Rosenthal Collins Group, LLC v. Trading Techs. Int'l, Inc., No. 05 C 4088, Slip Op. (N.D. Ill. Feb. 23, 2011) (Coleman, J.).*

Judge Coleman granted defendant/counter-plaintiff Trading Technologies' ("TT") motion for evidentiary sanctions and default judgment. Judge Moran previously dismissed plaintiff/counter-defendant Rosenthal Collins Group's ("RCG") motion for summary judgment regarding the alleged prior art Buist trading program for discovery abuse, ordered RCG to produce additional documents and things related to the Buist program, and ordered RCG to pay certain of TT's attorney's -- click here for the Blog's post on that decision. Initially, the Court the severity of a default judgment as a sanction, calling it "extreme," and noted that the Seventh Circuit required a showing of willfulness, bad faith or fault by a preponderance of the evidence in order to justify dismissing a case.

The Court held that the high standard was met in this case, for at least the following reasons:

  • During his deposition, Buist admitted modifying and overwriting source code in 2006 that he and by extension RCG held out as having been created in 1998 or 1999. And in the face of clear evidence of these facts, RCG continued to deny them, even calling the claims "libelous," "audacious," and "Oliver Stone-esque."
  • Buist later admitted "wiping" or erasing six of seven zip disks that originally contained the relevant source code and that were later produced by RCG because they allegedly contained the code. The seventh was also wiped, although there was a dispute regarding whether Buist or others had access to it when it was wiped. But the Court held that it was "impossible to believe that it is merely coincidence that the seventh disk happened to be wiped on May 2, 2006, which just happened to be the same day that TT was scheduled to inspect it."
  • There was evidence that "virtually every piece of media ordered produced by the Court in May 2007 and July 2008 was wiped, altered, or destroyed after those orders were entered . . . ." (emphasis in original).
  • Even if RCG and its counsel had no knowledge of the destruction of the evidence, the destruction might have been avoided if RCG had timely complied with the Court's orders to produce the materials. And regardless, RCG and its counsel should have preserved the evidence by taking custody of it.
  • Buist was RCG's agent and, therefore, RCG was bound by Buist's behavior and actions.

Based upon these determinations, the Court found clear and convincing evidence that "RCG, and its counsel, acted in bad faith and with willful disregard for the rules of discovery and this Court's orders." And because a monetary sanction alone was not sufficient, the Court entered a default judgment in favor of TT and dismissed RCG's complaint and struck its defenses to TT's counterclaim. The Court also fined RCG $1,000,000 for "egregious conduct before the Court" and ordered RCG's counsel to pay TT the attorney's fees and costs related to TT's motion for default judgment.

* I have a few earlier opinions from the Trading Technologies cases, but this one was significant enough that I moved it up. Click here for more on the case in the Blog's archives.