SAN FRANCISCO (LN) — U.S. District Judge Edward M. Chen on Thursday denied Sony Interactive Entertainment’s motion for terminating or issue preclusion sanctions, allowing ESC-Toy Ltd. to proceed with its breach of contract claims regarding an alleged exclusive vendor agreement for PlayStation pins.
Chen ruled that Sony failed to meet its burden of proving that Shelly Gayner, a former Sony in-house attorney, provided ESC-Toy with non-public information that materially advantaged the company’s negotiating position. The court found that ESC-Toy, a sophisticated industry player with nearly a decade of prior dealings with Sony, could have ascertained the information through ordinary commercial diligence.
The dispute centers on whether Gayner’s transactional advice during 2017 negotiations constituted 'transactional taint' warranting the severe remedy of striking ESC-Toy’s claims. Sony had argued that Gayner’s insider knowledge of Sony’s licensing practices gave ESC-Toy an unfair advantage.
Chen distinguished between 'litigation taint,' which previously led to the disqualification of ESC-Toy’s former counsel, and 'transactional taint.' The court had already disqualified law firm Maschoff Brennan in 2023 after finding Gayner improperly collaborated with the firm on litigation strategy.
In his order, Chen analyzed nine specific instances of advice Gayner provided to ESC-Toy founder Erick Chatel, also known as Erick Scarecrow. The court found Sony’s arguments 'formulaic and repetitive' and lacking concrete evidence of non-ascertainability or materiality.
'ESC was a sophisticated industry player independently familiar with video game licensing practices,' Chen wrote. 'By the time Ms. Gayner became involved with ESC in 2017, ESC had been doing business directly with SIE since 2009.'
The court noted that Chatel had negotiated multiple agreements with Sony, including a 2014 Merchandise Licensing Agreement, and had dealt with other publishers like Activision Blizzard and Devolver Digital. Chen concluded that advice regarding exclusivity, royalty fees, and manufacturing capabilities was either generic or already known to ESC-Toy.
Chen also declined to modify a 2024 protective order barring ESC-Toy from accessing materials prepared by Gayner, but clarified that the order’s scope is limited to materials bearing on litigation taint. The parties were directed to meet and confer regarding which documents fall outside that scope.
Retired California Supreme Court Chief Justice Tani G. Cantil-Sakauye served as special master in the case, finding that Gayner advised ESC-Toy on negotiations but stopping short of recommending sanctions.