WHITE CAP, LP, Plaintiff, v. Daniel MCSPADDEN, Ronald Nelson, Phil Schroeder, and SouthernCarlson, Inc., Defendants Case No. 3:23-CV-2001-N United States District Court, N.D. Texas, Dallas Division Signed May 24, 2024 Counsel Tricia Wisenbaker Macaluso, Seyfarth Shaw LLP, Dallas, TX, Benjamin Briggs, Pro Hac Vice, Eric Barton, Pro Hac Vice, Katherine Graham Poirot, Pro Hac Vice, Robert C. Stevens, Pro Hac Vice, Travis Cashbaugh, Pro Hac Vice, Seyfarth Shaw LLP, Atlanta, GA, for Plaintiff. Robert L. Rickman, Kyle Joseph Yaptangco, Nina Nguyen Dinh, Mayer LLP, Dallas, TX, for Defendants Daniel McSpadden, Ronald Nelson, Phil Schroeder. Andrew Tugan, Pro Hac Vice, Cody Beck Nickel, Pro Hac Vice, Margaret C. Hershiser, Pro Hac Vice, Koley Jessen PC LLO, Omaha, NE, Russell H. Falconer, Ryan Daniel Mak, Gibson, Dunn & Crutcher LLP, Dallas, TX, for Defendant SouthernCarlson Inc. Toliver, Renee H., United States Magistrate Judge FINDINGS CONCLUSIONS AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE *1 Pursuant to 28 U.S.C. § 636(b) and the district judge's Order of Reference, Doc. 66, this cause is before the undersigned for a ruling on Plaintiff's Motion for Contempt and Sanctions, Doc. 63. For the reasons detailed herein, Plaintiff's motion should be DENIED. I. PROCEDURAL HISTORY Plaintiff is primarily engaged in the business of marketing, selling, and distributing supplies and equipment and related services for professional contractors. Doc. 1 at 5. For a time, Plaintiff employed Defendants Nelson, McSpadden, and Schroeder (the “Individual Defendants”) but they ultimately decided to work for one of Plaintiff's competitors, Defendant SouthernCarlson, Inc. (“SCI” and, collectively, “Defendants”). Doc. 1 at 8-9. Plaintiff alleges that Defendants thereby harmed its business, so it brought suit under the federal Defend Trade Secrets Act and the Texas Uniform Trade Secret Act in addition to claims for civil conspiracy, unfair competition, tortious interference with prospective business relations, breach of fiduciary duty, and the like. Doc. 1 at 21-35. Plaintiff ultimately seeks damages as well as injunctive relief to prevent Defendants from utilizing its “confidential, proprietary, and trade secret information for any purpose.” Doc. 1 at 36-37; Doc. 5. Following expedited briefing, the district judge denied Plaintiff's emergency motion for a temporary restraining order, finding that there was no immediate threat of irreparable injury. Doc. 23. The Court further stated that it would consider Plaintiff's application for a preliminary injunction on the papers and directed the parties to confer regarding an expedited discovery schedule, including “staged filing of evidence, identification of and limitations on the number of affiants/declarants, and briefing.” Doc. 23 at 2. On receipt of the parties’ scheduling proposal, the district judge entered a Scheduling Order for Expedited Discovery and Preliminary Injunction Briefing, directing discovery to commence immediately and establishing briefing deadlines. Doc. 34 at 1-2. The Court then ordered the parties to confer about a forensic review protocol and, if no agreement was reached, present their respective proposals. Doc. 34 at 3. The district judge also entered the parties’ agreed protective order (the “Protective Order”). Doc. 43. On November 7, 2023, the Court partially granted Plaintiff's Motion for Entry of a Forensic Protocol Order (the “Identification Order”) and separately entered a Stipulated Order Regarding Protocol for Forensic Inspections of Individual Defendants’ Devices and Accounts (the “Protocol Order”). Doc. 51; Doc. 52. The Identification Order stated, in relevant part: The Court further orders SCI and Individual Defendants to identify to White Cap's counsel the make and model numbers of all cell phones, computers, devices, external media, and electronic storage devices that Individual Defendants either used to perform work for SCI or White Cap or which currently contains or previously contained any of White Cap's property and information within 3 days of this Order. *2 Doc. 51 at 5 (emphasis added). The Protocol Order provided that: On the first Saturday following the Examiner's delivery of an agreement to be bound by the Protective Order in this matter to White Cap and Defendants, Individual Defendants will transmit the Repositories to the Examiner. This process may be done remotely if deemed adequate and appropriate by the Examiner, obviating the need for physical delivery of the Repositories. ... If physical possession is necessary for the imaging process, the Examiner shall return the Repositories to the Individual Defendants within twenty-four (24) hours of the forensic imaging. Doc. 52 at 4, 5 (emphasis added). The Protocol Order defines “Repositories”[1] as: The devices that have been identified by the Individual Defendants. Individual Defendants will provide to White Cap's counsel a list of devices that the Individual Defendants may have used to store information or communicate relating to their work for White Cap, or that contain or potentially may contain White Cap Information, since January 1, 2023, that are within their possession, custody, or control.” Doc. 52 at 3 (emphasis added). The Protocol Order also limited the date range of the inspection from January 1, 2023 to June 26, 2023, and specified Plaintiff would bear the cost of the examination.[2] Doc. 52 at 5-6. Contending that Defendants failed to timely identify and deliver the Devices to the examiner, Plaintiff now requests that the Court (1) hold Defendants in civil contempt and impose sanctions; (2) order Defendants to identify all of their Devices immediately; (3) order the immediate production of all identified Devices to the forensic examiner, including all Devices the Individual Defendants used to perform work for SCI; (4) require Defendants to pay the costs of the forensic examiner; and (5) award Plaintiff its costs and attorneys’ fees incurred due to Defendants’ alleged violations of the Identification and Protocol Orders. Doc. 63 at 6. II. APPLICABLE LAW The civil contempt power is limited because it “uniquely is liable to abuse.” Matter of Highland Capital Mgt., L.P., 98 F.4th 170, 175 (5th Cir. 2024). Thus, the “primary purpose” of civil contempt sanctions cannot be to punish the contemnor or vindicate the court's authority. Id. (citation omitted). Rather, the purpose of such sanctions must be “remedial, and for the benefit of the complainant.” Int'l Union, United Mine Workers of Am. v. Bagwell, 512 U.S. 821, 827 (1994) (quotation and citation omitted). Civil contempt sanctions must be calculated either to (1) coerce the contemnor into compliance with a court order or (2) compensate another party for the contemnor's violations. Matter of Highland Capital Mgt., L.P., 98 F.4th at 174. Sanctions imposed to coerce the contemnor into compliance with a court order are civil only if they are “conditional on the contemnor's conduct.” Id. (citations omitted); see also Bagwell, 512 U.S. at 829 (“Where a fine is not compensatory, it is civil only if the contemnor is afforded an opportunity to purge.”). On the other hand, compensatory civil contempt sanctions must be based on evidence of the complainant's actual loss. Id. (citation omitted). *3 A party moving for civil contempt must show by clear and convincing evidence that (1) a court order was in effect; (2) the order required certain conduct; and (3) the opposing party failed to comply with the court order. Whitcraft v. Brown, 570 F.3d 268, 271 (5th Cir. 2009). The “clear and convincing evidence” standard is higher than the “preponderance of the evidence” standard common in civil cases. Travelhost, Inc. v. Blandford, 68 F.3d 958, 961 (5th Cir. 1995) (holding that the proper evidentiary standard is “that weight of proof which produces in the mind of the trier of fact a firm belief or conviction as to the truth of the allegations sought to be established, evidence so clear, direct and weighty and convincing as to enable the fact finder to come to a clear conviction, without hesitancy, of the truth of the precise facts of the case.”) (quotation omitted). “The contemptuous actions need not be willful so long as the contemnor actually failed to comply with the court's order.” Am. Airlines, Inc. v. Allied Pilots Ass'n, 228 F.3d 574, 581 (5th Cir. 2000) (citation omitted). After the moving party makes their initial showing, the burden shifts to the respondent to rebut this conclusion, demonstrate an inability to comply with the order, or present other relevant defenses. F.D.I.C. v. LeGrand, 43 F.3d 163, 170 (5th Cir. 1995). “While the court is bound by the enforcement order, it will not be blind to evidence that compliance is now factually impossible. Where compliance is impossible, neither the moving party nor the court has any reason to proceed with the civil contempt action.” United States v. Rylander, 460 U.S. 752, 757 (1983). “It is settled, however, that in raising this defense, the defendant has a burden of production.” Id. (citations omitted). III. ANALYSIS Under a strict reading of the Protocol Order, Defendants were required to provide the Devices to the forensic examiner by Saturday November 11, 2023, because the Protocol Order required transmission of the Devices to the examiner on the Saturday after the forensic examiner executed the Protective Order's confidentiality agreement, which occurred on Friday, November 10, 2023. Doc. 75 at 49; Doc. 52 at 4 (“On the first Saturday following the Examiner's delivery of an agreement to be bound by the Protective Order in this matter to White Cap and Defendants, Individual Defendants will transmit the Repositories to the Examiner.”). But to put the parties’ arguments in context, a timeline of relevant events is useful. The relevant correspondence begins on Wednesday November 8, 2023, the day after the Protocol Order was filed, when Plaintiff's counsel emailed a forensic examiner, stating that the parties had jointly selected him and requesting that the examiner (1) send an engagement letter/agreement; and (2) execute and return the Protective Order's confidentiality agreement. Doc. 75 at 49. On Friday November 10, 2023, the examiner sent the parties a proposed engagement letter and the signed confidentiality agreement. Doc. 75 at 49. On Monday November 13, SCI proposed a revision to the engagement letter to which the Individual Defendants promptly agreed. Doc. 75 at 47-48. The same day, Plaintiff's counsel inquired whether the Individual Defendants had submitted their Devices to the examiner the prior Saturday. Doc. 64 at 10. Two days later, on November 15, Plaintiff's counsel requested additional changes to the examiner's retainer agreement. Doc. 75 at 29-30. The same day, counsel for the Individual Defendants emailed Plaintiff's counsel and the examiner, stating that the parties needed to get the engagement letter finalized and set up a meeting to discuss the imaging process and getting the searches underway. Doc. 75 at 61. The Individual Defendants also identified their respective Devices in their initial disclosures that same day. Doc. 64 at 4. SCI made no device disclosures. Doc. 64 at 4. *4 One day later, on November 16, Plaintiff inquired about the inventory of the Individual Defendants’ Devices and asked for confirmation that the Devices had been given to the examiner. Doc. 64 at 6. Defense counsel responded that they had listed the Devices in their initial disclosures[3] and noted that the parties still had not discussed with the examiner whether he needed the physical Devices or if the imaging could be conducted remotely and, if the examiner did need the Devices, whether he would be able to comply with the 24-hour deadline for returning them. Doc. 64 at 6. Plaintiff's counsel responded that neither the Identification Order nor the Protocol Order required that an engagement letter with the examiner be in place prior to transmission of the Devices to him. Doc. 64 at 5. On Friday, November 17, the terms of the examiner's retainer agreement were finalized in writing. Doc. 75 at 18-19. Approximately an hour later, counsel for the Individual Defendants inquired when the examiner was available to discuss the logistics of the imaging process. Doc. 75 at 28. Shortly thereafter, the examiner requested that the parties provide him a list of the Devices to be imaged, and the Individual Defendants’ counsel promptly identified the nine Devices listed in their initial disclosures. Doc. 75 at 45-46. The following Monday, November 20, the Individual Defendants’ counsel emailed the parties and the examiner, requesting a time that day to discuss the logistics of the imaging process so the process could be completed as quickly as possible. Doc. 75 at 45. The same day, the examiner advised he needed time to confirm that his staff could comply with the 24-hour turnaround time. Doc. 75 at 42-43. Plaintiff filed the instant motion for sanctions later that day, after which SCI's counsel informed Plaintiff that they would provide a list of Devices.[4] Doc. 63 at 10 n.7. The next day, Tuesday, November 21, the Individual Defendants’ counsel followed up with the examiner to establish timing and staffing for the inspection. Doc. 75 at 42. The examiner responded that the earliest available time was Monday, November 27, but noted that he already had one Defendant's laptop and had begun imaging it. Doc. 75 at 41-42. On November 22, counsel for the Individual Defendants offered to provide the Devices over the weekend if the examiner could comply with the 24-hour turnaround time, but the examiner maintained he would begin on Monday, November 27. Doc. 75 at 41. Also on November 22, counsel for the Individual Defendants updated their list of Devices to include McSpadden's and Schroeder's SCI-issued Dell laptops and Nelson's iPhone 12, stating they were aware the Devices “would be subject to the Court's [Identification] Order.” Doc. 80 at 4. The examiner confirmed on November 27 that he had received the Individual Defendants’ nine Devices. Doc. 75 at 39. By November 28, imaging was complete. Doc. 75 at 38. *5 Plaintiff identifies two allegedly contemptuous actions: (1) Defendants’ untimely identification of the Devices and (2) the Individual Defendants’ untimely delivery of the Devices to the examiner. In light of these alleged acts, Plaintiff requests that the Court (1) hold Defendants in civil contempt and impose sanctions; (2) order Defendants to identify all of their Devices immediately; (3) order the immediate production of all identified Devices to the forensic examiner, including all Devices the Individual Defendants use to perform work for SCI; (4) require Defendants to pay the costs of the forensic examiner; and (5) award Plaintiff its costs and attorneys’ fees incurred due to Defendants’ alleged violation of the Identification and Protocol Orders. Doc. 63 at 6. The Court addresses the allegedly contemptuous acts in turn below. A. Untimely Identification Plaintiff asserts that both SCI and the Individual Defendants failed to identify any Devices to its counsel by Friday, November 10, 2023—the three-day deadline set forth in the Identification Order. Doc. 63 at 8. Instead, the Individual Defendants “buried” the list of Devices in its initial disclosures served on November 15, 2023, and SCI did not identify any Devices until several days later. Doc. 63 at 8, 10. Defendants do not seriously dispute that (1) the Identification Order was in effect; (2) the Order required them to identify the make and model numbers of all Devices the Individual Defendants used to perform work for Plaintiff or SCI which had ever contained any of Plaintiff's information; and (3) Defendants failed to timely comply with the Identification Order. Whitcraft, 570 F.3d at 271. Plaintiff has thus met its burden of establishing by clear and convincing evidence that Defendants violated the Identification Order by failing to timely identify the Devices. Nevertheless, a party “may avoid a contempt finding by establishing that it has substantially complied with the order or has made reasonable efforts to comply.” In re Brown, 511 B.R. 843, 849 (S.D. Tex. 2014) (citing U.S. Steel Corp. v. United Mine Workers of Am., Dist. 20, 598 F.2d 363, 368 (5th Cir. 1979)). In this case, the Individual Defendants identified the Devices five days late and SCI identified the Devices approximately a week later. Nevertheless, Defendants are now in compliance with the Identification Order. Coercive sanctions are thus not warranted, and the question becomes whether Plaintiff is entitled to compensation due to Defendants’ conduct. Matter of Highland Capital Mgt., L.P., 98 F.4th at 174. Civil contempt fines must be calculated to compensate the complaining party for the contemnor's violations. Id. “Such fine must of course be based upon evidence of complainant's actual loss, and his right, as a civil litigant, to the compensatory fine is dependent upon the outcome of the basic controversy.” United States v. United Mine Workers of Am., 330 U.S. 258, 304 (1947); see also Petroleos Mexicanos v. Crawford Enters., Inc., 826 F.2d 392, 399 (5th Cir. 1987) (“[S]anctions for civil contempt are meant to be ‘wholly remedial’ and serve to benefit the party who has suffered injury or loss at the hands of the contemnor.”) (citation omitted). Plaintiff identifies no loss it suffered based on Defendants’ untimely identification of the Devices, nor can the Court conceive of one. Rather, Plaintiff attempts to merely be shifting the cost of the forensic examination to Defendants. Doc. 63 at 14 (“Additionally, the Court should require Defendants to pay the costs of the Forensic Examiner and White Cap should be awarded its attorneys’ fees and costs incurred in filing this Motion.”). Accordingly, Plaintiff's motion for contempt and request for sanctions associated with Defendants’ violation of the Identification Order should be DENIED. See Boylan v. Detrio, 187 F.2d 375, 379 (5th Cir. 1951) (vacating civil contempt sanctions where the contemptuous acts related to past acts which could not be remedied by court order and the complainants did not allege they had suffered any loss or damage because of the acts charged). B. Untimely Production *6 Plaintiff next argues that the Individual Defendants and SCI should be ordered to transmit to the examiner all of their Devices, including any Devices used by the Individual Defendants to perform work for SCI. Doc. 63 at 14. Again, the forensic examination of the nine Devices originally disclosed by Individual Defendants was complete a week after Plaintiff filed the instant motion. As the above timeline makes clear, the Individual Defendants were doing their best to expedite the examination process, and Plaintiff cannot credibly argue that the Individual Defendants should have simply handed their Devices over to an examiner who had not been retained or even confirmed he could comply with the 24-hour turnaround time mandated by the Protocol Order during the Thanksgiving holiday season. Moreover, Plaintiff does not point to any loss it suffered from the delay which was, in any event, largely caused by the examiner's schedule.[5] Boylan, 187 F.2d at 379. Thus, the only remaining issue is whether the Individual Defendants’ SCI work devices are subject to the Protocol Order. For starters, although there is room for ambiguity, the Identification Order and the Protocol Order ultimately require two different things. In relevant part, the former required Defendants to identify any devices the Individual Defendants used to perform work for either Plaintiff or SCI. Doc. 51 at 5. The Protocol Order does not, however, explicitly require production of the SCI work-related devices. Rather, it states that the Individual Defendants will transmit to the examiner “the devices that the Individual Defendants may have used to store information or communicate relating to their work for [Plaintiff], or that contain or potentially may contain [Plaintiff's] Information.” Doc. 52 at 3 (emphasis added). The Individual Defendants aver, however, that (1) McSpadden and Schroeder only use their SCI-issued laptops for SCI-related work; (2) Nelson purchased an iPhone 12 to use only for work for SCI and his construction supply company; (3) none of the Individual Defendants used their respective devices until after the June 26, 2023 forensic inspection timeline closed; (4) they had not performed any work-related activities for Plaintiff on the devices or saved or accessed any of Plaintiff's information thereon; and (5) they had no reason to believe any of Plaintiff's information was contained on their respective devices. Doc. 75 at 52-53 (McSpadden Decl.); Doc. 75 at 55-56 (Schroeder Decl.); Doc. 75 at 58 (Nelson Decl.). In the face of these declarations made under penalty of perjury, the Court cannot conclude that the Individual Defendants violated the Protocol Order. As such, Plaintiff's motion for contempt with respect to the purported violation of the Protocol Order should be DENIED. Matter of Highland Capital Mgt., L.P., 98 F.4th at 174. IV. CONCLUSION For the reasons set forth above, Plaintiff's Motion for Contempt and Sanctions, Doc. 63, should be DENIED. SO RECOMMENDED on May 24, 2024. INSTRUCTIONS FOR SERVICE AND NOTICE OF RIGHT TO APPEAL/OBJECT A copy of this report and recommendation will be served on all parties in the manner provided by law. Any party who objects to any part of this report and recommendation must file specific written objections within 14 days after being served with a copy. See 28 U.S.C. § 636(b)(1); FED. R. CIV. P. 72(b). An objection must identify the finding or recommendation to which objection is made, state the basis for the objection, and indicate where in the magistrate judge's report and recommendation the disputed determination is found. An objection that merely incorporates by reference or refers to the briefing before the magistrate judge is not specific. Failure to file specific written objections will bar the aggrieved party from appealing the factual findings and legal conclusions of the magistrate judge that are accepted or adopted by the district court, except upon grounds of plain error. See Douglass v. United Servs. Auto. Ass'n, 79 F.3d 1415, 1417 (5th Cir. 1996), modified by statute on other grounds, 28 U.S.C. § 636(b)(1) (extending the time to file objections to 14 days). Footnotes [1] The terms “Device” and “Devices” will be used for purposes of these findings and recommendations. [2] The latter date appears to have been selected as the Individual Defendants resigned from Plaintiff's employment on or before Monday June 26, 2023. Doc. 1 at 9; see also Doc. 45-1 at 7 (Plaintiff's proposed Protocol Order limiting the date range of the examination from January 1 to June 26, 2023). [3] Two laptops and an iPhone were omitted from the list. The Individual Defendants subsequently filed declarations attesting that (1) after resigning from Plaintiff's employment, SCI provided McSpadden and Schroeder with laptops, which they only use for SCI-related work; (2) after resigning from Plaintiff's employment, Nelson purchased an iPhone 12, which he uses only for work for SCI and his construction supply company; (3) none of the Individual Defendants used their respective devices until after June 26, 2023; (4) they had not performed any work-related activities for Plaintiff on the devices or saved or accessed any of Plaintiff's information thereon; and (4) they had “no reason to believe that any [of Plaintiff's] information is contained on” their respective devices. Doc. 75 at 52-53 (McSpadden Decl.); Doc. 75 at 55-56 (Schroeder Decl.); Doc. 75 at 58 (Nelson Decl.). [4] Plaintiff recently filed another motion for contempt and sanctions against the Individual Defendants for unrelated issues associated with the forensic examination. Doc. 99. That motion will be addressed in due course. [5] Indeed, Plaintiff should have considered withdrawing the instant motion rather than utilize the Court's scant judicial resources to mediate what are largely moot points.