UCP International Company Limited et al v. Balsam Brands Inc. et al, No. 3:2016cv07255 - Document 146 (N.D. Cal. 2018)
Court Description: ORDER GRANTING IN PART AND DENYING IN PART 128 MOTION FOR FEES by Judge William H. Orrick and granting 135 Administrative Motion to seal and 144 Administrative Motion to supplement the record. Within seven days of the date of this Order, UCP's counsel should file a declaration identifying specific fees incurred in filing and defending the motion to disqualify, itemized by attorney, time spent, and hourly rate sought. Balsam may, if it wishes, file a response within seven days addressing the reasonableness of the requested fees. The matter will then be submitted. (jmdS, COURT STAFF) (Filed on 6/12/2018)
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1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 UCP INTERNATIONAL COMPANY LIMITED, et al., 8 Plaintiffs, 9 10 United States District Court Northern District of California 11 12 13 v. BALSAM BRANDS INC., et al., Case No. 16-cv-07255-WHO ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR FEES Re: Dkt. Nos. 128, 135, 137, 144 Defendants. INTRODUCTION Plaintiffs UCP International Company and Global United Enterprises Limited 14 (collectively, “UCP”) brought this declaratory action against Balsam Brands Inc., Balsam 15 International Limited, and Balsam International Unlimited Company (collectively, “Balsam”), 16 seeking a declaration of non-infringement for U.S. Patent Nos. 8,062,718 B2 (“the ’718 Patent”) 17 and 8,993,077 B2 (“the ’077 Patent”) (collectively, “Balsam patents”). These patents relate to 18 19 20 21 22 23 24 25 invertible artificial Christmas trees and the way in which they are deployed. Having won on summary judgment, UCP moves for an award of attorney and expert fees under three sources of authority: (1) 35 U.S.C. section 285, the fee-shifting provision of the Patent Act; (2) 28 U.S.C. section 1927, which is aimed at improper litigation conduct; and (3) my inherent authority to sanction. UCP seeks reimbursement for attorney and expert fees incurred in both this case and a previous related lawsuit, Balsam Brands Inc. et al v. Cinmar, LLC et al., 3-15-cv-04829-WHO (N.D. Cal.) (“Frontgate”). In Frontgate, UCP defended its customer (as required by an indemnification agreement) from patent infringement claims brought by Balsam. 26 UCP argues that, as the “prevailing party” in this action, it is entitled to recover attorney 27 fees in both actions under Section 285 because Balsam’s litigation positions and conduct in both 28 1 cases were “exceptional.” UCP admits that its expert fees were incurred in Frontgate but contends 2 that I may award those fees under both Section 1927 and my inherent power to sanction in light of 3 Balsam’s bad faith litigation positions and conduct. I conclude, first, that there is no basis to 4 award either the attorney fees or the expert fees that UCP incurred in Frontgate. As for attorney 5 fees incurred in this matter, Balsam’s litigation positions and conduct – other than its conduct 6 resulting in my recusal – were not exceptional and do not justify fees. UCP is entitled to the 7 discrete portion of attorney fees it incurred with respect to the proceedings before the Hon. 8 William H. Alsup that resulted in this case being reassigned back to me. BACKGROUND 9 10 I. FRONTGATE LITIGATION On October 20, 2015, Balsam filed a patent infringement lawsuit against UCP’s customer United States District Court Northern District of California 11 12 (Frontgate), alleging that Frontgate was advertising and selling an invertible artificial Christmas 13 tree (the “Inversion Tree”) that infringed the Balsam patents. Frontgate Dkt. No. 1. As the 14 manufacturer of the Inversion Tree, UCP defended its customer under an indemnity agreement. 15 See UCP’s Motion to Disqualify at 3 (Dkt. No. 79) (“Frontgate demanded UCP defend and 16 indemnify them from Balsam’s assertions of infringement, and UCP incurred substantial legal fees 17 in defending the case.”). Balsam initially sought a temporary restraining order, arguing that the Inversion Tree 18 19 functions identically to a product sold by Balsam (the Flip Tree), and directly infringed the 20 Balsam patents. I denied Balsam’s request for a TRO, finding that it failed to establish standing to 21 bring the patent infringement claims and that Frontgate had established a substantial question 22 concerning noninfringement. Order Denying Request for Temporary Restraining Order 23 (Frontgate Dkt. No. 42).1 Following the denial of the TRO, I construed seven claim terms whose 24 meanings were in dispute. Id. Following claim construction, the parties stipulated to dismissal; 25 Frontgate was dismissed with prejudice. Frontgate Dkt. Nos. 154, 155. 26 1 27 28 Balsam’s non-patent-infringement causes of action – for false marking, false advertising under the Lanham Act, and violations of California’s Unfair Competition Law and False Advertising law – could not support the TRO because Balsam submitted no evidence establishing a likelihood of irreparable harm flowing from those claims. Id. at 15-19. 2 1 2 II. THE INSTANT ACTION A. Initial Proceedings UCP initiated this lawsuit seeking a declaration of non-infringement of the Balsam patents 3 on the same day that the Judgment was entered in Frontgate. Dkt. No. 1. Balsam subsequently 4 moved to dismiss for lack of jurisdiction, arguing that because “UCP [did] not allege Balsam 5 threatened it, sued it, wrote it a cease-and-desist letter, or otherwise took any direct step toward it,” 6 UCP did not have standing to bring this action. Motion to Dismiss at 1 (Dkt. No. 22). I rejected 7 this argument, finding that “while Balsam settled its claims against Frontgate, it did not resolve the 8 underlying legal issue: were the Inversion Trees Frontgate was selling, and that UCP manufactures 9 and sells, infringing Balsam’s patents.” Order Denying Motion to Dismiss at 8 (Dkt. No. 60). I 10 concluded that where a patent-holder refuses to sue, a potential infringer is entitled to resolve the United States District Court Northern District of California 11 legal issue by seeking a declaratory judgment. Id. Accordingly, I denied Balsam’s motion to 12 dismiss. 13 Following that denial, questions remained regarding whether and how documents from 14 Frontgate would be imported into this lawsuit’s docket. See Order Regarding Importation of 15 Claim Construction Materials (Dkt. No. 67). At the April 19, 2017, case management conference, 16 I discussed with the parties how this case would proceed and UCP’s plan to file an early summary 17 judgment motion for non-infringement. CMC Tr. at 7:10-12; 10:3-11 (Dkt. No. 58). The parties 18 and I agreed that in order to tee up UCP’s summary judgment motion, I would need to enter a 19 claim construction order. Because I completed claim construction in Frontgate, I determined after 20 discussion that it would make sense to import the Frontgate Claim Construction Order, as well as 21 any other related documents the parties believed were necessary, instead of repeating the entire 22 claim construction process. Id. at 10:12-16; 5:6-24. I instructed the parties to meet and confer and 23 to stipulate to a procedure for importation, identifying documents that would be imported. After 24 further input from me, the parties stipulated to the procedure; relevant documents from Frontgate 25 were subsequently imported into this case’s docket. See Dkt. Nos. 92, 104, 107, 108. 26 27 B. Recusal On June 22, 2017, Balsam added Jonathan Bass and his firm, Coblentz Patch Duffy & 28 3 1 Bass LLP as counsel. Notice of Appearance (Dkt. No. 68). I previously practiced law at Coblentz 2 for over 25 years, and Mr. Bass is my friend and former law partner. Given that relationship, I 3 immediately recused myself, requesting reassignment of the case to another judge. Dkt. No. 70. The case was reassigned to Judge Alsup. Dkt. No. 74. Balsam filed an administrative 4 5 motion to stay briefing on UCP’s motion for summary judgment, arguing that reassignment of the 6 case meant that it was unclear whether the same claim constructions relied upon in UCP’s motion 7 remained relevant. Dkt. No. 73. It argued that if Judge Alsup ruled that collateral estoppel did not 8 apply to the instant case, a new claim construction order would need to be entered, which could 9 result in different constructions of the disputed terms. Id. at 3-4. This would mean that the constructions forming the basis for UCP’s then-pending motion for summary judgment would be 11 United States District Court Northern District of California 10 moot. 12 Believing that Balsam had added my former partner as counsel as a litigation tactic to 13 secure my recusal and get a second shot at claim construction, UCP moved to disqualify him and 14 the firm. Dkt. No. 105. Because the Ninth Circuit had yet to determine whether an attorney 15 should be disqualified where his or her appearance results or will result in a judge’s recusal, Judge 16 Alsup applied the objective test that the Eleventh Circuit articulated in In re BellSouth Corp., 334 17 F.3d 941, 962–65 (11th Cir. 2003), and Robinson v. Boeing Co., 79 F.3d 1053, 1054–56 (11th Cir. 18 1996). The Eleventh Circuit identified the following objective factors to consider and balance in 19 the disqualification analysis: (1) the potential for manipulation or impropriety, (2) the judicial time 20 invested, (3) the court’s docket, (4) the delay in reaching decision, (5) the injury to the other party, 21 (6) the fundamental right to counsel, and (7) the expense to the party that retained counsel. 22 Robinson, 79 F.3d at 1055; BellSouth, 334 F.3d at 962–66. These factors are not exclusive, nor 23 are they all necessary; their weight varies with the circumstances. BellSouth, 334 F.3d at 962. 24 Where the objective factors weigh in favor of disqualification, a party resisting such 25 disqualification must show an overriding need for its choice of counsel. See Robinson, 79 F.3d at 26 1054–56. 27 28 Judge Alsup granted UCP’s motion. He found that “the [] objective factors here — including the potential appearance of manipulation of the judicial process, [my] substantial prior 4 1 investment of time and resources, and the likelihood of a new judge unnecessarily duplicating [] 2 efforts — all outweigh any interest Balsam ha[d] in retaining the Coblentz firm . . . given the 3 absence of any overriding need for its presence.” Order Granting Motion to Disqualify Newly- 4 Added Counsel at 7 (Dkt. No. 105). He noted that my “recusal was a predictable consequence of 5 Attorney Bass’s appearance herein. . . . Any objective member of the bar or the public would have 6 expected” me to recuse myself, and “[T]he appearance of mischief is [] inherent [in this action].” 7 Id. at 7. Subsequently, Judge Alsup issued a sua sponte Order for me to consider whether this 8 case should be related back to Frontgate and resume before me. Dkt. No. 106. I concluded that, 9 in light of the disqualification, this case should be related back to the earlier filed case and be 10 reassigned to me. Dkt. No. 110. United States District Court Northern District of California 11 C. 12 After the case was reassigned, UCP filed for summary judgment. In opposing, Balsam Proceedings After Reassignment 13 relied solely on its expert, Dr. McCarthy, who asserted that the Inversion Tree contains all critical 14 limitations of the Balsam patents and literally infringed the Balsam patents. McCarthy Decl. ¶¶ 15 70 96. I concluded that, although McCarthy purported to apply the Frontgate Claim Construction 16 Order in his analysis, his application was inconsistent with the Frontgate Order’s plain language 17 and meaning. Order Granting Summary Judgment at 7. Applying constructions from the 18 Frontgate Order, I granted UCP’s motion for summary judgment in its entirety. I entered 19 Judgment on November 3, 2017. Dkt. No. 119. 20 On November 30, 2017, UCP filed a motion seeking fees under three sources of authority: 21 (1) the fee-shifting provision of the Patent Act, 35 U.S.C. section 285; (2) 28 U.S.C. section 1927, 22 which is aimed at improper litigation conduct, and (3) my inherent authority to sanction. Pursuant 23 to Civil Local Rule 7-1(b), I found this matter suitable for decision without hearing and vacated 24 the hearing set for January 3, 2018. LEGAL STANDARD 25 26 27 28 I. ATTORNEY FEES UNDER 35 U.S.C. § 285 Under the Patent Act, “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” 35 U.S.C. § 285. A case is exceptional when it “stands out from others 5 1 with respect to the substantive strength of a party’s litigating position (considering both the 2 governing law and the facts of the case) or the unreasonable manner in which the case was 3 litigated.” Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S.Ct. 1749, 1756 (2014). 4 “District courts may determine whether a case is ‘exceptional’ in the case-by-case exercise of their 5 discretion, considering the totality of the circumstances.” Id. Relevant factors in assessing 6 whether a case is exceptional include “frivolousness, motivation, objective unreasonableness (both 7 in the factual and legal components of the case) and the need in particular circumstances to 8 advance considerations of compensation and deterrence.” Id. at 1756, n.6. Most courts awarding 9 attorneys’ fees post-Octane “have generally cited egregious behavior.” Aylus Networks, Inc. v. 10 United States District Court Northern District of California 11 Apple, Inc., No. 13-cv-4700-EMC, 2016 WL 1243454, at *7 (N.D. Cal. Mar. 30, 2016). II. FEES AND COSTS UNDER 28 U.S.C. § 1927 12 Under 28 U.S.C. § 1927, “Any attorney or other person admitted to conduct cases in any 13 court of the United States or any Territory thereof who so multiplies the proceedings in any case 14 unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, 15 expenses, and attorneys’ fees reasonably incurred because of such conduct.” “[S]ection 1927 16 sanctions ‘must be supported by a finding of subjective bad faith.’. . . ‘Bad faith is present when 17 an attorney knowingly or recklessly raises a frivolous argument, or argues a meritorious claim for 18 the purpose of harassing an opponent.’” In re Keegan Mgmt. Co., Sec. Litig., 78 F.3d 431, 436 19 (9th Cir. 1996) (quoting New Alaska Development Corp. v. Guetschow, 869 F.2d 1298, 1306 (9th 20 Cir.1989) and Estate of Blas v. Winkler, 792 F.2d 858, 860 (9th Cir.1986)); see also, Blixseth v. 21 Yellowstone Mountain Club, LLC, 796 F.3d 1004, 1007 (9th Cir. 2015) (a finding of subjective 22 bad faith required for sanctions under § 1927, which could be met with a showing of: (i) a reckless 23 and frivolous argument; or (ii) a meritorious claim made with the purpose of harassing the 24 opponent). 25 III. FEES AND COSTS UNDER THE COURT’S INHERENT AUTHORITY 26 A court may impose sanctions under its inherent power based on a finding of “bad faith or 27 conduct tantamount to bad faith.” Fink v. Gomez, 239 F.3d 989, 994 (9th Cir. 2001). “Sanctions 28 are available for a variety of types of willful actions, including recklessness when combined with 6 1 an additional factor such as frivolousness, harassment, or an improper purpose.” Id. The bad-faith 2 requirement sets a “high threshold,” Primus Auto. Fin. Servs., Inc. v. Batarse, 115 F.3d 644, 649 3 (9th Cir. 1997), which may be met by willful misconduct, or recklessness that is coupled with an 4 improper purpose. Fink, 239 F.3d at 993-94. It is the moving party’s burden to demonstrate that 5 the party against whom it seeks sanctions acted with the requisite bad faith or improper purpose. 6 See Burnett v. Conseco, Inc., 87 F. Supp. 3d 1238, 1249 (N.D. Cal. 2015). 7 DISCUSSION 8 UCP seeks to recover two types of fees: (1) the attorney fees from both this case and Frontgate under Section 2852 and (2) expert fees incurred in Frontgate under Section 1927 or 10 under my inherent authority to sanction.3 Balsam opposes on several grounds. As an initial 11 United States District Court Northern District of California 9 matter, Balsam argues that UCP cannot receive reimbursement for any fees incurred in Frontgate. 12 It further contends that even if UCP can establish that it is entitled to the fees incurred in 13 Frontgate, UCP’s request is untimely4 and Balsam has not engaged in any sanctionable conduct 14 throughout the course of litigation. And regarding the attorney fees incurred in the instant action, 15 Balsam claims that this case is not exceptional under Section 285. 16 I. 17 WHETHER UCP CAN RECOVER ATTORNEY AND EXPERT FEES INCURRED IN FRONTGATE Balsam argues that UCP is not entitled to fees incurred in Frontgate because the scope of 18 my authority to award attorney or expert fees or sanctions does not extend to a separate lawsuit. 19 In Balsam’s view, because UCP was not a party in Frontgate, it cannot recover attorney fees under 20 21 2 22 23 UCP seeks recovery of approximately $900,000 in attorney fees. Declaration of Patricia L. Peden (Dkt. No. 128) ¶ 5. In reaching that total, UCP deducted any fees incurred in Frontgate related to the litigation of non-patent claims. Id. ¶ 14. 3 24 25 26 27 28 UCP seeks recovery of approximately $79,000 in expert fees. Peden Decl., Ex. B (Dkt. No. 1283), ECF pg. 18. All expert fees sought were incurred as of December 2016 and, therefore, were apparently incurred in connection with Frontgate as this matter was not filed under December 20, 2016. 4 UCP filed a motion seeking leave to file its motion for attorney fees one day late. Dkt. No. 135. Balsam did not oppose this motion. Dkt. No. 136. Because UCP demonstrated good cause, I GRANT its motion and reject Balsam’s argument that the fee request under Section 285 is untimely. 7 1 Section 285 for that action. Further, Balsam claims that UCP’s request for expert fees from 2 Frontgate is outside the scope of Section 1927 and my inherent authority.5 3 A. 4 The purpose of Section 285 is to “compensate the prevailing party for its monetary outlay UCP Cannot Recover Attorney Fees Under Section 285 5 in the prosecution or defense of the suit.” Central Soya Co. v. Geo A. Hormel & Co., 723 F.2d 6 1573, 1578 (Fed. Cir. 1983). UCP contends that it is entitled to attorney fees it paid on behalf of 7 its customer (Frontgate) under their indemnity agreement incurred in Frontgate because (1) 8 Frontgate is related to the instant action and (2) absent the work conducted in Frontgate, the 9 parties in this case would have incurred the same fees for the same work.6 UCP argues that because the Federal Circuit “interpret[s] attorney fees to include those 10 United States District Court Northern District of California 11 sums that the prevailing party incurs in the preparation for and performance of legal services 12 related to the suit,” Central Soya Co., 723 F.2d at 1578 (emphasis added), and the instant case 13 concerns the same patents as Frontgate, it is entitled to the fees incurred during Frontgate. But its 14 argument ignores the purpose of Section 285, which is to compensate “for [] monetary outlay in 15 the prosecution or defense of the suit.” Id. (emphasis added). 16 UCP points to a number of cases that purportedly support its argument that it can recover 17 attorney fees from the Frontgate matter. See, e.g., Monolithic Power Sys. Inc., v. O2 Micro Int’l 18 Ltd., 726 F.3d 1359, 1364, 1369 (Fed. Cir. 2013); PPG Indus., Inc., v. Celanese Polymer 19 Specialties, Co., 840 F.2d 1565, 1569 (Fed. Cir. 1988); Deep Sky Software, Inc. v. Sw. Airlines 20 Co., No. 10-cv-1234-CAB (KSC), 2015 WL 10844231, at *2 (S.D. Cal. Aug. 19, 2015). Its 21 reliance on these cases is misplaced. 22 For example, in Monolithic Power, the Ninth Circuit considered whether the district 23 court’s award of attorney fees for discovery conducted in a separate but parallel proceeding 24 5 25 26 27 Balsam also argues that UCP’s motion is precluded by the Frontgate settlement and the request for expert fees from Frontgate under Section 1927 and my inherent authority is untimely, having been filed over a year after entry of judgement in that case. Because I find that my authority to award attorney fees and sanctions does not extend to the Frontgate matter, I do not address these arguments. 6 28 The same counsel represented Frontgate and UCP with respect to the patent claims in Frontgate and the claims here. 8 1 constituted an abuse of discretion. 726 F.3d at 1364. There, the plaintiff and defendant were 2 embroiled in patent litigation in district court. At the same time, the same parties were before the 3 International Trade Commission (ITC) because defendant had filed an infringement complaint 4 against plaintiff and others at the ITC. The district court denied defendant’s request to stay the 5 litigation in light of the ITC proceedings, but in order to avoid waste and duplication, ordered that 6 discovery from the concurrent ITC proceeding would be used in the district court proceeding. Id. 7 at 1363. The parties agreed. Id. In light of district court rulings in plaintiff’s favor, defendant 8 dismissed the patent suit. Plaintiff then sought fees for both the district court litigation and for the 9 discovery conducted in the ITC proceedings, arguing that under Section 285 defendant’s litigation 10 United States District Court Northern District of California 11 conduct was exceptional. Id. at 1364. The district court awarded plaintiff fees from that case and for the ITC discovery based on 12 detailed findings of “rampant misconduct” in that case (and a history of prior misconduct). The 13 Federal Circuit affirmed. With respect to the ITC discovery fees, the court concluded “[u]nder the 14 unique circumstances, the district court's award of ITC-related expenses is also not an abuse of 15 discretion, especially in view of the discovery’s application in the district court and the parties' 16 agreement to its dual use.” Id. at 1369. 17 The instant case is distinguishable from Monolithic Power. First, UCP was not a party in 18 Frontgate and never sought to intervene in it, which means that it cannot be the “prevailing party” 19 as required for the award of attorney fees under Section 285. 20 Second, as with the other cases on which UCP relies, the courts allowed attorney fees 21 under Section 285 in the context of separate, but parallel, proceedings. See, e.g., PPG Industries, 22 Inc. v. Celanese Polymer Specialties Co., Inc., 840 F.2d 1565, 1568 (Fed. Cir. 1988) (awarding 23 fees incurred in parallel, concurrent PTO proceedings that were essentially a substitute for district 24 court proceeding, concluding “The parties and the district court clearly intended to replace the 25 district court litigation with the reissue proceedings.”); Deep Sky Software, Inc. v. Sw. Airlines 26 Co., No. 10-cv-1234-CAB (KSC), 2015 WL 10844231, at *2 (S.D. Cal. Aug. 19, 2015) (granting 27 attorney fees incurred in PTO reexamination proceedings while the district court action was 28 stayed); see also T&M Inventions, LLC v. Acuity Brands Lighting, Inc., 14-CV-947, 2016 WL 9 1 8290851, at *3 (E.D. Wis. Sept. 21, 2016) (“The court does not have the authority to award fees in 2 a previous case under the [Patent Act].”). Frontgate was not litigated concurrently with this 3 matter. 4 Third, while I did order that materials from Frontgate be imported into this matter, 5 Frontgate was not a “substitute” for this subsequent litigation. The importation of those materials 6 saved the parties time and expense in this action; that does not mean that UCP can recover the fees 7 it paid to litigate on behalf of Frontgate in the prior action. 8 UCP provides no basis on the facts of this case to support an award under Section 285 for 9 fees incurred in Frontgate, which concluded before this case was filed and where UCP was not a 10 United States District Court Northern District of California 11 12 party. B. UCP Cannot Recover Expert Fees Incurred in Frontgate Under Section 1927 or My Inherent Authority. UCP also seeks to recover expert fees incurred in Frontgate as sanctions under Section 13 1927 or under my inherent authority. UCP’s problem, as explained below, is that it fails to cite 14 any authority where fees incurred in a prior, closed case to which it was not a party are 15 recoverable through a subsequent action. 16 17 1. Section 1927 Section 1927 provides that “[a]ny attorney . . . who so multiplies the proceedings in any 18 case unreasonably and vexatiously may be required by the court to satisfy personally the excess 19 costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.” 28 U.S.C. § 20 1927. UCP fails to point to any authority that extends the scope of Section 1927 to a separate and 21 closed case. Under Section 1927, a party’s conduct is sanctionable only to the extent that it 22 multiplies proceedings in that case. See, e.g., Klein v. Weidner, CV 08-3798, 2017 WL 2834260, 23 24 25 at *4 (E.D. Pa. June 30, 2017) (collecting cases confirming that “Section 1927 ‘limits the court's sanction power to attorney’s actions which multiply the proceedings in the case before the court’ from which sanctions are sought.” (Citation omitted)). UCP cannot seek expert fees incurred in 26 another case as sanctions under Section 1927 through this case. 27 28 10 2. 1 2 Inherent Power of the Court A district court has inherent authority “to impose sanctions in the form of reasonable expert fees in excess of what is provided for by statute.” Takeda Chem. Indus., Ltd. v. Mylan 3 Labs., Inc., 549 F.3d 1381, 1391 (Fed. Cir. 2008). Use of this inherent authority is reserved for 4 5 cases where the district court makes a “finding of fraud or bad faith whereby the ‘very temple of justice has been defiled.’” Amsted Indus. Inc. v. Buckeye Steel Castings Co., 23 F.3d 374, 378 6 (Fed. Cir. 1994) (quoting Chambers v. NASCO, Inc., 501 U.S. 32, 46 (1991)). UCP has not cited 7 any authority that expands this authority to award sanctions for conduct that took place in another 8 case, prior to the initiation of the action in which sanctions are sought, and to which the entity 9 seeking the award was not a party. Accordingly, I do not exercise my inherent power to sanction 10 to award UCP expert fees incurred in Frontgate. United States District Court Northern District of California 11 12 WHETHER BALSAM’S CONDUCT IN THIS ACTION WAS EXCEPTIONAL UNDER SECTION 285 II. Balsam’s Litigation Positions 13 A. 14 In UCP’s view, once it filed this declaratory action Balsam’s only reasonable response was 15 to enter into a covenant not to sue rather than defend this action through to summary judgment. It 16 further contends that the following litigation positions were made in bad faith, without objective 17 merit, and are otherwise “exceptional” under Section 285: (i) Balsam’s motion to dismiss this 18 declaratory relief action, which was wholly meritless; (ii) Balsam’s unsuccessful attempts to argue 19 that the Frontgate Claim Construction Order should not apply here; and (iii) Balsam’s new 20 infringement theories on summary judgment, which were strained and illogical. 21 I do not agree that Balsam was obligated to roll over and play dead in this lawsuit. While 22 Balsam’s arguments were unsuccessful, they were not exceptional. For example, while Balsam 23 continued to rely through summary judgment on the expert opinions of McCarthy, whose opinions 24 I mostly rejected (some I found were inconsistent with the Frontgate Claim Construction Order), 25 that reliance was not in bad faith or objectively unreasonable. McCarthy has over forty years of 26 experience in mechanical engineering as well as a Ph.D. from MIT. Frontgate Dkt. Nos. 85, 87, & 27 87-1. His expert report was supported by a number of exhibits and videos that arguably supported 28 his conclusions. I rejected them in favor of UCP’s arguments, but they were not so baseless to 11 1 warrant a finding of exceptionality. Balsam’s litigation positions were not so meritless or 2 objectively unreasonable to justify a finding of exceptionality under Section 285. 3 B. 4 More persuasive and ultimately successful is UCP’s argument that Balsam hired my old Manner in Which Balsam Litigated 5 firm and former partner to prompt my recusal and avoid my findings and conclusion that the 6 Frontgate Claim Construction Order would apply in this case. That was exceptional conduct 7 warranting a limited award of fees. Balsam had several lawyers (including patent-specialist 8 counsel) before adding my friend and old firm once it was clear that I intended to apply the 9 adverse-to-Balsam Frontgate claim constructions. Considering the objective factors discussed by Judge Alsup, I conclude that Balsam acted in an unreasonable manner, approaching if not 11 United States District Court Northern District of California 10 constituting bad faith. This finding is supported by Balsam’s pitch to Judge Alsup to stay the 12 summary judgment briefing and to newly consider claim construction immediately upon my 13 recusal. This whole maneuver unduly multiplied proceedings at the expense of UCP and was 14 exceptional under Section 285. 15 Balsam argues that because UCP has not proved any subjective unethical or unprofessional 16 conduct on its or its counsels’ part, this conduct is not exceptional. Oppo. at 9 (Dkt. No. 131-4) 17 (citing Old Reliable Wholesale, Inc. v. Cornell Corp., 635 F.3d 539, 549 (Fed. Cir. 2011) 18 (unreasonable litigation conduct such as makes a case exceptional “generally requires proof of 19 unethical or unprofessional conduct by a party or his attorneys”)). This argument was rejected in 20 Octane Fitness, at 1756-57 (“[S]anctionable conduct is not the appropriate benchmark. Under the 21 standard announced today, a district court may award fees in the rare case in which a party's 22 unreasonable conduct—while not necessarily independently sanctionable—is nonetheless so 23 “exceptional” as to justify an award of fees”). Its actions resulting in my recusal may not have 24 been sanctionable, but they were exceptional. It occurred nearly two years after the 25 commencement of Frontgate and days after I noted my intention to use the Frontgate Claim 26 Construction Order. As noted by Judge Alsup, Balsam’s actions give the appearance of 27 impropriety and mischief. 28 Under the totality of the circumstances test articulated in Octane Fitness, I conclude that 12 1 this case is “exceptional” only for Balsam’s conduct resulting in my temporary recusal. 134 S. Ct. 2 at 1756 n.6 (“district courts could consider a “nonexclusive” list of “factors,” including 3 “frivolousness, motivation, objective unreasonableness (both in the factual and legal components 4 of the case) and the need in particular circumstances to advance considerations of compensation 5 and deterrence.”). Balsam is required to reimburse the attorney fees that UCP incurred litigating 6 its motion to disqualify. Otherwise, UCP’s motion is denied. It brought this action. Balsam did 7 not assert any counterclaims and its defense was not objectively unreasonable or frivolous. Reasonableness of UCP’s Fees 8 C. 9 UCP submitted evidence of the fees incurred in this action and in Frontgate. As discussed above, UCP is only entitled to attorney fees incurred in filing and defending the motion to 11 United States District Court Northern District of California 10 disqualify. As currently submitted, I cannot determine which of UCP’s time entries correspond 12 solely with those efforts. Accordingly, within seven days of the date of this Order, UCP’s counsel 13 should file a declaration identifying these specific fees, itemized by attorney, time spent, and 14 hourly rate sought. Balsam may, if it wishes, file a response within seven days addressing the 15 reasonableness of the requested fees. The matter will then be submitted. 16 D. 17 Following the completion of briefing on its motion for fees, UCP filed an administrative Fees on Fees 18 motion to supplement the record to add a request to recover the attorney fees that it incurred filing 19 its motion for fees. Dkt. No. 144. Balsam did not oppose the filing of that motion, but did 20 preserve its argument that no fees should be awarded and its objections to the reasonableness of 21 the fees sought. Id. at 2. UCP’s motion to supplement the record is GRANTED. However, as 22 UCP’s motion for fees has only been successful to a limited extent, when submitting the additional 23 declaration identified above, UCP shall file a brief not exceeding three pages addressing why it is 24 nonetheless entitled to some portion of its “fees on fees.” Balsam may file a response, not 25 exceeding three pages within seven days after UCP’s filing. No reply or further briefing will be 26 allowed, absent further order. 27 28 CONCLUSION For the reasons discussed above, UCP’s motion for attorney fees is GRANTED IN PART 13 1 2 3 and DENIED IN PART. IT IS SO ORDERED. Dated: June 12, 2018 4 William H. Orrick United States District Judge 5 6 7 8 9 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14
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