On July 12, 2001 plaintiff Fendi sent Filene's a cease-and-desist letter complaining about the alleged sale by defendants of counterfeit Fendi bags. (Declaration of Victor Genecin, Esq., executed Nov. 13, 2008, at 25 & Ex. 1).
In response, Filene's reported that it was pulling all such bags (all apparently supplied by Ashley Reed Trading, Inc. (“Ashley Reed”)) from its shelves and provided several samples to Fendi's counsel to allow Fendi to confirm whether they were counterfeit. (Id.
25 & Ex. 2; Declaration of Theodore Remaklus, Esq., executed Dec. 11, 2008, at 14-15 & Exs. 4 (at 14, 57-58, 76), 7 (at 8, 18, 21, 39-41)). Apparently Fendi determined that the items were genuine and never followed up with Filene's. (Remaklus Decl. 15 & Ex. 8 (at 41-43)). It next sent a similar complaining letter to Filene's on December 21, 2005. (Genecin Decl. 26 & Ex. 3). This trademark-infringement lawsuit followed in early 2006, alleging that Filene's had been buying and marketing counterfeit Fendi bags.
Fendi served its first request for documents on April 12, 2006. (Id.
29 & Ex. 5). It called for a broad range of production by Filene's, including particularly documents pertaining to the purchase and sale of Fendi-branded goods, including suppliers, volume of purchases and sales, prices, profits and identification of individuals involved in these transactions. Given an extension to respond until May 30, 2006, Filene's served a written response on that date but produced no documents. (Id.
30 & Ex. 6).
In the interim, Fendi had served a second document request. (Id .
30 & Ex. 7). Filene's responded to this set of requests by serving blanket objections in late June 2006. (Id.
30 & Ex. 8).
*2 Finally, Filene's actually produced some documents on August 18, 2006. (Id.
32 & Ex. 12). The initial production, however, was limited to 61 pages. Five days later, on August 23, defendants' counsel represented in writing that Filene's had no other responsive documents. (Id.
33 & Ex. 14).
On September 20, 2006, defendants' counsel reported to plaintiffs that Filene's had prepared a profit analysis based solely on the documents previously produced to Fendi. That analysis was limited to the years 2004 and 2005 and indicated profits from Fendi-branded sales of $364,715.63. (Id.
34 & Ex. 15).
On January 17, 2007, Filene's new counsel reiterated to plaintiffs that his client had produced all responsive documents. (Id.
36 & Ex. 16). On April 3, 2007 counsel for Fendi wrote to Filene's attorneys to outline what Fendi viewed as the deficiencies in defendants' document production, which included almost no transaction-specific documents. (Id.
39 & Ex. 18). This triggered a production of 50 more pages-including copies of the 2001 cease-and-desist letter and Filene's response-and still another reiteration by defendants' attorney that the these documents, together with the previously produced 61 pages of documents and the profit analysis, constituted the totality of Filene's documents. (Id.
40, 42 & Ex. 19). Moreover, in making this statement, Filene's attorney went on to say that “Filene's does not retain records that you contend must be available, and does not track or maintain records regarding sales of specific items.” (Id.
Plaintiffs' counsel says that at a May 2, 2007 conference he raised current issues regarding deficiencies in “defendants” ' production. (Id.
44). A careful reading of the transcript discloses that while plaintiffs' counsel mentioned that Filene's had not produced a privilege log and had made a deficient production of documents, he did not refer to Filene's after these introductory comments, focusing on the production deficiencies of the other defendants for the rest of the conference. (Id.
Ex. 21 (at 4-6)). In the wake of that conference plaintiffs' counsel met with Filene's attorney and senior corporate personnel, who reportedly acknowledged that the company had additional documents, and indeed Filene's produced 250 more pages between June 1 and 8, 2007. (Id.
44-45). This set of documents included for the first time references to sales in the second half of 2003 and also disclosed sales in 2004, 2005 and 2006. These disclosures increased the amount of reported sales to $899,335.30. (Id.
Plaintiffs deposed Ms. Melissa Miller, Filene's sole buyer of handbags, on August 1, 2007. (Id.
46). Ms. Miller testified that she had gathered some documents for production in the lawsuit but that she had never been shown copies of the plaintiffs' requests and did not know that Fendi was alleging that Filene's had purchased and sold counterfeit bags. (Id.
46-47 & Miller Dep. at 49-51, 78).
*3 On August 7, 2007 plaintiffs deposed Jeffrey Feinberg, the company's controller, who testified that he had prepared a document titled “Filene's Basement Fendi Analysis” to summarize the company's sales of Fendi-branded goods and resulting profits. (Id.
48 & Feinberg Dep. at 124). According to Mr. Feinberg, in creating this document, he relied on a 98-page printout showing daily sales by store together with item costs. (Id.
). Mr. Feinberg said that he believed the printout came from the company's computerized database but he did not know if a search had been made by Filene's for all sales of Fendi-branded items, and he could not say whether the printout reflected all sales of Fendi-branded handbags. (Id.
49 & Feinberg Dep. at 143-46, 148-49, 155). He also conceded that other documents recently produced by Filene's showed additional sales not reflected in his analysis. (Id.
49 & Feinberg Dep. at 168-69). As for the costs reflected in his analysis, he had apparently not checked the underlying documentation. (Id.
50 & Feinberg Dep. at 207-08).
Fendi served another set of interrogatories and document requests on August 17, 2007 directed at profit and cost data. (Id.
51 & Ex. 22). Filene's response was a blanket objection, bizarrely premised on the fact that Fendi had had the opportunity to depose Ms. Miller and Mr. Feinberg. (Id.
52 & Ex. 24).
We conducted another conference on October 1, 2007. (Id.
53 & Ex. 26). Plaintiffs' counsel “raised the failure of defendants to produce full documentation of their purchases and sales of Fendi branded goods” (id.
53), complaining that Filene's “had previously produced about $360,000 worth of sales data[, and while] counsel was indignant at the assertion that the documentation that his client had produced was incomplete, ... [after a conference] Filene's produced more, and the documents now show about $ 900,000 in sales. But their production is still incomplete.” (Id.
Ex. 26 (at 4-6)).
On October 22, 2007, Filene's produced an unspecified number of additional documents, reflecting its purchase of Fendi-branded goods from another supplier, known as MIGOSA. (Id.
54). Again, Filene's lawyer said that his client had no additional documents, apparently after having produced a total of 496 pages. (Id.
54 & Ex. 27).
On October 29, 2007 Filene's served an amended response to the last Fendi set of interrogatories and document requests. In that response it still maintained its blanket objection but stated in entirely conclusory terms, and without documentation, that it would seek to deduct some unspecified costs from its sales revenues in calculating profits. (Id.
55 & Ex. 28).
On November 1, 2007 plaintiffs' counsel wrote to the court, complaining of deficiencies in the performance of all of the defendants, including Filene's. (Id.
56 & Ex. 29). Consistent with a recent decision by Judge Sand finding Burlington Coat Factory in contempt, plaintiffs asked for authorization for a consultant hired by Fendi-later identified as James J. Donohue-to review the books and records of all of the other defendants. (Id.
). In a response on November 9, Filene's attorney observed that its recent production had resulted from the company's diligence in locating old documents, and he again asserted that Filene's had produced all of its documents. (Id.
57 & Ex. 30).
*4 We conducted a conference on November 16, 2007 and directed all defendants to make their computer specialists available for consultation by Mr. Donohue, with a view to facilitating his review of corporate books and records. (Id.
60 & Ex. 31 (at 34)). In a telephone conference on December 3, 2007, Filene's confirmed to Mr. Donohue the existence of a “sophisticated point-of-sale IT system ... that could be searched systematically for Fendi branded goods” and admitted that it had not conducted such a search. (Id.
60; Declaration of John J. Donohue, executed Oct. 29, 2008, at 2-3).
Through counsel, Mr. Donohue sought a series of documents from Filene's, which resisted. (Genecin Decl. 62 & Ex. 32). This process consumed more than three months, during the course of which Filene's attorney advised Fendi what procedures his client had used to locate previously produced supplier-related documents, including a computer search, and again reiterated that his client had produced all of its documents and represented that the only suppliers to Filene's were Ashley Reed and MINGOSA. (Id.
62-64 & Exs. 33-41).
Finally Fendi applied to the court for an order requiring Filene's to supply the data, including portions of its database pertaining to pertinent transactions, that had been requested by Mr. Donohue. (Id.
65 & Ex. 42). Over defendants' opposition-including counsel's assertion that the deposition testimony of two buyers that Ashley Reed and MINGOSA were the only suppliers of Fendi branded goods satisfied Filene's discovery obligations-we granted that request on March 3, 2008, and Filene's complied by March 17. (Id.
65 & Exs. 43 (at 19, 25), 47). We also ordered a deposition of Filene's computer specialist, Michael Sinott (id.
Ex. 43 (at 25-26)), and Fendi asked in advance for a word search of the computer data base to locate any previously unidentified other SKUs relating to Fendi transactions. (Id.
65 & Ex. 44). The focus was on the back-up tapes because Filene's live tapes were limited to two years, thus precluding a search back earlier that early 2006. (Id.
65). Filene's refused, however, to do such a word search, saying it was too burdensome. (Id.;
Donohue Decl. 6-8).
In the same production Filene's provided, as ordered, its master vendor file in two versions. (Genecin Decl. 66; Donohue Decl. 7). This disclosed several vendors known to Fendi as past suppliers of Fendi-branded goods. At Fendi's request, Filene's reviewed the accounts payable files for those vendors for purchases of Fendi-branded goods, and found that none involved such Fendi goods, although one box that would have contained 2001 purchases from Colton International was missing. (Genecin Decl. 66).
Filene's refused to do a search of back-up tapes for possible SKUs not previously produced although it had agreed to review the live tapes. On application from plaintiffs, we directed that Filene's document the burden that would be involved in undertaking the searches of back-up tapes that it had objected to in correspondence with Fendi. (Genecin Decl. 68 & Exs. 51, 52 (at 42-43)). That affidavit, by Mr. Sinnott, represented that such an effort would be complex and expensive, a showing subsequently disputed by Mr. Donohue in his responding declaration. (Genecin Decl. 69-70 & Ex. 55; Donohue Decl. 8-9). We resolved the dispute by ordering that Filene's provide to Fendi electronic copies of the two back-up databases that had been under discussion, and that this be done at Fendi's expense, with the proviso that, at plaintiffs' application, the court would revisit that issue. Fendi, in turn, would be permitted to do its own search of these databases. (Genecin Decl. 70 & Ex. 55; Donohue Decl. 10).
*5 The preparation of the required set of DVDs by Filene's consumed two months, but eventually a complete set of them was provided by June 12, 2008. (Genecin Decl. 72-73; Donohue Decl. 11-13). Mr. Donohue reports that it took five days to load the data onto his computer system and two more days to do the word searches for additional Fendi transactions. (Donohue Decl. 13-14; Genecin Decl. 73). These searches yielded two additional, and previously unidentified, vendors of Fendi-branded merchandise-Summit Resources Imports and Value City (or Value Imports).
(Genecin Decl. 74; Donohue Decl. 15).
Plaintiffs then obtained 109 pages of documents from Filene's in late July and early August 2008 involving these two entities. They revealed approximately $253,000.00 in sales of products purchased from Summit and from Value City (which procured the goods from an Armenian entity known as BUNGAR, C.S.C.). (Donohue Decl. 16; Genecin Decl. 75-76). Plaintiffs then re-deposed Cynthia Quinn, a Filene's vice president, who had previously testified that Ashley Reed was the only vendor of Fendi bags with whom she had dealt. The documents discovered as a result of the computer searches, however, reflected that Ms. Quinn had dealt with BUNGAR, and when questioned about this discrepancy, she said that the prior failure to disclose these transactions was attributable to the fact that the Filene's buying department did not have the relevant documents in its files. (Id.
76 & Quinn Dep. at 204-05, 244).
Plaintiffs cite a standard-form document, titled “Purchase Order-Specific Agreement,” which was prepared by Filene's and signed by Ashley Reed on June 12, 2003, and which represents an agreement by Ashley Reed to defend Filene's in the event of litigation. In its original form, the document contained certain representations to the effect that the vendor had the legal right to sell the items and that its purchase by Filene's “will not violate or infringe upon any existing contractual and/or Proprietary Rights owned by others.” Significantly, when Ashley Reed signed this agreement in connection with its sale of handbags and small leather goods, it deleted these warranties from the agreement, and nonetheless Filene's accepted this signed agreement as its only due diligence when purchasing the Fendi-branded goods from Ashley Reed. (Pls.' Mem. of Law in Supp. of Mot. for Sanctions 4-5; Genecin Decl. 11-12 & Quinn Dep. at 58-59, 144).
Plaintiffs point out that this document was plainly responsive to their initial document demands, served in April 2006, and was obviously known to the general counsel of Filene's, and yet Filene's did not produce it until May 1, 2007, after repeated representations by Filene's attorneys in 2006 and earlier in 2007 that defendants had produced all responsive documents. (Genecin Decl. 14-18). Fendi goes on to note that although it promptly requested that Filene's provide the original form agreement, which would reveal the text that had been redacted by Ashley Reed, Filene's did not produce it until October 4, 2007. (Id.
19-20 & Quinn Dep. at 70).
Based on the fact that this comparison of documents strongly suggested that Filene's was on at least inquiry notice as to the genuineness of the Fendi products supplied by Ashley Reed, Fendi invites us to infer that the prolonged non-disclosure of these two documents was deliberate. (Genecin Decl. 21). In response Filene's points out that its attorney made a passing reference in early 2006 to the fact that Ashley Reed had agreed to represent Filene's in this lawsuit (an arrangement later altered because of potential conflicts of interest), and it suggests that this demonstrates that Filene's was not seeking to hide the arrangement. (Remaklus Decl. 8-9 & Ex. 4).
This argument is unpersuasive. The reference to this arrangement was unavoidable since at first counsel for Ashley Reed also represented Filene's, but in any event counsel's mention of this dual representation did not disclose the terms of the agreement, much less the fact of its altered state, which is highly suggestive of knowledge on the part of Filene's as to the suspect nature of the goods received from Ashley Reed. It also bears noting that although Filene's submitted an affidavit from its general counsel in opposition to the sanctions motion, she notably remained silent on this whole episode. (See
Declaration of Julia Davis, Esq., executed Dec. 11, 2008).
*7 On balance we conclude that it is likely that this document was deliberately withheld for a time. It also bears emphasis that, in isolation, this episode would not justify any sanctions (other than a verbal chastisement by the court) since defendants ultimately produced both versions of the agreement and plaintiffs were not demonstrably prejudiced in any way. Nonetheless it is pertinent to our assessment of the remaining aspects of the motion.
Plaintiffs next complain about Filene's production of a set of invoices that on their face reflect the sale of handbags by plaintiffs. According to plaintiffs, the invoices are forged, and they complain that, in producing them, Filene's did not explain where they came from, leaving the impression that they were business records of Filene's. (Genecin Decl. 22-23). Indeed, during the course of several depositions of Filene's employees, counsel for Fendi quizzed them as to their knowledge of the origin of these invoices and all pleaded ignorance. (Id.
24). It was not until the December 2007 deposition of a Filene's executive named Paul Rudd that defendants' attorney finally reported to Fendi's counsel that the document had originated with Ashley Reed and been sent by their attorney to the legal office or general counsel of Filene's after the start of the lawsuit. (Id.
24 & Rudd Dep. 121-22).
Plaintiffs complain that this lapse reflects an inadequate performance by Filene's in its discovery efforts, and seems to imply that defendants may have done this deliberately to suggest that the company had a bona fide
belief in the genuineness of its purchase of Fendi-labeled goods. Fendi also asserts that it was prejudiced because it questioned a number of Filene's witnesses in a futile effort to determine the provenance of the document when Filene's was in a position to do so and did not for well over a year.
There seems to be less to this episode than meets the eye. Filene's was of course obligated to produce the document, since it had possession of it. Moreover, although Fendi hints at deliberate misconduct by labeling the invoices as a forgery and implying that defendants knew of that fact, plaintiffs offer no evidence to demonstrate that the invoices were forged and certainly none to establish that personnel at Filene's were aware that it was fraudulent. As for prejudice to Fendi, beyond asking a handful of questions about the document to several witnesses during the course of their depositions, Fendi appears not to have been discommoded.
Finally, although it may have been careless of Filene's not to determine more promptly the source of the document, as it appears that it could readily have done, Fendi offers no evidence that-apart from a few deposition questions-its own counsel actively sought to obtain an explanation from Filene's. That seeming passivity is inconsistent with the implication that plaintiffs apparently wish the court to draw-that defendants actively concealed the fact that they had produced a fraudulent document under false, or at least misleading, pretenses.
*8 In short, we see no basis for the imposition of sanctions based on this particular complaint, and draw no inferences from it that might affect our analysis of the balance of plaintiffs' complaints.
The broader, and more troubling, set of circumstances invoked by plaintiffs concerns the evident pattern of non-production of documents, coupled with false assurances that Filene's had produced all of its documents-a pattern starting with the initial, and supposedly final, production of 61 pages of documents in 2006. It should not require reiteration that litigants have an obligation, when discovery is sought from them, to make reasonable efforts to locate responsive documents, including setting up “a reasonable procedure to distribute discovery requests to all employees and agents ... potentially possessing responsive information, and to account for the collection and subsequent production of the information....” Metro. Opera Ass'n, Inc. v. Local 100, Hotel Employees & Redt. Employees Int'l Union, 212 F.R.D. 178, 223 (S.D.N.Y.2003). It is equally the litigant's responsibility (and that of its counsel) to determine beforehand the accuracy of any representations that production is complete. Fed. R. Civ. Proc. 26(g)(1). As the history that we have recounted makes plain, Filene's and its counsel did not come remotely close to meeting this responsibility.
The initial production of a handful of documents-notably bare of some of the most basic documents that a company of the size and sophistication of Filene's would unquestionably maintain-was manifestly inadequate and the representation that there were no more documents was absurd on its face. The process of extracting those records was akin to pulling teeth, and ultimately consumed a plainly unreasonable amount of time to accomplish. Moreover, it appears that the company made less than vigorous efforts to ensure that people with knowledge of, or access to, the potentially pertinent documents were given specific instructions to search for the categories of documents requested by plaintiffs. Not surprisingly, then, the production in its first, second and third iterations was patently inadequate and the representations by defendants and their attorneys as to the completeness of production were false.
The necessary consequence was delay and, we infer, some expense incurred by plaintiffs, although the extent of that added cost is unclear and likely not to be gargantuan, if for no other reason, because plaintiffs appear to have pursued these matters with only episodic fervor. Nonetheless, in view of the fact that such excess expenses, whether in the form of repeated phone calls, letters sent, time spent in some of the conferences on this topic (to our understanding a very minimal outlay) and possible other tasks were plainly attributable to defendants' repeated and extended discovery defaults, it is appropriate to impose that monetary burden on defendants.
*9 In so concluding we need not make a finding, which plaintiffs seem to invite, that defendants' failure to make even a remotely complete production was deliberate. It suffices to find that Filene's was substantially at fault, and acted in at least a grossly negligent manner in this respect. Although we suspect that a desire not to discover adverse information in its own files was one possible incentive for this slothfulness, we are loathe to make such a finding on the basis only of partially informed speculation, particularly since such a finding is unnecessary to a determination that the requested sanction of cost-shifting is appropriate.
Similarly we need not determine that defendants' discovery passivity prejudiced plaintiffs in any way other than monetarily. As noted, the required expenditure of funds to pursue withheld discovery is prejudice enough to justify cost-shifting, and that is the only relief sought by plaintiffs on their motion.
We note one other issue, relevant to prejudice, that plaintiffs raise but that we decline to decide. Fendi asserts that the Filene's computer system discards some data periodically, and it seems to assert that if Filene's had promptly reviewed its database in response to the 2006 document requests, it would have been able to produce some transaction documents that are no longer available. (Donohue Decl. 15). This argument is made in fairly vague terms, and Filene's responds that the pertinent data for earlier purchases, back to 2002, was not discarded, but rather held on back-up tapes, and that on examination it turned out that the software was corrupted and for that reason inaccessible. (Declaration of Michael Sinott, executed Dec. 3, 2008, at 9). We need not determine the underlying facts since (a) the record on this point is obscure and incomplete, to say the least, and (b) it is unnecessary to resolve in order to determine that plaintiffs are entitled to cost-shifting of the scope that we have defined.
Finally, we address one major issue that is raised by plaintiffs' request that we re-visit our earlier order requiring that defendants provide copies of their pertinent back-up tapes to plaintiffs' consultant for his examination, so that he might review them principally to see if there were additional suppliers to Filene's of Fendi-branded goods. That search, as noted, yielded two more vendors, although it is not entirely clear whether the sales were of counterfeit goods. Fendi now asks that we impose the expense of that search on Filene's.
Fendi is apparently seeking cost-shifting of the cost of obtaining the back-up tapes from Filene's and of its consultant's work in then loading and reviewing the tapes. In support of this application, it appears to be plaintiffs' position that Filene's was obliged in the first instance to review the back-up tapes and extract any relevant information from them for production.
There are several difficulties with Fendi's position on this issue. First, there is no indication in the record that Fendi sought, at the outset of discovery, to pursue in any systematic way discovery of Filene's database. Indeed, there is no evidence before us that, until late December 2007, Fendi initiated or proposed a plan for electronic discovery or even made a clear request to Filene's that it undertake such an effort, much less that it provided some parameters for this search.
*10 The rules pertaining to electronic discovery were amended in April 2006, although those changes were effective only as of December 2006. The new provisions include a requirement that the parties, in their initial case management plan, address the details of such electronic disclosure, see
Fed.R.Civ.P. 26(f)(3)(C), and they also explicitly authorize parties to request production of data in electronic storage, see
R. 34(a)(1)(A), albeit with a presumptive exception for data deemed “not reasonably accessible because of undue burden or cost.” Fed.R.Civ.P. 26(b)(2)(B). See also
Fed.R.Civ.P. 26(b)(2)(C). Whatever the effective timing of these rule changes, Fendi was on notice as of the start of discovery that it might be necessary to pursue electronic discovery and yet even after the changes in the rules there is no indication that it followed up on this front until it received a favorable decision from Judge Sand on a contempt motion in a related case against Burlington Coat Factory in October 2007.
Second, once Fendi raised the issue, most clearly in early 2008, Filene's took the position that accessing the back-up tapes would be burdensome and costly. Although Fendi seems now to argue that was not the case (citing almost exclusively the fact that Mr. Donohue was able to extract the data in seven days after being given the necessary tapes), plaintiffs do not address in any meaningful fashion the pertinent terms of Rule 26(b)(2) and the developing case law regarding whether the back-up tapes were reasonably accessible and whether, if they were not, it was appropriate (and remains so) under Rule 26(b)(2)(C) to impose the cost on plaintiffs for extracting and reviewing the data. See, e.g.,
S. Scheindlin & D. Capra, Electronic Discovery & Digital Evidence
287-336 (2009) (citing, quoting and discussing cases). Compare, e.g.,
Zubulake v. UBS Warburg LLC, 217 F.R.D. 309, 316 (S.D.N.Y.2003).
In the absence of any meaningful briefing by Fendi of the very issue that it seeks to raise and the complete vacuum in pertinent evidence on the subject, we find that Fendi has not made its case for shifting the cost of this process to Filene's.