VALCOR ENGINEERING CORP. v. PARKER HANNIFIN CORP Case No. SACV-16-00909-JVS (KESx) United States District Court, C.D. California Filed May 18, 2017 Counsel Joseph E. Thomas, William J. Kolegraff, Christina Le Trinh, William Steele Sanderson, Thomas Whitelaw and Kolegraff LLP, Irvine, CA, Alexander P. Swanson, Thomas Frasca Cochrane, Dhananjay S. Manthripragada, Patrick Ward Dennis, Perlette Michele Jura, Scott K. Behrendt, Gibson Dunn and Crutcher LLP, Los Angeles, CA, Jared Scott Greenberg, Gibson Dunn and Crutcher LLP, Denver, CO, Jeffrey H. Reeves, Michael Ethan Bareket, Seth M. Goldstein, Theodora Oringher, Costa Mesa, CA, for Valcor Engineering Corp. Lauren E. Grochow, Peter N. Villar, Nicholas Joseph Schuchert, Paul L. Gale, Troutman Sanders LLP, Irvine, CA, for Parker Hannifin Corp. Scott, Karen E., United States Magistrate Judge Order GRANTING Parker’s Motion to Compel Third-Party MEDAL’s Compliance with Subpoena (Dkt. 49) On March 24, 2017, Defendant and Counter-Claimant Parker moved to compel third-party MEDAL to comply with a subpoena served on November 23, 2016. (Dkt. 46-1.) Parker’s motion was initially filed in the U.S. District Court for the District of Delaware, where MEDAL is located. (Id.) Pursuant to FRCP 45(f), the Delaware court transferred the motion to this Court, the venue of the underlying litigation. (Dkt. 46-2, 53.) Parker thereafter re-filed the motion in this Court. (Dkt. 49.) MEDAL filed a response (Dkt. 59), Parker filed a reply (Dkt. 74), and MEDAL filed a surreply (Dkt. 84). On May 9, 2017, the Court held a hearing on the motion, which was attended by counsel for Parker, MEDAL, and Valcor. To date, MEDAL has not produced any documents responsive to the subpoena. For the reasons explained below, as well as the statements the Court made on the record at the hearing, Parker’s motion (Dkt. 49) is GRANTED. A. Background. On May 18, 2016, Valcor filed a complaint against Parker for breach of contract, negligence, and declaratory relief. (Dkt. 1.) Parker brings counterclaims for breach of contract and declaratory relief. (Dkt. 19.) The discovery cut-off was originally set for May 29, 2017, and trial was set for September 12, 2017. (Dkt. 23-1.) District Judge Selna recently approved the parties’ stipulation to extend these deadlines, moving the fact discovery cut-off to January 8, 2018 and trial to April 24, 2018. (Dkt. 87.) In 2004, Parker and Electroid, a division of Valcor, entered a Strategic Procurement Agreement (“SPA”) whereby Electroid agreed to supply air separation modules (“ASMs”) to Parker for use in Boeing 737 fuel tank inerting systems. (Dkt. 69 at 2-3 [parties’ agreed-upon neutral summary of case for letter rogatory].) The ASMs are designed to remove oxygen from a compressed air stream (referred to as “bleed air”) and generate nitrogen-enriched air, in order to reduce the risk of combustion and flammability in the airplane’s fuel tanks. (Id. at 2.) Non-party MEDAL supplied Valcor with core fiber bundle components for the ASMs. (Id. at 3.) Valcor then sold the ASMs to Parker. (Id.) Parker sold the Valcor ASMs and filter components, manufactured by third-party Porvair, to Honeywell. (Id.) Honeywell added further components and then sold the completed inerting system to Boeing for installation on the Boeing 737 aircraft. (Id.) Parker contends that Valcor breached the SPA by supplying defective ASMs, which began to fail prematurely; Parker therefore began to seek ASMs from a “second source” supplier. (Id.) Parker’s Counterclaim cites a 2012 Root Cause Report—created by Parker, Electroid, MEDAL, Honeywell, and Boeing—indicating that the failures were caused by a structural failure of the fiber inlet tube sheets and fiber degradation. (Dkt. 49-1 at 3 [citing Counterclaim at ¶¶ 42-45].) Valcor, in contrast, contends that the ASM problems were caused by contaminates in the compressed air stream. (Dkt. 69 at 3.) Valcor blames the filter supplied by Porvair for this. (Id.) Valcor contends that Parker knew this, failed to disclose it, and sought ASMs from a new supplier anyway. (Id.at 3-4.) B. Analysis. 1. The requests at issue and MEDAL’s objections. *2 The subpoena at issue contains 27 different requests. (Dkt. 49-3 at 40-48.) Parker’s motion to compel groups them into five general categories, which the Court uses for the sake of convenience. Where appropriate, the Court also includes the language of the specific requests. (1) Agreements between Valcor/Electroid and Air Liquide (MEDAL’s parent company)/MEDAL. Request No. 1: All documents reflecting, referring or relating to any agreements between Valcor or Electroid and MEDAL. (2) Documents relating to the design, development, manufacture, testing and sale of the ASMs. Request No. 2: All documents reflecting, referring, or relating to the ASMs sold to Parker for the Boeing 737 NGS. Request No. 3: All documents reflecting, referring, or relating to the design, use, development, manufacture, assessment or testing of the ASMs. (3) Communications between Air Liquide/MEDAL and various parties/third parties regarding Parker, the SPA, the ASMs, or the Boeing 737 Nitrogen Generation System. (Request Nos. 4-7) Request No. 4-6: Communications with Valcor, Boeing, and Honeywell on these topics. Request No. 7: Communications with “any other individual or entity” on these topics. (4) Documents and communications regarding the ASM failures, the return or replacement of the ASMs by customers, and any efforts to correct the problems. (Request Nos. 8-20, 27) Request Nos. 8-11: Communications between MEDAL and Valcor, Electroid, Boeing, Honeywell, or “any airline operator,” regarding any return or replacement of any ASM sold to Parker. Request Nos. 12-15: Documents reflecting, referring or relating to the following topics, including but not limited to any written reports, analyses, investigations, studies, examinations, or communications relating thereto: (12) Any problems, defects, flaws, deficiencies, or failures relating to the ASMs sold to Parker, (13) Any structural failure of the inlet tube sheets of the ASMs sold to Parker, (14) Any fiber degradation of the ASMs sold to Parker, or (15) The service life span of the ASMs sold to Parker. Request Nos. 16-20: Communications with Boeing, Honeywell, Valcor, Electroid, “any airline operators,” or “any consultants or advisors” reflecting, referring or relating to any problems, defects, flaws, deficiencies or failures relating to the ASMs sold to Parker. Request No. 27: Documents reflecting, referring, or relating to any efforts by Valcor, Electroid, or MEDAL to correct or cure any defects with the ASMs. (5) Documents reflecting, referring, or relating to the Root Cause Report, including certain statements in the Root Cause Report and the Corrective Action Plan under that report. (Request Nos. 21-26) MEDAL objected that all of these requests (1) were unduly burdensome; (2) sought irrelevant information; (3) were disproportionate to the needs of the case; (4) were vague; (5) sought proprietary and/or trade secret information; (6) sought privileged information; and (7) sought information that could be obtained from parties to the case. (Dkt. 49-3 at 52-53 [Villar Decl., Ex. E].) 2. The requests seek relevant documents and, with the exception of Request No. 1, are not overly broad. Overall, the Court finds that the documents and communications sought by Parker are relevant to the issues in the case, particularly the issue of why the ASMs failed. As discussed above in the Background section of this Order, it is Parker’s contention that the ASMs failed due to defects in fiber components supplied by MEDAL. As discussed further in paragraph 3 below, MEDAL has not met its burden of demonstrating that the requests are disproportional to the needs of the case, which involves multimillion dollar cross-claims for breach of contract. *3 MEDAL complains that the requests “span almost a decade of work[.]” (Dkt. 59-2 at 16.) However, this was apparently the period during which MEDAL supplied the relevant fiber components to Valcor. MEDAL has not suggested that only documents before or after a certain date would be relevant. The Court does find one of the requests to be overbroad, however, and limits it in the following fashion. In response to Request No. 1—all documents reflecting, referring, or relating to any agreements between Valcor or Electroid and MEDAL—MEDAL need only produce agreements related to the subject matter of this lawsuit, i.e., the ASMs and the Boeing 737 program. This includes any indemnification agreements between MEDAL and Valcor or Electroid that might affect MEDAL, Valcor, or Electroid’s liability for damages awarded or discovery costs incurred in this lawsuit. The Court declines to strike the other requests as overbroad or irrelevant on their face. If, however, in searching for documents responsive to the other requests, MEDAL determines that certain categories or types of documents would be responsive but irrelevant, MEDAL should initiate a meet-and-confer with Parker to determine if MEDAL’s response can be limited to exclude the allegedly irrelevant category or type of document. 3. MEDAL has not shown that responding to the subpoena requests would be unduly burdensome, as would justify quashing the subpoena. MEDAL argues that the cost of responding to the subpoena requests would be unduly burdensome, particularly since MEDAL is a third-party. (Dkt. 59-1 at 16.) MEDAL has submitted a declaration from its vice president, Chet Benham, opining that the requested production would involve “hundreds of thousands of pages that span almost a decade of work related to fiber membranes”; that MEDAL “has more than 100 employees”; that “MEDAL is a manufacturing company, and as such, documents could be in hard-copy form or electronic form”; that documents “could be contained in any number of separate databases; and that “the use of electronic key words would not retrieve responsive documents.” (Dkt. 59-4 at 39 ¶¶ 15-17.) At the hearing, MEDAL’s counsel clarified that it has potentially responsive documents in three formats: (1) emails and electronic files that are keyword searchable; (2) technological databases that are not keyword searchable; and (3) documents in hard copy. Counsel was not able to provide more specific information as to how long searching these three sources would take. For example, it is not clear to the Court how the databases in the second category are organized, or whether they can be searched in some fashion other than keyword searches. It is also unclear what percentage of the relevant documents are in hardcopy, the most onerous form to search and review. MEDAL has not convinced the Court that the costs of compliance would be so burdensome that quashing the subpoena, which admittedly seeks relevant documents, would be justified. Moreover, as discussed more fully below in Section C of this Order, the burden on MEDAL can be mitigated by having the parties meet-and-confer on the most efficient manner of conducting searches, reviewing, and producing documents. MEDAL may also be entitled to recover some of the costs of production from Parker and/or Valcor, assuming those costs are reasonable. 4. The protective order can be modified to alleviate MEDAL’s confidentiality concerns. *4 MEDAL objects that the requests seek trade secret information regarding its fiber manufacturing process, and that Parker is now MEDAL’s direct competitor because Parker is working with another source to supply ASMs for the Boeing 737 program. (Dkt. 59-1 at 19-20.) MEDAL contends that the protective order already entered in this case is inadequate to protect its interests for two reasons. The Court finds that neither of these reasons justify quashing the subpoena. First, MEDAL wants an Attorney’s Eyes Only provision, as well as additional protections for disclosure to any experts retained by Parker that are employed by Parker or another competitor. (Dkt. 59-1 at 20-21.) The protective order entered in this case already includes an Attorney’s Eyes Only designation and explicitly covers material produced by non-parties. (Dkt. 26 at ¶¶ 2.7, 7.3, 8, 9.) As for the experts issue, MEDAL admits that “[m]any protective orders have been written and approved by courts that ... provide an objection mechanism for experts, or a pre-identification mechanism to protect the business interests of a non-party.” (Dkt. 59-1 at 21.) The Court suggests the following language from District Judge Andrew J. Guilford’s standing protective order: 4.4.2 A party seeking to disclose to an expert retained by outside counsel of record any information or item that has been designated HIGHLY CONFIDENTIAL – ATTORNEY EYES ONLY must first make a written request to the designator that (1) identifies the general categories of HIGHLY CONFIDENTIAL – ATTORNEY EYES ONLY information that the receiving party seeks permission to disclose to the expert, (2) sets forth the full name of the expert and the city and state of his or her primary residence, (3) attaches a copy of the expert’s current resume, (4) identifies the expert’s current employer(s), (5) identifies each person or entity from whom the expert has received compensation or funding for work in his or her areas of expertise (including in connection with litigation) in the past five years, and (6) identifies (by name and number of the case, filing date, and location of court) any litigation where the expert has offered expert testimony, including by declaration, report, or testimony at deposition or trial, in the past five years. If the expert believes any of this information at (4) - (6) is subject to a confidentiality obligation to a third party, then the expert should provide whatever information the expert believes can be disclosed without violating any confidentiality agreements, and the party seeking to disclose the information to the expert shall be available to meet and confer with the designator regarding any such confidentiality obligations. 4.4.3 A party that makes a request and provides the information specified in paragraph 4.4.2 may disclose the designated material to the identified expert unless, within seven (7) days of delivering the request, the party receives a written objection from the designator providing detailed grounds for the objection. The Court is willing to resolve any disputes related to this issue via the informal telephonic conference procedure outlined on its website. As discussed further below, the parties shall meet-and-confer on the specific language to be included an amended protective order. Second, MEDAL seeks an “agreement to file documents designed as Protected Material (and not challenged by one of the parties) under seal with no further involvement by non-party MEDAL” to alleviate the burden of “proactively monitor[ing] the litigation” and of providing the factual predicate for sealing the documents when one of the parties seeks to file it under seal. (Dkt. 59-1 at 21.) Such an agreement would be inconsistent with Local Rule 79-5. *5 At the hearing, however, the Court informed MEDAL’s counsel that he could sign up for electronic e-filing notifications through the federal courts’ PACER system. The Court also suggested that MEDAL provide, at the time of production, declarations that could later be used to support a sealing motion for various categories of documents; this would alleviate MEDAL’s burden to aid in the filing of such motions in the future. Because MEDAL’s confidentiality concerns are not insurmountable, they are not valid grounds for quashing Parker’s subpoena. C. Conclusion. IT IS THEREFORE ORDERED that, as described more specifically below, the parties shall engage in a series of meet-and-confers to ensure that MEDAL can respond to Parker’s subpoena in a timely, efficient, and cost-effective fashion. Given MEDAL’s location in Delaware, all meet-and-confers can be conducted telephonically. As an interested party who may be subject to the agreed-upon protective order and may be responsible for cost-sharing or contractual indemnity, Valcor may attend any of the meet-and-confers. Date Task Parker and MEDAL shall conduct a meet-and-confer to discuss: On or before June 7, 2017 (1) Keyword searches, proposed by MEDAL, for any ESI MEDAL has that can be electronically searched. (2) Amendments to the protective order that would govern disclosure of Attorney’s Eyes Only materials to expert witnesses. (3) What non-keyword-searchable databases exist, what responsive documents such databases might contain, and the most efficient way of searching such databases. (4) A date for MEDAL to produce a privilege log, if it is claiming that any responsive documents are privileged. If MEDAL’s counsel does not have the relevant knowledge of MEDAL’s file-keeping practices, a knowledgeable principal or employee of MEDAL shall also attend the meet-and-confer. On or before MEDAL shall produce all responsive, non-privileged documents. July 31, 2017 On or before Parker and MEDAL shall meet-and-confer on if or how to equitable August 14, 2017 share some of the costs reasonably incurred by MEDAL in complying with the subpoena. Valcor may also participate in these discussions. Throughout the production process described above, MEDAL should keep records of its time and expenses incurred. If the parties cannot reach agreement, MEDAL may file a motion with the Court seeking cost-sharing within ten (10) days of the unsuccessful meet and confer. In authorizing this procedure, the Court has not pre-determined that MEDAL is entitled to cost-sharing, bur urges the parties to discuss the issue in the spirit of Rule 45, once MEDAL’s reasonable costs of compliance are known. Any party may move to modify any of the above deadlines for good cause shown. If the parties are unable to reach agreement at the meet-and-confers, they may seek intervention by the Court pursuant to the informal telephonic discovery procedure outlined on the Court’s website.