It is pretty rare for a court to sanction a non-party, but in Amerisource Corp. v. Rx USA Int’l Inc., et al.,2010 U.S. Dist. LEXIS 67108 (July 6. 2010), that is exactly what the Eastern District of New York decided to do when faced with serious litigation misconduct. Plaintiff Amerisource filed a motion for sanctions based on the non-party principal of Defendant Rx USA’s fabrication of emails, false and misleading testimony, and failure to correct discovery responses. The Court granted the motion for sanctions and ordered both RxUSA and non-party President and CEO of RxUSA Robert Drucker to pay $50,000 to plaintiff Amerisource as well as an additional $50,000 to the Clerk of the Court.
The facts of the underlying litigation are as follows:
RxUSA, a large retail pharmacy chain, entered into a contract with Amerisource to purchase medicine and supplies for its stores. A dispute arose over pricing, which led to a nine-year multimillion dollar lawsuit for breach of contract, tort, and antitrust claims.
Throughout the litigation, RxUSA maintained that Amerisource had made verbal promises about a discount in prices on medicines—a promise that Amerisource allegedly failed to honor. The only evidence RxUSA used to support this claim were four emails sent between RxUSA President and CEO Robert Drucker and an executive and sales rep at Amerisource. The emails were initially used by RxUSA’s counsel to send a demand letter to Amerisource. Later, when Amerisource moved for partial summary judgment, RxUSA used a sworn affidavit by Drucker that contained the fabricated emails. Relying in part on the fabricated emails, the trial judge subsequently denied partial summary judgment because RxUSA “offered specific evidence including.. (2) correspondence between plaintiff and [d]efendant and between plaintiff and plaintiff’s sales representative, which, if found credible, suggest that plaintiff did in fact promise [d]efendants certain discounts.” The fabricated emails were also produced by RxUSA in response to interrogatories requesting all facts evidencing RxUSA’s claimed discounts.
Amerisource realized that there was something odd about the emails when it received in discovery emails that, but for the altered language about the discount, were identical (including the exact same time stamp evidencing when the messages were sent). In its deposition of Drucker, Amerisource presented two versions of the emails sent by Drucker to Amerisource (one set of emails with the altered language and one without). Drucker stated that both sets of emails were authentic. When asked to explain how two virtually identical emails were sent at the exact same time, Drucker offered that perhaps he had sent the emails within the same minute of each other. Amerisource pressed Drucker to explain why the exact same issue existed in emails sent by Amerisource to Drucker (one email with no language about the discount, the other with the language)—Drucker offered no explanation.
When RxUSA included three of the four emails as trial exhibits, Amerisource moved for a request to conduct supplemental electronic discovery and re-depose Drucker, which the Court granted. After collecting computer data regarding all emails from the relevant time period, Amerisource found no electronic trace to substantiate the validity of the four altered emails. Finally, years after the start of litigation, Drucker admitted at his second deposition that the emails were fabricated, but denied creating them nor having any knowledge of who did.
Amerisource prevailed at trial and was awarded $1.8 million in damages, prejudgment interest and attorneys fees and costs. Amerisource then moved for an additional $2, 798,032.11 in sanctions (the entire cost of the litigation) for the “nine-year odyssey” due to RxUSA’s use of sham documents forged by Drucker.
In granting Amerisource’s motion for sanctions, the Court decided not to impose sanctions under Federal Rule of Civil Procedure 37, noting that the misconduct at issue was “broader than a Rule 37 violation” and instead, the Court used its inherent authority to impose sanctions. The Court noted:
Drucker clearly acted… with the intent to manipulate this litigation and interfere with the Court’s fair adjudication of the matter. Accordingly, his production of and testimony regarding the altered emails is sanctionable as a fraud upon the court.
Id. at *19-20.
Although the Court granted the motion for sanctions, it declined to impose sanctions for the entire amount of Amerisource’s litigation expenses because it found that not all of the litigation expenses were caused by the fraud. The Court also declined to impose the entire cost that Amerisource had expended in pursuing sanctions ($273,376.11) noting that much of its activity, including the use of computer experts, was “unnecessary” and “superfluous” doing “nothing to advance the inquiry.” Nevertheless, the Court felt “compelled to punish and deter such conduct” and thus awarded $50,000 in sanctions against Drucker and RxUSA payable to Amerisource and an additional $50,000 payable to the Clerk of the Court.
The Amerisource case raises important questions about the incentives and disincentives that parties have to pursue sanctions. While it is certainly important to expose litigation misconduct, it is somewhat startling, that in the end, Amerisource was still down at least $223, 376.11 (its legal fees for pursuing sanctions). Although some of Amerisource’s litigation costs may have been unnecessary, often the costs of revealing litigation misconduct in the eDiscovery context will be expensive. This is so because, for example, it is expensive to verify the validity of an email, which often will require the hiring of an expert. It is certainly my hope that it will not be so costly to pursue sanctions that those gaming the system will still have strong incentives for continuing to do so. Here, some will probably argue that RxUSA got off easy by only having to pay $100,000 for its use of fabricated evidence and misleading testimony.