Jackson, Carol E., United States District Judge
This dispute centered on the availability of coverage under a title insurance policy issued in conjunction with a construction project. Defendant Captiva Lake Investments, LLC ("Captiva") claimed it was entitled to defense and indemnification with respect to mechanics' liens and for unmarketability of title. Plaintiff Fidelity National Title Insurance Company (Fidelity) asserted it provided a defense for the mechanics' liens, that a policy exclusion barred coverage, and that the policy did not provide coverage for Captiva's alleged unmarketability of title. Both parties sought declaratory relief. Captiva additionally raised counterclaims for breach of contract, vexatious refusal, and tortious interference.
In this fourth discovery-related motion between the parties, Captiva sought requests for production of all documents related to its claims to Fidelity. Fidelity claimed the documents were protected under the attorney-client privilege and the work-product doctrine.
Some history is necessary. In early 2012, Captiva became aware of two sets of materials that Fidelity had not produced or listed in its privilege log: materials in Fidelity's computer-based “Claims Processing System” (CPS) and monthly Major Claims Reports (MCRs). In June 2012, Captiva filed a motion to compel production of these materials. After an in-camera review, the court found that Fidelity waived its attorney-client privilege and work-product protections to these materials by failing to properly include them in its privilege logs. The court then directed Fidelity to produce the MCRs and materials in CPS no later than September 4, 2012. Fidelity did not fully comply with the order, producing only partial information from CPS, and failing to produce four MCRs. Captiva moved for sanctions, seeking dismissal of Fidelity's claims or, in the alternative, a forensic examination of its computer systems. Fidelity denied that its conduct was sanctionable and stated that it was consulting with a specialist to collect more data from CPS. The trial court denied Captiva's motion for sanctions and ordered Fidelity to file a status report addressing the progress of its consultation with eDiscovery specialists.
A year later, Captiva again moved to compel production, stating that Fidelity concealed or withheld relevant documents, made unfounded privilege claims, and withheld documents until after depositions had been completed. Captiva also moved for the appointment of a specialist to examine Fidelity's computer system. After a hearing, the court appointed William Whitledge to inspect Fidelity's computer systems and directed the parties to develop a protocol for the inspection.
Whitledge's findings were: (1) as of the date of his report, Fidelity had not instituted a legal hold; (2) Fidelity did not conduct a systematic search of its computer systems, including its email archive, for discoverable information before May 5, 2013; (3) in 2011 and 2012, a contractor lost as many as 13 million email messages while implementing an email retention program; (4) Fidelity was able to recover files on the computer assigned to a former claims handler, but did not preserve any of his network share; and (5) new entries into the CPS overwrote existing data without retaining a copy and logs generated by the system were destroyed after a month.
Following submission of the specialist's report, Captiva again moved for sanctions, arguing spoliation as grounds for its claim. Captiva asked for attorney fees and costs as a result of Fidelity's alleged spoliation, and dismissal, or in the alternative, an adverse inference instruction for the jury.
The court found dismissal was not appropriate, and that dismissal is "reserved for the most egregious offenses" citing examples of intentional acts of destruction or defiance of court orders. But an adverse inference instruction was appropriate for "the ongoing destruction of records during litigation" even where there was no showing of bad faith and the court stated it would instruct the jurors "that they may, but are not required to, assume the contents of the deleted emails would have been adverse to Fidelity." As to costs and fees requested by Captiva, the court ordered Fidelity to pay one-half of the costs of the inspection by Whitledge as well as Captiva's reasonable attorneys' fees on the motion.
v.
CAPTIVA LAKE INVESTMENTS, LLC, Defendant
Counsel
Thomas J. Fritzlen, Martin, Leigh, Laws & Fritzlen, P.C., Kansas City, MO, Shawn T. Briner, Martin And Leigh, P.C., St. Louis, MO, for Plaintiff.Steven D. Hall, Richard A. Wunderlich, Lewis Rice, St. Louis, MO, for Defendant.