Intex Recreation Corp. v. Bestway USA, Inc. et al Case No. LA CV19-08596 JAK (Ex) United States District Court, C.D. California Filed March 11, 2024 Counsel Andrew M. McCoy, Pro Hac Vice, David R. Merritt, Pro Hac Vice, Louis T. Perry, Pro Hac Vice, R. Trevor Carter, Pro Hac Vice, Reid E. Dodge, Pro Hac Vice, Faegre Drinker Biddle and Reath LLP, Indianapolis, IN, Tarifa Belle Laddon, Faegre Drinker Biddle and Reath LLP, Los Angeles, CA, for Intex Recreation Corp. Ben M. Davidson, Davidson Law Group ALC, Calabasas, CA, John S. Artz, Pro Hac Vice, Dickinson Wright PLLC, Ann Arbor, MI, Michael David Saunders, Dickinson Wright PLLC, Austin, TX, Oliver F. Ennis, Pro Hac Vice, Dickinson Wright PLLC, Chicago, IL, Steven A. Caloiaro, Dickinson Wright PLLC, Reno, NV, for Bestway USA, Inc. et al Kronstadt, John A., United States District Judge Proceedings: (IN CHAMBERS) ORDER RE MOTION FOR REVIEW OF MAGISTRATE JUDGE'S ORDER (DKT. 158) & MOTION TO SHOW CAUSE WHY PLAINTIFF SHOULD NOT BE HELD IN CONTEMPT FOR FAILING TO COMPLY WITH COURT ORDERS (DKT. 164) I. Introduction *1 On October 4, 2019, Plaintiff Intex Recreation Corp. (“IRC” or “Plaintiff”) filed the present action against Bestway (USA), Inc. (“Bestway USA”), Bestway Global Holding Inc. (“Bestway Global”), Bestway (Hong Kong) International, Ltd. (“Bestway-Hong Kong”) and Bestway Inflatables & Materials Corporation (“Bestway Inflatables”). Dkt. 1. On November 26, 2019, Plaintiff filed a First Amended Complaint (“FAC” (Dkt. 19)). On September 30, 2022, Plaintiff filed a Second Amended Complaint (“SAC” (Dkt. 85)) which is the operative one. The SAC names Bestway USA and Bestway Inflatables (collectively, “Bestway” or “Defendants”) and advances six causes of action: (1) false advertising under 15 U.S.C. § 1125(a), (2) unfair competition under the California Business & Professions Code § 17200 et seq., (3) false advertising pursuant to California Business & Professions Code § 17500 et seq., (4) common law unfair competition, (5) infringement of U.S. Patent No. 9,254,240 and (6) infringement of U.S. Patent No. 10,165,869. Dkt. 85 ¶¶ 76–122. On October 30, 2023, Judge Eick issued an order (the “Magistrate Order” (Dkt. 154)) in response to Defendants' Motion to Compel Plaintiff's ESI Custodians and Documents (the “Motion to Compel” (Dkt. 149)). The Magistrate Order compelled IRC to identify e-mail custodians and produce e-mails (the “Requested Intex Xiamen Materials”) from non-party Intex Industries Xiamen Co. Ltd. (“Intex Xiamen”).[1] On November 6, 2023, Intex filed an Ex Parte Application for Stay of Ruling on Defendants' Motion to Compel (the “Application for Stay” (Dkt. 155)) seeking a stay of its discovery obligations based upon its intent to file a motion for review of the Magistrate Order. The Application was denied on November 9, 2023. Dkt. 157. On November 10, 2023, Intex filed a Motion for Review (the “Motion for Review” or “MTR” (Dkt. 158)) that sought a reversal of the Magistrate Order with respect to the Requested Intex Xiamen Materials. Dkt. 158 at 6–7. On November 27, 2023, Defendants filed an opposition (the “MTR Opposition” (Dkt. 160)), and Intex replied on December 1, 2023 (the “MTR Reply” (Dkt. 161)). On December 22, 2023, Bestway filed a Motion to Show Cause Why Plaintiff Should Not Be Held in Contempt for Failing to Comply with Court Orders (the “Motion to Show Cause” or “MSC” (Dkt. 164)). On January 12, 2024, Plaintiff filed its opposition (the “MSC Opposition” (Dkt. 179)). On January 19, 2024, Defendant filed its reply (the “MSC Reply” (Dkt. 184)). A consolidated hearing on both motions was held on February 5, 2024, and the matters were taken under submission. For the reasons stated in this Order, the Motion to Review is DENIED and the Motion to Show Cause is DEFERRED to provide IRC with a final opportunity to comply with the required discovery. II. Factual Background A. Parties *2 It is alleged that IRC is a California corporation that sells inflatable airbeds. Dkt. 58 ¶¶ 12–13. It is alleged that Bestway USA is a corporation based in Arizona, and that Bestway Inflatables is a corporation based in the People's Republic of China. Id. ¶¶ 14–15. It is alleged that Bestway USA and Bestway Inflatables are subject to common ownership and governance. Id. ¶ 16. B. Allegations in the Second Amended Complaint It is alleged that, in 2014, IRC began selling an airbed featuring proprietary fiber beam technology, which is called Dura-Beam® technology, and that there was a high level of consumer demand for the product. Id. ¶¶ 3, 37. It is alleged that IRC has protected the value of this technology by securing a patent. Id. ¶ 38. It is alleged that, as early as 2016, Bestway released an airbed with technology identified as, “Comfort Cell Tech,” which was a reference to beams with a primarily fiber construction. Id. ¶ 42. It is alleged that, in May 2016, IRC filed a complaint against Bestway with the International Trade Commission (“ITC”) alleging patent infringement, and that Bestway then agreed to cease importing these products into the United States. Id. ¶ 44. It is alleged that Bestway is now marketing a “new” airbed product identified as having a “Tritech Beam Construction,” that appears to be indistinguishable from the “Comfort Cell Tech” product. Id. ¶¶ 46–47. It is alleged that, because the new product does not actually include beams made primarily of fiber, Bestway is misleading consumers. Id. ¶ 51. C. Summary of Past Orders 1. ESI Order On March 21, 2023, the parties' Stipulation and Order Regarding Electronic Discovery (“ESI”) was approved (the “ESI Order” (Dkt. 108)). In relevant part, it states: “[T]he parties agree that they shall exchange a listing of all likely e-mail custodians and a specific identification of the seven most significant listed e-mail custodians ... on March 28, 2023.” Id. at 11. It provides an exception if a “party has less than ten employees or otherwise in good faith cannot identify at least seven likely e-mail custodians.” Id. On March 29, 2023, IRC identified four e-mail custodians employed at IRC (“IRC ESI Disclosure”). Dkt. 164 at 6; Dkt. 179 at 7. On April 4, 2023, Bestway served its ESI Production Requests (“ESI Requests”) on IRC, in which it stated that IRC had failed to comply with the ESI Order by identifying only four custodians, none of whom was responsible for the design and development of the inflatable products at issue. Dkt. 144-4 at 3. Bestway reserved the right to use placeholder custodians until IRC complied with the ESI Order. Id. It identified the following three custodians employed by the Chinese company called Intex Xiamen: Zhixiong (“Jason”) Huang, Hua Hsiang (“Tony”) Lin and Yaw Yuan (“Chris”) Hsu. Id. at 4-5. 2. The Magistrate Order On October 12, 2023, the parties filed a Joint Stipulation Re Defendants' Motion to Compel Plaintiff's ESI Custodians and Documents (the “Motion to Compel” (Dkt. 149)). Defendants' Motion to Compel sought to compel Plaintiff to identify custodians of relevant ESI in the possession or control of Intex Xiamen, and to produce that information. The parties disputed whether Plaintiff had the requisite control over the relevant ESI possessed by Intex Xiamen employees because they are not employed by IRC. Dkt. 154 at 1. On October 30, 2023, Judge Eick issued the Magistrate Order. Id. It determined that Plaintiff had control over the subject ESI and compelled the identification of Intex Xiamen custodians and the production of ESI in their possession or control. Id. at 7. This determination was based in part on assignment agreements (the “Assignments”) between IRC and Intex Xiamen, which concerned intellectual property that resulted in patents relevant to this action.[2] *3 The Assignments for each patent provide: [Intex Xiamen] agrees to execute and have executed all papers necessary in connection with any interference which may be declared or litigation concerning the application(s), any resulting patents, or continuation, division, reissue, review, or reexamination thereof; and to cooperate with [IRC] in every way possible in obtaining evidence and going forward with such interference, re-examination, review, or litigation. Dkt 144-6 at 7 (the “Provision”). The Magistrate Order determined that the Provision was clear, from its express terms, that the parties intended to include in the contracts an obligation on the part of Intex Xiamen to provide Plaintiff with any on-demand evidence in its possession relevant to litigation concerning the patents. Dkt. 154 at 2. The Magistrate Order declined to admit extrinsic evidence submitted by Plaintiff, which consisted of two declarations from Chris Hsu of Intex Xiamen and Matthew Whalen of IRC, who participated in the negotiations of the Assignments. Id. at 3. These declarants disputed the foregoing determination stated in the Magistrate Order. They declared that the provision was never understood nor intended to give IRC a right to, or control over, any and all information and/or documents in the custody, possession or control of Intex Xiamen. Dkt. 149-4 (Whalen Decl.), ¶¶ 8–9; Dkt. No. 149-3 (Hsu Decl.) ¶¶ 6–8. The Magistrate Order found that the extrinsic evidence sought “to prove a meaning to which the contract is not reasonably susceptible” and for that reason was not admissible. Dkt. 154 at 4; see Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc., 109 Cal. App. 4th 944, 955–56 (2003). Further, it was determined that under the “objective theory of contracts,” any undisclosed intent or understanding at the time of contracting would be irrelevant to the interpretation of the contract. Dkt. 154 at 3. It was also stated that Plaintiff's interpretation would render the provision an “illusory promise.” Id. The Magistrate Order also rejected Plaintiff's argument that compelling production of the information would be “futile”: Plaintiff represents that Plaintiff previously requested “voluntary” production of the subject ESI from Intex Xiamen and [Intex] Xiamen previously refused the request (even though, in the past, Intex Xiamen granted Plaintiff's requests for other information). Plaintiff suggests that the granting of this Motion would therefore be a futile gesture. Perhaps. In a case in which the responding party lacked “control” over documents possessed by a foreign entity (unlike the present case), another judge of this Court stated, “Thus, the Court is being asked to order [the responding party] to produce documents it does not possess from a company in Germany that the Court does not have jurisdiction over and that has already refused to produce them. Granting [the propounding party's] request under these circumstances would be a futile gesture.” Ehrlich v. BMW of North America, LLC, 2011 WL 3489105, at *1 (C.D. Cal. May 2, 2011). Perhaps there will be some difference between Intex Xiamen's response to Plaintiff's previous request for a “voluntary” production of ESI and Intex Xiamen's response to Plaintiff's forthcoming demand that Intex Xiamen honor its contractual obligation to produce the ESI. Perhaps there will be no difference. Perhaps Plaintiff will be able to enforce its contractual rights against Intex Xiamen in China. Perhaps not. Regardless, for the reasons discussed above, the law requires that the Motion be granted with respect to Intex Xiamen's custodians and Intex Xiamen's ESI. The parties forthwith shall proceed accordingly. *4 Dkt. 154 at 7. The Motion to Compel was granted as to the identification of the custodians of, or the production of ESI possessed by, Intex Xiamen.[3] 3. Application to Stay On November 6, 2023, IRC filed an Ex Parte Application for Stay of Ruling on Defendants' Motion to Compel (the “Application for Stay” (Dkt. 155)) seeking a stay of the Magistrate Order so that IRC could proceed with an intended motion for review of that Order. Bestway opposed the Application for Stay. Dkt. 156. It was denied in an Order issued on November 9, 2023 (“Order Denying Stay” (Dkt. 157)), for the following reasons: Plaintiff has not shown that there will be irreparable prejudice or harm absent the requested relief. Plaintiff argues only that, if there is not a stay, it must move forward with identification of custodians and collection and production of ESI. Although fulfilling such discovery obligations before a ruling on the anticipated Motion to Review, which could modify them, may inconvenience Plaintiff, there is not a showing as to prejudice due to cost or other factors. Fact discovery in this matter closes on February 5, 2024. Plaintiff may proceed in filing its Motion for Review, which will be heard according to regular procedures, while beginning the identification and collection process. Dkt. 157 at 2 (cleaned up). D. New Evidence Submitted in Support of Motion to Review In support of its Motion to Review, Plaintiff proffers the following new evidence: (1) an Acknowledgment and Agreement between Intex Xiamen and IRC (the “Acknowledgement and Agreement” (Dkt. 158-2)); and (2) a second declaration by Matthew Whalen (the “Whalen Decl. II” or “Second Whalen Declaration” (Dkt. 158-3)). At the February 5, 2024 hearing, Plaintiff proffered a third declaration by Matthew Whalen (the “Whalen Decl. III” or “Third Whalen Declaration”). The Acknowledgement and Agreement is dated November 10, 2023, which is the same day that the Motion to Review was filed. The Agreement states that the requirement within the Assignments for Intex Xiamen to “cooperate with [IRC] in every way possible in obtaining evidence and going forward with such interference, re-examination, review, or litigation” was and is limited to cooperation to allow IRC “to initiate (i.e., ‘go forward with’)” litigation, including, “for example, evidence related to the conception and reduction to practice of the claimed inventions.” Dkt. 158-2 at 2. It further concludes that, by agreeing to the Provision, neither Intex Xiamen nor IRC intended that IRC would have control of or a legal right to any and all information or documents in Intex Xiamen's custody, possession or control, including after the initiation of an interference, re-examination, review or litigation. Id. *5 In the Second Whalen Declaration, he declares that, since the issuance of the Magistrate Order, Intex Xiamen has refused an additional request to produce ESI despite being notified of that Order. Whalen Decl. II ¶ 6–7. Whalen also declares that Intex Xiamen's position remains that IRC does not have a legal right to demand its ESI, and that this is also IRC's understanding. Id. ¶ 7. In the Third Whalen Declaration, which, as noted, was proffered at the hearing, Whalen declares that Tien Zee (“Zee”), the President of IRC, is one of several directors of Intex Xiamen. Whalen Decl. III ¶ 3. Whalen declares that Zee informed him that Intex Xiamen is a “separate and unrelated company from IRC, and that [Zee] has no authority to force Intex Xiamen to provide the requested information to IRC.” Id. ¶ 4. III. Analysis A. Motion to Review 1. Legal Standards a) Standard of Review Fed. R. Civ. P. 72(a) governs the review of a non-dispositive ruling by a magistrate judge. It provides that “[t]he district judge in the case must consider timely objections and modify or set aside any part of the order that is clearly erroneous or contrary to law.” Fed. R. Civ. P. 72(a); 28 U.S.C. § 636(b)(1)(A); see also United States v. Abonce-Barrera, 257 F.3d 959, 969 (9th Cir. 2001) (“[T]he magistrate judge's decision in ... nondispositive matters is entitled to great deference by the district court.”). The standard that applies in determining whether there is an error as to a finding of fact is whether there was “clear error” by the magistrate judge; it is not whether the district judge would have made a different determination based on the same evidence. Anderson v. City of Bessemer, 470 U.S. 564, 573 (1985). A factual finding by a magistrate judge is “clearly erroneous” only when the reviewing court is “left with the definite and firm conviction that a mistake has been committed.” United States v. Hinkson, 585 F.3d 1247, 1260 (9th Cir. 2009) (en banc) (internal quotation marks omitted). The determination of legal issues by a magistrate judge is reviewed de novo, under the “contrary to law” standard. See China Nat. Metal Products Import/Export Co. v. Apex Digital, Inc., 155 F. Supp. 2d 1174, 1177 (C.D. Cal. 2001). “An order is contrary to law when it fails to apply or misapplies relevant statutes, case law, or rules of procedure.” Kraft Americas, LP v. Oldcastle Precast, Inc., No. 12-CV-3681, 2013 WL 12125759, at *6 (C.D. Cal. Dec. 18, 2013), aff'd sub nom. Kraft Americas, L.P. v. Oldcastle Precast, Inc., 641 F. App'x 718 (9th Cir. 2016) (internal citation omitted). b) Control under Rule 34 The Federal Rules of Civil Procedure require production of responsive documents “in the responding party's possession, custody, or control.” Fed. R. Civ. P. 34(a). “Control is defined as the legal right to obtain documents upon demand.” United States v. Int'l Union of Petroleum & Indus. Workers, 870 F.2d 1450, 1452 (9th Cir.1989) (“International Union”). In the Ninth Circuit, a “practical ability to obtain the requested documents” from a related organization is not enough to constitute control where the related organization “could legally—and without breaching any contract—[ ] refuse to turn over such documents.” In re Citric Acid Litig., 191 F.3d 1090, 1107–08 (9th Cir. 1999), cert. denied, 529 U.S. 1037 (2000). c) Contract Interpretation Under California law, “[t]he rules governing the role of the court in interpreting a written instrument are well established.” Wolf v. Walt Disney Pictures & Television, 162 Cal. App. 4th 1107, 1125 (2008), as modified on denial of reh'g (June 4, 2008). Those rules have been summarized as follows: *6 The interpretation of a contract is a judicial function. In engaging in this function, the trial court gives effect to the mutual intention of the parties as it existed at the time the contract was executed. Ordinarily, the objective intent of the contracting parties is a legal question determined solely by reference to the contract's terms. The court generally may not consider extrinsic evidence of any prior agreement or contemporaneous oral agreement to vary or contradict the clear and unambiguous terms of a written, integrated contract. Extrinsic evidence is admissible, however, to interpret an agreement when a material term is ambiguous. When the meaning of the words used in a contract is disputed, the trial court engages in a three-step process. First, it provisionally receives any proffered extrinsic evidence that is relevant to prove a meaning to which the language of the instrument is reasonably susceptible. If, in light of the extrinsic evidence, the language is reasonably susceptible to the interpretation urged, the extrinsic evidence is then admitted to aid the court in its role in interpreting the contract. When there is no material conflict in the extrinsic evidence, the trial court interprets the contract as a matter of law. This is true even when conflicting inferences may be drawn from the undisputed extrinsic evidence or that extrinsic evidence renders the contract terms susceptible to more than one reasonable interpretation. If, however, there is a conflict in the extrinsic evidence, the factual conflict is to be resolved by the jury. Id. at 1125–27 (internal citations, quotation marks and brackets omitted). 2. Application Plaintiff argues that the Magistrate Order is clearly erroneous and contrary to law for three reasons. First, it “ignored” the extrinsic evidence proffered by Plaintiff. Second, it interpreted the Provision contrary to the “only possible conclusion” that could have been reached in light of the extrinsic evidence. Third, it issued a “futile” order compelling IRC to do something it cannot do. These arguments are not persuasive. As to the first argument, Plaintiff relies on Halicki Films, LLC v. Sanderson Sales & Mktg. 547 F.3d 1213 (9th Cir. 2008). Halicki states that, under California law: [T]he trial court must provisionally receive any proffered extrinsic evidence which is relevant to show whether the contract is reasonably susceptible of a particular meaning.... [I]t is reversible error for a trial court to refuse to consider such extrinsic evidence on the basis of the trial court's own conclusion that the language of the contract appears to be clear and unambiguous on its face. Id. at 1223 (quoting Morey v. Vannucci, 64 Cal. App. 4th 904, 912 (1998) (citations omitted). In Halicki, it was determined that the district court failed to consider all of the extrinsic evidence proffered by the plaintiff, because it only expressly referred to certain pieces of the evidence to conclude that the contract was not reasonably susceptible to the plaintiff's interpretation. Id. The Ninth Circuit held that this was reversible error. Id. The Magistrate Order differs in that it expressly stated that it “considered all papers filed in support of and in opposition to” the Motion to Compel and cited both declarations. Dkt. 154 at 1. Although the Magistrate Order first stated that “there is no need for extrinsic evidence” due to the clarity of the contract language, which could have been challenged as erroneous, it then considered the evidence and found that the “self-interested extrinsic evidence offered here seeks to prove a meaning to which the contract is not reasonably susceptible.” Dkt. 154 at 3. Unlike Halicki, in which the district court failed to consider all of proffered extrinsic evidence, here, the Magistrate Order expressly considered both declarations as part of the analysis that led to the conclusion that the contract was not reasonably susceptible to the proffered interpretation. In doing so, the Magistrate Order was not contrary to law. *7 As to the second argument, there are two issues. The first is whether the conclusion that the Provision was not reasonably susceptible to Plaintiff's interpretation, even in light of the declarations, was contrary to law. If it is not, “the case is over.” Halicki, 547 F.3d at 1223. If it is susceptible to that interpretation, the extrinsic evidence is admitted, and the court must then determine which interpretation is correct. Therefore, the second question is, if the extrinsic evidence should have been admitted, whether Plaintiff's interpretation was the “only possible conclusion.” Plaintiff argues that, as in Halicki, “this is not the more usual situation where parties to an agreement disagree as to the meaning of its terms. Here, statements by both parties to the [Assignments] ... demonstrate that each party had the same intention as to the [Provision's] meaning...” Dkt. 158 at 8–9 (quoting Halicki, 547 F.3d at 1223). Plaintiff contends that, as a result, because “the extrinsic evidence unequivocally support[s] [its] position,” the court “can only conclude that” this interpretation is correct. Id. at 10. There are some similarities between this matter and Halicki. They include that the non-party to the Halicki action executed an Acknowledgement and Agreement with the plaintiff to clarify their mutual intent as to a particular contract provision. Halicki, 547 F.3d at 1219. However, Halicki reached its conclusion only after analyzing the plain text of the contract to determine that it also permitted the interpretation in light of that evidence. Id. The court “[read] the Agreement as a whole along with the extrinsic evidence” to conclude that the provision in question was reasonably susceptible to plaintiff's interpretation. Id. at 1223. Here, the Magistrate Order considered the plain language of the Assignments and determined that the interpretation presented by both Plaintiff and the declarants was contrary to the Assignments' plain and ordinary meaning. Reviewing the Provision and declarations de novo confirms that there was no error in the Magistrate Order. The language that “[Intex Xiamen] agrees ... to cooperate with [IRC] in every way possible in obtaining evidence and going forward with such interference, re-examination, review, or litigation,” Dkt. 144-6 at 7 (emphasis added), is not reasonably susceptible to the interpretation set forth by Plaintiffs and declarants, i.e., that Intex Xiamen is not actually obligated to provide any and all requested information to IRC for the purposes of litigation. Hsu Decl., Dkt. 149-3 ¶ 7; Whalen Decl., Dkt. 149-4 ¶ 9. As the Magistrate Order states, this interpretation would convert the provision into an illusory promise, which is not appropriate in contract interpretation. Dkt. 154 at 3; see M&G Polymers USA, LLC v. Tackett, 574 U.S. 427, 440 (2015). Plaintiff urges the consideration of the newly submitted Acknowledgement and Agreement between IRC and Intex Xiamen, executed the day that the Motion to Review was filed. It contends that it shows that the Provision has a more specific meaning and, for this reason, is not illusory. Dkt. 161 at 3.[4] Even if this untimely evidence were considered, it would not change the outcome. *8 The Acknowledgment and Agreement states that the mutual intent of IRC and Intex Xiamen was that the requirement for Intex Xiamen to “cooperate with [IRC] in every way possible in obtaining evidence and going forward with ... litigation” was limited to the initiation of the litigation, i.e., the term “going forward with” means “to initiate.” Dkt. 158-2 at 2. It is unclear why this interpretation, if it reflected the mutual intent of the parties at the time of contracting, was not included in the original Hsu and Whalen Declarations. However, even putting that issue aside, the Provision is not reasonably susceptible to this meaning because it is not consistent with the plain text. The term “going forward with” is not synonymous with “to initiate.” Plaintiff argues that the dictionary definition proffered by Bestway for “going forward” confirms that the text aligns with, or is at least reasonably susceptible, to Plaintiff's interpretation. Dkt. 161 at 3–4. This is not persuasive. The dictionary definition provided by Bestway for “going forward” is “went forward; gone forward; going forward,” such as “to proceed with a lawsuit or a matter in a lawsuit.” Dkt. 160 at 19 (citing MERRIAM-WEBSTER DICTIONARY, available at https://www.merriam-webster.com/dictionary/go%20forward#legalDictionary). IRC argues that the dictionary definition of “proceed,” which is “to begin and carry on an action, process or movement” demonstrates its point. Dkt. 161 at 3–4 (citing MERRIAM-WEBSTER DICTIONARY, available at https://www.merriamwebster.com/dictionary/proceed (emphasis added)). However, this ignores the second part of the dictionary definition of “proceed,” which includes not only beginning, but carrying on that action, process or movement. That would be consistent with Defendants' position. Moreover, “[a]mbiguity does not arise merely because a word or phrase has multiple meanings.” Yi v. Circle K Stores, Inc., 258 F. Supp. 3d 1075, 1083 (C.D. Cal. 2017), aff'd, 747 F. App'x 643 (9th Cir. 2019). “[A]mbiguity cannot be based on a strained instead of reasonable interpretation of the contract's terms.” Id. (citation omitted). There is no apparent temporal limitation on Intex Xiamen's obligations. Accordingly, accepting Plaintiff's interpretation would be contrary to the plain meaning of the Assignments. Furthermore, this interpretation is inappropriate because it would, in effect, allow Plaintiff to gain the benefit of obtaining documents from Intex Xiamen to support its claims in potential litigation, while shielding itself from the required production of any documents to an adversary in the course of litigation. Finally, Halicki also determined that the contract was reasonably susceptible to the plaintiff's interpretation because the non-party “had nothing to gain” by executing the Acknowledgment and Agreement. Halicki, 547 F.3d at 1223. Defendant argues that, in contrast, both IRC and Intex Xiamen “[have] something to gain” by precluding ESI discovery. Dkt. 160 at 15. Plaintiff responds that this is a “conclusory attorney argument without any support” and that there is no benefit to either IRC or Intex Xiamen to prevent ESI discovery, or for IRC to expend resources on an issue “completely out of its control.” Dkt 161 at 5. However, it is clear that non-party Intex Xiamen would benefit by providing materials in support of an interpretation that limits its legal obligations and avoids the possibility of enforcement by IRC. And, as stated, if the new “initiating” interpretation is accepted, it would allow IRC to obtain any evidence it seeks from Intex Xiamen to initiate litigation, while creating a shield for future discovery requests that it may receive from an adverse party. For all of these reasons, even if the Provision were reasonably susceptible to either of Plaintiff's interpretations, with the Declarations and Acknowledgment and Agreement admitted and considered, this extrinsic evidence would not warrant Plaintiff's interpretation simply because IRC and Intex Xiamen agree.[5] *9 Plaintiff's last argument is that the Magistrate Order is contrary to law because it is “futile.” Dkt. 158 at 11. As the Magistrate Order observed, a prior IRC request for voluntary production of the Requested Intex Xiamen Materials from Intex Xiamen was denied. Plaintiff has now submitted additional evidence through a second declaration from Whalen, that Intex Xiamen has again refused to provide these materials even after being informed of the Magistrate Order.[6] Whalen Decl. II, Dkt. 158-3 ¶¶ 6–7. At the hearing, Plaintiff also proffered a third declaration from Whalen in which he offers the hearsay statement that Zee informed him that he does not have the ability to require Intex Xiamen to provide the requested materials. Whalen Decl. III ¶ 4. “[O]rdering a party to produce documents that it does not have the legal right to obtain will oftentimes be futile, precisely because the party has no certain way of getting those documents.” In re Citric Acid Litig., 191 F.3d at 1108; see also Ehrlich v. BMW of N. Am., LLC, No.10-CV-1151-ABC-PJWX, 2011 WL 3489105 (C.D. Cal. May 2, 2011). However, the analysis reflected in the Magistrate Order, which has been reviewed de novo in this Order, has confirmed that IRC has the legal right to obtain these documents pursuant to the Assignments. The cases cited by Plaintiff are distinguishable because there was no contract in place that provided plaintiff with such a right. See In re Citric Acid Litig., 191 F.3d at 1107–08; Ehrlich, 2011 WL 3489105, at *1. Here, Plaintiff has the legal ability to enforce compliance with the Assignments where IRC Xiamen has breached its obligation to cooperate “in every way possible” in obtaining evidence for the purposes of litigation. The Magistrate Order expressly contemplated that IRC would “demand that Intex Xiamen honor its contractual obligation to produce the ESI,” or even that it might “enforce its contractual rights against Intex Xiamen in China.” Dkt. 154 at 7. IRC has instead presented evidence that since the Magistrate Order was issued, Whalen made an additional request to Hsu for the materials to be provided, while maintaining the position that Intex Xiamen is not legally obligated to do so. Whalen Decl. II, Dkt. 158-3 ¶¶ 6–7. The Third Whalen Declaration only presents a single hearsay statement that Zee, IRC's President, would be unable to require Intex Xiamen to comply despite his role as a Director there. Whalen Decl. III ¶ 4. As the Magistrate Order correctly observed, Plaintiff cannot “avoid its discovery obligations by denying, abandoning or refusing to enforce its contractual rights.” Dkt. 154 at 3. For the foregoing reasons, the Motion to Review is DENIED. B. Motion to Show Cause In support of its Motion to Show Cause, Bestway states that it is seeking an order to show cause (“OSC”) requiring IRC to show why it should not be held in civil contempt for violating the ESI Order, Magistrate Order and Order Denying Stay. Dkt. 164. However, it also requests that the Court find that IRC is in contempt. Id. at 20; Dkt. 184 at 5. It does not specify the type of sanctions that would be appropriate as to civil contempt. Alternatively, Bestway seeks leave to conduct discovery of Intex Xiamen directly, or for IRC to be precluded from relying on information that has been provided by, or is within the knowledge of, Intex Xiamen. Id. In its reply, Bestway also seeks case terminating sanctions. Dkt. 184 at 5. Bestway cites only the legal standard for a court's inherent civil contempt authority and does not cite the legal standard for Rule 37 discovery sanctions. *10 Although the nature of the requested relief is unclear, because the Magistrate Order has been under review until this time, issuing an OSC regarding civil contempt or alternative Rule 37 sanctions would be premature. The Motion to Show Cause is DEFERRED to allow Plaintiff a final opportunity to comply with the Magistrate Order, which has now been upheld. IV. Conclusion For the reasons stated in this Order, the Motion for Review is DENIED and the Motion to Show Cause is DEFERRED. Because the Motion for Review has been denied, and in light of the Joint Report filed by the parties on February 22, 2024 (Dkt. 195), the parties shall file an updated joint report within 30 days of the issuance of this Order. In that joint report they shall state their collective and/or respective views as to the status of Plaintiff's efforts to obtain the Requested Intex Xiamen Materials, including any further discovery with respect to whether Mr. Zee has control of Intex Xiamen. The joint report shall also include the parties' collective and/or respective views as to any proposed modifications of the current scheduling order. If they agree as to those proposals, they may file a corresponding stipulation and proposed order. Any proposed schedule shall also include a deadline for the completion of discovery as to the issue of control over the Requested Intex Xiamen Materials, and for the filing of a joint report in which the parties will provide their collective and/or respective views on whether to proceed with respect to the Order to Show Cause, and if so, a process and schedule for doing so. IT IS SO ORDERED. Footnotes [1] The Magistrate Order also ruled that Chinese law did not bar discovery sought by Defendants. Dkt. 154 at 3–7. Intex does not challenge this ruling in its Motion for Review. Dkt. 158 at 6 n.4. [2] The Magistrate Order did not address Bestway's alternative arguments that, “due to a commonality of ownership, intermingling of directors and officers, the benefit to Intex Xiamen to participate in the litigation, and Intex Xiamen's previous involvement in litigation between the parties, that IRC ... had legal control over the requested ESI.” Dkt. 164 at 8. [3] The Magistrate Order also rejected Plaintiffs' argument that Chinese law prohibited the discovery of these materials. Plaintiff has not contested this determination. The Motion to Compel was also denied as to the identification of the custodians of, or the production of ESI possessed by, any “Chinese entity” other than Intex Xiamen. Id. at 7. [4] Plaintiff incorrectly states that the Acknowledgement and Agreement must be considered, notwithstanding that it was not presented to the Magistrate Judge, because it was reversible error in Halicki when the district court failed to consider a similar Acknowledgment and Agreement. This position is based on a misinterpretation of Halicki. There, the district court failed to consider the Acknowledgement and Agreement that had been properly presented as new evidence in support of a motion to reconsider the district court's prior summary judgment order. In contrast, courts have discretion, but are not required, to consider evidence presented for the first time in a party's objection to an order of a magistrate judge. United States v. Howell, 231 F.3d 615, 621 (9th Cir. 2000). Courts regularly decline to do so. See, e.g., Himes v. Clark, No. 07-CV-2729-PSG-PJW, 2010 WL 2179035 at *1 (C.D. Cal. May 25, 2010); In re Midland Credit Mgmt., Inc., Tel. Consumer Prot. Act Litig., No. 11-MD-2286-MMA-MDD, 2020 WL 6504416, at *5–6 (S.D. Cal. Nov. 5, 2020) (“This Court's function, on a motion for review of a magistrate judge's discovery order, ... is to decide whether the Magistrate Judge, based on the evidence and information before [the judge], rendered a decision that was clearly erroneous or contrary to law.”) (citation omitted). Nevertheless, in the exercise of discretion, and because the Acknowledgement and Agreement did not previously exist and could not have been presented to the Magistrate Judge, it is considered. [5] Plaintiff also relies on Spin Master, Ltd. v. Zobmondo Ent., LLC, No. 06-CV-3459 ABC-PLAX, 2011 WL 3714772 (C.D. Cal. Aug. 22, 2011) for the contention that “the only possible conclusion” is the interpretation supported by both parties of the contract. Spin Master is not binding authority, and is, therefore, not sufficient to support the claim that the Magistrate Order was contrary to law. However, even if it is considered, like Halicki, it found that that the plain text was susceptible to the interpretation set forth by plaintiff. [6] This new evidence not submitted before the Magistrate Judge is admitted in the exercise of discretion. See United States v. Howell, 231 F.3d 615, 621 (9th Cir. 2000).