Nieman v. Hale et al

Filing 120

Memorandum Opinion and Order denying 86 MOTION for Discovery Sanctions. (See order for specifics) (Ordered by Magistrate Judge David L Horan on 4/21/2014) (mcrd)

IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
JASON LEE NIEMAN,
Plaintiff,
V.
KEITH HALE, ET AL.,
Defendants.

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No. 3:12-cv-2433-L-BN

MEMORANDUM OPINION AND ORDER ON MOTION FOR DISCOVERY
SANCTIONS AGAINST DEFENDANTS KEITH HALE
AND INSURANCE SEARCH GROUP
This case has been referred to the United States magistrate judge for pretrial
management pursuant to 28 U.S.C. § 636(b) and a standing order of reference from the
District Court. Plaintiff Jason Nieman has filed a Motion for Discovery Sanctions
against Defendants Keith Hale and Insurance Search Group. See Dkt. No. 86 (the
“Motion for Sanctions”). Defendants filed a Response [Dkt. No. 108], and Plaintiff filed
a Reply [Dkt. No. 109]. The Court now denies the Motion for Sanctions.
Background
Plaintiff filed a motion to compel on October 15, 2013. See Motion to Compel
Discovery Responses of Defendants Keith Hale and ISG (the “Motion to Compel”) [Dkt.
No. 44]. After briefing from the parties, including a joint status report that the Court
required the parties to file, the Court entered an order on December 26, 2013 granting
in part and denying in part the Motion to Compel (the “12/26/13 Order”). See Dkt. No.
65. Specifically, the Court ordered Defendants to:
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log any withheld communications that post-date March 24, 2011
(the date that Defendants have put forth as the date when the
common interest or joint defense commenced) between Defendants’
counsel and RLI Corp. (or RLI Corp.’s counsel) and provide an
adequate showing of the privilege’s or protection’s applicability;

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disclose the identity of John Doe Corporation;
produce all non-privileged documents responsive to Request for
Production (“RFP”) Nos. 5, 7, 12 (with appropriate redactions), 14
(with appropriate redactions), 16, 18, 19, 21, 24, 26, and 27; and

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provide certain information responsive to Interrogatory Nos. 9, 18
and 20.

In his Motion for Sanctions, Plaintiff expressed dissatisfaction with Defendants’
supplementation of certain RFPs and interrogatories as required by the 12/26/13
Order. See Dkt. No. 86 at 4-5. In particular, Plaintiff took issue with the number of
entries on Defendants’ privilege log. See id. In his Reply, Plaintiff appears to seek
sanctions based on Hale’s conduct at his deposition but also states that he “will plan
to file a supplemental motion for sanctions.” Dkt. No. 109 at 6. In any case, Plaintiff’s
allegations regarding Hale’s conduct in his deposition are new arguments and should
not be raised for the first time in a reply. The Court will not consider Plaintiff’s
arguments regarding Hale’s deposition or any new arguments raised by Plaintiff in his
Reply. See Digital Generation, Inc. v. Boring, 869 F.Supp. 2d 761, 771 (N.D. Tex. 2012)
(declining to consider new arguments or evidence raised in reply brief).
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The Court held a telephonic conference with Plaintiff and Defendant Hale on the
Motion for Sanctions on April 2, 2014. See Dkt. No. 112. At the telephonic hearing, the
Court required Defendants to deliver to the Court copies of the “Letter Agreement” and
“Waiver of Conflicts” for in camera review and to file a status report with the Court
regarding Defendants’ compliance with the 12/26/13 Order requiring (1) that, “to the
extent that Defendants claim that the joint-defense or common-interest doctrine
applies to communications in connection with the Illinois Action, Defendants must log
any withheld communications that post-date March 24, 2011 (the date that Defendants
have put forth as the date when the common interest or joint defendant commenced)
between Defendants’ counsel and RLI Corp. (or RLI Corp.’s counsel) and provide an
adequate showing of the privilege’s or protection’s applicability through the
joint-defense or common-interest doctrine under the governing law laid out above” and
(2) that “Defendants are ordered to produce all documents responsive to RFP No. 5.”
Order on Plaintiff’s Motion for Discovery Sanctions Against Defendants, dated April
2, 2014 (the “4/2/14 Order”) [Dkt. No. 115]. The Court also ordered Defendants to serve
on Plaintiff supplemental responses to Plaintiff’s Interrogatory Nos. 18 and 20. See id.
Defendants timely delivered to the Court the documents required for in camera
review and filed the status report. See Dkt. Nos. 116 & 117.
On April 9, 2014, the Court ordered Defendants to produce the “Letter
Agreement” but permitted Defendants to withhold the “Waiver of Conflicts” as
privileged. See Dkt. No. 116. Defendants’ status report reflects that they have complied
with the Court’s order. See Dkt. No. 117.
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Shortly after Defendants filed the status report, Plaintiff filed a Response [Dkt.
No. 118] asserting that Defendants have not complied with the 4/2/2014 Order based
on deficiencies in Defendants’ privilege log. As proof that Defendants have not logged
all responsive communications, Plaintiff attaches a letter from J. Reed Roesler
(“Roesler”), Defendants’ former attorney in a suit between Plaintiff and Defendants,
among others, in the Central District of Illinois, in which Roesler informed Hale that,
due to “the crash of [his] firm’s server,” Roesler could not provide Hale with a log of
responsive privileged communications between March 24, 2011 and January 18, 2013
(the “Roesler Letter”). Dkt. No. 118-1. Plaintiff argues that he “does not believe that
over fifteen months of the firm’s email communications have been permanently lost or
destroyed such that Defendant ... is unable to respond.” Dkt. No. 118 at 4.
On April 18, 2014, Defendants filed a Supplement to Discovery Responses to
Order Dkt. Nos. 65 and 115. See Dkt. No. 119. Defendants informed the Court that
they received a supplement from Roesler to the privilege log and that they located one
additional record responsive to RFP No. 18. Defendants state that both the
supplemental privilege log and the additional record were sent to Plaintiff. See id. at
1.
Plaintiff seeks sanctions under Federal Rule of Civil Procedure 37 and the
Court’s inherent authority. Specifically, Plaintiff “asks that this Court deem Hale/ISG
to have waived and forfeited any alleged or actual attorney-client, joint-defense, and/or
attorney work product privilege due to defiance of court order and/or untimely and
inadequate privilege log” and “leaves other sanctions to be assessed against Hale to the
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sound judgment of the Court” but states that “the Court also has the ability to stay
further proceedings in this action until Hale/ISG complies with the Court’s orders.”
Dkt. No. 109 at 10; see also Dkt. No. 86-1 (proposed order); Dkt. No. 118 at 5 (“For
these good reasons, and for other good reasons that the Court may identify on its own
review, the Plaintiff respectfully requests that the Court issue an appropriate order in
his favor, assessing measured discovery sanctions against Defendants Hale/ISG for
their willful disobedience of this Court’s prior discovery orders and/or their discovery
obligations.”).
Legal Standards
In order to exercise its inherent powers, the Court must find that the guilty
party engaged in conduct in bad faith that resulted in prejudice to the judicial process.
See Chambers v. NASCO, Inc., 501 U.S. 32, 45-46 (1991). In Chambers, the United
States Supreme Court held that, in certain circumstances, federal courts have inherent
powers to sanction. See id. at 44-45. These inherent powers “ought to be exercised with
great caution,” id. at 43 (internal quotation marks omitted), and are reserved for
“conduct which abuses the judicial process,” id. at 44-45. “The threshold for the use of
the inherent power sanction is high.” Natural Gas Pipeline Co. of Am. v. Energy
Gathering, Inc., 86 F.3d 464, 467 (5th Cir. 1996). A court’s inherent powers to sanction
“may be exercised only if essential to preserve the authority of the court,” id., and only
when the court “finds that ‘fraud has been practiced upon it, or that the very temple
of justice has been defiled,’” Boland Marine & Mfg. Co. v. Rihner, 41 F.3d 997, 1005
(5th Cir.1995) (quoting Chambers, 501 U.S. at 46). “Because of their very potency,
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inherent powers must be exercised with restraint and discretion.” Chambers, 501 U.S.
at 44.
Spoliation of evidence is among the range of conduct for which a court may
assess sanctions using its inherent powers. See Hodge v. Wal-Mart Stores, Inc., 360
F.3d 446, 449 (4th Cir. 2004) (“The imposition of a sanction ... for spoliation of evidence
is an inherent power of federal courts.”); accord Union Pump Co. v. Centrifugal
Technology Inc., 404 F. App’x 899, 905 (5th Cir. 2010). “Spoliation is the destruction
or material alteration of evidence or ... the failure to preserve property for another’s
use as evidence in pending or reasonably foreseeable litigation.” Ashton v. Knight
Transp., Inc., 772 F. Supp. 2d 772, 799 (N.D. Tex. 2011) (internal quotation marks
omitted).
“The party seeking the spoliation sanction bears the burden of proof.” Id. at 800.
The elements of spoliation in the Fifth Circuit are: (1) a duty to preserve the
information; (2) a culpable breach of that duty; and (3) resulting prejudice to the
innocent party. See id.; see also Rimkus Consulting Group v. Cammarata, 688 F. Supp.
2d 598, 612-16 (S.D. Tex. 2010) (to obtain sanctions for spoliation of evidence, a party
must establish “(1) the party with control over the evidence had an obligation to
preserve it at the time it was destroyed; (2) the evidence was destroyed with a culpable
state of mind; and (3) the destroyed evidence was ‘relevant’ to the party’s claim or
defense such that a reasonable trier of fact could find that it would support that claim
or defense.”).
Turning to the first element, “[a] duty to preserve arises when a party knows or
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should know that certain evidence is relevant to pending or future litigation.” Ashton,
772 F.Supp. 2d at 800.
As for culpability, although the level of culpability required for spoliation is not
yet settled within the Fifth Circuit, a showing of bad faith or wilful abuse of the
judicial process is required for the Court to exercise its inherent powers. See id. In
addition, in the Fifth Circuit, “the circumstances of the act [of spoliation] must
manifest bad faith” before severe sanctions are available. Vick v. Texas Emp’t Comm’n,
514 F.2d 734, 737 (5th Cir. 1975). Bad faith has been defined “as conduct involving
‘fraudulent intent and a desire to suppress the truth.’” Ashton, 772 F. Supp. 2d at 80001 (quoting Consol. Aluminum Corp. v. Alcoa, Inc., 244 F.R.D. 335, 344 (M.D. La.
2006)).
The prejudice element requires that the spoliated evidence be relevant to the
lawsuit and that the spoliated evidence it would have supported the inference sought
by the moving party. See Rimkus, 688 F. Supp. 2d at 616.
Rule 37 (b)(2)(A) provides that “[i]f a party ... fails to obey an order to provide or
permit discovery ... the court where the action is pending may issue further just
orders,” including, among other sanctions, directing that matters embraced in the
order or other designated facts be taken as true, prohibiting the disobedient party from
introducing designated matters in evidence, and/or staying further proceedings until
the order is obeyed. See FED. R. CIV. P. 37(b)(2)(A)(I)-(vi). Sanctions available under
Rule 37(b) are appropriate where there is willful disobedience or gross indifference but
not where failure to comply was outside the party’s control. See Dorsey v. Acad. Moving
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& Storage, Inc., 423 F.2d 858, 860 (5th Cir. 1970).
Rule 37(e), a so-called “safe harbor,” provides that “[a]bsent exceptional
circumstances, a court may not impose sanctions under these rules on a party for
failing to provide electronically stored information lost as a result of the routine, good
faith operation of an electronic information system.” FED. R. CIV. P. 37(e); see Kermode
v. Univ. of Miss. Med. Ctr, No. 3:09-cv-584, 2011 WL 2619096 (S.D. Miss. Jul. 1, 2011)
(finding that sanctions under Rule 37 were unavailable where emails were deleted
before a reason existed to preserve them).
Analysis
Plaintiff has failed to meet the high burden of proof required to justify sanctions
under the applicable law. Plaintiff’s briefing is entirely devoid of evidence, either
director or circumstantial, that would establish the bad faith required for the Court to
exercise its inherent powers or that would provide the Court with a basis to assess
sanctions under Rule 37(b), including Plaintiff’s request for the Court to deem
Defendants to have waived and forfeited any alleged or actual attorney-client,
joint-defense, or attorney work product privilege. See Ashton, 772 F. Supp. 2d at 80001. Regarding Defendants’ supplementation to his RFP and interrogatory responses,
Plaintiff notes that the interrogatory supplements “contain only two tangible bits of
information” and that the RFP supplements contain only three documents. See Dkt.
No. 86 at 4-5. Defendants respond that “production materials are few because they are
few.” Dkt. No. 108 at 3. Nothing in Plaintiff’s briefing, nor anything attached to it,
provides the Court with a basis to disbelieve Defendants’ statement and impose
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sanctions.
As to Defendants’ privilege log, Plaintiff has established that entries are
missing. But the Roesler Letter, which Plaintiff uses as proof of the missing entries,
explains that the missing entries are a result of “the crash of my firm’s server.” Dkt.
No. 118-1. Plaintiff suggests that, because Roesler’s “firm is noted to have
approximately 13 attorneys, plus other staff,” Plaintiff “simply does not believe that
over fifteen months of the firm’s email communications have been permanently lost or
destroyed.” Dkt. No. 118 at 4. But Plaintiff’s submission of the Roesler Letter provides
the Court with a good faith explanation as to the missing entries on the privilege log.
Plaintiff’s doubts as to the truth of Roesler’s firm’s server crash fail to establish bad
faith. The fact that the Roesler Letter is not admissible is inconsequential; Plaintiff put
the letter into the record for the Court’s consideration and relies on the letter as proof
of his argument for sanctions. And, even absent consideration of the Roesler Letter,
Plaintiff fails to meet his burden to show that Defendants acted with bad faith.
Because Plaintiff cannot establish that any of Defendants’ conduct with regard to
discovery is the result of bad faith, the Court cannot exercise its inherent powers. And
the Court finds no basis to assess sanctions under Rule 37(b), including Plaintiff’s
request for the Court to deem Defendants to have waived and forfeited any alleged or
actual attorney-client, joint-defense, or attorney work product privilege.
In addition, Rule 37(e) protects Defendants from sanctions based on the record
before the Court. Plaintiff has shown nothing more than that the electronically stored
information sought was“lost as a result of the routine, good faith operation of an
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electronic information system.” FED. R. CIV. P. 37(e).
Conclusion
Plaintiff’s Motion for Discovery Sanctions Against Defendants Keith Hale and
Insurance Search Group [Dkt. No. 86] is DENIED.
SO ORDERED.
DATED: April 21, 2014

_________________________________________
DAVID L. HORAN
UNITED STATES MAGISTRATE JUDGE

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