Sec. Alarm Fin. Enters., L.P. v. Alarm Protection Tech., LLC, No. 3:13-cv-00102-SLG, 2016 WL 7115911 (D. Alaska Dec. 6, 2016)
In this case, Plaintiff was sanctioned pursuant to Rule 37(e), as amended on December 1, 2015, for its failure to preserve relevant customer call recordings.
Plaintiff alleged that Defendant had “illegally ‘poached’” its customers and defamed the plaintiff. Defendant, in turn, alleged tortious interference with its contractual relationships and defamation by the plaintiff. In the course of discovery, Plaintiff produced approximately 150 customer call recordings (out of “thousands”) that were “generally favorable” to it but, when asked, was unable to produce any others and claimed that the recordings were lost, apparently as the result of the “normal operation of a data retention policy.” Defendant sought sanctions pursuant to amended Rule 37(e).
Taking up the motion, the Court first addressed whether the “newly revised or the former version of Federal Rule of Civil Procedure 37” applied. Concluding that the revised version was appropriate, the Court reasoned that it was “clearly not impracticable to apply the new rule” and that while it would be “unjust to apply a new rule retroactively when that rule governs a party’s conduct,” Rule 37(e) “does not govern conduct” but rather limits the Court’s discretion to impose particular sanctions, without changing the parties’ duty to preserve as it existed prior to the amendments.
Turning to whether Plaintiff had a duty to preserve, the Court noted that the recordings were destroyed after litigation was ongoing and reasoned that Plaintiff should have known and in fact knew of the calls’ potential relevance, citing its memorandum to employees asking them not to use certain words on calls with Alaskan customers (circulated around the time of the complaint and close in time to being accused by Defendant of defamation during contact with Alaskan customers) and—more importantly—the fact that Plaintiff “flagged the existence of the recordings” in its initial disclosures.
Regarding the threshold question of whether Plaintiff took reasonable steps to preserve, the Court rejected Plaintiff’s argument that its “general litigation hold” was sufficient, despite not encompassing the recordings. Moreover, the Court noted that “reasonable steps [to preserve] were available,” citing Plaintiff’s admission that the calls could have been extracted to avoid being overwritten and the fact that some recordings were saved. Recognizing that sanctions are precluded when the information can be restored or replaced through additional discovery, the Court indicated that there was no suggestion that the calls were available elsewhere and thus turned to the question of appropriate sanctions.
First, the Court took up the question of whether the recordings were destroyed with the intent to deprive the other party of the information’s use in the litigation and indicated that based on the “relatively murky record before the Court” regarding the nature of the parties’ discussions surrounding the recordings and their treatment in discovery, it could not conclude that Plaintiff overwrote the recordings with the requisite intent to deprive. Turning next to the question of prejudice, the Court considered whether the information was available through other means, but reasoned that the call notes and depositions of Plaintiff’s employees were “likely to be far inferior” compared to the calls themselves. Thus, the Court concluded that Defendant was entitled to a remedy “no greater than necessary to cure the prejudice” as allowed by Rule 37(e)(1).
To address the prejudice suffered by Defendant, the Court ordered that Plaintiff pay Defendant’s reasonable attorneys fees incurred in bringing the motion, that neither party would be allowed to introduce recordings made to or from Plaintiff’s call center absent stipulation or a subsequent order, and that the parties may present evidence related to the lost recordings at trial (although Defendant was barred from arguing that the jury may or should presume that evidence would have been favorable to it). The Court also indicted that it would instruct the jury that Plaintiff was under a duty to preserve the calls, but failed to do so.
A full copy of the Court’s order is available here.