Free Brief - District Court of California - California

Case 3:07-cv-02748-MHP

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HARVEY SISKIND LLP IAN K. BOYD (State Bar No. 191434) [email protected] SETH I. APPEL (State Bar No. 233421) [email protected] RAFFI V. ZEROUNIAN (State Bar No. 236388) [email protected] Four Embarcadero Center, 39th Floor San Francisco, California 94111 Telephone: (415) 354-0100 Facsimile: (415) 391-7124 Attorneys for Plaintiff and Counterdefendant Mark Lillge d/b/a Creative Marketing Concepts IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION MARK LILLGE d/b/a CREATIVE MARKETING CONCEPTS, Plaintiff, v. ANDREW VERITY and CHRISTINA CHANG, Defendants. Case No. C 07-02748 MHP APPLICATION FOR ORDER TO SHOW CAUSE WHY DEFENDANTS SHOULD NOT BE ADJUDGED IN CONTEMPT AND SANCTIONED

Date: March 10, 2008 Time: 2:00 p.m. Court: Hon. Marilyn Hall Patel

ANDREW VERITY and CHRISTINA CHANG, Counterclaimants, v. MARK LILLGE d/b/a CREATIVE MARKETING CONCEPTS, and DOES 1-10, Counterdefendants.

APPLICATION FOR ORDER TO SHOW CAUSE RE CONTEMPT

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Defendants and Counterclaimants Andrew Verity and Christina Chang ("Defendants") have knowingly, willfully and repeatedly violated the clear and unambiguous terms of this Court's Orders. Defendants should be held accountable for this misconduct. Plaintiff and Counterdefendant Mark Lillge d/b/a Creative Marketing Concepts ("CMC") respectfully asks that the Court order Defendants to show cause why they should not be adjudged in contempt and sanctioned. FACTS On May 31, 2007, the Court granted CMC's application for a Temporary Restraining Order ("TRO"). The Court ruled, in part, that Defendants were not to "initiate contact" with CMC's customers until further order of the Court, and that "they are not to solicit customers of CMC" during this time. (Appel Decl., Ex. A (Tr., 16:5-17:15)).1 Defendants: [H]ad just better be able to have business records and accounts that they can account for all of this at the end of the day, if, in fact, it turns out those representations are not true, so they better keep good books and records. The failure to do so will, in fact, be interpreted against them when in doubt. So they're [Defendants] sitting here, and I trust they understand that.2 The Court stated that the TRO would remain in effect until the hearing on CMC's Motion for Preliminary Injunction.3 The parties then entered into several stipulations continuing the In addition, the Court stated that

Preliminary Injunction hearing date. Each of these stipulations confirmed that the TRO would remain in effect until the Court's ruled on CMC's Motion for Preliminary Injunction.4 At the August 27, 2007 hearing on CMC's Motion for Preliminary Injunction, the Court ruled that the TRO would remain in effect pending the Court's Order on Preliminary Injunction.5

The Court stated that "If CMC's customers contact [defendants], that's another matter, but they better make sure that they can verify or substantiate the fact that those customers contacted them, not that they contacted the customers" (emphasis added). [17:1-4] 2 TRO Transcript 20:25 ­ 21:6 (emphasis added). As confirmed by the Court's comments, Defendants Andrew Verity and Christina Chang were in attendance at the TRO hearing. 3 Appel Decl., Ex. A (Tr., 23:13-16) 4 These stipulations were filed on June 25, June 29, and July 20, and are included in the Court's electronic docket as Nos. 21, 24, and 32. 5 Appel Decl., Ex. B (Tr., 33:6-7)
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Defendants Andrew Verity and Christina Chang were again in attendance at the hearing on the Preliminary Injunction. On October 1, 2007, the Court issued its Order granting CMC's Motion for Preliminary Injunction. The Court's Order confirmed that among other things, Defendants were "barred from initiating contact with" CMC's customers.6 On November 9, the Court issued an Order confirming the scope of the TRO and preliminary injunction. The Court held: [M]ore than one notification from defendants to CMC's customers regarding their new business is not permitted under either the Temporary Restraining Order or the Preliminary Injunction Order (even when such notification in isolation may not be viewed as a solicitation). As confirmed by both Orders, repeated notifications to a customer constitute a solicitation and improper initiation of contact violating the injunctions which have been and are currently in force."7 The Court's October 1 Order remains in effect. Thus, at all times since June 1, 2007, Defendants have been enjoined in the above manner. Despite the above, Defendants have repeatedly and willfully initiated contact with CMC's customers, resulting in lost sales to CMC and unjust gains to Defendants. I. Defendants' Violation of the Court's Order Regarding Gina Lee ­ Chevron Federal Credit Union

Gina Lee is an employee of Chevron Federal Credit Union ("CFCU") who negotiates for, and orders, promotional products on behalf of CFCU. Beginning in July 2006 and through the first half of 2007, she worked with CMC personnel, including Defendant Christina Chang, regarding promotional product orders on behalf of CFCU.8 In approximately May 2007, Ms. Lee notified CMC, through Defendant Chang, that CFCU had a prompt need for certain health-related and youth-related promotional items, and a budget of approximately $20,000 to spend on such items. The fact that CFCU had this need, at this time, for

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Appel Decl., Ex. C (Order, 12:12-13 (emphasis in original))) Appel Decl., Ex. D (Order, 2:16-18)) 8 Declaration of Gina Lee ("Lee Decl."), ¶¶2-3; Declaration of Mark Lillge ("Lillge Decl."), ¶3.
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these types of products, and the amount of money allocated for these purchases, was not information known outside CFCU. Lee Decl., ¶4. In May 2007, Defendant Chang sent Ms. Lee an e-mail advising that it was her last day at CMC. Ms. Lee responded by leaving Ms. Chang a voicemail asking her to call Ms. Lee back. The purpose of Ms. Lee's call to Ms. Chang was to ask who would now be handling her account due to Ms. Chang leaving CMC. Lee Decl., ¶5. The following week, Defendant Chang e-mailed Ms. Lee, notifying her that she was now at Branding Boulevard, and provided Ms. Chang's contact information. Ms. Chang concluded with her concern that "I just hope CMC doesn't leave too many of my customers hanging while there are currently un-finished orders pending." Lee Decl., Ex. A. That same week, Defendant Chang also called Ms. Lee to reiterate that she was starting her own promotional products business. Ms. Chang stated that she would provide some samples

regarding the proposed transactions that she been discussing with Ms. Lee while Ms. Chang was still at CMC (an approximate $20,000 purchase of health-related and youth-related promotional items). At that time, Ms. Lee politely advised Ms. Chang that she preferred to stay with CMC. Lee Decl., ¶6. A day or two later, Defendant Verity came to Ms. Lee's office unannounced and brought the samples that Ms. Chang had referred to in her earlier telephone call. Ms. Lee was not expecting Mr. Verity at her office, and never requested that he come to her office. Lee Decl. ¶7. Ms. Lee was somewhat taken aback by Mr. Verity's visit, as she had never had a vendor show up at her office unannounced. She was also somewhat irritated, as she believed that her earlier communications (on behalf of CFCU), with Ms. Chang (on behalf of CMC), regarding Ms. Lee's needs for youth-related and health-related promotional items was information communicated confidentially between CFCU and CMC. Ms. Lee found it inappropriate for Ms. Chang to use such information on behalf of Branding Boulevard and to attempt to pursue this transaction with Ms. Lee after Ms. Chang had left CMC. Lee Decl., ¶8. After Mr. Verity's visit to her office, Ms. Lee received a follow up call from Ms. Chang, who again asked that Ms. Lee pursue the deal for these promotional items with Defendants. Ms. Lee
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replied that she was uncomfortable doing business with Ms. Chang, and advised that she did not wish to do business with Ms. Chang. Ms. Lee was very unhappy that Ms. Chang was using such confidential information to solicit CFCU's business. Lee Decl., ¶¶9, 10. Due to Defendants' interference with the pending CMC transaction, Ms. Lee became uncomfortable with the entire situation. Ms. Lee did ultimately purchase approximately $20,000 worth of health-related and youth-related promotional products, but in light of the above, she made these purchases (that she had originally intended to purchase from CMC) from a third party. Lee Decl., ¶10. On May 21, 2007, Ms. Chang contacted Ms. Lee again. She solicited Ms. Lee to purchase certain house-shaped note clips, which were real-estate promotional products, because Ms. Chang knew that Ms. Lee had a current need for such real-estate promotional products. Again, however, Ms. Chang was only aware of CFCU's needs for such products because Ms. Lee had disclosed this need to Ms. Chang while she was at CMC. The next day, Ms. Lee responded to Ms. Chang, and again advised Ms. Chang that she was staying with CMC. Ms. Lee asked that Ms. Chang "not send me any more samples. I am going to continue doing business with our preferred vendor, Creative Marketing Concepts." Lee Decl., ¶11 and Ex. A attached thereto. In August 2007, Ms. Chang violated the Court's Order in contacting Ms. Lee again by leaving her a message and further advising that she would be sending Ms. Lee a Branding Boulevard catalog. Ms. Lee had never requested this catalog, nor had she requested that Ms. Chang continue to solicit her for business. Lee Decl., ¶¶12-13. Later that same month, Ms. Chang again violated the Court's Order and again contacted Ms. Lee, by sending the Branding Boulevard catalog on behalf of Defendants. Lee Decl., ¶13. In December 2007, Ms. Chang again violated the Court's Order and again contacted Ms. Lee by calling her to solicit business from her. Ms. Lee continued to decline to do business with Ms. Chang, and further stated that it was her understanding that there was a Court Order in place that precluded Ms. Chang from further contacting Ms. Lee. At that point in the conversation, Ms. Chang began making malicious statements that Ms. Lee found to be unprofessional and inappropriate
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regarding CMC and how Ms. Chang believed that the Court Order did not prevent her from contacting Ms. Lee. Lee Decl., ¶14. II. Defendants' Violation of the Court Order Regarding Michelle Chan ­ Wells Fargo Bank

At the time that Defendants left the employ of CMC, Michelle Chan at Wells Fargo Bank was a customer of CMC. Lillge Decl., ¶4. On May 11, 2007, Christina Chang sent an e-mail to Michelle Chan advising her that it was Ms. Chang's last day at CMC. On May 22, 2007, Ms. Chang sent Ms. Chan an e-mail, advising her of Ms. Chang's contact information and stating that "I would love to help you with all your upcoming events." Appel Decl., ¶6 and Ex. E attached thereto. On November 8, 2007, Defendant Chang violated the Court's Order by again initiating contact with, and soliciting, Ms. Chan. Ms. Chang wrote: "As holidays are just around the corner, thought I should send you a quick email/checking in. I am happy to get you some year end gift materials or do project solution researches for you." Appel Decl., ¶6 and Ex. E attached thereto. III. Defendants' Violation of the Court Order Regarding Rebecca Gutfran ­ Bingham McCutchen

At the time that Defendants left the employ of CMC, Rebecca Gutfran at Bingham McCutchen was a customer of CMC. Lillge Decl., ¶5. On May 11, 2007, Christina Chang sent an e-mail to Ms. Gutfran advising her that it was Ms. Chang's last day at CMC. Appel Decl., ¶7 and Ex. F attached thereto. On May 21, 2007, Ms. Chang sent Ms. Gutfran an e-mail, advising her that Ms. Chang had "opened up my own promotional company. . . . I would love to be able to help you with your new projects, . . . I will give you a call tomorrow." Appel Decl., ¶7 and Ex. F attached thereto. On June 11, 2007, Defendant Chang violated the Court's Order by again initiating contact with, and soliciting, Ms. Gutfran. Ms. Chang wrote: "Please give me a call when you have a moment. Hopefully I will be able to help you with your logo items as well." Appel Decl., ¶7 and Ex. F attached thereto. ///
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IV.

Defendants' Violation of the Court Order Regarding Doug DiFranco ­ Kaiser Permanente

At the time that Defendants left the employ of CMC, Doug DiFranco at Kaiser Permanente was a customer of CMC. Lillge Decl., ¶6. On May 11, 2007, Christina Chang sent an e-mail to Mr. DiFranco advising him that it was Ms. Chang's last day at CMC. On May 22, 2007, Ms. Chang again sent Mr. DiFranco an e-mail, advising him of Ms. Chang's new contact information, and advising that "I have my own promotional products company. Still will be able to help you with all your projects." Appel Decl., ¶8 and Ex. G attached thereto. On June 13, 2007, Ms. Chang violated the Court's Order by again initiating contact with Mr. DiFranco, and advising him that her company's website was up. Appel Decl., ¶8 and Ex. G attached thereto. CMC has well over 1200 customers. It is simply not possible for it to subpoena each customer to determine to all of whom Defendants have made inappropriate contacts. But given the conduct displayed above, CMC respectfully submits that this may well be just the tip of the iceberg.

ARGUMENT A. Defendants' Failure to Obey the Court's Orders Constitutes Contempt "The interests of orderly government demand that respect and compliance be given to orders issued by courts possessed of jurisdiction of persons and subject matter. One who defies the public authority and willfully refuses his obedience, does so at his peril." United States v. United Mine Workers, 330 U.S. 258, 303 (1947). "Failure to obey the terms of a temporary restraining order or preliminary injunction constitutes contempt." United States EEOC v. Recruit USA, Inc., 1990 U.S. Dist. LEXIS 18305 (citing United States v. Powers, 629 F.2d 619, 624 (9th Cir. 1980)). Under Title 18 of the U.S. Criminal Code, "A court of the United States shall have power to punish by fine or imprisonment or both, at its discretion, such contempt of its authority." 18 U.S.C. § 401. Such failure to comply with a court order need not be willful to establish civil contempt. See Perry v. O'Donnell, 759 F.2d 702, 705 (9th Cir. 1985) ("[C]ivil contempt may be established even
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though the failure to comply with the court order was unintentional."); American Airlines, Inc. v. Allied Pilots Ass'n, 228 F.3d 574, 581 (5th Cir. 2000) ("The contemptuous actions need not be willful so long as the contemnor actually failed to comply with the court's order."). Here, however,

Defendants willfully disobeyed the Court's TRO and Preliminary Injunction. The Court should sanction Defendants accordingly.9 Civil contempt sanctions serve two purposes: to coerce future compliance with the court's order and to compensate for injuries resulting from the noncompliance. United Mine Workers, 330 at 303. General Signal Corp. v. Donallco, Inc., 787 F.2d 1376 (9th Cir. 1986) ("Sanctions for civil contempt may be imposed to coerce obedience to a court order, or to compensate the party pursuing the contempt action for injuries resulting from the contemptuous behavior, or both."). The Court's sanction should include both payment to CMC for its damages to compensate it for Defendants' misconduct and a substantial fine to Defendants in order to coerce future compliance with the preliminary injunction. Such coercive sanctions need not be matched to any actual loss suffered by plaintiff, as they serve solely the purpose of ensuring prospective compliance. In Glover v. Johnson, 199 F.3d 310, 313 (6th Cir. 1999), for example, the court affirmed a monetary sanction of $385,000 for civil contempt. It explained that this amount was appropriate to coerce appellants into compliance with the Court's order. "Appellants' contention that the amount is inappropriate because it fails to match a demonstrated loss by Appellees is therefore misplaced." Id. at 313. B. Compensatory and Coercive Sanctions Are Appropriate Here Because CMC Sustained Actual Losses As A Result of the Comtumacy and Defendants' Conduct Was Willing and Intentional CMC is entitled to compensatory sanctions because (putting aside the lost $20,000 sale, referenced supra) Defendants' violation of the Courts' Orders resulted in subsequent sales to Mr. DiFranco at Kaiser Permanente. In addition, Defendants' violation of the Court's Orders resulted in

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Where, as here, such violation is willful, the Court, sua sponte, may institute criminal proceedings pursuant to Federal Rules of Criminal Procedure Rule 42.
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both Mr. DiFranco, and potentially Ms. Gutfran, referring others at their respective companies to purchase from Defendants. Regarding coercive sanctions, the Court is to consider the "character and magnitude of the harm threatened by the continued contumacy, and the probable effectiveness of any suggested sanction." General Signal Corp., 787 F.2d at 1380. Here, the repeated violations of the Court's Orders are knowing and willful. The harm suffered by CMC from Defendants' noncompliance is of course severe. The Court has already determined, in finding both a TRO and preliminary injunction appropriate, that CMC is likely to suffer irreparable harm if Defendants were not enjoined. Conversely, as explained at the preliminary injunction hearing, the Court's Orders do not preclude Defendants from soliciting 95 to 96 percent of the customers that Defendants themselves have admitted that they wish to pursue. That Defendants still insist on targeting CMC's customer base, which is the thinnest slice of available customers, even at the peril of being caught violating the Court's Orders, speaks volumes as to why CMC brought this action in the first place. Soliciting CMC's customers is proving quite lucrative for Defendants. Accordingly, only a large monetary sanction may deter them from continuing to do so. To find otherwise is to find that there is no deterrent or consequence to one who does not respect and comply with the Orders of the Court. C. The Court Should Award CMC Its Attorneys' Fees In Alerting the Court to Defendants' Contumacy. "An award of attorneys' fees for civil contempt is within the discretion of the trial court." Harcourt Brace Jovanovich Legal & Professional Publications v. Multistate Legal Studies, Inc., 26 F.3d 948, 953 (9th Cir. 1994) (affirming award of attorney's fees for civil contempt in order to make plaintiff whole). Accordingly, CMC requests that it be afforded an opportunity to submit for

recovery its reasonable attorneys' fees in conjunction with this memorandum, reply papers, and any hearing or other work on this Application.

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CONCLUSION Defendants had full knowledge of the Court's Orders, and that they were and are bound by such Orders. Displaying much of the same temperament and mindset giving rise to the underlying litigation in the first place, Defendants willfully chose to disregard the Court's authority as they tried to raid additional CMC accounts. As the Supreme Court noted long ago, one who in engages in such risks "does so at his peril." Defendants should be held in contempt with substantial sanctions assessed to try to ensure prospective compliance with the Court's Orders.

Respectfully submitted, HARVEY SISKIND LLP By: /s/ Attorneys for Plaintiff and Counterdefendant Mark Lillge d/b/a/ Creative Marketing Concepts

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