Hugler v. Chimes District of Columbia, Inc., et al. Civil No. RDB-15-3315 United States District Court, D. Maryland Filed February 06, 2018 Counsel Brian Scott Cousin, Pro Hac Vice, Mark D. Meredith, Pro Hac Vice, Dentons US LLP, Christina S. Dumitrescu, Pro Hac Vice, Richard I. Scharlat, Pro Hac Vice, McDermott Will & Emery LLP, Donald J. Kravet, Pro Hac Vice, Maria E. Rodi, Pro Hac Vice, Kravet and Vogel LLP, New York, NY, Kenneth J. Pfaehler, Dentons US LLP, Michael Jay Schrier, Duane Morris, LLP, Washington, DC, for Chimes District of Columbia, Inc., Chimes International Ltd., Chimes D.C. Inc. Health & Welfare Plan. Charles Richard Alsop Gilbert, Gaithersburg, MD, Athanasios T. Tsimpedes, Tsimpedes Law Firm, Bethesda, MD, for Benefits Consulting Group 2648 FM407 E, Suite 200 Bartonsville, TX 76226. Athanasios T. Tsimpedes, Tsimpedes Law Firm, Bethesda, MD, for Jeffrey Ramsey. Copperthite, A. David, United States Magistrate Judge Opinion *1 TO COUNSEL OF RECORD Dear Counsel: On October 30, 2015, the Secretary of Labor (“Plaintiff”) filed the original complaint alleging violations of the Employee Retirement Income Security Act by Defendants (ECF No. 1). On April 29, 2017, Plaintiff filed the First Amended Complaint (ECF No. 91). The case has been litigious since its inception more than two years ago. On November 16, 2017, this case was referred to me for all discovery. ECF No. 239. On January 3, 2018, Plaintiff filed a motion for sanctions (ECF No. 259) against Defendant FCE Benefit Administrators, Inc. (“FCE”). FCE responded to the motion on January 17, 2018 (ECF No. 273) and Plaintiff replied on January 31, 2018 (ECF No. 288).[1] Plaintiff askes the Court to (1) grant the motion for sanctions under Federal Rule of Civil Procedure 37(c)(1), and (2) find that FCE has spoliated evidence it failed to produce. This issue is now fully briefed and no hearing is necessary. Loc.R. 105.6 (D.Md. 2016). For the reasons that follow, Plaintiff's motion for sanctions (ECF No. 259) is GRAN TED. In his motion for sanctions, Plaintiff argues that FCE should be sanctioned for failing to supplement its production of documents relating to any audits or reviews of FCE's claims processing or claims administration services. ECF No. 259 at 1–2. Specifically. Plaintiff contends that FCE's counsel failed to conduct a reasonable inquiry for certain claims audits and audit reports and that if emails related to claims could not be produced without an adequate explanation, then the court should issue a spoliation sanction. ECF No. 259-1 at 9–15. As a sanction, Plaintiff requests that the Court take several allegations from the First Amended Complaint as true, preclude FCE from introducing evidence in defense of Plaintiff's claims processing and claims adjudication allegations, and award attorneys’ fees for Plaintiff's costs in bringing its motion for sanctions. ECF No. 259 at 2–3. FCE counters, among other things that Plaintiff's motion for sanctions constitutes an untimely motion to compel, that it was not obligated to supplement its production where Plaintiff otherwise received the same information through other discovery, that it conducted a reasonable inquiry in conducting its production, and that it did not spoliate evidence. ECF No. 273 at 9–16. With respect to the argument that Plaintiff's motion is nothing more than an untimely motion to compel, the Court is unpersuaded. FCE admits in its response that its employees deleted the claims audit evidence consisting of emails and paper documents that were alleged to have been destroyed as well, although FCE's response to the paper documents’ existence was lukewarm at best. By FCE's own admission there is nothing left to compel. There is also no support as to the requests being overly burdensome or duplicative of other information provided in discovery. If that were the case, FCE would not have to be concerned about destroyed and otherwise missing documents. By FCE's own response, the documents that existed – are gone. The failure to disclose or supplement discovery, namely the audit reports that FCE's employees testified existed, clearly violates Fed.R.Civ.P. 37(c)(1). After reviewing the motions and response, the Court finds that the material sought, the audit reports, were in fact material to the proof of Count V as alleged in the Amended Complaint. As alleged, those audit reports go to the heart of how FCE conducted business in claims management. *2 The subsequent issue is whether Plaintiff has presented a valid spoliation claim. First, Plaintiff's motion for sanctions based on alleged spoliation was timely. This Court has laid out several factors for its consideration when evaluating a motion seeking spoliation sanctions, including how long after the close of discovery the motion is filed, the temporal proximity between a spoliation motion and motions for summary judgment, whether the motion is made on the “eve of trial,” whether there was any governing deadline for filing spoliation motions in the scheduling order, and the moving party's explanation as to why the motion was not filed earlier. Goodman v. Praxair Servs., Inc., 632 F.Supp.2d 494, 506–08 (D.Md. 2009). In this case, the motion was filed a few days before the close of discovery, no motions for summary judgment have been filed, trial has not yet been scheduled, and the scheduling order contained no deadline for motions for spoliation sanctions. The only factor weighing against the timeliness of Plaintiff's motion for sanctions is that Plaintiff offered no explanation for why its motion was not filed earlier. The Court does note, however, that Plaintiff's counsel had several conversations and emails with FCE's counsel throughout the discovery period in an attempt to obtain the audit reports. The Court finds unpersuasive that Plaintiff's motion for spoliation sanctions was untimely, and therefore, the Court proceeds to consider the merits of the parties’ sanction and spoliation arguments. “Spoliation refers to the destruction or material alteration of evidence or to the failure to preserve property for another's use as evidence in pending or reasonably foreseeable litigation.” Ellicott Mach. Corp. Int'l v. Jesco Constr. Corp., 199 F.Supp.2d 290, 293 (D.Md. 2002) (quoting Silvestri v. Gen. Motors Corp., 271 F.3d 583, 590 (4th Cir. 2001)). Furthermore, the evidentiary spoliation doctrine is a rule of evidence, administered at the discretion of the trial court to respond to circumstances in which a party fails to present, loses, or destroys evidence. The spoliation doctrine authorizes a court to order dismissal, to grant summary judgment, or permit an adverse inference to be drawn against a party, as a means to level the evidentiary playing field and for the purpose of sanctioning improper conduct. The application of this rule must take into account the blameworthiness of the offending party and the prejudice suffered by the opposing party. Additionally, whether or not a party has notice of the evidence's relevance to a lawsuit must be considered. Id. (citation omitted). To prove sanctionable spoliation, a party must show that: (1) [t]he party having control over the evidence had an obligation to preserve it when it was destroyed or altered; (2) the destruction or loss was accompanied by a “culpable state of mind;” and (3) the evidence that was destroyed or altered was “relevant” to the claims or defenses of the party that sought the discovery of the spoliated evidence, to the extent that a reasonable factfinder could conclude that the lost evidence would have supported the claims or defenses of the party that sought it. Victor Stanley, Inc. v. Creative Pipe, Inc., 269 F.R.D. 497, 520–21 (D.Md. 2010) (quoting Goodman, 632 F.Supp.2d at 509). Once a party reasonably anticipates litigation, it must suspend any ordinary document retention and destruction policies and implement a “litigation hold” to ensure the preservation of relevant documents. See Silvestri, 271 F.3d at 591 (“The duty to preserve material evidence arises not only during litigation but also extends to that period before the litigation when a party reasonably should know that the evidence may be relevant to anticipated litigation.” (citation omitted)). Regarding the second consideration, the Fourth Circuit has said that “the alleged destroyer must have known that the evidence was relevant to some issue in the anticipated case, and thereafter willfully engaged in conduct resulting in the evidence's loss or destruction.” Turner v. United States, 736 F.3d 274, 282 (4th Cir. 2013). Thus, an adverse inference “cannot be drawn merely from [a party's] negligent loss or destruction of evidence; the inference requires a showing that the party knew the evidence was relevant to some issue at trial and that his willful conduct resulted in its loss or destruction.” Hodge v. Wal-Mart Stores, Inc., 360 F.3d 446, 450 (4th Cir. 2004) (quoting Vodusek v. Bayliner Marine Corp., 71 F.3d 148, 156 (4th Cir. 1995)). Lastly, in considering the relevance of the lost evidence and the resulting prejudice, evidence is “relevant” if “a reasonable trier of fact could conclude that the lost evidence would have supported the claims or defenses of the party that sought it” and “[s]poliation results in prejudice if, as a result of the spoliation, the non-spoliating party's ability to present its claim or defense is compromised or the spoliator's conduct was so egregious as to amount to a forfeiture of its claim or defense.” First Mariner Bank v. Resolution Law Grp., P.C., No. MJG-12-1133, 2014 WL 1652550, at *12 (D.Md. Apr. 22, 2014). *3 Here, Plaintiff argues that FCE offered inadequate explanations for failing to supplement its discovery with an ex-employee's claims audit reports, which were allegedly disseminated widely among FCE's claims department electronically and in hardcopy. ECF No. 288 at 1–2. FCE, however, argues that it searched for relevant emails in November 2015 and determined that it did not have any emails pertaining to the employee's claims audit reports. ECF No. 273 at 1–2. Furthermore, FCE contends that it did not learn until July 2017 that a former employee who left its employ in 2013 deleted possibly relevant email records and that it conducted a good faith supplemental search afterwards. Id. at 2. Lastly, FCE argues that it informed Plaintiff that FCE had limited electronic records prior to 2012 due to historical data migration issues. Id. at 2–3. Regarding hardcopy reports, FCE simply states that it “checked for potentially responsive paper documents.” Id. at 9. Plaintiff points to produced emails which are inconsistent with FCE's explanation that all emails were destroyed and argues that FCE destroyed the hardcopies of the audit reports after it had notice that it needed to preserve the reports. ECF No. 288 at 2–4, 11. On or around August 7, 2012, the Department of Labor sent a letter informing FCE of an investigation into the administration of the Chimes D.C. Inc. Health and Welfare Plan (“the Plan”). ECF No. 288-10 at 2. In fact, within a week of the date of the letter. FCE began collecting relevant documents for the upcoming investigation, which FCE reasonably knew could lead to potential litigation in the case that the investigation revealed that FCE had breached its duty as the administrator of the Plan. See ECF Nos. 288-11 & 288-12. Regardless of whether FCE willfully deleted, and thereby spoliated, emails regarding the audit reports, FCE certainly, and at the very least, failed to preserve the hardcopies of the reports. The FCE ex-employee who created the audits testified during her deposition that upon her termination from FCE in June 2013, she informed FCE where she kept hardcopies of her reports and that FCE threw them away. ECF No. 259-9 at 8. The disposal of the hardcopies, thus, occurred nearly ten months after FCE knew that its administration of the Plan was being investigated by Plaintiff's department. Thus, FCE breached its duty to the court to preserve relevant documents. See Victor Stanley, Inc. v. Creative Pipe, Inc., 269 F.R.D. 497, 525–26 (D.Md. 2010) (“[T]he duty to preserve evidence relevant to litigation of a claim is a duty owed to the court, not to a party's adversary.... [P]roduction and preservation are not synonymous[;] production [to another party] is possible only if documents are preserved.” (internal citation omitted)). Furthermore, FCE offers no explanation for disposing of the hardcopies of the audit reports, instead focusing its opposition on its electronic discovery efforts. Accordingly, these facts support the conclusion that the loss or disposal of evidence was the result of FCE's willful conduct. While the evidence suggests that FCE may no longer have some emails in its records for possibly faultless reason, Plaintiff has offered probative evidence supporting its claim that FCE knew or should have known, at the time that it discarded the hardcopies of its audit reports, that the “evidence was or might be relevant to some issue at a potential trial.” Hartford Ins. Co. of the Midwest v. Am. Automatic Sprinkler Sys., Inc., 23 F.Supp.2d 623, 627 (D.Md. 1998) (citation omitted), aff'd, 201 F.3d 538 (4th Cir. 2000). There is a reasonable basis in the evidence to infer that FCE acted in bad faith by intentionally disposing of evidence relevant to this lawsuit. Accordingly, the Court concludes that FCE's actions constituted a willful loss of evidence warranting a sanction of an adverse inference against FCE based on spoliation. Plaintiff further seeks attorneys’ fees in bringing his motion for sanctions. Federal Rule of Civil Procedure 37(a)(5) mandates that “[i]f the [sanctions] motion is granted ... the court must, after giving an opportunity to be heard, require the party or deponent whose conduct necessitated the motion, the party or attorney advising that conduct, or both to pay the movant's reasonable expenses incurred in making the motion, including attorney's fees.” When ruling on a spoliation motion, courts will grant an award of costs or attorneys’ fees for a prevailing party's reasonable expenses incurred in bringing its motion. Goodman, 632 F.Supp.2d at 524; see also U.S. v. Aldeco, 917 F.2d 689, 690 (2d Cir. 1990) (affirming an award of attorney's fees as a sanction for a party's failure to timely answer the Government's interrogatories in property forfeiture case); Commodity Futures Trading Comm'n v. Trade Exchange Network Ltd., 159 F.Supp.3d 5, 7 (discussing an order for the defendants to compensate the Commission for attorneys’ fees in filing discovery motions); United States v. Dynamic Visions, Inc., 307 F.R.D. 299, 302–04 (D.D.C. 2015) (awarding attorneys’ fees as a discovery sanction to the Government where the defendants inadequately responded to financial interrogatories and requests for the production of documents in a False Claims Act case); Szilvassy v. United States, 71 F.R.D. 589, 594 (S.D.N.Y. 1976) (ordering plaintiff's counsel to pay the reasonable expenses of the Government's motion for dismissal, including attorney's fees, after plaintiff's attorney had failed and refused to comply with discovery rules in various respects). That is exactly what Plaintiff seeks here. Therefore, Plaintiff is entitled to an award of the costs, including attorneys’ fees, that he incurred in connection with preparing and filing his motion for sanctions. *4 For the foregoing reasons, the motion for sanctions (ECF 259) is GRANTED and the motion for leave to supplement (ECF No. 284) is DENIED. As an appropriate sanction, Plaintiff is entitled to “an inference that [FCE] fear[s] to produce the [audit reports], which is some evidence that the information not produced, if brought, would have exposed facts unfavorable to [FCE].” Goodman, 632 F.Supp.2d at 523 (internal quotation marks and citation omitted). Furthermore, within ten days of the issuance of this Letter Order, Plaintiff must file with the Court an itemized list of reasonable expenses associated with the filing of this motion, which the Court can review to award attorneys’ fees to Plaintiff. Despite the informal nature of this letter, it is an Order of the Court and will be docketed accordingly. Footnotes [1] On January 26, 2018, Plaintiff filed a Motion for Leave to Supplement Its Opposition to the Secretary of Labor's Motion for Sanctions (ECF No. 284) in order to add how FCE's expert stated that he did not need the audit reports at issue. Because supplementation is not necessary for the Court's decision, the Court will deny the motion for leave.