Ahrens Enters., Inc. v. Winning
Ahrens Enters., Inc. v. Winning
2019 WL 12520080 (S.D. Fla. 2019)
April 18, 2019

Brannon, Dave Lee,  United States Magistrate Judge

Cloud Computing
Sanctions
Scope of Preservation
Adverse inference
Spoliation
Default Judgment
Failure to Preserve
Bad Faith
Forensic Examination
Cost Recovery
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Summary
Ahrens sought emails and data stored on various electronic devices from Mr. Winning. The court found that Mr. Winning had failed to take reasonable steps to preserve the ESI, as he had deleted emails from his email accounts and lost a thumb drive containing 1.46 GB of Ahrens' data. The court also found that Mr. Winning had acted with the intent to deprive Ahrens of the ESI, and thus imposed sanctions in the form of adverse presumptions or inferences that could be drawn from the absence of the ESI evidence.
AHRENS ENTERPRISES, INC., Plaintiff,
v.
DERECK WINNING, Defendant
Case No. 18-80650-Civ-Brannon
United States District Court, S.D. Florida
Entered on FLSD Docket April 18, 2019

Counsel

Merry Ellen Lindberg, David Matthew Gobeo, II, Ford & Harrison, LLP, West Palm Beach, FL, for Plaintiff.
Alterraon Phillips, APLaw, LLC, Royal Palm Beach, FL, for Defendant.
Brannon, Dave Lee, United States Magistrate Judge

ORDER GRANTING IN PART PLAINTIFF'S MOTION FOR SPOLIATION SANCTIONS

*1 THIS CAUSE is before the Court on Plaintiff's Motion for Sanctions for Defendant's Spoliation of Evidence [DE 49]. Defendant has responded in opposition [DE 55], and Plaintiff has replied [DE 57]. The Court held an evidentiary hearing on April 12, 2019 [DE 62]. For the following reasons, Plaintiff's Motion is granted in part.
 
I. BACKGROUND
This case centers on disputes between Plaintiff Ahrens Enterprises, Inc. (“Ahrens”) and former Ahrens employee, Dereck Winning, concerning Mr. Winning's resignation from Ahrens and his later alleged unauthorized use of Ahrens’ proprietary information to interfere with Ahrens’ existing business relationships. On May 16, 2018, Ahrens filed a seven-count Complaint against Mr. Winning [DE 1]. Mr. Winning has answered with denials and several affirmative defenses [DE 17]. A three-day bench trial is set to commence on August 19, 2019 [DE 56].
 
Within days of filing its Complaint, Ahrens filed an emergency motion for preliminary injunction [DE 5]. The Court set an expedited hearing on the matter [DE 6]. On May 30, 2018, the day before the scheduled hearing, the parties jointly moved to cancel the hearing on grounds that “the Parties’ have been diligently working to achieve the necessary protections for [Ahrens’] confidential information sought in its motion without the need for an evidentiary hearing and have arrived at interim terms sufficient to obviate a present need for an injunction hearing” [DE 10 at 2]. At the time, the parties referred to an agreed third-party forensic review process [Id.]. The Court granted the motion and cancelled the hearing [DE 11]. Thereafter, on July 6, 2018, Ahrens’ withdrew its motion for preliminary injunction, without prejudice [DE 20]. On October 24, 2018, the parties attended a private mediation that resulted in an impasse [DE 27].
 
On November 16, 2018, the Court issued an Order denying Mr. Winning's motion to enforce a settlement agreement after finding insufficient evidence of the requisite meeting of the minds on all essential terms [DE 37]. On December 10, 2018, there was a switch in defense counsel to Mr. Winning's current counsel of record [DE 38, DE 39]. The Court thereafter held two separate discovery hearings to resolve outstanding discovery disputes [DE 41, DE 47].
 
On February 19, 2019, Ahrens filed the instant Motion seeking spoliation sanctions on grounds that Mr. Winning allegedly:
acted intentionally and in bad faith in destroying all of his e-mails, “losing” his hard drive at a time when he knew that the device was to be forensically examined, resetting his iPad to start-up before providing it to the computer forensic consultant for examination, switching e-mail accounts in an attempt to secrete his on-going communications with Ahrens’ clients regarding ongoing projects and interference with Ahrens’ relationships with its clients, and deleting hundreds of communications and business contracts with Ahrens’ clients during the instant litigation to conceal his conduct.
[DE 57 at 10]. Mr. Winning opposes the motion, claiming that he purged certain electronic files and documents as requested by Ahrens in a cease and desist letter dated April 27, 2018, that the deleted information is not material evidence, and that any potential relevant information lost can be replaced or restored [DE 55]. Mr. Winning further contends that he did not act in bad faith or with any intent to deprive Ahrens of discoverable information.
 
II. THE LAW OF SPOLIATION
*2 “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) (quoting Flury v. Daimler Chrysler Corp., 427 F.3d 939, 944 (11th Cir. 2005)).
 
Federal Rule of Civil Procedure 37(e) governs claims of spoliation of electronically stored information (“ESI”). Title Capital Mgmt., LLC v. Progress Residential, LLC, No. 16-21882-Civ-Williams/Torres, 2017 WL 5953428, at *3 (S.D. Fla. Sept. 29, 2017); Living Color Enterprises, Inc. v. New Era Aquaculture, Ltd., No. 14-62216-Civ-Marra/Matthewman, 2016 WL 1105297, at *3, 4 n.2 (S.D. Fla. Mar. 22, 2016) (“[W]hen confronting a spoliation claim in an ESI case, a court must first look to newly amended Rule 37(e) and disregard prior spoliation case law based on ‘inherent authority’ which conflicts with the standards established in Rule 37(e).”).
 
Rule 37(e) provides:
Failure to Preserve Electronically Stored Information. If electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery, the court:
(1) upon finding prejudice to another party from loss of the information, may order measures no greater than necessary to cure the prejudice; or
(2) only upon finding that the party acted with the intent to deprive another party of the information's use in the litigation may:
(A) presume that the lost information was unfavorable to the party;
(B) instruct the jury that it may or must presume the information was unfavorable to the party; or
(C) dismiss the action or enter a default judgment.
Fed. R. Civ. P. 37(e).
 
Before imposing sanctions under Rule 37(e), a court must find 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., 2017 WL 5953428, at *3. If these four threshold requirements are met, sanctions may be warranted if the Court finds prejudice or that the spoliating party acted with the intent to deprive the moving party of the ESI. Id. Rule 37(e) gives courts discretion to determine how best to assess prejudice. Id. at *6. The intent to deprive standard “may very well be harmonious with the ‘bad faith’ standard previously established by the Eleventh Circuit” in spoliation cases. Living Color, 2016 WL 1105297, at *6 n.6. That is, 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 proffered by the spoliator.” See Managed Care Sols., Inc. v. Essent Healthcare, Inc., 736 F. Supp. 2d 1317, 1322-23 (S.D. Fla. 2010) (declining to find bad faith and denying a request for an adverse inference instruction); Calixto v. Watson Bowman Acme Corp., 2009 WL 3823390, at *16 (S.D. Fla. Nov. 16, 2009) (declining to find bad faith and denying a request for spoliation sanctions); Alabama Aircraft Indus., Inc. v. Boeing Co., 319 F.R.D. 730, 746 (N.D. Ala. 2017) (finding sufficient circumstantial evidence to conclude that the spoliating party intended to destroy ESI, warranting an adverse inference instruction and an award of attorney's fees and costs).
 
III. DISCUSSION
*3 To determine the propriety of imposing spoliation sanctions in this case, the Court held an evidentiary hearing on April 12, 2019. At the Court's request, counsel for each side introduced a timeline of relevant events with citation to relevant documentary evidence [DE 66-1, DE 68-1]. Mr. Winning also testified. Upon due consideration of all the evidence presented and Mr. Winning's testimony, the Court finds that Rule 37(e) spoliation sanctions are warranted.
 
A. Rule 37(e)’s Four Threshold Requirements are Met
First, the information sought by Ahrens includes emails and data stored on various electronic devices, and thus clearly constitutes ESI. Second, Mr. Winning was on notice that the ESI should have been preserved for litigation. To be sure, on June 26, 2018, the parties executed a final Stipulated Forensic Data Protocol, according to which specified electronic devices and email accounts belonging to Mr. Winning would be subject to forensic review for purposes of this lawsuit [Pl. Ex. 1, Tab 32]. Under the stipulated protocol, a designated forensic consultant would capture the electronic data, after which Mr. Winning would have an opportunity to designate any captured data as being personal or privileged. At the hearing, Mr. Winning confirmed that he was aware of the stipulated protocol and the requirement that he preserve the designated ESI. Thus, Rule 37(e)’s first two threshold requirements are met.
 
Turning to the third requirement, the Court must determine if the ESI was lost because Mr. Winning failed to take reasonable steps to preserve it. The answer is yes. Regarding emails, it is undisputed and record evidence shows that Mr. Winning used three separate email accounts—winningdl@gmail.com, dwinning@winningdbs.com, and dlwinning@hotmail.com—to communicate with Ahrens and other individuals, including those associated with key design projects at issue in this case. Notably, only the first two of these emails were disclosed in the stipulated protocol. The hotmail account was discovered later and only through third-party document production. Mr. Winning acknowledged at his deposition and again at the evidentiary hearing that he deleted emails from his email accounts for the 2-3 week period prior to the forensic review. When asked why, Mr. Winning repeatedly apologized for deleting the emails but explained that he did not think the deleted emails were relevant to this lawsuit.
 
Regarding the thumb drive, it is undisputed that Mr. Winning copied 1.46 GB of Ahrens’ data onto an external drive on April 23, 2018, which was the last day Mr. Winning went to Ahrens’ offices. Mr. Winning testified that although he knew the thumb drive was subject to forensic review under the stipulated protocol, he lost the drive at some unknown point while traveling on multiple subway trains and a taxi on the way to a New Jersey airport with his minor son during a family vacation. Mr. Winning further testified that his minor son was carrying the bag containing the thumb drive and that the bag had a mix of contents inside—including Mr. Winning's wallet and sketchbooks, fidget spinners, his son's books, and sketching materials [Pl. Ex. 1, Tab 27, Winning Dep. 283:8-12, 284:14-25].
 
Regarding the iPad, Ahrens claims Mr. Winning intentionally deleted information from his iPad immediately prior to the forensic examination and that the device started in setup mode. At the hearing, Mr. Winning testified that he himself did not use the iPad and that his minor son used the iPad “99.9% of the time” and mostly to play games [Pl. Ex. 1, Tab 34, Winning Dep. 295:19-25]. Mr. Winning further testified that prior to the forensic review, Mr. Winning's prior counsel told Mr. Winning that he could remove his credit card information, so he did, which caused the iPad to go into setup mode. According to Mr. Winning, upon re-entering his credit card information, the iPad was able to be forensically analyzed by the designated reviewer.
 
*4 It is undisputed that the emails, the thumb drive, and the iPad were all expressly designated as electronic sources with ESI subject to forensic review under the stipulated protocol. As for the iPad, it is not entirely clear that Mr. Winning failed to take reasonable steps to preserve it or what relevant ESI information, if any, might have been on it. Mr. Winning turned over the iPad for forensic review and has explained that he deleted his credit card information before doing so after confirming with his prior counsel, which caused the iPad to go into setup mode. The Court credits Mr. Winning's testimony on this point and does not find that he unreasonably failed to preserve the iPad.
 
However, the same is not true of the emails and the thumb drive. Mr. Winning admitted to deleting emails and losing the thumb drive during the weeks immediately prior to the agreed forensic review. In this Court's view, Mr. Winning's explanations for deleting or losing the ESI on these sources demonstrate an unreasonable failure to preserve. Mr. Winning knew the emails had to be preserved for forensic review and he acted unreasonably in deleting them. The stipulated protocol provided a process for determining the relevance of captured ESI. It was not for Mr. Winning to unilaterally decide what might or might not be relevant. Mr. Winning also knew the thumb drive had to be preserved and he acted unreasonably in taking it with him on a family vacation in New Jersey and storing it (mixed in with his son's belongings) in a shoulder bag being carried by his minor son while the two embarked upon a multi-train-and-taxi journey to the airport. Mr. Winning's reliance on obligations placed upon him under the April 27, 2018 cease and desist letter sent by Ahrens’ counsel to Mr. Winning [DE 1-12] is misplaced. This letter predated the filing of this lawsuit and—more importantly—the stipulated forensic protocol. The letter instructed Mr. Wining to purge any electronic data containing Ahrens’ confidential and proprietary information only after he returned any such electronic data to Ahrens’ counsel [DE 1-12 at 2]. In addition, the letter included two detailed paragraphs placing Mr. Winning “on notice of [his] obligation to preserve evidence” and warned that “failure to preserve documents or electronic data could have dire consequences” including “significant monetary sanctions” or “the court may draw negative inferences against you.” [Id. at 4]. Thus, regarding the deleted emails and the lost thumb drive, the third threshold requirement is satisfied.
 
The fourth requirement is also met. Mr. Winning's argument that Ahrens can restore or replace any lost ESI by downloading it directly from Ahrens’ servers or getting emails from other non-party sources who were included on the emails completely misses the point. While Ahrens could conceivably attempt to piece together the larger puzzle of what might have been on Mr. Winning's thumb drive or in his email accounts through other sources, Ahrens can never know for sure without direct access to these ESI sources. This is precisely why the parties entered the stipulated forensic review process in the first place.
 
B. Prejudice and Intent to Deprive
Having found that Rule 37(e)’s four threshold requirements are met, the Court must next determine if Ahrens was prejudiced as a result of the lost ESI and/or if Mr. Winning acted with the requisite intent to deprive Ahrens of the ESI at issue. Yes to both inquiries. As for prejudice, without the ability to forensically review the thumb drive or the emails in all of Mr. Winning's email accounts from the relevant timeframe following Mr. Winning's resignation from Ahrens, Ahrens has lost evidence regarding whether and to what extent, if at all, Mr. Winning may have been breaching any contractual obligations or interfering with ongoing design projects that are at the heart of several alleged claims in this case. For instance, there is evidence to show that Mr. Winning downloaded 1.46 GB of Ahrens’ company data onto the lost thumb drive on his last day at Ahrens’ offices [Pl. Ex. 1, Tab 7, Winning Dep. 256:17-261:25], but that he ultimately returned only 859 MB of such data to Ahrens [DE 1-16 at 4-5]. Without access to the lost ESI for forensic review, the difference in data cannot be readily explained or analyzed for purposes of trial.
 
*5 As for intent, the Court finds sufficient circumstantial evidence to establish that Mr. Winning acted with the intent to deprive Ahrens of the ESI. First, the ESI located in Mr. Winning's email accounts and on Mr. Winning's thumb drive “could fairly be supposed to have been material to the proof or defense of a claim at issue in the case.” Managed Care Sols., 736 F. Supp. 2d at 1323. As demonstrated by several emails produced by third parties, for months after his resignation from Ahrens, Mr. Winning was regularly communicating via email with others regarding projects that are at issue in this case. Without access to the emails in all of Mr. Winning's accounts, Ahrens is unable to determine the full scope of Mr. Winning's participation in or alleged unlawful interference with these projects. Similarly, without access to the thumb drive containing Ahrens’ data, Ahrens is unable to trace the history of the data while it was in Mr. Winning's possession.
 
Second, through his affirmative actions, Mr. Winning caused the emails and the thumb drive to be lost. Third, Mr. Winning did so after obtaining counsel and after having been duly advised of the stipulated forensic review process—illustrating that he knew or should have known that he was obligated to take precautions to preserve the ESI in his emails and on the thumb drive. Lastly, under the totality of the circumstances, especially the timing of losing the ESI (deleting emails during the weeks leading up to the forensic review and losing the thumb drive after agreeing to its forensic examination), Mr. Winning's explanations of not believing the deleted emails were relevant or not expecting to lose the thumb drive demonstrate a wholly insincere effort on his part to safeguard or preserve the ESI. On the contrary, Mr. Winning's affirmative acts causing the loss of the ESI “cannot be credibly explained as not involving bad faith by the reason[s] proffered.” See Managed Care Sols., 736 F. Supp. 2d at 1323.
 
C. Sanctions
As sanctions, Ahrens propose a Court Order entering a default judgment on liability in favor of Ahrens on the claims raised in the complaint and awarding Ahrens its costs and fees of litigating its spoliation motion [DE 49 at 2, DE 57 at 10]. In its discretion, the Court passes on this drastic proposal in favor of a less drastic measure to remedy the prejudice caused while ensuring the integrity of this judicial process. See Eagle Hosp. Physicians, LLC v. SRG Consulting, Inc., 561 F.3d 1298, 1306 (11th Cir. 2009) (default judgment is an appropriate sanction only when less drastic measures are insufficient). Specifically, in the interest of resolving this case on the merits and because the Court is aware of other evidence separate from the lost ESI that can be utilized in assessing the claims in this case, the Court finds the more appropriate sanctions against Mr. Winning to be certain adverse presumptions or inferences that can be fairly drawn from the absence of the ESI evidence that was lost or deleted by Mr. Winning. Those adverse presumptions or inferences, in turn, would inform some of the Court's findings of fact regarding the ultimate issues to be resolved in this matter. In other words, the Court will presume that the lost email communications and thumb drive data were unfavorable to Mr. Winning and, in proper context with other facts to be determined for purposes of trial, Ahrens shall be permitted to include proposed adverse presumptions or inferences as part of its proposed findings of fact. See Fed. R. Civ. P 37(e)(2).
 
Unlike most of the provisions in Rule 37, Rule 37(e) makes no mention of an award of expenses or attorney's fees to the prevailing party. And in its inherent discretion, the Court declines to impose costs and fees associated with the spoliation motion. The Court's finding of ESI spoliation caused by Mr. Winning, leading to the Court's decision to draw adverse presumptions and inferences against Mr. Winning for purposes of resolving claims raised against him in this lawsuit constitute sufficient sanctions.
 

IV. CONCLUSION
*6 Based on the foregoing, the Court concludes that Mr. Winning's affirmative actions in deleting emails and losing the thumb drive while knowing full well that these ESI sources were the subject of a stipulated forensic review process readily demonstrate an intent to deprive Ahrens of the use of ESI from these sources. The Court further finds that Ahrens was prejudiced by this loss, such that Rule 37(e) sanctions are warranted. Accordingly, the Court ORDERS AND ADJUDGES that Plaintiff's Motion for Sanctions for Defendant's Spoliation of Evidence [DE 49] is GRANTED IN PART. Ahrens shall be permitted to incorporate proposed adverse presumptions or inferences that are fairly drawn directly from the loss of the ESI data deleted or lost by Mr. Winning as part of any proposed findings of fact submitted to the Court for purposes of resolving the claims and defenses in this case. See Fed. R. Civ. P 37(e)(2).
 
DONE AND ORDERED in Chambers at West Palm Beach in the Southern District of Florida, this 18th day of April, 2019.