MEMORANDUM OPINION
CHARLES SIMPSON III, District Judge
Defendant Cavalry Portfolio Services LLC moves to amend its answer in this case arising under the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692 et seq. and the Fair Credit Reporting Act, 15 U.S.C. §§ 1681 et seq. Plaintiff Jamie Wade objects to this amendment on various grounds. For the reasons that follow Wade's objections will be overruled and the amendment will be permitted.
Cavalry filed its initial answer on February 20, 2009. Little of substance took place in the case in the sixteen months before it moved to amend on June 20, 2010. Nonetheless more than 21 days passed, so amendment is permitted only with consent of the opposing party or of the court. Fed.R.Civ.P. 15(a)(2). Wade has refused consent, and thus the decision is for the court, which "should freely give leave when justice so requires." Id. The decision is ultimately entrusted to the court's discretion, which should take into account several factors:
Undue delay in filing, lack of notice to the opposing party, bad faith by the moving party, repeated failure to cure deficiencies by previous amendments, undue prejudice to the opposing party, and futility of amendment are all factors which may affect the decision. Delay by itself is not sufficient reason to deny a motion to amend. Notice and substantial prejudice to the opposing party are critical factors in determining whether an amendment should be granted.
Wade v. Knoxville Utils. Bd., 259 F.3d 452, 458-59 (6th Cir. 2001)
(quoting Head v. Jellico Hous. Auth., 870 F.2d 1117, 1123 (6th Cir. 1989)).
Obviously a substantial period of time passed between the filing of the original answer and the motion to amend. The court is not, however, of the opinion that this lag constitutes "undue delay." Cavalry offered its amendment for two primary purposes: First, to assert a number of affirmative defenses — notably res judicata — that it says have become available to it as a result of a state court judgment it obtained against Wade on January 22, 2010. Second, and more contentiously, Cavalry seeks to amend a number of the admissions and denials in its original answer. Specifically, the original answer admitted the facts contained following paragraphs of the complaint:
78.) That in the month of February 2007, CPS-LLC [Cavalry] made an inquiry into Wade's personal credit file through the Trans-Union credit reporting agency without having a permissible purpose;
. . .
80.) That in the month of April 2007, CPS-LLC made an inquiry into Wade's personal credit file through the Trans-Union credit reporting agency without having a permissible purpose;
. . .
82.) That in the month of April 2007, CPS-LLC made an inquiry into Wade's personal credit file through the Experian credit reporting agency without having a permissible purpose;
. . .
84.) That in the month of July 2007, CPS-LLC made an inquiry into Wade's personal credit file through the Trans-Union credit reporting agency without having a permissible purpose;
. . .
86.) That in the month of February 2007, when CPS-LLC made an inquiry into Wade's personal credit file through the Trans-Union credit reporting agency, without having a permissible purpose, it obtained Wade's personal information under false pretenses[.]
Cavalry avers that these admissions were inadvertent, and that it learned of its mistake only upon reading the plaintiff's scheduling conference statement, filed on June 16, 2010. If this is in fact the case, the amendment cannot be said to have been delayed at all: Cavalry filed it six days later. The court is inclined to believe the defendant's explanation, and thus to think that no undue delay occurred. The complaint is massive, complicated, and far more detailed than the typical pleading. It is plausible that an attempt to discern and respond to all of its factual allegations might have gone awry. In addition, the "Fifth Affirmative Defense" asserted in the original answer actually takes the form of denying some of the factual allegations in the above-quoted paragraphs: "any inquire [sic] by Cavalry into Jamie Wade's credit was done so [sic] with a permissible purpose pursuant to the Fair Credit Reporting Act." The internal contradiction strongly suggests that Cavalry made a mistake somewhere in the answer, and given defendants' general preference for denying wrongdoing it makes sense to think the error was in the admission, not the denial. It is equally plausible that the defense did not reread its answer after filing it, and that it thus did not have occasion to discover its mistake until the plaintiff pointed it out. Thus we think that there was no undue delay.
It appears to the court that Cavalry may have intended to admit only to inquiring into Wade's credit, and not to having an impermissible purpose for doing so: this would make sense of the "Fifth Affirmative Defense."
For similar reasons, the court concludes that the defendant has not acted in bad faith. From all it appears the original answer contained mistakes that the amendment corrects. Plaintiff does not point to any advantage that Cavalry obtained by initially admitting certain allegations only to deny them later, and no such advantage is obvious to the court. Ockham's razor leads the court to believe that inadvertence, rather than some mysterious and convoluted attempt at gaining the upper hand, is the explanation for Cavalry's initial admissions and subsequent request to amend.
See, e.g., Awkal v. Mitchell, No. 01-4278, 2010 U.S. App. LEXIS 15148, at *64 (6th Cir. July 23, 2010) (en banc) (Martin, J., dissenting) ("At some point, Ockham's Razor must apply — the simplest answer is usually the correct one.")
The "Fifth Affirmative Defense" provided notice to Wade and his counsel that Cavalry would or might dispute liability as to the allegations apparently admitted elsewhere in the answer. Plaintiff also complains that he had not previously been placed on notice of the possibility that Cavalry would assert res judicata. However, at the time of the initial answer the state-court decision upon which the defense will apparently rest had not been rendered, and thus Cavalry could not have raised it in the original pleading. And while perhaps Cavalry could have moved to amend its complaint so as to assert res judicata sooner than it did, Wade can hardly claim to have lacked notice of an adverse judgment specifically rendered against him in the state proceeding. By the same token, it cannot have been a surprise to have that judgment asserted against him here. See 28 U.S.C. § 1738.
The most likely basis on which to refuse to permit the amendment is the possible prejudice to Wade. There is obviously some disadvantage to him in allowing Cavalry to deny facts that it had previously admitted: now he will have to prove his case. But because (as explained above) the court is persuaded that the original admissions were mistakes, any prejudice to the plaintiff is not of a sort that would warrant a denial of leave to amend. The other plausible basis for finding prejudice is Wade's claim that he might have accepted (or at least responded differently to) Cavalry's earlier $2,000 settlement offer had he known that liability was disputed rather than admitted. But that offer is apparently still on the table (see Reply 4), so the court does not see any prejudice there either.
The final factor to be considered under Wade is futility, but the court is not of opinion that the amendment would be futile. The contested portions consist of denials of specific facts and the assertion of new defenses. The amendment is not futile at least inasmuch as it will require Wade to prove his case, and at this stage of the litigation the court lacks an evidentiary basis for finding that the newly asserted defenses are without merit.
Thus none of the Wade factors favors denying the amendment. The plaintiff raises two additional arguments which we will briefly address. First, he argues that Cavalry waived all affirmative defenses not raised all in the initial answer. See Fed.R.Civ.P. 8(c)(1); Horton v. Potter, 369 F.3d 906, 911 (6th Cir. 2004); Haskell v. Washington Twp., 864 F.2d 1266, 1273 (6th Cir. 1988). But as the Sixth Circuit has recognized, one reason for the rule allowing parties to amend is precisely to permit assertion of defenses omitted from the initial responsive pleading. Phelps v. McClellan, 30 F.3d 658, 663 (6th Cir. 1994). Accordingly the waiver argument holds no water.
Finally, Wade labels the contents of the original answer "judicial admissions" and argues that the defendant must show exceptional circumstances to retract them. However, the court of appeals has stated that "judicial admissions generally arise only from deliberate voluntarily waivers that expressly concede . . . an alleged fact. . . . Considerations of fairness and the policy of encouraging judicial admissions require that trial judges be given broad discretion to relieve parties from the consequences of judicial admissions in appropriate cases." MacDonald v. GMC, 110 F.3d 337, 340 (6th Cir. 1997) (quoting United States v. Belculfine, 527 F.2d 941, 944 (1st Cir. 1975)). For reasons expressed above the court is not of the opinion that the admissions in the original answer rise to the level of "deliberate voluntary waivers," and even if they did the court's belief that they arose from inadvertence rather than bad faith would lead us to relieve Cavalry of the consequences thereof. Accordingly the defendant is not bound by the statements in its initial answer.
The motion to amend will be granted by separate order.
request, through discovery, e-mail and other electronic communications, word processing documents, spreadsheets, databases, calendars, telephone logs, contact manager information, internet usage files, and network access information.
Id. The letter concludes by asserting that "the company
and its subsidiaries and related entities . . . must take every reasonable step to preserve this information until the final resolution of this matter."
Id. (emphasis added). The letter warns against routine data destruction and backup tape recycling policies.
Id.
There is no ambiguity in this letter in regards to the plaintiff's intent to pursue her claims in court, if necessary, or to the type of data she requests defendants to preserve. Defendants' argument that by sending the letter to the parent company, rather than to plaintiff's employer SFX, is disingenuous. The letter was sent to Clear Channel, SFX's parent company. The reference line of the letter indicates that it is in regards to Clear Channel and SFX. Moreover, Clear Channel is a named defendant in this case. The defendants, i.e., all defendants, were on notice and should have undertaken steps to preserve potentially relevant information.
2. Defendants Failed to Preserve Evidence
The fact that defendants failed to preserve evidence has been established. Initially, in response to discovery requests, plaintiff was told that no responsive documents existed, that her computer had been thrown away, and that her file on the server was empty. D'Onofrio III, 256 F.R.D. at 278. It was at this point that plaintiff sought the assistance of a forensic expert.
3. Defendants' Remedial Efforts Restored Some Evidence That Was Lost
Pursuant to the Court's order, defendants made their servers available to plaintiff's expert for a forensic exam that yielded hundreds of thousands of documents. D'Onofrio II, 254 F.R.D. at 133. Up to $10,000 of the cost of this search was paid for by defendants, who then executed a privilege review of these thousands of documents. D'Onofrio III, 256 F.R.D. at 278. As a result of defendants' efforts, some of the lost documents were recovered, and the loss of evidence was not total.
B. Punitive or Penal Sanctions
1. Default Is Not An Appropriate Sanction In This Case
As explained earlier, in the D.C. Circuit, a party seeking a dispositive sanction because of her opponent's loss or destruction of evidence must establish, by clear and convincing evidence, that the accused party acted in bad faith. See Shepherd, 62 F.3d at 1477.
It is clear to me that plaintiff's demand that she be awarded default judgment on her Equal Pay Act claim fails to meet this standard. While it is evident that defendants failed to act to preserve evidence, plaintiff has not shown, by clear and convincing evidence, that defendants acted in bad faith, i.e., with a purposeful intent to destroy evidence. See, e.g.,Shepherd, 62 F.3d at 1477. Furthermore, if the Court can find a less drastic sanction than dismissal or default that is fully effective, it should impose that lesser sanction. Bonds, 93 F.3d at 808; Ripalda, 977 F.2d at 1466. It is yet to be determined whether plaintiff is entitled to any other issue-related sanction, such as an adverse inference or defendants' being precluded from presenting certain evidence. Until the plaintiff's entitlement to such sanctions is first addressed and resolved, dismissal cannot, under this Circuit's law, even be considered. To award plaintiff a default judgment without considering the efficacy of less drastic remedies violates this Circuit's law in the most obvious way.
2. Attorneys' Fees
The court of appeals has categorized attorneys' fees as a punitive or penal sanction like dispositive sanctions. See Shepherd, 62 F.3d at 1478. As such, a court "must find clear and convincing evidence of the predicate misconduct" before imposing them. Id. The evidence in this case of the predicate misconduct is simply not clear and convincing.
In other prominent spoliation cases, the lost evidence is gone forever and the consequences of its loss are a function of that reality. To say of this case, however, that it involves the loss of evidence is to have Hamlet without the Dane. To take that metaphor a step further, it stops the play after the First Act. This case involves the apparent loss of evidence, a diligent and expensive attempt to retrieve what was lost from other sources, and a bitter, irreconcilable dispute as to what may still be missing and its relevance to plaintiff's claims.
I can first say that it appears to me that the award of attorneys' fees now, under my inherent power, would be an abuse of discretion. While it is certainly true that plaintiff has expended significant resources to litigate the consequences of the loss of the information at issue, it is equally true that defendants have expended a veritable king's ransom on the forensic search of the Legato server and an examination of its contents for relevance and privilege, all in an effort to restore what was lost. I have presided over this case for three years and am personally familiar with the high yield of documents from the forensic search, because I reviewed thousands of e-mails claimed to be privileged. Having done that, and having a general familiarity with the extraordinary amount of information that a forensic search yields and the consequential costs of privilege review, I can say without hesitation that I fully credit defense counsel's assertion that the search, review, and discovery disputes in this single-plaintiff case has cost over $1 million. The heart and soul of any sanction is its proportion to the harm done and the prejudice sustained. Bonds, 93 F.3d at 808 (finding that "[t]he choice of sanction should be guided by the `concept of proportionality' between offense and sanction."). Given what defendant has already expended, adding attorneys' fees under the Court's inherent power to sanction crosses the line from fairness to disproportional punishment. That, put simply, is to place Pelion upon Ossa, and I will not do it.
This is a statutory fee-shifting case; however, this opinion speaks only to the award of attorneys' fees in the exercise of the Court's inherent powers.
Rule 37 of the Federal Rules of Civil Procedure awards, except in certain circumstances, attorneys' fees to a moving party whose motion to compel discovery is granted, unless the opposing party establishes substantial justification for its position. See Fed.R.Civ.P. 37(a)(5)(A). The motion before me is one for sanctions and not to compel. The Rule just cited is therefore inapplicable. I appreciate that I must resolve the parties' cross-motions for sanctions related to plaintiff's Second Motion to Compel Discovery and for Sanctions [#37], which seeks attorney fees. See D'Onofrio I, 247 F.R.D. at 55 (postponing the parties' cross-motion for sanctions until the conclusion of the evidentiary hearing). The parties will be permitted an opportunity to be heard on the issue of attorneys' fees available under Rule 37 as to the earlier motion, once all other motions are resolved. I hope that resolution of all the other issues will finally move this case to trial, and I would prefer not to interfere with that process until I have first resolved the issues pertaining to Plaintiff's Motion for Sanctions and Spoliation Instruction/Inference [#123].
C. Issue-related Sanctions
Having found punitive sanctions to be unwarranted in this case, I turn now to issue-related sanctions.
1. Adverse Inference
The plaintiff has moved for an adverse inference instruction. Pl. Mot. 1. Generally, an adverse inference instruction would tell the jury that it may infer from the loss of the evidence that, had the evidence been produced, it would have been detrimental to the party that lost it. Before ordering such a sanction, however, this Court must first establish what was lost and what was recovered. From that, the Court can craft a balanced instruction.
The plaintiff would have the Court instruct the jury to apply an adverse inference to the lost evidence, without qualification; but, that instruction is half true. In this case, there were remedial efforts taken to restore the lost evidence. The proper instruction, therefore, would have to take into account that, while certain information was lost, defendant made an effort to find it from another source, and that the alternative source yielded some evidence. The problem, of course, is that the parties do not agree about what remains lost. They agree even less about the significance of what was lost. Plaintiff says that there is still much evidence that was lost, and it is significant. Defendants say that, given what was recovered, nothing was lost, but if any thing was, it is insignificant.
Moreover, in the instant case, plaintiff cannot establish by clear and convincing evidence that defendants acted in bad faith; therefore, any adverse instruction would be based on conduct that is not in bad faith. When a party, for example, has acted negligently and lost evidence, the inference does not flow naturally from the facts. When a person purposefully destroys evidence, it is reasonable to infer that he did so to keep it from being used against him. That is the historical basis of the doctrine and the maxim that everything is construed against the spoliator. When, as in this case, it is not a party's bad faith that leads to the destruction of evidence, its actions hardly bespeak an intention worthy of such a harsh punishment because the logical premise of the instruction — that the spoiliator must have destroyed the evidence to keep any one from seeing it — is not there. Without clear and convincing evidence of bad faith, all that is known or can be said is that a party was negligent, sloppy, or even reckless; a court cannot logically infer the intent of what a party did from its behavior because its behavior was unthinking — it was negligent and sloppy. If the jury is, nevertheless, instructed to draw an inference that the lost evidence would have been detrimental, it can only be because the interests in righting the evidentiary balance and in the deterring of others trumps the lacuna that a logician would detect in the logic of giving such an instruction. The problem, however, in this case is that imbalance in the evidence due to the loss is an unknown quantity and of an unknown value as to which the parties do not agree.
Armory v. Delamirie, (1721) 93 Eng. Rep. 664 (K.B.) (directing the jury to "presume the strongest against [defendant]," who had lost the evidence).
2. Preclusion
Preclusion may provide an approach that flows more logically when the destruction of evidence is not in bad faith. If I issued the sanction of preclusion in this case, the jury would not be instructed to draw an inference. Instead, defendants would be prohibited from presenting certain evidence because their behavior caused the loss of that evidence. Regardless of any intent, if the defendants destroyed evidence, plaintiff would be prevented from using it. Thus, the sanction of preclusion disables defendants from relying on the loss they caused.
While in this case the loss of evidence was followed by a genuine effort to find it, preclusion may be the most appropriate way to right evidentiary balance that was upset by the loss. On the other hand, defendants may be able to show, that, because of their efforts to find the lost information or otherwise, plaintiff has made no legitimate showing that the lost evidence would have helped her. Thus, while preclusion may still be justified on the basis of deterrence, the absence of any showing of prejudice may offend this Circuit's insistence that any litigation sanction be calibrated as carefully as possible to the prejudice suffered and the harm done. The problem, again, is that the Court does not know what remains lost and whether the lost evidence had significance for the case; thus, I cannot determine whether preclusion would be carefully calibrated enough of a sanction to satisfy the standard set by the court of appeals.
3. Need for an Evidentiary Record
In light of the complexity and nuance required to craft a balanced sanction, I am convinced that I must predicate any ruling or recommendation to Judge Bates on the strongest possible evidentiary record. It is only after establishing the prejudice the plaintiff suffered that any resulting sanction will fairly address that prejudice, consistent with this Circuit's insistence that any sanction imposed be a function of the prejudice done to a party by its offending opponent. Bonds, 93 F.3d at 808. Accordingly, I will order an evidentiary hearing to address the factual issues that I will now identify. The parties differ about several factual issues that bear directly on what, if any, sanction should be awarded. They fall roughly into two categories, those that pertain to the physical contents of plaintiff's office when she left her employ and the other with the loss of electronically stored information on the computer she used. I believe the following issues are still in dispute:
(1) What were the contents of plaintiff's office, and what was in the file drawers or cabinets immediately outside her office, on the day of her departure?
(2) When plaintiff returned to retrieve items from her office, was she precluded from taking whatever she wanted?
(3) Did any one supervise plaintiff as she removed items from her office?
(4) What was stored on plaintiff's computer that was not also on a network server? This would pertain to what is usually called her "local drive," i.e., the part of her computer where information was stored that was not also stored on a network server.
(5) Of the contents of plaintiff's computer when she left, what should have been captured on some other media, whether the local server or the Legato server?
(6) When plaintiff's computer was disposed of, did the person disposing it know of her lawsuit?
(7) What was recovered from the DC server that duplicates information relevant to this lawsuit that was in plaintiff's office or on her computer?
(8) What was never recovered from the DC server that was relevant to this lawsuit?
(9) What was recovered from the Legato server that duplicates information relevant to this lawsuit that was in plaintiff's office or on her computer?
(10) What was never recovered from the Legato server that was relevant to this lawsuit?
Counsel will meet and confer first to establish whether, in their view, there are additional factual issues that must be resolved. If they agree that there are, they may jointly propose them as additions in a jointly filed document. If, on the other hand, they cannot agree, either party may propose additional issues, and I will consider including them.
As to all factual issues, I expect counsel to make a genuine effort to eliminate any need to hear evidence as to facts that are not in dispute. Thus, counsel will also meet and confer and attempt to reach agreement as to facts not in dispute and, if they can agree, jointly file a statement of their agreement. A separate Order specifies the deadlines by which all of this must be accomplished.
I appreciate that plaintiff seeks additional discovery as to the merits of the case itself. See Plaintiff's Show Cause Response to Support the Enlargement of Time for Discovery [#127]. Action on that request will be stayed until the hearing is held.
IV. Conclusion
For the reasons stated herein, I recommend that plaintiff's motion for the sanction of default judgment in regards to her Equal Pay Act claim be denied. Further, an evidentiary hearing to address other sanctions sought by plaintiff in her motion will be held. A separate order accompanies this Memorandum Opinion.
In this Memorandum Opinion, I have spoken to plaintiff's demand that she be awarded default judgment. That portion of the Memorandum Opinion must therefore be deemed a Report and Recommendation. As to that portion, plaintiff is reminded that failure to file timely objections to the findings and recommendations set forth in this report may waive her right of appeal from an order of the District Court adopting such findings and recommendations. See Thomas v. Arn , 474 U.S. 140 (1985).