Sheppard Mullin Sanctioned In $47M Telescope Antitrust Fight

Law360 (June 1, 2020, 11:17 PM EDT) -- A California federal judge on Monday sanctioned a Chinese telescope maker and its former counsel at Sheppard Mullin for misrepresenting its oversight of document production during post-trial discovery following a $47 million antitrust judgment.

U.S. Magistrate Judge Virginia K. DeMarchi rejected arguments by Sheppard Mullin Richter & Hampton LLP — which was allowed to withdraw as counsel for defendant Ningbo Sunny Electronic Co. Ltd. last month — and found that the firm didn't police the company's untruthful responses.

The firm had argued that it shouldn't be blamed for any of Ningbo Sunny's discovery violations earlier this year because there had been a breakdown in communication between the firm and its client — the same argument Sheppard Mullin had cited when it sought to withdraw as counsel.

But Judge DeMarchi said in her order Monday that even with the purported lapse in communication, the law firm failed to undertake a reasonable inquiry into whether Ningbo Sunny's discovery responses related to the enforcement of the judgment in the plaintiff's favor were complete, and as a result, sanctions are warranted.

"It is not enough for counsel to provide advice and guidance to a client about how to search for responsive documents, and then not inquire further about whether that advice and guidance were followed," the order says. "This is particularly true here, where Ningbo Sunny and its counsel knew that both [the plaintiff] and the court were concerned about steps Ningbo Sunny might take to frustrate enforcement of the judgment against it."

The sanctions ruling is the latest in a hotly contested antitrust lawsuit that California-based Optronic Technologies Inc., known as Orion, filed against Ningbo Sunny and other telescope makers in 2016, alleging they conspired to fix the consumer telescope market. Orion's suit originally named Synta Technology Corp.'s U.S. telescope maker subsidiary, Celestron, as well, but Celestron settled before trial.

After a six-week trial, a jury in November hit Ningbo Sunny with $16.8 million in antitrust damages, which were later trebled and slightly reduced for a total judgment of $47 million, payable to Orion.

But the district judge found that Ningbo Sunny and its chairman, Peter Ni, acted in bad faith and committed fraud on the court by smuggling $4 million out of the U.S. to China in January, even though Ni had sworn he would not transfer any funds to avoid paying the judgment.

Shortly afterward, Orion filed a sanctions motion with Judge DeMarchi against Ningbo Sunny and Sheppard Mullin. Orion argued that the firm falsely certified that Ningbo Sunny's discovery responses were complete and correct at the time they were made, even though they were missing emails showing Ni had taken efforts to transfer funds. Orion also argued that the firm failed to take steps to ensure that Ningbo Sunny complied with its discovery requests and instead blindly trusted its client to produce the documents.

On Monday, Judge DeMarchi rejected Orion's arguments that the documents were falsely certified. However, she said Sheppard Mullin failed to undertake a reasonable inquiry regarding whether Ningbo Sunny's discovery responses were complete. The judge noted that the firm even admitted it didn't ask what its client did to comply with the requests.

"Sheppard Mullin says that it followed up with Ningbo Sunny 'in an effort to make sure that all documents had been collected,' but if that follow up did not include inquiring about what the client did (and by Sheppard Mullin's own account it did not) then the follow up was not reasonable in these circumstances," the order said.

The judge ordered Ningbo Sunny's new counsel, Kevin J. Cole of KJC Law Firm, to ensure that Ningbo Sunny fully complies with Orion's post-judgment document requests by June 26 and concluded that Sheppard Mullin and Ningbo Sunny "jointly" pay Orion's counsel for fees and costs associated with fighting the discovery dispute and sanctions bid.

The judge gave Orion until June 12 to submit an application for fees and costs.

Orion's counsel, Matthew Borden of BraunHagey & Borden LLP, told Law360 on Monday that the sanctions against Sheppard Mullin affirm that a lawyer cannot be complicit in a client's efforts to hide evidence by looking the other way.

"We appreciate the care put into the ruling and the court's efforts to make Ningbo Sunny comply with discovery," he said.

Counsel for Ningbo Sunny and representatives for Sheppard Mullin didn't immediately respond Monday to requests for comment.

Sheppard Mullin is represented by Leo D. Caseria and Michael W. Scarborough of Sheppard Mullin Richter & Hampton LLP.

Orion is represented by Matthew Borden and Ronald J. Fisher of BraunHagey & Borden LLP. Ningbo Sunny is represented by Kevin J. Cole of KJC Law Group.

The case is Optronic Technologies Inc. v. Ningbo Sunny Electronic Co. Ltd. et al., case number 5:16-cv-06370, in the U.S. District Court for the Northern District of California.

--Editing by Michael Watanabe.

Correction: An earlier version of this story misstated the name of Ningbo Sunny's new counsel. The story has been corrected.