Court Awards Sanctions Against Diageo in Jackson Family Wines Lawsuit

In late 2011, Jackson Family Wines filed a compliant against Diageo North America after Jackson issued a cease and desist letter that Diageo stop use of one of Diageo’s marks in August 2011. See, e.g., Jackson Family Wines Sues Diageo Over La Crema Trademark. The complaint argued that the Crème de Lys brand, wine selected by Diageo Chateau & Estate Wines, infringed upon Jackson’s La Crema brand. Further, the complaint named Jennifer Josephson, a director of Consumer Planning for Diageo North America, as the “conduit” between the marketing team of Diageo and a third-party market research group, Northstar Research Partners LLC, that conducted focus groups for the selection of the Crème de Lys brand. According to Courthouse News Services, Ms. Josephson made an inquiry to Northstar as to why some focus group participants apparently voiced potential confusion with La Crema but such was not included in Northstar’s report to Diageo. See Sanctions Ordered in Wine Trademark Spat. 

In March 2012, Jackson served Diageo with document requests for production of all documents concerning the “‘selection, adoption, and/or use’ of the Crème de Lys mark.” See Jackson Family Wines, Inc., et al., v. Diageo North America, Inc. et al, No. 11-5639, N.D. Calif.; 2014 U.S. Dist. LEXIS 19420. Although Diageo had IBM copy (or image) Ms. Josephson’s work-provided laptop in 2011 after Ms. Josephson left Diageo, Diageo followed its standard policy for departed employees and deleted the hard drive in August 2012, eight months after the commencement of Jackson’s lawsuit. Diageo, however, did not reveal the destruction of Ms. Josephson’s laptop until a court-ordered Rule 30(b)(6) deposition on the preservation of Ms. Josephson’s documents in December 2013. “This involuntary disclosure occurred six months after Defendants discovered a ‘gap’ in their production of Josephson’s documents, and five months after they represented to the Court that ‘every single document’ for Ms. Josephson had been produced.” Id. Thereafter, Jackson moved for sanctions against Diageo’s spoliation and requested an adverse inference instruction for the trial on the case (which is to commence next month). Diageo argued that sanctions were not appropriate because: (1) Diageo acted in good faith when deleting the hard drive; (2) the deletion of the hard drive did not prejudice Jackson; and (3) Jackson’s own conduct precluded sanctions.

While Diageo argued that it acted in “good faith” and lacked culpability because the company was not aware that there might be documents of relevance on Ms. Josephson’s laptop, the Court was not persuaded. Pointing to Ms. Josephson’s role with Diageo, and Diageo’s own admittance of such, the Court was skeptical to find that the work of such an employee could not “at least [be] potentially relevant” from the point in time when litigation was reasonably anticipated (e.g., when Jackson first sent a cease and desist letter in mid-2011). Further, the Court reasoned that, despite being on notice that the documents were potentially relevant, Diageo failed to intervene with its own internal document retention policy and issue a litigation hold. The Court determined that, due to Diageo’s knowledge of Ms. Josephson’s role and her connection to Jackson’s claim—coupled with Diageo’s continued representation to the Court that every document in Ms. Josephson’s custodial file had been produced and the Court’s finding that the destroyed evidence contained relevant documents—Diageo’s failure to preserve her documents was willful spoliation. Id. at 11.

Spoliation sanctions are generally determined on a case-by-case basis. In determining what spoliation sanction to impose (the adverse inference instruction), courts generally consider three factors: (1) the degree or severity of fault of the party that altered or destroyed the evidence at issue; (2) the level of prejudice which the opposing party suffers; and (3) whether a lesser sanction is available to avoid substantial unfairness to the opposing party. Diageo argued that Jackson did not suffer prejudice because Diageo strongly believed Jackson received every relevant document concerning the focus groups and Ms. Josephson, either from Northstar or other custodians. While the Court was convinced that a large capacity of Ms. Josephson’s documents were produced by other custodians and Northstar, the Court reasoned that there was no way Jackson could represent, with complete confidence, that every relevant document had been produced.  Id. at 12. Additionally, the Court found that:

[A]lthough it is difficult, if not impossible, to identify what relevant documents are completely missing, and to what degree those documents would affect the outcome of this case, the Court finds it equally challenging—in light of Defendants’ efforts to conceal the spoliation—to conclude that the entire universe of relevant documents has been produced . . . . If Defendants had nothing to hide, then why did they willfully conceal the spoliation from the Plaintiffs and the Court? Because Defendants have not provided an answer to that question, they cannot defeat the presumption of prejudice. Id. at 12–13.

The Court decided that, given the combination of Diageo’s fault for destruction, the likelihood of prejudice, and the void of lesser sanctions, an adverse inference instruction was appropriate. Id. at 14. The Court’s proposed instructions to the jury are as follows:

Defendants Diageo North America, Inc. and Diageo Chateau and Estate Wines failed to preserve the only copy of witness Jennifer Josephson’s laptop hard drive after their duty to preserve arose. The hard drive may have contained emails, notes, and other documents relating to focus group sessions concerning the proposed mark that eventually became CRÈME DE LYS. Whether this fact is important to you in reaching a verdict in this case is for you to decide. Id.

In its instruction, the Court proposed a modified version of Jackson’s proposed instructions, reasoning that the instructions relay to the jury the Court’s findings regarding spoliation. The Court asserted that a harsher sanction would be improper given the “voluminous” evidence that Diageo did, in fact, produce. Id. The Court awarded monetary sanctions against Diageo, to be determined after the impending trial. See Magistrate Judge Imposes Adverse inference, Monetary Sanctions For Spoliation. 

Awarding sanctions does not necessarily mean a default win for Jackson. The trial is still to be litigated, and, because the adverse inference instruction speaks namely to Ms. Jennifer Josephson, much will depend on whether the jury finds Ms. Josephson to be an essential witness to the original suit. However, should the jury find Ms. Josephson to be an important witness, the adverse inference instruction does allow a jury to infer that the destroyed evidence would have been adverse to the destructive party.

Do you think the jury will find Ms. Josephson to be an important witness? Throughout the course of litigation, Diageo argued that she was a minor player in the development of its Crème de Lys brand (i.e., “‘limited and circumscribed role’ in the development of the brand”). Jackson Family Wines, Inc., et al., v. Diageo North America, Inc. et al at 12.