The opinion
1 UNITED STATES DISTRICT COURT
2 NORTHERN DISTRICT OF CALIFORNIA
3 SAN JOSE DIVISION
4
OPTRONIC TECHNOLOGIES, INC,
5 Case No. 5:16-cv-06370-EJD
Plaintiff,
6 ORDER RE MOTION FOR ORDER TO
v. SHOW CAUSE
7
NINGBO SUNNY ELECTRONIC CO., Re: Dkt. No. 578
8 LTD., et al.,
9 Defendants.
10 Plaintiff Optronic Technologies, Inc. (“Orion”) has moved the Court for an Order to Show
11 Cause why Defendant Ningbo Sunny Electronic Co., Ltd. (“Ningbo Sunny”) should not be
12 sanctioned under the Court’s inherent authority for making false representations to the Court. The
13 Court has considered the parties’ papers and heard their oral arguments. For the reasons discussed
14 below, the Court will exercise its inherent power to sanction Ningbo Sunny to punish its bad faith
15 conduct.
16 I. Background
17 On November 26, 2019, and after a six-week trial, the jury entered a verdict in Orion’s
favor on all counts. The jury found that Ningbo Sunny conspired with horizontal and vertical
18
competitors to fix the price of telescopes, allocate the market for telescopes and accessories, and
19
allocate customers. Dkt. No. 501. It also found that Ningbo Sunny engaged in anticompetitive
20
activity, attempted to monopolize, and conspired to monopolize the market for telescopes and
21
accessories. Id. On December 5, 2019, the Court entered a partial judgment on Orion’s damages
22
claims awarding Orion $50,400,000 after trebling. Dkt. No 518.
23
After the jury returned its verdict, Orion orally moved the Court for an order restraining
24
Ningbo Sunny from removing assets—specifically, accounts receivable—from the United States.
25
Trial Tr. 2822. The Court set a briefing schedule, Orion filed an application for a temporary
26
restraining order (the “First TRO Application”), Ningbo Sunny opposed, and Orion filed a reply.
27
1 Trial Tr. 2836-37; Dkt. Nos. 509, 510, 513. The Court held a hearing on the matter on December
2 5, 2019 (the “December 5 Hearing”) (Dkt. Nos. 514, 520).
3 At the December 5 Hearing, the Court repeatedly asked Ningbo Sunny’s counsel whether
4 Ningbo Sunny could provide assurance to Orion and the Court that it would not frustrate
5 enforcement of the judgment by transferring its assets outside of the United States. Dkt. No. 520
6 at 18:23-25 (“Can you give assurances to counsel and the Court that assets aren’t going to be
7 shipped offshore such that the relief requested would not be necessary?”), 23:16-18 (“[W]hat kind
assurances can your client give to Plaintiff that they’re not going to engage in the conduct that
8
[Plaintiff’s counsel] suggests and is fearful of, short of a court order?”), 23:24-24:7 (“I think what
9
[Plaintiff’s counsel] is saying is that can we just get some assurance that you’re not going to
10
engage in . . . any type of shenanigans where you’re going to hide assets outside of the country to
11
avoid judgment? . . . The things that a restraining order would accomplish, can your client just say
12
we’re not going to do that and we tell the Court we’re not going to do that.”). Ningbo Sunny’s
13
counsel responded that it sought to continue operations “in the ordinary course of business as we
14
have,” and that “we may be able to find some way to provide some reassurance to my friends
15
across the aisle here that that’s what is happening.” Dkt. No. 520 at 26:14-15, 27:3-8. The Court
16
in turn noted that “there’s historical evidence of how you do business, your payments et cetera to
17
offsite. . . . As the case goes forward, if there’s deviation in that . . . [then] that’s a little concern,
18
isn’t it? That would draw some eyes.” Id. at 27:11-17. Less than a week later, Ningbo Sunny
19
filed a declaration from its President Peter Ni, dated December 10, 2019 (the “Ni Declaration”),
20
that stated, in relevant part, “Ningbo [Sunny] will not transfer any of its cash or other assets
21
located in the United States to a location outside of the United States other than in the ordinary
22
course of business while post-trial motions and appeals remain pending.” Dkt. No. 521-1. The
23
Court then denied that the First TRO Application. Dkt. No. 524.
24
During the December 5 Hearing, Ningbo Sunny also expressed concern that the Court
25
would lift the Federal Rule of Civil Procedure 62(a) 30-day stay of enforcement of the judgment.
26
Dkt. No. 520 at 9:12-20. The stay was set to expire on January 5, 2020.
27
After hearing from the parties the Court did not lift the stay.
1 At the time that Ningbo Sunny filed the Ni Declaration, it knew that Celestron—one of
2 Defendants’ co-conspirators that settled with Orion pre-suit—owed Ningbo Sunny approximately
3 $4 million in accounts receivable. See Borden Ex. 1 at 3-7.1 Per the supply agreements between
4 Celestron and Ningbo Sunny, Celestron has a standard 100-day window to make payments.
5 Borden Exs. 5 at 4, 6 at 8. On January 1, 2020, James Qiu,2 an executive at Ningbo Sunny, sent
6 an email to Celestron stating, “[o]ur factory has a very tight cash flow at the moment. We are
7 foaced [sic] with bank loan collection and suppliers demand payment recently. Could you pay as
much payment as possible this week? Thank you in advance for your supports!” Borden Ex. 1 at 2
8
(the “Qiu Email”). According to a remittance produced by Celestron (the “Remittance”), the next
9
day Celestron paid $4,184,057.70 to Ningbo Sunny’s account with the Agricultural Bank of
10
China. Id. at 3.
11
Four days later, Orion brought its second application for an order restraining Ningbo
12
Sunny from removing assets from the United States (the “Second TRO Application”). Dkt. No.
13
537. Ningbo Sunny opposed the motion arguing that Orion had not shown any need for the TRO
14
and emphasizing the Ni Declaration. Dkt. No. 548 at 6. The Court denied the Second TRO
15
Application finding that Orion had not shown more than speculation that Ningbo Sunny would
16
improperly remove assets from the United States. Dkt. No. 559 at 5.
17
In the course of post-judgment discovery, Orion propounded a request for “[d]ocuments
18
concerning all payments made to each Defendant by or on behalf of its respective customers or
19
distributors located in the United States.” Borden Ex. 4 at 8. On January 30, 2020, Ningbo Sunny
20
produced documents in response. While Ningbo Sunny produced over 70 emails between Qiu and
21
Celestron dated on or after January 1, 2020, it did not produce the Qiu Email or the Remittance.
22
Borden Decl. ¶ 5; Reply Borden Decl. ¶ 2 & Ex. 1. Celestron though produced both documents on
23
February 10, 2020. Borden Decl. ¶ 2.
24
II. Discussion
25
“Federal courts possess certain inherent powers, not conferred by rule or statute, to manage
26
27 1 Pincites to the exhibits attached to the Borden Declaration go to the ECF-generated pagination.
2 Also spelled “Chiu.” Opp’n at 2.
1 their own affairs so as to achieve the orderly and expeditious disposition of cases. That authority
2 includes the ability to fashion an appropriate sanction for conduct which abuses the judicial
3 process.” Goodyear Tire & Rubber Co. v. Haeger, 137 S. Ct. 1178, 1186 (2017) (quotations and
4 citations omitted). The Ninth Circuit has held that a specific finding of “bad faith” is required
5 before a district court imposes sanctions under its inherent authority. See, e.g., Christian v.
6 Mattel, Inc., 286 F.3d 1118, 1131 (9th Cir. 2002); Fink v. Gomez, 239 F.3d 989, 992 (9th Cir.
7 2001). Courts must exercise discretion and restraint when fashioning such a sanction so that the
sanction is appropriate for the misconduct. Chambers v. NASCO, Inc., 501 U.S. 32, 44-45 (1991).
8
Before exercising its inherent powers to sanction a party, a court must provide that party with the
9
opportunity to explain its conduct. See In re DeVille, 361 F.3d 539, 548 (9th Cir. 2004).
10
As an initial matter, this Court finds that by setting a briefing schedule in advance of a
11
hearing on the instant motion, the Court has provided Ningbo Sunny with sufficient notice of
12
Orion’s allegations of misconduct and of the Court’s sanctioning authority, and with adequate
13
opportunity—both in writing and through oral argument—to respond. See id. Due process is
14
satisfied in this matter, so that the Court now considers whether to issue sanctions rather than
15
whether to issue an order to show cause. Cf. id.
16
Turning to the substance, Orion argues that Ningbo Sunny’s request that Celestron pay its
17
$4 million debt just days before the Rule 62(a) stay was set to expire shows that the Ni
18
Declaration was made in bad faith. In opposition, Ningbo Sunny’s main argument is that the early
19
payment was within the ordinary course of business so that the Ni Declaration was not false.
20
Ningbo Sunny does not make any arguments concerning the exercise of the Court’s inherent
21
authority.
22
The evidence is contrary to Ningbo Sunny’s argument. The “ordinary course of business”
23
means “[t]he normal routine in managing a trade or business.” Nimkoff Rosenfeld & Schechter,
24
LLP v. RKO Properties, Ltd., 2011 WL 8955840, at *5 (S.D.N.Y. Apr. 7, 2011) (quoting Black’s
25
Law Dictionary 404 (9th ed.2009)). The evidence in this case strongly suggests that the transfer
26
indicated by the Qiu Email and the Remittance was outside the ordinary course of business. First,
27
the very fact that Ningbo Sunny had to request the payment suggests that it was not within “the
1 normal routine” of Ningbo Sunny and Celestron. Second, the Remittance shows most of the
2 money paid was not yet due; rather Ningbo Sunny requested early payment. Borden Exs. 1 at 3-7,
3 5 at 4, 6 at 8. The declaration of Qiu and the attached exhibits—filed by Ningbo Sunny in support
4 of its opposition—also show that the Qiu Email and the requested early payment was outside the
5 ordinary course of business. Qiu declares that Celestron paid Ningbo Sunny between $7.7 million
6 and $4.2 million during the months of January and February in 2016, 2017, 2018, and 2019. Qiu
7 Decl. ¶ 5; Qui Ex. A. But in those years, the total payments were made through several smaller
installments over several weeks going as late as the end of February. Qiu Decl. ¶ 5; Qui Ex. A.
8
The Qiu Email directed the entire amount due be paid within a week. Borden Ex. 1 at 2.
9
Similarly, in Qiu’s January 28, 2019 email to Celestron, he requested partial payment of
10
Celestron’s overdue debts. Qiu Ex. B. This year, by contrast, he requested full payment of all
11
debts, even those that were not yet due. Borden Ex. 1. The evidence indicates that the historical
12
practice between Ningbo Sunny and Celestron did not include requests for full, early payment of
13
all debts within a week of notice. Ningbo Sunny’s conduct was outside the normal course of
14
business.
15
Significantly and most troubling, Ningbo Sunny’s failure to produce both the Qiu Email
16
and the Remittance in discovery is evidence of consciousness of guilt—that Ningbo Sunny
17
understood that the documents would show it’s conduct contradicted the Ni Declaration. In a
18
footnote, Ningbo Sunny argued that it construed the time period encompassed by Orion’s
19
document request as ending on the day it was served—December 31, 2019. Opp’n at 4 n.1. But
20
that argument is belied by the fact that Ningbo Sunny produced over 70 emails between Qui and
21
Celestron dated after January 1, 2020. Borden Reply Decl. ¶ 2 & Ex. 1.
22
The Court finds that the totality of the circumstances and the evidence show that Ningbo
23
Sunny made the Ni Declaration in bad faith. The Court “does not countenance evasive and
24
misleading representations to the Court.” Madrid v. Woodford, 2004 WL 2623924, at *13 n.11
25
(N.D. Cal. Nov. 17, 2004) (issuing order to show cause why party should not be sanctioned under
26
the court’s inherent power). Ningbo Sunny affirmatively relied on the Ni Declaration in opposing
27
the First and Second TRO Applications, and the Court had no reason to question the veracity of
] the Ni Declaration nor counsel’s representations and filings. Sanctions are appropriate.
2 IU. Conclusion
3 For the reasons discussed above, the Court will exercise its inherent authority to sanction
4 || Ningbo Sunny. The Court orders as follows:
5 1. No later than March 23, 2020, Ningbo Sunny shall pay Orion the $4,184,057
6 || Defendant received from Celestron.
7 2. Ningbo Sunny is enjoined from transferring assets outside the United States until
g such time as either (1) Orion collects the judgment money owed by Ningbo Sunny, or (2) Ningbo
9 Sunny posts a bond sufficient to satisfy the Court’s judgment.
10 3. No later than March 16, 2020, Ningbo Sunny shall provide to Orion a declaration,
11 which is signed and made under penalty of perjury, describing the actions it has taken to ensure
q (12 that it complied with its post-judgment discovery obligations.
13 4. Orion may serve expedited discovery, with responses due one week after service, to
S 14 || determine what, if any, other improper transfers Ningbo Sunny caused or accepted, or whether
3 15 || anyone else aided or abetted these transfers.
B 16 5. No later than March 16, 2020, Ningbo Sunny shall identify all planned and actual
17. || sales of product made by Ningbo Sunny into the United States, whether directly or through an
18 || intermediary such as Celestron.
19 6. Orion may register the Court’s Judgment in federal districts outside of California
20 || under 28 U.S.C. § 1963.
71 7. Ningbo Sunny shall pay reasonable attorney’s fees and costs incurred by Orion in
22. |} connection with this motion. No later than March 20, 2020, Orion shall submit an application for
23 || such fees and costs.
24 IT IS SO ORDERED.
25 || Dated: March 9, 2020 (
26
EDWARD J. DAVILA
27 United States District Judge
28 || Case No.: 5:16-cv-06370-EJD
ORDER RE MOTION FOR ORDER TO SHOW CAUSE