Silver Fern Chemical Inc v. Lyons

District Court, W.D. Washington·Decided August 29, 2024·No. 2:23-cv-00775·Unknown

Opinion

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5 6 7 8 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON 9 AT SEATTLE 10 11 SILVER FERN CHEMICAL, INC., a CASE NO. 2:23-cv-00775-TL Washington corporation, 12 ORDER ON MOTION FOR Plaintiff, 13 v. SANCTIONS AND MOTION TO SEAL 14 SCOTT LYONS, an individual; TROY KINTO, an individual; KING HOLMES, an 15 individual; ROWLAND MORGAN, an individual; and AMBYTH CHEMICAL 16 COMPANY, a Washington corporation, 17 Defendants. 18 SCOTT LYONS, an individual, and KING HOLMES, an individual, 19 Counterclaim Plaintiffs, 20 v.

21 SILVER FERN CHEMICAL, INC., a Washington corporation; SAM KING, an 22 individual; and LISA KING, an individual, 23 Counterclaim Defendants. 24 1 This matter is before the Court on Plaintiff’s Motion for Sanctions (Dkt. No. 124 2 (sealed), 125 (redacted)) and Plaintiff’s Motion to Seal (Dkt. No. 123). Having reviewed the 3 Parties’ briefing and the relevant record, the Court GRANTS the Motion for Sanctions, GRANTS IN 4 PART and DENIES IN PART the Motion to Seal, and RESERVES decision on Plaintiff’s request to 5 reconsider this Court’s Order on Plaintiff’s motion for TRO. 6 I. BACKGROUND 7 The Court assumes general familiarity with the facts of the case. Relevant to the instant 8 motion, Plaintiff filed a motion for a temporary restraining order (“TRO”) at the outset of this 9 case. Dkt. Nos. 3, 22 (sealed). In opposition to the motion, Defendants submitted a variety of 10 declarations, including one from Defendant King Holmes. Dkt. Nos. 29 (sealed), 76. In that 11 declaration, Defendant Holmes stated, “Any of the deals I’ve put together after moving to 12 [Defendant] Ambyth are a result of customers reaching out to me to request we continue our 13 relationship.” Dkt. No. 29 ¶ 14. The motion was ultimately denied. Dkt. No. 40. 14 Later, Defendant Holmes was deposed as part of discovery. Dkt. No. 127-1 (transcript of 15 Holmes deposition) (sealed). In the deposition, Defendant Holmes stated that he contacted 16 multiple customers after his departure from Plaintiff and engaged or attempted to engage in 17 business transactions. See Dkt. No. 124 at 5–7. In one exchange, Defendant Holmes addressed 18 the alleged discrepancy between his testimony and his TRO declaration: 19 Q. You wrote: ‘Any of the deals I’ve put together after moving 20 to Ambyth are a result of customers reaching out to me to request we continue our relationship.’ Did I read that 21 correctly? 22 A. You did. 23 Q. Mr. Holmes, didn’t you just tell me that that’s not true? 24 A. I did. I reached out to a number of them. 1 Q. So this document you signed under penalty of perjury was inaccurate? 2 A. Yeah. I should not have phrased it that way. 3 Dkt. No. 127-1 (sealed) at 10 (150:17–151:5). Later, Defendant Holmes filed a supplemental 4 declaration in which he stated that he “intended to convey” that any deals after moving to 5 Defendant Ambyth are a result of customers “electing to continue our relationship.” Dkt. 6 No. 117 ¶ 5. Defendant Holmes further stated that “I notified many business contacts of my 7 departure from [Plaintiff] Silver Fern the same day I resigned and did not mean to imply 8 otherwise in my Declaration.” Id. 9 Plaintiff now brings the instant motion for sanctions, as well as a motion to seal the 10 motion for sanctions. Dkt. Nos. 124 (sealed), 125; Dkt. No. 123. Defendants oppose. Dkt. 11 Nos. 138 (sealed), 137; Dkt. No. 136. In its motion, Plaintiff also asks the Court to reconsider its 12 Order on Plaintiff’s motion for TRO in light of the instant motion. Dkt. No. 124 at 11–14. 13 II. MOTION FOR SANCTIONS 14 A. Legal Standard 15 A court may impose sanctions on a party or its counsel by three primary means: 16 (1) Federal Rule of Civil Procedure 11, which applies to signed, written filings; (2) 28 U.S.C. 17 § 1927, which penalizes unreasonable and vexatious multiplicity of proceedings; and (3) the 18 inherent power of the court. Fink v. Gomez, 239 F.3d 989, 991 (9th Cir. 2001). 19 “Federal courts possess certain ‘inherent powers,’ not conferred by rule or statute, ‘to 20 manage their own affairs so as to achieve the orderly and expeditious disposition of cases.” 21 Goodyear Tire & Rubber Co. v. Haeger, 581 U.S. 101, 107 (2017) (quoting Link v. Wabash R.R. 22 Co., 370 U.S. 626, 630–31 (1962)). Under its inherent powers, a court may “fashion an 23 appropriate sanction for conduct which abuses the judicial process.” Chambers v. NASCO, Inc., 24 1 501 U.S. 32, 44–45 (1991). “A district court may, among other things, dismiss a case in its 2 entirety, bar witnesses, exclude other evidence, award attorneys’ fees, or assess fines.” Am. 3 Unites for Kids v. Rousseau, 985 F.3d 1075, 1088 (9th Cir. 2021) (citing F.J. Hanshaw Enterps., 4 Inc. v. Emerald River Dev., Inc., 244 F.3d 1128, 1136 (9th Cir. 2001)). These sanctions may be

5 levied for “willful disobedience of a court order . . . or when the losing party has acted in bad 6 faith, vexatiously, wantonly, or for oppressive reasons . . . .” Fink, 239 F.3d at 991 (quoting 7 Roadway Express, Inc. v. Piper, 447 U.S. 752, 766 (1980)); see also In re Keegan Mgmt. Co., 8 Sec. Litig., 78 F.3d 431, 436 (9th Cir. 1996) (holding that a finding of bad faith is required to 9 impose sanctions under a court’s inherent powers). 10 B. Discussion 11 Plaintiff moves for sanctions in the form of attorney fees, based on the inherent power of 12 the court. Dkt. No. 124 at 10. Plaintiff argues that but for Defendant Holmes’s false statements to 13 the Court, it would not have had to expend fees to bring the instant motion. Id. Defendants 14 respond that Defendant Holmes did not act in bad faith. See Dkt. No. 138 at 9–13.

15 Here, the Court will grant the motion and award Plaintiff the attorney fees associated 16 with bringing this motion. In their response to Plaintiff’s motion for TRO, Defendants made 17 various representations that they abided by their Confidentiality Agreement, and they specifically 18 distinguished the Confidentiality Agreement from a non-solicitation or non-competition 19 agreement. See, e.g., Dkt. No. 26 (sealed) at 9–11, 13–17. Indeed, one section of their response is 20 titled in bold lettering, “Lyons, Holmes, and Kinto Did Not Breach Their Confidentiality 21 Agreement,” faulting Plaintiff for citing no evidence in support of its assertion that the men 22 brought confidential customer information to Defendant Ambyth. Id. at 11. In short, Defendants 23 were acutely aware that whether they had violated the Confidentiality Agreement was one of the

24 issues at the heart of the case and the request for TRO. Then, in support of their opposition to 1 Plaintiff’s request, Defendant Holmes provided a declaration in which the concluding statement 2 asserted (and the Court interpreted his statement as meaning) that customers initiated contact 3 with him, not that he reached out to them (as he actually did), which would have implicated him 4 using potentially confidential information he obtained while working at Silver Fern. See Dkt.

5 No. 29 (sealed) ¶ 14.

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