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In re Aqua Dots Products Liability Litigation

July 28, 2010

IN RE AQUA DOTS PRODUCTS LIABILITY LITIGATION


The opinion of the court was delivered by: Magistrate Judge Susan E. Cox

Judge David H. Coar

THIS DOCUMENT RELATES TO: ALL ACTIONS

MEMORANDUM OPINION AND ORDER

Plaintiffs have filed a motion to compel responses to interrogatories and certain documents from defendants Spin Master Ltd., Spin Master, Inc., (collectively, "Spin Master") and Moose Enterprises Pty Ltd ("Moose") [dkt 380]. Specifically at issue are the following interrogatories, which ask both defendants for the same financial disclosures: Interrogatory 1 requests "gross income, net income, and profits/losses in 2007, 2008, 2009, and 2010" and Interrogatory 2 requests defendant state "whether you own or have interests in tangible or intangible property, and for each such property, state the current market value of the property and the annual income derived from the property in 2007, 2008, 2009, and 2010."*fn1 Plaintiffs also seek the production of any documents relevant to these interrogatories.*fn2 The other issue in the motion is plaintiffs' request for the production of documents exchanged between Spin Master and the Consumer Product Safety Commission ("CPSC").*fn3 The court grants plaintiffs' motion in its entirety [dkt 380].

I. Financial Information

The court will grant plaintiffs' motion to compel responses to Interrogatories numbers 1 and 2 and related documents on the basis that the information is relevant to the Plaintiffs' claim for punitive damages. In TXO Production Corp. v. Alliance Resources Corp., the Supreme Court explained that a defendant's wealth is one factor that the jury may consider in determining punitive damages.*fn4 Federal Rule of Civil Procedure 26(b)(1) allows the discovery of relevant non-privileged information that is "reasonably calculated to lead to the discovery of admissible evidence."*fn5 Since evidence of a defendant's wealth may be admissible at trial, as it relates to punitive damages, courts have allowed the discovery of financial information on those grounds.*fn6

The defendants rely on the Seventh Circuit decision in Zazu Designs v. L'Oreal and its progeny to argue that the financial information of a corporation is not relevant to a claim for punitive damages.*fn7 The court in Zazu Designs found a lack of factual foundation for the award of punitive damages and took issue with the district court's calculation of damages.*fn8 Within that discussion, the court theorized that consideration of a defendant's wealth does not serve the same deterrent goals when applied to a corporation.*fn9

Other courts have interpreted this discussion as controlling precedent. A case from the Southern District of Indiana, Yund v. Covington Foods, Inc., denied a plaintiff's motion to compel financial information finding that "Zazu Designs' statements are more than mere theorizing - they are controlling precedent."*fn10 In Pivot Point International, Inc. v. Charlene Products, Inc. Judge Easterbrook, sitting by designation in this district, ruled to exclude evidence of the counterdefendant's wealth at trial.*fn11 He explained that the holding of Zazu Designs is that corporate wealth is not a factor in punitive damages for claims based on federal law.*fn12 Judge Easterbrook also denied admissibility of financial information in relation to the state law claims in that case, but explained that "this decision is conditional with respect to the state claims."*fn13 His concern in Pivot Point was that the position of the counterplaintiff in the case was "unfocused" and the introduction of financial information had the potential to "distract the jury from the essential issues."*fn14 Defendants also cite Kemezy v. Peters, as a case confirming that punitive damages do not apply to corporations.*fn15 The case itself deals with an award of punitive damages assessed on an individual rather than a corporation.*fn16 In discussing the economic theory behind the relevance of a defendant's wealth in punitive damages, the court includes a parenthetical saying "Zazu Designs emphasizes [that the theory] does not apply to institutions as distinct from natural persons."*fn17

However, Kemezy goes on to refer to the discussion in Zazu Designs as a "suggestion," which may or may not be persuasive to the deciding judge.*fn18 Thus, Kemezy does not conclusively confirm that Zazu Designs is controlling on the relevance of corporate wealth to punitive damages.

More recent cases in this district, however, have dismissed this portion of Zazu Designs as dicta. For example, in Jones v. Scientific Colors, the defendant corporation sought to bar discovery of its financial status and the court explained that it "remains unpersuaded, at this stage, that the Zazu Designs dictum represents controlling authority."*fn19 In EEOC v. Staffing Network, LLC the court stated that "Zazu Designs merely raises the possibility that a defendant's net worth may be irrelevant, and the majority of courts addressing this issue have reached the opposite conclusion."*fn20

So the more recent cases that discuss this issue demonstrate that despite a defendant being a corporation, financial information may be relevant to a claim for punitive damages.

It is also important to note that Zazu Designs dealt with an appeal of damage calculations, while Pivot Point considered the equity of presenting evidence of wealth at trial.*fn21 The issues being considered at the discovery phase of litigation are very different than those debated in Zazu Designs and Pivot Point. Discovery should be reasonably calculated to lead to admissible evidence.*fn22 In this case, the claims for punitive damages are based on state law claims and, as Judge Easterbrook explained in Pivot Point, there is no per se rule as to whether corporate wealth is relevant to punitive damages based on state law.*fn23 Instead the determination of admissibility should be made on a case-by-case basis and presumably at a more developed stage in the litigation. At this point, it is enough to say that evidence of the defendants' wealth may be admissible at trial and is, thus, discoverable.

Defendants also argue that discovery of financial information is improper in this case because the claim for punitive damages is insufficient. Defendants specifically discuss the plaintiffs' claims under contract law and cite the Seventh Circuit case, Extra Equipamentos E Exportacao Ltda. v. Case Corporation, as evidence that punitive damages are not available under contract law.*fn24

Defendants also cite an order by Judge Coar pointing out issues he would like addressed in upcoming arguments and briefs on the plaintiffs' motion for class certification.*fn25 These include an update on the refund programs, a more narrowly tailored class definition, and a more complete choice of law analysis.*fn26 In that order Judge Coar does say that the alleged problems with Aqua Dots refunds deal with "contract, as opposed to tort damages."*fn27 However this statement was made specific to the issue of refunds and was not a summary of all the legal issues being alleged in this case. The plaintiffs' complaint alleges several claims for which punitive damages may attach: violation of the Illinois Consumer Fraud Act, Illinois Uniform Deceptive Trade Act, violation of various state consumer fraud laws, and negligence.*fn28 The defendants do not argue that the plaintiffs' other claims are no longer at issue in the case. At this stage in the litigation and relevant to this discovery motion, evaluating the merits of ...


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