On June 16, 2016, the parties appeared before the Court. The parties argued the following motions:

The Court took the motions above under submission. With regard to the second motion, the oral motion to compel additional responses from SHST, the Court ordered the parties to supplement the oral motion in writing by June 20, 2016, after meeting and conferring about the outstanding discovery. The parties supplemented the oral motion as requested. (Dkt. 193.)

The factual background for the dispute underlying this matter is extensively discussed in previous Orders from the Court. (Dkts. 52, 117, 141, 188.) This dispute centers around technology known as the “MOVA assets” and specifically who owns the MOVA assets and additional allegations about improper use of the MOVA assets leading to claims of misappropriation of trade secrets, patent infringement, copyright infringement, trademark infringement, and other federal and state law claims. The procedural background for the many discovery motions has not yet been catalogued, but, because the many discovery matters already decided by this Court are relevant to the outstanding discovery issues, they are described below.

A. Bifurcation of Issues and General Schedule

The parties jointly requested that the Court bifurcate the issues in this case so that the issue of ownership of the disputed assets, the MOVA assets, would be adjudicated first and before any adjudication of other issues in this case. (Dkt. 75.) The Court granted that request. (Dkt. 80.) Thus, the sole issue currently being litigated is the issue of ownership of the MOVA assets in phase one of this litigation. The discovery deadline for phase one is June 10, 2016 (Dkts. 83, 124), and trial is scheduled for December 5, 2016. (Dkt. 83.) The original plaintiff in this action was SHST, but on March 21, 2016, the District Court signed a stipulation and order that substituted VGH for SHST. (Dkt. 96.) SHST remains in this action as a Counter-Defendant.

B. Joint letter brief regarding privilege and fraud exception.

*2 On March 4, 2016, the parties jointly filed a letter brief in which SHST (the Plaintiff) sought production of documents from Defendants that Defendants contended were protected attorney-client communications. (Dkts. 78, 85.) This Court addressed those issues in an Order dated April 15, 2016 in which this Court granted in part and denied in part SHST's motion. (Dkts. 103, 117.) This Court denied SHST's request to compel production of documents responsive to Document Requests Nos. 26, 27, 49, and 50 (which Defendants had withheld based on attorney-client privilege) but granted SHST's motion to compel production of documents withheld on a privilege log. (Dkts. 109, 110.) The April 15, 2016 Order did not provide a deadline for Defendants to comply. Defendants then filed a motion for relief from a non-dispositive pretrial order of a magistrate judge, and the District Court denied that motion on May 24, 2016. (Dkts. 119, 120, 157.) That Order did not contain a deadline for compliance with the April 15, 2016 Order. On May 27, 2016, Defendants filed a motion for leave to file a motion for reconsideration of the April 15, 2016 Order, and the Court denied that motion on June 6, 2016. (Dkts. 161, 167.) Thus, Defendants were required to produce responsive documents, without a deadline, but did not do so. Plaintiff VGH brought a motion for sanctions for Defendants' failure to comply with the Court's April 15, 2016 Order. (Dkt. 180.) At the hearing on June 16, 2016, the Court then gave Defendants a deadline of June 23, 2016 either to produce the documents to comply with the April 15, 2016 Order or to file a motion for appeal and stay of the Order.

C. Joint letter brief regarding SHST's lack of verification to interrogatory responses.

On May 2, 2016, the parties submitted a joint letter brief addressing the lack of verification of SHST's responses to Interrogatories Nos. 1 -16, and, on May 12, 2016, the Court ordered SHST to verify to its responses to Defendants' Interrogatories Nos. 1-16 by May 27, 2016. (Dkts. 132, 141.) The Court further ordered Defendants to notify the Court by May 31, 2016 of SHST's response, if any. SHST did not provide the verification, and Defendants duly notified the Court. (Dkt. 162.)

D. Defendants' motion for default judgment against SHST.

On May 16, 2016, Defendants filed a motion for default, pursuant to Fed.R.Civ. Proc. 37 and 55, against SHST for SHST's failure to participate in discovery.[2] (Dkt. 139.) The motion for default was based partially on SHST's failure to verify SHST's responses to interrogatories in response to the Court's May 12, 2016 Order, but also for SHST's failure to provide any of the five individual directors and officers whom Defendants issued deposition notices,[3] and for SHST's failure to provide responses to additional interrogatories 17 – 19. (Dkt. 139– 1 – 139– 14.) Defendants pointed out that, in response to notices of deposition of the Five Noticed Deponents, counsel to SHST responded: “We confirm that we cannot produce any witness (officer, director, managing agent or employee) for SHST, including but not limited to those witnesses whose depositions have already been noticed, as SHST is not responding to communications.” (Dkt. 139-5.) In addition, in responding to interrogatories nos. 17-19, SHST's counsel (purportedly objecting on behalf of Plaintiff VGH), stated:

The motion for default judgment was heard by this Court on June 16, 2016.

E. Joint letter brief regarding deposition of Stephen Pearlman.

On June 1, 2016, Plaintiff VGH moved to compel an additional date of deposition of Stephen Perlman, the “CEO” of Defendants. (Dkt. 163.) The Court then granted in part and denied in part that motion. (Dkt. 164.)

F. Joint letter brief regarding discovery from Plaintiff VGH.

*3 On June 13, 2016, the parties filed a joint letter brief regarding three disputes:

(Dkt. 174.)

G. Motion for protective order filed by VGH.

On June 15, 2016, Plaintiff VGH filed a motion for protective order regarding 13 subpoenas served on third parties and a motion for sanctions based both on Defendants' issuance of those subpoenas and on Defendants' failure to comply with the Court's April 15, 2016 Order granting Plaintiff VGH's motion to compel production of documents on a privilege log. (Dkts. 179, 180.)

H. Oral motion to compel discovery from SHST.

At the hearing on June 16, 2016, the Court noted at oral argument that Defendants had not yet filed a motion to compel regarding the additional discovery against SHST and that the only issue upon which the Court had ruled was SHST's failure to provide verification to its responses to Interrogatories Nos. 1 - 16. As indicated above, Defendants thus made an oral motion to compel SHST to produce additional discovery, and the parties submitted a letter brief on that issue on June 20, 2016. (Dkt. 193.)

I. The June 16, 2016 hearing.

Before the June 16, 2016 hearing, counsel for SHST had represented in writing to this Court that SHST is “dormant” and that counsel for SHST would be withdrawing as counsel of record. (Dkt. 132.) At the hearing on June 16, 2016, counsel for SHST represented that his firm does not wish to withdraw at this critical juncture but confirmed that SHST remained dormant and unable to respond to discovery. In response to Defendants' claim that SHST had not filed an opposition to the motion for default judgment, counsel for SHST stated that the opposition to Defendants' motion for default was filed on behalf of SHST and not only on behalf of VGH, and that any indication that the opposition was filed solely by Plaintiff VGH was a clerical mistake. Counsel for SHST argued that Defendants have suffered no prejudice from SHST's failure to participate in the discovery process because other individuals can address the issues that Defendants need for phase one of this action regarding ownership of the MOVA assets. SHST's counsel provided a list to the Court and to Defendants of the potential issues and potential sources of information.

J. Administrative motion for extension to serve third party subpoenas.

On June 16, 2016, immediately after the hearing, Defendants filed an administrative motion for leave to extend time to serve third party discovery to customers of third party DD3, since Defendants issued those subpoenas after the June 10, 2016 discovery deadline for phase one of this matter. (Dkt. 182.)

A. SHST's Failure to Provide Verification to Responses to Interrogatories Nos. 1 – 16, Defendants' Motion for Default, and Defendants' Additional Motion to Compel. (Dkt. 132, 139, and 193.)

*4 Defendants moved for default sanctions because SHST failed to provide responses to discovery. Part of SHST's failure to provide discovery is SHST's failure to provide verification to its responses to Interrogatories Nos. 1 – 16, despite this Court's Order of May 12, 2016 to do so. Additionally, Defendants argue that default is warranted given SHST's failure to produce the Five Noticed Deponents and other responses to written discovery requests.

As previously noted, the Court ordered SHST to provide verification by May 27, 2016, but the Court did not formally grant or deny Defendants' motion. (Dkt. 141.) The Court cautioned SHST that, if it failed to comply, the Court would re-visit the issue of sanctions. It is undisputed that SHST did not provide the verification by that date or any date. Therefore, the Court hereby formally GRANTS Defendants' motion for verification for response to Interrogatories Nos. 1 - 16 (Dkt. 132), GRANTS Defendants' motion for sanctions in the amount of attorneys' fees that Defendants incurred in bringing the motion to compel but DENIES Defendants' motion for default judgment against SHST (Dkt. 139) at this time, for the reasons described in more detail below. Defendants are ordered to provide information to the Court by June 30, 2016 of the amount of attorneys' fees incurred in seeking the verification from SHST for its responses to interrogatories. SHST may file an opposition, if any, by July 5, 2016. No reply is necessary. No hearing will be held.

1. Standards for Default Sanctions.

Where a party fails to obey an order to provide or permit discovery, the Court may make an order to strike pleadings or parts thereof, stay further proceedings until the order is obeyed, dismiss the action or proceeding or any part thereof, or render judgment by default against disobedient party. Fed.R.Civ.P. 37(b)(2)(C). Subsection (f) gives the judge the authority to make such orders as are just for a party's failure to obey a scheduling order or pretrial order. Fed.R.Civ.P. 16(f). Federal Rule of Civil Procedure 37 allows for dismissal for failure to comply with discovery plans or orders. Fed.R.Civ.P. 37(b)(2)(C). Rule 41 permits dismissal for failure of the plaintiff to prosecute or comply with any order of the court. Fed.R.Civ.P. 41(b).

The Supreme Court has recognized that dismissal “must be available to the district court in appropriate cases, not merely to penalize those whose conduct may be deemed to warrant such a sanction, but to deter those who might be tempted to such conduct in the absence of such a deterrent.” In re PPA Products, 460 F.3d at 1227 (citing National Hockey League v. Metro Hockey Club, Inc., 427 U.S. 639, 643 (1976) and Allen v. Exxon Corp (In re the Exxon Valdez), 102 F.3d 429, 433 (9th Cir. 1996)).

Should the court decide to dismiss the action, or any part thereof, the Court must first address five factors before imposing the sanction of dismissal:

Malone v. U.S. Postal Service, 833 F.2d 128, 130 (9th Cir. 1987).

2. Analysis.

Here, the factors indicate that the Court must give SHST another opportunity to respond to an order of the Court requiring SHST to comply with outstanding discovery and that imposition of default sanctions at this time would not be appropriate.

*5 Public Interest - With regard to the first factor, as acknowledged in Federal Rule of Civil Procedure 1, the public has an overriding interest in securing “the just, speedy, and inexpensive determination of every action. By the same token, delay in reaching the merits, whether by settlement or adjudication is costly in money, memory, manageability, and confidence in the process.” In re: Phenylpropanolamine (PPA) Products Liability Litigation, 460 F.3d 1217, 1227 (9th Cir. 2006). In analyzing the factors for default, the Court finds that the public's interest in expediting this case does not weigh heavily in favor of granting default sanctions at this time. This case has been pending since February 20, 2015, and, if SHST is able to comply with this Order in providing the additional discovery requested by the deadline set in this Order, SHST's delay alone will not substantially delay resolution of this matter.

Court's Docket Management - Rule of Civil Procedure 16 authorizes a court to manage cases so that disposition is expedited, wasteful pretrial activities are discouraged, the quality of the trial is improved, and the settlement is facilitated. Rule 16 recognizes the “need for “adopting special procedures for managing potentially difficult or protracted actions that may involve complex issues, multiple parties, difficult legal questions or unusual proof problems.” Fed.R.Civ.P. 16(c)(2)(L). The Court's need to control its docket at this time is not a major factor in a decision for default, again, if SHST is able to provide the discovery ordered. However, if SHST does not provide the additional discovery requested by the deadline set in this Order, these two first issues may factor in favor of default.

Risk of Prejudice to Defendants - “A defendant suffers prejudice if the plaintiff's actions impair the defendant's ability to go to trial or threaten to interfere with the rightful decision of the case.” Adriana International Corp. v. Thoeren, 913F.2d 1406, 1412 (9th Cir. 1990); In re PPA, 460 F.3d at 1227; Malone, 833 F.2d at 131. Failing to produce documents as ordered is considered sufficient prejudice. Adriana, 913 F.2d at 1412; In re PPA, 460 F.3d at 1227. There is also a rebuttable presumption that unreasonable delay causes prejudice. Id. at 1228. Failure to provide witnesses at deposition can constitute prejudice. Commodity Futures Trading Comm'n v. Noble Metals International, Inc., 67 F.3d 766, 771 (9th Cir. 1995) (repeated failure of a corporation to designate a representative to testify at discovery depositions “severely prejudiced” the government's ability to makes its case); Hyde & Drath v. Baker, 24 F.3d 1162, 1166-67 (9th Cir 1994) (failure to appear at depositions prejudiced the opposing party); Ariana, 913 F.2d at 1412 (repeated failure of the party to appear at scheduled depositions “interfered with the rightful decision of the case”).

Prejudice to Defendants is an important issue. Defendants point out that, since SHST is completely unable or unwilling to respond to discovery, Defendants cannot obtain any evidence about the ownership of the MOVA assets. However, at this point, Defendants have not demonstrated that the evidence Defendants seek can only be obtained from SHST. Defendants, as the moving parties, bear this burden, and Defendants' pleadings and argument fail to discuss the specific discovery sought and the reason that SHST's failure to respond prejudices Defendants. Defendants make general claims that only SHST can provide the information sought, but Defendants do not address the specific types of discovery or reasons why only SHST can provide the information sought. If SHST fails to provide discovery in response to this Court's order by the deadline imposed by the Court in this Order, then Defendants may renew their motion for default and may address in specific terms the reason why SHST's failure to produce discovery prejudices Defendants. The Court notes that there is a high probability that Defendants will be able to meet that burden, given that other parties cannot speak for SHST.

*6 Availability of Less Drastic Sanctions - Factors that consider whether the district court considered alternatives include: (1) Did the Court explicitly discuss the feasibility of less drastic sanctions and explain why alternative sanctions would be inadequate? (2) Did the Court implement alternative methods of sanctioning or curing the malfeasance before ordering the dismissal? (3) Did the Court warn the plaintiff of the possibility dismissal before actually ordering dismissal? Id. at 1228-1229.

Malone notes that alternative sanctions include: “a warning, a formal reprimand, placing the case at the bottom of the calendar, a fine, the imposition of costs or attorney fees, the temporary suspension of the culpable counsel from practice before the courts, ... dismissal of the suit unless new counsel is secured ... preclusion of claims or defenses, or the imposition of fees and costs upon plaintiff's counsel...” Id. at 132 n.1 (quoting Titus v. Mercedes Benz of North America, 695 F.2d 746, 749, n.6 (3rd Cir. 1982)).

At this time, as an alternative to default, the Court will provide SHST with one opportunity to respond to outstanding discovery. SHST must, by June 27, 2016, at 5:00 p.m. (Pacific time) take the following action to avoid default: (1) provide verified responses to Interrogatories Nos. 17 – 24; (2) provide specific dates within the next two weeks for the depositions of the five witnesses for whom notices have been provided; (3) provide documents responsive to Document Requests Nos. 1, 3, 6, 7, 11 and 16; (4) provide verified responses to Requests for Admission Nos. 1-65; and (5) provide a response to Defendants' Document Requests Nos. 25 -74. The Court thus GRANTS (1) Defendants' motion to compel verified responses to Interrogatories Nos. 17 – 24; (2) Defendants' motion to compel depositions of the Five Noticed Deponents; (3) Defendants' motion to compel production of documents responsive to Document Requests Nos. 1, 3, 6, 7, 11 and 16; (4) Defendants' motion to compel verified responses to Requests for Admission Nos. 1-65; and (5) Defendants' motion to compel a response from SHST to Defendants' Document Requests Nos. 25 -74. The Court DENIES without prejudice Defendants' motion to compel production of documents responsive to Document Request No. 4.

The Court warns SHST that failure to comply with the Court's order by June 27, 2016 will most likely result in a recommendation to the District Court that the District Court issue a default judgment against SHST. The Court notes that, although it is possible that other sources may be able to provide some of the information that Defendants need to prove ownership of the MOVA assets, none of the responses to written discovery are binding on SHST. For example, no other party can bind SHST to the Requests for Admission to SHST. Additionally, the Request for Production of Documents No.1, which seeks documents regarding the purchase of MOVA assets, appears to be at the heart of the issue of ownership, and production by third parties of any such documents does not carry the same weight or legal authority as production by SHST of those documents. It is hard to imagine how a third party can authenticate a document purporting to transfer assets, especially since Defendants have questioned the transfer and the legitimacy of the documents provided by Plaintiff VGH.

The Court invites Defendants to renew their motion for default sanctions if SHST does not comply with this Order by June 27, 2016. Defendants may submit a memorandum of points and authorities not to exceed 20 pages to be filed by June 30, 2016. Defendants may also seek monetary sanctions. The Court urges Defendants to focus on the specific, targeted discovery that Defendants seek that is critical to the issue of ownership of the MOVA assets. The Court urges Defendants to be brief, as the Court is now familiar with the issues. SHST may provide a response by July 5, 2016, in a document not to exceed 20 pages. No reply is necessary. No hearing will be held.

*7 Accordingly, the Court DENIES without prejudice Defendants' motion for default sanctions.

B. Additional Motions (Dkts. 174, 179, 180, 182).

The Court GRANTS in part and DENIES in part the requests to compel discovery set forth in the parties' joint letter brief. (Dkt 174.)

1. Deposition of Fan Lei.

The Court GRANTS the motion to compel the deposition of VGH director Fan Lei and orders that the deposition be taken in the Northern District of California at the expense of Plaintiff VGH. A party that chooses to file litigation in the Northern District of California must be prepared to proceed with discovery within the district. The deposition must take place before August 15, 2016.

A party seeking to prevent a deposition carries a heavy burden to show why discovery should be denied.” Websidestory, Inc. v. Netratings, Inc., 2007 WL 1120567, at *2 (S.D. Cal. April 6, 2007.) However, when a party seeks the deposition of a high-level executive, i.e., an “apex” deposition, the court may exercise its discretion to limit discovery under the federal rules. Id.; Fed.R.Civ.P 26(b)(2)(C). Apex depositions create “a tremendous potential for abuse or harassment.” Apple, Inc. v. Samsung Electronics Co., Ltd., 282 F.R.D. 259, 263 (N.D. Cal. 2012). For this reason, a party seeking to enforce the deposition notice of a high-ranking director or official “bears the burden of demonstrating that (1) ‘the deponent has unique first-hand, non-repetitive knowledge of the facts at issue in the case,’ and (2) that the party seeking the deposition has exhausted other less intrusive discovery methods.” Icon-IP Pty Ltd. v. Specialized Bicycle Components, Inc., 2014 WL 5387936, at *1 (N.D. Cal. Oct. 21, 2014) (quoting Groupion, LLC v. Groupon, Inc., 2012 WL 359699, at *2 (N.D. Cal. Feb. 2, 2012).

Here, there are only a handful of individuals associated with Plaintiff VGH, so characterizing Fan Lei as an “apex” deponent is somewhat misleading. Defendants have sought discovery in various forms and have scheduled a deposition of another employee of Plaintiff VGH. The discovery deadline for phase one of June 10, 2016, has already passed, and there is a trial date for phase one scheduled in December 2016. Given these factors, the deposition of Fan Lei should go forward at the earliest opportunity.

2. SHST Affiliates.

The Court DENIES without prejudice Defendants' motion to compel further response to Interrogatory No. 2 regarding SHST's affiliates. The inquiry into SHST's affiliates is not relevant to the issue of ownership of the MOVA assets. Defendants may seek this discovery in phase two when prosecuting the claim for fraudulent or voidable transfer.

3. Discovery Regarding DD3 Licenses.

The Court DENIES Defendants' motion to compel production of documents responsive to Defendants' Document Request No. 44 to Plaintiff VGH regarding DD3's agreements with third parties to use the MOVA assets and DENIES Defendants' motion to compel responses to Interrogatory No. 14 on the same issue. The Court GRANTS Plaintiff VGH's motion for a protective order regarding subpoenas issued to third parties, customers of third party DD3 and QUASHES the subpoenas that Defendants issued to third parties after the June 10, 2016 discovery deadline, but the Court DENIES Plaintiff VGH's request for sanctions based on Defendants' actions. (Dkt. 179.) The Court DENIES as moot Defendants' administrative motion for an extension of time to serve third party subpoenas. (Dkt. 182.)

*8 These motions all address the same issue: Defendants' attempt to obtain discovery regarding the agreements a third party, DD3, created with customers regarding the use of the MOVA assets. According to Plaintiff VGH, SHST transferred its rights to the MOVA assets to Plaintiff VGH, and Plaintiff VGH licensed the MOVA assets to DD3. DD3 then entered into agreements with customers. Defendants claim that DD3 made representations about DD3's ownership or SHST's ownership of the MOVA assets, and Defendants claim that DD3's representations are relevant to the issue of SHST's ownership of the MOVA assets. However, representations by a third party such as DD3 to other third parties about SHST's or Plaintiff VGH's ownership rights are not relevant or binding on SHST or Plaintiff VGH. For this reason, the Court forecloses discovery at this time on the issue of DD3's licenses with third parties who are DD3's customers.

4. Compliance with the April 15, 2016 Order.

The Court DENIES without prejudice Plaintiff VGH's motion for sanctions against Defendants for failure comply with the Court's April 15, 2016 Order (Dkt. 180). As noted above, the Court failed to provide a deadline for production of the responsive documents in the April 15, 2016 Order, and, at the June 16, 2016 hearing, the Court set a deadline of June 23, 2016 for compliance or filing of an appeal and motion to stay. Should Defendants fail to comply with the June 16, 2016 Order modifying the April 15, 2016 Order, Plaintiff VGH may renew its motion.

IT IS SO ORDERED.

Subsequently, Defendants submitted a related administrative motion for an extension of time to serve third parties subpoenas (Dkt. 182), which is also addressed here.

This motion was filed with a motion for preliminary injunction, and the motion for default, based on discovery issues, was referred to the undersigned Magistrate Judge, consistent with the order referring all discovery matters to the Magistrate Judge. (Dkts. 81, 143.)

Those five deponents are Hua Yibing, Xiao Ping, Zhang Xiaoqun, Zhang Xiaoyan, and Zhou Junfei (the “Five Noticed Deponents”).