Bell Aerospace Services, Inc. v. U.S. Aero Services, Inc. et al

Filing 139

REPORT AND RECOMMENDATIONS; 120 MOTION for Default Judgment be denied Objections to R&R due by 3/4/2010. Signed by Honorable Terry F. Moorer on 2/18/2010. (jg, ) Modified on 2/22/2010 to clarify text (jg, ).

IN THE DISTRICT COURT OF THE UNITED STATES F O R THE MIDDLE DISTRICT OF ALABAMA S O U T H E R N DIVISION B E L L AEROSPACE SERVICES, INC., P la in tif f , v. U .S . AERO SERVICES, INC., et al., D e f e n d a n ts. ) ) ) ) ) ) ) ) ) )

Case No. 1:09-cv-141-MHT [w o]

REPORT AND RECOMMENDATION OF THE MAGISTRATE JUDGE P e n d in g before the Court is Plaintiff's Motion for Default Judgment Against D e fe n d a n t Mike Hall and U.S. Aero Services, Inc. Sanctions for the Destruction of D o c u m e n ts (Docs. 120-121, filed January 11, 2010). Pursuant to 28 U.S.C. § 636(b)(1), this m o tio n was referred to the undersigned United States Magistrate Judge for review and s u b m iss io n of a report with recommended findings of fact and conclusions of law. A hearing w a s held on the matter on February 17, 2010. For good cause, it is the Recommendation of th e Magistrate Judge to DENY the motion. I. PARTIES

Plaintiff Bell Aerospace Services, Inc. ("Bell Aero" or "Plaintiff") is a Delaware c o rp o ra tio n with its principle place of business located in Bedford, Texas. Defendant U.S. Aero Services, Inc. ("USAS") is an Alabama corporation with its p rin c ip le place of business located in Enterprise, Alabama. Defendant Mike Hall ("Hall") Page 1 of 8

is an individual employed by USAS and resides in the Southern Division of the Middle D is tric t of Alabama. The remaining defendants are not parties to this motion. II. JURISDICTION

T h e district court has subject matter jurisdiction over the claims in this action pursuant to 28 U.S.C. § 1331 (federal question), 18 U.S.C. 1030, et seq. (Computer Fraud and Abuse A c t), and 28 U.S.C. § 1367 (supplemental jurisdiction). No party contests personal

ju ris d ic tio n or venue, and there are adequate allegations to support both. III. MOTION FOR DEFAULT JUDGMENT

O n January 11, 2010, Bell Aero filed a motion for default judgment for alleged s p o lia tio n of evidence. See Docs. 120-121. The motion asserts that Defendants USAS and H a ll violated the protective order which required them to forensically image computers w h ic h may contain information subject to this lawsuit. Specifically, Hall's personal

c o m p u te r was not forensically imaged or otherwise preserved and subsequently the computer w a s wiped after it crashed in March 2009. IV. DISCUSSION AND ANALYSIS A district court has broad discretion to control discovery. Phipps v. Blakeney, 8 F.3d 7 8 8 , 790 (11th Cir. 1993). "This power includes the ability to impose sanctions on u n c o o p e ra tiv e litigants." Id.; see also FED. R. CIV. P 37(b)(2) ("If a party...fails to obey an o rd e r to provide or permit discovery...the court may issue further just orders."). "[Rule 37] g i v e s district judges broad discretion to fashion appropriate sanctions for violation of

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discovery orders; however, this discretion is guided by judicial interpretation of the rule." Malautea v. Suzuki Motor Co., Ltd., 987 F.2d 1536, 1542 (11th Cir. 1993). Under Rule 37, th e court may dismiss an action in whole or in part and/or render a default judgment against th e disobedient party. FED. R. CIV. P. 37(b)(2)(A)(v)-(vi). Default judgment and dismissal s a n c tio n s require a willful or bad faith failure to obey a discovery order. Malautea, 987 F.2d a t 1542 (citing Societe Internationale pour Participations Industrielles et Commerciales v. R o g e rs, 357 U.S. 197, 212, 78 S.Ct, 1087, 1096, 2 L.Ed.2d 1255 (1958)); see also Adolph C o o r s Co. v. Movement Against Racism and the Klan, 777 F.2d 1538, 1542 (11th Cir. 1985) (in te rn a l quotations and citations omitted) ("Sanctions may also be imposed to punish those g u ilty of willful bad faith and callous disregard."). A violation of a discovery order caused b y simple negligence, misunderstanding, or inability to comply will not justify a Rule 37 d e f a u lt judgment or dismissal. Malautea, 987 F.2d at 1542. (citations omitted). Finally, "the s e v e re sanction of a dismissal or default judgment is appropriate only as a last resort, when le s s drastic sanctions would not ensure compliance with the court's orders. Id. "Rule 37 sanctions are intended to prevent unfair prejudice to the litigants and insure th e integrity of the discovery process." Gratton v. Great American Communications, 178 F .3 d 1373, 1374 (11th Cir.1999). The sanctions of default judgment and dismissal Plaintiff s e e k s are the harshest permitted under Rule 37 and used in circumstances where the party has w illf u lly and wrongfully ignored court orders or otherwise made a conscious decision to o b s tru c t the orderly prosecution of the case. See Buchman v. Bowman, 820 F.2d 359, 361

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(11th Cir. 1997) (Default judgment under Rule 37 is only appropriate in instances where "a p a rty's conduct amounts to a flagrant disregard and willful disobedience of discovery o rd e rs ." ). "[T]he severe sanction of a dismissal or default judgment is appropriate only as a last resort, when less drastic sanctions would not ensure compliance with the court's orders. Malautea, 987 F.2d at 1542 (citing Navarro v. Cohan, 856 F.2d 141, 142 (11th Cir. 1988)); s e e also Adolph Coors, 777 F.2d at 1543 ("On appeal we will also find an abuse of discretion if less draconian but equally effective sanctions were available."). Besides default judgment or dismissal, the court may impose a broad spectrum of s a n c tio n s . This may include application of an adverse inference against a party where the c o u rt finds that the party has engaged in spoliation of evidence. Martinez v. Brink's Inc., 171 F e d . Appx. 263, 269 n. 7 (11th Cir, 2006). The adverse inference makes a finding or im p o s e s a rebuttable presumption that the missing evidence would have been unfavorable to the spoliating party. "The key to unlocking a court's inherent power requires a finding of b a d faith." Barnes v. Dalton, 158 F.3d 1212, 1214 (11th Cir. 1998); see also Cox v. Target C o r p ., 2009 WL 3497730, *2 (11th Cir. 2009) (quoting Bashir v. Amtrak, 119 F.3d 929, 931 (1 1 th Cir. 1997)) ("A jury instruction on spoliation of evidence is required `only when the a b s e n c e of that evidence is predicated on bad faith.'"). In other words, courts should not in f e r that the missing evidence was unfavorable unless the circumstances surrounding the e v id e n c e 's absence indicate bad faith. Bashir, 119 F.3d at 931. "Mere negligence in losing

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or destroying the records is not enough for an adverse inference, as it does not sustain an in f e re n c e of consciousness of a weak case." Id. (internal citations and quotations omitted). In looking at several Eleventh Circuit cases involving spoliation and the question of b a d faith, taken together, the cases show that bad faith can be found based on direct evidence o r circumstantial evidence where certain factors converge. See Calixto v. Watson Bowman A c m e Corp., 2009 WL 3823390, *16 (S.D. Fla. 2009) (collecting and citing spoliation cases F lu r y v. Daimler Chrysler Corp., 427 F.3d 939 (11th Cir. 2005); Slattery v. Precision R e sp o n s e Corp., 167 Fed. Appx. 139 (11th Cir. 2006); Penalty Kick Management, Ltd. v. C o c a Cola Co., 318 F.3d 1284 (11th Cir. 2003); Bashir, 119 F.3d 929; Teletron, Inc. v. O v e r h e a d Door Corp., 116 F.R.D. 107 (S.D. Fla. 1987)). "[W]here no direct evidence of bad in te n t exists, in this Circuit, bad faith may be found on circumstantial evidence where all of th e following hallmarks are present: (1) evidence once existed that could fairly be supposed to have been material to the proof or defense of a claim at issue in the case; (2) the spoliating p a rty engaged in an affirmative act causing the evidence to be lost; (3) the spoliating party d id so while it knew or should have known of its duty to preserve the evidence; and (4) the a f f irm a tiv e act causing the loss cannot be credibly explained as not involving bad faith by th e reason proffered by the spoliator." Calixto, 2009 WL at *16. The Court now applies these factors in the instant case involving USAS and Hall. On th e first factor, there is little question that the materials may have been material to the proof o f Bell Aero's claims. The parties contest the relative importance of these materials and

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Defendants assert that the spreadsheets were merely columns and rows. Regardless, the C o u rt concludes that the materials on the 2002 laptop may be fairly supposed to have c o n ta in e d information material to the matters at issue in this case. Moving to the second f a c to r, based on the assertions in the pleadings and the arguments by counsel, there is no q u e s tio n that Hall affirmatively caused the evidence to be lost when he allowed the 2002 la p to p to be reformatted - which resulted in the complete loss of data on the computer. With re g a rd to the third factor, Hall clearly knew of the litigation against him and his employer a n d , according to his counsel, was also well aware of the Court's order to preserve any c o m p u te r evidence relevant to the claims in this lawsuit. The fourth factor is really the only one this Court finds is at issue. Bell Aero argues th a t because the laptop was not forensically imaged or otherwise saved, it is now unable to d e te rm in e the extent of the evidence supposedly on the computer. Bell Aero also implies th a t the computer wiping, thereby destroying the evidence, was done deliberately in a v o id a n c e of Defendants' discovery responsibilities. However, the evidence before this C o u rt indicates otherwise. Absent the Defendant's bringing up the wiped computer,

P la in tif f 's would not have even learned of it. Further, the Court finds it credible that a 2002 la p to p would freeze up and the only way to restore its proper function is to reformat it. Other th a n conclusory assertions by Plaintiff, there is no evidence that Hall provided his laptop to U S A S 's IT technician in order to hide evidence from the Plaintiff. Rather, the declarations o f both Hall and Jeremiah Armstrong - USAS's IT Manager - indicate the 2002 laptop simply

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crashed and the only way to get it working again was to reformat the hard drive and perform a new install of Windows. Under these circumstances, the Court cannot find bad faith on the p a rt of Hall or USAS and consequently, spoliation sanctions are not appropriate here. N o th in g in this ruling prevents Plaintiff from presenting evidence and argument to a jury that the reformatting of the laptop destroyed evidence and resulted in prejudice to the P la in tif f . Plaintiff may let the jury make its own inference as to whether the evidence on the la p to p would have supported its claims. V. CONCLUSION F o r these reasons, the Court RECOMMENDS the following: (1 ) (2 ) P la in tiff's Motion for Default Judgment (Doc. 120) be DENIED. P la in tif f be permitted present argument to the jury regarding the lost evidence.

It is further ORDERED that the parties are DIRECTED to file any objections to the s a id Recommendation not later than March 4, 2010. Any objections filed must specifically id e n tif y the findings in the Magistrate Judge's Recommendation objected to. Frivolous, c o n c lu s iv e or general objections will not be considered by the District Court. The parties are a d v is e d that this Recommendation is not a final order of the court and, therefore, it is not a p p e a la b le . F a ilu re to file written objections to the proposed findings and recommendations in the M a g is tra te Judge's report shall bar the party from a de novo determination by the District C o u rt of issues covered in the report and shall bar the party from attacking on appeal factual

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findings in the report accepted or adopted by the District Court except upon grounds of plain e r r o r or manifest injustice. Nettles v. Wainwright, 677 F.2d 404 (5th Cir. 1982); see Stein v . Reynolds Securities, Inc., 667 F.2d 33 (11th Cir. 1982); see also Bonner v. City of P ric h a r d , 661 F.2d 1206 (11th Cir. 1981, en banc) (adopting as binding precedent all of the d e c i s i o n s of the former Fifth Circuit handed down prior to the close of business on S e p te m b e r 30, 1981). D O N E this 18th day of February, 2010. /s / Terry F. Moorer T E R R Y F. MOORER U N IT E D STATES MAGISTRATE JUDGE

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