P I C Group Inc v. Landcoast Insulation Inc
ORDER granting in part and denying in part 376 Motion to Adopt Interim Status Report and Recommendations of Special Master, etc.; granting in part and denying in part 258 Motion for Sanctions. Signed by District Judge Keith Starrett on July 7, 2011 (dsl)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF MISSISSIPPI
PIC GROUP, INC.
CIVIL ACTION NO. 1:09–CV–662–KS–MTP
LANDCOAST INSULATION, INC., et al.
MEMORANDUM OPINION AND ORDER
For the reasons stated below, the Court adopts in part the Report and Recommendations
 of the Special Master.
The parties are aware of this matter’s factual and procedural history. Therefore, rather than
retread familiar ground, the Court adopts and incorporates the factual and procedural backgrounds
included in its previous orders. See PIC Group, Inc. v. LandCoast Insulation, Inc., No. 1:09-CV662-KS-MTP (S.D. Miss. Nov. 18, 2010) (order granting in part and denying in part motion to
compel); PIC Group, Inc. v. LandCoast Insulation, Inc., No. 1:09-CV-662-KS-MTP (S.D. Miss.
Feb. 18, 2011) (order granting motion to appoint expert for computer forensic recovery of ESI); PIC
Group, Inc. v. LandCoast Insulation, Inc., No. 1:09-CV-662-KS-MTP (S.D. Miss. May 18, 2011)
(order setting status and discovery conference and motions hearing).
On March 4, 2011, the Court appointed Craig Ball as Special Master pursuant to Rule 53 of
the Federal Rules of Civil Procedure. PIC Group, Inc. v. LandCoast Insulation, Inc., No. 1:09-CV662-KS-MTP, 2011 U.S. Dist. LEXIS 41441 (S.D. Miss. Mar. 4, 2011). The Court tasked the
Special Master with investigating and advising the Court as to the nature, extent, and sufficiency of
the identification, preservation, collection, search, processing, and production by Defendant of
potentially responsive and relevant information – particularly electronically-stored information
(“ESI”) – as it relates to discovery in this case. Id. at *4. The Court specifically instructed the
Special Master to investigate computer data allegedly lost; the efforts made to preserve, recover, or
replicate such data; and the ability, necessity, cost, and complexity of retrieving it. Id. Further, the
Court instructed him to provide a recommendation on Plaintiff’s Motion for Sanctions , and
to file a written report outlining his conclusions and activities. Id. at *4-*5. The Court held that it
would review the parties’ objections to the Special Master’s findings of fact or conclusions of law
on a de novo basis, but that any other order, report, or recommendation from Ball would be set aside
only if it was clearly erroneous or contrary to law. Id. at *6. Finally, the Court ordered that the
Special Master’s compensation, costs, and expenses shall be paid by LandCoast, but the Court
reserved the right to modify that ruling in light of his findings. Id. *6-*7 (citing FED. R. CIV. P.
The Special Master’s Interim Report
On April 26, 2011, the Special Master submitted an interim status report . He
summarized his findings to that point: “LandCoast’s e-discovery compliance in this case was wholly
devoid of competence, yet only once motivated by guile.” The Special Master traveled to
Defendant’s headquarters in New Iberia, Louisiana, on March 18, 2011, to acquire data from sources
he believed likely to contain responsive ESI, to which he could later compare Defendant’s prior
discovery responses. The Special Master represented that Defendant’s counsel and ESI consultant
provided the utmost cooperation and assistance. However, his interim analysis of Defendant’s
behavior and efforts in preserving responsive ESI was less complimentary.
First, the Special Master discovered that much – perhaps all – of the ESI sought by Plaintiffs
was “readily available and principally resides in places that one would routinely look for same.” In
April 2010, Defendant’s counsel employed a purported expert, Mr. Andrew Mozingo, to identify
responsive ESI. The Special Master provided a candid assessment of Mozingo’s qualifications: “He
was a well-intentioned novice given unreliable information.” Defendant advised Mozingo that its
e-mail server had been wiped in the summer of 2009, and Mozingo accepted Defendant’s
representation without attempting to verify its truthfulness or recover any of the allegedly erased
data. However, the Special Master found in his first visit to New Iberia the e-mail data which
Defendant claimed had been erased . A portable hard drive was connected to the e-mail server, and
it was named “Backups.” It contained what appeared to be a complete collection of company e-mail
since well before the e-mail server “wipe,” and the Special Master believed it contained “hundreds
– if not thousands – of responsive items.”1 He concluded that Defendant was not “acting in bad faith
to conceal the information.” Rather, “they simply had no idea what they had and exerted little effort
The Special Master “found no evidence of any corporate policy, procedure or concerted
effort on LandCoast’s part to preserve electronic evidence.” Defendant did not issue a formal, timely
litigation hold to its key personnel or IT staff. Further, it made no attempt to collect or sequester
data. The Special Master stated, “I saw no evidence that LandCoast or its counsel engaged anyone
to preserve, collect or examine potentially responsive ESI until long after” they should have. Finally,
he observed that “neither current nor prior defense counsel appreciated how far their perception of
the work done to produce ESI fell short of the reality of its non-production.” According to the
In his final Report and Recommendations, Ball noted that Defendant’s server room
contained several back-up devices.
Special Master, Defendant’s previous counsel treated the ESI issues “as a nuisance,” ignoring them
as long as possible. However, Defendant’s current counsel has made notable strides, finally retaining
a qualified expert, Mr. Jerry Hatchett.
Perhaps the most noteworthy section of the Special Master’s interim report was that
concerning Defendant’s Manager of Legal Affairs, Craig Marks. Marks is Defendant’s principal
liaison with outside counsel, and he was responsible for ensuring Defendant’s compliance with ESI
preservation and production obligations. Indeed, the Special Master observed that Marks took an
active role in this case, acting as Defendant’s unofficial general counsel.2 Shortly after the Special
Master’s appointment, he e-mailed instructions to counsel, which were then forwarded to Marks.
In his e-mail, the Special Master advised that immediate, affirmative steps should be taken to ensure
that employees did not attempt to destroy data or engage in any other actions meant to impede the
investigation. The Special Master explicitly stated that he had no interest in any activity or
information that was irrelevant to this case. He assured the parties that he did not intend to report
any inappropriate uses of their computer which were irrelevant to this case, with one exception:
evidence that a computer’s user was “amassing or trading in child pornography.”
On the morning of March 18, 2011 – the day Marks knew Ball was coming to collect data
– Marks used a piece of antiforensic software named “Piriform CCleaner” to destroy information
Marks holds a law degree from Louisiana State University, and he was a practicing
attorney for many years before joining Defendant. In 2004, he “pleaded no contest to one felony
count of indecent behavior with a juvenile . . . arising out of his intimate relationship with a
fourteen-year old girl.” In re Marks, 955 So. 2d 1262, 1263 (La. 2007). According to the
recommendation of the Louisiana Attorney Discipline Board, Marks was implicated, at least in
part, by ESI. See In re Craig W. Marks, No. 05-DB-037 (La. Attorney Discipline Bd. Feb. 16,
2007) (Recommendation to the Louisiana Supreme Court). The Supreme Court of Louisiana
permanently barred Marks from practicing law. In re Marks, 955 So. 2d at 1263.
on his computer. The Special Master noted that CCleaner is not illegal, and that there is nothing
inherently sinister about a computer user protecting his or her privacy. Indeed, CCleaner is marketed
as a “system optimization, privacy and cleaning tool.” See http://www.piriform.com/ccleaner/. While
it “cleans traces of your online activities such as your Internet history,” it also “removes unused files
from your system – allowing Windows to run faster and freeing up valuable hard disk space.” Id.
However, the Special Master concluded that Marks’ actions were not motivated by legitimate
concerns. Rather, he believes that Marks intentionally ran the program in an effort to conceal
information before the investigation. The Special Master noted: 1) Marks is Defendant’s Manager
of Legal Affairs; 2) Marks holds a law degree; 3) Marks was a practicing litigator for many years;
and 4) Marks used the program on the morning of the day he knew the Special Master would arrive
to search for data.3
The Special Master could not ascertain what data Marks erased from the computer. Indeed,
he admitted that he does not know whether it was relevant or discoverable. However, the Special
Master believes that Marks “acted with contempt for the rights of the parties and the Court,” and he
asserted “with confidence” that Marks intentionally destroyed data on the morning he was scheduled
to search for relevant and discoverable ESI. The Special Master recommended that the Court order
Defendants to produce the entire contents of Marks’ computer, regardless of privilege or relevance.
The Special Master reported other examples of destroyed or lost information. One of
The Special Master noted that Andrew Mozingo had pulled data from Marks’ laptop
earlier in the case. His analysis of the data revealed that Marks had periodically used a program
called “Privacy Protector X-Treme” to delete data from the computer. In fact, Marks used the
program immediately before Mozingo pulled data from the laptop. However, after analysis of the
program’s logs, the Special Master believes that Marks had it set to run daily and failed to
disable it once he had a duty to preserve ESI. In contrast, the CCleaner program was manually
Defendant’s employees, Dan Anderson, claimed that his laptop was stolen from his parked car
approximately a year after the scaffolding collapse. Before the theft, Robert Maw, Defendant’s IT
Manager at the time, imaged the laptop’s contents to create a backup. However, Maw later claimed
to have lost the drive image. Also, two to three months after the scaffolding collapse, Maw
completely erased the contents of the computer used by Tom Guidry, Defendant’s Manager of
The Special Master’s Final Report and Recommendations
On June 3, 2011, the Special Master provided the Court with his final Report and
Recommendations . He noted that Defendant had produced a substantial amount of ESI, but
that they had not yet completed production. He did not attribute Defendant’s failure to complete
discovery to lack of diligence, however. He noted “extenuating circumstances involving software
glitches and illness.” He summarized his findings: “There were clearly instances of intentional
misconduct, bad faith and gross negligence attendant to LandCoast’s abject failure to meet its ediscovery duties; but, in the main, LandCoast’s failures grew out of a callous and careless attitude
toward discovery more than from a craven effort to hide or destroy information.”
Although the Special Master was repeatedly advised by Defendant and its counsel that
Defendant was not a “sophisticated” company, he observed that Defendant’s employees used e-mail,
laptops, smart phones, external hard drives, flash drives, and other devices typical to a modern
business setting. Additionally, while on Defendant’s premises, he saw older server models,
indicating that Defendant had utilized IT systems for some time. Finally, the Special Master noted
that he didn’t find the responsive ESI through sophisticated tools or techniques. Rather, he simply
looked for it, in the same manner that a secretary looks for a document or e-mail.
The Special Master noted that Plaintiff was prejudiced by Defendant’s failure to provide
relevant and responsive ESI in a timely manner, which prevented Plaintiff from using the materials
as it would any other evidence. As a remedy, the Special Master recommends that the Court allow
Plaintiff to re-depose certain witnesses as to the specific content of the ESI which was recently
produced, that Defendant bear the cost of the depositions to the extent that Plaintiff can demonstrate
that they would not have been incurred if the ESI were timely produced, that discovery be reopened, and that all scheduled dates continued for sixty to ninety days for the limited purpose of
addressing the belatedly produced ESI.
With respect to fees and costs, the Special Master recommends that all of Plaintiff’s fees and
costs associated with Defendant’s mishandling and spoliation of ESI – beginning somewhere
between November 1, 2010, and December 21, 2010 – should be assessed against Defendant as a
remedial measure. He does not recommend that all time spent on ESI-related issues be billed to
Defendant, as Plaintiff would presumably have incurred some costs regardless of Defendant’s
misconduct. Therefore, he recommends that the Court order Plaintiff to provide a detailed
accounting of the fees, costs, and expenses incurred as a direct consequence of Defendant’s failure
to meet its discovery obligations, and that the Court require Defendant to pay the sum directly,
without seeking reimbursement or indemnity from its insurer. The Special Master also recommends
that the Court require Defendant to pay his fees, costs, and expenses, and he notes that the Court has
already ordered as much in its order appointing him.
Finally, the Special Master recommends that the Court require Defendant to produce the
entire contents of Craig Marks’ laptop imaged on March 19, 2011. He recommends that the Court
deem any objections on grounds of privilege or relevance to be waived, but he believes that the
Court should limit Plaintiff’s counsel’s use or disclosure of any information discovered to that which
is relevant to this matter. As a safeguard, he recommends that the Court enter an order under Federal
Rule of Evidence 502(d), establishing that Defendant has not waived any applicable protections or
privileges in other matters.
The Special Master notes that there is no factual dispute as to Marks’ misconduct. The only
unknown factors are the scope of the evidence destroyed and Marks’ motivation. Further, the Special
Master believes that Marks’ continued employment as Defendant’s Manager of Legal Affairs –
despite his intentional destruction of potentially relevant and responsive ESI – is tantamount to
ratification of Marks’ actions. The Special Master noted:
Since my interim report, LandCoast has suggested that Mr. Marks’ actions were
geared only to the destruction of information connected to other litigation, but not
to the instant case. I did not find this reassuring insofar as LandCoast’s perception
of its preservation obligations. I cannot attach any credibility to Mr. Marks’ claim
that, on the day I arrived to look at his computer in this litigation, he confined
himself solely to destruction of ESI not related to this litigation or the subject
construction project. Even if I were so naive as to accept the claim, I would question
the capability to deploy the wiping tool used with such precision. It has no setting for
“wipe only evidence in other matters.” That LandCoast’s forensic expert, Jerry
Hatchett, found no remnants of data pertaining to this case in his examination of
Marks laptop speaks as much to the likelihood of Marks having targeted information
in this case for destruction as it does to his having studiously excluded same from his
swath of spoliation.
Despite the egregious and irreversible nature of Marks’ actions, the Special Master does not believe
that Plaintiff will be materially prejudiced by them. He believes the more important issue is Marks’
complete lack of respect for the judicial process. Further, he believes that Defendant is complicit in
Marks’ actions, by virtue of the fact that it employed him as their in-house counsel in all but title.
Indeed, they continue to employ him, although counsel has represented that he is no longer
principally responsible for responding to discovery in this matter.
Finally, the Special Master recommends that the Court impose a monetary sanction in a sum
no greater than $50,000.00, with the condition that it may not be paid, reimbursed, or indemnified
by any party other than Defendant. He does not believe that an adverse inference instruction as to
the contents of the destroyed evidence would have a punitive impact on Defendant, as Defendant’s
insurer would likely bear the brunt of any resulting judgment. Further, the Special Master noted that
an adverse inference instruction would have little impact here, as liability is less prominent an issue
in this case than damages. Regardless, the Special Master recommends that if the Court gives such
an instruction, it take the form of a rebuttable presumption.
II. DEFENDANT’S OBJECTIONS
Of course, Defendant objects to the Special Master’s report and recommendations. Each of
Defendant’s objections focuses primarily on the proportionality of the Special Master’s
recommendations and his particular recommendations as to the actions of Craig Marks. There is no
dispute as to the basic facts contained in the Special Master’s report and recommendations. The
Court will first address Defendant’s objections, and then it will discuss its authority to impose
sanctions under Rule 37.
The Special Master’s Recommendations Regarding Craig Marks
Defendant argues that the Special Master’s recommendations pertaining to the actions of
Craig Marks are inappropriate. Defendant addresses two issues: 1) Marks’ motivation; and 2) the
degree of prejudice to Plaintiff, if any.
With respect to the first issue, Marks claims that his computer became infected with a virus
and froze on the morning of the Special Master’s visit. Therefore, he ran several programs, including
Piriform CCleaner, to “clean [his] computer of whatever had infected it so [he] could return to
work.” He claims that there was no intention to delete anything on his computer other than whatever
had infected his computer, and that he believed any responsive and discoverable e-mails within the
scope of the Court’s discovery orders were secure.
The Court finds this testimony unpersuasive. Marks has a law degree, and he is a former
litigator. He knows the Rules of Civil Procedure, and he has essentially functioned as Defendant’s
in-house counsel throughout this matter. He guided their discovery compliance. He knew that the
Special Master was scheduled to visit on the day he deleted information from his computer, and he
knew that the Court had ordered the parties to cooperate with the Special Master. Finally, he knew
that the Special Master had instructed the parties to preserve potentially relevant information. There
is no legitimate reason why a person with the sophistication, knowledge, and experience of Craig
Marks would intentionally run a program intended to permanently delete or mask information under
these circumstances. Cf. FDIC v. MAXXAM, Inc., 523 F.3d 566, 580-81 (5th Cir. 2008) (district
court may read an ulterior motive into well-grounded filings where improper purpose was
objectively ascertainable). The timing of events is simply too suspicious in light of Marks’
knowledge and experience as a former attorney, and his actions can not be set aside as if they were
missteps by a low-level employee. Cf. Coane v. Ferrara Pan Candy Co., 898 F.2d 1030, 1033-34
(5th Cir. 1990) (expectations of heightened standard of conduct by a litigant who was also an
attorney was appropriate). Regardless of whether he intended to delete relevant and discoverable
information, clear a virus from his computer, or conceal other matters not related to this litigation,
he knowingly defied a Court order.
With respect to the degree of prejudice to Plaintiff caused by Marks’ actions, Defendant’s
computer expert submitted an affidavit in which he claimed that he found several “fragments of e-
mails previously deleted from Mr. Marks’ hard drive, none of which appeared to be related to the
subject scaffolding collapse or any other aspect of the subject lawsuit.” However, during the hearing
on June 16, 2011, the Special Master observed that Defendant’s expert did not claim to have
recovered all the data deleted by Marks. Of course, no one – except, perhaps, Marks himself –
knows the full extent of what was deleted from the computer. The Court is not impressed by
Defendant’s assurance that the portion of data they have recovered was neither responsive nor
relevant, in that there is no way to confirm that everything Marks deleted was similarly unresponsive
and irrelevant. The suspicious timing of Marks’ actions casts a heavy pall over Defendant’s
Furthermore, the degree of prejudice caused by Marks’ actions is less troubling than the
cavalier attitude of which his actions are indicative. Remedying prejudice is not the sole purpose of
sanctions. They also deter and punish misconduct. Fleming & Assocs. v. Newby & Tittle, 529 F.3d
631, 638 (5th Cir. 2008). Nonetheless, the Court is mindful that the Special Master conceded that
Marks’ actions probably had little prejudicial effect on Plaintiff.
The Proportionality of the Special Master’s Proposed Sanctions
The Relative Severity of Defendant’s Conduct
Defendant argues that the Special Master’s recommendations are disproportional to its
conduct in this matter. With respect to Marks’ conduct, Defendant notes that Marks denies any
intention to destroy evidence relating to this matter, and Defendant argues that the Special Master’s
recommendations are motivated by his desire to see Marks punished, rather than to see justice done.
The Court has already addressed Marks’ conduct above, but will briefly address it once more.
Marks is a former attorney, and he functioned as Defendant’s de facto in-house counsel. The
suspicious timing of his actions and his knowledge and experience as a former attorney provide the
Court with sufficient basis to impose sanctions on Plaintiff. Cf. MAXXAM, Inc., 523 F.3d at 580-81;
Coane, 898 F.2d at 1033-34. However, Marks’ laptop – by virtue of his position as Manager of
Legal Affairs and experience as a former attorney – likely contains Defendant’s most confidential
attorney-client communications, including discussions of settlement possibilities and his assessment
of Defendant’s potential exposure to liability. Even if the Court knew for certain that Marks deleted
relevant and discoverable information, granting Plaintiff access to such communications would be
a severe sanction. See United States v. Phillip Morris, Inc., 347 F.3d 951, 954 (D.C. Cir. 2003)
(waiver of a privilege is a serious sanction, suitable for cases of unjustified delay, inexcusable
conduct, and bad faith). While “[s]poliation is a serious offense and a party’s intentional destruction
of relevant evidence threatens the sanctity and spirit of the judicial process,” Union Pump Co. v.
Centrifugal Tech., Inc., 404 F. App’x 899, 906 (5th Cir. 2010), the Court has no direct evidence that
Marks destroyed relevant evidence, and the Special Master believes it unlikely that Marks did so.
In addition to Marks’ actions, the Special Master reported the conveniently-timed theft of
Dan Anderson’s laptop, the unexplained disappearance of a drive image taken of Dan Anderson’s
laptop, and the inexplicable erasure of Tom Guidry’s computer. Further, the Special Master
discovered that much of the ESI sought by Plaintiffs was “readily available and principally resides
in places that one would routinely look for same.” While the Special Master concluded that
Defendant was not “acting in bad faith to conceal the information,” he believed that “they . . .
exerted little effort to investigate.” He “found no evidence of any corporate policy, procedure or
concerted effort on LandCoast’s part to preserve electronic evidence.” Defendant did not issue a
formal, timely litigation hold to its key personnel or IT staff. Further, it made no attempt to collect
or sequester data. Ball stated, “I saw no evidence that LandCoast or its counsel engaged anyone to
preserve, collect or examine potentially responsive ESI until long after” they should have.
Therefore, the primary effects of Defendant’s failures to comply with its ESI obligations are:
1) the tremendous expense of time and other resources that they have occasioned, and 2) the
potential threat to the judicial process posed by such casual disregard for discovery obligations.
While these effects are arguably not as despicable as the intentional destruction of relevant evidence,
they can not be dismissed as inconsequential. After all is said and done, the parties will have easily
rung up over a half million dollars in combined attorney’s fees, expenses, and costs associated with
this discovery dispute, and the Court will have expended far more of its resources than it should
have over the production of a few documents of questionable worth.4 No one benefits from
discovery disputes such as this one except for the attorneys collecting fees.
Regardless, Defendant’s gross negligence in preserving and producing ESI – combined with
Marks’ suspicious and inexcusable disregard for the Court’s order to cooperate with the Special
Master – merit sanctions, if for no other reason than to provide a lesson in what this Court expects
from litigants. Accordingly, the Court orders Defendants to produce the contents of Marks’
computer, with the exception of (1) those materials which are protected by attorney-client privilege;
and (2) those materials which include discussion of potential settlement in this matter. The Court
deems all other objections waived, including relevance and work product. Defendant shall provide
a privilege log which complies with Local Rule 26(a)(1)(C). Failure to provide a privilege log which
Defendant argues that its failure to produce the documents at issue did not prejudice
Plaintiff. This argument cuts both ways. If the documents are of such little consequence, why did
Defendant not comply with its discovery obligations in the first place and produce them in a
timely fashion? Indeed, if the ESI in question has little to no value, Defendant has wasted the
Court’s time and a significant amount of money for nothing.
complies with Local Rule 26 may result in waiver of all privileges. See Agee v. Wayne Farms, LLC,
No. 2:06-CV-268-KS-MTP, 2007 U.S. Dist. LEXIS 73396, at *14-*16 (S.D. Miss. Oct. 1, 2007);
The Presence of Bad Faith
Next, Defendant argues that its conduct does not rise to the level of bad faith or intentional
destruction of ESI. Therefore, Defendant contends that the Special Master’s recommended sanctions
are more severe than warranted by the facts. However, it is undisputed that Craig Marks
intentionally ran the CCleaner program, which deleted information from his laptop. Marks knew the
program’s function, as evidenced by the affidavit in which he admits he intended to delete “whatever
was infecting the computer.” Marks is a former attorney, and he should have known how suspicious
it would look for him to run the program on the very morning that the Special Master was scheduled
to visit. Further, he knew that he had an obligation to refrain from deleting anything from his
computer, in accordance with the Court’s order to cooperate with the Special Master’s investigation.
The Court has no hard evidence that Marks intentionally deleted relevant and discoverable evidence.
However, the Court does not believe that one with the legal knowledge and experience of Marks
would have committed such actions without a nefarious purpose.
Beyond the actions of Craig Marks, the Special Master also reported the conveniently timed
theft of Dan Anderson’s laptop, the unexplained disappearance of a drive image taken of Dan
Anderson’s laptop, and the inexplicable erasure of Tom Guidry’s computer. If each of these events
were considered in isolation, it may not be sufficient to give rise to a finding of bad faith. However,
when combined with Marks’ actions, the Court believes there is sufficient evidence to cast doubt
on Defendant’s representation of good faith.
Defendant specifically addressed the Special Master’s comments regarding its failure to
locate its back-up e-mail servers. Defendant argues that Robert Maw, its own IT employee, and
Andrew Mozingo, the first computer specialist it hired to assist with ESI, advised that the e-mail
information was irretrievable. The Court is sympathetic to Defendant’s argument on this point. It
would be unreasonable to expect parties to wholly dismiss the advice of purported experts retained
to assist in ESI matters. However, according to the Special Master, there were multiple external hard
drives connected to the e-mail server, at least one of which was titled “Backups “ on the network.
The undersigned is sympathetic to Defendant’s alleged lack of technological savvy, but even the
undersigned – who often relies upon IT staff for technological advice – knows what an external hard
drive looks like and understands that there are multiple folders and/or drives which show up in the
Court’s main network directory. If Defendant’s failure to locate the back-up e-mail information was
as innocent as it argues, it was, at best, gross negligence.5
The Prejudice to Defendant
Next, Defendant argues that the Special Master’s recommended sanctions are disproportional
to its conduct in this matter because there was little prejudice to Plaintiff. Defendant contends that
neither the Special Master nor Plaintiff can identify any new, material information contained in the
recently-produced ESI. First, the Court notes that Plaintiff has been prejudiced by having to fight
this discovery battle in the first place. Regardless of whether the information withheld turns out to
be important, Defendant admits that it should have been produced, and their failure to do so has
For example, if Defendant actually made an effort to comply with its ESI obligations,
the server room would have been a logical place to look. If Defendant’s employees actually
looked in the server room, did they not wonder what was on the multiple hard drives attached to
the e-mail server? Furthermore, did Defendant not take the simple step of running a search for
files or folders on Defendant’s network labeled “backups”?
forced Plaintiff to incur a substantial amount of fees and expenses. Further, Defendant’s failure to
comply with discovery obligations prevented Plaintiff’s “timely and appropriate preparation for
trial,” as evidenced by the Court’s imminent continuance of the trial date and re-opening of
discovery. Doe v. Am. Airlines, 283 F. App’x 289, 292 (5th Cir. 2008).
Whether Defendant Has Suffered Enough Already
Finally, Defendant argues that it has already incurred significant fees and expenses in
complying with its ESI obligations. Defendant contends that these sums are tantamount to sanctions,
representing that it has incurred approximately $125,000.00 in expert fees and $100,000.00 in
additional legal expenses as a result of this discovery dispute. First, the Court notes that at least
some of that expense would have been incurred regardless of Defendant’s failure to timely comply
with its ESI obligations. Second, it would simply be unjust to force Plaintiff to shoulder a portion
of the Special Master’s fees, as the Special Master’s appointment was caused by Defendant’s lack
of diligence in discovery. Likewise, Plaintiff has incurred substantial fees in this discovery dispute
that it would not have incurred if Defendant had timely complied with its discovery obligations. The
Court’s primary concern is equity, and it simply would not be equitable to force Plaintiff to shoulder
the burden for expenses that would not have been incurred but for Defendant’s failure to fulfill its
discovery obligations. B. F. Goodrich Tire Co. v. Lyster, 328 F.2d 411, 416 (5th Cir.1964) (in
conducting Rule 37 analysis, court held that its final responsibility was to see justice done between
III. THE COURT’S AUTHORITY TO IMPOSE SANCTIONS
Under Rule 37, the Court may impose “just” sanctions, including the payment of reasonable
expenses, including attorney’s fees, caused by a party’s failure to comply with discovery orders.
FED. R. CIV. P. 37(b)(2); see also Tollett v. City of Kemah, 285 F.3d 357, 368 (5th Cir. 2002).
“Although sanctions under the Court’s inherent power require a finding of bad faith, sanctions under
Rule 37 do not.” Sample v. Miles, 239 F. App’x 14, 21 n. 20 (5th Cir. 2007) (punctuation omitted).
Even negligent failures to comply with discovery orders fall within Rule 37’s ambit. Coane, 898
F.2d at 1032. Further, parties violating Rule 37 who possess sufficient legal experience to
understand discovery obligations should bear the costs of their non-compliance. Id. (attorney who
understood discovery obligations should alone bear the cost of his “cavalier attitude” toward
discovery). “In final analysis, a court has a responsibility to do justice between man and man . . . .”
B. F. Goodrich Tire Co., 328 F.2d at 416 (conducting Rule 37 analysis).
Defendant clearly violated Rule 37. It failed to produce relevant ESI in a timely fashion, and
it later deleted potentially relevant ESI in direct violation of a Court order to cooperate with the
Special Master. While Defendant have made admirable strides in complying with its discovery
obligations in a relatively short period of time, its failure to comply months ago caused both parties
to incur substantial expense. Furthermore, its discovery failures caused the Court to expend an
inordinate amount of time adjudicating a discovery matter – to the point that the trial date will be
continued. Therefore, it is only just that Defendant bear the costs of its actions: the Special Master’s
fee’s and expenses, and Defendant’s fees and expenses caused by Plaintiff’s discovery failures.
Accordingly, the Court adopts the recommendation of the Special Master and orders that
Defendant shall reimburse Plaintiff for the fees, costs, and expenses it has incurred due to
Defendant’s failure to timely produce relevant and responsive ESI. Plaintiff shall file a detailed
accounting of its fees and expenses incurred as a direct consequence of Defendant’s failure to meet
its e-discovery obligations since November 1, 2010 – including, but not necessarily limited to, fees
and expenses incurred in pursuing motions to compel and sanctions. Plaintiff shall not include fees
and expenses it would have incurred regardless of Defendant’s failure to timely comply. Tollett, 285
F.3d at 368. Defendant then has two weeks to file a response to the accounting and assert any
objections thereto. Plaintiff shall then have one week to file a rebuttal. After reviewing the parties’
briefs, the Court will enter an award. To the extent Plaintiff incurs additional expenses as this case
moves forward which were caused by Defendant’s failure to timely comply with its discovery
obligations (such as expenses incurred in re-deposing certain individuals), Plaintiff may seek
reimbursement for such matters by motion on a later date.
Finally, the Court orders that all monetary sanctions imposed by this Order shall be paid
directly by Defendant, and it shall not seek indemnification from its insurer. Other district courts
have entered similar orders. See Phoenix Four, Inc. v. Strategic Resources Corp., No. 05 Civ. 4837,
2006 WL 1409413, at *9 (S.D.N.Y. May 23, 2006) (party was required to pay discovery sanctions
without seeking indemnification from its insurer); Ass. Radio Serv. Co. v. Page Airways, Inc., 73
F.R.D. 633, 636 (N.D. Tex. 1977) (court required attorney to pay sanctions for discovery violations
without reimbursement from client). Further, Rule 37 allows the Court to enter any just order when
a party fails to obey a discovery order. FED. R. CIV. P. 37(b)(2)(A). There is no Fifth Circuit case
which directly addresses whether a district court may impose monetary sanctions under Rule 37 with
a stipulation that the sanctioned party not be indemnified by its insurer. However, the Fifth Circuit
has affirmed a district court’s imposition of monetary sanctions on an attorney under Rule 11 with
a stipulation that the attorney may not seek reimbursement from his client or employer. See Chilcutt
v. United States, 4 F.3d 1313, 1326 (5th Cir. 1993).
Defendant seeks to distinguish Chilcutt by arguing that the present case involves discovery
violations by a corporate party, rather than an experienced attorney. The Court finds this argument
unpersuasive. As noted above, Defendant’s Manager of Legal Affairs is a former litigator, and he
functioned as Defendant’s de facto in-house counsel. Defendant is not an unsophisticated party,
inexperienced in navigating procedural rules and discovery obligations. Next, Defendant argues that
its actions were not intentional acts designed to adversely affect Plaintiff’s claims, but rather were
the result of a “careless and callous attitude toward discovery.” There is no dispute that Marks
intentionally deleted information from his computer in direct violation of the Court’s order for the
parties to cooperate with the Special Master’s investigation. Regardless, Defendant’s efforts in
complying with its ESI obligations before the Court appointed a Special Master were so minuscule
that they could be fairly characterized as abandonment of the ESI process. Indeed, the Special
Master used the word “callous” to describe Defendant’s ESI efforts, implying an intentional
disregard for discovery obligations. Therefore, the Court is unpersuaded by Defendant’s attempt to
distinguish Chilcutt on this ground.
In light of Marks’ position as de facto in-house counsel for Defendant, his litigation
experience, the highly suspicious timing of his deletion of data, Defendant’s overall disregard for
its ESI obligations prior to the Court’s appointment of the Special Master, and the amount of time
and money that has been expended due to Defendant’s undisputed discovery violations, the Court
believes that the Special Master’s proposed payment limitation is appropriate. If corporate parties
believe that they will be indemnified by their liability insurer for sanctions imposed due to
misconduct in litigation, the punishment necessarily loses some of its sting. The Court’s primary
purpose in imposing sanctions here is to ensure that the party responsible for this discovery dispute
bears the resulting costs. B. F. Goodrich Tire Co., 328 F.2d at 416. A secondary – but no less
important – purpose in imposing sanctions is to deter such conduct in the future, whether by the
present parties or any others that appear before the Court. Fleming & Assocs., 529 F.3d at 638.
IV. THE COURT’S CONCLUSIONS
For all the reasons stated above, the Court adopts the factual findings of the Special Master,
as outlined in his interim status report  and final report and recommendations , and it
adopts in part his final recommendations. Specifically:
With respect to Plaintiff’s attorney’s fees and costs, the Court adopts the
recommendation of the Special Master. Within seven days of the entry of this
order, Plaintiff shall file a detailed accounting of its fees and expenses
incurred as a direct consequence of Defendant’s failure to meet its ediscovery obligations since November 1, 2010. Plaintiff shall not include fees
and expenses it would have incurred regardless of the timeliness of the ESI’s
production. Defendant then has two weeks to file a response to the
accounting and assert any objections thereto. Plaintiff shall then have one
week to file a rebuttal. After reviewing the parties’ briefs, the Court will
enter an award. To the extent Plaintiff incurs further fees and expenses as this
matter moves forward, they may seek reimbursement by motion at a later
With respect to the Special Master’s fees and costs, the Court adopts the
recommendation of the Special Master. Defendant shall bear the fees, costs,
and expenses of the Special Master.
With respect to the information contained on Craig Marks’ laptop, the Court
adopts in part the recommendations of the Special Master. The Court holds
that Defendant has waived all objections to the production of the laptop’s
contents, with the exception of (1) attorney-client privilege, and (2) any
documents containing discussion of settlement in this matter. Defendant shall
produce the laptop’s contents which were secured on March 19, 2011. Any
contents redacted must be documented in a privilege log which complies with
Local Rule 26(a)(1)(C). Failure to provide a sufficient privilege log may
result in waiver of all objections. Plaintiff’s counsel may not use or disclose
any content produced which is unrelated to the present lawsuit, and the Court
orders that, pursuant to Federal Rule of Evidence 502(d), Defendant has not
waived any objections in other proceedings by producing the laptop’s
contents in this case.
The Court declines to adopt the recommendation of the Special Master with
respect to monetary sanctions beyond the Special Master’s fees and costs and
Plaintiff’s fees and costs incurred due to Defendant’s failure to comply with
its discovery obligations.
With respect to an adverse inference instruction, the Court adopts the
recommendation of the Special Master and declines to impose any such
The Court grants in part and denies in part Plaintiff’s Motion for Sanctions
. To the extent Plaintiff’s Motion for Sanctions seeks any of the relief
granted in this order, it is granted. To the extent it seeks any relief not
granted in this order, it is denied.
With respect to the scheduling order, the Court adopts the Special Master’s
recommendations. Discovery shall be re-opened on a limited basis, and the
trial of this case shall be continued from its current setting for a period of no
more than ninety days. The Court understands that the Magistrate Judge has
already conferred with the parties to discuss the appropriate scope of
discovery during this extended period. Therefore, the Court will leave the
matter of addressing Plaintiff’s Motion to Amend the Case Management
Order  to the Magistrate Judge, within the time limitation imposed by
this order. Counsel shall contact the chambers of the Magistrate Judge within
three days of the entry of this order to schedule a teleconference regarding
the new scheduling deadlines and the scope of discovery moving forward.
Defendant shall pay all of the above monetary sanctions themselves. They
shall not seek indemnification or reimbursement from their insurance
SO ORDERED AND ADJUDGED this 7th day of July, 2011.
UNITED STATES DISTRICT JUDGE
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