Westgate Resorts, Ltd. v. Reed Hein & Assocs., LLC
Westgate Resorts, Ltd. v. Reed Hein & Assocs., LLC
2021 WL 4428753 (M.D. Fla. 2021)
March 25, 2021

Irick, Daniel C.,  United States Magistrate Judge

Initial Disclosures
Sanctions
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Summary
Westgate sought sanctions against TET for allegedly failing to disclose recordings as part of its initial disclosures and for allegedly failing to timely supplement either its initial disclosures or its discovery responses. The court found that Westgate failed to establish that TET violated a duty to disclose the recordings as part of its initial disclosures, nor did Westgate establish that TET violated a duty to timely supplement either its initial disclosures or its discovery responses. The court also found that spoliation did not occur in this case and denied Westgate's motion for sanctions.
Additional Decisions
WESTGATE RESORTS, LTD., et al, Plaintiffs,
v.
REED HEIN & ASSOCIATES, LLC, BRANDON REED, TREVOR HEIN and THOMAS PARENTEAU, Defendants
Case No. 6:18-cv-1088-GAP-DCI
United States District Court, M.D. Florida
Signed March 25, 2021

Counsel

Brian R. Cummings, Greenspoon Marder, PA, Tampa, FL, Jeffrey Aaron Backman, Richard W. Epstein, Greenspoon Marder, PA, Ft. Lauderdale, FL, Michael E. Marder, Greenspoon Marder, PA, Michael Ellis Marder, II, Greenspoon Marder LLP, Orlando, FL, for Plaintiffs.
Amy Leigh Baker, John Y. Benford, Wilson, Elser, Moskowitz, Edelman & Dicker, LLP, Nicholas A. Shannin, Shannin Law Firm, PA, Orlando, FL, Panda Kroll, Pro Hac Vice, Offices of Panda Kroll, Esq., Camarillo, CA, for Defendants.
Irick, Daniel C., United States Magistrate Judge

ORDER

*1 This matter comes before the Court after years of litigation and mere months before trial. Here, Plaintiffs (Westgate), move for sanctions against the only remaining Defendants in this case, TET.[1] Doc. 272 (the Motion). In resolving the Motion, the Court has considered TET's response (Doc. 275, the Response) and Westgate's reply (Doc. 279, the Reply). Upon review, the Court finds that the Motion is due to be denied. In light of this finding, the Court also finds that TET's Motion for Leave to File Sur-Reply (Doc. 283, the Motion for Sur-Reply) is also due to be denied.
I. Background
Westgate is a group of roughly 30 related entities consisting of either timeshare developers or timeshare owners’ associations. TET is in the business of helping timeshare owners get out of their obligations to timeshare businesses, such as Westgate.
Westgate initiated this action against TET on July 9, 2018, alleging, in part, that TET induces timeshare owners to stop making payments to Westgate or otherwise breach their contracts with Westgate. Doc. 1 (the Initial Complaint). At the time this action was filed, it was the ninth similar case brought in this Division of this District during about a one-year period (the first case being brought in June 2017), and the seventh brought by the same law firm. To varying degrees, each of these timeshare cases has been litigated extensively and has taxed the resources of the Court and the parties.
Here, Westgate filed an amended complaint on November 16, 2018. Doc. 69 (the Amended Complaint). The case proceeded; claims with some Defendants were settled, summary judgment was litigated, and many extensions were granted—the discovery deadline was ultimately extended to January 2, 2020 (Doc. 115), with a further extension until February 14, 2020 for the depositions of two non-party witnesses (Doc. 137).
On February 18, 2021, the court held a status conference. Doc. 268. There, counsel for Westgate asserted that “a very serious discovery matter ha[d] arisen just within the last couple of weeks.” See id. at 5. The Court declined to address the merits of the discovery issue at the status conference and directed counsel to file a motion. See id. That same day, the Court entered an order outlining the revised schedule of the case. Doc. 266 (the Order). In the Order, the Court gave Westgate until February 25, 2021 to file a motion regarding the “new discovery issue” raised at the hearing and directed TET to respond within ten days following the motion. Id. The Court also set the deadline for the Joint Final Pretrial Statement for April 9, 2021, stated that the Final Pretrial Conference will be reset for April 28, 2021, and stated that the jury trial portion of this case will be set for date certain trial May 12, 2021. Id.
*2 Thus, on February 25, 2021—more than a year after the close of discovery and less than three months before trial—Westgate filed the Motion for Sanctions for Non-Disclosure and Spoliation of Documents that is now before the Court. Doc. 272 (the Motion). In the Motion, Westgate asserts, in sum, that TET recorded communications with timeshare owners (the Recordings), destroyed at least some of the Recordings, and concealed both the Recordings’ existence and the fact that they were destroyed. See Doc. 272. Westgate thus seeks sanctions against TET pursuant to Federal Rules of Civil Procedure 37(c)(1) and 37(e). See id. In its Response, TET states that “the data at issue was not destroyed, but rather, temporarily lost,” and asserts that the data will be available for production by March 15, 2021. See Doc. 275. TET also argues that it did not commit any discovery violations and that it should not be subject to sanctions. See id. In the Reply, Westgate acknowledges that TET “dumped on Westgate” the “previously concealed” recordings, states (repeatedly) that “TET lied,” and reiterates facts from its Motion in apparent support of sanctions under Rule 37(e). See Doc. 279.
II. Discussion
Here, Westgate argues that TET should be sanctioned pursuant to two separate Federal Rules of Civil Procedure: Rule 37(c)(1) and Rule 37(e). See Doc. 272 at 13-28. The Court will discuss each of these rules in turn.
A. Rule 37(c)(1)
Rule 37(c)(1) provides for sanctions when a party fails to provide information as required by Rule 26(a) or by Rule 26(e). See Fed. R. Civ. P. 37(c)(1). Here, Westgate alleges that TET violated Rule 26(a)(1)(A)(ii) by failing to include the Recordings in its mandatory initial disclosures and violated Rule 26(e)(1) by failing to supplement those disclosures; Westgate also appears to assert that TET violated Rule 26(e)(1) by failing to supplement its discovery responses. See Doc. 272 at 17-22. Westgate thus seeks sanctions pursuant to Rule 37(c)(1), including: “striking [TET's] pleadings or entering a default judgment”; “an order establishing designated facts in favor of Westgate; an adverse inference instruction to the jury that they are allowed to conclude that the destroyed call recording instructed owners to stop paying Westgate; and attorney's fees and costs associated with TET and its counsel's non-disclosure and spoliation of evidence.” Id. at 28; 6.
a. Rule 26(a)(1)(A)(ii)
Rule 26(a)(1) requires the parties to make initial disclosures without awaiting a discovery request (often referred to as mandatory initial disclosures); those initial disclosures must include:
a copy—or a description by category and location—of all documents, electronically stored information, and tangible things that the disclosing party has in its possession, custody, or control and may use to support its claims or defenses, unless the use would be solely for impeachment[.]
Fed. R. Civ. P. 26(a)(1)(A)(ii) (emphasis added to the word “and”). So, the Rule requires an initial disclosure of a document, ESI, or a tangible thing if the following two prerequisites are met: (1) “the disclosing party has [the document, ESI, or tangible thing] in its possession, custody, or control” and (2) the disclosing party “may use [that document, ESI, or tangible thing] to support its claims or defenses.” See id.
Understanding that sentence as written reveals immediately the fatal and fundamental flaw in the Motion. While Westgate asserts that TET (i.e. the disclosing party) has “possession, custody, or control” over the Recordings, Westgate utterly fails to establish that TET may use the Recordings to support its claims or defenses.[2] Indeed, Westgate functionally ignores the portion of the sentence of Rule 26(a)(1)(A)(ii) following the word “control”—Westgate ignores the “and” prong of the Rule. “And” ends the analysis; Westgate fails in the Motion to establish a violation of Rule 26(a)(1)(A)(ii).
*3 To be sure, TET confirms this result in its response—TET affirmatively states that the Recordings “would not have been used to support any claim or defense in this matter ....” Doc. 275 at 20.[3] Although Westgate asked for—and received—leave to file the Reply, it failed to use that chance as an opportunity to provide legal authority on the issue of whether a Rule 26(a)(1)(A)(ii) violation even occurred. Indeed, the Reply contains no such authority and, predictably, contains no argument addressing it either. See Doc. 279. Accordingly, this portion of the Motion is without merit.
b. Rule 26(e)(1)
Rule 26(e) requires, in relevant part, that parties supplement or correct initial disclosures or discovery responses:
(A) in a timely manner if the party learns that in some material respect the disclosure or response is incomplete or incorrect, and if the additional or corrective information has not otherwise been made known to the other parties during the discovery process or in writing; or
(B) as ordered by the court.
Fed. R. Civ. P. 26(e)(1). Thus, Rule 26(e)(1) contains two prongs. Under the first prong, a party must supplement or correct disclosures or discovery responses in a timely manner if (1) the party learns the disclosure or response is materially incomplete or incorrect and (2) the additional or corrective information has not otherwise been made known to the other parties during the discovery process or in writing. See id. Under the second prong, a party must supplement or correct initial disclosures or discovery responses as ordered by the court. See id.
First, with respect to initial disclosures, the Court has already discussed that Westgate has not established that TET had a duty to disclose the Recordings pursuant to Rule 26(a)(1). In light of that finding, the Court is not inclined to find that TET had an obligation to supplement or correct its initial disclosures upon retrieving the Recordings, especially given TET's representation that it does not intend to use the Recordings to support any claim or defense in this matter. See Doc. 275 at 20. Second, with respect to discovery responses, the Court notes that Westgate argues that the Recordings are subject to at least one discovery request in this case. See id. at 18. However, even assuming that the Recordings were subject to a discovery request—and thus within the scope of Rule 34(c)(1)—and the Recordings were never produced, the initial remedy is a motion to compel production (preferably filed within the discovery period), not sanctions.[4] There is not a single motion to compel filed in this case.
*4 Notwithstanding, Westgate argues that TET failed to supplement its initial disclosures as required by Rule 26(e). See Doc. 272 at 17-19. Westgate also appears to assert that TET failed to supplement or correct its discovery responses as required by this Rule. See id. at 18. However, Westgate offers no clear argument on either prong of Rule 26(e) as to either initial disclosures or discovery responses. There is no relevant Court order in this case (and Westgate does argue that there is). See Doc. 272. And Westgate presents no clear argument that the disclosure of the Recordings is not timely. See Doc. 272. Indeed, based on the affidavits and the parties’ representations, there is no evidence before the Court that the disclosure of the Recordings is not timely. The duty to supplement under Rule 26(e) continues past the end of the discovery period, and timeliness is judged based the circumstances of the disclosure. TET states, in its Response, that it recovered the data on March 5, 2021, and planned to have it available for production within seven days of March 8, 2021, the date it filed the Response. See Doc. 275 at 1. Westgate simply states, in its Reply, that the “previously concealed recordings” have been produced. See Doc. 279 at 2. Considering the lack of any relevant argument or authority from Westgate, the record before the Court is insufficient to determine that the disclosure was untimely under Rule 26(e), and this portion of the Motion is also without merit.
B. Rule 37(e)
“[F]ederal law governs the imposition of spoliation sanctions” in diversity actions. Flury v. Daimler Chrysler Corp., 427 F.3d 939, 944 (11th Cir. 2005). Spoliation has been defined as 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). Federal Courts derive their authority to sanction a party for spoliation from two sources—the courts’ inherent power and Federal Rule of Civil Procedure 37. Noftz v. Holiday CVS LLC, 2018 WL 3997983, at *2 (M.D. Fla. Aug. 21, 2018) (citation omitted).
Rule 37(e) explicitly applies only to electronically stored information (ESI),[5] and provides 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 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.
Thus, before the Court can impose sanctions for the spoliation of ESI, four conditions must be met: (1) “the ESI should have been preserved in anticipation or conduct of the litigation”; (2) “the ESI is lost or destroyed”; (3) “the loss of the ESI is due to the party's failure to take reasonable steps to preserve the ESI”; and (4) “the ESI cannot be restored or replaced.” Sosa, 2018 WL 6335178, *10 (citation omitted). “If any of the above questions are answered in the negative, then a motion for spoliation sanctions or curative measures must be denied.” Id. (citation and internal quotations omitted).
*5 As an initial matter, Westgate completely misstates Rule 37(e) in the Motion. See Doc. 272 at 14-15.[6] While Rule 37(e) governs the Court decision here, Westgate's application for sanctions under that Rule is misguided, as is Westgate's invitation to the Court to apply pre-amendment out-of-district caselaw concerning spoliation of ESI rather than the current version of Rule 37(e).[7] In its response, TET states that the data at issue was not destroyed, but temporarily lost, and further that the data has been recovered and will be available for production within seven days of the date of the Response. See Doc. 275 at 2. In its Reply, Westgate does not offer any substantive argument that the data was spoliated.[8] Thus, the requisite conditions for spoliation sanctions—that the data at issue has not been lost or destroyed such that it cannot be restored or replaced—does not exist. Thus, the Motion, to the extent it requests spoliation sanctions and curative measures, must be denied. See Sosa, 2018 WL 6335178, *10.
III. Conclusion
In the Motion and the Reply, Westgate casts numerous aspersions on both TET and counsel for TET. See Docs. 272; 279. So, it is worth reiterating that the Court makes decisions based upon the specific legal arguments raised by counsel in their filings; unnecessary rhetoric is a net negative for many reasons, and especially when it takes the place of legal authority and structured analysis. The failure of the Motion simply evinces Westgate's failure to establish that sanctions are warranted under Federal Rules of Civil Procedure 37(c)(1) or 37(e) based on the arguments presented in its filings. Indeed, Westgate did not establish that TET violated a duty to disclose the recordings as part of its initial disclosures, nor did Westgate establish that TET violated a duty to timely supplement either its initial disclosures or its discovery responses. And Westgate did not establish that spoliation occurred in this case. Thus, the Court thus finds that the Motion is due to be denied.[9]
*6 In light of this finding, the Court finds that TET's Motion for Leave to File Sur-Reply (Doc. 283, the Motion for Sur-Reply) is also due to be denied as unnecessary.
Accordingly, it is ORDERED that:
1. The Motion (Doc. 272) is DENIED; and
2. The Motion for Sur-Reply (Doc. 283) is DENIED.
ORDERED in Orlando, Florida on March 25, 2021.


Footnotes

As in prior orders issued throughout this case, the Court will use “Westgate” as the designation for Plaintiffs (a group of entities engaged in the business of developing, managing, financing, and selling timeshare resort properties throughout the United States) and “TET” as the designation for Defendants Reed Hein & Associates, LLC, Brandon Reed, Trevor Hein, and Thomas Parenteau.
The Court notes that Westgate, perhaps in an effort to save its argument, includes a footnote purporting to connect the Recordings to TET's claims and defenses. Doc. 272 at 17 n.2. However, this footnote contains only rank speculation. See id.
There is no indication that TET intends to use the Recordings at trial. Of course, if TET does so intend, it could be subject to a ruling from the trial judge. Here, the undersigned is not considering the sanction of precluding the Recording's use at trial because TET represents that the Recordings are available for production, TET indicates that it will not use the recordings at trial, and Westgate does not argue for such a sanction. See Doc. 272 at 2; Doc. 275.
It is worth noting that TET asserts, and Westgate concedes, that Westgate has known about the existence of these Recordings since at least August 2019. See Doc. 275 (TET's Response) at 4 (describing a deposition taken by Westgate's counsel on August 29, 2019 wherein the deponent “testified that TET records calls from its customer service representatives, and that TET keeps copies of the recordings.”); Doc. 272 (Westgate's Motion) at 21 (describing “a short exchange in the deposition with a TET representative on August 29, 2019, about recording calls with owners to conduct audits of customer service agents” for which exchange Westgate's counsel and TET's counsel were present). Despite that, Westgate filed no motion to compel or other discovery-related motion concerning the Recordings until the instant Motion, which it filed on the eve of trial.
The Court notes that the Eleventh Circuit has not “expressly determined that Rule 37(e) always applies when the requested spoliation sanctions award involves ESI.” Sosa v. Carnival Corp., No. 18-20957-CIV, 2018 WL 6335178, at *8 (S.D. Fla. Dec. 4, 2018), reconsideration denied, 2019 WL 330865 (S.D. Fla. Jan. 25, 2019) (emphasis in original). But many courts in this Circuit, citing the Advisory Committee Notes to the 2015 Amendment to Rule 37, have found that “Rule 37(e), and not a court's inherent authority, governs the issue of spoliation sanctions for loss of ESI.” Id. at 9-10 (citations omitted); but see CAT3, LLC v. Black Lineage, Inc., 164 F. Supp. 3d 488, 498 (S.D.N.Y. 2016) (discussing the Court's inherent authority to sanction bad faith conduct concerning the destruction of ESI regardless of the applicability of Rule 37(e), and reasoning that “[a] party's falsification of evidence and attempted destruction of authentic, competing information threatens the integrity of judicial proceedings even if the authentic evidence is not successfully deleted”).
Specifically, the paragraph at the bottom of page 14 of the Motion entirely skips the requisite Rule 37(e)(2) finding necessary to unlock the sanctions in Rule 37(e)(2)(A)-(C) (i.e. “only upon finding that the party acted with the intent to deprive another party of the information's use in the litigation ...”) and instead asserts that those potential sanctions are available to the Court by making the findings articulated in Rule 37(e) (i.e. that ESI that should have been preserved is lost because a party failed to take reasonable steps to preserve it and the ESI cannot be restored or replaced) and Rule 37(e)(1) (i.e. “finding prejudice to another party from loss of the information”). See Doc. 272 at 14; see also Fed. R. Civ. P. 37(e).
The Court notes that Westgate also makes some conclusory statements regarding the Court's inherent authority. See, e.g., Doc. 272 at 15, 22. However, Westgate has not adequately briefed whether the Court's inherent authority governs the issue of spoliation sanctions here. See Doc. 272. Rather, Westgate appears to move for spoliation sanctions primarily based on an alleged violation of Rule 37(e). See Doc. 272. Insufficient briefing notwithstanding, the Court need not reach this particular issue because the Motion is due to be denied with respect to spoliation sanctions regardless of which authority the Court applies—spoliation sanctions pursuant to the Court's inherent authority require spoliation of evidence, which does not exist here.
Westgate does make the unsupported, conclusory statement that “TET admits some recordings were destroyed and nearly all of them were stripped of metadata so they cannot be searched,” which the Court does not find either helpful or persuasive. Doc. 279 at 2.
To the extent the Motion requests that the Court order limited discovery concerning TET's alleged destruction of evidence, that request is due to be denied in light of the production of the Recordings.