IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF TEXAS

MARSHALL DIVISION

THE PHELAN GROUP, LLC, 

Plaintiff,

v. 

MERCEDES-BENZ GROUP AG,

Defendant.

§

§

§

§

§

§

§

CIVIL ACTION NO. 2:23-cv-00607-JRG

(LEAD CASE)

THE PHELAN GROUP, LLC, 

Plaintiff,

v. 

HONDA MOTOR CO., LTD.,

Defendant.

§

§

§

§

§

§

§

CIVIL ACTION NO. 2:23-cv-00606-JRG

(MEMBER CASE)

THE PHELAN GROUP, LLC, 

Plaintiff,

v. 

STATE FARM MUTUAL AUTOMOBILE 

INSURANCE COMPANY,

Defendant.

§

§

§

§

§

§

§

§

CIVIL ACTION NO. 2:23-cv-00611-JRG

(MEMBER CASE)

MEMORANDUM OPINION AND ORDER

Before the Court is Defendant State Farm Mutual Automobile Insurance Company’s 

(“Defendant”) Motion for Sanctions Pursuant to Rule 37 (the “Motion”). (Dkt. No. 38.) In the 

Motion, Defendant requests “the Court to dismiss with prejudice ‘Count Two Infringement of U.S. 

Patent No. 9,908,508’ of the Complaint pursuant to Federal Rule of Civil Procedure 37(c)(1) and 

award State Farm the attorney’s fees and costs incurred defending against the ’508 Patent.” (Id. at 

9–10.) For the following reasons, the Court finds that the Motion should be DENIED.

Case 2:23-cv-00607-JRG Document 73 Filed 10/02/24 Page 1 of 6 PageID #: 1663
2 

I. BACKGROUND

On December 18, 2023, Plaintiff The Phelan Group, LLC (“Plaintiff”) filed its Original 

Complaint against Defendant. (No. 2:23-cv-00611-JRG, Dkt. No. 1.) In the Original Complaint, 

Plaintiff accused Defendant of infringing two patents: U.S. Patent Nos. 9,493,149 (the “’149 

Patent”) and 9,908,508 (the “’508 Patent”). (Id. ¶¶ 34–53.) 

On February 14, 2024, the Court issued an Order setting a scheduling conference and 

requiring Plaintiff to comply with Local Patent Rules 3-1 and 3-2 by March 11, 2024. (No. 2:23-

cv-00611-JRG, Dkt. No. 12.) Plaintiff then requested, and received, an extension of the deadline 

to comply with Local Patent Rules 3-1 and 3-2 until March 25, 2024. (No. 2:23-cv-00611-JRG, 

Dkt. Nos. 15, 16.) On March 25, 2024, Plaintiff served infringement contentions in compliance 

with Local Patent Rules 3-1 and 3-2 but only for the ’149 Patent. (Dkt. No. 38-3.)1

On April 4, 2024, counsel for Plaintiff sent counsel for Defendant a letter. (Dkt. No. 38-4.) 

In the letter, counsel for Plaintiff stated that Plaintiff “reserves the right to seek leave to designate 

additional or different claims against [Defendant] after being provided discovery, including source 

code review.” (Id. at 3.) Counsel for Plaintiff did not specifically address the ’508 Patent. (Id.)

In response, Defendant requested Plaintiff to dismiss with prejudice its claim that 

Defendant infringes the ’508 Patent. (Dkt. Nos. 38-5.) Counsel for Plaintiff informed counsel for 

Defendant on May 23, 2024 that Plaintiff planned to file an amended complaint that removed its

’508 Patent infringement allegations. (Dkt. No. 38-7 at 1.) However, Plaintiff did not amend its 

Original Complaint before Defendant filed the Motion approximately two months later. 

1 This District’s Local Rules provide that attachments and exhibits to motions and responses “should be in ‘searchable 

PDF’ form whenever possible.” CV-7(a). Defendant failed to submit the exhibits to the Motion in a searchable PDF 

form. The Court expects future filings to adhere to this District’s Rules and this Court’s Orders.

Case 2:23-cv-00607-JRG Document 73 Filed 10/02/24 Page 2 of 6 PageID #: 1664
3

On August 14, 2024, Plaintiff filed its First Amended Complaint (“FAC”). (Dkt. No. 59.) 

In the FAC, Plaintiff dropped its claim that Defendant infringes the ’508 Patent. (Id.) Instead, 

Plaintiff asserts that Defendant only infringes the ’149 Patent. (Id. ¶¶ 35–44.)

II. LEGAL STANDARD

Under Rule 37, “[i]f a party fails to provide information or identify a witness as required 

by Rule 26(a) or (e), the party is not allowed to use that information or witness to supply evidence 

on a motion, at a hearing, or at a trial, unless the failure was substantially justified or is harmless.” 

FED. R. CIV. P. 37(c)(1). The court has discretion over whether to issue additional sanctions. Id. 

As the Fifth Circuit has stated, “Rule 37 only requires the sanctions the Court imposes hold the 

scales of justice even.” Guidry v. Cont’l Oil Co., 640 F.2d 523, 533 (5th Cir. 1981) (citation and 

quotes omitted). “To impose sanctions against a party, a court must make a specific finding that 

the party acted in bad faith.” Tech Pharmacy Servs., LLC v. Alixa Rx LLC, No. 4:15-CV-00766-

ALM, 2017 WL 3394118, at *3 (E.D. Tex. Aug. 7, 2017) (citation omitted).

III. ANALYSIS

In the Motion, Defendant argues that Plaintiff “intentionally disobeyed its disclosure 

obligations and the Court’s Order requiring that infringement contentions be served by March 25, 

2024.” (Dkt. No. 38 at 7.) Defendant further argues that instead, Plaintiff seeks to improperly 

reserve the right to reassert its claim that Defendant infringes the ’508 Patent. (Id. at 8.) According 

to Defendant, Plaintiff’s “actions prejudiced [Defendant], which has expended resources litigating 

the ’508 Patent,” such as performing an infringement analysis of the accused products and working 

on invalidity contentions. (Id. at 8–9.) Defendant additionally argues that its requested sanctions 

are warranted because Defendant informed Plaintiff “long ago that its claims related to that patent 

were frivolous” in a Rule 11 letter. (Id. at 9.)

Case 2:23-cv-00607-JRG Document 73 Filed 10/02/24 Page 3 of 6 PageID #: 1665
4 

In response, Plaintiff accuses Defendant of engaging in gamesmanship itself. According to 

Plaintiff, Defendant opposed, then agreed to, consolidation of the above-captioned cases, which 

resulted in an extended deadline for Defendant to serve its invalidity contentions. (Dkt. No. 61 at 

5.) Plaintiff further argues that after it received Defendant’s non-infringement position on the ’508 

Patent, Plaintiff correctly narrowed the case to only the ’149 Patent through its infringement 

contentions. (Id. at 5–7.)

In reply, Defendant argues that the “central issue” of the Motion is that Plaintiff “filed its 

suit without conducting the requisite pre-suit diligence, such that it was unable to serve early 

infringement contentions for the ’508 Patent, as the Local Patent rules of this District require.” 

(Dkt. No. 61 at 1.) According to Defendant, Plaintiff “never had a Rule 11 basis to sue [Defendant] 

on the ’508 Patent.” (Id. at 2.) 

The Court finds that the Motion should be denied. As an initial matter, neither side has 

clean hands. When Plaintiff did not serve infringement contentions for the ’508 Patent, it should 

have promptly amended its Original Complaint to drop the ’508 Patent from the case. Instead, 

Plaintiff dragged its feet and did not amend the Original Complaint until after Defendant filed the 

Motion. Plaintiff fails to provide a reasonable explanation for this delay. If Plaintiff had been 

diligent, Defendant likely would not have filed the Motion. However, Plaintiff was not diligent, 

and this easily resolvable issue has unnecessarily imposed itself upon the Court’s limited 

time and resources. 

On the other hand, Defendant is also partly to blame. First, once Plaintiff filed the FAC 

and dropped the ’508 Patent, Defendant could have withdrawn the Motion because it received 

most of the relief it was seeking. Second, despite Defendant’s position that the “Complaint 

neglected to address each limitation of the ’508 Patent,” Defendant never moved to dismiss the 

Case 2:23-cv-00607-JRG Document 73 Filed 10/02/24 Page 4 of 6 PageID #: 1666
5 

’508 Patent from the complaint. (Dkt. No. 38 at 3.) While Defendant correctly notes that Rule 

12(b)(6) motions to dismiss “are disfavored” (id. at 3–4), Defendant still should have moved to 

dismiss Plaintiff’s allegations regarding the ’508 Patent if the allegations failed to state a claim, as 

Defendant now argues. Third, while Defendant complains about the time and money spent working 

on invalidity contentions and non-infringement positions, once Plaintiff failed to serve 

infringement contentions, Defendant was under no obligation to serve invalidity contentions or 

defend against the ’508 Patent. Plaintiff’s failure was an admission that it would no longer pursue 

infringement claims with respect to the ’508 Patent. In view of that admission, Defendant had no 

reason to continue working on invalidity contentions or non-infringement theories. Moreover, once 

Plaintiff formally dropped the ’508 Patent from its contentions, it streamlined the proceedings, 

ultimately lowering litigation costs for both Parties.

In any event, there is no failure to provide information under Rule 37 with respect to the 

’508 Patent infringement contentions because the ’508 Patent effectively was no longer asserted 

when Plaintiff failed to include it in its infringement contentions. Plaintiff’s choice to not serve 

’508 Patent infringement contentions and drop it from this case does not demonstrate bad faith. 

Further, Plaintiff eventually amended its complaint to officially remove the ’508 Patent from the 

above-captioned case. At this early stage of the case, the Court finds that dismissal with prejudice 

of the ’508 Patent is inappropriate.2

 Additionally, Defendant has failed to demonstrate that any of 

the requested sanctions are appropriate, given that the Court finds no bad faith.3

2 Moreover, there is not even a ’508 Patent infringement claim for the Court to dismiss with prejudice because it has

been dropped from the operative FAC. However, if Plaintiff seeks to reassert the ’508 Patent against Defendant

through another amended complaint, the circumstances giving rise to this Motion will be considered in the Court’s

good cause analysis.

3 The Court also disregards Defendant’s Rule 11 arguments. The Motion is a request for sanctions under Rule 37(c)—

not Rule 11. Defendant’s overreach in seeking dismissal with prejudice and other sanctions in light of 

Plaintiff’s sloppy lawyering casts Defendant in the same unflattering light it seeks to shine upon Plaintiff. 

Case 2:23-cv-00607-JRG Document 73 Filed 10/02/24 Page 5 of 6 PageID #: 1667
6 

IV. CONCLUSION

Having considered the Motion, the Court finds that it should be and hereby is DENIED.

This series of events does not reflect positively on either of the Parties or their counsel. 

____________________________________

RODNEY GILSTRAP

UNITED STATES DISTRICT JUDGE So ORDERED and SIGNED this 1st day of October, 2024.

Case 2:23-cv-00607-JRG Document 73 Filed 10/02/24 Page 6 of 6 PageID #: 1668