Life Spine, Inc. v. Aegis Spine, Inc.

LIFE SPINE, INC., Plaintiff, v. AEGIS SPINE, INC., Defendant.

No. 19 CV 7092

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

November 19, 2021

MEMORANDUM OPINION and ORDER

Young B. Kim Magistrate Judge

In this diversity suit, Plaintiff Life Spine, Inc. (“Life Spine”) alleges that Defendant Aegis Spine, Inc. (“Aegis”) stole confidential information and breached contractual obligations to develop and market a medical device that directly competes with one of Life Spine's products. The parties have once again reached an impasse over whether Aegis must produce documents held by its foreign parent company, L&K Biomed Co., Ltd. (“L&K”), despite the court's prior ruling on a similar issue. (R. 88.) This time, Life Spine seeks materials related to “follow-on” devices it alleges Aegis and L&K developed using Life Spine's technology. Before the court is Life Spine's motion to compel these materials. For the following reasons, the motion is granted in part and denied without prejudice in part:

Background

Life Spine is a medical device company that develops manufactures, and markets surgical products, including a spinal implant device that uses an expandable cage called “ProLift.” Aegis is a medical device company that markets and sells medical devices to treat spinal conditions. L&K is a South Korean company that manufactures and markets medical devices and is a direct competitor of Life Spine. L&K is also Aegis's foreign parent company, holding 74% of Aegis's stock. For several months in 2018, Aegis and Life Spine shared a distribution relationship in which Aegis sold the ProLift device. Life Spine alleges that Aegis worked with L&K to steal Life Spine's trade secret information regarding ProLift and to develop a competing expandable cage spinal implant device-the “AccelFix-XT”-in violation of Aegis's contractual obligations to Life Spine.

Life Spine brought this action against Aegis in October 2019, and the parties consented to this court's jurisdiction. See 28 U.S.C. § 636(c); (R. 1; R. 43). During the discovery that followed, the court found that Aegis and L&K share a sufficiently close relationship that Federal Rule of Civil Procedure 34(a)(1) requires Aegis to produce discoverable documents held by L&K. (R. 88 (“the May 7, 2020 order”).) Life Spine then sought a preliminary injunction against Aegis in August 2020. (R 114.) The court held a nine-day evidentiary hearing before granting Life Spine's motion in March 2021. (R. 212.)

Following entry of the preliminary injunction, the parties continued discovery in preparation for trial. In June 2021 Life Spine served discovery requests on Aegis seeking “materials related to expandable cages that bear marked similarities to AccelFix-XT: AccelFix XL, -XTP, and XTP5; AccelFix-XA and -XAI; AccelFix-XCI (also marketed as CastleLoc-XCI); and several iterations of AccelFix-XT itself, namely AccelFix-EXT, -CXT, and -XT-N15” (collectively “the follow-on devices”).

(R. 295, Pl.'s Br. at 3; see also R. 293-2, Pl.'s Br. Ex. 2 (Life Spine's Fourth Requests for Production of Documents); R. 293-3 Pl.'s Br. Ex. 3 (Life Spine's Second Set of Interrogatories).) Aegis has produced the documents in its possession relating to XL and XTP, ^[1] and has further offered to produce the XL and XTP devices for Life Spine's inspection. (See R. 308, Def.'s Resp. at 3, 9.) Life Spine argues, however, that Aegis must produce not only documents in its immediate possession, but also responsive materials held by L&K, including design history files for the follow-on devices. Life Spine seeks an order compelling Aegis to produce such materials.

Analysis

In asking the court to issue an order compelling Aegis to produce materials relating to the follow-on devices held by L&K, Life Spine contends that the court's May 7, 2020 order-or at least the same underlying reasoning-requires Aegis to produce L&K documents. (See R. 295, Pl.'s Br. at 5-10.) Life Spine also argues that information relating to the follow-on devices is relevant to its trade secrets, contract, common law, and declaratory judgment claims. (See Id. at 10-14.) Aegis objects on relevance and proportionality grounds and asserts that it should not be required to produce L&K documents. (See R 308, Def.'s Resp. at 10-15). The court first considers whether Aegis must produce documents held by L&K as a general matter, under the law of the case doctrine or otherwise. The court then examines Aegis's relevance and proportionality objections to the production of documents concerning the follow-on devices.

A. Obligation to Produce

The court reaffirms that Aegis and L&K have a sufficiently close relationship to require Aegis to produce responsive L&K documents under Rule 34. As the court explained in its May 7, 2020 order, (see R. 88 at 3-4), Federal Rule of Civil Procedure 34(a)(1) requires a party responding to discovery requests to produce documents and information that is within its “possession, custody, or control.” A party does not need to have physical possession of documents to control them within the meaning of Rule 34. “[R]ather, the test is whether the party has a legal right to obtain them.” Meridian Labs., Inc. v. OncoGenerix USA, Inc., 333 F.R.D. 131, 135 (N.D. Ill. 2019) (internal quotation marks and citations omitted). The question of control is often fact-specific and requires a close look at the underlying circumstances. See 8B Wright & Miller, Fed. Prac. & Proc. Civ. § 2210 (3d ed.). The party seeking the production of documents carries the burden of showing that the opposing party controls those documents. Meridian Labs., 333 F.R.D. at 135.

In the context of a parent-subsidiary relationship, courts decide whether a subsidiary has “control” over documents in the hands of the parent by examining the closeness of the entities' relationship. Stella v. LVMH Perfumes & Cosmetics USA, Inc., No. 07 CV 6509, 2009 WL 780890, at *2 (N.D. Ill. March 23, 2009). If the requisite closeness exists, the court can order a domestic corporation to produce documents in the possession of its foreign parent even though the parent is not subject to the personal jurisdiction of the court. Flavel v. Svedala Indus., Inc., No. 92 CV 1095, 1993 WL 580831, at *4 (E.D. Wis. Dec. 13, 1993). A number of factors inform the closeness determination, including:

(1) commonality of ownership; (2) exchange or intermingling of directors, officers, or employees of the two corporations; (3) the exchange of documents in the ordinary course of business; (4) the non-party's connection to the transaction at issue; (5) any benefit or involvement by the non-party corporation in the litigation; (6) the corporate party's marketing and/or servicing of the non-party company's products; and (7) the financial relationship between the companies.

Meridian Labs., 333 F.R.D. at 135-36; see also In re Subpoena to Huawei Techs. Co., Ltd., 720 F.Supp.2d 969, 977 (N.D. Ill. 2010). None of these factors alone serves as an exclusive test, but the court considers them together to determine the closeness of the relationship and to help ensure that a subsidiary does not hide responsive documents with an overseas parent company. Flavel, 1993 WL 580831, at *4.

Applying this legal framework, the court held in its May 7, 2020 order that Life Spine had “met its burden of showing that [Aegis's] relationship with L&K is sufficiently close to give it the ability to obtain responsive information currently in L&K's possession.” (R. 88 at 9.) In reaching this conclusion, the court found that the exchange of documents in the ordinary course of business, commonality of ownership, L&K's connection to the transactions at issue, and evidence of Aegis and L&K's “shared business purpose in bringing AccelFix to market” all weighed in favor of a finding of closeness. (Id. at 6-8.) The court further found that the movement of executives between companies, despite the lack of any “current comingling in corporate management, ” provided evidence of closeness, and that the “benefit from litigation” and “financial relationship” factors had neutral weight. (Id. at 7.)

In responding to the present motion, Aegis has failed to provide any compelling reason why the court should revisit the May 7, 2020 order. Under the law of the case doctrine, a “ruling made in an earlier phase of a litigation controls the later phases unless a good reason is shown to depart from it.” Marquez v. Weinstein, Pinson & Riley, P.S., No. 14 CV 739, 2019 WL 1787547, at *3 (N.D. Ill. April 24, 2019) (quoting Tice v. Am. Airlines, Inc., 373 F.3d 851, 853 (7th Cir. 2004)). The doctrine provides “a presumption against revisiting previously decided issues, ” SFG, Inc. v. Musk, No. 19 CV 2198, 2021 WL 972887, at *1 (N.D. Ill. Feb. 10, 2021), unless “a compelling reason, such as a change in, or clarification of, law . . . makes clear that the earlier ruling was erroneous, ” United States v. Harris, 531 F.3d 507, 513 (7th Cir. 2008). Here, Aegis merely reiterates its objection that “given Life Spine's strategic choice not to add L&K as a party, it is not proper to seek party-style discovery from L&K.” (R. 308, Def.'s Resp. at 14.) But the court already considered this objection in its May 7, 2020 order. (See R. 88 at 3.) As such, it is neither a new argument nor a compelling reason showing clear error in the prior decision. See Quinn v. Specialized Loan Serv'g, LLC., 414 F.Supp.3d 1122, 1126 (N.D. Ill. 2019). Absent such a showing, the court declines to revisit its prior ruling.

Aegis also tries to remove the present motion from the scope of the May 7, 2020 order, arguing that two major differences prevent the court from reaching an analogous outcome here: (1) L&K has terminated a previous technology transfer agreement it had with Aegis, (s...