A federal judge from the Northern District of Illinois has sanctioned ChampionsWorld LLC for failing to preserve evidence that might have been considered in its long-running antitrust action against the United States Soccer Federation and Major League Soccer.
The court said it would instruct the jury that ChampionsWorld, a former promoter of international professional men’s soccer matches, “failed to take appropriate steps to preserve information relevant to the litigation.”
At the same time, the court denied the plaintiff’s motion for sanctions against defendants MLS and USSF and the law firms that were representing the defendants — Proskauer Rose LLP and Latham & Watkins LLP.
ChampionsWorld LLC sued the USSF and Major League Soccer on May 2, 2006, claiming that the Federation took advantage of ChampionsWorld by charging exorbitant fees and favoring the plaintiff’s competitor, MLS. Specifically, ChampionsWorld alleged that, “through such anticompetitive, fraudulent, and extortionate acts, Defendants caused ChampionsWorld severe financial harm ultimately leading to bankruptcy.”
Despite the bankruptcy, ChampionsWorld’s reorganization plan provided for the commencement and prosecution of its lawsuit as its only remaining material asset, to be liquidated and distributed among its creditors.
The court wrote in an opinion last year that denied the defendants’ motion for a judgment on the pleadings (summarized in Vol. 7, Iss. 16 of Sports Litigation Alert) that “the heart of the controversy is the question of whether the USSF has the authority to oversee professional, as well as amateur, soccer in the United States. The USSF claims that it has this power. ChampionsWorld argues that USSF improperly arrogated this power to itself and used it to unreasonably restrain trade, extract over $3 million in arbitrary and ‘back-breaking’ fees from ChampionsWorld and to cause it many millions more in damages, substantially contributing to ChampionsWorld’s demise. ChampionsWorld LLC, v. United States Soccer Federation, INC., et al.; N.D.Ill.; Case No. 06 C 5724, 2010 U.S. Dist. LEXIS 73253; 7/21/10).
“ChampionsWorld alleges that USSF’s actions were part of an anticompetitive scheme to create a window of exclusivity for MLS by preventing other soccer entities or leagues from applying for first-division status in the United States. ChampionsWorld claims that USSF saw ChampionsWorld as a competitor to MLS because ChampionsWorld’s matches between 2003 and 2005 had triple the attendance of MLS’s matches. ChampionsWorld alleges that USSF organized MLS and underwrote its operations with $5 million in seed money, which was never repaid. ChampionsWorld alleges that USSF and MLS have significant overlapping officers and board members and that the two entities have a ‘historically close and anticompetitive association.'” Id.
The latest opinion surfaced after the parties filed a number of pretrial motions, seeking sanctions against one another for various alleged misdeeds.
“Given the contentious nature of the litigation, it is perhaps not surprising that the parties have become embroiled in various discovery disputes and seek sanctions against one another on several grounds,” wrote the court.
Most notable was the defendants’ allegation that the plaintiff destroyed evidence, including “(1) virtually every email on its servers dated after September 1, 2004; (2) all of its accounting files dated after April 2004; and (3) virtually all of its accountant’s records relating to ChampionsWorld.”
The defendants sought the following possible sanctions: precluding the plaintiff from arguing that it is entitled to recover future lost profits or the lost value of its business, and precluding the plaintiff from relying on testimony regarding events that occurred post-September 2004.
ChampionsWorld claimed that part of the lost data was connected to Lino DiCuollo, who had been a Senior Vice President for Legal and Finance at ChampionsWorld. “DiCuollo now works for MLS, having been hired by that company shortly after the demise of ChampionsWorld,” wrote the court.
Charlie Stillitano, the plaintiff’s CEO, provided an affidavit “explaining that in the early fall of 2004, after ChampionsWorld retained Pryor Cashman, he, DiCuollo, and the company’s outside general counsel had lunch with attorneys from the firm and were instructed to preserve all documents related to the lawsuit. Stillitano told outside counsel that the company had a 100 percent document retention policy in place and nothing would be destroyed.”
In its analysis of the evidence, the court admitted that “circumstances make it difficult for the Court both to understand what happened to the information and to assign responsibility.
“Nonetheless, the Court finds that the defendants have been prejudiced by ChampionsWorld’s failure to preserve certain documents from 2004 and early 2005.” At the same time, “the court cannot find that ChampionsWorld acted willfully or in bad faith because there is nothing to indicate the company destroyed records to hide adverse information. Trask-Morton v. Motel 6 Operating L.P., 534 F.3d 672, 681 (7th Cir. 2008).
“But bad faith is not a prerequisite to the imposition of sanctions. Marrocco v. Gen. Motors Corp., 966 F.2d 220, 224 (7th Cir. 1992). Fault is enough, and Stillitano and ChampionsWorld’s outside counsel should have done more to ensure the documents were preserved, rather than relying on what was apparently a verbal ‘100 percent document retention policy.’ See Danis v. USN Communs., Inc., No. 98 C 7482, 2000 U.S. Dist. LEXIS 16900, 2000 WL 1694325, at *32 (N.D. Ill. Oct. 20, 2000) (“The duty to preserve documents in the face of pending litigation is not a passive obligation.”). So a sanction of some sort is appropriate, although not so harsh as limiting ChampionsWorld’s damages to recovery of the sanctioning fees alone or precluding Plaintiff from presenting testimony about events after September 2004. Nor should Defendants be allowed to draw an adverse inference from the absence of the emails and accounting records without any evidence that they were destroyed in bad faith. See Wiginton v. CB Richard Ellis, 02 C 6832, 2003 U.S. Dist. LEXIS 19128, 2003 WL 22439865, at *7 n.6 (N.D. Ill. Oct. 24, 2003). That leaves the remedy of instructing the jury that ChampionsWorld failed to take appropriate steps to preserve information relevant to the litigation, and that as a result, most of its emails dated after September 1, 2004, its Quickbooks files dated after April 2004, and most of its outside accounting firm’s records were destroyed. The Court agrees to so instruct the jury, but declines to impose any further sanctions, monetary or otherwise, on ChampionsWorld.”
Among the other motions the court considered was the plaintiff’s motion to disqualify defense counsel “on the basis of a June 2006 interview with DiCuollo conducted by attorneys for MLS from the law firm of Proskauer Rose LLP.
“In March, this Court directed Proskauer to turn over its notes from the meeting over its objection. The interview of DiCuollo by Proskauer attorneys is documented in an 11-page internal memorandum dated June 29, 2006. ChampionsWorld contends the memorandum shows that Proskauer deliberately elicited privileged information from DiCuollo, and that both Proskauer and counsel for USSF, Latham & Watkins LLP, must be disqualified because this information has tainted the proceedings. Specifically, ChampionsWorld contends that DiCuollo was the source of the defendants’ theory that misguided business strategies, and not the USSF sanctioning fees, drove ChampionsWorld into bankruptcy.
“The defendants contend that it was legally permissible for attorneys for MLS to interview a former employee of its adversary and that DiCuollo was warned not to reveal privileged information. Further, they argue that DiCullo’s role within ChampionsWorld was largely business, not legal, circumscribing the scope of the plaintiff’s privilege claim.”
The court essentially agreed finding that “ChampionsWorld has not shown that the interview tainted these proceedings or provided Defendants with an unfair advantage so as to require the extreme sanction of disqualification.”
Championsworld, LLC, v. United States Soccer Federation, et al.; N.D. Ill.;
Case No. 06 C 5724, 2011 U.S. Dist. LEXIS 91883; 8/17/11.
Attorneys of record: (for plaintiff) Ronald Hanley Balson, LEAD ATTORNEY, Carrie A. Hall, Michael Best & Friedrich, Chicago, IL; Jamie M. Brickell, Maryaneh Simonian, William Laurence Charron, Pryor Cashman L.L.P., New York, NY; Jolanda B Krawczyk, Michael Best & Friedrich LLP, Chicago, IL. (for defendant United States Soccer Federation, Inc.) Casandra Leann Thomson, LEAD ATTORNEY, Adam Wright, Charles H. Samel, Michael Elisofon, PRO HAC VICE, Russell F. Sauer, Jr., Latham & Watkins LLP, Los Angeles, CA; Christopher S. Yates, PRO HAC VICE, Latham & Watkins LLP, San Francisco, CA; Livia McCammon Kiser, Barack Ferrazzano Kirschbaum & Nagelberg LLP, Chicago, IL; Terrence Joseph Connolly, Latham & Watkins, LLP, New York, NY; Timothy Bunker Hardwicke, Latham & Watkins LLP (IL), Chicago, IL. (for defendant Major League Soccer, L.L.C.) Bradley I. Ruskin, Jennifer R. Scullion, Scott Arthur Eggers, Proskauer Rose LLP (New York), New York, NY; Catherine J. Spector, Sheri D. Davis, Steven Ross Gilford, Proskauer Rose LLP (70W), Chicago, IL; Colin R. Kass, PRO HAC VICE, Proskauer Rose Llp, Washington, DC; Jason D. Gerstein, PRO HAC VICE, Proskauer Rose LLP, New York, NY; Jordan B. Leader, Proskauer Rose, New York, NY.
