Klipsch Group, Inc. v. ePRO E-Commerce Ltd.
880 F.3d 620
2d Cir.2018Background
- Klipsch sued ePRO (DealExtreme.com) for selling counterfeit Klipsch headphones; parties disputed the scale of infringing sales (Klipsch alleged ~$5M; ePRO claimed <$8,000).
- ePRO repeatedly failed to preserve and timely produce discovery: no adequate litigation hold, limited vendor access, late productions, and deletion of many electronic files and emails.
- Magistrate authorized Klipsch to hire a forensic vendor (iDS) after discovering deficiencies; iDS reported manual deletions, use of data-wiping tools, OS upgrades that cleared data, and no preserved backups of ePRO’s live sales database.
- District court found willful spoliation of Unstructured ESI, awarded adverse jury instructions (permissive and mandatory), and ordered Klipsch’s reasonable discovery costs as sanctions ($2.68M), plus a $2.3M bond restraint — total $5M in asset restraints.
- ePRO appealed the evidentiary findings and argued the sanctions were punitive and disproportionate to the likely case value; Klipsch cross‑appealed arguing the court should have inferred spoliation of Structured ESI (backups).
- The Second Circuit affirmed: factual findings were not clearly erroneous; monetary sanctions were compensatory for corrective discovery reasonably incurred; asset restraints were permissible given dissipation risk.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Spoliation of Unstructured ESI (willfulness & relevance) | ePRO deleted and wiped ESI; missing data was relevant and prejudiced Klipsch | ePRO denied willful spoilage and disputed specific attributions of deletions | Court: willful spoliation proven (multiple deletion methods, unrecoverable files); adverse inference instructions appropriate |
| Spoliation of Structured ESI (backup sales databases) | Failure to retain backups supports inference that historical sales records were destroyed | Backups unlikely to show tampering; live DB cross‑module consistency made wholesale destruction unlikely | Court: no abuse in declining to infer spoliation of backups; expert testimony supported district court’s discretion |
| Amount of monetary sanctions (proportionality) | Klipsch sought costs of forensic work and depositions incurred due to ePRO’s misconduct | ePRO argued sanctions punitive and disproportionate to likely damages; invoked Rule 37 limits and proportionality principles | Court: sanctions compensatory under inherent authority, equal to reasonable costs Klipsch incurred; proportional to misconduct, not to ultimate merits recovery |
| Asset restraint and bond (dissipation risk) | Needed to secure recovery of sanctions, treble damages, and fees under Lanham Act | ePRO argued $5M inconsistent with court’s low damages estimate | Court: restraint justified by dissipation risk and to secure potential fees/treble damages; permitted bond or restraint combination |
Key Cases Cited
- Chin v. Port Auth. of N.Y. & N.J., 685 F.3d 135 (2d Cir. 2012) (elements required to prove spoliation)
- Fujitsu Ltd. v. Fed. Exp. Corp., 247 F.3d 423 (2d Cir. 2001) (court discretion in spoliation sanctions and considering likely contents of destroyed evidence)
- Chambers v. NASCO, Inc., 501 U.S. 32 (1991) (federal court's inherent power to sanction bad‑faith conduct)
- Goodyear Tire & Rubber Co. v. Haeger, 137 S. Ct. 1178 (2017) (compensatory monetary sanctions limited to legal bills occasioned by opponent's misconduct)
- Perdue v. Kenny A. ex rel. Winn, 559 U.S. 542 (2010) (discussing fee‑shifting principles and limits on windfalls)