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Peerless Industries, Inc. v. Crimson Av LLC

United States District Court, N.D. Illinois, Eastern District

July 14, 2014

PEERLESS INDUSTRIES, INC., Plaintiff,
v.
CRIMSON AV LLC and VLADIMIR GLEYZER, Defendants.

OPINION AND ORDER

JOAN H. LEFKOW, District Judge.

Before the court are the objections (dkts. 399, 402) filed by defendants, Crimson AV, LLC ("Crimson") and Vladimir Gleyzer ("Gleyzer, " and together with Crimson, "defendants"), to Magistrate Judge Susan E. Cox's reports and recommendations of February 27, 2014 (dkt. 395) and March 13, 2014 (dkt. 398).[1] The objections relate to the magistrate judge's rulings on discovery motions. (Dkts. 321, 381.) For the following reasons, the court adopts in part, rejects in part, and modifies in part the February 27, 2014 Report and Recommendation, and adopts the March 13, 2014 Report and Recommendation in full with one addition.[2]

BACKGROUND

I. Underlying Facts

The court assumes the reader's familiarity with the background of this protracted case, including earlier decisions and the underlying litigation, and will set out facts only as necessary for disposition of the issues before the court.

Peerless entered into a supply agreement with Sycamore Manufacturing Co., Ltd. ("Sycamore"), a Chinese manufacturer, in 2007. Under the supply agreement, Sycamore supplied Peerless with its television mounts. Peerless terminated the supply agreement in March 2010. In May 2010, Crimson was incorporated as a limited liability company with the Illinois Secretary of State. In July 2010, Sycamore began shipping audio-visual equipment to Crimson from China, and Crimson began producing television mounts for sale in the United States. Gleyzer, who had previously worked at Peerless, began working for Crimson on August 1, 2010 as managing director after Sycamore's president, Baohua "Tony" Jin, inquired if Gleyzer would be interested in starting a company in the United States. Peerless alleges that Crimson, with the help of Sycamore and Gleyzer, based the design of its television mounts on Peerless's confidential designs and drawings.

Peerless brought suit seeking damages for patent infringement and various violations of Illinois law. The court granted Peerless summary judgment as to infringement of United States Patent 7, 823, 850, held that Peerless's motion for summary judgment as to validity of that patent was moot, and denied Crimson's motion for summary judgment as to noninfringment. (Dkt. 330.) The parties are currently briefing Crimson's motions for summary judgment on the patent claim based on invalidity or unenforceability of the patent (dkt. 409) and on the trade dress infringement and trade secrets claims (dkt. 426).

Over the course of this long-running and acrimonious law suit, the parties have engaged in extensive motion practice, much of it related to their interminable discovery disputes. The present Opinion and Order addresses two of those disputes. On February 27, 2013, the magistrate judge issued a Report and Recommendation recommending that the court deny Crimson's motion for sanctions against Peerless ("the February 27 R&R"). (Dkt. 395.) Crimson had moved for sanctions to obtain compliance with various discovery-related orders the magistrate judge had entered. (Dkt. 381.) In recommending that the court deny the motion for sanctions, the magistrate judge found that Peerless had complied with the orders and, although the timing of some of Peerless's production was "unfortunate, " it did not "rise[ ] to the level of sanctionable conduct." (Dkt. 395 at 5.) She did, however, order Peerless to provide a final verification that it had searched for and produced all documents relevant to Crimson's outstanding invalidity contentions. ( Id. )

Also at issue is the magistrate judge's March 13, 2014 Report and Recommendation ("the March 13 R&R") recommending that the court grant in part and deny in part Peerless's motion for sanctions against Crimson. (Dkt. 398.) Peerless had previously moved for sanctions against Crimson after taking Jin's deposition and learning that Sycamore/Crimson had not properly preserved or produced certain documents. (Dkt. 250.) The magistrate judge denied the motion with leave to refile "with specific references to Tony Jin's testimony and how evidence was either improperly destroyed or how preservation obligations were thwarted." (Dkt. 262.) Peerless accordingly filed a more detailed motion for sanctions, requesting that the court sanction Crimson by "directing that it be taken as established fact that Sycamore used Peerless' drawings and spec packages, which are the only contemporaneous engineering documents presently in evidence, in its design and manufacture of the accused photos." (Dkt. 321 at 14.) The magistrate judge found that neither Crimson nor its counsel placed a preservation hold on Sycamore's documents after learning of the possibility of litigation in January 2010, that no attorney guided Jin regarding what documents should be produced in the suit, and that documents Jin did not think were relevant were destroyed. ( See dkt. 398 at 8.) She concluded that Peerless is prejudiced by this spoliation because there is no way to determine whether its alleged trade secrets were used by Crimson, and that Crimson was at least "grossly negligent" in its behavior.[3] ( Id. at 13.) The magistrate judge did not agree with Peerless's proposed sanction, finding that it was too severe. Instead, she recommended that this court impose the following sanction at trial: "Once plaintiff proves that it provided confidential information to Sycamore which constitutes legally protected trade secrets, the burden will shift to Crimson to show that Sycamore did not use this information in its design and manufacture of Crimson's competitive products." ( Id. at 15.)

LEGAL STANDARD

"When a magistrate judge prepares a report and recommendation for a district court, the governing statute provides that the district court shall make a de novo determination' with respect to any contested matter." Kanter v. C.I.R, 590 F.3d 410, 416 (7th Cir. 2009) (citing 28 U.S.C. ยง 636(b)(1)(C)). " De novo review requires the district judge to decide the case based on an independent review of the evidence and arguments without giving any presumptive weight to the magistrate judge's conclusion." Mendez v. Republic Bank, 725 F.3d 651, 661 (7th Cir.2013). Although the district judge may take into account all available evidence, she also "may be persuaded by the reasoning of a magistrate judge or a special master while still engaging in an independent decision-making process." Id. "The magistrate judge's recommendation on a dispositive matter is not a final order, and the district judge makes the ultimate decision to adopt, reject, or modify it." Schur v. L.A. Weight Loss Ctrs., Inc., 577 F.3d 752, 760 (7th Cir. 2009); see also Rule 72(b)(3).

ANALYSIS

I. February 27 R&R

Defendants object to the February 27 R&R, arguing that the magistrate judge ignored her prior discovery orders, that she incorrectly found that Peerless followed these orders when it in fact ignored them, and that the ...


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