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KUCALA ENTERPRISES, LTD. v. AUTO WAX CO.

April 6, 2004.

KUCALA ENTERPRISES, LTD., Plaintiff,
v.
AUTO WAX COMPANY, INC., Defendant



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

DECISIONS ON VARIOUS MOTIONS

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 ...


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