E360 INSIGHT, INC. v. THE SPAMHAUS PROJECT (September 2, 2011)

The Spamhaus Project is a U.K. company that wants to rid the world of unwanted e-mail. To further this end, it provides lists of spam distributors to Internet service providers. The Internet service providers can, in turn, prevent spam from reaching its addressees. After the Project added Illinois company e360 to its list, however, it got sued. E360 brought suit in state court for tortious interference with contract, tortious interference with prospective economic advantage, and defamation. Although the Project removed the case and initially participated in the litigation, it later informed the district court that it would no longer defend the case. The district court entered a default judgment and awarded over $11 million in damages, based on the affidavit of e360's operator David Linhardt. The Project changed its mind and moved to set aside the judgment under Rule 60(b)(4). The district court denied the motion and the Seventh Circuit affirmed. But the appellate court also vacated the damages award, concluding that the Linhardt affidavit was an insufficient basis on which to calculate damages. On remand, Judge Kocoras (N.D. Ill.) awarded $27,000 on the tortious interference with contract claim and one dollar nominal damages on each of the other two claims. The Project appeals -- e360 cross-appeals.

In their opinion, Seventh Circuit Judges Posner, Kanne, and Hamilton vacated and remanded with instructions. Before addressing the merits, the court resolved some evidentiary and sanctions issues. It: a) affirmed the district court's sanctions for e360’s gross discovery abuses, b) affirmed the district court's denial of e360's motion to compel discovery that the Court found irrelevant or, at least, the absence of which created no prejudice, c) affirmed the district court's striking of e360's damages spreadsheet that was submitted well after the discovery cutoff, and d) affirmed the district court's exclusion of most of e360's primary damages witness on lack of credibility grounds. The Court turned to the principal issue on appeal -- the amount of damages. Since it had affirmed the district court's exclusion of much of e360’s evidence, the Court affirmed the two nominal damage awards. The $27,000 tortious interference with contract damages award rested on evidence that e360 lost three customers that accounted for $27,000 a month in revenue. The district court concluded that the company would have continued to do business with these three customers for one month in the absence of the Project's conduct. But the Court noted that gross revenue is not a proper measure of damages. Since there was no evidence in the record regarding what portion of that revenue was actually profit, the Court reduced the award on that count to nominal damages of one dollar as well. The Court remanded with instructions to enter judgment for three dollars.