Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_02-cv-01954/USCOURTS-azd-2_02-cv-01954-0/pdf.json

Nature of Suit Code: 820
Nature of Suit: Copyright
Cause of Action: 17:101 Copyright Infringement

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Merchant Transaction Systems, Inc., 

Plaintiff, 

vs.

Nelcela, Inc., an Arizona corporation, et

al., 

Defendants. 

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No. CV02-1954-PHX-MHM

ORDER

On November 16, 2005, the Court held a hearing on Nelcela, Inc., Len Campagne and

Alex Dollarhide’s motion for sanctions against Plaintiff Merchant Transaction Systems,

Inc. (“MTSI”). See Doc. #206. Following oral argument by counsel for Nelcela and MTSI,

the Court ordered MTSI and its counsel to pay discovery sanctions to Nelcela in an

amount to be determined after further briefing.

On May 12, 2005, M TSI produced a source code to Nelcela, specifically stating that

the code “ was t aken off the MTSI server.” See Doc. #206, Ex. B. In response, Nelcela

served a Rule 34 request for inspection of the “MTSI server” from which the source code

was obtained. See Doc. #206, Ex. C. At a hearing on June 17, 2005, counsel for MTSI told

Judge Murguia that Nelcela would be given access to t he server. See Doc. #206, Ex. D, at

20. Judge Murguia expressly warned the parties that any difficulties regarding production

of the source code would result in sanctions. Id. at 23. Subsequently, on July 3 and 7,

Case 2:02-cv-01954-DJH Document 300 Filed 11/22/05 Page 1 of 4
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2005, counsel for MTSI and Nelcela agreed that inspection of the MTSI server would occur

on July 19, 2005, in an office in San Juan Capistrano, California.

T he p art ies subsequently reached an impasse on the nature of the inspection and

whet her Nelcela would be permitted to copy portions of the server’s hard drive. Because

Judge Murguia was unavailable, this Court agreed to resolve the discovery dispute. The

Court issued an order on July 13, 2005, st at ing t hat Nelcela’s experts would be permitted

to copy the entire hard drive. See Doc. #199. As a result , Nelcela flew its experts from the

East Coast to Phoenix on July 18, 2005, to prepare for the following day’s Rule 34

inspection and copying. 

On the morning of July 18, 2005, counsel for MTSI sent counsel for Nelcela an email

stating that various agreements would need to be reached before the copying of t he hard

drive would be permitted, and suggested that the inspection take place on July 29, 2005.

Counsel for Nelcela declined to postpone the inspection and traveled to California the next

day with the Nelcela experts. In a conference call wit h the Court and counsel on July 19,

2005, counsel for MTSI asserted for the first time that the source code was located on a

server owned by an entity known as Merchant First. Counsel claimed a lack of access to

the server and stated that personnel were not available to permit copying as ordered by the

Court. The Court ordered counsel for MTSI to seek to obtain access t hat day . If access

could not be arranged that day , the Court stated that it would entertain a motion for

sanct ions for expenses incurred by Nelcela in preparing for the July 19, 2005 inspection and

copying. Access was not arranged that day , and Nelcela ultimately was required to fly its

experts from the East Coast at a later date to complete copying of the hard drive.

The Court finds that MTSI’s last-minute effort to change the July 19 inspection

resulted in Nelcela incurring unnecessary expenses in flying its experts to Phoenix on

July 18, 2005. Moreover, MTSI represented to Nelcela and t he Court that the source code

was on “the MTSI server.” It was not until July 19, 2005, that MTSI informed Nelcela and

the Court that the source code was located on a server owned and operated by a third

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1 Alt hough the parties previously had agreed on the July 19 inspection date, the

Court’s order of July 13, 2005 stated that copying of the hard drive would occur “at a time

and place to be agreed upon by the parties.” See Doc. #199, ¶ 1. Once MTSI made clear

in the July 18 email that it wished to proceed wit h the copying on July 29, Nelcela was not

justified in simply flying its experts to California for cop y ing on the 19th. Sanctions are

appropriate, however, for MTSI’s late notice of the changed inspection date – which

caused Nelcela to incur expert exp enses on July 18 – and for MTSI’s untimely raising of

the third-party ownership of the hard drive.

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party, Merchant First. This untimely disclosure unnecessarily complicated the process of

obtaining access to the source code and caused Nelcela to incur expenses that could have

been avoided.

Pursuant to Rule 37 of t he Federal Rules of Civil Procedure, MTSI and its counsel

will be required to reimburse Nelcela for the costs incurred by Nelcela in flying its experts

to Phoenix on July 18, 2005, including t he time billed by the experts in connection with that

travel that was not otherwise productive in the litigation. Because Nelcela could have

avoided the cost of flying its experts to California once it knew that the July 19 inspection

would not occur, the Court will not require MTSI to reimburse those expenses.1

 

On or before November 23, 2005, Nelcela shall provide the Court with a

memorandum, no longer than five pages in length, describing the costs incurred by Nelcela

in connection with the July 18, 2005 travel of its experts as described above. On or before

November 30, 2005, MTSI shall file a resp onse concerning the amount of costs claimed by

Nelcela. The Court will enter an order awarding monetary sanct ions against MTSI and its

counsel on the basis of this briefing. 

As the Court explained to the parties during the hearing on November 16, 2005, it

will not at t empt to address other discovery issues in this case. The Court’s ruling is limited

to MTSI’s response to Nelcela’s Rule 34 request and the Court’s order of July 13, 2005.

Other sanctions and discovery issues will be resolved by Judge Murguia.

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IT IS ORDERED:

1. Nelcela, Inc., Len Campagne, and Alex Dollarhide’s motion for sanctions

against Plaintiff MTSI (Doc. #206) is granted in part and denied in part as set forth above.

2. Nelcela, Inc., Len Campagne and Alex Dollarhide’s motion to strike MTSI’s

improper and untimely “opposition” (Doc. #288) is denied.

DATED this 22nd day of November, 2005.

Case 2:02-cv-01954-DJH Document 300 Filed 11/22/05 Page 4 of 4