Opaque Polymers: ITC Affirms Dispositive Sanctions

On April 30, 2015, the Commission affirmed Judge Pender’s imposition of severe, dispositive sanctions on Respondents in Certain Opaque Polymers (Inv. No. 337-TA-883) for bad faith spoliation of evidence.

As background, on October 20, 2014, in an Initial Determination (“ID”), ALJ Thomas B. Pender sanctioned Respondents Organik Kimya San. ve Tic. A.S., Organik Kimya Netherlands B.V., and Organik Kimya U.S., Inc. (collectively “Organik Kimya”) for spoliation of evidence.  As a sanction, Judge Pender found Organik Kimya in default with regard to allegations by Complainants Rohm and Haas Company, Rohm and Haas Chemicals, LLC, and the Dow Chemical Company (collectively, “Dow”) of trade secret misappropriation.  Judge Pender also imposed monetary sanctions of almost two million dollars against both Organik Kimya and its counsel, Finnegan, Henderson, Farabow, Garret & Dunner LLP (“Finnegan”).  See our October 29, 2014 blog post for more detail on Judge Pender’s ID.

On December 16, 2014, the Commission determined to review the ID with respect to Organik Kimya’s default and the remedial orders to issue therefrom, as well as Organik Kimya and its counsel’s liability for Dow’s fees and costs.

On April 30, 2015, the Commission affirmed ALJ Pender’s determination of default and monetary sanctions.  The Commission noted that the most egregious spoliation occurred in connection with Dr. Perez, co-head of research and development for Organik Kimya, when his laptop was tampered with subsequent to an order for forensic inspection, resulting in the permanent loss of an unknown number of files.  The Commission affirmed that the spoliation in connection with Dr. Perez alone was more than sufficient to justify the sanctions.  The Commission also observed that an additional instance of spoliation, the intentional deletion of thousands of files by Mr. Stozzi, another Organik Kimya employee, was at least circumstantial evidence relating to the culpable state of mind found by the ALJ.

The ALJ had denied Organik Kimya’s consent order motion and instead granted the sanction of default.  The Commission determined that this was appropriate due to the bad faith exhibited by Organik Kimya, and noted that allowing Organik Kimya to “exit the investigation on consent ‘without accepting the full measure of its responsibility for its egregious actions’ would not be a sufficient deterrent.”  See Commission Opinion at *14-15.

The Commission issued a limited exclusion order for the subject opaque polymers and a cease-and-desist order directed to Organik Kimya U.S.  Both will last for the 25-year period suggested by Dow.  Moreover, in connection with the limited exclusion order, Organik Kimya is required to obtain an advisory opinion or modification ruling from the Commission that particular products are outside the scope of the exclusion order before Organik Kimya can certify to Customs that its opaque polymers are not made with Dow’s misappropriated trade secrets.  This unusual requirement in ITC remedy orders ensures that Organik Kimya must return to the ITC for determination that a new product is not made with Dow’s misappropriated trade secrets.

The ID’s award of almost two million dollars in fees and costs was affirmed, and the Commission affirmed the ALJ’s determination that Organik Kimya’s counsel, Finnegan, shall be jointly and severally liable with Organik Kimya.  The Commission determined that Organik Kimya’s Turkish counsel, Mr. Yarsuvat, was not liable for the monetary sanction.

Finnegan had argued that the ALJ erred by holding it jointly and severally liable for monetary sanctions because it was deprived of due process in the proceedings and its conduct was not culpable.  The Commission rejected both arguments, concluding that Finnegan had more than adequate notice of possible sanctions, and had sufficient opportunities to respond and present evidence to dispute the allegations.  The Commission also “reject[ed] Finnegan’s apparent contention that there exists a two-tiered scheme of advocacy, in which overzealousness or recklessness must be permitted until counsel is put on enhanced and particularized notice that it may share some blame with its client.”  See Commission Opinion at *41.

The Commission affirmed three out of the four reasons the ALJ gave for joint and several liability as to Finnegan:  a Finnegan attorney was present in Turkey to oversee the inspection of the Perez laptop, but failed to safeguard that laptop from Organik Kimya’s tampering; a letter from Finnegan to the ALJ defending Organik Kimya’s destruction of files on the Perez laptop was submitted without adequate investigation as to whether the explanations in the letter were factually correct and the contents were not credible; and there was no evidence that counsel gave litigation hold instructions to Organik Kimya or actively attempted to preserve evidence.  See Commission Opinion at *35.  But the Commission vacated the ALJ’s additional basis for joint and several liability – the difficulty in enforcing a monetary fee award against Organik Kimya, a Turkish company with no significant operations in the United States.

Commissioner Rhonda K. Schmidtlein dissented with respect to holding Organik Kimya’s counsel jointly and severally liable for monetary sanctions.  Commissioner Schmidtlein noted that Dow’s motion sought sanctions of default and attorney fees and costs against Organik Kimya, but never indicated that it was seeking sanctions against counsel.  Also, the record was replete with statements by the ALJ suggesting that the conduct of Organik Kimya’s counsel was not at issue.  Finally, Commissioner Schmidtlein concluded that because Organik Kimya’s counsel was not provided with notice that their conduct was at issue, and was not afforded an opportunity to submit exculpatory evidence or argument regarding their conduct, it was error for the ALJ to sanction counsel.  Thus, Commissioner Schmidtlein concluded that the sanction imposed on counsel should have been vacated, with the issue of attorney sanctions remanded to the ALJ for further proceedings.