Kal K. Shah (admitted pro hac vice J. David Duffy ...

[Pages:15]Docket #1647 Date Filed: 8/25/2011

Kal K. Shah (admitted pro hac vice) J. David Duffy (admitted pro hac vice) Emily L. Peel (admitted pro hac vice) THOMPSON COBURN LLP 55 East Monroe Street, 37th Floor Chicago, Illinois 60603 Telephone: (312) 346-7500 Facsimile: (312) 580-2201

- and -

Michael B. Slade (admitted pro hac vice) Ryan Blaine Bennett (admitted pro hac vice) KIRKLAND & ELLIS LLP 300 North LaSalle Chicago, Illinois 60654 Telephone: (312) 862-2000 Facsimile: (312) 862-2200

Counsel to Debtors and Debtors in Possession

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

)

In re:

) Chapter 11

LEAR CORPORATION, et al.,1

) ) Case No. 09-14326 (ALG)

)

Reorganized Debtors.

) Jointly Administered

____________________________________ )

DEBTOR LEAR CORPORATION'S OPPOSITION TO ACTUATE CORPORATION'S

MOTION FOR TERMINATING SANCTION

1 The Debtors in these chapter 11 cases, along with the last four digits of their U.S. federal tax identification numbers (if any), include: Lear Corporation (6776); Lear #50 Holdings, LLC (N/A); Lear Argentine Holdings Corporation #2 (7832); Lear Automotive Dearborn, Inc. (4976); Lear Automotive Manufacturing, LLC (3451); Lear Canada (5059); Lear Canada Investments Ltd. (a non-U.S. Debtor without a U.S. tax identification number); Lear Corporation (Germany) Ltd. (6716); Lear Corporation Canada Ltd. (a non-U.S. Debtor without a U.S. tax identification number); Lear Corporation EEDS and Interiors (6360); Lear Corporation Global Development, Inc. (3121); Lear EEDS Holdings, LLC (4474); Lear European Operations Corporation (8411); Lear Holdings, LLC (4476); Lear Investments Company, LLC (8771); Lear Mexican Holdings Corporation (7829); Lear Mexican Holdings, LLC (4476); Lear Mexican Seating Corporation (4599); Lear Operations Corporation (5872); Lear Seating Holdings Corp. #50 (9055); Lear South Africa Limited (a non-U.S. Debtor without a U.S. tax identification number); Lear South American Holdings Corporation (1365); Lear Trim L.P. (8386); and Renosol Seating, LLC (4745). The location of the Debtors' corporate headquarters and the service address for all of the Debtors is: 21557 Telegraph Road, Southfield, Michigan 48033.

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INTRODUCTION Claimant Actuate Corporation's ("Actuate's") Motion for Sanctions ? filed six months after the close of discovery and weeks after trial ? underscores Actuate's overall dilatory strategy. Actuate first waited almost a decade to claim overuse based on ActuateDev1, a computer it authorized and was aware of since 2002. Now, after over eighteen months of litigation, thousands of pages of documents produced, days of deposition testimony taken, three days of trial, and the submission of final findings of fact and conclusions of law, Actuate brings a motion for discovery sanctions. It is too late. Like the underlying issue, had Actuate timely brought its complaint, it could have been easily addressed. And like the underlying issue, Actuate again is wrong on the merits. As a procedural matter, the case law unanimously provides that motions for discovery sanctions must be brought during (or shortly after) discovery. This affords the parties the opportunity to meet and confer and, if necessary, the Court to make a timely decision before the matter progresses further. Conversely, a purported discovery dispute raised after-the-fact, as here, must be denied because it is both futile and unduly prejudicial. Lear cannot at this late stage discuss with Actuate the additional discovery sought and fairly assess whether Lear is obligated or willing to provide such discovery. And, even if Lear were to provide additional information, it would not be useful without a new trial. Moreover, Actuate's motion is riddled with unsubstantiated factual allegations in a clear attempt to backdoor into the record facts not proven at trial. Not only are Actuate's assertions unproven, they are demonstrably inconsistent with the record. This Court should not be led astray by Actuate's gambit. The evidence is now in and the Court should rule on the merits, not unfounded argument or inflammatory innuendo.

ARGUMENT I. ACTUATE'S MOTION SHOULD BE DENIED AS UNTIMELY

A motion requesting sanctions for alleged spoliation under Rule 37 must be brought within a reasonable time. In re Teligent, Inc., 358 B.R. 45, 59 (Bankr. S.D.N.Y 2006); Gutman v. Klein, 2010 WL 4975554, No. 03-cv-1570, *3 (E.D.N.Y. Aug. 19, 2010); Mercy v. Cnty. of Suffolk, N.Y., 748 F.2d 52, 55 (2d Cir. 1984); Am. Nat'l Prop. & Cas. Co. v. Campbell Ins., Inc., No. 3:08-cv-00604, 2011 WL 3021399 (M.D. Tenn. July 22, 2011); Brandt v. Vulcan, Inc., 30 F.3d 752, 756 (7th Cir. 1994). It is well established that a reasonable time is during discovery or shortly thereafter, but in no case after trial. Id. Actuate nonetheless presents a motion requesting extreme discovery sanctions months after discovery has closed, weeks after trial and just days before this Court is set to rule. Actuate's motion is untimely and, as such, should be denied.

"The determination of timeliness turns on when the movant learned of the discovery issue, and how long he waited before bringing it to the court's attention." In re Teligent, Inc., 358 B.R. at 59. Several factors guide a court's determination of timeliness, including: (1) how long after the close of discovery the motion was made; (2) the temporal proximity between the motion and motions for summary judgment or trial; and (3) the explanation of the moving party as to why the motion was not filed earlier. Am. Nat'l Prop. & Cas. Co., 2011 WL 3021399, at *2. Each of these factors overwhelmingly supports dismissal of Actuate's motion.

First, Actuate's motion was brought six months after the close of discovery. Rule 37 motions, however, must be brought during or shortly after discovery so a judge may "rule on the matter when it is still fresh in his mind." In re Teligent, Inc., 358 B.R. at 59. This is particularly so for fact-intensive motions like Actuate's. Am. Nat'l Prop. & Cas. Co., 2011 WL 3021399, at

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*2. Actuate has not cited any authority nor could Lear find any supporting a motion under Rule 37 brought so late. The time to complain about discovery was during discovery.

The Am. Nat'l Prop. & Cas. Co. case is instructive here. In that case, plaintiffs brought a motion for discovery sanctions alleging spoliation of evidence four months after discovery had been closed and seven weeks before trial. Am. Nat'l Prop. & Cas. Co., 2011 WL 3021399, at *3. The District Court denied plaintiff's motion as untimely stating, "[i]t is obvious that issues regarding spoliation are better handled soon after the alleged spoliation occurs, not with a 23page brief filed, relatively speaking, on the eve of trial." Id. at *4.

Second, Actuate's motion was filed weeks after trial on the merits concluded. The case law is unequivocal that delay until after trial is the death knell of reasonableness. See Brandt, 30 F.2d at 752; Mercy, 748 F.2d at 56 (discovery motions are deemed waived when not made prior to trial); Am. Nat'l Prop. & Cas. Co., 2011 WL 3021399, at *4 (sanctions motion brought on the eve of trial denied as untimely); Permasteelisa CS Corp., v. Airolite Co., LLC, No. 2:06-cv-569, 2008 WL 2491747 (S.D. Ohio June 18, 2008) (same); Stenlage v. Mayo Clinic Rochester, 235 F.R.D. 668, 671-672 (D. Minn. 2006) (post-trial Rule 37 motion held untimely). The reason for this is the undue prejudice suffered by the opposing party and the Court.

The prejudice to Lear here is undeniable. Had Actuate timely brought its motion, the parties could have met and conferred in an attempt to resolve the issues during discovery.2 For example, although Actuate now complains it was not provided sufficient files from ActuateDev1 and ActuateProd2, had this been raised earlier, Lear may have been able to produce the backup tapes from ActuateDev1 and ActuateProd2. These backup files, as Actuate's expert testified, are

2 Not only did Actuate fail to timely bring its motion, but it also failed to comply with Rule 37(d)(1)(B) and Local Bankruptcy Rule 7007-1(a) requiring the parties to meet and confer prior to filing such a motion. FED. R. CIV. P. 37(d)(1)(B); S.D.N.Y. LBR 7007-1(a).

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also an accurate and arguably more thorough source of information. (7/21/11 (Greenspun) 126:20-127:6, 141:20-142:1. It is now too late for Lear to provide additional information or to seek protection from the Court. Moreover, if Lear were to provide additional information, it would only be useful with a new trial, a burden Lear should not be forced to bear because of Actuate's failure to timely act. For these reasons, courts are unsympathetic to litigants, like Actuate, that delay filing discovery motions because of inattention, neglect, or purposely to achieve an unwarranted tactical advantage. Am. Nat'l Prop. & Cas. Co., 2011 WL 3021399, at *2 (citing Goodman v. Praxair Services, Inc., 632 F. Supp. 2d 494 (D. Md. 2009)).

Third, Actuate has not offered and cannot offer a reasonable explanation for its delay. On this score, the timing and motivation of Actuate's motion is highly suspicious. Actuate cannot dispute that it was aware of the issues complained of before and during discovery. Actuate nonetheless waited until after trial to raise its discovery complaints. The parties have had ample opportunity to address these issues and they are now "water under the bridge." (7/21/11 245:1-2; 254:21-23). II. ACTUATE'S CLAIMS ARE MERITLESS

While the this Court need not consider the merits of Actuate's allegations, Lear is compelled to at least briefly point out the incorrect and misleading nature of Actuate's assertions. Lear does not undertake the extensive briefing that would be required to address each of Actuate's assertions in detail; however, Lear will provide such briefing if this Court should request it. In the interest of brevity, Lear provides below examples of the fatal flaws in Actuate's claims.

As an initial matter, many of Actuate's assertions stem from events that occurred before discovery, and in some cases even before this litigation. These events, of course, are not subject

4

to scrutiny under Federal Rule 37. Beil v. Lakewood Eng'g & Mfg. Co., 15 F.3d 546, 552 (6th

Cir. 1994). Actuate, moreover, inaccurately portrays the underlying facts. For example:

Actuate claims that Paul Geesey of Lear surreptitiously uninstalled Actuate Software from ActuateDev1 even though "Lear was admonished not to remove any Actuate installations." Actuate Mot. at 4. This is not true. The software was removed in good faith on June 17, 2009. (DX 14; 7/21/11 (Geesey) 31:15-34:4) The "admonition" from Actuate came weeks later on June 29, 2009. (PX 66)

Actuate again raises license key 23255 ? an issue it was aware of and investigated in 2009. If Actuate believed this conduct was sanctionable, it should have brought a motion in the last two years leading to trial. It did not. The parties and their experts unanimously agree that a fake key will not, and cannot, lead to overuse. As Actuate's head of compliance conceded before the parties were involved in litigation, the license key issue is a "red herring." (PX 33)

Actuate also raises a host of purported issues stemming from discovery in this case.

Again, Actuate's allegations are inaccurate but, frankly, also misleading. For instance:

Actuate questions whether ActuateDev1 as provided for inspection was "the same server provided to Lear's own expert." Actuate's Mot. at 12. Actuate bases this charge on a statement in Lear's expert's report referring to 10 hard drives as opposed to 12 hard drives. Id. Lear's expert made clear at his deposition, however, that the "10" was a typographical error and should have been a "12." See Exhibit A. And perhaps most telling, Actuate's expert did not raise this issue at trial. Id.

Actuate complains that the inadvertent destruction by Lear of ActuateProd2 was prejudicial to it at trial.3 But Actuate did not properly seek inspection of ActuateProd2 during discovery ? no request under Federal Rule of Civil Procedure 34 was served.4 It was only after Actuate learned that ActuateProd2 had been destroyed that Actuate became interested and this became an outcry. Actuate's silence until then speaks volumes.

3 As Lear emphasized at trial, Lear purchased rights to ActuateProd1 and ActuateProd2 in 2001 and 2004, respectfully. This evidence was unrefuted. The issue is whether Lear's implementation of ActuateDev1 in 2002 for upgrade and testing purposes was within Lear's contractual rights. ActuateProd2 is not germane to that analysis. Nevertheless, Lear has from the outset apologized and taken full responsibility for the regrettable but inadvertent destruction of ActuateProd2. To that end, Lear has never contested its implementation of six CPUs since 2004, nor has it argued that ActuateProd2 was anything other than a full production server.

4 Actuate also complains about a Lear interrogatory response, but ignores Local Bankruptcy Rule 7033-1(a) limiting the scope of interrogatories. S.D.N.Y. LBR 7033-1(a). Detailed responses were provided as a courtesy and Actuate had ample opportunity to investigate and request further details from Lear during discovery.

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 Actuate also argues that "Lear claimed a red-line counteroffer" as the contract governing the relationship between Actuate and Lear. Not so. The only contract Lear argued for at trial was DX 1, the November 16, 2001 Agreement. As Actuate's only fact witness testified, DX 1 was not a redline or draft. (7/21/11 (Boudraa) 276:7-14).

This Court should not permit Actuate to supplant trial evidence with conjecture and innuendo. Discovery is closed as is the evidence in this case. It is time for the parties to wait for the Court's ruling, not burden it with baseless motion practice.

CONCLUSION For the reasons set forth above, Lear respectfully requests that this Court dismiss with prejudice Actuate's motion as untimely and without merit.

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Dated: August 25, 2011

Respectfully submitted,

/s/ Kal K. Shah Kal K. Shah (admitted pro hac vice) J. David Duffy (admitted pro hac vice) Emily L. Peel (admitted pro hac vice) THOMPSON COBURN LLP 55 East Monroe Street, 37th Floor Chicago, Illinois 60603 Telephone: (312) 346-7500 Facsimile: (312) 580-2201

- and -

Michael B. Slade (admitted pro hac vice) Ryan Blaine Bennett (admitted pro hac vice) KIRKLAND & ELLIS LLP 300 North LaSalle Chicago, Illinois 60654 Telephone: (312) 862-2000 Facsimile: (312) 862-2200

Counsel to Debtors and Debtors in Possession

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