Slip Opinion
D. Colo.Apr 30, 2015Background
- Plaintiffs (Ralstons, Salba Corp. N.A., Salba Smart Naturals Products) claim defendants (Core, X Factor, Ancient Naturals, Natural Guidance, and Mitchell Propster) continued to sell counterfeit or non-Salba chia products using Plaintiffs’ marks after 2009, leading to this 2012 suit for trademark infringement and related claims.
- An arbitration (award March 11, 2010) and subsequent court order confirmed that Salba N.A. did not validly grant Core a 2009 license; the arbitrator awarded relief to the Ralstons and the award was later confirmed by the court.
- Plaintiffs moved for spoliation sanctions, alleging Defendants (principally Propster) destroyed or failed to preserve emails, attachments, invoices, orders, and digital artwork relevant to damages and profits.
- Propster acknowledged losses from a hard-drive failure (early 2010), multiple office relocations, shredding after scanning ~5,000 documents to a server, and a later lightning strike (2014) that damaged the server; he also asserted preservation began after this lawsuit was served.
- The court found Propster had a duty to preserve evidence as of the arbitration award (March 11, 2010), concluded that orders and invoices were lost and that loss was prejudicial to Plaintiffs’ ability to prove Defendants’ sales/profits, but did not find sufficient evidence of intentional destruction or bad faith.
- Remedy: court precluded Propster from introducing evidence of business expenses and losses for the Propster entities related to chia seed sales from March 10, 2010 through trial; Plaintiffs awarded their costs and attorneys’ fees for the sanctions motion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Propster had a duty to preserve evidence | Litigation was imminent by June 2009 given communications, license dispute, and eventual arbitration | No imminent litigation until later; licensing steps negated earlier threats | Duty arose by March 11, 2010 (arbitration award); preservation required from then forward |
| Whether relevant evidence was destroyed/spoliated | Defendants produced few documents; admitted loss of orders, invoices, emails, scanned docs then lost in server damage | Many losses predated duty; some documents never existed; attempted preservation and recovery | Plaintiffs met burden for loss of orders and invoices but not for many other categories; court refused to speculate about missing evidence |
| Whether Plaintiffs were prejudiced by the loss | Loss of orders/invoices impairs proof of Defendant sales and profits under 15 U.S.C. §1117(a) | Alternative evidence (tax returns, P&L, testimony, third parties) available to prove damages | |
| Appropriate sanctions (adverse inference, dismissal, evidentiary preclusion, fees) | Severe sanctions including dismissal, adverse jury instruction, and fees | Sanctions unwarranted or should be limited given negligent loss and acts of nature | No adverse inference or dismissal; limited sanction — preclusion of evidence of business expenses/losses for sales from March 10, 2010 through trial; Plaintiffs awarded fees for the motion |
Key Cases Cited
- Gates Rubber Co. v. Bando Chem. Indus. Ltd., 167 F.R.D. 90 (D. Colo. 1996) (spoliation is a discovery offense and parties must preserve relevant documents)
- Cache La Poudre Feeds, LLC v. Land O’Lakes, Inc., 244 F.R.D. 614 (D. Colo. 2007) (litigants must preserve documents when litigation is pending or imminent)
- Burlington N. & Santa Fe Ry. Co. v. Grant, 505 F.3d 1013 (10th Cir. 2007) (elements for spoliation sanction: duty to preserve and prejudice)
- 103 Investors I, L.P. v. Square D Co., 470 F.3d 985 (10th Cir. 2006) (spoliation standard and burden of proof)
- Oldenkamp v. United Am. Ins. Co., 619 F.3d 1243 (10th Cir. 2010) (movant must prove spoliation by preponderance; court cannot speculate about missing evidence)
- Turner v. Pub. Serv. Co. of Colo., 563 F.3d 1136 (10th Cir. 2009) (adverse inference requires showing of bad faith)
- Aramburu v. The Boeing Co., 112 F.3d 1398 (10th Cir. 1997) (mere negligence in losing records does not support an adverse inference)
- Louis Vuitton S.A. v. Spencer Handbags Corp., 765 F.2d 966 (2d Cir. 1985) (plaintiff may recover defendant’s profits in trademark cases; proof of gross revenues is critical)
- Estate of Bishop v. Equinox Int’l Corp., 256 F.3d 1050 (10th Cir. 2001) (discussing remedies and proof of profits in infringement cases)