Envy Hawaii LLC v. Volvo Car USA LLC

No. 17-00040 HG-RT (D. Haw. Mar. 20, 2019)

In this contract dispute, the court denied the defendant’s motion for spoliation sanctions, finding that it had not conclusively established that the evidence in question was, in fact, lost. While the plaintiff failed to preserve electronically stored information (ESI), the missing information might still be available from other sources.

The plaintiff, Envy Hawaii LLC, is the sole Volvo franchise in Hawaii, having purchased the right to sell Volvos from the defendant, Volvo Car USA LLC.

Envy Hawaii filed its lawsuit in January 2017, alleging that Volvo violated the Automobile Dealers’ Day in Court Act and other federal and state laws. Volvo counterclaimed against Envy Hawaii and its owner and manager, Mikhail Fedotov, asserting fraud, misrepresentation, breach of contract, and other claims.

After two years of discovery, Volvo claimed that Envy Hawaii and Fedotov violated Federal Rule of Civil Procedure 37(e) by failing to preserve “electronic dealer management system records” from the Volvo dealer computer system and emails from Google accounts.

Envy Hawaii and Fedotov countered that — their own preservation efforts notwithstanding — “any relevant records are available from third parties,” negating any spoliation. Thus, they argued, sanctions aren’t permitted under the rule.

The court noted that Rule 37(e) sanctions only apply when ESI “that should have been preserved [for] litigation is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery.” Both conditions must be met and ESI must be “irretrievable from another source” for it to be deemed “lost” under the Rule.

The 2015 Advisory Committee Notes to Rule 37 clarify that ESI “often exists in multiple locations,” such that “loss from one source may often be harmless when substitute information can be found elsewhere.” When that happens, the court cannot impose sanctions.

Here, the court concluded that the ESI that Volvo sought was not actually lost — or, at least, that Volvo had not yet conclusively established that it was lost.

The court first considered the “financial and accounting records” from the “dealer management system” maintained by the third party CDK Drive. The court dryly noted that Volvo, which itself uses its dealer management system, “has not demonstrated that it is not in possession or does not otherwise have access to any information” in that system. Failing that, Volvo admitted that it had not attempted to obtain any information directly from CDK Drive.

As to Google emails related to Envy Hawaii’s business, Volvo again admitted that it had not attempted to obtain discovery from Google. While it argued that it believed Google “delete[s] emails within a short number of days after” an account’s service ends, it made no effort to confirm the availability, or lack thereof, of those emails.

The court concluded that Rule 37(e) sanctions were not available here, since Volvo “ha[d] not demonstrated that the information [was] irretrievable.” It therefore denied Volvo’s motion for spoliation sanctions but authorized it to issue third-party subpoenas for records from Google and/or CDK Drive.

Takeaways on Exhausting Discovery

No matter which side you’re on, it’s worth exhausting your discovery options before crying spoliation. If you believe that your opponent has recklessly lost ESI, investigate whether it is available from other sources before moving for sanctions. Be sure to advise the court of your efforts — and their failure — when arguing that evidence is lost. If you’re the one accused of spoliation, you can either try to restore any lost ESI from other sources or, if you’re feeling bold, throw that burden back on your opponent, as Envy Hawaii successfully did here. In that event, however, bear in mind that you may end up defending two spoliation motions — and the second may not turn out as well.

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