Name of Assigned Judge James F. Holderman Sitting Judge if Other or Magistrate Judge than Assigned Judge
The court adopts the Report and Recommendation of Magistrate Judge Mason  in full. Accordingly, UCF's renewed motion for discovery sanctions  is granted in part and denied in part. At trial, the jury will be instructed as follows: "YCB and CMC had a duty to preserve all documents and electronically stored information related to the claims and defenses in this litigation beginning in December 2008, but did not do so. As a result, written documentation of the testing CMC claims it performed on the Ruili bearings has been destroyed." In addition, YCB and CMC are ordered to pay UCF $1,000.00, and to pay the Clerk of Court $1,000.00. Those payments should be made by August 8, 2012. Finally, YCB shall forthwith produce any non-privileged documents contained within the black binder referenced during Mark Liu's deposition in accordance with the order of Magistrate Judge Mason.
O[ For further details see text below.] Docketing to mail notices.
In its Amended Complaint, YCB International, Inc. ("YCB") alleges that UCF Trading Co. ("UCF") failed to pay for bearings that YCB delivered to UCF. (Dkt. No. 70.) In response to the allegations against it, UCF filed a counterclaim against YCB and a third-party claim against Yantai CMC Bearing Co. ("CMC"), YCB's parent company, alleging that YCB and CMC are both liable for providing "counterfeit" bearings from another manufacturer when the contract required them to manufacture the bearings themselves, unless they received written permission from UCF. (Dkt. No. 33.) UCF alleges that YCB and CMC obtained the bearings they sent to UCF from a third party, Ruili Bearing Co. ("Ruili"), and that the Ruili manufactured bearings are inferior in quality to those YCB and CMC should have supplied. (Id. ¶¶ 54, 59.)
The parties are currently engaged in a discovery dispute focusing on the scope of YCB and CMC's duty to preserve and produce records of the quality inspections that they assert they performed on the Ruili-manufactured bearings before sending them to UCF in 2004 through 2008. According to YCB and CMC, those tests show that the Ruili-manufactured bearings are of the same quality as those they would have manufactured themselves. After multiple failures to produce those documents despite several court orders requiring production (See Dkt. No. 237, at 5-7), CMC employees revealed at their depositions that all of the inspection reports for years prior to 2010 had been destroyed. (Id. at 7-9.)
UCF moved for sanctions against YCB and CMC, contending that they failed to implement a proper litigation hold to preserve relevant documents, and that they improperly destroyed the records of the quality inspections. (Dkt. No. 185.) UCF requested that the court dismiss CMC's and YCB's claims with prejudice, bar YCB and CMC from presenting evidence that they inspected the Ruili-manufactured bearings, or enter an adverse-inference jury instruction because of the destruction of those documents. UCF also requested an award of its attorney's fees incurred in connection with its motions for sanctions and its motions to compel.
In a thirty-page opinion, Magistrate Judge Mason recommended that this court grant UCF's motion in part and deny it in part. (Dkt. No. 237.) Magistrate Judge Mason recommended that the court deny UCF's requests to dismiss YCB's and CMC's claims, to bar them from presenting evidence, and to give an adverse inference instruction, and instead instruct the jury as follows:
YCB and CMC had a duty to preserve all documents and electronically stored information related to the claims and defenses in this litigation beginning in December 2008, but did not do so. As a result, written documentation of the testing CMC claims it performed on the Ruili bearings has been destroyed.
Magistrate Judge Mason also recommended that the court deny the request for attorney's fees, but instead order YCB and CMC to pay UCF $1,000, and to pay the Clerk of Court $1,000. Finally, Magistrate Judge Mason ordered YCB to produce any non-privileged documents contained within a black binder referenced during Mark Liu's deposition that YCB had previously refused to produce.
Magistrate Judge Mason's thoughtful, comprehensive, and well-reasoned opinion, including its recitation of the tortuous discovery history of this case, provides ample support for his recommendations. The court will therefore adopt Magistrate Judge Mason's opinion in full. The court will also, however, provide a further discussion of some of the objections that both sides raise to Magistrate Judge Mason's recommendations.
Magistrate Judge Mason's report and recommendation found that YCB and CMC breached their duty to preserve documents (Dkt. No. 237, at 20-21), but limited the severity of the sanctions it imposed because UCF did not show that it suffered substantial prejudice from the breach (id. at 22-29). First, UCF contends that the severity of YCB and CMC's conduct and particularly their repeated disregard for Magistrate Judge Mason's discovery orders (see id. at 21) justify more severe sanctions without a consideration of prejudice. (Dkt. No. 239, at 3-6.) As Magistrate Judge Mason explained, however, before imposing a severe sanction the court must consider "what effect-if any-the challenged conduct has had on the course of the litigation." Barnhill v. United States, 11 F.3d 1360, 1368 (7th Cir. 1993). Moreover, "[a]n award of sanctions must be proportionate to the circumstances surrounding the failure to comply with discovery." Langley v. Union Elec. Co., 107 F.3d 510, 515 (7th Cir. 1997) (citations and quotation marks omitted). The circumstances to be considered include the presence or absence of prejudice. See ...