Schnatter v. 247 Grp., LLC
Schnatter v. 247 Grp., LLC
2022 WL 2402658 (W.D. Ky. 2022)
March 14, 2022
Lindsay, Colin H., United States Magistrate Judge
Summary
The court found that John Schnatter had a duty to preserve ESI related to the litigation since July 2018, but instead deliberately deleted all text messages sent or received since then. The court found that Schnatter's failure to take reasonable steps to preserve the ESI was not excused by the fact that other parties had taken reasonable steps to preserve their ESI, and that the lost ESI could not be restored or replaced through additional discovery. The court considered whether sanctions should be imposed for spoliation of the ESI, but ultimately found that the intent to deprive could not be established.
Additional Decisions
JOHN H. SCHNATTER, Plaintiff,
v.
247 GROUP, LLC, et al., Defendants
v.
247 GROUP, LLC, et al., Defendants
CIVIL ACTION NO. 3:20-CV-00003-BJB-CHL
United States District Court, W.D. Kentucky
Filed March 14, 2022
Counsel
Augustus S. Herbert, Daniel Woodard Redding, Dennis D. Murrell, Elisabeth S. Gray, Kevin L. Chlarson, Middleton Reutlinger, Louisville, KY, for Plaintiff.Bert H. Deixler, David Freenock, Nicole M. Cambeiro, Patrick J. Somers, Kendall Brill & Kelly LLP, Los Angeles, CA, Michael P. Abate, Kaplan Johnson Abate & Bird LLP, Louisville, KY, Priya D. Srinivasan, Warner Bros., Burbank, CA, for Defendants.
Lindsay, Colin H., United States Magistrate Judge
REPORT AND RECOMMENDATION
*1 Before the Court is the “Motion for Discovery Sanctions” filed by Defendants 247 Group, LLC and Wasserman Media Group, LLC (collectively “Defendants”). (DN 151.)[1] Plaintiff John H. Schnatter (“Schnatter”) filed a response (DN 169), to which Defendants filed a reply (DN 171). United States District Judge Benjamin Beaton referred Defendants' motion to the undersigned Magistrate Judge for a report and recommendation. (DN 176.) Therefore, the motion is ripe for review.[2]
I. FINDINGS OF FACT
Schnatter is the founder of Papa John's International (“Papa John's”) and served as its CEO and Chairman until 2018. (DN 111, at PageID # 1295, 1301.) On May 22, 2018, Schnatter participated in a conference call with employees of Defendant 247 Group, LLC, which provided marketing services to Papa John's. (Id. at 1299.) During the call, Schnatter made controversial comments about racial issues and uttered a racial slur. (Id. at 1300.) Unbeknownst to Schnatter, that call was recorded, and details about Schnatter's comments were subsequently disclosed to Forbes Magazine. (DN 131, at PageID # 1569–70.) On July 11, 2018, Forbes published details about the call, and on the same day, Schnatter resigned as Chairman of Papa John's and Papa John's terminated his Chairman Agreement. (DN 111, at PageID # 1301–02; DN 187-1, at PageID # 3405.) On July 15, 2018, his Founder Agreement with Papa John's was also terminated. (DN 111, at PageID # 1302.) On July 13, 2018, the University of Louisville (“UofL”) announced that it would rename its football stadium, then Papa John's Cardinal Stadium, to end its affiliation with the business; following negotiations, Schnatter's naming rights contract with UofL was formally terminated on October 24, 2019. (DN 187-1, at PageID # 3407.) Following these events, Papa John's decided to separate its brand from Schnatter's image; after negotiations, their Licensing Agreement concerning the company's use of Schnatter's name and likeness was formally terminated on September 11, 2019. (DN 111, at PageID # 1302; DN 151-1, at PageID # 2617; DN 169-2, at PageID # 2834.)
*2 “Within days of the July 11, 2018 Forbes Article and the other events of that week,” Schnatter retained the law firm Glasser Weil Howard Avchen & Shapiro LLP (“Glasser Weil”) to represent him in matters related to his separation from Papa John's. (DN 169-1, at PageID # 2828.) Upon Glasser Weil's recommendation, he retained the law firm Bayard, P.A. (“Bayard”) to assist in a potential action against Papa John's in the Delaware Court of Chancery. (Id. at 2829.) On July 25, 2018, Bayard sent Schnatter a Litigation Hold Notice, outlining his duty to preserve documents and electronically stored information (“ESI”) related to the Delaware action.[3] (DN 153-1.) The Notice was also addressed to Stacy Hadley (“Hadley”) and Aaron Thompson (“Thompson”). (Id.) Hadley has been Schnatter's personal assistant since 2015, (DN 169-1, at PageID # 2828), and Thompson, who describes himself as Schnatter's chief of staff, has worked for Schnatter in various capacities since 2006. (DN 169-2, at PageID # 2833.) The Notice informed Schnatter, Hadley, and Thompson:
[They] have an immediate and affirmative duty to maintain potentially relevant documents or ESI related to the Action. Potentially relevant information must not be altered, modified, destroyed, or deleted. Automatic destruction processes that implicate potentially relevant information must be suspended. If the Client or those under his control have questions regarding whether a specific document or piece of information is potentially relevant, please retain it.
This does not mean all documents and ESI in the Client's possession must be held, just those items potentially relevant to the Potential Actions. Irrelevant documents or ESI that are not subject to any other litigation hold may be discarded in the ordinary course of business or pursuant to a written document retention protocol, if any.
Potentially relevant documents can be, but are not limited to, hard copy documents, electronic documents, emails (including any personal or business email accounts), attachments, text messages (from both cell phones or tablets regardless of whether they are personal or business-issued), documents stored on cloud-based services such as Dropbox, notes, spreadsheets, or calendars that contain any information relating in any way to the events or allegations described in the Potential Actions.
(DN 153-1, at PageID # 2660.) The Notice further informed Schnatter, Hadley, and Thompson that potentially relevant documents that should be preserved may include:
Any documents or communications relating to the Client's service on the board of directors of Papa John's, including without limitation board books, resolutions, minutes and any other documents provided to members of the board;
Any documents or communications relating to the comments made by the Client regarding the policy of the National Football League on the national anthem;
Any documents or communications related to the Forbes article published on July 11, 2018 falsely claiming that the Client used a racial slur during a diversity media training exercise;
Any documents or communications referring or relating to the consideration or adoption of a rights plan by the Company;
Any documents referring or relating to any agreements between the Client and the Company.
(Id. at 2661.)
*3 Schnatter filed suit against Papa John's in the Delaware Court of Chancery on July 26, 2018. Schnatter v. Papa John's Int'l, Inc., No. 2018-0542-AGB, 2019 WL 194634 (Del. Ch. filed July 26, 2018). In July 2018, Glaser Weil directed Schnatter, Hadley, and Thompson to provide for imaging any devices containing ESI related to Schnatter's relationship with Papa John's and the Defendants in this case. (DN 169-1, at PageID # 2829; DN 169-2, at PageID # 2833–34.) Schnatter and Hadley each provided a cellphone and Thompson provided a cellphone and a computer; all of these devices were imaged in July 2018. (DN 151, at PageID # 2496–97.)
At some point in 2018 or early 2019, Schnatter retained the law firm Hughes Hubbard & Reed, LLP (“Hughes Hubbard”) to assist Glaser Weil in exploring potential litigation against Defendants. (DN 98, at PageID # 883; DN 100-1, at PageID # 1086.) Schnatter filed suit against Defendant 247 Group, LLC and its parent company, Defendant Wasserman Media Group, LLC, in state court on December 5, 2019; the case was removed to this Court on January 2, 2020. (DN 1; DN 1-1.) At the time, Schnatter was represented by Hughes Hubbard and his current counsel of the law firm Middleton Reutlinger.[4] (DN 1-1, at PageID # 22.) His claims arise from the disclosure of details about the May 22, 2018 conference call to Forbes and the aftermath of the Forbes article. (DN 1-1.) In his initial complaint, Schnatter alleged breach of contract, tortious interference with prospective economic advantage, and intentional infliction of emotional distress. (Id. at 18–21.) Schnatter amended his complaint on October 1, 2020 and again on July 21, 2021. (DN 50; DN 111.) The operative amended complaint raises claims for breach of contract, breach of implied covenant of good faith and fair dealing, tortious interference with contract, and prima facie tort. (DN 111, at PageID # 1302–06.)
On April 7, 2020, the Parties participated in a litigation planning meeting mandated by Rule 26(f) of the Federal Rules of Civil Procedure, (DN 26), and on May 1, 2020, the Court issued its initial scheduling order. (DN 29.) Subsequently, Schnatter, Hadley, and Thompson again were directed to provide their devices to counsel for ESI imaging. (DN 151-1, at PageID # 2496–97; DN 169-1, at PageID # 2830.) Hadley and Thompson each provided a cellphone and a computer, which were imaged in July 2020, and Schnatter provided a cellphone, which was imaged in August 2020. (DN 151-1, at PageID # 2496–97.) On June 9, 2020, Defendants served their first set of requests for production, which sought among other things all documents and communications related to the May 2018 conference call, Schnatter's resignation from Papa John's, the termination of his agreements with Papa John's, and the Forbes article. (DN 151-1, at PageID # 2509–18.) Defendants specified that their requests covered, among other things, “text messages, social media posts, websites, or direct messages.” (Id. at 2509.)
On October 29, 2020, Defendants sent Schnatter a deficiency letter outlining purported gaps in his discovery responses.[5] (Id. at 2540–48.) Among them, Defendants believed that Schnatter had not produced all responsive documents in the possession or control of his employees and agents. (Id. at 2540–42.) Defendants cited produced communications that Hadley and Thompson exchanged with third parties whose contents suggested to Defendants that additional undisclosed communications took place. (Id. at 2541.) Defendants were also concerned that Schnatter's responses “consists of shockingly few communications from Schnatter himself.” (Id. at 2542.) Defendants noted that among the several email accounts Schnatter used, few emails had been produced and that he had produced only one outgoing text message despite Defendants' impression that he “frequently communicated with others via text message from at least two different phone numbers.” (Id.) Defendants cited a produced email from Hadley to Thompson in which she stated, “John texted me that he's good with this.” (Id.) They noted that the text message to which Hadley referred had not been produced. (Id.)
*4 On November 11, 2020, the Parties met and conferred regarding Defendants' deficiency letter. (DN 151-1, at PageID # 2552.) In a follow-up email sent to Schnatter on November 16, 2020, Defendants asserted that Schnatter had agreed to provide various responses by that date, including “[c]onfirmation regarding [ ] collection from [Schnatter]'s personal devices, including his various cell phones and the cloud, as well as an update on the production of those documents.” (Id.) The following day, Schnatter responded, stating in relevant part that:
[Schnatter] had previously used an “emergency” phone in addition to his regular phone at times when he was receiving threats against his physical person. [He] does not recall having a second or “emergency” phone since before 2017.
[Schnatter] does not recall ever being issued any kind of electronic device from Papa John's.
[Schnatter]'s phone collections include a collection from his phone in 2018 (from the number referenced in JHS003951) as well as a collection from his phone in 2020 (from the number referenced in JHS003304). The collections include information from the phones themselves.
(Id. at 2550.)
Following some additional discovery, Defendants sent Schnatter another deficiency letter outlining their dissatisfaction with several disclosures and objections to requests. (Id. at 2554–61.) In part, Defendants stated:
Multiple documents produced to date suggest that Plaintiff sent text messages, and that his text messages were collected in this matter. See JHS003304, JHS003951, JHS012223, JHS035078. This indicates both that collecting such text messages was not, in fact, unduly burdensome, and that numerous text message-communications to and from Plaintiff should exist. Yet, very few text messages have been produced to date, and you have never provided us with an explanation as to why so few text messages have been produced.
(Id. at 2554–55.) Defendants demanded that Schnatter confirm that he had collected from all relevant devices and sources and produced all responsive text message found therein and that he provide an explanation to the extent that any relevant device or source had not been collected. (Id. at 2555.) On May 19, 2021, Schnatter responded to the letter, denying that he failed to produce text messages. (Id. at 2563.) Schnatter stated that he collected all of the information from his, Thompson's, and Hadley's personal devices, that the devices had “been searched on several occasions[,] and any responsive nonprivileged texts have been produced.” (Id.) On June 25, 2021, Defendants sent Schnatter a letter summarizing the Parties' past correspondences regarding Schnatter's text messages and concluding that “either Mr. Schnatter has not actually produced all such responsive documents and communications, or Mr. Schnatter has failed to uphold his obligation to preserve evidence.” (Id. at 2571.) Defendants thus demanded that Schnatter answer a list of questions concerning any litigation hold in place and the existence, preservation, and production of responsive documents and communications from Schnatter's devices. (Id. at 2574.) On July 2, 2021, Schnatter responded to Defendants' letter. (Id. at 2577.) Though he did not directly answer any of their questions, Schnatter referenced previous imaging of devices belonging to Schnatter, his former spouse, Thompson, and Hadley. (DN 151-1, at PageID # 2578.) Schnatter asserted, “it is my understanding that the information harvested from these collections was searched with appropriate search terms and the responsive documents from all of the devices, including dozens of texts, were produced as noted above.” (Id.) The Parties exchanged several additional communications on the subject over the following weeks before they apparently reached an impasse. (Id. at 2584–89.)
*5 On August 12, 2021, the undersigned conducted a telephonic status conference at Defendants' request to discuss their concern that Schnatter's text messages may have been lost or destroyed. (DN 124, at PageID # 1516.) During the call, Defendants stated that the absence of communications from Schnatter's devices in his document production raised concerns and that Schnatter had not addressed those concerns with adequate responses to Defendants' questions about it. (DN 192, at PageID # 3846–49.) In response, Schnatter reported that devices used by Schnatter and his agents were imaged and asserted that all relevant communications had been produced. (Id. at 3850–51.) Schnatter conceded that his text messages had not been produced and stated that this is not unexpected “because it's been his practice for many years long before litigation was on horizon, just as a general practice of his, that he did not save texts that he either sent or received.” (Id. at 3851.) This notwithstanding, Schnatter stated that he did not “believe that there's any material or relevant texts that are missing[,] [b]ecause after July 21st, 2018, again, litigation had begun almost immediately, and anything particularly that would be on a text would be more than likely work product, and it's more than likely available from other sources.” (Id. at 3852.) Schnatter asserted that he had “been very transparent in telling the other side as to exactly what was imaged, when it was imaged, what devices were imaged and, you know, have been searched and produced.” (Id.) Defendants then countered:
So first, with respect to what [Schnatter] said about the dates that are relevant to the litigation, we disagree. One of the claims at issue in this case is the claim for tortious interference with contract.
There have been two contracts that have been identified that the defendants are accused of interfering with. One of which is a licensing agreement between the plaintiff and Papa John's. That licensing agreement was terminated in September of 2019. And it is our understanding that both the Delaware litigation as well as things that happened after the Delaware litigation relate to those issues.
Now, one of the concerns here is that plaintiff has identified that there are two phone numbers that Mr. Schnatter used. One ending in 712, and the other ending in 835. What we've been told is that the 712 number was imaged on July 21, 2018, but it was then continued to be used until January 9, 2019.
We asked about why that phone hasn't been imaged for that six-month time period, a six-month time period that is fairly significant in terms of the things that were happening with Papa John's related to the licensing agreement, and we haven't received an answer to that.
And we were not aware until moments ago that Mr. Schnatter had a practice to not save text messages and to delete them. It raises the concern for me that ... a hold notice was not issued, that Mr. Schnatter did not stop this practice of deleting text messages, and for that six-month time period that is highly relevant, we haven't received any information, and that it's been lost.
...
[W]e are also aware that Mr. Schnatter used, quote, burner phones. We've received no information about whether there were any attempts to retrieve those phones, to image those phones, and were told what happened to those phones.
And so hearing that there is a practice, when someone was knowingly engaged in litigation, of regularly deleting e-mails and not receiving confirmation that there was a hold in place, and he ceased that practice, it raises the precise issues that you would have for spoliation. Which, you know, if that is the case, then we would be looking to file a motion and seeking inferences to that effect.
(Id. at 3853–55.)
Based on the discussion, the undersigned instructed the Parties to continue conferring about Defendants' concerns and set an additional telephonic status conference for the Parties to report their progress. (Id at 3859; DN 124.) During the follow-up telephonic status conference on August 17, 2021, the Parties reported that they had not resolved the issue. (DN 125, at PageID # 1519.) Defendants requested that they be permitted to serve a set of special interrogatories concerning the existence and preservation of his electronic communications, and the undersigned agreed. (Id.) Defendants then served a set of eleven special interrogatories, and on September 14, 2021, Schnatter served his answers. (DN 151-1, at PageID # 2495–2506.)
In his answers, Schnatter disclosed that since January 1, 2017, he has owned eleven cellphones, six used by him, three used by Hadley, and two used by Thompson. (Id. at 2496, 2502.) The first cellphone (“Cellphone A”) was Schnatter's primary cellphone between January 2017 and February 2018, and he discarded it around March 2018. (Id. at 2502.) Cellphone A was never imaged. The second cellphone (“Cellphone B”) was his primary cellphone between February 2018 and January 2019. (Id.) Cellphone B was imaged in anticipation of the Delaware action on July 21, 2018, and Schnatter discarded it around February 2020. (Id. at 2497, 2502.) The third cellphone (“Cellphone C”) was his primary cellphone between October 2018 and January 2019. (Id. at 2502.) Cellphone C was imaged on August 11, 2020 at the outset of discovery in this case, and Schnatter discarded it around February 2021. (Id. at 2497, 2502.) The fourth cellphone (“Cellphone D”) has been his primary cellphone since December 2020, and it remains in his possession. (Id. at 2502.) Cellphone D has not been imaged. The fifth and sixth cellphones (“Backup Cellphones”) were secondary cellphones that Schnatter used in combination between December 2019 and June 2020. (Id.) (See DN 169-1, at PageID # 2830.) The Backup Cellphones were never imaged, and Schnatter discarded them respectively in August and December 2020. (DN 151-1, at PageID # 2502.)
*6 Responding to a request to identify all steps taken to preserve ESI stored on relevant devices, Schnatter cited the 2018 and 2020 imaging of devices used by Schnatter, Hadley, and Thompson. (Id. at 2497.) Additionally, Schnatter disclosed that Hadley's and Thompson's computers are “backed up” by an external server and that they both use “iCloud backup” for their cellphones. (Id. at 2497–98.) Schnatter claims that no documents or communications from these storage systems “relating to any Papa John's or Laundry Service matter have been deleted.” (Id. at 2498.) Asked to identify any ESI that was destroyed, Schnatter responded that he was not aware that any ESI was destroyed except that several of his cellphones were discarded and that the text messages on his cellphones “were deleted as soon as sent/received as has been his practice with regard to all texts for several years.” (Id.) Despite this, Schantter stated that he “does not believe that any non-privileged texts relating to the subject matter of his claims or Defendants' defenses in this action were deleted.” (Id. at 2498.) Schnatter was unable to provide the location or parties in possession of any of the deleted ESI “except that the senders/recipients of any texts to Plaintiff may be in possession, custody or control of such documents.” (Id. at 2499.) In response to a request to identify all previously produced ESI from his and his agents' devices, Schnatter listed about 100 documents or communications that were collected from any of the eleven cellphones used by him Hadley and Thompson. (Id. at 2499, 2504–06.)
During a subsequent telephonic status conference on September 20, 2021, Defendants reported that, in light of Schnatter's responses to the special interrogatories, they intended to move for spoliation sanctions, and the undersigned granted leave for Defendants to proceed to motion practice. (DN 137, at PageID # 2371.)
II. CONCLUSIONS OF LAW
Rule 37(e) of the Federal Rules of Civil Procedure provides limited authority for district courts to impose sanctions “[i]f [ESI] 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.” Fed. R. Civ. P. 37(e). The rule authorizes sanctions under two different circumstances. First, if a court finds that a party's failure to preserve the ESI prejudices another party, the court “may order measures no greater than necessary to cure the prejudice.” Fed. R. Civ. P. 37(e)(1). Second, if a court finds that in failing to preserve the ESI, “the party acted with the intent to deprive another party of the information's use in the litigation,” the court can presume that the information was unfavorable, instruct the jury to presume that the information was unfavorable, or enter an order dismissing the case or of default judgment. Fed. R. Civ. P. 37(e)(2). In either case, the imposition of sanctions is discretionary. Fed. R. Civ. P. 37(e)(1)–(2).
A. Threshold Showing Under Rule 37(e)
1. Duty to Preserve
In assessing individual allegations of spoliation, “a court may need to decide whether and when a duty to preserve arose.” Fed. R. Civ. P. 37(e) advisory committee's note to the 2015 amendment. “As a general matter, it is beyond question that a party to civil litigation has a duty to preserve relevant information, including ESI, when that party ‘has notice that the evidence is relevant to litigation or ... should have known that the evidence may be relevant to future litigation.’ ” John B. v. Goetz, 531 F.3d 448, 459 (6th Cir. 2008) (quoting Fujitsu Ltd. v. Fed. Express Corp., 247 F.3d 423, 436 (2d Cir. 2001).
i. Notice of Potential Litigation
The date on which Schnatter's duty to preserve was triggered is not an apparent point of contention between the Parties. Schnatter appears to concede that his preservation duty commenced no later than July 2018. (See DN 169, at PageID # 2806–07) (discussing his preservation efforts throughout that month). Defendants assert more specifically that his duty arose no later than July 25, 2018, the date Bayard sent Schnatter, Hadley, and Thompson the Litigation Hold Notice. (DN 171, at PageID # 2850.) At a different point, Defendants refer to Cellphone A, which Schnatter discarded in February 2018, and state that it “is unclear as to whether Schnatter was under an obligation to preserve that device at that time.” (Id. at 2851 n.1.)
After carefully reviewing the record, the undersigned finds that Schnatter's preservation duty arose no later than July 11, 2018 and continues to present day. This was both the publication date of the Forbes article and the day that Schnatter resigned as Chairman of Papa John's, a position he expected to hold for the remainder of his life. (See DN 187-1, at PageID # 3405.) In his second amended complaint, Schnatter claims that he was alerted to Defendants' involvement in the Forbes article by Papa John's general counsel the day before it was published. (DN 111, at PageID # 1301.) In an undated declaration filed with his response to the instant motion, Schnatter says that “[w]ithin days of the July 11, 2018 Forbes Article and the other events of that week, [he] retained legal counsel, Glaser Weil, LLP to represent [his] interests in connection with [his] separation from Papa John's and related matters.” (DN 169-1, at PageID # 2828.) Schnatter has previously represented to the Court that he retained Glaser Weil “to determine the proper litigation means for redressing Defendants' wrongdoing and the creation of the false impression that he was a racist.” (DN 98, at PageID # 883.) Given these facts, it is reasonable to conclude that Schnatter was aware of the potential for litigation by July 11, 2018. Between then and the date this suit was filed in December 2020, Schnatter was continuously named in at least three other actions arising from the publication of the Forbes article and its aftermath. See Schnatter v. Papa John's Int'l, Inc., No. 2018-0542-AGB, 2019 WL 194634 (Del. Ch. filed July 26, 2018); Schnatter v. Papa John's Int'l, Inc., No. 2018-0646-AGB (Del. Ch. filed Aug. 30, 2018); Danker v. Papa John's Int'l, Inc., 1:18-cv-7927-KMW (S.D.N.Y. filed Aug. 30, 2018). The record indicates that Schnatter planned on bringing claims against Defendants throughout that period.
ii. Notice of Potential Relevance
*7 Once the preservation duty was triggered, Schnatter was obligated to preserve evidence related to future litigation. See Beaven v. U.S. Dep't of Justice, 622 F.3d 540, 553 (6th Cir. 2010). “While a litigant is under no duty to keep or retain every document in its possession ... it is under a duty to preserve what it knows, or reasonably should know, is relevant in the action, is reasonably calculated to lead to the discovery of admissible evidence, is reasonably likely to be requested during discovery and/or is the subject of a pending discovery request.” Kemper Mortg., Inc. v. Russell, No. 3:06-CV-042-TMR-MRM, 2006 WL 2319858, at *2 (S.D. Ohio Apr. 18, 2006) (quoting William T. Thompson Co. v. Gen. Nutrition Corp., 593 F. Supp. 1443, 1445 (C.D. Cal. 1984)).
In their arguments about the scope of Schnatter's duty to preserve, the Parties focus on whether there is a sufficient showing that any lost ESI was legally relevant. (DN 169, at PageID # 2814–17; DN 171, at PageID # 2850–55.) For example, Schnatter argues that “Defendants must demonstrate that there is the existence of discoverable documents that were relevant to the claims and defended in this action and therefore should have been preserved ... [and] Defendants have not met this burden.” (DN 169, at PageID # 2816.) In response, Defendants argue that they have made a sufficient showing of the existence of relevant communications that were destroyed. (DN 171, at PageID # 2851–55.) In light of these arguments, the undersigned clarifies the standard for assessing the scope of a party's preservation duty.
Before the 2015 amendment to Rule 37, the Sixth Circuit standard for spoliation sanctions required:
(1) that the party having control over the evidence had an obligation to preserve it at the time it was destroyed; (2) that the records were destroyed “with a culpable state of mind;” and (3) that the destroyed evidence was “relevant” to the party's claim or defense such that a reasonable trier of fact could find that it would support that claim or defense.
Beaven, 622 F.3d at 553 (quoting Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 107 (2d Cir. 2002)). Under Beaven, the existence of a duty to preserve and a showing of relevance are separate requirements for spoliation sanctions. The relevance element focuses on the substance of the lost evidence, whereas the duty element focuses on notice to the party who possesses the evidence and “is met where a defendant knows evidence might be relevant to future potential litigation.” Johnson v. Metro. Gov't of Nashville & Davidson Cty., 502 F. App'x 523, 532 (6th Cir. 2012) (citing Beaven, 622 F.3d at 553) (emphasis added). The 2015 amendment to Rule 37(e), leaves the duty analysis under Beaven intact. See Fed. R. Civ. P. 37(e) advisory committee's note to the 2015 amendment (noting that the Rule is based on the common-law duty and “does not attempt to create a new duty to preserve” and commenting that finding a duty “should consider the extent to which a party was on notice that litigation was likely and that the information would be relevant”). Accordingly, the undersigned will limit the analysis in this section to Schnatter's notice that the ESI was potentially relevant. To the extent that the Parties contest whether evidence that is relevant to issues in dispute existed and was destroyed, the undersigned will consider their arguments in evaluating prejudice under Rule 37(e)(1). See Yoe v. Crescent Sock Co., No. 1:15-CV-3-SKL, 2017 WL 5479932, at *11 (E.D. Tenn. Nov. 14, 2017) (“The prejudice prong of the spoliation analysis relates to the issue of the relevance of the l[o]st data.”).
*8 The undersigned finds that Schnatter was on notice that his cellphones were sources of potentially relevant ESI that he was obligated to preserve beginning in July 2018. The July 25, 2018 Litigation Hold Notice outlined the scope of ESI that he was expected to preserve. Schnatter was advised that “[p]otentially relevant information must not be altered, modified, destroyed, or deleted.” (DN 153-1, at PageID # 2660.) He was instructed that “[a]utomatic destruction processes that implicate potentially relevant information must be suspended.” (Id.) The Notice listed examples of the types of data that must be preserved, including, “text messages (from both cell phones or tablets regardless of whether they are personal or business-issued).” (Id.) Schnatter was instructed that if he has “questions regarding whether a specific document or piece of information is potentially relevant, please retain it.” (Id.) He was instructed to notify counsel if “potentially relevant ESI [ ] may be deleted because of automatic destruction practices” or if “[a] computer, tablet, or cell phone requires service or needs to be replaced.” (Id. at 2662.) Schnatter does not contest that “the plain meaning of the[ ] letter[ ] should be clear to most lay persons; there is no ambiguity.” Konica Minolta Bus. Sols., U.S.A. Inc v. Lowery Corp., No. 15-CV-11254-VAR, 2016 WL 4537847, at *4 (E.D. Mich. Aug. 31, 2016). In the declaration filed with his response to the instant motion, Schnatter acknowledges that he received the letter and suggests that he understood that preservation obligations set forth in the letter continued to apply throughout the litigation in this case. (DN 169-1, at PageID # 2829–30.) These facts alone are sufficient to establish a duty to preserve the ESI stored on his cellphones. Best Value Auto Parts Distribs., Inc. v. Quality Collision Parts, Inc., No. 19-12291, 2021 WL 2201170, at *2 (E.D. Mich. May 31, 2021) (finding that the defendant had a duty to preserve cellphone because he “was sent an evidence preservation letter on April 23, 2019, so as of that date he was on notice of his duty to preserve the information”); Culhane v. Wal-Mart Supercenter, 364 F. Supp. 3d 768, 773 (E.D. Mich. 2019) (finding that a company's accident investigation policy that set forth fact gathering methods and claims form instructing employees to “preserve any and all information and evidence related to the incident” together provided sufficient notice to trigger a duty to preserve); HLV, LLC v. Page & Stewart, No. 1:13-CV-1366-PLM, 2018 WL 2197730, at *3 (W.D. Mich. Mar. 2, 2018) (“The first prong is easily satisfied–Page was notified by virtue of the litigation hold letter that he had a duty to maintain all ESI, including a specific declaration that he was obligated to preserve his cell phone.”); Konica, 2016 WL 4537847, at *4 (finding that the defendants “were all either on notice or should have been on notice of this duty [because] [t]he day after this case was filed, [the plaintiff] sent each Defendant a letter that both generally and specifically asked them to preserve ESI”).
The only text message deleted from Schnatter's cellphones that was recovered and produced demonstrates that he also had more practical notice that his text messages might be relevant to future litigation. The exchange is purportedly between Schnatter and UofL president Neeli Bendapudi (“Bendapudi”) and is captured through a series of screenshot images and a photograph of a cellphone screen that is partially obscured by an individual's hand. (DN 151-1, at PageID # 2609–14.) In the conversation, Bendapudi writes:
I had media interviews scheduled a long time ago for today. I would like to let them know that you proposed we drop your name from the business school center because you did it for the students and you don't want it to be a distraction. I really appreciate the gesture.
I have also been thinking a lot about the stadium and have an idea for you that will be good for all. Let me know if we can talk this evening.
Be strong.
(Id. at 2611–12.) Later in the exchange, Bendapudi writes, “John, Would you call me and David ASAP. Either cell number is fine.” (Id. at 2613.) Bendapudi follows this with another message, saying “John, We have decided to announce at 1 pm today that we are changing the name of Papa John's stadium to Cardinal Stadium. Just wanted to give you a heads-up. David and I are trying to reach you.” (Id.) This exchange bears directly on the cause of UofL's decision to terminate the naming rights agreement, which is the basis for Schnatter's claim for approximately $20 million in damages. (DN 187-1, at PageID # 3407.) Given that he used his cellphone for such critical communications during the aftermath of the Forbes article, it was reasonably foreseeable that his cellphone would be subjected to discovery requests.
Notwithstanding the foregoing, Schnatter denies that he had a duty to preserve any allegedly spoliated ESI. (DN 169, at PageID # 2814, 2817.) Schnatter states in his declaration that he “primarily communicates orally and not in writing.” (Id. at 2808.) He says this is because he is “not a good typist and therefore avoid[s] using email or text whenever possible.” (DN 161-1, at PageID # 2829.) Schnatter claims that he rarely communicates via text message for business purposes and that he has not exchanged any communications with any third parties about the termination of his naming rights agreement with UofL or his Licensing Agreement with Papa John's since July 2018. (Id. at 2829–30.) Schnatter also claims that that beginning in July 2018, any communications about matters related to this case were managed by counsel, Thompson, and Hadley, whose ESI has been preserved. (Id.) Thompson also provided a declaration in support of Schnatter's response to the instant motion in which he states that since July 2018, he communicated with Papa John's and UofL on Schnatter's behalf and apprised Schnatter of these communications orally. (DN 169-2, at PageID # 2834–35.) Based on these facts, Schnatter argues that all “information that [he] knew or should have known would be relevant was properly preserved in late July 2018.” (Id. at 2818.) Schnatter's argument is unpersuasive for the following reasons.
*9 First, it would be unreasonable for Schnatter to have believed that his cellphones were exempt from discovery merely because they are not the primary means for his business communications. Even taking Schnatter at his word regarding his limited use of his personal cellphones for business purposes, by his own admission, Schnatter used text messaging for business at least on a limited basis. (DN 169-1, at PageID # 2829.) “Those records–even if they were sparse, given [Schnatter]'s testimony as to how he used his phone–should have been preserved and provided to the [Defendant]s.” HLV, 2018 WL 2197730, at *4. Moreover, the Litigation Hold Notice did not limit potentially relevant ESI to communications for business purposes or communications with Papa John's or UofL. Rather, it uses all-encompassing language in advising that:
Potentially relevant documents can be, but are not limited to, hard copy documents, electronic documents, emails (including any personal or business email accounts), attachments, text messages (from both cell phones or tablets regardless of whether they are personal or business-issued), documents stored on cloud-based services such as Dropbox, notes, spreadsheets, or calendars that contain any information relating in any way to the events or allegations described in the Potential Actions.
(DN 153-1, at PageID # 2660) (emphasis added).
As Schnatter is the plaintiff in this case and a key witness, his personal cellphones were well within the normal scope of discovery. See Paisley Park Enterprises, Inc. v. Boxill, 330 F.R.D. 226, 233 (D. Minn. 2019); In re Ethicon, Inc. Pelvic Repair Sys. Prod. Liab. Litig., 299 F.R.D. 502, 518 (S.D.W. Va. 2014); Apple Inc. v. Samsung Elecs. Co., 888 F. Supp. 2d 976, 993 (N.D. Cal. 2012). In Paisley, the court addressed a spoliation motion based on the summary deletion of text messages stored on the personal cellphones of the two principals of an LLC defendant. 330 F.R.D. 232. The court found with “no doubt” that their status in the case made them likely to have relevant information. Id. at 233. The principals argued that they could not have reasonably known that their text messages should have been preserved because they were stored on personal, non-company devices. Id. at 234. The court rejected their argument, finding:
In the contemporary world of communications, even leaving out the potential and reality of finding the modern-day litigation equivalent of a “smoking gun” in text messages, e-mails, and possibly other social media, the Court is baffled as to how Defendants can reasonably claim to believe that their text messages would be immune from discovery.
...
The Court will not permit the [ ] Defendants to claim that it was reasonable to assume data on their personal cell phones would not be subject to discovery when the record clearly shows that they used their phones for work purposes.
Id. at 234–35.
Likewise, the undersigned is not persuaded that Schnatter's purportedly Luddite cellphone habits negate the clear notice that his cellphones were sources of potentially relevant ESI.
Second, Schnatter should have known that his preservation obligations were not fully satisfied once Cellphone B was imaged in July 2018; he had more than enough notice that ESI generated after that date would be subject to discovery requests. The undersigned notes that the Litigation Hold Notice is dated four days after Cellphone B was imaged. In the Notice, Schnatter's counsel advised him that he has “an independent and continuing obligation to preserve all such documents or information, including those created or received after the delivery of this letter.” (DN 153-1, at PageID # 2662) (emphasis added). The obligation to preserve ESI generated after July 2018 has only become more obvious since the start of discovery in this case. In August 2020, at the direction of counsel, Schnatter submitted Cellphone C for imaging, although he did not begin using Cellphone C until months after the publication of the Forbes article and its immediate aftermath. (See DN 169-1, at PageID # 2830.) Defendants' also repeatedly requested that Schnatter produce specific categories of documents and communications that would have been generated after the 2018 imaging.[6] Additionally, each set of requests for production provided that, “[u]nless otherwise indicated, the relevant time period for each Request shall be January 1, 2017 to the present” and clarified that the “[r]equests are continuing in nature.” (DN 151-1, at PageID # 2513, 2525, 2536.) Under the circumstances, a reasonable litigant would have known that ESI generated after July 2018 was potentially relevant.
2. Lost ESI
*10 It is undisputed that ESI stored on Schnatter's cellphones was lost. After a careful review of the record, the undersigned finds that all potentially relevant text messages sent or received since Schnatter's preservation duty was triggered in July 2018 were lost. This is consistent with Schnatter's answers to Defendants' special interrogatories as well as his “routine practice to immediately delete any text messages that [he] send[s] or receive[s].” (DN 169-1, at PageID # 2830.) (See DN 151-1, at PageID # 2498–99.) Schnatter does not deny that the text messages were lost, except in asserting that the text exchange between him and Bendapudi in the days before UofL announced it would change the name of its stadium was produced to Defendants. (DN 169, at PageID # 2810.) Schnatter certainly produced a version of the text message exchange, but a series of still images of text messages pales in comparison to the ESI in its original form. In equating the two, Schnatter ignores the fact that the images of the exchange do not reveal the dates when messages were sent and received, the telephone numbers of the parties, or any other pertinent metadata. Defendants requests make clear that they sought to discover this data in specifying that “ESI should be produced either in native format in which it is maintained by you or in and electronic format that preserves intact the searchability of information that is searchable in its native format.” (DN 153-1, at PageID # 1513.) See Fed. R. Civ. P. 34 advisory committee note to the 2006 amendments (“[T]he option to produce in a reasonably usable form does not mean that a responding party is free to convert electronically stored information from the form in which it is ordinarily maintained to a different form that makes it more difficult or burdensome for the requesting party to use the information efficiently in the litigation.”). Schnatter does not deny that he deleted this exchange along with its surrounding metadata and discarded the device on which it was stored. Thus, although a version was recovered, the underlying communication, along with all other text messages covered by his preservation duty, was lost.
The undersigned further finds that other potentially relevant ESI stored on Schnatter's cellphones was lost. These devices stored “not just texts, but any other electronic record on the phone like draft texts or emails, call logs, and calendar entries.” HLV, 2018 WL 2197730, at *4. Thus, lost ESI includes such records from Cellphone B that were generated after it was imaged in July 2018 until it was discarded in February 2020 and those from Cellphone C that were generated after it was imaged in August 2020 until it was discarded in February 2021. It also includes all such records from the Backup Cellphones, which were never imaged before they were discarded.
Defendants suggests that additional potentially relevant ESI generated before Cellphone B was imaged was lost. Specifically, Defendants reference an electronic invitation to the May 22, 2018 conference call which “upon information and belief [it] clearly laid out the purpose of the call and the topics to be discussed.” (DN 171, at PageID # 2860.) If it did exist, one would presume that it was stored on Cellphone B, Schnatter's primary cellphone during the months preceding the conference call. Schnatter claims that he “is not aware of the removal, loss, deletion or destruction of any specific material from” Cellphone B, other than text messages and that all data from the 2018 imaging remains available for inspection. (DN 151-1, at PageID # 2498; DN 169, at PageID # 2807.) Defendants have not provided any testimonial or documentary evidence that the invitation was in fact stored on Schnatter's cellphone nor do they cite any specific unanswered request for ESI related to the invitation. In his response to the instant motion, Schnatter did not address Defendants allegation that such ESI was lost. Therefore, the undersigned is unable to determine whether ESI related to such invitation existed on Schnatter's cellphone and was lost and does not rely on the loss of any ESI other than what is set forth above in considering the alleged spoliation.
3. Reasonable Steps to Preserve
“Due to the ever-increasing volume of electronically stored information and the multitude of devices that generate such information, perfection in preserving all relevant electronically stored information is often impossible.” Fed. R. Civ. P. 37(e) advisory committee's note to the 2015 amendment. In determining the preservation efforts that a party can reasonably be expected to undertake, courts should consider the party's resources, sophistication and experience in litigation, and the proportionality of ESI requests. Id.
Here, ESI was lost because Schnatter failed to take reasonable steps to preserve it. Schnatter not only took no steps to preserve his text messages, he deliberately deleted every text message he sent and received since his preservation duty was triggered. The only reason Schnatter provides for this conduct is that it was his routine practice since 2014 due to privacy concerns “[a]s CEO of Papa John's and its primary spokesperson for several decades.” (DN 169-1, at PageID # 2829.) “Privacy concerns do not, however, override the [ ] initial burden to preserve potentially relevant evidence.” Benefield v. MStreet Entm't., LLC, No. 3:13-CV-1000, 2016 WL 374568, at *6 (M.D. Tenn. Feb. 1, 2016) (noting that “there are many mechanisms that could have been employed during discovery to mitigate the production of private material, including protective orders, confidentiality agreements, privilege logs, and agreements between the parties to limit discovery requests to substantially relevant material only”). Regardless of the reason for his routine practice before he anticipated potential litigation, such practices must be suspended once the duty to preserve is triggered. Crown Battery Mfg. Co. v. Club Car, Inc., 185 F. Supp. 3d 987, 999 (N.D. Ohio 2016) (“Once the duty to preserve attaches, a party must suspend its routine document retention/destruction policy and put in place a litigation hold to ensure the preservation of relevant documents.”) (quoting Owner-Operator Indep. Drivers Ass'n v. Comerica Bank, 860 F. Supp. 2d 519, 538 (S.D. Ohio 2012), aff'd in part, vacated in part, 562 F. App'x 312 (6th Cir. 2014)). Schnatter also failed to take reasonable steps to preserve the additional potentially relevant ESI stored on Cellphones B and C and the Backup Cellphones. Instead, he deliberately discarded these devices, precluding the preservation of any ESI that had not been transferred to another storage medium. Schnatter's only explanation for discarding his cellphones is that “he was done with them.” (DN 151-1, at PageID # 2499.) Schnatter could have maintained possession and control of the cellphones at no cost. His decision not to was particularly unreasonable given that Cellphones B and C had been identified by his counsel as sources of potentially relevant ESI. Schnatter also could have transferred all ESI stored on the cellphones to another storage medium with very little cost or inconvenience, and he was aware of this option as of July 2018 when Cellphone B was imaged. In other words, that Schnatter “could have, but did not take steps to preserve the data on the [cellphones] has not been seriously disputed and [his] failure to maintain control of that data is seemingly indefensible.” Yoe, 2017 WL 5479932, at *10. See HLV, 2018 WL 2197730, at *2 (it was unreasonable to dispose of cellphone after receiving litigation hold letter); Best Value, 2021 WL 2201170, at *2 (defendant maintained possession of cellphone after it was replaced but could not access ESI because he forgot the password; the court found that defendant should have transferred ESI to another storage medium or, at minimum, written down the password).
*11 Despite his failure to take the simple and inexpensive preservation measures outlined above, Schnatter claims that he “undertook all reasonable steps to preserve relevant ESI” because he imaged Cellphone B, the cellphone that he used at the time that the Forbes article was published. (DN 169, at PageID # 2817–18) (emphasis removed). As was discussed supra in section II.A.1.ii Schnatter was on notice of his obligation to preserve ESI generated after the July 2018 imaging and was provided procedures for its preservation including that “[a]utomatic destruction processes that implicate potentially relevant information must be suspended” and that he must notify counsel when a “cell phone requires service or needs to be replaced.” (DN 153-1, at PageID # 2660, 2662.) If Schnatter believed the obligations set forth in the Litigation Hold Notice were disproportionate, he should have raised this issue with his counsel or Defendants “in order to enable meaningful discussion of the appropriate preservation regime.” Fed. R. Civ. P. 37(e) advisory committee's note to the 2015 amendment. However, regardless of whether or not he agreed with the scope of potentially relevant information outlined in the Notice, he cannot credibly claim that ignoring the protocols put in place on advice of his attorneys was reasonable. See Ala. Aircraft Indus., Inc. v. Boeing Co., 319 F.R.D. 730, 746 (N.D. Ala. 2017), aff'd, No. 20-11141, 2022 WL 433457 (11th Cir. Feb. 14, 2022); Konica, 2016 WL 4537847, at *4 (noting that “any decision to disregard the preservation letters because of their perceived invalidity would have been a calculated risk with predictable consequences”).
Schnatter also emphasizes the efforts taken to preserve ESI stored on Hadley and Thompson's devices. (DN 169, at PageID # 2806–08, 2816–17.) The fact that reasonable steps were taken to preserve the ESI stored on Thompson and Hadley's devices does not relieve Schnatter of his obligation to take reasonable steps to preserve ESI in his possession and control. Paisley, 330 F.R.D. at 235 (“Defendants do not get to select what evidence they want to produce, or from what sources. They must produce all responsive documents or seek relief from the court.”). If anything, in the undersigned's view, the fact that Hadley and Thompson—who are not parties to this action—took these steps underscores the reasonableness for Schnatter to at minimum do the same.
4. Replaceability
Even when ESI that should have been preserved is lost due to a litigant's failure to take reasonable preservation steps, no measures should be taken against the litigant if the information can be recovered through additional discovery. Fed. R. Civ. P. 37(e) advisory committee's note to the 2015 amendment. Schnatter argues that this is the case here because “any relevant information, to the extent it exists, is available from other sources.” (DN 169, at PageID # 2820.) Schnatter asserts that at the time of he filed his brief, Defendants hadn't deposed Schnatter, Thompson, or representatives for Papa John's or UofL. (Id.) Schnatter further asserts that Defendants have not sought discovery from Schnatter's cellular service provider or from any third party which whom he may have communicated. (Id.) For these reasons, Schnatter argues that Defendants cannot establish that they are unable to obtain the lost ESI from other sources. (Id.) Defendants respond that “Schnatter does not—and cannot identify an alternative source of information that could provide Defendants with access to the unique ESI that was lost when Schnatter disposed of each of the devices.” (DN 171, at PageID # 2856.) Defendants point to various data that were stored exclusively on the cellphones that were destroyed, such as calendar entries, images, and voicemails. (Id.) Defendants also dispute Schnatter's proposed avenues to recover his text messages. (Id. at 2856–57.) They note that they have already received document production from Thompson and Papa Johns's and neither has produced communications exchanged with Schnatter after July 2018. (Id.) Defendants also assert that the Papa John's production “suggests that Schnatter sent and received text messages from Papa John's executives about matters directly at issue in this litigation,” (Id. at 2857), but they don't explain how the production suggests that such communications took place. Defendants assert that they are not likely to recover Schnatter's communications from third parties both because they have no way of identifying those individuals and because “it would be unreasonable to expect any individual or organization to have retained its text message communications with Schnatter over the last four years.” (Id.)
*12 It has been nine months since Defendants raised their concern that ESI stored on Schnatter's devices may have been lost or destroyed in June 2021, and in that time, Schnatter appears to have made no effort to restore or replace the lost ESI. Instead, he has been evasive about the existence and scope of lost ESI. He failed to disclose his practice of routinely deleting all of his text messages—a practice he engaged during the period that gave rise to his claims and continued throughout the instant dispute—until the issue was brought before the Court in the August 12, 2021 telephonic status conference. At that time, Schnatter had not disclosed that he discarded Cellphone B, nor did he disclose the existence of three additional cellphones, which had also been discarded by that time. Defendants did not learn this information until September 2021, when Schnatter served his response to the special interrogatories. Schnatter now insists that Defendants will be able to recover three-and-a-half years of deleted text messages and the other potentially relevant ESI that was stored on Cellphones B and C and the Backup Cellphones from the period between July 2018 and January 2021. However, Schnatter's proposed additional discovery is not sufficient to enable them to do so. First, there is no reason why Schnatter will be more forthcoming about the lost ESI during his deposition than he was in his responses to the special interrogatories. Similarly, Schnatter's suggestion that Defendants can recover the lost communications through third party discovery is inconsistent with his response to the special interrogatory requesting the identity of any third party in possession of the communications. Schnatter stated that he is not aware of such persons “except that the senders/recipients of any texts to Plaintiff may be in possession, custody or control of such documents.” (DN 151-1, at PageID # 2499.) Given that Schnatter himself was unable to identify any specific sender or recipient, it is disingenuous for him to insist that Defendants can recover all of the lost text messages from such sources. Similarly, Schnatter's suggestion that the text messages can be recovered through serving a subpoena on his cellular service provider ignores the fact that Schnatter was unable to identify any provider with possession of lost text messages or give any indication that any provider maintains this data. Moreover, even if third parties are in possession of some lost ESI, the fact that Defendants “may be able to obtain some scattershot texts and emails from third parties cannot compensate for its inability to obtain a complete record of [Schnatter]'s written communications from [Schnatter] [himself].” First Fin. Sec., Inc. v. Lee, No. 14-CV-1843-PJS-SER, 2016 WL 881003, at *5 (D. Minn. Mar. 8, 2016). See Paisley, 330 F.R.D. at 236.
“Remediation under Rule 37 cannot be an endless undertaking.” J.S.T. Corp. v. Robert Bosch LLC, No. 15-13842, 2019 WL 2324488, at *9 (E.D. Mich. May 30, 2019), report and recommendation adopted, No. 15-13842, 2019 WL 2296913 (E.D. Mich. May 30, 2019). Defendants should not be required to expend unlimited resources turning over every stone that Schnatter points to, especially when Schnatter has been unwilling to put forth any meaningful effort to recover any lost ESI. In sum, the undersigned finds that Defendants have made a sufficient showing that the lost ESI cannot be restored or replaced through additional discovery. Therefore, the threshold showing required by Rule 37(e) is established, and the undersigned may consider whether sanctions are appropriate under subsection (e)(1) or subsection (e)(2).
B. Intent to Deprive and Sanctions Under Subdivision (e)(2)
The more severe sanctions provided under subdivision (e)(2) of Rule 37 are only appropriate if spoliation was committed with an “intent to deprive another party of the information's use in the litigation.” Fed. R. Civ. P. 37(e)(2). “Rule 37(e)(2)'s intent standard is stringent and does not parallel other discovery standards.” Culhane, 364 F. Supp. 3d at 773 (quoting Moody v. CSX Transp., Inc., 271 F. Supp. 3d 410, 431 (W.D.N.Y. 2017)) (internal quotation marks omitted). To establish an intent to deprive, “[a] showing of negligence or even gross negligence will not do the trick.” Applebaum v. Target Corp., 831 F.3d 740, 745 (6th Cir. 2016) (citing Fed. R. Civ. P. 37 advisory committee note). In assessing culpability for spoliation, “the ‘veracity of [a parties’] stated reasons for destroying the [evidence] “is an issue of credibility.” ’ ” Beaven, 622 F.3d at 554 (quoting Kronisch v. United States, 150 F.3d 112, 127 (2d Cir. 1998)).
Schnatter asserts that he did not intend to deprive Defendants access to evidence in routinely deleting his text messages and maintains that he was merely continuing his practice as of 2014 in good faith. (DN 169, at PageID # 2822.) Schnatter argues that such continuation of a routine practice is not sufficient to establish intent to deprive under Rule 37(e)(2) and that courts instead require a heightened showing of culpability, for example, that a party destroyed evidence after the court issued an order mandating that it be preserved. (Id. at 2822–24) (collecting cases). Finally, Schnatter reiterates that he does not believe that he destroyed any discoverable information. (Id. at 2824–25.) Defendants argue that an intent to deprive can be inferred from the clear notice of his preservation obligations through the Litigation Hold Notice and his subsequent conduct through the course of litigation. (DN 171, at PageID # 2859–60.) Defendants note that although the letter instructed Schnatter to cease routine document destruction, Schnatter continued to delete all of his text messages since that time. (Id. at 2859.) Defendants argue that his preexisting practice is a less convincing excuse given that “the deletion of the messages was a user-initiated process that required him personally to manually and actively delete the message.” (Id. at 2860.) Defendants also note that Schnatter discarded four cellphones after he received the Litigation Hold Notice and while this case was pending. (Id. at 2859.) Defendants emphasize that Schnatter did not disclose that he used a total of six cellphones since 2017 nor that he discarded four of those cellphones until he served his responses to the special interrogatories in September 2021. (Id.) Defendants argue that “[t]he most plausible explanation for such behavior is that it was designed to deprive Defendants of access to the information contained on the phones.” (Id. at 2860.) Finally, Defendants argue that Schnatter's statements about the lost ESI “should not be considered credible.” (Id. at 2854.) Defendants believe Schnatter's claim to have no direct communications regarding the UofL naming agreement is contradicted by the produced text exchange between Schnatter and Bendapudi. (Id.) Defendants further argue that Schantter's assurances that communications regarding his licensing agreement with Papa John's and naming agreement with UofL were managed by his agents “does not rule out that Mr. Thompson and others communicated directly with Schnatter.” (Id.) Defendants assert that, in fact, “the evidence produced shows that Mr. Thompson and Ms. Hadley communicated with Mr. Schnatter by text message about issues directly related to this litigation.” (Id.) For these reasons, Defendants argue that Schnatter should be viewed as “an unreliable narrator.” (Id.)
*13 The undersigned grants that Schnatter's conduct is concerning. He was aware of the potential litigation since July 2018 and received a notice from his previous counsel about the scope of his duty to preserve evidence related to potential actions. Schnatter admits that he has been “mindful of the preservation obligation in the letter,” (DN 169-1, at PageID # 2830), yet he ignored the instruction to suspend automatic ESI destruction processes and knowingly and indiscriminately deleted every text message he ever sent or received even after Defendants repeatedly requested them in this litigation. He also discarded four cellphones without first imaging their ESI including two cellphones that had been identified by his counsel as sources of potentially relevant ESI. Notably, Schnatter kept Cellphone B in his possession for over a year after he stopped using it before discarding it one month after the case was removed to this Court. (DN 151-1, at PageID # 2502.) This is particularly troubling given that Cellphone B was his primary cellphone during a crucial period to this litigation. Schnatter did not disclose the scope of his ESI destruction until September 2021, after Defendants raised their spoliation concern with the Court. Schnatter's culpability for this conduct must also be assessed in light of his sophistication. Schnatter was the CEO of a multinational corporation for decades and has extensive past involvement in litigation. Additionally, since July 2018, he has retained several highly sophisticated law firms to advise him on matters related to this case. As the Court has summarized in prior orders, Schnatter has positioned himself as a spokesman for this litigation, dedicating a page on his personal website to developments in the case, authoring news articles, and appearing for media interviews. (DN 155, at PageID # 2710 n.5; DN 161, at PageID # 2776 n.3.) In its November 16, 2021 order, the Court noted that Schnatter had been interviewed for a recent profile in Bloomberg Businessweek, during which he discussed the case and alleges that potentially relevant documents are being destroyed by Papa John's.[7] (DN 161, at PageID # 2776 n.3.) Given this context, it is difficult to conclude that Schnatter's spoliation was anything less than grossly negligent.
On the other hand, even when preservation duty has clearly been trigged, the scope of that duty may be unclear, and “[i]t is important not to be blinded to this reality by hindsight arising from familiarity with an action as it is actually filed.” Fed. R. Civ. P. 37(e) advisory committee's note to 2015 amendment. It is always the case that “[a] party is not required to ‘preserve every shred of paper, every e-mail or electronic document.’ ” Tenpenny v. Prime Now, LLC, No. 3:19-0420, 2020 WL 2062121, at *7 (M.D. Tenn. Apr. 29, 2020), aff'd, No. 3:19-CV-00420, 2020 WL 12894953 (M.D. Tenn. July 16, 2020) (quoting Clark Constr. Grp., Inc. v. City of Memphis, 229 F.R.D. 131, 136 (W.D. Tenn. 2005)). Schnatter has put forth evidence that he routinely deleted all text messages beginning in 2014 and often uses multiple cellphones due to privacy concerns related to his stature as a public figure. Defendants have not refuted these claims, and there is little reason to doubt their credibility; sensitive details about Schnatter's private life have been the subject of public scrutiny for decades. Schnatter's proffered motive is also consistent with the scope of his spoliation. This is not a situation where a party selectively retained favorable evidence and destroyed unfavorable evidence. C.f. Culhane v. Wal-Mart Supercenter, 364 F. Supp. 3d 768, 774 (E.D. Mich. 2019) (concluding that intent to deprive could be inferred when defendant selectively preserved interior security camera footage but failed to preserve exterior footage). The spoliation did not target “the only evidence from which [Defendants] could develop its defenses adequately,” Arch Ins. Co. v. Broan–NuTone, LLC, 509 F. App'x. 453, 458 (6th Cir. 2012) (quoting Silvestri v. Gen. Motors Corp., 271 F.3d 583, 593–94 (4th Cir. 2001)), nor “the single piece of evidence that was essential to determining” Schnatter's case. Byrd v. Alpha All. Ins. Corp., 518 F. App'x. 380, 387 (6th Cir. 2013). To the extent that significant evidence may be among the lost ESI, no evidence has been presented that Schnatter “knew the significance of the missing evidence at the time the evidence was lost.” In re Black Diamond Mining Co., LLC, 514 B.R. 230, 241 (E.D. Ky. 2014). Indeed, he still “dispute[s] that [he] destroyed relevant evidence.” Id. Based on these facts, the undersigned is unable to conclude that Schnatter acted with the specific intent of depriving Defendants of the use of the evidence in litigation.
This does not mean that Schnatter's conduct was harmless. However, without sufficient facts to establish that the heightened intent standard is met, sanctions provided by Rule 37(e)(2) may not be imposed. See Yoe, 2017 WL 5479932, at *14 (even where corporate plaintiff's data was destroyed intentionally, sanctions under subdivision (e)(2) were not warranted where the individual responsible destroyed it due to concerns that the defendant would commence a separate legal action against him personally, and not to deprive the defendant of its use in the current litigation); EPAC Techs., Inc. v. Thomas Nelson, Inc., No. 3:12-CV-00463, 2018 WL 3322305, at *3 (M.D. Tenn. May 14, 2018) (finding that sanctions under subdivision (e)(2) were not warranted even though the responsible party “failed to take its preservation obligations seriously” and made only “halfhearted attempts ... to impose a litigation hold that was not implemented with sufficient guidance or monitored by counsel”). Moreover, even on a finding of an intent to deprive, the severe sanctions provided in subdivision (e)(2) are not mandatory, and courts are encouraged to exercise restraint when lesser measures are available to redress the spoliation. Fed. R. Civ. P. 37(e) advisory committee's note to 2015 amendment. Here, the undersigned finds that remedies authorized under subdivision (e)(1) discussed below are sufficient.
C. Prejudice and Sanctions Under Subdivision 37(e)(1)
*14 Under subdivision (e)(1), curative sanctions are permitted upon a finding that a failure to preserve ESI prejudiced another party. Fed. R. Civ. P. 37(e)(1). “ ‘Prejudice’ can be ‘properly understood as a party's ability to obtain the proofs necessary for its case ... which is another way of saying the loss of ESI could negatively impact a party's ability to make its case, or prejudice that party because of the loss of information.’ ” J.S.T. Corp., 2019 WL 2324488, at *6 (quoting Konica, 2016 WL 4537847, at *3). “An evaluation of prejudice from the loss of information necessarily includes an evaluation of the information's importance in the litigation.” Fed. R. Civ. P. 37(e) advisory committee's note to 2015 amendment. See Courser v. Michigan House of Representatives, 831 F. App'x 161, 188–89 (6th Cir. 2020) (applying advisory committee note to determine whether appellant was prejudiced by loss of ESI). Here, Defendants argue that sanctions are warranted to cure prejudice caused by: (1) the loss of relevant evidence that would support their defense; (2) expended efforts litigating Schnatter's spoliation; and (3) conduct that undermines “the public's faith in the courts and the discovery process in general.” (DN 153, at PageID # 2655) (citation omitted).
1. Loss of Relevant Evidence
A threshold issue raised by the Parties is the standard of proof for assessing the contents of lost ESI. See supra section II.A.1.ii. Schnatter asserts that imposing Rule 37(e) sanctions requires “extrinsic” and “concrete” evidence “regarding the particular nature of the missing ESI in order to evaluate the prejudice it is being asked to mitigate.” (DN 169, at PageID # 2815.) Here, Schnatter argues that Defendants have not presented such evidence showing the relevance of lost ESI because they “fail[ ] to identify any specifics as to what [they] believe was lost.” (Id. at 2821.) Defendants assert that Schnatter's demand that they identify specific relevant text messages they allege were deleted “confuses the issue.” (DN 171, at PageID # 2853.) Since Schnatter summarily deleted all of his text messages, Defendants say they “cannot identify every person Schnatter communicated with about issues related to this case, let alone identify the communications at issue or their subject matter.” (Id.) The undersigned agrees that Schnatter cannot claim any presumption that Defendants have not been prejudiced simply because there is no way to identify all the evidence that was lost. “The task of guessing the nature of destroyed evidence ‘is unavoidably imperfect, inasmuch as, in the absence of the destroyed evidence, we can only venture guesses with varying degrees of confidence as to what that missing evidence may have revealed.’ ” Benefield v. Mstreet Entm't., LLC, 197 F. Supp. 3d 990, 1006 (M.D. Tenn. 2016) (quoting Kronisch, 150 F.3d at 127). For this reason, a party seeking spoliation sanctions “may rely on circumstantial evidence to suggest the contents of destroyed evidence.” Beaven, 622 F.3d at 555 (quoting Byrnie v. Bd. of Educ., 243 F.3d 93, 110 (2d Cir. 2001). Additionally, Rule 37(e)(1) “does not place a burden of proving or disproving prejudice on one party or the other.” Fed. R. Civ. P. 37(e) advisory committee's note to the 2015 amendment. This is because “[d]etermining the content of lost information may be a difficult task in some cases, and placing the burden of proving prejudice on the party that did not lose the information may be unfair.” Id. Accordingly, “[t]he rule leaves judges with discretion to determine how best to assess prejudice in particular cases.” Id. Here, the undersigned has considered the record as a whole in assessing the extent to which Defendants were prejudiced by the loss of evidence and finds that it supports his findings as set forth below.
While it is impossible to determine the contents of the lost ESI, based on the record, it can be inferred that that a substantial record of Schnatter's communications between July 2018 and the present was lost. See supra section II.A.3. The undersigned finds that the lost record of Schnatter's communications would have been relevant to Schantter's tortious interference claim. Tortious interference with contract has six elements: “(1) the existence of a contract; (2) [the defendant's] knowledge of the contract; (3) that [the defendant] intended to cause a breach of that contract; (4) that [the defendant's] actions did indeed cause a breach; (5) that damages resulted to [the plaintiff]; and (6) that [the defendant] had no privilege or justification to excuse its conduct.” Snow Pallet, Inc. v. Monticello Banking Co., 367 S.W.3d 1, 5–6 (Ky. Ct. App. 2012) (citing Ventas, Inc. v. Health Care Prop. Inv'rs, Inc., 635 F. Supp. 2d 612, 619 (W.D. Ky. 2009), aff'd sub nom. Ventas, Inc. v. HCP, Inc., 647 F.3d 291 (6th Cir. 2011)). With respect to causation, Defendants can defeat Schnatter's claim if they prove that the decisions by Papa John's to terminate the Founder Agreement and Licensing Agreement[8] and by UofL to terminate the naming rights agreement “w[ere] not by reason of any action attributable to [Defendants].” Littrell v. Bosse, 581 S.W.3d 584, 587 (Ky. Ct. App. 2019) (even assuming the defendant tortiously interfered with the plaintiff's employment, plaintiff could not show causation when he chose to resign from his position). See Pile v. City of Brandenburg, 215 S.W.3d 36, 42 (Ky. 2006) (noting that an intervening cause may break the chain of causation if it is of an “independent origin, unassociated” with the underlying tortious conduct). The lost record of Schnatter's communications would be helpful to Defendants' defense because it is probative of intervening conduct by Schnatter that may have caused his contracts to be terminated, including his role in the decision-making process. As the produced Bendapudi text exchange demonstrates, Schnatter's communications would also show the extent to which Papa John's or UofL expressed to Schnatter the reasons for their decisions. (See DN 151-1, at PageID # 2609–14.) See also House v. Players' Dugout, Inc., 440 F. Supp. 3d 673, 692 (W.D. Ky. 2020) (communications between claimant and third party indicated that the decision by the third party to terminate their business relationship may have been motivated by other considerations independent of the alleged tortious conduct). Additionally, Schnatter's claimed damages for Defendants' alleged tortious interference include lost economic opportunities as a celebrity endorser that he “would have likely received but for the interference by Defendants.” (DN 187-1, at PageID # 3406.) Schnatter's communications are probative of intervening causes for his lack of celebrity endorser opportunities. Finally, the lost ESI would have been relevant to Schnatter's claim for reputational damages. As of his sixth initial disclosures, Schnatter has represented that his claims may be supported by information “related to [his] character and whether he exhibits racial bias or animus.” (Id. at 3403.) Schnatter also disclosed that his claims may be supported by character witnesses who can speak to whether they “ever witnessed [Schnatter] acting with racial animus.” (DN 98-2, at PageID # 916.) The lost record of Schnatter's communications would be helpful to Defendants' defense because it is probative of the individuals with whom Schnatter associates and intervening conduct by Schnatter affecting his reputation among those individuals.
*15 Because the record shows that the lost ESI would have been relevant to Defendants, the undersigned concludes that Defendants were prejudiced by the spoliation. The undersigned now addresses Schnatter's opposing arguments, none of which convinces the undersigned that Defendants were not prejudiced by the loss of evidence that would have been helpful to their defense.
First, Schnatter asserts that “no non-privileged texts relating to the subject matter of his claims or Defendants' defenses in this action were lost as he considered the hold notice prior to the deletion of any texts.” (DN 169, at PageID # 2809.) Defendants argue that Schnatter cannot rely on his own determination that particular information was irrelevant because he “is not an attorney and his assessment of what information is relevant has been repeatedly proven wrong.” (DN 171, at PageID # 2855.) The undersigned agrees that Schnatter's ipse dixit assurances are not reliable. Schnatter is not an attorney, and there is no indication that his counsel reviewed the text messages nor the other lost ESI and determined that they contained no relevant information. As Defendants point out, “the extensive motions practice that has characterized this litigation has revealed significant differences between the parties as to what is relevant and what is not.” Christou v. Beatport, LLC, No. 10-CV-02912-RBJ-KMT, 2013 WL 248058, at *13 (D. Colo. Jan. 23, 2013). (See DN 155; DN 161) (compelling document production over Schnatter's relevance objections). Further, Schnatter's assurances are not even unequivocal. In his declaration, Schnatter states, “it is my belief that no non-privileged messages relating to any Papa John's or Laundry Service matter have been deleted or otherwise lost.” (169-1, at PageID # 2830.) Throughout his brief, Schnatter emphasizes the lack of “discoverable evidence,” “non-privileged communications,” “discoverable documents,” and “discoverable information.” (DN 169, at PageID # 2809, 2812, 2816, 2825.) Similarly, during the August 12, 2021 telephonic status conference, Schnatter's counsel stated that they “don't believe that there's any material or relevant texts that are missing[,] [b]ecause after July 21st, 2018, again, litigation had begun almost immediately, and anything particularly that would be upon a text would be more than likely work product.” (DN 192, at PageID # 3852.) Such qualified language suggests that Schnatter “improperly seeks to import a discovery rule ... into the unrelated context of spoliation.” McCarty v. Covol Fuels No. 2, LLC, 644 F. App'x 372, 379 (6th Cir. 2016). This leaves open not just the possibility that Schnatter destroyed evidence that he erroneously deems irrelevant, but also that he destroyed evidence that he knew to be relevant but believed to be privileged.[9] If so, lost evidence could include documents and communications of which the Court has already ordered production over several of Schnatter's meritless work product and privilege claims. (See DN 155; DN 161.) Regardless, the undersigned affords little weight to Schnatter's lay conclusions in assessing whether Defendants have been prejudiced by the loss of relevant ESI.
*16 Second, Schnatter asserts that “there is no relevant data that exists after the week of July 11, 2018, when the Forbes article was published or at the latest the end of the week when Plaintiff had been separated from his Chairmanship with Papa John's and the University had removed the Papa John's name from its football stadium.” (DN 169, at PageID # 2818.) In Schnatter's view, “neither claims nor defenses at issue in the Amended Complaint have any connection to any conduct after July 11, 2018.” (Id. at 2805.) Schnatter acknowledges that the Licensing Agreement and naming rights agreement were formally terminated over a year after July 2018 but argues that these events were “the culmination of the damage to [him] in July 2018 ... in the immediate aftermath of the Forbes article.” (Id. at 2816.) Defendants counter that “this Court has already correctly rejected” Schnatter's claim that the relevant time period for discovery purposes ended in July 2018. (DN 171, at PageID # 2855.)
Schnatter's position requires an overly narrow view of the issues presented in this case. Franklin v. Howard Brown Health Ctr., No. 17 C 8376, 2018 WL 4784668, at *5 (N.D. Ill. Oct. 4, 2018), report and recommendation adopted, No. 1:17 C 8376, 2018 WL 5831995 (N.D. Ill. Nov. 7, 2018) (finding an argument that employer's lost text messages to the plaintiff were irrelevant because they were not probative of alleged bullying “ignore[d] the plain thrust and language of the Amended Complaint ... [and] takes an exceedingly narrow and mistaken view of the concept of ‘relevance’ under federal law”). As Defendants note, the Court has repeatedly ordered production of documents and communications beyond the scope that Schnatter hopes to impose. For example, the Court ordered that a law firm produce, among other things, a wide range of communications with Schnatter and his agents and communications related to the May 22, 2018 conference call. (DN 155, at PageID # 2686–87, 2711.) Although Schnatter had not retained the law firm until May 2019 and had argued that the communications were not relevant because they did not bear on the disclosure to Forbes or the Forbes article, the Court found that these communications were relevant to Schnatter's claim for reputational damages and tortious interference claims. (Id. at 2691–94.) The Court has also ordered Schnatter to produce communications in his possession related to settlement agreements for incidents of harassment or discrimination alleged against Schnatter “at any point in time.” (DN 161, at PageID # 2767.) Schnatter had argued that any alleged misconduct after July 2018 was not relevant because they could not have influenced the decisions by Papa John's and UofL to terminate their contracts, but the Court found that the information was relevant to Schnatter's claim for reputational damages because it would “shed light on Schnatter's reputation both before and after the publication of the Forbes article.” (Id. at 2774.)
Schnatter himself relies on evidence generated after the week of July 11, 2018 to support the merits of his claims. For example, in his sixth initial disclosures, Schnatter disclosed that his claims may be supported by “[d]ocuments related to the commercial business relationship between Papa John's International, Inc. and Plaintiff prior to and leading up to the cancellation of Papa John's Licensing Agreement with Plaintiff on September 11, 2019.” (DN 187-1, at PageID # 3403) (emphasis added). Schnatter also seeks to recover for damage to his value as a celebrity endorser from which he claims he would have profited until 2033. (Id. at 3406.) In his fifth initial disclosures, Schnatter disclosed that he “will designate an economist who specializes in celebrity endorsements ... to provide opinion testimony as to the present value of Plaintiff's past and future economic losses from missed opportunities due to Defendants' conduct.” (DN 98-2.) Notably, in support of his opposition to Defendants' motion to dismiss, Schnatter offered a June 17, 2019 text conversation between former Laundry Service employee Jay Salim and a third party. (DN 135-44.) The suggestion that relevant proof is limited to conduct that “led up to the leak of the confidential information to Forbes,” (DN 169, at PageID # 2818), is meritless, if not disingenuous.
*17 Third, Schnatter argues that Defendants' have not made a showing of prejudice because “the allegedly lost information is not ‘necessary’ or ‘crucial’ to the claims.” (DN 169, at PageID # 2821.) Instead, Schnatter argues, “[a]t best, the ‘issues’ articulated by the motion are tangential to the claims or defenses.” (Id.) Unlike subdivision (e)(2) of Rule 37, which provides that extreme sanctions “should not be used when the information lost was relatively unimportant,” subdivision (e)(1) does not establish a minimum degree of prejudice at which the Court may intervene. Rather, subdivision (e)(1) grants the Court discretion to order remedial measures so long as they are “no greater than necessary to cure the prejudice” and “do not have the effect of measures that are permitted under subdivision (e)(2).” Fed. R. Civ. P. 37(e)(1) advisory committee's notes to the 2015 amendment. Courts within this circuit have imposed subdivision (e)(1) sanctions to cure prejudice caused by the loss of evidence of minimal importance. See, e.g., HLV, 2018 WL 2197730, at *4 (“Plaintiffs did experience some measure of prejudice, despite securing production of texts and call logs from other sources.”); Best Value, 2021 WL 2201170, at *3 (imposing sanctions for the failure to preserve ESI stored on a defunct cellphone even though “the prejudice [was] minimized by the accessibility of some emails from [a defendant] and [another defendant]”). See also DriveTime Car Sales Co., LLC v. Pettigrew, No. 2:17-CV-371, 2019 WL 1746730, at *5 (S.D. Ohio Apr. 18, 2019) (imposing sanctions without a showing of prejudice because the spoliating party did “not conclusively establish that [the plaintiff] ha[d] not been prejudiced by the loss of the text messages”).
Here, Defendants request the same remedial measure that the courts imposed in HLV, Best Value, and DriveTime, namely “permitting Defendants to present evidence to the jury about the missing text messages and to instruct the jury that it may draw whatever inferences it deems appropriate from these facts.” (DN 153, at PageID # 2655–56.) A permissive inference jury instruction is among the examples of remedies within the Court's discretion contemplated by subdivision (e)(1). See Fed. R. Civ. P. 37(e) advisory committee's note to the 2015 amendment. Schnatter has not provided any basis for the undersigned to conclude that the specific relief Defendants request is greater than necessary, and the Sixth Circuit has upheld a similar sanction under (e)(1) that “allow[ed] [the spoliating party] to present its argument that the [lost] data did not prejudice [the movant] and [the movant] to present its argument that its whole case could be proven by the [lost] data.” EPAC Techs, 2018 WL 3322305, at *3. Accord EPAC Techs., Inc. v. HarperCollins Christian Publ'g, Inc., 810 F. App'x 389, 403 (6th Cir. 2020) (affirming jury instructions issued as a result of the sanction, finding that the “instructions were no greater than necessary because they were only permissive in nature”). See also HLV, 2018 WL 2197730, at *4; DriveTime, 2019 WL 1746730, at *5; Best Value, 2021 WL 2201170, at *4. The undersigned likewise finds that such a remedy is appropriate here. Given that the degree to which Defendants have been prejudiced by the loss of relevant evidence depends solely on disputed facts concerning the contents of the lost ESI, the undersigned believes that the jury should decide.
2. Expended Litigation Efforts
Defendants argue that they “have been prejudiced to the extent they have needed to pursue Schnatter just to uncover the basic facts of his spoliating conduct.” (DN 153, at PageID # 2655.) Defendants note that the issue came to light nearly two years after the case was filed and after months of conferring about Schnatter's text messages when they learned: “(1) Schnatter has been, all along, destroying the very evidence Defendants have worked so feverishly to uncover; (2) he had three times as many devices as opposing counsel represented; and (3) and he routinely destroyed devices that were not fully imaged or had never been preserved.” (Id.) Defendants further argue that they are prejudiced in losing the opportunity for “making follow-up requests from those devices to obtain information that should have been produced.” (DN 171, at PageID # 2862.) In response, Schnatter argues that there has been no prejudice because they “have not taken any depositions that would be at issue by their Motion (i.e., Plaintiff's deposition or Mr. Thompson's deposition).” (DN 169, at PageID # 2825.)
*18 “Prejudice under Rule 37(e) may be found where a party has been required to ‘piece together information from other sources to try to recover relevant documents.’ ” Yoe, 2017 WL 5479932, at *11 (quoting Moody, 2017 WL 4173358, at *13-14). See J.S.T. Corp., 2019 WL 2324488, at *10; Paisley, 330 F.R.D. at 236 (“Plaintiffs are now forced to go to already existing discovery and attempt to piece together what information might have been contained in those messages, thereby increasing their costs and expenses.”). Additionally, courts in this circuit have found that a party's refusal to cooperate with inquiries into the nature and scope of alleged spoliation was prejudicial. Prudential Def. Sols., Inc. v. Graham, No. 20-11785, 2021 WL 4810498, at *10 (E.D. Mich. Oct. 15, 2021); Tenpenny, 2020 WL 2062121, at *7, aff'd, 2020 WL 12894953. See Benefield, 2016 WL 374568, at *6 (opining that a decision to destroy evidence due to privacy concerns instead of addressing those concerns through litigation “not only obstructs the fact-finding process, but it also erodes the ability of the parties to effectively communicate and negotiate through the adversarial process”).
Here, the undersigned finds that Schnatter's failure to cooperate in Defendants' efforts to discover the spoliated ESI has been prejudicial. The instant dispute arose from Schnattter's responses to Defendants' first set of requests for production. The requests instructed Schnatter to “[i]dentify any and all Documents requested by the Requests that have been destroyed.” (DN 151-1, at PageID # 2513.) On October 29, 2020, Defendants notified Schnatter that they perceived gaps in the production, including that it “consists of shockingly few communications from Schnatter himself.” (DN 151-1, at PageID # 2542.) Defendants noted that he had produced only one outgoing text message despite Defendants' impression that he “frequently communicated with others via text message from at least two different phone numbers.” (Id.) Despite numerous subsequent exchanges concerning Schnatter's text messages, Schnatter did not provide the explanation until the August 12, 2021 telephonic status conference, when he conceded that few text messages had been produced because of a long-standing practice of deleting all text messages he sends and receives. If Schnatter disclosed this practice sooner, he would have obviated the need for Defendants ongoing inquires regarding his text messages and enabled Defendants to prevent Schnatter's continued spoliation. On November 11, 2020, Schnatter agreed to provide confirmation that his “various” personal cellphones had been imaged. (DN 151-1, at PageID # 2552.) On November 17, 2020, Schnatter informed Defendants that his cellphone collections included the 2018 imaging of Cellphone B and the 2020 imaging of Cellphone D. He did not disclose the existence of two other cellphones, Cellphones A and C, which were his primary cellphones for different periods during the relevant time and were never imaged. Had he done so at the time Defendants could have sought discovery from Cellphone C before Schnatter discarded it in February 2021. Schnatter also informed Defendants that he “previously used an ‘emergency’ phone in addition to his regular phone ... [but] does not recall having a second or ‘emergency’ phone since before 2017.” (Id. at 2505.) In reality, Schnatter had used two Backup Cellphones during the relevant period, one of which was active at the time. (Id. at 2502.) Schnatter's misrepresentation precluded Defendants from seeking discovery from the Backup Cellphone that was still in his possession at the time before Schnatter discarded it a month later in December 2020. Even after Defendants raised their concern that the discovery they were seeking may have been lost or destroyed, Schnatter continued to obfuscate. On June 25, 2021, Defendants demanded that Schnatter answer a list of questions concerning the existence, preservation, and production of responsive documents and communications from his devices. (Id. at 2574.) These questions mirror the requests in the special interrogatories. Had Schnatter fully responded to Defendants' questions at the time, Defendants could have determined whether to seek spoliation sanctions without seeking leave of the Court to propound the special interrogatories before serving them and receiving Schnatter's responses nearly three months later. In sum, due to Schnatter's refusal to cooperate, Defendants have been prejudiced by the time and resources they were forced to expend litigating the question of lost ESI and by the continued spoliation that could have been prevented.
*19 To cure this prejudice, Defenants request that the court impose monetary sanctions “the costs associated with its attmepts to obtain ESI from Schnatter, including their multiple letters seeking missing text messages, meet and confer conferences, court conferences, and the cost of preparing and arguing this motion.” (DN 153, at PageID # 2656.) Although, the advisory committee notes to the 2015 amendment do not address the propriety of monetary sanctions, “[m]any courts have imposed monetary sanctions under Rule 37(e)(1).” Paisley, 330 F.R.D. 226, 237–38 (citing Spencer v. Lunada Bay Boys, No. 16-cv-2129, 2018 WL 839862, *1 (C.D. Calif. Feb. 12, 2018) (collecting cases)). See Fed. R. Civ. P. 37(e) advisory committee's note to the 2015 amendment (stating that in imposing curative sanctions under subdivision (e)(1), “[t]he range of such measures is quite broad”). Here, the undersigned finds that an award of costs as set forth below “ameliorates the economic prejudice imposed on the defendants” and is no harsher than necessary to cure that prejudice. CAT3, LLC v. Black Lineage, Inc., 164 F. Supp. 3d 488, 502 (S.D.N.Y. 2016). See GN Netcom, Inc. v. Plantronics, Inc., No. CV 12-1318-LPS, 2016 WL 3792833, at *13 (D. Del. July 12, 2016) (imposing “an award of fees and costs for all [the plaintiff's] efforts pursuing nearly 18 months of discovery to get [to] the bottom of the deletion story despite [the defendant]'s obstruction”).
Given that the prejudice was caused by conduct that occurred during the instant litigation while counsel was embroiled in the discovery dispute, the undersigned is compelled to address counsel's role. As an initial matter, Schnatter cannot deflect responsibility for his omissions and misrepresentations that were carried out through his counsel on his behalf. “Any other notion would be wholly inconsistent with our system of representative litigation, in which each party is deemed bound by the acts of his lawyer-agent.” Link v. Wabash R. Co., 370 U.S. 626, 634 (1962). That said, it should be recognized that his counsel failed to intervene in order to mitigate the effects of Schnatter's conduct. “[T]he obligation to preserve evidence runs first to counsel, who then has a duty to advise and explain to the client its obligations to retain pertinent documents that may be relevant to the litigation.” John B. v. Goetz, 879 F. Supp. 2d 787, 868 (M.D. Tenn. 2010) (quoting Telecom International Am. Ltd. v. AT & T Corp., 189 F.R.D. 76, 81 (S.D.N.Y.1999)). Counsel is also required to “monitor[ ] the party's efforts to retain and produce the relevant documents.” Zubulake v. UBS Warburg LLC, 229 F.R.D. 422, 432 (S.D.N.Y. 2004). Additionally, Rule 26(g) requires that an attorney of record sign each discovery response, certifying that “to the best of the person's knowledge, information, and belief formed after a reasonable inquiry” that a disclosure “is complete and correct as of the time it is made.” Fed. R. Civ. P. 26(g). It is unclear when Schnatter's counsel learned about Schnatter's spoliation or whether it was aware that any pertinent representations to Defendants concerning Schnatter's devices and text messages were inaccurate. The undersigned need not undertake a factual inquiry at this time, as Defendants have not sought sanctions against Schnatter's counsel. Counsel is reminded that any failure to comply with their independent obligations and ethical duties may be grounds for sanctions.
3. Harm to Public Faith in Courts
Defendants argue that “such a large-scale destruction of evidence works prejudice not just against Defendants who would rely on that evidence to defend against Schnatter's claims, but also against” public faith in the court system. (DN 153, at PageID # 2655) (citing Malone v. Weiss, No. CV 17-1694, 2018 WL 3656482, at *8 (E.D. Pa. Aug. 2, 2018)). The undersigned briefly addresses this point. In Malone, the parties disputed whether Rule 37 or the court's inherent power should be the basis of any sanctions for “the intentional manipulation of emails and contracts in order to gain an advantage in litigation.” 2018 WL 3656482, at *7. The court found that the conduct at issue was “much more serious” than a mere failure to meet the duty to preserve evidence, and therefore applied the standard under the court's inherent power to sanction abuses of the judicial process. Id. That standard requires that the offending party “acted in bad faith, vexatiously, wantonly, or for oppressive reasons ....” 501 U.S. 32, 45 (1991). Here, Defendants request sanctions under Rule 37(e)(1), which is not a mechanism to remediate abstract societal injuries. Rather, Rule 37(e) authorizes sanctions only “upon finding prejudice to another party from loss of the information,” and limited to what is “necessary to cure the prejudice.” (emphasis added). Therefore, the undersigned will not recommend measures to address any prejudice to public faith in the court system.
III. RECOMMENDATION
*20 For the reasons set forth above, the undersigned RECOMMENDS that Defendants' Motion for Discovery Sanctions (DN 151) be GRANTED in part and DENIED in part. The undersigned further RECOMMENDS that the following order be entered:
1. Defendants shall be permitted to present evidence related to the July 2018 Litigation Hold Notice and Schnatter's subsequent failure to preserve his text messages and cellphones along with other admissible evidence and may argue for whatever inference they hope the jury will draw. Schnatter will also be permitted to present his own admissible evidence and argue that the jury should not draw any inference from his conduct.
2. Schnatter shall pay the reasonable costs and attorney's fees incurred by Defendants in prosecuting the instant motion, including the costs associated with correspondences and conferences with Schnatter after the October 29, 2020 deficiency letter, the August 12, 2021 and August 17, 2021 status conferences, and briefing the motion.
a. Defendants' counsel shall submit billing records and corresponding declarations evidencing time spent on the instant motion within thirty days of this order.
b. Schnatter may respond to the amount requested by Defendants within thirty days. His response should only address the amount claimed by Defendants and the sufficiency of its itemization.
3. Failure to comply with any provision of this Order or any other prior order shall subject the non-complying party, non-complying counsel and/or the party such counsel represents to any and all appropriate remedies, including without limitation: assessment of costs, fines and attorneys' fees and disbursements; waiver of rights to object; exclusion or limitation of witnesses, testimony, exhibits, and other evidence; striking of pleadings; complete or partial dismissal with prejudice; entry of whole or partial default judgment; and/or any other relief that this Court may from time to time deem appropriate.
Footnotes
Pursuant to the Parties' confidentiality agreement (DN 49-1), Defendants redacted portions of the motion and substituted three exhibits to the motion with placeholder documents to protect information designated as confidential by Schnatter. (DN 151, at PageID # 2472–73, 2479; DN 151-1, at PageID # 2592–97) (motion and Exhibits M, N, and O). Defendants then filed a motion for leave to file these documents provisionally under seal to afford Schnatter an opportunity to move for a permanent seal, (DN 152), and filed unredacted versions of the motion and relevant exhibits provisionally under seal. (DN 153; DN 153-1; DN 153-2; DN 153-1.) On November 12, 2021, Schnatter filed a response to Defendants' motion to seal, requesting that the Court permanently seal the documents. (DN 159.) On January 3, 2022, the Court denied Schnatter's request and ordered the unredacted documents permanently unsealed. (DN 175.) References to the motion for sanctions and its Exhibits M, N, and O in this report and recommendation cite to the publicly available versions.
Defendants request that their motion be set for oral argument. (DN 153, at PageID # 2627.) The Parties have thoroughly briefed the relevant facts and law, and the undersigned is familiar with the case and the issues presented. Accordingly, the undersigned is equipped to consider the motion without further argument from counsel, and the undersigned has determined that additional argumentation will not be helpful to resolving the issues in dispute. Furthermore, “[i]n this circuit, there is no requirement that a full evidentiary hearing be held before imposing sanctions.” Metz v. Unizan Bank, 655 F.3d 485, 491 (6th Cir. 2011) (quoting Wilson–Simmons v. Lake Cnty. Sheriffs Dep't, 207 F.3d 818, 822 (6th Cir. 2000). Through their briefs and the three separate telephonic status conferences during which the issue was discussed, (see DN 125; DN 125; DN 143), the Parties were afforded due opportunity to be heard. Therefore, the undersigned will not hold oral argument on the motion.
Schnatter produced the Notice to Defendants “[s]ubject to and without waiving” an objection to production on grounds that the document is protected by attorney-client privilege. (DN 151-1, at PageID # 2496.) Schnatter further stated, “If requested by the Court, [he] is prepared to provide a copy for the Court's in camera review.” (Id.) Due to Schnatter's designation, the Notice was among the exhibits to the instant motion that Defendants filed provisionally under seal. See supra text accompanying note 1. In its January 3, 2022 order, the Court denied Schnatter's request to permanently seal the Notice, finding that the disclosure to Defendants waived any privilege claim. (DN 175, at PageID # 2894–95.)
Hughes Hubbard withdrew as counsel of record in this case on January 5, 2021. (DN 64.)
In the interest of brevity and clarity, statements and communications made on the Parties' behalf by and through counsel are attributed to the Parties themselves.
For example, as of service of their first set of requests for production June 2020, Defendants had requested:
All Documents and Communications relating to Plaintiff's February 11, 2020 interview on H3 Podcast.
All Documents and Communications relating to Plaintiff's use of racially offensive and insensitive language at any point in time.
...
All Documents and Communications relating to Plaintiff's [2019] divorce proceedings against M. Annette Cox.
All Documents and Communications relating to Plaintiff's retention of any public relations firm relating to ... Plaintiff's public image from July 2018 to the present.
(DN 151-1, at PageID # 2514–15.)
Of Papa John's, Schnatter is quoted as stating, “There's a whole lot of shredding and computers getting thrown away right now at Papa John's to make sure that if I do get back in, they don't leave a paper trail.” DAVID LEONARD, Papa John is Still Obsessed with Papa John's, BLOOMBERG BUSINESSWEEK (November 3, 2021), https://www.bloomberg.com/news/features/2021-11-03/papa-john-s-founder-john-schnatter-eyes-pizza-cha....
Schnatter asserts that communications regarding the Licensing Agreement are not relevant because he “is not seeking compensation resulting from the termination of the Licensing Agreement.” (DN 169, at PageID # 2811 n.5.) In response, Defendants argue that Schnatter's claim “is directly contrary to what he has pled in the Amended Complaint and the position he took opposing Defendants' motion to dismiss, which remains sub judice.” (DN 171, at PageID # 2854.) The undersigned disagrees with Defendants in that the record does not indicate that Schnatter is seeking compensation provided under the Licensing Agreement. (See DN 111, at PageID # 1306.) However, Schnatter fails to mention the reason he is not seeking such compensation. As Schnatter himself recognizes, payment under the Licensing Agreement is only triggered if the Founder Agreement is no longer in effect, and Schnatter's claim for damages assumes that the Founder's agreement would have remained in place indefinitely. (DN 169-3, at PageID # 2838.) In other words, Schnatter is not seeking compensation under the Licensing Agreement because he prefers to recover compensation under the Founder Agreement. However, Schnatter has not abandoned his claim for tortious interference with the Licensing Agreement and can therefore assert it as a basis for punitive damages. Monumental Life Ins. Co. v. Nationwide Ret. Sols., Inc., 242 F. Supp. 2d 438, 450 (W.D. Ky. 2003) (“Monumental is not allowed to recover double damages for the contract violation, but it may recover punitive damages for NRS's tortious actions, if it is able to prove each of the elements of its claim.”). Given this, evidence concerning the cause for the termination of the Licensing Agreement is no less important to Defendants' defense as is evidence of causation related to the other contracts.
It goes without saying that a privilege claim is not carte blanche with respect to preservation and production. When a party withholds information from discovery under a claim of privilege, Rule 26(b)(5) requires that the party: “(i) expressly make the claim; and (ii) describe the nature of the documents, communications, or tangible things not produced or disclosed—and do so in a manner that, without revealing information itself privileged or protected, will enable other parties to assess the claim.” Fed. R. Civ. P. 26(b)(5). The Advisory Committee notes to the rule explain that “[t]o withhold materials without [providing notice as described in Rule 26(b)(5)] is contrary to the rule, subjects the party to sanctions under Rule 37(b)(2), and may be viewed as a waiver of the privilege or protection.” Because Schnatter had repeatedly asserted general privilege claims in withholding broad categories of documents, the Court advised the Parties in its November 16, 2021 order that “future privilege claims will be closely scrutinized and that privilege claims that do not comply with Rule 26(b)(5) will likely be summarily denied.” (DN 161, at PageID # 2781.)