Wheeler Bros., Inc. v. Jones
Wheeler Bros., Inc. v. Jones
2016 WL 11480400 (M.D. Ala. 2016)
May 20, 2016
Moorer, Terry F., United States Magistrate Judge
Summary
The court found that the defendants had failed to comply with the court's orders concerning the disclosure of ESI and had not substantially complied with the orders of the court. As a result, the court ordered that certain defendants were barred from introducing any evidence of consideration or the reason given for any transfers directly or indirectly received by them. The court also found that the defendants had spoliated evidence and ordered an adverse jury instruction for destruction or spoliation of evidence.
WHEELER BROS., INC., Plaintiff,
v.
Robert L. JONES, Jr., et al., Defendants
v.
Robert L. JONES, Jr., et al., Defendants
CASE NO. 2:14-cv-1258-PGB
United States District Court, M.D. Alabama, Northern Division
Signed May 20, 2016
Counsel
Craig J. Sperlazza, Vincent J. Barbera, Barbera, Melvin, Svonavec & Sperlazza LLP, Somerset, PA, Leonard Norman Math, Chambless, Math & Carr, PC, Montgomery, AL, for Plaintiff.Lorren Bailey Jackson, Wilson & Jackson, LLC, Montgomery, AL, Max Anderson Moseley, Kumar Prabhu Patel & Banerjee LLC, Atlanta, GA, Susan Jane Walker, McDorman & Walker, Birmingham, AL, for Defendants.
Robert L. Jones, Jr., Pike Road, AL, pro se.
Jones Brothers Enterprises, L.L.C., Montgomery, AL, pro se.
Moorer, Terry F., United States Magistrate Judge
ORDER
*1 This matter is pending before the Court on Plaintiff Wheeler Bros. Inc.'s Motion for Sanctions (Doc. 79) and its brief in support (Doc. 80) and the responses of the Defendants (Docs. 89, 90) and Wheeler Bros.' reply brief (Doc. 98). This motion arises from Plaintiff's previously filed Motions to Compel (Docs. 41, 43) which this Court granted in full (Docs. 54, 55) following a hearing held on October 7, 2015. In its brief in support of its Motion for Sanctions, Plaintiff represents that “[a]ll of the Defendants have failed to provide complete responses and document production and Wheeler is therefore entitled to sanctions against the Defendants pursuant to Rule 37 of the Federal Rules of Civil Procedure.” (Doc. 80 at pp. 6-7). Specifically, Plaintiff seeks the following: (1) sanctions for cost and expenses in filing the Motions to Compel; (2) sanctions for cost and expenses in filing the Motion for Sanctions; (3) sanctions against AFS, Robert Jones Jr. and Laslie Jones for spoliation of evidence; (4) sanctions against Defendants Robert L. Jones, Jr., AFS, A&B Properties and Virginia Jones for failing to comply with this Court's Order (Doc. 54); and (5) sanctions against Robert Jones Sr., Ann Jones, Laslie Jones, Kyle Jones, Caton Jones, Best Buy, A&B Developments, JBE and Pirates Tow for failing to comply with this Court's Order (Doc. 55). Beginning on Thursday April 28, 2016, this Court held a two-day hearing on the Motion for Sanctions at which time the Court heard testimony from many witnesses including all defendants.[1]
On March 8, 2016, the Court entered an Opinion and Order which granted partial summary judgment “in favor of Wheeler Bros., Inc. and against Robert L. Jones, Jr. and Advanced Fleet Services, LLC pursuant to the Parts Agreement and Personal Guaranty in the amount of $794, 530.13 plus interest at the rate of five percent per month and attorneys' fees to be determined at the conclusion of the case.” (Doc. 109 at pp. 31-32) (Emphasis Added). In its Opinion the Court also denied the Motion for Summary Judgment of Less Than All Defendants. (Doc. 109 at p. 32). Finally, the Court granted the Motion for Summary Judgment filed by Defendant Virginia Jones against Wheeler “to the extent that insurance premiums are exempt under Alabama law as compensation to Robert Jones, Jr.,” but denied the motion in all other respects. (Doc. 109 at p. 32).
I. FACTS
Plaintiff, Wheeler Bros., (“Wheeler”) is a Pennsylvania corporation which designs, manufactures, and distributes motor vehicle parts. Wheeler alleges breach of contract claims against Defendants Robert Jones, Jr. and Advanced Fleet Services, LLC for non–payment of a debt. In addition, Plaintiff brings numerous claims for fraudulent conveyance of assets by and between the many defendants in this case. (Doc. 1, Complaint filed 12/30/2014). To fully understand the allegations in this case on the merits and as they pertain to the discovery process and this resulting Motion for Sanctions, it is necessary to understand the relationship of the defendants in this matter. The information is summarized below, but the Court also incorporates the information detailed in the prior summary judgment opinion. (Doc. 109, entered on March 8, 2016).
*2 The defendant, Advanced Fleet Services, LLC., (“AFS”) serviced vehicles for the United States Postal Service (“USPS”) and also purchased motor vehicle parts from Wheeler Bros. for resale to the USPS. AFS operated service centers in multiple locations including Houston, Texas, but is now defunct.
The defendant Robert Jones, Jr. (“Junior”)[2] was the one-hundred percent owner of AFS. Defendant Jones Brothers Enterprises, LLC, (“JBE”) is a successor LLC to AFS and was formed in 2011. Defendant Virginia Jones (“Virginia”) is the wife of Junior.
Defendant Laslie Jones (“Laslie”) is the son of Junior and is listed as the one-hundred percent owner of JBE. Defendant Kyle (“Kyle”) Jones is the wife of Laslie.
Defendant Pirates Tow, LLC, is also a successor to AFS and was formed in 2012. Caton Jones (“Caton”) is also a son of Junior and is listed as the one-hundred percent owner of Pirates Tow.
Defendant A&B Properties is an LLC (“A&BP”) which held real property and was formed in 2002. Defendant Robert Jones, Sr. (“Senior”) and Junior owned A&BP each as 50 percent owners.
Senior and Defendant Ann Jones (“Ann”) are the parents of Junior. Senior and Ann own A&B Development, LLC (“A&BD”) which was formed in 1996.
Defendant Best Buy Automotive LLC (“Best Buy”) is owned by Senior and Ann and operates out of the property formerly owned by A&B Properties. It was formed in 2010. (Doc. 109 at p. 5)
This action arises out of a Parts Sale Agreement entered into by Junior, as President of AFS, with Wheeler in October, 2010. In December, 2010, Junior signed a personal guaranty as security for extension of credit by Wheeler to AFS. In 2011 and 2012, Wheeler provided parts on credit to AFS, whose business included selling those parts at a profit to the USPS when AFS repaired USPS vehicles. AFS began falling behind on payments beginning in 2011. (Doc. 109 at p. 6). Summary judgment has been entered in this matter “in favor of Wheeler Bros., Inc. and against Robert L. Jones, Jr. and Advanced Fleet Services, LLC pursuant to the Parts Agreement and Personal Guaranty in the amount of $794,530.13 plus interest at the rate of five percent per month and attorneys' fees to be determined at the conclusion of the case.” (Doc. 109 at pp. 31-32).
In August, 2012, Junior and his wife Virginia filed for personal bankruptcy in the United States Bankruptcy Court of the Middle District of Alabama. In February 2013, Wheeler filed an adversary proceeding against Junior and Virginia. Wheeler filed a request for default judgment against Junior and Virginia which was entered on August 4, 2014. (Doc. 109 at p.6). In its Order the Bankruptcy Court stated “the defendant, Robert Jones, Jr. has repeatedly not complied with court orders requiring disclosure of the emails and email accounts. This non-compliance has prejudiced the plaintiff's ability to proceed to a trial on the merits” and declared Junior's debt to plaintiff “non-dischargeable”. U.S. Bankruptcy Court Middle District of Alabama; Adversary Proceeding #13-03024 (Doc. 134) (Emphasis added.)
Pirates Tow and JBE were formed after the bankruptcy petition. JBE and Pirates Tow operated from the same location as the now-defunct AFS. Pirates Tow and JBE provided services to AFS's previous customers. In September, 2013, Laslie went to work at another company and Junior ran JBE. In September, 2013, Wheeler transferred judgment in the Pennsylvania case to Montgomery County, Alabama and Elmore County, Alabama. (Doc. 109 at p.6). The testimony taken at the April 28 and 29 hearing before this Court is consistent with the facts stated above. With this factual frame work in mind, the Court will now turn its attention to the legal framework governing its consideration of this Motion for Sanctions.
II. DISCUSSION
*3 Federal Rule of Civil Procedure 37(a) (5) (A) provides for payment of expenses and attorney fees to a prevailing movant who files a motion to compel or for protective order unless (i) the movant filed the motion without making a good faith attempt to resolve without court action; (ii) the opposing party's nondisclosure, response or objection was “substantially justified”; (iii) other circumstances make an award “unjust.” Further, this Rule provides that the Court “must” award monetary sanctions against a party, their attorney “advising the conduct” or both.
Next Fed. R. Civ. P. 37(b)(2)(A) provides other remedies for a party's failure “to obey an order to provide or permit discovery” including an order from the court which does the following: (i) directs matters in the order of facts be “established” for purposes of the action, as the prevailing party claims; (ii) prohibits the disobedient party from supporting designated claims or defenses or from introducing designated matters into evidence; (iii) strikes pleadings in part or whole; (iv) stays further proceedings until order is obeyed; (v) dismisses the action in part or whole; (vi) renders a default judgment against the disobedient party; (vii) treats as contempt of court for failure to obey an order. Further, also provides that instead of or in addition to the orders listed in Rule 37(b)(2)(A), the Court “must” order the disobedient party or the attorney “advising” the party or both to pay reasonable expenses including attorney's fees. Fed. R. Civ. P. 37(b)(2)(C).
Federal Rule of Civil Procedure 37(e)[3] which deals specifically with Electronically Stored Information or (ESI) states as follows:
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 not 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
With the facts of this case and the Federal Rules of Civil Procedure in mind, the Court turns its attention to the case law on spoliation.
A. Sanctions Against AFS, Junior, JBE and Laslie Jones for Spoliation of Evidence.
The Court has broad discretion to control discovery. This power includes the ability to impose sanctions on uncooperative litigants. Phipps v. Blakeney, 8 F.3d 788, 790 (11th Cir. 1993). Indeed, the Eleventh Circuit will review a district court's order of sanctions pursuant to Fed. R. Civ. Pro. 37 for abuse of discretion. Navarro v. Cohan, 856 F.2d 141, 142 (11th Cir. 1988). Plaintiff asks this Court to sanction Defendants for spoliation of evidence. “Spoliation is the ‘intentional destruction, mutilation, alteration or concealment of evidence.’ ” Swofford v. Eslinger, 671 F. Supp. 2d 1274, 1279 (M.D. Fla. 2009) (citations omitted.)
*4 Where spoliation is alleged, the Eleventh Circuit recognized that while federal law governs, courts may also look to state law for guidance so long as those principles are consistent with federal law. Flury v. Daimler Chrysler Corp., 427 F.3d 939, 944 (11th 2005) cert. denied, 548 U.S. 903, 126 S. Ct. 2967, 165 L.Ed. 2d 950 (2006). Under federal law, dismissal is the most severe sanction available and should only be used where there is a showing of “bad faith” and a lesser sanction will not suffice. Id. Defining the standard of bad faith in the spoliation context, the Eleventh Circuit held that the law does not require a demonstration of “malice, but that instead, in determining whether there is bad faith, a court should weigh the degree of the spoliator's culpability against the prejudice to the opposing party.” Ray v. Ford Motor Co., 792 F. Supp. 2d 1274, 1279 (M.D. Ala. 2011) (citing Flury, 427 F. 3d at 946).
Alabama law also incorporates this weighing approach when considering the question of spoliation. Indeed, under Alabama state law five factors are considered in determining the propriety of sanctions for spoliation of evidence. These factors are as follows: (1) the importance of the evidence destroyed; (2) the culpability of the offending party; (3) fundamental fairness; (4) alternative sources of the information obtainable from the evidence destroyed; and (5) the possible effectiveness of other sanctions less severe than dismissal. Id. (citing Story v. RAJ Properties, Inc. 909 So.2d 797, 803 (Ala. 2005) ). Moreover, the Eleventh Circuit has held that “an adverse inference is drawn from a party's failure to preserve evidence only when the absence of that evidence is predicated on bad faith ... [m]ere negligence in losing or destroying the record is not enough for an adverse inference.” Bashir v. Amtrak, 119 F.3d 929, 931 (11th Cir. 1997) (citations omitted). Where bad faith is demonstrated, the Court will infer that the missing evidence contained evidence “unfavorable” to the opposing party. Id. Within the context of this legal framework the Court analyzes the spoliation issues in this case.
1. Email accounts belonging to Jill Moncrief and John Klassen
Plaintiff alleges that Laslie and Junior intentionally destroyed e-mail accounts belonging to Jill Moncrief, the financial controller and bookkeeper of both AFS and JBE, and John Klassen, a long-time employee of AFS and business associate of Junior and Laslie. (Doc. 112 at p. 3-4; Tr. Vol. 2 pp. 62, 84, 137). At the April 28 hearing, Junior owner of AFS testified that he did not personally delete any e-mail accounts of his employees. But, someone who worked for him deleted Jill Moncrief's and Jon Klassen's e-mail accounts while Junior's personal bankruptcy proceeding was pending and that they did so after the April 28, 2014 hearing in his personal bankruptcy proceeding concerning discovery of e-mail accounts. (Tr. Vol. 2 pp. 60-63). Junior further admitted that he discussed the deletion of Moncrief's account with his son Laslie and that “we chose to delete her account.” (Tr. Vol. 2 p. 84). Junior also testified that this decision was made because she no longer worked for the company and there was a $5.00 a month charge to continue maintaining that account. (Tr. Vol. 2 pp. 81-84).
During the course of the bankruptcy proceeding, Wheeler served JBE a third-party subpoena on or about August 26, 2013. Even though JBE's business was winding down at that time and Junior was running the “day-to-day operations at JBE” (Tr. Vol. 2 p. 154), Laslie, remained 100 percent owner of JBE and was still involved in JBE's operations. (Tr. Vol. 2 p. 131). This subpoena included requests for e-mail communications pertaining to the allegations of fraudulent transfers to JBE and lack of corporate formalities. However, Laslie testified that he did not receive the subpoena in August, 2013 and that it was not until sometime in January 2014 that he became aware JBE had become involved in his father's bankruptcy proceeding and that the bankruptcy proceeding might affect him in a “serious” way. (Tr. Vol. 2 p. 135). Indeed, Laslie testified “it wasn't until the beginning of 2014 where obviously this stuff really started to hit JBE's bench that I realized how serious a matter this was for me and I was about to get really involved.” Id.[4]
*5 In spite of Laslie's awareness in January 2014 that his father's bankruptcy proceeding involved JBE and might affect him personally, Laslie admitted to deleting Moncrief's and Klassen's accounts the day after the April 28, 2014 hearing in his father's bankruptcy proceeding where these names were mentioned. Laslie, however, denied knowing that these names were mentioned. (Tr. Vol. 2 p. 143). Further, Laslie denied that he had any specific knowledge about the purpose or results of the April 28, 2014 bankruptcy hearing. Laslie also testified that when he deleted these accounts, he was unaware of the specific nature of the bankruptcy proceeding and was unaware of its potential effect on JBE and him personally. (Tr. Vol. 2 pp. 136-138.) He further testified that at the time of the April 28, 2014 bankruptcy hearing he was not aware that Bailey Jackson had been retained to represent JBE and that JBE did not pay Jackson any money. (Tr. Vol. 2 pp. 163, 164). He also stated that he deleted these accounts as a cost-saving measure and to make room for additional e-mail accounts because the old Toshiba scanner was “getting overloaded with users”. (Tr. Vol. 2 pp. 99-101). Additionally, Laslie stated that when he deleted these accounts he requested a “Document Ownership Change” which he understood would save the emails from each account he deleted into his own email account. (Tr. Vol. 2 pp. 104-105).
Plaintiff's IT expert, Daniel Harbin, stated that he testified in the April 28, 2014 bankruptcy hearing concerning the importance of the Jill Moncrief email account and that the account was deleted on April 29, 2014 by Laslie. (Tr. Vol. 1 pp. 27, 34). Harbin acknowledges that Laslie opened a case with Google to try to recover those emails, but testified that he waited until May 30, 2014, 31 days following the deletions to do so. (Tr. Vol. 1 p. 35). He further explained that Google waits 30 days to permanently purge deleted email accounts and that recovery is no longer possible. Id. Thus, these e-mails will never be able to be recovered by Wheeler. (Tr. Vol. 1 p. 36). He also testified that there were 830 emails that had attorney's addresses which were never turned over to Wheeler and for which no privilege log was provided. (Tr. Vol. 1 pp. 38-39). This was confirmed by the testimony of Plaintiff's counsel in charge of discovery, Craig Sperlazza. (Tr. Vol. p. 82). Finally, after having inspected the servers during the bankruptcy case, Harbin returned to the site on May 26, 2015 to again examine the servers, but he was told that a virus destroyed all files on the servers, so no additional examination was conducted. (Tr. Vol. 1 pp. 41-44).
Pursuant to Federal Rule of Civil Procedure 37(e) where a court determines that ESI “should have been preserved in the anticipation or conduct of litigation” but is “lost because a party failed to take reasonable steps to preserve it and it cannot be restored or replaced”, the court finding “prejudice” to the other party may order “measures not greater than necessary to cure the prejudice.” Further, “[o]nly upon finding that the party acted with the intent to deprive another party of the information's use in the litigation” the court may “presume that the lost information was unfavorable” to the deprived party and instruct the jury on this presumption or “dismiss the action or enter a default judgment.” (Emphasis added.) This recently enacted Rule is consistent with Federal and Alabama case law on spoliation as summarized above. See, supra, pp. 6-8.
The court has no trouble concluding that the lost information should have been preserved since Junior's personal bankruptcy proceeding was pending in which a subpoena seeking this information had been issued to Laslie and JBE and multiple hearings were held. Further, because of Laslie's and Junior's testimony about the close business relationship between AFS and JBE, e.g. “short term loans transfers” between companies (Tr. Vol. 2 p. 43), JBE regularly performing work for Wheeler and AFS (Tr. Vol. 2 pp. 107-111), and the apparent amicable father-son relationship, from which the Court understands there were no impediments to communication between Laslie and Junior other than day-to-day life, the Court also concludes that Junior and Laslie both failed to take reasonable steps to preserve the ESI. Indeed, Junior admits that he failed to instruct his employees not to delete emails (Tr. Vol. 2 p. 83) and Laslie admits that he did delete email accounts. (Tr. Vol. 2 pp. 137-138).
*6 Now the Court will now examine the more difficult question of “intent to deprive” or “bad faith.”. Fed. R. Civ. P. 37(e); Bashir, 119 F.3d at 931 (where the conduct rises above “mere negligence” and “bad faith” is demonstrated the Court may decide to instruct the jury to infer that the lost evidence is “unfavorable” to the party). Defining the standard of bad faith in the spoliation context, the Eleventh Circuit determined the law does not require a demonstration of “malice, but that instead in determining whether there is bad faith, a court should weigh the degree of the spoliator's culpability against the prejudice to the opposing party.” Ray v. Ford Motor Co., 792 F. Supp. 2d 1274, 1279 (M.D. Ala. 2011) (citing Flury, 427 F.3d at 946). Dismissal or default is the most severe sanction, see Flury, 427 F.3d at 939. The court concludes this case does not call for that ultimate sanction. Rather, the Court must determine whether Laslie's and Junior's conduct justifies an instruction to the jury that the lost ESI is “unfavorable” to the Laslie, Junior, AFS and JBE.
The Court concludes that Wheeler has demonstrated prejudice to it from the lost ESI. Indeed, Wheeler seeks to recover a debt owed. This debt has been declared nondischargable in Junior's bankruptcy and summary judgment has been granted in favor of Wheeler on the debt in this case. Wheeler attempts to prove “fraudulent transfers” between the defendant companies and individuals so that it may collect on this debt. There is no doubt that the e-mails of Moncrief, the controller and the bookkeeper for AFS and JBE, might contain relevant and even information unfavorable to Defendants on this question. The same reasoning applies to Klassen's emails since he worked for AFS for a long period of time.
Now the court must consider Junior and Laslie's culpability to determine whether there was “bad faith” in the loss of ESI. For the reasons stated above concerning Junior's and Laslie's familial and business relationship and their admissions as to discussion of deletion of Klassen's and Moncrief's email accounts, the Court concludes that each is responsible for the loss. Furthermore, although Laslie claims to have been unaware of the proceedings in bankruptcy and that he and JBE had been subpoenaed, the Court does not credit this testimony for two reasons. First, the circumstantial evidence including the timing of Laslie's deletions -- the day following an important bankruptcy hearing where these emails were discussed -- and second, the timing of Laslie's notification of the deletions which prevented any possible recovery, calls into question this testimony.
Second, Junior, most certainly as a party to the bankruptcy proceeding, was aware that Plaintiff was seeking via third-party subpoena information from Laslie and JBE. Also Junior was aware of the Defendants' attempts during the bankruptcy proceeding to get similar discovery from him and AFS. Indeed, it was Junior's non-production of this information and non-compliance with the orders of the bankruptcy court which resulted in a default judgment against him in bankruptcy court. Finally, the Court concludes that the evidence destroyed is important, if not crucial, to Plaintiff's case since it seeks to prove fraudulent transfers between the defendants. Finally, the Court notes that Plaintiff has established this ESI is unrecoverable. Thus, the Court concludes fundamental fairness requires that the jury be instructed to infer that the lost ESI is “unfavorable” to Defendants Junior, Laslie, AFS and JBE. Ray, 792 F. Supp. 2d at 1279citing Story v. RAJ Properties, Inc. 909 So.2d 797, 803 (Ala. 2005).
2. Google hosted AFS Account
Plaintiff also claims that Junior and AFS have intentionally destroyed hundreds of thousands of e-mails which were contained in a Google hosted AFS Account. On February 19, 2014, the Bankruptcy Court ordered Junior to allow Wheeler and its IT personnel access “to all relevant and non-privileged emails of the defendant, whether they are stored on the defendant's server at his commercial property or on another outside computer network (such as gmail).” U.S. Bankruptcy Court Middle District of Alabama; Adversary Proceeding #13-03024 (Doc. 73). Plaintiff's computer expert, Daniel Harbin, testified at the hearing before this Court that he discovered the Google hosted AFS Account had not been produced when he went to the AFS and JBE facility pursuant to the Bankruptcy Court's order. (Tr. Vol 1 p. 17).
*7 Harbin testified that at time of that inspection, the on-site servers showed 149,000 plus log entries, which means the account contained that many emails. (Tr. Vol. 1 pp.16-19). However, Harbin testified that he could not fully access the account at that time because Senior and Jeffery Schrupp, Junior's IT representative, who were present, did not have the password. (Tr. Vol 1. pp. 17-20). After the password was given and Harbin accessed the AFS google account, he testified that only 3,918 emails remained. (Tr. Vol. 1 pp. 23-24). Harbin also testified that Wheeler is not able to get copies of those more than 145,000 deleted emails now. (Tr. Vol. 1 p. 25). Harbin, further testified that this undisclosed Google Hosted AFS Account was set up to receive a blind copy of every email that went into or out of the AFS server. (Tr. Vol. 1 p. 19). Junior confirmed the purpose of this account stating that “Scott Robertson the IT guru ... [who] worked for AFS” set up this account as “a backup for emails that we had.” (Tr. Vol. 2 p. 37).
Plaintiff argues that the evidence supports the conclusion that these e-mails were “manually” deleted for a three reasons. First, Harbin testified that the size of the Google hosted AFS Account was ten gigabytes and that 140,000 plus emails could easily fit in there, and thus, it would not be necessary for Google to automatically delete emails from the account. Further, if Google had started deleting overflow messages, the account would have received “bounce-back” notices and none were found. (Tr. Vol. 1 pp. 48-50). Second, Harbin testified that the emails remaining in the account have dates that jump around and are not consistent with an automatic deletion of overflow emails. (Tr. Vol. 1 p. 24). Third, Harbin testified that on May 23, 2014, after the Bankruptcy Court's Order granting access to Wheeler, but before Wheeler had access to this account, someone logged into the account at issue and reviewed certain of the 3,916 remaining e-mails which were marked as having been read. (Tr. Vol. 1 pp. 24-26).
Junior testified that he did not personally delete the more than 145,000 emails in the Google hosted AFS account and that he does not know who did. (Tr. Vol. 2 p. 81). However, Junior admits that someone who worked for him deleted these emails, (Tr. Vol 2 p. 83) but testified he believed that even after their deletion Plaintiff could still gain access to those emails. (Tr. Vol. 2 pp. 66-68). Junior additionally admits that he has not tried to recover any of these deleted emails because “[t]hey were redundant.” (Tr. Vol. 2 p. 68). Laslie testified that the Plaintiff was given access to the servers with the Google hosted AFS account and that to the best of his knowledge, Harbin made a mirror copy of those servers. (Tr. Vol. 2 pp. 113-114).
The evidence shows that the AFS Google hosted account was established as a back-up version of all emails that came through the companies associated with AFS and specifically, included back-up copies of the Moncrief and Klassen emails. For the reasons stated in the preceding section dealing with the deletion of these email accounts, the Court concludes that this ESI “should have been preserved in the anticipation or conduct of litigation” and that Junior “failed to take reasonable steps to preserve it” Fed. R. Civ. P. 37 (e). Indeed, Junior, a party to the bankruptcy proceeding and 100 percent owner of AFS, admits that he failed to instruct his employees not to delete emails. (Tr. 83).
With respect to the “bad faith” inquiry, the Court is persuaded that as with the deletion of the Moncrief and Klassen email accounts, Junior's actions in conjunction with the deletion of AFS Google hosted account demonstrate an “intent to deprive” or “bad faith”. See Bashir, 119 F. 3d at 931; Ray, 792 F. Supp. 2d 1279 (to determine whether there is bad faith in the spoliation context the “court should weigh the degree of the spoliator's culpability against the prejudice to the opposing party.”) First, Junior admits that someone who worked for him deleted these emails (Tr. Vol. 2 p. 83). Second, Junior admits that he has not tried to recover any of these deleted emails because “[t]hey were redundant.” (Tr. Vol. 2 p. 68). Finally, the unrebutted circumstantial evidence provided by Harbin persuades the court that the deletion of the 145,000 plus emails from the AFS Google hosted account was done manually and was not an automatic deletion. See infra, at pp. 14-15. Thus, again the Court concludes fundamental fairness requires that the jury be instructed to infer that the lost ESI in “unfavorable” to Defendants Junior, Laslie, AFS and JBE. Ray, 792 F. Supp. 2d at 1279citing Story v. RAJ Properties, Inc. 909 So.2d 797, 803 (Ala. 2005).
B. Sanctions Against Defendants Junior, AFS, A&B Properties and Virginia Jones for Failure to Comply with this Court's Order. (Doc. 54) and Sanctions Against Defendants Senior, Ann Jones, Laslie Jones, Kyle Jones, Caton Jones, Best Buy, A&B Development, JBE and Pirates Tow for Failure to Comply with this Court's Order. (Doc. 55)
*8 These requests for sanctions arise from Plaintiff's previously filed Motions to Compel (Docs. 41, 43) which this Court granted in full (Docs. 54, 55) following a hearing held on October 7, 2015. In its brief in support of its Motion for Sanctions, Plaintiff represents that “[a]ll of the Defendants have failed to provide complete responses and document production and Wheeler is therefore entitled to sanctions against the Defendants pursuant to Rule 37 of the Federal Rules of Civil Procedure.” (Doc. 80 at pp. 6-7).
Specifically, Plaintiff asks for this Court to order as follows: “A&B Properties, LLC, Virginia Jones, Lavenia A. Jones, Robert L. Jones, Sr., Best Buy Tires & Automotive, LLC, Kyle Breece Jones, Jonathan Caton Jones, and Pirates Tow, LLC, are barred from introducing any evidence at trial of any consideration or reason given for any transfers directly or indirectly received by any of them from Robert L. Jones, Jr., or Advanced Fleet Services, LLC, due to the failure by Junior and AFS during the discovery process to itemize the transfers made and failure to identify reasonably equivalent value given for the transfers as required by this Court's Orders granting the Plaintiff's Motions to Compel.”
Plaintiff further asks the Court to give an adverse jury instruction for the hiding, nondisclosure and nonproduction of bank accounts by Defendants Robert L. Jones, Jr. and Advanced Fleet Services, LLC, (approximately $400,000.00 Mercantile Account of AFS/Robert L. Jones, Jr., September 2011 through July 2012), Jones Brothers Enterprises, LLC (JBE bank accounts from September 2011 through July 2012), Robert L. Jones, Sr. (3 Trustmark accounts and possibly others), and Lavenia A. Jones (3 Trustmark accounts and possibly others).
In the Court's Orders on Plaintiff's Motions to Compel, the Court specifically ordered Junior and AFS to identify transfers other than by check from their accounts from 2009 to present and to state the name of the transferee and the consideration provided and also to provide information about bank accounts in which Junior had an interest from 2009 to the present, including the AFS account with BB&T ending in 9526. (Doc. 54 pp.1-3). Joseph Sperlazza, Plaintiff's counsel responsible for discovery, testified that Junior failed to provide this information for a number of internal transfers between companies. (Tr. Vol. 1 p. 71). He specifically testified that Junior failed to provide this information for $171,360.99 of transfers from AFS to Pirates Tow. (Tr. Vol. 1 p. 74). Further, Sperlazza testified that AFS failed to provide this information for withdrawals from its BB&T bank account ending in 9536 totaling $402,310.39. (Tr. Vol. 1 p. 85).
Junior testified to the existence of this bank account used by AFS with $400,000.00 in it which was referred to as a mercantile account and which ultimately went into an account with Porter Capital. Junior further testified that the account was used for AFS's business in Houston, Texas, but that he did not have the number for the mercantile account and did not have access to the Porter Capital account. (Tr. Vol. 2 p. 74-76). Junior explained Porter Capital is a factoring company that would cover invoices at a rate of 20 percent and on a daily basis loan AFS money. He further explained that the merchant account was set up with a credit card for AFS to use, but that the money went into Porter Capital's account. So per Junior, that account belonged to Porter Capital not AFS. (Tr. Vol. 2 p. 51). The Court finds the management of assets makes it difficult to segregate various financial institutions. This particular Porter Capital Account presents a prime example of how confusing the account structure is and how it was used for AFS' business purposes. But even so, it is clear to the Court and Junior confirmed that there were transactions in the amounts of $5,398.14 and $2,000.00 associated with this account, but that Junior had no knowledge about them specifically. Id.[5]
*9 Junior also testified that there were certain short-term loan transfers that were made on a daily basis between the companies. Sometimes these short-term loan transfers were used to make-payroll for one company, but when this cycle was complete no money remained for distribution. Junior further testified he provided the checks for these transfers, which was the sole documentation for these transfers. (Tr. Vol. 2 p. 43). The Court does not fully understand the Defendants' business transactions and transfers. It is clear from all the testimony given at the April 28 and 29 hearing that there are numerous transfers which remain unexplained, even in the face of this Court's Orders on the Motions to Compel. (Docs. 54, 55). Accordingly, pursuant to Fed. R. Civ. P. 37(b)(2)(A)(ii) the Court concludes that Defendants' conduct justifies the Court prohibiting certain Defendants from “introducing designated matters into evidence”. Thus the Court will order that A&B Properties, LLC, Virginia Jones, Lavenia A. Jones, Robert L. Jones, Sr., Best Buy Tires & Automotive, LLC, Kyle Breece Jones, Jonathan Caton Jones, and Pirates Tow, LLC are barred from introducing any evidence of consideration or the reason given for any transfers directly or indirectly received by these Defendants from Junior or AFS.
After hearing and considering all the testimony presented at the two-day hearing before this Court on the Motion for Sanctions, the Court is persuaded that Defendants have not “substantially complied” with the Orders of this Court concerning consideration. (Docs. 54, 55). However, Plaintiff has failed to prove spoliation by Junior or AFS of the bank accounts referenced. Swofford, 671 F. Supp. 2d at 1279 (“Spoliation is the “intentional destruction, mutilation, alteration or concealment of evidence.’ ”) (citations omitted). Indeed, Junior admits existence of the AFS mercantile account, but denies specific knowledge about its transfers or possession of records concerning this account. He specifically testified that the account belonged to Porter Capital. Moreover, the Court concludes that Plaintiff failed to demonstrate Junior or AFS had any interest in the other accounts about which it seeks an adverse jury instruction. Thus, for these reasons the Court denies Plaintiff's Motion for Sanctions as to this request and concludes no jury instruction concerning an adverse inference about any of these accounts is proper.
C. Sanctions for Plaintiff's Cost and Expenses in being forced to file the Motion to Compel and Motion for Sanctions
Plaintiff seeks expenses, including attorney's fees, in the amount of $13,656.25 for preparing the Motion to Compel. Plaintiff's counsel has filed an itemized billing statement identifying work performed on the Motion to Compel. (Doc. 80 at pp. 11; Ex. 27, April 28-29 hearing). Plaintiff also seeks expenses, including attorney's fees, in the amount of $44,418.06, which includes preparation of the Motion for Sanctions, preparation for the hearing on the Motion for Sanctions, travel to Montgomery, attending the hearing on the Motion for Sanctions, and for expert time for preparing, attending and testifying at the hearing on the Motion for Sanctions. Plaintiff's counsel has filed an itemized billing statement identifying work performed and expenses incurred on the Motion for Sanctions. (Doc. 113-1; Ex. 28, April 28-29 hearing).
Based upon the consideration of ALL the testimony at the April 28 and 29 hearing, the Court's prior Orders on the Motions to Compel (Docs. 54, 55), a thorough review of both parties briefs on the Motion for Sanctions, and the reasons stated hereinafter in this Order, the Court finds that the movant filed the motion for sanctions following a good faith attempt to resolve it without court action and the opposing party's nondisclosure, response or objection was not “substantially justified,” and no other circumstances make an award unjust. Federal Rule of Civil Procedure 37(a)(5)(A). Accordingly, the Court concludes that payment of plaintiff's fees and expenses incurred in filing the Motion for Sanctions is justified.
Having so determined the Court turns its attention to whether the requested amount of $44,418.06[6] is justified or the Motion for Sanction. In evaluating a request for attorneys' fees, the Court applies the “lodestar” method. Hensley v. Eckerhart, 461 U.S. 424, 433-34, 103 S. Ct. 1933, 1939, 76 L.Ed.2d 40 (1983); Ass'n of Disabled Ams. v. Neptune Designs, Inc., 469 F.3d 1357, 1359 (11th Cir. 2006). The “lodestar” is found by “multiply[ing] the number of hours reasonably expended on the litigation by the customary fee charged in the community for similar legal services.” Neptune Designs, 469 F.3d at 1359. The fee applicant bears the burden of “establishing entitlement and documenting the appropriate hours and hourly rates.” Norman v. Hous. Auth. of City of Montgomery, 836 F.2d 1292, 1303 (11th Cir. 1988). To satisfy this burden, the fee applicant shall supply to the court: (1) specific and detailed evidence from which it can determine the reasonable hourly rate for the community and (2) records evidencing time spent on different claims and setting out with sufficient particularity the general subject matter of the time expenditures so that the court can assess the time claimed for each activity. ACLU of Ga. v. Barnes, 168 F.3d 423, 427 (11th Cir. 1999).
*10 The Court has carefully reviewed the submission by Plaintiff's counsel of the billing statement for work on the Motion for Sanctions and preparation for and attending the hearing and expenses involved in both, including travel to and from Montgomery and expert time. (Doc. 113-1). The Court concludes that Plaintiff's counsel has provided sufficient detail of their time spent and stated the work performed with sufficient particularity such that the Court has no difficulty concluding that counsel's time spent on all aspects of the Motion for Sanctions is reasonable. Next the Court turns its attention to the question of whether the Plaintiff's counsels' requested hourly rate is reasonable.
“A reasonable hourly rate is the prevailing market rate in the relevant legal community for similar services by lawyers of reasonably comparable skills, experience, and reputation.” Norman, 836 F.3d at 1299 (citing Blum v. Stenson, 465 U.S. 886, 895-96 n. 11, 104 S. Ct. 1541, 1547 n. 11, 79 L.Ed. 2d 891 (1984) ). Counsel both associated with the firm of Barbera, Clapper, Beener, Rullo & Melvin, LLP requests that the work of the junior partner on this matter, Craig J. Sperlazza, who graduated from law school in 2010, (Doc. 97) be compensated at the rate of $150.00 per hour. Counsel further requests that the work of the senior partner on this matter, Vincent J. Barbera, who was admitted to the bar of Pennsylvania in 1981, be compensated at the rate of $295.00 per hour.[7]
“In the Middle District of Alabama, skilled lawyers with twenty years or more experience may expect to receive $300 an hour, lawyers with ten years or more experience may receive between $200 and $250 an hour, and associates may expect to receive $150-185 an hour. In the Middle District of Alabama, paralegals may expect to receive between $50 and $85 an hour.” Weekes-Walker v. Macon County Greyhound Park, Inc., 31 F.Supp.3d 1354, 1360 (M.D. Ala. 2014) (Fuller, J.) (citations omitted); see also Alfa Corp.v. Alfa Mortgage, Inc., 560 F. Supp. 2d 1166, 1180 (M.D. Ala. 2008)(Watkins, J.); Simpleville Music v. Mizell, 511 F. Supp. 2d 1158, 1163 (M.D. Ala. 2007) (Thompson, J.); Gaylor v. Comal Credit Union, Civ. Act. No. 2:10-cv-725-MHT, 2012 U.S. Dis. LEXIS 75972, 2012 WL 1987183 (M.D. Ala. 2012) (Thompson, J.) (using same fee structure). Plaintiff's counsel's requested hourly rates clearly fall within these parameters. Thus, the Court finds that Plaintiff's counsel's fee request for work performed on the Motion for Sanctions is reasonable.
After determining the lodestar, the court then addresses whether the award should be adjusted upwards or downwards. Pennsylvania v. Delaware Valley Citizens' Council for Clean Air, 478 U.S. 546, 565-66, 106 S. Ct. 3088, 3098-99, 92 L.Ed. 2d 439 (1986); Neptune Designs, 469 F.3d at 1359. In conducting this inquiry, the court is guided by the twelve factors set out in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 717-19 (5th Cir. 1974).[8] See also Hensley, 461 U.S. at 429-30, 103 S. Ct. at 1937-38(endorsing the Johnson factors). These twelve factors are:
(1) the time and labor required; (2) the novelty and difficulty of the questions; (3) the skill requisite to perform the legal service properly; (4) the preclusion of employment by the attorney due to acceptance of the case; (5) the customary fee in the community; (6) whether the fee is fixed or contingent; (7) time limitations imposed by the client or the circumstances; (8) the amount involved and the results obtained; (9) the experience, reputation, and ability of the attorneys; (10) the “undesirability” of the case; (11) the nature and length of the professional relationship with the client; and (12) awards in similar cases.
*11 Hensley, 461 U.S. at 430 n. 3, 103 S. Ct. at 1937 n. 3; Johnson, 488 F.2d at 717-19. Finally, when awarding an attorney's fee, the “[c]ourts are not authorized to be generous with the money of others, and it is as much the duty of courts to see that excessive fees and expenses are not awarded as it is to see that an adequate amount is awarded.” Am. Civil Liberties Union of Ga. v. Barnes, 168 F.3d 423, 428 (11th Cir. 1999). After considering the twelve factors, the Court concludes that no upward or downward adjustment is necessary and that attorneys' fees in the amount of $38,445.00 is due to be awarded to Plaintiff's counsel.
Next the Court looks to the propriety of the costs and expenses claimed by Plaintiff's counsel. Federal Rule of Civil Procedure 54(d)(1) provides that “[u]nless a federal statute, these rules, or a court order provides otherwise, costs ... should be allowed to the prevailing party.” However, “[f]ee applicants bear the burden of providing sufficient detail in their records to explain and support their requests for fees and costs.” Lee, 918 F.Supp.2d at 1275 (quoting Andrade v. Aerotek, Inc., 852 F.Supp.2d 637, 645 (D. Md. 2012) ). “[W]ith the exception of routine office overhead normally absorbed by the practicing attorney, all reasonable expenses incurred in case preparation, during the course of litigation, or as an aspect of settlement of the case may be taxed as costs under section 1988.” See Dowdell v. City of Apopka, 698 F.2d 1181, 1192 (11th Cir. 1983). To determine which expenses may properly be included, the court must look to “the attorney-client relationship, the substantive and procedural nature of the case, and the climate in which the litigation is conducted.” Id. When reviewing costs and expenses, “the standard for reasonableness is to be given a liberal interpretation.” NAACP v. City of Evergreen, 812 F.2d 1332, 1337 (11th Cir. 1987).
For the reasons stated below, the Court concludes that Plaintiff is the prevailing party on its Motion for Sanctions. Plaintiff's counsel, as counsel for the prevailing party, seeks reimbursement for expenses for two Southwest round-trip flights from Somerset, Pennsylvania to Montgomery in the amount of $1,319.92 and Avis Car rental during the time spent in Montgomery in the amount of $153.14. These amounts appear reasonable on their face, and the Court has no difficulty concluding that these expenses are due to be reimbursed by Defendants. Thus, the Court will order payment of Plaintiff's attorney fees and costs and expenses on the Motion for Sanction in the amount of $39,918.06
Plaintiff also seeks reimbursement in the amount of $4,500.00 for the time its expert spent preparing for and attending the hearing. The only information provided to the court is a single line item in Plaintiff's counsel's billing statement stating “Motion Sanctions Daniel Harbin-expert time 36 @ 125/hr $4,500.00.” Daniel Harbin is President and owner of Harbin Consulting LLC, who states that he has “extensive experience with data recovery and forensic analysis with 12 years experience.” (Doc. 80-7). Because the Court ordered his attendance and testimony at the April 28thhearing, (Doc. 111) the Court concludes that Harbin's time is due to be reimbursed to some extent.
*12 Plaintiff, however, fails to account for all 36 hours of time allegedly spent in preparing for and attending the hearing on the Motions for Sanctions. Indeed, the Court notes that Harbin testified only on the first day of the hearing which lasted about two and a half hours. Moreover, Plaintiff's counsel fails to provide any evidence of the reasonableness of Harbin's hourly rate. Accordingly, the Court is not in a position to make a finding as to the reasonableness of Harbin's requested hourly rate nor as to the reasonableness of his time spent. Thus, the Court denies Plaintiff's request for reimbursement for Harbin's time with leave to supplement the record and request reconsideration at that time.
III. CONCLUSION
Accordingly, it is
ORDERED that Wheeler Bros., Inc.'s Motion for Sanctions (Doc. 79.) be and hereby is GRANTED as specifically set out below.
1. A&B Properties, LLC, Virginia Jones, Lavenia A. Jones, Robert L. Jones, Sr., Best Buy Tires & Automotive, LLC, Kyle Breece Jones, Jonathan Caton Jones, and Pirates Tow, LLC, are barred from introducing any evidence at trial of any consideration or reason given for any transfers directly or indirectly received by any of them from Robert L. Jones, Jr., or Advanced Fleet Services, LLC, due to the failure by them to itemize the transfers made and failure to identify reasonably equivalent value given for the transfers as required by this Court's Orders granting the Plaintiff's Motions to Compel.
2. An adverse jury instruction for destruction or spoliation of evidence by Advanced Fleet Services, LLC, Robert L. Jones, Jr., Jones Brothers Enterprises, LLC, and Robert L. Jones, III, in accordance with Alabama Pattern Jury Instruction 15.12 and the Federal Pattern Jury Instructions concerning the inference that the lost ESI in “unfavorable” to the above-named Defendants is proper.
3. That a detailed privilege log for the 830 emails referred to Plaintiff's Exhibits 13 and 14 from the April 28, 2016, hearing on the Motions for Sanctions, for which privilege was claimed by Robert L. Jones, Jr., but for which no detailed privilege log was provided to Plaintiff, shall be provided to Plaintiff's counsel within 7 days of the date of this Order.
4. Defendants are required to pay Wheeler's costs, including attorney's fees, costs and expenses which have been expended by Wheeler in this Motion for Sanctions in the total amount of $39,918.06. And Defendants are required to pay Wheeler's costs, including attorney's fees, which have been expended in the Motions to Compel in the amount of $13,656.25. Additionally, for the reasons stated above, the request for compensation for Plaintiff's expert Daniel Harbin is DENIED at this time. However, on or before June 30, 2016, Plaintiff may file the supporting documentation necessary for the Court to consider this request for compensation.
DONE this 20th day of May, 2016.
A rough copy of the Court reporters' transcript has been provided to the Court and that rough copy is cited herein. The page numbers may change somewhat when the final draft is prepared.
Because many defendants share the same last name, for clarity the Court may refer to them more colloquially.
Though not binding as this case was filed prior to the December 1, 2015 enactment, the Court views the rule as instructive and persuasive on the issue of ESI “loss” especially since it is wholly consistent with Alabama and Federal case law on the issue.
In contrast, Laslie later testified at the hearing before this Court that after the bankruptcy proceeding on April 28, 2014, Junior informed him that “this is going to involve JBE.” (Tr. Vol. 2 p. 163).
However, with respect to the other accounts about which Plaintiff asks this Court to rule, the Court is not persuaded that Plaintiff at this juncture has proved that Junior had an interest in the remaining bank accounts about which Plaintiff requests that an adverse jury instruction be given.
Specifically, Plaintiff asks the Court to award expenses in the amount of $1,319.92 for two flights and $153.14 for a car rental and $4,500.00 for expert time. The remainder of the bill submitted itemized attorney time spent and calculated fees Plaintiff seeks to recover for the Motion for Sanctions.
Information is publicly available at the firm's website at http://bcbrm.com.