HannStar Wants Rehearing on Settlement

     (CN) — Taiwanese manufacturer HannStar wants the Ninth Circuit to revisit its ruling favoring Sony Electronics, arguing that the court should have applied state law in the price-fixing case.     
     At the heart of the dispute is HannStar’s refusal to pay a $4.1 million settlement after HannStar and Sony had sent emails to the dispute’s mediator, Professor Eric Green, accepting the settlement’s terms.
     HannStar insists that no settlement was ever reached because the agreement was a “mediator’s proposal” that still required written documentation. Sony had initially sued HannStar for state-law breach of contract and federal and state antitrust violations, but it later dropped its antitrust claims.
     The district court sided with HannStar, ruling that the mediation materials were barred by California’s evidence code, but the Ninth Circuit reversed in a 2-1 decision in September.
     U.S. Circuit Judge Susan Graber, writing for the majority, reasoned that federal privilege law should take priority over state privilege law in enforcing the settlement agreement between the two parties after HannStar pleaded guilty to price-fixing LCD products in 2010.
     Graber argued the specter of federal law informed the mediation even after Sony had dropped its federal antitrust case against HannStarr.
     Now HannStar is hoping for a panel rehearing and rehearing en banc, claiming that the appellate court’s reasoning was erroneous.
     “This holding creates an unprecedented and unjustifiable exception to Federal Rule of Evidence 501’s straightforward requirement that ‘state law governs privilege regarding a claim or defense for which state law supplies the rule of decision,'” HannStar stated in its 36-page petition. “[W]hen the district court was deciding to admit or exclude the evidence, the only claim before it was a state law contract claim. By holding that the type of claims under discussion ‘at the time the parties engaged in mediation’ determines whether state or federal privilege law applies in a later-filed action, rather than looking to the claims actually before the court, the panel majority created a new and erroneous rule.”
     In addition to violating Federal Rule of Evidence 501, HannStar said the panel’s ruling violates precedent set by the Ninth and other circuits, U.S. Supreme Court precedent as set by Erie Railroad Co. v. Tompkins and congressional intent.
     “This decision ignores Congress’s determination about the importance of state privilege law and destroys the Erie doctrine’s respect for substantive state interests,” HannStar’s brief argued. “By getting Rule 501 and its underlying federalism principles so wrong, the decision raises issues of exceptional importance and must be corrected.”
     Buzz Frahn of Simpson Thacher & Bartlett in Palo Alto, California, is representing HannStar.
     “This decision, if left to stand, means that there will be a vast overreach of federal judicial power, replacing state policy, and in direct contradiction of a congressional mandate and the long-standing precedent of the Supreme Court — both of which rest on the principles of federalism inherent in our government’s founding structure,” Frahn said in a statement.
     Stephen Bomse, who represented Sony when the panel handed down its decision, declined to comment about the petition.
     Bomse is with Orrick Herrington & Sutcliffe in San Francisco.
     Sony could not be reached for comment Wednesday.

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