MICHAEL H. SIMON, District Judge.
There are two threshold issues presented in the pending motion to compel compliance with a third-party subpoena that need to be resolved before it is appropriate to turn to the more specific objections raised by the subpoena recipient. The first concerns the circumstances under which a domestic corporate entity that has been served with a third-party subpoena must also search for responsive records held by legally-distinct but affiliated entities in other countries. The second concerns the circumstances under which a plaintiff alleging misappropriation of trade secrets may proceed with formal discovery, notwithstanding the assertion by a third-party subpoena recipient that the plaintiff has failed to describe with particularity the trade secrets at issue. After resolving these two issues, the Court will explain why it is appropriate in this case to appoint a special master for third-party discovery to address the remainder of the pending discovery dispute.
In a case pending in federal court in Austin, Texas, Plaintiff has sued Defendant for theft and threatened misappropriation of trade secrets and other confidential information, among other claims. Defendant was a high-ranking officer and employee of Plaintiff's European affiliate. On July 1, 2014, Defendant left her employment with Plaintiff's affiliate in Europe to become the President for U.S. operations in the U.S. affiliate of one of Plaintiff's principal global competitors. In a forensic review of the computer equipment used by Defendant shortly before she left Plaintiff's employ, Plaintiff discovered evidence that Defendant had copied, emailed, and downloaded what Plaintiff contends are among its most competitively sensitive trade secrets and other confidential information. Pursuant to Rule 45 of the Federal Rules of Civil Procedure, Plaintiff served on Defendant's new employer, the U.S. affiliate of Plaintiff's global competitor, a third-party subpoena for documents and electronically-stored information ("ESI"). Plaintiff now moves for an order compelling compliance with that subpoena. The third-party subpoena recipient, Defendant's new employer, objects on several grounds. As explained below, Plaintiff's motion to compel is granted in part. In addition, pursuant to Rule 53 of the Federal Rules of Civil Procedure, the Court will appoint a special master, as more fully set forth in a separate order.
Plaintiff, St. Jude Medical S.C., Inc. ("St. Jude S.C."), is a Minnesota corporation headquartered in Austin, Texas. St. Jude S.C. is a subsidiary of the global medical technology company St. Jude Medical, Inc. ("St. Jude Inc."). St. Jude S.C. is the U.S. sales and marketing arm of St. Jude Inc. and markets St. Jude Inc.'s products, including cardiac rhythm management ("CRM") devices, in the United States. The global company, St. Jude Inc., also is the ultimate owner of St. Jude Medical International, Inc., which wholly owns SJM International Holding, S.a.r.l. That company, SJM International Holding, owns St. Jude Medical Luxembourg, S.a.r.l., which wholly owns both St. Jude Belgium and St. Jude Netherlands. These latter two companies own, respectively, SJM Coordination Center BCVA (a Belgium company) and St. Jude Medical Netherland BV (a Dutch company) (collectively, "St. Jude Belgium/Netherlands"). St. Jude Med. S.C., Inc. v. Louise Marie Janssen-Counotte, 2014 WL 7237411, at *1 n.1 (W.D. Tex. Dec. 17, 2014).
Defendant, Louise Marie Janssen-Counette ("Janssen"), was previously employed in Belgium and the Netherlands by St. Jude Belgium/Netherlands, where she served as a vice president and focused on St. Jude Inc.'s European operations. Id. at *1. In the underlying action pending in federal court in Texas, the Court describes Janssen's alleged activities at issue in the that lawsuit as follows:
Id.
In its motion to compel Biotronik, Inc. to comply with St. Jude S.C.'s third-party subpoena served on Biotronik, Inc., St. Jude S.C. adds further detail to its allegations. As St. Jude S.C. explains, based on the deposition testimony given by Janssen in the underlying case, the owner of the global Biotronik group of entities (Max Schaldach) and another high-ranking Biotronik European executive (Christian Bluemel) asked Janssen, during the week of May 19, 2014, about her joining Biotronik either in Europe or the United States. The following Saturday, May 24, she emailed her St. Jude contracts and benefits information to her personal email address. The following Monday, May 26, she inserted 41 separate removable media devices (e.g., thumb drives) into her St. Jude computer. Before attending St. Jude's Dallas Conference on June 2-4, Janssen also exchanged text messages with her "former" boss at Biotronik.
Third-party subpoena recipient Biotronik, Inc. is a competitor of Plaintiff St. Jude S.C., including in the CRM industry, in the United States. Biotronik, Inc. is a Delaware corporation with its headquarters in Oregon. Biotronik SE & Co. KG ("Biotronik SE") is a German company with its headquarters in Berlin. Among other things, Biotronik SE manufactures and sells CRM devices from Germany to customers worldwide, including Biotronik, Inc. Biotronik SE and Biotronik, Inc. are sister companies. They are both owned by the same parent, MS Holding II SE, which also is a German company. See JMA, Inc. v. Biotronik SE & Co. KG, 2013 WL 1402322, at *1 (S.D. Fla. Apr. 5, 2013). According to a declaration filed by its Corporate Counsel, Biotronik, Inc. does not share computer databases with any of its European affiliates, is a separate legal entity from its European affiliates, and "does not share the same Board of Directors, officers, or internal legal group with any of its European affiliates." Dkt. 6-1.
Plaintiff, St. Jude S.C., commenced the underlying lawsuit against Janssen in federal court in Texas on September 16, 2014. St. Jude Med. S.C., Inc. v. Louise Marie Janssen- Counotte, Case No. A-14-CA-877-SS (W.D. Tex., Austin Div.). Plaintiff alleges claims of theft and threatened misappropriation of trade secrets and other confidential information in violation of the Texas Uniform Trade Secrets Acts ("TUTSA"), conversion, and violation of the federal Computer Fraud and Abuse Act, 15 U.S.C. § 1030. Plaintiff seeks money damages, a declaratory judgment, and preliminary and permanent injunctive relief.
Plaintiff moved for a temporary restraining order and preliminary injunction. Defendant, Janssen, moved to quash service of process and further moved to dismiss the complaint, arguing lack of personal jurisdiction, failure to join indispensable parties, improper venue, and failure to state a claim. On December 17, 2014, the Court in the underlying case, the Hon. Sam Sparks, entered an Order denying all of these motions, both Plaintiff's and Defendant's. St. Jude Med. S.C., Inc., 2014 WL 7237411.
Of specific relevance to the pending discovery dispute involving Biotronik, Inc., Judge Sparks wrote, denying Janssen's motion to dismiss for failure to state a claim:
Id. at *12.
Judge Sparks denied Plaintiff's motion for a preliminary injunction on the grounds that, among other things, St. Jude S.C. had not met its burden to show a substantial likelihood of success on the merits. Relevant to the pending discovery dispute, Judge Sparks wrote:
Id. at *14-15. Judge Sparks also identified unresolved issues concerning whether Plaintiff, St. Jude S.C., or another entity affiliated with St. Jude, actually owned the trade secrets at issue, whether Janssen acquired trade secrets by improper means, and whether there has been any actual or threatened disclosure of trade secrets or other confidential information. Id. at *15-16. Judge Sparks concluded:
Id. at *17.
On December 22, 2014, five days after Judge Sparks issued his decision in Texas, Plaintiff served a subpoena duces tecum under Fed. R. Civ. P. 45 on third-party Biotronik, Inc. Although Plaintiff's subpoena was directed to and served on Biotronik, Inc., its instructions included the following definitions, among others:
Dkt. 4-1, at 5 (Exhibit A).
Plaintiff's subpoena requested 31 separate categories of materials to be produced. Several of these categories relate to communications between Defendant Janssen and Biotronik leading up to her decision to leave her position at St. Jude Belgium/Netherlands to become President for U.S. operations at Biotronik, Inc., as well as materials within the group of Biotronik entities relating to its decision to hire Janssen. In addition, a number of requests call for production of materials that would appear, at least potentially, to involve Biotronik's trade secrets or other competitively sensitive information. Examples of these requests include:
Dkt. 4-1, at 11-12 (Exhibit A). Further, two other categories of demands in the third-party subpoena issued by St. Jude S.C. request Biotronik to:
Dkt. 4-1, at 12 (Exhibit A). These latter two categories also appear potentially to involve Biotronik's trade secrets or other competitively sensitive information.
One of the objectives of St. Jude S.C. in seeking to discover the materials described in its third-party subpoena to Biotronik, Inc. is to obtain evidence to support St. Jude S.C.'s claim that Janssen has misappropriated Plaintiff's trade secrets or other confidential information and is using them for the benefit of her new employer, Biotronik, Inc. St. Jude S.C. recognizes that its requests may involve the disclosure of some of Biotronik's trade screts, but St. Jude S.C. notes that discovery in the underlying case in Texas is subject to a protective order. As shown by St. Jude S.C., the applicable Confidentiality and Protective Order includes four groups of designations. They are: (1) Nonclassified Information; (2) Classified Information; (3) For Counsel or Attorneys Only; and (4) Ultrasensitive Information. Dkt. 4-2, at 74-82 (Exhibit K). St. Jude S.C. maintains that any trade secrets or other confidential information belonging to any of the Biotronik group of entities are appropriately protected by the Confidentiality and Protective Order entered in the underlying case.
Rule 26(b)(1) of the Federal Rules of Civil Procedure provides in relevant part:
Fed. R. Civ. P. 26(b)(1).
Rule 45 of the Federal Rules of Civil Procedure allows a party in a lawsuit to serve a subpoena on any person, including a non-party (or "third party"), requiring, among other things, the production of "documents, electronically stored information, or tangible things in that person's possession, custody, or control." Fed. R. Civ. P. 45(a)(1)(A)(iii). When the subpoena requires a person to disclose "a trade secret or other confidential research, development, or commercial information," the court for the district where compliance is required may quash or modify the subpoena. Fed. R. Civ. P. 45(d)(3)(B)(i).
In addition, the court must quash or modify a subpoena that "subjects a person to undue burden." Fed. R. Civ. P. 45(d)(3)(A)(iv). What constitutes an "undue burden" is the same when a nonparty is subpoenaed under Rule 45 as when a party receives a request for production under Rule 34. Mount Hope Church v. Bash Back!, 705 F.3d 418, 429 (9th Cir. 2012) ("[W]e will not read `undue burden' differently just because a non-party was subpoenaed.").
Biotronik, Inc. offers three arguments in opposition to St. Jude S.C.'s motion to compel. Biotronik, Inc. argues that, as a non-party, it may not be compelled to produce documents or ESI held by its foreign affiliates on the grounds that Biotronik, Inc. does not have possession, custody, or control over those documents or ESI. Biotronik, Inc. also argues that St. Jude S.C. should be required to describe with greater particularity its alleged trade secrets that are at issue in the underlying litigation before St. Jude S.C. may proceed with discovery. In a related point, Biotronik, Inc. asserts that St. Jude S.C.'s subpoena is premised on "unspecified trade secrets that it may not even own." Finally, Biotronik, Inc. argues that it has produced all discoverable documents in its possession based on what it contends has been a sufficient search of relevant sources. Each of Biotronik, Inc.'s three arguments is addressed in turn.
"The Federal Rules of Civil Procedure require a party served with a subpoena for records to produce those records that are in its `possession, custody, or control.'" In re Citric Acid Litig., 191 F.3d 1090, 1107 (9th Cir. 1999) (quoting Fed. R. Civ. P. 45(a)). Because this requirement is in the disjunctive, actual possession of a document need not be established. Legal ownership of a document also need not be shown. In re Bankers Trust Co., 61 F.3d 465, 469 (6th Cir. 1995). Control is sufficient. Citric Acid, 191 F.3d at 1107.
"Control is defined as the legal right to obtain documents upon demand." Id. (quotation marks omitted). Thus, a corporate party may be ordered to produce documents held by a subsidiary that is not a party to the action on the grounds that such documents are subject to the "effective control" of the parent. United States v. Faltico, 586 F.2d 1267, 1270 (8th Cir. 1978). Even documents held by a parent company have been held to be within the "control" of a subsidiary when there is a sufficiently "close nature" in the actual corporate relationship. Japan Halon Co. v. Great Lakes Chem. Corp., 155 F.R.D. 626, 627 (N.D. Ind. 1993). "The control analysis for Rule 34 purposes does not require the party to have actual managerial power over the foreign corporation, but rather that there be close coordination between them." Afros S.P.A. v. Krauss-Maffei Corp., 113 F.R.D. 127, 129 (D. Del. 1986).
Id.
The fact-specific question presented here is whether documents and ESI held by Biotronik, Inc.'s sister company Biotronik SE, their common parent MS Holding II SE, or another related Biotronik entity are within the effective control of Biotronik, Inc. St. Jude S.C. has presented evidence that Defendant Janssen negotiated with and received her job offer to become Biotronik, Inc.'s President of U.S. operations from Max Schaldach, the beneficial owner of the entire "Biotronik Group," which is defined in paragraph 6 of Janssen's Employment Agreement as "Biotronik and all of its Affiliated Companies." Also participating in the negotiations with Janssen were Christian Bluemel (another high-level executive) and Werner Braun, both of whom are associated with the Biotronik Group's European affiliates. As a result of these negotiations, Janssen was appointed Biotronik, Inc.'s President for U.S. operations, in a new office specifically created for her in New York City, replacing Biotronik, Inc.'s then-President, who was placed in another position with one of the Biotronik Group's European affiliates.
Janssen has admitted that she intentionally deleted all of her copies of her emails and text messages related to her negotiations that led to her becoming President of Biotronik, Inc. When St. Jude demanded copies of those emails, text messages, and related documents from Biotronik, Inc., however, all that was produced was a redacted copy of Janssen's final contract and several pages from her passport and visa application. In addition, Biotronik, Inc. has refused to search the documents or ESI of any of Biotronik, Inc.'s European affiliates, including the files of Messrs. Schaldach, Bluemel, and Braun, with whom Janssen negotiated her move and new employment, on the grounds that the European affiliates are distinct legal entities and that those individuals are not employed by Biotronik, Inc., but only by its European affiliates.
St. Jude S.C. argues that because no documents reflecting any negotiations with Janssen were produced by Biotronik, Inc., a reasonable inference is that the negotiations with Janssen, which she admits took place, were carried out in Europe by Biotronik, Inc.'s European affiliates, including Messrs. Schaldach, Bluemel, and Braun, acting as agents for Biotronik, Inc. Because Biotronik, Inc. is Janssen's actual employer in the United States, St. Jude S.C.'s agency argument is well taken.
A corporation "can only act through its employees, agents, directors, or officers." 9th Cir. Civ. Jury Instruction 4.2 (2007). The negotiations that led to Biotronik, Inc. hiring Janssen in 2014 as its President for U.S. operations presumably were not conducted by any of its own employees, directors, or officers because, if they were, one would reasonably have expected to find some documentary or ESI evidence to that effect. But Biotronik, Inc. says that it conducted a reasonable search and has found none. Biotronik, Inc. also does not argue that any of its employees, directors, or officers handled its side of the employment negotiations with Janssen. Thus, it is reasonable to infer that the persons associated with Biotronik, Inc.'s European affiliates, including Messrs. Schaldach, Bluemel, and Braun, who negotiated Janssen's hiring by Biotronik, Inc., were acting as agents for Biotronik, Inc., Janssen's actual new employer. This is sufficient indicia of effective control to require the European affiliates of Biotronik, Inc., namely the "Biotronik Group" as defined in Janssen's Employment Agreement, to conduct a reasonable and diligent search for documents and ESI responsive to St. Jude S.C.'s Rule 45 subpoena served on Biotronik, Inc.
Biotronik, Inc. also argues that "[u]nder the great weight of authority, St. Jude should be required to disclose its alleged trade secrets at issue in this case before it can proceed with discovery." Biotronik, Inc. cites several district court cases in support of this proposition, beginning with United Servs. Auto. Ass'n v. Mitek Sys., Inc., 289 F.R.D. 244, 248 (W.D. Tex. 2013), aff'd, 2013 WL 1867417 (W.D. Tex. Apr. 24, 2013) (noting that "[a] number of states have enacted procedures requiring that trade secrets be identified before discovery commences" in granting a defendant's motion for pre-discovery identification of trade secrets). In that case, the court also expressly noted that "neither Texas nor Fifth Circuit law requires Pre-Discovery Identification," although the court found the general authority to do so in any particular case in Federal Rule of Civil Procedure 16(c)(2)(L) (allowing a court to adopt special procedures for managing potentially difficult or protracted actions). Id. In the underlying case here pending in federal court in Texas, and in which Plaintiff alleges a violation of the Texas Uniform Trade Secrets Act, Defendant Janssen did not ask Judge Sparks to require Plaintiff to define further its alleged trade secrets before being allowed to proceed with discovery, even though Janssen filed numerous other motions before Judge Sparks, all of which were denied.
Biotronik, Inc. cites several other cases for the same proposition. See, e.g., DeRubeis v. Witten Techs., Inc., 244 F.R.D. 676, 680-81 (N.D. Ga. 2007) (weighing the policy considerations for discovery where trade secret misappropriation has been alleged and concluding "that it is appropriate in this case to require [the plaintiff] to first identify with `reasonable particularity' those trade secrets it believes to be at issue"); Switch Commc'ns Grp. v. Ballard, 2012 WL 2342929, at *5 (D. Nev. June 19, 2012) (holding that a defendant was not required to respond to the plaintiff's discovery requests until the plaintiff "provides a description of its alleged trade secrets with reasonable particularity"); StoneEagle Servs., Inc. v. Valentine, 2013 WL 9554563, at *5 (N.D. Tex. June 5, 2013) (noting that "[r]equiring Plaintiffs to provide a list of trade secrets at issue, defined with reasonable particularity, would be helpful to Plaintiffs as well" and holding that it must be done before the plaintiffs would be permitted to conduct discovery); BioD, LLC v. Amnio Tech., LLC, 2014 WL 3864658, at *5-6 (D. Ariz. Aug. 6, 2014) (same).
On the other hand, St. Jude S.C. cites several cases in which the court declined to require the plaintiff to identify its alleged trade secrets before being allowed to conduct discovery. See, e.g., Global Advanced Metals USA, Inc. v. Kemet Blue Powder Corp., 2012 WL 3884939, at *7 (D. Nev. Sept. 6, 2012) (affirming magistrate judge's decision not to require the plaintiff to identify its trade secrets "because of their voluminosity" and noting that "a listing of every trade secret would draw an objection from Defendant that they must be narrowed, leading to additional discovery disputes and delays, and that a protective order against disclosure would protect Defendant's interests"); Montgomery v. eTreppid Techs., LLC, 2008 WL 2277118, at *10-11 (D. Nev. May 29, 2008) (permitting eTreppid to take discovery on its trade secret counterclaim against Montgomery without first specifically identifying its own trade secrets at issue).
One relatively recent case cited by Biotronik, Inc. is particularly instructive for identifying the criteria that a district court should consider in deciding this question. In BioD, the court noted:
BioD, 2014 WL 3864658, at *4 (alterations in original) (quoting Dura Global Technologies, Inc. v. Magna Donnelly, Corp., 2007 WL 4303294, at *2 (E.D. Mich. Dec. 6, 2007). The Court in BioD continued, however, by observing: "A plaintiff also might not be required to identify its trade secrets with reasonable particularity prior to discovery." Id. at *5. As explained by the court:
Id. (alterations in original) (quoting DeRubeis, 244 F.R.D. at 680).
Applying these considerations here, St. Jude S.C. need not identify its trade secrets at issue with any greater particularity before it may take discovery from Biotronik, Inc. and its European affiliates to determine what precisely Defendant Janssen took and whether she is using it improperly for the benefit of her new employer. First, Plaintiff has a broad right to discovery, and the federal court in the underlying case has not chosen to limit Plaintiff's ability to commence discovery, notwithstanding that court's comments about Plaintiff's allegations of the trade secrets it alleges have been stolen. Second, Plaintiff appears to have numerous trade secrets but, to quote BioD, "no way of knowing what trade secrets have been misappropriated until it receives discovery on how the defendant is operating." Id. at *5. Finally, requiring St. Jude S.C. to identify its trade secrets without first knowing which have been misappropriated by Janssen and placed into use at Biotronik, Inc. or its European affiliates would place Plaintiff, again to quote BioD, "in somewhat of a `Catch-22.'" Id.
Biotronik, Inc.'s final objection, or set of objections, is that it already has produced (or will soon produce) all discoverable documents in its possession based on what it contends is a sufficient search of relevant sources. Biotronik, Inc. has identified for Plaintiff and the Court the specific search terms that Biotronik, Inc. either has searched or soon will search for responsive documents and ESI and the custodians whose ESI will be searched. There is no agreement, however, with St. Jude S.C. that such search terms, search parameters, or identified custodians are sufficient. In addition, Biotronik, Inc., in its appendix to its memorandum in opposition to St. Jude S.C.'s motion to compel, has identified numerous specific objections to St. Jude S.C.'s 31 specific requests. In its objections to many of St. Jude S.C.'s requests, Biotronik, Inc. asserts that the request is overly broad or seeks information that is not relevant or calculated to lead to the discovery of admissible evidence. Rather than address each of these specific objections, the parties focused their briefing and their time at oral argument on the two primary issues previously discussed in this Opinion and Order. Now that those issues have been resolved, it is time to address Biotronik, Inc's specific objections.
Doing that, however, requires someone to become quite familiar with the underlying technologies, businesses and business affiliations, global markets and marketing strategies, and the specific document retention and ESI practices at issue. This will also require more time than this Court (or a Magistrate Judge in this District) currently has available, if the parties are to receive a speedy and timely resolution of their pending discovery dispute, upon which a large part of the underlying lawsuit appears to hinge.
In addition, before appointing a special master, the Court also must give the parties notice and an opportunity to be heard. Fed. R. Civ. P. 53(b)(1). During the oral argument held on St. Jude S.C.'s motion to compel, Biotronik, Inc. itself suggested that the Court appoint a special master for this purpose. Tr. 37:17 (Hearing on March 17, 2015). The Court was already thinking along similar lines and during the hearing asked St. Jude S.C. for its position, which St. Jude S.C. agreed to provide within two days. On March 19, 2015, St. Jude S.C. indicated that it had no objection to the appointment of a special master for purposes of third-party discovery against Biotronik, Inc. See Dkt. 17. Moreover, neither party objects to the specific candidate suggested by the Court for this purpose. Id.; Tr. 38:10-15 (Hearing on March 17, 2015). Accordingly, the Court, by separate Order, will appoint a special master for purposes of assisting the Court and the parties, including Third-Party Biotronik, Inc., in resolving the remainder of the discovery dispute presented in St. Jude S.C.'s motion to compel Biotronik, Inc. to comply with Plaintiff's third-party subpoena and Biotronik, Inc.'s specific objections as stated in its response.
Plaintiff's Motion to Compel Biotronik, Inc. to Comply with Third-Party Subpoena (Dkt. 4) is granted in part, as set forth in this Opinion and Order. In a separate Order, the Court will appoint a special master to assist in addressing the unresolved portions of the pending discovery dispute.
