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March 24, 2009


Corruption is human nature, but that doesn't shoo the stink from especial weasels. Herein, another tale of litigant misconduct, omitting crucial discovery material that would have gone a long way in proving noninfringement. And, in an ongoing chronicle of feeble-mindedness at the CAFC, Judge Newman, by far the sharpest tack in the box, points out the fly in the ointment of the majority.

ClearValue, Richard Alan Haase, and Gordon Waggett v. Pearl River Polymers, Polychemie, SNF, and Polydyne (CAFC 2007-1487, 2008-1176) precedential

Penned by Judge Schall.

Richard Haase is CEO of ClearValue, and sole inventor of 6,120,690, claiming wastewater treatment.

From 1995 until 2002, Pearl River and ClearValue had a business relationship in which ClearValue purchased Pearl River's DADMACs for use in its wastewater facilities. In late 2002, relations broke down when Pearl River stopped supplying ClearValue and sued for non-payment of its account. Haase hired Waggett to represent ClearValue in that suit.

DADMAC is di-allyl di-methyl ammonium chloride, a chemical compound used in water purification.

In January 2005, ClearValue and Haase sued "for both direct and indirect patent infringement, misappropriation of trade secrets, breach of confidentiality, and unfair competition. Waggett helped Haase assemble a litigation team for the suit, and also participated as a member of that team." 

ClearValue and Haase alleged that Pearl River's 4820 DADMAC product was a high molecular weight polymer, which infringed the '690 patent when used by treatment facilities in the clarification process.

The critical issue was whether Pearl River's products (including its later-accused 4620 DADMAC) "had molecular weights over one million and thus fell within the scope of the claims of the '690 patent. The focus on "molecular weight" began at the claim construction stage of the litigation."

ClearValue wanted a narrow definition, to avoid prior art.

ClearValue and Haase asked Jim Stoll ("Stoll"), a retired employee of Callaway Chemicals, to give opinions on claim construction.

Stoll became ClearValue's trial testimony expert.

ClearValue objected to a typical discovery request.

For their part, in interrogatories and document production requests, Appellees requested that ClearValue and Haase provide the results of any molecular weight testing, which they had conducted on Pearl River's 4620 and 4820 DADMAC products. In the alternative, Appellees asked that ClearValue and Haase specify the Bates number5 for any relevant testing in the event they already had produced testing results. ClearValue and Haase responded that the request was "overly burdensome, repetitive and cumulative . . . and impos[ed] obligations not required by the Federal Rules of Procedure." Further, ClearValue and Haase indicated that "[t]o the extent that request seeks information made in anticipation of or preparation for trial, Plaintiffs object to the request as seeking work product or trial preparation materials that are not discoverable under the Federal Rules of Procedure." ClearValue and Haase did not list any test results on a privilege log, however.

In cross-examination, Stoll revealed two undisclosed tests, "Lark" and "Texas Oil", that showed noninfringement.

Stoll testified that the test results proved the samples had a molecular weight and viscosity that was too low to be one of the accused products. Therefore, Stoll stated, the litigation team ignored the test results, believing them "irrelevant."

Haase then took the stand and gave testimony similar to Stoll's. Haase testified that he only shared the test results with Stoll; he said he did not share them with his litigation team because the results were irrelevant to the case.

That provoked an immediate "all-day sanctions hearing on March 29, 2007." Stoll testified that he, Haase, and Waggett had a genuine cluster-fuck going on.

Stoll testified again, saying he honestly believed the test results were "irrelevant," and that he did not even think about how the results could impact Appellees' defense. Appellees also had Stoll explain a series of emails between Haase, Stoll, and Waggett about the test results....

Waggett then took the stand, testifying that he had "a total disconnect" with respect to the testing and that he "was sorry" for not producing the test results in discovery because he now appreciated he was "obviously wrong" and that the results were "not work product." Waggett said he was "rusty" and had "been out of the litigation loop" for almost nine years. Waggett also testified to Haase's extensive involvement in the trial.

East Texas Judge Davis was rightfully fumed.

At the end of the day, the district court stated that it was confronted with "an extremely troubling matter," as the test results were withheld for over a year and a half. The court further stated that only the "ultimate sanction" was appropriate, and that therefore it was striking ClearValue and Haase's pleadings and entering judgment for Appellees.

Judge Davis slapped sanctions on ClearValue, Haase, and Waggett.

[T]he district court concluded that the failure to produce the Lark and Texas Oil test results was "an ongoing act of willful concealment," sanctionable under Fed. R. Civ. P. 26 and 37 and the court's inherent powers. Sanctions Decision, 242 F.R.D. at 379. The court noted that the failure to produce the test results was "not a one-time mistake or oversight," but rather an ongoing violation, which continued for more than eighteen months. Id.

On November 29, 2007, the court entered final judgment awarding Appellees recovery of attorney's fees, costs, and expenses incurred between November 29, 2005, and June 28, 2007,7 apportioned as follows:

1. $121,107.38 in attorney's fees under Fed. R. Civ. P. 26 and 37, against Appellants jointly and severally.

2. $306,863.87 in attorney's fees and $613,410.74 in costs and expenses, under the court's inherent powers, against Appellants jointly and severally.

3. $1,628,039.05 in attorney's fees under 35 U.S.C. § 285, against Appellants jointly and severally.

4. $47,677.30 as costs under 28 U.S.C. § 1920, against Appellants jointly and severally.

This resulted in monetary sanctions against Appellants in the amount of $2,717,098.34.


Rule 26 governs patent litigation as an open-faced exercise.

Among other things, Rule 26 imposes on parties an affirmative obligation to disclose in discovery information "considered by testifying experts." In relevant part, the rule governs the disclosure of expert testimony and provides as follows:

(B) Written Report. Unless otherwise stipulated or ordered by the court, this disclosure must be accompanied by a written report--prepared and signed by the witness--if the witness is one retained or specially employed to provide expert testimony in the case or one whose duties as the party's employee regularly involve giving expert testimony.

The report must contain:
(i) a complete statement of all opinions the witness will express and the basis and reasons for them;
(ii) the data or other information considered by the witness in forming them . . . .

Fed. R. Civ. P. 26(a)(2)(B). Additionally, Rule 26 provides for broad pre-discovery disclosure of all "documents, electronically stored information, and tangible things that the disclosing party has in its possession, custody, or control and may use to support its claims or defenses, unless the use would be solely for impeachment." Id. 26(a)(1)(A)(ii).

Rule 26 specifically exempts privileged information and work product from disclosure. Fed. R. Civ. P. 26(b)(1), (3), (4). However, a party must:

(i) expressly make the claim [of privilege or work product]; and
(ii) describe the nature of the documents, communications, or tangible things not produced or disclosed--and do so in a manner that, without revealing information itself privileged or protected, will enable other parties to assess the claim.

Id. 26(b)(5)(A).

Failing Rule 26 results in applying Rule 37.

Rule 37 provides authority for a court to impose sanctions "if a party fails to make a disclosure required by Rule 26(a)." Fed. R. Civ. P. 37(a)(3)(A).

"A decision to sanction a litigant pursuant to Fed. R. Civ. P. 37 is one that is not unique to patent law . . . and we therefore apply regional circuit law to that issue . . . ." Transclean Corp. v. Bridgewater Servs., Inc., 290 F.3d 1364, 1370 (Fed. Cir. 2002) (internal citations omitted). The Fifth Circuit reviews an imposition of sanctions for an abuse of discretion. Lamar Fin. Corp. v. Adams, 918 F.2d 564, 567 (5th Cir. 1990); Bonaventure v. Butler, 593 F.2d 625, 626 (5th Cir. 1979). A district court abuses its discretion when the "ruling is based on an erroneous view of the law or on a clearly erroneous assessment of the evidence." Mercury Air Group, Inc. v. Mansour, 237 F.3d 542, 548 (5th Cir. 2001) (internal quotation marks omitted). In this case, we see no error in the district court's finding of sanctionable conduct.

The district court did not err in finding that ClearValue, Haase, and Waggett failed to make a disclosure required by Rule 26(a); they withheld test results reviewed by a testifying expert. See In re Pioneer Hi-Bred, 238 F.3d at 1370 ("Litigants should no longer be able to argue that materials furnished to their experts to be used in forming their opinions--whether or not ultimately relied upon by the expert--are privileged or otherwise protected from disclosure when such persons are testifying or being deposed.") (internal quotation marks omitted).

Thus, we affirm the district court's finding of sanctionable conduct.

The CAFC reversed the district court on throwing out the baby with the bath water.

ClearValue, Haase, and Waggett's discovery misconduct, while sanctionable, was certainly less egregious than the discovery violations in Gonzalez and Pressey, which the Fifth Circuit concluded did not warrant the sanction of dismissal. We therefore reverse the district court's order striking ClearValue and Haase's pleadings, as well as the entry of judgment in favor of Appellees on ClearValue's and Haase's affirmative claims and Appellees' counterclaims of patent invalidity.

Discovery violations are appropriately addressed through the application of Rule 37. As articulated in Chambers, "when there is bad-faith conduct in the course of litigation that could be adequately sanctioned under the Rules, the court ordinarily should rely on the Rules rather than the inherent power." 501 U.S. at 50. A district court should only use its inherent powers when "neither the statute nor the Rules are up to the task." Id. In this case, the court did not indicate it was sanctioning broad litigation conduct of the parties. Rather, it specified it was sanctioning a discovery violation, properly addressed under Rule 37. We thus hold that the district court abused its discretion by using its inherent powers to impose sanctions against Appellants. We therefore reverse this additional imposition of sanctions.

In sum, for the reasons set forth above we

1. Affirm the district court's finding of sanctionable conduct;

2. Affirm the award of $121,107.38 in attorney's fees under Fed. R. Civ. P. 26 and 37 as to ClearValue and Haase, but reverse as to Waggett;

3. Reverse (1) the court's order striking ClearValue and Haase's pleadings under Rule 37 and the court's inherent powers, and (2) the resulting entries of judgment in favor of Appellees on ClearValue and Haase's claims and Appellees' counterclaims;

4. Reverse the award of attorney's fees and costs under the court's inherent powers;

5. Reverse the award of attorney's fees under 35 U.S.C. § 285; and

6. Reverse the award of costs under 28 U.S.C. § 1920.

The only disagreement in the panel was over Waggett's tab. Waggett pled poverty.

As to the court's imposition of joint and several liability on Waggett for the $121,207.38 under Rule 37(c)(1)(A), we agree with Waggett that the court abused its discretion by failing to consider that Waggett does not have the ability to pay when fashioning the sanction against him. Thus, we reverse the imposition of liability as to him personally.

Whereupon Judge Schall brought out the sympathetic violins of case law, playing "mercy on those facing penury." He did this knowing Judge Newman was going to flail him. And so she did, with unassailable aplomb.

My colleagues do not attribute their exoneration of Mr. Waggett to a benevolent toleration of human error; they attribute it to his inability to pay. Although ability to pay is a factor that a court can consider, we have been presented with no argument that Waggett cannot pay any share of the greatly reduced award on this appeal. The plea of hardship was raised in the context of the district court's award of $2,717,098. We have reduced the total award to $121,107, which is less than one twentieth of the amount on which this appeal was taken.

We have been shown no abuse of the district court's discretion in the imposition of joint and several liability. Thus I must, respectfully, dissent from the panel's exoneration of the attorney from the monetary consequences of his admittedly improper actions. At least, the matter should be remanded to the district court to consider Mr. Waggett's asserted inability to pay.

Posted by Patent Hawk at March 24, 2009 3:39 PM | Case Law


Mr. Odom:

It did not take too much effort to ascertain that the above is your work.

The above comments by you are inacurate, disparaging and slanderous. Further, you have no idea what you are writing about.

If you wish to know what realy happened, you can view both the ClearValue, Inc. Position and the resulting litigation by me in response to the less than honest patent infringment defense which went on in Tyler. Specifically, you can go to:


Both the ClearValue, Inc. Position and my petition are at the bottom of the page.

I suggest that you clean up yoru website.

I left a phone message in your office, just now.

Please call, Mr. Odom; and, please clean up your website Mr. Odom.

If not, I assure you that we will get to discuss in Fort Bend County, Texas.


Posted by: Richard Haase at September 25, 2009 2:31 AM