No. 05 C 3839
United States District Court, N.D. Illinois, Eastern Division
February 20, 2009
James P. Denardo, Kristin Dvorsky Tauras, Sarah A. Cook, McKenna, Storer, Rowe, White & Farrug, Chicago, IL, for Plaintiff.
Jeffrey Ray Rosenberg, O'Halloran, Kosoff, Geitner & Cook, PC, Northbrook, IL, David J. Corbett, David J. Corbett, P.C., Arlington Heights, IL, Dexter B. Johnson, Mallon & Johnson, P.C., Chicago, IL, Wallace C. Doolittle, Law Office of Wallace C. Doolittle, Hayward, CA, for Defendant.
REPORT AND RECOMMENDATION
The Case Thus Far
*1 This case is now well into its fourth year. It has engendered some 150 pages of judicial opinions, including four reports and recommendations, two district court memorandum opinions, and a Seventh Circuit decision. But senescence has not brought much progress. Little has changed since the initial temporary restraining order was entered in July of 2005. The parties continue to quarrel over lists of insurance customers—the same lists that were the focus of the hearing on American Family's motion for a preliminary injunction in August 2005—especially Exhibit 34. Those issues are revisited once again in American Family's instant motion, its Second Petition for Contempt.
But before turning to that motion, there is American Family's January 21, 2009 Motion For Rule 11 Sanctions Against the Defendants. It is based on the defendants' response to American Family's Second Petition for Contempt. It is essentially another rehash of the overriding issue in this case, namely whether the defendants misappropriated American Family's customer information. The motion selects various statements in the defendants' response that attempt to refute the charges in the contempt petition and argues that they are devoid of evidentiary support and thus violative of Rule 11. The motion, itself, violates Rule 11. Under Rule 11(c)(2), a motion for sanctions cannot be filed or presented to the court if, within 21 days of service on the offending party, the motion withdrawn or corrected. See
Fabriko Acquisition Corporation v. Prokos, 536 F.3d 605, 610 (7th Cir.2008). According to American Family, it served the Roths with the Rule 11 motion on January 21, 2008. Despite acknowledging its awareness of Rule 11(c)(2), American Family filed the motion on that same day it served it. (Dkt.# 270). The motion is denied.
To be sure, the Roths have been found in contempt of court and to have testified untruthfully under oath at the preliminary injunction hearing. While that finding does not automatically require that their current affidavit testimony be rejected, such prior disregard of their oath “is enough to justify the belief that the witness is capable of any amount of falsification, and to make it no more than prudent to regard all that [she/they] says with strong suspicion, and to place no reliance on [their] mere statements.” United States v. Weinstein, 452 F.2d 704, 713 (2d Cir.1971) (Friendly, J.), cert. denied,
406 U.S. 917, 92 S.Ct. 1766, 32 L.Ed.2d 116 (1972). Accord
Allen v. CTA, 317 F.3d 696, 703 (7th Cir.2003); United States v. Varelli, 407 F.2d 735, 751 (7th Cir.1969) (“perjury [is] relevant to [a] witness' veracity”); United States v. Leake, 642 F.2d 715, 718 (4th Cir.1981) (same); Lukaneva v. Levy Restaurants at McCormick Place, 2006 WL 1823169 at *6, n. 11 (N.D.Ill.2006).
It also bears notice that the defendants have been under the preliminary injunction—or its precursors—for over three years. At this point, the case has not proceeded any farther than American Family demonstrating a likelihood of success on the merits. Or, in the parlance of preliminary injunctions, it has demonstrated a better than negligible chance of success. D. Patrick, Inc. v. Ford Motor Co., 8 F.3d 455, 458 (7th Cir.1993). However, it has yet to win the case. It seeks to do that now via the current motion, which asks for entry of a default judgment based on the defendants having destroyed computers or hard drives that they were ordered to produce for forensic examination by American Family.
The Second Petition For Contempt
*2 In its “Second Petition for Contempt,” American Family again claims that Bonnie and Connie Roth violated the preliminary injunction order by having failed to produce two lists that were on their computers as long ago as August of 2005, by having discarded laptop computers and hard drives without preserving the data, and by having failed to turn over their computers even after the hard drives were replaced. In addition to constituting contempt, American Family also charges the Roths with spoliation of evidence as a result of having discarded the laptop computers and hard drives. The Petition, however, seems to confuse or to equate the two things, and early on the contempt argument seems largely to fall by the wayside. For example, the Petition begins by charging the Roths with contempt, but beyond the mention of the word, contempt, there is no focused argument regarding that issue. Instead, the focus is exclusively on spoliation. But the standards are different, and two different analyses must be applied.
The Petition ends by seeking an undifferentiated sanction of entry of judgment against the defendants including a permanent injunction against the Roths' solicitation of any of the names of actual or potential customers of American Family of whom they learned while working for American Family. But that would give a measure of relief far beyond that contemplated by the employment agreement, which prohibited the Roths from contacting American Family customers and attempting to win them over to their new firm until February of 2006. Perhaps the trebling of the duration of the original non-compete clause that has already occurred is an appropriate burden the defendants ought properly to bear for having violated their employment agreement. But American Family wants far more than that for by virtue of the Petition's request that the preliminary injunction be made permanent, it seeks to bar forever any solicitation by the plaintiffs of any of the AMF actual or prospective customers assigned to the defendants during the period of their agency. Beyond the request for this extraordinary relief, American Family has not shown by principled, properly supported argument its entitlement to that relief. Hence, at least at this juncture, the issue is waived under the principle that skeletal and unsupported arguments are forfeited.
As the Court wisely said in Weissman v. Weener, 12 F.3d 84 (7th Cir.1993):
judges should be hesitant to wander too far astray-in their search for the correct legal result-from the arguments presented to them by the parties. Where judges do so, one consequence is “to diminish the responsibility of lawyers and to reduce competition among them.” Hartmann v. Prudential Ins. Co., 9 F.3d 1207, 1214, (7th Cir.1993). “Our system unlike that of the Continent is not geared to having judges take over the function of lawyers even when the result would be to rescue clients from their lawyers' mistakes.” Id.,
CONTEMPT AND SPOILATION
*3 To be held in civil contempt, a person must have violated an order or decree that sets forth in specific detail an unequivocal command. Pearle Vision, Inc. v. Romm, 541 F.3d 751, 757 (7th Cir.2008). It is not necessary to a finding of contempt that a violation was “willful.” It is enough that a party “has not been reasonably diligent and energetic in attempting to accomplish what was ordered.” Goluba v. School Dist. of Ripon, 45 F.3d 1035, 1037 (7th Cir.1995). See also
NLRB v. Fairview Hospital, 443 F.2d 1217, 1220 (7th Cir.1971). The party asserting a violation of a judicial order has the burden of proving the violation by clear and convincing evidence. Prima Tek II, L.L.C. v. Klerk's Plastic Industries, B.V., 525 F.3d 533, 537–538 (7th Cir.2008); S.E.C. v. Homa, 514 F.3d 661, 676 (7th Cir.2008); Hernandez v. O'Malley, 98 F.3d 293, 295 (7th Cir.1996); American Family Mut. Ins. Co. v. Roth, 2007 WL 2377335 at *3 (N.D.Ill.2007), adopted in full,
American Family Mut. Ins. Co. v. Roth, 2008 WL 168693 (N.D.Ill.2008).
There are two orders pertinent to American Family's contempt petition.
The first was the preliminary injunction. The injunction was issued by Judge Guzman on August 10, 2006. It enjoined the Roths from using any information downloaded from American Family's database and servicing American Family customers and ordered them to disclose any American Family customers they had contacted since they left the company and to return to American Family all American Family materials they had in their possession. Following the Seventh Circuit's May 7, 2007 opinion on the Roth's appeal, Judge Guzman amended the order to enjoin the Roths from using any information downloaded from American Family's database and soliciting any American Family customers who were assigned to them as of the date they left the company. They were still required to disclose any American Family customers they had contacted since they left the company and to return to American Family all American Family materials they had in their possession.
The second order pertinent to the instant motion as it pertains to the request for a finding of contempt stems from American Family's first contempt petition, filed April 23, 2007, charging the Roths with violating the preliminary injunction. The plaintiff sought redress for the violations and also asked to have the Roth's computers examined by an expert to determine just what American Family customer information the Roths still had. American Family was able to demonstrate that, despite the preliminary injunction, the Roths maintained an electronic version of the Exhibit 34 customer list. My August 16, 2007 Report and Recommendation recommended, inter alia,
that the computers be submitted for forensic inspection. On January 15, 2008, Judge Guzman found the Roths in contempt and ordered them to return and delete any such information and submit their computers and databases they had access to for examination by a third-party expert.
*4 While a court order is a prerequisite to a finding of contempt, it is not a necessary antecedent to a finding of spoliation or to a duty to preserve evidence. Trask–Morton v. Motel 6 Operating L.P., 534 F.3d 672, 681 (7th Cir.2008). When there is such a duty, a court can impose sanctions for the destruction of evidence upon a showing of bad faith. Id.
Bad faith does not merely mean intentional destruction of evidence, but “destruction for the purpose of hiding adverse information.” Mathis v. John Morden Buick, Inc., 136 F.3d 1153, 1155 (7th Cir.1998). “Thus, ‘[t]he crucial element is not that evidence was destroyed but rather the reason for the destruction.” Faas v. Sears, Roebuck & Co., 532 F.3d 633, 644 (7th Cir.2008).
The questions, then, are whether the destroyed evidence was material, whether there was a duty to preserve that evidence, and when that duty arose.
Spoliation sometimes permits, but rarely if ever requires, the ultimate sanction of dismissal of the case against the plaintiff or entry of default judgment against the defendant. See
Mathis v. John Morden Buick, Inc., 136 F.3d 1153 (7th Cir.1998). The sanction is inappropriate where the proof of willful and bad faith destruction is wanting or it is clear that a party's ability to prosecute the case has not been meaningfully compromised. Maynard v. Nygren, 332 F.3d 462, 467 (7th Cir.2003). And the sanction imposed must be proportionate to the circumstances. Collins v. Illinois, 554 F.3d 693, 2009 WL 222963 (7th Cir.2009). See infra
When Did the Roths Discard Their Computers/Hard Drives and What Information Was On Them?
This matter comes down to what the Roths were doing with their computers and when, and what information was on those computers and when. As it pertains to the contempt charges, that time line must be gauged against the chronology of the pertinent court orders by Judge Guzman.
As it pertains to the spoliation charges, the critical inquiry is when a duty to preserve the computers or the hard drives arose.
At about the same time as American Family filed their first contempt petition on April 23, 2007, something, it is now claimed by the Roths, was amiss with Bonnie Roth's laptop computer. The first American Family heard of it, however, was in July of 2008, when the Roth's then-counsel, Anthony Tedard, emailed American Family claiming that Bonnie's computer crashed in April of 2007—exactly when, he did not say—although the exact time could have been important to the issue of spoliation. He wrote that she discarded that computer, along with any data on it, and started using a new computer. Then, in October of 2007, well after my report and recommendation suggesting that Judge Guzman order the Roths to turn over their computers for examination, the new computer purportedly was damaged in a storm, and Bonnie had to replace the hard drive on that computer, again discarding the old one. (Plaintiff's Second Petition for Contempt,
*5 That was the original story from Mr. Tedard. Bonnie's new counsel tells a different tale. The laptop she was using in the Spring of 2007 was old and wearing down. She replaced it with a new one in April 2007, she says, again, about the time American Family filed its first contempt petition. Bonnie is no more specific as to the date than that. That lack of specificity, however, works against her. Whether the alleged replacement occurred before or after American Family filed its petition for contempt on April 23, 2007 is within her exclusive knowledge. Surely she has a sales slip for the new computer and either a check reflecting payment for it or a charge on credit card. After all, the computers were for business purposes and thus their cost is deductible as a business expense. In any event, these are documents that could have been obtained, but were not and no explanation is given for the omission.
Bonnie also could have easily contacted the company or store from which the computer was purchased to ascertain the date of purchase. Her failure to show that it was purchased before April 23 allows the inference to be drawn that the evidence was not produced because it would have been harmful to her. Cf.
Graves v. United States, 150 U.S. 118, 14 S.Ct. 40, 37 L.Ed. 1021 (1893); U.S.O. Corp. v. Mizuho Holding Co., 547 F.3d 749, 753 (7th Cir.2008); Miksis v. Howard, 106 F.3d 754, 763 (7th Cir.1997); United States v. Blakemore, 489 F.2d 193, 195 (6th Cir.1973); O'Sullivan v. City of Chicago, 540 F.Supp.2d 981, 984 (N.D.Ill.2008). Compare
Jean Edward Smith, John Marshall: Definer of a Nation (1996) (“More than five weeks have elapsed since the Supreme Court declared the necessity of proving the fact, if it exists. Why is it not proved? Chief Justice Marshall said he could not assume that the government was remiss in seeking the proof; the only conclusion was that the evidence did not exist.”).
Bonnie “eventually” discarded the old computer—she claims—although again, she does not say when. “Eventually” would lead one to believe it was at least after the American Family petition. In any event, she was in a position to know when that occurred and her lack of specificity warrants an adverse inference under the cases cited above. Her new computer was later damaged in a lightening storm—not in October 2007 as the original story had it, but in August 2007—and Bonnie replaced the hard drive, discarding the old one. (Bonnie Roth Aff., 17–23).
We need not rely on a negative inference or the Roths' ever-changing version of events to support the inference that the discarding of the hard drive occurred after my August 16, 2007 Report and Recommendation.
Exhibit K to the Petition is a copy of a weather report showing that the storm occurred on August 23, 2007.
But that was 7 days after my Report and Recommendation that the computers be turned over for forensic examination. The date of the Report and Recommendation is important, as we shall see, not for the argument that the Roths of guilty of contempt, but rather that they are guilty of spoliation since they were on notice that the computers and/or hard drives should not have been discarded.
*6 Not surprisingly, Connie Roth claims she was having computer problems as well. She had her operating system, motherboard, and hard drive replaced in February 2006, after the complaint was filed, but before American Family filed its first contempt petition on April 23, 2007. Connie says her computer crashed in August 2007—about the same time as my Report and Recommendation and, coincidentally, the same time as Bonnie's hard drive was purportedly damaged in a lightening storm (i.e., the one on August 23, 2007). We know from the defendants' own submission that the lightening storm that allegedly damaged Bonnie's hard drive occurred on August 24, 2007 (see
Ex. K to Petition)—7 days after my Report and Recommendation that the defendants' computers be produced for forensic examination. As we shall see, the date is critical for purposes of determining whether there has been spoliation in this case.
In any event, Connie claims she replaced her hard drive again, although, as with Bonnie's tale, there is nothing to support it, and there is no explanation why no documents have been produced that would have corroborated her claims. That failure, coupled with the weather report date of August 23, 2007 (Ex. K), allows the inference that if it occurred—which I do not accept—it did so after
my August 16, 2007 Report and Recommendation. After more alleged computer troubles in 2008, she says she replaced it yet again. (Connie Roth Aff. 3–5). This, of course, must have been after Judge Guzman had entered his order calling for examination of the Roth's computers on January 15, 2008.
What Justice Frankfurter said in Avery v. Georgia, 345 U.S. 559, 564, 73 S.Ct. 891, 97 L.Ed. 1244 (1953) (Frankfurter, J., concurring) is applicable here: “The mind of justice, not merely its eyes, would have to be blind to attribute such ... occurrence[s] to mere fortuity.” When all of the circumstances surrounding the Roths' unsubstantiated stories about computer disaster are considered, the claims are uniformly unacceptable. “[Defendants] have behaved [shamefully] and can't expect any part of their tale be believed.” Ridge Chrysler Jeep, LLC v. DaimlerChrysler Financial Services Americas LLC, 516 F.3d 623, 625(7th Cir.2008) (Easterbrook, C.J.). But even if one were to accept their claims of bad luck, they do not account for their clearly willful failures to have retained the computers and/or hard drives as they were required to do either under Judge Guzman's January 15, 2008 order or by virtue of the law's requirement that a party may not destroy relevant evidence once he or she knows or should have known that there was a duty to retain the evidence.
American Family contends that on January 26, 2008, Bonnie emailed her then-attorney:
... I had emailed to you on August 30, 2005 at 3:42 a.m. the spreadsheet provided to me from Email Concept. I had bold faced those people who were listed as active on American Family's listing. Please look for this email with the attached spread sheet and email it to Bill (as this is an item that will need to be returned.) This has all of the actives, inactive and prospects in alphabetical order which were in my email concept database.
*7 (Plaintiff's Second Petition for Contempt,
at 9, Ex. C). American Family says this is evidence that Bonnie had not
discarded her old computer or hard drive, because how else could she know she sent the two-year-old email at exactly 3:42 a.m.? (Plaintiff's Second Petition for Contempt,
at 9). But several ways come to mind. The most obvious is that she may have kept hard copies of her emails, especially since she was embroiled in litigation. In fact, this is exactly what she says she did: she kept a chronology of attorney activity and hard copies of all communications during this litigation. (Bonnie Roth Aff., 10). But if true, this is unhelpful. Bonnie's claimed punctiliousness is hopelessly inconsistent with the Roths' contention that they had no idea that retention of their ill-fated computers was required or might have been helpful to their case. That now claimed attentiveness to detail about litigation-related matters further justifies the inference that the Roths' failure to produce a single document that would support their version and chronology of events was because the documents would have been harmful to their claims. Phrased differently, Bonnie's attentiveness to detail and her careful record-keeping are all the more reason to infer that she would know whether computers and/or hard drives were discarded before or after motions were filed or reports and recommendations were entered. And all the more reason to construe her failure to say so against her.
A few days later, the Roth's attorney produced a spreadsheet of the Roth's active, inactive, and prospective customers, as required by Judge Guzman's January 2006 order. The Roths' attorney said it had been produced using the Email Concept system in August of 2005 and given to the Roth's attorney at the time. But it had never before been given to American Family. At his deposition in June of 2008, the Roth's then attorney explained that the Roths forwarded him the spreadsheet from their former attorney. It was in electronic format. He also produced an additional list of 181 names of Connie's active customers, which also had been in electronic format.
The Roths had sent it to their first attorney in August 2005. (Plaintiff's Second Petition for Contempt,
Ex. E, Tedards Dep., at 9, 31, 33–34).
Connie's Discarding of Her Computer/Hard Drive Amounted to Contempt
Because these lists were in electronic format, they were clearly on the Roth's computers in August 2005—the computers (or hard drives), as American Family points out, that the Roths subsequently discarded. But that alone would not suggest contempt—with the exception of Connie replacing her computer in 2008—because there was no order from Judge Guzman that the Roths turn over the computers until January 15, 2008, and no order that they return the customer materials until August 2006. See
Pearl Vision, 541 F.3d at 757. Thus, American Family has not proven by clear and convincing evidence that when the Roths discarded their old computers and/or hard drives prior to January 2008, they were in contempt of court. See
Maynard, 332 F.3d at 469; United States v. Dowell, 257 F.3d 694, 699 (7th Cir.2001); Hernandez, 98 F.3d at 295.
*8 Connie's discarding of her hard drive thereafter, however, was clearly a violation of Judge Guzman's January 15, 2008 order. She offers no even remotely credible explanation of why, having been ordered to provide her computer for examination, she simply discarded her old hard drive. She says only that she did so because she was getting error messages, and Dell recommended that she replace it. (Connie Roth Aff., 5). Even if true, this would only account for the replacement of the hard drive, not for its destruction. Retention of the old hard drive would not have required an ounce of effort or a penny of cost. Even if the discarding of the hard drive were not done in bad faith—a conclusion that cannot be sustained by the available evidence—she is clearly guilty of contempt since she was not “reasonably diligent and energetic in attempting to accomplish what was ordered.” Goluba, 45 F.3d at 1037.
The Roths' excuse that they did not “have the know-how or resources to maintain crashed hard drives” (Defendants' Response to Plaintiff's Second Petition for Contempt,
at 16) is obviously untrue. It takes neither know-how nor resources to keep a crashed hard drive. No maintenance is required beyond physical retention, and no resources of any kind need be expended. An internal hard drive in a laptop computer (or even a desktop computer) is effectively a small, rectangular box, less than 12″ square and only a few inches in height. It could fit easily in any desk drawer or on a shelf in a closet. Indeed, the entire computer could fit in any closet without inconveniencing anyone and without involving the slightest bit of effort on the part of the Roths. The Roths could have asked whoever changed the hard drive—if that in fact is what happened—to leave it with or return it to them, without any cost or effort. She chose not to do so.
Connie Roth should be held in contempt for having violated Judge Guzman's January 15, 2008 order by discarding her hard drive after that date.
The Presence of American Family Customer Information on the Roth's Computers Amounts to Contempt
In May of 2008, four months after Judge Guzman's January 15th order, the Roths finally delivered their computers—at least, the ones they claimed were extant at that time—for expert examination. They offer no explanation as to why they procrastinated for four months. And it was sometime during those four months that Connie claims she discarded her computer and got a new one. The forensic analysis was performed by Forensicon. The initial analysis showed that “over 230 names and e-mail addresses” of customers that had been assigned to the Roths when they left American Family's employ were on the computers. (American Family's Second Petition for Contempt,
The cross-over names appear to make up a fairly small percentage of the total names found on the Roths' new computers.
But initial analysis is as far as Forensicon has gotten because the Roths—despite having been ordered to do so—have not paid the outstanding balance for Forensicon's efforts. The presence of those names—actually, names, addresses, email addresses—is damning evidence in American Family's eyes, and it submits that it demonstrates the Roths were in contempt of court. At first blush, American Family has a point.
*9 The Roths were ordered to return American Family customer information, and delete or refrain from using it, in August 2006. According to the Roths, however, although the names on their computers may have matched the names of customers they had when they left American Family, they came by them honestly. Of course, customer leads can come from various sources; American Family does not have a monopoly on people's names and addresses. There is inevitable crossover in the pool of potential customers in the Roth's immediate region. The Seventh Circuit has already said that the Roths cannot be precluded from soliciting customers without assistance from the information they derived from the American Family database or that sought the Roths out after American Family terminated them. American Family Mut. Ins. Co. v. Roth, 485 F.3d 930, 934 (7th Cir.2007). Bonnie explains that the Roth's current customer lists were assembled from purchased leads, call-ins or walk-ins, internet advertising, and other avenues. (Bonnie Roth Aff., 13; Ex. M). She says that she and her sister began building their own agency database with customer leads from such sources after their termination from American Family. (Bonnie Roth Aff. 13). In support of her version of how the names came to be on the Roth's computers, she has provided a spreadsheet with the source of all cross-over names identified. (Bonnie Roth Aff. 15; Ex. J). If it is indeed the case that the Roths arrived at these leads through their own efforts, then the mere fact that these names and addresses were on the Roths' computer is not clear and convincing evidence of contempt.
But there's a curious thing about that spreadsheet. Many of the names are, indeed, identified as having been purchased from lead vendors: Zip Search, Netquote Auto, Insweb Auto, etc. But the dates given for those purchases do not help the Roth's cause. Close to half of the names—about 130—are described as being purchased from lead vendors prior to February 15, 2005
—the date American Family terminated the Roths. (See, e.g.,
Ex. J; Name Nos. 2–6, 8, 9, 13, 15–19, 25, 26, 29, 35, 36). Contrary to Bonnie's assertions, these names were not compiled through the Roths' post-termination independent efforts; rather, they were compiled while they were American Family agents, and thus were subject to the preliminary injunction order and Judge Guzman's January 2008 order. As to these leads, they are the property of American Family as Judge Posner's panel opinion in American Family Mut. Ins. Co. v. Roth, 485 F.3d at 932 made clear:
But once agents enter customer information in the database, the information becomes the exclusive property of the plaintiff, or at least exclusive as against the agent. The information, insofar as it had been developed by the agent rather than supplied to him by the plaintiff, would be his trade secret initially-but only until he uploaded the information into the plaintiff's database, at which point it would become the plaintiff's trade secret.
*10 Because the evidence is clear and convincing that the Roths neither deleted nor turned over the names they are again in contempt of court.
The Roths Committed Spoliation of Evidence When They Discarded Their Computers/Hard Drives
On to the spoliation issue. The doctrine of spoliation is one of the most enduring principles of common law. In essence, it provides that when a litigant has destroyed, fabricated, or suppressed relevant evidence, the trier of fact may, but is not required to, draw an inference that the evidence would have been unfavorable to the spoliator.
The principle has been described by Dean Wigmore:
It has always been understood-the inference, indeed, is one of the simplest in human experience-that a party's falsehood or other fraud in the preparation and presentation of his cause, his fabrication or suppression of evidence by bribery or spoliation, and all similar conduct is receivable against him as an indication of his consciousness that this case is a weak or unfounded one; and from that consciousness may be inferred the fact itself of the cause's lack of truth and merit. The inference thus does not necessarily apply to any specific fact in the cause, but operates, indefinitely though strongly, against the whole mass of alleged facts constituting his cause.
2 J. Wigmore, Evidence § 278 at 133 (3d Ed.1940).
A party claiming spoliation by its adversary must prove that the destruction was intentional or the result of fault-generally beyond mere negligence, and that the document was relevant to an issue at trial. Crabtree v. Nat'l Steel Corp., 261 F.3d 715, 721 (7th Cir .2001); Keller v. United States, 58 F.3d 1194 (7th Cir.1995) (collecting cases); Coates v. Johnson & Johnson, 756 F.2d 524, 550–51 (7th Cir.1985). See also
Aramburu v. Boeing Co., 112 F.3d 1398, 1407 (10th Cir.1997). As Professor McCormick has noted, “mere negligence is not enough, for it does not sustain the inference of consciousness of a weak case.” McCormick on Evidence § 273 at 809. It is for the jury to determine whether the evidence was intentionally destroyed and whether to draw the inference that it would have been unfavorable to the spoliator. Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99, 108 (2nd Cir.2002). The court's role is to determine whether the aggrieved party has adduced enough evidence of the contents of the missing materials that a reasonable jury could find in its favor. Id. at 109.
Or, as in cases where default or dismissal is sought as a sanction, whether such a sanction is warranted.
The threshold question in cases where the sanction of dismissal or default is requested for claimed spoliation is what burden of proof a movant must meet. As recently as Maynard v. Nygren, 332 F.3d 462, 469 (7th Cir.2003), the court of appeals said that the burden of proof was “clear and convincing.” Wade v. Soo Line R.R. Corp., 500 F.3d 559, 564 (7th Cir.2007), however, expressed “doubt” that “clear and convincing” evidence is required, noting that the Supreme Court held in Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991) that heightened burdens of proof do not apply in civil cases unless a statute says so or the Constitution requires an elevated burden. See also
Ty Inc. v. Softbelly's, Inc. 517 F.3d 494, 498 (7th Cir.2008) (same). The court did not decide the issue since Soo Line
did not ask it to revisit Maynard
(which did not discuss the Supreme Court's decisions).
*11 In recent cases the court has continued to express its uncertainty about the clear and convincing standard's continued applicability, but has not decided the issue since the evidence was deemed sufficient under any standard. See e.g.,
Negrete v. National R.R. Passenger Corp., 547 F.3d 721, 724 n. 1 (7th Cir.2008); Ridge Chrysler Jeep, LLC v. DaimlerChrysler Financial Services Americas LLC, 516 F.3d 623, 625 (7th Cir.2008). But an expression of doubt is not a ruling, and it is for the Court of Appeals to inter Maynard.
Or as Learned Hand put it: “Nor is it desirable for a lower court to embrace the exhilarating opportunity of anticipating a doctrine which may be in the womb of time, but whose birth is distant....” Spector Motor Serv., Inc. v. Walsh, 139 F.2d 809, 823 (2d Cir.1943) (L.Hand, J., dissenting), vacated sub
Nomanbhoy., Spector Motor Serv., Inc. v. McLaughlin, 323 U.S. 101, 65 S.Ct. 152, 89 L.Ed. 101(1944). Until the Court of Appeals speaks definitively to the question, the test is whether spoliation has been proved by clear and convincing evidence.
Forensicon likely could have discovered quite a bit through examination of the Roths' laptops and/or hard drives. Krumwiede v. Brighton Associates, LLC, 2006 WL 1308629 at *4 (N.D.Ill.2006). But the Roths' destruction of that evidence has made that impossible. The question is whether the destruction amounts to spoliation. Spoliation of evidence occurs when one party destroys evidence relevant to an issue in the case in violation of a duty to preserve the evidence. Smith v. United States, 293 F.3d 984, 988 (7th Cir.2002); Crabtree v. Nat'l Steel Corp., 261 F.3d 715, 721 (7th Cir.2001). The Roths clearly had a duty to preserve the computers and hard drives. The only question is when that duty arose.
The duty to preserve evidence can arise early on; even before a complaint is filed. See
Trask–Morton, 534 F.3d at 681 (“a party has a duty to preserve evidence because it knew, or should have known, that litigation was imminent.”). The evidence must be relevant or material to the imminent litigation. Id.,
citing Silvestri v. Gen. Motors Corp., 271 F.3d 583, 591 (4th Cir.2001); Wells v. Berger, Newmark & Fenchel, P.C., No. 07–3061, 2008 WL 4365972, at *6 (N.D.Ill. Mar.18, 2008). The duty certainly arises upon a formal discovery request, but may also be triggered by less than that. Bryant v. Gardner, 587 F.Supp.2d 951 (N.D.Ill.2008); Krumwiede, 2006 WL 1308629, *4.
From the outset of this case, the central issue has been the Roths' misappropriation, retention, and use of American Family customer lists and accompanying information. Clearly, whether this information was on their computers and when are issues that are material and relevant to this case—meaning the computers and hard drives are clearly relevant and material evidence. The Roths had notice of how important such evidence was when the complaint was filed, and certainly were on notice and if not then, during the preliminary injunction proceedings. It was, after all, what the two-day preliminary injunction hearing was about.
*12 Then, American Family filed its first contempt petition on April 23, 2007, requesting a turnover of the computers for forensic examination. Surely, if a discovery request gives rise to a duty to preserve evidence, such a motion does as well. And all of the claimed discarding occurred after that petition was filed. Moreover, all but one of the claimed acts of discarding happened after my report and recommendation recommending the turnover of the computers for forensic examination. In short, if the Roths were not on notice from the moment the case was filed that they needed to preserve their computers, it is beyond rational debate that they were on notice from the time of the preliminary injunction hearing and if not then, then by the time of the filing of the first contempt petition. The evidence is clear and convincing that the Roths cynically and intentionally destroyed evidence they had a duty to retain.
The Roths argue that mere relevance or materiality is not sufficient; the evidence in question must have actually caused
the injury to the plaintiff. They rely on an Illinois tort case—as noted earlier, supra
at n. 6, they confuse the state law cause of action with the federally sanctionable conduct at tissue here—where a store destroyed, in the normal course of its business,
a video surveillance tape that plaintiff claimed included footage of the injury he suffered on the store's premises. Welch v. Wal–Mart Stores, Inc., 2004 WL 1510021 (N.D.Ill. July 1, 2004). While the court in Welch
did find that the plaintiff had failed to allege the elements of a spoliation claim, it reserved for trial consideration of whether the fact that the tape was destroyed would be allowed into evidence. That is more akin to what is at stake here, because American Family is not asserting a spoliation cause of action, but seeking the ultimate sanction of default judgment for destruction of evidence. Moreover, the Welch
court allowed plaintiff's claim for intentional spoliation of evidence to stand, despite the fact that the tape was not the instrumentality of the plaintiff's injury. 2004 WL 1510021, *4. But the Roths' response ignores theses points. See also
Rodgers v. Lowe's Home, Centers, Inc., 2007 WL 257714 (N.D.Ill.2007) (discussing the difference between spoilation as a basis for sanctions and the tort of spoilation).
The Roths' other defense is that retaining the computers/hard drives after they crashed would be an “extraordinary measure” that they need not have taken. (Response to Plaintiff's Second Petition for Contempt,
at 15–16). This unsupported and unamplified assertion is preposterous. See supra
at 13–14. Even under state law, spoliation as a cause of action requires that a party take reasonable measures to preserve evidence. Spinelli v. Monumental Life Ins. Co., 476 F.Supp.2d 898, 912 (N.D.Ill.2007). Reasonable efforts are also required under federal law when, as here, sanctions are sought for spoilation. Wiginton v. Ellis, 2003 WL 22439865, *5 (N.D.Ill.2003). Keeping/ preserving a small piece of equipment like a hard drive would have involved no effort or expense, and the Roth's brief offers nothing that could possibly sustain the claim of undue burden and “extraordinary” effort. The only unreasonable conduct was that of the Roths.
*13 What the Roths have done is blatant spoilation. It reflects their continuing willingness to give false testimony and their continuing disregard of their basic obligations as litigants in the federal court.
We turn then to the question of the appropriate sanctions. American Family wants nothing less than a default judgment, which is the most severe of the available sanctions. See
S.E.C. v. Homa, 514 F.3d 661, 678 (7th Cir.2008) (as sanction for contempt); Fed.R.Civ.P. 37(b)(2) (as sanction for failing to provide or permit discovery); Boneck v. City of New Berlin, 22 Fed.Appx. 629, 631, 2001 WL 1346079, 1 (7th Cir. Oct.30, 2001) (as a sanction for spoliation); Bryant v. Gardner, 2008 WL 4966589, *14 (N.D.Ill. Nov.21, 2008) (as a sanction for spoliation); Krumwiede, 2006 WL 1308629, *9 (same). Spoliation of evidence sometimes permits, but rarely if ever requires, such a peremptory remedy. See
Mathis v. John Morden Buick, Inc., 136 F.3d 1153, 1155–56 (7th Cir.1998). The Seventh Circuit has a well-established policy favoring a trial on the merits over a default judgment. Sun v. Board of Trustees of University of IL, 473 F.3d 799, 811 (7th Cir.2007); Barry Aviation Inc. v. Land O'Lakes Municipal Airport Comm'n, 377 F.3d 682, 687 (7th Cir.2004); C.K.S. Eng'rs, Inc. v. White Mountain Gypsum Co., 726 F.2d 1202, 1205 (7th Cir.1984) (collecting cases). In other words, just asking for a default judgment is not enough to merit one.
The real basis for American Family's insistence on a default judgment is not so much the claimed contempt as it is the spoliation. The Petition says only that “neither American Family nor this Court can examine the Roths' computer customer contacts before August 20, 2007. Furthermore, Forensicon will not be able to tell ‘whether and when the [American Family customer] information was deleted’ from the Roths' computers as ordered by this Court's order of January 18, 2008 ....” (American Family's Second Petition for Contempt,
at 16). As far as case law, the petition focuses on a magistrate judge's report recommending the dismissal of a case as a sanction for spoliation (American Family's Second Petition for Contempt,
at 16). But the District Court did not accept that recommendation except as to one count where proof of the claim was impossible because of the spoliation. Kucala Enterprises, Ltd. v. Auto Wax Co., Inc., 2003 WL 22433095, *6 (N.D.Ill. Oct.27, 2003).
American Family's reply brief is better, but its arguments ought to have been developed and adequately supported in its opening brief. “A reply brief is for replying,” not for doing what should have been done in an opening brief. Hussein v. Oshkosh Motor Truck Co., 816 F.2d 348, 360 (7th Cir.1987); see also
United States v. Boyle, 484 F.3d 943, 946 (7th Cir.2007); United States v. Alhalabi, 443 F.3d 605, 611 (7th Cir.2006); Carter v. Tennant Co. ., 383 F.3d 673, 679 (7th Cir.2004); Autotech Technologies Ltd. Partnership v. Automationdirect.com, Inc., 249 F.R.D. 530, 536 (N.D.Ill.2008).
*14 Here, the Roth's conduct has not made it impossible for American Family to prove its case, and the Roths' perfidy can be dealt with through means other than a default judgment—means that must be considered before moving to the sanction of default judgment. Sun v. Board of Trustees of University of IL, 473 F.3d 799, 811 (7th Cir.2007). In addition to an award of attorneys' fees and a fine over and above the attorneys' fee award, the most appropriate alternative means of dealing with the spoliation is instructing the jury that it could draw a negative or adverse inference based on the spoliation. Arizona v. Youngblood, 488 U.S. 51, 52, 109 S.Ct. 333, 102 L.Ed.2d 281 (1988); Faas v. Sears, Roebuck & Co., 532 F.3d 633, 645 (7th Cir.2008); Park v. City of Chicago, 297 F.3d 606, 615 (7th Cir.2002). Of course, it will be for the jury under proper instructions, to decide whether to draw the inference.
Both sides note that the Roths have admitted that the names and addresses were on their database through 2007. (American Family's Reply,
at 6–7; Defendants' Response to Plaintiff's Second Petition for Contempt,
at 17). Given these admissions, it cannot be said that American Family cannot prove its case at trial, and thus this case differs from Kucala.
While prejudice is not an essential precondition to an award of sanctions, the choice of sanctions is a function of the prejudice suffered. See
Langley by Langley v. Union Elec. Co., 107 F.3d 510, 515 (7th Cir.1997) (“To suffer substantive prejudice due to spoliation of evidence, the lost evidence must prevent the aggrieved party from using evidence essential to its underlying claim.”); Jones v. Goodyear Tire & Rubber Co., 137 F.R.D. 657, 664 (C.D.Ill.1991), aff'd sub nom
Marrocco v. General Motors Co., 966 F.2d 220, 225 (7th Cir.1992) (lost evidence was “critical” and “pivotal”).
Where the sanction of dismissal is sought to be imposed, the Seventh Circuit has been “particularly vigilant in requiring proportionality.” Long v. Steepro, 213 F.3d 983, 987 (7th Cir.1997). The principle of proportionality—a principle that governs not only discovery violations, Salgado by Salgado v. General Motors Corp., 150 F.3d 735, 742 (7th Cir.1998), but all forms of equitable remediation, People Who Care v. Rockford Board of Ed., 111 F.3d 528, 534 (7th Cir.1997)—cannot sanction the relief requested by American Family. See
Rodgers, 2007 WL 257714 at 10–11. Given the limited prejudice suffered by American Family it is not recommended that a default judgment be entered.
It is recommended, however, that if there is any further misconduct by the Roths, that a default judgment be entered against them.
American Family May Petition For Some of the Fees it Seeks
Finally, American Family asks for fees incurred in bringing its second petition for contempt. A court does have discretion to award a party the fees and expenses it incurs in bringing a contempt petition. South Suburban Housing Center v. Berry, 186 F.3d 851, 855 (7th Cir.1999). Given the circumstances of this case, it is recommended that American Family be awarded its fees and costs incurred in connection with the filing of the Petition assuming it should prevail on appeal to Judge Guzman or if no timely appeal is taken from this report.
*15 American Family also seeks fees and costs for its deposition of the Roths' former attorney, Anthony Packard. Judge Guzman allowed for such a request in his order of May 21, 2008:
Plaintiff's request to tax the costs of that deposition to defendant's [sic] is denied without prejudice to be reasserted after the deposition has been taken if there appear any grounds to establish that defendants are in any way responsible for the need to take the deposition.
(Dkt.# 215, 4). The order is very broadly worded—“any grounds;” “any way responsible.” American Family's petition touches on the deposition, noting that Mr. Packard produced two lists of customer names that had not previously turned over at his deposition. (American Family's Second Petition for Contempt,
at 10–11). Because they were in electronic format, American Family argues that this demonstrates that the names were on the Roths' computers or hard drives before they were discarded. Given the breadth of Judge Guzman's May 21 order, there is enough evidence from which it may be concluded that the defendants were in some way responsible for the need to take Mr. Packard's deposition. It is recommended that American Family be awarded reasonable fees and costs in connection with that deposition.
It is respectfully recommended that:
1. The Roths be found in contempt of court for maintaining American Family customer information on their computers/databases that they did not come by independently of their employment with American Family;
2. Connie Roth be found in contempt of court for discarding her hard drive “[i]n 2008” in violation of Judge Guzman's January 15, 2008 order;
3. The Roths be found to have committed spoliation for having discarded computers/hard drives that were relevant and material to this case and which, quite apart from any court order, they had a duty to preserve;
4. A negative inference instruction be given at the time of trial;
5. The Roths be made to pay American Family's reasonable fees and costs incurred in bringing its second petition for contempt;
6. The Roths be ordered to pay immediately the remaining costs of the Forensicon analysis or face entry of default judgment;
7.That a fine to be determined by Judge Guzman be levied against the defendants over and above any legal fees and costs that may be awarded to American Family to reimburse them in connection with the bringing of the instant Petition; and
8. If there is any further misconduct by either of the Roths, that a default judgment be entered against the party engaging in the wrongdoing.
Moreover, it is as if American Family filed two contempt petitions on the same issues in succession (it has done exactly that, seeing how its initial
contempt petition dealt with these same issues, making the so-called Rule 11 motion the third). Moreover, the motion was filed before this report and recommendation, before whatever objections to it might follow and, consequently, before Judge Guzman ruled on American Family's second contempt petition. How could such a motion be appropriate when it is unknown whether the original motion was even well-taken? It is premature, to say the least, and another detour from resolution of this case.
Perjury is a fraud on the court, American Family Mut. Ins. Co. v. Roth, 2007 WL 2377335 at *11, n. 16 (N.D.Ill.2007); it strikes at the heart of the integrity of the judicial system and is incompatible with the values underlying any system of justice. See United States v. Mandujano,
425 U.S. 576 (1976); United States v. Kennedy, 372 F.3d 686, 695 (4th Cir.2004).
United States ex rel. Feingold v. AdminiStar Federal, Inc., 324 F.3d 492, 494 (7th Cir.2003); IFC Credit Corp. v. Aliano Brothers General Contractors, Inc., 437 F.3d 606, 610–611 (7th Cir.2006); Fabriko Acquisition Corporation v. Prokos, 536 F.3d 605, 609 (7th Cir.2008) (“Nor does [movant] present any case law supporting its theory. It is not the job of this court to develop arguments for [parties].”); United States v. Alden, 527 F.3d 653, 664 (7th Cir.2008) ( “Because it is not the obligation of this Court to research and construct the legal arguments available to parties, ... these arguments are waived and warrant no discussion.”); United States v. Berkowitz, 927 F.2d 1376, 1384 (7th Cir.1991) (“We repeatedly have made clear that perfunctory and undeveloped arguments, and arguments that are unsupported by pertinent authority, are waived (even where those arguments raise constitutional issues).”).
The Supreme Court has defined “clear and convincing evidence” as placing “in the ultimate fact-finder an abiding conviction that the truth of ... [his] factual contentions are ‘highly probable’ “ Colorado v. New Mexico, 467 U.S. 310, 316, 104 S.Ct. 2433, 81 L.Ed.2d 247 (1984). See also
United States v. Boos, 329 F.3d 907, 911 (7th Cir.2003); von Gonten v. Research Systems Corp., 739 F.2d 1264, 1268 (7th Cir.1984). In other contexts, the standard has been variously defined as evidence: (1) “that produce[s] in the mind of the trier of fact a firm belief or conviction as to the truth of the allegations sought to be established, evidence so clear, direct and weighty and convincing as to enable [the factfinder] to come to a clear conviction, without hesitancy, of the truth of the precise facts in issue,” Cruzan by Cruzan v. Director, Missouri Dept. of Health, 497 U.S. 261, 285, 110 S.Ct. 2841, 111 L.Ed.2d 224 (1990); (2) “sufficient to ‘enable the [trier of fact] to come to a clear conviction, without hesitancy, of the truth of the precise facts in issue.... It is not necessary that the evidence be uncontradicted.. provided it ‘carries conviction to the mind’ or carries ‘a clear conviction of its truth’...,” United States v. Askari, 222 Fed.Appx. 115, 2007 WL 1073698, *4 (3rd Cir.2007); or (3) “which leaves no reasonable doubt in the mind of the trier of fact as to the truth of the proposition in question.” Parker for Lamon v. Sullivan, 891 F.2d 185, 188 (7th Cir.1989). Despite its word choice, the latter formulation cannot be read to conflate the standards of proof beyond a reasonable doubt with proof by clear and convincing evidence. See American Family Mut. Ins. Co. v. Roth, 2007 WL 2377335 at *4, n. 3.
American Family's brief mistakenly continues to assume that a Report and Recommendation has the force of a court order and that a “violation” of what was recommended in the report constitutes contempt. It does not, as has been explained previously. American Family Mut. Ins. Co. v. Roth, 2007 WL 2377335 at *5 (N.D.Ill.2007).
The Roths confuse the court's inherent power to impose sanctions for the spoliation of evidence, see Trask–Morton, supra;
Barnhill v. U.S., 11 F.3d 1360, 1367 (7th Cir.1993), with the cause of action for spoliation of evidence available under Illinois law. Cf
Borsellino v. Goldman Sachs Group, Inc., 477 F.3d 502, 509 (7th Cir.2007). Their response brief confines its discussion to the latter, while it is the former that is at issue here. See Rodgers v. Lowe's Home Centers, Inc.,
2007W L 257714, 5–6 (N.D.Ill .2007).
It is basic that vacillating versions of events are a persuasive datum in making credibility determinations. See, e.g.,
Ryder Truck Rental v. NLRB, 401 F.3d 815, 827 (7th Cir.2005); Bailey v. United States, 1997 WL 759654 at *35 (Fed.Cl.1997); United States v. Nixon, 881 F.2d 1305, 1309 (5th Cir.1989). And, as noted above, the Roths' prior falsehoods under oath are also properly considered in determining the validity of their essentially uncorroborated story. See supra
The submission of the weather report further highlights the Roths' failure to submit documents that are exclusively within their control or to which they ought to have had ready access that would have corroborated their claims about hard drive and/or computer replacement. See supra
American Family calls this a list of “Connie's active employees” but it would appear that this was an error and that the word customers was meant. (Plaintiff's Second Petition for Contempt,
at 9). Connie clearly never had 181 employees.
There is no statistical breakdown of the names on the Roths' computers in American Family's petition. Instead there are 600 pages of customer lists filed with the petition with the cross-over names highlighted in yellow. Perhaps the names represent two percent of the total, perhaps 20 percent. The petition does not include an exact tabulation of the number of cross-over names: it claims there are “over 230 names.” But a count reveals that there are 289.
It bears repeating that spoliation does not require the existence of an antecedent court order mandating preservation of evidence.
See also, Maguire & Vincent,
Admissions Implied From Spoliation or Related Conduct, 45 Yale L.J. 226 (1935); 2 J. Wigmore, Evidence § 278 at 133 (Chadbourn rev.1979). See Ty Inc.,
at 534 (“ ‘[A]n attempt by a litigant to persuade a witness not to testify is properly admissible against him as an indication of his own belief that his claim is weak or unfounded or false.’ ”).
Not all courts are so rigorous in their approach. They have concluded that negligent or reckless destruction is enough to warrant an adverse inference that the evidence would have been unfavorable to the spoliator. See, e.g.,
Residential Funding, 306 F.3d at 107; Clark Construction Group, Inc. v. City of Memphis, 229 F.R.D. 131 (W.D.Tenn.2005); Turner v. Hudson Transit Lines, Inc., 142 F.R.D. 68 (S.D.N.Y.1991). The theory of these cases is that the evidentiary sanction of an adverse inference, like the potential for monetary consequences in any negligence case, promotes deterrence and places the prejudiced party in the evidentiary position it would have been in but for the spoliation. Any risk that the evidence would not have been unfavorable to the party responsible for its destruction ought to fall on the spoliator, not the innocent party. See, e.g.,
Residential Funding, 306 F.3d at 108.
Whether the requirement that the destruction of evidence be intentional (or at least the result of fault beyond mere negligence, is more faithful to and consistent with the underlying logic of the spoliation doctrine as it relates to the drawing of adverse inferences than are the cases allowing the inference where the destruction is merely negligent is academic here: The plaintiff's motion does not seek a ruling that will allow the jury to draw an adverse inference, and it does not charge negligence. Quite the contrary, it is adamant that the defendant willfully and in bad faith destroyed the computers.
The plaintiff in Kucala
destroyed all relevant documents, and ran a program called “Evidence Eliminator” to clean relevant files from his computers after the court ordered him to provide the computers for forensic examination. While the court found the destroyed evidence was likely probative of motive and wilfulness, it nevertheless rejected the magistrate judge's recommendation of default judgment because infringement could be proven by comparison of accused product to patent. The court did accept the recommendation as to one count however because “Kucala's conduct has made Auto Wax unable to establish its claims for contributory infringement and inducement of infringement and unable to establish its damages because Kucala held the archive from which discovery of these matters should have been obtained.” 2003 WL 22433095, *6. That is not the case here.
End of Document.