A federal court in California has granted a motion for sanctions filed by Jackson Family Wines, which brought an infringement action against Diageo North America; an adverse inference instruction will be given to the jury during trial, and the plaintiff will be able to recover the costs of its efforts to secure a Diageo marketing department employee’s documents, destroyed while the lawsuit was pending. Jackson Family Wines v. Diageo N. Am., Inc., No. 11-5639 (u.s. Dist. Ct., N.D. Cal., order entered February 14, 2014). At issue in the litigation is the alleged infringement of Jackson’s La Crema wine by Diageo’s Crème de Lys wine brand. The employee whose laptop was “imaged” outside the firm after she temporarily left Diageo’s employ was, in Diageo’s words, “the conduit between Diageo’s marketing team and Northstar [Research Partners, LLC], the third-party market research company” that conducted focus groups for the selection of the Crème de Lys brand. In one communication between the employee and Northstar, produced by the latter, the employee asked why the focus group report “didn’t include anything about potential confusion with La Crema,” confusion that had apparently  been voiced by some focus group participants. The laptop image, returned to Diageo in an external hard drive, was destroyed some six months after Jackson served document requests for the production of all documents about the “selection, adoption, and/or use” of the Crème de Lys mark. The imaging and destruction were part of the company’s “leaving” procedures, and the employee had never been told that her documents were subject to a litigation preservation order.

The court found Diageo’s spoliation of evidence willful in light of its frequent and vociferous protests that its production of the employee’s documents was “complete and irreproachable.” According to the court, “It is apparent now that those representations were not true. At the hearing, Defendants conceded that the representations made to the Court were false, but argued that they were made unknowingly since they were not yet aware that the hard drive was destroyed. If Defendants were actually not aware that the hard drive had been destroyed when the issue was raised and litigated over several months, Defendants’ ignorance was the result of a willful failure to make themselves aware.” Given “obvious red flags, Defendants should have investigated the issue of Josephson’s custodial file, and any reasonable investigation would have uncovered the erasure of her hard drive.”

The court observed that Diageo requested and received on October 30, 2013, backup tapes from the outside vendor that had “imaged” the laptop, but “falsely represented to this Court on November 1 that there was ‘no warrant’ for Plaintiffs’ request for a Rule 30(b)(6) deposition on preservation of Joseph- son’s documents and that ‘Jackson has already received the entire universe of documents and correspondence including Ms. Josephson.’ Defendants further noted that ‘it is extremely disappointing to Diageo that it is still being forced to combat this preservation issue.’ Contrary to Defendants’ representations on November 1, they knew Josephson’s hard drive had not been preserved, and they knew that the ‘entire universe’ of Josephson’s documents and correspondence had not been produced. What is ‘extremely disappointing’ is that Defendants concealed those facts from Plaintiffs and the Court.”The court further determined that the missing documents included relevant material and that the spoliation prejudiced the plaintiffs.