Jergens, Inc. v. 5th Axis, Inc.

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 Case No.: 20-cv-2377-CAB(BLM) 11 JERGENS, INC.,

12 Plaintiff, ORDER DENYING DEFENDANT 5TH AXIS, INC.’S MOTION TO COMPEL 13 v. [ECF No. 43] 14 5TH AXIS, INC., CHRISTOPHER TAYLOR,

STEPHEN GRANGETTO, and ADAM LANE, 15 Defendants. 16 17 18 19 On June 4, 2021, Defendant 5th Axis, Inc. (“5th Axis”) filed a motion to compel further 20 responses to its Request for Production of Documents No. 57 and Interrogatory No. 4 and for 21 monetary sanctions. [ECF No. 43 (“MTC”)]. On June 11, 2021, Plaintiff Jergens, Inc. (“Plaintiff” 22 or “Jergens”) filed its opposition to 5th Axis’ motion. [ECF No. 45 (“Oppo”)]. On June 21, 2021, 23 5th Axis filed a reply to Plaintiff’s opposition. [ECF No. 50 (“Reply”)]. On June 23, 2021, with 24 the Court’s permission, Plaintiff filed a sur-reply. [ECF No. 51 (“Sur-reply”)]. 25 This discovery dispute focuses on a letter that Plaintiff received from its outside legal 26 counsel and then provided to Defendants Christopher Taylor, Stephen Grangetto, and 5th Axis 27 in August 2017. Specifically, attorney Gregory Vickers of Rankin, Hill & Clark LLP wrote a letter 1 Jergens’ ‘323 patent (”Rankin Letter”). ECF No. 45-5, Declaration of Jack H. Schron Opposing 2 Motion to Compel (“Schron Decl.”) at 4, Exh. B. On or about August 29, 2017, Jergens’ 3 employees provided the letter to 5th Axis employees during a meeting in San Diego. Id. at 4. 4 5th Axis contends the Rankin Letter was privileged, the privilege was waived by Plaintiff upon 5 delivery of the Rankin Letter to 5th Axis, and that the waiver extends to all post-disclosure 6 communications between the Rankin Firm and Plaintiff regarding the same subject matter. MTC 7 at 10-11, 17-24. Plaintiff disagrees and argues that the Rankin Letter was not privileged because 8 it “was prepared for the purpose of presenting it to 5th Axis as formal notice of its infringement 9 to initiate a settlement dialogue[].” Oppo at 6, 11-12. Plaintiff argues that even if it was 10 privileged, the disclosure and subsequent use does not justify a broad subject matter waiver. 11 Id. at 12-19. For the reasons set forth below, 5th Axis’ motion is DENIED. 12 DISCOVERY RELATED BACKGROUND 13 On April 2, 2021, 5th Axis served its First Set of Interrogatories on Plaintiff. ECF No. 43- 14 1, Declaration of Robert M. Shore In Support of Motion to Compel (“Shore Decl.”) at 2. On April 15 7, 2021, 5th Axis served its First Set of Requests for Production on Plaintiff. Id. Plaintiff objected 16 to 5th Axis’ Interrogatory No. 4 as unduly burdensome, overly broad, and protected by attorney- 17 client privilege, or work-product doctrine. Id. at 84-85. Plaintiff objected to 5th Axis’ Request 18 for Production of Documents No. 57 “to the extent it seeks communications or other documents 19 or information protected from disclosure by the attorney-client privilege, the work-product 20 immunity doctrine, the common-interest privilege, the joint-defense privilege, [and] the joint 21 lawyer doctrine.” Id. at 134. Inferring that 5th Axis was seeking specific information in its 22 Request for Production of Documents No. 57, Plaintiff advised 5th Axis it was open to a meet 23 and confer on the matter. Id. Plaintiff did not provide a more substantive answer or produce 24 any documents. On May 26, 2021, counsel for Plaintiff, Mr. Jean-Paul Ciardullo, Mr. Jai Singh, 25 Ms. Tiffany Sung, and Ms. Ashley Koley, and counsel for 5th Axis, Mr. Robert M. Shore, and Mr. 26 Laith Mosely, contacted the Court regarding this discovery dispute. ECF No. 40. The Court 27 issued a briefing schedule and the parties timely filed their pleadings. Id.; see also MTC, Oppo.; 1 LEGAL STANDARD 2 The scope of discovery under Federal Rules of Civil Procedure (“Fed. R. Civ. P.”) is defined 3 as follows:

4 Parties may obtain discovery regarding any nonprivileged matter that is relevant 5 to any party’s claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in 6 controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether 7 the burden or expense of the proposed discovery outweighs its likely benefit. 8 Information within this scope of discovery need not be admissible in evidence to be discoverable. 9 10 Fed. R. Civ. P. 26(b)(1). District courts have broad discretion to determine relevancy for 11 discovery purposes. See Hallett v. Morgan, 296 F.3d 732, 751 (9th Cir. 2002); see also Surfvivor 12 Media v. Survivor Prods., 406 F.3d 625, 635 (9th Cir. 2005) (same); U.S. Fidelity and Guar. Co. 13 v. Lee Investments L.L.C., 641 F.3d 1126, 1136 (9th Cir. 2011) (“District courts have wide 14 latitude in controlling discovery, and [their] rulings will not be overturned in the absence of a 15 clear abuse of discretion.”) (internal quotation and citations omitted). District courts also have 16 broad discretion to limit discovery to prevent its abuse. See Fed. R. Civ. P. 26(b)(2) (instructing 17 that courts must limit discovery where the party seeking the discovery “has had ample 18 opportunity to obtain the information by discovery in the action” or where the proposed 19 discovery is “unreasonably cumulative or duplicative,” “obtain[able] from some other source that 20 is more convenient, less burdensome or less expensive,” or where it “is outside the scope 21 permitted by Rule 26(b)(1)”). 22 “The attorney-client privilege protects confidential communications between attorney and 23 client, which are made for the purpose of giving legal advice.” United States v. Sanmina Corp. 24 & Subsidiaries, 968 F.3d 1107, 1116 (9th Cir. 2020); see also United States v. Richey, 632 F.3d 25 559, 566 (9th Cir. 2011). The Ninth Circuit has established an eight-part test for applicability of 26 the attorney-client privilege: “(1) Where legal advice of any kind is sought (2) from a professional 27 legal advisor in his capacity as such, (3) the communications relating to that purpose, (4) made 1 by himself or by the legal adviser, (8) unless the protection is waived.” Id.; see also United 2 States v. Ruehle, 583 F.3d 600, 607 (9th Cir. 2009). 3 “[A] party asserting the attorney-client privilege has the burden of establishing the 4 [existence of an attorney-client] relationship and the privileged nature of the communication.” 5 United States v. Graf, 610 F.3d 1148, 1156 (9th Cir. 2010) (citing United States v. Reuhle, 583 6 F.3dd 600, 608 (9th Cir. 2009) (citation omitted). “One of the essential elements of the attorney- 7 client privilege is the intent that the communication be kept confidential.” SPS Techs., LLC v. 8 Briles Aero., Inc., No. CV 18-9536 MWF (ASx), 2020 WL 3050777, at *4 (C.D. Cal. Feb. 18, 9 2020) (quoting Griffith v. Davis, 161 F.R.D. 687, 694 (C.D. Cal. 1995)). A client’s perspective 10 determines whether a communication is confidential within the meaning of attorney-client 11 privilege, so long as the client’s expectation of confidentiality is reasonable. SPS Tech., LLC, No. 12 CV 18-9536 MWF (ASx), 2020 WL 3050777, at *4. 13 DISCUSSION 14 The primary focus of this dispute is element four of the Ninth Circuit test: whether the 15 Rankin Letter was issued in confidence. Plaintiff argues that the Rankin Letter was never 16 intended to be confidential and was issued with the intention of delivering it to 5th Axis to 17 facilitate settlement discussions, avoid litigation, and repair the companies’ working relationship. 18 Oppo. at 6-9. To support its position, Plaintiff provides a declaration signed under the penalty 19 of perjury by its CEO and General Counsel, Jack H. Schron, Jr., who was involved in obtaining 20 and distributing the Rankin Letter. Schron Decl. Mr. Schron declares that the Rankin Letter was 21 not intended to be a privileged communication when it was created. Id. at 2. He explains that 22 Jergens believed that 5th Axis had designed and manufactured the RockLock pallet based upon 23 proprietary information Jergens had shared with 5th Axis during their previous working 24 relationship. Id. at 2-3; see also Oppo. at 7. Mr. Schron asked Mr. Vickers “to conduct an 25 infringement analysis of the RockLock with respect to [Jergens’] ‘323 patent.” Schron Decl. at 26 3. “Subsequent to Mr. Vickers conducting his analysis, [Mr. Schron] arranged for Mr. Vickers to 27 prepare a formal letter on his law firm’s letterhead stating his assessment of the infringement 1 reach a business solution resolution.” Id. Mr. Schron explains that he thought the infringement 2 opinion would have more credibility if it came from a patent lawyer, but he wanted it hand- 3 delivered to 5th Axis by Jergens’ employees as part of upcoming in-person discussions, so he 4 directed Mr. Vickers to address the letter to Jergens. Id. The Rankin Letter is dated August 24, 5 2017 and signed by Mr. Vickers on his law firm’s letterhead. Id., at Exh. B. Notably, the Letter 6 is not stamped “confidential” or “privileged”, does not contain the detailed analysis frequently 7 seen in confidential infringement analyses, and merely concludes in essentially one paragraph 8 that the 5th Axis product violates Jergens’ patent. Id. In further support of Plaintiff’s position, 9 Mr. Schron provides the talking points that he drafted on August 25, 2017 for use in the 10 upcoming meeting with 5th Axis. Id. at 3-4 and Exh. C. The talking points include statements 11 that the Rankin Letter will be presented to 5th Axis and used to facilitate settlement via a 12 licensing agreement. Id. Representatives from Jergens and 5th Axis met on August 29, 2017 13 and the talking points were emailed to 5th Axis on June 2, 2017. Id. at 4 and Exh. C. 14 5th Axis argues that the Rankin Letter was intended to be privileged because it was “from 15 [Plaintiff’s] counsel and addressed only to [Plaintiff]”. MTC at 10, 14; Reply at 4, 11. 5th Axis 16 further argues that Jergens’ position that the Rankin Letter was not intended to be privileged 17 when it was created is a new argument, concocted well after the fact to remedy the privilege 18 waiver. MTC at 16; Reply at 5. To support its argument, 5th Axis provides handwritten notes 19 created by one of Jergens’ employees and notes the failures of Jergens to respond to a 20 September 2017 letter from 5th Axis’ counsel indicating that disclosure of the Rankin Letter 21 waived the privilege and to raise the non-privileged issue during meet and confer efforts leading 22 up to the instant motion. MTC at 6, 15; Reply at 9; Shore Decl.” at 2, 5, Exhs. 2 and 3. 23 The handwritten notes, apparently dated in mid-August, 2017, were written by the former 24 General Manager of Jergens’ Tooling Division, and include an “Action” section that states (1) 25 “patent infringement must be understood” “Darel/Vicker = need legal opinion”, and (2) “strategy 26 needs to be discussed based on patent [opinion]”. Shore Decl. at 2; Sur-Reply at 4. Contrary 27 to 5th Axis’ argument, these notes do not indicate that the Rankin Letter was intended to be a 1 opinion regarding whether 5th Axis’ product infringes Jergens’ patent and to develop a strategy 2 based on that legal opinion. In fact, as explained by Mr. Schron, Jergens obtained a legal opinion 3 from Mr. Vickers regarding the infringement a separate opinion, the Rankin Letter, to be 4 given to 5th Axis and used during the business negotiations. Schron Decl. at 2-3. The notes 5 have no bearing on whether the Rankin Letter constitutes the desired legal opinion or merely a 6 document produced for business negotiations between companies. 7 On September 19, 2017, Mr. Shore, litigation counsel for 5th Axis, wrote Mr. Vickers 8 regarding the infringement allegations asserted by Jergens. Shore Decl. at Exh. 2. The three- 9 page letter initially states “We recognize that your firm does not appear to handle litigation and 10 that you may have drafted your letter anticipating that it would remain privileged. Nevertheless, 11 your client has waived privilege by voluntarily disclosing your letter to us.” Id. at 1. The rest of 12 the letter addresses the merits of the dispute, sets forth 5th Axis’ settlement and litigation 13 positions, asserts a preservation demand, and provides formal notice that the Mutual 14 Manufacturing Agreement will be terminated in six months. Id. at 1-3. Mr. Vickers did not 15 respond to this letter and in his next correspondence on September 10, 2018, did not mention 16 the privilege or waiver issue. Shore Decl. at Exh. 3. 17 With regard to the meet and confer discussions, Mr. Shore declares that throughout the 18 discussions, Jergens’ counsel “did not represent that the Rankin Firm prepared the Rankin Letter 19 for the purpose of providing it to 5th Axis or any other third parties” and argues that this supports 20 5th Axis’ position. Shore Decl. at 5. Jergens’ litigation counsel, Jean-Paul Ciardullo, responds 21 that the original meet and confer discussions involved an exchange of relevant case authority 22 and a broader discussion of privileged documents relating to two patents. ECF No. 45-1 23 Declaration of Jean-Paul Ciardullo (“Ciardullo Decl.”) at 2. Mr. Ciardullo explains that at the time 24 of the initial discussions, Jergens’ litigation counsel had not fully understood the facts 25 surrounding the Rankin Letter, the August 29, 2017 meeting, and the disclosure of the Rankin 26 Letter. Id. Mr. Ciardullo states that shortly after the May 26th conference with the Court, “further 27 investigation” confirmed the relevant facts, and he immediately wrote a formal letter to 5th Axis’ 1 While Jergens’ failures to rebut Mr. Shore’s statement that the Rankin Letter was 2 privileged and to assert in the beginning of the meet and confer efforts that the Rankin Letter 3 was not privileged provide some support to 5th Axis’ argument, an analysis of the circumstances 4 surrounding the creation and distribution of the Rankin Letter do not support a finding that the 5 Rankin Letter was intended to be protected by attorney-client privilege. The applicability of the 6 attorney-client privilege requires that the communication be made in confidence, which focuses 7 on the that the communication be kept confidential. SPS Tech., LLC, No. CV 18- 8 9536 MWF (ASx), 2020 WL 3050777, at *4. Here, Plaintiff’s intent is established by Mr. Schron’s 9 declaration and supporting talking points. The Court finds particularly persuasive the statement 10 by Mr. Schron that the Rankin Letter was not intended to be confidential and was intended to 11 be given to 5th Axis and the following supportive facts: 1) the talking points confirmed Mr. 12 Schron’s intent, 2) two infringement opinion documents were prepared by Mr. Vickers in 13 essentially the same time period, 3) the Rankin Letter was not marked confidential and only 14 contains a short conclusory statement of infringement, and 4) the Rankin Letter (and talking 15 points) were provided to 5th Axis within days after their creation during an in-person meeting 16 between representatives of the two companies. The failures noted by 5th Axis do not undermine 17 this conclusion. The Court finds that Jergens has satisfied its burden of establishing that the 18 Rankin Letter was not intended to be confidential and that, therefore, the attorney-client 19 privilege never attached to the Rankin Letter. Defendant 5th Axis’ motion to compel is DENIED. 20 SANCTIONS 21 If a motion to compel discovery is denied, the Court “must, after giving an opportunity 22 to be heard, require the movant, the attorney filing the motion, or both to pay the party or 23 deponent who opposed the motion its reasonable expenses incurred in opposing the motion, 24 including attorney’s fees” unless “the motion was substantially justified or other circumstances 25 make an award of expenses unjust.” Fed. R. Civ. P. 37(a)(5)(B). See Brown v. Hain Celestial 26 Group, Inc., 2013 WL 5800566, *5 (N.D. Cal. Oct. 28, 2013) (“[t]he party that loses the motion 27 to compel bears the affirmative burden of demonstrating that its position was substantially 1 || response to a genuine dispute or if reasonable people could differ as to the appropriateness of 2 || the contested action.” Izzo v. Wal-Mart Stores, Inc., 2016 WL 409694, at *7 (D. Nev. Feb. 2, 3 || 2016) (citing Pierce v. Underwood, 487 U.S. 552, 565 (1988)). 4 Defendant 5th Axis requests “this Court for an order imposing monetary sanctions in an 5 ||amount presently estimated to be $5000.00 pursuant to Rule 37(a)(5) of the Federal Rules of 6 || Civil Procedure and Civil Local Rule 83.1 against [Plaintiff] (but not its counsel) for the reasonable 7 || attorneys’ fees incurred by 5th Axis in responding to [Plaintiff’s] factually meritless argument 8 || that the [] Letter was never intended to be privileged.” MTC at 6; see also Reply at 17-18. 9 || Because the Court denied the motion to compel, Defendant 5th Axis’ motion for attorneys’ fees 10 DENIED. 11 While Jergens does not specifically request attorneys’ fees, it does assert that “5th Axis 12 || has it backwards about which party deserves sanctions.” Oppo. at 16. Although Jergens is the 13 || prevailing party, the Court declines to award attorneys’ fees because the dispute was 14 “substantially justified.” 15 IT IS SO ORDERED. 16 17 ||Dated: 7/16/2021 iy, be He wr 18 Hon. Barbara L. Major United States Maqistrate Judde

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