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December 01, 2022

Spoliation Series: Discovery Abuses Can Lead to Case-Ending Sanctions

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In Abbott Laboratories, et al., v Adelphia Supply USA (EDNY May 2, 2019), Plaintiffs filed a motion for case-ending sanctions against defendants H&H Wholesale Services, Inc., Howard Goldman, and Lori Goldman (for purposes of this blog, "Defendants"). The parties submitted briefing and Magistrate Judge Bloom held oral argument. On May 2, 2019, Judge Bloom recommended that the district court grant Plaintiffs' motion for sanctions and enter a default judgment against the Defendants. The district court adopted the Magistrate Judge's Report & Recommendation and entered a default judgment against Defendants. And while case-ending sanctions are rare, where, as here, the defendants engaged in a "calculated pattern of pervasive misconduct" replete with "bad faith conduct" that "started early on and continued even after defendants were caught red-handed," drastic sanctions were necessary.

Background

On Oct. 5, 2015, Abbott filed a trademark action against Defendants and others, alleging Abbott's rights had been violated by Defendants selling the international version of Abbott's diabetes test strips in the United States. In January 2017, Magistrate Judge Bloom held a discovery conference to address a number of issues, wherein she ordered all defendants to "review all formal and informal communications regarding [their] purchases and sales of International …test strips in 2014, including emails, text messages, purchase orders, delivery invoices, and check/wire transfers" (See DE 925). Soon thereafter, counsel for the Defendants informed the court that Defendants had "conducted a review of all formal and informa[l] communications regarding the purchase and sale of International …test strips for the year of 2014…Individual Defendants Howard Goldman and Lori Goldman do not have any responsive documents. As to H&H, there are approximately 6,000 responsive documents." (DE 933).[1] Magistrate Judge Bloom then directed the H&H Defendants to produce their 2014 documents (DE 963). This production was coordinated by Andrew Sweet, H&H's General Manager, and Jason Yert - H&H's counsel.

A few weeks later, despite the previous assertion there were 6,000 responsive documents, the Defendants produced only 314 responsive documents (DE 1522). Notably, these documents were printed "in hard copy, scan[ed]…together, and produc[ed] … as a single, 1,941-page PDF file." (DE 1075). Abbott objected and the Magistrate Judge directed Defendants to "produce an electronic copy of the 2014 emails (1,941 pages)" including metadata (DE 1080).

In a related case, the court entered a seizure order that authorized Abbott to seize a copy of H&H's email server. Armed with that server, Abbott soon learned that the Defendants failed to comply with the Court's prior order to produce responsive documents. And so, Judge Bloom ordered the H&H defendants to "re-run the document search" outlined in prior orders, produce the documents from the re-executed search, and produce an affidavit of someone with personal knowledge as to why the earlier production was not complete or proper. This time the Defendants produced 3,569 responsive documents from 2014.

It soon also became clear that the search terms the Defendants used to make their initial 314 document production were intentionally deficient and did not capture the vast majority of documents the court ordered produced. Perhaps most egregious, however, was that Defendants withheld from their initial production every document sent by, received by, or referring to Howard or Lori Goldman, and every document that concerned a company from whom H&H was purportedly purchasing counterfeit test strips. In response, H&H proffered through counsel and their general manager a series of inconsistent excuses for the lack of production - responses that, according to the Magistrate, amounted to "deliberate tactical intransigence" and "calculated[] attempt[s] to manipulate the judicial process."

Eventually, Abbott moved for sanctions pursuant to Rule 37 based upon the discovery conduct of Howard Goldman (President of H&H), his wife and H&H employee, Lori, Andrew Sweet, H&H's general manager, and David Gulas H&H's 30(b)(6) witnesses and sought a default judgment as well as attorneys' fees predicated upon discovery fraud. Magistrate Judge Bloom granted Abbott's motion, which the district court adopted. As summarized in both the Report & Recommendation, and the district court decision, the misconduct involved in this case "was not an isolated instance of perjury or one withheld document"; rather, "it was a calculated pattern of pervasive misconduct that started early on and continued even after [the H&H] [D]efendants were caught red handed." Considering the record as a whole, the H&H Defendants perpetrated a fraud upon the court and the harshest sanction was deemed appropriate. Indeed, the district court made plain that any lesser sanction would be ineffective where, as here, Defendants' discovery misconduct was replete with "bad-faith," was "repeated" and "egregious," involved "attempt[s] to cover up the misconduct" and the evasion "continued … even after having been caught."

Conclusion

Attorneys must engage in good faith in the discovery process and require that our clients do the same. While this case is an extreme example of discovery abuses, and the potential sanctions that will follow, it is a good reminder that as officers of the court we must comply with our legal and ethical obligations to the system and the court.


[1] The Defendant's representation to the court that it had 6,000 responsive documents from 2014 was false. According to the court, providing this inaccurately high number facilitated the Defendants' objective - a modification from the court's discovery order, which required all other defendants to produce documents from 2013-2015, while the H&H defendants produced only from 2014.

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