Plaintiff’s “Lackadaisical attitude towards document preservation” Results in Prejudice to Defendant, Sanctions

Mathew Enter., Inc. v. Chrysler Grp. LLC, No. 13-cv-04236-BLF, 2016 WL 2957133 (N.D. Cal. May 23, 2016)

The rules governing parties’ duties to preserve data do not demand perfection. Only when a party should have preserved electronically stored information “in the anticipation or conduct of litigation” and when that party “failed to take reasonable steps to preserve it” may a court order corrective measures. The standard is an attainable one.

Applying newly-amended Rule 37(e) (which “now provides a genuine safe harbor for those parties that take ‘reasonable steps’ to preserve their [ESI]”) the court concluded that Defendant was prejudiced by Plaintiff’s failure to preserve customer communications and imposed curative measures.

Plaintiff—“a car dealership … [that] buys and resells vehicles from [Defendant]”—claimed that it was unable to earn “volume growth incentives” from Defendant because of a new, nearby dealership in town that Defendant knew would “cannibalize” Plaintiff’s sales and Defendant’s failure to adjust Plaintiff’s sales objectives accordingly. As a result, Plaintiff alleged, “the prices that [Plaintiff] could offer during negotiations with customers were higher than its competitors’, diverting sales to the latter.”  Conversely, Defendant alleged that Plaintiff raised its prices intentionally or failed to offer lower prices during negotiations “to set a lower baseline sales objective for the following year’s volume growth incentives.”

The parties agreed (or at least did not dispute) that the duty to preserve arose in August, 2012, when Plaintiff sent a “litigation threat letter” to Defendant. Despite that, for nearly a year after sending the letter, Plaintiff “made no effort to preserve communications from customers or internal emails.” Instead, an outside vendor storing customer communications “deleted them automatically without complaint” from the Plaintiff and Plaintiff discarded all of its “old messages” when it switched email providers.  Despite this loss, Plaintiff “did manage to produce certain data in other forms” that provided some, limited information regarding Plaintiff’s communications with customers.  In light of Plaintiff’s failure to preserve, Defendant sought sanctions under Rule 37(e)(1). [The court ultimately determined no sanctions were warranted for the loss of “internal emails” and they are not addressed in this summary.]

Pursuant to Rule 37(e), the court turned to the question of whether Defendant was prejudiced by the loss of the customer communications. Plaintiff argued it was not, asserting that the customer communications could not “overcome” Plaintiff’s statistical evidence, that Defendant could not show the communications contained evidence of why customers chose other dealerships, and that the alternative discovery produced was an adequate substitute.

Rejecting Plaintiff’s arguments, the court noted that “neither party can say with any certainty what the deleted communications would have shown” but reasoned that the emails could have “shed some light” on the negotiating process with customers and “could have helped to explain why customers chose other dealerships.” Moreover, the court reasoned that the information produced by Plaintiff was “no replacement” for what the customers actually said.  Accordingly, the court found that Defendant was prejudiced and turned to the question of remedy.

Initially, the court found Defendant’s suggested “preclusive sanctions” “too stringent.” Instead the court ordered that Defendant would be allowed to introduce communications post-dating the alleged price discrimination period “as if they came from that period itself,” that Defendant would be allowed to present evidence and argument regarding the spoliation upon Plaintiff’s elicitation of certain testimony, that the presiding judge would be allowed to “giv[e] the jury instructions to assist in its evaluation of such evidence or argument,” and that Defendant would be awarded its reasonable fees incurred in bringing this motion.

A full copy of the court’s Order is available here.