Profit Point Tax Techs., Inc. v. DPAD Grp., LLP
Profit Point Tax Techs., Inc. v. DPAD Grp., LLP
2023 WL 11968047 (W.D. Pa. 2023)
May 16, 2023
Stickman IV, William S., United States District Judge
Summary
The court denied a motion for sanctions against the defendants for alleged spoliation of ESI, as the plaintiff failed to identify any specific ESI that was lost and did not meet the burden of proving that the defendants failed to preserve relevant evidence. The court adopted the report and recommendation of the Special Master, denying the plaintiff's request for an award of fees and costs.
Additional Decisions
PROFIT POINT TAX TECHNOLOGIES, INC., Plaintiff,
v.
DPAD GROUP, LLP, JOHN MANNING, and DANIEL STEELE, Defendants
v.
DPAD GROUP, LLP, JOHN MANNING, and DANIEL STEELE, Defendants
Civil Action No. 2:19-cv-698
United States District Court, W.D. Pennsylvania
Filed May 16, 2023
Stickman IV, William S., United States District Judge
ORDER OF COURT
*1 Profit Point Tax Technologies, Inc. (“PPTT”), a service company that works with companies to calculate income tax incentives for federal income tax purposes, pursued claims against DPAD Group, LLP (“DPAD”), John Manning (“Manning”), and Daniel Steele (“Steele”) (collectively, “Defendants”) as a result of a dispute over who is owed fees for specialized income tax services work performed. (ECF No. 27). Manning and Steele are tax professionals who provide services related to domestic activity deductions under Section 199 of the Internal Revenue Code. Steele became an independent contractor of PPTT in 2006 or 2007, and Manning became an independent contractor of PPTT in 2011. In May 2015, Manning and Steele formed their own tax services company, DPAD.
PPTT's claims (Count I – Breach of Contract against Manning and Steele; Count II – Breach of Fiduciary Duty against Manning and Steele; Count III – Unjust Enrichment against DPAD; Count VI – Intentional Misrepresentation against Defendants; and Count VII – Negligent Misrepresentation against Defendants) arose from Defendants’ alleged usurpation of PPTT's business through the use of PPTT's confidential information and other resources in soliciting PPTT's clients.
Defendants’ counterclaims against PPTT and its sole shareholder, Patrick Sweet (“Sweet”), arose out of allegedly unpaid fees on tax services projects – the Hershey 2012, 2013 and 2014 projects; the Rockwater Energy Project; and the Zimmer Project. (ECF No. 101). Manning and Steele brought two counterclaims for breach of contract under the January 2011 Revenue Sharing Agreement (“RSA”) (Count I) and the February 2, 2016 Master Fee Splitting Agreement and Release (the “Release”) (Count II). (ECF No. 101). In the event the Release was deemed invalid, Manning and Steele also brought two counterclaims in the alternative (Counts III and IV). All counterclaims were brought against PPTT and Sweet except Count II, which is only asserted against PPTT. (Id.).
On February 27, 2023, the Court entered summary judgment in favor of Manning and Steele and against PPTT as to Counts I and II, in favor of DPAD and against PPTT as to Count III, and in favor of Defendants and against PPTT at to Counts VI and VII in the First Amended Complaint. It further held that only the breach of contract counterclaims – Count I (RSA) and Count II (Release) – will proceed to trial.[1] (ECF Nos. 311-313).
PPTT filed a Renewed Motion for Sanctions. (ECF No. 266). It seeks sanctions in the form of the entry of judgment in its favor and against Defendants as to all claims and counterclaims, for the Court to award attorney's fees and costs, and any other relief the Court deems appropriate due to Defendants’ alleged spoliation of electronically stored information (“ESI”) and other alleged discovery-related misconduct. (ECF Nos. 266 and 267). Special Master Michael J. Betts issued a Report and Recommendation that the Renewed Motion for Sanctions be denied. (ECF No. 326). More specifically, he noted that the record does not establish spoliation under Federal Rule of Civil Procedure 37(e). Special Master Betts concluded that PPTT failed to specifically identify any ESI that was lost, and the forensic review carried no weight because it drew no concrete conclusions and there were no documents identified as not produced. (ECF No. 326, pp. 7-8). Second, he concluded that PPTT failed to meet is burden of identifying ESI with respect to which Defendants failed to comply with their preservation obligations. (Id. at 9-10). Essentially, Special Master Betts determined that PPTT identified information that it expected to be produced in discovery, but it did so in a very general way and fell short of providing “plausible, concrete suggestions of what the missing evidence would have shown.” (Id. at 10). Special Master Betts also outlined why relief was inappropriate under Federal Rule of Civil Procedure 37(b)(2) – i.e., the motion lacked sufficient specificity in (i) identifying the court order and the specific provisions of that order that were allegedly violated and (ii) setting forth record facts establishing a material violation of those provisions. (Id. at 12). Lastly, Special Master Betts recommended that PPTT's request for an award of fees and costs be denied. (Id. at 14).
*2 The parties were given the opportunity to file objections and PPTT did so. (ECF No. 329). PPTT claims Special Master Betts's Report and Recommendation “gives license for future litigants to eliminate damaging discovery by simply discarding their computers,” and “will permit an avenue for litigants to conceal discovery, so long as any such relevant evidence is kept on a hard drive that cannot be accessed by the other party.” (ECF No. 329, p. 1). The Court disagrees with such bombastic statements. After its independent de novo review of the record and consideration of the pleadings of the parties, the Court hereby ADOPTS Special Master Betts's Report and Recommendation as its Opinion. The Court hereby OVERRULES PPTT's objections. It concurs with Special Master Betts's thorough analysis and legal conclusions.
AND NOW, this 16th day of May 2023, IT IS HEREBY ORDERED that PPTT's Renewed Motion for Sanctions (ECF No. 266) is DENIED.
Footnotes
Counterclaim Counts III and IV were deemed moot by the court as they were premised on specific relief – invalidating the Release – that PPTT is seeking on its direct claims. (ECF No. 312).