Court Grants Motion for Sanctions, Precludes Defendants’ Assertion of Affirmative Defense

Arista Records, LLC v. Usenet.com, Inc., 2009 WL 1873589 (S.D.N.Y. June 30, 2009)

In this copyright infringement case, plaintiffs alleged defendants committed egregious discovery violations deserving of terminating sanctions.  The violations included wiping relevant hard drives of its employees, failing to preserve and produce relevant emails, providing misleading responses to discovery, and violating two court orders, among other things.  Finding plaintiffs’ accusations credible in light of the evidence presented, the court denied their request for terminating sanctions but precluded defendants from asserting their affirmative defense of protection under the relevant statute’s safe harbor provision.  The court then granted summary judgment in favor of the plaintiffs.

Defendants were previously sanctioned for spoliation of evidence in the instant litigation (See Arista Records, LLC v. Usenet.com Inc., 2009 WL 185992 (S.D.N.Y. Jan. 26, 2009).)  Nonetheless, following the close of discovery, plaintiffs moved for additional sanctions based on “certain even more egregious discovery violations.”  Defendants’ violations included:

• using wiping software to destroy the contents of seven hard drives of defendants’ employees;
• ensuring the unavailability of certain work-issued computers by allowing former employees to take their computers as “parting gifts” without preserving the material thereon;
• making misrepresentations regarding the company’s utilization of internal email and failing to preserve internal emails despite an obligation to do so;
• taking efforts to render its employees unavailable for deposition by “causing them to travel to Europe on an expense-paid vacation” and attempting to convince them to remain out of jurisdiction for a longer period;
• providing misleading information as to the employment and whereabouts of defendants’ former president;
• knowingly providing false responses to interrogatories; and
• violating two court orders requiring disclosure of information related to the spoliated hard drives and missing employee computers.

The court established its authority to sanction under Fed. R. Civ. P. 37 and its inherent authority and identified the appropriate considerations when determining a proper sanction:

Rule 37 sanctions require a showing of violation of a court order.  Daval Steel Prod. v. M/V Fakredine, 951 F.2d 1357, 1363 (2d Cir.1991).  Sanctions under the court’s inherent power require a showing of bad faith or willfulness.  See DLC Mgmt. Corp. v. Town of Hyde Park, 163 F.3d 124, 136 (2d Cir.1998).  When deciding a proper sanction, a court generally must consider, in light of the full record of the case, (a) willfulness or bad faith on the part of the noncompliant party; (b) the history, if any, of noncompliance; (c) the effectiveness of lesser sanctions; (d) whether the noncompliant party has been warned about the possibility of sanctions; (e) the client’s complicity; and (f) prejudice to the moving party.  Id.  In the spoliation context, the court must also consider the "prophylactic, punitive and remedial rationales underlying the spoliation doctrine."  West v. Goodyear Tire & Rubber Co., 167 F.3d 776, 779 (2d Cir.1999).  Thus, the sanction should "(1) deter parties from engaging in spoliation; (2) place the risk of an erroneous judgment on the party who wrongfully created the risk; and (3) restore the prejudiced party to the same position he would have been in absent the wrongful destruction of evidence."  Id.

Agreeing that “Plaintiffs’ evidence credibly illustrates a pattern of destruction of critical evidence, a failure to preserve other relevant documents and communications, and at best dilatory (and at worst, bad-faith) tactics with respect to Defendants’ conduct during discovery,” the court nonetheless indicated its unwillingness to impose the “ultimate sanction” of default judgment, as requested.  However, the court did find that sanctions were warranted in light of defendants’ destruction of information that was “highly relevant to the case” and defendants’ other litigation misconduct as discussed above.

Having declined to issue default judgment, the court proposed a less drastic alternative:

While there is certainly strong evidence of extreme wrongdoing, courts must be wary of issuing case-dispositive sanctions; such sanctions "should be imposed only in extreme circumstances, usually after consideration of alternative, less drastic sanctions." West, 167 F.3d at 779.  One such lesser sanction is to preclude the wrongdoer from litigating certain claims or defenses during the remainder of the case.

Accordingly, the court precluded defendants’ reliance on its affirmative defense of protection under the relevant statute’s safe harbor provision.  Because defendants’ motion for summary judgment was premised on their entitlement to such protection, the motion was “mooted” and dismissed.

Following a discussion of the relevant facts and arguments, the court went on to grant plaintiffs’ motion for summary judgment.