Static Media LLC v. Leader Accessories LLC
| Decision Date | 28 June 2022 |
| Docket Number | 2021-2303 |
| Citation | 38 F.4th 1042 |
| Parties | STATIC MEDIA LLC, Plaintiff-Appellee v. LEADER ACCESSORIES LLC, Defendant-Appellant Jen-Feng Lee, Appellant |
| Court | U.S. Court of Appeals — Federal Circuit |
Deborah Carol Meiners, DeWitt Ross & Stevens S.C., Madison, WI, argued for plaintiff-appellee. Also represented by Elijah B. Van Camp, Harry E. Van Camp.
Aaron Wayne Davis, Valhalla Legal, PLLC, Custer, SD, argued for appellants.
Before Dyk, Reyna, and Taranto, Circuit Judges.
Leader Accessories LLC appeals a decision of the District Court for the Western District of Wisconsin. The district court held Leader and its attorney, Jen-Feng Lee, in contempt for allegedly violating a protective order by disclosing confidential documents and awarded Static Media LLC sanctions and attorney's fees. We hold that the disclosure was not a clear violation of the protective order and accordingly reverse the district court's contempt finding and its award of sanctions and attorney's fees.
Static Media LLC ("Static") sued Leader Accessories LLC ("Leader") in May 2018 ("the Wisconsin action") for infringing its D771,400 design patent ("D400 patent"). The merits of the case were resolved when the district court granted Leader's motion for summary judgement of non-infringement, and this appeal presents no issue related to that decision. Rather, this appeal concerns an alleged violation of a protective order issued by the district court.
In September 2018, the parties entered into the protective order, approved by the court, under which they could designate certain documents and information produced during discovery as "Confidential" or "Highly Confidential." The protective order's purpose was to mitigate the risk of "injury or damage" and "competitive disadvantage[s]" posed by "public dissemination and disclosure of" the confidential information. J.A. 42. To that end, confidential documents were subject to the following restrictions:
3. All Confidential information and documents, along with the information contained in the documents, shall be used solely for the purpose of this action and no person receiving such information or documents shall , directly or indirectly, transfer, disclose or communicate in any way the information or the contents of the documents to any person other than those specified in paragraph 4.
J.A. 43 (emphasis added). Paragraph 4 allowed the parties to disclose confidential-designated documents to a limited group of people, including:
J.A. 44 (emphasis added). Thus, outside independent persons retained to furnish consulting, technical, or expert services in the Wisconsin action were also independently bound by the terms of the protective order because they were obligated to sign a separate "Written Assurance" before receiving any confidential information:
7. Before any person designated in 4(f) is given access to Confidential or Highly Confidential – Trial Counsels' Eyes Only information, the individual shall first read this Order and, as is appropriate under the circumstances, either execute a "Written Assurance" in the form attached hereto as Exhibit A , acknowledge on the record that he or she has read and agrees to be bound by the terms of the Order and the jurisdiction of this Court for the sole purpose of enforcing same, or otherwise agree in writing to be bound by the terms of this Order and to submit to the jurisdiction of this Court for the sole purpose of enforcing this Order.
J.A. 45 (emphasis added). The Written Assurance restricted independent consultants' use of confidential information:
I shall not divulge any information or documents or copies of documents designated Confidential or Highly Confidential – Trial Counsels' Eyes Only obtained pursuant to such Protective Order or the contents of such documents to any person other than those specifically authorized by the Protective Order. I shall not copy or use such information or documents except for the purposes of this action and pursuant to the terms of the Protective Order.
J.A. 50–51 (emphasis added).
Shortly after Static and Leader agreed to this protective order in the Wisconsin action, Static sent a cease-and-desist letter to another party, OJ Commerce, also alleging infringement of the D400 patent. Upon receipt of the letter, OJ Commerce's attorney, Sam Hecht, contacted Leader's attorney, Mr. Lee, and the parties decided to enter into a Joint Defense Group ("JDG") to be governed by a Joint Defense Agreement ("JDA"). Such an agreement is a useful tool to protect the confidentiality of communications between parties "where a joint defense effort or strategy has been decided upon and undertaken by the parties and their respective counsel." United States v. Evans , 113 F.3d 1457, 1467 (7th Cir. 1997) (quoting United States v. Schwimmer , 892 F.2d 237, 243 (2d Cir. 1989) ). Both attorneys testified that they understood the JDG to be "for the purpose of common defense ... to promote the joint interest." J.A. 96; J.A. 103.
Thereafter, Static sued OJ Commerce for patent infringement in United States District Court for the Southern District of Florida on January 30, 2019, ("the Florida action") and the parties executed the JDA. Mr. Lee then sent Mr. Hecht copies of the protective order and Written Assurance form from the Wisconsin action. Four days after signing the JDA, Mr. Hecht signed and returned the Written Assurance to Mr. Lee. Shortly thereafter, Mr. Lee emailed Mr. Hecht two deposition transcripts and related exhibits from the Wisconsin action, including Static's licensing and royalty agreements and sales and revenue information. Only a few of the pages in those documents were marked confidential pursuant to the protective order. The rest were not.
In both of Mr. Lee's email disclosures to Mr. Hecht, he asked him to "note the protective order re Confidential AEO designation" and reminded him to "please adhere to the protective order." J.A. 132. Mr. Lee later testified that he sent the documents to Mr. Hecht for the purpose of "more effective joint defense consultation and discussion," including "discussion and consultation" regarding Leader's April 2019 motion for summary judgment in the Wisconsin action. J.A. 98. Mr. Lee described "the consultation with [Mr.] Hecht" as "more comprehensive" than Mr. Lee's consultation with other experts, "encompassing infringement, invalidity, damages, and additional and assertable potential defenses." J.A. 99.
Several months later, in September 2019 settlement negotiations between Static and OJ Commerce in the Florida action, Mr. Hecht improperly used the royalty agreements he obtained from Mr. Lee to assess a settlement proposal from Static. Mr. Hecht revealed to Static's counsel, attorney Susan Warner, who was not counsel in the Wisconsin action nor a claimed signatory to the protective order, that OJ Commerce "ha[d] a JDA with counsel [for Leader]" which is why he was "fully aware about the actual royalties [Static had] received." J.A. 104. In describing this incident, Mr. Lee testified that he had "no reason to expect that [Mr. Hecht] would use the information in violation of the [protective order], given that [he] had [Mr. Hecht] sign the Acknowledgement and gave [Mr. Hecht] repeated reminders about the [protective order]." J.A. 130.
As a result of Mr. Hecht's actions, Static moved for discovery sanctions and an order holding Leader and its counsel in civil contempt, alleging that Mr. Lee violated the protective order by disclosing the confidential documents to Mr. Hecht. A magistrate judge found Leader and Mr. Lee in civil contempt for violating the protective order. The district court affirmed.
Following the district court's affirmance, the magistrate judge ordered Leader to pay Static's attorney's fees and to pay Static a $1,000 sanction. The district court again affirmed. Leader and its counsel appeal. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(1).
We review the district court's "decision to sanction and the choice of an appropriate sanction" under an abuse of discretion standard. Melendez v. Ill. Bell Tel. Co. , 79 F.3d 661, 670 (7th Cir. 1996).
Federal Rule of Civil Procedure 37 permits district courts to "treat[ ] as contempt of court the failure to obey any [court] order." Fed. R. Civ. P. 37(b)(2)(A)(vii). A contempt finding requires the moving party to "establish by clear and convincing evidence that (1) a court order sets forth an unambiguous command; (2) the alleged contemnor violated that command; (3) the violation was significant, meaning the alleged contemnor did not substantially comply with the order; and (4) the alleged contemnor failed to make a reasonable and diligent effort to comply." SEC v. Hyatt , 621 F.3d 687, 692 (7th Cir. 2010) (citing Prima Tek II, LLC v. Klerk's Plastic Indus., B.V. , 525 F.3d 533, 542 (7th Cir. 2008) ). As we discuss below, the Supreme Court has recently clarified that a district court's finding of contempt is improper when there "is [a] fair ground of doubt as to the wrongfulness of the [contemnor's] conduct." Taggart v. Lorenzen , ––– U.S. ––––, 139 S. Ct. 1795, 1801–02, 204 L.Ed.2d 129 (2019) (quoting Cal. Artificial Stone Paving Co. v. Molitor , 113 U.S. 609, 618, 5 S.Ct. 618, 28 L.Ed. 1106 (1885) ).
Both the district court and magistrate judge's decisions here appear to rest on two separate theories. We first address the district court's theory that Leader and Mr. Lee should be held in contempt because Mr. Lee was responsible for Mr. Hecht's improper...
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