United States District Court, M.D. North Carolina
MEMORANDUM OPINION, ORDER, AND RECOMMENDATION OF
UNITED STATES MAGISTRATE JUDGE
L.
Patrick Auld United States Magistrate Judge
This
case comes before the undersigned United States Magistrate
Judge on Plaintiff's Motion for Imposition of Sanctions
for Spoliation of Evidence (Docket Entry 85). After reviewing
all filings related thereto (see Docket Entries 85,
85-1, 85-2, 85-3, 85-4, 85-5, 86, 86-1, 86-2, 86-3, 86-4, 88,
88-1, 98, 99, 100, 100-1) and hearing argument (see
Minute Entry dated Feb. 6, 2019), [1] the undersigned
Magistrate Judge orally (A) granted in part the instant
Motion, (B) imposed some sanctions, and (C) proposed deferral
of questions about other sanctions until trial. This
Memorandum Opinion memorializes and expounds upon that oral
decision.
I.
INTRODUCTION
The
instant Motion “requests that this Court: (1) find that
Defendant [Kenneth Kormanis] spoliated evidence when he
deleted his InoSpine email account and willfully allowed his
text messages to be deleted; (2) sanction Defendant
[Kormanis] by the [sic] imposing an adverse inference and an
appropriate jury instruction; and (3) grant any other relief
the Court deems just and proper.” (Docket Entry 85 at
14; see also id. at 1 (citing “Federal Rule of
Civil Procedure 37(e)” and “inherent powers of
this Court” as bases for instant Motion).) As
pronounced at the hearing on February 6, 2019, the
undersigned Magistrate Judge has concluded that:
A) the
2015 Amendment to Federal Rule of Civil Procedure 37(e)
(“Rule 37(e)”) “forecloses reliance on
inherent authority . . . to determine when certain measures
[including relief specifically sought in the instant Motion]
should be used [to sanction spoliation of electronically
stored information (‘ESI')], ” Fed.R.Civ.P.
37 advisory comm.'s note, 2015 amend., subdiv.
(e);[2]
B) ESI,
consisting of text messages to/from Defendant Kenneth
Kormanis, “that should have been preserved in the
anticipation or conduct of litigation [as of and after March
9, 2018, wa]s lost because [Defendant Kormanis] failed to
take reasonable steps to preserve it, and it cannot be
restored or replaced through additional discovery, ”
Fed.R.Civ.P. 37(e);[3]
C)
“prejudice to [Plaintiff resulted] from loss of th[ose
text messages], ” Fed.R.Civ.P. 37(e)(1), warranting
authorization of (and imposition on Defendant Kormanis of
Plaintiff's reasonable expenses, including attorney's
fees, for) a post-discovery-deadline deposition of Ashley
Warrick, a witness who likely participated (or possessed
knowledge of matters discussed) in the lost text messages, as
an appropriate “measure[] no greater than necessary to
cure [some of] the prejudice [to Plaintiff], ”
id.;
D) only
when matters become clearer in the crucible of trial should
the Court decide whether other “serious measures are
necessary to cure prejudice [from the lost text messages],
such as forbidding [Defendant Kormanis] . . . from putting on
certain evidence, permitting the parties to present evidence
and argument to the jury regarding the loss of [those text
messages], or giving the jury instructions to assist in its
evaluation of such evidence or argument, other than
instructions [that it may or must presume the lost text
messages were unfavorable to Defendant Kormanis], ”
Fed.R.Civ.P. 37 advisory comm.'s note, 2015 amend.,
subdiv. (e)(1); see also id., subdiv. (e)(2)
(explaining that, even absent a finding of intent to deprive
a party of lost ESI, a court may “allow[] the parties
to present evidence to the jury concerning the loss and
likely relevance of [ESI] and instruct[] the jury that it may
consider that evidence, along with all the other evidence in
the case, in making its decision”); and
E) the
record would support (but would not compel) a “finding
that [Defendant Kormanis] acted with the intent to deprive
[Plaintiff] of the [text messages'] use in the
litigation, ” Fed.R.Civ.P. 37(e)(2), and the Court
therefore should “conclude that [any such] intent
finding should be made by [the] jury, [with] the
[C]ourt's instruction[s ] mak[ing] clear that the jury
may infer from the loss of th[ose text messages] that [they
were] unfavorable to [Defendant Kormanis] only if the jury
first finds that [he] acted with the intent to deprive
[Plaintiff] of th[eir] use in the litigation, ”
Fed.R.Civ.P. 37 advisory comm.'s note, 2015 amend.,
subdiv. (e)(2); see also id. (“Subdivision
(e)(2) does not include a requirement that the court find
prejudice to the party deprived of the [ESI].”).
II.
DISCUSSION
Regarding
the five conclusions outlined in Section I, the undersigned
Magistrate Judge reduces to writing and elaborates upon the
remarks made at the hearing on February 6, 2019, as follows:
A.
Inherent Authority
The
instant Motion asserts that, alongside Rule 37(e),
“[t]his Court's inherent powers provide an
additional avenue to sanction Defendant [Kormanis] for his
willful spoliation of [ESI].” (Docket Entry 85 at 12.)
That contention conflicts with the plain language of the
commentary to the 2015 Amendment to Rule 37(e) (quoted in
Section I). See, e.g., Snider v. Danfoss,
LLC, No. 15CV4748, 2017 WL 2973464, at *3 & n.8
(N.D. Ill. July 12, 2017) (unpublished) (“After
December 1, 2015, Rule 37(e) provides the specific - and sole
- basis to sanction a party for failing to preserve
[ESI].” (internal footnote omitted) (citing
Fed.R.Civ.P. 37 advisory comm.'s note, 2015 amend.,
subdiv. (e))), recommendation adopted, 2017 WL
3268891 (N.D. Ill. Aug. 1, 2017) (unpublished). The
undersigned Magistrate Judge adopts the Advisory
Committee's view that Rule 37(e) (as amended in 2015)
displaced judicial inherent authority as a mechanism for
sanctioning ESI spoliation, because, as the United States
Supreme Court recognized within a decade of their initial
adoption, “in ascertaining the[] meaning [of the
Federal Rules of Civil Procedure] the construction given to
them by the [Advisory] Committee is of weight, ”
Mississippi Publ'g Corp. v. Murphee, 326 U.S.
438, 444 (1946); see also United States v. Vonn, 535
U.S. 55, 64 n.6 (2002) (“[T]he Advisory Committee Notes
[to the Federal Rules of Criminal Procedure] provide a
reliable source of insight into the meaning of a rule . . . .
Although the Notes are the product of the Advisory Committee,
and not Congress, they are transmitted to Congress before the
rule is enacted into law.”).[4]
At the
hearing, Plaintiff argued that, pursuant to Chambers v.
NASCO, Inc., 501 U.S. 32 (1991), the 2015 Amendment to
Rule 37(e) did not preclude reliance on inherent authority to
sanction ESI spoliation. In Chambers, the Supreme
Court did observe that “prior cases have indicated that
the inherent power of a court can be invoked even if
procedural rules exist which sanction the same
conduct.” Id. at 49. However, the
Chambers Court also reiterated that “the
inherent power of lower federal courts can be limited by
statute or rule . . . .” Id. at 47. Further,
although it refused to “lightly assume that Congress
has intended to [limit] . . . the scope of a [federal]
court's inherent power, ” id. (internal
quotation marks omitted), the Chambers Court looked
directly to the “Advisory Committee's Notes on [an]
Amendment to [a Federal Rule of Civil Procedure]” to
gauge whether that rule “repeal[ed] or modif[ied]
existing authority of federal courts to deal with abuses
under [their] inherent power, ” id. at 48-49
(internal ellipsis and quotation marks omitted). In
Chambers, the commentary revealed no such repeal or
modification of inherent authority, see id., but
here the commentary expressly confirms that Rule 37(e)
“forecloses reliance on inherent authority . . . to
determine when certain measures [including relief requested
in the instant Motion] should be used [to sanction ESI
spoliation], ” Fed.R.Civ.P. 37 advisory comm.'s
note, 2015 amend., subdiv. (e). Chambers thus
bolsters (not undermines) the conclusion that the Court
should look exclusively to Rule 37(e) in resolving the
instant Motion.[5]
B.
Rule 37(e)'s Predicate Elements - Unreasonable Loss of
Irreplaceable ESI Contrary to Preservation Duty
As
amended in 2015, Rule 37(e) states:
If
[ESI] that should have been preserved in the anticipation or
conduct of litigation is lost because a party failed to take
reasonable steps to preserve it, and it cannot be restored or
replaced through additional discovery, the court:
(1) upon finding prejudice to another party from loss of the
[ESI], may order measures no greater than necessary to cure
the prejudice; or
(2) only upon finding that the party acted with the intent to
deprive another party of the [ESI's] use in the
litigation may:
(A) presume that the lost [ESI] was unfavorable to the party;
(B) instruct the jury that it may or must presume the [lost
ESI] was unfavorable to the party; or
(C) dismiss the action or enter a default judgment.
Fed. R. Civ. P. 37(e).
Given
the foregoing language:
[The] Court must determine that four predicate
elements are met under Rule 37(e) before turning to the
sub-elements of (e)(1) and (e)(2): (a) the existence of ESI
of a type that should have been preserved; (b) ESI is lost;
(c) the loss results from a party's failure to take
reasonable steps to preserve [ESI]; and (d) [the lost ESI]
cannot be restored or replaced through additional discovery.
. . . Only if all four [of those predicate] elements are
established can the Court consider sanctions under subsection
(e)(1) or subsection (e)(2).
Konica Minolta Bus. Sols., U.S.A. Inc. v. Lowery
Corp., No. 15CV11254, 2016 WL 4537847, at *2-3 (E.D.
Mich. Aug. 31, 2016) (unpublished) (emphasis added). The
record here satisfies each of the four predicate elements of
Rule 37(e).
i.
Factual Background
According
to the instant Motion, “[o]n March 3, 2018, Defendant
[Kormanis] resigned from his employment with InoSpine . . .,
which [wa]s an exclusive distributor of [Plaintiff's]
products in the North Carolina market.” (Docket Entry
85 at 2.) By letter dated March 9, 2018, InoSpine notified
Defendant Kormanis (through counsel) of its “concern[]
that [his] new position with Alphatech will lead to . . .
violation[s] of his contractual obligations with
Ino[S]pine.” (Docket Entry 85-1 at 1; see also
id. at 2 (warning that, “in the event
Ino[S]pine becomes aware of any breach . . ., it will . . .
seek[] injunctive relief and [take] justifiable legal
action”), 3 (denoting Drs. Benjamin Ditty and David
Jones as “[s]urgeons . . . likely approached by
[Defendant] Kormanis in violation of [his InoSpine
contract]”).) That letter also advised Defendant
Kormanis “to refrain from the destruction of relevant
evidence . . . including . . . texts . . . and to take steps
to preserve all such information . . . .” (Id.
at 2.)
Plaintiff
thereafter instituted this action, alleging that
“[Defendant] Kormanis has breached, and is breaching
the terms of his [InoSpine contract] by . . . promoting
and/or selling Alphatec's competitive products within his
former InoSpine territory . . . .” (Docket Entry 1 at
12; accord Docket Entry 82 at 12.) In response to
Plaintiff's production requests (served on July 18, 2018
(see Docket Entry 85-2 at 13)), seeking 2018
communications between Defendant Kormanis and certain
surgeons (including Drs. Ditty and Jones), as well as
Alphatec and some of its officials (see id. at 7-9),
Defendant Kormanis wrote:
As for text messages, due to space limitations on his
iPhone, Defendant Kormanis only is able to keep data on his
device from the previous 30 days. In order to comply
with the litigation hold letter, Defendant Kormanis backs up
his iPhone to his MacBook Air so that all messages are
preserved. However, at this time, Defendant Kormanis has
not been able to retrieve said messages from his personal
devices. Once these communications are retrieved, they will
be produced.
(Docket Entry 85-3 at 9-13 (emphasis added); see also
id. at 17 (bearing Defendant Kormanis's signature,
swearing (on September 4, 2018) to “have read the
foregoing and know the contents thereof to be true, except
for matters alleged upon information and belief”).)
Plaintiff's
counsel has averred that “Defendant [Kormanis then]
produced text messages . . . on October 5, 2018. There were
no text messages within [that] production prior
to August 5, 2018.” (Docket Entry 85-4 at 3
(emphasis added).)[6] In e-mails on October 9, 2018,
Defendant Kormanis's counsel (a) indicated that the
vendor he employed to retrieve earlier text messages from
Defendant Kormanis's devices could not do so, and (b)
declined to allow Plaintiff's vendor to examine the
devices. (See id. at 9-10.)
Subsequently,
on December 21, 2018, Defendant Kormanis signed an affidavit
(see Docket Entry 86-1 at 3), making these
statements:
1)
“[a]fter receiving notice of [InoSpine's March 9,
2018] Letter and its directive that [Defendant Kormanis]
refrain from destroying or altering any of the evidence it
described, [he] immediately began to take steps to ensure
that evidence, with particular attention to [ESI], would be
preserved as instructed” (id. at 2
(emphasis added));
2)
“[m]ore specifically, after receiving the
notice [Defendant Kormanis] uploaded the contents of
[his] mobile phone onto [his] computer and began to
keep backups of that data” (id. (emphasis
added); see also id. at 3 (referencing Defendant
Kormanis's “immediate efforts to backup and
preserve any data that would be relevant to . . . the present
action”));
3)
“[a]t some point prior to [Defendant Kormanis's]
receipt of [InoSpine's March 9, 2018] Letter, [he]
unknowingly enabled a setting on [his] iPhone that
automatically erases all text messages . . . after thirty
(30) days of sending and/or receipt” (id. at
3);
4)
Defendant Kormanis “was not aware that this setting was
active during the course of this litigation until [he] went
to turn over text messages requested by [Plaintiff]”
(id.);
5)
Defendant Kormanis “contracted with . . . a technology
company . . . so that [his] iPhone and computer would be
imaged and searched, ” but the company “was
unable to recover the text messages in question and they are
apparently lost forever” (id.).
Defendant
Kormanis later sat for a deposition (on January 16, 2019
(see Docket Entry 100-1 at ...