United States: Magistrate Judge Recommends Default Judgement Following "Cautionary Tale" Of Discovery Fraud

Last Updated: May 20 2019
Article by Clyde A. Shuman

A New York federal magistrate judge recommended entry of default judgment against three related defendants in a trademark dispute, as sanction for improper discovery conduct, calling the case "a cautionary tale about how not to conduct discovery in federal court."

In Abbott Laboratories et al. v. Adelphia Supply USA et al., case number 1:15-cv-05826 (E.D.N.Y.), the judge found that defendants H&H Wholesale Services, Inc., Howard Goldman, and Lori Goldman, actively withheld discovery, amounting to fraud. In particular, per the court, the "approximately 6,000 responsive documents" that supposedly existed for a particular calendar year were "clarified to "6,000 pages," not 6,000 responsive documents. On that basis, the court directed the H&H defendants to produce documents only for that year. A month later, H&H produced 314 documents amounting to 2,034 pages.

The court found that the Court finds that the H&H defendants materially misrepresented the number of responsive documents/pages to the Court, which facilitated their objective: the Court's modification of its Order to limit their search for responsive documents. The court also found that H&H used search terms it knew would produce a limited number of hits—and specifically removed incriminating documents, including those involving its owner and President, Howard Goldman, and his wife and employee, Lori Goldman.

The court found testimony from H&H's general manager regarding discovery difficulties "clearly inconsistent if not perjured from his deposition" opposing the sanctions motion, said that Howard Goldman's testimony was "evasive and self-serving at best" and H&H's corporate representative's testimony was "clearly perjured."
The court found H&H's attempt to shift blame to its former counsel "unconvincing at best," and said that, that even if the discovery misconduct was the attorney's fault, the company is still responsible.

The court noted that H&H's fraud would have succeeded had Abbott not been allowed to seize H&H's computers as part of a related counterfeiting case, which allowed previously withheld documents to be uncovered. According to the court, "H&H only complied with the court's orders and their discovery obligations when their backs were against the wall. Their email server had been seized. There was no longer an escape from responsibility for their bad faith conduct ... But for being caught in a web of irrefutable evidence, H&H would have profited from their misconduct."

In discussing the decision to recommend entry of default judgment as a discovery sanction, the court noted that the fraud by the H&H defendants "was not an isolated instance of perjury or one withheld document, rather it was a calculated pattern of pervasive misconduct that started early on and continued even after defendants were caught red-handed. H&H's misconduct was egregious... But for the seizure of the server in [the related case], H&H's fraud upon the court may never have come to light."
The overall litigation by Abbott involves suit against hundreds of distributors and pharmacies for trademark diversion. Abbott seeks to stop the U.S. sale of its FreeStyle blood glucose test strips that are intended to be used in other countries. Abbott claims the defendants capitalized on pricing differences and received undeserved reimbursement payments from insurance companies, costing it millions of dollars.

Separately, Abbott has accused H&H of selling its test strips repackaged into counterfeit U.S. boxes. That case, in the same court, is currently in discovery.

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