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Slep-Tone Entertainment Corporation v. Granito

United States District Court, Ninth Circuit

January 8, 2014

Slep-Tone Entertainment Corporation and Piracy Recovery LLC, et al., Plaintiffs,
v.
Gary Anthony Granito et al., Defendants.

ORDER

DAVID C. BURY, District Judge.

Pending before the Court is Defendant's Response to this Court's Order to Show Cause (Doc 101) as to why he should not be sanctioned for spoliation as a result of using special software to erase computer hard drives that allegedly contained infringing karaoke accompaniment tracks marked with Plaintiffs' registered trademarks. The Court finds that Defendant Granito's admitted spoliation of evidence has severely impaired the Plaintiffs' ability to litigate the case. The Court finds the Defendant acted willfully in destroying the evidence, which he knew to be especially relevant. The Court finds no lesser sanction than summary judgment to be appropriate. The Court grants summary judgment for Plaintiffs. Defendant's Motion for Summary Judgment fails because it too depends on evidence now destroyed. The Court shall hear from the parties in respect to damages.

I. Overview

This is a trademark and tradedress infringement case. The Defendant is accused of making, acquiring, using, and in some cases selling and distributing unauthorized counterfeit duplicates of karaoke accompaniment tracks that have been marked with the Plaintiffs' registered trademarks and unregistered tradedress.

On June 18, 2013, Defendant filed a Motion for Summary Judgment (Doc 92) asserting that the Plaintiffs have no proof he made, acquired, or used unauthorized counterfeit duplicates of Plaintiffs' karaoke accompaniment tracks on hard drives. In response, Plaintiffs filed a Motion for an Order to Show Cause (OSC) (Doc 94) why the summary judgment should not be entered for them because Defendant deleted the contents of the allegedly infringing hard drives. Plaintiffs assert the Defendant caused the lack of evidence which he cannot now rely on for summary judgment against Plaintiffs. This Court ordered the Defendant to show cause why summary judgment should not be entered against him. (Doc 99). Defendant filed his response to the OSC on August 6, 2013. The Plaintiffs did not reply.

Defendant argues that neither summary judgment nor any lesser sanction should be imposed upon him for spoliation because he did not have a culpable state of mind and acted in good faith to delete the files and erase the hard drives when he found out about the karaoke industry's 1-to-1 correspondence requirement before this lawsuit was filed by Plaintiffs. He further claims to own more than 1, 100 of Plaintiffs' discs, which he purchased for over $20, 000 over the years. He also claims that he never received Plaintiffs' letter that told him to not destroy or modify any hard drive he used in his business. Finally, Defendant argues that the destroyed evidence was not relevant because there is no evidence to show that it was relevant.

Both motions rise or fall together because Defendant Granito's challenges to Plaintiffs' claims hinge on first establishing the karaoke discs being used by Defendant, with or without one-to-one correspondence.[1] For example, Defendant cannot dispute the tradedress claim by asserting it fails based on his review of "a large number of Plaintiffs' discs." Only the discs used by Defendants are at issue, and spoliation of this essential evidence prevents both Plaintiffs and Defendants from establishing their respective positions.

II. Relevant Facts

The companies that make the karaoke accompaniment tracks allow Karaoke Jockeys (KJs) to make a single digital copy of a disc for use in karaoke shows. This is called one-to-one correspondence. Defendant says he was unaware of this industry standard until February, 2012, when he bought a hard drive filled with tracks that had the company trademarks removed. After purchasing the drive, Defendant claims he deleted all of the files off of his drives that were not in compliance using special software to make file recovery difficult, if not impossible. Defendant asserts that after deleting the files from the hard drives, he purchased three certifications from Plaintiff Chartbuster for over $20, 000 worth of Plaintiff's discs.

Prior to filing this lawsuit, Plaintiffs investigated Defendant by attending multiple karaoke shows where Defendant and his operators were working and allegedly using counterfeit versions of Plaintiffs' karaoke accompaniment tracks. Additionally, Defendant sold the hard drive to Plaintiffs' agent with the trademarks removed from the karaoke tracks, which allegedly contained counterfeits of more than 150, 000 karaoke accompaniment tracks, including thousands of counterfeits of the Plaintiffs' karaoke accompaniment tracks. This prompted Plaintiffs to file this lawsuit on April 20, 2012. That same day Plaintiffs attempted to serve Defendant; however, Defendant evaded service and ultimately had to be served through publication. Plaintiffs allege that Defendant received a letter in the mail dated April 21, 2012 that included instructions to not remove or modify any tracks from any hard drives. The letter also included a warning that doing so may result in severe punishment by the Court. Defendant alleges that he never received this letter.

The Court issued the Scheduling Order on November 20, 2012, with a deadline to complete discovery for June 3, 2013. Plaintiffs made discovery requests on May 1, 2013, (Motion for OSC at 2), [2] that asked for the identification and production of computer hard drives and other storage media that contained karaoke accompaniment tracks. Defendant replied in June stating that he could not produce the drives as they had been wiped clean using special software. Defendant agreed to produce hard drives used by his operators. Instead of producing those drives, however, Defendant produced three hard drives he had assembled the day before, which had never been used in a show. Defendant then reiterated that all hard drives had been wiped clean. Defendant also informed Plaintiffs that after he wiped the drives clean, he either repurposed them or discarded them as defective. It appears from the record that Defendant never produced the hard drives, wiped clean or otherwise, used by his KJs. (Motion for OSC, Ex. A: Harrington Decl.)

Defendant alleges he made his hard drive available to the Plaintiffs on June 3, 3013, that contained 1, 100 Sound Choice discs which he had purchased over a period of several years for approximately $20, 000. (Response to OSC (Doc. 101) at 6-7; Granito Affidavit ¶15-16.) According to Defendant, Plaintiff Slep-Tone refused to sell him additional Sound Choice discs because the three sets he proposed to buy would not cover the 20 plus computers being used by his operators and would legitimize a major infringer while creating even more potential infringement. (Response to OSC (Doc. 101) at 7.) One or two months prior to the filing of this law suit, approximately in February, Defendant wiped his computers to remove karaoke tracks because he did not want to retain any tracks that may have been questionable. (Response to OSC, Granito Affidavit ¶ 13-1.) Defendant purchased Chartbuster discs on March 26, 2012, April 30, 2012, and May 9, 2012. Id., Ex. B: Invoices.

III. Discussion: Sanctions for Spoliation

"A party seeking sanctions for spoliation of evidence must prove the following elements: 1) the party having control over the evidence had an obligation to preserve it when it was destroyed or altered, 2) the destruction or loss was accompanied by a culpable state of mind, ' and 3) the evidence that was destroyed or altered was relevant to the claims or defenses of the party that sought the discovery of the spoliated evidence.'" Surowiec v. Capital Title Agency, Inc., 790 F.Supp.2d 997, 1005 (D. Ariz. 2011) (quoting Goodman v. Praxair Servs., Inc., 632 F.Supp.2d 494, 509 (Md. 2009)). Further, while this Court has discretion to impose spoliation sanctions, it "must determine which sanction best (1) deters parties from future spoliation, (2) places the risk of an erroneous judgment on the spoliating party, and (3) restores the innocent party to their rightful litigation position." Surowiec, 790 F.Supp.2d at 1008 (quoting Ashton v. Knight Transp., Inc., 772 F.Supp.2d 772, 804 (N.D.Tex. 2011)).

Once the Court decides to sanction a party for spoliation, it applies a five part test to determine whether a terminating sanction such as summary judgment is appropriate. Anheuser-Busch, Inc. v. Natural Beverage Distribs., 69 F.3d 337, 347 (9th Cir. 1995) (quoting Henry v. Gill Indus., Inc., 983 F.2d 943, 948 (9th Cir.1993)). The Court must weigh: "(1) the public's interest in expeditious resolution of the litigation; (2) the court's need to manage its dockets; (3) the risk of prejudice to the party seeking sanctions; (4) the public policy favoring disposition of cases on their merits; and (5) the availability of less drastic sanctions." Id. Additionally, to impose drastic sanctions such as dismissal, the spoliation must be due to willfulness, fault, or bad faith. Id.

The Court should always impose the least onerous sanction given the extent of the offending party's fault and the prejudice to the party seeking the sanctions. In re Napster, Inc., Copyright ...


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