Nvision Biomedical Techs., LLC v. Jalex Med., LLC
Nvision Biomedical Techs., LLC v. Jalex Med., LLC
2016 WL 8259076 (W.D. Tex. 2016)
February 1, 2016
Pitman, Robert, United States District Judge
Summary
Nvision objected to Jalex's use of the "for counsel or attorneys only" designation for over 2,600 pages of documents. The court overruled Jalex's objection and appeal and determined that the documents were not appropriately designated as such under the terms of the Protective Order. The court also concluded that maintaining the AEO designation would undermine Nvision's ability to litigate the action.
Additional Decisions
NVISION BIOMEDICAL TECHNOLOGIES, LLC, Plaintiff,
v.
JALEX MEDICAL, LLC, Defendant
v.
JALEX MEDICAL, LLC, Defendant
5:15–CV–284 RP
United States District Court, W.D. Texas, San Antonio Division
Signed February 01, 2016
Counsel
Derick J. Rodgers, Davis, Cedillo & Mendoza , Inc., San Antonio, TX, for Plaintiff.Gerald L. Shiely, Vaughan E. Waters, Thornton, Biechlin, Segrato, Reynolds & Guerra, L.C., Jonathan D. Pauerstein, Stephen K. Lecholop, II, Rosenthal Paurestein Sandoloski Agather LLP, San Antonio, TX, Chelsea R. Mikula, Robert J. Hanna, Tucker Ellis LLP, Cleveland, OH, for Defendant.
Pitman, Robert, United States District Judge
ORDER
*1 Before the Court are Defendant's Objections to and Appeal of Magistrate Judge's Ruling on Defendant's Motion to Preserve Designated Status of Classified Information, filed January 6, 2016 (Dkt. 72) and Plaintiff's response thereto, filed January 11, 2016 (Dkt. 77). By way of its objections, Defendant requests review of Magistrate Judge Pamela Mathy's Amended Order, entered December 23, 2015 (Dkt. 62), denying Defendant's Motion to Preserve Designated Status of Classified Information, filed November 25, 2015 (Dkt. 46). After a review of the entire file in this action as well as the relevant law, the Court concludes that Defendant's objections should be overruled and that Magistrate Judge Mathy's Amended Order should be affirmed.
I. Background
Plaintiff Nvision Biomedical Technologies, LLC (“Nvision”) is a medical device developer that contracted with Defendant Jalex Medical, LLC (“Jalex”) for consulting services between July 2013 and March 2015. (Am. Compl. ¶ 1, Dkt. 31.) On July 25, 2013, Nvision and Jalex entered into a Development Services Agreement (“the DSA”) which specifies the terms and conditions of the consulting relationship between the two companies. (Id. ¶¶ 5–6.) Nvision principally alleges that Jalex imposed surcharges on third-party invoices, thus charging Nvision more than the actual costs incurred by Jalex and, in doing so, violated the terms of the DSA. (Id. ¶¶ 10–17.) Nvision also alleges that Jalex improperly misappropriated and used Nvision's intellectual property in order to compete with Nvision (id. ¶¶ 20–22) and that the consulting services rendered by Jalex were materially deficient (id. ¶¶ 23–25). Jalex has filed a counterclaim against Nvision, asserting that Nvision has failed to pay its invoices in full and has violated the non-solicitation provisions of a separate agreement between them. (Countercl. ¶¶ 8–30, 37–42, Dkt. 39.)
On September 9, 2015, the Court entered a confidentiality and protective Order (“Protective Order”), which governs the exchange and dissemination of sensitive information produced in discovery. (Dkt. 34.) The Protective Order anticipates that information disclosed in discovery will be given one of four main designations: (1) non-classified information, (2) confidential,[1] (3) for counsel or attorneys, and (4) ultrasensitive information. (Protective Order ¶ 3, Dkt. 34.) The Protective Order states that documents should be designated as “for counsel or attorneys only,” also known as “for attorneys’ eyes only” or “AEO,” if the documents contain “information that is believed to be unknown to the opposing party or parties, or any of the employees of a corporate party.” (Id. ¶ 3(c).) Examples of documents appropriately given the AEO designation include “product formula information, design information, non-public financial information, pricing information, customer identification data, and certain study methodologies.” (Id.) The Protective Order states that documents should be designated “confidential” only if the party believes in good faith that the documents are confidential. (Id. ¶ 3(b).) Examples of documents appropriately given the confidential designation include “trade secrets, confidential or proprietary financial information, operational data, business plans, and competitive analyses, personnel files, personal information that is protected by law, and other sensitive information.” (Id.) Access to documents with the AEO designation is limited to counsel for parties in the litigation, as well as their staff and experts. (Id. ¶ 2(a).) Documents designated confidential, on the other hand, may be provided to “officers or employees of the party who are actively involved” in the litigation. (Id. ¶ 2(b).) Documents with either designation “shall be used solely for the purpose of preparation, trial, and appeal of this litigation.” (Id. ¶ 4.)
*2 Jalex states that on August 24, 2015 and September 4, 2015 it responded to discovery requests from Nvision by producing approximately 12,000 documents. (Obj. & Appeal ¶ 3, Dkt. 72.) Among other documents, Jalex claims to have produced
documents pertaining specifically to—as well as documents actually consisting of—design work performed by JALEX on behalf of NVISION in support of the latter's plan to market certain types of medical devices relating to spinal implantation (including communications with vendors in that regard). These documents were produced under the classification “Attorney's Eyes Only” (“AEO”) in accordance with pertinent provisions of the [Protective Order].
(Id.) Jalex has grouped the documents with the AEO designation into three categories:
Category 1 consists of drawings, models, test results, reports, and other technical information; Category 2 consists of administrative documentation such as updates on purchase orders; and Category 3 consists of invoices and purchase orders themselves, all relating to items under development pursuant to the DSA and subsequent contracts. Category 1 may be considered “core” deliverables, and Categories 2 and 3 “non-core” deliverables.[2]
(Id. ¶ 6.) On October 29, 2015, Nvision objected to Jalex's use of the AEO designation and demanded that Jalex “retract or otherwise justify” such designation as to more than 2,600 pages of documents. (Id.) On November 25, 2015, Jalex filed its Motion to Preserve Designated Status of Classified Information, asking the Court to enter an order upholding and maintaining its use of the AEO designation as applied to these documents. (Dkt. 46.)
This Court referred Jalex's motion to United States Magistrate Judge Pamela Mathy. (Dkt. 59.) After a hearing, Judge Mathy denied Jalex's motion and sustained Nvision's objection to Jalex's use of the AEO designation. The Court now considers Jalex's objection to and appeal of Judge Mathy's order.
II. Discussion
The Court must now determine whether Magistrate Judge Mathy appropriately concluded that the documents at issue ought to have been designated confidential rather than AEO under the terms of the Protective Order. A magistrate judge's ruling on a non-dispositive motion may be set aside if it “is clearly erroneous or is contrary to law.” Fed. R. Civ. P. 72(a). Accordingly, factual findings are reviewed under a clearly erroneous standard and legal conclusions are reviewed de novo. Moore v. Ford Motor Co., 755 F.3d 802, 806 (5th Cir. 2014).
Judge Mathy determined that the documents at issue were not appropriately designated AEO because they were not unknown to the opposing party:
In the context of the parties’ contractual relationship, the Court agrees with Nvision that the documents at issue are “known” to Nvision within the meaning of the [Protective Order] and therefore, are not correctly classified as AEO. Jalex appears to concede all the documents at issue relate to the parties’ contracts that both parties have directly placed in issue through the claims in Nvision's first amended and supplemental complaint and Jalex's counterclaim. Jalex has not rebutted Nvision's proffer that Nvision “was involved in the development” of all the documents at issue because the documents were generated essentially at the request of Nvision when Jalex agreed to perform contractual work for Nvision.
*3 (Am. Order 14–15, Dkt. 62.) The Court agrees. Under the protective order, the AEO designation is reserved for “information that is believed to be unknown to the opposing party or parties, or any of the employees of a corporate party.” (Protective Order ¶ 3(c).) Documents developed by Jalex at the request of and in collaboration with Nvision are reasonably understood to be “known” to Nvision within the meaning of the term as it is used in the Protective Order.
Jalex objects to Judge Mathy's conclusion on the basis that it allows Nvision to use discovery as “an end-run around the litigation process.” (Obj. & Appeal ¶ 13, Dkt. 72.) Jalex contends that Nvision is requesting production of the same documents through discovery that it is asking the Court to compel Jalex to turn over as part of its request for specific performance of the DSA. (Id.) However, Jalex believes that it should not be required to turn over deliverables which Nvision has not yet paid for. (Id.) Accordingly, Jalex asserts that
for the core deliverables to be provided to NVISION, for its use and benefit, would in effect eviscerate the terms of the DSA by allowing NVISION the documentation it seeks in this action—and thus the ability to proceed to market with the products developed by JALEX—without having to pay Jalex approximately a quarter of a million dollars in unpaid fees, expenses and interest which are now due and owing. Providing the core deliverables to NVISION would result in a clearly defined and serious injury to JALEX, as Jalex would essentially be deprived of the rights and protections afforded by the litigation process.
(Id. ¶ 16.)
However, Judge Mathy's order does not in fact require Jalex to turn over core deliverables to Nvision “for its use and benefit.” Rather, downgrading the documents designation from AEO to confidential broadens the set of people who may access the documents but does not change how or for what purpose the documents may be used. Under the Protective Order, documents designated confidential “shall be used solely for the purpose of preparation, trial, and appeal of this litigation and for no other purpose.” (Protective Order ¶ 4, Dkt. 34.) Jalex suggests that Nvision “has demonstrated that it cannot be trusted to respect the confidentiality of documents ... or to confine the use of such documents to the instant litigation.” (Obj. & Appeal ¶ 15, Dkt. 72.) Yet, Jalex has not provided compelling evidence to support this proposition.[3] Accordingly, Jalex's fear that failure to maintain the AEO designation will enable Nvision to use the documents produced in discovery for business purposes is unfounded. For example, Jalex believes that Nvision is seeking these documents “so that it can be in compliance with FDA regulations.” (Id. ¶ 13.) However, the submission of these documents to the FDA or any other regulatory agency is precisely the sort of use which the Protective Order prohibits.
*4 Moreover, Nvision's principal allegation is that it has been overcharged for services rendered or procured by Jalex. It would be difficult if not impossible to assess the merit of this allegation without understanding precisely what services Jalex has rendered and procured. Accordingly, it is appropriate that Nvision would want to evaluate the documents at issue, including the core deliverables, in preparation of its case. Maintaining the AEO designation would likely significantly undermine Nvision's ability to prosecute the claims it raises in its First Amended Complaint.
Thus, the Court finds that the documents at issue are not appropriately designated AEO under the terms of the Protective Order. Moreover, maintaining the AEO designation would undercut Nvision's ability to litigate this action, while doing little to protect the rights of Jalex. The Court, therefore, concludes that Defendant's objections to the Magistrate Judge's Amended Order should be overruled.
III. Conclusion
Defendant's Objections to and Appeal of Magistrate Judge's Ruling on Defendant's Motion to Preserve Designated Status of Classified Information (Dkt. 72) are hereby OVERRULED. Magistrate Judge Mathy's Amended Order (Dkt. 62), to the extent that it denies Defendant's Motion to Preserve Designated Status of Classified Information (Dkt. 46), is hereby AFFIRMED.
Footnotes
The Protective Order uses the designations “confidential” and “classified” somewhat interchangeably. Classified information is any information that has been designated confidential, for counsel or attorneys (“AEO”), or ultrasensitive. However, since confidential is the least restrictive of the classified designations, when the Protective Orders enumerates the standards and rules that apply to all classified information, those standards and rules necessarily also apply to information designated confidential. (See Protective Order, Dkt. 34.)
On its face, Jalex's motion asks the court to maintain the AEO designation for all three categories of information. However, Jalex concedes that “[p]rovided the core deliverables are not made available to NVISION, the non-core deliverables could be downgraded from an AEO designation to a Confidential designation, and thus made available to NVISION's principals and management, without serious harms to JALEX's proprietary interests.” (Obj. & Appeal ¶ 16, Dkt. 72.)
Jalex claims that posted on Nvision's website is a document which was produced by Jalex and has not been paid for Nvision. (Obj. & Appeal ¶ 15, Dkt. 72.) Jalex contends that this document could only have been obtained by “pilfering” or by Nvision's counsel turning the document over, notwithstanding its AEO designation. (Id.) In response, Nvision states that “[d]uring the course of the consultancy relationship, JALEX and Nvision collaboratively developed drafts of [the document] with Nvision and which Nvision has since finalized.” (Resp. ¶ 7, Dkt. 77.) Moreover, Nvision submits as an exhibit an e-mail in which Jalex sent Nvision a draft of the document in question. (Id. Ex. B.) Thus, in light of Nvision's compelling response, the Court concludes that Jalex's contention that Nvision cannot be trusted to comply with the terms of the Protective Order is unsubstantiated.