brown wooden gavel on brown wooden table

And the verdict is….

2 September 2011

Spamhaus in a landslide.

The 7th Circuit has issued its opinion in e360 Insight’s case against the Spamhaus Project. E360 Insight, Inc. v. Spamhaus Project, 658 F.3d 637 (7th Cir. 2011). The award against Spamhaus was reduced to $3. That would be a dollar apiece for defamation, tortious interference with prospective economic advantage, and actual damages.

e360 appealed the verdict, claiming that the discovery sanctions that Judge Kocoras imposed were unreasonable. While all the things that laid the groundwork were going on, some people complained that this was all taking too long and that the judge was giving e360 too many chances. But, in its review of the discovery sanctions, the 7th Circuit said, “…we weigh not only the straw that finally broke the camel’s back, but all the straws that the recalcitrant party piled on over the course of the lawsuit.” 658 F.3d at 643. Every single one of those incidents was a straw. The 7th Circuit looked through them all before concluding, “Thus, it is of little consequence whether, as e360 argues is the case here, the conduct that finally drew the district court’s ire can be explained away as a simple negligent mistake. A district court may conclude that one more supposed miscommunication is just another example of a party’s demonstrated inability to take his discovery obligations seriously.” Id.

They continue:

Even more troubling are e360’s supplemental interrogatory responses. When e360 submitted those responses, it implied that its amendments were meant only to rectify defects in its previous responses. In actuality, however, e360 had drastically amended its previous responses. It added sixteen new witnesses, and it increased its damages estimate by a full order of magnitude.

Even setting aside e360’s previous discovery delays, these changes provided powerful evidence that e360 was not engaging in the discovery process in good faith. There is no way that e360 could have believed in good faith that its last-minute disclosure of so many new witnesses and a radically inflated damages estimate was even remotely appropriate, especially as part of its belated effort to comply with a court order compelling discovery. We cannot believe that e360 first learned of all this information in the two weeks between its initial, late, and inadequate responses to Spamhaus’s interrogatories on August 29, 2008, and its amended responses on September 12, 2008. All indications are that this late disclosure was meant to prolong discovery and inflict additional costs on Spamhaus by forcing it to request additional time to depose those witnesses and learn the details of the inflated new damage estimate. e360 only reinforces this suspicion by arguing to us that its failure to comply with the district court’s July order “could have been remedied by allowing Spamhaus to conduct any [additional] discovery it felt necessary.”

With this track record, no reasonable person could conclude that the district court’s sanctions were too severe.
658 F.3d at 643-44.

So, all of that stuff that everyone slogged through wasn’t for naught. This, my friends, was the payoff. And, for any attorneys reading this, perhaps a practice note should be that you don’t substantially change your interrogatory responses and claim that you’re just correcting a couple of defects. You lose credibility when you do that.

Also of significance, e360 appealed some rulings on the damages prove-up. First was the ruling that David Linhardt was not an expert and was an unreliable witness. Much of this was based upon the constant flux in Linhardt’s damage estimates at trial and how that meant that (a) he wasn’t much of an expert and (b) he wasn’t even reliable as a lay witness. e360 didn’t appear to say much about the reliability issue but instead turned on the ruling that he was not an expert. They agreed that he was a lay witness and argued that the district court should have allowed his testimony in because he was held to the wrong standard (since he’s not an expert, you see). The panel deftly sweeps that away by stating, “e360’s argument misses the point. The district court gave Linhardt’s testimony no weight because he was not credible.” 658 F.3d at 647.

Finally, the panel looks at the actual award. There, they decided that Judge Kocoras erred by granting damages based upon gross revenue rather than profit.

The real practice note for attorneys comes from the Conclusion:

By failing to comply with its basic discovery obligations, a party can snatch defeat from the jaws of certain victory. After our earlier remand, all e360 needed to do was provide a reasonable estimate of the harm it suffered from Spamhaus’s conduct. Rather than do so, however, e360 engaged in a pattern of delay that ultimately cost it the testimony of all but one witness with any personal knowledge of its damages. That lone witness lost all credibility when he painted a wildly unrealistic picture of e360’s losses. Having squandered its opportunity to present its case, e360 must content itself with nominal damages on each of its claims, and nothing more. We VACATE the judgment of the district court and REMAND this matter with instructions to enter judgment for the plaintiffs in the amount of three dollars.
658 F.3d at 648.

As Laura Atkins states, “that case may finally be over.”

And the verdict is….

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And the verdict is….

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