Court Denies Appeal of Magistrate Judge’s Order Denying Sanctions for Spoliation of Evidence and Pattern of Discovery Abuse

23 Sep 2022

In COOLEY v. TARGET CORPORATION ET AL., Civil No. 20-2152 (DWF/DTS) (D. Minn. Aug. 24, 2022), a case involving a copyright dispute, Plaintiff objected to the Magistrate Judge’s order dated June 10, 2022, that denied her Motion for Sanctions for Spoliation of Evidence and Pattern of Discovery Abuse.

As an initial matter, a court must modify or set aside any portion of the Magistrate Judge’s order found to be clearly erroneous or contrary to law. See 28 U.S.C. § 636(b)(1)(A); Fed. R. Civ. P. 72(a); D. Minn. LR 72.2(a). “A finding is `clearly erroneous’ when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.” Chakales v. Comm’r of Internal Revenue, 79 F.3d 726, 728 (8th Cir. 1996) (quoting United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948)).

In the Order, the Magistrate Judge explained that the five sanctions Plaintiff requested “fall squarely within Rule 37(e)” of the Federal Rules of Civil Procedure, which governs the preservation of electronically stored information (“ESI”).

Rule 37(e) provides that the Court may sanction a party who fails to preserve ESI in anticipation of litigation when the loss of information prejudices another party. Fed. R. Civ. P. 37(e)(1). More serious sanctions are available when the court finds that the party’s destruction of ESI was intentional. See Fed. R. Civ. P. 37(e)(2)(A)-(C). The court may, but is not required to, issue sanctions if the requirements of Rule 37(e)(1) or (2) are met.

The Magistrate Judge found that although Defendant had a duty to preserve ESI from Sept. 25, 2018, until the complaint was filed in May 2020, and failed to do so, Defendant’s failure to preserve ESI did not prejudice Plaintiff. Additionally, the Magistrate Judge concluded that Defendant did not intentionally destroy ESI to deprive Plaintiff of the information. Thus, the Magistrate Judge declined to sanction Defendant.

Plaintiff argued that the Order should be reversed for two reasons. First, the Order failed to address sanctions under Federal Rules of Civil Procedure Rule 26(g). Second, the Order erroneously found that Defendant did not intend to destroy ESI relevant to the case and that Plaintiff was not prejudiced by the loss of information.

In response, Defendant argued that the Magistrate Judge was correct in concluding that the destruction of ESI was not intentional and did not prejudice Plaintiff. Defendant did take issue with the Court’s conclusion that Defendant’s duty to preserve ESI began in Sept. 2018, when Defendant received the cease-and-desist letter. Defendant argued that its duty to preserve arose in May 2020 when Plaintiff initiated the action.

As the Order noted, Plaintiff sought five specific sanctions, including “(1) Issuing a mandatory, adverse inference instruction that the jury presume the evidence Target destroyed favored Plaintiff; (2) Allowing the parties to put on evidence of Target’s record destruction and submitting the question of Target’s intent for the jury to decide; and (3) Permitting the parties to present evidence to the jury regarding the loss and likely relevance of Target’s records that the jury may consider with all other evidence in the case,” among two others.

Each sanction dealt exclusively with Defendant’s destruction of ESI, which fell under Rule 37(e). Plaintiff argued that the Order was erroneous because her motion for sanctions specifically requested sanctions under both Rule 37(e) and 26(g).

With respect to Rule 26(g), she asserted that Defendant’s history of discovery misconduct warranted sanctions. Rule 26 (g) allows the Court to sanction a party who improperly certifies disclosures of discovery requests. See Fed. R. Civ. P. 26(g)(3). While Plaintiff mentioned the Court’s authority to issue sanctions under Rule 26(g) in her original motion for sanctions, she did not request specific sanctions under Rule 26(g), nor did she explain how applying Rule 26 would change the Court’s analysis of her requested sanctions.

Plaintiff instead referred to Defendant’s pattern of discovery abuse – specifically that Defendant made misrepresentations to the Court and disobeyed a court order – as evidence that Defendant acted in bad faith when it did not preserve ESI. She urged the Court to “contextualize Target’s intentional destruction of ESI within Target’s consistent pattern of discovery abuses.” The Court here, as well as the Magistrate Judge’s Order, found these examples of alleged discovery abuse unpersuasive.

The Order noted that Defendant initially asserted that all the Accused Products were designed by Davis without an outside partner or vendor and later “revised its response to state that Davis created the polka-dot design used in 16 of the 17 Accused Products.” The Court agreed with the Magistrate Judge that this revision was a “fairly typical clarification of facts that happens during the discovery process.”

Plaintiff similarly argued that Defendant submitted a declaration that was contradictory to Davis’s original testimony. Davis testified in her deposition that she did not “recall having ever seen” N.O.C.’s promotional video that featured his artwork. In a later declaration, Davis then said she “can confirm [she] never saw [the video] before.” The Court said this behavior did not warrant sanctions.

Lastly, Plaintiff asserted that Defendant violated a court order to produce license agreements. The Magistrate Judge ultimately found that Defendant’s failure to produce these agreements was not sufficiently related to the loss of ESI and did not support a finding of bad faith. This finding was not erroneous according to the Court.

If Plaintiff’s intention was to seek additional sanctions under Rule 26, her motion was not clear as to the fact, noted the Court. Moreover, the five sanctions she did request fell under Rule 37(e). The Court found it was not erroneous for the Magistrate Judge to review only the requested sanctions.

Under Rule 37(e), a party is required to preserve ESI “in the anticipation or conduct of litigation.” The Magistrate Judge found that Defendant’s duty to preserve ESI arose on Sept. 25, 2018, when it received a cease-and-desist letter from Plaintiff. Defendant argued that it did not reasonably anticipate litigation in Sept. 2018, because Plaintiff had not yet registered a copyright and her claims in the cease-and-desist letter lacked merit. Defendant argued that the duty to preserve ESI did not arise until the complaint was filed in May 2020.

As the Order noted, “[a] party is obligated to preserve evidence once the party knows or should know that the evidence is relevant to future or current litigation.” Paisley Park Enters., Inc. v. Boxill, 330 F.R.D. 226, 232 (D. Minn. 2019). The duty to preserve evidence begins once litigation is reasonably foreseeable.

When Defendant received the cease-and-desist letter from Plaintiff on Sept. 25, 2018, the letter indicated that Plaintiff would sue Defendant unless the parties could reach a resolution without litigation. Although Defendant believed the claim lacked merit, the letter made clear that Plaintiff intended to sue if necessary. Thus, the Order correctly concluded that litigation was reasonably foreseeable at that point, and Defendant had a duty to place a litigation hold in Sept. 2018.

If a party fails to take reasonable steps to preserve ESI once litigation is reasonably foreseeable, the Court may award sanctions. Sanctions under Rule 37(e) fall under two categories. First, “if a court finds that another party has been prejudiced by the loss of ESI, the court may ‘order measures no greater than necessary to cure the prejudice.’” Fed. R. Civ. P. 37(e)(1). Second, “if a court finds that the party intentionally destroyed ESI, the court may presume that the lost information was unfavorable, instruct the jury that it may or must presume that the information was unfavorable to the party, or dismiss the action.” Fed. R. Civ. P. 37(e)(2)(A)-(C).

The Magistrate Judge declined to order sanctions under either category. The Order first found that Defendant did not intend to deprive Plaintiff of her use of the lost information in litigation. While Plaintiff argued that the Order did not fully analyze this issue, the Court disagreed.

An adverse presumption required a finding by the Court that ESI was lost “because one party acted with the intent to deprive another party of the information’s use in the litigation.” In determining whether evidence was intentionally destroyed, a “district court has substantial leeway to determine intent through consideration of circumstantial evidence, witness credibility, motives of the witnesses in a particular case, and other factors.” Morris v. Union Pac. R.R., 373 F.3d 896, 901 (8th Cir. 2004).

The Magistrate Judge determined that Defendant did not act in bad faith. The Order reasoned that much of the ESI at issue was lost before Defendant received the cease-and-desist letter. Emails from June to Sept. 2017 were saved as part of a separate litigation hold, and relevant emails within that timeframe have been provided to Plaintiff.

Defendant also stopped using its GroveSite and FlexPLM platforms and archived those. While the ESI Plaintiff wanted was not in an accessible form, the Magistrate Judge found that there was no reason to believe that Defendant intentionally altered the archive to make information to Plaintiff’s case inaccessible. The Court found that this evidence supported the Magistrate Judge’s conclusion.

The Order also found that the lost ESI did not prejudice Plaintiff. Rule 37(e)(1) leaves judges with discretion to determine how best to assess prejudice in particular cases. “[W]here a court expressly finds, as here, that there is no evidence of intentional destruction of evidence to suppress the truth, then the district court also acts within its discretionary limits by denying sanctions for spoliation of evidence.” Gallagher v. Magner, 619 F.3d 823, 845 (8th Cir. 2010). After review of Plaintiff’s objections, the Court found that the Magistrate Judge’s determination was neither clearly erroneous nor contrary to the law.

Lastly, the Order addressed Defendant’s replacement of Davis’s laptop. As laid out in the Order, Defendant first indicated that the laptop Davis used in 2017 was replaced in 2019. Defendant then submitted a supplemental interrogatory on the last day of discovery that indicated that Davis’s laptop was replaced twice, once in Jan. 2018, and again in April 2019.

The date change was relevant here because if the laptop was replaced in Jan. 2018, then the ESI on the laptop would have been destroyed before Defendant had a duty to preserve ESI for litigation. Even so, the Order concluded that any prejudice to Plaintiff from the loss of the computer’s hard drive was limited, because most emails had already been deleted and relevant files were saved on the shared drive. The Court agreed and declined to order an evidentiary hearing on the issue.