Source: https://www.ipmvs.com/filewrapper/nondisclosure-of-test-results-disclosed-to-testifying-expert-results-in-sanctions-but-not-dismissal?A=WebApp&CCID=26884&Page=145&Items=3
Timestamp: 2019-10-14 01:22:12
Document Index: 35014157

Matched Legal Cases: ['§ 285', '§ 1920', '§ 285', '§ 1920', '§ 285', '§ 1920', '§ 285', '§ 1920']

Nondisclosure of test results disclosed to testifying expert results in sanctions, but not dismissal
In a recent decision, the Federal Circuit affirmed-in-part and reversed-in-part a district court's ruling sanctioning the plaintiffs and their attorney in a case both monetarily and by striking the plaintiffs' pleadings. The sanctionable conduct was the withholding of certain test results of the allegedly infringing product that arguably showed the product did not infringe. The test results were disclosed to the plaintiffs' expert witness, but never disclosed to the defendants. When asked to explain their conduct, the plaintiffs and their lawyer testified they believed (mistakenly) the results were either irrelevant or subject to work product protection, although it was never listed on a privilege log. As a result of this, the district court struck the plaintiffs' complaint and answer to counterclaims, and also ordered the plaintiffs to pay over $121,000 in attorney fees under Rule 37, nearly $1 million in fees and expenses under the court's inherent authority, over $1.6 million in fees under § 285, and nearly $50,000 in costs under § 1920.The Federal Circuit agreed with the district court's finding that the conduct was sanctionable, but reversed-in-part the actual sanctions applied. Specifically, the court held striking the pleadings was too drastic a sanction. As a result, the awards under § 285 and § 1920 were also reversed, as they have a prevailing party requirement. The court also reversed the award under the court's inherent powers, noting that under Supreme Court jurisprudence, when a Rule provides adequate sanctioning power, a court should ordinarily rely upon the Rule rather than its inherent authority.More detail of ClearValue, Inc. v. Pearl River Polymers, Inc. after the jump.The case at issue surrounds an exclusive license granted to ClearValue for a patent directed to methods for clarifying water and wastewater. ClearValue's business is in clarifying water, such as at municipal water treatment facilities. In order to practice the patented methods, ClearValue purchased chemicals from Pearl River, a chemical manufacturer. When the relationship between the parties broke down, ClearValue sued Pearl River for direct and indirect patent infringement, misappropriation of trade secrets, breach of confidentiality and unfair competition. Pearl River counterclaimed seeking declaratory judgment of noninfringement and invalidity; ClearValue responded by reasserting infringement and denying invalidity. A primary issue in the litigation became whether one of Pearl River's chemicals was of sufficient molecular weight to fall within the claims of the patent. Discovery orders instructed parties to provide all documents, data, etc. provided to, reviewed by, or prepared by or for experts in preparation for such expert testimony. The parties were instructed to exchange results relating to any molecular weight testing that had been conducted on the relevant chemical products. ClearValue and its attorneys did not list any test results on a privilege log nor did they produce any materials relating to such testing. At trial, Haase, the inventor of the patent, testified he believed a person on ClearValue's litigation team had conducted a molecular weight test, and he had seen the results. After this testimony, the district court sustained a privilege objection. Later, ClearValue's expert also testified he was aware of such testing. As a result of this testimony, the district court held work product protection waived, and required ClearValue to produce the test results and stated that it would consider motions for sanctions.The district court found that ClearValue and its attorney engaged in willful abuse of the discovery process in failing to produce the test results. As a result, the court awarded sanctions including attorneys' fees and other costs exceeding $2.7 million as a result of ClearValue's "egregious" misconduct (according to the district court) that was prejudicial to Pearl River. Specifically, the sanctions included (1) $121,107.38 in attorney's fees, under Rule 26 and Rule 37, against Appellants (plaintiffs and their attorney) jointly and severally; (2) $306,863.87 in attorney’s fees and $613,410.74 in costs and expenses, under the court's inherent powers, against Appellants jointly and severally; (3) $1,628,039.05 in attorney’s fees, under 35 U.S.C. § 285, against Appellants jointly and severally; and (4) $47,677.30 as costs, under 28 U.S.C. § 1920, against Appellants jointly and severally. In addition, the district court struck the plaintiffs' pleadings and entered judgment for the defendants, including on the invalidity counterclaims. Unsurprisingly, the plaintiffs appealed.
On appeal, ClearValue and the sanctioned attorney argued they did not engage in sanctionable conduct, and even if their conduct was sanctionable the district court abused its discretion in imposing such severe sanctions. Additionally the attorney, Waggett, argued he should not have been held joint and severely liable for the monetary sanction imposed based on his financial situation. The Federal Circuit first analyzed Rule 26 and the requirement that information be disclosed when it is has been or is considered by testifying experts. The court emphasized Rule 26 provides for very broad disclosure of documents and other information. The Federal Circuit held the district court did not abuse its discretion in awarding sanctions based on the plaintiffs nondisclosure of the test results and that the nondisclosure was not harmless. The court then turned to the actual sanctions applied. The Federal Circuit affirmed the district court's award of attorney's fees under Rule 37. While the documentation supporting the fee award was scant (a monthly breakdown of fees by attorney and claim along with affidavits of reasonableness), the Federal Circuit held the district court had enough documentation for a "meaningful review" of the award. Therefore they affirmed the amount of the award. With regard to the district court's imposition of joint and several liability on Waggett, the Federal Circuit held the district court abused its discretion by failing to consider Waggett's ability to pay the sanction. Accordingly, the court reversed this finding of liability against Waggett personally. Judge Newman dissented from this portion of the decision, noting that when the sanctions were appealed, Waggett was jointly and severally liable for over $2 million in sanctions, but after the appeal would only have been liable for just under $200,000. She would have either affirmed the joint and several liability on this basis or remanded the issue to the district court to consider Waggett's ability to pay in the first instance.The Federal Circuit next addressed whether striking the plaintiffs' pleadings was an appropriate sanction. The court held the severity of the sanction was not warranted, and therefore the district court had abused its discretion. Even though the conduct was sanctionable under Rule 37, it was insufficient to support dismissal under Fifth Circuit precedent. The decision to strike the pleadings also could not be supported by the court's inherent authority. Specifically, the Federal Circuit observed the sanctionable conduct arose out of a discovery issue. As stated by the Supreme Court, "when there is bad-faith conduct in the course of litigation that could be adequately sanctioned under the Rules, the court ordinarily should rely on the Rules rather than the inherent power," and should only use its inherent power if "neither the statute nor the Rules are up to the task." This was not such a situation, as Rule 37 provided sufficient sanctioning authority to the district court. Accordingly, the court reversed the district court's decision to strike the plaintiffs' pleadings. Because the awards under § 285 and § 1920 both have a prevailing party requirement, these awards were also reversed with the reversal of the decision to strike the pleadings.To read the full decision in ClearValue, Inc. v. Pearl River Polymers, Inc., click here.