Welcome to the “Inner Circle of Judicial Hell”

DR Distribs., LLC v. 21 Century Smoking, Inc.

N.D. Ill. October 6, 2022

Why This Case Is Important

E-Discovery sanctions always draw attention, but in this case, the e-discovery mistakes were so profound, and compounded over so much time, that the presiding judge issued seven-figure sanctions against both the defendant and its former counsel.

Overview

Beginning a decade ago in 2012, this case stems from a trademark infringement suit between two electronic cigarette companies. Plaintiff, who held a trademark for the term “21st Century Smoke,” accused the defendant “21 Century Smoking” of violations of the Lanham Act. At the time of the sanctions ruling, the case had still not been resolved.

Throughout e-discovery, the defendant and defendant’s counsel committed numerous e-discovery mistakes resulting in spoliation and production delays, including:

• Counsel issued an oral instruction to preserve relevant email and chat messages, rather than a written legal hold.
• Counsel failed to remind the defendant to turn off automatic email and chat message deletion, resulting in the loss of relevant ESI.
• Defendant stated all relevant emails could be found on company servers, despite the use of web-based email and chat technology stored in the cloud.
• Defendant self-collected ESI without counsel’s oversight or guidance.

In October 2021, the judge stated the defendant and former counsel “[found] themselves staring down the barrel of a sanctions motion Howitzer.” In October 2022, the judge ruled on the plaintiff’s request for $4 million in e-discovery sanctions.

Ruling

• “Fee litigation [is] an inner circle of judicial hell.” With this statement as the first line of the ruling, readers can be certain that the judge had grown extremely tired of repeated e-discovery errors and missteps by defendant and defense counsel.
• Plaintiff’s motion granted in part. Out of the plaintiff’s requested $4 million, including over $1 million based on “rare and exceptional circumstances as illuminated by the scope of the Sanction[ed] Parties’ misconduct,” $2.5 million in fees was granted, half to be paid by the defendant and half split between two of defendant’s former counsel.
• Lack of timely production was very costly. The court explained that defense’s repeated late production contributed to the large amount of hours worked and consequently the large award. The defendants “knew what went wrong… but the jaws of life were needed to extract these facts from them,” leading the plaintiff to spend “more hours in an effort to understand the shambolic discovery mess created by defendants.”

Legal Analysis

By, David Cohen, Esq., Chair - E-Discovery Group, Reed Smith LLP

This is a classic case of preservation failures and other discovery violations causing extensive wasted time and a frustrated judge. The October 2022 opinion, awarding more than $2.5 million in sanctions, follows the Court’s lengthy January 2021 opinion, cataloging findings of multiple discovery violations and misrepresentations. In its latter opinion, the Court found those sanctions necessary to reimburse plaintiffs for additional fees actually caused by the discovery violations, plus costs of preparing their fee petition.