Kologik Capital, LLC v. In Force Technology, LLC et al

Filing 103

Magistrate Judge Marianne B. Bowler: ORDER entered. MEMORANDUM AND ORDER Re: Plaintiff's Motion for Sanctions for Spoliation and to Compel (Docket Entry # 90 ). The motion for sanctions and to compel (Docket Entry # 90 ) is ALLOWED in part and DENIED in part as to the portion of the motion seeking sanctions. The portion of the motion seeking to compel documents (Docket Entry # 90 ) is WITHDRAWN without prejudice to be renewed if production is inadequate. (Patton, Christine)

Case 1:18-cv-11168-GAO Document 103 Filed 03/11/20 Page 1 of 10

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
KOLOGIK CAPITAL, LLC,
Plaintiff and
Defendant-in-Counterclaim,
v.

CIVIL ACTION NO.
18-11168-GAO

IN FORCE TECHNOLOGY, LLC,
BRANDON-COPSYNC LLC,
AND BRANDON D. FLANAGAN,
Defendants and
Plaintiffs-in-Counterclaim.
MEMORANDUM AND ORDER RE:
PLAINTIFF’S MOTION FOR SANCTIONS FOR
SPOLIATION AND TO COMPEL
(DOCKET ENTRY # 90)
March 11, 2020
BOWLER, U.S.M.J.
Pending before this court is a motion for sanctions and to
compel documents filed by plaintiff Kologik Capital, LLC
(“plaintiff”).

(Docket Entry # 90).

After conducting a hearing

on March 6, 2020, this court took the motion under advisement.
DISCUSSION
The two-fold motion seeks to compel certain documents and
requests sanctions due to a failure of defendants Brandon-COPsync
LLC (“BCS”) and Brandon D. Flanagan (“Flanagan”) (collectively
“defendants”) “to preserve documents, including electronically
stored information.”

(Docket Entry # 90).

After discussions

during a recess of the March 6, 2020 hearing, the parties
resolved the aspect of the motion seeking to compel documents.
In light of the parties’ resolution, plaintiff agreed to withdraw

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the portion of the motion seeking to compel documents (Docket
Entry # 90) (Docket Entry # 91, pp. 24-25)1 without prejudice.
As stated in open court, plaintiff may renew the motion if the
agreed-upon production is inadequate.
As to sanctions, on June 2, 2017, an attorney representing
COPsync, Inc. (“COPsync”) notified BCS President and Chief
Executive Officer Flanagan that BCS was in default of a
professional services agreement between Brandon Associates LLC
and COPsync.2

(Docket Entry ## 38-2, 38-4, 38-5, 38-7 to 38-9).

Plaintiff represents that this notice of default resulted from
BCS’s alleged failure to remit payments from customers using
COPsync services and products to COPsync.

(Docket Entry # 91, p.

19) (describing June 2, 2017 notice as based “on the grounds that
BCS failed to remit payments it collected from customers using
the COPsync software”); (Docket Entry ## 38-8, 38-9) (citing
section 3B(ii) of professional services agreement); (Docket Entry
# 38-8).

Although defendants dispute both the relevance of BCS’s

failure to remit payments collected from customers using COPsync
software to the claims in this action (Docket Entry # 92, p. 9)
and the allegation that BCS did not remit such payments (Docket

1

Page numbers refer to the page number of the docketed
filing in the upper right-hand corner of the filing.
2

Brandon Associates LLC assigned its rights and
responsibilities under the agreement to BCS. (Docket Entry # 38,
¶ 27) (Docket Entry # 57, ¶ 27).
2

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Entry # 57, ¶¶ 92-93, 277-279, 291-294) (Docket Entry # 38, ¶¶
92-93, 277-279, 291-294), defendants do not dispute or otherwise
object to the above-noted characterization that the June 2, 2017
notice of default is grounded on BCS’s alleged failure to remit
customer payments to COPsync.

Accordingly and for purposes of

the sanctions motion only, they waive the ability to dispute the
accuracy of this characterization.

See Eldridge v. Gordon Bros.

Grp., L.L.C., 863 F.3d 66, 84 (1st Cir. 2017); Curet-Velázquez v.
ACEMLA de Puerto Rico, Inc., 656 F.3d 47, 54 (1st Cir. 2011).
Based on the record and in light of the notice of default, this
court concludes that BCS as well as Flanagan reasonably
anticipated this litigation involving, inter alia, conversion and
unjust enrichment claims based on the failure to remit payments
from customers using COPsync software (Docket Entry # 38, ¶¶ 276279, 290-294).

See Ortiz v. City of Worcester, No.

4:15-CV-40037-TSH, 2017 WL 2294285, at *2 (D. Mass. May 25, 2017)
(duty to preserve arises when complaint filed “or litigation
reasonably should be anticipated”); Fed. R. Civ. P. 37(e)
advisory committee’s note to 2015 amendment (Fed. R. Civ. P.
37(e) is based on common law “duty to preserve relevant
information when litigation is reasonably foreseeable” and
“applies only if the lost information should have been preserved
in the anticipation . . . of litigation”).
On June 30, 2017, BCS was dissolved (Docket Entry # 91-20)

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but continued to do business (Docket Entry ## 91-21, 91-22)
(Docket Entry # 91-2, ¶ 33).

On September 29, 2017, COPsync

filed for bankruptcy and plaintiff agreed to purchase COPsync’s
assets.

See In re COPsync, Inc., Case No. 17-12625 (Bankr. E.D.

La. Sept. 29, 2017) (Docket Entry ## 1, 125-1).

On November 21,

2017, the bankruptcy court approved the purchase agreement.

See

In re COPsync, Inc., Case No. 17-12625 (Bankr. E.D. La. Nov. 21,
2017) (Docket Entry ## 125, 125-1).
As indicated above, plaintiff seeks sanctions solely under
Fed. R. Civ. P. 37(e)(1) (“Rule 37(e)(1)”), which applies to
“electronically stored information.”

Fed. R. Civ. P. 37(e);

(Docket Entry # 90) (citing and relying on Rule 37(e)(1));
(Docket Entry # 96, p. 1) (plaintiff “currently seeks sanctions
under FRCP 37(e)(1), not 37(e)(2)”) (emphasis and capitalization
omitted).

For reasons explained by plaintiff (Docket Entry #

91), defendants did not preserve relevant documents consisting of
lost electronically stored information that was formerly in
defendants’ possession, custody, or control.

See Ortiz, 2017 WL

2294285, at *2 (“‘litigant is under a duty to preserve what it
knows, or reasonably should know, is relevant in the action’”)
(ellipses and citations omitted); id. (“‘fundamental factor is
that the document, or other potential objects of evidence, must
be in the party’s possession, custody, or control for any duty to
preserve to attach’”) (internal citations omitted).

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Additionally, in late September and October, defendants’ counsel
stated that everything had been produced thereby essentially
denying the ability to restore the information.3
91-2, ¶¶ 18, 21, 23).

(Docket Entry #

Subsequent efforts by plaintiff in issuing

third-party subpoenas directly to customers, however, uncovered
emails between defendants and their customers that were formerly
in defendants’ possession, custody, or control.
91-2, ¶¶ 23, 27, 36, 37).

(Docket Entry #

Under the language of the former Rule

37(e) and “the current rule, the routine, good-faith operation of
an electronic information system” is “a relevant factor for the
court to consider in evaluating whether a party failed to take
reasonable steps to preserve lost information.”

Fed. R. Civ. P.

37(e) advisory committee’s note to 2015 amendment.

The

circumstances do not support a good-faith operation.

Overall and

in light of the waiver,4 plaintiff sufficiently establishes the
requisite requirements to obtain sanctions under Rule 37(e)(1),
including defendants’ failure to take reasonable steps to
preserve electronically stored communications with third-party
customers purportedly using COPsync software.

See Postle v.

SilkRoad Tech., Inc., No. 18-CV-224-JL, 2019 WL 692944, at *3

3

Defendants waive an argument that Rule 37(e) does not
apply because the information can be restored or replaced through
discovery. See Eldridge, 863 F.3d at 84; Curet-Velázquez, 656
F.3d at 54.
4

See footnote three.
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(D.N.H. Feb. 19, 2019) (setting out threshold requirements to
impose sanctions under Rule 37(e)).
Defendants’ merits-based arguments, including the assertion
that the professional services agreement was never terminated
even though BCS admits the contrary (Docket Entry # 96-1), do not
obviate the requirement to preserve discovery materials, as aptly
reasoned by plaintiff (Docket Entry # 96, p. 3).

Citing a case

predating the 2015 amendment to Rule 37(e), Gordon v. DreamWorks
Animation SKG, Inc., 935 F. Supp. 2d 306, 313 (D. Mass. 2013)
(spoliation “requires finding four elements,” including “intent
to destroy the evidence”), defendants further argue that
spoliation requires that they acted with the “intent to destroy
evidence.”

(Docket Entry # 92, pp. 6-7).

The plain language of

Rule 37(e), however, does not require a showing of intent except
with respect to the choice of certain severe sanctions listed in
Rule 37(e)(2).

In addition, the inclusion of the “intent to

destroy evidence” language defendants suggest as a required
element to impose sanctions under Rule 37(e) would render the
similar language in Rule 37(e)(2), i.e., the “intent to deprive
another” party’s use of the lost information, largely
superfluous.

See Duncan v. Walker, 533 U.S. 167, 174 (2001)

(“statute ought, upon the whole, to be so construed that, if it
can be prevented, no clause, sentence, or word shall be
superfluous, void, or insignificant”) (internal quotations marks

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omitted); Liberty Cablevision of P.R., Inc. v. Municipality Of
Caguas, 417 F.3d 216, 223 (1st Cir. 2005).

Similarly, importing

an intent-to-destroy-evidence requirement into Rule 37(e)(1)
contravenes the accepted statutory construction principle that
inclusion of language in one section of a statute, i.e., Rule
37(e)(2) (“intent to deprive another party of the [electronically
stored] information’s use”), and the exclusion of such language
in another section, i.e., Rule 37(e)(1), evidences the
legislature’s intention to exclude the language in that latter
section.

See Russello v. United States, 464 U.S. 16, 23 (1983)

(“‘[W]here Congress includes particular language in one section
of a statute but omits it in another section of the same Act, it
is generally presumed that Congress acts intentionally and
purposely in the disparate inclusion or exclusion.’”) (internal
citation omitted); accord United States ex rel. Heineman-Guta v.
Guidant Corp., 718 F.3d 28, 35 (1st Cir. 2013).

Finally, the

case defendants rely upon, Gordon, 935 F. Supp. 2d at 313, did
not apply the amended Rule 37(e), and cases cited in the Gordon
decision involve the application of spoliation sanctions under
the court’s inherent power.

See Collazo-Santiago v. Toyota Motor

Corp., 149 F.3d 23, 28 (1st Cir. 1998) (examining court’s
“‘inherent power to exclude evidence that has been improperly
altered or damaged by a party’”) (internal citation omitted);
Citizens for Consume v. Abbott Labs., Civil Action No. 01-12257PBS, 2007 WL 7293758, at *5 (D. Mass. Mar. 26, 2007) (setting out
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elements, including “an intent to destroy the evidence,” to
impose sanctions for spoliation under court’s inherent powers);
McGuire v. Acufex Microsurgical, Inc., 175 F.R.D. 149, 153 (D.
Mass. 1997) (imposing “sanctions under the court’s inherent
powers”) (capitalization and emphasis omitted); Townsend v. Am.
Insulated Panel Co., 174 F.R.D. 1, 4 (D. Mass. 1997).

Finally,

the advisory committee note distinguishes the “[n]ew Rule 37(e)”
from independent tort claims for spoliation.

Fed. R. Civ. P.

37(e) advisory committee’s note to 2015 amendment.
Inasmuch as sanctions are warranted under Rule 37(e)(1), the
issue reduces to what sanctions or measures to impose.

“Where

electronically-stored information is lost due to the negligence
or gross negligence of a party, amended Rule 37(e)(1) permits
only the imposition of sanctions that are ‘no greater than
necessary to cure the prejudice.’”

Hefter Impact Techs., LLC v.

Sport Maska, Inc., Civil Action No. 15-13290-FDS, 2017 WL
3317413, at *6 n.3 (D. Mass. Aug. 3, 2017).

The choice of which

measures to employ takes into account the “importance of the
information of the lost information to claims and defenses in the
litigation.”

Fed. R. Civ. P. 37(e) advisory committee’s note to

2015 amendment.

The prejudice to plaintiff includes (but is not

limited to) engaging in “months of fact discovery trying to
recover” documents defendants failed to preserve, preparing for
depositions without electronically stored documents, and loss of

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goodwill with plaintiff’s “current and potential customers who
are being pulled into this litigation.”
22).

(Docket Entry # 91, p.

In accordance with Rule 37(e)(1), which limits “measures

[to] no greater than necessary to cure the prejudice” and applies
only to “electronically stored information,” Fed. R. Civ. P.
37(e), this court finds the following sanctions requested by
plaintiff appropriate: (1) defendants are directed to “take
responsibility for recovering additional lost or destroyed
[electronically stored] documents that should have been
preserved” with respect to third-party customer communications
after June 2, 2017;5 and (2) they “waive objections as to
authenticity and business record status for Defendants’
[electronically stored] communications with third parties
recovered through subpoenas.”

(Docket Entry # 90, p. 1).

The requested monetary sanctions are denied without
prejudice to be renewed at the conclusion of the case.

The

request for a jury instruction or allowing plaintiff to present
evidence about the destruction at trial is reserved for the trial
judge.
CONCLUSION
5

The above-noted electronically stored information of
third-party customer communications is highly relevant and
significant to the conversion and unjust enrichment claims. See
Fed. R. Civ. P. 37(e) advisory committee’s note to 2015 amendment
(“efforts to restore or replace lost information through
discovery should be proportional to the apparent importance of
the lost information to claims or defenses in the litigation”).
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The motion for sanctions and to compel (Docket Entry # 90)
is ALLOWED in part and DENIED in part as to the portion of the
motion seeking sanctions.

The portion of the motion seeking to

compel documents (Docket Entry # 90) is WITHDRAWN without
prejudice to be renewed if production is inadequate.

/s/ Marianne B. Bowler
MARIANNE B. BOWLER
United States Magistrate Judge

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