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Knight Capital Partners Corp. v. Henkel Ag & Co., KGaA

United States District Court, E.D. Michigan, Southern Division

November 30, 2017

KNIGHT CAPITAL PARTNERS CORP., Plaintiff,
v.
HENKEL AG & COMPANY, KGaA, Defendant.

         OPINION AND ORDER GRANTING PLAINTIFF'S MOTION TO COMPEL DISCOVERY, GRANTING IN PART AND DENYING IN PART MOTIONS BYDEFENDANT AND NON-PARTY HENKEL CORPORATION FOR PROTECTIVE ORDERS, DENYING HENKEL CORPORATION'S MOTION TO QUASH SUBPOENA, AND GRANTING RELIEF FROM SCHEDULING ORDER

          DAVID M. LAWSON United States District Judge.

         Discovery disputes bring this case back before the Court. Plaintiff Knight Capital Partners sued defendant Henkel KGaA (“Henkel Global”) for tortious interference with a business expectancy and breach of a non-disclosure agreement after Henkel Global allegedly scuttled a three-way deal KCP was brokering among itself, Henkel Corporation (the defendant's American subsidiary), and AI Sealing, LLC (AIS), a technology company that held patents on products useful in the oil production business. KCP served interrogatories and document requests on the defendant and subpoenaed documents from its American Subsidiary (Henkel US). The defendant and Henkel U.S. refused to respond to the requests unless KCP agreed to a protective order that contained terms KCP deemed onerous and unjustified. KCP has moved to compel production. Henkel U.S. moved to quash the subpoena, and both Henkel companies seek a protective order. Central to their arguments is the German Federal Data Protection Act, a foreign discovery blocking statute, which the defendant and Henkel U.S. insist prevents them from turning over much of the information the plaintiff seeks.

         After reviewing the materials submitted - including the affidavit from Joachim Bornkamm, a former German jurist and the defendant's foreign law expert - the Court is not convinced that the reach of the German Federal Data Protection Act is as vast as the defendant and Henkel U.S. claim, or that it prohibits the discovery the plaintiff seeks. With one exception, the terms of the protective order sought by the defendant and Henkel U.S. are overly restrictive and the Court will not impose them. The plaintiff's motions to compel responses to first written discovery requests to defendant and to compel compliance with subpoena to Henkel U.S. will be granted. The defendant's amended motion for entry of protective order and non-party Henkel US's motion to quash the subpoena or for protective order will be granted in part and denied in part. The Court will adjust the case management deadlines to allow for the discovery.

         I.

         The facts of the case are discussed at length in the Court's opinion and order denying the defendant's motion to dismiss. See dkt. #40 at 2-8. The basic facts alleged are that KCP became aware of technology patented by AIS in Texas that could be used to clean dirty equipment at refineries and oil rigs. AIS granted KCP a license for a limited period to develop and sell that technology. KCP approached AIS to broker a partnership that would include Henkel US, which would have marketed the patented products under the Henkel brand. As part of the negotiations, Henkel U.S. executed a nondisclosure agreement that governed the way the parties would handle confidential information. KCP alleges that defendant Henkel Global induced Henklel U.S. to subvert the negotiations so that KCP's license from AIS would expire, and the defendant could come to terms directly with AIS and cut KCP out of the venture. KCP also alleges that the nondisclosure agreement was violated along the way.

         As part of its formal discovery, KCP served written requests on Henkel Global and served a subpoena on Henkel U.S. for a variety of documents and internal communications focusing on the scuttled negotiations and contemporaneous and later communications between those entities and AIS. Those requests included (1) Henkel internal communications discussing the three-way technology licensing deal that KCP sought to enter into with Henkel and AIS; (2) communications between Henkel Global and representatives of AIS; (3) contracts executed between Henkel U.S. or Henkel Global and AIS; (4) presentations to executives of Henkel Global about the KCP / AIS deal and any ensuing arrangement between Henkel and AIS; (5) meeting minutes concerning the KCP / AIS deal and Henkel's plans to enter relevant markets addressed by the AIS product; (6) business plans and project documents relating to the KCP deal and any separate deal with AIS; (7) communications between Henkel and Magnablend (a contemplated provider of product blending services under the three-way deal); and (8) meeting agendas, notes, and call logs evidencing any communications between Henkel and AIS.

         According to the plaintiff, Henkel responded with objections to the discovery requests, in which it (1) claimed in response to almost all of the requests that disclosure of the materials was restricted under European Union data privacy laws; (2) insisted that KCP execute a protective order containing certain “standard contractual clauses” that KCP viewed as overly restrictive; and (3) purported to reserve to Henkel Global the unilateral right to redact any information that it deemed appropriate from the documents before production. KCP objects to these demands. Another feature of Kenkel's proposed protective order to which KCP objects is a two-tiered “attorney eyes only” and “confidential” designation scheme. KCP contends that Henkel has not pointed to any information so extremely sensitive that it cannot be disclosed to the principal representatives of the parties to this lawsuit. Finally, Henkel has insisted on a provision requiring automatic filing of all “confidential” information under seal; KCP argues that the requirement is not warranted because Henkel has not advanced any basis in law or fact to justify a broad preemptive closure of the parties' filings.

         II.

         “‘The scope of discovery under the Federal Rules of Civil Procedure is traditionally quite broad.'” Loyd v. Saint Joseph Mercy Oakland, 766 F.3d 580, 593 (6th Cir. 2014) (quoting Lewis v. ACB Bus. Servs., Inc., 135 F.3d 389, 402 (6th Cir. 1998)). Under Rule 26, parties may obtain “discovery of any relevant, non-privileged information, ” In re Ohio Execution Protocol Litigation, 845 F.3d 231, 236 (6th Cir. 2016) (citing Fed.R.Civ.P. 26(b)(1)), that is “proportional to the needs of the case.” Fed.R.Civ.P. 26(b)(1). Courts may limit discovery requests for information that is outside the scope allowed by Rule 26, or is cumulative or easily obtained elsewhere. Fed.R.Civ.P. 26(b)(2)(C). In addition, “a district court may grant a protective order preventing the production of discovery to protect a party or entity from ‘annoyance, embarrassment, oppression, or undue burden or expense.'” In re Ohio Execution Protocol Litigation, 845 F.3d at 236 (quoting Fed.R.Civ.P. 26(c)(1)).

         “To sustain a protective order under Rule 26(c), the moving party must show ‘good cause' for protection from one (or more) harms identified in Rule 26(c)(1)(A) ‘with a particular and specific demonstration of fact, as distinguished from stereotyped and conclusory statements.'” Ibid. (quoting Serrano v. Cintas Corp., 699 F.3d 884, 901 (6th Cir. 2012)). Similarly, “[a] subpoena to a third party under Rule 45 is subject to the same discovery limitations as those set out in Rule 26.” State Farm Mut. Auto. Ins. Co. v. Warren Chiropractic & Rehab Clinic, P.C., 315 F.R.D. 220, 222 (E.D. Mich. 2016) (quotations omitted).

         Two of the plaintiff's objections to Henkel's protective order demands are easily resolved. A third requires a bit more discussion.

         A. Two-tiered Confidentiality Designation

         The Henkel entities propose to designate certain documents as “confidential, ” meaning that after production, the receiving party will limit its use to the present lawsuit and not disclose them to anyone for any other purpose; and “attorney eyes only, ” meaning that only counsel and experts can see the disclosed documents, but not the receiving attorney's client. KCP says that the later designation is too restrictive, but Henkel wants to embargo information that KCP's principals might use to compete with it. The nature of the claims in this case suggests that some information comprising “trade secrets” could be produced by the defendant at some point. Neither side has made any showing adequate for the Court to find that none of the information could be regarded as such, principally because the defendant has not yet produced anything in response to the plaintiff's discovery requests, and it has not identified with any specificity the extent or substance of any documents that it may produce. Nevertheless, “[t]he disclosure of confidential information on an ‘attorneys' eyes only' basis is a routine feature of civil litigation involving trade secrets.” Paycom Payroll, LLC v. Richison, 758 F.3d 1198, 1202-03 (10th Cir. 2014) (citing Fed.R.Civ.P. 26(c)(1)(G) (“The court may, for good cause, issue an order to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense, including . . . requiring that a trade secret or other confidential research, development, or commercial information not be revealed or be revealed only in a specified way.”); In re City of New York, 607 F.3d 923, 935 (2d Cir. 2010)).

         The plaintiff's principal objection to the two-tier designation scheme appears to be its concern that the defendant will abuse it. But “[t]he purpose of this form of limited disclosure is to prevent a party from viewing the sensitive information while nevertheless allowing the party's lawyers to litigate on the basis of that information, ” and the Court “may impose such a restriction [even] over the objection of a party.” Paycom, 758 F.3d at 1202-03 (citing Fed.R.Civ.P. 26(c)(1)). Moreover, KCP's concern may be addressed fully by an appropriate provision of the protective order allowing a party to challenge a designation ...


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