Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-4_07-cv-00226/USCOURTS-azd-4_07-cv-00226-1/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 28:1331 Fed. Question: Breach of Contract

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

OfficeMax Incorporated.,

Plaintiff, 

vs.

Mercedes and Rudy Flores, wife and

husband; Gregor Floyd and Rachel Floyd,

husband and wife; Business Products

Group, Inc., a foreign corporation; and

Business Furniture Solutions,

Incorporated, a foreign corporation, d.b.a.

Vanguard Legato Group,

Defendants. 

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No. CIV 07-226-TUC-CKJ (GEE)

REPORT AND RECOMMENDATION 

Pending before the court is a motion to dismiss for failure to comply with discovery

filed on February 29, 2008. The motion was filed by the defendant, Mercedes Flores, and

joined by the remaining defendants. [docs. # 93, 99, 100, 117] The plaintiff, Office Max,

filed a response, and the defendants, Flores and Business Furniture Solutions, filed separate

replies.

The plaintiff, Office Max, claims its former sales agent, Mercedes Flores, fraudulently

misappropriated its trade secrets when she left to work for one of its competitors, the

defendant, Business Furniture Solutions. Flores moves that the case be dismissed pursuant

to FED.R.CIV.P. 41(b) because Office Max has failed to provide a damages calculation as

required by FED.R.CIV.P. 26(a)(1)(A)(iii). 

Case 4:07-cv-00226-CKJ-GEE Document 118 Filed 05/29/08 Page 1 of 6
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The case has been referred to Magistrate Judge Edmonds for all pretrial matters

pursuant to Local Civil Rule 72.2. Rules of Practice of the U.S. District Court for the District

of Arizona. 

Discussion

Rule 41(b) permits a defendant to move for dismissal of the action “[i]f the plaintiff

fails to . . . comply with these rules or a court order.” FED.R.CIV.P. Dismissal, however, is

a drastic sanction and should be imposed “only in extreme circumstance.” Dahl v. City of

Huntington Beach, 84 F.3d 363, 366 (9th Cir. 1996). In deciding the motion, the court “must

weigh several factors: [1] the public’s interest in expeditious resolution of litigation; [2] the

court’s need to manage its docket; [3] the risk of prejudice to the defendants; [4] the public

policy favoring disposition of cases on their merits; and [5] the availability of less drastic

sanctions.” Id. A dismissal will be upheld by the court of appeals if four factors favor

dismissal or three factors “strongly” support dismissal. Yourish v. California Amplifier, 191

F.3d 983, 990 (9th Cir. 1999).

Rule 26(a)(1)(A)(iii) requires each party to provide “a computation of each category

of damages claimed by the disclosing party -- who must make available for inspection and

copying . . . the documents . . . on which each computation is based. . . .”

OfficeMax filed its original complaint on May 17, 2007. It filed an amended

complaint on May 25, 2007. It filed its second amended complaint on February 5, 2008. The

second amended complaint contains 12 counts:

(1) Violation of the Computer Fraud and Abuse Act., 18 U.S.C. § 1030

(2) Breach of Contract

(3) Breach of Duty of Loyalty

(4) Unfair Competition

(5) Breach of the Implied Covenant of Good Faith and Fair Dealing

(6) Uniform Trade Secrets Act (A.R.S. 44-401)

(7) Fraud

(8) Conversion/Embezzlement

(9) Tortious Interference with Contract/Economic Relations

(10) Unjust Enrichment

(11) Aiding and Abetting

(12) Request for Injunctive Relief 

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In its initial disclosures, Office Max listed “Lost Sales” as one of its categories of

damages. (Flores’ motion, Exhibit E.) Office Max asserted sales to First Magnus “exceeded

$550,000.” Id. In its first supplement to its initial disclosures, Office Max asserted under

the category “Lost Sales” that Flores’ sales to First Magnus were $569,477.73. (Office

Max’s response, Exhibit 5.) Her sales to other Office Max customers were as follows:

AURA, $1,462.91; Tucson Medical Center, $1,745.00; Tucson Orthopedic Institute,

$1,332.69; and Cross Town Traders, $375.38. Id.

In the instant motion, Flores argues Office Max’s computation of damages is

insufficient. Flores maintains this suit was brought in large part because Office Max believed

the defendants would steal away one of its best customers -- First Magnus. (Flores’ motion.)

Flores’ total sales up to July 5, 2007, amounted to approximately $569,477.73. Id., Exhibit

D. Approximately 98 percent of these sales were made to First Magnus or its division,

Pinnacle. Id. After subtracting Vanguard’s costs of $453,113.33 and Flores’ commission

of $29,091.10, Vanguard was left with a theoretical profit of $87,273.30. Id. This profit was

only theoretical, however, because First Magnus declared bankruptcy shortly after the sales

were made and tendered only partial payment. Id. Vanguard was left with a loss of

$117,000.00. Id. Flores argues Office Max should clearly disclose what damages it is

seeking in light of this unusual turn of events. The court tends to agree.

Where the plaintiff brings an action based on a misappropriation of trade secrets or

misuse of confidential information, the law recognizes three main categories of damages:

the defendant’s net profits, the plaintiff’s lost profits, and royalties. See Dan B. Dobbs, Law

of Remedies, § 10.5(3) (2nd ed. 1993). If Office Max intends to argue at trial it is entitled to

these damages, its disclosure is inadequate. Office Max has disclosed only the defendant’s

gross sales. This disclosure does not adequately assert any of the three main damage

categories. 

On the other hand, if Office Max believes it is entitled to the defendant’s gross sales,

rather than the defendant’s profits, its disclosure is entirely adequate. Apparently, in one of

his communications, counsel for Office Max expressed the opinion that the defendant should

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1

 There is some authority that indicates a motion to dismiss for failure to provide discovery

must be brought pursuant to Rule 37, not Rule 41(b). See Societe Internationale Pour Participations Industrielles Et Commerciales, S. A. v. Rogers , 357 U.S. 197, 207, 78 S.Ct. 1087, 1093

(1958). The court does not reach this issue because the parties did not brief it and, as a practical

matter, it does not appear that the movant’s burden under Rule 37 would be any lighter than it is

under Rule 41(b). See Ladien v. Astrachan, 128 F.3d 1051, 1057 n. 5 (7th Cir. 1997).

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not benefit from First Magnus’ bankruptcy. (Flores’ motion, Exhibit D.) It is possible Office

Max believes the defendant should not benefit from its internal sales costs either.

Fortunately, the court need not guess the true nature of Office Max’s theory of damages.

Assuming its disclosure is inadequate, the motion to dismiss pursuant to Rule 41(b) should

still be denied1

.

The court proceeds by analyzing the five Dahl factors. SeeDahl v. City of Huntington

Beach, 84 F.3d 363, 366 (9th Cir. 1996). The first factor, “the public’s interest in expeditious

resolution of litigation,” supports granting the motion. This factor, however, always supports

dismissal to some extent. See Yourish v. California Amplifier, 191 F.3d 983, 990 (9th Cir.

1999). In this case, the action is almost one year old, but discovery is still in the beginning

stages. This delay, however, is mostly due to the number of parties in the suit and the

number of attorney substitutions. It is unclear how much of the delay is the result of the

plaintiff’s failure to provide a proper computation of damages. This factor favors the motion

but not strongly.

The court’s analysis of its “need to manage its docket” yields a similar result. This

factor also supports the motion but not strongly. 

Flores concedes “the public policy favoring disposition of cases on their merits”

weighs against dismissal. 

Contrary to Flores’ argument, the court does not agree that Office Max’s failure has

caused it significant prejudice. Flores claims it is “unable to move forward with its defense

of this case, to obtain relevant discovery, or even to engage in settlement discussions. . . .”

(Flores’ reply, p. 9.) The court does not agree. The law of damages as it relates to this claim

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is fairly straight forward. (see above) Flores could proceed on the assumption that Office

Max will claim the damages usual in this type of action. If subsequent disclosure by Office

Max indicates that Flores guessed wrongly, the rules allow her to file a motion seeking

payment by Office Max for the discovery or depositions that must be redone. In the

alternative, Flores could take Office Max at its word and assume it seeks gross sales as its

only measure of damages. She might reinforce her assumption by filing a motion precluding

Office Max from presenting at trial evidence relating to any other categories of damages. See

Design Strategy, Inc. v. Davis, 469 F.3d 284, 293-99 (2nd Cir. 2006). Office Max’s failure

to disclose does not prevent Flores from moving forward with its defense.

Finally, the court finds less drastic sanctions are available. Flores could have moved

for an order compelling Office Max to comply with its duty to disclose by a date certain. In

the alternative, she could have filed a motion seeking to preclude Office Max from presenting

at trial evidence of damages inconsistent with its disclosure to date. (see above) Instead, she

chose to file a motion to dismiss the entire action. Contrary to Flores’ argument, the court

finds less drastic sanctions are available. 

Upon analyzing the five Dahl factors, the court finds three of them support the motion

to dismiss but not strongly. Accordingly, the motion should be denied. See, e.g., Raiford v.

Pounds, 640 F.2d 944, 945 (9th Cir. 1981) (Dismissal was improper where the case was not

quite one year old, the plaintiff filed her pretrial order twenty-two days after the second

deadline passed, the defendants claimed they were prejudiced by “anxiety” and the

“continued fading of their witness’ memories,” and lesser penalties were available.). 

RECOMMENDATION:

The Magistrate Judge recommends the District Court, after its independent review of

the record, enter an order 

Denying the defendant’s motion to dismiss for failure to comply with discovery.

[docs. # 93, 99, 100, 117] 

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Pursuant to 28 U.S.C. §636 (b), any party may serve and file written objections within

10 days of being served with a copy of this Report and Recommendation. If objections are

not timely filed, they may be deemed waived. 

The Clerk is directed to send a copy of this Report and Recommendation to the parties

or their counsel. 

DATED this 29th day of May, 2008.

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