In Winecup Gamble, Inc. v. Gordon Ranch LP, No. 20-16411 (9th Cir. June 17, 2021), the Ninth Circuit Court of Appeals ruled that the Nevada district court erred in imposing terminating sanctions against the plaintiff (counter-defendant-appellant) for Rule 37(e) sanctions and reversed the ruling, vacated the judgment, and remanded for further proceedings before a different judge “[b]ecause the district court has now twice erroneously issued pretrial orders terminating the case”.

Case Background

In this case, the defendant attempted to purchase property located in northern Nevada from the plaintiff in 2016 and, when the sale fell through, both parties filed suit over the defendant’s $5 million earnest money deposit pursuant to the terms of the parties’ purchase and sale agreement.  The defendant filed a motion for judgment on the pleadings and the plaintiff filed its motion for summary judgment. The district court granted the motion for terminating sanctions against the plaintiff on the pleadings in 2017, thus denying the motion for summary judgment without considering the merits of that motion; it also found that neither party was entitled to an award of attorneys’ fees.  However, the Ninth Circuit vacated and remanded the judgment in January 2019, stating: “After reviewing this agreement and amendment, we disagree with the district court. Reading the parties’ agreement as a whole, it is reasonably susceptible to more than one interpretation.”

Then, the defendant moved for sanctions against Plaintiff alleging that its agent (Clay Worden, who performed most of the negotiations for Plaintiff in reaching the agreement and amendment generating numerous emails and text messages) spoliated ESI, and the District Court ruled that “the evidence shows that the ESI was deleted after a duty arose to preserve it” and that “[g]iven the nature of the lost ESI, the Court finds that it must give the harshest sanction of a case dispositive ruling. A presumption that the lost information was unfavorable to Plaintiff or an adverse jury instruction would not sufficiently cure Defendant’s prejudice.”  So, the District court dismissed the plaintiff’s complaint and entered terminating sanctions against the plaintiff in the form of judgment in favor of the defendant on its counterclaim, ruling that “Defendant shall receive the return of its five million dollar earnest money with interest.”  The plaintiff appealed.

Appellate Court’s Ruling

In reviewing the District Court ruling, the Ninth Circuit Court stated: “Under the standards set forth in Rule 37(e), the district court erred in imposing case-terminating discovery sanctions against Winecup…There is no evidence that Clay Worden, Winecup’s accountant and chief negotiator, knew that his emails were lost until discovery commenced in 2019. Worden’s ESI was managed by the IT department at his independent accounting firm. At Worden’s deposition, he explained that although he alerted his IT department of the preservation order in 2017, the instruction was not followed (for unknown reasons), and the documents therefore could not be recovered. The record, in short, does not support the conclusion that Worden, let alone Winecup, ‘acted with the intent to deprive’ Gordon Ranch of any ESI.”

Continuing, the Ninth Circuit Court stated: “Moreover, the Advisory Committee Notes emphasize that the ‘remedy should fit the wrong,’ and the importance of the purportedly lost ESI is not entirely clear…Winecup represents that all of Worden’s relevant ESI has been produced through other sources, and several individuals testified that there would be few, if any, relevant text communications. Winecup has also represented that Worden’s accounting work papers are not ‘lost’ but rather have not been produced because they are irrelevant and unresponsive to Gordon Ranch’s subpoena request… Upon remand, we instruct the Chief Judge of the District of Nevada to assign this case to a different judge for further proceedings. Because the district court has now twice erroneously issued pretrial orders terminating the case…reassignment is appropriate to preserve the appearance of justice”.

So, what do you think?  Does it seem impossible to obtain terminating sanctions for spoliation of evidence these days?  Please share any comments you might have or if you’d like to know more about a particular topic.

Case opinion link courtesy of eDiscovery Assistant, an Affinity partner of eDiscovery Today.

Disclaimer: The views represented herein are exclusively the views of the author, and do not necessarily represent the views held by my employer, my partners or my clients. eDiscovery Today is made available solely for educational purposes to provide general information about general eDiscovery principles and not to provide specific legal advice applicable to any particular circumstance. eDiscovery Today should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you.