Getting Your Ducks in a Row: Court Stresses High Evidentiary Threshold for Rule 37 Sanctions and Cautions Against Precipitous Motions

A recent case out of the Middle District of Florida illustrates the importance for parties contemplating motions under Fed. R. Civ. P. 37 to first understand the high threshold required for the court to grant their motions and impose sanctions. Examining a barrage of sanction motions, the court highlighted that a party needs to present a strong factual record when seeking charges of spoliation, as it takes more than simple allegations of destruction or non-retention of evidence to find sanctions appropriate under Fed. R. Civ. P. 37. Further, the decision provides a clear-cut example of unnecessary costs incurred and wasted judicial resources resulting from the failure of the parties to cooperate throughout the discovery process. As discussed below, while a number of the parties in the litigation entered into an electronically stored information (ESI) protocol, it appears that many of the discovery disputes could have been avoided if certain key areas, including the temporal scope of the documents to be produced, were addressed in that protocol.

In Centennial Bank v. ServisFirst Bank, Inc., several former employees allegedly violated non-compete provisions of their employment agreements with the plaintiff, Centennial Bank (“Centennial”), when they left to work for the defendant, ServisFirst Bank. Beginning in 2016, the protracted discovery in this litigation involved countless disputes ranging from the scope of discovery to document productions and gave rise to a series of motions for sanctions by Centennial, which were met with mixed results. The relevant opinion addressed the latest in this series of motions by Centennial, which focused on the defendants’ alleged spoliation of relevant ESI. In the motion, Centennial alleged that certain defendants: (1) misrepresented the existence of and failed to turn over various electronic hardware and email accounts containing allegedly relevant ESI; (2) contravened prior discovery orders by unilaterally limiting the temporal scope of the data production; and (3) destroyed ESI. Centennial sought the severe sanction of entry of a default judgment against several defendants under Fed. R. Civ. P. 37(b) and Fed. R. Civ. P. 37(e). Ultimately, the court rejected sanctions on both grounds.

As a reminder, Fed. R. Civ. P. 37(b) addresses a party’s failure to comply with discovery orders, authorizing the imposition of a range of sanctions to address a delinquent party’s actions. In denying Centennial’s request for sanctions pursuant to Fed. R. Civ. P. 37(b), the court emphasized the parties’ lack of cooperation in attempting to resolve the discovery dispute without judicial intervention. While citing a local rule requiring the parties to confer in good faith prior to filing a motion, the court explained that a simple email exchange between the parties was not a meaningful attempt to resolve the discovery dispute and stressed the utility and importance of face-to-face meetings to discuss these issues. Pointedly, the court noted the dispute “stem[med] from the parties’ inability to see the forest for the trees,” failing to “come together in a rational, pragmatic approach to address the merits of their ongoing feud.”

This blog frequently highlights the importance of cooperation to effectuate a comprehensive discovery framework, including an ESI protocol, to guide a litigation, thus resulting in cost-efficient advocacy. An integral part of any ESI protocol is setting forth the temporal scope of discoverable ESI. For instance, one issue that arose during discovery was the temporal scope of production for one defendant’s iCloud data. That defendant argued that the termination date of the non-compete agreement bookended the period of relevant discovery. Centennial disagreed, arguing that ESI subsequent to that date may reveal evidence of spoliation and that the entire iCloud library was open for discovery without limitation. The court ultimately found fault with both parties’ positions, but ordered the defendant to produce any iCloud ESI post-dating the termination of her non-compete so long as it was responsive to Centennial’s requests and relevant to the parties’ claims and defenses.

Additionally, a comprehensive ESI protocol must address the types of ESI considered discoverable and the form in which each category of ESI must be produced. Here, the parties disagreed as to whether the production of “plist” logs were sufficient to satisfy certain defendants’ discovery obligations or, as Centennial asserted, whether these defendants had to produce all plist files corresponding to certain Apple apps. While the court held that the plist logs were sufficient, the dispute likely could have been avoided if the parties had addressed the treatment of the plist logs and files in the ESI protocol.

Centennial also moved for spoliation sanctions under Fed. R. Civ. P. 37(e), which were similarly denied. As we have previously discussed in this blog, pursuant to Fed. R. Civ. P. 37(e), a court may impose sanctions where a party fails to take reasonable steps to preserve such information and, as a result, discoverable ESI is lost or destroyed. For Fed. R. Civ. P. 37(e) to be applicable, (1) there must be a duty to preserve ESI; (2) the ESI must be lost or destroyed; (3) the ESI was lost or destroyed as a result of the party’s failure to take reasonable steps to preserve it; and (4) the ESI cannot be attained through any other source. Even then, the court must also find that the requesting party was actually prejudiced or, if serious sanctions like an adverse inference of a claim dismissal or default judgment are sought, that the spoliating party intended to deprive its adversary of the missing ESI. The court was clear that Centennial overreached in seeking the latter serious sanctions in this case. The court noted that Centennial had failed to meet its burden with respect to both the threshold elements of failure to preserve and availability from other sources. Without a strong factual record, Centennial simply argued that only “Defendants kn[e]w what they ha[d] failed to preserve,” and because the defendants allegedly violated various discovery orders, “the ESI should be presumed lost.” Centennial’s argument failed to establish a baseline showing for spoliation, as the court explained that Centennial’s argument was “based largely, if not entirely, on supposition.” Further, the court noted that, even if ESI was destroyed, Centennial failed to show that it was prejudiced (i.e., it failed to show what evidence was actually discarded and its specific relevance) or, as it relates to Rule 37(e)(2), that the defendants’ destruction of evidence resulted from the defendants’ intent to deprive.

At the end of the day, in its quest to essentially force the court to find sanctions against the defendants, Centennial likely expended very significant resources on filing inadequate motions and repeatedly tried the court’s patience in parsing through the voluminous motion papers. Suffering from “tunnel vision,” Centennial reacted too quickly to facially compelling evidence of spoliation, without first carefully evaluating the strength of its factual record against the high burden imposed by Rule 37 for the court to find sanctions.

It is also worth noting that, as part of their ESI protocol, the parties designated, and the court appointed, Centennial’s computer forensic expert as an “impartial” computer forensics consultant to provide a “neutral” review of certain discovery materials and provide a report to the court. The resulting review and report tended to weigh in favor of Centennial, asserting numerous unsubstantiated allegations of discovery misconduct by the defendants. Undoubtedly, neutral third-party forensic experts often provide essential assistance in developing a clear record on discovery disputes between the parties; however, parties should use caution when agreeing that an expert retained and paid for by one or the other will undertake this task and, as the court here noted, take specific steps to ensure that their work will be as unbiased as possible. In many cases, the better approach would be for the parties to opt for a truly neutral, independent third-party to serve in this role.