United States District Court, E.D. Virginia, Norfolk Division
For Kettler International, Inc., Plaintiff, Counter Defendant: John C. Lynch, LEAD ATTORNEY, David Michael Gettings, Troutman Sanders LLP, Virginia Beach, VA.
For Starbucks Corporation, Defendant: Christopher E. Hassell, LEAD ATTORNEY, Craig Lawrence Sarner, Washington, DC; Danielle Christine Loss, Malcolm Donald Schick, Thomas Kelly Cox, LEAD ATTORNEYS, PRO HAC VICE, G & P/Schick, PC, San Diego, CA.
For Starbucks Corporation, Counter Claimant: Christopher E. Hassell, LEAD ATTORNEY, Craig Lawrence Sarner, Washington, DC; Danielle Christine Loss, Malcolm Donald Schick, Thomas Kelly Cox, LEAD ATTORNEYS, G & P/Schick, PC, San Diego, CA.
OPINION & ORDER
Henry Coke Morgan, Jr., Senior United States District Judge.
This matter is before the Court pursuant to Plaintiff Kettler International, Inc.'s (" Plaintiff or " Kettler" ) Motion for Sanctions (" Motion" ). Doc. 35. At a hearing held on January 20, 2015, the Court ruled from the bench and granted the Motion in part, finding that Defendant Starbucks Corporation's (" Defendant" or " Starbucks" ) conduct constituted spoliation, but withheld the imposition of sanctions pending further briefing. Doc. 62. For the reasons set forth herein, the relief sought in the Motion is GRANTED IN PART and DENIED IN PART.
A. Factual Background
This declaratory judgment action arises out of allegedly defective patio furniture sold by Plaintiff to Defendant. From approximately 2009 to 2013, Plaintiff began selling Carlo Model chairs (" Carlo chairs" or " chairs" ) to Starbucks, its agents, and/or its contractors. Compl. at 1, 4. Over the course of this relationship, Starbucks its agents, and/or its contractors ultimately purchased approximately 13, 870 individual Carlo chairs. Doc. 77 at 1. Of these 13, 870 chairs, it was determined that 4, 791 chairs were unaccounted for and had likely been destroyed in the ordinary course of prior store renovations. Id. at 29. The genesis of the present dispute can be traced to January 1, 2011, when Starbucks customer Hae Jee was involved in an accident in a Los Angeles' Starbucks when the leg of a Carlo chair in which she was sitting broke. Doc. 43 at 3. " Between 2011 and 2013, Starbucks received complaints of four (4) alleged personal injuries involving the sudden collapse of a Carlo chair." Id. In a letter dated April 19, 2012, Defendant's third-party claim administrator notified Kettler of Ms. Jee's claim, Doc. 43, Ex. 3 at 62, and the same administrator notified Kettler on August 20, 2012 of a second claim involving another Starbucks customer, Mr. Craig Roberts. Doc. 43, Ex. 4 at 2.
Concerned about the Carlo chair, Starbucks' Legal commissioned SGS North
America (" SGS" ) to test the chair through a " Service Request Form" signed on September 20, 2013, Doc. 71, Ex. 14, and SGS received a sample chair on October 18, 2013. Doc. 43, Ex. 3 at 32. SGS prepared its report on November 11, 2013, which indicated that the Carlo chair failed certain impact tests. Id. It appears that only one chair was tested by SGS, see id (" Sample Description: Outdoor Chair" ), and on the September 20, 2013 " Service Request Form" submitted by Starbucks Legal, Starbucks requested the sample chair be destroyed after thirty days. Doc. 71, Ex. 14. On February 17, 2014, Starbucks and DAVACO, Inc. (" DAVACO" ) entered into a contract for the removal and " recycling" of all Carlo chairs. Doc. 36, Ex. 5 at 2; Doc. 43, Ex. 1 at 1. In fact, Starbucks Legal requested the services. Doc. 36, Ex. 5 at 2. After consulting SGS regarding sample sizes, Starbucks asked DAVACO to set aside and store 200 of the removed chairs. Doc. 43, Ex. 2 at 2. " Starbucks did not ask DAVACO to select the two hundred (200) Carlo chairs to be set aside and stored on the basis of any physical criteria, including any observable defect, quality or characteristic."  Id.
The first chairs were removed on March 17, 2014, id at 3, and while removal of the chairs was ongoing, on April 8, 2014 Starbucks sent Kettler a letter titled " Notice of Breach of Warranty (Commercial Code Section 2607)."
Kettler Intern., Inc. v Starbucks Corp., 55 F.Supp.3d 839, 2014 WL 5461842, at *2 (E.D. Va. October 21,2014); see also Doc. 36, Ex. 1 at 9. In the letter, Starbucks informed Kettler that it had experienced failures in some of the Carlo chairs and that third-party laboratory testing confirmed these failures. Id . As a result, Starbucks stated that it had begun collecting and recycling the chairs and it would retain a " discrete sampling" of them for inspection. Id. The letter also informed Kettler that Starbucks' counsel was " instructed to initiate legal proceedings against Kettler to compel Kettler to make good on the warranties and misrepresentation," and Starbucks informed Kettler that it would " pursue its remedies arising from the purchase of all Carlo chairs, plus consequential and incidental damages related to the removal, storage and recycling of said Carlo chairs." Id.
On April 10, 2014, Kettler replied to this letter and asked Starbucks to provide test results, incident reports, an exact count of the defective chairs, and all other relevant information. Id Starbucks did not respond to this letter.
Id On April 21, 2014, Kettler again mailed a letter to Starbucks asking it to provide proof that the allegedly defective chairs were purchased within the last year and thus covered by the one-year warranty. Id. In a subsequent letter, counsel for Starbucks informed Kettler he did not know when the remaining chairs were manufactured or how many Starbucks had already recycled. Id On May 2, 2014, Kettler responded by alerting Starbucks of its " obligation to preserve every chair upon which a claim is being made," Doc. 36, Ex. 1 at 19 (emphasis in original), and Starbucks was served with the present action on May 7, 2014. Doc. 3. The last of the chairs appear to have been removed on May 18, 2014. Doc. 43, Ex. 2 at 2.
B. Procedural History
On May 2, 2014, Kettler filed its three-count Complaint in this Court seeking declaratory
judgment that (1) it has not breached any warranty; (2) it has not breached any contractual term; and (3) that Starbucks is not entitled to rescission. Doc. 1. According to Plaintiff, " Starbucks destroyed 1,584 chairs after KETTLER demanded Starbucks preserve them and 489 chairs after KETTLER served this lawsuit on Starbucks." Doc. 44 at 1 (emphasis in the original). At a hearing on October 16, 2014, this Court first alerted counsel for Starbucks to Silvestri v. General Motors,271 F.3d 583 (4th Cir. 2001) by stating, " [a]nd you better save the chairs. You better ...