Virtual Studios, Inc. v. Stanton Carpet Corp.
Virtual Studios, Inc. v. Stanton Carpet Corp.
2016 WL 5339601 (N.D. Ga. 2016)
June 23, 2016

Murphy, Harold L.,  United States District Judge

Failure to Preserve
Adverse inference
Bad Faith
Sanctions
Spoliation
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Summary
Stanton Carpet Corp. filed a Motion for Sanctions against Virtual Studios, Inc. for failing to take reasonable steps to preserve email correspondence exchanged between the parties. The court found that Virtual Studios had a duty to preserve the emails, and imposed sanctions against Virtual Studios, including an adverse inference at summary judgment and, if the case survives summary judgment, at trial. The court also ordered that Stanton may introduce evidence concerning the loss of the emails and may make an argument to the jury concerning the effect of the loss of the emails.
Virtual Studios, Inc., Plaintiff/Counter-Defendant,
v.
Stanton Carpet Corp., Defendant/Counter-Plaintiff
CIVIL ACTION FILE NO.: 4:15-CV-0070-HLM
United States District Court, N.D. Georgia, Rome Division
Signed June 23, 2016

Counsel

Michael Alan Anderson, Patrick Beard Schulman & Jacoway, Chattanooga, TN, Andrew D. Horowitz, Leslie Paige Becknell, Drew Eckl & Farnham, Atlanta, GA, for Plaintiff/Counter-Defendant.
Amanda Lee Deford, McGuireWoods, LLP, Richmond, VA, Brad Richard Newberg, McGuireWoods, McLean, VA, Peter Norbert Farley, McGuireWoods LLP, Atlanta, GA, for Defendant/Counter-Plaintiff.
Murphy, Harold L., United States District Judge

ORDER

*1 This case is before the Court on the Motion for Sanctions filed by Defendant/Counter-Plaintiff Stanton Carpet Corp. (“Stanton”) [104].
I. Procedural Background
The Court incorporates the procedural background portions of its earlier Orders into this Order as if set forth fully herein, and adds only those background facts that are relevant to the instant Motion. (Order of Aug. 24, 2015 (Docket Entry No. 27); Order of Oct. 19, 2015 (Docket Entry No. 37); Order of Jan. 12, 2016 (Docket Entry No. 53); Order of Feb. 17, 2016 (Docket Entry No. 74); Order of Mar. 21, 2016 (Docket Entry No. 97).) On May 3, 2016, Stanton filed its Motion for Sanctions, arguing that Plaintiff/Counter-Defendant Virtual Studios, Inc. (“Virtual Studios”) “failed to take reasonable steps to satisfy its duty to preserve email correspondence (electronically stored information) exchanged between the parties, and that email correspondence cannot be restored or replaced,” which would permit the Court to impose sanctions against Virtual Studios, “including but not necessarily limited to an adverse inference at summary judgment and, if the case survives summary judgment, at trial.” (Mot. Sanctions (Docket Entry No. 104) at 1-2.) The briefing process for the Motion for Sanctions is complete, and the Court finds that the matter is ripe for resolution.
B. Factual Background
1. Deposition Testimony
a. Jonathan Cohen
Jonathan Cohen, Stanton's corporate representative, testified that Stanton likely did not have e-mails on its server from the years 2000 through 2004. (Dep. of Jonathan Cohen (Docket Entry No. 116-1) at 6.) Mr. Cohen did not know why Stanton did not have those e-mails, but noted that it “[c]ould have been a server change at some point and possibly lost the e-mails or not archived them.” (Id. at 8.) In response to the question, “Do you think that your company's position either in terms of defending itself in the lawsuit or pursuing its counterclaim has been jeopardized in any way by your not having access to the e-mails from the early years?” (id.), Mr. Cohen responded, “I don't think so” (id.). Mr. Cohen could not point to a specific e-mail that he believed Virtual Studios possessed that Stanton could not locate from a particular time frame that could be helpful to Stanton, (id. at 10.) Mr. Cohen was not aware of anyone with Stanton who ever stated that an e-mail existed between Stanton and Virtual Studios, which Stanton could not locate, that would help Stanton defend its case or pursue its counterclaim, (Id.) Later in his deposition, however, Mr. Cohen stated: “If we had all those e-mails that you guys lost from 2001 to two-thousand whatever, it would have been very helpful and we probably would have had that information [relating to the alleged one-year limitation].” (Id. at 67 (Docket Entry No. 124-4).)
b. Thomas Sucher
Thomas Sucher, Virtual Studios' representative, testified that Stanton gave Virtual Studios stock photographs for room scenes and also used Virtual Studios' room scene images. (Dep. of Thomas Sucher (Docket Entry No. 116-2) at 35.) According to Mr. Sucher, with new customers seeking to use one of Virtual Studios' room scenes, he would explain:
*2 [T]here's three options that you can utilize the room scenes. One is you can, as I said before, you can purchase the room, $750. We give you the rights to the room and, you know, you can do whatever you want however you want to do it.
Option number two is an exclusive one year usage of the room where we remove it from the website or our image bank for that one year, and the client doesn't have to worry if a competitor is coming to, you know, use that room scene. That's $500 plus the manipulation.
(Id. at 55.) Mr. Sucher further testified that, with the $750 option, Virtual Studios would “relinquish the copyright at that point and they can do whatever they want with that room scene.” (Id. at 55-56.) Mr. Sucher explained:
The second option is the $500, we take it off the website and out of our library for that year, and they can, again, use it for one year. They have to come to Virtual Studios. They can't manipulate it in any way, shape, or form unless they come to Virtual Studios.
The third option is that we offer the room scene for free for one year. They have to –– Virtual Studios still has the copyrights. The client cannot manipulate the image in any way, shape, or form. And they –– we have to do the manipulation of whatever product's in there. So let's say it's carpet and that's $300. So whatever the cost of the manipulation.
(Id. at 56.)
According to Mr. Sucher, he was not “absolutely sure” whether he had e-mails or written communications that he sent to customers stating that the use of the room scene was free, but Virtual Studios must do the manipulation, and use of the room scene was only free for a year. (Sucher Dep. at 56.) Mr. Sucher noted:
You know, I've written many an e-mail about, hey, here are the three options and, you know. And if that wasn't communicated in an e-mail, it was definitely communicated, you know, each time that I met a client who wanted to do room scenes. And, you know, a first-time client was asking about pricing of a room scene.
(Id.)
According to Mr. Sucher, Virtual Studios and Stanton could have begun doing business in approximately 1999. (Sucher Dep. at 119-20.) Mr. Sucher did not recall proposals or written communications that he sent to Stanton describing what Virtual Studios could do for Stanton, (Id. at 120.) Mr. Sucher testified that Virtual Studios “had a little brochure” for advertising, but he was “pretty sure” that the brochure did not contain licensing options or terms and conditions, (Id.) Mr. Sucher recalled that the terms and conditions were on “all invoices ... that went to the client.” (Id. at 169.) According to Mr. Sucher, the terms and conditions were “on the back of the original versions” of the invoices. (Id.)
Mr. Sucher testified that, when he sent an April 2009 e-mail, he “didn't know what Stanton was doing with the room scenes.” (Sucher Dep. at 181.) He recalled being “pretty upset” that Stanton was not using Virtual Studios. (Id.) According to Mr. Sucher, he did not always have plans to sue Stanton, and he attempted to telephone Stanton's representatives and tell them that they had violated Virtual Studios' copyrights, (Id. at 210.) Mr. Sucher testified that it “sort of ticked [him] off” when Stanton's representatives failed to return his calls, and he “said, okay, I'm filing a lawsuit against them.” (Id.) According to Mr. Sucher, those calls occurred around 2014 or perhaps in 2012 or 2013. (Id. at 211.)
*3 Mr. Sucher testified that Virtual Studios could not check e-mails of former employees, because it did not have that information. (Sucher Dep. at 265.) Virtual Studios did not instruct its employees to retain documents concerning Stanton or to make sure that they did not destroy e-mails or documents or allow e-mails or documents to be destroyed. (Id. at 266.) Virtual Studios does not have a set automatic deletion time for e-mails, (Id.) Virtual Studios, however, has had approximately five servers since 2000, and the older servers are no longer accessible. (Id.) Further, Mr. Sucher testified that “the individual Macs or PCs would have the individual's e-mails on them as well and, you know, they would crash and we would get new ones and we couldn't retrieve the e-mails.” (Id.) Although Virtual Studios backs up its electronic files, “in the one particular crash that [it] had where the server caught on fire, it also messed up the backup files and destroyed those files as well.” (Id. at 268.)
Mr. Sucher stated that he “would be shocked” to learn that Virtual Studios had produced fewer than 100 e-mails in this case, “[b]ecause there was a lot of communication that went back and forth.” (Sucher Dep. at 267.) Virtual Studios keeps hard copies of some documents, but it does not have a policy establishing a length of time to keep those documents. (Id.)
Mr. Sucher noted that he was not aware of any agreement signed by both Stanton and Virtual Studios other than the 2001 Pricing Agreement. (Sucher Dep. (Docket Entry No. 104-11) at 138.)
c. Other Companies
i. Larry Mahurter
Larry Mahurter, a representative of Couristan, another carpet company, testified that, if Couristan had known that Virtual Studios planned to take the position that Couristan could not use any room scene after a year, Couristan would not have used Virtual Studios as a vendor. (Dep. of Larry Mahurter (Docket Entry No. 104-9) at 31.) Mr. Mahurter noted that “anyone within the carpet industry ... knows the [life cycle] of any of the products that anybody introduces,” and, “[a]s a company, we would have never invested in labeling and boards, expensive boards and displays with products that have ... less than a year life cycle.” (Id.) A year limitation on use would have been cost-prohibitive. (Id.) Mr. Mahurter stated that Virtual Studios had sued Couristan, alleging that it told Couristan that it could not use the room scenes beyond one year, and that it told Couristan orally and in writing about the alleged three licensing options. (Id. at 34.)
ii. Kathleen Vanderpool
Kathleen Vanderpool, a representative of Royalty, testified that, if Royalty knew that Virtual Studios planned to take a position that Royalty could not use a room scene beyond one year without paying an annual fee, Royalty would not have used Virtual Studios' services. (Dep. of Kathleen Vanderpool (Docket Entry No. 104-9) at 34-35.) According to Ms. Vanderpool, “it is unrealistic to put samples in the field and then have to either withdraw them from the field after a year or continue to pay for use of the photo.” (Id. at 34.) Ms. Vanderpool explained: “The samples are all over... we have no way of knowing where they are, so there would be no way to recall them.” (Id.) Ms. Vanderpool stated: “If I knew that [the one-year term] was the option, I would have used other places.” (Id.) According to Ms. Vanderpool, when a company uses a lot of photos, paying an annual renewal fee could be cost-prohibitive. (Id. at 35.) Ms. Vanderpool noted that Virtual Studios filed a lawsuit against Royalty alleging copyright infringement based on Royalty's use of the room scenes for more than one year. (Id.) Ms. Vanderpool contended that Virtual Studios never told Royalty about the one-year limit, even though Virtual Studios invoiced Royalty, (Id. at 37.)
iii. Barry Frank
Barry Frank, a representative of Art Flock & Screening, d/b/a Kane Carpet Company (“Kane”), testified that the one-year limit would have created an obstacle for Kane's use of Virtual Studios, given the longevity of Kane's carpets. (Dep. of Barry Frank (Docket Entry No. 104-9) at 48.) According to Mr. Frank, if Kane had known that Virtual Studios planned to take the position that Kane had to retrieve every single room scene after the one-year period expired, Kane would not have done business with Virtual Studios. (Id. at 49.) Mr. Frank noted: “Basically, all the cost that we put into marketing and having to take it back after a year makes absolutely no sense.” (Id.) Mr. Frank testified that Virtual Studios filed suit against Kane, claiming that Kane violated Virtual Studios' copyrights by using the room scenes for more than one year, and that Kane denied knowledge of that one-year limit in that lawsuit. (Id. at 51-52.) Mr. Frank noted that Kane was displeased with the lawsuit, noting that Virtual Studios“clearly understood what we were using the products for,” and that Kane used the products for many years without hearing complaints from Virtual Studios, (Id. at 52.)[1]
2. Documents
a. Invoices
*4 Invoices produced stated: “Please refer to the reverse side of this invoice for Virtual Studios' detailed ‘Terms and Conditions.’ ” (Resp. Mot. Sanctions Ex. C (Docket Entry No. 116-3) at 1-2; Resp. Mot. Sanctions Ex. D (Docket Entry No. 116-4) at 1.)
b. Terms and Conditions
Virtual Studios also produced versions of the “Terms and Conditions” stating that “Virtual Studios will provide its Client with the unlimited use of all photographs for a period of one year form [sic] the day of completion and payment of services as stated below.” (Resp. Mot. Sanctions Ex. C at 3; see also id. at 4 (“Virtual Studios will provide its Client with the unlimited use of all photographs for a period of one year from the day of completion and payment of services as stated below.”).) One of the versions of the Terms and Conditions stated: “Virtual Studios reserves the right to pursue unauthorized users of any Virtual Studios room scene image. If you violate our intellectual property you may be liable for: actual damages, loss of income, and profits you derive from the use of this image or clip, and, where appropriate, the costs of collection and/or statutory damages up to $150,000 (USD) per image.” (Id. at 3.)
c. Pricing Agreement
Stanton provided a copy of the 2001 Pricing Agreement between Stanton and Virtual Studios. (Docket Entry No. 104-11.) That Agreement lists prices for a variety of services and products, but it does not mention a one-year limit on use of room scenes or the purported three options. (See generally id.) Both Stanton and Virtual Studios signed that Agreement on August 1, 2001. (Id. at 5.)
3. Discovery Responses
a. Requests for Production
Virtual Studios' Revised Amended Second Supplemental Objections and Responses to Stanton's Requests for the Production of Documents responded to a request seeking “[a]ll communications between Virtual Studios and Stanton regarding the Asserted Scenes” (Docket Entry No. 104-3), by stating, in relevant part:
Virtual [Studios] has confirmed that, aside from the correspondence that Stanton has provided Virtual [Studios] during this litigation, it has no other documents responsive to this Request. Over the past 15 years, much of Virtual [ ] [Studios'] email correspondence was saved on individual hard drives of employee computers. Virtual [Studios] no longer has access to many of those hard drives due to hardware failures and the fact that they were not backed up on the company's server. Virtual [Studios'] employees have searched the company's currently accessible computers for documents responsive to this request and Virtual [Studios] has produced all the documents that they could find. The reason that Virtual [Studios] has some but not all correspondence dating back to 2002 is that one old computer in its office is still accessible. That is the lone source of correspondence dating back that far.
...
Shortly after Virtual [Studios] began in 1996, its staff comprised between 10 and 15 employees. All or nearly all of those employees had a personal computer. Most of those computers were made by Apple. Over the course of the next four or five years, Virtual[ ] [Studios'] staff size increased to roughly 30 employees. Again, Virtual [Studios] provided most staff members with work computers, and again, most were Apples. Since then, Virtual[ ] [Studios'] staff size has gradually decreased to its current state–[its] President, one full-time employee, and two part-time employees.
*5 Virtual [Studios] does not recall specific dates on which its employees' computers crashed, nor does it recall the names of all those employees whose computers crashed. Virtual [Studios] does recall that at least one of Heather Clay's computers crashed in the past year or two, and that at least one of Phil Farmer's computers has crashed over the course of the past decade.
Currently, there are seven computers in Virtual[ ] [Studios'] office that its employees regularly use, and another six that Virtual [Studios] either does not use or uses to run specific pieces of equipment or discrete software programs (such as a drum scanner, an Epson printer, an image wrapping program, and an image archival system). Virtual [Studios] also has a server that temporarily stores recent client job data and also contains copies of Virtual[ ] [Studios'] image archive catalog and “Clients & Profits” database.
Of the seven computers that Virtual[ ] [Studios'] employees regularly use, Virtual [Studios] believes that it obtained all except one within the past decade. Virtual [Studios] obtained some of ... those computers to replace older computers that, while still functional, needed to be upgraded. In those cases, Virtual [Studios] was able to transfer data from the older computer to the new computer.
Some of those computers, however, were obtained to replace crashed computers. In those cases, some or all of the data from the crashed computer would be lost and could not be transferred to the new computer.
The oldest computer among the seven that its employees regularly use is a computer made by Apple that Virtual [Studios] believes is approximately 20 years old. It was and still is used by Heather Clay. Its primary function is to run an old version of Virtual[ ] [Studios'] “Clients and Profits” software.
Virtual [Studios] searched all of its computers for documents responsive to Stanton's discovery requests.
Though Virtual [Studios] has not employed a dedicated I.T. employee in more than a decade that can confirm this, what follows is Virtual[ ] [Studios'] understanding of how its company email accounts function and how it preserved data over the years:
From the beginning of Virtual[ ] [Studios'] business up until 2014 or 2015–when Virtual [Studios] began using Microsoft Exchange for email–Virtual [ ] [Studios'] company email accounts functioned by downloading emails from Virtual[ ] [Studios'] ISP directly to individual computers' hard drives. Once the emails were on individual hard drives, those were the only copies that Virtual [Studios] maintained. While Virtual [Studios] backed up graphic-design data related to its jobs for customers (images and image-related file[s] ), it did not back up e-mails. So if an individual computer crashed or malfunctioned, the only data that was preserved was graphic-design data related to specific jobs. Emails, along with other data on a computer that was not used on a customer job, would be lost.
(Id. at 2-5.)
b. Interrogatories
In response to Stanton's Interrogatories, Virtual Studios stated:
Mr. Sucher first became aware of Stanton's impermissible use of Virtual [ ] [Studios'] images in 2009 while he was in a flooring store looking at various flooring display racks. At that time, he noticed that some displays for Stanton's products contained Virtual[ ] [Studios'] copyrighted room scenes that Stanton had obtained from Virtual [Studios] more than a year before. Mr. Sucher then visited Stanton's website and found additional Virtual [Studios] room scenes that Stanton did not have permission to use. Mr. Sucher does not recall which specific Virtual [Studios] room scenes he saw at that time.
*6 After observing Stanton's impermissible use, Mr. Sucher contacted Jonathan Cohen and Ayme Sinclair to alert them of the issue. Ms. Sinclair did not respond after repeated calls so Mr. Sucher wrote an email about the situation. Again, he received no response from anyone at Stanton.
(Docket Entry No. 104-5 at 3-4.) Virtual Studios also noted: “Subsequent to these communications in 2009 and thereafter Virtual [Studios] made it clear that Stanton was engaged in impermissible use of copyrighted images.” (Id. at 5 (emphasis in original).) Virtual Studios further stated: “Generally, all of the evidence that Virtual [Studios] has of Stanton's impermissible use has been obtained from approximately 2009 to the present.” (Id. at 6 (emphasis in original).) Virtual Studios also outlined the communications that it had with Stanton representatives during the course of the Parties' business relationship, and noted that those communications occurred via e-mail, telephone, or face-to-face meetings. (Id. at 8-11.) Virtual Studios stated: “All of the email correspondence that Virtual [Studios] could locate are included in the documents Virtual [Studios] has produced in response to Stanton's requests for documents.” (Id. at 8.)
c. Requests for Admissions
Virtual Studios denied requests for admissions by Stanton seeking admissions that Virtual Studios had no written communications in which it told Stanton about the alleged one-year limitation or in which it informed Stanton that it had placed a temporal limit on use of room scenes. (Docket Entry No. 104-10 at 5.) Virtual Studios admitted that it did not currently possess hard copies of the invoices that it sent to Stanton for the room scenes that had the Terms and Conditions attached. (Id. at 6.) Virtual Studios admitted that several of its other customers used the room scenes beyond the one-year limit, and that it never sued a customer with whom it was still doing business for copyright infringement. (Id.)
4. E-Mails
a. 2009
On April 7, 2009, in response to an e-mail from Ayme Sinclair with Stanton concerning a price difference between Virtual Studios' products and a competitor, Mr. Sucher stated:
I know you're aware of this already but make sure the rooms you send to them are not Virtual Studios copyrighted rooms. You should also make sure they are using their own rooms. Because if you get caught using someone's room it doesn't matter where it came from it's still a copyright violation and the penalties are heavy.
(Docket Entry No. 104-4 at 69.)
On April 16, 2009, Mr. Sucher sent an e-mail to Ms. Sinclair, with a copy to Mr. Cohen, stating, in relevant part:
Good Morning. It appears based on your last e-mail that Stanton will be using another vendor for your prepress and photography business. It sad [sic] to hear especially after all Virtual Studios has done for Stanton during the last 10 years of business. I understand that price matters however there are numerous other factors that should also be considered when making a purchasing decision.... I will also say that Virtual Studios has bent over backwards and has never charge[d] Stanton any additional charges for the many changes that have happened on projects. In fact, I have also not said anything about our copyrighted room scenes that we produced years ago for Stanton and are remain [ing] in the field, which technically are on a one-year contract. I must also mention that all Virtual Studios room scenes remain the property of Virtual Studios and cannot be manipulated in any way unless it is done by Virtual Studios otherwise it would be a copyright violation. So when you are looking at room scenes in the future, please make sure that you do not give our rooms to the competition. Ayme, I am not trying to be difficult however, we have spent hundreds of thousands of dollars in developing our room scene library, which we allow our clients to use free when Virtual Studios does the manipulation. I have been told by our lawyer that I need to continue to mention the statement about our room scene copyrights.
*7 Again, I am truly sorry to lose Stanton as a client after 10 years. Let me know if anything changes in the future. This also ends our Pricing Agreement so that any future work will be billed at our normal rates.
(Docket Entry No. 104-4 at 68.)
b. 2014
On July 18, 2014, Mr. Sucher sent an e-mail to Ms. Sinclair stating, in relevant part:
Good Afternoon. I was just recently in a Carpet One store and could not help but notice that Stanton was using well over 20 Virtual Studios copyrighted room scenes on various displays. I then went back and check[ed] when we did these room scenes from Stanton and in some rooms it was over 5 years ago. That[ ] is not right.
A[ym]e you know and are well aware that Virtual Studios has three options for our clients to either lease or purchase Virtual Studios room scenes. To reiterate the options are as follows:
Option 1. Purchase the copyright for a room scene for $750, and have unlimited use of the room scene without further fees to Virtual [Studios]. The client can then do whatever they want with the room as they own full rights.
Option 2. Purchase the rights to exclusively use a room scene for one year. The price for Option 2 is $500 plus the manipulation cost. The room scene will be removed from the Virtual [Studios] system so that no other manufacturer could use the scene for that one year. Under this arrangement, Virtual [Studios] maintained ownership of the copyrights and the exclusive right to digitally “manipulate” the manufacturer's product into the room scene at Virtual[ ] [Studios'] standard charges for the manipulation.
Option 3. Lease the room scene for a period of one year at the cost of the room scene manipulation; Virtual Studios maintained ownership of the copyright and the exclusive right to digitally manipulate the room scene at Virtual [ ] [Studios'] standard charges.
The terms and conditions of Virtual[ ] [Studios'] agreement were explained to Stanton years ago and are on the backs of all invoices....
Ayme, you can't have Option 1 and only pay for Option 3. How can Virtual Studios survive if you take our images and continue to use them year after year. It's not fair to us and it's not fair to our other clients like Shaw, Mohawk, Millican, Invista and so many others who have paid the $750 for their images. Also check with any stock photography house and you will see the same option situation. The Virtual Studios images are not Royalty Free images. In fact, Stanton only paid for the manipulation and not the room scene.
Ayme, you leave me with no alternative but to do the following:
1. Stanton will pay $750 per room scene on all Virtual Studios room scenes that we found at retail (I will send you a spreadsheet with each room). I would trust that if there are more images of Virtual Studios[ ]that you are aware of and have used for over the permitted time period of one year that you would let me know about those rooms and pay for those images as well. This is very serious because if we go out and find a Virtual Studios room scene that you did not identify or pay for the use of that room then you will leave us with no alternative but to file a law suit for copyright infringement. So please take a look at what is out in the marketplace that is over one year. We will also now be going to a variety of stores to check along with any of your clients that are using our images on line. I will have someone here search on line for those rooms.
*8 2. Because Stanton was caught using our rooms without Virtual Studios ['] permission the $750 is not a complete buyout but only provides Stanton with the use of the room scene. Virtual Studios will continue to own all copyrights to those rooms.
3. We need to have this paid for within the next 30 days. If not then again you will leave us with no alternative but to file a law suit for copyright infringement.
4. Finally there is no negotiation here. Virtual Studios needs to be consistent when it comes to copyright violations.
Ayme please get back to me within the next 10 days with your results. If it's different from what we found I will let you know. Again I'm very disappointed at [sic] Stanton. Virtual Studios has always bent over backwards to provide Stanton with the very best products and service. Then to see this happen just is not right.
(Docket Entry No. 104-4 at 73-74 (emphasis in original).)
c. Other Companies
Stanton also presented a number of e-mail communications that Virtual Studios had with other companies. (Docket Entry Nos. 104-6, 104-7, 104-8.)
4. Declarations
a. William J. Buccheri
William J. Buccheri is an employee of Stanton, and he has been employed with Stanton since 2001. (Decl. of William J. Buccheri (Docket Entry No. 104-14) ¶¶ 1-2.) Mr. Buccheri's responsibilities include overseeing and assisting the IT department, (Id. ¶ 3.) According to Mr. Buccheri, “Stanton has had at least three instances in which it lost email correspondence with Virtual Studios in the early and mid-2002s [sic].” (Id.)
In 2002, Stanton changed its e-mail to Microsoft Exchange using Microsoft Outlook. (Buccheri Decl. ¶ 4.) During that transition, Stanton set up all of its emails for 2002 and before as a separate folder on each employee's hard drive. (Id.) Later, when Stanton upgraded its employees' desktop PCs, the “mailboxes representing the emails from when [Stanton was] using [its former e-mail system] were permanently lost.” (Id.)
In 2008, Stanton changed e-mail servers. (Buccheri Decl. ¶ 5.) This process required Stanton “to transfer its employees' PST files to the new server.” (Id.) During that process, Stanton permanently lost the PST file for its former Marketing Director, MJ Pullins. (Id.)
Stanton changed e-mail servers again in 2012, which “required Stanton to transfer its employees' PST files to the new server.” (Buccheri Decl. ¶ 6.) According to Mr. Buccheri: “During this process, the PST files for former Marking Director Grace Anello and former Marketing Assistant Theresa DeBlasio were permanently lost.” (Id.)
b. Ayme Sinclair
Ayme Sinclair has worked in Stanton's marketing department since 2006, and she was Stanton's main contact with Virtual Studios. (Decl. of Ayme Sinclair (Docket Entry No. 104-15) ¶¶ 1-2.) In her position, Ms. Sinclair sends “many emails with large attachments.” (Id. ¶ 3.) In February 2009, Stanton's IT department requested that Ms. Sinclair archive the e-mails that she sent and received prior to March 2009 “to free space up on the active server.” (Id. ¶ 4.) Ms. Sinclair complied with that request in February 2009. (Id. ¶ 5.) According to Ms. Sinclair, although she “did [her] best to archive [her] emails, something happened when [she] moved them and [she] no longer [has] access to any email [she] sent or received on behalf of Stanton from the day [she] started in 2006 to March 2009.” (Id. ¶ 6.)
II. Discussion
*9 “Spoliation is the destruction or significant alteration of evidence, or the failure to preserve property for another's use as evidence in pending or reasonably foreseeable litigation.” Marshall v. Dentfirst, P.C., 313 F.R.D. 691, 694 (N.D. Ga. Mar. 24, 2016) (internal quotation marks and citation omitted). “A party seeking spoliation sanctions must prove that (1) the missing evidence existed at one time; (2) the defendant had a duty to preserve the evidence; and (3) the evidence was crucial to the plaintiff's prima facie case.” Id. “In considering the particular spoliation sanction to impose, courts should consider the following factors: (1) prejudice to the non-spoiling party as a result of the destruction of evidence, (2) whether the prejudice can be cured, (3) practical importance of the evidence, (4) whether the spoiling party acted in good or bad faith, and (5) the potential for abuse of expert testimony about evidence not excluded.” Id. (internal quotation marks and citation omitted).
“Even if the Court finds spoliation, a sanction of default or an instruction to the jury to draw an adverse inference from the party's failure to preserve evidence is allowed only when the absence of that evidence is predicated on bad faith.” Marshall, 313 F.R.D. at 694 (internal quotation marks and citation omitted). “A showing of bad faith requires the plaintiff to demonstrate that a party purposely loses or destroys relevant evidence.” Id. (internal quotation marks and citation omitted). “Mere negligence in destroying evidence is not sufficient to justify striking an answer.” Id. “In determining whether to impose sanctions for spoliation, [t]he court should weigh the degree of the spoliator's culpability against the prejudice to the opposing party.” Id. (alteration in original) (internal quotation marks and citation omitted).
“Effective December 1, 2015, Rule 37(e) of the Federal Rules of Civil Procedure was amended to establish the findings necessary to support certain curative measures for failure to preserve electronically stored information.” Marshall, 313 F.R.D. at 694 (footnote omitted). The “amendment forecloses reliance on inherent authority or state law to determine when certain measures should be used to address spoliation of electronically stored information.” Id. (internal quotation marks and citation omitted). Rule 37(e), as amended, provides:
If electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery, the court:
(1) upon finding prejudice to another party from loss of the information, may order measures no greater than necessary to cure the prejudice; or
(2) only upon finding that the party acted with the intent to deprive another party of the information's use in the litigation may:
(A) presume that the lost information was unfavorable to the party;
(B) instruct the jury that it may or must presume the information was unfavorable to the party; or
(C) dismiss the action or enter a default judgment.
Fed. R. Civ. P. 37(e).[2]
*10 Here, there is no question that the missing electronically stored information––the e-mails––existed at one time and are no longer accessible. What is questionable, however, is whether Virtual Studios had a duty to preserve the evidence when it disappeared. It appears from the record that Virtual Studios reasonably anticipated litigation against Stanton at least as early as 2009, even though Virtual Studios did not send its final e-mails threatening litigation until 2014 and did not file this lawsuit until 2015. There is no question that Virtual Studios failed to preserve at least some e-mails prior to that date. The Court finds that Virtual Studios had a duty to preserve that evidence. See Marten Transp., Ltd. v. Platform Advert., Inc., Case No. 14-CV-02464-JWL-TJJ, 2016 WL 492743, at *5 (D. Kan. Feb. 8, 2016) (“With respect to timing, the duty to preserve definitely exists upon the filing of a lawsuit, but the duty may arise even before a lawsuit is filed if a party has notice that future litigation is likely. Notice invoking a duty to preserve may be triggered by different events, but most commonly, a party is deemed to have such notice if the party has received a discovery request, a complaint has been filed, or any time a party receives notification that litigation is likely to be commenced.” (internal quotation marks and footnotes omitted)).
The Court also must determine whether Virtual Studios took reasonable steps to preserve the e-mails at issue. “Due to the ever-increasing volume of electronically stored information and the multitude of devices that generate such information, perfection in preserving all relevant electronically stored information is often impossible.” Marten Transp., Ltd., 2016 WL 492743, at *4. “[T]he routine, good-faith operation of an electronic information system would be a relevant factor for the court to consider in evaluating whether a party failed to take reasonable steps to preserve lost information, although the prospect of litigation may call for reasonable steps to preserve information by intervening in that routine operation.” Id. “This rule recognizes that ‘reasonable steps' to preserve suffice; it does not call for perfection.” Id.
For purposes of this Order, the Court finds that Virtual Studios failed to take reasonable steps to preserve the e-mails at issue. It is abundantly clear that Virtual Studios did little, if anything, to prevent the loss of the e-mails. The Court next must determine whether to impose sanctions.
“Rule 37 provides two paths for imposing sanctions, detailed in subsections (e)(1) and (e)(2).” O'Berry v. Turner, Civil Action Nos. 7:15-CV-00064-HL, 7:15-CV-00075-HL, 2016 WL 1700403, at *3 (M.D. Ga. Apr. 27, 2006). “Each subsection carries different requirements and available sanctions.” Id.
“To impose sanctions under Rule 37(e)(1), the court must find that the opposing party was prejudiced by the loss of the [electronically stored information].” O'Berry, 2016 WL 1700403, at *3. “If the court finds that a party is prejudiced by the failure to preserve, the court has broad discretion to impose sanctions, but ‘may order measures no greater than necessary to cure the prejudice.’ ” Id. (quoting Fed. R. Civ. P. 37(e)(1)). “Subsection (e)(1) does not limit the court to specific sanctions, but does provide some examples of sanctions that the court might impose.” Id. “The advisory committee notes explain that the court could: (1) not allow the party responsible for the destruction of the [electronically stored information] to introduce any evidence about that data; (2) allow the party prejudiced to introduce evidence or make an argument to the jury regarding the effect of the loss of the [electronically stored information]; or (3) give instructions to the jury to assist them in evaluating the evidence introduced or arguments made regarding the [electronically stored information].” Id. “The only limitations on the sanctions available to the court are that the measure ordered must be no greater than necessary to cure the prejudice.” Id.
The Court finds that the loss of the e-mails is prejudicial to Stanton. Virtual Studios contends that it communicated the one-year use limitation and the purported three options for room scene rights to Stanton, while Stanton argues that Virtual Studios never communicated that information to Stanton. Certainly, the e-mails at issue would be helpful in evaluating the merits of the Parties' positions. Under those circumstances, the loss of the e-mails certainly is prejudicial to Stanton. Thus, sanctions are warranted under Rule 37(e)(1).
*11 The Court, however, declines to impose sanctions under Rule 37(e)(2), because Stanton has not shown that Virtual Studios acted in bad faith or with intent to deprive Stanton of the use of the information in this litigation.[3] Certainly, Virtual Studios could have taken greater care to preserve the information at issue, and its IT practices appear to leave much to be desired. At most, however, the evidence indicates that Virtual Studios was negligent or careless. Negligence on Virtual Studios' part, however, is not sufficient to allow the Court to draw an adverse inference against Virtual Studios or to give an adverse jury instruction against Virtual Studios under Rule 37(e)(2). See O'Berry, 2016 WL 1700403, at *4 (noting that Rule 37(e)(2) “only applies if the Court finds that the party failed to preserve the data intentionally, in order to deprive the opposing party of its use in litigation” (emphasis in original)).
The Court now must determine what sanctions to impose under Rule 37(e)(1). After considering the circumstances and the evidence in the record, the Court finds that the appropriate sanction is to allow Stanton to introduce evidence concerning the loss of the e-mails and to make an argument to the jury concerning the effect of the loss of the e-mails.
In sum, the Court finds that spoliation sanctions against Virtual Studios are warranted under Rule 37(e)(1) based on the loss of the e-mails. The Court, however, concludes that sanctions under Rule 37(e)(2) are not justified, and declines to draw an adverse inference against Virtual Studios or to issue a jury instruction directing the jury that it must presume that the missing e-mails would be adverse to Virtual Studios.
III. Conclusion
ACCORDINGLY, the Court GRANTS IN PART AND DENIES IN PART Stanton's Motion for Sanctions [104]. The Court GRANTS the Motion insofar as the Court finds that sanctions against Virtual Studios are warranted under Federal Rule of Civil Procedure 37(e)(1), and ORDERS as follows: At trial, Stanton may introduce evidence concerning the loss of the e-mails and may make an argument to the jury concerning the effect of the loss of the e-mails. The Court DENIES the Motion for Sanctions in all other respects.
IT IS SO ORDERED, this the 23rd day of June, 2016.

Footnotes

In the Kane case, Mr. Sucher testified that the one-year limitation was in the terms and conditions, and noted that he searched his computer, but could not find estimates stating that Kane could only use the room scenes for one year. (Dep. of Thomas Sucher (Docket Entry No. 124-2) at 384-86.) According to Mr. Sucher, there was no copyright notice on the back of delivery notices, (Id. at 389-90.) Mr. Sucher did not recall finding documents reflecting the alleged one-year nonexclusive license other than the terms and conditions, (Id. at 394.) Counsel for Kane showed Mr. Sucher several communications discussing “Option 3” that did not contain a limitation stating that the image could not be used after twelve months, (Id. at 401-05.) Mr. Sucher could not find an e-mail to Kane that set forth all three options for Kane. (Id. at 407.) Mr. Sucher contended that the terms and conditions on the back of an invoice applied if the purchaser failed to reply or dispute the terms and conditions within ten days after receiving the invoice. (Id. at 421 (“I mean, it says on the front of every invoice that if you're in disagreement with the invoice and the terms and conditions, reply to us within ten days. If not, we're assuming that you're in agreement with us.”), 422 (“If you don't agree to the terms and conditions, talk to us about it.”).) According to Mr. Sucher, he had no records other than purported e-mails and Kane's payment of the invoices to show that Kane knew of the terms and conditions, (Id. at 423-25.) Mr. Sucher further contended that he believed that Virtual Studios gave notice to Kane of the twelve-month limitation via e-mail. (Id. at 428.)
Virtual Studios does not argue that the pre-December 1, 2015 version of Rule 37(e) should apply here. (See generally Resp. Mot. Sanctions (Docket Entry No. 116).) The post-December 1, 2015 version of Rule 37(e) “applies to civil cases commenced after December 1, 2015, and, insofar as just and practicable, all proceedings then pending.” Marshall, 313 F.R.D. at 695 (internal quotation marks and citation omitted). Here, the Court finds “that applying the amended version of Rule 37(e) would be just and practicable, including because the amend [ment] to Rule 37(e) does not create a new duty to preserve evidence.” Id. The Court also agrees with the Court in Marshall “that the considerations for evaluating whether, and to what extent, to impose spoliation sanctions under Eleventh Circuit case law and under Rule 37(e), as amended, are substantially similar.” Id.; see also Brown Jordan Int'l. Inc. v. Carmicle, Nos. 0:14-CV-60629-ROSENBERG/BRANNON, 0: 14-CV-61415-ROSENBERG/BRANNON, 2016 WL 815827, at *36 (“The Court concludes that applying the new version of Rule 37(e) would be neither unjust nor impractical.”).
“Unlike subsection (e)(1), subsection (e)(2) does not require a finding that the opposing party was prejudiced by the failure to preserve the electronically stored data. Prejudice is inferred by the court's finding of intent.” O'Berry, 2016 WL 1700403, at *4 (citations omitted).