Medicalgorithmics S.A. v. AMI Monitoring, Inc.

100 Pages·2015·0.25 MB·English

EFiled: Jul 31 2015 12:05PM EDT
Transaction ID 57636622
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Case No. 10948-CB

1 IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

2 MEDICALGORITHMICS S.A., :
Plaintiff, :
3 :
v : Civil Action
4 : No. 10948-CB
AMI MONITORING, INC. D/B/A :
5 SPECTOCOR AND SPECTOCOR LLC, :
Defendants. :
6 -------------------------------------- :
AMI MONITORING, INC., :
7 Counterclaim Plaintiff,:
:
8 v :
:
9 MEDICALGORITHMICS S.A., :
Counterclaim Defendant.:
10 - - -
Chancery Courtroom No. 12A
11 New Castle County Courthouse
500 North King Street
12 Wilmington, Delaware
Wednesday, July 15, 2015
13 2:00 p.m.

14 BEFORE: HON. ANDRE G. BOUCHARD, Chancellor.

15 - - -
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17 ORAL ARGUMENT ON DEFENDANTS' MOTION REGARDING
PLAINTIFF'S IMPROPER DOCUMENT PRODUCTION, PLAINTIFF'S
18 CROSS-MOTION FOR DEFENDANTS TO SUPPLEMENT THEIR
DEFICIENT DOCUMENT PRODUCTION, DISCOVERY ISSUE
19 REGARDING LOCATION OF DEPOSITIONS and RULINGS OF THE
COURT
20
21 ------------------------------------------------------
CHANCERY COURT REPORTERS
22 500 North King Street - Suite 11400
Wilmington, Delaware 19801
23 [phone]
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CHANCERY COURT REPORTERS
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1 APPEARANCES:

2 PHILIP TRAINER, JR., ESQ.
MARIE M. DEGNAN, ESQ.
3 Ashby & Geddes, P.A.
-and-
4 MADLYN GLEICH PRIMOFF, ESQ.
MICHAEL LYNN, ESQ.
5 LINDSAY S. MOILANEN, ESQ.
of the New York Bar
6 Kaye Scholer LLP
for Plaintiff
7
8 BLAKE K. ROHRBACHER, ESQ.
KELLY E. FARNAN, ESQ.
9 ROBERT L. BURNS, ESQ.
THOMAS R. NUCUM, ESQ.
10 Richards, Layton & Finger, P.A.
for Defendant
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CHANCERY COURT REPORTERS
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1 THE COURT: Good afternoon.
2 Mr. Trainer.
3 MR. TRAINER: Good afternoon, Your
4 Honor. Lee Trainer from Ashby & Geddes for plaintiff,
5 Medicalgorithmics.
6 If I could just hop up and make some
7 introductions, I will turn the podium over to
8 Mr. Rohrbacher.
9 From our office, we have Marie Degnan.
10 From Kaye Scholer, we have three people: Madlyn
11 Primoff, Michael Lynn, and Lindsay Moilanen.
12 THE COURT: Good afternoon.
13 MR. TRAINER: Thank you, Your Honor.
14 With the Court's permission, Ms. Primoff will address
15 the issues today.
16 THE COURT: All right. Thank you.
17 Mr. Rohrbacher
18 MR. ROHRBACHER: Your Honor, Blake
19 Rohrbacher, Richards, Layton & Finger, for defendants,
20 AMI Monitoring and Spectocor LLC.
21 From my office, Your Honor, Kelly
22 Farnan, Rob Burns, and Tom Nucum.
23 THE COURT: Good afternoon.
24 MR. ROHRBACHER: Your Honor,
CHANCERY COURT REPORTERS
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1 unfortunately, we have a number of issues for the
2 Court this afternoon. And it is unfortunate because
3 each one of plaintiff's discovery violations is itself
4 a big deal, and I fear that by piling them up into a
5 single argument, we may -- I hope we don't
6 unintentionally minimize the seriousness of each
7 issue.
8 I will be addressing the document
9 production issues and Ms. Farnan will be addressing
10 the plaintiff's refusal to come to Delaware for
11 depositions and its one-page, it used to be
12 5,000-document privilege log, but now it's a one-page,
13 about 10,000-document privilege log.
14 Before I start, I concede that our
15 papers unavoidably made a number of harsh accusations,
16 and I want to make clear that none of those are
17 directed at Mr. Trainer. I have the utmost respect
18 for Mr. Trainer. I have no reason to believe that he
19 was involved in making any improper decisions we
20 challenge. And further, once I was allowed to speak
21 with Mr. Trainer, we were able to make some progress.
22 Unfortunately, the problems had occurred by that time.
23 THE COURT: Does that moot any of
24 today's issues or not?
CHANCERY COURT REPORTERS
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1 MR. ROHRBACHER: It does not,
2 unfortunately --
3 THE COURT: All right.
4 MR. ROHRBACHER: -- fix any of today's
5 issues.
6 The issues today are fairly
7 straightforward, and I don't plan to add a whole lot
8 to our papers. But the context is important, so I'm
9 going to touch on a bit of background. Please feel
10 free to move me along at any point.
11 Defendant, AMI Monitoring, has been
12 plaintiff's exclusive sales agent since 2011. Over
13 the years, we have been very successful, and we are
14 responsible for about 65 percent of the plaintiff's
15 revenue. But we've increasingly had problems with
16 plaintiff's performance. We sent plaintiff a notice
17 of material breach in November of 2014, and those
18 breaches still have not been cured. The principal
19 issue, from our standpoint, was that plaintiff could
20 not keep us supplied with new devices or spare parts
21 to fix the broken devices and had switched us to a
22 purportedly improved product with about a 30-some
23 percent failure rate. We ordered devices for delivery
24 in the spring of 2014, and we are still waiting for
CHANCERY COURT REPORTERS
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1 about 1200 of those.
2 Admittedly, we were delayed on payment
3 of some of our invoices, which we eventually did pay.
4 But plaintiff refused to address any of the open
5 business issues until -- saying, "You have to pay
6 everything before we talk." And a good example of
7 that can be found in Exhibit 1 to the Moilanen
8 affidavit. So Joseph Bogdan of AMI sent his
9 counterpart at Medicalgorithmics some correspondence
10 in late April, essentially saying, "I can't keep
11 growing unless you comply, and I'm branching out
12 internationally since you refuse to partner with me to
13 go internationally." The plaintiff flipped out,
14 decided not to address any of the issues, purported to
15 terminate the agreement, and filed this suit.
16 Plaintiff's claims are essentially
17 about our alleged failure to grow and our alleged
18 development of a competing product. Our counterclaims
19 are essentially about their failure to deliver
20 product, their flawed invoices, and their unlawful
21 termination.
22 The issues are fairly circumscribed,
23 although plaintiff misuses the phrase "course of
24 performance," which is normally an interpretative
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1 canon to suggest everything defendants have ever done
2 under the contract is at issue, which is simply not
3 true.
4 Plaintiff sought expedition and we
5 agreed to a very tight schedule. Trial is set for
6 September 2, 3, and 4, and the dates follow hard on
7 each other. Likely because plaintiff is a public
8 company in Poland and defendants are small private
9 companies owned by one man, it appears that plaintiff
10 has tried to win by wearing us down through discovery.
11 As the Chief Justice is fond of saying, "It's a lot
12 easier to throw a pizza than to clean one up." So
13 plaintiff has thrown a lot of pizzas. Thus far, they
14 have filed nine motions for commission, served 127
15 interrogatories on defendants. In plaintiff's brief
16 and in accompanying affidavit, they complain that we
17 caused the broad discovery by serving 54 document
18 requests. And they list 11 requests where we sought
19 "all documents."
20 By comparison, plaintiff served 99
21 document requests on defendants, at least 85 of which
22 sought "all documents" or "all documents and
23 communications." And a number of those requests were
24 very broad. For example, one sought "all documents
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1 and communications relating to AMI's efforts to
2 commercialize PocketECG," which is essentially our
3 entire business. Another one requested the following:
4 "All documents and communications relating to AMI,"
5 which is one of the defendants, "including, without
6 limitation, formation, present businesses, any
7 subsidiary." So that's the starting point for why we
8 are here today.
9 But the fundamental issue that I will
10 address is that we spent weeks and many hours
11 conferring with the other side to reach agreement on a
12 reasonable number of documents for each side to
13 review, by which we meant actually review, and we
14 believed that they did as well. We were never told
15 that the other side had an unreasonable number of
16 documents to review. Instead, after the deadline for
17 substantial completion, we received a mountain of
18 documents that plaintiff admits that it never
19 reviewed. And we are told -- we were told last week
20 that we should be getting another mountain of
21 documents, about 60 to 70,000 -- I am aware we have
22 not received any of those -- and they have not been
23 reviewed either.
24 Now, this is a very expedited case.
CHANCERY COURT REPORTERS
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1 We only had a few weeks to review and produce
2 documents. So the parties agreed on custodians and
3 started negotiating search terms. From the beginning,
4 I made clear that we don't have a lot of time. We
5 need to come up with some sort of limit. The other
6 side disputes this, but it's right there in our
7 Exhibit 5. In one of the early conversations I said,
8 "Listen, we should come to a number. You know, we're
9 not going to review more than 100,000 documents." We
10 ultimately did review about 140-some thousand. But I
11 said --
12 THE COURT: Is that something -- you
13 make a big point of the fact that the other side, when
14 it was running search terms, never talked to you about
15 what kind of hits, the volume of the hits they were
16 getting from different search terms, and so forth.
17 Tell me about the flip side of that.
18 Were you telling them what you were getting? I
19 understand, I guess it was a little under 135,000
20 documents went through your first-level responsiveness
21 review. Did you tell them that? What was going on
22 there?
23 MR. ROHRBACHER: We did not, Your
24 Honor. We had some initial discussions with search
CHANCERY COURT REPORTERS
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1 terms when we -- they sent us some drafts. There were
2 about three times as many terms in our set as theirs,
3 so we cut a bunch from ours, added a few to theirs to
4 try to make them equal. They came back and said,
5 "That's not the way we want to do it."
6 We essentially -- the approach we took
7 was, "We're going to take most of their search terms
8 unless they're crazy." I came back to them
9 specifically with two. One was "know-how," which
10 doesn't really have anything to do with any direct
11 relevance, and I said, "That one hits more than
12 100,000 documents. We're not going to run it because
13 that's just not a real term that should mean
14 anything." And the other one was, as to one single
15 custodian, the term "@Medicalgorithmics.com" --
16 THE COURT: I saw that in the papers.
17 MR. ROHRBACHER: -- hit about 100,000
18 or so, because he seemed to get an automated feed from
19 the other side.
20 So it is true we did not tell them our
21 total hit count because we were just going to swallow
22 it. We did not -- we weren't coming back and saying,
23 "oh, we can't do this. We can't do this." We
24 swallowed all of the search terms after we came to --
CHANCERY COURT REPORTERS