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AERO PRODUCTS INTERNATIONAL v. INTEX RECREATION CORP.

January 29, 2004.

AERO PRODUCTS INTERNATIONAL, INC., a Florida corporation; and ROBERT B. CHAFFEE, an individual, Plaintiffs
v.
INTEX RECREATION CORPORATION, a California corporation;QUALITY TRADING, INC., a California corporation; and WAL-MART STORES, INC., a Delaware corporation, Defendants



The opinion of the court was delivered by: JOHN W. DARRAH, District Judge

MEMORANDUM OPINION AND ORDER

The Plaintiffs, Aero Products International, Inc. ("Aero") and Robert B. Chaffee, filed suit against the Defendants, Intex Recreation Corporation ("Intex"); Quality Trading, Inc. ("Quality Trading"); and Wal-Mart Stores, Inc. ("Wal-Mart"). Presently before the Court is Plaintiffs' Motion for Sanctions. For the following reasons, the Plaintiffs' motion is denied.

LEGAL STANDARD

  The Federal Rules of Civil Procedure provides authority to sanction litigants that fail to comply with their discovery obligations. Rule 37(c)(1) provides:

  A party that without substantial justification fails to disclose information as required by Rule 26(a) or 26(e)(1) shall not, unless such failure is harmless, be permitted to use as evidence at trial, at a hearing, or on a motion, any witness or information not so disclosed. In addition or in lieu of this sanction, the court, on motion after affording opportunity to be heard, may impose other appropriate sanctions. In addition to requiring payment of reasonable expenses, including Page 2 attorney's fees, caused by the failure, these sanctions may include any actions authorized under subparagraphs (A), (B), and (C) of subdivision (b)(2) of this rule and may include informing the jury of the failure to make the disclosure.

 Rule 37(b)(2)(A) states that if a party fails to comply with a court order regarding discovery, "an order that the matters regarding which the order was made or any other designated facts shall be taken to be established for the purposes of the action in accordance with the claim of the party obtaining the order" may be entered.

  District courts have "wide latitude in fashioning appropriate" discovery sanctions. Johnson v. Kakyand, 192 F.3d 656, 661 (7th Cir. 1999). However, a sanction must be proportionate to the circumstances resulting in a litigant's failure to comply with its discovery obligations. "The sanction must be one that a reasonable jurist, apprized of all of the circumstances, would have chosen as proportionate to the infraction." Salgado v. Gen, Motors Corp., 150 F.3d 735, 740 (7th Cir. 1998).

  If a litigant knows have should of known that it failed to comply with a discovery order, it may be found at fault for failure to comply with the order. See Melendez v. Illinois Bell Tel, Co., 79 F.3d 661, 671 (7th Cir. 1996). A knowing and willing violation of a discovery order merits a finding of bad faith against the violating litigant. While bad faith is not necessary to impose sanctions, discovery sanctions are proper if the litigant acts in bad faith, willfully violates a discovery order, or is found at fault for failure to comply with a discovery order. In re Golant, 239 F.3d 931, 936, n.1 (7th Cir. 2001). Page 3

  BACKGROUND

  Document Discovery

  Intex is part of a multi-corporation structure. Defendant Intex sells the products that Plaintiffs accuse infringe their United States patent rights. A separate management corporation provides management services to Intex. Tien Zee is the president of both Intex and the separate management corporation, and Tien Zee's holding company owns both entities. These companies are collectively referred to as the "American Intex Companies."

  Intex purchases the accused products from a foreign corporation, "Intex Trading Ltd." A separate, second foreign management corporation provides Intex Trading Ltd. with management services. Tien Zee runs Intex Trading Ltd. and is the president of the foreign management corporation. Tien Zee also runs the factories that design and manufacture the accused products. These companies are collectively referred to as the "Foreign Entities."

  Plaintiffs sought production of documents relating to the development of the original accused products. According to Plaintiffs, Intex developed the accused products by copying Plaintiffs' patented air mattress. In January 2003, Plaintiffs asked Intex for the documents in the possession of the Foreign Entities. Intex did not produce a single document related to the development of these products; Intex stated, in May 2003, that these materials are not discoverable because they are in the possession of the Foreign Entities. However, despite the links that Plaintiffs claim ...


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