Sent to you by pakurilecz via Google Reader: Adverse Inference and
Other Sanctions Warranted for Plaintiff's Failure to Produce Damaging
Emails that were Eventually Produced by Third Party via Electronic
Discovery Law by [log in to unmask] (K&L Gates) on 9/19/08
Metrokane, Inc. v. Built NY, Inc., 2008 WL 4185865 (S.D.N.Y. Sept. 3,
2008)

In this patent infringement litigation, BNY sought sanctions on the
grounds that Metrokane failed to produce a series of emails said to be
highly damaging to Metrokane's case. BNY argued that the recent
discovery of the existence of these emails through production by a
non-party came too late to permit BNY to pursue otherwise crucial
discovery concerning these communications. Metrokane contended that BNY
failed to comply with various procedural requirements before filing the
motion, and that it had not demonstrated any misconduct by Metrokane or
any prejudice. Magistrate Judge Michael H. Dolinger rejected
Metrokane’s procedural defense, and concluded that BNY sufficiently
demonstrated discovery misconduct by Metrokane and resulting prejudice.
Accordingly, the court granted a variety of remedies, including an
adverse inference instruction.

Discovery in the case closed in June 2007, but disputes about
Metrokane’s performance let to additional motion practice, including
the enforcement of a deposition subpoena to the alleged designer of the
infringing handbags (Mr. Kilduff). The court granted BNY’s motion to
compel the deposition of Mr. Kilduff in October 2007, and his
deposition and production of documents occurred in November 2007.

Mr. Kilduff produced, among other documents, a series of emails that he
had sent to, and received from, various representatives of Metrokane,
including its corporate principal, Riki Kane. Those emails, which –
with one partial, if significant exception – Metrokane had never
produced, were potentially damaging to several aspects of Metrokane's
case. The emails referred to an order by one of Metrokane's principal
customers, the department store chain Kohls, which wanted one line of
the Metrokane totes supplied to it to be in one solid color, like the
equivalent totes designed by BNY. The emails also contained comments by
Mr. Kilduff implying his understanding that the solid-color Metrokane
totes were likely to be confusingly similar to the BNY totes and
explicitly stating his belief that Kohl's was seeking the solid-color
version to take advantage of that confusion with BNY's product. This
statement was inconsistent with Metrokane's contention that the bags
were not so similar.

During discovery, Metrokane had produced one partially redacted page
reflecting two of these emails between Kilduff and Metrokane. The
portion provided by Metrokane contained the statement by Kilduff that
the order by Kohl's of a solid-color bag reflected that
Kohls "obviously want[ed] to knock ... off” BNY's bag. The redaction by
Metrokane, however, concealed a follow-up exchange between Kane and
Kilduff, in which Kane appeared to state that Metrokane had agreed to
indemnify Kohls for such infringement. The court observed that the
statement by Kilduff was potentially helpful to BNY, since it
dramatically reinforced the notion that Kilduff was aware of confusing
similarity between the two lines of totes, and it highlighted the fact
that Kane knew of the similarity and the problem.

Other emails produced by Kilduff, but not by Metrokane, reflected that
Kane had been clearly insisting before the Kohl's order that the
Metrokane totes be multi-colored. BNY argued that this indicated that
Kane was aware that a solid-color tote would potentially infringe on
BNY's intellectual property rights. In addition, the emails produced by
Kilduff contained a statement by Ms. Kane – not previously disclosed by
Metrokane – that "Kohls is 100% indemnified," thus indicating that
Metrokane had fully indemnified Kohl's by that time. That statement, if
true, was inconsistent with representations made by Metrokane relating
to its claim for tortious interference with Metrokane's business
relationship with Kohl's.

BNY pointed out that the production by Kilduff took place many months
after the conclusion of discovery and thereby deprived BNY of the
opportunity to explore these matters with Ms. Kane and other Metrokane
representatives. BNY asserted it was irremediably prejudiced, and
sought dismissal of Metrokane's claims.

Opposing the motion, Metrokane offered no evidence to explain its
failure to produce the cited emails. Rather, it made a vague assertion
in its attorney's memorandum of law that the company had no written
policy regarding the retention of documents. The court observed that
the implication was that Metrokane did not produce the emails in
question because they were no longer in its system – although Metrokane
made no direct assertion to this effect, either by competent testimony
or even by the assertion of its attorneys. Further, Metrokane vaguely
argued that the emails that it failed to produce might be construed as
favorable to it, and that in any event BNY was lax in not pursuing the
question of Metrokane's document-retention policies during discovery.

The court found that the emails were highly relevant and responsive to
BNY's discovery requests, and that there was no question that, had BNY
received them in a timely fashion from Metrokane, it would have pursued
questioning about them with one or more of Metrokane's representatives,
including Ms. Kane. The court was unpersuaded by Metrokane’s arguments.
First, in the absence of any evidence from Metrokane, the court could
not find that Metrokane did not have possession or control of the
subject emails when called upon to produce relevant documents. “Plainly
the knowledge of whether the company had access to those emails at the
pertinent time rests solely with Metrokane, and its failure to proffer
any evidence pertinent to that question impels an inference that it
cannot demonstrate non-possession.”

Second, that inference was further strengthened by Metrokane's
production of a fragment of the emails. If Metrokane’s employees had
been systematically purging emails from their computer files, the court
would not expect the company to be able to produce the two emails that
it did disclose, albeit in redacted form. Third, the court noted “the
very careful avoidance by Metrokane of any direct representation – even
in the form of a non-admissible attorney's assertion – that the company
did not have the unproduced emails in its possession.” Fourth, the
court observed that, by the time the subject email exchanges occurred,
Metrokane was “manifestly aware of the potential for litigation with
BNY.” It continued: “If Metrokane destroyed the emails in question at
some time thereafter it was in evident violation of its obligation of
preservation, and may thus be charged with the consequences of its
spoliation.

Given the evidentiary record, including the complete silence of
Metrokane as to why it failed to produce the emails in question, the
court found that Metrokane, at a minimum, was negligent either in
failing to produce documents available to it or in failing to preserve
documents that it was obliged to safeguard. However, the court also
found that BNY had substantially overstated the impact of the
non-production, which the court found was, in large measure,
remediable. As a result, the court granted the following remedies:
• For purposes of pending summary-judgment motions, the court deemed
Ms. Kane's statement in her email about the indemnified status of
Kohl's to be binding and included within the summary-judgment record
• If the tortious-interference claim survived summary judgment,
Metrokane would be required to make Ms. Kane and any other Metrokane
witness competent to testify about the indemnification of Kohls
available for deposition by BNY, with the costs of deposition, as well
as reasonable attorney's fees incurred in preparing for it and
conducting it to be borne by Metrokane
• At trial, BNY would be permitted to offer evidence as to Metrokane's
concealment of email and would be entitled to a jury instruction as to
the possible inferences that the jurors may draw from the concealment
• Metrokane ordered to pay BNY’s expenses, including reasonable
attorney's fees, incurred in preparing and briefing the sanctions motion

A copy of the full decision is available here.



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