(PS) Universal Security and Fire, Inc. v. Yanez

• Court: District Court, E.D. California
• Decided: December 8, 2021
• Docket: 2:17-cv-00844
• Status: Unknown

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 UNIVERSAL SECURITY AND FIRE, INC., 12 No. 2:17-cv-00844-TLN-CKD Plaintiff, 13

14 ORDER v. 15 ALPHA ALARM & AUDIO, INC. and 16 FRANK CHARLES YANEZ, 17 Defendants,

18 19 20 This matter is before the Court on Defendant Alpha Alarm & Audio, Inc.’s (“Defendant”) 21 Motion for Summary Judgment.1 (ECF No. 35.) Plaintiff Universal Security and Fire, Inc. 22 (“Plaintiff”) filed an opposition. (ECF No. 37.) Defendant replied. (ECF No. 38.) For the 23 reasons set forth below, the Court DENIES Defendant’s Motion for Summary Judgment. 24 /// 25 /// 26 /// 27

28 1 Defendant Frank Charles Yanez does not join in the instant motion. 1 I. FACTUAL AND PROCEDURAL BACKGROUND 2 This case arises from Defendant’s alleged acquisition and use of confidential information 3 related to Plaintiff’s efforts to secure potential customers. (ECF No. 1 ¶¶ 14, 17–18.) Plaintiff 4 filed this action on April 21, 2017, alleging against Defendant violation of the Federal Defend 5 Trade Secrets Act (18 U.S.C. § 1836(b)), violation of the California Uniform Trade Secrets Act 6 (California Civil Code § 3426), unfair business practices in violation of California Business and 7 Professions Code § 17200, intentional interference with prospective economic advantage, and 8 negligent interference with prospective economic advantage. (Id.) On June 30, 2017, the Court 9 issued a preliminary injunction pursuant to the parties’ stipulation, enjoining Defendant from 10 further acquisition, use, or disclosure of Plaintiff’s trade secrets and confidential, proprietary 11 information, including customer identification, bid opportunities, fire alarm designs, and 12 Plaintiff’s bidding information. (ECF No. 17.) Defendant filed the instant motion for summary 13 judgment on May 5, 2019. (ECF No. 35.) 14 II. STANDARD OF LAW 15 Summary judgment is appropriate when the moving party demonstrates no genuine issue 16 of any material fact exists and the moving party is entitled to judgment as a matter of law. Fed. 17 R. Civ. P. 56(a); Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970). Under summary 18 judgment practice, the moving party always bears the initial responsibility of informing the 19 district court of the basis of its motion, and identifying those portions of “the pleadings, 20 depositions, answers to interrogatories, and admissions on file together with affidavits, if any,” 21 which it believes demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. 22 Catrett, 477 U.S. 317, 323 (1986). Summary judgment should be entered against a party who 23 does not make a showing sufficient to establish the existence of an element essential to that 24 party’s case, and on which that party will bear the burden of proof at trial. 25 If the moving party meets its initial responsibility, the burden then shifts to the opposing 26 party to establish that a genuine issue as to any material fact does exist. Matsushita Elec. Indus. 27 Co. v. Zenith Radio Corp., 475 U.S. 574, 585–87 (1986); First Nat’l Bank of Ariz. v. Cities Serv. 28 Co., 391 U.S. 253, 288–89 (1968). In attempting to establish the existence of this factual dispute, 1 the opposing party may not rely upon the denials of its pleadings, but is required to tender 2 evidence of specific facts in the form of affidavits, and/or admissible discovery material, in 3 support of its contention that the dispute exists. Fed. R. Civ. P. 56(c). The opposing party must 4 demonstrate that the fact in contention is material, i.e., a fact that might affect the outcome of the 5 suit under the governing law, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986), and that 6 the dispute is genuine, i.e., the evidence is such that a reasonable jury could return a verdict for 7 the nonmoving party. Id. at 251–52. 8 To establish the existence of a factual dispute, the opposing party need not establish a 9 material issue of fact conclusively in its favor. It is enough that “the claimed factual dispute be 10 shown to require a jury or judge to resolve the parties’ differing versions of the truth at trial.” 11 First Nat’l Bank of Ariz., 391 U.S. at 288–89. Thus, the “purpose of summary judgment is to 12 ‘pierce the pleadings and to assess the proof in order to see whether there is a genuine need for 13 trial.’” Matsushita Elec. Indus. Co., 475 U.S. at 587 (quoting Federal Rule of Civil Procedure 14 (“Rule”) 56(e) advisory committee’s note on 1963 amendments). 15 In resolving the summary judgment motion, the court examines the pleadings, depositions, 16 answers to interrogatories, and admissions on file, together with any applicable affidavits. Fed. 17 R. Civ. P. 56(c); SEC v. Seaboard Corp., 677 F.2d 1301, 1305–06 (9th Cir. 1982). The evidence 18 of the opposing party is to be believed and all reasonable inferences that may be drawn from the 19 facts pleaded before the court must be drawn in favor of the opposing party. Anderson, 477 U.S. 20 at 255. Nevertheless, inferences are not drawn out of the air, and it is the opposing party’s 21 obligation to produce a factual predicate from which the inference may be drawn. Richards v. 22 Nielsen Freight Lines, 602 F. Supp. 1224, 1244–45 (E.D. Cal. 1985), aff’d, 810 F.2d 898 (9th Cir. 23 1987). Finally, to demonstrate a genuine issue that necessitates a jury trial, the opposing party 24 “must do more than simply show that there is some metaphysical doubt as to the material facts.” 25 Matsushita Elec. Indus. Co., 475 U.S. at 586. “Where the record taken as a whole could not lead 26 a rational trier of fact to find for the nonmoving party, there is no ‘genuine issue for trial.’” Id. at 27 587. 28 /// 1 III. ANALYSIS 2 Defendant argues it is entitled to summary judgment because Plaintiff is barred from 3 presenting evidence of damages at trial for failing to supplement its initial disclosures pursuant to 4 Rule 37(c)(1). (ECF No. 35 at 1–2, 6.) In opposition, Plaintiff argues it has established damages 5 through the deposition testimony of Defendant’s person most knowledgeable (“PMK”), Loren 6 Dougherty. (ECF No. 37 at 2.) Defendant replies by again arguing Plaintiff failed to comply 7 with the continuing disclosure obligation under Rule 26(e) and noting Plaintiff does not provide 8 any justification for its failure. (ECF No. 38 at 2–3.) The Court will first determine whether 9 Plaintiff violated Rule 26 before evaluating whether the Rule 37 sanction is appropriate. 10 A. Failure to Disclose or Supplement under Rule 26 11 Defendant argues Plaintiff failed to comply with Rule 26 because it did not provide a 12 computation of each category of its damages in its initial disclosures, nor did Plaintiff supplement 13 those disclosures. (ECF No. 35 at 1–2, 5–6.) Consequently, Defendant requests the Court bar 14 Plaintiff from presenting evidence of damages at trial under Rule 37(c)(1). (Id.) Plaintiff argues 15 in opposition it could not disclose a computation of damages because evidence of the extent of 16 Defendant’s wrongdoing was solely in the possession of Defendant and Defendant refused to 17 produce the documents containing that information to Plaintiff. (ECF No. 37 at 4.) Nevertheless, 18 Plaintiff contends it obtained evidence of damages through the deposition testimony of 19 Defendant’s PMK. (Id. at 4, 7–9.) 20 In federal court, litigants must disclose to the opposing party the likely location of 21 discoverable information, documents supporting the litigants’ claims or defenses, a computation 22 of damages, and copies of insurance information without awaiting a discovery request. Fed. R. 23 Civ. P. 26(a)(1)(A)(i)–(iv). This disclosure obligation is ongoing. Fed. R. Civ. P. 26(e)(1)(A). A 24 party need not supplement its initial disclosures if the additional or corrective information has 25 been otherwise made known to the other parties during the discovery process or in writing. Id. 26 The purpose of the disclosure requirements is to accelerate the exchange of basic information 27 about the case and eliminate the time and effort involved in requesting such information. Id., 28 advisory committee’s note to 1993 amendment. “As a general matter, disclosing a computation 1 of damages under Rule 26(a) is necessary for the opposing party to produce responding evidence, 2 such as an expert report.” EEOC v. GLC Rests., Inc., No. CV05-618 PCT-DGC, 2007 WL 3 30269, *9 (D. Ariz. Jan. 4, 2007); see also Hewlett Packard Co. v. Factory Mut. Ins. Co., No. 4 Civ. 04-2791 TPG DF, 2006 WL 1788946, *14 (S.D.N.Y. June 28, 2006) (“[E]arly disclosure of 5 a party’s damages computation provide[s] [the] opposing party with an early understanding of the 6 basis and amount of any damages claim it is facing, so that it may conduct meaningful discovery 7 as to the underpinning of such a claim.” (internal quotation marks omitted)). 8 Although Plaintiff formally disputes all the facts listed in Defendant’s Statement of 9 Undisputed Material Facts submitted in support of Defendant’s summary judgment motion (ECF 10 No. 37-2), Plaintiff does not contend it provided a damages calculation in its initial disclosures or 11 in a supplement thereto. (See ECF No. 37.) Defendant offers the declaration of its attorney, 12 Jeremy Schroeder, in support of its motion. (ECF No. 35-2.) Mr. Schroeder states Plaintiff’s 13 initial disclosures did not contain a damages computation, Plaintiff did not supplement the 14 disclosures, and Plaintiff’s response to Defendant’s request for production of documents did not 15 reveal evidence of damages. (ECF No. 35-2 ¶¶ 3–5.)2 Plaintiff offers the declaration of its 16 attorney, Omair Farooqui, to which the deposition testimony of Loren Dougherty, Defendant’s 17 PMK, is attached. (ECF No. 37-1.) Plaintiff seems to misconstrue the basis of Defendant’s 18 motion as asserting Plaintiff does not have sufficient evidence of damages to prevail on its claims 19 at trial. (See ECF No. 37 at 2 (“Contrary to [Defendant’s] assertion in its motion, [Plaintiff] has 20 established . . . computable evidence of its . . . damages.”).) Instead, as stated, the basis of 21 Defendant’s motion is that whatever evidence of damages Plaintiff possesses has not been 22 disclosed to Defendant pursuant to Rule 26(e). 23 Alternatively, Plaintiff’s focus on Mr. Dougherty’s deposition testimony could be 24 construed as an argument the testimony satisfied the exception in Rule 26(e)(1)(A) that parties 25 need not supplement their initial disclosures if the additional or corrective information has 26

27 2 Defendant also purports to include a true and correct copy of Plaintiff’s initial disclosures as an attachment to Mr. Schroeder’s declaration. (Id. at ¶ 3.) The attached disclosures are 28 Defendant’s, not Plaintiff’s. (ECF No. 35-3.) 1 otherwise been made known to the other parties during the discovery process. Fed. R. Civ. P. 2 26(e)(1)(A). Plaintiff asserts it seeks $13,800 in unjust enrichment damages and $7,020 in actual 3 loss damages for its federal and state trade secrets claims. (ECF No. 37 at 8–9.) To establish 4 these figures, Plaintiff admits it must “extrapolate[e] from [Mr. Dougherty’s] testimony” and 5 perform a “quick calculation.” (Id.) Plaintiff argues Mr. Dougherty’s testimony established 6 Defendant used Plaintiff’s employee to prepare designs for prospective customers — the 7 foundation of Plaintiff’s action — on thirteen occasions. (Id. at 7–8.) However, Plaintiff asserts 8 it seeks unjust enrichment damages for only three of the thirteen occasions. (Id. at 8.) Plaintiff 9 argues Mr. Dougherty’s testimony additionally established the value of Defendant’s trade secret 10 misappropriation at $540 per design. (Id. at 8–9.) Plaintiff multiplies the $540 figure by the 11 thirteen occasions to reach $7,020. (Id.) To support these figures and calculations, Plaintiff cites 12 twenty pages of deposition testimony. (Id. at 7–9.) 13 Plaintiff is apparently capable of calculating its damages and provides no explanation why 14 Defendant should be required to sift through Mr. Dougherty’s deposition testimony to guess 15 which portions Plaintiff intends to claim at trial and under which theory. See Estate of Gonzalez 16 v. Hickman, No. 05-cv-00660 MMM (RCx), 2007 WL 3237635, at *5 (C.D. Cal. June 28, 2007) 17 (“Defendants were entitled to know plaintiffs’ assumptions concerning these various 18 computational criteria . . . and to rebut them . . . .”). Therefore, Plaintiff has failed to comply with 19 Rule 26(a)(1)(A)(iii) and 26(e)(1)(A). 20 B. Sanctions under Rule 37 21 Defendant argues Plaintiff’s failure to comply with the disclosure requirements of Rule 26 22 require the Court bar Plaintiff’s use of undisclosed evidence of damages at trial pursuant to Rule 23 37(c)(1). (ECF No. 35 at 5–6.) Without the ability to prove damages, Defendant argues, Plaintiff 24 cannot prove an essential element of each of its claims. (Id.) Plaintiff does not address the Rule 25 37 sanctions or their application at the summary judgment stage. (See ECF No. 37.) 26 Rule 37(c)(1) “gives teeth” to the disclosure requirements of Rule 26 “by forbidding the 27 use at trial of any information required to be disclosed by Rule 26(a) or (e) that is not properly 28 disclosed.” Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1106 (9th Cir. 2001). 1 “Two express exceptions ameliorate the harshness of Rule 37(c)(1): The information may be 2 introduced if the parties’ failure to disclose the required information is substantially justified or 3 harmless.” Id. Absent a showing by the party facing sanction that either of the two exceptions 4 apply, Rule 37 is “a strong inducement for disclosure of material.” Hoffman v. Constr. Protective 5 Servs., Inc., 541 F.3d 1175, 1180 (9th Cir. 2008) (quoting Yeti, 259 F.3d at 1106). 6 In both Yeti and Hoffman, the Ninth Circuit explicitly stated a district court is not required 7 to make a finding of willfulness or bad faith before imposing the Rule 37 sanction, even when the 8 result is the dismissal of the plaintiff’s entire cause of action. Yeti, 259 F.3d at 1106 (“Courts 9 have upheld the use of the sanction even when a litigant’s entire cause of action or defense has 10 been precluded.”) (citing Ortiz-Lopez v. Sociedad Espanola De Auxilio Mutuo Y Beneficiencia de 11 Puerto Rico, 248 F.3d 29, 35 (1st Cir. 2001)); Hoffman, 541 F.3d at 1180 (quoting Yeti, 259 F.3d 12 at 1106). However, shortly thereafter, the Ninth Circuit distinguished this language as dicta, 13 holding where a “sanction amounted to a dismissal of a claim, the district court [is] required to 14 consider whether the claimed noncompliance involved willfulness, fault, or bad faith . . . and also 15 to consider the availability of lesser sanctions” as part of the harmlessness inquiry required under 16 Rule 37(c)(1). R&R Sails, Inc. v. Ins. Co. of Pa., 673 F.3d 1240, 1247 & n.1 (9th Cir. 2012). 17 Even under R&R Sails, it is within the discretion of the district court whether to grant summary 18 judgment in favor of a defendant when: (1) the plaintiff has failed to comply with Rule 26; (2) the 19 Rule 37 sanction precludes the plaintiff from proving an essential element of its claim; and (3) the 20 court has made the requisite findings of harm and lack of justification. Merch. v. Corizon Health, 21 Inc., 993 F.3d 733, 741–42 (9th Cir. 2021). 22 Although Plaintiff has entirely failed to carry its burden to show harmlessness under Yeti 23 and its progeny, the Court hesitates to dismiss Plaintiff’s entire action for a number of reasons. 24 First, neither party makes an effort to grapple with the Yeti-R&R Sails line of cases. (See ECF 25 Nos. 35, 37, 38.) Defendant’s motion is premised on a single, nonbinding district court order. 26 (ECF No. 35 at 5 (citing Colombini v. Members of the Bd. of Dirs. of Empire Coll. Sch. of Law, 27 No. C9704500CRB, 2001 WL 1006785 (N.D. Cal. Aug. 17, 2001)).) Second, Defendant failed to 28 include evidence of Plaintiff’s allegedly inadequate initial disclosures other than a single sentence 1 in a declaration by its attorney, which is accompanied by the demonstrably false statement that a 2 copy of Plaintiff’s disclosures is attached. (ECF No. 35-2 ¶ 3.) Third, although Defendant 3 submitted Plaintiff’s discovery responses and objections as an attachment to Mr. Schroeder’s 4 declaration, it did not include the documents Plaintiff provided in connection with those 5 responses to show Plaintiff failed to comply with Rule 26(e). (See ECF No. 35-4 at 5–12.) These 6 failures are offset somewhat by Plaintiff’s abdication of its burden and implicit admission it did 7 not comply with Rule 26, but if the Court were to grant Defendant’s requested relief, it would be 8 precluding resolution on the merits on extremely limited evidence. Fourth, there is no discussion, 9 much less evidence, with which the Court may determine whether Plaintiff willfully or in bad 10 faith violated the disclosure requirements. 11 More importantly, it seems clear there is no harm to Defendant’s ability to muster a 12 defense to Plaintiff’s damages claim. Although fact discovery closed December 31, 2018 (ECF 13 No. 27 at 2), Plaintiff asserts its entire recovery is premised on the testimony of Defendant’s 14 PMK, to whom Defendant presumably has had access to prepare a defense since the inception of 15 this action. (ECF No. 37 at 4, 7–9.) Furthermore, Plaintiff has laid out its damages calculations 16 in detail in its briefing on the instant motion. (See id.) Although that fact does not justify 17 Plaintiff’s failure to comply with the Federal Rules after invoking federal jurisdiction, it does 18 lessen the harm to Defendant, especially given that a trial date has yet to be set. Defendant may 19 ensure Plaintiff presents no additional, undisclosed evidence of damages at trial through 20 exclusionary motions in limine. See, e.g., Copart, Inc. v. Sparta Consulting, Inc., No. 2:14-CV- 21 0046-KJM-CKD, 2018 WL 1871414, at *10–12 (E.D. Cal. Apr. 19, 2018). 22 Therefore, the Court declines to impose the first sanction in Rule 37(c)(1). However, as 23 the Court has already determined Plaintiff failed to comply with the disclosure requirements 24 under Rule 26(a) and (e), Defendant may move for alternative sanctions under Rule 37(c)(1)(A)– 25 (C), including the fees incurred in litigating the instant motion and any subsequent motion 26 Defendant may file under Rule 37. See Henry v. Gill Indus., Inc., 983 F.2d 943, 946 (9th Cir. 27 1993) (describing the requirements for seeking fees as sanctions under Rule 37(d)). 28 / / / 1 IV. CONCLUSION 2 For the foregoing reasons, the Court hereby DENIES Defendant’s Motion for Summary 3 | Judgment. (ECF No. 35.) The parties are ORDERED to file a Joint Status Report within thirty 4 | (30) days of the electronic filing date of this Order indicating their readiness to proceed to trial 5 | and proposing trial dates. 6 IT IS SO ORDERED. 7 | DATED: December 6, 2021 g ()

10 Troy L. Nuhlep ] Wl United States District Judge 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28