Premier Dealer Servs., Inc. v. Duhon
| Decision Date | 22 November 2013 |
| Docket Number | CIVIL ACTION NO: 12-1498,c/w 12-2790 |
| Parties | PREMIER DEALER SERVICES, INC. v. TROY DUHON, ET AL. |
| Court | U.S. District Court — Eastern District of Louisiana |
Before the Court is Defendants, Troy Duhon, ("Duhon") and Premier Automotive Products, LLC's, ("Premier Automotive") (collectively, "Defendants") Motion to Compel Production and for Sanctions based on Spoliation of Evidence (R. Doc. 101), seeking an order from this Court imposing sanctions on Third-Party Defendant, Dealer Services South, ("DSS") for responding to discovery requests inadequately, for failing to produce relevant documents referenced during the deposition of DSS's Chief Executive Officer, ("CEO") Marc Mader ("Mader"), and for the alleged destruction of an iPad and original e-signature of Administrative Agreements which is the subject of this action. (R. Doc. 101).1 The motion was opposed. (R. Doc. 108). Defendants filed a reply to the opposition in early September, as well as a supplemental memorandum in support of its motion for sanctions on October 29, 2013. (R. Docs. 119, 145).
This action arises out of the alleged trademark infringement of Plaintiff, Premier Dealer Services, Inc.'s ("PDS") customer loyalty programs and other products for interstate automobile dealers, by Defendant, Premier Automotive. (R. Doc. 1, p. 5). Premier Dealer alleges that Defendants, which included Troy Duhon and Premier Automotive2 were contacted in 2010 by Premier Dealer's agent, now third-party defendant, DSS, through its CEO, Mader, who also marketed PDS' automotive warranty. ("DSS"). Id. at 7.
PDS alleges that defendants showed interest in the Plans, received training, and confidential information from PDS. Id. at ¶23-26. On September 20, 2011, PDS alleges that through its agent, DSS, it entered into into "Administration Agreements" with each of the Defendants. Id. at 8. These Agreements which totaled eight in number were allegedly signed by Scott Nietert acting for the defendants and required Defendants to participate in the Lifetime Powertrain Protection and Lifetime Engine Protection plans, to arrange for insurers, process claims, and included provisions regarding the use of PDS' intellectual property and proprietary information. See id.
PDS alleges that it subsequently learned that Defendants had copied its marketing and administrative materials, in contravention of the Administration Agreements. See id. at 9. PDS alleges that defendants breached the Agreements and infringed its copyright in a legal form entitled "Lifetime Powertrain Program Certificate." Id. at ¶34-43. PDS alleges that Defendants' true intention was not to enter into a business relationship with it, but rather to gain access to its materials, training expertise, and trade secrets. Id. at 10. Premier Automotive brought a third-party demand against agent DSS, alleging that (1) DSS voluntarily shared PDS's materials and (2) allegedly PDS was never a party to the agreement.
On October 17, 2013, this Court ruled separately on Defendants' Motion to Compel Production. See R. Doc. 141. In its Order, the Court reserved its ruling on Defendants' Motion for Sanctions and ordered Defendants to produce the Notice of Deposition of Marc Mader, as well as any and all documents referenced as exhibits, whether or not attached, in his July 22, 2013, deposition. Id. at p. 10-11. The Court also ordered that to "the degree the October 1, 2013, Court Ordered Extended Deposition of Marc Mader (R. Doc. 120) adds to the merits of the Motion for Sanctions" Defendants were to produce the testimony to the Court along with the Notice of Deposition. Id.
As to the instant Motion, Defendants argue that DSS failed to comply with its discovery requests and move this Court to compel DSS's responses and impose sanctions based on spoliation of evidence, (1) for its failure to produce relevant documents referenced during the deposition of DSS's Chief Executive Officer, ("CEO") Marc Mader ("Mader"), and (2) for the alleged destruction of the iPad containing the original e-signature of Premier Automotive's employee, Scott Nietert who allegedly signed the agreements with Defendants and (3) the original e-signature. Id.
Allegations of spoliation, including the destruction of evidence in pending or reasonably anticipated litigation are reviewable in federal courts today through the inherent power to regulate the litgation process occurs before a case is filed or if for another reason, there is no statute or rule that adequately addresses the conduct. Chambers v. NASCO, Inc., 501 U.S. 32, 44, 46, 50-51 (1991); InrePraxada, at *5; Methode Electronics, Inc. v. Adam Technologies, Inc., 371 F.3d 923, 927 (7th Cir. 2004) (). Rimkus Consulting Group, Inc. v. Cammarata, 688 F.Supp.2d 598, 611 (S.D. Tex. 2010).
If an applicable statute or rule can adequately sanction the conduct, that statute or rule should ordinarily be applied with its attendant limits rather than a more flexible or expansive "inherent power."Chambers, 501 U.S. 50. A trial court should consider invoking its inherent sanctioning powers only where no sanction established by the Federal Rules or a pertinent statute is 'up to the task' of remedying the damage done by a litigant's malfeasance. Natural Gas Pipeline co. of Am. v. Energy Gathering, Inc., 2 F.3d 1397, 1408 ( 5th Cir. 1998)
When inherent power does apply, it is "interpreted narrowly, and its reach is limited by its ultimate source- the courts need to orderly and expediously perform its duties." Newby v. Enron Corp., 302 F.3rd 295, 302 (5th Cir. 2002)(footnote omitted). If inherent power, rather than a specific rule or statute, provides the source of the sanctioning authority under Chambers, it may be limited to a degree of culpability greater than negligence. Rimkus Consulting Group, Inc. 658 F. Supp.2d 598 (S.D. Tex. 2010).
Rule 37(b)(2(A) applies when a party, officer, director, or managing agent or witness designated under Rule 30(b)(6) or 31(a)(4) fails to obey an order to provide or permit discovery including an order under 26(f), 35 or 37(a). In these instances the Court may issue orders that (1) designate facts as established, (2) prohibit the disobedient party from supporting or opposing the claim, defense from introducing evidence, (3) strike pleadings in whole or part, (4) stay the proceedings until the order is obeyed, (5) dismiss the action in whole or part (6) render a default judgment against the disobedient party and/or (7) treat as contempt of court for the failure to obey any order except an order to submit to a physical or mental examination. See Fed. Rule Civ. 37(d)(1)(A).
In addition, a Court has statutory authority to impose costs, expenses and attorneys fees on "any attorney . . . who so multiplies the proceedings in any case unreasonably and vexatiously." 28 U.S.C. § 1927. Rule 37(e) also applies to electronically stored information lost through "routine good-faith operation of an electronic information system rather than through intentional acts intended to make evidence unavailable in litigation." Id.
Defendants contend that the Court should sanction DSS because it intentionally deleted all relevant emails even though it knew that litigation is imminent. It does not indicate the authority by which the Court can assess a finding of sanctions.
DSS in contrast contends that Defendants' Motion is untimely or premature. It suggests that the appropriate method for obtaining sanctions is that Plaintiff should first move to compel the production of electronic data, then upon the opposing party's failure to do so, seek sanctions. See R. Doc. 108, p. 5-6; citing Marketfare Annunciation, LLC., v. United Fire & Cas. Ins. Co., 06-07232, 2007 WL 3273440, at * 4 (E.D. La. 11/5/07).
As described above, the spoliation alleged in this case and the proposed sanctions implicate this Court's inherent authority. The record indicates that the state court suit that was initiated by DSS was withdrawn or voluntarily dismissed on May 21, 2012. Less than one month later PDS filed the subject lawsuit for which Mader confirmed he knew PDS intended to file, during his deposition. However in the time between the dismissal of the state suit and the subject suit, according to Mader, three forms of electronic evidence were discarded.
As a result, the alleged spoliation occurred before the subject matter was filed, before a discovery order was entered, and before a Rule 37 motion for the failure to comply with discovery orders. In instances such as this, the Court's inherent authority provides the legal basis for considering the subject motion. As a result, the courts authority to sanction is limited to a finding of bad faith. See Sample v. Miles, 239 Fed. App'x 14, 21 n. 20 (5th Cir. 2007).
Defendants argue that Mader had a duty to preserve the email subfolder, the iPad containing the e-signature used on the Administration Agreements central to this dispute, and the original e-signature, because he "knew" litigation was imminent. See R. Doc. 101-6, p. 85, Mader Depo 1, ("MD1") pp. 338-39.
In opposition, DSS contends that Mader did not have a duty to preserve the evidence as he could not have "reasonably anticipated" that he would need it for future litigation. See R. Doc. 108, p. 5-6; R. Doc. 148-1, pp. 186-87.
A duty to preserve arises when a party knows or should know that certain evidence is relevant to pending or future litigation. Rimkus, 688 F.Supp.2d at 612 (citing John B. v. Goetz, 531 F.3d 448, 459 (6th Cir.2008)); accord, Toth v. Calcasieu Parish, 2009 WL 528245 at *1 (W.D.La. 2009) (citing Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 216 (S.D.N.Y.2003)). Once litigation is reasonably anticipated, a potential party to that litigation has a duty not to destroy "unique, relevant...
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