Magistrate Judge Applies Newly Amended Rule 37(e), Addresses Threshold Question of Whether At-Issue Emails were “Lost”

CAT3, LLC v. Black Lineage, Inc., No. 14 Civ. 5511 (AT) (JCF), 2016 WL 154116 (S.D.N.Y. Jan. 12, 2016)

In this case, which raised “significant issues concerning the reach of newly amended Rule 37(e) of the Federal Rules of Civil Procedure, the standard of proof governing spoliation, and the relief appropriate for the destruction of electronically stored information,” Magistrate Judge James C. Francis IV addressed Plaintiffs’ intentional alteration of relevant emails, as evidenced by the discovery of the original emails “which had been deleted, albeit not without leaving a digital imprint.” Finding that newly amended Rule 37 applied and that remedies were available pursuant to both subsections (e)(1) and (e)(2), the Magistrate Judge noted that “drastic sanctions are not mandatory” and ordered that Plaintiffs were precluded from relying on “their version” of the emails to demonstrate notice to Defendants of the use of the at-issue mark and that Plaintiffs would bear the “costs, including reasonable attorney’s fees, incurred by the defendants in establishing the plaintiffs’ misconduct and in securing relief.”

Plaintiffs alleged trademark infringement and related claims. One of the “key issues” in the case therefore became “whether the defendants developed their FLASHXHYPE mark independently or, instead, sought to trade on the plaintiffs’ reputation after learning of their use of the SLAMXHYPE mark.”  In a deposition of Defendant Black Lineage, Inc.’s president, Plaintiffs’ counsel showed the witness an email from a Black Lineage, Inc. employee to the deponent and an employee of Plaintiffs, which showed Plaintiffs’ employee’s address as having the email domain “@slamxhype.com.”  On cross examination, however, “It became apparent that there was more than one version of the document.”  Specifically, the deponent testified that the email he received (and which was produced in discovery) was identical, except that it showed Plaintiffs’ employee’s address as having the email domain “@ecko.com.”

Following court ordered production of the at issue emails, Defendants’ forensic analyst discovered that there were two versions of each email message: the “top” level version and, “behind each email message,” a “near-duplicate copy of the message containing the identical message,” but with different email domains appearing for a number of the senders and recipients.

Summarizing broadly, Defendants’ expert concluded that the “presence of the deleted emails [was] the result of intentional human action, and not of an automatic or inadvertent computer process.” Conversely, Plaintiffs denied any intentional manipulation, supported by their expert’s “two possible explanations” for the discrepancies, both related to technical issues, including the migration of Plaintiffs’ emails from one system to another.  The Magistrate Judge was persuaded by Defendants and concluded that “[t]here [was] clear and convincing evidence . . . that the plaintiffs manipulated the emails here to gain an advantage in the litigation.”

Regarding a proper remedy, the Magistrate Judge turned his analysis to newly amended Fed. R. Civ. P. 37(e). Notably, Plaintiffs argued that the rule was not applicable where there had been no loss of evidence and where “there certainly ha[d] not been both (i) loss of evidence AND (ii) ‘such evidence [could not] be restored or replaced’ as required by Rule 37.”  “Put simply,” Plaintiffs contended:

[T]hough there may be an evidentiary dispute as to which email address versions are more accurate, Defendants’ [sic] have not been deprived of any information or potential evidence. Since there is no missing or destroyed evidence, sanctions cannot be properly imposed under Rule 37 or under a theory of spoilation [sic].”

The Magistrate Judge disagreed. First, he reasoned, “it cannot be said that the information lost has been ‘restored or replaced.’”  Acknowledging that relief would not be available where ESI  lost from one source could be found in another, the Magistrate Judge noted that in this case, “the fact that there are near-duplicate emails showing different addresses casts doubt on the authenticity of both.”  “In other words,” he went on “as long as the plaintiffs are permitted to rely on the emails to argue that the defendant had notice of their use of the SLAMXHYPE mark as of the date of those emails, a different version of the same email is not an adequate substitute.”  Moreover, he reasoned that even if Rule 37(e) did not apply, he could exercise his inherent authority, which allows for the imposition of sanctions “for the bad faith spoliation of evidence.”  As the Magistrate Judge explained, “[w]here exercise of inherent power is necessary to remedy abuse of the judicial process, it matters not whether there might be another source of authority that could address the same issue.”

Addressing the threshold requirements to apply Rule 37(e), the Magistrate Judge reasoned:

The emails are plainly “electronically stored information.” There is no dispute that the plaintiffs were obligated to preserve them in connection with this litigation. As discussed above, information was “lost” and cannot adequately be “restored or replaced.” And the plaintiffs’ manipulation of the email addresses is not consistent with taking “reasonable steps” to preserve the evidence.

He next determined that because of the prejudice resulting from the existence of “multiple versions of the same document” and the intentionality of the act, which he inferred was done “specifically for purposes of this litigation,” remedies were available under both subsections (e)(1) and (e)(2). The Magistrate Judge also reiterated that even if Rule 37(e) did not apply, “relief would nonetheless be warranted under the court’s inherent power.”

When choosing a remedy, the Magistrate Judge noted that in light of his findings, an adverse inference or dismissal were available options, but also noted that “such drastic sanctions [were] not mandatory.” Ultimately, the Magistrate Judge  ordered that Plaintiffs would be precluded from relying on “their version” of the emails to demonstrate notice to Defendants of the use of the at-issue mark and that Plaintiffs would bear the “costs, including reasonable attorney’s fees, incurred by the defendants in establishing the plantiffs’ misconduct and in securing relief.”

A copy of the Magistrate Judge’s order is available here.