Klipsch Group, Inc. v. ePRO E-Commerce Ltd.

Klipsch sued ePRO over sales of allegedly counterfeit headphones. ePRO failed to impose an adequate litigation hold, custodians deleted files and used unproduced messaging accounts, and the court authorized an independent forensic examination of ePRO's systems to reconstruct what had happened. The examination and related motion practice cost millions. The question was whether making ePRO pay those costs — likely dwarfing the damages at issue on the merits — was an abuse of discretion.

Discovery sanctions may compensate the injured party for the reasonable costs it would not have incurred had its adversary complied with its obligations. The measure is the reasonableness of the corrective efforts when undertaken — judged ex ante, not by what they ultimately uncovered — and there is no rule capping a compensatory sanction at the value of the merits, because the sanction remedies the misconduct, not the underlying claim.

The court walked through what Klipsch's efforts responded to: a hold that was not enforced, custodial deletions, and evasive disclosures that repeatedly proved wrong when tested. Each block of the $2.7 million mapped to a corrective step the district court had found justified when taken, including the forensic examination that established the scope of the deletions. ePRO's argument that the sanction should shrink to match the modest merits value was rejected: the costs were inflicted by ePRO's own conduct, and the party that caused them is the right party to bear them.

Sanction affirmed in full, along with an asset restraint securing it. The opinion is the Second Circuit's clearest statement that a party cannot run up its adversary's discovery costs through evasion and then invoke proportionality to discount the bill — and that a court-supervised forensic examination is a legitimate, compensable response to documented discovery misconduct.