Sound Around v. Friedman

Background

Sound Around moved for sanctions and other relief against Moises Friedman, Shulim Eliezer Ilowitz, and entities identified in the opinion as being controlled by them. Sound Around alleged that Friedman and Ilowitz, while serving as Sound Around buyers, received undisclosed kickbacks from Chinese manufacturers, operated a competing business called ML Imports, Inc., and diverted Sound Around’s corporate opportunities.

Sound Around’s July 2024 document requests sought communications with Chinese manufacturers about products, payments, and payment requests. The defendants did not produce most responsive WeChat communications despite discovery requests and orders requiring production. They first produced 137 pages of excerpts in October 2025, another 181 pages in March 2026, and more than 57,000 additional pages on April 21, 2026—after fact and expert discovery had closed and after the court had decided the parties’ summary-judgment motions.

A prior order had already found that the defendants improperly delayed producing the WeChat messages and had awarded Sound Around attorney’s fees and costs related to its motion to compel. The later production contained additional discussions about kickbacks, payment instructions, written kickback agreements, and possible payment routes. It also raised questions about whether the defendants had destroyed or deleted evidence and whether their earlier testimony fully described how kickbacks were received.

Legal standards and findings

The court considered sanctions under Rule 37 of the Federal Rules of Civil Procedure and under its inherent authority to manage the case and address abuses of the judicial process. Rule 37 permits sanctions for violating discovery orders, including orders establishing facts, limiting evidence, striking pleadings, dismissing claims, or entering default judgment. It also generally requires an award of reasonable expenses caused by a discovery violation unless the violation was substantially justified or an award would be unjust.

The court stated that the analysis centered on Rule 37, which it described as the principal enforcement mechanism for discovery violations. It found that the defendants had repeatedly failed to produce responsive WeChat communications, despite requests, a discovery order, and later orders compelling production. The court found the noncompliance willful, lasting more than a year, and inadequately addressed by the earlier sanctions.

The court also found substantial prejudice. Because the communications arrived after discovery and expert analysis had ended, Sound Around had lost the opportunity to question witnesses about them, seek additional discovery from third parties, obtain the referenced kickback agreements, and incorporate the information into its expert’s analysis. The court further found that the late production made it impossible to determine confidently the full universe of transactions involving kickbacks.

The court considered Sound Around’s allegations of fraud on the court and destruction of evidence but did not resolve the extent to which responsive information had actually been destroyed or whether the April 2026 production was complete. The court instead based the additional relief principally on the defendants’ discovery violations under Rule 37.

Relief ordered

Commission disgorgement. In the earlier summary-judgment ruling, the court had ordered forfeiture of commissions from tainted transactions before ML Imports was formed and all commissions after its formation. The newly produced communications showed that the kickback schemes before ML Imports’s formation were broader than the earlier record established. Because the defendants’ discovery violations made it impossible to determine reliably which earlier transactions were untainted, the court ordered Friedman to disgorge all commissions Sound Around paid him from June 5, 2020, through the end of his relationship with Sound Around, totaling $6,361,180. It ordered Ilowitz to disgorge all commissions Sound Around paid him from April 20, 2020, through the end of his relationship with Sound Around, totaling $3,274,639.

Counterclaims. The defendants’ counterclaims seeking unpaid or underpaid commissions accruing during their periods of disloyalty were dismissed with prejudice. The court stated that the defendants could not recover commissions during the period when their discovery violations prevented Sound Around from determining which transactions were unaffected by their disloyal conduct.

Revised kickback awards. The court amended the kickback awards entered in its earlier summary-judgment ruling. It adopted a calculation equal to 3% of the free-on-board price Sound Around paid manufacturers for purchases involving the defendants during their periods of disloyalty. The court described 3% as a reasonable estimate based on the record, including communications showing that the defendants had demanded kickbacks as high as 10% in some cases. The revised awards require Friedman to disgorge $3,814,970 and Ilowitz to disgorge $1,509,599.

Deferred requests. Sound Around also requested asset disclosures, preservation restrictions, shifting of the burden of proof, supplemental discovery, additional monetary sanctions, and an instruction allowing the jury to draw an adverse inference. The court deferred those requests, which Sound Around may renew at an appropriate time.

Disposition

The court granted Sound Around’s June 3 motion in part. It ordered the commission and kickback disgorgement described above, dismissed with prejudice the specified counterclaims, amended the earlier kickback award, and deferred decision on the remaining requests for relief.