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Princeton Digital Image Corp. v. Office Depot Inc.

United States District Court, D. Delaware

August 17, 2017

PRINCETON DIGITAL IMAGE CORPORATION, Plaintiff,
v.
OFFICE DEPOT INC., Defendant. PRINCETON DIGITAL IMAGE CORPORATION, Plaintiff,
v.
J.C. PENNEY COMPANY, INC., Defendant. PRINCETON DIGITAL IMAGE CORPORATION, Plaintiff,
v.
QVC INC., Defendant. PRINCETON DIGITAL IMAGE CORPORATION, Plaintiff,
v.
SEARS HOLDINGS COMPANY, Defendant. PRINCETON DIGITAL IMAGE CORPORATION, Plaintiff,
v.
LIMITED BRANDS, INC., Defendant. PRINCETON DIGITAL IMAGE CORPORATION, Plaintiff,
v.
GAP INC, Defendant. PRINCETON DIGITAL IMAGE CORPORATION, Plaintiff,
v.
WILLIAMS-SONOMA INC, Defendant. PRINCETON DIGITAL IMAGE CORPORATION, Plaintiff,
v.
COSTCO WHOLESALE CORP, Defendant. PRINCETON DIGITAL IMAGE CORPORATION, Plaintiff,
v.
NORDSTROM.COM LLC, N0RDSTR0M.COM INC., and NORDSTROM INC. Defendants.

          MEMORANDUM ORDER

          HON. LEONARD P. STARK, UNITED STATES DISTRICT JUDGE

         At Wilmington this 17th day of August, 2017, having reviewed the parties' briefs on Adobe's motion to disqualify PDIC's counsel Sean O'Kelly (D.I. 240, 246, 256), PDIC's motion to strike the supplemental expert report of Dr. Becker (D.I. 241, 247, 257), and PDIC's motion for summary judgment (D.I. 234), as well as additional briefing recently filed by the parties, [1]

         IT IS HEREBY ORDERED that:

         1. Adobe's motion to disqualify Mr. O'Kelly (D.I. 240) is GRANTED.

         2. The Court has the inherent authority to supervise the professional conduct of attorneys appearing before it, including the power to disqualify an attorney from a representation. See United States v. Miller, 624 F.2d 1198, 1201 (3d Cir. 1980). Motions to disqualify are "generally disfavored" and, therefore, require the moving party to show clearly that "continued representation would be impermissible." Talecris Biotherapeutics, Inc. v. Baxter Int'l Inc., 491 F.Supp.2d 510, 513 (D. Del. 2007). However, because "[t]he maintenance of public confidence in the propriety of the conduct of those associated with the administration of justice is so important, " a court may disqualify an attorney "for failing to avoid even the appearance of impropriety." Kabi Pharmacia AB v. Alcon Surgical, Inc., 803 F.Supp. 957, 960 (D. Del. 1992). Resolving the question of whether to disqualify counsel requires the Court to "carefully sift all the facts and circumstances, " Nemours Found, v. Gilbane, Aetna, Fed. Ins. Co., 632 F.Supp. 418, 423 (D. Del. 1986) (internal quotation marks omitted), which the Court approaches with "cautious scrutiny, " mindful of a litigant's right to the counsel of its choice, Laker Airways, Ltd. v. Pan Am. World Airways, 103 F.R.D. 22, 28 (D.D.C. 1984).

         3. Attorney conduct is governed by the ethical standards of the court before which the attorney appears. See In re Corn Derivatives Antitrust Litig, 748 F.2d 157, 160 (3d Cir. 1984). The District of Delaware has adopted the Model Rules of Professional Conduct of the American Bar Association ("Model Rules"). See D. Del. LR 83.6(d). Applicable here is Model Rule 3.7(a), which provides:

A lawyer shall not act as advocate at a trial in which the lawyer is likely to be a necessary witness unless: (1) the testimony relates to an uncontested issue; (2) the testimony relates to the nature and value of legal services rendered in the case; or (3) disqualification of the lawyer would work substantial hardship on the client.

         4. The Court finds that Mr. O 'Kelly, PDIC's trial counsel, is likely to be a necessary witness at trial and does not fall into one of the exceptions of Rule 3.7(a).[2] Mr. O'Kelly appears on both PDIC and Adobe's "may call" witness lists and has personal knowledge of relevant facts, including about PDIC's conduct before and after filing the infringement suits, which is probative of whether PDIC breached the covenant-not-to sue and whether any such breach was in good or bad faith. Mr. O'Kelly also has unique, first-hand knowledge about the cases that PDIC's other witnesses, including Mr. Meagher, do not. (See D.I. 256 at 2; D.I. 190 Ex. 2 at 45)[3] With respect to the exceptions set out in Rule 3.7(a), Mr. O'Kelly's testimony does not relate to an uncontested issue or the nature and value of legal services. Nor is the Court persuaded that Mr. O'Kelly's disqualification will work substantial hardship on PDIC. Mr. Pazuniak has been lead (and often seemingly sole) counsel for PDIC since 2015 and can continue to serve in that role. Further, while Mr. O'Kelly will not be permitted to sit at counsel table or have a presence in the courtroom distinct from that of other fact witnesses, the Court's decision today does not preclude him from providing out-of-court assistance to Mr. Pazuniak. Finally, while the Court recognizes that disqualification is not commonly warranted, and that attempts to disqualify trial counsel on the eve of trial may often be reflective of bad faith, here it is plain that Adobe has proceeded in good faith with respect to this sensitive issue and, for the reasons explained above, its motion is meritorious.[4]

         5. PDIC's motion to strike Dr. Becker's supplemental report (D.I. 241) is GRANTED.

         6. In determining whether to exclude evidence such as an expert report, the Court may consider: (1) the importance of the information withheld; (2) the prejudice or surprise to the party against whom the evidence is offered; (3) the likelihood of disruption of the trial; (4) the possibility of curing the prejudice; (5) the explanation for the failure to disclose; and (6) the presence of bad faith or willfulness in not disclosing the evidence (the "Pennypack factors"). See Konstantopoulos v. Westvaco Corp., 112 F.3d 710, 719 (3d Cir. 1997) (citing Meyers v. Pennypack Woods Home Ownership Ass % 559 F.2d 894, 904-05 (3d Cir. 1977)). Generally, "exclusion of critical evidence is an extreme sanction, not normally to be imposed absent a showing of willful deception or flagrant disregard of a court order by the proponent of the evidence." In rePaoliRR. Yard PCB Litig., 35 F.3d 717, 791-92 (3d Cir. 1994) (internal quotation marks omitted). The determination of whether to exclude evidence is committed to the discretion of the Court. See Id. at 749.

         7. The Court agrees with PDIC that Dr. Becker's supplemental report is not compliant with the Court's summary judgment opinion (D.I. 220) and the order accompanying it, which directed Adobe to serve a supplemental expert report consistent with the Court's rulings (D.I. 221). In the summary judgment opinion, the Court made clear that "Adobe cannot collect as damages for the breach of contract any attorney fees Adobe incurred in the affirmative breach-of-contract suit, " finding these fees to be "the classic type of attorney fees that Adobe, in attempting to vindicate its contract rights, must bear itself." (D.I. 220 at 13) The Court also held that Adobe may be entitled recover as breach-of-contract damages its "defense fees - that is, those Adobe incurred in defending Defendants from PDIC's infringement suit[s], suits that were brought in alleged violation of the covenant not to sue." (Id.) Because Adobe indicated that "Dr. Becker could split out Adobe's damages" (D.I. 198 at 19) - i.e., separate out affirmative fees from defense fees - the Court exercised its discretion to provide Adobe the opportunity to "disaggregate its defense fees from its affirmative fees" (D.I. 220 at 14).

         8. Dr. Becker's supplemental report does not separate Adobe's defense fees from its affirmative fees. Instead, Dr. Becker presents a damages theory - for the first time - "that as long as there were cases pending against Adobe customers who formally requested indemnification and/or defense from an infringement suit filed by PDIC, Adobe's legal fees were incurred in furtherance of its ongoing efforts to get PDIC to dismiss the wrongfully filed lawsuits, and are thus 'defense fees' under the Court's recent order." (D.I. 250 Ex. A at ¶ 7) Dr. Becker then concludes that all legal fees incurred by Adobe through December 7, 2016 are defense fees. (Id. at ¶¶ 7-8) This analysis does not separate defense fees from affirmative fees but merely claims all fees as defensive so long as they were incurred while at least one Defendant (who requested indemnification) was still involved in litigation with PDIC. The Court, in its summary judgment opinion, rejected Adobe's all-or-nothing approach to damages. But Dr. Becker's supplemental report simply reprises that approach with an earlier cutoff date. Thus, Dr. Becker's report - which does not separate defense and affirmative fees, does not review whether the fees claimed before December 6, 2016 were incurred in defending against the underlying infringement suits, and merely opines in conclusory fashion that all fees through December 6 should be considered defense fees - does not comply with the Court's order to serve a report identifying only defense fees.

         9. Furthermore, the Pennypack factors favor excluding Dr. Becker's supplemental report.[5] Dr. Becker's failure to separate defense fees from affirmative fees was willfully noncompliant with the Court's order. Adobe has provided no meritorious, persuasive explanation for its failure. Further, Dr. Becker presents a new theory of what purportedly constitutes defense damages - a theory Adobe did not articulate in its summary judgment papers - which, if presented at trial (scheduled to begin less than four days from now), would unfairly surprise and prejudice PDIC and/or disrupt the long-scheduled trial. While the supplemental report is surely important evidence, the Court does not perceive a way to cure the unfair prejudice to PDIC in any manner other than to preclude Dr. Becker from testifying to the opinions in the supplemental report; nor has Adobe proposed an alternative cure.

         10. Adobe's contention that Dr. Becker's report is compliant with the Court's order is predicated, at least in part, on Adobe's view that New Jersey law allows a party to recover affirmative fees as defense fees when the fees are inextricably intertwined. This position is unavailing for numerous reasons. First, Dr. Becker does not actually opine that the defense fees and affirmative fees Adobe incurred are inextricably intertwined, that "any precise allocation of expenses [as between affirmative and defense fees] would be impossible, " or anything similar. Voorhees v. Preferred Mut. Ins. Co., 588 A.2d 417, 425 ( N.J.Super.Ct.App.Div. 1991); see also Diamond v. John Martin Co.,753 F.2d 1465, 1467 (9th Cir. 1985) ("[A]lthough time-keeping and billing procedures may make a requested segregation difficult, they do not, without more, make it ...


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