Spartan Composites LLC, et al., v. Signature Systems Group, LLC

United States District Court
EASTERN DISTRICT OF TEXAS
SHERMAN DIVISION
SPARTAN COMPOSITES, LLC, d/b/a
FODS, and SPARTAN MAT, LLC,
Plaintiffs,
v.
SIGNATURE SYSTEMS GROUP, LLC,
Defendant.
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Civil Action No. 4:24-cv-609
Judge Mazzant
MEMORANDUM OPINION AND ORDER
Pending before the Court is Defendant Signature Systems Group, LLC’s Partial Motion to
Dismiss and for Sanctions Based on Plaintiffs’ Pre-Suit Misconduct (Dkt. #120). Having
considered the Motion and the relevant pleadings, the Court finds that the Motion should be
DENIED.
BACKGROUND
Before the Court lies a hidden-camera discovery dispute between multiple business entities
associated with the construction industry. Any fair assessment of the facts of this case must be
founded upon a clear examination of the relevant parties. Defendant alleges that it first began
selling “composite mat[s,]” or portable floor terrain sections designed to remove mud, dirt, and
other debris from, in 2007 (Dkt. #20 at p. 12; Dkt. #60 at ¶ 7). Five years after Defendant entered
the business, Plaintiff Spartan Mat, LLC (“Spartan Mat”) was founded and began developing its
own composite mats. Plaintiff Spartan Composites, LLC (“Spartan Composites”), was founded
sometime later (Dkt. #20 at p. 15; Dkt. #60 at ¶ 22). In early 2014, FODS, LLC (“FODS”), then
a business entity separate and apart from Plaintiffs, began work on a unique reusable “trackout
control mat” that would clean tires by deforming them (Dkt. #1 at ¶ 12).
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FODS ultimately piqued Defendant’s interest, and on August 13, 2018, Defendant executed
a confidentiality agreement with FODS that gave Defendant access to certain confidential
information to support a potential buyout (Dkt. #1 at ¶¶ 17–18; Dkt. #20 at p. 15; Dkt. #60 at ¶ 17).
Despite “many months of review and discussion,” Defendant and FODS did not reach an
agreement (Dkt. #1 at ¶ 19). Around that time, Defendant turned its attention to Plaintiffs and
brought suit against them on matters related to trade dress and patent infringement (Dkt. #20 at p.
15; Dkt. #60 at ¶¶ 23–25). By December 2019, the parties signed a settlement agreement wherein
they promised not to “manufacture, market, advertise, or sell any [m]at which is designed to be
interlockable/interoperable with [the other parties’ mats] for a period of seven (7) years from the
Effective Date” (Dkt. #1 at ¶ 42; Dkt. #20 at p. 15). Following the execution of the settlement
agreement, Plaintiffs partnered with FODS and began manufacturing the unique trackout mat that
FODS had designed (Dkt. #20 at p. 16; Dkt. #60 at ¶ 27).
As Plaintiffs and FODS continued to work together, Defendant’s interest in FODS was
reignited, and Defendant and FODS executed yet another confidentiality agreement based on
Defendant’s expression that it was again considering acquiring FODS for itself (Dkt. #1 at ¶ 20).
From May 2021 until the end of March 2022, Defendant requested and received a significant
amount of confidential information from FODS (Dkt. #1 at ¶¶ 20–24).1 As part of the negotiations,
Defendant’s head engineer was even permitted to inspect FODS’s manufacturing and molding
processes and to take photographs of the mat molds (Dkt. #1 at ¶ 24). Despite the collaborative
1 Defendant requested and received “designs, specifications, ideas, and concepts, customer information . . . .” related
to FODS (Dkt. #1 at ¶ 20). These included thousands of pages of confidential customer and business information,
including “mat mold drawings” and detailed answers to manufacturing and assembly questions (Dkt. #1 at
¶¶ 21–22). Defendant also received “log-in access” to various key systems, which allegedly allowed Defendant to
“monitor all business activity from production, sales, and quoting in real time and unmonitored by FODS
personnel” (Dkt. #1 at ¶ 23).
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examination process, further discussions were again suddenly terminated by Defendant in late
March, 2022 (Dkt. #1 at ¶ 25).
On November 1, 2023, Defendant launched “DiamondTrack,” a trackout prevention mat
aimed at removing mud, dirt, and debris from vehicles exiting work sites (See Dkt. #1 at ¶ 26).
Defendant’s new model remained “both interlockable and interoperable with FODS’s mats” such
that “a customer of both may use the hardware that accompanies the FODS mat to connect the
DimondTrack [sic] mat to the FODS mat” (Dkt. #1 at ¶¶ 26–27). Whether the connection between
the two brands was the result of an act by Plaintiffs or Defendant remains a point of great contention
(see Dkt. #16 at pp. 13–14; Dkt. #60 at ¶ 16).
In the year following the launch of Defendant’s DiamondTrack product, Plaintiffs acquired
FODS (Dkt. #20 at p. 16; Dkt. #60 at ¶¶26–27). Shortly thereafter, Plaintiffs’ head of operations,
Ryan Webster (“Webster”), with phone in hand and hidden camera in pocket, took to Defendant’s
manufacturing facility in Orlando, Florida (Dkt. #120 at p. 1). While there, he took pictures of
Defendant’s manufacturing machinery and secretly used a hidden camera (placed inside of a pen)
to make a covert video recording of his conversations with employees (Dkt. #134-1 at p. 15; Dkt.
#120 at p. 6). Traditional discovery would later reveal additional facts about Webster’s mission,
namely that the scheme was financed by Spartan Composites (which, by that time, had begun doing
business as FODS), and that the plot was further shared with Nathan Barker (“Barker”), the
corporate representative of FODS, and the co-founder of FODS, Bryce Clingerman
(“Clingerman”) (Dkt. #120 at p. 1; Dkt. #120-4 at p. 2; Dkt. #120-5 at pp. 18–20; Dkt. #75 at p. 1).
Just one week later, on July 3, 2024, Plaintiffs filed their Original Complaint in this court,
bringing the following four causes of action against Defendant: (1) misappropriation of trade secrets
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in violation of the Defend Trade Secrets Act, 18 U.S.C. ¶ 1836; (2) misappropriation of trade
secrets in violation of the Texas Uniform Trade Secrets Act; (3) breach of contract; and (4) tortious
interference with prospective business relations (Dkt. #1 at pp. 11–15). On August 29, 2024,
Defendant filed its Answer and Counterclaim to Plaintiffs’ Complaint, alleging that Plaintiffs
breached their settlement agreement because they sold products “designed to be
interlockable/interoperable” with Defendant’s unique locking system, which Defendant claims has
been used since 2007 (Dkt. #4 at p. 15).
On March 7, 2025, following months of discovery, Defendant filed its Amended Answer
and Counterclaim to Plaintiffs’ Complaint, adding a claim for interference with prospective
business relationships (Dkt. #1 at pp. 20–21). On September 2, 2025, Defendant filed its Partial
Motion to Dismiss and for Sanctions Based on Plaintiffs’ Pre-Suit Misconduct, arguing that
Webster’s bad-faith conduct, considered in light of Plaintiffs’ approval of it, warrants dismissal of
all claims associated with the information it provided (Dkt. #120). On September 17, 2025,
Plaintiffs filed their Response to Defendant’s Motion to Dismiss and For Sanctions, arguing that
sanctions are neither factually nor legally justified in this case (Dkt. #127). Six days later, on
September 23, 2025, Defendant filed its Reply, again asking this Court to strike “Plaintiffs’ trade
secret allegations pertaining to FODS’s mold and molding process, which are rooted in plaintiffs’
abusive pre-suit conduct” (Dkt. #134 at p. 1). Finally, on September 24, 2025, Plaintiffs filed their
Sur-Reply, repeating their earlier stance and emphasizing the hesitancy at which courts apply
dismissal sanctions (Dkt. #145). The Motion is now ripe for adjudication.
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LEGAL STANDARD
The United States Supreme Court has held that, in certain circumstances, federal courts
have inherent powers to sanction. Chambers v. NASCO, Inc., 501 U.S. 32, 44–45 (1991). This power
“includes the ability to punish conduct before the court as well as actions beyond the court’s
confines, regardless of whether that conduct interfered with courtroom proceedings.” Am. Unites
for Kids v. Rousseau, 985 F.3d 1075, 1088 (9th Cir. 2021). However, “[b]ecause of their very potency,
inherent powers must be exercised with restraint and discretion.” Chambers, 501 U.S. at 44.
Further, “[t]he threshold for the use of inherent power sanctions is high.” Matta v. May, 118 F.3d
410, 416 (5th Cir. 1997) Indeed, the court’s inherent sanction powers may be exercised “only if
essential to preserve the authority of the court and the sanction chosen must employ the least
possible power adequate to the end proposed. If there is a reasonable probability that a lesser
sanction will have the desired effect, the court must try the less restrictive measure first.” Nat. Gas
Pipeline Co. of Am. v. Energy Gathering, Inc., 86 F.3d 464, 467 (5th Cir. 1996). “In short, the inherent
power springs from the well of necessity, and sparingly so.” Nat. Gas Pipeline Co. of Am. v. Energy
Gathering, Inc., 2 F.3d 1397, 1407 (5th Cir. 1993).
The Fifth Circuit has “confined sanctions under the district court’s inherent power to
instances of bad faith or willful abuse of the judicial process.” Pressey v. Patterson, 898 F.2d 1018,
1021 (5th Cir. 1990). Bad faith is “not simply bad judgment or negligence, but rather it implies the
conscious doing of a wrong because of dishonest purpose of moral obliquity; . . . it contemplates a
state of mind affirmatively operating with furtive design or ill will.” United States v. Gilbert, 198
F.3d 1293, 1299 (11th Cir. 1999) (citation modified). Such bad faith “is judged by ‘necessarily
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stringent’ standards.” Pressey, 898 F.2d at 1021 (citing Batson v. Neal Spelce Associates, Inc., 805 F.2d
546, 550 (5th Cir. 1986)).
A district court must evaluate whether “bad faith or willful abuse of the judicial process”
exists under a “clear and convincing” evidentiary standard. In re Moore, 739 F.3d 724, 730 (5th Cir.
2014). Put another way, “[t]o support a finding of bad faith, the evidence must be so direct and
weighty as to leave the factfinder with a firm belief in the truth of the facts of the case.” Crowe v.
Smith, 261 F.3d 558, 563 (5th Cir. 2001) (citing In re Medrano, 956 F.2d 101, 102 (5th Cir. 1992)).
Engaging in self-help to circumvent the discovery process in bad faith is among the range
of conduct for which a district court may assess sanctions using its inherent powers. See, e.g.,
Rousseau, 985 F.3d at 1085, 1091 (analyzing a district court’s use of its inherent powers to sanction
a party based on the unauthorized pre-suit testing of evidence); Lahr v. Fulbright & Jaworski, L.L.P.,
1996 WL 34393321, *2 (N.D. Tex. 1996) (“The court may exercise its inherent authority to exclude
‘proprietary’ documents obtained unfairly and outside the context of formal discovery.”).
ANALYSIS
Defendant asks this Court to use its inherent power to sanction Plaintiffs by striking and
dismissing two trade secret claims relating to the information obtained through Webster’s trip to
Defendant’s Florida manufacturing facility (Dkt. #120 at p. 5; Dkt. #134, p. 7). Defendant has
repeatedly made it clear that, in its opinion, nothing less than dismissal of these claims will do
(Dkt. #120 at p. 12). Because the Court is unpersuaded that Plaintiffs’ actions warrant the
“draconian remedy of dismissal,” and Plaintiffs have not requested lesser sanctions, the Court
declines to invoke its inherent power in this case. Marshall v. Segona, 621 F.2d 763, 767 (5th Cir.
1980); MultiPlan, Inc. v. Holland, 937 F.3d 487, 501 (5th Cir. 2019) (quoting Chambers, 501 U.S. at
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43 and Positive Software Sols., Inc. v. New Century Mortg. Corp., 619 F.3d 458, 460 (5th Cir. 2010))
(citation modified) (“[I]nherent powers—those implied powers that are necessary for a court to
manage its affairs—should only be used ‘to achieve the orderly and expeditious disposition of
cases,’ and when they are ‘essential to preserve the authority of the court.’”). While the Court
seeks to properly discourage business entities from engaging in interstate activity that invokes
thoughts of corporate espionage and scenes from “Mission Impossible,” Defendant is nonetheless
correct in its assertion that “[t]he ultimate issue of whether Plaintiffs’ actions should be prosecuted
under Florida law is not before the Court” (Dkt. #134 at p. 6). In that context, Defendant is free
and encouraged to seek out justice, where legally permissible, for any alleged violations of Florida
law elsewhere as it so chooses. To the extent that Defendant requests that the Court use its limited
inherent power to strike Plaintiffs’ claims for bad faith abuse of the judicial system, however, the
request is denied.
I. Dismissal Sanctions are not Warranted
There is insufficient ground to conclude that Plaintiffs’ pre-litigation actions constitute bad
faith abuse of the judicial process such that dismissal sanctions are appropriate. Further, the Court
declines to use its inherent power to dismiss claims associated with every bad faith act taken prior
to litigation. While the Court finds that Plaintiffs acted in bad faith in ordering, supporting, funding,
and ultimately benefitting from Webster’s Florida mission, it cannot find the same support for the
notion that Plaintiffs’ bad faith has resulted in any abuse of the judicial process fairly punishable by
dismissal sanctions. Because Defendant has not adequately explained why Plaintiffs’ conduct has
so negatively impacted or abused the present litigation as to invoke the inherent power of the Court
to “manage [its] own affairs so as to achieve the orderly and expeditious disposition of cases,” the
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Court sees no reason to resort to the harsh application of dismissal sanctions. Link v. Wabash R.
Co., 370 U.S. 626, 631 (1962).
A. Clear and Convincing Evidence of Bad Faith
From the face of the record, Plaintiffs’ involvement in Webster’s mission to Florida
constitutes a bad faith act. As noted above, bad faith “implies the conscious doing of a wrong
because of dishonest purpose or moral obliquity; . . . it contemplates a state of mind affirmatively
operating with furtive design or ill will.” Miller v. Dunn, 774 F. Supp. 3d 806, 818 (N.D. Tex. 2024).
Here, Webster admitted in deposition that he knowingly and intentionally entered Defendant’s
manufacturing facility without permission and repeatedly lied to Defendant’s employees about
meeting with a fictional individual to remain in the facility (See Dkt. #134-1 at pp. 10–14). He further
agreed that he “came up with an excuse for being in [Defendant’s] manufacturing facility because
[he] knew [he was not] supposed to be there . . . .” (Dkt. #134-1 at p. 14). As noted above, he secretly
recorded the event with a pen camera and openly took photos of Defendant’s heavy machinery
(Dkt. #134-1 at p. 15). Webster’s actions, taken together, satisfy even the “necessarily stringent”
bad faith standard. Batson, 805 F.2d at 550 (5th Cir. 1986); See, e.g., Site 2020 Inc. v. Superior Traffic
Services, LLC, No. CV 21-63-M-DLC-KLD, 2023 WL 4060099, at *10 (D. Mont. Mar. 27, 2023),
(finding that a party acted in bad faith where, during the course of litigation, it ordered its employee
to don a disguise and infiltrate the property of another party to gain insight into confidential
discovery matters), report and recommendation adopted, No. CV 21-63-M-DLC, 2023 WL 4248715
(D. Mont. June 29, 2023).
But the bad faith in this case is hardly limited to Webster in his individual capacity. The
evidence is uncontroverted that: (a) Barker and Clingerman knew about and agreed that Webster
should undertake the Florida mission; (b) Clingerman bought Webster a hidden pen camera and
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knew that he would use it at Defendant’s facility; (c) Plaintiffs (FODS) paid for Webster’s plane
ticket to Florida; (d) Plaintiffs (FODS) reimbursed Webster for his hotel expenses; (e) Plaintiffs
(FODS) paid for Webster’s rental car; and (f ) Barker personally thanked Webster for completing
the job (See Dkt. #134-1 at pp. 8–9, 12, 14–18). From the facts listed above, the Court finds by clear
and convincing evidence that Plaintiffs displayed bad faith in intentionally supporting, encouraging,
and ultimately benefitting from Webster’s unexpected excursion into Defendant’s property.
As a result of their bad faith actions, Plaintiffs inarguably had access to information prior to
the lawsuit that they otherwise could not have been privy to.2 Plaintiffs ask that the Court excuse
their actions as mere “poor judgment . . . .” in “acting to protect its trade secrets” (Dkt. #127 at
p. 5). The Court understands Plaintiffs’ impulse to defend their business, especially after having
reason to believe that Defendant had inappropriately handled sensitive information. But while
Plaintiffs may indeed have been acting to protect their trade secrets, a right thing must be done in
a right way.3 Plaintiffs’ actions portray much more than “bad judgment” or negligence—they
portray a story of intentional undercover deceit directly associated with Plaintiffs’ trade secret
claims. Indeed, it is bad faith, not bad judgment, that leads a business to intentionally and secretly
send its employee, armed with a hidden camera and verbal fabrications that betray a dishonest
purpose, into the private manufacturing facilitates of its competitors.
2 Plaintiffs admit as much in deposition, stating that they “learned” and “found out” about the specific manufacturing
process Defendant was employing as a result of the trip (Dkt. #120-7 at pp. 11–12).
3 The Court has reason to doubt Plaintiffs’ argument that protection of trade interests was the sole purpose of
Webster’s mission. Clingerman states in his deposition that protecting Plaintiffs’ trade secrets constituted only “part
of the reason why we wanted to go down and see [Defendant’s manufacturing process]” (Dkt. #95-1 at p. 32).
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B. Plaintiffs’ Bad Faith Acts do not Warrant Dismissal of a Cause of Action
The Court is not free to wantonly issue dismissal sanctions in response to every single bad
faith act taken by a party prior to litigation. Instead, the Fifth Circuit has noted that, “[t]o the extent
that inherent power is seen as a product of necessity, it contains its own limits. It is . . . an implied
power squeezed from the need to make the court function.” NASCO, Inc. v. Calcasieu Television & Radio,
Inc., 894 F.2d 696, 702 (5th Cir. 1990) (emphasis added), aff'd sub nom. Chambers, 501 U.S. 32. In
this context, sanctions brought about by the court’s inherent powers must be deemed “necessary
to protect the efficient and orderly administration of justice [or] . . . necessary to command respect
for the court's orders, judgments, procedures, and authority.” In re Stone, 986 F.2d 898, 902 (5th
Cir. 1993). Ultimately, whether a bad faith act warrants dismissal sanctions is a matter of equitable
discretion. In re Thomas, 250 F.3d 744 (5th Cir. 2001) (citing Warren v. Rsrv. Fund, Inc., 728 F.2d
741, 748 (5th Cir.1984)) (“[W]e have consistently held that even where a district court finds bad
faith, it may exercise its equitable discretion and refrain from imposing sanctions.”). Because the
Court finds dismissal sanctions unnecessary to cure the negative impact created by Plaintiffs’ bad
faith act, it declines to issue dismissal sanctions on any of Plaintiffs’ trade secret claims.
First, Webster’s Florida mission has had a minimal impact on the present litigation.
Defendant argues that dismissal sanctions are warranted because Plaintiffs engaged in “self-help
discovery” to such an egregious degree that “Plaintiffs’ trade secret claims . . . are tainted to their
very root . . . .”(Dkt. #130 at p. 4). However, Defendant has not raised sufficient facts to support
the use of such an “extreme” measure. Marshall, 621 F.2d at 767 (citation modified) (“We have
upheld the use of the draconian remedy of dismissal in suitably extreme circumstances.”). Instead,
the facts presented hardly suggest that Webster’s trip and Plaintiffs’ actions were taken in a litigious
context, much less in a conscious attempt to thwart the Federal Rules of Civil Procedure or
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otherwise undermine the integrity of the judicial system. At best, Defendant points to
Clingerman’s belief that the information collected by Webster “in part form[ed] the basis of [his]
decision to file a complaint against [Defendant]” (Dkt. #120-8 at p. 9). However, Defendant
overlooks the fact that the tangible results of Webster’s trip were not attached to or otherwise
presented to the Court in the Original Complaint itself. Further, Clingerman testified that he had
not discussed the matter with his attorneys prior to carrying out the plan (Dkt. #120-8 at p. 10),
and Webster testified that he had not discussed the idea of a lawsuit with either Barker or
Clingerman prior to visiting the facility (Dkt. #127-1 at p. 4). At all times before the Court, Plaintiffs
have not acted with a “dishonest purpose” or to cause “harassment” or “delay” through Webster’s
bad faith mission. See Miller, 774 F. Supp. 3d at 818–19. They have neither attempted to conceal nor
spoliate any evidence relating to Webster’s mission and have instead been open and forthcoming in
all discovery proceedings. As a result, the Court finds no evidence of any “extraordinary
circumstance” beyond an isolated and foolish pre-suit act that could justify a dismissal sanction.
Marshall, 621 F.2d at 767.
Defendant repeatedly likens Plaintiffs’ actions to those described in Xyngular Corp. v.
Schenkel, 200 F. Supp. 3d 1273, 1317 (D. Utah 2016) (Dkt #130 at p. 9; Dkt. #134 at p. 7). In
Xyngular, a district court imposed dismissal sanctions on a counterclaim-plaintiff for his bad faith
actions taken prior to litigation. Id. at 1328. There, the plaintiff and his counsel “sought to gain an
unfair advantage in [his] lawsuit” and requested and reviewed hundreds of relevant and irrelevant
documents for over one year prior to filing suit against the defendant. Id. at 1318, 1324. After
“attach[ing] some of the documents to his pleadings and application for a temporary restraining
order,” plaintiff ultimately disclosed his collection of documents, insisting that he had only sought
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them to “blow the whistle,” despite continuing to collect them “after he stopped meeting with any
investigative agencies.” Id. at 1324. The facts of Xyngular are readily distinguishable from the facts
of this case. Here, Plaintiffs’ bad faith acts are not clearly of consequence in the present litigation.
Unlike the plaintiff in Xyngular, who relied upon specific documents and other information to gain
an unfair advantage both prior to and throughout litigation, the Plaintiffs in this case merely
“confirm[ed] . . . what we understood and what we had been stating and what we had been
expressing to . . . counsel” (Dkt. #120-7 at p. 10). Id. at 1328. Importantly, Plaintiffs’ pre-suit
actions have not uncovered any information that could be used to provide them with an advantage
in litigation. Instead, they produced photographs and a video containing information that Plaintiffs
almost certainly would have obtained had they sought them through proper discovery channels (See
Dkt. #120-7 at p. 10). Given the plain and uncontested testimony offered by Plaintiffs, their lack of
clear use or reference to the relevant photos or video, and the absence of any obvious advantage in
litigation, there is little beyond pure speculation to connect Webster’s bad faith mission to the
notion that Plaintiffs conspired to abuse the judicial process or gain an unfair advantage in the
current proceeding in a manner similar to the plaintiff in Xyngular.
While the court in Xyngular held that dismissal sanctions were justified because “[plaintiff ]
cannot unlearn the information in the documents, and the [defendant] would be forced to defend
plaintiff’s claims despite his unfair advantage,” Defendant goes so far as to argue that it is actually
advantaged by Plaintiffs’ bad faith conduct (See Dkt. #120-7 at p. 10; see Dkt. #94; Dkt. #95 at pp.
10–12). Id. at 1326. Because Plaintiffs took it upon themselves to allegedly “protect [their] trade
secrets” prior to litigation, Defendant argues that it has gained considerable evidence to support
two of its affirmative defenses (See Dkt #127 at p. 5; see Dkt. #94; Dkt. #95 at pp. 10–12). It is likely
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for this very reason that Defendant has strongly opposed any attempt by Plaintiffs to exclude the
photos or video that Webster took at Defendant’s manufacturing facility (Dkt. #94; Dkt. #95 at
pp. 10–12). In fact, Defendant continues to reject Plaintiffs’ proposed voluntary agreement to not
use Webster’s photos and videos at trial (See Dkt. #127 at p. 10). In light of Defendant’s continued
utilization of Webster’s mission and its consequences, the Court finds that no unfair advantage was
gained by Plaintiff that necessitates the particularly harsh use of dismissal sanctions.4 Rather, the
mission itself ironically appears to operate as its own self-contained deterrent.
Finally, the Court turns to Defendant’s request that it dismiss Plaintiffs’ claims to prevent
setting a negative precedent: namely, encouraging future parties to take improper actions in
anticipation of litigation. In short, the Court finds that the circumstances of this case do not
demand dismissal as a cure to any hypothetical threat of negative precedent. Assuming, inter alia,
that Plaintiffs acted in anticipation of litigation when Webster planned and executed his bad faith
expedition to Florida, Plaintiffs are not the first to take rash and inappropriate action prior to filing
a complaint. When district courts deal with such conduct, they are naturally hesitant to resort to
dismissal sanctions absent any aggravating factors or tangible harm to the parties’ ability to litigate.5
4 To the extent that Defendant relies upon Staton Techiya, LLC v. Samsung Elecs. Co., Ltd., 742 F. Supp. 3d 602, 666
(E.D. Tex. 2024), appeal dismissed, No. 2024-1917, 2024 WL 5181582 (Fed. Cir. Dec. 20, 2024) to argue that
dismissal is warranted under the circumstances presented, the Court notes that dismissal in that case was predicated
upon the following: (1) it was “impossible to know the full extent of the improperly obtained evidence’s
use[;]” (2) the defendants engaged in numerous attempts to cover their abuse of the Federal Rules of Civil
Procedure; and (3) the defendants stole privileged and confidential information both before and during litigation.
Id. at 666, 660, 658. None of those factors are before the Court, and the Court declines to dismiss Plaintiff’s claims.
5 See, e.g., Mass. Mut. Life Ins. Co. v. Hill, No. 4:15-CV-166-DMB-JMV, 2018 WL 3370557, at *4 (N.D. Miss. July 10,
2018) (issuing a dismissal sanction against a party for bad faith pre-litigation conduct “based on [her] continued
violations of Court orders, as well as her refusal to pay court-ordered sanctions . . . .”); Pure Power Boot Camp v.
Warrior Fitness Boot Camp, 587 F. Supp. 2d 548, 571 (S.D.N.Y. 2008) (issuing a sanction excluding evidence except
for impeachment purposes in response to plaintiff’s unlawful access and use of defendant’s confidential emails in
drafting a complaint); Muslow v. Bd. of Supervisors of La. State Univ. & Agric. & Mech. Coll., No. CV 19-11793, 2020
WL 4471160, at *5 (E.D. La. Aug. 4, 2020) (issuing a sanction excluding evidence obtained and improperly utilized
prior to litigation).
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This Court shares the same hesitancy to dismiss claims under its inherent power. This hesitancy is
especially strong here, as Webster’s pre-suit mission did not “taint” Plaintiffs’ claims “to their very
root” (Dkt. #130 at p. 4). No evidence connects the bad faith act to intentional subversion of the
trial process, and the trip has not provided Plaintiffs with a unique or tangible benefit in litigation.
Instead, its very existence has seemingly exposed Plaintiffs to the potential of litigation and two
affirmative defenses. Because the Court finds the use of dismissal sanctions to be unnecessary to
preserve the integrity and authority of the judicial process or to adequately deter future improper
conduct, it declines to use its inherent power to dismiss any of Plaintiffs’ trade secret claims.
C. Monetary Sanctions in Lieu of Exclusionary Sanctions
As noted above, dismissal sanctions are not taken lightly. The Fifth Circuit has held that, in
general, “[s]anctions under a court’s inherent power to punish abusive litigation practices are
permissible but should be used as a last resort . . . .” Sample v. Miles, 239 F. App’x 14, 20 n.14 (5th
Cir. 2007) (emphasis added). Defendant argues that dismissal of Plaintiffs’ claims is justifiable
because, among other reasons, it “leaves Plaintiffs with the majority of their claims pending”
(Dkt. 134 at p. 7). However, the sanction chosen by this Court under its inherent power “must
employ the least possible power adequate to the end proposed[,]” and here, “a lesser sanction than
dismissal is available.” Nat. Gas Pipeline, 86 F.3d at 467; Popejoy v. United Apartment Grp., Inc., No.
5:24-CV-00843-OLG-RBF, 2025 WL 826533, at *2 (W.D. Tex. Jan. 28, 2025), report and
recommendation adopted, No. SA-24-CV-00843-OLG, 2025 WL 824143 (W.D. Tex. Mar. 12, 2025).
Rather than dismiss two of Plaintiffs’ trade secret claims associated with Websters trip, the Court
is instead willing to consider satisfying the demands of justice with an alternative, lesser, and well-
tailored remedy to accompany Defendant’s use of Plaintiffs’ bad faith actions: monetary sanctions.
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The Court finds it necessary here to repeat that Defendant adamantly rejects and refuses
the proposition that Webster’s photos and video should be excluded from trial (Dkt. 94; Dkt. 95 at
pp. 10–12). Because Defendant continues to argue that it benefits from the tangible evidence
created by Plaintiffs’ bad faith conduct, the Court finds that the exclusion of such evidence would
unjustly benefit Plaintiffs, who have repeatedly requested that the evidence be excluded (Dkt. 94
pp. 4–6; see Dkt. 127 at p. 10). Having exhausted alternative remedies, the Court finds that a
monetary sanction, together with the benefits that Defendant continues to derive from Plaintiffs’
bad faith actions, may be appropriate to serve the ends of justice as a clear response to Plaintiffs’
embrace of “self-help discovery” to protect its trade secrets.
Though the Court notes that it is willing to consider the imposition of monetary sanctions
in this case, it cannot go so far as to order them. When a district court imposes sanctions under its
inherent power, “it must comply with the mandates of due process,” which requires “fair notice
and an opportunity for a hearing on the record.” CEATS, Inc. v. TicketNetwork, Inc., 71 F.4th 314,
323 (5th Cir. 2023). Here, Defendant has not requested any form of monetary sanctions and have
not properly placed Plaintiffs on notice that they might face monetary sanctions. To impose
monetary sanctions on Plaintiffs in this order risks erroneously providing Plaintiffs with notice
“that they might face [monetary] sanctions at the same time that they learned that they would face
[monetary] sanctions.” Id. As a result, the Court declines to use its inherent power to issue either
dismissal, exclusionary, or monetary sanctions at this time. Having found dismissal sanctions
unnecessary to preserve the authority or efficiency of the judicial system, the Court sees fit to deny
Defendant’s present motion.
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CONCLUSION
It is therefore ORDERED that Defendant Signature Systems Group, LLC’s Partial
Motion to Dismiss and for Sanctions Based on Plaintiffs’ Pre-Suit Misconduct (Dkt. #120) is
hereby DENIED.
IT IS SO ORDERED.
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