Valjakka v. Netflix, Inc.

• Court: District Court, N.D. California
• Decided: July 10, 2025
• Docket: 4:22-cv-01490
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 LAURI VALJAKKA, Case No. 22-cv-01490-JST

8 Plaintiff, ORDER GRANTING IN PART AND 9 v. DENYING IN PART NETFLIX’S MOTION FOR AN ORDER TO SHOW 10 NETFLIX, INC., CAUSE AND SANCTIONS 11 Defendant. Re: ECF No. 315

12 13 Before the Court is Defendant Netflix, Inc.’s motion for an order to show cause and 14 sanctions against William Ramey and Ramey LLP, who formerly represented Plaintiff Lauri 15 Valjakka in this action. ECF No. 315. The Court will grant the motion in part and deny it in part. 16 I. BACKGROUND 17 The facts are well-known to the parties and the Court has summarized the background of 18 this action in detail in prior orders. In short, this is a patent infringement case brought by Valjakka 19 against Netflix. The present motion for sanctions arises out of Ramey’s conduct related to his 20 firm’s relationship with third party AiPi, LLC. AiPi has participated in the litigation at least by 21 “managing third party funding for Valjakka” and retaining counsel (Mr. Ramey) to represent him. 22 ECF No. 233-1 ¶¶ 13, 14. The extent to which AiPi had an additional role in this action is 23 disputed, as described more fully below. 24 Netflix filed the instant motion on February 18, 2025. ECF No. 302; see also ECF No. 315 25 (publicly filed unredacted version). Mr. Ramey opposes the motion. ECF No. 311. Netflix has 26 filed a reply. ECF No. 318. The Court held a hearing in this matter on May 8, 2025. 27 A. Protective Order 1 II. LEGAL STANDARD 2 A. Civil Contempt 3 “Civil contempt [. . . ] consists of a party’s disobedience to a specific and definite court 4 order by failure to take all reasonable steps within the party’s power to comply.” Reno Air Racing 5 Ass’n, Inc. v. McCord, 452 F.3d 1126, 1130 (9th Cir. 2006) (citing In re Dual-Deck Video 6 Cassette Recorder Antitrust Litig., 10 F.3d 693, 695 (9th Cir. 1993)). “The party alleging civil 7 contempt must demonstrate that the alleged contemnor violated the court’s order by ‘clear and 8 convincing evidence,’ not merely a preponderance of the evidence.” In re Dual-Deck Video, 10 9 F.3d at 695 (quoting Vertex Distrib., Inc. v. Falcon Foam Plastics, Inc., 689 F.2d 885, 889 (9th 10 Cir. 1982)). The moving party must also demonstrate that the noncompliance was more than “a 11 few technical violations.” Id. “‘Substantial compliance’ with the court order is a defense to civil 12 contempt.” Id. 13 B. Rule 37 14 “Federal Rule of Civil Procedure 37 authorizes the district court, in its discretion, to 15 impose a wide range of sanctions when a party fails to comply with the rules of discovery or with 16 court orders enforcing those rules.” Wyle v. R.J. Reynolds Indus., Inc., 709 F.2d 585, 589 (9th Cir. 17 1983) (internal citations omitted). “The violation need not be willful, unless the sanction is 18 dismissal.” O’Connor v. Uber Techs., Inc., No. 13-CV-03826-EMC, 2017 WL 3782101, at *4 19 (N.D. Cal. Aug. 31, 2017), appeal dismissed, No. 17-16859, 2017 WL 6398066 (9th Cir. Sept. 27, 20 2017) (citing Lew v. Kona Hosp., 754 F.2d 1420, 1426–27 (9th Cir. 1985)). The court “must order 21 the disobedient party, the attorney advising that party, or both to pay the reasonable expenses, 22 including attorney’s fees, caused by the failure, unless the failure was substantially justified or 23 other circumstances make an award of expenses unjust.” Fed. R. Civ. P. 37(b)(2)(C). Sanctions 24 imposed under Rule 37(b) “may serve either remedial and compensatory purposes or punitive and 25 deterrent purposes.” Falstaff Brewing Corp. v. Miller Brewing Corp., 702 F.2d 770, 783 (9th Cir. 26 1983). “The imposition and selection of particular sanctions are matters left to the sound 27 discretion of the trial court.” Id. 1 C. Rule 16 2 Under Federal Rule of Civil Procedure 16, “the court may issue any just orders, including 3 those authorized by Rule 37(b)(2)(A)(ii)–(vii), if a party or its attorney . . . fails to obey a 4 scheduling or other pretrial order.” Fed. R. Civ. P. 16(f)(1). Rule 16 also provides for the 5 payment of reasonable expenses incurred because of noncompliance “unless the noncompliance 6 was substantially justified or other circumstances make an award of expenses unjust.” Fed. R. 7 Civ. P. 16(f)(2). “Sanctions under this rule, too, are committed to the district court’s discretion.” 8 O’Connor, 2017 WL 3782101, at *4 (citing Ayers v. City of Richmond, 895 F.2d 1267, 1269–70 9 (9th Cir. 1990)). 10 III. DISCUSSION 11 A. Sanctions Under Rule 37 12 Netflix argues that Ramey violated the Court’s protective order, ECF No. 56, by sharing 13 Netflix’s confidential documents, so designated under the protective order, with attorneys 14 employed by third-party entity AiPi LLC. 15 Netflix learned through discovery received from AiPi that Mr. Ramey shared Netflix 16 confidential material with AiPi attorneys on several occasions. In December 2022, for example, 17 Mr. Ramey’s paralegal sent AiPi attorneys Eric Morehouse and Erik Lund a file entitled “Netflix 18 Production.zip,” which kicked off an email chain discussion in which AiPi attorney Ken Sheets 19 later called out a particular Netflix document that had been marked “Highly Confidential— 20 Attorneys’ Eyes Only. ECF No. 315-1 at 3 (discussing “document #6545”); ECF No. 302-1 ¶ 12 21 (document NFX_VALJ_00006545 was produced by Netflix and designated “Attorneys’ Eyes 22 Only”). 23 Also in December 2022, AiPi attorney Lund sent Mr. Ramey supplemental infringement 24 contentions, explaining, “[t]he added docs support our position and are AEO from Netflix’s latest 25 production.” Id. 26 On January 6, 2023, Mr. Ramey emailed AiPi attorneys Lund and Morehouse, “here are 27 the Netflix financials,” attaching a spreadsheet that Netflix had designated as “Highly 1 a “‘master’ financial report containing over seven years of detailed profit and loss information.” 2 ECF No. 302-10 at 2; ECF No. 315 at 10. 3 On May 16, 2023, Mr. Ramey emailed Netflix’s counsel with a series of technical 4 complaints about Netflix’s production of source code, including that it was “lacking in 5 documentation” and contained “no code that provides the logic for transferring files.” ECF No. 6 315-6 at 2. Shortly after, Mr. Ramey emailed AiPi attorneys Morehouse, Lund, and Sheets: 7 “Does this sum it up?” Id. Netflix contends that this communication shows that “AiPi employees 8 were privy to information contained in Netflix’s source code.” ECF No. 315 at 11. 9 On July 5, 2023, Mr. Ramey sent AiPi attorneys Morehouse, Lund, and Sheets a draft copy 10 of an expert report and its exhibits, which discussed and reproduced Netflix materials that were 11 marked “Highly Confidential—Attorneys’ Eyes Only.” ECF No. 315-3 at 2. 12 Mr. Ramey does not dispute that he shared Netflix confidential documents with attorneys 13 from AiPi. In fact, he acknowledges that AiPi attorneys Morehouse, Lund, and Sheets “had full 14 access to Netflix’s documents produced in discovery.” ECF No. 311 at 6. Instead, he raises 15 several arguments in an attempt to justify that sharing. 16 Mr. Ramey first argues that attorneys Morehouse, Lund, and Sheets were “each affiliated 17 with a law firm authorized under the Protective Order,” namely, Whitestone Law. ECF No. 311 at 18 7. Mr. Ramey contends that Whitestone Law was an authorized firm under the protective order 19 because attorney Joseph Zito entered an appearance in this action. Id. at 8. This argument fails 20 for at least two reasons. First, although the Court granted Mr. Zito’s application to appear pro hac 21 vice in November 28, 2023, ECF No. 236, by that time Mr. Ramey had already been sharing 22 Netflix confidential information with lawyers Morehouse, Lund, and Sheets for at least several 23 months. Second, contrary to Mr. Ramey’s claims, Mr. Zito never entered an appearance on behalf 24 of Plaintiff Valjakka. He moved for leave to appear pro hac vice on behalf of Valjakka, ECF No. 25 208, but the Court entered an order to show cause for failure to identify a California-based local 26 co-counsel. ECF No. 209. Mr. Zito then withdrew his motion for leave to appear. ECF No. 218. 27 Mr. Zito later appeared on behalf of third party AiPi, LLC, ECF No. 236, but that appearance on 1 purposes of the protective order. See ECF No. 56 at ¶ 2.11. 2 Mr. Ramey next contends that, while he “provided no documents to AiPi,”1 AiPi is “a 3 provider of litigation support services” and thus “a Professional Vendor” for the purpose of the 4 protective order. ECF No. 311 at 10. 5 It is true that the protective order contemplates access to protected documents for 6 “Professional Vendors,” i.e.,

7 persons or entities that provide litigation support service (e.g., photocopying, videotaping, translating, preparing exhibits or 8 demonstrations, and organizing, storing, or retrieving data in any form or medium) and their employees and subcontractors. 9 ECF No. 56 ¶ 2.14. Mr. Ramey says that AiPi fits this description because AiPi “assisted counsel 10 in the production of Valjakka documents . . . including the collection of documents from Valjakka, 11 . . . and providing documents to counsel for Defendant.” ECF No. 311 at 10 (quoting ECF No. 12 233-1 ¶ 26). But the protective order requires both that Professional Vendors sign the 13 “Acknowledgment and Agreement to Be Bound” and that disclosure of documents to Professional 14 Vendors be “reasonably necessary.” ECF No. 56 ¶ 7.2(f). Mr. Ramey offers no evidence that 15 AiPi signed the Acknowledgment or that the disclosure of Netflix’s confidential material was 16 “reasonably necessary” for AiPi to assist with production of Valjakka’s documents. Thus, neither 17 of these conditions was satisfied. 18 Mr. Ramey further argues that Netflix “was fully aware that lawyers who also worked at 19 AiPi worked on the case”2 because (1) Morehouse, Lund, and Sheets appeared on an email chain 20 with Netflix’s counsel in November 2023; and (2) Morehouse, Lund, and Sheets appeared as 21

22 1 This contention is hard for the Court to accept. Mr. Ramey maintains that he shared Netflix confidential information with “Whitestone lawyers,” not AiPi, but the email addresses he 23 consistently used for these lawyers had AiPi-related domain names. See, e.g., ECF No. 315-6 at 2 (Ramey emailing emorehouse@aipisolutions.com, elund@aipisolutions.com, and 24 ksheets@aipisolutions.com about Netflix source code). In at least some instances, the “Whitestone” lawyers also used their AiPi titles in communications, prominently featured the AiPi 25 logo, and discussed their role as litigation funders. ECF No. 315-1. On the current record, it appears the distinction between Whitestone and AiPi existed in name only. 26 2 Although Mr. Ramey does not expressly label it as such, the Court construes this as an argument that Netflix failed to comply with Civil Local Rule 7-8(c)’s requirement that a sanctions motion 27 “be made as soon as practicable after the filing party learns of the circumstances that it alleges 1 counsel for Valjakka at Valjakka’s deposition on October 21, 2023. ECF No. 311 at 13. Netflix 2 responds persuasively that these actions did not put it on notice that AiPi had access to its 3 confidential material; Valjakka’s deposition, for instance, could not have included confidential 4 material because Valjakka himself was not permitted to review such material. See ECF No. 318 at 5 9–10. 6 Finally, Mr. Ramey contends that Netflix suffered no harm as a result of his violations of 7 the protective order and that “[t]he only expenses Netflix is incurring are due to its own litigation 8 tactics.” ECF No. 311 at 15. The Court disagrees. Netflix, upon discovering that a third-party 9 entity responsible for funding litigation against it had access to, inter alia, its confidential financial 10 documents and source code, acted reasonably in taking steps to investigate the extent of the spread 11 of its confidential information and to mitigate the spread thereof.3 For the same reason, and 12 despite Mr. Ramey’s attempts to distinguish it, the Court finds Apple Inc. v. Samsung Electronics 13 Co., Ltd., No. CV 11-01846 LHK, 2013 WL 9768650 (N.D. Cal. Oct. 2, 2013) to be useful 14 authority. In Apple v. Samsung, a patent case, Samsung’s attorneys sent an unredacted expert 15 report, including key terms of Apple license agreements that had been designed “Highly 16 Confidential—Attorneys’ Eyes Only,” to their client, a direct competitor of Apple. Id. at *1. The 17 court described the important role protective orders play in facilitating discovery and assuaging 18 fears by litigants that competitors will wrongfully acquire their confidential information:

19 Time and again in competitor patent cases, parties resist producing confidential information to their adversaries’ lawyers. They fear, 20 among other things, that the lawyers will insufficiently shield the information from the competitors that they represent. Yet time and 21 again, the court assuages these fears with assurances that a protective order will keep the information out of the competitors’ hands. . . . 22 [C]onfidential information remains confidential because counsel and clients alike follow court orders. If parties breach this basic rule, the 23 court’s assurances become meaningless. 24 Id.; see also id. at *2 (ordering discovery into protective order violations); Apple, Inc. v. Samsung 25 Elecs. Co., No. 5:11-cv-01846-LHK (PSG), 2014 WL 12596470, at *9–10 (N.D. Cal. Jan. 29, 26 3 Netflix did not “address its entitlement to fees” in its motion. ECF No. 315 at 15. The Court 27 also expects that Netflix will incur more fees and costs as a result of the court-ordered discovery 1 2014) (granting motion for sanctions). While Netflix and AiPi are not direct competitors, as in 2 Apple, it is undisputed that AiPi is in the business of funding litigation against tech companies— 3 including Netflix. Netflix’s interests in preventing AiPi’s improper access to its confidential 4 materials are incontestable. 5 In sum, Mr. Ramey’s arguments are unavailing. The Court is persuaded that he violated 6 the protective order by sharing confidential material covered by that order with unauthorized 7 parties, namely attorneys employed by AiPi. The Court will award compensatory sanctions under 8 Federal Rule of Civil Procedure 37(b) to compensate Netflix for the reasonable costs it incurred 9 because of Mr. Ramey’s noncompliance. 10 B. Civil Contempt 11 Netflix also asks the Court to issue an order to show cause why Mr. Ramey should not be 12 held in civil contempt for violating a Court order. “Civil contempt sanctions . . . are employed for 13 two purposes: to coerce the defendant into compliance with the court’s order, and to compensate 14 the complainant for losses sustained.” Whittaker Corp. v. Execuair Corp., 953 F.2d 510, 517 (9th 15 Cir. 1992); see id. (“Unlike the punitive nature of criminal sanctions, civil sanctions are wholly 16 remedial.”); Falstaff Brewing Corp. v. Miller Brewing Co., 702 F.2d 770, 778 (9th Cir. 1983) 17 (purpose of compensatory sanctions is “to compensate the contemnor’s adversary for the injuries 18 which result from the noncompliance”). 19 Neither consideration provides a basis for contempt here. There is no need for contempt 20 sanctions to “coerce the defendant into compliance with the court’s order,” because Mr. Ramey no 21 longer represents the plaintiff in this action. And contempt sanctions are not necessary to 22 “compensate the complainant for losses sustained” because, as explained above, the Court has 23 granted the motion for Rule 37 sanctions to compensate Netflix for its losses. Accordingly, the 24 Court declines to issue an order to show cause why Mr. Ramey should not be held in civil 25 contempt for his violations of the protective order. 26 C. Discovery 27 Netflix seeks three forms of discovery: (1) all documents and communications between 1 presently or previously affiliated with AiPi with whom employees of Ramey LLP communicated; 2 and (3) a 3.5-hour deposition of Mr. Ramey, concerning the communications between Ramey LLP 3 and current/former AiPi employees that include, relate to, or otherwise discuss Netflix confidential 4 || materials. ECF No. 315 at 5-6. 5 The Court grants the second and third categories of discovery, and also permits Netflix to 6 || request identification by Mr. Ramey and Ramey LLP (collectively “Ramey”) of any documents 7 || designated “Confidential,” “Highly Confidential—Attorneys’ Eyes Only,” or “Highly Confidential 8 || AEO-Source Code” under the protective order that were shared with third parties; to request 9 identification of such third parties; and to request production of any communication to or from 10 || Ramey or AiPi, or Ramey and any other third party, concerning such documents. 11 CONCLUSION 12 For the reasons set forth above, Netflix’s motion for an order to show cause and sanctions 13 || is granted in part and denied in part. Netflix’s request for discovery is granted in part and denied 14 || in part as set forth above. 15 Netflix shall file a supplemental brief within 14 days of the completion of the discovery a 16 || described above that “itemize[s] with particularity the otherwise unnecessary expenses, including 3 17 attorney fees, directly caused by the alleged violation or breach, and set[s] forth an appropriate 18 || justification for any attorney-fee hourly rate claimed.” Civ. L.R. 37-4(b)(3). Mr. Ramey may file 19 a response no later than 14 days after Netflix files its brief. 20 The Court sets a case management conference on September 23, 2025 at 2:00 p.m. Mr. 21 Ramey shall appear at that conference. Updated joint case management statements are due 22 September 16, 2025. 23 IT IS SO ORDERED. 24 || Dated: July 10, 2025 .

2° JON S. TIGA 6 United States District Judge 27 28