Sanctions warranted for spoliation of evidence in antitrust suit

July 29, 2016

Plantronics headsetAn audio electronics company that took a number of steps to destroy relevant evidence after a competitor filed an antitrust suit against it must pay $3 million in punitive sanctions, a Delaware federal judge has ruled.

Plantronics Inc. must also pay the reasonable fees and costs GN Netcom Inc. incurred in pursuing the court order and is subject to evidentiary sanctions and adverse-inference jury instruction, U.S. District Judge Leonard S. Stark of the District of Delaware said.

GN Netcom, based in Nashua, New Hampshire, is a subsidiary of Denmark-based GN Netcom. It manufactures and sells headsets under the Jabra and GN Netcom brands.

Plantronics, based in Santa Cruz, California, manufactures and sells headsets under the Plantronics brand.

“Plantronics-only” distributorships

According to GN Netcom’s Oct. 12, 2012, complaint, GN Netcom and Plantronics both use specialized independent distributors to sell their equipment to “contact centers,” which are large, centralized offices used for receiving and transmitting a high volume of requests by telephone. Contact centers are a major market for headsets.

GN Netcom alleges that after it began selling headsets in the United States, Plantronics launched a program providing various perks, including preferred pricing, to distributors that agree not to market or sell competitors’ products.

According to the suit, Plantronics “actively polices” its dealers to ensure compliance with the program and has threatened to terminate distributors who do not following the distributorship program’s dictates.

GN Netcom alleges that through its “Plantronics-only” distributorship program, the defendant has engaged in monopolization and attempted monopolization in violation of Section 2 of the Sherman Act, 15 U.S.C.A. § 2; restrained trade in violation of Section 1 of the Sherman Act, 15 U.S.C.A. § 1; and tortiously interfered with its business relationships.

On Sept. 23, 2013, Judge Stark denied Plantronics’ motion to dismiss the suit.

Sanctions sought

GN Netcom moved for sanctions in November 2015, alleging that a month after it filed suit and despite Plantronics having a litigation hold in place, Plantronics’ head of sales, Don Houston, instructed subordinates to delete emails relating to competition and deleted his own emails.

According to Judge Stark’s July 12 opinion, the evidence presented showed Houston deleted more than 40 percent of his emails from Nov. 18, 2013, through Feb. 19, 2014.

A forensic expert retained by GN Netcom determined that “2,380 to 15,309 of Mr. Houston’s deleted, unrecoverable emails would have been responsive to GN’s discovery requests,” the opinion said.

Other Plantronics executives told sales team members to use code words to refer to competitors, the opinion said.

Federal Rule of Civil Procedure 37(e), which addresses sanctions for spoliation of “electronically stored information,” substantially reflects pre-existing [3rd U.S. Circuit Court of Appeals] law, Judge Stark noted.

3rd Circuit law requires a party seeking an adverse-inference jury instruction — an instruction allowing the jury to infer that the spoliated ESI would have been favorable to the moving party or disfavorable to the responding party — must show the evidence was destroyed in bad faith, the judge said.

Bad faith is also relevant to the question of whether the moving party was prejudiced by the spoliation of evidence, he said.

Bad faith, prejudice shown

Judge Stark rejected Plantronics’ argument that it had taken reasonable steps to preserve ESI.

“Despite knowing that spoliation extended … to other custodians,” Plantronics sought only to recover Houston’s emails, the judge noted.

The evidence also showed bad faith on Plantronics’ part, the judge said, rejecting its efforts to divorce itself from Houston’s actions.

Houston’s actions were taken to protect the business, and not for personal reasons, the judge said.

Given that Houston is a “high-level executive” with “ultimate responsibility for the allegedly anti-competitive program that is at the center of this case,” Judge Stark said he could only conclude that Houston’s actions were partly designed to deprive GN Netcom of the discovery to which it was entitled.

Plantronics’ limited efforts to recover Houston’s deleted email and its repeated efforts to hide from GN Netcom the fact that it had retained its own forensic expert, together with use of code words to refer to competitors, led Judge Stark to find that Plantronics acted in bad faith.

He also found that GN Netcom was prejudiced by the spoliation.

“Destruction of internal emails regarding the decisions made, the discussions had and the resulting impact would make it difficult, if not impossible, for GN to effectively and fully challenge Plantronics’ one-sided view of how the [Plantronic-only distributorship] agreements and POD distributors operated in practice,” Judge Stark wrote.

Sanctions

He ruled that punitive sanctions, in addition to monetary sanctions, were warranted given “Plantronics’ high degree of fault, its bad-faith intent to deprive GN of responsive documents and the prejudice it has caused to GN’s case.”

Judge Stark imposed a punitive sanction of $3 million, payable to GN Netcom, on the defendant, noting the amount is three times the financial penalty the company had imposed on Houston for his conduct.

He also ruled that GN Netcom is entitled to an instruction to the jury that it may, not must, presume the information missing from Plantronics’ evidentiary product was unfavorable to the defendant.

GN Netcom Inc. v. Plantronics Inc., No. 12-cv-1318, 2016 WL 3792833 (D. Del. July 12, 2016).