Even with the enactment of Rule 37(e), which tries to curb when and how much e-discovery sanctions should be, the court can use its inherent authority to sanction parties as they see fit to make the non-offending party whole, regardless of the amount in controversy.
In this counterfeiting case, the plaintiff, Klipsch, moved for e-discovery sanctions against the defendant based on the alleged spoliation of discoverable information.
The goal for the plaintiff in discovery was to learn more about magnitude of the defendant’s infringing sales by reviewing the defendant’s actual sales data. As discovery began, it was evident that the defendant was not complying with its e-discovery obligations, showcased by:
Based on these findings, the district court found that the defendant had “willfully spoliated relevant discoverable information,” ordering an adverse inference jury instruction, and imposed $2.7 million in sanctions to cover the costs incurred by the plaintiff because of the discovery misconduct.
The defendants appealed the ruling, arguing that the $2.7 million sanction was disproportionate and impermissibly punitive considering the amount in damages was only likely to be around $20,000/
Download the PDF version of the Klipsch Group, Inc. v. ePRO E-Commerce case law alert here.
This case is a “poster-child” for implementing sound legal hold and production practices even in smaller cases. Sanctions for the willful failure to preserve and produce relevant evidence need not be proportional to the amount in dispute. Here the awarded costs and fees were more than 100x the likely damages.