Episode 107: Comparing and Contrasting Different Rulings on Prejudice and Intent under Rule 37(e)

Episode 107, which juxtaposes another ruling for failure to preserve text messages against last week’s case from Episode 106, shows the importance of knowing your jurisdiction and judge and reinforces the need to identify and collect data from mobile devices early in litigation to avoid spoliation and potential sanctions.

Introduction

Welcome to this week’s episode of our Case of the Week series, published in partnership with ACEDS. My name is Kelly Twigger. I am the CEO and founder at eDiscovery Assistant and the principal at ESI Attorneys. Thanks so much for joining me today.

Our goal, as you know if you join us regularly on the Case of the Week series, is to choose a decision each week and talk about the practice practical implications that it teaches us for anyone who touches the ediscovery process.

I chose this week’s case to juxtapose it against the decision from Fowler on last week’s episode because of the different outcomes by the two judges on both prejudice and intent to under Rule 37(e) in two different factual scenarios where a party failed to preserve text messages from cell phones. I thought it would be worth us analyzing the differences and how the courts are addressing these issues under Rule 37(e). And this one’s going to be interesting.

To all of our friends who are at CLOC or at Relativity Fest London, this week, we shout a big hello to you and hope that your weeks are going well.

We are gearing up here for the Master’s Conference in Denver on June 8, and I am looking forward to participating on panels with both CloudNine and Relativity.

Facts

All right, let’s dive into this week’s decision in the matter of In re Skanska USA Civil Se. Inc. This is an action that arose following damage that occurred due to Hurricane Sally.

This decision is from August of 2021. Again, as I mentioned earlier, I chose it really to juxtapose it against the Fowler decision from last week regarding Rule 37 because that issue in the sanctions arena is coming up so often on failure to preserve that I think it’s worth understanding that different jurisdictions are handling the issues under that rule differently.

This decision comes to us from United States Magistrate Judge Hope Cannon. As I mentioned from August of 2021, Judge Cannon has 15 cases on discovery-issued decisions in our eDiscovery Assistant database, and she’s well-versed in these topics. As always, we tag the issues in our database with our proprietary issue tagging structure, and our issues for this week include legal hold, mobile device, text messages, sanctions dismissal, adverse inference, bad faith, failure to preserve, spoliation, and cost recovery.

What are the facts before us here? We are before the Court on a motion for sanctions for failure to preserve text messages from mobile devices. The Claimant in this admiralty action is seeking dismissal as a sanction for the failure to preserve text messages and mobile devices of five custodians.

If you watched last week’s episode in Fowler, one of our takeaways was that those RFPs should go out as soon as possible after the litigation is filed, and the parties have made the requisite actions under Rule 26 that are required to institute discovery. Maybe that’s what happened here and it took that long to do it, but we’re going to find that if these requests had gone out earlier, we might have gotten answers on these mobile custodians earlier.

In response to the requests for production, Skanska selected 13 custodians for whom it would provide cell phone data. After making that selection of those custodians, however, Skanska informed the Claimants on June 16, 2021, that the cell phone data for five custodians had been wiped clean, deleted, or lost. Each of the five employees of Skanska had company-issued cell phones, and each had a different set of circumstances that resulted in the loss of the data after the first lawsuit was filed and after Skanska’s duty to preserve arose.

If you’re following along already on the timeline, we’ve got a duty to preserve arising in early fall of 2020. Litigation was filed a month or so thereafter. Requests for production were issued about six months later, and then custodians were identified prior to responding to the request for production. Then after those custodians were notified, finding out that, in fact, data for five of those custodians was no longer available.

Four of the five phones were lost after the employees left their employment with Skanska. We want to focus directly on that timeline, which is one of our core principles here at Case of the Week.

The first custodian was named Stevens, and she was a field engineer for Skanska who was responsible for drafting the hurricane plan that was in effect for Hurricane Sally. She used her cell phone to communicate with other employees about the Pensacola Bay Bridge project, and she turned her cell phone back in to the business manager following her last day of employment on November 20, 2020. That is almost exactly when the first lawsuit was filed in state court by the Claimants.

The business manager told Stevens at the time she turned her phone in that he needed to reset the factory phone to factory settings. He asked her for her passcode and then reset the phone to factory settings again. That was one week after the first lawsuit was filed by the Claimants in state court. There is no backup available for the text messages from Stevens’ device.

The next custodian was named Bender, and he was a superintendent on the project, responsible for securing boats and equipment before Hurricane Sally, and he participated in meetings and communicated with employees using his company-issued phone. He turned his cell phone over to an administrative employee who worked for the business manager on his last day, which was December 24, 2022, two solid months after the first litigation had been filed, and three and a half months after Skanska’s duty to preserve had arisen.

Prior to turning it in, Bender reset his phone to factory settings per Skanska’s policy, which had not been suspended, because that was company policy, but also what he had done at previous jobs. There was no other backup of his company phone. No one asked Bender for his passcode for the phone until July of 2021.

The next custodian was Johnson. Johnson was a superintendent on the project and may have had both relevant photos and text messages on his company-issued phone. Johnson turned in his phone on his last day of employment on April 15, 2021, right around the same time that the request for production was received in the litigation. He was not asked to reset it, and he did not reset it himself. He didn’t remember whether anyone from Skanska asked him for the passcode before he left his employment, but no one had asked him since he had left the company. At some point, the phone became disabled, and the parties were no longer able to get data from it. That’s a slightly different fact scenario than our first two employees.

The fourth employee was McGlynn. McGlynn was the general superintendent of a project whose last day of employment was May 5, 2021, after the claimants had issued their RFPs. The decision doesn’t say whether Skanska had yet agreed to include McGlynn on its list of custodians at the point prior to his leaving. McGlynn turned in his phone on his last day, but the text messages have since been deleted, and there is no backup information available from his device.

The fifth employee’s phone that was lost was really an accident. That employee’s name was Rubio and was the general superintendent for Skanska. Rubio’s phone fell into the water on May 23, 2021, while working on a project for Skanska in Maryland and was not retrieved. There was no backup of the data.

We’ve got employees who turned their phones into the company—some with factory reset, some with not, and one whose phone was lost — essentially, just like the plaintiff in Fowler that we discussed last week, whose phone was stolen out of his car. Dropped the phone in the water. It’s roughly the equivalent of having your phone stolen out of your car. You’ve got absolutely no ability to recover that or to take steps to prevent that from happening.

That’s the situation before us. We’ve got five custodians whose cell phone data is lost that were named by Skanska as custodians to be provided information under these responses to request for production.

Analysis

So, what’s the Court’s analysis here? The Court begins by defining spoliation as, “the intentional destruction, mutilation, alteration, or concealment of evidence.”  The Court notes that federal law governs spoliation in admiralty cases like the one before us, which means that the Court next considers spoliation under Federal Rule of Civil Procedure 37(e), which provides for sanctions for failure to preserve.

As we’ve discussed many times on Case of the Week, the Court goes through the required steps for sanctions under Rule 37(e), which include that the duty to preserve existed, that Skanska took reasonable steps to preserve the data, whether the lost data can be restored or replaced through additional discovery, and if not, whether claimants were prejudiced by the loss of that data. If prejudice exists, the Court can then impose “measures no greater than necessary to cure the prejudice.” If the data loss was with the intent to deprive another party of the information’s use in the litigation, the Court may presume that the lost ESI was unfavorable to the party and may impose an adverse inference, dismiss the case, or find default judgment.

Now, applying the law to the facts of the case, the Court states that this is “a textbook case of spoliation,” by Skanska. The Court notes that Skanska anticipated litigation by September 16, 2020, that they issued their own written litigation hold to employees on October 14, 2020, the first lawsuit was filed in November of 2020, and a request for production seeking text messages were sent in April 2021.

The Court doesn’t note it again in this part of the decision, but at some point prior to those requests for production, the parties expressly agreed in an ESI protocol, which is an order before the court that text messages would be provided. I did wonder, in this case, even though we’re looking at a failure to preserve, whether a failure to produce those text messages could have also been a violation of Rule 37(b), which does not require such a high level of intent for a sanction. In this particular case, it doesn’t end up mattering, but it’s worth consideration when you are moving for sanctions if you do not have a sufficient basis to state intent, as happened in the Fowler case. If you’ve got a court order like you had here in the ESI Protocol, which I’m assuming was entered by the Court (which is not actually stated in the decision) then you could move for sanctions under 37(b) without the requisite intent.

The Court notes that Skanska failed to suspend its normal document destruction procedures, failed to collect cell phone data from key custodians, failed to ensure its employees understood the litigation hold that they received, and failed to take any steps to prevent the destruction of cell phone data. While some of the text messages were included in the production of data from other custodians, the Court found that there was no dispute that there are text messages which are no longer available from any source.

Skanska tried to argue that it had just a gap in procedures and that any loss was inadvertent and not intentional, and that there was no prejudice to the claimants. The Court responds to that argument with this:

While the Court may be able to tolerate a gap here or there, the Court cannot ignore Skanska’s wholesale failure to take any steps to collect the cell phone data from these custodians or, at minimum, to ensure the custodians were aware of and understood the litigation hold that Skanska issued in October 2020. If the Court did not act to take some action in this case, it would, in essence, be rewarding Skanska for ignoring its preservation and collection obligations.

That’s a pretty powerful quote from the Court here, and it’s really a shout-out to all of the corporations who have very large and complex systems set up with their employees and who have deployed mobile devices and have many sources of ESI that have to be managed in the context of litigation. It is a large, large burden, but this Court is saying that’s your burden under the Federal Rules of Civil Procedure, and you need to live up to them. Failure to live up to them will result in sanctions.

The Court then goes on to discuss that the duty to preserve existed as of September 16, 2020, when Skanska ordered its general counsel to work with management and outside counsel to respond to, investigate and inquire into the circumstances surrounding the movement of construction barges from their intended place during Hurricane Sally. Here, in fact, Skansa had stated in an interrogatory response that it had implemented an evidence retention and hold policy after Hurricane Sally, which was communicated by in-house counsel to employees verbally on September 16 and 17th, 2020 “while Sally’s winds were still blowing.”

In essence, the Court says, look, you were talking to outside counsel. You understood you had issues here. You even said in your interrogatory responses that you had implemented an evidence retention and hold policy, but you really didn’t when it came to mobile devices.

The Court then turned to whether Skanska took reasonable steps to preserve the data. Despite sending the litigation hold notice, Skanska took no other steps to let these custodians know they had information that would need to be collected and preserved, collect these custodians’ cell phones after the litigation hold was in place, or at a minimum, explain to these custodians what a litigation hold means.

As such, the Court found, perhaps unsurprisingly, that Skanska did not take reasonable steps to preserve the cell phone data for these custodians. The Court went on to note that since these phones were issued by Skanska, it was clear that Skanska had possession, custody, or control of the phones. Had Skanska collected the data from these phones, it would not have mattered if the cell phones had been reset, disabled, or fallen into the water. The fact that Skanska may have not hit the delete button in each case did not insulate it from responsibility.

Those are some key and important facts. We’ve talked a lot on Case of the Week about possession, custody, or control and whether or not a corporation has possession, custody, or control over company-issued devices. There’s lots of case law out there that we’ve discussed on how the company manages those devices as to whether they are in their possession, custody or control. That was not an issue in this case, instead the Court just states it outright.

The Court then turns to whether or not the text messages that are lost could have been restored or replaced, and it answers that question that they could not. None of the five witnesses could remember who they texted, what the messages were about, or whether they had taken photos. There was no way to know whether the texts could be collected from the remaining custodians. The takeaway here is that in order to determine this element — whether texts can be restored or replaced — it’s going to be up to testimony from those custodians whose data was lost.

If they are former employees, it is unlikely they’re going to remember very much. Even current employees whose data is lost often can’t remember what the circumstances are as time goes on. It’s really important to get that information at the time that you know litigation is anticipated.

Having met all of those steps, the Court then turns to whether or not there was prejudice to the Claimants from the loss of the data. As always, whether prejudice exists is in the discretion of the judge. Skanska argues that the Claimants have not been prejudiced because the extent these custodians used the phone to text was minimal at best. But the Court knows that each of the custodians testified that they sent text messages in or around the time leading up to, or after Hurricane Sally, to other Skanska employees.

Skanska also tried to argue that the missing text messages did not prevent Claimants from defending the action because their motion for partial summary judgment, for example, relied solely on the conduct of other employees. But the Court notes that Skanska had taken the opposite position in response to the motion for summary judgment, ostensibly arguing that the employees that Claimants relied on there did not have direct responsibility for the actions at issue. Instead, the lower level employees, like the ones whose phones were lost, had responsibility for it.

Skanska shot itself in the foot by arguing one position in the motion for summary judgment and trying to take a separate, distinct position on the motion for sanctions. That’s rarely going to fly with the Court.

The Court then states that because it finds that the spoliation was done in bad faith that the evidence is deemed to be prejudicial. Now, that kind of gives away what the Court thinks when it comes to the intent to deprive. That’s where we turn next.

The Court states that the intent to deprive is the equivalent of bad faith. While there is no direct evidence of bad faith, the Court conducts a four-factor test usually used to determine evidence of bad faith as to whether or not the claimants had shown bad faith via circumstantial evidence.

Those four factors included:

1. First, that the evidence once existed that could fairly be supposed to have been material to the proof or defense of a claim at issue in the case.
2. Second, that the spoliating party engaged in an affirmative act causing the evidence to be lost,
3. Third, that the spoliating party did so while it knew, or should have known of its duty to preserve the evidence, and
4. Fourth, the affirmative act causing the loss cannot be credibly explained as not involving bad faith by the reason proffered by the spoliator.

Here, what I really want to focus on is that affirmative act. We’ve talked many, many times on Case of the Week that in order to meet the intent requirement for Rule 37(e), there generally has to be affirmative steps taken to destroy the data. They are usually clearly with the intent to deprive a party of that data in litigation.

Here, we have Skanska taking affirmative steps not to keep the information (i.e., resetting factory settings or simply not keeping phones from custodians). But there’s a question in my mind as to whether the affirmative acts that were taken were actually taken with the intent to deprive another party of evidence in the litigation.

Regardless of my analysis, the Court found under the four-factor bad faith test that the text messages could have been relevant, and that Skanska’s failure to collect those cell phones for more than seven months after it issued a legal hold and anticipated litigation was not an “oops,” but it was bad faith. The Court also rejected that Skanska was merely negligent and instead found that Skanska had acted in bad faith.

Even without any affirmative act that was intentionally made to deprive plaintiffs of any evidence in the litigation, or at least any evidence that suggested such, the Court finds that there was the requisite intent for sanctions under Rule 37(e) based on the bad faith standard. As to sanctions, the Court rejected the notion that the case merited dismissal as that was a sanction of last resort and instead imposed an adverse inference instruction.

The Claimants here requested two instructions. First, that the lost cell phone data was relevant and favorable to the Claimants and second, that it was not these custodians’ conduct (i.e., those who lost their cell phones) that caused the barges to go adrift here. The Court found that both of those instructions were justified and ordered that they both be given. The Court noted, however, that because this is an admiralty case, it will be tried to the bench and not to a jury and that the Court’s order of the adverse inference instruction will be subject to the trial court’s discretion.

The Court also awarded costs and fees to bring the motion and not the full value of the case as the claimants requested.

Takeaways

All right, what are our takeaways here? Well, I’ve mentioned it a couple of times, but let’s juxtapose today’s decision with last week’s case in Fowler v. 10th Planet, where the cell phone from the plaintiff in Fowler was stolen after his duty to preserve arose and the judge did not find intent. In that case, the failure to take active steps to preserve the text was negligent, and the Court did not find prejudice based on the mix of evidence presented.

Here, a sophisticated litigant, as the Court notes, had policies and procedures in place to deal with preservation of data and litigation holds and simply didn’t do it in time to prevent spoliation. In fact, really what they didn’t do was have an exit policy for dealing with data from custodians who left after a litigation hold was in place.

In many other cases, the type of conduct by Skanska here has not risen to the level of intent required for Rule 37(e), but using the bad faith test, it did here. If you are in the 10th Circuit, you need to be aware of this case and its implications, which suggest that failure to preserve can be intentional under Rule 37(e), when no intentional actions are taken to destroy evidence with the intent to deprive another party of its use. At least in the context of this decision, there is no evidence put forth that the Judge considers that Skanska took steps to intentionally deprive the claimants here of those text messages.

Now, both of the cases involve the party failing to take active steps to preserve the data, but with two completely different results. Pay attention to the factual analysis and the Court’s test for bad faith here. Those are the differences that you need to be aware of between these two different decisions, and you need to be aware of them in your motion practice where you are jurisdictionally on ediscovery issues makes a huge difference. Dig into the case law in your jurisdiction and make sure you’re paying attention to the factual analysis of the case to be able to distinguish them effectively if you can.

All right, next. Text messaging and the use of mobile devices by employees in the field is a given. Counsel needs to be aware and take active steps to preserve mobile devices immediately when that duty arises. We’ve seen too many decisions where counsel wait until many, many months after the litigation has been filed to take the active step of preserving mobile device data. Case law is now very clear that that will get you in hot water.

Remote collection for mobile devices is now very common, and that means that the preservation and collection of data does not have the same issues that it used to have just a few years ago. There’s really no excuse not to have a plan in place for this. The cost of remote mobile device collection is much less expensive than it used to be. And even when you’re talking about dozens or hundreds or thousands of cell phones, there are tools and providers out there to assist with that. Have a plan in place. Have a plan in place for your exit plan for employees before litigation arises.

Next, always conduct custodian interviews and get data preservation in place for those custodians you will name before agreeing to them on a list. Here, Skanska’s counsel included 13 custodians on a list of people they would provide text messages for before talking to those custodians and understanding that five of them no longer had their mobile devices. Now, what had happened if Skanska had never listed those people? Would this issue have even come up? It’s a question. I don’t know the answer to it.

Next takeaway. Talking to outside counsel is sufficient to trigger your duty to preserve. If you have reached out to outside counsel about potential litigation, that will be sufficient to trigger your duty to preserve because it shows that you reasonably anticipate litigation. That’s an important takeaway from this decision and one that matters a huge amount, because that is the first factor on Rule 37(e), whether you had a duty to preserve and when it arose.

All right, next. When you are engaging on motion practice related to ESI, make sure to familiarize yourself with the committee notes for each of the rules. Here the Court cites to the committee notes from Rule 37, and it’s key in the Court’s analysis on intent. Now, the committee notes to the rules on ESI are crucial. They’re included in our eDiscovery Assistant database. Make sure that you’re paying attention to them when you are looking at these rules and engaging in your motion practice.

Conclusion

Okay, that’s our Case of the Week for this week. Thanks so much for joining me. We’ll be back again next week with another decision from our eDiscovery Assistant database. As always, if you have suggestions for a case to be covered on our series, please drop me a line. If you’re interested in doing a free trial of our case law and resource database, you can sign up to get started.

Thanks so much, and have a great week.