Nuvasive, Inc. v. Kormanis

          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 ...