Square D Co. v. Scott Electric Co., Case No. 06-00459 (W.D. Pa. July 15, 2008)

Faced with repeated refusals to comply with earlier orders and “overall lack of respect and deference to the Court’s authority fall[ing] just shy of conduct befitting default judgment,” District Judge Nora Barry Fischer ordered defendant Globe Electric Supply to submit to a forensic inspection of all its remaining computers, to allow imaged and copied data to be removed from its premises by plaintiff’s forensic consultant for further querying based upon agreed-upon search terms, and to bear all costs and expenses associated with the forensic inspections of its computers.

The case concerned allegations of sales of counterfeit circuit breakers. Globe had been previously ordered to submit to an inspection by Square D of its inventory of Square D circuit breakers, as well as a forensic inspection of its computer systems which record its purchases and sales of Square D products and its inventory of such products, at Globe’s expense. Thereafter, the court held Globe in contempt of court, finding that “the information at issue is important to the public health and safety in that the counterfeit circuit breakers represent a potential danger to unknowing consumers,” the court again ordered Globe to:

submit to an inspection by Square D (including its attorneys), at Globe's expense, of its inventory of Square D circuit breakers as well as Globe's offices, warehouses, storage containers or facilities where Square D circuit breakers are or may be located, and also submit to a forensic inspection of its computer systems which records its purchases and sales of Square D products and its inventory of such products, with such inspection to be incurred at Globe's sole expense and cost

Thereafter, Globe sought to limit the forensic inspection to a set time and cost to avoid a fishing expedition. The court denied the request, and advised Globe that “failure to comply with the instant Memorandum Order in all respects may result in harsh sanctions, including but not limited to, ‘prohibiting the disobedient party from supporting or opposing designated claims or defenses, or from introducing designated matters into evidence’ or ‘rendering a default judgment against a disobedient party.’”

When Square D attempted to carry out the imaging of Globe’s computers, however, Defendant imposed new parameters on the June 2008 inspection, specifically, that (1) Square D would not be allowed to remove any imaged electronically-stored information (“ESI”) from Globe's premises, and (2) Square D could only access the server at Globe's facility to perform searches. In other words, Globe was unwilling to allow Square D access to the remaining eleven workstations that had not yet been imaged.

Globe insisted that only the two work stations already imaged had records of its purchases and sales of Square D products. The court responded:

Defendant Globe apparently expects Plaintiff Square D (and the Court) to, in lay men's terms, “take its word for it.” However, considering Globe's long history of obstinate behavior in the discovery process and seeming lack of candor to the Court on occasions, the Court refuses to accept its representation in this instance. Moreover, given that the Court ordered the forensic inspection on June 12, 2007, the timing of Globe's revelation on the day of the inspection that only two (2) workstations contain any relevant information within the parameters of the ordered inspection casts some doubt on its veracity.

Slip Opinion at 8-9. The court ordered imaging of all eleven of the remaining workstations. Not surprisingly, the court allowed Square D to leave Globe’s remises with the images.

The court then dealt with plaintiff’s motion for sanctions. The court reviewed the available sanction under Rule 37, and paid particular attention to Rule 37(b)(2)(C), which mandates the payment of expenses “unless the failure was substantially justified or other circumstances make an award of expenses unjust.” The court quoted the Third Circuit to the effect that when considering whether to impose a default judgment, the court should consider and weigh the following factors:

(1) the extent of the party's personal responsibility; (2) the prejudice to the adversary caused by the failure to meet scheduling orders and respond to discovery; (3) a history of dilatoriness; (4) whether the conduct of the party of the attorney was willful or in bad faith; (5) the effectiveness of sanctions other than dismissal, which entails an analysis of alternative sanctions; and (6) the meritoriousness of the claim or defense.

Slip Opinion at 11-12 (quoting Poulis v. State Farm Fire and Casualty Co., 747 F.2d 863, 868 (3d Cir. 1984)). Noting the stress the Third Circuit has placed on reserving default judgment sanctions for cases comparable to the “flagrant bad faith” and “callous disregard” exhibited in National Hockey League, the court declined to enter default judgment at this point in the litigation. “Globe's failure to comply with the Court's Orders concerning the forensic inspection and overall lack of respect and deference to the Court's authority falls just shy of conduct befitting default judgment.” This reticence did not, however, prevent the court from requiring Globe to pay the cost and expense involved in the forensic inspections.

The court concluded with the following warning:

the Court wishes to impress upon Globe and its counsel that any further restrictions unilaterally imposed by it or its counsel on the forensic inspection (in any regard) as well as any other baseless barriers impeding the completion of discovery will be met with sanctions.

Slip Opinion at 15.

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