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FireClean LLC v. Tuohy

United States District Court, D. Arizona

April 17, 2018

FireClean LLC, et al., Plaintiffs,
Andrew Tuohy, Defendant.


          Eric J. Markovich United States Magistrate Judge.

         Pending before the Court is Plaintiffs' Motion for Protective Order (Doc. 51) and Defendant's Motion to Compel Discovery Responses (Doc. 61). Both motions have been fully briefed and are ripe for ruling.

         I. Factual and Procedural Background

         Plaintiffs filed this action on September 11, 2016 (Doc. 1) and filed their first amended complaint on February 8, 2017 (Doc. 11). This matter was originally assigned to United States District Judge Soto, and later referred to the undersigned for all pretrial proceedings and report and recommendation. (Doc. 50).

         Plaintiffs Edward Sugg and David Sugg own FireClean LLC, a company that produces a weapon lubricant marketed under the name FIREClean (“FC”). (Doc. 47 at 2). Plaintiffs allege that Defendant Andrew Tuohy published false and disparaging statements against FC online and caused Plaintiffs economic and noneconomic harm. Id. Specifically, Plaintiffs allege that:

Between September 12, 2015, and January 18, 2016, Mr. Tuohy, through his website and social media pages, widely published the false allegations that FIREClean® is a single oil, a common soybean or canola oil of the kind sold in U.S. grocery stores, not the proprietary blend of substances the Plaintiffs had informed their consumers it was. Mr. Tuohy claimed he had independently commissioned accurate and appropriate scientific tests that confirmed his statements were true. Mr. Tuohy falsely accused the Plaintiffs of deceiving their consumers by manipulating a comparison test between FIREClean® and another product that showed FIREClean® is the more effective lubricant. Mr. Tuohy also claimed that the Plaintiffs had overinflated the price of their product by charging at least 100 times what it cost to produce it, intentionally deceived the public, and engaged [in] unlawful deceptive trade practices.

Id. at 2-3.

         Plaintiffs' first amended complaint states claims against Defendant for defamation, injurious falsehood (trade libel), false advertising (Lanham Act), intentional interference with business relations, false light invasion of privacy, and aiding and abetting tortious conduct. (Doc. 11). Defendant filed a motion to dismiss the defamation and Lanham Act claims (Doc. 26), and Judge Soto granted the motion in part and dismissed the Lanham Act claim (Doc. 42).

         On January 12, 2018 Plaintiffs filed a Motion for Protective Order seeking to protect two expert reports. (Doc. 51). Plaintiffs allege that the documents contain proprietary information and trade secrets, and state that redisclosure of the reports would cause Plaintiffs irreparable commercial harm. Plaintiffs request that the Court enter an order ordering that 1) the two reports may only be used in this litigation; 2) the reports must be returned to Plaintiffs after conclusion of the litigation; and 3) that reasonable efforts be made to limit disclosure of the information contained in the reports. Defendant does not oppose an order protecting Plaintiffs' private financial information, but contends that the expert reports do not contain any information that qualifies for protection under Fed.R.Civ.P. 26(c). (Doc. 60).

         On February 6, 2018 Defendant filed a Motion to Compel certain discovery responses. (Doc. 61). Defendant states that Plaintiffs are refusing to respond to interrogatories about FC's ingredients because their formula is allegedly a trade secret. Defendant contends that even if the formula is a trade secret, he is still entitled to discovery, and that even if the Court enters a protective order, Plaintiffs cannot prevent Defendant from obtaining relevant and exculpatory evidence. Plaintiffs argue that FC's formula, source of components, method of production, and research and development are all trade secrets, and that Defendant has failed to meet his burden to show that the trade secret information is both relevant and necessary to any claim or defense. (Doc. 65).

         II. Motion for Protective Order

         A. Law

         Pursuant to Federal Rule of Civil Procedure 26(b), “[p]arties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense . . . .” “Generally, the public can gain access to litigation documents and information produced during discovery unless the party opposing disclosure shows ‘good cause' why a protective order is necessary.” Phillips ex rel. Estates of Byrd v. Gen. Motors Corp., 307 F.3d 1206, 1210 (9th Cir. 2002). Pursuant to Federal Rule of Civil Procedure 26(c), “[t]he court may, for good cause, issue an order to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense, including . . . requiring that a trade secret or other confidential research, development, or commercial information not be revealed or be revealed only in a specified way . . . .” Fed.R.Civ.P. 26(c)(G).

         “For good cause to exist, the party seeking protection bears the burden of showing specific prejudice or harm will result if no protective order is granted.” Phillips, 307 F.3d at 1210-1211. “If a court finds particularized harm will result from disclosure of information to the public, then it balances the public and private interests to decide whether a protective order is necessary.” Id.

         “Rule 26 vests the trial judge with broad discretion to tailor discovery narrowly.” Crawford-El v. Britton, 523 U.S. 574, 598 (1998). In particular, “[a]lthough [Rule 26(c)] contains no specific reference to privacy or to other rights or interests that may be implicated, such matters are implicit in the broad purpose and language of the Rule.” Seattle Times Co. v. Rhinehart, 467 U.S. 20, 35 n. 21 (1984). However, “‘there is no absolute privilege for trade secrets and similar confidential information.'” Fed. Open Mkt. Comm. of Fed. Reserve Sys. v. Merrill, 443 U.S. 340, 362 (1979) (quoting 8 C. Wright & A. Miller, Federal Practice and Procedure § 2043, p. 300 (1970)). Rather, the Court must weigh the claim to privacy against the need for disclosure. Id.

         B. Parties' Arguments

         Plaintiffs argue that a protective order is necessary in this case to protect proprietary information and trade secrets contained in two expert reports. Plaintiffs state that they are willing to disclose the information contained in the reports as long as Defendant is precluded from using the information outside of this litigation. Plaintiffs allege that Defendant has publically disparaged their company and publishes court documents on his blog, leading Plaintiffs to believe that Defendant intends to publish any documents acquired through this litigation. (Doc. 51 at 2). Plaintiffs state that as a private company, their private financial records are entitled to protection. Plaintiffs further state that although FC's specific formulation is not identified in Dr. Davis's chemical comparison report, the report contains information on “chemical comparisons among [FC] and canola oil and soybean oil[, ]” and “provides data not generally known to the public that could be used, in combination with previously disclosed information, to narrow down or identify the components of the trade-secret formulation.” Id. at 3-4. Plaintiffs further explain that protection of Dr. Davis's report is necessary because FC's formulation is a closely guarded trade secret and that their competitors have gone to great lengths to obtain the formula. Id. at 4.

         Defendant contends that the two expert reports do not contain any information that qualifies for protection under Rule 26(c) and that Plaintiffs have failed to show good cause for protecting the reports. Defendant states that because Dr. Linsley's report on Plaintiffs' economic losses contains some information that was already disclosed in the Fennell action, [1] there is no basis to protect it here. (Doc. 60 at 9-11). Defendant does not oppose an order protecting Plaintiffs' private tax and other financial data that has not been previously disclosed. (Doc. 60 at 17). Defendant further argues that Dr. Davis's chemistry report is so heavily redacted that Defendant is unable to determine whether there is good cause to protect it, but regardless, the report does not identify FC's components or its formula and thus does not qualify for protection. Id. at 11. Defendant further argues that FC's formula is not a trade secret because most of the formula's details have already been disclosed by Plaintiffs and because the formula can easily be discovered with testing; thus, there is no basis to protect Davis's report. Id. at 12, 16.[2]

         In response to Defendant's arguments, Plaintiffs note that they are not asking to withhold the reports-they just want the information contained in the reports kept confidential. (Doc. 64 at 1). Plaintiffs state that Dr. Linsley's report contains new information not previously disclosed in the Virginia action and maintain that this sales and profit/loss information should be kept confidential. Id. at 2. As to Dr. Davis's report, Plaintiffs state that the report addresses the following questions: 1) whether it is necessary to know FC's formula to compare it to soybean and canola oil; 2) whether the test used by Defendant is a suitable technique; 3) whether the test shows a difference between FC's formula and canola and soybean oils; and 4) whether it is possible that canola or soybean oil are components of FC. Id. at 2-3. Plaintiffs allege that public disclosure of this information will put Plaintiffs at a competitive disadvantage. Id. at 4. Plaintiffs further state that Rule 26 does not limit confidential business information to only trade secrets, and that the Court does not have to determine whether Plaintiffs do in fact have any trade secrets in ruling on the Motion for Protective Order. Id. at 3.

         C. Analysis

         Importantly, Plaintiffs do not object to disclosing the information in the two expert reports-Plaintiffs simply request that the use of the reports be limited to this litigation, that the information in the reports not be publically disclosed, and that the reports be returned to Plaintiffs at the conclusion of this lawsuit. The Court finds this request is reasonable, and will grant Plaintiff's motion.

         While Defendant spends much of his Response arguing why FC's formula does not qualify as a trade secret, it is not necessary for the Court to determine whether FC's formula constitutes a trade secret in order to resolve Plaintiffs' motion. As Plaintiffs point out, Rule 26(c) extends protection to other confidential business information, not just information that specifically qualifies as a trade secret. Thus, for purposes of Plaintiff's Motion for Protective Order, the Court need only determine whether the information Plaintiffs wish to keep confidential qualifies for protection under Rule 26(c).[3]

         Here, the Court finds that Plaintiffs have met their burden under Rule 26(c). Plaintiffs have shown good cause to keep Dr. Linsley's report confidential because FireClean is a private company and the report contains Plaintiffs' private financial information. While Defendant argues that there is no need to keep the information confidential because the same or similar information was already disclosed in the Fennell action, Defendant also states that he does not oppose an order protecting Plaintiffs' private financial information. And, Plaintiffs explain that Dr. Linsley's report contains more recent information that has not been previously disclosed.

         The Court further finds that Plaintiffs have shown good cause to keep Dr. Davis's chemistry report confidential. While the report does not contain FC's specific formulation or ingredients, it does contain information and test results indicating whether there are differences between FC and soybean or canola oil, and whether it is possible that either of these oils are components of FC. The Court finds that disclosure of this information could place Plaintiffs at a competitive disadvantage.

         Having found that disclosure of the information in the reports will likely result in harm to Plaintiffs, the Court must balance the public and private interests to determine whether a protective order is necessary. Phillips, 307 F.3d at 1210-1211. The factors the Court considers are:

(1) whether disclosure will violate any privacy interests; (2) whether the information is being sought for a legitimate purpose or for an improper purpose; (3) whether disclosure of the information will cause a party embarrassment; (4) whether confidentiality is being sought over information important to public health and safety; (5) whether the sharing of information among litigants will promote fairness and efficiency; (6) whether a party benefitting from the order of confidentiality is a public entity or official; and (7) whether the case involves issues important to the public.

In re Roman Catholic Archbishop of Portland in Oregon, 661 F.3d 417, 424-25 n.5 (9th Cir. 2011) (citing Glenmede Trust Co. v. Thompson, 56 F.3d 476, 483 (3d Cir. 1995)).

         First, disclosure of the expert reports will violate Plaintiffs' privacy interests in their private financial information and their confidential business information. Second, Defendant properly seeks disclosure of the reports pursuant to the discovery rules for use in this litigation; however, if the reports are not subject to a protective order, Plaintiffs have alleged that they have good reason to believe that Defendant may publish the reports on his personal blog. Third, disclosure of the reports may cause Plaintiffs embarrassment to the extent that their sales have evidently fallen since publication of Defendant's alleged defamatory statements. Fourth, the reports do not contain information important to public health or safety. Fifth, sharing the information among litigants will promote fairness; however, disclosing the information to Defendant for purposes of this lawsuit does not necessarily mean it must also be publically disclosed. Sixth, none of the parties to this action are public entities or officials. Finally, Judge Soto has previously found that this case involves issues important to the public. While the undersigned does not dispute that finding, it is not necessary to publically reveal Plaintiffs' private financial information or the chemistry report detailing the similarities or differences between FC and canola and soybean oil in order to prove the truth or falsity of Defendant's statements. Accordingly, the undersigned finds that the balance between public and private interests weighs in favor of granting Plaintiff's motion.

         III. Motion to Compel

         Defendant moves the Court for an order requiring Plaintiffs to respond to several interrogatories and a document request. Defendant argues that even if FC's formula is a trade secret, Defendant is still entitled to discovery in order to prove whether his statements about FC are true. (Doc. 61 at 2). However, the parties appear to have different theories as to what Defendant actually meant when he published his statements that FC was ...

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