U.S. Commodity Futures Trading Comm'n v. Gramalegui
U.S. Commodity Futures Trading Comm'n v. Gramalegui
2016 WL 4479316 (D. Colo. 2016)
July 28, 2016
Gallagher, Gordon P., United States Magistrate Judge
Summary
The Defendant was found to have violated his discovery obligations by failing to answer, respond, or produce requested information, as well as committing spoliation of evidence by both affirmative destruction of evidence and by inaction or failure to preserve. The Court ordered the Defendant to answer, respond, or produce the requested information and awarded the Plaintiff reasonable costs and attorney's fees. The Court also ordered the Plaintiff to conduct an additional deposition of the Defendant on the issue of spoliation regarding Electronically Stored Information.
Additional Decisions
U.S. Commodity Futures Trading Commission, Plaintiff,
v.
Gregory L. Gramalegui, Defendant
v.
Gregory L. Gramalegui, Defendant
Civil Action No. 15-cv-02313-REB-GPG
United States District Court, D. Colorado
Signed July 28, 2016
Counsel
Laura Elizabeth Brookover, Commodity Futures Trading Commission, Washington, DC, Daniel Church Jordan, Raagnee Beri, United States Commodity Futures Trading Commission, Washington, DC, for Plaintiff.Martin Melville Berliner, Berliner McDonald, P.C., Greenwood Village, CO, for Defendant.
Gallagher, Gordon P., United States Magistrate Judge
ORDER REGARDING PLAINTIFF'S MOTION TO COMPEL, et. al.
*1 This matter comes before the Court on Plaintiff's consolidated motion to compel, for sanctions, and for leave to take discovery on spoliation and incorporated memorandum of law (ECF #46) (which was referred to this Magistrate Judge (ECF #47)),[1] Defendant's response (ECF # 49), Plaintiff's reply (ECF # 52), Plaintiff's supplemental exhibit (ECF #64) and Defendant's supplemental exhibit (ECF #65). The Court has reviewed each of the aforementioned documents and any attachments. The Court has also considered the entire case file, the applicable law, and is sufficiently advised in the premises. Oral argument was heard on July 22, 2016. For the following reasons, I grant the motion in part and deny the motion in part.
The Court will address below specific discovery violations which Plaintiff seeks to have remedied by way of its motion. First, the Court will provide an overview regarding the general nature of the alleged violations. The violations break down into two main categories: (1) alleged failures to fully answer interrogatories or produce documents in response to requests for production and (2) alleged spoliation of certain discovery which breaks down into two subcategories: (a) affirmative destruction of evidence by Defendant and (b) spoliation by inaction or failure to preserve.
As listed above, the Plaintiff filed its motion to compel, with significant attachments, said motion being responded and replied to. In addition, the Court Ordered Plaintiff to produce some sort of logical chart itemizing the alleged violations and gave the Defense an opportunity to respond in the same format. That chart, which will be referred to repeatedly herein was filed at ECF #64-1 with Plaintiff's response chart being filed at ECF #65-1.
The following is the Court's findings in order as set forth in order as per the chart. For all those circumstances in which the Court finds a violation was committed by the Defense, the Court finds that Plaintiff proved said violation by a preponderance of the evidence. The Court finds that the information sought is relevant. For each of the violations listed below, Plaintiff made one or more subsequent attempts to voluntarily procure the information from Defendant to filing of the instant motion (with the sole exception listed below). For all those circumstances in which the Court found that Defendant violated his discovery obligations Defendant did so by failing to answer, failing to provide or providing an answer that was incomplete or evasive under Federal Rule of Civil Procedure 37(3)(B)(iii) or (iv).
All supplemental responses must be under oath pursuant to Federal Rule of Civil Procedure 33(b)(3). To the extent this has not occurred, Defense is to insure all responses comply with Rule 33(b)(3).
Interrogatories:
*2 P. 1, Q. 1 (no violation):
(a) Ask market profile trading does not fall within the scope of the question.
(b) Rental property is not a violation.
(c) Relationship between businesses not a violation as not within the scope of the question.
P.2, Q3 (violation for failure to answer):
Plaintiff has consistently requested all emails used by Defendant. Defendant failed to disclose spsafe@aol.com, ask@askmarketprofiletrading.com, and eminitr1@box777.bluehost.com. Plaintiff had to discover these addresses from other sources.
P.3, Q4 (violation for failure to answer):
Plaintiff seeks to identify, with specificity, who wrote what on Defendant's website. Defendant has not reviewed the website content (not the blog portion) and identified those sections which he wrote and those sections he believes others authored. Defendant has not provided names, addresses, and contact information for anyone who had access to author any portion of the website other than the blog portion of the website.
P.4, Q.6 (violation as to sections (b)(c)&(d) for failure to answer):
With regard to each of these sections, Defendant failed to provide names of all service providers as defined in the question. Defendant's response states that when the CFTC objected that Defense Counsel “prodded” Defendant jogging his memory (ECF #65-1, p.4, para. (1)(a)). Significant numbers of service providers were not timely revealed. Plaintiff, who attempted to garner cooperation in this and other areas, need not object and repeatedly ask to get lawful responses to their interrogatories. Defendant's obligation is to respond or object if the Defense believes they have a lawful objection. In the absence of an objection, Plaintiff need not pull teeth to get discovery. Plaintiff complied with Federal Rule of Civil Procedure 37(a)(1) and D.C.COLO.LCivR 7.1 (a) yet still did not receive complete discovery.
P. 7, Q. 8, 2nd set of interrogatories: No compliance with D.C.COLO.LCivR 7.1 (a) thus no violation. Q. 8 still to be answered in full.
Requests for production, failure to produce:
P.10, R.8 (violation for failure to produce):
Documents of a financial nature. It appears likely that this information is still in Defendant's possession and needs to be produced and identified.
P.12, Q. 12 (no violation):
Arguably, the email withheld was not a complaint but was instead a query. All such emails must now be provided.
P.13, R.13 (violation for failure to produce):
ETS revenue and liabilities information. This is not necessarily duplicative of request 8 and is not limited to bank statements. Significant other documents may exist showing revenues and liabilities and these need to be provided in response to the request.
Spoliation:
“Destruction of evidence, or spoliation, is a discovery offense ...” Gates Rubber Co. v. Bando Chem. Indus. Ltd., 167 F.R.D. 90, 101 (D. Colo. 1996). In determining whether sanctions are appropriate for destruction or loss of evidence the Court must determine the following: (1) would the missing documents be relevant at trial; (2) was there an obligation to preserve; and (3) what would be the appropriate sanction. See Cache La Poudre Feeds, LLC v. Land O'Lakes, Inc., 244 F.R.D. 614, 621 (D. Colo. 2007). The burden is on the moving party to prove, by a preponderance of the evidence, that the opposing party failed to preserve evidence or destroyed it. In re Krause, 367 B.R. 740, 764 (D. Kan. 2007).
*3 Requests for production, spoliation (perhaps failure to produce because it is unknown if Defendant actually still has the items/information sought):
Plaintiff seeks production of significant data and documents as set forth in ECF #64-1, pp. 8-19. With regard to the remainder of ECF #64-1, pp. 8-19 the Court finds significant discovery violations and spoliation.
Relevance:
Plaintiff seeks essentially the following as culled from the aforementioned pages (referencing ECF #64-1):
P.8, R.3: Chat logs or other communications for on-line trading;
P.8, R.4: Communications between ETS and customers or prospective customers;
P.9, R.6: Identifying information of all customers;
P.11, R.10: All advertising and marketing material;
P.14, R.14: Mailing lists;
PP.15-18: 12 listed email accounts;
P.19: 10 listed offsite service providers.
Plaintiff's complaint for injunctive relief (ECF #1) alleges multiple violations of the Commodities Exchange Act, Regulations and a prior Order including: misrepresentations to customers/potential customers, failures to disclose to the Commission and customers, misleading the Commission, and failures to warn customers of certain risks for which such warning is required. The Court finds that the discovery Plaintiff seeks is relevant to the claims made in this action and is essentially self evident as it falls clearly within the scope of this matter. This is a case about what Defendant did with his business, what he told customers/potential customers and how he told them. The discovery sought attempts to answer those questions.
Preservation:
On October 15, 2014, by letter, the CFTC clarified Defendant's voluntary agreement to provide certain information in lieu of a subpoena. On January 20, 2015 the CFTC served a subpoena on Defendant. Defendant took the position at oral argument that the preservation date started on January 20, 2015, not ninety seven (97) days earlier on the date they voluntarily agreed to provide information in lieu of a subpoena. The Court finds this position untenable. To allow ninety seven days for destruction of when a party has agreed to provide such evidence but not yet been formally required to do would be horrendous public policy and make no sense. Defendant was notified, Defendant agreed to provide information, and Defendant does not get to then turn around and destroy or fail to preserve documents.
Unfortunately, that is exactly what occurred. With regard to certain email accounts, Defendant allowed for or actually deleted emails during the time between the 10/15/14 letter and the 1/20/15 subpoena. In addition, perhaps during that period and perhaps after, Defendant allowed for the destruction or loss of data by failing to inform and preserve.
As is set forth above, Defendant had significant numbers of email addresses, accounts and other ways in which he was sending and receiving electronic data, advertising or otherwise appears to have been conducting his business. Some of these addresses and accounts were initially disclosed, many were not. With regard to some of these accounts or off-site data hosts/storage providers, Defendant discontinued his relationship with the provider and information was potentially lost, e.g. Defendant advertised with Google “ad-words” (Defendant could no longer afford or decided not to pay for the service to continue but told no one and Google ultimately may have allowed the data to be deleted); Sendgrid (failure to pay for service, account closed and information lost). The record and motion is replete with such examples. Defendant argues, in its responses to this motion and in oral argument, essentially no harm no foul. Some of this information was provided, perhaps late, but now the Plaintiff has it. The data deletion by offsite hosts/servers is an example of why that position is faulty. There is a foul in that discovery was not provided to the CFTC, e.g., they were never told about Sendgrid. Thus, they had no reason to insist on preservation. Now they know but it may be too late. And this is not isolated to one source but seems to have occurred with multiple sources of potential discovery. The trick will be figuring out the extent of the spoliation.
*4 What should have occurred is as follows: Defendant should have revealed all emails, sources, off-site data hosts, etc. consistent with the interrogatories and requests for production. Defendant should not have deleted anything after 10/15/14. If Defendant could not or chose not to pay for or continue his relationship with Google, Sendgrid or some other source, Defense Counsel needed to be informed and subsequently inform opposing Counsel. That would have allowed for steps to be taken to preserve data before it was too late. The parties could have cooperatively reached a payment or preservation agreement with sources, preservation letters could have been provided to sources, subpoenas could have been issued or the Court could have been brought into the issue. Now, some evidence is most certainly gone but perhaps some still remains in the corners of some electronic storage device. The following sanction is designed, in part, to help determine what may be left.
Plaintiff has met its burden of showing that relevant evidence existed, that it should have been preserved and that it was not preserved. The extent of the spoliation is not yet known and most likely resides in Defendant's brain. The Court is not yet in the position to determine the extent of the prejudice resulting from destruction of relevant evidence. While it is obvious that such evidence was lost or destroyed, how much is gone and what perhaps may yet be recovered will be determined through a spoliation deposition of Defendant and likely further investigation by Plaintiff. The Court anticipates that there may be further litigation as to spoliation sanctions as this matter proceeds in order to determine the degree of prejudice in terms of the effect on Plaintiff's case due to the unavailability of said evidence.
It is hereby Ordered that Plaintiff may conduct an additional deposition of the Defendant on the issue of spoliation at the expense of the Defense, 7 hour deposition. This is limited to spoliation on or after 10/15/14. Appropriate topics are: destruction of emails, other sources that there was a duty to preserve, all other emails, all other off-site sources of information such as advertising, web-site hosting platforms or the like.
It is further Ordered that Defendant shall sign any needed releases to obtain such information. Any dispute over releases are to be immediately referred to this Magistrate Judge.
It is further Ordered that Defendant shall answer, respond or produce as specifically set forth above for each of the delineated violations.
It is further Ordered that Plaintiff is awarded its reasonable costs and attorney's fees incurred in filing this motion. Plaintiff shall file an affidavit in support of the award of fees and costs in accordance with D.C.COLO.LCivR 54.3 within 20 days of this Order, any response to be filed within 14 days thereafter. No reply will be permitted. The Court is aware that this motion was granted in part and denied in part. Consistent with Federal Rule of Civil Procedure 37(a)(5)(C), costs and fees are not to be awarded for the limited portion of the motion which the Court is not granting and Plaintiff must not include any such costs/fees in its affidavit.
Dated at Grand Junction, Colorado, this 28th day of July, 2016.
Footnotes
“(ECF #46)” is an example of the convention I use to identify the docket number assigned to a specific paper by the Court's case management and electronic case filing system (CM/ECF). I use this convention throughout this Order.