GW EQUITY LLC, Plaintiff, v. XCENTRIC VENTURES LLC, et al., Defendants Civil Action No. 3:07–CV–976–O United States District Court, N.D. Texas, Dallas Division January 09, 2009 Counsel John T. Cox, III, Angela V. Colmenero, Lynn Tillotson & Pinker, Dallas, TX, for Plaintiffs. Jeffrey Scot Seeburger, Kane Russell Coleman & Logan, Dallas, TX, Maria Crimi Speth, Jaburg & Wilk PC, Phoenix, AZ, for Defendants. O'Connor, Reed, United States District Judge ORDER RESOLVING OBJECTIONS AND ACCEPTING FINDINGS AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE *1 On August 14, 2008, this Court referred Plaintiff's Motion for Sanctions Against Defendants for Intentional Spoliation of Relevant Evidence to the magistrate judge for recommendation or determination. On October 8, 2008, the magistrate judge found Plaintiff failed to demonstrate that sanctions are warranted, and recommended denial of Plaintiff's motion. Plaintiff filed an objection to the magistrate judge's findings and recommendation, which this Court must resolve. See FED. R. CIV. P. 72. Having considered Plaintiff's objection in light of all relevant filings and law, the Court overrules this objection and affirms the magistrate judge's order. I. Standard of Review Plaintiff argues that the de novo standard of review applicable to resolution of a magistrate's rulings on dispositive motions applies here because Plaintiff asked that judgment be entered against Defendants as a sanction. However, the severity of the sanction recommended by the magistrate judge determines whether a motion for sanctions is considered dispositive or nondispositive. See Gomez v. Martin Marietta Corp., 50 F.3d 1511, 1519–20 (10th Cir.1995) (the penalty to be imposed rather than the penalty sought by the movant controls the scope of the magistrate's authority); John v. Louisiana, 889 F.2d 1441 (5th Cir.1990) (magistrate's recommendation of monetary sanctions is nondispositive). Here, the magistrate judge recommended that Plaintiff's motion for sanctions be denied. Accordingly, the Court applies the standard of review applicable to review of a magistrate judge's ruling on a nondispositive motion. The Court reviews a party's challenge to the decision of a magistrate judge in a nondispositive matter pursuant to Rule 72(a) of the Federal Rules of Civil Procedure, which provides that the court “shall modify or set aside any portion of the magistrate judge's order found to be clearly erroneous or contrary to law.” See FED. R. CIV. P. 72(a); see also Barrow v. Greenville Indep. Sch. Dist., 202 F.R.D. 480, 481 (N.D.Tex.2001). The ‘clearly erroneous' standard applies to the factual components of the magistrate judge's decision. Lahr v. Fulbright & Jaworski, L.L.P., 164 F.R.D. 204, 208 (N.D.Tex.1996). The district court may not disturb a factual finding of the magistrate judge unless the reviewing court is left with the definite and firm conviction that a mistake has been committed. Id. If a magistrate judge's account of the evidence is plausible in light of the record viewed in its entirety, a district judge may not reverse it. Id. The magistrate judge's legal conclusions are freely reviewable. Barrow, 202 F.R.D. at 482. The district judge applies a de novo standard, and reverses if the magistrate judge errs in some respect in his legal conclusions. Id. The abuse of discretion standard governs review of the vast area of choice that remains to the magistrate judge who has properly applied the law to fact findings that are not clearly erroneous. Id. II. Background *2 Plaintiff GW Equity (“Plaintiff”) is a mergers and acquisition firm which acts as a consultant to middle-market business owners who seek to sell or merge their business. Plaintiff alleges that Defendants published defamatory statements about Plaintiff on their websites, www.RipoffReport.com and www.badbusinessbureau.com (“websites”), and developed, wrote, created, edited, and published information contained in the titles and headings of the defamatory statements. Plaintiff demanded in writing that Defendants remove these statements. Doc. No. 181 (3:07–CV–976–O) (N.D.Tex. Jul. 7, 2008) (“Pl's Appx.”). Defendants refused and Plaintiff filed suit on June 1, 2007. On August 8, 2007, Plaintiff sent Defendants a letter demanding they preserve all evidence regarding the individuals who posted the allegedly defamatory statements about Plaintiff. Pl's Appx. at 61–63. Plaintiff demanded that Defendants not “[i]nitiate any procedures that would alter any active, deleted, or fragmented data” or “[r]otate, alter, or destroy any media that stores electronic data.” Id. at 62. Plaintiff also demanded that Defendants not “[d]ispose of any media that contains electronic data” or “[o]verwrite any electronic data.” Id. On July 7, 2008, Plaintiff filed its Motion for Sanctions Against Defendants for Intentional Spoliation of Relevant Evidence. Plaintiff claims Defendants intentionally destroyed evidence, including the original versions of statements submitted by third parties to Defendants' websites. Plaintiff alleges that these original postings, if compared to later versions of the postings, would prove that Defendants added their own content to the defamatory statements. Plaintiff asserts that this information is relevant to Defendants' affirmative defense under the Communications Decency Act. Defendants claim they maintain a policy of never destroying documents or other electronic information. Defendants assert that the documents currently published on their websites are the original postings submitted by the authors. Defendants do not dispute that if an employee made a change to a posting, Defendants' electronic database would save the change directly into the submitted content, overwriting the original content. Id. However, Defendants claim that this overwriting capacity is irrelevant because nothing was added to or removed from the postings at issue in this lawsuit. Defendants state that employees do not add content to titles or reports, as it is against Xcentric's policy to do so. In addition, while employees do remove profanity or personal information such as social security numbers, the employees indicate this by labeling a deletion a “redaction” or by replacing letters of profane words with symbols. III. Analysis The magistrate judge found Plaintiff failed to demonstrate that sanctions for spoliation of evidence are warranted, and recommends denial of Plaintiff's motion. Plaintiff objects to the magistrate judge's findings and recommendation, and makes the following arguments: (1) the magistrate judge incorrectly determined that Defendants were not under a duty to preserve evidence because of the manner in which their database is designed; (2) the magistrate judge's recommendation adopted factual findings that are contrary to the record evidence; (3) the magistrate judge erred in not considering Mr. Woodard's former deposition testimony; (4) the magistrate judge's finding that Defendants did not act in bad faith by failing to preserve evidence is clearly erroneous; and (5) the magistrate judge failed to consider the severe prejudice Plaintiff has suffered due to Defendants' failure to preserve evidence. The Court now considers the magistrate judge's ruling in light of Plaintiff's arguments pursuant to Rule 72(a) of the Federal Rules of Civil Procedure. A. Duty to Preserve *3 Plaintiff asserts that the magistrate judge erred when he found that, because Defendants' database was not configured to preserve information, Defendants did not have a duty to preserve information once litigation became imminent and after litigation commenced. Plaintiff misstates the magistrate judge's findings. While the magistrate judge found that Defendants failed to suspend their policy of allowing content monitors to save reports with their edits (if any) as the sole record of the report, the magistrate judge also found, and the record supports, that no edits were made to the reports at issue in this case. In other words, the current versions of the postings found on Defendants' websites are the “original” postings submitted by the authors. The magistrate judge did not find that the configuration of Defendants' database reduced or eliminated the duty to preserve information once litigation becomes imminent or has commenced. Rather, the magistrate judge found Plaintiff failed to demonstrate Defendants intentionally destroyed relevant evidence. The record supports this finding, which is not clearly erroneous or contrary to law. B. The Magistrate Judge's Factual Findings Plaintiff contends that the magistrate judge's recommendation adopted factual findings that are contrary to the record evidence. Specifically, Plaintiff argues that the magistrate judge incorrectly concluded that Plaintiff presented no evidence of Defendants' intentional destruction of evidence and that Plaintiff was not prejudiced by Defendants' failure to suspend the ability of its employees to overwrite data. Plaintiff states that the magistrate judge failed to consider evidence that Defendants employed “content monitors” to edit postings. The Court does not find the magistrate judge failed to consider evidence that Defendants employed “content monitors” to edit postings. First, the magistrate judge's order indicates that testimony from content monitors was considered. See Doc. No. 242 (3:07–CV–976–O) (N.D.Tex. Oct. 8, 2008) (Order, stating that the Court reviewed the deposition testimony of content monitors and discussing this testimony). In addition, the evidence indicates that content monitors did not add content to postings within the relevant time period, with the exception of redacting personal information or profanity. See Def's Appx. at 5–22 (deposition testimony of content monitors indicating that some content monitors never added content, and those who did have not done so in the past several years).[1]Accordingly, the Court finds the magistrate judge did not fail to consider evidence regarding content monitors and did not err in concluding Plaintiff presented no evidence of Defendants' intentional destruction of evidence. Similarly, the Court cannot conclude the magistrate judge erred in finding Plaintiff was not prejudiced by Defendants' failure to suspend its employees' ability to overwrite data. As previously noted, the magistrate judge found, and the record supports, that no edits were made to the reports at issue in this case. Accordingly, the current versions of the relevant postings on Defendants' websites are the “original” versions Plaintiff claims have been destroyed. Under these facts, the Court does not find the magistrate judge committed error in finding that Defendants' failure to halt its policy of allowing overwriting did not prejudice Plaintiff. C. Exclusion of Mr. Woodard's former testimony *4 Plaintiff argues that the magistrate judge erred in not considering Mr. Woodard's former deposition testimony. Plaintiff states that Mr. Woodard's testimony is admissible because he is unavailable as a witness under Rule 801(a)(2) of the Federal Rules of Civil Procedure and Rule 32(a)(4)(D) of the Federal Rules of Civil Procedure. While Defendants were able to depose Mr. Woodard in connection with the present action, Plaintiff states that Mr. Woodard refused to answer questions from Plaintiff at his deposition and also refused to comply with a Court order to appear for a subsequent deposition. The Court finds that the magistrate judge did not err in not considering Mr. Woodard's former deposition testimony. First, Plaintiff did not offer Mr. Woodard's testimony in support of its motion for sanctions. While this testimony was submitted in support of Plaintiff's response to Defendant's motion for summary judgment, Plaintiff does not present Mr. Woodard's testimony for consideration in connection with its motion for sanctions. Additionally, were Mr. Woodson's former testimony to be part of the record regarding Plaintiff's motion for sanctions, this testimony is only admissible if the party against whom the testimony is being offered, or a predecessor of interest, had an opportunity and similar motive to develop the testimony by direct, cross, or redirect examination. Battle v. Memorial Hosp. at Gulfport, 228 F.3d 544, 552 (5th Cir.2000). Plaintiff does not dispute that the deposition in question was given in a state court case to which Defendants were not parties, and that Defendants were neither present nor represented at the deposition. In addition, while Plaintiff conclusory refers in its objection to the former state court action as “related” to this action, Plaintiff has not demonstrated to the Court that there was a similar motive for developing Mr. Woodard's testimony in the former case. Accordingly, even if Mr. Woodard should be considered “unavailable” as defined by the Federal Rules of Civil Procedure and/or Federal Rules of Evidence, Plaintiff failed to demonstrate Mr. Woodard's former testimony should be considered by the Court in connection with Plaintiff's motion for sanctions. See Battle, 228 F.3d at 552. Accordingly, the Court is unable to conclude that the magistrate judge's exclusion of Mr. Woodard's former testimony was clearly erroneous or contrary to law. D. Findings regarding bad faith Plaintiff argues that the magistrate judge's finding that Defendants did not act in bad faith by failing to preserve evidence is clearly erroneous. Plaintiff contends that the magistrate judge should have inferred bad faith because Defendants continued to overwrite or otherwise destroy evidence after being put on notice of the relevance of this evidence. Specifically, Plaintiff argues that the magistrate judge should have inferred bad faith from the following evidence: (1) Plaintiff put Defendants on notice about the facts surrounding this lawsuit as early as November 2006 and again in January 2007, but Defendants did nothing to preserve evidence; and (2) Plaintiff again put Defendants on notice when it filed this lawsuit in June 2007 and served Defendants with a preservation letter in August of the same year. *5 The Court does not find that the magistrate judge's finding that Plaintiff failed to demonstrate that Defendants acted in bad faith is clearly erroneous. As previously noted, there is evidence demonstrating that once the original postings at issue were posted, the postings were not modified. Additionally, the magistrate judge was entitled to credit evidence demonstrating that it was Defendants' policy that employees not add content to postings. See Defs' Appx. at 10–11 (stating that content monitors did not have the discretion to add words or content to postings, and that to do so would be a violation of policy). Accordingly, the Court cannot conclude that the magistrate judge committed error by not inferring that Defendants acted in bad faith based on the record before the Court. E. Findings regarding prejudice to Plaintiff Plaintiff argues that the magistrate judge failed to consider the severe prejudice Plaintiff has suffered due to Defendants' failure to preserve evidence. Plaintiff argues that because Defendants destroyed documents, it is unable to prove its case, indicating that the magistrate judge erred. The Court does not find the magistrate judge erred in failing to consider Plaintiff's alleged severe prejudice. Plaintiff's argument that the magistrate judge erred is premised on the belief that relevant documents were overwritten. However, the magistrate judge found, and the record supports, that no edits were made to any of the reports at issue in this case, and therefore no relevant documents were destroyed through overwriting. Accordingly, the Court cannot find that the magistrate judge clearly erred in failing to find severe prejudice to Plaintiff. The magistrate judge found that Plaintiff was not prejudiced by Defendants' failure to suspend their policy of allowing content monitors to save reports with edits. This finding is not clearly erroneous or contrary to law. IV. Conclusion For the forgoing reasons, the Court concludes that the magistrate judge's October 8, 2008 order recommending denial of Plaintiff's Motion for Sanctions is hereby AFFIRMED. SO ORDERED. FINDINGS, CONCLUSIONS, AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE PAUL D. STICKNEY, United States Magistrate Judge. On August 14, 2008, the District Court referred “Plaintiff's Motion for Sanctions Against Defendants for Intentional Spoliation of Relevant Evidence (doc. 180),” filed July 7, 2008, to the United States Magistrate Judge for recommendation or determination. Defendants filed a Response (doc. 199) on July 24, 2008, and Plaintiff filed a Reply (doc. 210) on August 8, 2008. Because Plaintiff seeks dispositive relief,[1] the Court will enter its findings, conclusions, and recommendation. Findings and Conclusions Plaintiff contends that Defendants published defamatory statements about Plaintiff on their website, RipoffReport.com (“ROR”) and developed, wrote, created, edited, and published information contained in the Titles and Headings of the defamatory statements. Plaintiff demanded in writing that Defendants remove the false and misleading statements about Plaintiff from ROR. (Email from D. McCreary to E. Magedson, dated Nov. 15, 2006 and Letter from K. Pannell to E. Magedson, dated Jan. 5, 2007; Pl.'s Appx. 52–53.) Defendants refused and Plaintiff filed suit against Defendants on June 1, 2007. (Complaint, Pl.'s App. 1–22.) Plaintiff's Complaint included an Emergency Application for Injunctive Relief and Request for Permanent Injunction. (Id.) Plaintiff sought an order restraining Defendants from publishing false information about Plaintiff and ordering Defendants to remove the reports about Plaintiff from ROR. (Id.) In an Order dated June 6, 2007, the District Court denied Plaintiff's request for an ex parte Temporary Restraining Order but set Plaintiff's preliminary injunction application for a hearing. After the hearing, the District Court denied Plaintiff's preliminary injunction application. (Doc. 27.) Plaintiff filed a First Amended Complaint on March 20, 2008. (Pl.'s Appx. 23–47.) *6 On August 8, 2007, Plaintiff sent Defendants a letter (“preservation letter”) demanding that they “preserve—and not alter in any way—any and all evidence regarding the individuals who posted the Rip-off Reports on [ROR], including electronic date.” (Pl.'s Appx. 61–63.) In addition, Plaintiff demanded that Defendants not “[i]nitiate any procedures that would alter any active, deleted, or fragmented data;” “[r]otate, alter, destroy any media that stores electronic data;” “[d]ispose of any media that contains electronic data;” or “[o]verwrite any electronic data.” (Pl.'s Appx. 62.) Plaintiff claims that Defendants destroyed evidence and failed to distribute the preservation letter. During discovery, Plaintiff requested that Defendants produce “the original versions of the postings containing defamatory statements initially submitted to the websites by third-party users.” (Pl.'s Appx. 68.) Defendants stated that no such documents exist. (Pl.'s Appx. 85–88.) Defendants' response is that: “Xcentric never has and never will destroy or fail to preserve the data regarding the individuals who posted any report. The user profile provided by the author is captured and preserved and whenever that user submits a posting, the database automatically cross-references that posting with the user profile and captures and preserves the IP address from which the user posted.” (Defs.' Resp. at 6.) Defendants claim there was no need to distribute the preservation letter because they already preserved the user profile and IP address from which the user posted. Defendants provided an administrative print out of that information to this Court and this Court has reviewed it in camera . It is available to the District Court for review. The report shows that none of the IP addresses of the reports in question came from Defendants' computers or those of the content monitors who work from home. (Docs. reviewed in camera pursuant to July 8, 2008 Order, doc. 193.) The Court finds that Defendants did not fail to preserve evidence concerning the individuals who posted the reports. Defendants maintain a policy of never destroying any documents or electronic information. (Declarations of Ed Magedson and Ben Smith, Defs.' Appx. 0001–0004.) Plaintiff claims that the deposition of Dickson Woodward proves that Ed Magedson wrote one of the reports. The deposition in question was given in a case in state court to which Defendants were not parties. See GW Equity, LLC v. Dickson Woodard, et al. No. 06–12231 (116th Dist. Ct., Dallas County, Tex. Sept. 28, 2007.) Defendants were neither present nor represented at the depositions. Under FED. R. CIV. P. 32(a), the depositions may not be used against Defendants in this case. Plaintiff's claim is without merit. Plaintiff claims that the content monitors said that on occasion they draft and post the titles and headings to reports. The Court has reviewed the deposition testimony of the content monitors. Some of the content monitors testified that they had modified titles, but they qualified their testimony by explaining it had not been done in four or five years. Other content monitors testified that they never added anything to a title. (Defs.' Appx. 0005, Griffith Depo. at 24:15–18 (when asked whether she ever changed a title to a post by modifying it, adding to it, or deleting from it, she responded, “No, sir.”); (Defs' Appx. 0006–0007, Thompson Depo. at 16–17 (“I never add anything into a post.”))[2] *7 Defendants do not dispute that if the monitor makes a change to a report, the SQL database saves that change directly into the submitted content. Unlike a word processing program, the SQL database Defendants use is simply not designed to duplicate data before revising it. Moreover, Defendants receive between 500 to1,000 postings per day. (Defs.'Appx. 0008–0009, K. Smith Depo, at 50–51 (explaining that approximately 20–40 reports come in per hour each day.)) Defendants state that duplication is not feasible because of the sheer volume and speed at which the data is entered. Defendants contend that Plaintiff inaccurately states that the content monitors “routinely” overwrite electronic data. Defendants insist that the content monitors: (1) do not add content to titles or reports and it is against Xcentric policy to do so; and (2) if they redact data (such as profanity or social security numbers) they reflect the redaction with the word “redaction” or with replacing the letters of a profane word with symbols. Plaintiff contends that because the content monitors work for Defendants, the content monitors have a motive to lie under oath. However, Plaintiff has presented no evidence that anyone has lied under oath. The Court finds that with respect to the specific reports at issue, the content monitors testified that they made no modifications. The undisputed testimony was that the written policy of Xcentric since at least August 2007 is that nothing is ever added to a report or a title. (Defs.' Appx. 0013–0014, Dorton Depo.at 20–21; Defs.' Appx. 0006, Thompson Depo. at 16:3–4). The Court also finds that the before the policy was written in August 2007, the unwritten policy was that nothing was ever added to a report or a title. (Defs.' Appx. 0010–0012, K. Smith Depo. at 53:19–25; 54–55, lines 22–2 (explaining that content monitors do not have discretion to add words or content to any postings). The three content monitors who used to add rip-off to some titles testified that they had not done so in many years. (Defs. Appx. 0018, Young Depo. at 10:22–25 (“You know, I have added the word ‘rip-off.’ Not in the last, I'd say, four, five years—four years maybe”); Defs.'Appx. 0015–0017, Dorton Depo. at 14:14–15; 24–25, lines 25–4 (explaining that she stopped adding the word “rip-off” to the title of reports a “[v]ery long time ago. Like years.”); Defs.' Appx. 0019; Wynn Depo. at 23:10–13 (testifying that they have stopped putting “rip-off” in the title of reports); Defs.' Appx. 0022, Craven Depo. at 32:1–4 (explaining that she would never add anything to a report title in violation of Xcentric policies). “In fact, in 2003, changes were made to the technical end of the ROR Site such that if a content monitor changed a category, that change would not be activated and the report would be posted in the category chosen by the author.” (Doc. 7, Magedson Decl. In Supp. of Defs.' Opp. To Pl.'s Mot for Prelim. Inj. at ¶ 8.) The database of the ROR site automatically records any access by any agent of Defendants into a report. *8 If a content monitor makes any redactions from a report, the redaction is identified in the report itself both with the word “Redacted” and with a link explaining Xcentric's policies on why personal information is redacted from reports. (Defs. Appx. 0023–0026, 0020–0021; Wynn Depo. at 24–25, lines 11–10.) The face of the reports at issue here shows that no information was removed from any reports. Not a single report at issue in this litigation has any notation showing that any information was redacted, meaning that the information that is published on the Rip–Off Report website today is the same information that was entered by the author of the report, without any modifications. Analysis “The Fifth Circuit permits an adverse inference against the destroyer of evidence only upon a showing of ‘bad faith’ or ‘bad conduct.’ “ Condrey v. SunTrust Bank of Georgia, 431 F.3d 191, 203 (5th Cir.2005) (citing King v. Ill. Cent. R.R., 337 F.3d 550, 556 (5th Cir.2003)). The test is whether the court, “from the fact that a party has destroyed evidence,” could draw an inference “that the party did so in bad faith.” S.C. Johnson & Son, Inc. v. Louisville & Nashville Railroad Co., 695 F.2d 253, 258–59 (7th Cir.1982). If a court finds that both evidence destruction and bad faith have been demonstrated, it may then infer that the evidence would be unfavorable to the destroying party if it were introduced in court. Eaton Corp. v. Appliance Valves Corp., 790 F.2d 874, 878 (Fed.Cir.1986). Courts generally do not draw an inference of bad faith when documents are destroyed under a routine policy. See Vick v. Texas Employment Com'n, 514 F.2d 734, 737 (5th Cir.1975). After a review of the record, the Court finds no evidence that Defendants intentionally destroyed evidence. Further, no evidence exists that Defendants acted in bad faith. Additionally, although Defendants failed to suspend their policy of allowing content monitors to save the reports with their edits (if any) as the sole record of the report, Plaintiff was not prejudiced because the record shows that no edits were made on the reports at issue here. Additionally Defendants' database had no capability that would allow the content monitors to save both the hypothetical “original” posting and the published posting showing any redaction of personal information or addition of the word “ripoff” to the title. Recommendation Plaintiff has not met any of the prerequisites to show that sanctions for spoliation of evidence are warranted. Accordingly, Plaintiff's Motion for Sanctions should be DENIED. IT IS SO RECOMMENDED, October 8, 2008. Footnotes [1] These depositions are under seal. [1] Plaintiff requests that this Court (1) enter judgment in its favor on its claims against Defendants and strike Defendants' CDA immunity defense; (2) enter an adverse inference instruction in favor of Plaintiff; (3) preclude Defendants from calling any witness to testify at trial as to how Defendants do not create any content on the websites; (4) award Plaintiff its costs and attorney fees incurred in connection with this motion and with discovery; and (5) award Plaintiff such other and further relief as the Court deems just and proper. (Pl.'s Mot. at 17.) [2] The depositions are filed under seal.