Opinion
NO. 02-CV-8168
January 17, 2003
MEMORANDUM
As the parties prepare for a hearing on the Motion of Plaintiff AceCad Software Ltd. ("AceCad Ltd.") for a Preliminary Injunction, a discovery dispute has arisen. The Court granted Plaintiff's Motion for Expedited Discovery, and counsel are commended for cooperating in the discovery process, in advance of the hearing date of February 3, 2003.
The principal dispute concerns whether Defendants are entitled to discovery as to the ownership of the various Plaintiffs.
As is clear from the caption, there are five separate Plaintiffs. Plaintiffs' counsel often refers to Plaintiff in the singular, without specifying to which Plaintiff the reference is made. Defense counsel have often used the term "company" without specifying which company.
The nature of this case as described by Plaintiffs in the first paragraph of their First Amended and Supplemental Complaint is as follows:
1. Plaintiffs bring this action to redress Defendants' infringement of its trademarks and copyrights, as well as attempts to extort money from Plaintiffs, to misappropriate Plaintiffs' business, and to destroy the business of AceCad Software, Inc. through an abuse of Defendants' relationships with Plaintiffs as members of Plaintiffs' board of directors, Plaintiffs' employees, Plaintiffs' trustees, and family members of Plaintiffs' Chairman.
Plaintiff RDS Group Ltd. ("RDS") is described as a Bermudan company founded by Mr. Barry Thompson. Plaintiff AceCad Ltd. is described as an English company which is a wholly owned direct subsidiary of RDS Software Group Ltd., which in turn is owned by RDS. However, ownership of the other Plaintiffs is alleged "upon information and belief." Plaintiff AceCad Software, Inc. ("AceCad, Inc.") is alleged to be a Pennsylvania corporation and Plaintiff RDS brings this derivative action on behalf of AceCad, Inc.
Similarly, Plaintiff Steel Solutions, Inc. ("Steel Solutions") is described as a Delaware corporation, Plaintiff Primary Holding Co. Ltd. ("Primary Holding Co.") is described as a British Virgin Islands corporation, and Plaintiff RDS brings this action derivatively on behalf of Steel Solutions and Primary Holding Co.
Barry Thompson, alleged to be the Chairman of the RDS subsidiaries (an undefined term), is the father of Defendant Kathryn Davison ("Defendant").
Another Defendant, Edwin Davison, is alleged to be the husband of Kathryn Davison, but no relief is sought as to him in the Motion for Preliminary Injunction.
Thus, from the Plaintiffs' allegations themselves, the ownership of three of the Plaintiffs (Steel Solutions, Primary Holding Co. and AceCad, Inc.) is alleged only "upon information and belief' and this action is brought derivatively on their behalf by Plaintiff RDS.
Only AceCad Ltd. is moving for preliminary injunction against Defendant Kathryn Davison "to preliminarily enjoin her from further copying, distributing, and offering for sale versions of AceCad Ltd.'s StruCad computer software, enjoin her from any use of AceCad Ltd.'s trademarks STRUCAD and ACECAD, and from the sale, transfer or dissolution of the assets of AceCad, Inc., and enjoin her from dissipating or otherwise harming the assets of AceCad, Inc."
The parties agree that AceCad Ltd. owns the STRUCAD copyright. The parties do not agree as to the ownership of the AceCad trademark. However, AceCad Ltd.' s Motion is not limited to seeking to enjoin Defendant Kathryn Davison from use of AceCad Ltd.'s copyright or trademark, but also seeks to enjoin her from taking certain actions with relation to assets of Plaintiff AceCad, Inc.
In Plaintiffs' Memorandum of Law in Opposition to the Motion of Defendant Kathryn Davison to Compel Discovery, Plaintiff AceCad Ltd. suggests that it seeks a preliminary injunction against Kathryn Davison "based solely on claims of copyright and trademark infringement." However, the language from Plaintiff AceCad Ltd.'s Motion for Preliminary Injunction, as quoted above, is decidedly broader because Plaintiff AceCad Ltd. also seeks relief in connection with the assets of AceCad, Inc. In the face of the specific relief sought in the Motion for Preliminary Injunction, the issues that are potentially before the Court are broader than the Memorandum in Opposition to the Motion to Compel suggests. By seeking to enjoin Defendant Kathryn Davison from the sale, transfer or dissolution of the assets of AceCad, Inc., AceCad Ltd. has raised issues that make Defendant's proposed discovery more relevant in that, if relief is sought as to the assets of AceCad, Inc., it may be necessary to determine the ownership of that entity. During a telephonic pre-hearing conference, Plaintiffs' counsel has agreed to consider whether the Preliminary Injunction Motion will seek relief concerning the assets of AceCad, Inc., as this may impact the scope of pre-hearing discovery. The Court reserves the right to enter a supplemental order.
Defendant has served wide-ranging requests for documents, and also proposes to take depositions on the subject matter of the documents that are requested, which include numerous categories of corporate documents such as minutes of the meetings of the board of directors, corporate tax returns, correspondence and also requests concerning other entities.
The fact that Plaintiffs, in the First Amended and Supplemental Complaint, can only allege "upon information and belief that AceCad Inc. is a Pennsylvania corporation" suggests that Plaintiff RDS does not have personal or specific knowledge as to the ownership of AceCad, Inc.
Plaintiffs, in resisting the discovery, assert that the sole issue in the Motion for Preliminary Injunction is whether Kathryn Davison personally engaged in improper use of the AceCad Ltd. STRUCAD copyright or the ACECAD trademark. Plaintiffs contend that the ownership of other Plaintiff entities is irrelevant for purposes of the Preliminary Injunction hearing.
The Defendant asserts a need to know the ownership, arguing that if RDS controls the other corporations, then RDS controls their property and Plaintiffs' Motion may be moot; if RDS does not control the other Plaintiff corporations, then it can, after the Preliminary Injunction hearing, litigate the question of ownership, and this would unfairly give Plaintiffs two bites at the apple.
The Court does not agree with Defendant's primary reasons as to why the discovery is relevant because Defendant's arguments fail to take into account Plaintiffs' theory that Defendant Kathryn Davison is individually, regardless of corporate ownership, taking actions to infringe on the intellectual property owned by Plaintiff AceCad Ltd.
However, the Court concludes that at least some of the discovery Defendant seeks is proper at this time. A letter that Mr. Thompson wrote to Ms. Davison, dated October 14, 2002, and attached as Exhibit D to the First Amended and Supplemental Complaint, provides relevancy for some discovery on the issue of ownership. This letter reads in relevant part as follows:
I am writing to you in my capacity as Chairman of RDS Software Group Limited ("RDSGL").
As you are aware, RDSGL owns 100% of the issued share capital of AceCad Software Inc. ("ASI"); its shares are held by Steel Solutions Inc. on behalf of RDSGL beneficially. RDSGL also owns 100% of the issued share capital of AceCad Limited ("Limited"). To the extent relevant, I am also writing to you in my capacity as Chairman of Limited.
* * * * *
As you are aware, Limited is the owner of the Strucad Software, including its source code. ASI has, until now, been licensee of the software for North America; for that purpose, it is also licensed to carry out certain modifications to adapt software for the American market.
In view of the inability to agree terms for the future release of the modified software, I am writing to notify you of Limited's intention to revoke ASI's licence to use the Strucad Software including any modifications, and its licence to market that software in North America. This notice will take effect at midnight on 30th November 2002.
Because Mr. Thompson believed it relevant to comment on the ownership situation, as well as the existence and revocation of a licence to AceCad, Inc. during the communications between the parties leading up to the filing of a Complaint, and also because Plaintiffs believed it appropriate to allege this letter and attach it as an exhibit, some discovery of these issues is appropriate for pre-hearing purposes. As Mr. Thompson is likely to be a witness for AceCad Ltd., some discovery on the facts asserted in this letter is appropriate to allow for cross-examination of Mr. Thompson. The Court finds that the facts contained in several categories of documents sought by Defendant may be relevant on such issues as likelihood of success on the merits of the claim, irreparable harm to AceCad Ltd. and/or harm to the Defendant, and also, of great importance, the public interest — in that the subject matter of the case is the availability of certain computer software.
After a number of conferences with counsel, the Court believes that the primary focus of the disputed discovery should be on the actual ownership of AceCad, Inc., and, because it is alleged to be a Pennsylvania corporation, discovery of its ownership cannot possibly be burdensome and should be provided. Documents relating to the ownership of AceCad, Inc. (stock certificates, stock registers, transfer records, e.g.) should be produced by each party from its formation in 1996 to the present time.
With this background, the Court concludes that certain of the other discovery sought by Defendant Kathryn Davison is outside the scope of relevant discovery for purposes of the Motion for Preliminary Injunction. However, some of the requests for documents are proper (and presumably the facts disclosed in those documents found appropriate for production will be appropriate for the scope of depositions).
The Court will rule on the various requests at issue. Unless otherwise noted, the time period shall be limited to calendar years 2001 and 2002.
¶ 5 — AceCad, Inc. and AceCad Ltd. shall produce minutes of their board of directors meetings, as to topics relevant to Plaintiffs' Motion. Other matters may be redacted.
¶ 8 — Request for tax returns filed by Barry Thompson is denied.
¶ 9 — Request for financial statements and auditors reports is granted as to AceCad, Inc. and AceCad Ltd.
¶ 10 — Request for documents relating to compensation to Barry Thompson is denied.
¶ 11 — Request for documents relating to capital investment and/or return on capital investment is denied.
¶ 12 — Plaintiffs have withdrawn objection to this request.
¶ 13 — Documents in the possession of Plaintiffs that relate to the subject matter of paragraph 22 of the First Amended and Supplemental Complaint shall be produced.
¶ 17 — Marketing literature, which is relevant to the subject matter of paragraph 30 of the First Amended and Supplemental Complaint, shall be produced.
¶ 18(a) — Correspondence or other communications between Kathryn Davison and Barry Thompson or any other representative of the Plaintiffs that refers or relates to the ownership of Plaintiffs RDS, AceCad, Inc. or AceCad Ltd. shall be produced from 1996 to date.
¶ 18(b) — Requests for documents concerning compensation are denied.
¶ 18(e) — Plaintiffs shall produce documents which reflect correspondence or communications between Kathryn Davison and any representative of Plaintiff RDS or AceCad Ltd. that refer or relate to the subject matter of paragraph 46 of the First Amended and Supplemental Complaint.
¶ 22 — The request is proper but limited to the allegations in paragraph 85 of the First Amended and Supplemental Complaint relating to Steel Solutions and AceCad, Inc.
¶ 33 — The request is denied as Defendant has not explained the relevance of Cosmic Limited.
¶ 34 — The request is denied.
The Court emphasizes that these rulings are in the context of expedited discovery in preparation for a Motion for Preliminary Injunction and are not intended to establish any relevancy parameters for the merits of the case.
An appropriate Order follows.