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Championsworld, LLC v. United States Soccer Federation

August 17, 2011

CHAMPIONSWORLD, LLC, PLAINTIFF,
v.
UNITED STATES SOCCER FEDERATION, ET AL., DEFENDANT.



The opinion of the court was delivered by: Hon. Harry D. Leinenweber

MEMORANDUM OPINION AND ORDER

The parties have filed a number of pretrial motions, primarily seeking sanctions against one another for various alleged misdeeds. The Court will resolve all the motions by way of this order. For the reasons that follow: (1) Defendants' Joint Motion for Sanctions for Plaintiff's Wholesale Destruction of Evidence [246] is granted in part; (2) ChampionsWorld's Motion for Sanctions Against Defendant United States Soccer Federation, Inc. [277] is denied; (3) Non-Party John Collins' Motion to Quash Discovery Subpoena [265] and Defendant USSF's Motion to Quash Discovery Subpoena Issued to Non-Party John P. Collins [268] are granted; (4) ChampionsWorld's Motion for Sanctions Against: (A) the Law Firms of Proskauer Rose LLP and Latham & Watkins LLP and (B) Defendants MLS and USSF [278] is denied; and ChampionsWorld's Motion to Compel the Production of Documents [306] is denied.

Defendants, in various pending motions, seek to recover their fees and costs in responding to these motions. Because none of the motions brought by Plaintiff are frivolous, the Court declines to impose fees or costs.

I. OVERVIEW OF LITIGATION

Plaintiff ChampionsWorld, LLC ("ChampionsWorld") is a defunct sports marketing company that, from 2001 to 2005, sponsored professional soccer exhibitions in the United States involving international club teams. ChampionsWorld filed for bankruptcy and ceased operations in 2005.

Defendant United States Soccer Federation, Inc. (the "USSF") is the governing body for amateur soccer in the United States. Defendant Major League Soccer, LLC ("MLS") is a professional first-division soccer league in the United States. ChampionsWorld claims that USSF improperly assumed the power to oversee professional, as well as amateur, soccer in the United States. USSF then used this power to unreasonably restrain trade and to extract millions of dollars in sanctioning fees from ChampionsWorld, which caused the company to fail. ChampionsWorld alleges that USSF's actions were part of an anticompetitive scheme to protect MLS by preventing other soccer entities from applying for first-division status in the United States. Defendants deny any wrongdoing and argue that ChampionsWorld is trying to make them scapegoats for the company's poor business strategy and eventual demise. Given the contentious nature of the litigation, it is perhaps not surprising that the parties have become embroiled in various discovery disputes and seek sanctions against one another on several grounds.

II. ALLEGED DESTRUCTION OF EVIDENCE

First, Defendants seek sanctions against ChampionsWorld on the ground that Plaintiff lost or destroyed evidence, including:

(1) virtually every email on its servers dated after September 1, 2004; (2) all of its accounting files dated after April 2004; and

(3) virtually all of its accountant's records relating to ChampionsWorld. Defendants seek a number of possible sanctions, including precluding Plaintiff from arguing that it is entitled to recover future lost profits or the lost value of its business and precluding Plaintiff from relying on testimony regarding events that occurred post-September 2004. It also seeks fees and costs in bringing this motion.

ChampionsWorld responds that it took reasonable steps to preserve its data. It acknowledges that it cannot find data from the end of 2004 and 2005, but points the finger at Lino DiCuollo ("DiCuollo"), who had been a Senior Vice President for Legal and Finance at ChampionsWorld. DiCuollo now works for MLS, having been hired by that company shortly after the demise of ChampionsWorld.

A. Background

Deposition testimony paints a muddy picture as to who was minding the store in the last months of ChampionsWorld's existence. DiCuollo, asked if he recalled being in charge of document retention for ChampionsWorld, replied, "I don't recall that," but acknowledged providing documents to Plaintiff's counsel, Pryor Cashman LLP, in connection with this case. DiCuollo testified that he did not destroy any ChampionsWorld documents and was not aware of anyone else doing so. DiCuollo's job duties while serving as Senior Vice President for Legal/Business Affairs for ChampionsWorld included "filing and maintenance of corporate documents."

Charlie Stillitano ("Stillitano"), ChampionsWorld's CEO, testified at his deposition that from 2002 on, the company had a verbal policy of retaining all documents. It was Stillitano's understanding that all of the company's data would be saved on the company's on-site computer server. Stillitano testified that he did not know why so few documents were produced from the period after September 2004. Employees of the company were instructed to give documents to DiCuollo toward the end of the company's existence because such documents might be needed in the company's bankruptcy proceeding, he said. DiCuollo's brother, Mario De Paola, who was the company's information technology director, has since died. Stillitano further testified that he did not instruct the company's accountants, Traphagen & Traphagen, to retain documents. Defendants did receive hard copies of at least some of the 2004 QuickBooks data kept by Traphagen, but they contend this is mostly financial projection data which is not helpful in determining the cause of ChampionsWorld's failure.

Stillitano provided an affidavit explaining that in the early fall of 2004, after ChampionsWorld retained Pryor Cashman, he, DiCuollo, and the company's outside general counsel had lunch with attorneys from the firm and were instructed to preserve all documents related to the lawsuit. Stillitano told outside counsel that the company had a 100 percent document retention policy in place and nothing would be destroyed.

ChampionsWorld contends that at the time outside counsel was retained to bring the instant lawsuit, there was no reason to doubt that DiCuollo was adequately performing his job of maintaining the company's records, with the assistance of his brother. Defendants argue that it was actually Senior Vice President of Operations Tim Kassel ("Kassel") who was in charge of document retention. Kassel testified that he preserved data up until the company's bankruptcy filing in January 2005, but did not know if anyone did so following the bankruptcy.

B. Legal Standard

Courts have the inherent power to sanction a party for failure to preserve evidence that it controls when it could have reasonably foreseen that evidence to be material in a potential lawsuit. Jones v. Bremen High School, 08 C 3548, 2010 WL 2106640, at *5 (N.D. Ill. May 25, 2010). Sanctions "must be proportionate to the circumstance surrounding the failure to comply with discovery." Crown Life Ins. Co. v. Craig, 995 F.2d 1376, 1382 (7th Cir. 1993).

To find sanctions appropriate, the Court must determine: (1) that there was a duty to preserve the evidence; (2) that the duty was breached; (3) that the other party was harmed by the breach; and (4) that the breach was caused by the breaching party's willfulness, bad faith, or fault. Jones, 2010 WL 2106640, at *5. If the court finds sanctions appropriate, it must impose the least severe sanction necessary to ameliorate the prejudice that arose from the breach. Id.

C. Analysis

1. Duty to Preserve the Evidence

There is no real dispute between the parties that ChampionsWorld had a duty to preserve evidence by early to mid-2004. Even prior to that date, the company had investigated possible claims against USSF. In August 2004, ChampionsWorld retained Pryor Cashman, its counsel of record in this proceeding.

2. Breach of Duty to Preserve

The next question, then, is whether ChampionsWorld breached its duty to preserve the evidence. On the record presented, the Court cannot find that ChampionsWorld (or anyone else) intentionally destroyed any documents. However, it does not appear that Stillitano took any affirmative steps to carry out Pryor Cashman's directive that all documents be preserved. Stillitano apparently assumed either that DiCuollo handled this process or that the company's verbal document retention policy would suffice. It did not. Plainly put, Stillitano and ChampionsWorld's outside counsel should have done more to ensure that relevant evidence was preserved, particularly given the importance of ChampionsWorld's financial condition to its case and the fact that ChampionsWorld had been contemplating some sort of legal action against USSF well prior to its demise. See Jones, 2010 WL 2106640, at *6 (noting that an intention to preserve evidence must be "followed up with concrete actions reasonably calculated to ensure that relevant materials will be preserved."). So Plaintiff breached its duty to preserve certain emails and accounting records.

Nonetheless, in discussing spoliation sanctions, the Seventh Circuit has held that "the crucial element is not that evidence was destroyed but rather the reasons for the destruction." Faas v. Sears, Roebuck & Co., 532 F.3d 633, 644 (7th Cir. 2008) (internal citations omitted). Here, neither DiCuollo nor anyone else seems to be able to explain why certain data was not preserved. DiCuollo's brother, who might have been able to offer an explanation, has died. As such, the circumstances make it difficult for the Court both to understand what happened to the information and to assign responsibility.

3. Prejudice to Defendants

Nonetheless, the Court finds that Defendants have been prejudiced by ChampionsWorld's failure to preserve certain documents from 2004 and early 2005. In arguing against a finding of prejudice, ChampionsWorld notes that in October 2004, Defendant MLS approached ChampionsWorld about buying the company, and ChampionsWorld turned over some financial information to MLS. The parties dispute how much information was disclosed, but Defendants note that because the information was submitted in October, it did not include ChampionsWorld's fourth-quarter results, which would have been important in understanding why the company subsequently filed bankruptcy. Defendants also argue that almost all of the information regarding ChampionsWorld's efforts to find potential investors in late 2004 and early 2005 is missing, as are documents concerning the company's decision to file bankruptcy. This information is clearly important to defending against ChampionsWorld's claims that USSF's sanctioning fees forced it into bankruptcy. However, the Court notes that that prejudice is ameliorated somewhat by the data provided by ChampionsWorld to MLS during the sale discussions, as well as information provided to Defendants through third-party subpoenas.

4. Fault

As noted above, apportioning fault in this case is difficult given the messy relationship between DiCuollo and the parties. Nonetheless, the Court cannot find that ChampionsWorld acted willfully or in bad faith because there is nothing to indicate the company destroyed records to hide adverse information. Trask-Morton v. Motel 6 Operating L.P., 534 F.3d 672, 681 (7th Cir. 2008).

But bad faith is not a prerequisite to the imposition of sanctions. Marrocco v. Gen. Motors Corp., 966 F.2d 220, 224 (7th Cir. 1992). Fault is enough, and Stillitano and ChampionsWorld's outside counsel should have done more to ensure the documents were preserved, rather than relying on what was apparently a verbal "100 percent document retention policy." See, Danis v. USN Communs., Inc., No. 98 C 7482, 2000 WL 1694325, at *32 (N.D. Ill. Oct. 20, 2000) ("The duty to preserve documents in the face of pending litigation is not a passive obligation."). So a sanction of some sort is appropriate, although not so harsh as limiting ChampionsWorld's damages to recovery of the sanctioning fees alone or precluding Plaintiff from presenting testimony about events after September 2004. Nor should Defendants be allowed to draw an adverse inference from the absence of the emails and accounting records without any evidence that they were destroyed in bad faith. See Wiginton v. CB Richard Ellis, 02 C 6832, 2003 WL 22439865, at *7 n.6 (N.D. Ill. Oct. 24, 2003). That leaves the remedy of instructing the jury that ChampionsWorld failed to take appropriate steps to preserve information relevant to the litigation, and ...


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