September 15, 2011
How badly can fooling around with discovery hurt you? It can cause you to win a $3.00 judgment after a case involving a trial and two appeals, as the plaintiff learned in
e360 Insight Inc. v. The Spamhaus Project, ___ F.3d ___ (7th Cir. 2011), Case Nos. 10-3538 & 10-3539.
less..
In this case, e360 sued Spamhaus because Spamhaus placed e360 on a list of known email spammers. e360 obtained a default judgment, which was affirmed on appeal. Thus, as the Seventh Circuit said, "All that remained was for e360 to make a reasonable showing of its damages." However, when the parties were conducting discovery into e360's damages, e360 had "persistent discovery defaults." It's owner "had repeatedly failed to appear for his deposition, and e360 had given unresponsive answers to interrogatories." e360 was sanctioned for this conduct, was ordered to complete discovery by a specific date, and the district court refused to allow for any additional discovery. e360 did not respond by the court-ordered deadline, so Spamhaus filed a motion to dismiss. e360 then served new interrogatory responses. Spamhaus complained about those responses, so the district court allowed e360 another opportunity to supplement its prior response. e360's new responses identified sixteen new witnesses on e360's costs, revenues, profits, lost profits, and valuation. It further increased the damages estimate from $11.7 million to $135 million.
The district court refused to allow e360 to use any of this newly disclosed information at trial. After a bench trial, the district court awarded $27,002 to e360. Spamhaus and e360 appealed.
On appeal, the Court found that the district court had acted "with more restraint than necessary" when dealing with e360's discovery sanctions. It then found that the district court properly prevented e360's owner from giving expert testimony beyond the scope of his business knowledge. However, the Court could not affirm the award. It noted that the testimony dealt with lost revenue, rather than lost profits.
As Spamhaus correctly observes, gross revenue is generally not an appropriate measure of damages because revenue is calculated without regard to the costs the plaintiff incurred in the course of making that revenue.
Thus, the Court ended up awarding e360 nominal damages for each of its three claims, or $3.00.
It is a mystery why e360 acted as it did during the discovery process. It already had a default judgment, but squandered it through its bad behavior. Screwing around with discovery is something that is never likely to help you.
Lessons:
- Lost revenues are not evidence of lost profits without some evidence of the costs that would have been incurred in obtaining those revenues.
- Avoiding giving information in discovery will likely do you more harm than good.
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