Court Opinion

ID: 9402956
Source: CourtListenerOpinion
Date Created: 2023-06-19 18:00:31.814672+00
Date Added: 2024-06-11T17:20:03.674662
License: Public Domain

Case: 21-40705    Document: 00516791490        Page: 1    Date Filed: 06/19/2023

          United States Court of Appeals
               for the Fifth Circuit                                 United States Court of Appeals
                                                                              Fifth Circuit

                                                                            FILED
                                                                        June 19, 2023
                                No. 21-40705                           Lyle W. Cayce
                                                                            Clerk

   CEATS, Inc.,
                                                         Plaintiff—Appellant,
                                    versus

   TicketNetwork, Inc.; Ticket Software, LLC,
                                                      Defendants—Appellees,
                           consolidated with

                                No. 22-40028

   CEATS, Inc.,
                                                         Plaintiff—Appellant,
                                    versus

   TicketNetwork, Inc.; Ticket Software, LLC,
                                                      Defendants—Appellees,
                                    versus
   Milford Skane; Brian Billett; Sonja McAuliffe,
                                                                  Appellants.

                 Appeals from the United States District Court
                       for the Eastern District of Texas
                           USDC No. 2:15-CV-1470
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   Before Elrod, Haynes, and Willett, Circuit Judges.
   Don R. Willett, Circuit Judge:
          This consolidated appeal concerns the injunctive and monetary
   sanctions that the district court imposed after a company and three
   individuals violated the court’s protective order. The company and the
   individuals challenge the sanctions on several grounds, many of which have
   merit. We hold that the district court erred by sanctioning the individuals
   without notice, by imposing litigation-ending sanctions without first finding
   bad faith, and by failing to adequately explain and failing to consider essential
   factors in its calculation of attorney fees. We AFFIRM in (small) part,
   VACATE in (large) part, and REMAND for further proceedings.

                                                 I
                                                 A
          CEATS, Inc. is a non-practicing intellectual property company that
   owns patents for technologies used in online ticketing. TicketNetwork, Inc.
   and Ticket Software LLC (together “Ticket”) maintain an online
   marketplace for tickets to live events. More than a decade ago, CEATS filed
   a patent-infringement lawsuit against Ticket and other providers (the “2010
   Lawsuit”). Two years later, CEATS and Ticket settled that suit. The
   settlement agreement gave Ticket a license to use CEATS’s patents in
   exchange for a lump-sum payment from Ticket and for ongoing royalty
   payments from Ticket and its affiliates (the “License Agreement”).
   CEATS continued its litigation against the remaining, non-settling
   defendants, but the jury in that case found that CEATS’s patents were
   invalid. The Court of Appeals for the Federal Circuit affirmed.1

          1
              CEATS, Inc. v. Cont’l Airlines, Inc., 526 F. App’x 966 (Fed. Cir. 2013).
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          Ticket then filed this suit seeking declarations that Ticket did not
   infringe CEATS’s patents, that the CEATS patents at issue in the License
   Agreement are invalid, and that the License Agreement is unenforceable.
   CEATS counterclaimed, arguing that Ticket breached the License
   Agreement. CEATS also sought an accounting of payments due under the
   License Agreement (because Ticket had stopped paying).
          After the district court denied summary judgment, Ticket moved to
   dismiss its claims voluntarily. The district court granted that motion, and it
   dismissed all three counts from Ticket’s complaint. The parties then moved
   forward with discovery on CEATS’s counterclaims. At trial, the jury found
   that Ticket breached the License Agreement by using CEATS’s intellectual
   property without payment, and it awarded compensatory damages. The
   district court also awarded fees and costs to CEATS.

                                          B
          The protective-order violation at the center of this appeal occurred
   after the jury trial was over and while CEATS’s claim for attorney fees was
   still pending. Ticket allows its affiliate websites to view and sell Ticket’s own
   inventory. During this case’s discovery phase, CEATS moved to compel
   Ticket to produce a list of those affiliates. Following two contentious
   hearings, the district court ordered Ticket to produce the list. But the court
   made clear that the parties’ protective order prohibited CEATS from using
   the list for any purpose other than the present litigation. The protective order
   also prohibited CEATS’s in-house representatives from accessing “highly
   confidential” documents, and it required anyone who did access such
   documents to take reasonable care to ensure confidentiality. Because the list
   was so sensitive, the district court further required CEATS to certify that
   the list would not “be viewed by attorneys who are identifying or targeting
   licensing prospects.”

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          Ticket produced the affiliate list in a password-protected, encrypted
   ZIP file containing an Excel spreadsheet. The file also included an image
   bearing the Bates number TN002528 and the designation “HIGHLY
   CONFIDENTIAL—OUTSIDE COUNSEL EYES ONLY.” But the native
   spreadsheet itself—that is, the actual affiliate list—did not include a
   confidentiality designation in the file name or in the spreadsheet’s text.
          Milford Skane was CEATS’s CEO. Sonja McAuliffe and Dr. Brian
   Billett were CEATS’s litigation consultants. Because Skane was CEATS’s
   CEO, the protective order prohibited him from viewing the affiliate list (or
   any other of Ticket’s “highly confidential” documents). Nonetheless, Skane
   asked the litigation consultants for a “non-confidential” list of Ticket’s
   affiliates to aid in global settlement negotiations with Ticket. McAuliffe and
   Billett each separately sent Skane a copy of the Ticket affiliate list. Neither
   copy bore any confidentiality designation. CEATS, Skane, McAuliffe, and
   Billett argue that this discovery violation was inadvertent. According to
   them, because the native Excel sheet did not contain the “highly
   confidential” designation in the document title when Ticket produced it, the
   consultants did not realize that it had been so designated. CEATS also insists
   that Skane was relying on the consultants to avoid sending him protected
   documents and that he was unaware that the list was designated “highly
   confidential.”
          Skane then emailed a settlement demand to Ticket’s CEO, attaching
   the affiliate list as a “starting point” for negotiations. Skane wrote (in part):
          Don:
          We both know the sites involved (attached) and what the
          numbers are. These can certainly be our starting point. As
          previously indicated, I am willing to discount past claims and
          future royalties reasonably. For guidance purposes . . . we are

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          willing to consider an 8-figure (not $99m, but not $10m either)
          global settlement for any and all Ticket[] owned affiliates.
          Ticket responded by filing a “Motion for an Order to Show Cause why
   CEATS or Others Should Not Be Sanctioned for Violation of Protective
   Order.” The district court held an initial evidentiary hearing in April 2019.
   The court ordered further discovery, and it appointed forensic investigators
   to prepare and submit a report to the court and the parties. The court held
   additional hearings nearly two years later, after the investigators had
   completed their report, including an all-day evidentiary hearing in January
   2021. The district court issued an opinion and order (the “Sanctions Order”)
   finding that Skane, McAuliffe, and Billett (together, the “Individuals”)
   violated the protective order. The court also found that CEATS violated the
   protective order, because Skane’s violation occurred within the course and
   scope of his employment as CEO.
          The Sanctions Order had two parts. First, the district court enjoined
   CEATS and the Individuals from “contacting, seeking licensing fees, suing,
   or seeking damages from or related to Ticket[] or any of the companies or
   websites contained in the . . . affiliate list” for a thirty-month period (the
   “Licensing Bar”). Second, the district court imposed joint and several
   liability on CEATS and the Individuals (in their individual capacities),
   ordering them to pay Ticket’s reasonable attorney fees, costs, and expenses
   incurred in connection with prosecuting the protective-order violation. The
   Sanctions Order also provided that CEATS, Skane, McAuliffe, and Billett
   could file “a memorandum containing any objections, not to exceed seven
   (7) pages.” The Individuals had testified as witnesses at the hearings, but this
   was their first chance to submit briefing on sanctions.
          The court then issued a ruling containing a calculation of all
   reasonable expenses related to the protective-order violations (the
   “Calculation Order”). The court imposed a total monetary sanction of about

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   $500,000 on CEATS and the Individuals, jointly and severally. CEATS
   and the Individuals timely (but separately) appealed both the Sanctions
   Order and the Calculation Order. We consolidated the appeals.

                                                II
          Before addressing the merits, we must confirm our jurisdiction.
   Ticket’s complaint for declaratory relief invoked jurisdiction for federal
   claims generally (under 28 U.S.C. § 1331) and for patent claims specifically
   (under 28 U.S.C. § 1338). CEATS’s state-law counterclaims invoked
   supplemental jurisdiction under 28 U.S.C. § 1367(a) and diversity
   jurisdiction under § 1332(a)(1). Ticket later moved to voluntarily dismiss its
   federal-question claims under Federal Rule of Civil Procedure 41(a)(2). The
   district court granted the motion, dismissing Count One of Ticket’s
   complaint with prejudice and Counts Two and Three without prejudice. All
   of Ticket’s claims having been dismissed, the district court proceeded with
   discovery on CEATS’s state-law counterclaims.
          The Federal Circuit has exclusive jurisdiction “of an appeal from a
   final decision of a district court of the United States . . . in any civil action
   arising under . . . any Act of Congress relating to patents.”2 To determine
   whether a civil action arises under federal patent law, we use the well-pleaded
   complaint rule to examine the plaintiff’s statement of their claims.3
          At first glance, Ticket’s complaint appears to plead claims arising
   under federal patent law such that the Federal Circuit would have exclusive
   jurisdiction over this appeal. But the district court dismissed Ticket’s claims.
   “[T]he dismissal of a [] claim without prejudice operate[s] as an amendment

          2
              28 U.S.C. § 1295(a)(1).
          3
              Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 808–09 (1988).

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   of the complaint.”4 By contrast, a “dismissal . . . with prejudice constitutes an
   adjudication of the claims on the merits.5 Here, the district court dismissed
   Counts Two and Three of Ticket’s complaint without prejudice. But it
   dismissed Count One with prejudice—that is, on the merits. For
   jurisdictional purposes, then, those dismissals essentially left Count One as
   the only claim in Ticket’s suit. Thus, we must determine whether Ticket’s
   Count One arises under federal patent law.
           An action arises under federal patent law and thereby triggers the
   Federal Circuit’s exclusive jurisdiction when federal patent law creates the
   cause of action, or when there is a “substantial question of patent law” that
   is “disputed and require[s] resolution on the merits.”6 Count One of
   Ticket’s complaint sought a declaratory judgment that the royalty provisions
   in the Licensing Agreement are unenforceable. That is a state-law contract
   claim, not a federal-law patent claim. Nor did Count One require resolution
   of a disputed question of patent law. Ticket’s argument that the License
   Agreement was unenforceable hinged entirely on the jury’s invalidation of
   CEATS’s patent claims in the 2010 Lawsuit. All substantive questions of
   patent law relevant to Count One were already resolved in the 2010 Lawsuit.
   Therefore, Ticket’s suit, as amended after the district court’s dismissals, did

           4
               Zenith Elecs. Corp. v. Exzec, Inc., 182 F.3d 1340, 1346 (Fed. Cir. 1999).
           5
              Id. (emphasis added); see also Yoffe v. Keller Indus., Inc., 580 F.2d 126, 131 n.13
   (5th Cir. 1978) (“[D]ismissal with prejudice goes to the merits of a case . . . .”).
           6
             Lab’y Corp. of Am. Holdings v. Metabolite Lab’ys, Inc., 599 F.3d 1277, 1284 (Fed.
   Cir. 2010); see Sanders v. Flanders, 564 F. App’x 742, 744 (5th Cir. 2014) (holding that the
   Federal Circuit lacked exclusive jurisdiction over plaintiff’s state-law claims because any
   underlying patent issues did “not carry the [necessary] level of significance with respect to
   federal patent law”); USPPS, Ltd. v. Avery Dennison Corp., 541 F. App’x 386, 390 (5th Cir.
   2013) (retaining jurisdiction over the plaintiff’s state-law claims for fraud and breach of
   fiduciary duty because “the underlying hypothetical patent issues” were not “of
   substantial importance to the federal system as a whole”).

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   not arise under federal patent law. And as a result, the Federal Circuit does
   not have exclusive jurisdiction.
          This conclusion invites the question whether federal jurisdiction
   exists here. After all, Count One’s state-law claim is the only part of Ticket’s
   complaint that the district court adjudicated on the merits. The simple
   answer is that this is an appeal from CEATS’s counterclaims—not Ticket’s
   original complaint. “If an independent jurisdictional ground exists for a
   counterclaim, the district court can retain jurisdiction over the counterclaim
   even if the original claims are dismissed for lack of subject-matter
   jurisdiction.”7 So, regardless of Ticket’s pleadings, the district court had
   subject-matter jurisdiction over the counterclaims because CEATS invoked
   diversity jurisdiction under 28 U.S.C. § 1332(a)(1).
          Finally, we have appellate jurisdiction over the parties’ appeals of the
   Sanctions Order pursuant to 28 U.S.C. § 1292, because that order grants an
   injunction. And we have appellate jurisdiction over the parties’ appeals of the
   Calculation Order pursuant to 28 U.S.C. § 1291, because that order is a final
   decision which disposed of all remaining sanctions issues. When a court
   imposes sanctions under Federal Rule of Civil Procedure 37, we review for
   abuse of discretion.8 “We review de novo a district court’s invocation of its
   inherent power and the sanctions granted under its inherent power for an
   abuse of discretion . . . .”9 A court abuses its discretion regarding sanctions
   when it bases its ruling “on an erroneous view of the law or on a clearly
   erroneous assessment of the evidence.”10

          7
              McLaughlin v. Miss. Power Co., 376 F.3d 344, 355 (5th Cir. 2004) (per curiam)).
          8
              Tollett v. City of Kemah, 285 F.3d 357, 363 (5th Cir. 2002).
          9
              FDIC v. Maxxam, Inc., 523 F.3d 566, 590 (5th Cir. 2008).
          10
               Matta v. May, 118 F.3d 410, 413 (5th Cir. 1997).

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                                                 III
           The Individuals argue that the district court never gave them notice
   that it was considering monetary sanctions against them personally. We agree
   that the Individuals did not receive the process that our precedent says was
   due. As a preliminary point, the district court did not specify whether it
   sanctioned the Individuals under Rule 37 versus under its inherent power.
   Yet Rule 37 authorizes sanctions only against a party (or a party’s attorney).11
   The Individuals were neither parties nor attorneys, so the district court must
   have drawn on its inherent power when it sanctioned them.
           When a court contemplates sanctions under its inherent power, “it
   must comply with the mandates of due process,”—both “in determining
   that the requisite bad faith exists” and “in assessing fees.”12 Due process
   requires “fair notice and an opportunity for a hearing on the record.”13
   Notice is fair if it is “reasonably calculated, under all the circumstances, to
   apprise interested parties of the pendency of the action.”14 The court must

           11
               Fed. R. Civ. P. 37(b)(2), 37(c); see Gen. Ins. Co. of Am. v. E. Consol. Utilities,
   Inc., 126 F.3d 215, 220 (3d Cir. 1997) (“On its face, however, Rule 37(b)(2) applies only to
   parties, and we have found no case that has applied Rule 37(b)(2) to a nonparty.”); Beverly
   v. Interior Elec. Inc. Nevada, No. 21-55645, 2023 WL 355692, at *2 (9th Cir. Jan. 23, 2023)
   (similar); 7 Moore’s Federal Practice § 37.40 (3d ed. 1997) (“[O]nly Rule 37(b)(1),
   governing a deponent’s failure to be sworn or to answer a question after being directed to
   do so by the court, applies to nonparties. Rule 37(b)(2), governing all other failures to obey
   discovery orders, does not apply to nonparties.” (emphasis added)).
           12
                Chambers v. NASCO, Inc., 501 U.S. 32, 50 (1991).
           13
                Roadway Exp., Inc. v. Piper, 447 U.S. 752, 767 (1980).
           14
            Armstrong v. Manzo, 380 U.S. 545, 550 (1965) (quoting Mullane v. Central
   Hanover Bank & Trust, 39 U.S. 306, 314 (1950)).

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   provide a hearing that allows the party facing sanctions “an opportunity to
   present their objections”15 and “an opportunity to mount a defense.”16
           Here, the Individuals did not received notice that monetary sanctions
   were “pend[ing]” against them.17 Ticket’s show-cause motion after it
   discovered the protective-order violation asked for sanctions against
   “CEATS or Others.” This vague request did not put the Individuals on
   notice that they might be personally on the hook for fees and costs. And while
   the motion did ask the court to sanction McAuliffe and hold him in contempt,
   it did not mention him or any of the Individuals when it asked for monetary
   sanctions. Instead, Ticket asked the court to “order CEATS to pay all
   attorney[] fees and costs . . . associated with CEATS’s breach of the
   Protective Order, including the fees and costs for investigating the breach.”
   Similarly, the district court’s show-cause orders did not flag the possibility of
   individual monetary sanctions against the Individuals. The Individuals also
   did not get a hearing that allowed them to defend their state of mind. While
   Skane and McAuliffe testified in the first evidentiary hearing, and while all
   three Individuals testified in the second, they had no indication that they
   were testifying as more than witnesses.
           Instead, the Individuals learned that they might face sanctions at the
   same time that they learned that they would face sanctions. The Sanctions
   Order made findings about the Individuals’ states of mind, and it held them
   jointly and severally liable for Ticket’s fees and costs. But that was after the
   discovery, forensic investigation, and evidentiary hearings had ended. True,

           15
                Id.
           16
              Kenyon Int’l Emergency Servs., Inc. v. Malcolm, No. 12-20306, 2013 WL 2489928,
   at *5 (5th Cir. May 14, 2013) (discussing Rule 11 sanctions).
           17
                Armstrong, 380 U.S. at 550.

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   the district court did allow the Individuals to submit briefing before it issued
   the Calculation Order. But that post-deprivation opportunity to respond (in
   a brief not to exceed seven pages) is no substitute for the pre-deprivation notice
   and hearing that due process here requires.18
          The Individuals did not receive notice that monetary sanctions were
   pending against them, and they did not receive a pre-deprivation opportunity
   to defend themselves at a hearing. By the time the district court heard their
   response, it had already decided against them. That was an abuse of
   discretion. Therefore, we VACATE the Sanctions Order insofar as that
   order imposes monetary sanctions against the Individuals.

                                                 IV
                                                 A
           CEATS first argues that the district court made an error of law by
   imposing the Licensing Bar as a sanction for CEATS’s protective-order
   violations. The Licensing Bar is one component of the Sanctions Order. It
   prohibits CEATS from “contacting, seeking licensing fees, suing, or seeking
   damages from or related to Ticket[] or any of the companies or websites
   contained in the TN002528 Ticket[] affiliate list” for 30 months.
          The district court sanctioned CEATS under Federal Rule of Civil
   Procedure 37(b)(2). That rule empowers a court to sanction a party that
   disobeys a discovery order. “District Courts have broad discretion in
   determining whether to impose a sanction under Rule 37, and, if so, what
   sanction to impose.”19 Sanctions under this rule must be both “just” and
   “related to the particular ‘claim’ which was at issue in the order to provide

          18
               See NASCO, 501 U.S. at 50.
          19
               SEC v. First Fin. Grp. of Texas, Inc., 659 F.2d 660, 664–65 (5th Cir. 1981).

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   discovery.”20 Yet “[o]ur caselaw imposes a heighted standard for litigation-
   ending sanctions (sometimes called “death penalty” sanctions),” as so:
           [T]he district court must make four additional findings to
           impose a litigation-ending sanction: (1) the discovery violation
           was committed willfully or in bad faith; (2) the client, rather
           than counsel, is responsible for the violation; (3) the violation
           “substantially prejudice[d] the opposing party”; and (4) a
           lesser sanction would not “substantially achieve the desired
           deterrent effect.”21
           We agree with CEATS that the Licensing Bar was a litigation-ending
   sanction. Dismissals with prejudice and default judgments are both litigation-
   ending.22 Ticket argues that this case is different than those prototypical
   examples, though, because the Licensing Bar prohibits CEATS from
   initiating future actions against Ticket and its affiliates. Our caselaw takes a
   more practical view of what counts as litigation-ending. For example, we have
   held that a sanction is litigation-ending when the court strikes a defendant’s
   answer and denies a request to replead (something that would occur only in
   the future).23 And we have treated a dismissal without prejudice as litigation-
   ending when the statute of limitations will prohibit the party from refiling
   (also in the future).24 Likewise here. The Licensing Bar is litigation-ending
   because it prohibits CEATS from filing any lawsuits that it may have a right
   to bring against Ticket and its affiliates for a 30-month period. That is

           20
                Law Funder, L.L.C. v. Munoz, 924 F.3d 753, 758 (5th Cir. 2019).
           21
                Id. at 758–59.
           22
              See, e.g., FDIC v. Conner, 20 F.3d 1376, 1380 (5th Cir. 1994) (dismissal with
   prejudice is litigation-ending); Pressey v. Patterson, 898 F.2d 1018, 1019 (5th Cir. 1990)
   (striking defendant’s pleading and entering default judgment is litigation-ending).
           23
                Matter of United Mkts. Int’l, Inc., 24 F.3d 650, 654 (5th Cir. 1994).
           24
                Pond v. Braniff Airways, Inc. 453 F.2d 347, 348–49 (5th Cir. 1972).

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   perhaps even harsher than “the severest remedies under Rule 37(b)—
   striking pleadings or dismissal of a case.”25
           We also agree with CEATS that the district court did not make the
   bad-faith finding that is a prerequisite to litigation-ending sanctions under
   Rule 37(b).26 Instead, the district court found that CEATS acted recklessly,
   and then it equated recklessness with bad faith. We have rejected that
   equivalence. Evidence of “negligent or even reckless” discovery conduct
   does not show that a party acted “in bad faith or that it willfully abused the
   judicial machinery” sufficient to permit litigation-ending sanctions.27
           Ticket argues that CEATS forfeited the bad-faith argument by failing
   to assert it in the district court. While it is true that we tend not to entertain
   arguments that a party asserts for the first time on appeal, “an argument is
   not [forfeit]ed on appeal if the argument on the issue before the district court
   was sufficient to permit the district court to rule on it.”28 Here, CEATS told
   the district court that a discovery violation “must be committed willfully or
   in bad faith for the court to award the severest remedies available under Rule
   37(b).” CEATS also argued that it did not violate the Protective Order
   willfully or in bad faith, because the “communications . . . were clearly
   inadvertent.” That argument was enough to put the district court on notice
   that CEATS opposed any definition of “bad faith” that includes inadvertent
   conduct.29

           25
                Pressey, 898 F.2d at 1021.
           26
                See Law Funder, 924 F.3d at 758.
           27
                Pressey, 898 F.2d at 1023–24 (5th Cir. 1990).
           28
                See In re Liljeberg Enters., Inc., 304 F.3d 410, 427 n.29 (5th Cir. 2002).
           29
            See City of Alexandria v. CLECO, Corp., 547 F. App’x. 568, 570 (5th Cir. 2013)
   (“Inadvertence is inconsistent with a finding of bad faith.”); Bethel v. Woods Haven Senior

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          We VACATE the Sanctions Order insofar as that order applies the
   Licensing Bar to CEATS and the Individuals.30

                                                 B
          Next, CEATS argues that the district court erred by denying its
   motion to toll the statute of limitations for certain of CEATS’s potential
   claims against Ticket and Ticket’s affiliates. CEATS had asked the district
   court to toll limitations for the period during which the district court
   considered Ticket’s show-cause motion.” As part of the Sanctions Order,
   the district court denied that motion as moot. However, if the district court
   chooses not to re-impose the Licensing Bar against CEATS on remand, then
   that motion will no longer be moot. If that happens, the district court may
   wish to revisit CEATS’s tolling motion. Accordingly, we VACATE the
   Sanctions Order as it pertains to the tolling motion.

                                                 C
          CEATS’s final objection to the Sanctions Order is that the district
   court violated Rule 37(b) by imposing joint and several liability on CEATS.
   But CEATS forfeited this argument by failing to press it in the district
   court.31 Even putting that forfeiture aside, the argument fails. CEATS says
   that it cannot face liability for others’ misconduct. But when the protective-
   order violation occurred, Skane was CEATS’s CEO, and McAuliffe and

   Citizen Home Inc., 229 F.3d 1148 (5th Cir. 2000) (requiring “intentional rather than
   negligent behavior” for a court to impose litigation-ending sanctions).
          30
              The Individuals do not devote much argument to the Licensing Bar, but they
   have asked us to reverse the whole Sanctions Order. The district court found that the
   Individuals acted only recklessly. CEATS and the Individuals are therefore entitled to
   identical relief with respect to the Licensing Bar.
          31
               See Nissho–Iwai Am. Corp. v. Kline, 845 F.2d 1300, 1307 (5th Cir. 1998).

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   Billett were CEATS’s litigation consultants. We have not held that Rule 37
   prohibits joint and several liability, but we have held that Rule 37 allows a
   court to sanction a party for discovery violations that its retained experts
   commit.32 We therefore AFFIRM that part of the Sanctions Order that
   imposes joint and several monetary liability on CEATS.

                                                   D
           Turning to the Calculation Order, CEATS argues that the district
   court abused its discretion when it tallied the monetary sanction. When a
   court awards attorney fees as part of a sanction under Rule 37, it generally
   still must use the familiar two-step lodestar process.33 Here, Ticket provided
   the district court with an accounting of rates, hours, and costs, and it asked
   for about $750,000 in fees and costs. The district court reduced that amount
   after it saw discrepancies between Ticket’s request and its attorneys’
   invoices, saw duplication in some attorneys’ work, concluded that some
   attorneys’ rates were excessive, and concluded that fees from in-house
   counsel were unrecoverable. The court granted Ticket costs and fees in the
   reduced amount of about $500,000. We agree with CEATS that the district
   court abused its discretion in both steps of this process.
           Under the first step, a court must calculate the “lodestar,” which is
   equal to the number of hours reasonably expended multiplied by an
   appropriate hourly rate (excluding hours that are excessive, duplicative, or
   inadequately documented).34 To determine the rate, the court looks to the

           32
                Honey-Love v. United States, 664 F. App’x 358, 361–62 (5th Cir. 2016).
           33
                See Tollett, 285 F.3d at 367 (5th Cir. 2002).
           34
            See Smith & Fuller, P.A. v. Cooper Tire & Rubber Co., 685 F.3d 486, 490 (5th Cir.
   2012); Watkins v. Fordice, 7 F.3d 453, 457 (5th Cir. 1993).

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                                           No. 21-40705
                                         c/w No. 22-40028

   market rate in the community for similar work.35 The court must give “a
   reasonably specific explanation for all aspects of a fee determination,”
   including its determination of appropriate hourly rates.36
          Here, there was a significant disparity between the rates that the
   district court approved when it awarded attorney fees to CEATS (at an
   earlier stage of litigation) versus the rates that it approved when it awarded
   attorney fees to Ticket (as part of the sanction against CEATS). For
   CEATS, the court approved hourly rates between $425 and $495 for
   partners, and between $175 and $275 for associates. But for Ticket, as part of
   the Calculation Order, the court approved much higher hourly rates—
   between $650 and $850 for partners, and between $499 and $650 for
   associates.
          We have never required parity in awards of attorney fees. Nor have we
   held that a finding that certain rates are reasonable precludes the possibility
   that higher rates are also reasonable. As between CEATS and Ticket, there
   may be good reasons for the discrepancy in reasonable hourly rates, especially
   since the forensic investigation was highly technical. But the district court
   failed to provide a “reasonably specific explanation” for the rates that it
   approved for Ticket. Instead, the court said only that it “d[id] not agree with
   CEATS that the Court’s prior decision on attorney fees in this case prevents
   it from finding different numbers also are reasonable.” It is true that the
   court’s prior approval of CEATS’s rates was in no sense binding for future
   fee requests. Nor did the court clearly err by setting plainly unreasonable
   rates for Ticket. Still, the district court did not explain why Ticket’s rates

          35
               Perdue v. Kenny A. ex rel. Winn, 559 U.S. 542, 551 (2010).
          36
               Id. at 558.

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                                            No. 21-40705
                                          c/w No. 22-40028

   were reasonable.37 An explanation is particularly necessary “where, as here,
   [the] sanctions are substantial in amount.”38 Thus, the district court abused
   its discretion by failing to explain the rates that it approved under the first
   step of the calculation.
           Under the second step, a court must consider whether the lodestar
   amount should be adjusted up or down according to the 12 factors that appear
   in Johnson v. Georgia Highway Exp., Inc.39 “If the Johnson factors are not
   evaluated and explained by the district court with a reasonable degree of
   specificity in making its fee award determination, the case will be remanded,
   if necessary, for an explanation to facilitate appellate review.”40 Here, while
   the district court recited the Johnson factors and reduced some of the rates
   and hours based on CEATS’s objections, it failed to “use the Johnson
   factors to evaluate the fee award, or describe or discuss the application of
   Johnson in a manner that would facilitate meaningful appellate review.”41
           Therefore, we VACATE the Calculation Order and REMAND for
   the district court to recalculate the fees and to provide a “reasonably specific
   explanation”42 of both any rates that it approves and the Johnson factors.

           37
             Hensley v. Eckerhart, 461 U.S. 424, 439 n.15 (1983) (observing that “a mere
   conclusory statement that [a] fee [is] reasonable” is not a sufficient explanation).
           38
                Smith Int’l, Inc. v. Texas Com. Bank, 844 F.2d 1193, 1202 (5th Cir. 1988)
   (quotation omitted). Here, the sanctions award was higher than the jury award, and it was
   nearly as high as the attorney fees that the district court awarded to CEATS for successfully
   litigating the entire breach-of-contract counterclaim against Ticket.
           39
                488 F.2d 714 (5th Cir. 1974).
           40
                Riley v. City of Jackson, 99 F.3d 757, 760 (5th Cir. 1996).
           41
             Hoenninger v. Leasing Enters., Ltd., 2022 WL 340593, at *5 (5th Cir. 2022) (citing
   Harkless v. Sweeny Indep. Sch. Dist., 608 F.2d 594, 596 (5th Cir. 1979)).
           42
                Perdue 559 U.S. at 558.

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                                   No. 21-40705
                                 c/w No. 22-40028

                                        V
         We AFFIRM that part of the Sanctions Order that imposes joint and
   several monetary liability against CEATS. We VACATE those parts of the
   Sanctions Order that impose joint and several monetary liability against the
   Individuals, that impose the Licensing Bar, and that deny CEATS’s tolling
   request. We also VACATE the Calculation Order, and we REMAND for
   further proceedings.

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