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Fidelity Nat. Ins. Co. v. Captiva Lake Invs.

Court Orders Adverse Inference Sanctions and Attorneys’ Fees for Failure to Implement Legal Hold; No Sanctions for Loss of Evidence Through Routine Operation of Computer System

In this insurance case, the defendant, Captiva Lake Investments, LLC (Captiva) filed a motion for sanctions for spoliation of evidence and misrepresentation by the plaintiff, Fidelity National Insurance Company (Fidelity).

In May 2011, Captiva served its first set of discovery requests, In May 2012, Captiva found out about two sets of materials that Fidelity had failed to produce or reflect on its privilege log. The missing materials were from Fidelity’s Claims Processing System (CPS) and monthly Major Claims Reports (MCRs). In June 2012, Captiva filed a motion to compel production of these materials and the Court ordered Fidelity to produce the missing materials. Fidelity produced only partial information, failing to product four MCRs from 2010, and producing only partial information from CPS.

On September 17, 2012, Captiva filed a motion for sanctions, which sought dismissal of Fidelity’s claims or, in the alternative, a forensic examination of its computer systems. In response, Fidelity denied that its conduct was sanctionable and indicated that it was consulting with an eDiscovery specialist to collect more data from CPS. On November 16, 2012, the Court denied Captiva’s motion for sanctions and ordered Fidelity to file a status report regarding the status of this consultation with the eDiscovery specialist.

Subsequent to both parties filing motions for summary judgment, Captiva filed a motion to compel production and asserted that Fidelity concealed or withheld relevant documents. Captiva also requested the appointment of a specialist to examine Fidelity’s computer system which the Court granted. The expert’s report reflected that Fidelity had not instituted a litigation hold or undertaken a systematic search of its computer systems prior to May 5, 2013, had lost as many as 13 million email messages, and failed to preserve responsive information.

When considering Captiva’s request for sanctions, the Court noted that Fidelity claimed that a litigation hold was unnecessary because it had a “document collection procedure.” The Court indicated that the existence of document collection procedure was insufficient to satisfy Fidelity’s preservation obligations if it did not actually preserve the evidence. The Court noted that Fidelity’s failure to implement a legal hold resulted in the deletion of an unknown number of emails and established the intent necessary to impose sanctions. However, the Court noted that there must be a finding of prejudice to Captiva before the Court could impose sanctions for the destruction of evidence.

The Court observed that between December 13, 2011, and July 22, 2012, Fidelity began deleting emails that were older than 180 days and that were not covered by legal holds. As there was no litigation hold with respect to Captiva’s claim, this led to the probable loss of responsive emails. Fidelity claimed that Captiva was not prejudiced by the loss of emails because it had produced a large volume of relevant emails. The Court found that the “fact that Fidelity retained some emails from the deletion period is meaningless because Fidelity does not know the quantity or contents of emails that were deleted.” The Court held that Captiva demonstrated that discoverable communications occurred via email and that Captiva was prejudiced as a result of the lost emails.

Turning to the CPS database, the Court noted that it was an internally developed system that tracks current data and did not maintain historical information. Further, CPS logs that reflect data changes were destroyed after one month. While Captiva complained that Fidelity allowed discoverable evidence to be destroyed when data in CPS was overwritten, the Court found that Captiva failed to identify a category of evidence that could be obtained only through CPS and was therefore lost. The Court cited the Rule 37(e) provision that, “[a]bsent exceptional circumstances, a court may not impose sanctions…on a party for failing to provide electronically stored information lost as a result of the routine, good faith operation of an electronic information system.” The Court found that the potential overwriting of data that Captiva complained about was part of the routine operation of their CPS system and there was “no indication that Fidelity could have preserved relevant CPS data without significant intervention in a major computer system.” The Court therefore declined to sanction Fidelity for the deletion of data through the routine operation of their CPS system.

The Court next considered whether or not Fidelity’s delay in producing responsive information prejudiced Captiva. Captiva’s first discovery request was made in May 2011. Fidelity did not disclose the existence of MCRs until May 2012 and the Court ordered their production in an August 2012 order. However, Captiva did not receive all MCRs until May 2013, three months after the parties’ summary judgment motions were fully briefed.

The Court disagreed with Fidelity’s argument that Captiva was not prejudiced by the delay in producing the MCRs or other documents. The Court noted that the late production resulted in a significant number of new pages to be “scrutinized” and there were documents that would have been helpful to Captiva’s summary judgment motion. The Court therefore held that Fidelity’s unexcused delay in producing relevant documents caused prejudice to Captiva.

When considering appropriate sanctions for Fidelity’s failure to preserve emails and prejudicial delay in production, the Court found that dismissal was not an appropriate sanction as it is “typically reserved for the most egregious offenses” and the “spoliation in this case does not rise to such a level.”

Noting that Fidelity implemented an email retention program that deleted emails after litigation commenced, the Court granted Captiva’s request for an adverse inference sanction. The Court indicated it would instruct jurors that they may, but are not required to, assume the contents of the deleted emails would have been adverse to Fidelity. However, the court allowed Fidelity an opportunity to put on rebuttal evidence explaining its conduct with respect to the deleted emails. The Court also ordered Fidelity to pay half of the technology expert’s expenses and Captiva’s reasonable attorneys’ fees associated with bringing the sanctions motion.

Fidelity Nat. Ins. Co. v. Captiva Lake Invs., 2015 WL 94560 (E.D. Mo. Jan. 7, 2015).

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