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Design Basics, LLC v. Drexel Building Supply, Inc.

United States District Court, E.D. Wisconsin

September 12, 2016

DESIGN BASICS, LLC, Plaintiff,
v.
DREXEL BUILDING SUPPLY, INC., et al., Defendants.

          DECISION AND ORDER ON SPOLIATION AND VALIDITY

          William C. Griesbach, Chief Judge United States District Court

         On August 1, 2016, the parties' attorneys appeared for an evidentiary hearing on the issue of whether Plaintiff's copyrights should be held invalid because of spoliation of evidence, a legal question I concluded should be decided prior to any trial. For the reasons given below, I conclude that the Defendants have not met their burden to establish the elements of spoliation. Accordingly, the case will be scheduled for trial, and the jury instructions will not include a ny reference to spoliation.

         A party seeking spoliation sanctions has the burden of establishing the elements of a spoliation claim. Byrnie v. Town of Cromwell, Bd. of Educ., 243 F.3d 93, 107 (2d Cir. 2001). That party must show (1) that “the party having control over the evidence ... had an obligation to preserve it at the time it was destroyed”; (2) that the evidence was “destroyed with a culpable state of mind”; and (3) that the destroyed evidence was “relevant” to the party's claim or defense. Id. at 107-09. Any sanction imposed 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 v. Goodyear Tire & Rubber Co., 167 F.3d 776, 779 (2d Cir. 1999) (internal quotation marks and citations omitted).

         I. Duty to Maintain Records

         At the outset, Design Basics argues that it d id not have a duty to maintain the records in question. First, it notes that the files were destroyed following a massive roof leak during the winter of 2009-10, but it did not learn of the Defendants' infringing conduct until May 19, 2010. Thus, it cannot be charged with some kind of duty to maintain documents that would be relevant only to a lawsuit that was not even within the perception of those who decided to destroy the documents. In its view, the fact that it had previously filed four other copyright lawsuits should not create some kind of generalized duty to maintain documents relevant to claims that did not yet exist.

         The Defendants argue, however, that Design Basics was a sophisticated party whose business relied in part on litigation, and thus it should have known that the documents were material to any litigation it might later bring, even if this particular lawsuit was not on the horizon at the time. Design Basics protests that in 2010, when the files were destroyed, it had filed a mere four copyright lawsuits in its entire history. As such, it was not a “serial litigator” whose business model was based on litigating its copyrights, but merely a home designer that occasionally sued for infringement. Moreover, the individuals who ultimately decided to destroy the boxes were not key players in any litigation in which the company had engaged.

         Defendants rely principally on Phillip M. Adams & Assocs., LLC v. Dell, Inc. for the proposition that a party may be held to a duty to preserve evidence even when specific litigation is not imminent. 621 F.Supp.2d 1173 (N.D. Utah 2009). There, the court noted that the duty to preserve could be triggered at a time other than notification of (or imminence of) a specific lawsuit. In that case, lawsuits and news stories about the intellectual property at issue had been prevalent, and the court concluded that the defendant should therefore have been preserving evidence about the issue at that time. Id. at 1191.

         Here, I conclude that the present lawsuit was too remote and speculative to give rise to a duty to preserve the evidence in question. Adams, a patent case, involved publicity about the same technology that underlay the Adams lawsuit. The court concluded that because problems with that technology had been widely known in the industry, the defendant should have anticipated a lawsuit about it. Here, by contrast, the Defendants do not argue that Design Basics was on any kind of notice that the copyrights at issue in this lawsuit were being infringed, or that litigation about those copyrights was imminent. Instead, they merely allege that Design Basics as a general principle was experienced with litigation and understood the copyright process. That is not what Adams stands for. In fact, if filing a number of other copyright lawsuits is enough to create a duty to preserve, than any company of any size would be deemed “sophisticated” (the Defendants' term) and thereby placed on some sort of general duty to preserve any and all records about its copyrighted material simply because they m ight one day discover infringement.

         “Spoliation refers to the destruction or material alteration of evidence or to the failure to preserve property for another's use as evidence in pending or reasonably foreseeable litigation.” Pension Comm. of Univ. of Montreal Pension Plan v. Banc of Am. Sec., 685 F.Supp.2d 456, 465 (S.D.N.Y. 2010) (italics added). By the Defendants' logic, the mere existence of a copyright makes it “reasonably foreseeable” that litigation would ensue at some point. Clearly, the duty to preserve cannot be so broad. Instead, courts have found that it extends only to pending litigation or litigation that is imminent or at least foreseeable. “The duty to preserve evidence includes any relevant evidence over which the non-preserving entity had control and reasonably knew or could reasonably foresee was material to a potential legal action.” China Ocean Shipping (Grp.)Co. v. Simone Metals Inc., No. 97 C 2694, 1999 WL 966443, at *3 (N.D. Ill. Sept. 30, 1999). Here, there was no “potential legal action” at the time of destruction, unless one accepts the Defendants' unstated premise that legal action goes hand-in-hand with the mere possession of a copyright, nor, as discussed below, was there any reason to believe that the destroyed files might contain relevant evidence.

         In sum, the infringement in this case was not discovered until after the files were destroyed. Given that fact, no party could reasonably foresee that the destroyed materials would be relevant to the copyright issues the Defendants now raise in this lawsuit. The logical conclusion of the Defendants' argument is that almost any company reliant on intellectual property has some sort of generalized duty to maintain records, but that is not what the law requires. Accordingly, I conclude there was no duty to preserve the evidence in question.

         II. The Destruction of Design Files

         In short, following a long-term roof leak, several boxes of Design Basics' documents became water-logged. There was credible testimony that the boxes were marked “CC, ” which stood for custom change orders, which are orders in which customers alter Design Basics' plans. In other words, the boxes were not marked in a way that would make it obvious that they contained potentially important documents relating to the creation of the Plaintiff's copyrighted designs. The company hired remediation specialists and eventually discarded the boxes of documents, although the circumstances surrounding the boxes' destruction are somewhat murky.

         Even if there were a duty to preserve in this case, I conclude that the Defendants have not established that the Plaintiff intended to destroy relevant evidence. First, the foreseeability issue addressed above applies with equal force to the question of intent, or culpability. Given how remote the possibility of a lawsuit was, it is difficult to conclude that Design Basics employees had a culpable state of mind when they decided to destroy the boxes. It is too far of a stretch to conclude that a Design Basics employee seized on the happenstance of serious water damage to destroy records on the off-chance that they might be relevant to a lawsuit the company might file one day. This is particularly true given the fact that the records appear to have indiscriminately included copyright information as well as all kinds of other design and customer records. It is much more likely that the people involved simply decided to destroy everything, without giving it much thought, rather than that they believed some sort of harmful documents were contained in the boxes. If they had wanted to spoliate, they could have done so much more discriminately.

         Second, the destruction followed the occurrence of a serious destructive event, the facts of which are not contested. There was credible testimony that several employees eventually suffered health problems due to the air quality in the building following the roof leak. (Tr. 66.)[1] The boxes were undeniably damaged, with some of their contents being illegible due to water damage. (Tr. 81.) Third, the boxes were not marked in a fashion that would lead the decisionmakers to conclude that they contained documents relevant to potential litigation. Instead, they were marked “CC, ” indicating that they contained customer change orders. In fact, the company did not even know exactly what was inside the ...


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