US District Court New York Order 12/5/00 (DVD, DECCS)

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

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00 Civ. 277 (LAK)

UNIVERSAL CITY STUDIOS, INC., et al.,

Plaintiffs,

-against-

ERIC CORLEY a/k/a “EMMANUEL

GOLDSTEIN”, et ano.,

Defendants.

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ORDER

LEWIS A. KAPLAN, District Judge.

Plaintiff motion picture studios brought this action to enjoin defendants from providing a computer program on their Internet web sites that allegedly permits users to decrypt and copy plaintiffs’ copyrighted motion pictures from digital versatile disks (“DVDs”) on the ground that defendants’ actions violated the Digital Millennium Copyright Act. On January 20, 2000, the Court granted plaintiffs’ motion for a preliminary injunction and issued an opinion with which this order assumes familiarity. Universal City Studios, Inc. v. Reimerdes, 82 F. Supp.2d 211 (S.D.N.Y. 2000).

Subsequently, two of the three original defendants settled with plaintiffs and another defendant was added. Trial was set for December 5, 2000. Recently, plaintiffs moved to expand the preliminary injunction and to disqualify defendants’ present counsel, and defendants moved to vacate the preliminary injunction. Those motions, however, have not yet been fully briefed. The matter instead now is before the Court on defendants’ motion, brought on by order to show cause, for an order dismissing the complaint, vacating the preliminary injunction, compelling discovery, and imposing sanctions pursuant to Fed. R. Civ. P. 37 for alleged discovery abuse by plaintiffs and, pursuant to Fed. R. Civ. P. 65(c), increasing the amount of the preliminary injunction bond.

Prior Proceedings

The course of this litigation, an understanding of which is essential to appreciating the context of the present dispute, has not been smooth.

This action was commenced on January 14, 2000. On January 18, the Court signed an order to show cause bringing on plaintiffs’ motion for a preliminary injunction on January 20, 2000. Defendants submitted a memorandum in opposition to the motion, but no affidavits or other evidentiary material. The Court granted the motion from the bench. Mindful of the First Amendment implications of the order, however, the Court noted defendants’ interest in minimizing the duration of the preliminary injunction and offered a substantially immediate trial. (Tr., Jan. 20, 2000, at 79-80)

Defendants, however, declined. Indeed, the case was virtually inactive for the ensuing two months.

On March 20, 2000, the Court held a routine scheduling conference at which defendants’ present counsel appeared before it for the first time. Plaintiffs indicated their willingness to go to trial immediately. Defendants, however, indicated a desire to conduct extensive discovery to develop a full factual record. In consequence, the Court, without objection, entered a scheduling order calling for the completion of discovery by October 20, 2000 and a trial starting on December 5, 2000.

On April 5, 2000, plaintiffs moved to modify the preliminary injunction to restrain defendants not only from making the offending computer program available on their web sites, but from linking to other web sites on which the program remains available. Three weeks later, plaintiff Time Warner moved to disqualify defendants’ new counsel on the ground that he simultaneously is representing it in another action. And on May 2, 2000, defendants cross-moved to vacate the preliminary injunction.

As noted above, none of the motions described in the preceding paragraph is yet fully submitted or ripe for decision. But their filing appears to have prejudiced seriously the prospects of any cooperation among counsel with respect to discovery in this action. And whatever the reason, extensive discovery disputes have given rise to the present motion.

The Discovery Disputes

Depositions

The saga that has brought us to this point began on April 3, 2000 when defendants served Rule 30(b)(6) notices calling for the depositions of each of the eight defendants, the Motion Picture Association of America (“MPAA”), and the DVD Copy Control Association (“CCA”) as well as a notice to depose Jack Valenti, the MPAA’s president, on May 5, 8-9, 15-19, and 22-24. (Garbus Decl., May 3, 2000, Ex. J, at 2; Miller Decl., Ex. D) The parties began discussions concerning the schedule, to which plaintiffs objected. (Miller Decl. ¶ 7) Those discussions quickly broke down with the sort of squabbling that too frequently infects the discovery process. (Id. ¶ 7 & Ex. F) Indeed, on April 28, plaintiffs asked to stay all discovery in the action pending resolution of their motion to disqualify defendants’ counsel or, alternatively, to adjust the deposition schedule.

After receiving a response from defendants, the Court heard counsel via conference call on May 2. It then declined to stay discovery generally, stayed discovery against Time Warner pending resolution of the disqualification motion, and advised the parties to proceed with discovery.

On Friday, May 5, 2000, the MPAA agreed to produce Robert Schumann, who had submitted an affidavit in support of the preliminary injunction motion, and Ken Jacobsen, on May 16 and 18, respectively[1]. (Miller Decl. ¶ 8) Plaintiffs, for their part, agreed on May 5 also to designate 30(b)(6) witnesses and expressed the hope of doing so by Monday, May 8. (Id. ¶ 9 & Ex. A) On the evening of May 5, however, defendants’ counsel complained by e-mail to plaintiffs’ counsel that he had not been given any dates for any depositions and postured that he was available to begin depositions over the weekend. (Id. Ex. G) And on Monday, May 8, apparently without waiting to see whether the plaintiffs’ 30(b)(6) witnesses would be designated that day as had been indicated on Friday, defendants’ counsel obtained the order to show cause from this Court, in part on the representation that plaintiffs had “thus far refused . . . to schedule one party deposition . . . .” (Garbus Aff.[2], May 8, 2000, ¶ 11) He characterized plaintiffs’ actions as “evasion of this Court’s 3 May 2, 2000 ruling.” (Id. ¶ 12)

On May 10, plaintiffs (other than Time Warner) designated Messrs. Schumann and Jacobsen, as well as a third individual, as their Rule 30(b)(6) witnesses. (Miller Decl. ¶ 11) The MPAA has agreed also to produce Mr. Valenti on June 6 and another officer upon his return from climbing Mount Everest.

As nearly as the Court understands defendants’ complaints regarding depositions, they are that (1) the MPAA did not produce witnesses on May 8 or 9, the dates initially selected by the defendants (see Garbus Aff., May 8, 2000, ¶ 14), (2) the persons whom the MPAA has designated, Messrs. Schumann and Jacobsen, are not officers, directors or managing agents of the MPAA (id. ¶ 15), (3) the MPAA has not volunteered to produce Michael Eisner, one of its directors and the chief executive officer of plaintiff Disney Enterprises, Inc. (id. ¶¶ 15-16), (4) plaintiffs have taken the position that they will produce their witnesses for deposition only once and that defendants will be unable to reopen depositions following the production of documents, which has not yet occurred (id ¶ 18); (5) the MPAA has insisted on producing its witnesses in the cities in which they are located rather than in New York (id. ¶ 14), and (6) the plaintiffs have not scheduled even “one party deposition” (id. ¶ 11). More broadly, defendants accuse plaintiffs of attempting to thwart discovery at every step. These assertions for the most part are completely lacking in merit.

1. As a general matter, parties are obliged to appear for depositions on the dates for which they are noticed and non-parties on the dates for which they are subpoenaed. But defendants do not claim that the MPAA, which is not a party to this action, was subpoenaed to produce witnesses on May 8 or 9. Even if it had been served with subpoenas for those dates, there would be no basis on this record for sanctioning the plaintiffs for the MPAA’s failure to comply with such subpoenas. And even if the MPAA were a party, the fact is that it designated witnesses to testify in the very next week—there would be no basis for sanctioning it absent extraordinary circumstances.

Disagreements about dates of depositions involving time differences of a week or ten days should not result in sanctions absent defiance of a court order or non-compliance with a subpoena.

2. The complaint that the MPAA acted improperly in designating Messrs. Schumann and Jacobsen to testify on its behalf because neither is an officer, director or managing agent is baseless. Defendants had the option under Fed. R. Civ. P. 30(b)(1) to notice the deposition of the MPAA by one or more named individuals. Save for Mr. Valenti, they did not do so. Rather, they served a notice to depose the MPAA pursuant to Rule 30(b)(6), thus giving the MPAA the right to comply with the notice by designating “one or more officers, directors, or managing agents, or other persons who consent to testify on its behalf . . . .” (emphasis added). Thus, the MPAA acted well within its rights by designating Messrs. Schumann et al. to testify on its behalf even if they are not officers, directors or managing agents of the MPAA. To be sure, neither the MPAA nor any other corporation may evade discovery by designating persons who are not knowledgeable to testify on its behalf. But there is no basis for believing that it has done so, at least at this point.

3. In view of what has been said already, defendants’ complaint concerning the MPAA’s failure to designate Mr. Eisner is entirely frivolous. Indeed, defendants concede that they “have not yet formally notice[d]” Mr. Eisner’s deposition. (Garbus Reply Aff[3]. ¶ 9 n.1) If defendants wish to take Mr. Eisner’s deposition, the means of doing so are well known to them.

4. The dispute over document production and its relationship to the timing of depositions is largely premature. Defendants served plaintiffs with a Rule 34 document request on April 20, 2000. The response to that request is not due until May 20. If defendants choose to conduct depositions before they have the documents and then later seek to redepose witnesses whose testimony was taken before they received documents, plaintiffs will be free to oppose such redepositions on the ground that defendants made their own bed and should be forced to lie in it.

Defendants will be equally free to argue that the circumstances of this case warrant reopening the depositions. Plaintiffs have no right to condition the production of witnesses now on defendants’ agreement not to seek testimony later.

5. The Court resolved the issue of the location of the MPAA depositions in open court on May 11. In general, depositions of employees of defendants and non-parties must be taken in the districts in which they reside while depositions of employees of plaintiffs are taken in the districts in which the plaintiffs choose to sue. Here, however, the MPAA is closely identified with the plaintiffs and would not be burdened unduly by producing witnesses in New York. In consequence, the MPAA will produce its witnesses, other than those who reside in and around 5 Washington, D.C., in New York. Those who reside in and around Washington, D.C. will be produced there in view of the convenience with which defendants’ counsel may travel there.

6. By designating Messrs. Schumann and Jacobsen as their Rule 30(b)(6) witnesses, the plaintiffs have complied with their obligations under the outstanding notices of deposition. Defendants of course are free to seek additional testimony from plaintiffs if those witnesses prove insufficient. They are free also to seek depositions of the plaintiffs by named representatives pursuant to Rule 30(b)(1).

In sum, there has been no failure by plaintiffs or, for that matter, the MPAA to comply with their obligations in respect of depositions[4]. The fact that defendants, after taking no discovery from December until April, suddenly are impatient or that the case involves important issues, which all concede, does not alter that fact.

Document Discovery

Plaintiffs’ grievances with respect to document production are twofold: plaintiffs have not yet produced any documents and have insisted that the parties agree to a confidentiality order before doing so. These matters are quickly disposed of.

First, the time within which plaintiffs are obliged to respond to the defendants’ document request does not expire until May 20, 2000. Hence, there is no basis for imposing sanctions for their failure to do so up to now.

Second, some form of confidentiality order may well be appropriate in this case. As indicated in open court, the parties are urged to work out a mutually acceptable order failing which the Court will resolve the matter.

Conclusion as to Discovery Disputes

Sanctions pursuant to Rule 37 are serious business. While it is reasonably plain that the lawyers in this case are neither getting along nor reasonably accommodating each other’s wishes, defendants have failed to demonstrate that plaintiffs (or, for that matter, the MPAA) has failed to comply with any discovery request in a manner warranting the imposition of sanctions.

The Injunction Bond

The Court conditioned the preliminary injunction on plaintiffs’ posting a bond in the amount of $10,000, which they did. Defendants now seek a substantial but unspecified increase in the amount of the bond, essentially on the ground that there are important interests at stake in this case, that the injunction has a chilling effect on academic research, and that defendants may incur substantial attorneys’ fees in this case. (Garbus Aff., May 8, 2000, ¶¶ 5-9; Garbus Reply Aff. ¶¶ 13- 14)

There is no denying the possible significance of the case. Defendants, however, misconceive the purpose of injunction bonds and the basis upon which they are issued.

Rule 65(c) provides in relevant part that:

“No . . . preliminary injunction shall issue except upon the giving of secuity by the applicant, in such sum as the court deems proper, for the payment of such costs and damages as may be incurred by any party who is found to have been wrongfully enjoined or restrained.” (Emphasis added)

The fact that this is an important case does not make a bond, much less a substantial bond, appropriate. Nor does any chilling effect on academic research. The purpose of the bond, as Rule 65(c) makes clear, is to protect these defendants against costs and damages they may sustain if the preliminary injunction provides to have been issued wrongfully. There has been absolutely no showing of any such likely costs or damages. In consequence, there is no reason to increase the amount of the bond on that account. See, e.g., International Controls Corp. v. Vesco, 490 F.2d 1334, 1356 (2d Cir.) (court may dispense with bond where no proof of likely harm to party enjoined), cert. denied, 417 U.S. 932 (1974); 11A Wright, Miller & Kane, Federal Practice and Procedure Civil 2d § 2954, at 292-93 (1995). Moreover, it is well established that attorneys’ fees are not recoverable as damages in an action on an injunction bond. E.g., Matek v. Murat, 862 F.2d 720, 734 (9th Cir. 1988); Fireman’s Fund Insurance Co. v. S.E.K. Construction Co., 436 F.2d 1345, 1351-52 (10th Cir. 1971); 11A Wright, Miller & Kane, supra, at 287 & n.1[5]. Accordingly, there is no reason why the enjoined party requires, or should receive, security for the payment of attorneys’ fees.

Further Proceedings

During the course of the argument of defendants’ motion for sanctions, plaintiffs raised the possibility of advancing the trial and consolidating it pursuant to Rule 65(a)(2) with any evidentiary hearing that may be required on defendants’ motion to vacate the preliminary injunction.

In the course of that discussion, the defendants indicated that they wished to keep the December 2000 trial date or, at most, advance the trial to October 2000. They indicated also that they want a prompt decision on the motion to vacate and, if unsuccessful on that motion on a limited record, they will continue to make motions to vacate on the developing record throughout the litigation[6]. (Tr., May 7 11, 2000, at 14-16, 39) This discussion, moreover, came on the heels of defendants’ insistence on May 2, 2000 that they need the outstanding discovery for purposes of the pending motion to vacate (Tr., May 2, 2000, at 8-9), a proposition that can be squared with their desire for a prompt ruling on the motion only if they contemplate a repeated application if the first is unsuccessful. Thus, the plaintiffs and the Court are faced with a real risk of repeated applications to vacate the preliminary injunction between now and an October or December 2000 trial. Moreover, although given ample opportunity to explain why defendants—who after all took no appeal from the preliminary injunction and did not even begin discovery until months after this action was filed—require so many months for discovery, defendants have not done so. While this case raises significant issues, the factual issues appear to be relatively few. There simply is no reason why the case cannot be prepared for a plenary trial in a much shorter span of time, especially given the abilities of the attorneys now involved in the

case. Indeed, defendants’ counsel yesterday told the Court that he probably needed only five depositions to be ready for trial, although he quickly abandoned that position when the subject changed to the possibility of an early trial date. (Tr., May 11, 2000, at 11-12, 22-24) Advancement of the trial would permit a final decision on a full record rather than an interlocutory ruling or rulings on one or, worse yet, a series of motions to vacate the preliminary injunction, each on a somewhat more expanded record than the one that preceded it. Moreover, the prospect of a prompt trial ought to give both sides an added incentive to stop needless bickering and posturing and get on with the business at hand.

Accordingly, the trial of this action will commence on July 17, 2000. In the event the pending motions to vacate and expand the preliminary injunction require the taking of evidence, they will be consolidated with the trial on the merits under Rule 65(a)(2). Plaintiffs’ papers in opposition to the motion to vacate the preliminary injunction shall be served and filed no later than June 2, 2000.

Both sides are permitted to engage in expedited discovery. Responses to Rule 33, Rule 34 and Rule 36 discovery requests served after the date of this order shall be furnished no later than seven business days after they are received unless otherwise agreed. In an effort to simplify the preparation of the case for trial, the Court will not require submission of the direct testimony of witnesses in writing in advance of the trial as it frequently does in non-jury cases. The joint pretrial order shall be filed on or before July 10, 2000. All discovery shall be concluded on or before July 5, 2000. The Court expects complete cooperation between the parties in conducting discovery. Discovery disputes are to be addressed immediately by counsel in good faith efforts to resolve them amicably and, if not so resolved, to be raised promptly with the Court, which will resolve them in an expedited fashion.

Conclusion

For the foregoing reasons, defendants’ motion for sanctions and other relief is denied in all respects save those that address the location of depositions of MPAA personnel and the propriety of plaintiffs’ insistence on defendants’ foreswearing of reopening depositions following document production, which are resolved as indicated above.

SO ORDERED.

Dated: May 12, 2000

_______________________________________

Lewis A. Kaplan

United States District Judge