Protege Biomedical, LLC v. Z-Medica, LLC

Background

Protégé Biomedical, LLC and Z-Medica, LLC both produce blood-clotting products. In early 2018, Protégé began discussions with Z-Medica about selling the company. Protégé alleged that it disclosed trade secrets during a February 9, 2018 telephone call and that Z-Medica later misappropriated that information to obtain a continuation patent and block Protégé from the blood-gauze market.

During discovery, Z-Medica listed three emails between its chief operating officer and outside counsel. The emails were sent on the day of the call and described as requesting legal advice about Protégé’s patents. Z-Medica withheld them and other communications based on attorney-client privilege.

Protégé moved to compel production of the three emails and 78 other documents under the crime-fraud exception. That exception can remove attorney-client protection from communications made to obtain legal advice for committing a crime or fraud. Magistrate Judge Hildy Bowbeer denied the motion, finding that Protégé had not made the required initial factual showing that the withheld communications related to trade-secret misappropriation or another crime or fraud. She also ordered Protégé to pay Z-Medica’s reasonable fees and expenses incurred in opposing the motion.

Review of the Discovery Ruling

The district court explained that discovery motions are nondispositive matters and that it could reverse the magistrate judge’s order only if the order was clearly erroneous or contrary to law. Protégé argued that the magistrate judge should have privately reviewed the withheld documents before requiring Protégé to make the ultimate showing that the crime-fraud exception applied. The court rejected that argument, explaining that a party must first make an initial factual showing before private review may occur.

Protégé also argued that its complaint adequately alleged trade-secret wrongdoing and should have been enough to trigger the exception. The court disagreed. It held that a pleading alone is not enough; Protégé had to present some evidence connecting the withheld communications to the alleged wrongdoing. Because Protégé had not produced such evidence, the court found no clear error in denying the motion to compel.

Sanctions

Protégé argued that its motion was substantially justified and that sanctions were imposed without notice or an opportunity to be heard. The court rejected both arguments. Because the magistrate judge had correctly applied the law, the motion was not substantially justified. The court also found that Protégé knew Z-Medica was seeking sanctions, knew the legal basis for the request, and attended a hearing where the motion was considered. Protégé therefore had notice and sufficient opportunities to respond.

Disposition

Judge John R. Tunheim overruled Protégé’s objections and affirmed Magistrate Judge Bowbeer’s March 17, 2020 order. The opinion did not decide whether Z-Medica actually misappropriated Protégé’s trade secrets; it upheld the discovery and sanctions rulings under the deferential standard governing review of the magistrate judge’s order.