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Classic Soft Trim, Inc. v. Albert

2020 WL 13593864 (M.D. Fla. 2020)

January 15, 2020

Baker, David A., United States Magistrate Judge

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Summary

The Court granted in part and denied in part Defendants' Motion to Compel and Motion for AEO Designation. The AEO designation was removed from certain documents, but Plaintiffs were warned that any violation of the limitations on access to the documents may lead to a dismissal of their case. These limitations include that Plaintiffs are only permitted to view the documents with their attorneys present and that they shall not possess any part of what they have viewed or any recorded memorialization of what they have viewed, including any ESI, which must remain in Plaintiffs' counsel's possession.

Additional Decisions

CLASSIC SOFT TRIM, INC. and ROADWIRE LLC, Plaintiffs,
v.
ROSS ALBERT, KATZKIN LEATHER, INC., CLEARLIGHT PARTNERS, LLC, CLEARLIGHT PARTNERS MANAGEMENT, LLC, Defendants

Case No. 6:18-cv-1237-Orl-78GJK

United States District Court, M.D. Florida

Signed January 15, 2020

Counsel

Douglas L. Mahaffey, Mahaffey Law Group, P.C., Newport Beach, CA, Kevin W. Shaughnessy, Meagan Leigh Martin, Paul Alexander Quimby, Baker & Hostetler, LLP, Orlando, FL, for Plaintiffs.
Courtney B. Wilson, Lindsay Alter, Littler Mendelson, PC, Miami, FL, for Defendant, Ross Albert.
Courtney B. Wilson, Lindsay Alter, Littler Mendelson, PC, Miami, FL, Don Howarth, Padraic J. Glaspy, Suzelle M. Smith, Tomas S. Glaspy, Howarth & Smith, Los Angeles, CA, for Defendant, Katzkin Leather, Inc.

Baker, David A., United States Magistrate Judge

Order1

*1 This cause came on for consideration on the following motions after hearing argument and receiving testimony from the parties:

MOTION: KATZKIN LEATHER'S MOTION TO COMPEL PLAINTIFFS’ DEPOSITIONS AND RESPONSES TO WRITTEN DISCOVERY (Doc. No. 157)

FILED: September 30, 2019

THEREON it is ORDERED that the motion be GRANTED in part and DENIED in part.

MOTION: PLAINTIFF CLASSIC SOFT TRIM, INC.’S MOTION TO COMPEL REMOVAL OF DEFENDANTS’ ATTORNEY EYES ONLY DESIGNATIONS OR, ALTERNATIVELY, FOR AN ORDER LIFTING THE DESIGNATIONS FOR THE LIMITED PURPOSE OF PREPARING DESIGNATED CORPORATE REPRESENTATIVES FOR DEPOSITION (Doc. No. 158)

FILED: October 1, 2019

THEREON it is ORDERED that the motion be GRANTED in part and DENIED in part.

I. BACKGROUND.

On July 31, 2018, this case was originally removed to this Court by Defendant Ross Albert (“Albert”). Doc. No. 1. On April 10, 2019, Plaintiffs Classic Soft Trim (“Classic”) and Roadwire LLC (“Roadwire”) filed a Second Amended Complaint against Defendants. Doc. Nos. 104, 107. The Second Amended Complaint alleges a cause of action against Albert for breach of fiduciary duty/breach of loyalty for supplying the other Defendants with confidential business information from Classic to aid in taking over the Orlando market for automotive leather kits. Doc. No. 104 at 8. The Second Amended Complaint alleges causes of action against Defendants Katzkin Leather, Inc. (“Katzkin”), ClearLight Partners, LLC (“Clearlight”) and ClearLight Partners Management, LLC (“Clearlight Management”) for: 1) violation of Florida's Deceptive Trade Practices Act; 2) tortious interference with a contractual relationship and business relationships; 3) inducing breach of loyalty and fiduciary duties/intentional interference with employee/employer relations; 4) violation of Ohio trade secrets law/common law prohibiting unfair competition; 5) violation of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030; and 6) attempted monopolization in violation of section 2 of the Sherman Act, 15 U.S.C. § 2. Doc. No. 104.

On September 30, 2019, Katzkin filed a motion to compel Plaintiffs’ depositions and responses to discovery (the “Motion to Compel”). Doc. No. 157. On October 1, 2019, Plaintiffs filed a motion to compel the removal of Defendants’ attorney's eyes only (“AEO”) designations or, a limited order lifting them for purposes of preparing a designated corporate representative for deposition (“Motion on AEO Designation”).[2] Doc. No. 158. On October 21, 2019, Classic filed a response to the Motion to Compel (“Response to Motion to Compel”). Doc. No. 163. On October 22, 2019, Katzkin and Clearlight (hereinafter collectively “Defendants”) filed a response to the Motion on AEO Designation (“Response to Motion on AEO Designation”). Doc. No. 166.

In its Motion to Compel, Katzkin seeks to compel the production of documents and the depositions of Plaintiffs’ corporate representatives. Doc. No. 157. In their Response to the Motion to Compel, Plaintiffs argue that the requested discovery cannot be completed, nor depositions conducted, until designated principals at Classic are able to review documents produced by Defendants that have been designated AEO. Doc. No. 163. In their Motion on AEO Designation, Plaintiffs argue that Defendants have not complied with the requirements of this Court's Standing Order with respect to the use of the AEO designation and have broadly designated documents AEO that do not satisfy the burden imposed by that designation. Doc. No. 158. In their Response to the Motion on AEO Designation, Defendants argue that Plaintiffs have failed to follow the proper procedure to remove the AEO designation and all the documents are properly marked AEO because Plaintiffs are their competitors and harm is likely to occur if the documents are disclosed to Plaintiffs. Doc. No. 166 at 2, 6-7, 11-14, 17. Defendants also argue that Plaintiffs’ witnesses do not need to see these documents. Id. at 10.

*2 On January 3, 2020, a hearing was held before the undersigned on these pending motions. Doc. Nos. 181, 182. After hearing argument from the parties, the Court ruled that Defendants would be required to demonstrate that the AEO designations on the documents in question were necessary. Doc. Nos. 181, 182. An evidentiary hearing was scheduled for January 9, 2020. Doc. Nos. 182, 184. On January 9, 2020, that hearing was held, and Defendants presented testimony from Tim Clyde, President and Chief Executive Office of Katzkin, Jeff Manassero, a principal of Clearlight and a member of Katzkin's Board of Directors, and Doctor Henry Kahwati, an economics expert with extensive antitrust experience. Doc. No. 185.

The testimony provided by Mr. Clyde and Mr. Manassero addressed in general terms documents produced by Katzkin and Clearlight that were separated into groups by type: consolidated financial reports; a 2018 sales meeting presentation; reports regarding sales results, top customers, and financial performance; spreadsheets of Katzkin's financial information showing sales in Orlando, Cincinnati, Florida, Ohio, nationwide, and by individual customer for the years 2007 to 2018; Katzkin's corporate organizational structure; Katzkin board documents; correspondence and contract details regarding Katzkin's hiring of Albert; Katzkin reports specifically addressing Classic and Roadwire; Clearlight's internal correspondence and notes; and budget and reporting documents that Clearlight sent to Katzkin, including sample documents taken from an unrelated portfolio company of Clearlight's.[3] The witnesses identified one to two examples in each group of documents and testified about the confidential nature of the documents and indicated removing the AEO designation from the entire group of documents could result in competitive harm as even older documents could provide a compelling starting point for analysis by Plaintiffs. Dr. Kahwati testified that he had reviewed some of the documents designated AEO and that generally disclosure of documents of this type to a competitor in an antitrust claim may lead to harm.

II. APPLICABLE LAW.

*3 Federal Rule of Civil Procedure 26(b)(1) allows a party to obtain “discovery regarding any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case ....” Rule 26(c)(1) provides that upon a showing of good cause, a court “may 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). This may include protection of “trade secret or other confidential research, development, or commercial information ....” Fed. R. Civ. P. 26(c)(1)(G). Such protection includes limiting the manner in which such information is revealed. Id.

A party seeking relief under Rule 26(c) must demonstrate the alleged harm with “a particular and specific demonstration of fact as distinguished from stereotyped and conclusory statements.” United States v. Garrett, 571 F.2d 1323, 1326 n.3 (5th Cir. 1978)[4]; Knights Armament Co. v. Optical Sys. Tech., Inc., 254 F.R.D. 463, 468 (M.D. Fla. 2008) (“any party wishing to designate information as Confidential or Attorneys’ Eyes Only bears the burden of supporting that designation with good cause”).

Demonstrating harm under Rule 26(c) requires a demonstration that the disclosure will work “a clearly defined and serious injury to the party seeking closure,” and that injury “must be shown with specificity.” Publicker Indus., Inc. v. Cohen, 733 F.2d 1059, 1071 (3d Cir. 1984); see Pansy v. Borough of Stroudsburg, 23 F.3d 772, 786 (3d Cir. 1994) (good cause is demonstrated by showing that disclosure will cause clearly defined and serious injury). The Court must then be satisfied that, on balance, the interests of the party seeking such additional protection outweigh the interests of the opposing party. McCarthy v. Barnett Bank of Polk Cty., 876 F.2d 89, 91 (11th Cir. 1989).

The AEO designation is recognized as an appropriate method of protecting information, but it is usually employed in very limited situations such as cases involving trade secrets.[5] In re the City of New York, 607 F.3d 923, 936 (2d Cir. 2010) (citing Fed. R. Civ. P. 26(c)(1)(G)).[6] Courts have also upheld AEO designations when confidential business information is to be provided to a competitor. K & M Int'l, Inc. v. NDY Toy, LLC, No. 1:13-cv-771, 2015 WL 12591742 at *––––, 2015 U.S. Dist. LEXIS 15415 at *11 (N.D. Oh. Feb. 9, 2015) (citing Westbrook v. Charlie Sciara & Son Produce Co., Inc. No. 07-2657, 2008 WL 11417501 at *––––, 2008 U.S. Dist. LEXIS 24649 at *11 (W.D. Tenn. Mar. 27, 2008)). However, the AEO designation is considered a “drastic remedy given its impact on the party entitled to the information” as it “limits the ability of the receiving party to view the relevant evidence, fully discuss it with counsel, and make intelligent litigation decisions.” Ragland v. Blue Cross Blue Shield of N.D., No. 1:12-cv-080, 2013 WL 3776495 at *1, 2013 U.S. Dist. LEXIS 99369 at *3-4 (D. N.D. Jun. 25, 2013). The designation can also limit the ability of a party to provide needed assistance to counsel. Id. at *4.

*4 While a showing of competitive harm may justify a restriction of confidential information to AEO, courts have also “recognized the harm that the indiscriminate use of ‘attorney's eyes only’ protective orders can cause, especially in the absence of a strong showing of probable competitive harm.” Arvco Container Corp. v. Weyerehaeuser Co., No. 1:08-cv-548, 2009 WL 311125 at *5, 2009 U.S. Dist. LEXIS 9264 at *14-15 (E.D. Mich. Feb. 9, 2009); DeFazio v. Hollister, Inc., No. Civ-5-04-1358, 2007 WL 2580633, at *2, 2007 U.S. Dist. LEXIS 98147, at *8 (E.D. Cal. Sept. 5, 2007) (“the very real specter of over-designation of ‘attorneys’ eyes only’ information exists, and plaintiffs should not be put in a position where they are essentially kept in the dark about important facts of the case.”). The court must balance “the difficulties imposed upon plaintiff against the need to protect information from abuse by competitors.” K & M Int'l, Inc., 2015 WL 12591742, at *––––, 2015 U.S. Dist. LEXIS 15415, at *12 (quoting Arvco Container Corp., 2009 WL 311125, at *6, 2009 U.S. Dist. LEXIS 9264, at *15) (finding AEO designation improper where the plush toys at issue went to the very heart of plaintiff's copyright infringement case and defendants failed to carry their burden to demonstrate a clearly defined and serious injury).

III. ANALYSIS.

Defendants have demonstrated that the documents at issue are confidential. However, that is not the question at this point. The issue is whether these confidential documents have been properly designated AEO which restricts access to these documents to only Plaintiffs’ counsel, counsel's employees, and experts assisting Plaintiffs’ counsel in preparing this case. Plaintiffs argue that access to these documents is necessary to prepare their case because counsel requires Plaintiffs to identify information Defendants may have received improperly and to provide meaningful input regarding the claims at issue. Defendants argue that it is unnecessary for Plaintiffs to review any of the documents and that the AEO designation is appropriate for all the documents so marked.

The testimony and arguments offered by Defendants to support their contention of dire competitive harm are vague, overbroad, and unpersuasive. Defendants’ two executives testified in sweeping terms without a trace of concrete justification for their conclusions. Their antitrust expert did no more than confirm, as an abstract matter, that financial, marketing, and other documents may be of competitive interest, but he provided no testimony to support the assertion that the full panoply of documents at issue here would in fact have any effect on competition. He had not even reviewed all of the documents that have been designated AEO. Defendants have simply failed to meet their burden to demonstrate an AEO designation is necessary for all of the documents so marked.

Undoubtedly, current and near-current financial, design and marketing information would be highly valuable to a competitor and may justify an AEO designation. Defendants, however, demanded the same protection en masse for much older information and items with no obvious or direct competitive effect. Except in the most general and sweeping terms, Defendants have failed to explain why business and financial information from, for example, 2007 or 2012 would be competitively significant, particularly in what appears to be a dynamic and fast changing business environment. Similarly, other than mere ipse dixit, Defendants have failed to show why their organizational chart, publicly visible products and product displays, and documents concerning the hiring of Ross Albert are entitled to such high-level protection.

Because Defendants make no effort to differentiate with any particularity matters of potentially harmful import and everything else, the Court must do so, recognizing that the opposing parties are competitors. To that end, the Court determines that with respect to business, financial, sales, marketing, design and similar documents, only those created in or pertaining to 2018 and later should be maintained as AEO. Thus, the materials that would be redesignated as confidential instead of AEO would include: Katzkin's consolidated financial statements from 2007 to 2017; Katzkin's reports regarding sales results, top customers, and financial performance from 2007-2017; spreadsheets of Katzkin's financial information showing sales in Orlando, Cincinnati, Florida, Ohio, nationwide, and by individual customer from 2007-2017; Katzkin's board documents 2007-2017; Katzkin's reports specifically addressing CST/Roadwire prior to 2018; Clearlight's internal correspondence and notes prior to 2018; correspondence and contract details regarding Katzkin's hiring of Ross Albert; Katzkin's corporate organizational structure; and budget and reporting documents that Clearlight sent to Katzkin, including sample documents taken from an unrelated portfolio company.

*5 However, this redesignation from AEO to confidential comes with two limitations set in place to minimize any harm that could potentially occur. First, Plaintiffs’ representatives are only permitted to view the documents with their attorneys present. Second, Plaintiffs shall not in any way, shape or form, possess any part of what they have viewed or, actually or constructively, possess any recorded memorialization of what they have viewed.[7] Further, the Court warns Plaintiffs that violation of these limitations may lead to a dismissal of their case, contempt prosecution, and other sanctions.

With respect to Defendants’ Motion to Compel, the Court will direct Plaintiffs to respond to the request to produce within eleven (11) days from the date of this Order and to make corporate representatives available for depositions on or before February 12, 2020.

Accordingly, it is ORDERED that the Motion to Compel and Motion for AEO Designation (Doc. Nos. 157 and 158) are GRANTED in part and DENIED in part as follows:

1. Plaintiffs shall produce any documents responsive to Defendants’ request to produce within eleven (11) days from the date of this Order;

2. Plaintiffs shall make their designated corporate representatives available for depositions on or before February 12, 2020;

3. The AEO designation is removed from the following documents: Katzkin's consolidated financial statements from 2007 to 2017; Katzkin's reports regarding sales results, top customers, and financial performance from 2007-2017; spreadsheets of Katzkin's financial information showing sales in Orlando, Cincinnati, Florida, Ohio, nationwide, and by individual customer from 2007-2017; Katzkin's board documents 2007-2017; Katzkin's reports specifically addressing CST/Roadwire prior to 2018; Clearlight's internal correspondence and notes prior to 2018; correspondence and contract details regarding Katzkin's hiring of Ross Albert; Katzkin's corporate organizational structure; and budget and reporting documents that Clearlight sent to Katzkin, including sample documents taken from an unrelated portfolio company, subject to the following limitations:

a. Plaintiffs are only permitted to view the documents with their attorneys present;

b. Plaintiffs shall not in any way, shape or form, possess any part of what they have viewed or, actually or constructively, possess any recorded memorialization of what they have viewed;

4. Failure to comply with the limitations on access to the newly redesignated documents may lead to a dismissal of Plaintiffs’ case, contempt prosecution, and other sanctions;

5. The Motion to Compel and the Motion on AEO Designation are otherwise DENIED.

DONE in Orlando, Florida on January 15, 2020.

Footnotes

[1]

Magistrate Judge David A. Baker substituting for Magistrate Judge Gregory J. Kelly.

[2]

The parties have confidentiality agreements in place. Doc. Nos. 158-1, 158-2.

[3]

Defendants assigned the documents as follows: Group A – Katzkin's consolidated financial statements for the years 2007-2018 (Katzkin 000106-167; Katzkin 000997-1171); Group B – Katzkin's 2018 Sales Meeting Presentation (CLP 0000421-22, 426-29, 431-44, 443-45, 447-48, 450-58, 462-74, 476-77, 482-92, 494-500, 502, 504-06, 510, 512-24, 528-29, 531); Group C – Katzkin reports regarding sales results, top customers, and financial performance (CLP 0000043-59, 84, 89, 92-109, 114-19, 122-39, 175-93, 195-212, 214-31, 235, 237-54, 258, 260-77, 281, 286-303, 308-325, 330-347, 352-69, 374-91, 96-413); Group D – Spreadsheets of Katzkin's financial information showing sales in Orlando, Cincinnati, Florida, Ohio, nationwide, and by individual customer for the years 2007 to 2018 (Katzkin 000168-869, 1172-1204); Group E – Katzkin corporate organizational structure (Katzkin 000906); Group F – Katzkin board documents (Katzkin 000899-904, 909-923); Group G – correspondence and contract details regarding Katzkin's hiring of Ross Albert (Katzkin 000085-100; CLP 0000001-2, 152-54); Group H – Katzkin reports specifically addressing CST/Roadwire (CLP 0000018, 20, 22-25, 27-30, 32-35, 37-40, 63-67, 69-70, 72-73, 75-76, 78-79, 81-82, 90-91, 120-21, 155-60); Group I – Clearlight's internal correspondence and notes (CLP 0000004-6, 8-10, 12-13, 15-16, 60-61, 74, 77, 80, 83, 111-13, 141-43, 161-63, 165-67, 169-70, 173-74, 233-34, 256-57, 279-80, 283-85, 305-07, 327-29, 349-51, 370-73, 393-95, 415-18); Group J – budget and reporting documents that Clearlight sent to Katzkin, including sample documents taken from an unrelated portfolio company of Clearlight's (Katzkin 000924-88). These groupings, or their designations were the subject of testimony, but the documents were not moved into evidence, nor were the tables designating the contents of the groups.

[4]

In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), the Eleventh Circuit adopted as binding precedent all decisions of the former Fifth Circuit handed down prior to the close of business on September 30, 1981.

[5]

In its Standing Order Regarding Confidential Information, the Court provides for the use of both confidential and AEO designations by parties, explaining that:

In most cases, only a small portion of the information exchanged between the parties is truly confidential, and the parties should tailor their confidentiality designations so as to protect only that information. There are some cases that involve information that is so closely guarded that it would be appropriate to designate some limited information as being restricted to “attorneys’ eyes only,” but those are extremely rare and the type of information falling within such a designation must be narrowly tailored to avoid hampering the use of information not warranting such a restriction.

6:18-mc-21-GJK (M.D. Fla. Jul. 6, 2018).

[6]

The leading authority regarding disputes about disclosure of trade secrets to a competitor are U.S. Steel Corp. v. United States, 730 F.2d 1465 (Fed. Cir. 1984) and Brown Bag Software v. Symantec Corp., 960 F.2d 1465 (9th Cir. 1992) which provide guidance on when it is appropriate to disclose trade secrets to a competitive decision-maker.

[7]

The expectation is that the documents, regardless of format, and any memorialization of Plaintiffs’ review of the documents, shall remain in Plaintiffs’ counsel's possession.