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New Mexico Oncology and Hematology Consultants, Ltd. v. Presbyterian Healthcare Services

United States District Court, D. New Mexico

August 16, 2017

NEW MEXICO ONCOLOGY AND HEMATOLOGY CONSULTANTS, LTD., Plaintiff,
v.
PRESBYTERIAN HEALTHCARE SERVICES, et al., Defendants.

          FINDINGS AND RECOMMENDED DISPOSITION OF PLAINTIFF'S MOTION FOR SANCTIONS

          GREGORY B. WORMUTH UNITED STATES MAGISTRATE JUDGE

         This matter comes before the Court upon Plaintiff's Motion for Sanctions (doc. 673). The Court held a hearing on the motion on July 25, 2017, [1] and heard oral argument on the motion on August 2, 2017. Docs. 732, 736. For alleged discovery violations, Plaintiff seeks a default judgment or, in the alternative, an adverse jury instruction at trial. Based on the findings laid out below, I recommend denial of these severe sanctions. However, I conclude that certain costs should be assessed against Defendants.

         I. Legal Standard

         a. Spoliation

         Under Rule 37 of the Federal Rules of Civil Procedure, the Court may sanction a party “[i]f electronically stored information 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.” Fed.R.Civ.P. 37(e). Parties to a lawsuit are under an “obligation to preserve evidence when the party has notice that the evidence is relevant to litigation or when a party should have known that the evidence may be relevant to future litigation.” Browder v. City of Albuquerque, 209 F.Supp.3d 1236, 1243 (D.N.M. 2016) (citations omitted). This duty to preserve evidence arises “when litigation is imminent.” U.S. ex rel. Baker v. Cmty. Health Sys., Inc., No. CIV. 05-279 WJ/ACT, 2012 WL 12294413, at *3 (D.N.M. Aug. 31, 2012), objections overruled, No. CIV. 05-279 WJ/ACT, 2012 WL 5387069 (D.N.M. Oct. 3, 2012). “Spoliation includes the intentional or negligent destruction or loss of tangible and relevant evidence which impairs a party's ability to prove or defend a claim.” Id.

         A party may be sanctioned for spoliation when “(1) a party has a duty to preserve evidence because it knew, or should have known, that litigation was imminent, and (2) the adverse party was prejudiced by the destruction of the evidence.” Turner v. Pub. Serv. Co. of Colorado, 563 F.3d 1136, 1149 (10th Cir. 2009). In order for a court to sanction a party for spoliation, the moving party must show by a preponderance of evidence that the other party destroyed evidence.[2] In re Krause, 367 B.R. 740, 764 (D. Kan. 2007) (“The burden is on the moving party to prove, by a preponderance of the evidence, that the opposing party failed to preserve evidence or destroyed it.”).

         b. Default Judgment

         Plaintiff requests that the Court sanction Defendants by ordering default judgment against them. Under Rule 37, the Court may enter a default judgment “only upon finding that the party acted with the intent to deprive another party of the information's use in the litigation.” Fed.R.Civ.P. 37(e)(2). A default judgment is considered a “harsh sanction” requiring some demonstration of “willfulness, bad faith, or some fault of the offending party rather than inability to comply.” EBI Sec. Corp. v. Net Command Tech, Inc., 85 F. App'x 105, 108 (10th Cir. 2003) (unpublished). “Because default judgment deprives a litigant of his or her day in court, it is appropriate only where a lesser sanction would not serve the interest of justice.” In re Rains, 946 F.2d 731, 733 (10th Cir. 1991) (internal quotations omitted).

         In considering sanctions, the Court should consider a number of factors, including: (1) “the degree of actual prejudice” to the other party; (2) “the amount of interference with the judicial process;” (3) “the culpability of the litigant;” (4) “whether the [C]ourt warned the party in advance that dismissal of the action would be a likely sanction for noncompliance;” and (5) “the efficacy of lesser sanctions.” Ehrenhaus v. Reynolds, 965 F.2d 916, 921 (10th Cir. 1992). Default judgement is an appropriate sanction “[o]nly when the aggravating factors outweigh the judicial system's strong predisposition to resolve cases on their merits.” EBI Sec. Corp., 85 F. App'x at 108.

         c. Adverse Jury Instruction

         Plaintiff alternatively requests that the Court sanction Defendants by ordering an adverse jury instruction. As with default judgment, the Court may “instruct the jury that it may or must presume the information was unfavorable to the party” “only upon finding that the party acted with the intent to deprive another party of the information's use in the litigation.” Fed.R.Civ.P. 37(e)(2). An adverse inference instruction is “ a powerful sanction[, ] as it brands one party as a bad actor and necessarily opens the door to a certain degree of speculation by the jury, which is admonished that it may infer the presence of damaging information in the unknown contents [of the missing documents].” Henning v. Union Pac. R. Co., 530 F.3d 1206, 1219 (10th Cir. 2008). “[I]f the aggrieved party seeks an adverse inference to remedy the spoliation, it must also prove bad faith.” Turner, 563 F.3d at 1149; see also Vick v. Texas Employment Comm'n, 514 F.2d 734, 737 (5th Cir. 1975) (“Mere negligence is not enough, for it does not sustain an inference of consciousness of a weak case.”). Unless the aggrieved party can demonstrate bad faith, the Court may only impose lesser sanctions. Henning, 530 F.3d at 1220.

         II. Analysis

         a. Litigation Hold

         Plaintiff alleges that Defendants should be sanctioned for failure to implement a proper litigation hold. Doc. 673 at 30-32. A litigation hold is “an affirmative act taken by a party's attorney or management directing the party's employees or agents to take affirmative steps to preserve evidence which otherwise might be lost. The purpose of the hold is to avoid the loss of evidence through intentional or negligent actions, or even through routine document management.” Helget v. City of Hays, No. 13-2228- KHV-KGG, 2014 WL 1308893, at *3-4 (D. Kan. Mar. 31, 2014). “Once a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a litigation hold to ensure the preservation of relevant documents.” U.S. ex rel. Baker, 2012 WL 12294413, at *2 (internal quotations omitted). Then, “[o]nce a litigation hold is in place, a party and her counsel must make certain that all sources of potentially relevant information are identified and placed on hold.” Cache La Poudre Feeds, LLC v. Land O'Lakes, Inc., 244 F.R.D. 614, 627-28 (D. Colo. 2007) (internal quotations omitted).

         Such a litigation hold applies not only to physical documents but also to electronic data. Browder, 209 F.Supp.3d. at 1243; see also Cache La Poudre Feeds, 244 F.R.D. at 620. However, a corporation in not required to, “upon recognizing the threat of litigation, preserve every shred of paper, every e-mail or electronic document, and every backup tape.” Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 217 (S.D.N.Y. 2003). Rather a party must preserve “any documents or tangible things (as defined by Rule 34(a)) made by individuals likely to have discoverable information that the disclosing party may use to support its claims or defenses. Id. at 217-18 (internal quotations and citation omitted).

         Plaintiff filed its initial Complaint on May 16, 2012. See doc. 1. On May 22, 2012, Defendants issued a legal hold directive to thirty-five employees whom it believed most likely to have relevant information based on Plaintiff's Complaint. Doc. 685 at 2. This first litigation hold directed employees that they “must make diligent and reasonable efforts to preserve responsive documents in all locations where they may be found.” Doc. 685-1 at 2. The litigation hold covered an expansive list of subject matters for which employees must retain relevant emails. Id. at 2-3. Employees were also directed to send to Defendants' counsel a list of additional employees not on the original list “who may have relevant documents, data[, ] or information.” Id. at 3. Several individuals were so identified and were then issued the legal hold directive soon thereafter. Id. Plaintiff filed its first Amended Complaint on June 5, 2012, and then filed its Second Amended Complaint on February 13, 2013. See docs. 12, 24. In March 2013, Defendants issued an updated litigation hold directive to an additional 174 individuals whom Defendants believed may have responsive information. Doc. 685 at 3.

         Plaintiff alleges that Defendants' original May 2012 litigation hold was inadequate because (1) it did not account for the “email jail, ” a function which required that employees delete or archive emails when they run out of inbox space; (2) it covered only thirty-five employees and improperly excluded several key witnesses; (3) it allowed employees to determine which emails were irrelevant to the lawsuit and could be deleted; and (4) it did not apply to Defendants' Live Exchange Server and therefore did not preserve documents deleted by individual employees Doc. 673 at 3-4; doc. 695 at 1-4. The Court will consider each argument in a slightly different order.

         i. Employee Discretion in Determining Relevance

         Plaintiff's most broad argument is its contention that the litigation hold impermissibly gave discretion to employees to determine what documents, email, and other information might be relevant to the lawsuit and thus subject to the hold. Doc. 695 at 3-4. Plaintiff contends that permitting such discretion is per se inadequate. However, an entity is not required to, “upon recognizing the threat of litigation, preserve every shred of paper, every e-mail or electronic document, and every backup tape.” Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 217 (S.D.N.Y. 2003). Rather a party “must not destroy unique, relevant evidence that might be useful to an adversary.” Id. Indeed, courts have found a litigation hold in which a party “directed employees to produce all relevant information[] and then relied upon those same employees to exercise their discretion in determining what specific information to save” can be sufficient as long as routine procedures which might eliminate relevant information are no longer continued. Cache La Poudre Feeds, 244 F.R.D. at 629; see also Concord Boat Corp. v. Brunswick Corp., No. LR-C-95-781, 1997 WL 33352759, at *6 (E.D. Ark. Aug. 29, 1997) (“The fact that Defendant allowed individual employees to use discretion whether to retain e-mail is simply not indicative of bad faith.”). Of course, as recognized by the cases cited by Plaintiff, a party cannot defend against a spoliation charge by blithely (and self-interestedly) claiming that all destroyed documents were irrelevant. But those cases do not stand for the proposition that employees subject to a litigation hold are forbidden from any discretion. In this case, Defendant's employees were not given a generic “retain relevant documents” instruction. Instead, they were directed to retain documents and data “that mention or discuss or relate to any of” an exhaustive list of subjects. See doc. 707-1 at 47-52. They were also directed that if “you are unsure about the relevance of a document, be cautious and preserve it.” Id. This court cannot conclude that the limited discretion permitted to the subjects of the litigation hold in this case rendered the hold inadequate.

         ii. Email Jail

         Plaintiff also alleges that due to the existence of an email jail, which required employees to delete or archive emails once they ran out of inbox space, Defendants' employees did not adhere to the litigation hold and deleted relevant emails. Doc. 673 at 3, 31. Plaintiff points out that a number of deponents who were subject to the litigation hold experienced email jail during the relevant time period and admitted to deleting emails in response. Id. at 31. However, none of them testified that they believed that the requirements of “email jail” overrode their obligations under the hold, or that they in fact deleted items they otherwise would have retained pursuant to the hold. See doc. 685-7 at 2-3 (Anna Marie Garcia); doc. 685-5 at 2 (Jay Olive); doc. 685-9 at 1-2 (Lora Allpass); doc. 685-10 at 2-3 (Louanne Cunico); doc. 685-11 at 2-3 (Ann Greenberg); doc. 685-12 at 2-3 (Matthew Nagy). To prove the contrary, Plaintiff points to two pieces of evidence: (1) a letter from Defendants' counsel stating that certain emails which pre- date the second litigation hold “may have been deleted in the ordinary course of business” by employees not covered by the first litigation hold and (2) a letter from Defendants' counsel stating that certain emails identified by Plaintiff may have been “deleted in the ordinary course of business, with each custodian believing that they were not relevant to the instant litigation.” Doc. 552-1; doc. 673-3 at 133.

         However, these circumstances do not carry the weight Plaintiff assigns them. With respect to the first example, it is not a surprise that employees not covered by the litigation hold would delete items in the ordinary course of business. It certainly does not prove that, when they were brought within the litigation hold, they did not follow those instructions with or without the existence of “email jail.”[3] With respect to the second example, Plaintiff provides no evidence to controvert Defendants' counsel's description of the apparently deleted items as “relat[ing] to tangential or peripheral issues that have only tenuous relevance to the underlying claims of the litigation.” Doc. 673-3 at 133. Consequently, their deletion by some custodians fails to establish that employees covered by the litigation hold did not perform their obligations under the litigation hold in good faith notwithstanding the “email jail.”

         iii. Limited Number of Employees

         Plaintiff further argues that the May 2012 litigation hold was inadequate because it failed to cover several important witnesses. Doc. 673 at 4. Specifically, Plaintiff contends that the original litigation hold improperly excluded the following employees: (1) Anna Maria Garcia; (2) Jay Olive; (3) Lora Allpass; (4) Dean Putt; (5) Nicki Evans; (6) Jaimie Martin (7) Mike West; and (8) any of the Nurse Navigators. Doc. 673 at 4. In response, Defendants argue that any key employees not originally included in the litigation hold were added through the reference process. Id. at 26. In fact, Defendants specifically note that Anna Maria Garcia, Lora Allpass, Jay Olive, and relevant Nurse Navigators were added to the litigation hold through this process prior to the issuance of the second expanded litigation hold in March 2013. Doc. 685 at 2. Further, Defendants confirmed that, although the documents were collected from the incorrect Mike West, the litigation hold was sent to the correct Mike West. Id. at 25 n.28; Ex. 1 at 51.

         Therefore, we are left with three individuals Plaintiff identifies as important witnesses were not included in the first litigation hold: Dean Putt, Nicki Evans, and Jaimie Martin. However, Defendants explained that Dean Putt had already left his employment by the time the litigation hold was issued, which explains why he was not included. Doc. 685 at 25-26. Defendants contend that neither Nicki Evans nor Jaimie Martin were considered to be relevant. Id. at 26. Having considered the parties' arguments on the matter, the Court is unpersuaded that either Ms. Evans or Ms. Martin was a “key player” such that the failure to include them in the original litigation hold was blameworthy. See Id. at 256-27.

         Even if Ms. Evans and Ms. Martin were important witnesses, Plaintiff could have objected to their names being excluded from the distribution list in November 2016, when Plaintiff received the names of all thirty-five employees who received the May 2012 litigation hold. Doc. 673-1 at 45. Plaintiff failed to do so, and additionally chose not to depose either witness even after learning that they had been excluded from the list. Doc. 685 at 27. Furthermore, Ms. Evans was included in the March 2013 litigation hold. Id.

         Plaintiff also argues that Defendant is guilty of spoliation because of the delay in adding 174 individuals to the original litigation hold which covered more than 40 individuals after the initial supplementation. Doc. 673 at 5. Aside from pointing to the sheer number of the additional employees added to the hold in March 2013, Plaintiff does not establish that the newly-added individuals were so significant based upon the allegations in Plaintiff's original Complaint that failure to include them in the original hold violated Defendants' discovery obligations.

         iv. Transport Dumpster

         Plaintiff also argues that Defendants' litigation hold was insufficient because it “did not apparently put a litigation hold on the part of their Live Exchange Server (the Transport Dumpster) that would catch [] deleted emails.” Doc. 695 at 1-2. Whether a litigation hold was ever placed on the server and how such a hold would operate were hotly debated at the hearing and oral argument. In any event, emails would end up in the Transport Dumpster only if they were actively deleted by a user. As noted above, there is insufficient evidence that custodians subject to the ...


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