WYNDHAM VACATION OWNERSHIP, INC., et al., Plaintiffs, v. AMERICAN CONSUMER CREDIT, LLC, et al., Defendants Case No. 18-80095-CIV-RUIZ/REINHART United States District Court, S.D. Florida Entered on FLSD Docket August 30, 2019 Counsel Alfred Joseph Bennington, Jr., Shutts & Bowen, Windermere, FL, Glennys Ortega Rubin, Michael James Quinn, Shutts, Bowen LLP, Orlando, FL, Daniel Joseph Barsky, Shutts & Bowen LLP, West Palm Beach, FL, for Plaintiffs. Patrick Jean-Gilles, Patrick Jean-Gilles P.A., Miami, FL, Michael Anthony Saracco, Pro Hac Vice, Saracco Law, Cocoa, FL, for Defendants American Consumer Credit, LLC, Michael Saracco. Patrick Jean-Gilles, Patrick Jean-Gilles P.A., Miami, FL, S. A. Siddiqui, Siddiqui Legal Enterprise, Saint Augustine, FL, Michael Anthony Saracco, Pro Hac Vice, Saracco Law, Cocoa, FL, for Defendant Dana Micallef 1888 John Anderson Drive Ormond Beach, FL 32176. American Consumer Credit, LLC, Daytona Beach, FL, pro se Reinhart, Bruce, United States Magistrate Judge REPORT AND RECOMMENDATION ON PLAINTIFFS’ RENEWED MOTION FOR CONTEMPT AND SANCTIONS AGAINST DEFENDANTS, AMERICAN CONSUMER CREDIT, LLC AND DANA MICALLEF (DE 127) *1 Before this Court is Plaintiffs’ Renewed Motion for Contempt and Sanctions against Defendants, American Consumer Credit, LLC and Dana Micallef (“Motion for Sanctions”) (DE 127). The motion was referred to the undersigned by the presiding District Judge. The undersigned has reviewed Plaintiffs’ Motion for Sanctions (DE 127), Defendant’s Amended Response to Plaintiffs’ Renewed Motion for Sanctions (DE 189), and Plaintiffs’ Notice of Supplemental Filing of Newly-Discovered Evidence Supporting Plaintiffs’ Renewed Motion for Contempt and Sanctions (DE 204). The undersigned held an evidentiary hearing on the Motion for Sanctions on August 16, 2019. DE 205. For the reasons stated below, it is RECOMMENDED that Plaintiffs’ Motion for Sanctions be GRANTED and a default judgment entered against Defendant Dana Micallef. BACKGROUND On January 26, 2018, Plaintiffs Wyndham Vacation Ownership, Inc., and Wyndham Hotels and Resorts, LLC (collectively “Wyndham”) filed this action against American Consumer Credit (“ACC”), Dana Micallef, and Michael Saracco, alleging common law unfair competition, trademark dilution, tortious interference, and violations of Florida’s Deceptive and Unfair Trade Practices Act and the Lanham Act. DE 1. The crux of the allegations in the Complaint is that Defendants intentionally deceived Wyndham customers into retaining ACC and defaulting on timeshare contracts they had previously entered into with Wyndham. Id. Mr. Micallef is the owner of ACC. Mr. Saracco represented Mr. Micallef and ACC in this case until he settled his individual case with Wyndham and subsequently withdrew. The events giving rise to the instant Motion began on August 20, 2018, when ACC filed a motion requesting additional time to provide responses to Wyndham’s First Set of Interrogatories and First Request for Production, which were due that same day. DE 55. Wyndham opposed the motion on the ground that the “[d]iscovery cutoff is in one month and Defendants have done nothing but delay this case.” DE 56. The undersigned granted in part and denied in part ACC’s motion, explaining that the motion was “conclusory” and “lack[ed] any meaningful facts from which the Court could find good cause to justify an extension of time,” but nonetheless gave ACC until August 24 to respond. DE 57. Wyndham shortly thereafter requested a discovery hearing, arguing that the responses provided on August 24 were incomplete and insufficient. At the September 4, 2018 discovery hearing, Mr. Saracco (as counsel for ACC) stated that he had begun producing documents, but that it was a time-consuming task, as there were at least 50,000 pages of documents on Dropbox that still needed to be transferred or shared. DE 193-1 at 3. Given the upcoming Court-ordered depositions and approaching discovery deadline, the undersigned asked Mr. Saracco to explain why production had not begun sooner, to which he replied that ACC had not set up the Dropbox account for Wyndham to access until after August 24. Id. Mr. Saracco also represented to the undersigned that the hard copies of roughly 80% of the relevant documents were available for inspection and copying at ACC’s office in Ormond Beach. Id. at 5, 15. The Court took a brief recess and ordered Mr. Saracco to contact an ACC representative to be present at its office so that Wyndham could copy the documents that same day. The Court also ordered ACC to produce the remaining 20% of documents that were only available in electronic format by 6:00 P.M. the following day. When the hearing resumed, Mr. Saracco informed the Court that Mr. Micallef would be present at ACC’s office, and stated that according to Mr. Micallef, ACC had filed for bankruptcy. Wyndham’s counsel then drove from West Palm Beach to Ormond Beach and waited approximately 3 ~p1/2 ~p hours at ACC’s office. Mr. Micallef did not show up and Wyndham did not get access to the documents. *2 On September 21, 2018, pursuant to an order from the bankruptcy court, Wyndham went to ACC’s office to retrieve boxes of the documents that were initially ordered to be produced on September 4. While the Wyndham representative was attempting to retrieve the documents, a shredding company arrived at the ACC office. Only through the intervention of the local police department was Wyndham able to secure the documents. Wyndham filed a Motion for Contempt, For Sanctions, and to Compel Discovery (DE 72) against ACC and Mr. Micallef, but because of the bankruptcy filings by ACC on September 6, 2018, and Mr. Micallef on October 10, 2018, the Court could not proceed. During the bankruptcy stay as to ACC and Mr. Micallef, Wyndham settled the case against Mr. Saracco. DE 116. On November 29, 2018, the bankruptcy court granted Wyndham’s Motion for Relief from the Automatic Stay. DE 117. The District Court entered a new scheduling order, setting April 5, 2019, as the discovery deadline. On February 1, 2019, Mr. Saracco and local counsel moved to withdraw from the case. DE 126. The undersigned granted the motion and gave ACC until February 20, 2019, to obtain new counsel. The Order granting the motion to withdraw cautioned that ACC “cannot appear pro se in a legal proceeding but must be represented by counsel” and that “failure to retain counsel as prescribed by this order may result in this Court entering a default judgment against ACC.” The Order also gave Mr. Micallef until February 20, 2019, to obtain new counsel or file a notice of his intent to proceed pro se. The Order was mailed to Mr. Micallef’s residence. On February 20, Mr. Micallef mailed a motion for extension of time to hire counsel for himself and ACC, explaining that he needed 30 additional days because he was unaware Mr. Saracco had withdrawn his representation. The Court entered an order ruling that it would “permit Mr. Micallef to continue seeking new counsel but [would] not stay briefing” on Plaintiff’s Renewed Motion for Sanctions against ACC and Micallef, as that motion had been pending since February 8, 2019. DE 127. In its Motion for Sanctions, Wyndham seeks entry of default judgment against Mr. Micallef for his purported failure to search for documents responsive to discovery requests, failure to preserve electronic data, and attempted shredding of physical documents after the filing of this case. DEs 127, 193. Wyndham maintains that imposition of sanctions against Mr. Micallef is proper because he is the sole owner of ACC. Id. EVIDENTIARY HEARING The undersigned held an evidentiary hearing on the Motion for Sanctions on August 16, 2019. Mr. Micallef was represented by counsel at the hearing. Mr. Micallef and Mr. Saracco were present and testified. Wyndham played the videotaped deposition testimony of two unavailable witnesses for the Court. Additional evidence was admitted, including screenshots of a text message conversation between Mr. Saracco and Mr. Micallef, a list of Mr. Micallef’s passwords for Dropbox, etc., the affidavit of Wyndham’s counsel, and receipts from “Crown Shredding.” Mr. Saracco testified at the evidentiary hearing. He testified that in March or April 2018, he told Mr. Micallef to make paper copies of ACC’s electronic documents. During Mr. Saracco’s testimony, Wyndham introduced into evidence a screenshot of a text message conversation between Mr. Saracco and Mr. Micallef that occurred on September 4, 2018. In one of the text messages, sent sometime after 5:45 P.M., Mr. Saracco told Mr. Micallef that Wyndham was at ACC’s office to retrieve the paper files. Mr. Micallef responded with, “That can’t be due the same day it’s ordered, that’s ridiculous!! ... I wouldn’t even know where to start!” The screenshot also includes the following exchange: *3 Micallef: So what’s the maximum out of time they can give me for getting rid of those names! Saracco: They can default you and have a massive judgment against you Saracco: File the bankruptcy and they won’t get them The Court finds Mr. Saracco’s testimony that Mr. Micallef was aware of his discovery obligations at least as of September 4, 2018, to be credible. ACC’s former office manager Madelin Allred testified at the August 16 hearing by videotaped deposition. DE 197-2 at 8. She stated that she began working at ACC on May 16, 2016, and her job duties included overseeing payroll, human resources, and recordkeeping practices, as well as handling client complaints and refund requests. Id. at 7, 9. Regarding recordkeeping, Ms. Allred testified that “Dropbox was the main point of storage for the clients,” though paper files existed for the records from 2013 to 2015. Id. at 10. Ms. Allred stated that she did not know whether all the paper files were also uploaded to Dropbox. Id. Ms. Allred testified that client files and communications were also stored on Pipedrive. Ms. Allred stated that she was not asked to search for documents including emails and other records contained in the paper and electronic client files. Id. at 13. According to Ms. Allred, the banker boxes provided to Wyndham on September 21 would not have included the most recent call notes and customer complaints because the records for 2017 and 2018 were only stored on Dropbox and Pipedrive. Id. at 12. The undersigned finds Ms. Allred’s testimony to be credible and reliable. Officer Ramon Llanes of the Ormond Beach Police Department also testified by videotaped deposition. DE 197-1. Officer Llanes testified that he is a detective and was present at ACC’s office on September 19, 2018, as part of a fraud investigation. According to Mr. Llanes, aside from two members of a cleaning crew who were “hired to clean out the building,” the location appeared vacant. Officer Llanes returned to the building on September 21, where he saw “a bunch of people on the scene,” and a truck from a shredding company. Id. at 10. Officer Llanes testified that he spoke with the driver of the truck, who stated that he was sent to ACC’s office by Mr. Micallef to relocate equipment to ACC’s new office and to shred documents. Id. Office Llanes notified the driver that there was a court order prohibiting anyone except Wyndham from moving the documents. According to his testimony, Office Llanes then took possession of roughly 70 boxes of documents and gave them to Wyndham. The undersigned finds Mr. Llanes’ testimony to be credible and reliable. Mr. Micallef also testified at the August 16, 2019, hearing. He testified that he is the sole owner of ACC. Mr. Micallef testified that he had an ACC email account, but had not logged into that account since October 2018. He conceded that he did not search that account for emails responsive to Wyndham’s discovery requests. Regarding the undersigned’s September 4 Order, Mr. Micallef testified that he was on his boat offshore during the day, and was drunk. He further testified that Mr. Sarraco did not tell him he needed to be at ACC’s office until “sometime between 5-7 pm.” He also testified that he regularly used a shredding company to shred documents that contained personal and/or sensitive client information. According to Mr. Micallef, in response to Wyndham’s discovery requests, he asked his employee Madelin Allred to search for Wyndham-related emails and documents. *4 The Court did not find Mr. Micallef’s testimony to be credible. Mr. Micallef’s demeanor was not consistent with someone telling the truth. He attempted to blame all of the discovery failures on Mr. Saracco and his bankruptcy lawyers. The Court finds it more likely than not that Mr. Micallef is the problem, not that multiple unaffiliated lawyers failed in their representation. Also, and most significantly, Mr. Micallef’s testimony was directly contradicted by Madelin Allred. Unlike Mr. Micallef, Ms. Allred has no personal interest in the outcome of this case and therefore no reason not to tell the truth. Her demeanor when testifying was credible. Unlike Mr. Micallef, she appeared to have a good memory and answered questions directly. See generally, Eleventh Circuit Pattern Civil Jury Instruction 3.4. I therefore find that Mr. Micallef’s testimony was untruthful. DISCUSSION Wyndham seeks sanctions pursuant to Rule 37(b), and Rule 37(e). Rule 37 governs a party’s failure to make disclosures or participate in discovery, and the imposition of sanctions related to discovery violations. Fed. R. Civ. P. 37. Specifically, Rule 37(b) provides courts with the authority to impose sanctions for a party’s failure to comply with a court order to permit or provide discovery. Rule 37(b) Rule 37(b) states: If a party ... fails to obey an order to provide or permit discovery ... the court where the action is pending may issue further just orders. They may include the following: (i) directing the matters embraced in the order or other designated facts be taken as established for purposes of the action, as the prevailing party claims; (ii) prohibiting the disobedient party from supporting or opposing designated claims or defenses, or from introducing designated matters in evidence; (iii) striking pleadings in whole or in part; (iv) staying further proceedings until the order is obeyed; (v) dismissing the acting or proceeding in whole or in part; (vi) rendering a default judgment against the disobedient party; or (vii) treating as contempt of court the failure to obey any order except an order to submit to a physical or mental examination. Fed. R. Civ. P. 37(b)(2)(A). A court may impose sanctions under Rule 37(b) for a variety of purposes, including: “1) compensating the court and other parties for the added expense caused by the abusive conduct; 2) compelling discovery; 3) deterring others from engaging in similar conduct; and 4) penalizing the guilty party or attorney.” Bobroff v. Univ. of Miami, No. 15-22695-CIV, 2016 WL 6433095, at *3 (S.D. Fla. Oct. 31, 2016) (J. Simonton) (citations omitted). “The severe sanctions permitted by Rule 37(b) are usually only imposed by district courts upon a finding ‘(1) that the party’s failure to comply with the order was willful or a result of bad faith, (2) the party seeking sanctions was prejudiced by the violation, and (3) a lesser sanction would fail to adequately punish and be inadequate to ensure compliance with court orders.’ ” Dude v. Cong. Plaza, LLC, No. 17-80522-CIV, 2018 WL 4203888, at *5 (S.D. Fla. July 20, 2018) (J. Matthewman), report and recommendation adopted sub nom. Dude v. Cong. Plaza. LLC, No. 17-CV-80522, 2018 WL 4203886 (S.D. Fla. Aug. 29, 2018). The burden of proof for Rule 37 sanctions is a preponderance of the evidence. Ramirez v. T&H Lemont, Inc., 845 F.3d 772, 777 (7th Cir. 2016). A party’s disbelieved testimony can be considered substantive evidence in support of the opposing party’s burden of proof. United States v. Brown, 53 F.3d 312, 314 (11th Cir. 1995) (“[A] statement by a defendant, if disbelieved by the jury, may be considered as substantive evidence of the defendant’s guilt.”) (emphasis in original). *5 Mr. Micallef has repeatedly failed to comply with this Court’s discovery orders. Since September 4, 2018, at the very latest, Mr. Micallef has known of his obligation to produce responsive documents to Wyndham. Mr. Micallef admitted at the August 16 hearing that he did not search his ACC email account for Wyndham-related documents. Evidence was also introduced at the hearing that when Mr. Micallef finally gave Wyndham access to his accounts, including for Dropobox and Pipeline, the passwords he gave them did not work. As a result, Wyndham is in the same position today that it was in over one year ago when the undersigned first ordered production of documents. See 193-1 at 3-4 (asking Defendants during the September 4, 2018 hearing why “you really haven’t produced anything and the discovery deadline is in two and a half weeks”); Id. at 11 (Mr. Saracco conceding that “there’s a good chance it would not be a meaningful deposition” without the documents). Even if Mr. Micallef was unaware of the Court’s September 4, 2018 order requiring production of documents, he was certainly on notice of his discovery obligations after that date and has knowingly failed to comply. Mr. Micallef also testified that it was a coincidence that the shredding company was present on September 21. He claimed that it was part of a regularly-scheduled pattern of having unnecessary documents shredded. I reject that testimony. I find that the shredding company was present as part of an intentional effort to destroy discovery documents before Wyndham could obtain them. In sum, the totality of Mr. Micallef’s conduct in this matter, including his false testimony at the evidentiary hearing, demonstrates willful bad faith. Default judgment under Rule 37(b) is warranted. Rule 37(e) “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.” Graff v. Baja Marine Corp., 310 F. App’x. 298, 301 (11th Cir. 2009). “Sanctions for spoliation of the evidence ‘are intended to prevent unfair prejudice to litigants and to ensure the integrity of the discovery process.’ ” Managed Care Solutions, Inc. v. Essent Healthcare, Inc., 736 F. Supp. 2d 1317, 1323 (S.D. Fla. 2010) (J. O’Sullivan) (quoting Flury v. Daimler Chrysler Corp., 427 F.3d 939, 944 (11th Cir. 2005)). Before a court may impose sanctions under Rule 37(e), it must determine that: “(1) the information sought constitutes ESI; (2) the ESI should have been preserved in anticipation of litigation; (3) the ESI is lost because a party failed to take reasonable steps to preserve it; and (4) the ESI cannot be restored or replaced through additional discovery.” Title Capital Mgmt., LLC v Progress Residential, LLC, No. 16-21882-CV, 2017 WL 5953428, at *3 (S.D. Fla. Sept. 29, 2017) (J. Torres). Once these threshold elements are satisfied, sanctions may be appropriate if the Court finds prejudice or finds that a party acted with the intent to deprive the moving party of the ESI at issue. Id. Where there is no direct evidence of bad intent, bad faith may be found on circumstantial evidence where: “(1) evidence once existed that could fairly be supposed to have been material to the proof or defense of a claim at issue in the case; (2) the spoliating party engaged in an affirmative act causing the evidence to be lost; (3) the spoliating party did so while it knew or should have known of its duty to preserve the evidence; and (4) the affirmative act causing the loss cannot be credibly explained as not involving bad faith by the reason proferred by the spoliator.” Managed Care Sols., 736 F. Supp. 2d at 1322-23. Rule 37(e) leaves judges with discretion to determine how best to assess prejudice. Default judgment is an appropriate sanction only when less drastic measures are insufficient. The information sought by Wyndham includes emails and electronic documents. Mr. Micallef has been on notice since September 4, 2018, that the ESI should have been preserved for litigation. The ESI was lost because Mr. Micallef failed to take reasonable steps to preserve it. Mr. Micallef testified during the August 16 hearing that he “gave away” ACC’s computers after this lawsuit was initiated. The evidence also shows that the documents stored on Pipedrive cannot be recovered or replaced. See DE 204 (email from Pipeline representative to Mr. Micallef, dated August 16, 2019, confirming deletion of electronic records). I find that Mr. Micallef has knowingly and unreasonably failed to preserve ESI. As discussed above, I further find that Mr. Micallef acted in bad faith. *6 Finally, I find that Wyndham has been greatly prejudiced by the loss of ESI. Without the ability to review client files ACC stored on Pipeline, including ACC’s communications with Wyndham customers, Wyndham has lost the core evidence regarding the claims of fraud and deception that are at the heart of the claims in this case. Based on Ms. Allred’s testimony, the missing materials cannot be replaced from another source. As for sanctions, default judgment against Mr. Micallef is appropriate. There is no lesser sanction that could remedy the prejudice to Wyndham. The District Court dismissed the counterclaims on September 5, 2018, for failure to respond to Wyndham’s Motion to Dismiss. DE 67. The discovery period closes on September 6, 2019, and the deadline for filing dispositive motions is September 20, 2019. This case is in the same posture that it was more than one year ago. Mr. Micallef has, willfully and in bad faith, repeatedly failed to comply with Orders directed to Wyndham’s discovery requests and has failed to preserve ESI. Mr. Micallef’s failure to participate in discovery has prejudiced Wyndham and lesser sanctions would be insufficient. To be clear, Mr. Micallef’s violation of Rule 37(b) is, alone, sufficient for entry of a default judgment. Likewise, his violation of Rule 37(e) is, alone, sufficient for entry of a default judgment. RECOMMENDATION Based on the foregoing, the undersigned RECOMMENDS that the Motion for Sanctions (DE 127) be GRANTED, and that default judgment be entered against Mr. Micallef. To the extent consistent with the orders of the bankruptcy court, Wyndham should be given leave to file a petition for fees pursuant to Rule 37. NOTICE OF RIGHT TO OBJECT A party shall serve and file written objections, if any, to this Report and Recommendation with the Honorable Rodolfo Ruiz, United States District Court Judge for the Southern District of Florida, within FOURTEEN (14) DAYS of being served with a copy of this Report and Recommendation. Failure to timely file objections shall constitute a waiver of a party’s “right to challenge on appeal the district court’s order based on unobjected-to factual and legal conclusions.” 11th Cir. R. 3-1 (2016). DONE AND SUBMITTED in Chambers this 30th day of August, 2019, at West Palm Beach in the Southern District of Florida.