Court Concludes Defendants’ Reliance on a Vendor to Accomplish Collections was “Insufficient”

Peerless Indus., Inc. v. Crimson AV, LLC, No. 1:11-cv-1768, 2013 WL 85378 (N.D. Ill. Jan. 8, 2013)

In this case, the court concluded that Defendants’ reliance on a vendor to accomplish collections from a non-party whose documents were in Defendants’ control was “insufficient” and granted Plaintiff’s motion for sanctions.  Specifically, the court ordered Defendants to “show that they in fact searched for the requested documents and, if those documents no longer exist or cannot be located," to "specifically verify what it is they cannot produce” and ordered Plaintiff to submit its bill of costs related to preparation of the motion.

Plaintiff alleged patent infringement and design patent infringement “arising out of defendants’ manufacture and sale of certain TV mounts.”  “Closely related to this action, though not a party,” was Plaintiff’s former supplier of the at-issue mounts, Sycamore Manufacturing Co., Ltd. (“Sycamore”).  Sycamore is located in China.

In the course of discovery, the court held that Defendant Crimson AV, LLC (“Crimson”) “was in control” of Sycamore’s documents and found that “the evidence suggested” that Tony Jin, the president of Sycamore, "was principal of both Crimson and Sycamore, and that he exercise[d] a considerable amount of financial and managerial control over both corporations.”  The court further found that because of this control, “Crimson was ‘able to obtain the relevant documents from Sycamore.’”  According to the court, “[t]his order of course required defendants to contact individuals at Sycamore and play a role in obtaining the necessary discovery.”

Turning to the present motion, Plaintiff argued that at the deposition of Crimson’s Managing Director/30(b)(6) Deponent (who was also a named party), “it became clear that defendant did not conduct a reasonable investigation regarding Sycamore’s document production or Sycamore’s document retention for purposes of this litigation.”  Accordingly, Plaintiff filed its renewed motion for sanctions—the third motion filed by the plaintiff related to “essentially the same set of documents.”  Sparing the details, Defendants and Sycamore asserted that certain documents in Sycamore’s possession had been produced, although, as Plaintiff (and the court) noted, they did not represent that all requested documents were produced or that they were searched for but no longer existed.

Noting the Managing Director’s deposition testimony that “there was a process outlined ‘I guess by the vendor,’” who “provided instruction to Mr. Jin on how to collect documents,” the court concluded that Defendants “took a backseat approach” and “let the process proceed through a vendor.”  As a result, Crimson, “or at least” the Managing Director, “had no part in the process . . . .” Indeed the Managing Director was unable to answer questions about the non-party’s information systems, search efforts, custodians, preservation efforts, or whether any of Sycamore’s employees “were even contacted regarding plaintiff’s document requests.”

The court concluded that “such a hands-off approach [wa]s insufficient.”  The court continued:

Because of the control or “close coordination” between the two companies, defendants were required to produce the requested information.  Defendants cannot place the burden of compliance on an outside vendor and have no knowledge, or claim no control, over the process.  Defendants must produce all responsive documents, even if those documents are held by Sycamore, because we have already determined that the separation of the two companies “‘cannot be used as a screen to disguise the coordinated nature’” of their business.

(Footnotes omitted.)

Ultimately, the court declined to accept Defendants’ assertions that they had “provided everything” absent additional information and ordered Defendants to “show that they in fact searched for the requested documents and, if those documents no longer exist or cannot be located, they must specifically verify what it is they cannot produce.”  The court also granted Plaintiff’s motion for sanctions and ordered the submission of its bill of costs for the preparation of the motion.

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