MasterCard Int'l, Inc. v. Moulton
MasterCard Int'l, Inc. v. Moulton
2004 WL 1393992 (S.D.N.Y. 2004)
June 22, 2004
Dolinger, Michael H., United States Magistrate Judge
Summary
The court found that defendants had an obligation to preserve e-mails relevant to the pending litigation, and had acted culpably in destroying the evidence. The court imposed sanctions for spoliation, designed to deter parties from engaging in spoliation and restore the prejudiced party to the same position they would have been in absent the wrongful destruction of evidence. The court also noted that the e-mails were sent by individuals who were unlikely to be exhibiting confusion about the sponsorship of the website.
MASTERCARD INTERNATIONAL, INCORPORATED, Plaintiff,
v.
Kevin MOULTON and KTM Media, Inc., Defendants
v.
Kevin MOULTON and KTM Media, Inc., Defendants
No. 03 Civ. 3613 VMMHD
United States District Court, S.D. New York
June 22, 2004
Dolinger, Michael H., United States Magistrate Judge
MEMORANDUM & ORDER
*1 Plaintiff MasterCard International commenced this lawsuit to assert a copyright infringement claim and to challenge the asserted infringement and dilution of its well-known trademarks. Plaintiff alleges that defendants have maintained a website that displays pornographic materials, and that, in conjunction with this exhibition of photographs and graphics, they have made unauthorized use of MasterCard's so-called “Priceless” trademark, the format of its Priceless Ad campaign, and the MasterCard trademark and logo.
During the course of discovery, plaintiff has sought all e-mails received by defendants that concern their website. Defendants have admitted, however, that they failed to retain any e-mails during the period from May 2003—when plaintiff filed this lawsuit—until September 22, 2003. Based on defendants' failure to retain these documents, plaintiff seeks specified sanctions against defendants.
Defendants have chosen not to file opposing papers. We accordingly rely upon the plaintiff's undisputed recitation of the pertinent facts.
According to plaintiff, defendants maintain a website at the URL: http:// priceless420.com on which they feature pornographic pictures and text. As part of the website format, defendants use explicit references to the wording of MasterCard's long-running and widely seen advertising campaign known as the Priceless ad campaign.[1] The displays on the website also are said to feature the MasterCard mark and logo, which utilizes a well-recognized design of interlocking circles.
Plaintiff reports that, since 1997, it has spent approximately 250 million dollars on the Priceless ad campaign in the United States alone, and has used it as well in approximately ninety other countries and forty-five languages. (Dobbyn Decl. at ¶¶ 3–5). It further states that the Priceless mark, which is federally registered, is associated exclusively in the public mind with MasterCard. (Id. at ¶¶ 5–6).[2]
As for the MasterCard mark and logo, plaintiff has used them since 1980 as trademarks and service marks for its credit and financial services and related products. (Id. at ¶ 7 & Ex. 3). The mark and logo are also federally registered. (Id. at ¶ 8). Again, plaintiff contends that these marks have acquired secondary meaning, because they are linked in the mind of the public with MasterCard. (Id. at ¶ 9).
By plaintiff's amended complaint, it asserts eight claims. The first is for copyright infringement, based on the asserted copying of some of plaintiff's Priceless ads. (Am. Compl. at ¶¶ 39–43). The second claim alleges trademark dilution, in violation of section 43(c) of the Lanham Act, 15 U.S.C. § 1125(c). (Id. at ¶¶ 49–52). The third claim, also under the Lanham Act, is for infringement of registered trademarks. (Id. at ¶¶ 57–61). The fourth claim asserts trademark infringement and false designation of origin. (Id. at ¶¶ 64–69). The remaining claims are for misappropriation, common-law trademark infringement, common-law trademark dilution and deceptive trade practices under N.Y. Gen. Bus. L. § 349. (Am. Compl. at ¶¶ 72–75, 79–83, 87–90, 94–98).
*2 Plaintiff commenced this lawsuit on May 19, 2003. On July 7, 2003, plaintiff's attorney wrote to defendants' counsel. Noting that defendants' Answer had represented that defendants were removing all reproductions of the MasterCard mark, the interlocking circles design mark and any variants of those marks from the defendants' website, the attorney reminded her opposing counsel that defendant Kevin Moulton[3] had “a duty to maintain evidence once he is on notice of a lawsuit or a potential lawsuit.” Counsel then stated, “We therefore expect that your client has archived the original content [of the website] and will produce such content upon request.” (Declaration of Jeanne Hamburg, Esq., executed Dec. 4, 2003 (“Hamburg Decl.”) at ¶ 3 & Ex. 5). The record reflects that Moulton's attorney timely conveyed this instruction to his client. (See id. at ¶ 4).
On July 11, 2003, plaintiff served a set of document requests and interrogatories on defendants. Among the Rule 34 requests, plaintiff sought:
All documents concerning any instances of actual or possible confusion, mistake or inquiries made by any person concerning the defendant and (a) MasterCard, (b) the Priceless Advertisements, (c) the MasterCard Marks, or (d) any other third party.
All documents concerning the creation, production, development, management of the website....
All documents concerning and/or identifying third-party authors, creators and or developers of the Infringing Content.
All documents concerning and/or identifying Infringing Content that was authored, created, or developed by defendant.
All documents concerning the source, creation, development, production, display, and distribution of the Infringing Content.
(Hamburg Decl. at ¶ 5; Pltff's Ex. 6).
Defendants did not respond to any of plaintiff's discovery requests. (Hamburg Decl. at ¶ 6). Ultimately, plaintiff was compelled to seek court intervention shortly before the scheduled end of the discovery period. (See Sept. 9, 2003 letter to the Court from Jeanne Hamburg, Esq.). At a pretrial conference on October 1, 2003, the court directed that defendants serve their responses to plaintiff's interrogatories and document requests by October 6, 2003. It also scheduled the depositions of the defendants' witnesses and extended the fact-discovery cut-off to October 16, 2003. (See Order dated Oct. 21, 2003 at ¶¶ 1–3).
Defendants failed to comply with this directive. In a last effort to achieve compliance, the court issued an order on October 14, 2003, providing that “Defendant Kevin Moulton is to provide all documents responsive to Plaintiff's First Set of Document Requests on or before October 20, 2003. If a complete production is not made by that date, Plaintiff may apply for sanctions in the form of a dispositive motion.” (Order dated Oct. 14, 2003 at ¶ 1).
Plaintiff deposed defendant Kevin Moulton on October 14, before the documents were produced. (See Transcript of Oct. 14, 2003 Deposition of Kevin Moulton (“Moulton Dep.”) at 1). The document production went forward, apparently on a timely basis, but a review of the production disclosed that no e-mails to defendants pre-dating September 22, 2003 had been provided. (Hamburg Decl. at ¶ 9; Moulton Dep. at 167).
*3 The deposition of Moulton and of defendant's customer service representative, Sandy Steauffer, shed some light on this omission and on its importance. Moulton testified that much of the material appearing on the website had been sent by members of the public via e-mail. (Moulton Dep. at 21, 23, 51). He further testified that the volume of e-mails ranged from ten to as many as 100 e-mails each day. (Id. at 23, 51).
According to Moulton, in the ordinary course of business, he did not preserve such e-mails. Rather the server would eliminate them after an approximately twenty-one-day period (id. at 21), and he made no effort to print or archive these documents before their destruction. (Id. at 22–23). Moreover, defendants' customer service representative testified that she did not print or save the e-mails, and that defendants had not instructed her to do so. (Transcript of Oct. 15, 2003 Deposition of Sandy Steauffer at 15). Moulton also testified that he had not turned over the pre-September 22 e-mails because, at the time of production, he had not understood that he was required to produce them. (Moulton Dep. at 167).
III. The Current Motion
Plaintiff now seeks partially dispositive sanctions. It notes that the e-mails that were produced by defendants contain materials proposed for inclusion on the website, some of which are infringing. In particular, several such e-mails contained references to the Priceless ad campaign, which plaintiff views as demonstrating that the public associates that campaign with MasterCard. Plaintiff contends that the missing e-mails may have contained information reflecting confusion by some members of the public as to whether MasterCard approved or acquiesced in the use of its marks and logo on the website, or may have demonstrated that plaintiff's trademarks were “diluted and tarnished” by being associated with the website. (Pltff's Memo of Law at pp. 9–12).
Based on this suggested significance of the destroyed e-mails, plaintiff seeks an order that would deem to be true, or authorize the inference, (1) that the relevant portion of the public has been confused about whether plaintiff approved or acquiesced in the website and (2) that defendants' use of the marks on the website as part of a pornographic display “diminished the capacity of such marks to serve as a unique identifier of source and tarnished [the] marks.” (Pltff's Memo of Law at p. 8).
As noted, defendants had the opportunity to respond to the current motion, but have declined to do so.
I. Spoliation
Spoliation is “the destruction or significant alteration of evidence, or the failure to preserve property for another's use as evidence in pending or reasonably foreseeable litigation.” Byrnie v. Town of Cromwell, 243 F.3d 93, 107 (2d Cir.2001) (quoting West v. Goodyear Tire & Rubber Co., 167 F.3d 776, 779 (2d Cir.1999)). In order to establish that sanctions for spoliation are warranted, the moving party must establish: (1) that the non-movant had an obligation to preserve the evidence; (2) that the non-movant acted culpably in destroying the evidence and (3) that the evidence would have been relevant to the moving party's case, in that a reasonable fact finder could conclude that the evidence would have been favorable to the moving party. See Residential Funding Corp. v. Degeorge Funding Corp., 306 F.3d 99, 107 (2d Cir.2002). Plaintiff satisfies each of these criteria.
*4 The e-mails in question were received by defendants during the period following the filing of plaintiff's lawsuit. Moreover, a large number of them presumably arrived after defendants' lawyer had reminded defendant Kevin Moulton of his obligation to preserve evidence and after plaintiff had served a document request that called for the production of such e-mails. In these circumstances, defendants plainly had an obligation to preserve the e-mails in question, since they were relevant to the pending litigation and had been requested by plaintiff. See Byrnie, 243 F.3d at 107; Barsoum v. NYC Housing Authority, 202 F.R.D. 396, 400 (S.D.N.Y.2001).
As for culpability, we are not persuaded that defendants acted in bad faith, that is, for the express purpose of obstructing the litigation. They appear simply to have persevered in their normal document retention practices, in disregard of their discovery obligations. The absence of bad faith, however, does not protect defendants from appropriate sanctions, since even simple negligence is a sufficiently culpable state of mind to justify a finding of spoliation. See Residential Funding Corp., 306 F.3d at 108 (noting that spoliation may be inferred where a party has destroyed evidence intentionally or negligently despite a duty to retain it); Golia v. The Leslie Fay Company, Inc., 2003 WL 21878788 at * 9 (S.D.N.Y. Aug. 7, 2003). A specific intent to thwart the litigation is not required. SeeByrnie, 243 F.3d at 109 (citing Reilly v. Natwest Markets Group, Inc., 181 F.3d 253, 267 (2d Cir.1999), cert. denied,528 U.S. 1119 (2000)).
Resolving the question of culpability requires a case-specific inquiry. See Reilly, 181 F.3d at 267. In this case, defendants' failure to preserve the e-mails plainly constituted at least gross negligence in light of (a) the pendency of the case, (b) their attorney's advice to Kevin Moulton to preserve evidence and (c) the specific nature of plaintiff's document request. See Golia, 2003 WL 21878788 at *9.
As for the relevance of destroyed evidence, the moving party may establish such pertinence by showing that the evidence in the case as a whole suggests that the lost items would have helped to support that party's claims. SeeResidential Funding Corp., 306 F.3d at 108–09; Byrnie, 243 F.3d at 109–10. In this case plaintiff demonstrates that the e-mails were potentially relevant to the case for a variety of reasons, although the potential prejudice to plaintiff as a result of their loss is at least open to question.
The missing e-mails presumably reflected some of the content of the website, although plaintiff already has a substantial selection of such material, some of which it proffers in support of its motion. (See Moulton Dep at Exs. 5–8). Plaintiff also argues that the missing e-mails may reflect some public confusion about whether MasterCard endorsed or acquiesced in the contents of the website. While this is conceivable, it seems somewhat farfetched, in view of the striking contrast between the public image of MasterCard as a substantial financial institution and the very blatant nature of the website, which appears to be in large measure a fairly tasteless parody of the Priceless ad campaign.[4] Finally, plaintiff asserts that the e-mails may have offered support for its contention that defendants' use of the MasterCard marks on the website diluted the effectiveness of the marks as a unique identifier of plaintiff's services and tarnished the marks. Again, this effect is most likely to be supported by the content of the website, for which plaintiff seems to possess ample evidence.
*5 Plaintiff's showing on relevance is adequate for the purpose of establishing spoliation. While the record does not strongly suggest that MasterCard is likely to have been seriously hampered in the presentation of its case by the failure of the defendants to preserve the missing e-mails, we nonetheless recognize that the very fact that the e-mails are missing leaves us in the realm of speculation as to what they contained and in what manner they might have assisted plaintiff in litigating its claims. See, e.g., Kronisch v. United States, 150 F.3d 112, 128 (2d Cir.1998).
II. Remedy
We turn now to the question of a remedy. An appropriate sanction for spoliation should be designed to: (1) deter parties from engaging in spoliation; (2) place the risk of an erroneous judgment on the party who wrongfully created the risk and (3) restore “the prejudiced party to the same position he would have been in absent the wrongful destruction of evidence by the opposing party.” West, 167 F.3d at 779.
Plaintiff asks for a conclusive determination of both confusion by the public and dilution and tarnishment of the marks. Alternatively, it requests that the trier of fact be permitted to infer such conclusions from the destruction of the e-mails. We conclude that the second proposed remedy is more appropriate under the circumstances.
First, as noted, defendants have not been shown to have acted with the intent to obstruct the litigation, although their conduct during the discovery phase of the lawsuit has been inexcusably lax. Second, on the issues for which plaintiff seeks a conclusive determination—particularly confusion—MasterCard has not made a compelling case for the notion that the missing e-mails are likely to have been of significant assistance to it. Third, although we infer that the missing e-mails likely contained information favorable to plaintiff on some of the issues in the case—including infringement, dilution and tarnishment—it is evident that plaintiff possesses ample evidence pertinent to those questions in the form of materials reflecting the content of the website over an extended period of time, and plaintiff has not shown that its ability to litigate those issues has been meaningfully impaired.
Under all of these circumstances, we reject plaintiff's request that the key facts of confusion and of dilution and tarnishment be deemed conclusively established. Rather, plaintiff may prove the facts reflecting the non-retention of the e-mails in question, and may argue to the trier of fact that this destruction of evidence, in addition to other proof offered at trial, warrants the inferences that the public was confused and that the MasterCard marks were diluted and tarnished. See, e.g., Golia, 2003 WL 21878788, at *10–11 (citing, inter alia, Saul v. Tivoli,, 2001 U.S .Dist. LEXIS 9873, at *55 (S.D.N.Y. July 16, 2001)).
For the foregoing reasons, plaintiff's motion for spoliation sanctions is granted to the extent noted.
Footnotes
Examples of these advertisements are found at Exhibit 1 to the plaintiff's motion. (Declaration of Colm Dobbyn, executed Dec. 3, 2003 (“Dobbyn Decl.”) at ¶ 3). They typically feature a list of prices for certain thematically linked goods or services and then refer to a related benefit that is labeled as “priceless.” The ad then concludes with a statement “There are some things money can't buy. For everything else there's MasterCard.”
Plaintiff also owns copyright registrations for some of the Priceless ads. (Dobbyn Decl. at ¶ 5 & n. 1).
At the time of the correspondence, plaintiff had named only Kevin Moulton as a defendant. MasterCard subsequently filed an amended complaint that included KTM Media, Inc. as a second defendant.
We also note that the e-mails were apparently sent by individuals who wanted to contribute to a pornographic website, and were thus unlikely to be exhibiting confusion about the sponsorship of the website. In any event, plaintiff offers no evidence that the e-mails that postdated September 22, 2003, which were produced, reflect such confusion.