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United States District Court, N.D. Illinois

April 6, 2004.


The opinion of the court was delivered by: JOAN H. LEFKOW, District Judge


This document contains rulings on the following motions:

1. The motion of Auto Wax Company ("Auto Wax") for costs and fees, filed December 15, 2003;
2. The motion of Kucala Enterprises ("Kucala")*fn1 for reconsideration, to set aside, or modify in part the judgment of December 19, 2003, filed January 6, 2004;
3. Auto Wax's motion for permanent injunction or in the alternative, preliminary injunction, filed February 18, 2004;
4. Kucala's motion for sanctions, filed February 17, 2004;
5. Auto Wax's motion for default judgment, filed February 18, 2004;
6. Kucala's motion to hold non-jury trial in March 2004 and bifurcate liability and damages, filed February 17, 2004; and
7. Auto Wax's motion to extend certain deadlines set forth in the amended scheduling order, filed March 25, 2004.
I. Motions 1, 2, and 3.

Because of Kucala's misconduct in discovery, this court has barred all of Kucala's claims and defenses in this action, save Kucala's claim of noninfringement (and corresponding defense to Auto Wax's counterclaim of infringement) and its defenses to Auto Wax's counterclaims of for damages, including penalties based on willfulness. Rulings On Objections to Report and Recommendation of Magistrate Judge (Oct. 27, 2003) (herein, "October decision"). The court also allowed Auto Wax a reasonable attorney's fee and expenses related to Kucala's misconduct, directing Auto Wax to submit and serve a declaration of fees by December 31, 2003. Id. at 14.

  On December 15, 2003, Auto Wax submitted its declaration in the form of a Motion For Costs and Fees Resulting From Kucala's Bad Faith Litigation, along with a proposed Judgment, and a cover letter to the court indicating that the motion had been filed. Presumably because the motion was not noticed for presentment according to Local Rule 5.3(b), the court's regular procedure to set a response date was not followed. Only four days later, on December 19, 2004, a "final" judgment*fn2 was entered reflecting the October decision, specifically finding U.S. Patent Nos. 5,727,993 and 5,476,416, owned by Auto Wax, "not invalid or unenforceable in any way"; dismissing Kucala's claims as to invalidity and unenforceability, as well as claims of inequitable conduct, with prejudice; and prohibiting Kucala from seeking reexamination of either patent. The court also ordered Kucala to pay Auto Wax within five days $137,811.42, an amount representing reasonable expenses and attorneys' fees in relation to the discovery misconduct. Finally, the order provided, "If such costs and fees are not timely paid, then this Court will find Kucala in default, and the Court will enter an order finding that Kucala infringes the Auto Wax patents, and accordingly, the court will grant an injunction enjoining Kucala from further sales of Kucala's clay or clay-like product."

  On January 2, 2004, Kucala filed a response in opposition to Auto Wax's motion for costs and fees and on January 6, 2004, moved to reconsider, vacate or set aside the judgment, pointing out that at a status hearing held on December 4, the court had stated that Kucala would have an opportunity to respond to Auto Wax's yet unfiled declaration of fees and costs, but the court had entered the judgment on the same date Kucala's counsel received the motion.*fn3 In addition to having been deprived of its opportunity to be heard, Kucala objects to terms in the judgment requiring payment within five days, the amount of the award, and the prohibition against seeking reexamination of the patents. Auto Wax defends the judgment as accurately reflecting the court's October decision.*fn4

  Plainly, the court made an error in entering the judgment before allowing Kucala an opportunity to express its views on the proffered judgment order, and for that reason, the judgment of December 19, 2003, must be vacated. Because both parties have now expressed their views in the briefing on Kucala's motion for reconsideration, the court turns to the judgment order.

  A. The amount of fees claimed.

  The October decision adopted the recommendation of Magistrate Judge Keys that "Auto Wax be awarded all reasonable attorneys' fees and costs related to the issue of sanctions against Kucala from February 25, 2003 through April 21, 2003." Report and Recommendation of Magistrate Judge Arlander Keys, at 21 (May 23, 2003); October decision, at 12. The court's intention was to impose on Kucala the difference between what it cost Auto Wax to litigate the case between those dates and what it would have cost had there been no misconduct. With this in mind, the court has reviewed the fee submission and the objections of counsel, recognizing that the precise difference is unknowable and an educated estimate is the best that can be achieved. All the objections have been considered. Unless they are specifically sustained as discussed below, they are overruled.

  It does appear, as Kucala argues, that a considerable number of the time entries made by counsel are not directly related to the motion for sanctions. The court, therefore, has excluded all entries and estimated portions thereof that appear to be unrelated to the motion. (An itemized list of excluded entries is attached hereto as an Appendix). The court has excluded subpoena fees on the basis that third party documents would likely have been subpoenaed had the misconduct not occurred. Costs for overhead items such as telephone and in-house copying are disallowed. Extra costs associated with videotaping the Kucala deposition are disallowed. In total, the court disallows $37,660.00 claimed for professional services and $7,025.68 claimed for expenses, leaving a balance of $67,340.00 for professional services, $ 10,005.83 for costs, and $15,779.91 attributable to Renew Data Corporation, which amounts represent at total sanction award in this matter of $93,125.74.

  B. Timing of payment.

  Kucala contends that the order imposing default if the monetary sanction is not paid within five days is unreasonable and raises due process concerns. Kucala cites Thomas v. Capital Security Services, 836 F.2d 866, 883 n.23 (5th Cir. 1988), and Cotner v. Hopkins, 795 F.2d 900, 90-3 (10th Cir. 1986), both of which treated Rule 11 sanctions, in which both courts of appeals cautioned that a sanction must not result in total preclusion of access to the courts. Auto Wax responds that payment of the sanction should be a precondition to allowing Kucala to proceed any further in this case. It relies on cases such as Moriarty v. Hills Funeral Home, Ltd., 1998 WL 901714 (N.D. Ill. 1998), in which the court ordered (without analysis) a sanction to be paid within a certain time.

  The issue is whether the payment should be deferred to the end of the case, as Kucala proposes, or if not, should default be the consequence of nonpayment. Auto Wax's argument is sound that preclusion in a Rule 11 context is more to be avoided than in the context of discovery sanctions because under Rule 37, unlike Rule 11, the court has authority not only to preclude evidence but to dismiss or enter default on an entire case where appropriate. Understandably, Auto Wax objects to Kucala's evading the sanction while being permitted to continue to impose costs on Auto Wax. But even if one considers the Rule 11 cases, an interlocutory order to pay sanctions is not foreclosed here. In Thomas, on which Kucala relies, the court remanded where the district court had declined to impose Rule 11 sanctions even though it "may have" found that the rule had been violated. The opinion was principally fashioned to "[provide] guidance concerning the procedures and standards utilized in the imposition of Rule 11 sanctions," particularly with respect to making specific findings that would permit appellate review. 836 F.2d at 882, 884. The quoted language expounds on Cotner, agreeing that "the imposition of sanctions must not result in total, or even significant, preclusion of access to the courts." Id. at 883. In Cotner, the district court had fined the prisoner-plaintiff $1,000 and barred him from filing further actions until the fine was paid in full. Cotner, 795 F.2d at 902. The court of appeals held "that when prepayment of a sanction has the effect of a restriction on the filing of future actions, findings must be made to determine whether a litigant is able to make such payment so as to avoid an absolute preclusive effect on access to courts." Id. at 903. Thus, the Thomas court noted in the abstract (i.e., without having a threatened denial of access before it), "[W]e conclude that if a litigant contends that a monetary sanction award precludes access to the court, the district judge must either (1) provide that the sanction is payable only at a date that coincides with or follows entry of a final order terminating the litigation; or (2) make express written findings, after a prompt hearing, as to why the award does not have such a preclusive effect." Thomas, 836 F.2d at 883 n.23.

  Setting aside the fact that Kucala has not supported its objection with any evidence, such as a financial statement with a supporting affidavit, that demonstrates its impecuniousness, this court does not contemplate a sanction that would bar Kucala from filing another case in the future, even against Auto Wax should another dispute arise. But it does not agree with the broad proposition that it is bound to defer payment of any sanction to the end of the case, even if that means the plaintiff is without resources to fund the litigation on which it has embarked. Unlike here, both Thomas and Cotner were civil rights cases implicating personal rather than commercial rights. The Cotner plaintiff was a prisoner, for whom a bar would have precluded his challenging a deprivation of constitutional rights. In Thomas, the alleged misconduct appeared to be principally that of plaintiffs' lawyers rather than the plaintiffs,*fn5 also unlike the situation presented here, but most significantly, the cited language is merely guiding dicta unrelated to specific circumstances of the plaintiffs. This case is not only about hardship to Kucala; the court must also measure the unnecessary cost and delay, which has been substantial, imposed on the victim of Kucala's conduct. Ultimately, it is a discretionary matter. The court, having weighed all of the circumstances, concludes that a fair and reasonable resolution is to require payment of one-half of the sanction immediately as a condition to Kucala's proceeding further in the case. Finally, although a five-day time limit is not improper in light of the long delay in pretrial preparation that Kucala's misconduct occasioned, Kucala's failure to properly demonstrate any denial of future access to the courts, and the additional resources Auto Wax has been forced to expend in order to respond to the misconduct, the court is persuaded that 21 days is a more appropriate time frame to allow Kucula to pay the initial portion of the award. Should half the sanction be paid, the court will defer the remainder to the end of the case.

  C. Reexamination of Patents.

  Kucala contends that an order prohibiting it from seeking reexamination of Auto Wax's patents by the United States Patent and Trademark Office is without basis in law or fact. Kucala relies on 35 U.S.C. ยง 302, which permits "any person at any time" to request reexamination of a patent, and points out that a reexamination can occur even after a court has determined a patent valid, citing Ethicon, Inc. v. Quigg, 849 F.2d 1422 (Fed. Cir. 1988).*fn6 Ethicon treated the question whether the Commissioner of Patents had authority to stay a reexamination awaiting a court decision on invalidity. The court held that he did not; rather the Commissioner was obligated to proceed "with special dispatch" on the defendant's request for reexamination; furthermore, a court determination that a patent is "not invalid" does not foreclose a party from seeking reexamination. See id. at 1429 (the PTO is not bound by a court's decision that a patent is not invalid; "[o]n the other hand, if a court finds a patent invalid, and that decision is either upheld on appeal or not appealed, the PTO may discontinue its reexamination [even though the question of invalidity may not be completely resolved].") This, of course, does not address the issue here, whether a court can sanction a party by enjoining it from seeking reexamination. At the same time, the cases on which Auto Wax relies fail to address a sanction prohibiting reexamination. See In re Bagdade, 334 F.3d 568 (7th Cir. 2003) (non-attorney barred from appearing as counsel for any future appeal until he could prove bar admission); Chapman v. Charles Schwab & Co., No. 01 C 9697, 2002 WL 818300, at *1 (N.D. Ill April 30, 2002) (district judge enjoined pro se litigant with a "penchant for pernicious and frivolous litigation from filing further actions arising out of the events complained of in the current litigation and referred to Executive Committee recommendation that he be enjoined from filing any future action in the district court without a certification by a magistrate judge that the case was not frivolous.); National Hockey League v. Metropolitan Hockey Club, Inc., 427 U.S. 639, 643 (1976) (extreme sanction of dismissal for bad faith discovery violation was appropriate, suggesting that a lesser sanction might lead "parties to other lawsuits [to feel] freer than we think Rule 37 contemplates they should feel to flout other discovery orders . . . .").

  The court is persuaded, in light of the parties' arguments and the court's purposes in the October decision, that the judgment should not bar Kucala from seeking reexamination. The sanction of dismissal conveys to Kucala, "Because of your misconduct, you lose on the claims you filed in this court." In other words, the court finds the patents in suit not invalid. Under the lessons of Ethicon, this means only that the presumption of validity survives, not that the patents are valid. Although principles of claim preclusion would bar an adjudged infringer from filing or defending a future law suit relating to these patents, it would not bar the infringer from seeking reexamination. Therefore, the court will not enjoin Kucala from seeking reexamination of Auto Wax's patents.

  D. Kucala's press releases.

  Another aspect of Auto Wax's motion is a recent press release about the litigation emanating from Kucala. Auto Wax presents evidence that on December 9, 2003, Kucala issued a press release stating, "[W]e are proud to announce that the Federal Judge presiding over the Chicago Patent Litigation between Kucala Enterprises Ltd. and Auto Wax Company has once again decided to keep the case in Chicago, IL which is home to Kucala."; "The onslaught of Auto Wax's attorneys has made every effort to avoid addressing the merits of the case thus far. . .," as well as other comments disparaging the conduct of Auto Wax and its counsel in this litigation. This court has but once, on July 18, 2002, made any ruling concerning venue in this district; neither would the court cast blame on Auto Wax for avoiding addressing the merits. That blame lies, if anywhere, squarely on Kucala. Although the court continues to decline to order Kucala from making public statements about the litigation, it again expresses its strong disapproval of John Kucala's effort to try this case to the jury of public opinion.

 E. Auto Wax's motion for permanent injunction.

  Auto Wax's motion for permanent injunction or, in the alternative, for preliminary injunction based on non-payment of the sanction fee and bad faith litigation tactics is denied without prejudice.

 II. Motions 4 and 5.

  On February 17, 2004, Kucala moved for an award of sanctions against Auto Wax, alleging that Auto Wax has refused to respond to discovery requests because the sanctions award has not been paid, in spite of the court's ruling that the infringement case would go forward. Kucala also complains that Auto Wax has refused to respond to Dawn Kucala's discovery requests, although she was not sanctioned. Kucala also objects to Auto Wax's "bullying" of Kucala based on Kucala's past misdeeds as a substitute for fulfilling its own obligations in discovery. On February 18, 2004, Auto Wax moved for default judgment against Kucala, alleging that Kucala had failed to meet its post-October decision*fn7 obligations regarding discovery, most significantly, to produce a precise ingredient list for its manufactured clay and an exact description of the manufacturing process, as well as fully respond to previously propounded discovery requests, including requests relevant to damages. Kucala responds with an elaborate description of all the discovery it has made and represents that it has fully complied with all outstanding discovery. Peculiarly, as Auto Wax points out in its reply memorandum, Kucala does not appear to have a "precise" formula or method for its detailing clay, stating that "ranges" of various materials have been used and suggesting various methods of manufacture. The court resolves these motions as follows: Kucala's motion is granted insofar as it seeks discovery and is denied insofar as it seeks sanctions. Auto Wax is to respond to outstanding discovery requests. This order stands until further order of court and notwithstanding the order against Kucala to pay sanctions. Auto Wax's motion for default judgment is denied. Nevertheless, Kucala is directed to respond to any outstanding discovery requests and thereafter to file an affidavit of John Kucala attesting that he has complied with all outstanding discovery requests, including any emails written or received after the misconduct addressed in the October decision, full and complete responses to Auto Wax's interrogatories nos. 1-3 and 6-14, and any and all document requests to which presently existing documents respond. His counsel shall file a declaration to the same effect. With respect to the formula and process of manufacture, if the implausible is in fact true that there is no set "recipe" for the product, then Kucala must identify and explain each and every formulation of the product and the date or approximate date any change in formulation occurred.

 Motions 6 and 7.

  Kucala's motion to hold non-jury trial in March 2004 is moot insofar as it requests a March trial date and is denied insofar as it seeks to deprive Auto Wax of a jury trial. The court will consider the motion to bifurcate after receiving a response from Auto Wax.

  Auto Wax's motion to extend certain deadlines set forth in the amended scheduling order is granted. All previously set dates will be stricken. A scheduling conference for the purpose of setting a revised schedule will be set. Counsel for the parties are directed to confer in advance of that date to set a realistic revised schedule. ORDER

  The motion of Auto Wax Company for costs and fees [# 152-1] is granted in the amount of $93,125.74. The motion of Kucala Enterprises, Ltd., for reconsideration [# 156-1], to set aside [-2] or modify [-3] in part the judgment of December 19, 2003, filed January 6, 2004, is granted This court's Judgment entered December 22, 2003 [#153] is vacated. The Clerk is directed to enter the judgment which accompanies this order. Auto Wax's motion for permanent injunction [# 173-1] or in the alternative, preliminary injunction [#-2] is denied without prejudice. Kucala's motion for sanctions [# 170] is denied insofar as it seeks sanctions but is granted, insofar as it seeks responses to outstanding discovery. Auto Wax is directed to respond to outstanding discovery requests by April 21, 2004. Auto Wax's motion for default judgment [# 174] is denied insofar as it seeks judgment but is granted insofar as it seeks responses to outstanding discovery. Kucala is to comply with the directions related to outstanding discovery contained in text above by April 21, 2004. Kucala's motion to hold non-jury trial in March 2004 [171-1] is moot. Auto Wax is directed to respond by April 17, 2004, to Kucala's motion to bifurcate liability and damages [#171-2]. Kucala may reply by April 24, 2004. Auto Wax's motion to extend certain deadlines set forth in the Amended scheduling order is granted. All previously set scheduling orders are vacated. A scheduling conference is set for April 29, 2004 at 9:45.

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