Texas Court docket guidelines on unhealthy religion in civil Dangerous litigation

Hold

In Performance Chemical Company v. True Chemical Solutions, LLC, No. W-21-CV-00222-ADA (WD Tex. May 21, 2021) determined Judge Albright of the Western District of Texas that True Chemical Solutions (“True Chem”) was doing maliciously violated the court’s investigation order and caused significant damage to the Performance Chemical Company (“PCC”). The district court upheld PCC’s sanctions motion against True Chem and dismissed the case.

background

PCC filed a lawsuit alleging that True Chem infringed PCC’s patented Automated Water Treatment Trailers or Frac trailers. I would. at 2. A key question throughout the litigation was whether True Chem used a programmable logic controller (“PLC”) to automate its frac trailer to automate the pumps in the trailer.

During the discovery, PCC requested that its appraiser inspect a True Chem frac trailer that True Chem opposed. I would. The court ordered True Chem to allow the inspection. When PCC raised concerns that True Chem would bring an incomplete trailer for inspection, the court expressly ordered that a trailer should be inspected that was complete and included all relevant components. I would. at 3.

In response to the court order, True Chem manufactured tags for inspection. When PCC inspected the trailers, however, it did not find a PLC automation device, although the trailers were manufactured to be capable of automation. I would.

PCC also tried to learn from the testimony from True Chem staff whether True Chem’s frac trailers were automated. Under oath, True Chem employees repeatedly testified that True Chem did not automate Frac-Trailer by installing a PLC. I would. Based on these representations, PCC could only rely on circumstantial evidence to prove its injury theories in relation to automation. I would. At 4.

Upon completion of the discovery and in response to a court-ordered document search, True Chem produced more than 50,000 new documents. I would. These documents contained information that appeared to indicate that True Chem had used third party vendors to automate their frac trailers. I would. PCC dropped representatives from these third party companies who confirmed that True Chem had contracted a third party in 2019 to install a PLC on Frac trailers and that these PLC devices were still mounted when the third party last interacted with the trailer. . I would. at 5. The PLC device in question was large and would have required considerable installation and maintenance work. I would. PCC argued, and the court agreed, that removing a trailer would have required significant effort. I would.

True Chem did not deny that the third party installed a PLC on frac trailers but, unsurprisingly, denied the implication that the PLC device was specifically removed to avoid detection.

Legal standard

Under the federal rules of evidence, a court can impose sanctions on a party who “fails to comply with an order to provide or approve a disclosure”. Lined. R.Civ. P. 37 (b) (2) (A). One of the sanctions allowed under Rule 37 is to “make a default judgment against the disobedient party”.

The fifth court requires a determination of bad faith or willful conduct for the most severe sanctions under Rule 37, such as: B. striking pleadings, dismissal of proceedings or default judgment. In addition, the Fifth Court requires several factors to be met before dismissing an abuse of discovery case. Factors include: (1) that the violation of the investigation order is attributable to the client and not to the attorney; (2) that the misconduct of the infringing party must cause considerable damage to the opposing party; and (3) a determination that less severe sanctions would not be appropriate. Performance Chemical Co., No. W-21-CV-00222-ADA (WD Tex. May 21, 2021), at 2 (citing FDIC v. Conner, 20 F. 3d 1376, 1380-81 (5th Cir . 1994)).

First factor: The violation of the investigation mandate is attributable to the customer instead of the lawyer

The court found that True Chem had committed discovery violations with a pattern of “unruly behavior and delay”. The court issued a special order that True Chem make all components in its care or control, whether or not attached to trailers, available for inspection.

A True Chem employee testified that the company did not use automation – even though True Chem had received an invoice for the automation project. I would. In the case of 6. True Chem, the PLC did not present it until a year later or even informed a lawyer of the existence of the PLC or took steps to change pleadings, add to interrogations or notify the opposing lawyer or the court. I would. To 7. In fact, PCC was only able to determine the type of invoices after the PCC had summoned a third party and was able to discover the PLC device. Just 154 days after the end of the discovery as part of a 50,000-part document dump, True Chem generated invoices via the allegedly non-existent automation. I would. at 4, 7. Even then, True Chem still hadn’t turned the PLC over for inspection.

The court found that True Chem blocked production of the PLC device for a full year. This led the court to determine that the first factor, the violation of the investigative order, was ascribed to True Chem.[1]

Second factor: the wrongdoing of the offending party must cause considerable damage to the opposing party

The court found that the wrongdoing of True Chem and its attorneys forced PCC to pay unnecessary legal and investigative costs. In particular, PCC was forced to conduct thorough and extensive third party investigations, including until the week leading up to the trial when True Chem finally revealed the PLC device. I would. at 8.

True Chem tried to use its failure to its own advantage, arguing that since PCC forced True Chem to disclose the PLC project, it must limit its timeframe for damages. I would. at 8-9. The court rejected this argument, stating that it “cannot understand why a lawyer would try to use his own apparent breach of discovery as a sword to argue that the opposition must curtail its properly brought claims”. I would. at 9.

The court found that True Chem’s actions caused significant harm to the PCC and prevented PCC from “preparing the trial in a timely and appropriate manner”. Therefore, the Court found that the second factor was met.

Third factor: less drastic sanctions would not be appropriate

The court found that the third factor was met because True Chem demonstrated “blatant bad faith and callous disregard for its responsibilities”. I would. Re 9. Specifically, the court determined that without the careful search of 50,000 documents in the eleventh hour, the continuous and protracted outrageous execution of the case would have gone undetected. I would. at 10.

With all three points met, the court found it sufficient to punish True Chem with just a “death penalty,” and that anything else would not be sufficient to deter similar behavior in other cases. I would. at 10.

The court upheld PCC’s sanctions motion and dismissed True Chem’s non-infringement and nullity counterclaims. The court also found that True Chem had deliberately infringed the asserted patents and ordered True Chem to be permanently banned from continuing its infringing activities and to award PCC the legal fees.

Advancements

On June 7, 2021, PCC filed a claim for damages of $ 16.9 million (three times the loss of profits through 2019 ($ 5.6 million) plus pre-trial interest ($ 0.6 million) ) and legal fees. PCC argued that no damages litigation was required for a number of reasons: the court’s inherent powers over its sanctions ruling, the default status where neither party was entitled to a jury trial for damages, the fact that the PCC’s evidence conclusive evidence of lost profits, and the fact that True Chem’s claims reports were made “in their entirety”.

On June 15, 2021, Judge Albright granted True Chem’s attorneys’ motion to withdraw the case.

Takeaways

While this case may seem like an outlier, it’s important to remember that litigation is supposed to be a fair fight. Each side should disclose all relevant documents in a timely manner during the detection and follow all orders of the court in order to enable a timely hearing and avoid undue burden on the opposing party. Blatant disregard for these principles can lead to an irreconcilable response from the court.

The same applies to the granting of a patent. The duty of good faith set out in Rule 56 is intended to ensure that patents are acquired in a fair and timely manner that avoids undue burden on the USPTO. As a prosecutor, you should ask hard questions, which would have included questions about a possible public use or sale. The prosecutor should consider asking these questions in writing. And if the patent attorney suspects false information or other misconduct by the applicant, withdrawing from prosecution may be the best step.

[1]Note that on March 25, 2021, PCC appears to have argued that TrueChem’s attorney was also complicit. According to a Law360 article in PCC’s response to True Chemical Solutions LLC’s motion to beat Scott Weingust’s expert report (sealed), “PCC replies that True Chem’s response highlights, for the first time, that True Chem’s former attorneys . . . “Complicit” and made things worse in the two months since they were informed of the wrongdoing. “Hu, Tiffany,” Chemical Co. Wants to Skip IP Damages Trial After Sanctions, “Law360, June 16, 2021 Although Judge Albright assigned responsibility only to True Chem and not to his attorney, he commented in the sanction warrant: “It is worth noting that the advice of True Chem. . . knew of the existence of the automation project on January 20, 2021, two months before this information was passed on to PCC. ”See order, FN1, (italics in the original). In addition, “PCC found invoices that were either covered or overlooked due to the lawyers’ willful incompetence and then had to undergo a third party investigation to determine the nature of the invoices. I would. at 7.

© 2021 Finnegan, Henderson, Farabow, Garrett & Dunner, LLPNational Law Review, Volume XI, Number 176