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University Accounting Service, LLC v. Schulton

United States District Court, D. Oregon

June 7, 2019

UNIVERSITY ACCOUNTING SERVICE, LLC, Plaintiff,
v.
ETHAN SCHULTON and SCHOLARCHIP CARD, LLC, Defendants,

          Allyson B. Baker, Sameer P. Sheikh, Erin Z. Cass, and Michael J. Marusak, VENABLE LLP, Massachusetts Avenue, Ciaran P. A. Connelly, BALL JANIK LLP, Attorneys for Plaintiff.

          Scott R. Ast, SCHARNHORST AST KENNARD GRIFFIN PC, Stephen P. Yoshida and Michael J. Farrell, MB LAW GROUP LLP, Attorneys for Defendant Ethan Schulton.

          Stephen Nakamura, MERLE BROWN & NAKAMURA PC, John C. Rothermich, K&L GATES LLP, Defendant ScholarChip Card, LLC.

          OPINION AND ORDER ON PLAINTIFF'S MOTION FOR SANCTIONS

          Michael H. Simon United States District Judge.

         Plaintiff University Accounting Service, LLC (“UAS”) brings this lawsuit against Defendants ScholarChip Card, LLC (“ScholarChip”) and Ethan Schulton (“Schulton”), who previously worked for ScholarChip. Before the Court is UAS's motion against Schulton for case-dispositive sanctions or, in the alternative, lesser sanctions. UAS asserts that Schulton destroyed relevant electronically stored information with the intent of depriving UAS of the use of that evidence in this lawsuit. For the reasons that follow, the Court denies Plaintiff's motion for case-dispositive sanctions but grants Plaintiff's alternative motion for lesser sanctions.

         STANDARDS

         “Spoliation is the destruction or significant alteration of evidence, or failure to preserve property for another's use as evidence in pending or reasonably foreseeable litigation.” Allstate Ins. Co. v. Hamilton Beach/Proctor Silex, Inc., 473 F.3d 450, 457 (2d Cir. 2007) (quoting West v. Goodyear Tire & Rubber Co., 167 F.3d 776, 779 (2d Cir. 1999)). Rule 37(e) of the Federal Rules of Civil Procedure sets forth the standards and consequences if a party in litigation destroys or fails to preserve relevant electronically stored information. That rule provides:

Failure to Preserve Electronically Stored Information. If electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery, the court:
(1) upon finding prejudice to another party from loss of the information, may order measures no greater than necessary to cure the prejudice; or
(2) only upon finding that the party acted with the intent to deprive another party of the information's use in the litigation may:
(A) presume that the lost information was unfavorable to the party;
(B) instruct the jury that it may or must presume the information was unfavorable to the party; or
(C) dismiss the action or enter a default judgment.

Fed. R. Civ. P. 37(e).

         The current text of Rule 37(e) was adopted in 2015 to replace the 2006 version of that rule. As explained by the Rules Advisory Committee in 2015:

Subdivision (e)(2) requires a finding that the party acted with the intent to deprive another party of the information's use in the litigation. This finding may be made by the court when ruling on a pretrial motion, when presiding at a bench trial, or when deciding whether to give an adverse inference instruction at trial. If a court were to conclude that the intent finding should be made by a jury, the court's instruction should make clear that the jury may infer from the loss of the information that it was unfavorable to the party that lost it only if the jury first finds that the party acted with the intent to deprive another party of the information's use in the litigation. If the jury does not make this finding, it may not infer from the loss that the information was unfavorable to the party that lost it.
Subdivision (e)(2) does not include a requirement that the court find prejudice to the party deprived of the information. This is because the finding of intent required by the subdivision can support not only an inference that the lost information was unfavorable to the party that intentionally destroyed it, but also an inference that the opposing party was prejudiced by the loss of information that would have favored its position. Subdivision (e)(2) does not require any further finding of prejudice.

         Courts should exercise caution, however, in using the measures specified in (e)(2). Finding an intent to deprive another party of the lost information's use in the litigation does not require a court to adopt any of the measures listed in subdivision (e)(2). The remedy should fit the wrong, and the severe measures authorized by this subdivision should not be used when the information lost was relatively unimportant or lesser measures such as those specified in subdivision (e)(1) would be sufficient to redress the loss.

Fed. R. Civ. P. 37(e)(2) advisory committee's note to 2015 amendment.

         BACKGROUND

         A. The Parties and Their Lawsuits

         UAS is a student loan servicing company and a wholly owned subsidiary of Transworld Systems, Inc. (“TSI”), a debt collection and receivables management company. The clients or customers of UAS are lenders who provide student loans. UAS assists its customers by documenting when student loan payments are made to lenders, ensuring that ...


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