Opinion
No. 3:97-CV-1074-T
February 26, 2002
ORDER ADOPTING IN PART MAGISTRATE JUDGE'S FINDINGS, CONCLUSIONS, AND RECOMMENDATION
This case arises out of the sale by Defendant Bublitz of his companies to Plaintiff in 1994. The sale included the transfer, from Bublitz to Plaintiff, of the exclusive right to use the trade name "Rivertown Button" or any substantially similar name. It is alleged that, subsequently, Bublitz, through his company Best Way, sent advertisements to customers and potential customers indicating that Best Way was formerly Rivertown Button. Plaintiff has brought suit, essentially, for unfair competition and trade name infringement against both Bublitz and Best Way.
Plaintiff filed its motion for sanctions alleging that Defendants violated the district court's discovery order and destroyed evidence. The motion was referred to Magistrate Judge Jane Boyle for a recommendation and hearing, if necessary.
Judge Boyle held a hearing on Plaintiffs motion. The parties appeared only by counsel. Judge Boyle filed her findings, conclusions, and recommendation; Defendants filed their objections; and Plaintiff filed its response to Defendants' objections.
Judge Boyle found that Defendant Bublitz, acting in bad faith, destroyed documents sought in discovery by Plaintiff which were to be used to establish Plaintiffs damages; that the destruction was in violation of the district court's discovery order; that, as a result, Plaintiff was caused substantial prejudice; and, that sanctions less drastic than those recommended would not be appropriate. Based on these findings, Judge Boyle recommended:
1. That it be taken as an established fact that Defendants' acts of unfair competition and infringement caused customers to purchase product from Defendant Best Way under the mistaken belief that it was Plaintiff Rivertown Button;
2. That default judgment be entered against Defendants on Plaintiffs claims of unfair competition and trade name infringement;
3. That Defendants be prohibited from contesting Plaintiffs damage calculation;
4. That Defendants pay, as a sanction, whatever amount of damages that Plaintiff calculates it sustained by reason of Defendants' acts of unfair competition and trade name infringement, so long as the amount is arguably reasonable; and
5. That Defendants pay all of Plaintiffs costs and attorneys' fees associated with Plaintiffs motion for sanctions, in the amount of $7, 937.64.
These recommendations, if adopted, would impose severe sanctions upon Defendants which would have a dramatic effect upon the trial of the case. As the trial was set for the docket of April 5, 1999, it was determined that the trial should be delayed so that the Court could give careful consideration to the Magistrate Judge's recommendation and briefs of the parties.
Defendants object to the Magistrate Judge's findings and conclusions —
(1) that Defendants' acts of unfair competition and infringement caused customers to purchase product from Defendant Best Way under the mistaken belief that it was Plaintiff Rivertown Button;
(2) that Plaintiff is substantially prejudiced in its ability to prove its damages;
(3) that Defendants pay, as a sanction, whatever amount of damages Plaintiff calculates that it sustained by reason of Defendants' acts of unfair competition and trade name infringement, so long as said amount is arguably reasonable;
(4) that any lesser sanction would permit Defendants to profit from their own misdeeds and punish Plaintiff; and
(5) that Defendants acted in bad faith by intentionally destroying documents which Defendants knew were the subject of discovery requests by Plaintiffs and an order of this Court.
Defendants do not object to the award or the amount of the attorneys' fees recommended by Judge Boyle.
Initially, the Court will examine Defendants' objection (5), the Magistrate Judge's bad faith finding, because it is the foundation for the remaining recommendations. If this finding cannot be sustained, the recommendation, in its entirety, must be rejected.
Although matters were referred to by Judge Boyle during the hearing, this Court finds that she based her findings and recommendations upon the evidence and representations presented at the sanctions hearing.
Plaintiffs attorney, in the nature of an offer of proof, represented to the Court the chronology of the action from its filing in state court to the date of the sanctions hearing. Plaintiffs Exhibit No. 1, a notebook containing the relevant pleadings and orders, was admitted without objection. It was shown that discovery requests were made to Defendant Bublitz who failed to produce the documents requested. Plaintiff filed a motion to compel and, after a hearing, the motion was granted and the Court ordered Bublitz to comply with the discovery requests.
A specific portion of that order provided:
It is further ordered that plaintiff's motion to compel answer Request for Production No. 17 is granted and that defendant movants must produce all documents that reflect orders placed with Best Way by each and every person to whom either he or Best Way has represented that Best Way is formerly Rivertown Button.
The order provided that Bublitz produce those records dating from September 1, 1986, until the present. The records have not been produced.
Additionally, excerpts from Bublitz's deposition were presented at the sanctions hearing. Bublitz testified that the only records he kept were items from his checking account, namely, records of deposits (receipts from sales) and cancelled checks (purchase of raw materials). Once a purchase order came in and was filled, the purchase order was thrown away. He did not change this practice even though the lawsuit was pending. He continued this practice even after the discovery request for sales records was received and after the Court had entered its order compelling production of the sales records.
The only challenge to Plaintiff's position that Bublitz was intentionally destroying evidence material to Plaintiff's burden of proof is the statement of newly-employed defense counsel that Plaintiff had only requested the production of documents reflecting orders placed but did not request sales records. Judge Boyle apparently found, and this Court agrees, that such is a distinction without a difference. Judge Boyle detailed specific references in Plaintiffs Exhibit No. 1 wherein Plaintiff requested documents pertaining to orders placed with Best Way and the names of every person to whom he had represented that Best Way is formerly Rivertown Button. She found that the documentation established that Bublitz had to know that the requested documents were crucial to Plaintiffs proof of damages and that he destroyed them and was continuing to destroy them.
Judge Boyle found from the actions of Bublitz that he knew that he was frustrating Plaintiffs case, was acting in bad faith, and was deliberately disobeying an order of the Court, and, therefore as a result, he must suffer the consequences of his misconduct. Those sanctions were imposed in accordance with the inherent power of a court to enforce compliance with its orders and pursuant to Rule 37, Federal Rules of Civil Procedure.
This Court, after an independent review of the sanctions hearing evidence, determines that Judge Boyle's finding as to bad faith by Bublitz is fully supported by the record, and that objection by Defendants is overruled.
We turn now to Defendants' remaining objections. Defendants maintain that Judge Boyle erred in finding that Plaintiff is substantially prejudiced in it ability to prove its damages. This objection is frivolous. Although it would be possible to discover and depose all customers of Best Way around the country to determine how much they purchased from Defendants and under what circumstances, such would be prohibitively wasteful of time and resources, especially when that evidence would have been obtainable at a reasonable expenditure of time and resources but for the misconduct of Defendants. The objection is overruled.
Next, Defendants object to Judge Boyle's finding that Defendant's acts of unfair competition and infringement caused customers to purchase product from Best Way under the mistaken belief that it was Rivertown. Defendants overlook that their counsel, at the sanctions hearing, represented to Judge Boyle that:
As [Plaintiff's attorney] said, we are not fighting about liability here. If he wants a default judgment on liability all he would have to do is file a request for admission to us and we would not deny the underlying facts of this advertisement and everything else that's related to liability. We admit that he sent out these ads. We admit that customers were confused, and if he's [sic] just ask us to admit it, we'd admit it.
Tr. at 4-11, 28. Considering this in-court admission, Judge Boyle's finding was reasonable. Defendants objection is overruled.
The final objections of Defendants concern Judge Boyle's recommendation that Defendants pay, as a sanction, whatever damages Plaintiff calculates that it sustained by reason of Defendants' acts of unfair competition and trade name infringement and also, Judge Boyle's finding that any lesser sanction would permit Defendants to profit from their own misdeeds. This Court finds that a lesser sanction would be appropriate and better serve the ends of justice.
This Court agrees that spoliation of evidence calls for a severe sanction, otherwise a party could benefit from his own misconduct. This is especially the case when the destroyed evidence is central to the lawsuit at hand. However, summary judgment is an extreme remedy and should not be applied when a lesser punishment is available. In this case, since liability is not an issue, an interlocutory judgment in favor of Plaintiff will be entered on the issue of liability. A jury trial on the issue of damages will be held since Plaintiff may find another (although less desirable) method of proving its damages. However, under these circumstances, Defendants will only be permitted to cross-examine Plaintiffs witnesses, and Defendants will be prohibited from producing any evidence of their own, or impeaching any witness with any document not produced by Defendants in discovery.
This lesser sanction will be applied and trial will proceed accordingly. However, in the event, that Plaintiff can, at a later time, convince the Court that there is no satisfactory procedure for proving its damages, the Court may revisit this issue.
It is therefore ORDERED that the Court adopts the Magistrate Judge's Findings and Conclusions, except as herein modified, and an interlocutory judgment will be entered disposing of the liability issues in this case.
It is FURTHER ORDERED that Plaintiffs Motion for Sanctions is granted and an interlocutory judgment against Defendants Bublitz and Best Way will be entered, awarding the sum of $7, 937.64 to Plaintiff Tandycrafts for attorneys' fees associated with the necessity for Plaintiff to bring and prosecute the motion.