Denim North America Holdings, LLC v. Swift Textiles, LLC, Case No. 4:10–CV–45 (CDL).

• Decision Date: 04 October 2011
• Docket Number: Case No. 4:10–CV–45 (CDL).
• Citation: 816 F.Supp.2d 1308
• Parties: DENIM NORTH AMERICA HOLDINGS, LLC, Plaintiff, v. SWIFT TEXTILES, LLC, Galey & Lord, LLC, and Patriarch Partners, LLC, Defendants.
• Court: U.S. District Court — Middle District of Georgia

816 F.Supp.2d 1308

DENIM NORTH AMERICA HOLDINGS, LLC, Plaintiff,

v.SWIFT TEXTILES, LLC, Galey & Lord, LLC, and Patriarch Partners, LLC, Defendants.

Case No. 4:10–CV–45 (CDL).

United States District Court,M.D. Georgia,Columbus Division.

Sept. 8, 2011.Order Denying Reconsideration Oct. 4, 2011.

C. Morris Mullin, Joseph L. Waldrep, Neal Joseph Callahan, Columbus, GA, for Plaintiff.

Allison Stephens Thompson, Christina Hull Eikhoff, Alston & Bird LLP, Atlanta, GA, Hillary Richard, Jessica R. Holloway, Brune & Richard LLP, Mathew Frye Popowsky, New York, NY, for Defendants.

ORDER

CLAY D. LAND, District Judge.

This action arises from a dispute between Plaintiff Denim North America Holdings, LLC (“Holdings” or “Plaintiff”) and Defendants Swift Textiles, LLC (“Swift”), Galey & Lord, LLC (“Galey”), and Patriarch Partners, LLC (“Patriarch”) (collectively, “Defendants”). Holdings and Defendants entered into a business venture to manufacture and sell denim textile products through a limited liability company called Denim North America, LLC (“DNA”). DNA was jointly owned by Holdings and Swift. Holdings contends that Defendants fraudulently induced it to enter the venture and then breached fiduciary duties relating to that business relationship.

Defendants filed three motions that are presently pending before the Court. First, Defendants contend that Holdings destroyed certain email correspondence that is relevant to the claims and defenses in this action. Defendants assert that the destruction of the emails amounts to spoliation of evidence, and they seek dismissal of the Complaint as a sanction. Defs.' Mot. to Dismiss or for an Adverse Inference Against Pl. for Spoliation of Evidence (ECF No. 42). In the alternative, Defendants seek summary judgment as to all of Plaintiff's claims. Defs.' Mot. for Summ. J. (ECF No. 40). In support of their motion for summary judgment, Defendants ask the Court to draw an adverse inference regarding the destroyed emails and also move to strike an affidavit of Larry Galbraith based on its inconsistency with his prior deposition testimony and its failure to comply with Federal Rule of Evidence 1006 regarding summary or compilation evidence. Defs.' Mot. to Strike (ECF No. 50).

For the reasons that follow, the Court finds that the emails were not destroyed in bad faith; therefore, Defendants' Motion to Dismiss or for an Adverse Inference Against Plaintiff for Spoliation of Evidence (ECF No. 42) is denied. The Court finds that the affidavit of Larry Galbraith should not be stricken, so the Motion to Strike (ECF No. 50) is denied. The Court finds that Defendants' Motion for Summary Judgment (ECF No. 40) should be granted in part and denied in part. Specifically, the Court finds that genuine factual disputes exist as to Plaintiff's claims for fraudulent inducement based on Defendants' sales projections and for breach of fiduciary duty arising from Defendants' competition against Plaintiff and Defendants' termination of its sales staff. Therefore, Defendants' motion for summary judgment is denied as to those claims. The Court finds, however, that no genuine factual dispute exists as to Plaintiff's fraudulent inducement claim based on Defendants' concealment of Swift's financial condition or Plaintiff's breach of fiduciary duty claim arising from certain foreign ventures. Therefore, summary judgment is granted as to those claims.

The Court will first address Defendants' motion to dismiss for spoliation of evidence, followed by a discussion of Defendants' motion to strike and motion for summary judgment.

MOTION TO DISMISS

Defendants seek dismissal of this action as a sanction for Plaintiff's destruction of emails Defendants contend are critical to the claims and defenses in this case. In the alternative, Defendants argue that an adverse inference should be drawn against Holdings in the consideration of Defendants' summary judgment motion based upon this alleged spoliation of evidence.

It is undisputed that Holdings does not have a document retention policy with respect to emails. It is also undisputed that Plaintiff's witnesses—Larry Galbraith, Monte Galbraith, George Jeter, Jack Pezold and Tracy Sayers—each had a routine practice of deleting most emails within a short time of receiving them, rarely retained emails longer than three months, and only retained electronic or hard copies of emails if they thought the emails were important. Finally, it is undisputed that Plaintiff's witnesses did not modify these processes after they reasonably anticipated this litigation in either 2007 or 2008. As a result, Holdings was unable to produce these emails, which Defendants contend are potentially critical to Plaintiff's own case, during discovery.

Under Federal Rule of Civil Procedure 37, the Court may sanction a party for destroying evidence. Federal law “governs the imposition of spoliation sanctions,” though the Court's determination is also informed by Georgia law. Flury v. Daimler Chrysler Corp., 427 F.3d 939, 944 (11th Cir.2005). In determining the proper sanction for spoliation, the Court must consider “(1) whether the defendant was prejudiced as a result of the destruction of evidence; (2) whether the prejudice could be cured; (3) the practical importance of the evidence; [and] (4) whether the plaintiff acted in good or bad faith.” ¹ Id. at 945. In general, an adverse inference is drawn from a party's failure to preserve evidence “ ‘only when the absence of that evidence is predicated on bad faith.’ ” Cox v. Target Corp., 351 Fed.Appx. 381, 383 (11th Cir.2009) (per curiam) (quoting Bashir v. Amtrak, 119 F.3d 929, 931 (11th Cir.1997) (per curiam)). Also, under Federal Rule of Civil Procedure 37(e), “[a]bsent exceptional circumstances, a court may not impose sanctions under these rules on a party for failing to provide electronically stored information lost as a result of the routine, good-faith operation of an electronic information system.” Fed.R.Civ.P. 37(e).

The present record supports a finding that Holdings' employees destroyed the emails in the ordinary course of business unmotivated by any bad faith. E.g., Defs.' Mot. to Dismiss 3 nn. 6 & 7 (summarizing testimony of Plaintiff's witnesses, who generally stated that they had a regular practice of deleting emails unless they thought they would need to refer to them later). Defendants have produced no evidence to the contrary. Accordingly, the Court finds that sanctions are not appropriate. Therefore, Defendants' Motion to Dismiss or in the Alternative Apply an Adverse Inference (ECF No. 42) is denied.

MOTION TO STRIKE

In opposition to Defendants' motion for summary judgment, Plaintiff relies upon the third affidavit of Larry Galbraith (“Galbraith Affidavit”). Defendants seek to strike that affidavit. Defs.' Mot. to Strike 3rd Galbraith Aff., ECF No. 50. Therefore, the Court must decide Defendants' Motion to Strike (ECF No. 50) before addressing Defendant's Motion for Summary Judgment.

In his third affidavit, Galbraith included a report that is an assimilation of DNA sales invoices and differentiates between sales of higher margin and lower margin denim products. Pl.'s Resp. to Defs.' Mot. for Summ. J. [hereinafter Pl.'s Resp.] Ex. 44, Galbraith 3d Aff. ¶ 4, ECF No. 44–44 [hereinafter Galbraith Aff.]. The purpose of this report is to demonstrate that Swift produced a significantly lower sales volume of higher margin denim product than it projected over the first five quarters of the joint venture and that the overall sales volume was mainly lower margin denim product.

The following background explains the importance of this affidavit. DNA sold two main types of denim during the first five quarters of the joint venture: Swift styles, which were higher margin products, and DNA styles, which were lower margin products. Holdings contends that it suffered damages because Defendants did not market the Swift styles as they promised to do, so the bulk of product DNA manufactured and sold during the first five quarters of the joint venture was the lower priced DNA style denim.² Although Swift maintained inventory records that tracked inventory by style and by buyer, those records were lost due to a power outage. It is undisputed that Holdings representative Larry Galbraith testified at his deposition that DNA's records did not distinguish between sales of higher margin Swift denim and lower margin DNA denim. Defendants relied on that testimony in their summary judgment motion, arguing that Holdings had produced no evidence that distinguished between sales of higher margin Swift denim and lower margin DNA denim.

Defendants cannot seriously dispute, however, that, prior to Galbraith's 30(b)(6) deposition, Holdings produced to Defendants the sales records that Galbraith later used to produce the Affidavit. See Pl.'s Resp. to Defs.' Mot. to Strike Ex. A, Letter from M. Mullin to H. Richard 2, Apr. 14, 2011, ECF No. 51–1 (notifying Defendants that DNA had “thousands and thousands of invoices and other documentary details of product sold” dating back to 2006 and offering Defendants an opportunity to review them). It is undisputed that Defendants did not review those documents.

Defendants contend that the Court should strike the Galbraith Affidavit for two reasons: (1) Galbraith was not prepared for his deposition as the 30(b)(6) corporate representative of Holdings; and (2) the Galbraith Affidavit does not meet the requirements of Federal Rule of Evidence 1006 for summary exhibits. Neither contention is persuasive.

It is undisputed that Galbraith was one of Plaintiff's 30(b)(6) corporate representatives on the topic of damages. L. Galbraith Dep. 24:1–11, ECF No. 59. At his deposition, Galbraith explained that although DNA's quarterly reports did not differentiate between sales of Swift style product and sales of DNA style denim after 2006, id. at 99:21–100:11, he also stated that he could go back and reconstruct it and “break it down by...