Adverse Inference and Other Sanctions Warranted for Plaintiff’s Failure to Produce Damaging Emails that were Eventually Produced by Third Party

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


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