Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

GN Netcom, Inc. v. Plantronics, Inc.

United States Court of Appeals, Third Circuit

July 10, 2019

GN NETCOM, INC., Appellant
v.
PLANTRONICS, INC.

          Argued on December 11, 2018

          On Appeal from the United States District Court for the District of Delaware (1-12-cv-01318) District Judge: Honorable Leonard P. Stark

          Daniel F. Jacobson Elisabeth S. Theodore [ARGUED] Arnold & Porter Kaye Scholer Counsel for Appellant

          Jack B. Blumenfeld Morris Nichols Arsht & Tunnell Jon S. Dean [ARGUED] Russell Hayman McDermott Will & Emery Counsel for Appellee

          Before: SMITH, Chief Judge, McKEE and FISHER, Circuit Judges.

          OPINION

          FISHER, CIRCUIT JUDGE.

         GN Netcom, Inc. filed an antitrust lawsuit against competitor Plantronics, Inc. Plantronics executives deleted emails relevant to the litigation and instructed others to do the same. Many of these emails were unrecoverable, prompting GN to move for default judgment under Federal Rule of Civil Procedure 37. The District Court acted within its discretion when it denied the motion for default judgment, instead instructing the jurors that they were permitted to draw an adverse inference against Plantronics because of the missing emails. However, the District Court committed reversible error when it excluded GN's expert testimony on the scope of Plantronics' spoliation. Accordingly, we will affirm in part, reverse in part, and remand for a new trial.

         I.

         GN and Plantronics manufacture telephone audio headsets used by individuals who work in customer service. They have nearly equal market share globally. Plantronics is U.S.-based and "holds an 80%-83% market share" in North America, App. 1398, while GN is based in Europe and controls the market outside North America.

         Plantronics began selling its headsets in the United States in the 1960s, the first of their kind on the market. GN began its U.S.-based operations in 1987. In 2000, it acquired Jabra and began selling Jabra's headsets, which serve the same market as Plantronics.

         The parties sell their headsets to customers through distributors. Plantronics has a Plantronics-Only Distributor ("POD") program, which is a voluntary program designed to foster relationships and create joint marketing efforts with distributors. A distributor that joins the program becomes a "POD" and receives incentives such as "favorable credit terms," "marketing funds in the form of rebates," and "website support." App. 1306. In exchange, PODs agree to two terms. First, they may not purchase headsets directly from other manufacturers, but may do so indirectly (such as from other distributors). Second, PODs are not allowed to market competitors' products on resellers' websites.

         GN sent Plantronics a demand letter in May 2012 and filed suit in October 2012, alleging that Plantronics' POD program constituted monopolization in "violation[] of the Sherman Act, the Clayton Act, and Delaware common law." App. 110. When it received the demand letter, Plantronics "promptly issued a litigation hold to relevant employees and provided training sessions to ensure compliance." App. 7. When the lawsuit was filed, Plantronics updated the hold, held more training sessions, and sent quarterly reminders requiring acknowledgment of compliance.

         GN alleges that Plantronics committed large-scale spoliation after the lawsuit was filed. Despite the litigation hold, Plantronics' Senior Vice President of Sales, Don Houston, instructed Plantronics employees to delete certain emails that referenced Plantronics' competitive practices or its competitors, particularly those concerning GN or its products. As the District Court noted, the evidence reflects at least three instances of such spoliation.

         First, in November 2012, about a month after GN filed its lawsuit, Houston replied to an email chain stating, "Team, please be careful about competitive statements like what was said below. I would suggest everyone immediately delete this message." App. 184. In October 2013, Houston sent an email stating, "Given the sensitive nature of this issue and the on going legal issues, please delete this entire string of emails for everyone that has been copied ASAP!" App. 178. Houston admitted that the only legal issue he was aware of was the lawsuit filed by GN. The underlying email chain referenced a distributor who met with a Jabra representative and began selling Jabra headsets to one of its customers, who previously used only Plantronics headsets. One email in the chain stated, "I was under the impression [redacted distributor] was a POD distributor and could not sell Jabra," and another employee stated he "want[ed] to be absolutely sure of the facts before I confront [redacted distributor]." App. 178, 180. Houston and two others, Roy Meadows and Jose Gonzalez, deleted the email chain.

         In February or March 2014, Plantronics' Associate General Counsel, Peggy Fawcett, learned of Houston's conduct and took several actions in response, including instituting a litigation hold on Houston's assistant, in case she had duplicate emails, and requesting back-up tapes of Houston's email account. Plantronics engaged BlackStone Discovery, its discovery vendor, and Stroz Friedberg, a leading forensics expert, to try to recover as many of Houston's emails as possible. Stroz recovered some of the emails.

         The spoliation, however, continued. In April 2014, for a third time, Houston instructed employees to delete emails: "Team this is an inappropriate email, please delete immediately. Bill should call Lou Ann directly for any information relating to competition or a competitive situation!!!" App. 181.

         In addition to instructing others to delete emails, Houston deleted his own emails. He deleted "more than 40% of his emails from" November 2013 to February 2014. App. 9. He took the next step of "double-delet[ing]" them by emptying his deleted-files folder so that he would not be able to recover them. App. 9.

         Houston did not act alone. Plantronics executives took other actions to hide relevant information from GN. For instance, a senior Plantronics manager asked sales team members to use code words to refer to competitors, including "zebra" for GN. At an "All Hands" meeting with marketing employees, Plantronics' CEO, Ken Kannappan, stated that he was "not positive that there were not damning statements in a variety [of] staff emails that [GN's] legal team would dig up that would be 'emotionally relevant' in court." App. 325.

         Plantronics' efforts to undo the spoliation fell short. BlackStone Discovery confirmed that Meadows and Gonzalez had deleted at least one email chain, but Plantronics never obtained the backup tapes to determine whether they had deleted any other emails. Stroz, the forensics expert, provided Plantronics with "preliminary findings" that were a "work in progress," but stated that it would cost Plantronics two to five thousand more dollars for the firm to complete its analysis. App. 11. Plantronics did not have Stroz complete its analysis; it instead destroyed the back-up tapes of Houston's emails. At an April 2015 hearing, Plantronics told the District Court that "there is no [Stroz] report," App. 246, despite Stroz providing its preliminary findings months before. In addition, the same lawyer who stated that there was no report had previously listed work on the "Stroz report" in billing entries. App. 12.

         Stroz's preliminary findings included a determination that Houston had deleted between 36, 397 and 90, 574 unrecoverable emails, 2380 to 5887 of which were likely responsive to GN's discovery requests. While some of those emails were likely produced by other employees, Stroz estimated that 952 to 2354 of those emails were permanently missing and could not be recovered from other Plantronics employees' accounts or backups. GN's expert, Dan Gallivan, concluded that Stroz's estimates were conservative; Gallivan independently determined that ten to fifteen thousand of Houston's deleted emails were relevant to the litigation.

         During depositions, Plantronics executives, including Houston and Kannappan, were either forgetful or dishonest. In his July 2014 deposition, Houston acknowledged asking others to delete emails, but stated he could not remember deleting his own emails. And though Plantronics had admitted knowing about Houston's deletions at the time of his deposition, its outside counsel emailed GN's outside counsel after the deposition, stating, "It is incorrect to assume deletion as you suggest," because Houston had testified that he did not remember. App. 187.

         At a subsequent deposition in September 2015, Houston testified that he thought the IT department saved all emails and that he was not instructing employees to delete emails to hide them, but because he did not "want the dialogue to continue." App. 202. On more than one occasion, Kannappan testified that all of Houston's emails were recovered. The reports from Plantronics' discovery and forensic experts contradicted that testimony.

         Two months after Houston's second deposition, GN moved for a default liability judgment in light of the spoliation. The District Court held an evidentiary hearing and found that Plantronics acted in "bad faith" with an "intent to deprive GN" of documents, App. 33, but nevertheless denied the motion. Instead of default judgment, the court opted to issue a permissive adverse inference instruction to the jury at trial, fine Plantronics three million dollars, and order it to pay GN's spoliation-related fees. In choosing a permissive instruction rather than a mandatory one, the court reasoned that "[a] jury should resolve the genuine disputes of material fact in this case." App. 34-35.

         GN subsequently sought to present evidence of spoliation at trial, including testimony from its expert, Gallivan. The District Court denied this request, citing a desire to reduce "the risk of spoliation taking over" the trial and "the risk of unfair prejudice given the inflammatory nature of the evidence." App. 1044. Instead, the court decided to read "stipulations" to the jury and limit parties to referencing only the facts in those stipulations during trial. App. 1043-44. After considering proposals from both parties, the District Court settled on seventeen stipulations.

         At trial, GN proceeded on claims of monopolization, attempted monopolization, and concerted action in restraint of trade under the Sherman and Clayton Acts.[1] The trial lasted for six days. The jury returned a verdict in favor of Plantronics, finding that GN proved a relevant market-a prerequisite for its claims-but did not prove all of the elements for any of its three antitrust claims. GN moved for a new trial, but the District Court denied the motion. GN appeals.

         II.

         The District Court had federal question jurisdiction over GN's antitrust claims under the Sherman and Clayton Acts and supplemental jurisdiction over the related state law tortious interference claim. 28 U.S.C. §§ 1331, 1367. This Court has appellate jurisdiction pursuant to 28 U.S.C. § 1291. We review the District Court's sanctions under Federal Rule of Civil Procedure 37, as well as its evidentiary rulings, for abuse of discretion. McLaughlin v. Phelan Hallinan & Schmieg, LLP, 756 F.3d 240, 248 (3d Cir. 2014); Forrest v. Beloit Corp., 424 F.3d 344, 349 (3d Cir. 2005).

         III.

         A. ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.