Case 1:20-cv-00393-LO-TCB Document 1159 Filed 03/25/22 Page 1 of 32 PageID# 30670
`
`UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF VIRGINIA
`ALEXANDRIA DIVISION
`
`
`RAI STRATEGIC HOLDINGS, INC. and
`R.J. REYNOLDS VAPOR COMPANY
`
`
`Plaintiffs and
`Counterclaim Defendants,
`
`
`v.
`
`ALTRIA CLIENT SERVICES LLC; PHILIP
`MORRIS USA INC.; and PHILIP MORRIS
`PRODUCTS S.A.
`
`
`Defendants and
`Counterclaim Plaintiffs.
`
`Case No. 1:20-cv-00393-LO-TCB
`
`
`ORAL ARGUMENT REQUESTED
`
`
`
`
`
`BRIEF IN SUPPORT OF PLAINTIFF PMI/ALTRIA’S MOTION TO SHOW CAUSE
`WHY SANCTIONS SHOULD NOT BE IMPOSED
`
`
`
`
`
`

`

`Case 1:20-cv-00393-LO-TCB Document 1159 Filed 03/25/22 Page 2 of 32 PageID# 30671
`
`TABLE OF CONTENTS
`
`Page
`
`I.
`
`II.
`
`INTRODUCTION ...............................................................................................................1
`
`FACTUAL BACKGROUND ..............................................................................................4
`
`A.
`
`The Parties’ Damages Theories ...............................................................................4
`
`1.
`
`2.
`
`
` And
`Mr. Meyer’s Reliance On The
` In The Fontem-Nu Mark Agreement ..................................4
`
`Dr. Sullivan’s Rebuttal Opinions .................................................................4
`
`B.
`
`RJR Withheld Documents And Blocked Information Regarding RJR’s
`Negotiations With Fontem That Is Highly Probative Of Damages .........................5
`
`1.
`
`2.
`
`RJR Failed To Produce Responsive Documents Regarding RJR’s
`Communications And Negotiations With Fontem .......................................5
`
`RJR Failed To Produce An Educated 30(b)(6) Witnesses On The
`Fontem-RJR Negotiations And Blocked Discovery By Claiming It
`Was
` .....................................................................................6
`
`C.
`
`D.
`
`E.
`
`
`RJR Moves To Exclude Mr. Meyer’s Opinions Relying On The
` And
` As Unsupported ................................8
`
`Documents Produced Show That RJR Violated Its Discovery Obligations
`And Made Misrepresentations To Judge Buchannan And This Court ....................9
`
`RJR Continues To Refuse To Produce All Responsive Documents
`Regarding Its Negotiations With Fontem ..............................................................11
`
`III.
`
`LEGAL STANDARD ........................................................................................................12
`
`A.
`
`B.
`
`The Court’s Authority To Issue Sanctions Under The Federal Rules ...................12
`
`The Court’s Inherent Authority To Issue Sanctions ..............................................14
`
`IV.
`
`ARGUMENT .....................................................................................................................14
`
`A.
`
`The Court Should Order RJR To Show Cause And Issue Sanctions For
`Violating Rule 26(e)(1)(A) ....................................................................................14
`
`1.
`
`2.
`
`RJR Violated Rule 26 By Failing To Produce Responsive
`Documents Highly Probative Of Damages ................................................14
`
`RJR’s Rule 26 Violation Is Not Substantially Justified Or
`Harmless ....................................................................................................16
`
`ii
`
`

`

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`3.
`
`The Court Should Reopen Discovery For A Limited Purpose And
`Impose Evidentiary Sanctions ....................................................................19
`
`B.
`
`The Court Should Order RJR To Show Cause And Issue Sanctions For
`Making Material Misrepresentations .....................................................................23
`
`CONCLUSION ..................................................................................................................25
`
`V.
`
`
`
`iii
`
`

`

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`
`TABLE OF AUTHORITIES
`
`CASES
`
`Anderson v. Found. for Advancement, Educ. and Employment of Am. Indians,
`155 F.3d 500 (4th Cir. 1998) ..................................................................................................... 14
`
`Beach Mart, Inc. v. L&L Wings, Inc.,
`302 F.R.D. 396 (E.D.N.C. Oct. 3, 2014) ............................................................................ passim
`
`Boryan v. United States,
`884 F.2d 767 (4th Cir. 1989) ....................................................................................................... 8
`
`Chambers v. NASCO, Inc.,
`501 U.S. 32 (1991) .............................................................................................................. 14, 23
`
`Ferrellgas, L.P. v. Best Choice Prod.,
`No. 16-cv-259, 2017 WL 3142044 (M.D.N.C. July 24, 2017) ................................................. 25
`
`Gomez v. Haystax Tech., Inc.,
`761 F. App’x 220 (4th Cir. 2019) .............................................................................................. 18
`
`Law Enforcement Alliance of Am., Inc. v. USA Direct, Inc.,
`61 F. App’x 822 (4th Cir. 2003) ................................................................................................ 14
`
`Quillin v. C.B. Fleet Holding Co.,
`328 F. App’x 195 (4th Cir. 2009) ................................................................................................ 8
`
`Russell v. Absolute Collection Services, Inc.,
`763 F.3d 385 (4th Cir. 2014) ............................................................................................... 15, 18
`
`S. States Rack & Fixture, Inc. v. Sherwin-Williams Co.,
`318 F.3d 592 (4th Cir. 2003) ..................................................................................................... 12
`
`Samsung Elecs. Co. v. NVIDIA Corp.,
`314 F.R.D. 190 (E.D. Va. Feb. 29, 2016) ........................................................................... passim
`
`Silitonga v. Kentucky State Univ.,
`No. 16-cv-29, 2018 WL 3969951 (E.D. Ky. Aug. 20, 2018) .................................................... 21
`
`Silvestri v. Gen. Motors Corp.,
`271 F.3d 583 (4th Cir. 2001) ..................................................................................................... 20
`
`Teeter v. Loomis Armored US, LLC,
`No. 20-cv-79, 2021 WL 6200506 (E.D.N.C. Nov. 23, 2021) ................................................... 20
`
`Thomas v. FTS USA, LLC,
`No. 13-cv-825, 2016 WL 3566657 (E.D. Va. June 24, 2016) ................................. 15, 16, 18, 21
`
`iv
`
`

`

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`
`United States v. Shaffer Equip. Co.,
`11 F.3d 450, 457-58 (4th Cir. 1993) .................................................................................... 24, 25
`
`Vir2us, Inc. v. Invincea, Inc.,
`235 F. Supp. 3d 766 (E.D. Va. 2017) ................................................................................. passim
`
`Westchester Surplus Lines Ins. Co. v. Clancy & Theys Constr. Co.,
`No. 12-cv-636, 2013 WL 6058203 (E.D.N.C. Nov. 15, 2013) ................................................. 17
`
`White v. Raymark Indus., Inc.,
`783 F.2d 1175 (4th Cir. 1986) ............................................................................................. 14, 23
`
`Wu v. Tseng,
`No. 06-cv-580, 2008 WL 4360990 (E.D. Va. Sept. 22, 2008) .................................................. 20
`
`Zornes v. Specialty Indus., Inc.,
`No. 97-2337, 1998 WL 886997 (4th Cir. 1998) ............................................................ 20, 21, 23
`
`RULES
`
`FED. R. CIV. P. 26(3)(1)(a) ............................................................................................................ 12
`
`FED. R. CIV. P. 37 .......................................................................................................................... 18
`
`FED. R. CIV. P. 37(b)(2)(A)(i)-(vi) ................................................................................................ 13
`
`FED. R. CIV. P. 37(c)(1) ................................................................................................................. 16
`
`
`
`v
`
`

`

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`
`I.
`
`INTRODUCTION
`
`As highlighted by the parties’ Daubert motions, a central damages issue in this case is
`
`whether the
`
` in the 2016 Fontem-Nu Mark Agreement is reliable. It is.
`
`Indeed, that
`
` is supported by
`
`
`
`.
`
`RJR has resisted discovery on this issue. PMI/Altria repeatedly sought discovery regarding
`
`RJR’s communications and negotiations with Fontem about their September 2018 settlement (“the
`
`Fontem-RJR Agreement”). PMI/Altria expressly sought “all non-privileged documents related
`
`to Reynolds’s settlement with Fontem … including any communications with Fontem.”1 Ex. 1
`
`(3/12/21 8th Set of RFPs) at 8. RJR failed to produce a single document—not one—nonetheless
`
`representing that it had produced all responsive documents. PMI/Altria requested a corporate
`
`designee on “the Fontem-RJR Settlement Agreement … and all communications and
`
`negotiations relating to the agreement[].” Dkt. 547-3 at 12. The deposition of RJR’s corporate
`
`designee established that he
`
`
`
` PMI/Altria then moved
`
`to compel a knowledgeable corporate witness. RJR opposed, repeatedly representing that “t
`
`
`
` Dkt. 555 at
`
`1. Accepting RJR’s counsels’ representation at face value, Judge Buchannan denied the motion.
`
`Now, after the close of discovery, RJR has moved to exclude the opinions of PMI/Altria’s
`
`damages expert, Paul Meyer, as supported by “no evidence,” representing to this Court that
`
`(i) “
`
`
`
`
`1 All emphasis added and internal citations and quotation marks omitted unless otherwise noted.
`
`1
`
`

`

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`BE 0%: 1090 08), ond(i)
`P| Ex. 2 (3/18/22 Hr’g Tr.) at 43:8-14. Those representations were false.
`On March 17, the evening before the Daubert hearing,ee
`ee. showing that RJR violated its discovery
`
`obligations and madefalse representations to both Judge Buchannan and this Court. The document
`
`is an excerpt of a damages expert report served in the litigation between Altria and RJR that is
`
`currently pending in the Middle District of North Carolina (“the North Carolina Litigation”).
`
`It
`
`3 at 88-89.* In short, these documents confirm that PMI/Altria’s damages expert, Paul Meyer,
`
`properly relied onhe to calculate a reasonable royalty for three asserted patents,
`and thatPe all the while asserting in discovery
`and representing to this Court that it lacked all knowledgeofthatP| and falsely arguing
`that there was no evidence to support that. And RJR did not simply conceal and misrepresent
`
`whatit knew—it affirmatively challenged and sought to exclude PMI/Altria’s damages theories
`
`onthe basis oftheories refuted bythe very information it concealed and misrepresented.
`
`RJR should have produced these documents (and whateverothers exist) early in this case.
`
`Yet, even now, RJR refuses to produce all responsive documents regarding the Fontem-RJR
`
`negotiations. RJR’s conduct and continued stonewalling violates Rule 26. This violation was not
`
`substantially justified or harmless. Worse, RJR blocked undeniably discoverable and highly
`
` 2 The expert report
`
`Ex.
`for Altria to produce this excerpt in this case on an outside counsel’s
`16. Fontem provided consent
`eyes only basis. Ex. 12. The excerpted expert report quotes
`
`

`

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`relevant information from PMI/Altria and then sought to capitalize on its misconduct by moving
`
`to exclude Mr. Meyer’s opinions, falsely telling this Court that his opinions were supported by “no
`
`evidence” and “contradicted by the limited evidence available.” Dkt. 1090 at 4, 8.
`
`The Court should exercise its discretion under the federal rules and inherent authority to
`
`not reward such conduct and remedy the harm by entering a show cause order for why sanctions
`
`should not issue. Given the late stage of this case, highly probative nature of the information
`
`withheld, significant prejudice caused to PMI/Altria, and severity of RJR’s misrepresentations, the
`
`Court should enter an order directing RJR to show cause why RJR:
`
`1. Failed to produce all documents responsive to RFP No. 224, including the documents
`quotedin the expert report that was presented to the Court at the March 18th hearing.
`
`
`2. Represented to Judge Buchannanthat
`
`
`3. Represented to this Court that
`
`4. Should not be ordered to produceall non-privileged documents responsive to RFP No.
`224,list all such responsive documents, and make a 30(b)(6) witness available for a
`four-hour deposition on Topic 28.
`
`Should not be sanctioned in the form of an evidentiary
`
`=anN
`
`sanction directing that, as an
`
`3 During meetand confer, RJR’s counsel suggestedthat a show cause motionis not the appropriate
`procedural vehicle because a discovery orderhad allegedly not been violated. PMI/Altria asked
`for any authority supporting this position; RJR provided none. PMI/Altria brings this motion to
`show cause to give RJR andits counsel an opportunity to be heard and explain itself to the Court
`before the Court rules on PMI/Altria’s requested relief. Whether the Court decides this as a motion
`(i) to show causeor(ii) to compel and for sanctionsis a distinction without a difference.
`
`

`

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`
`II.
`
`FACTUAL BACKGROUND
`A.
`
`The Parties’ Damages Theories
`1.
`
` And
`Mr. Meyer’s Reliance On The
` In The Fontem-Nu Mark Agreement
`
`
`
`Mr. Meyer derives a
`
` for the ’545, ’911, or ’265 Patents using the
`
` in the Fontem-Nu Mark Agreement. Ex. 4 (Meyer Op.) ¶ 25.
`
`He explains this
`
`The
`
` is referenced on the
`
`.4 Id.
`
` of
`
`the Fontem-Nu Mark Agreement. Ex. 5 § 6.3, 6.10.9. Mr. Meyer explains that this
`
` is reliable
`
`in part because
`
`§ 6.10.9.
`
`1011-2 (Sullivan Dep.) at 214:22-215:10. As Mr. Meyer explains, that the
`
`
`
`
`
`. Id.
`
`
`
` Dkt.
`
`
`
`
`
`
`
` Ex. 4 (Meyer Op.) ¶ 195 & n.321.
`
`2.
`
`Dr. Sullivan’s Rebuttal Opinions
`
`RJR’s damages expert, Dr. Sullivan,
`
`Mark Agreement. He bases his reasonable royalty on
`
` in the Fontem-Nu
`
`
`
` in the Fontem-RJR Agreement. Dr. Sullivan does so
`
`by (arbitrarily) relying on an
`
`—after the hypothetical
`
`
`4 The damages experts’ opinions are detailed in the Daubert motions. See Dkts. 915, 1011, 1094.
`
`4
`
`

`

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`negotiations and over two years after RJR executed the Fontem-RJR Agreement—and disregards
`
`the
`
`at 2-8. Using the
`
`. Dkt. 915 at 11-18, 1010
`
`, Dr. Sullivan
`
`
`
` See id.
`
`B.
`
`RJR Withheld Documents And Blocked Information Regarding RJR’s
`Negotiations With Fontem That Is Highly Probative Of Damages
`
`Throughout this case, PMI/Altria repeatedly sought documents and information regarding
`
`the negotiation of the Fontem-RJR Agreement. RJR failed to produce any responsive documents.
`
`Its corporate representative on this topic was unable to answer basic questions. RJR represented
`
`that its testimony on this topic was
`
` to the claims and defenses pending in the case.
`
`1.
`
`RJR Failed To Produce Responsive Documents Regarding RJR’s
`Communications And Negotiations With Fontem
`
`PMI/Altria served multiple requests seeking documents about RJR’s communications and
`
`negations with Fontem leading to the Fontem-RJR Agreement. For example, PMI/Altria served
`
`Request for Production No. 224, seeking: “all non-privileged documents related to Reynolds’s
`
`settlement with Fontem … including any communications with Fontem.” Ex. 1 (3/12/21 8th Set
`
`of RFPs) at 8. RJR responded that it “does not expect to produce Documents in response to this
`
`request beyond those already being produced in response to other requests.” Ex. 6 (4/12/21
`
`Resp. to 8th Set of RFPs) at 4. Documents regarding RJR’s communications and negotiations with
`
`Fontem are separately responsive to additional document requests. See Ex. 7 (9/17/20 Resp. to 1st
`
`Set of RFPs) at 94-95 (“Request No. 102: All Documents that evidence … any Communication
`
`between Counterclaim Defendants and any Person … referring to any patents … directed to
`
`electronic cigarettes that Counterclaim Defendants have licensed.”); id. at 130 (“Request No. 139:
`
`All Documents relating to any patent license agreement … you have entered into relating to or
`
`covering the RJR Accused Products.”), id. at 137 (RFP No. 146: All Documents relating to any
`
`5
`
`

`

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`litigation” over the accused products); Ex. 8 (11/4/20 Resp. to 2nd Set of RFPs) at 4-5 (“Request
`
`No. 158: All Documents concerning any license … relating to any … electronic cigarette
`
`technology”). RJR never produced any documents regarding its negotiations with Fontem.
`
`2.
`
`RJR Failed To Produce An Educated 30(b)(6) Witnesses On The
`Fontem-RJR Negotiations And Blocked Discovery By Claiming It
`Was
`
`
`PMI/Altria sought information regarding RJR’s communications and negotiations with
`
`Fontem by serving a 30(b)(6) deposition notice. In October 2020, PMI/Altria served a 30(b)(6)
`
`notice that included Topic 28, reproduced in relevant part below:
`
`Any settlement agreements … executed by [RJR] covering patents or patent
`applications related to e-cigarette technology, including but not limited to …
`(iii) the Fontem-RJR Settlement Agreement
`(see RJREDVA_00121385-
`RJREDVA_00121559), and all communications and negotiations relating to the
`agreements, licenses, and patent acquisitions identified above.
`
`Dkt. 547-3 at 12. RJR designated Nicholas Gilley to testify about Topic 28.
`
`Before all claims in the case were temporarily stayed in December 2020, PMI/Altria
`
`deposed Mr. Gilley. Ex. 17 (Gilley Dep.) at 10:21-11:17. Mr. Gilley was unprepared to testify on
`
`the full scope of Topic 28. He testified that
`
`13, 215:3-217:4, 217:22-25. The
`
`
`
`
`
` Id. at 212:10-
`
`
`
` Id. at 215:24-
`
`217:4; see also id. at 219:14-221:22, 222:25-223:22. PMI/Altria objected to his lack of preparation
`
`on the record (id. at 279:7-24) and, after the deposition, asked RJR to produce a witness prepared
`
`to testify on the full scope of Topic 28. Dkt. 547-5.
`
`Shortly thereafter, the case was temporarily stayed. Dkts. 426, 432. After the Court lifted
`
`the stay in February 16, 2021, PMI/Altria again requested a fully-prepared witness on Topic 28.
`
`6
`
`

`

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`Dkt. 547-6 (2/26/21 Ltr.) at 1; Dkt. 547-7. Reynolds refused. On April 9, 2021, PMI/Altria moved
`
`to compel RJR to produce a 30(b)(6) witness on various topics, including Topic 28. Dkt. 547 at
`
`7-10. PMI/Altria explained that Mr. Gilley was unpreparedto testify on the full scope of the topic,
`
`lon,
`
`| Id. at 1. PMI/Altria explained that RJR should produce|
`
`||||P
`
`e Id. at 9; see also id. at 7-10.
`RJR opposed. RJR argued that the damages experts allegedly olyiii
`Po and represented to the Court—seven imes—hiii
`
`ES 0.555 3:1)
`
`° RJR argued that Dr. Sullivan “relied exclusively on the terms of the Fontem-RJRVsettlement
`agreement; he did not consideror rely upon any informationregarding the negotiation.” Dkt. 555
`at 8. That is unsurprising because, as the documents that RJR withheld show, the documents
`
`

`

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`' Po
`iesId. at 10.
`
`On April 16, 2021, RJR’s counsel argued to Judge Buchanan that RJR need not produce a
`
`witness on Topic 28 because: “[t]he question we’re lookingatis, is there anything relevant about
`
`the negotiations and the lead up to that [Fontem] RJ Reynolds’ agreement.” Ex. 9 (4/16/21 Hr’g
`
`Tr.) at 5. RJR’s counsel argued that (i) the information was protected under Rule 408, (ii) both
`
`parties’ damages experts allegedly look only “at the terms of the agreement,” (ii1) RJR has “not
`
`opened the doorto the background of the negotiations,” and (iv) PMI/Altria “would really like to
`
`dig into our own internal deliberations.” Jd. at 5-6.
`
`In view of RJR’s representations about the
`
`purported irrelevancy of the negotiations, Judge Buchannan denied PMI/Altria’s motion: “As to
`
`Number28, I believe that it’s not appropriate to get into negotiations or the considerations that
`
`they made internally as to this. I think the documentspeaks foritself.” Jd. at 7.°
`
`@:
`
`RJR Moves To Exclude Mr. Meyer’s Opinions Relying On The ii
`
`RJR subsequently moved to exclude Mr. Meyer’s opinions relying on thea)
`|| and to preclude him relying onPY Dkt. 892. RJR argued that Mr.
`
`associated with those negotiations directly refute his opinions. And, of course, without the relevant
`documents and information, there was nothing for Mr. Meyerto rely on.
`
`© RJR contends
`
`Ex. 10 (3/22/22 Ltr.) at 1.
`But PMI/Altria’s motion was directed to compelling depositions—not document requests. And,
`ifnecessary, reconsideration is warranted based on the new evidence. Quillin v. C_B. Fleet Holding
`Co., 328 F. App’x 195, 203 (4th Cir. 2009) (“New evidence is a ground for reconsideration
`recognized in this circuit.”); see also Boryan v. United States, 884 F.2d 767, 771 (4th Cir. 1989).
`Regardless, the entire point of moving to compel a competent witness on Topic 28 was to examine
`an RJR designee regarding RJR’s non-production of documents on the Fontem negotiations, which
`would have provided a basis to compel production of the underlying documents.
`
`

`

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`Meyer's opinions=.
`Coee
`
`RJR further argued that Mr. Meyer’s opinionsabou were speculative and
`“contradicted by the limited evidence available” becauseit is unknowni
`
`
`
`Dkt. 1090 at 8. Accordingly, RJR argued that “Mr. Meyershould [] be precluded foniii
`I2215 bs “opinions lack any
`
`factual support.” Dkt. 892 at 19. RJR doubled downon this argument at the March 18 hearing,
`
`D.
`
`Documents Produced Show That RJR Violated Its Discovery Obligations
`And MadeMisrepresentations To Judge Buchannan And This Court
`
`Altria and RJR are currently litigating Altria’s patent infringement claims in the North
`
`Carolina Litigation. Altria Client Services LLC v. R.J. Reynolds Vapor Co., No. 20-cv-00472. The
`
`same law firm, Jones Day—andelevenof the same lawyers from that firm—tepresents RJR in
`
`In the former, Fontemi
`both the North Carolina Litigation and this case. Ex. 11.
`ES| 15: ):00cionnc
`
`7 While Altria worked diligently after the hearing to obtain Fontem’s consent to produce in this
`
`case (1 and (2
`
`
`. PMI/Altria
`
` will review the remainderof Fontem’s production and supplement this motion, as necessary.
`
`

`

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`
`First, Fontem produced
`
`88, n.474.
`
`Id. at 88.
`
`. Ex. 3 at 88-89 n. 475.
`
`. Ex. 3 at
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
` as shown below:
`
`10
`
`

`

`Case 1:20-cv-00393-LO-TCB Document 1159 Filed 03/25/22 Page 16 of 32 PageID# 30685
`
`Id. at 89. This admission confirms that Mr. Meyer properly relied on 5
`
`. It confirms that RJR’s representations to Judge Buchannan, that the
`
`. Supra at 7-8. And it directly refutes RJR’s arguments that (i)
`
` (Dkt. 892 at 18), (ii)
`
`
`
`
`
`
`
`
`
`1009 at 8), and (iii)
`
` (Dkt.
`
` Ex. 2 at 43:8.
`
`E.
`
`RJR Continues To Refuse To Produce All Responsive Documents Regarding
`Its Negotiations With Fontem
`
`On March 17, 2022, Fontem consented to allow Altria to use
`
`
`
`, in this case. Ex. 12
`
`(3/17/22 Email). The pages of this report contain the
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`shown above. Ex. 3. As the Court will recall, counsel for PMI/Altria
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` Ex. 2 (3/18/22 Hr’g Tr.) at 53:14-56:17.
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`After the hearing, PMI/Altria asked RJR to produce “all documents responsive to RFP No.
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`224, including to any communications with Fontem regarding the negotiations of the Fontem-RJR
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`settlement agreement,” and make an educated 30(b)(6) witness available for deposition on Topic
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`28. Ex. 13 (3/21/22 Sandford Email). RJR refused, arguing that it
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`
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`. Ex. 10 (3/22/22 Ltr.) at 1. During a telephonic meet and confer, PMI/Altria asked RJR
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`to, alternatively, produce at least
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`. RJR refused, again claiming that
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` Id. at 1-2.
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`RJR subsequently agreed, on March 24, to “provide its consent” to Altria producing the
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`documents that Fontem produced in the North Carolina Litigation in this case. Ex. 14 (3/24/22
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`Email). Yet RJR refused to produce (i) all non-privileged documents relating to the Fontem-RJR
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`negotiations responsive to PMI/Altria’s document requests, or (ii) an educated 30(b)(6) witness on
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`Topic 28. Instead, RJR reiterated its “position that the negotiations between Reynolds and Fontem
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`… are not relevant or discoverable in this matter,” while maintaining its challenge to Mr. Meyer
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`that is directly refute by the documents and evidence RJR continues to withhold and conceal. Id.
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`III. LEGAL STANDARD
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`“Whether to impose discovery sanctions lies within the wide discretion of the court.”
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`Beach Mart, Inc. v. L&L Wings, Inc., 302 F.R.D. 396, 405 (E.D.N.C. Oct. 3, 2014) (citing S. States
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`Rack & Fixture, Inc. v. Sherwin-Williams Co., 318 F.3d 592, 595 (4th Cir. 2003)). “The court has
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`various tools at its disposal in exercising this discretion, including the Federal Rules of Civil
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`Procedure and the court’s inherent powers.” Id.
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`A.
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`The Court’s Authority To Issue Sanctions Under The Federal Rules
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`“The process of deciding whether to impose sanctions … involves three major steps:
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`(1) determining that a violation of a discovery order or one of the Federal Rules of Civil Procedure
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`occurred; (2) determining whether that violation was harmless and substantially justified, by
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`reference to Southern States …; and (3) fitting a sanction to the violation, if one is found.”
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`Samsung Elecs. Co. v. NVIDIA Corp., 314 F.R.D. 190, 195-96 (E.D. Va. Feb. 29, 2016).
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`“First, a court determines whether a violation of a rule of civil procedure or a court order
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`has occurred.” Id. at 196. Rule 26(e)(1)(a) requires a party who has responded to “a request for
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`production” to “supplement or correct its disclosure or response … in a timely manner if the party
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`learns that in some material respect the disclosure or response is incomplete or incorrect.” The
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`“failure to provide information under Rule 26 includes the failure to supplement the written
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`response to the Rule 34 request for production.” Beach Mart, 302 F.R.D. at 409.
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`Second, the Court analyzes whether the violation was substantially justified or harmless.
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`Under Rule 37(c)(1), “[i]f a party fails to provide information … as required by Rule 26(a) or (e),”
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`“the party is not allowed to use that information” at trial “unless the failure was substantially
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`justified or is harmless.” “[S]ubstantial justification and harmless are determined by reference to”
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`the Southern States factors: “(1) The surprise to the party against whom the evidence would be
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`offered; (2) The ability of that party to cure the surprise; (3) The extent to which allowing the
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`evidence would disrupt the trial; (4)The importance of the evidence; and (5) The nondisclosing
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`party’s explanation for its failure to disclose the evidence.” Samsung, 314 F.R.D. at 197. RJR, as
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`“the nondisclosing party,” has “[t]he burden of establishing these factors.” Id.
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`Third, “[i]f the failure to disclose was not substantially justified and harmless, then the
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`court proceeds to impose a sanction.” Id. “While Rule 37(c)(1) is often read as an automatic
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`preclusion sanction against a noncomplying party, … the second sentence of the rule permits other
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`appropriate sanctions in addition to or in lieu of the automatic preclusion.” Vir2us, Inc. v. Invincea,
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`Inc., 235 F. Supp. 3d 766, 779 (E.D. Va. 2017). Specifically, Rule 37(c)(1) authorizes the Court
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`to “(A) order payment of reasonable expenses, including attorney’s fees, caused by the failure;
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`(B) [] inform the jury of the party’s failure; and (C) [] impose other appropriate sanctions,
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`including any of the orders listed in Rule 37(b)(2)(A)(i)-(vi).” Subsection (C) sets forth alternative
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`or additional sanctions, including “(i) directing that the matters embraced in the order or other
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`designated facts be taken as established for purposes of this action, as the prevailing party claims,”
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`and “(ii) prohibiting the disobedient party from supporting or opposing designated claims or
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`defenses, or from introducing designated matters in evidence.” FED. R. CIV. P. 37(b)(2)(A)(i)-(ii).
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`Where, as here, a party seeks alternative sanctions, the Fourth Circuit “has developed a
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`four-part test for a district court to use when determining what sanctions to impose under Rule
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`37.” Law Enforcement Alliance of Am., Inc. v. USA Direct, Inc., 61 F. App’x 822, 830 (4th Cir.
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`2003) (quoting Anderson v. Found. for Advancement, Educ. and Employment of Am. Indians, 155
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`F.3d 500, 506 (4th Cir. 1998)). The Court considers: “(1) whether the non-complying party acted
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`in bad faith; (2) the amount of prejudice that noncompliance caused the adversary; (3) the need for
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`deterrence of the particular sort of noncompliance; and (4) whether less drastic sanctions would
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`have been effective.” Id. The Court “need not find that all four factors were present to grant
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`alternative sanctions.” Beach Mart, 302 F.R.D. at 414. And “Rule 37(c)(1) does not require that
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`a party act willfully or in bad faith for sanctions to apply,” as they “may be imposed even for
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`negligent failures to provide discovery.” Id.; see also Law Enforcement, 61 F. App’x at 830-31.
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`B.
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`The Court’s Inherent Authority To Issue Sanctions
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`Beyond the “power to sanction under the Rules,” the Court has “the inherent power to
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`impose sanctions on parties who abuse the judicial process,” Beach Mart, 302 F.R.D. at 405, and
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`“control and protect the administration of court proceedings.” White v. Raymark Indus., Inc., 783
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`F.2d 1175, 1177 (4th Cir. 1986). And it is well-established that the Court has the power to impose
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`appropriate sanctions “for bad-faith conduct.” Chambers v. NASCO, Inc., 501 U.S. 32, 50 (1991).
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`IV. ARGUMENT
`A.
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`The Court Should Order RJR To Show Cause And Issue Sanctions For
`Violating Rule 26(e)(1)(A)
`1.
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`RJR Violated Rule 26 By Failing To Produce Responsive Documents
`Highly Probative Of Damages
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` RJR violated Rule 26 by failing to produce responsive documents regarding its settlement
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`negotiations with Fontem, including at least
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`undisputed that
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`. It is
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` and failed to produce them. Worse, even after Fontem produced these documents in the
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`North Carolina Litigation, RJR—represented by the same law firm and 11 of the same lawyers—
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`still did not produce them in this case. Even now, although RJR finally “consented” to Altria
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`producing Fontem’s production in this case, RJR refuses to produce all responsive documents.
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`RJR’s undisputed failure—and continued failure—to produce these highly relevant documents
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`violates its discovery obligations under Rule 26(e). Beach Mart, 302 F.R.D. at 408.
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`Russell v. Absolute Collection Services, Inc. is instructive. There, the Fourth Circuit
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`affirmed a finding that defendant’s production of collection payment reports “during the reopened
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`discovery period” violated Rule 26 because it “had either known or should have known” about the
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`documents “during the initial discovery period.” 763 F.3d 385, 396-97 (4th Cir. 2014). Likewise,
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`the Beach Mart court found that the defendant “violated Rules 26 and 37 by (1) failing to identify,
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`request, and disclose” agreemen