fourteen days. The Magistrate Judge also awarded Plaintiff its reasonable costs and attorneys' fees incurred in bringing its motion to compel. In a subsequent order, the Magistrate Judge calculated this awardof fees at $9,350.50 and instructed that such were "to be paid by [Hongchen], [Dongfang], Luo Jun[,] and [their] attorneys."⁶

In advance of the fourteen-day deadline set out by the Magistrate Judge, the Hongchen Defendants sought an extension of time within which to provide the mandated discovery. Plaintiff "granted an additional two weeks to produce three particular categories of documents, and if the Hongchen Defendants produced those, [Plaintiff] agreed to discuss an additional extension of time for full compliance with the [Magistrate Judge's order to compel]."⁷ The three categories of documents identified by Plaintiff were (1) "all communications (such as email) and attachments to such communications sent by or received by 'Megan;'" (2) "all communications (such as email) between Luo Jun and Janice Capener, along with any attachments;" and (3) "documents relating to all shipments of lawn and garden products for Dong Fang or Hong Chen during the last two years."⁸

The Hongchen Defendants made timely disclosure of discovery in all three of these categories; however, they did not make a full production of documents in the first two categories. To date, the Hongchen Defendants have not supplemented their production to comply with the Magistrate Judge's order to compel. Further, up until the March 20, 2014 hearing, the Hongchen Defendants had not paid the amount they were ordered to pay in attorneys' fees.⁹

Based on the foregoing failures, Plaintiff moved for terminating sanctions against the Hongchen Defendants and for an award of attorneys' fees and costs. The Magistrate Judge took the motion under advisement and, in addition to certifying nineteen facts to this Court under 28 U.S.C. § 636(e)(6), recommends that this Court "hold the Hongchen Defendants in civil contempt with a fine of $1,000.00 per day for every day they fail to comply fully with the order compelling production of documents and payment of attorney fees."¹⁰ The Magistrate Judge also recommends that this Court award Plaintiff its attorneys' fees for bringing the motion for terminating sanctions.

The Hongchen Defendants filed an Objection to the Magistrate Judge's Report and Recommendation in which they argued that the Court should decline to adopt the Report and Recommendation because (1) many of the Magistrate Judge's certified facts are not supported by clear and convincing evidence; (2) the Hongchen Defendants reasonably believed that the plea agreement and memorandum of understanding in the related criminal case resolved the remaining claims between these parties; and (3) even if the Court determines that the Hongchen Defendants should be found in contempt, the proposed sanction is not justified.

Shortly before the evidentiary hearing in this matter, the Hongchen Defendants provided a declaration from Jun Luo. In that declaration, Mr. Luo indicates that the server for his computers and for the Hongchen and Dongfang computers was damaged in July 2013. Mr. Luo attests that "[a]ll email dated before July 2013 was destroyed as a result of the damage."¹¹ Mr. Luo goes on to state that he has "examined the computers over which [he] ha[s] custody,possession, and control, both personally and as a company representative of Hongchen and Dongfang, to identify any email or document responsive to these Request Nos. 13, 17, 75, or 111" and "[b]ecause of the server damage . . . [he] did not find any email or documents responsive to Request Nos. 13, 17, 75, or 111."¹²

At the March 20, 2014 hearing, the Hongchen Defendants conceded that they had no evidence to dispute the facts certified by the Magistrate Judge. The Court will adopt those facts as if stated here and consider them where applicable in its analysis of the proper sanction to be applied in this case. The Hongchen Defendants continue to assert that the sanction proposed in the Report and Recommendation—a fine of $1,000.00 a day until the mandated discovery is produced—is not justified.

II. DISCUSSION

Twenty-eight U.S.C. § 636(e) sets out the procedure by which a magistrate judge may exercise its contempt authority. Section 636(e)(6)(B)(iii) provides the process by which a magistrate judge in a proceeding under § 636(a) may find that a party's action constitutes civil contempt. That section states that

the magistrate judge shall forthwith certify the facts to a district judge and may serve or cause to be served, upon any person whose behavior is brought into question under this paragraph, an order requiring such person to appear before a district judge upon a day certain to show cause why that person should not be adjudged in contempt by reason of the facts so certified. The district judge shall thereupon hear the evidence as to the act or conduct complained of and, if it is such as to warrant punishment, punish such person in the same manner and to the same extent as for a contempt committed before a district judge.¹³

A. CONTEMPT

"In a civil contempt case, the party seeking a citation of contempt bears a heavy burden."¹⁴ "A party alleging contempt and seeking a civil remedy must prove it by clear and convincing evidence."¹⁵ Clear and convincing evidence is that evidence that "produces in the mind of the trier of fact a firm belief or conviction as to the truth of the allegations sought to be established, evidence so clear, direct and weighty and convincing as to enable [the factfinder] to come to a clear conviction, without hesitancy, of the truth of the precise facts in issue."¹⁶

To prevail on a claim of civil contempt, a plaintiff must demonstrate the following elements: "(1) a valid court order existed; (2) the defendant had knowledge of the order; and (3) the defendant disobeyed the order."¹⁷

The order at issue in this case is the Magistrate Judge's March 2013 order granting Plaintiff's motion to compel.¹⁸ The Hongchen Defendants do not dispute the existence of that order or that they had knowledge of that order. Further, as demonstrated in the certified findings and by the record in this case, the Hongchen Defendants failed to abide by that order in several regards.

First, up until the March 20, 2014 hearing, the Hongchen Defendants failed to pay the $9,350.50 in attorneys' fees awarded by the Magistrate Judge. The payment of those fees at thehearing came not because of any recognition by the Hongchen Defendants of the dilatory nature of their conduct, but rather because of the unilateral action of their recently retained counsel.

Second, the declaration of Mr. Luo makes clear that the Hongchen Defendants possessed emails and other documents that may have been responsive to Plaintiff's request for production of documents numbers 13, 17, 75, and 111 prior to July 2013 that were not produced.¹⁹ While the declaration clarifies that production since that time has not occurred because of a server failure, the declaration does not explain why the Hongchen Defendants failed to abide by the March 18, 2013 order prior to July 2013. Further, in light of the timing of Mr. Luo's declaration, the Court finds the Hongchen Defendants' attestation as to the cause of their failure to produce the mandated documents to be suspect.

Third, the Magistrate Judge's certified...