Skye Orthobiologics, LLC v. CTM Biomedical, LLC
Skye Orthobiologics, LLC v. CTM Biomedical, LLC
2021 WL 6102432 (C.D. Cal. 2021)
August 27, 2021
Castillo, Pedro V., United States Magistrate Judge
Summary
The court denied Defendants' request for discovery sequencing and instead directed the parties to the procedures set forth in Local Rule 37 for the informal resolution of discovery disputes. The court also noted that ESI is important in this case, as it can provide evidence of trade secrets and can be used to form complete and well-reasoned defenses.
Additional Decisions
SKYE ORTHOBIOLOGICS, LLC, et al., Plaintiff,
v.
CTM BIOMEDICAL, LLC, et al., Defendants
v.
CTM BIOMEDICAL, LLC, et al., Defendants
Case No. 2:20-cv-03444 DMG (PVCx)
United States District Court, C.D. California
Filed August 27, 2021
Counsel
Justin L. Wilson, Francesca Dioguardi, Rosen Saba LLP, Beverly Hills, CA, Ryan D. Saba, John James Aumer, Laura Kelly St. Martin, Michael Forman, Rosen Saba LLP, El Segundo, CA, for Plaintiff.Thomas H. Case, Paul T. Martin, Hennelly and Grossfeld LLP, Marina Del Rey, CA, Matthew K. Parker, Pro Hac Vice, Hodgson Russ LLP, New York, NY, Robert J. Fluskey, Jr, Pro Hac Vice, Hodgson Russ LLP, Buffalo, NY, for Defendant CTM Biomedical, LLC.
Arash Beral, Saam Takaloo, Blank Rome LLP, Los Angeles, CA, for Defendant Mike Stumpe.
Matthew K. Parker, Pro Hac Vice, Hodgson Russ LLP, New York, NY, Robert J. Fluskey, Jr, Pro Hac Vice, Hodgson Russ LLP, Buffalo, NY, Thomas H. Case, Paul T. Martin, Hennelly and Grossfeld LLP, Marina Del Rey, CA, for Defendant Pablo Seoane.
Hassan Elrakabawy, Todd A. Cavanaugh, Yukevich Cavanaugh, Los Angeles, CA, for Defendant Veterans Medical Distributors, Inc.
Castillo, Pedro V., United States Magistrate Judge
ORDER RE DEFENDANTS' MOTION FOR A PROTECTIVE ORDER AND TO COMPEL TIMELY INTERROGATORY RESPONSES (Dkt. No. 93)
*1 Pending before the Court is a Motion for a Protective Order and to Compel Timely Interrogatory Responses filed by Defendants CTM Biomedical, LLC (“CTM”), Bryan Banman, and Pablo Seoane. (“Motion,” Dkt. No. 93). Plaintiffs Skye Orthobiologics, LLC (“Skye”) and Human Regenerative Technologies, LLC (“HRT”) filed an Opposition. (“Opp.,” Dkt. No. 96). The Court took the matter under submission without a hearing pursuant to Local Rule 7-12.
For the reasons stated below, to the extent that the Motion asks the Court to exempt persons and entities accused of misappropriation from the proposed Protective Order's restrictions on access to “Highly Confidential” documents and impose a heightened standard of review on any other party's request for access to “Highly Confidential” materials, the Motion is DENIED. The Court adopts a single-prong standard that differs slightly from Plaintiffs' proposal. To the extent that the Motion asks the Court to effectively sequence discovery by ordering Plaintiffs to respond to Defendants' interrogatories seeking the identification of all trade secrets at issue in this case as soon as a protective order is entered and before Defendants are required to respond to any discovery requests, the Motion is DENIED.
I. ALLEGATIONS OF THE SECOND AMENDED COMPLAINT
HRT manufactures tissue biologic products, and Skye sells the products manufactured by HRT through independent contractors. (Second Amended Complaint (“SAC”), Dkt. No. 62 ¶¶ 3-4, 26-27). Banman began working for Skye as an independent contractor to direct sales in 2012. (Id. ¶ 34). In June 2014, Banman and HRT entered into a “Consulting Agreement/Compensation Contract,” which in part granted Banman an opportunity to acquire a 10% interest in HRT, which he still owns today. (Id. ¶¶ 35-36). In April 2018, Banman signed an employee agreement with Skye to become its Senior Vice President of Business Development. (Id. ¶¶ 39-40). On July 2, 2018, approximately three months after assuming the Senior Vice President position at Skye, Banman resigned to run CTM, his own company that competes in the same market space as HRT and Skye. (Id. ¶ 42). Plaintiffs allege that in June 2018, while Banman was still employed at Skye, Banman incorporated CTM and registered the domain name www.ctmbiomedical.com. (Id. ¶¶ 51-52). Plaintiffs further allege, on information and belief, that Banman and CTM are “distributing tissue products that are comparable and competitive to those offered for sale” by HRT and Skye. (Id. at 55).
Plaintiffs state that Banman, through his relationship with HRT and Skye,
was trusted with and had access to HRT and SKYE's confidential and proprietary information and trade secrets including, but not limited to, data processing protocols, product development, formulations and ingredients, product design, packaging inserts, sources of supply, pricing, marketing materials, marketing methods and processes, customer lists and information, prospective customer lists and information, including key contacts and specific preferences, information concerning the finances, business and affairs of the Plaintiffs, revenue numbers, and company structure.
*2 (Id. at ¶ 46). As relevant here, the SAC alleges that Banman and CTM misappropriated Plaintiffs' trade secrets and tortiously interfered with Skye's and HRT's customers and sales representatives. The SAC raises eleven causes of action, consisting of three federal claims (two civil “RICO” claims (Claims 1-2); and a claim for alleged violations of the Defend Trade Secrets Act (Claim 3)); and eight supplemental state-law claims (two breach of contract claims (Claims 4-5); two claims for conversion (Claims 6-7); two tortious interference claims (Claim 8, interference with contract; Claim 9, interference with prospective economic advantage); and two breach of duty claims (Claim 10, breach of fiduciary duty; Claim 11, breach of duty of loyalty)). (Id. ¶¶ 138-239). Defendants filed a motion to dismiss Claims 1-2 and 10-11, which is still pending. (Dkt. No. 68).
II. PROCEDURAL BACKGROUND
The parties participated in a Rule 26(f) conference on April 2, 2021 and immediately began serving discovery requests. Banman and CTM served interrogatories asking Skye and HRT to identify the trade secrets at issue in this action and the manner of the purported misappropriation. (Motion at 3 & Exhs. 1-2). One week later, on April 9, 2021, Banman and Skye served additional interrogatories asking Skye and HRT “to identify and describe the trade secrets vaguely referenced in the SAC and to identify the customers and contracts with which Banman and CTM allegedly interfered.” (Id. at 3 & Exhs. 3-4). Skye and HRT objected to the interrogatories in part on the ground that there was no protective order in place. (Id. at 3). Skye and HRT further maintain that Defendants, for their part, “provided only objections and incomplete, evasive responses, which have been the subject of numerous meet and confer letters.” (Opp. at 3). To date, neither side has produced documents responding to the other side's production requests. (Motion at 3).
During a discovery conference on July 20, 2021, the parties presented to the Court their competing proposals for the proposed stipulated protective order. Because the parties were unable to resolve their differences, but agreed that expedited briefing would be the most efficient way of addressing the parties' disputes concerning the terms of the protective order and the alleged “sequencing” of discovery, on July 21, 2021, the Court issued a briefing schedule directing Defendants to “file a single brief not exceeding ten pages addressing (1) their proposal of the treatment of ‘highly confidential’ materials, and (2) their position on the ‘sequencing’ of discovery.” (Dkt. No. 92 at 2). Plaintiffs were permitted to file a response to Defendants' brief on the same two issues, with the same page limit. (Id.). The parties each submitted timely briefs pursuant to the Court's schedule.
III. DISCUSSION
A. The Parties' Proposals for Access to and Treatment of “Highly Confidential” Materials
The parties' disputes regarding the proposed stipulated protective order turn both on “how a party may challenge the designation of a document or testimony marked as ‘Highly Confidential,’ ” (Opp. at 4), and on whether persons or entities accused of misappropriation of trade secrets in this action should be subject to the restrictions on access to “Highly Confidential” documents and information otherwise included in the protective order. A “Highly Confidential” designation under the parties’ agreement is “essentially ‘Attorneys’ Eyes Only' protection.” (Motion at 5).
Plaintiffs propose that the Court use the following standard in the event of a designation dispute, applicable to all parties:
Under certain circumstances, a Receiving Party may request from a Designating Party to provide an exception to any designation of Highly Confidential Materials to allow a Receiving Party to review the Documents, Testimony, or Information for a limited, but reasonable, time period, if such designation of Highly Confidential Materials makes it impracticable to prosecute or defend the litigation. Upon such a request, counsel shall meet and confer within seven days. If an agreement cannot be reached, the Court shall resolve this dispute with the following standard: “Is it impracticable for a party to prosecute or defend this litigation unless the document, testimony or information marked as ‘Highly Confidential’ is reviewed by a person who is prohibited from access to the document, testimony or information?” Impracticable shall mean “unreasonably difficult or expensive.” The Court shall reach its decision on the basis of all the practical circumstances of the particular document, testimony or information at issue.
*3 (Motion, Exh. 6 ¶ 3(d)).
Defendants' proposed standard would exempt any person or entity accused of misappropriation from any restriction on access to “Highly Confidential” documents, and impose a heightened a two-prong showing on any other challenges to “Highly Confidential” designations, as set forth in two different paragraphs of the proposed protective order:
A Designating Party may designate as “Highly Confidential” any portion of Information that discloses matter that the Designating Party alleges are trade secrets and the Receiving Party has misappropriated, but shall provide a written exception for the designation to any person or Party who is alleged to have misappropriated the information as set forth in Section 5 below.
(Id.).[1]
Nothing in this Stipulation and Protective Order prevents a Party from seeking de-designation of specific Information that has been designated as “Confidential” or “Highly Confidential” on the grounds that such designation will unfairly prejudice the prosecution or defense of the case and make prosecution or defense of the case impracticable. If a Receiving Party seeks such de-designation, the Receiving Party shall first meet and confer with the Producing Party. If the Receiving Party and the Producing Party are unable to resolve the dispute, the Receiving Party shall seek Court intervention in accordance the Court's rules.
(Id. ¶ 13).
Accordingly, Plaintiffs propose that the Court apply a one-prong standard to the review of any challenged “Highly Confidential” designation, regardless of the party that made the designation or that challenges its validity. Under Plaintiff's proposed standard, the Court should find that a document is improperly designated as “Highly Confidential” if it would be “impracticable” for the party challenging the designation to prosecute or defend this action without showing the document to a person who is otherwise prohibited from reviewing “highly confidential” documents. (Opp. at 4). Furthermore, even where impracticability is shown, the challenging party's access to the “Highly Confidential” information would be permitted only “for a limited, but reasonable, time period.” (Motion, Exh. 6 ¶ 3(d)).
Defendants, in contrast, appear to propose different standards depending on which party seeks access to the opposing side's “Highly Confidential” documents. In paragraph 3(d), Defendants' proposal would permit either party to designate documents as “Highly Confidential,” but would carve an exception and allow blanket access to “Highly Confidential” materials “to any person or Party who is alleged to have misappropriated the information as set forth in Section 5 below.” (Motion, Exh. 6 ¶ 3(d)). Although couched in non-party-specific terms, as a practical matter, this would appear to mean that if Plaintiffs designate any documents as “Highly Confidential,” any Defendant accused of misappropriating Plaintiffs' trade secrets would be permitted to disregard the designation and review those documents as a matter of course, without making any showing whatsoever. However, in all other instances where a party challenges a “Highly Confidential” designation, Defendants would require a heightened showing that is even more strict that the standard of review proposed by Plaintiffs. Defendants' two-pronged standard of review in paragraph 13 would require the party challenging either a “Confidential” or “Highly Confidential” designation to show that (1) the challenging party would be unfairly prejudiced if the designation were allowed to remain, and (2) the designation would make the prosecution or defense of the case impracticable.[2] (Id. ¶ 13). Because Defendants' proposal already includes an automatic carve-out permitting Defendants accused of misappropriating Plaintiffs' trade secrets to review Plaintiffs' “Highly Confidential” materials on no showing whatsoever, as a practical matter, Defendants' two-prong standard of review would seemingly apply primarily when Plaintiffs wish to challenge Defendants' “Highly Confidential” designations.
*4 Plaintiffs contend that their one-prong “impracticable” standard of review, applying to designation challenges brought by either party, is “fair” and “even-handed.” (Opp. at 3). Defendants vigorously oppose any proposal that would require a person or party accused of misappropriating trade secrets to make any kind of showing to have access to “Highly Confidential” materials. According to Defendants, the parties “are not in a reciprocal position with respect to the disclosure of trade secret information,” as the Moving Defendants have previously had access to Plaintiffs' trade secrets and should be entitled to review the documents or information that they purportedly stole. (Motion at 6). Defendants maintain that because Plaintiffs have never seen Defendants' trade secrets and the risk of competitive harm is substantial if Plaintiffs gain access to Defendants' “Highly Confidential” materials, Plaintiffs should not be entitled to review Defendants' “Highly Confidential” materials at all unless they can show, on a document-by-document basis, that unless disclosure is permitted, Plaintiffs will be prejudiced and their ability to prosecute this case will be impracticable. (Id. at 6-7).
According to Defendants, by requiring Defendants to make a showing of need to review Plaintiffs' “Highly Confidential” documents, Plaintiffs' proposal
would improperly obstruct the Moving Defendants' defense of the case. It would permit the Moving Defendants to review the information that they allegedly stole only if they prove that a “Highly Confidential” designation would make it “impracticable” to defend the case, and even then, the right to review the information is limited in time. See Ex. 6 at ¶ 3(d). There is no basis for these restrictions. The plaintiffs have accused the Moving Defendants of stealing alleged trade secrets. The Moving Defendants are entitled to see what they allegedly misappropriated. The Moving Defendants should not be forced to prove “impracticability,” nor should their right to defend this case be limited in time. It would of course be impracticable to defend a trade secret case if the defendant cannot review what he allegedly misappropriated.
(Motion at 5).
As noted above, in addition to objecting to having to make a any kind of showing of need to gain access to Plaintiffs' “Highly Confidential” materials, Defendants also maintain that their ability to review Plaintiffs' “Highly Confidential” documents should not be subject to a temporal restriction. (Motion at 5). Under Plaintiffs' proposal, upon a showing of impracticability, a challenging party would be allowed to disclose a “Highly Confidential” document to persons otherwise not permitted access to such documents for “a limited, but reasonable, time period.” (Id., Exh. 6 ¶ 3(d)). Accordingly, it would appear that under Plaintiffs' proposal, a document designated as “Highly Confidential” would generally retain that designation, but the challenging party, upon the proper showing, would be allowed to disclose the document to persons besides an attorney for a “limited, but reasonable” amount of time. In contrast, Defendants' proposal does not include a time restriction. Therefore, it would appear that under Defendants' proposal, once a “Highly Confidential” designation is successfully challenged on a showing of prejudice and impracticability, the document would lose that designation for the remainder of this litigation. Defendants' proposal does not specify whether the dedesignated document would lose all confidentiality protections, or merely be re-designated as “Confidential.”
Pursuant to Federal Rule of Civil Procedure 26(c), a court may, “for good cause, issue an order to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense ....” Fed. R. Civ. P. 26(c)(1). The Ninth Circuit has long recognized that an “undue burden” entitling a party to protection in discovery “includ[es] protection from misuse of trade secrets by competitors.” Brown Bag Software v. Symantec Corp., 960 F.2d 1465, 1470 (9th Cir. 1992). To warrant issuance of a protective order “[i]n the case of trade secrets, the moving party must show (a) that the information is a ‘trade secret or other confidential research, development, or commercial information[ ]’ under Rule 26(c)(7)[,] and (b) that its disclosure would be harmful to the party's interest in the property.” Nutratech, Inc. v. Syntech (SSPF) Int'l, Inc., 242 F.R.D. 552, 554-55 (C.D. Cal. 2007). “The burden then shifts to the party seeking discovery to show that the information is relevant to a party's claims or defenses or the subject matter of the lawsuit and is necessary to prepare the case for trial.” Id. In resolving protective order disputes, a court must “balance the risk ... of inadvertent disclosure of trade secrets to competitors against the risks [to the party seeking disclosure of trade secret information] that protection of ... trade secrets [will] impair[ ] prosecution” of the requesting party's claims. Brown Bag Software, 960 F.2d at 1470; see also Nutratech, 242 F.R.D. at 555 (“Where trade secrets or other confidential commercial information is involved, the court will balance the risk of disclosure to competitors against the risk that a protective order will impair prosecution or defense of the claims.”). In applying this balancing test, the court must “examine factually all the risks and safeguards surrounding inadvertent disclosure.” Brown Bag Software, 960 F.2d at 1470. The court should also consider “the nature of the claims and of a party's opportunity to develop its case through alternative discovery procedures.” Id. The resulting protective order should strike a “reasonable balance” between the parties' interests. Id. at 1471.
DECISION
*5 Here, the Court finds that Defendants accused of misappropriating Plaintiffs' trade secrets should not be granted a blanket exemption from the restrictions on access to documents deemed “Highly Confidential” under a protective order. Any restriction on access to these materials shall apply uniformly to both sides. Further, the Court adopts Plaintiffs' proposed language regarding the procedure and standard to follow in the event of a dispute regarding designation of materials, with some changes:
Under certain circumstances, a Receiving Party may request a Designating Party to provide an exception to any designation of Highly Confidential Materials to allow a Receiving Party to review the Documents, Testimony, or Information for a limited, but reasonable, time period, if such designation of Highly Confidential Materials makes it impracticable to prosecute or defend the litigation. Upon such a request, counsel shall meet and confer within seven days. If an agreement cannot be reached, the parties must present the dispute to the Court in the form of a Joint Stipulation as provided in Local Rule 37-2. The Court shall resolve this dispute using the following standard: “Has good cause been shown for the disclosure of “Highly Confidential” materials to a person not otherwise permitted access to such information?” The Court shall reach its decision on the basis of all the practical circumstances of the particular document, testimony or information at issue.
This “good cause” standard, which applies when a Receiving Party does not challenge the general propriety of a “Highly Confidential” designation but seeks instead a limited exception to allow the party to disclose “Highly Confidential” materials to a person who would not otherwise be permitted access for a limited period, does not apply to designation challenges where the Receiving Party contends that a document has been improperly identified as “Highly Confidential” because it does not fall within the definition of “Highly Confidential” materials as provided in the stipulated protective order. In any such disputes, the parties shall strictly comply with the procedures set forth in Local Rule 37.
The Court finds that the above language gives each side an opportunity to have access to Highly Confidential materials upon the proper showing, and so orders. The Court further cautions the parties designating materials as “Highly Confidential” that they must not abuse this process and should only designate materials as “Highly Confidential” that warrant such a designation.
B. “Sequencing” of Trade Secret Discovery
Defendants concede that in the parties' Rule 26(f) report, they initially sought formal discovery “sequencing” in this case. (Motion at 8; see also Joint Report in Advance of Scheduling Conference, Dkt. No. 81 at 9 (“Plaintiffs should identify -- under oath and with particularity -- each trade secret allegedly misappropriated before Defendants are required to respond to discovery requests.”)). They also note that district courts in other Circuits “have imposed sequencing in trade secret cases by requiring the trade secret plaintiff to identify each asserted trade secret at issue with reasonable particularity before any discovery proceeds ... under oath, even before the receipt of discovery devices (such as interrogatories) that request similar disclosure.” (Motion at 8) (citing JJ Plank Co. v. Bowman, 2018 WL 3545319, at *2-3 (W.D. La. Jul. 23, 2018); Coda Dev. SRO v. Goodyear Tire & Rubber Co., 2019 WL 6219745, at *4 (N.D. Ohio Nov. 21, 2019); USAA v. Mitek Sys., Inc., 289 F.R.D. 244, 248 (W.D. Tex. 2013)).
*6 Although Defendants argue in the Motion that they are “not seeking formal sequencing” any longer, it appears that the emphasis in that statement might have been better applied to the word “formal.” (Motion at 8) (emphasis in original). Defendants are seeking an order compelling Skye and HRT to answer CTM's and Banman's interrogatories, which require Plaintiffs to identify the trade secrets at issue in this litigation, “immediately upon entry of a protective order and before the Moving Defendants are required to disclose their own trade secrets.” (Id. at 9). Defendants emphasize that Plaintiffs “should be prepared to identify their trade secrets right now,” and should not be permitted “to first review the Moving Defendants' trade secrets so that they can ‘mold’ their interrogatory responses.” (Id.). In other words, Defendants seek an order requiring Plaintiffs to disclose their trade secrets first and to permit Defendants to withhold their own discovery responses until Plaintiffs have made that disclosure. The Court is hard-pressed to understand how, functionally, that is not sequencing, even if Defendants are purportedly seeking the disclosures in the form of responses to interrogatories and not as a “formal,” mandatory disclosure prior to the commencement of discovery. It appears to be a distinction without a difference.
Defendants argue that Plaintiffs should be required to fully disclose the trade secrets that are at issue immediately so that Defendants will have notice of the claims they must defend and can pursue appropriate discovery to that end. (Id. at 10). Defendants further contend that “[d]efining the metes and bounds of the trade secrets may also impact the breadth of discovery and assist with future relevance determinations.” (Id.).
Plaintiffs oppose Defendants' sequencing proposal on many grounds. Plaintiffs note that there is no requirement under the Federal Defend Trade Secrets Act (“DTSA”) that a plaintiff must identify its trade secrets before any other party must respond to discovery. (Opp. at 7). Additionally, while Plaintiffs acknowledge that California Civil Procedure Code § 2019.210 does require sequencing for claims under the California Uniform Trade Secret Act (“CUTSA”), they contend that district courts in this Circuit have regularly found this state law requirement does not apply in trade secret actions in federal court.[3] (Id. at 7-8) (citing, inter alia, AtPac Inc. v. Aptitude Solutions, Inc., 2010 WL 11571246, at *1 (E.D. Cal. Sept. 22, 2010) (§ 2019.210 is inapplicable in trade secret actions in federal court); Hilderman v. Enea TekSci, Inc., 2010 WL 143440, at *2 (S.D. Cal. Jan. 8, 2010) (§ 2019.210 conflicts with Rule 26)).[4] Plaintiffs further note that Judge Gee denied Defendants' contention that Plaintiffs had failed to adequately state a DTSA claim, and argue that additional specification of the trade secrets at issue is not warranted because Plaintiffs have alleged that “the CTM Defendants misappropriated all of Plaintiffs' entire business: From the product formulations and manufacturing, the marketing and sales strategies, to the customers and employee lists.” (Opp. at 8).
*7 Plaintiffs additionally contend that sequencing is improper because they allege numerous other non-trade secret claims, including RICO violations, breach of contract, breach of fiduciary duty, breach of loyalty, conversion, and tortious interference with contract and/or prospective economic advantage. (Id.). Furthermore, Plaintiffs maintain that Defendants have not alleged any facts showing that they would be prejudiced if sequencing were not required, and argue that Defendants are impermissibly attempting to limit Plaintiffs' claims to information in their possession at this moment, before Plaintiffs have been able to determine the full scope of the alleged misappropriations. (Id.). Plaintiffs also argue that requiring a DTSA plaintiff to identify each misappropriated trade secret before being permitted to conduct discovery would be bad policy as it would bar the plaintiff from learning the true extent of the misappropriation. (Id. at 10). Finally, Plaintiffs contend that the three out-of-Circuit cases cited by Defendants are inapposite for various reasons, as they either did not squarely address pre-discovery disclosure of trade secrets, turned on the unique facts of the case, and/or cited state court decisions applying state trade secret laws in their respective states. (Id. at 9-10).
The DTSA seeks to establish a “single, national standard for trade secret misappropriation with clear rules and predictability for everyone involved.” Adams Arms, LLC v. Unified Weapon Systems, Inc., 2016 WL 5391394, at *5 (M.D. Fla. Sept. 27, 2016) (quoting H.R. Rep. No. 114-529, at 4 (2016)). “In furtherance of its aim to establish a uniform federal scheme for trade secret civil litigation, DTSA is notable for what it does not require.” Yeiser Rsch. & Dev., LLC v. Teknor Apex Co., 2019 WL 2177658, at *4 (S.D. Cal. May 20, 2019). For example the DTSA does not include a heightened pleading requirement. Id. (citing 18 U.S.C. § 1831 et seq.). “Nor do DTSA's express provisions regarding civil proceedings incorporate any discovery procedure analogous to certain state law statutory requirements in trade secrets cases that require a plaintiff to first disclose trade secrets before being able to receive discovery from the defendant.” Id. (citing 18 U.S.C. § 1836(b)). The “absence of heightened pleading standards and a discovery procedure in DTSA ... support[s] the inference that a plaintiff whose DTSA claims proceed past the pleading stage is entitled to discovery in accordance with the general discovery rules set forth in Federal Rule of Civil Procedure 26.” Id. Federal Rule of Civil Procedure 26(d)(3)(B) provides that “discovery by one party does not require any other party to delay its discovery,” which seemingly would effectively prohibit sequencing.
The Ninth Circuit has described the identification of trade secrets in DTSA cases as “an iterative process” typically accomplished during discovery. InteliClear, LLC v. ETC Glob. Holdings, Inc., 978 F.3d 653, 662 (9th Cir. 2020). In InteliClear, the Court addressed whether plaintiff had described its trade secrets with sufficient particularity to survive summary judgment in a case where no discovery had been conducted before the district court granted summary judgment in favor of defendant. The Ninth Circuit reversed, noting that “[a]t this stage, particularly where no discovery whatsoever had occurred, it is not fatal to [plaintiff's] claim that its hedging language left open the possibility of expanding its identifications later.” Id. at 659. The Court further explained,
Federal cases analyzing whether a plaintiff's trade secrets are described with “sufficient particularity” typically arise in the battleground of discovery. In such cases, discovery provides an iterative process where requests between parties lead to a refined and sufficiently particularized trade secret identification. See, e.g., TelSwitch, Inc. v. Billing Sols. Inc., 2012 WL 3877645, at *4 [N.D. Cal. Sept. 6, 2012] (holding that Plaintiffs' trade secret description was adequate where Plaintiff, at a hearing, “agreed that it was limiting the scope of its claims to the precise database disclosed [during discovery]”); see also E. & J. Gallo Winery v. Instituut Voor Landbouw-En Visserijonderzoek, No. 17-cv-00808-DAD-EPG, 2018 WL 2463869, at *6 (E.D. Cal. June 1, 2018) (“[T]he issue of whether all of the plaintiffs' alleged trade secrets have been publicly disclosed is a factual issue which is the proper subject of discovery.”).
*8 InteliClear, 978 F.3d at 662. Although the Ninth Circuit recognized that “[i]dentifying trade secrets with sufficient particularity is important because defendants need ‘concrete identification’ to prepare a rebuttal,” id. at 658, by describing the identification of trade secrets in DTSA cases as an “iterative process,” InteliClear at least suggests that a plaintiff alleging misappropriation of trade secrets is not required to identify the trade secrets at issue in the litigation with particularity at the outset of the case before discovery commences.
At the same time, however, district courts have broad discretion to manage discovery. Laub v. U.S. Dept. of the Interior, 342 F.3d 1080, 1093 (9th Cir. 2003); Hallett v. Morgan, 296 F.3d 732, 751 (9th Cir. 2002)). This discretion extends to crafting discovery orders that “set the timing and sequence of discovery.” Crawford-El v. Britton, 523 U.S. 574, 599 (1998) (citing Fed. R. Civ. P. 26(d)); UMG Recordings, Inc. v. Doe, 2008 WL 2949427, at *3 (N.D. Cal. Jul. 30, 2008) (“the district courts wield broad discretion” in fashioning discovery orders). Some courts have recognized that in some instances, “case-specific considerations regarding the proper course of discovery” may warrant mandatory disclosure of plaintiff's trade secrets at the outset of the litigation. Yeiser Rsch. & Dev., 2019 WL 2177658, at *5 (“[T]his Court believes that a DTSA plaintiff may be required to go beyond its pleadings at the discovery stage consistent with Rule 26's discovery framework” and identify the trade secrets at issue with “reasonable particularity.”). Indeed, as one court explained in an order requiring sequencing in a CUTSA case, several policy considerations support pre-discovery disclosure of the plaintiff's trade secrets:
The rule requiring a plaintiff to disclose its trade secrets at the outset of discovery serves four purposes. First, it promotes well-investigated claims and dissuades the filing of meritless trade secret complaints. Second, it prevents plaintiffs from using the discovery process as a means to obtain the defendant's trade secrets.... Third, the rule assists the court in framing the appropriate scope of discovery and in determining whether plaintiff's discovery requests fall within that scope.... Fourth, it enables defendants to form complete and well-reasoned defenses, ensuring that they need not wait until the eve of trial to effectively defend against charges of trade secret misappropriation.
Computer Econ., Inc. v. Gartner Grp., Inc., 50 F. Supp. 2d 980, 985 (S.D. Cal. 1999).
DECISION
Defendants' request for discovery sequencing is DENIED. Plaintiffs have sufficiently pled the trade secrets in their complaint. Further, the lawsuit here is under the DTSA, which does not include a provision for discovery sequencing. In the context of this case, under the facts as presented, the Court finds that each side should proceed with discovery simultaneously, and expeditiously. Defendants' request for an order requiring Plaintiffs to respond immediately to Defendants' interrogatories is likewise DENIED. The Court did not invite the parties to brief whether Defendants' interrogatories seek appropriate information and are not otherwise objectionable. Defendants are directed to the procedures set forth in Local Rule 37 for the informal resolution of discovery disputes and for the presentation of those disputes to the Court is the parties are unable to resolve their differences.
IV. ORDER
For the reasons stated above, to the extent that the Motion asks the Court to exempt persons and entities accused of misappropriation from the proposed Protective Order's restrictions on access to “Highly Confidential” documents and impose a heightened standard of review on any other party's request for an exemption form a “Highly Confidential” designation, the Motion is DENIED. The Parties are ORDERED to file a Proposed Stipulated Protective Order within seven days of the date of this Order.
*9 To the extent that the Motion asks the Court to effectively sequence discovery by ordering Plaintiffs to respond to Defendants' interrogatories seeking the immediate identification of all trade secrets at issue in this case before Defendants are required to respond to any discovery requests, the Motion is DENIED.
IT IS SO ORDERED.
Footnotes
Defendants' reference to “Section 5” presumably is directed to paragraph 5 of the proposed stipulated protective order, which provides in relevant part: “A Designating Party may apply different designations to Information for different parties (e.g., Information may be marked ‘Highly Confidential’ for everyone except a single person to which the designation may be ‘Confidential’). Alternatively, a Designating Party may designate Information as ‘Highly Confidential,’ but provide an exception to a particular person or Party to allow that person or Party to review the Information.” (Motion, Exh. 6 ¶ 5).
The Court notes that the “impracticable” prongs of the parties' proposed standards are not necessarily co-extensive, as Plaintiffs define “impracticable” as “unreasonably difficult or expensive,” whereas Defendants do not propose a definition of “impracticable” to provide guidance to the Court's application of the standard. (Opp. at 4).
Section 2019.210 requires that “[i]n any action alleging the misappropriation of a trade secret under the [California] Uniform Trade Secrets Act ... before commencing discovery relating to the trade secret, the party alleging the misappropriation shall identify the trade secret with reasonable particularity ....” Cal. Civ. Proc. Code § 2019.210. Plaintiffs have not alleged a claim under CUTSA.
Plaintiffs also cited Masimo Corp. v. Apple, 2020 WL 5223558 (C.D. Cal. June 15, 2020), and M/A-Com Technology Solutions, Inc. v. Litrinium, 2019 WL 8955368 (C.D. Cal. April 10, 2019), as examples of cases in which the court denied a motion for sequenced discovery in a trade secret dispute. (Opp. at 7). Neither authority is persuasive for the point for which it was offered. As a preliminary matter, both cases involved trade secret claims under CUTSA, not the DTSA. In Maismo, the District Judge had previously stayed trade secret discovery pending plaintiff's compliance with § 2019.210. The Magistrate Judge merely denied defendant's request for sequencing of discovery as to the other claims raised in the complaint, which did not involve trade secrets. See Masimo Corp., 2020 WL 5223558, at *6. The M/A-Com Court also denied a motion for sequencing, but not on the merits of the request. The motion was denied because the dispute was not presented to the Court in the form of a joint stipulation, as required by the Central District's Local Rule for discovery challenges. M/A-Com, 2019 WL 8955368, at *2-*3. In denying the sequencing motion on procedural grounds, the M/A-Com Court expressly observed that there is a split of authority in this Circuit as to whether a federal court hearing a CUTSA claim should require compliance with § 2019.210. Id. at *2. That issue is not presented here because Plaintiffs' trade secret claim arises under the DTSA.