Sec. Alarm Fin. Enters., L.P. v. Alarm Protection Tech., LLC, No. 3:13-cv-00102-SLG, 2016 WL 7115911 (D. Alaska Dec. 6, 2016).
Limited sanctions were appropriate under Federal Rule of Civil Procedure 37(e)(1) where a court found that a plaintiff did not intend to deprive its opponent of critical call recordings at the time its systems overwrote the recordings, although the plaintiff cherry-picked a small number of recordings that supported its case.
This case arose from “several years of litigation between two home security companies.” The plaintiff, Security Alarm Financing Enterprises (SAFE), alleged that its competitor, Alarm Protection Technologies (APT), “illegally ‘poached’ its customers and defamed SAFE.” APT counterclaimed that SAFE “interfered with APT’s contractual relationships and defamed APT.” SAFE routinely recorded its calls with customers, but thousands of recordings were overwritten. All that remained were fewer than 150 “selectively preserved” calls that were “generally favorable to SAFE.”
The court noted that the motion for spoliation was timely, as “a party need not file a motion at the first inkling of spoliation but is entitled to gather evidence” first. The court also held that it was “just and practicable” to apply the recently amended Rule 37 because the rule did “not govern conduct” of the parties, which had “the same duty to preserve evidence” as before the amendment; the rule “merely limit[ed] the Court’s discretion to impose particular sanctions.”
Turning to spoliation, the court first concluded that SAFE clearly had a duty to preserve the recordings. When the recordings were overwritten, “[l]itigation was not only reasonably foreseeable but ongoing.” SAFE also knew of its duty well before the destruction, as it “warned its employees not to use certain terms” on its calls and “flagged the…recordings” for APT during discovery.
Further, the “recordings were ‘lost because [SAFE] failed to take reasonable steps to preserve’ them.” Although SAFE issued a general litigation hold, that hold excluded the recordings, most of which were subsequently overwritten “due to the normal operation of a data retention policy.” The court concluded that “the scope of the litigation hold was not reasonably calculated to preserve information SAFE knew or should have known was relevant.” The court also found that the recordings were irreplaceable through additional discovery. Therefore, spoliation had occurred, and the court turned to sanctions.
SAFE argued that no sanctions were warranted “because APT’s counsel agreed that only SAFE’s ‘investigation’ recordings needed to be produced.” Even if that agreement existed—which was not clear from the record—an agreement about production of evidence would have no bearing on a party’s obligation to preserve evidence. Moreover, “SAFE repeatedly obfuscated on the availability” of the recordings and “preserved only a select few recordings that appear to bolster its own case.” SAFE also argued that sanctions should not be imposed because “APT did not ask SAFE to retain” all the recordings. The court dismissed this contention outright, noting that “it was not APT’s duty to ask—especially when SAFE had stated…that it was maintaining all of the recordings.” Despite this evidence, the court decided that “on the relatively murky record” it had, it could “not conclude that when the recordings were being overwritten, SAFE ‘acted with the intent to deprive’ APT” of them. The severe sanctions of Rule 37(e)(2) were therefore not available.
However, the court did find that APT suffered prejudice from the loss of the calls. Depositions of customers were no replacement, as “this costly and time-consuming exercise would likely demonstrate only that those customers’ recollections of…a brief and unmemorable phone call are a weak substitute for the contemporaneous recordings.” Accordingly, the court imposed sanctions against SAFE. Specifically, the court ordered attorneys’ fees associated with the motion and precluded SAFE “from introducing [at trial] any of the approximately 150 recordings” that it did preserve. Additionally, the court allowed both parties to address the spoliation at trial and would instruct the jury that SAFE destroyed evidence it should have preserved.
The plaintiff’s admissions were damning to its spoliation defense. It knew the recordings were potentially relevant, it preserved some of the phone calls, and it admitted that it could extract calls from its system to preserve them. Despite this knowledge, the scope of the plaintiff’s legal hold was not reasonably calculated to preserve relevant information. The plaintiff was lucky to escape with less than an adverse inference and likely did so because the timeline around the time of the overwriting was “murky.”