Federal judge hits Plantronics with $3M sanction for destruction of evidence in GN suit

U.S. District Court Judge Leonard P. Stark (contributed photo)
U.S. District Court Judge Leonard P. Stark (contributed photo)

SANTA CRUZ—A 4-year-old lawsuit against Plantronics by one of its top global competitors took a sharp and costly turn this month when a federal judge levied $3 million in sanctions on the local headset maker for destroying thousands of emails and failing to take sufficient steps to recover them for the case.

In the underlying case, GN Netcom, which makes the Jabra headset, accuses Plantronics of monopolization and interference with business relations. GN Netcom claims Plantronics has been violating federal anti-trust law and unfairly limiting competition by preventing independent dealers from marketing competing products.

Sanctions this month arose from the destruction of thousands of Plantronics emails potentially relating to the case by the head of sales, Don Houston, a vice president and a member of the company’s 12-person executive committee. Houston deleted many of his own emails and told his team to do the same. Houston did this despite the company’s litigation hold for documents and additional training sessions about compliance for Plantronics employees.

According to a redacted version of the judicial order released July 12, a month after the original lawsuit was filed in 2012, Houston replied to an email by saying, “Team, please be careful about competitive statements like what was said below. I would suggest everyone immediately delete this message. thanks.” Two other employees deleted emails at his request.

About a year later, Houston replied to an email chain with, “Given the sensitive nature of this issue and the ongoing legal issues please delete this entire string of emails for everyone that has been copied ASAP!”

Experts estimated that Houston deleted more than 40 percent of his emails from Nov. 18, 2013 through Feb. 19, 2014, deleting them from his legal folder and again from his deleted files folder.

During the investigation, Houston initially said he didn’t remember deleting the emails. He later said that he wasn’t attempting to suppress or withhold evidence from GN, but was concerned about inappropriate or “sloppy” language in the emails that would reflect poorly on Plantronics. He noted that he thought the IT department saved all emails.

“Houston was concerned specifically with the underlying email discussion focused on whether distributors in its POD (Plantronics Only Distribution) program could sell products from GN (Jabra),” said U.S. District Court Judge Leonard Stark.

The deletions were originally discovered by Plantronics’ own counsel but the breadth of the destruction was not made clear to the opposing side and the judge was not happy with Plantronics’ effort to make things right.

“Even after knowing that Mr. Houston and at least two other Plantronics employees had deleted emails in violation of the litigation hold, counsel for Plantronics told counsel for GN that GN was ‘incorrect to assume deletion,’” Stark said.

Also in 2014, another Plantronics senior manager, Lee Bradley, called members of the sales team to remind them to use code words to refer to competitors, such as “zebra” for GN.

Stark pinned a “high degree of fault” on Plantronics and cited “its bad-faith intent to deprive GN of responsive documents, and the prejudice it has caused to GN’s case — along with the difficulties it has created for GN in ‘getting to the bottom of the deletion story’ and its (at times) unwillingness to acknowledge wrongdoing — further merit punitive monetary sanctions.”

Houston who had testified that he had been “docked compensation of $50,000 for not following the legal hold and instructions from the company, said later at the sanctions hearing in May that he had incurred “about $1 million of financial penalty,” including the elimination of an equity award, an option, a restrictive grant, a bonus, and a raise potential.

The judge said in his opinion that the $3 million sanction was “treble the approximate amount of the financial penalty Plantronics imposed on Mr. Houston personally.”

Plantronics will have to foot the bill for GN’s 18-month investigation into the deletions. And, since there is no way to recover all the documents and know what they contained, if the case goes to trial, the judge will let the jury consider the destroyed emails in deliberations.

Plantronics said in a press release that the sanctions could possibly be appealed, but it would set aside about $5 million this quarter.

“The company also believes that the underlying antitrust action is without merit and intends to defend itself vigorously,” Plantronics announced in a press release. The company is in its “quiet period” before reporting quarterly earnings on Aug. 2 and declined further comment this week.

 

GN Netcom v. Plantronics

WHAT: GN Netcom, a Danish global company that makes the Jabra headset, accuses Santa Cruz-based headset maker Plantronics of monopolization and interference with business relations. GN claims Plantronics has been violating federal anti-trust law and unfairly limiting competition by preventing independent dealers from marketing competing products. Plantronics “vigorously” denies all claims.

WHEN: GN filed suit in U.S District Court in Delaware in 2012.

SANCTIONS:

• Monetary sanctions in the form of the reasonable fees and costs incurred by GN in connection with the disputes leading to the order.

• Punitive sanctions against Plantronics in the amount of $3 million.

• Possible evidentiary sanctions, if requested by GN Netcom and found by the Court to be warranted as this case progresses toward trial.

• Instructions to the jury that it may draw an adverse inference that emails destroyed by Plantronics would have been favorable to GN’s case and/or unfavorable to Plantronics’ defense.

FROM THE ORDER BY U.S. DISTRICT COURT JUDGE LEONARD STARK

“It is undisputed that thousands of Mr. Houston’s emails ‘should have been preserved in the anticipation or conduct of litigation,’ were ‘lost,’ and ‘cannot be restored or replaced through additional discovery.’”

“Moreover, the timing of Mr. Houston’s emails instructing others to delete the underlying email chains strongly suggests an intent to deprive GN of discovery, as one of his emails was sent just one month after this lawsuit was filed, and another was sent just one week after Plantronics’ motion to dismiss was denied — at which point the commencement of fact discovery was imminent.”

“In the highly fact-specific, contextualized, complex circumstances of this antitrust case between two competitors, contrasting though reasonable inferences may be drawn from almost any piece of evidence. Even the instruction from Mr. Houston to delete emails may be viewed by a reasonable jury as part of a massive cover-up to hide antitrust violations Plantronics knew it was guilty of, or, alternatively, as merely a misguided fear that innocuous, pro-competitive conduct might be misunderstood by a competitor (and ultimately a fact finder) to be improper.”

“Moreover, the Court is not convinced that Plantronics took all the reasonable steps it could have taken to recover deleted emails after discovering that Mr. Houston had instructed others to delete emails.”

“In the context of a hotly-contested antitrust lawsuit between fierce competitors, such repeated instruction from a high-level executive who has ultimate responsibility for the allegedly anti-competitive program that is at the center of this case, the Court can only conclude that at least part of Mr. Houston’s motivation was also to deprive GN of discovery to which it was entitled.”

“In light of all this evidence, including Plantronics’ repeated obfuscation and misrepresentations related to Mr. Houston’ s email deletion and its investigation of it, the Court finds that Plantronics did act in bad faith, “intend[ing] to impair the ability of the other side to effectively litigate its case.”

GN Press Release

Plantronics Press Release

This article was published in the Santa Cruz Sentinel.

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