Scantibodies Laboratory, Inc. v. Church & Dwight Co., Inc.

Filing 254

MEMORANDUM OPINION AND ORDER re: 245 LETTER MOTION to Seal Document 244 Declaration, addressed to Judge John G. Koeltl from Rishi Bhandari dated December 22, 2016, filed by Scantibodies Laboratory, Inc., ABC. The Court adopts the Report and Recommendation of the Magistrate Judge dated November 4, 2016. The Clerk is directed to close ECF Docket Nos. 234 and 245. (Signed by Judge John G. Koeltl on 2/14/2017) (tro)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
────────────────────────────────────
SCANTIBODIES LABORATORY, INC.,
14-cv-2275 (JGK)
Plaintiff,
- against -

MEMORANDUM OPINION AND
ORDER

CHURCH & DWIGHT CO., INC.,
Defendant.
────────────────────────────────────
JOHN G. KOELTL, District Judge:
On November 4, 2016, Magistrate Judge Debra Freeman issued
a Report and Recommendation in which she recommended a series of
sanctions and remedial actions against the plaintiff,
Scantibodies Laboratory, Inc., and its counsel, Mandel Bhandari,
LLP. The sanctions were designed to cure a series of discovery
abuses by Mandel Bhandari that had occurred in the litigation,
including false or misleading statements to the Court and the
failure to produce documents in a timely fashion or at all.

The

remedial actions included permission for the defendant, Church &
Dwight Co., Inc., to reopen discovery to take additional limited
depositions, and to serve additional document requests and
interrogatories.

The Court also allowed the defendant to serve

an amended report by its damages expert.

The Court also

assessed reasonable attorney’s fees and costs against the
plaintiff and its counsel to reimburse the defendant for the

cost of certain discovery motions, for conducting new discovery,
and for preparing the revised expert report.
The plaintiff and its counsel filed no Objections to the
Report and Recommendation.

Rather, the defendant filed thirty

pages of Objections in a brief listing five attorney authors and
supported by three volumes of exhibits.

The gist of the

Objections is that the Magistrate Judge did not go far enough.
Rather, the defendant argues that the Magistrate Judge should
have precluded the plaintiff from offering any evidence with
respect to damages or should have required an adverse inference
instruction before the jury with respect to the various disputed
items of discovery.
The Objections are plainly an example of overreaching
wholly unjustified by the record.

The Objections are an attempt

to obtain a windfall from discovery failures that can be
reasonably cured by the tailored and wise remedies and sanctions
recommended by the Magistrate Judge.

The Magistrate Judge chose

to issue a Report and Recommendation because of the possibly
dispositive nature of the relief sought by the defendant.

The

Court has reviewed the Report and Recommendations de novo in
light of the Objections.

See Fed. R. Civ. P. 72(b).

The Court

finds the Report and Recommendations to be well reasoned and
correct and adopts them.

The sanctions motion is therefore

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decided as indicated at Pages 87-88 of the Magistrate Judge’s
November 4, 2016 Report and Recommendations.
What has been written so far is sufficient to dispose of
the Objections, but a few further observations are in order
because this case will continue through some further discovery
to be followed by possible dispositive motions and trial.
The gist of this lawsuit is a claim by Scantibodies that
Church & Dwight breached agreements pursuant to which
Scantibodies manufactured and packaged Pregnancy Test Kits for
Church & Dwight.

Scantibodies initially claimed that it

suffered $20 million in damages, of which $16 million was lost
profits.

The discovery abuses by the plaintiff appear to relate

to failures involving representations about the calculation of
damages and supporting documentation, particularly the lost
profits figure and efforts at mitigation.

It is also apparent,

as the plaintiff concedes, that part of the problems encountered
by the plaintiff were caused by its failure to hire a damages
expert sufficiently early in the discovery process and an
apparent effort to develop a damages theory without the support
of an expert.
In any event, the plaintiff did produce an expert report on
April 8, 2016, far along in the discovery process and after the
sanctions motion had been filed.

That report reduced the lost

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profits figure to $10.7 million – more than $5 million less than
the plaintiff had otherwise been seeking.
Rather than cheering this substantial reduction in damages,
the defendant wants to preclude the plaintiff from offering any
damages evidence because of the late production of documents or
the alleged failure to produce certain documents.

The

Magistrate Judge thoroughly considered all of these arguments
and adopted reasonable remedial measures and sanctions,
including the ability of the defendant to have its expert update
its report in response to the plaintiff’s belated expert
analysis after additional discovery, all to be taken at the
expense of the plaintiff and its attorneys.
The Magistrate Judge’s resolution is particularly
appropriate because it appears that some of the discovery sought
by the defendant does not appear to have been “proportional to
the needs of the case,” considering various issues including
“the importance of the discovery in resolving the issues.”

Fed.

R. Civ. P. 26(b)(1); see In re Bard IVC Filters Prod. Liab.
Litig., 317 F.R.D. 562, 566 (D. Ariz. 2016).

An area of dispute

between the parties was the proper calculation of Selling,
General & Administrative (“SG&A”) expenses to be attributed to
the production of the Pregnancy Test Kits so that a proper
calculation could be made of the lost profits.

The Magistrate

Judge indicated, however, that the defendant was claiming

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discovery abuse for the failure to produce documents that the
Magistrate Judge never ordered to be produced and whose
production would plainly be harassing: “[T]his Court has never
granted Defendant unlimited discovery into every invoice or
receipt maintained by Plaintiff in the course of its business or
into every line item in Plaintiff’s books and records.” (R. & R.
at 44.)

Similarly, the defendant sought sanctions because the

plaintiff did not produce “invoices or accounting entries” that
would show the fees that were charged by a Mexican subsidiary.
(R. & R. at 47.)

The Magistrate Judge rejected the argument

that sanctions were appropriate for failure to produce such
documents: “With respect to Defendant’s demand for ‘books and
records,’ ‘backup documents,’ and ‘underlying information,’
those document categories are overly broad, and the notion that
the Court ordered the production of such generalized categories
of documents does not find support in any of its rulings. . . .
[T]he Court directed Plaintiff to produce documents pertaining
to the allocation of its expenses across its different
departments and product lines - not information regarding every
transaction underlying every expense on Plaintiff’s books.” (R.
& R. at 47-48).
Symptomatic of the defendant’s approach to the discovery
disputes is its search for sanctions based on the failure of the
plaintiff to produce documents showing why in some of the

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plaintiff’s documents there is an assignment of 20% for SG&A
expenses to the Pregnancy Test Kit products.

The plaintiff

argues in its papers that it has been unable to determine the
original rationale for using that figure, although there are
documents that show the 20% figure was calculated.

As it turns

out, the plaintiff’s expert does not rely on the 20% figure, but
rather calculated a significantly lower figure based on his own
analysis.

The defendant’s expert puts the figure at an amount

much higher than 20%, thus reducing the net profit for the
Pregnancy Test Kit product.
the 20% figure.

Neither of the experts relies on

The Magistrate Judge reasonably concluded that

because the defendant “has not explained the nature of the
actual prejudice it has suffered,” the failure to produce
evidence showing how the figure was arrived at in the first
place did not warrant preclusion or other severe sanctions.
& R. at 54.)

(R.

In its Objections, the defendant spends

considerable effort complaining about the failure to explain how
the 20% figure was arrived at and argues that of course it is
relevant because the plaintiff’s expert is using a much lower
figure.

But that is wholly unrealistic.

The defendant’s own

expert has used a figure higher than 20%, and thus it is
unlikely that the defendant would spend much trial time
emphasizing the lower 20% figure, but the documents reflecting
the 20% amount are there if it chooses to use them.

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The

plaintiff is equally limited in its use of the 20% figure
because its expert uses a lower figure and the plaintiff cannot
justify the 20% because it cannot explain its genesis.

The

origin of the 20% figure becomes irrelevant and the Magistrate
Judge was eminently correct in explaining that the defendant has
not shown any prejudice, and it is not entitled to sanctions for
the plaintiff’s failure to explain the origin of the 20% figure.
See generally In re Pfizer Inc. Sec. Litig., 288 F.R.D. 297,
325, 327-28 (S.D.N.Y. 2013).
Ultimately, the defendant has attempted to obtain
unjustified sanctions that go far beyond what is necessary to
remedy the problems that developed in an overly contentious
discovery process and to deter future violations of discovery
obligations.
CONCLUSION
The Court adopts the Report and Recommendation of the
Magistrate Judge dated November 4, 2016.

The Clerk is directed

to close ECF Docket Nos. 234 and 245.
SO ORDERED.
Dated:

New York, New York
February 14, 2017
____________/s/______________
John G. Koeltl
United States District Judge

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