302 F.R.D. 396
E.D.N.C.2014Background
- Beach Mart sought all agreements and documents relating to the use or licensing of the "Wings" trademark; L & L responded with boilerplate objections and produced limited documents.
- L & L designated founder Shaul Levy as its Rule 30(b)(6) witness; at his first deposition he denied or failed to disclose several licensing agreements (including an Anglim "Wings" sublicense and a Morrow license) that were later discovered.
- Beach Mart later uncovered multiple undisclosed licensing agreements (Morrow, Anglim Wings sublicense, Yacobi, and Rosenberg) through third-party depositions and a box of files found in L & L’s storage.
- L & L produced the Morrow agreement only after Beach Mart found it; evidence showed L & L (and its counsel) had or should have had possession/knowledge of at least some undisclosed agreements (e.g., Yacobi litigation exhibits).
- Beach Mart moved for sanctions under Rules 26/37 and the court’s inherent authority; the court found Levy’s initial testimony intentionally misleading and L & L negligent or worse in discovery response and supplementation.
- Sanctions awarded: fee/expense award for Beach Mart’s costs to discover the agreements; preclusion of L & L from asserting trademark infringement/unfair competition claims or seeking equitable relief against Beach Mart for stores already operated by Beach Mart (and dismissal of L & L’s trademark counterclaims limited to those stores).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether L & L must produce all license agreements related to "Wings" responsive to Beach Mart’s requests | Beach Mart: requests covered all licenses; L & L had possession/knowledge and must produce | L & L: limited objections; some agreements were not in its control or not intended for use | Court: requests were broad; L & L had possession/knowledge (including via counsel) and must have produced; nondisclosure unjustified |
| Whether Levy’s 30(b)(6) testimony waived L & L’s objections and whether his testimony was intentionally misleading | Beach Mart: Levy was L & L’s corporate witness and his false testimony was willful nondisclosure | L & L: Levy merely forgot; objections limited scope of testimony | Court: L & L waived objections by answering; court found Levy knowingly withheld key agreements (bad faith) |
| Whether failure to supplement responses under Rule 26(e) warrants Rule 37 sanctions | Beach Mart: failure to supplement was neither justified nor harmless and prejudiced Beach Mart | L & L: searches were adequate, some documents outside its control, and any surprise was cured | Court: violations were not harmless or substantially justified; sanctions warranted under Rule 37(c)(1) (negligence and bad faith present) |
| Appropriate sanctions (monetary, preclusion, dismissal, inherent-power remedies) | Beach Mart: fees and preclusion of L & L’s trademark claims/equitable relief | L & L: lesser or no sanctions; argue discovery missteps excused | Court: awarded attorney’s fees for discovery effort and precluded L & L from asserting trademark infringement/unfair competition or seeking equitable relief against Beach Mart regarding existing Beach Mart stores; dismissed L & L’s trademark counterclaims as to those stores |
Key Cases Cited
- Chambers v. NASCO, Inc., 501 U.S. 32 (1991) (courts possess inherent power to sanction abuses of the judicial process)
- S. States Rack & Fixture, Inc. v. Sherwin-Williams Co., 318 F.3d 592 (4th Cir. 2003) (standards for discovery sanctions analysis)
- Hickman v. Taylor, 329 U.S. 495 (1947) (broad, liberal construction of discovery rules)
- Buffington v. Baltimore Cnty., Md., 913 F.2d 113 (4th Cir. 1990) (monetary sanctions under inherent power to compensate for discovery violations)
- Fjelstad v. American Honda Motor Co., Inc., 762 F.2d 1334 (9th Cir. 1985) (sanctions may be imposed for negligent discovery failures)
- White v. Raymark Indus., Inc., 783 F.2d 1175 (4th Cir. 1986) (court may sanction attorneys individually for misconduct)
- Outley v. City of New York, 837 F.2d 587 (2d Cir. 1988) (discovery rules not for procedural gamesmanship)