Counsel

Plaintiffs seek sanctions for certain conduct by defendant and defense counsel during this case. The Court orders defendant and the law firm of Seyfarth Shaw LLP, jointly and severally, to pay a sanction to the plaintiffs in the amount of $274,818.58. The Court also grants defendant’s unopposed motion to vacate stay and release bond.

BACKGROUND

This case arose from a dispute between the manufacturer of medical devices, Howmedica Osteonics Corporation (“Stryker”) and a former distributor of Stryker products, ORP Surgical, LLP and its President Lee Petrides. The case was tried to the Court in phases between December 2021 and March 2022.

A. Original Findings and Judgment.

The Court issued its Findings of Fact, Conclusions of Law, and Order of Judgment on May 10, 2022. ECF No. 398. Judgment entered (1) in favor of the defendant, Stryker, on plaintiffs’ “corporate raiding” claim; (2) in favor of the plaintiffs on their breach of contract claims and on Stryker’s counterclaims; (3) awarding the plaintiffs $1,018,896 in damages plus prejudgment interest for Stryker’s failure to make restriction payments following its termination of the “joint contract;” (4) awarding the plaintiffs $3,731,791.47 plus prejudgment interest for Stryker’s failure to make restriction payments following its termination of the “trauma contract;” (5) awarding the plaintiffs $1.00 in nominal damages for soliciting and diverting ORP’s sales reps in violation of the trauma contract; (6) awarding the plaintiffs reasonable attorney’s fees in an amount to be determined; and (7) ordering Stryker and the Seyfarth Shaw law firm to reimburse plaintiffs’ share of the Special Discovery Master’s fees and costs as a sanction for improper discovery tactics. ECF No. 400.

Regarding the sanction, the Court noted that due to the “volume and antagonistic nature of the discovery disputes that were occurring,” it had appointed a special master to assist in managing the discovery process. ECF No. 398 at 5. The Special Master was a highly respected former Colorado state district judge who was associated with the Judicial Arbiter Group in Denver and was approved by the parties. He recommended sanctions against Styker on two occasions. In his report number 8 he recommended sanctions for Stryker’s failure to preserve and produce certain text messages of Stryker’s Area Vice President Adam Jacobs and Styker’s Trauma Sales Manager Michael Bonessi. See id. at 24. In his report number 13 the Special Master again recommended sanctions after finding that Stryker and/or its counsel at the Seyfarth Shaw law firm had engaged in three types of misconduct: first, based on his review of the transcript of the deposition of Stryker recruiter Amy Shackleford, he found that attorney Robin Marsh had repeatedly made unwarranted form objections and on several occasions made other inappropriate objections, ECF No. 286 at 3–4; second, Stryker’s lawyers had improperly coached and insufficiently prepared Rule 30(b)(6) witnesses, id. at 4–5; and third, that Stryker fell significantly short of its obligation to timely and completely disclose relevant documents. Id. at 5–6.

The Special Master believed that the sanction “should have teeth.” He recommended that a pivotal fact for trial be deemed to be established, and that Stryker be ordered to reimburse two-thirds of ORP’s share of the Special Master’s fees and costs. Although I agreed that a sanction was appropriate, I wanted to hear the evidence on the issue that he proposed be deemed established. Reimbursement of a portion of a share of the Special Master’s fee by itself would have been minor. Therefore, I left the sanction issue to be addressed after the trial.

In my Findings of Fact, Conclusions of Law, and Order of Judgment, I summed up my concerns about the discovery issues as follows:

After considering all the evidence and arguments, I find that Stryker failed to meet some of its preservation obligations, and that Stryker’s counsel turned this case sour with nasty litigation tactics. As I stated during the trial, I was “appalled” at Stryker’s lawyers’ “playing fast and loose” with discovery obligations. I agree with the Special Master that Stryker’s failure to preserve text messages in December 2019 was either willful misconduct or gross negligence. That action may have become water under the bridge with the recovery of most text messages. But Stryker’s counsel’s November 1 representation that “all texts between the Sales Reps and Mr. Jacobs and/or Mr. Bonessi during the alleged spoliation period are being produced today,” ECF No. 263 at p. 1 (emphasis in original), was simply untrue. Even if Stryker had produced key images and attachments (which it had not), Mason Miller’s text messages were not produced until February 11, 2022. Stryker could have said it was producing “all available text messages” or was working with plaintiffs’ IT people to sort through technical difficulties, but it chose to use unequivocal language on which the Court relied.

Moreover, I find the Special Master’s observation about Stryker’s counsel’s coaching and failing to prepare 30(b)(6) witnesses properly, abusively defending Ms. Shackelford’s deposition, and delaying discovery to be credible. I reviewed a video of a portion of the Shackelford deposition, and I agree that defense counsel’s conduct was rude, unprofessional, and inappropriate.

ECF No. 398 at 26–27.

During the trial I also became convinced that I could not rely on the truthfulness of some of the defense witnesses. I found that the testimony of Mr. Jacobs lacked credibility. Id. at 10. Mr. Jacobs was the primary Stryker executive involved in breaches of both contracts; he was instrumental in wrongfully soliciting ORP’s sales representatives to work for Stryker; and he was Stryker’s lead witness and client representative at trial. But he was not alone. I found that “Stryker witnesses equivocated, spun far-fetched stories, and even made flat-out misrepresentations.” Id. at 13. I provided examples of the testimony of Tim Sebald, the General Manager of Stryker’s Summit Surgical Branch; and several of the former ORP sales reps who were hired by Stryker. Id. at 13–15.

As noted, however, I also construed the contracts as authorizing an award of attorney’s fees to the plaintiffs, and I knew that the fees in this hotly disputed case would be substantial. Addressing the sanctions issue in that context, I found that “[r]equiring Stryker to reimburse plaintiffs’ attorney’s fees is insufficient—the contract already requires such reimbursement (were that not the case, I would likely have ordered defendant to reimburse plaintiffs for the attorney’s fees and costs plaintiff incurred during the discovery process).” Id. at 27 (emphasis added). I.e., I limited the sanction to the full amount of plaintiffs’ share of the Special Master’s fees and cost, specifying that half was to be paid by the Seyfarth Shaw LLP law firm and half by Stryker. Id. at 27–28.

B. Amended Findings and Judgment.

Both parties moved to alter or amend the order and judgment. As relevant here, plaintiffs’ counsel argued that the sanction only amounted to $17,355; and, in any event, that Stryker was obligated to reimburse the Special Master’s fees under the terms of the contracts and Fed. R. Civ. P. 54(d)(1). ECF No. 403 at 1–2. I agreed. ORP had filed a separate case against its former (now Stryker) sales reps in state court, and it had been able to recover some of the text messages from the former reps’ phones that Stryker failed to produce in this case. I amended the sanction to be 90% of the attorney’s fees and costs ORP incurred in the state case recovering those text messages. ECF No. 420 at 29. I determined that three-fourths of this sanction was to be paid by Stryker and the rest by the Seyfarth Shaw law firm. An Amended Judgment was issued at the same time, August 15, 2022. ECF No. 422. Like the attorney’s fees award, the amount of the sanction remained to be determined.

C. Second Amended Findings and Judgment.

On November 14, 2022, I issued an order establishing the specific amounts for components of the judgment that had not previously been determined: $2,217,448.50 in attorney’s fees; $446,456.12 in prejudgment interest; $99,366.22 in costs; and $70,473.85 as a discovery sanction. ECF No. 452. A Second Amended Judgment was issued accordingly on the same date. ECF No. 453.

D. Third Amended Findings and Judgment.

The parties jointly filed a motion to alter or amend the Second Amended Judgment to clarify the manner of applying post-judgment interest. ECF No. 454. Plaintiffs filed a separate motion to alter or amend, asking the Court to increase the attorney’s fee award by approximately $100,000. ECF No. 456. On December 27, 2022, I issued an order granting the parties’ joint motion regarding post-judgment interest and granting in part plaintiffs’ motion to alter or amend by adding $67,864.00 in attorney’s fees. ECF No. 463. A Third Amended and Final Judgment was issued accordingly on the same date. ECF No. 465.

E. Appeal.

Both parties filed notices of appeal. See ECF Nos. 426, 431, 457, 466, 470. On February 6, 2024, the Tenth Circuit issued its order affirming this Court’s judgment on the breach-of-contract claims and all cross-claims, and the award of nominal damages but reversing as to the award of attorney’s fees. ORP Surgical, LLC, v. Howmedica Osteonics Corp., 92 F.4th 896 (10th Cir. 2024). Importantly for present purposes, the court added:

Yet we acknowledge the district court’s caveat that if the [contracts] had not required Stryker to pay ORP attorneys’ fees, then the court “would likely have ordered defendant to reimburse plaintiffs for the attorney’s fees and costs plaintiff incurred during the discovery process.” Owing deference to the district court’s “inherent powers” to manage discovery, we remand this case to the district court to determine and order sanctions if the court sees fit.

Id. at 921 (internal citation to this Court’s order omitted).

F. The Parties’ Positions on Remand.

1. Plaintiffs.

On remand plaintiffs ask the Court to reimpose its $2,285,951.50 attorney’s fee award but this time as a sanction. ECF No. 493 at 18. In addition,

because even a $2.2 million sanction may not jolt a company with $20 billion in annual revenue, the Court should consider additional sanctions tailored to deterrence and the protection of the legal system, such as (a) requiring Stryker’s CEO and/or Seyfarth’s General Counsel [to] issue a letter of apology to the Court for their lawyers’ misconduct; (b) compelling these lawyers to disclose the Court’s sanctions order in all entries of appearance and pro hac vice applications for the next five years; (c) imposing a fine upon Jacobs, to be paid to the court clerk, for violating his witness oath; (d) referring this matter to the Committee on Conduct pursuant to D.C.COLO.LAttyR7(a) to further investigate the issues, including the failure the preserve evidence; and (e) awarding ORP its fees for this Motion and related proceedings.

Id. at 20.

In support of this extraordinary package of sanctions, plaintiffs argued that the case was “beset by falsehood, deception, and manipulation.” Id. at 2. They cited Stryker’s attempt to delete critical text messages and claimed that, despite the Special Master’s findings, Stryker’s lawyers did not “straighten up” but merely shifted their misconduct to the state case. Id. at 3–6. They again cited attorney Robin Marsh’s abusive behavior during a deposition and noted that the Special Master also found that attorneys Michael Wexler (lead counsel) and Justin Beyer improperly coached and improperly instructed witnesses not to answer questions during the depositions of Mr. Jacobs, Mr. Bonessi, and Paul Hoelscher, Vice President of Sales. Id. at 4–5. (examples of improper objections were provided in ECF No. 493-2 at 56–105). Plaintiffs also argued that Stryker abused claims of privilege. Id. at 7–8, 10. In addition, plaintiffs cited Mr. Jacobs’s untruthful testimony, the Court’s mid-trial lament about the untruthful testimony it had witnessed, and instances in which they claim that defense counsel made false or misleading statements to the Court. Id. at 12–15.

Plaintiffs added that Ms. Marsh and Mr. Wexler have been reprimanded for similar conduct in other cases. Id. at 9 n.7 and 10–12.[1] They claimed that the same lawyers made misleading statements to Magistrate Judge Hegarty in a proceeding concerning a subpoena served on plaintiff Petrides, and that Ms. Marsh and Mr. Wexler did not candidly inform other judges about their having been sanctioned in this case. Id. at 15–16 (citing Ms. Marsh’s motion for pro hac vice admission in federal court in Rhode Island and Mr. Wexler’s motion for admission in state court in Oklahoma).

Towards the end of plaintiffs’ motion they suggested that if the Court were unwilling to reimpose the full fee award, then at a minimum it should order “the payment of ORP’s fees and costs for all categories of discovery, including the special master disputes.” Id. at 19. They did not provide a specific number for this alternative request.

2. Defendant.

Stryker responded that plaintiffs’ request for the full amount of the attorney’s fee award as an additional sanction is “patently unreasonable.” ECF No. 498 at 1. Rather than accepting Stryker’s invitations to negotiate the sanctions issue, plaintiffs’ new request, “galaxies beyond the limited sanctions it requested at trial for discrete discovery violations,” disregarded the limited nature of the remand and legal limits on sanctions. Id. at 2–5. Moreover, plaintiffs also committed discovery violations. Id. at 18–20. Stryker urges the Court not to award any further sanctions; but if it does, then it should limit the sanction to fees associated with four depositions. Id. at 14, 20.

3. Reply.

Before filing a reply plaintiffs moved for leave to exceed the Court’s page limit (of five pages) by one page. In a minute order granting the request I noted that the positions set forth in in plaintiffs’ motion for sanctions and defendant’s response had not provided “meaningful assistance to the Court in determining an appropriate sanction.” ECF No. 500. Apparently responding to the Court’s minute order, plaintiffs reluctantly suggested in their reply brief that the Court consider awarding fees incurred in three categories in plaintiffs’ attorney’s fee summary: Discovery, Special Master, and Trial. Id. at 6 and ECF No. 501-1.

Plaintiffs acknowledged that the Court’s attorney’s fee award was approximately 65.7% of the fees plaintiffs requested. Therefore, their alternative approach applies the same discount to the three categories, resulting in the following numbers: Discovery, $625,520.17; Special Master, $65,064.68; and Trial, $943,252.00. ECF No. 501-1 at 2. Thus, the sanction requested under plaintiffs’ alternative approach totals $1,310,301.41.

4. Surreply.

Defendant sought and was granted leave to file a surreply. In it, the defendant reiterates its opposition to any sanction. But, in response to the Court’s minute order, defendant suggests that if the Court still finds a sanction appropriate, it should limit the sanction to four depositions (10 hours each) and four deposition preparations (8 hours each). Using the Court’s approved hourly rate schedule, the sanction would total $28,720. ECF No. 502-1 at 1–2.

FINDINGS AND CONCLUSIONS

I do not accept plaintiffs’ recommendations for a sanction for several reasons: (1) the Tenth Circuit did not sustain the attorney’s fee award, and reimposing it in the guise of a sanction runs contrary to that decision; (2) I indicated from the outset of my Findings of Fact, Conclusions of Law, and Order of Judgment that were it not for the attorney’s fees, I likely would have ordered defendant to reimburse attorney’s fees incurred by plaintiffs during the discovery process as a sanction; (3) the Tenth Circuit’s remand order was grounded in deference to the district court’s inherent powers to manage discovery; (4) any sanctionable conduct of counsel that allegedly occurred in other cases was for those courts to address; and (5) sanctions requested by plaintiffs, even in the alternative proposal in their reply brief, would be excessive in my view.

That is not to say that the untrustworthy testimony of defendant’s witnesses at trial has been overlooked. That testimony reinforced my conviction that a sanction with teeth would be fair and appropriate. That testimony also figured significantly in my rejection of Stryker’s defenses and counterclaims at trial. But those are not reasons for me to depart from what I said in the original Findings or from the Tenth Circuit’s charter on remand.

I am also not persuaded by the defendant’s position that no additional sanction should be imposed, or that it should be limited to its estimate of the hours of attorney time incurred in preparing for and taking four depositions. Neither party chose to go through plaintiffs’ voluminous billing records and attempt to pick out time incurred due to discovery misconduct, nor would that exercise likely have been fruitful. The problems I identified were not limited to a particular deposition or to the deposition portion of the discovery process. I found that “Stryker’s counsel turned this case sour with nasty litigation tactics.” ECF No. 398 at 26. That began in pre-trial discovery and continued into the trial itself.

Moreover, defendant’s suggestion places the wrongdoing entirely on counsel. I do not agree. Stryker’s abrupt and unwarranted termination of the joint contract and the shenanigans surrounding the end of both contracts and the solicitation of ORP’s former sales reps undoubtedly contributed to the severe animosity between the parties. I suspect the animosity between the parties affected counsel’s professional judgment during the discovery process and throughout the case. The untruthful testimony of several of Stryker’s officers and employees at trial compounded the problem.

Nevertheless, I will, as forecast, stick to the discovery process in fashioning a sanction. Thus, I will not include plaintiffs’ Trial category of attorney’s fees for this purpose. I find that it is reasonable to use the attorney’s fee numbers in plaintiffs’ “Discovery” and “Special Master” fee categories and to reduce those numbers proportionately to my reduction of plaintiffs’ attorney’s fee application. Thus, the fees reasonably incurred in the two categories total $690,584.85 ($625,520.17 +$65,064.68). However, I do not find it to be reasonable or necessary to impose that total as a sanction. A substantial number of hours devoted to discovery-related issues would be reasonable and expected in any case, including in this case. Recognizing that reality, and for lack of a better alternative, I will cut the figure in half, to $345,292.43. Finally, I will deduct from that number the $70,473.85 that Stryker already paid when it satisfied the remainder of the judgment. See ECF No. 496. The result is a sanction of $274,818.58.

I anticipate that neither party will be happy with that result. However, the Court urged them to settle this last piece of their dispute, and they either could not or would not do it. In this Court’s judgment this is a sanction with teeth that addresses the misconduct without being excessively punitive.

ORDER

1. Plaintiff’s Motion to Determine and Order Further Sanctions, ECF No. 493, is GRANTED. The Court imposes a sanction of $274,818.58, jointly and severally on the defendant and the law firm Seyfarth Shaw LLP.

2. Post judgment interest will run at the federal rate as set pursuant to 28 U.S.C. § 1961(a) for judgments entered on May 22, 2024.

3. Defendant’s Unopposed Motion to Vacate Stay Order and Approve Release of Supersedeas Bond, ECF No. 497, is GRANTED.

Dated in Denver, Colorado this 22nd day of May, 2024.

Footnotes

Plaintiffs’ comments about Ms. Marsh are based on her alleged conduct in a case in state court in Illinois. ECF No. 493-2 at 304–12. Plaintiffs’ comments about Mr. Wexler are based on his alleged conduct in a case in federal court in Texas. Id. at 218–21.