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Edwards v. 4JLJ, LLC

United States District Court, S.D. Texas, Corpus Christi Division

June 14, 2018

JOSHUA EDWARDS, et al, Plaintiffs,
v.
4JLJ, LLC; dba J4 OILFIELD SERVICES, et al, Defendants.

          ORDER ON MOTION FOR SANCTIONS

          NELVA GONZALES RAMOS UNITED STATES DISTRICT JUDGE

         Before the Court is Plaintiffs' Motion for Sanctions (D.E. 225). Plaintiffs complain that Defendants 4JLJ, LLC d/b/a J4 Oilfield Services and John Jalufka (jointly J4) stonewalled discovery, denied the existence of available information, and ultimately allowed that information to be lost or destroyed, impairing Plaintiffs' ability to recover on the claims made in this case. J4 argues that its rights to the information sought were insufficient to support a duty to preserve or disclose it and any loss of the information is the fault of Plaintiffs for not seeking to compel discovery in a timely manner.

         For the reasons set out below, the Court GRANTS the motion (D.E. 225) and imposes sanctions in the form of an adverse inference jury instruction and placement of the Technical Corrections Act burden of proof on J4. The Court further considers and DENIES Plaintiffs' First Amended Motion for Partial Summary Judgment (D.E. 252), which seeks summary judgment based, in part, on spoliation presumptions or the extrapolation of residual existing data to issues for which data was lost or destroyed.

         INTRODUCTION

         Plaintiffs bring this case as a collective action under the Fair Labor Standards Act (FLSA), seeking unpaid overtime wages and other damages. D.E. 18, 146. J4 has pled the Motor Carrier Act (MCA) exemption as eliminating Plaintiffs' rights and remedies under the FLSA because Plaintiffs' work was governed by the Secretary of Transportation. The MCA exemption is limited by the provisions of the SAFETEA-LU[1]Technical Corrections Act of 2008 (TCA). More specifically, the TCA provides an exception from the MCA exemption-when Plaintiffs' work involved meaningful duties with respect to motor vehicles weighing 10, 000 pounds or less (non-commercial vehicles). Consequently, any evidence that demonstrates the number of hours Plaintiffs worked and whether their work involved one or more non-commercial vehicles is not only relevant, but critical to the claims and defenses in this case.

         It is undisputed that J4 had installed in many of its vehicles-both commercial and non-commercial-a system licensed from FleetMatics that included a Global Positioning System (GPS) tracker.[2] Together with key fobs issued to individual employees and key fob readers installed in the vehicles, the system recorded such things as the identity of the driver, the date and time the vehicle was turned on, the amount of time the vehicle ran, the distance it traveled, and the path it followed. All of this allowed J4 to observe the activities of its fleet in real time on computer monitors. It also provided for the storage of data in FleetMatic's computer servers from which J4 could obtain reports through a software interface. Those reports included data for activity filtered on a vehicle and/or driver basis.

         The FleetMatics data was relevant to the allegations in this case in two important ways. First, Plaintiffs claim that J4 required them to submit their time sheets using block increments of time that J4 prescribed on a task basis-not the hours they actually worked. The FleetMatics data could confirm whether Plaintiffs worked more hours than they were permitted to report. Second, J4 has invoked the MCA exemption, seeking to eliminate the Plaintiffs' FLSA claims in a wholesale manner. The FleetMatics data could corroborate or controvert Plaintiffs' assertions that they performed substantial work on non-commercial vehicles, bringing them within the TCA exception and eliminating J4's claimed MCA exemption.

         The TCA is a relatively recent change in the law, straddling the requirements for making an FLSA claim and losing it to the MCA exemption. Courts have been split on whether plaintiffs, with the burden to establish their FLSA claims, must show that they did work on non-commercial vehicles or whether defendants, with the burden to establish the MCA exemption, must show that plaintiffs did not work on non-commercial vehicles. Thus, despite its determinative power, the FleetMatics data's practical utility to either side of the pending dispute depended not only on the content of the data but upon which party had the burden to prove Plaintiffs' amount of work on non-commercial vehicles (the TCA issue).

         In the midst of this uncertainty and prior to this Court's April 10, 2017 ruling placing the burden of proof on Plaintiffs, Plaintiffs sought the FleetMatics data from J4. J4 did not preserve it and did not produce it in discovery. Consequently, a large part of the data appears to have been lost or destroyed. Plaintiffs seek sanctions against J4 for spoliation.

         DISCUSSION

         A. Standard of Review

         Under Federal Rules of Civil Procedure 26(g)(3) and 37, a court may sanction a party to litigation who fails to comply with the duty of disclosure and the duty to respond appropriately to requests for production and requests for admissions. A federal court also has the inherent power to sanction a party who has abused the judicial process. Chambers v. NASCO, 501 U.S. 32, 44 (1991). The spoliation of evidence is one such abuse. Rimkus Consulting Group, Inc. v. Cammarata, 688 F.Supp.2d 598, 611 (S.D. Tex. 2010). “Spoliation of evidence ‘is the destruction or the significant and meaningful alteration of evidence.'” Guzman v. Jones, 804 F.3d 707, 713 (5th Cir. 2015) (quoting Rimkus, 688 F.Supp.2d at 612).

         The party seeking imposition of a sanction for spoliation bears the burden of proof. Rimkus, 688 F.Supp.2d at 615-16. That proof involves three elements:

(1) the party with control over the evidence had an obligation to preserve it at the time it was destroyed; (2) the evidence was destroyed with a culpable state of mind; and (3) the destroyed evidence was “relevant” to the party's claim or defense such that a reasonable trier of fact could find that it would support that claim or defense.

         Id. Culpability sufficient to impose sanctions requires a showing of bad faith or bad conduct. Condrey v. SunTrust Bank of Georgia, 431 F.3d 191, 203 (5th Cir. 2005); Rimkus, 688 F.Supp.2d at 614. Bad faith in this context generally means destruction for the purpose of hiding adverse evidence. Guzman, 804 F.3d at 713.

         B. J4 Had a Duty to Preserve the FleetMatics Data

         The duty to preserve evidence arises when a party has evidence that it knows or should know is relevant to a claim that is in litigation or is likely to be litigated.[3] Rimkus, 688 F.Supp.2d at 612-13.

[A]nyone who anticipates being a party or is a party to a lawsuit must not destroy unique, relevant evidence that might be useful to an adversary. “While a litigant is under no duty to keep or retain every document in its possession . . . it is under a duty to preserve what it knows, or reasonably should know, is relevant in the action, is reasonably calculated to lead to the discovery of admissible evidence, is reasonably likely to be requested during discovery and/or is the subject of a pending discovery request.”

Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 217 (S.D.N.Y. 2003) (ellipses in original; citing Turner v. Hudson Transit Lines, Inc., 142 F.R.D. 68, 72 (S.D.N.Y. 1991) (quoting Wm. T. Thompson Co. v. General Nutrition Corp., 593 F.Supp. 1443, 1455 (C.D. Cal. 1984))).

         “The party requesting an adverse inference must first show that the documents in question exist or existed and were within the control of the opposing party.” Jobe v. ATR Mktg., Inc., 189 F.3d 466 n.3 (5th Cir. 1999). J4 disclaims any duty to preserve the FleetMatics data, arguing that it did not have the necessary possession, custody, or control to support imposition of any duty. While the Jobe recitation of the duty to preserve may not state its full scope, [4] the Court finds that J4's disclaimer of control is not well-founded on our facts.

         Both parties rely on FleetMatics' agreement, including its standard terms and conditions, to demonstrate whether J4 had possession, custody, or control sufficient to trigger a duty to preserve evidence. The following discussion sets out the relevant terms and their significance to the question of the duty to preserve.[5]

         D. ACCESS AND USE

         Subject to the terms and conditions of this Agreement, FleetMatics hereby grants Customer a non-exclusive, non-transferable limited right in the territory where the Customer is located as follows:

a. To access and use the Services until the last day of the Service Term, consistent with any FleetMatics policies and additional use limitations specified or referenced in the order form and solely for the Customer's use; and
b. To download, print, copy and use any documentation as reasonably necessary for its internal, in-house use related to the rights granted under subsection (a) above.
FleetMatics reserves all rights not expressly granted herein. Except as otherwise permitted herein, Customer may not copy, modify, adapt, or create derivative works of the Services. Except as otherwise permitted herein, in no event shall Customer (i) use, or permit any third party to use, the Services for time-sharing, rental, or service bureau purposes, or (ii) decompile, disassemble, reverse assemble, or otherwise reverse engineer the Equipment or Services, or permit any third party to decompile, reverse assemble, or reverse engineer the Equipment or Services. Customer will use the equipment and services only in compliance with applicable law.

         D.E. 234-5 (emphasis added). This provision reflects that J4 had the right to access and use the FleetMatics data in every way necessary to preserve it. While it specifies “solely for the Customer's use, ” and “internal, in-house use, ” J4 has provided no authority for construing preservation of evidence-fully anticipated and empowered by the agreement and consistent with maintaining the business records the system generated-as something other than “J4's use.” Production of the data to a third party is a separate issue not relevant at this juncture. The remaining language of this section, which addresses other copying and third-party access, prohibits use for the purpose of misappropriating FleetMatics' hardware or software design. It is not directed to the content of the data, but the engineering by which it is processed and produced.

         J4 argues that access to information should not be confused with control, citing Dotson v. Edmonson, No. 16-15371, 2017 WL 4310676 (E.D. La. September 28, 2017). However, in Dotson, the parties resisting discovery (not the duty to preserve) were the employees of the non-party owner of the information. They did not procure the compilation of information and there is no evidence that they had a contractual right to copy, print, or download the material for future use. Rather, their access was permitted only for viewing the information. Here, J4 is a subscriber who has paid for the right not only to access and view the information, but to copy, print, download, and preserve it. There is nothing about the relationship between J4 and FleetMatics that impairs J4's right to preserve the data consistent with the purposes of its subscription.

         Even if there is some question regarding J4's right to produce the information to third parties in this action, nothing about the relationship of the parties impairs J4's ability and right to preserve the information until disclosure issues can be adjudicated. Moreover, nothing about the duty to preserve this data, which involves unlimited print or digital duplication, would amount to illegally taking exclusive possession of something belonging to another. Thus J4's reliance on In re Grand Jury Subpoena, 646 F.2d 963, 969 (5th Cir. 1981)[6] is inapposite.

         As J4 notes in its response, even in the context of the duty to disclose in discovery (as opposed to the duty to preserve), the necessary control is construed expansively to include scenarios in which the responding party has the legal right or practical ability to obtain the information from another. D.E. 234, p. 9 (citing Duarte v. St. Paul Fire & Marine Ins. Co., No. EP-14-CV-305-KC, 2015 WL 7709433, at *5 (W.D. Tex. September 25, 2015)). Control is shown if the resisting party has a relationship with the non-party by affiliation, employment, or statute, which supports the party's authority or ability to obtain the document from the non-party. Duarte, supra. J4's subscription to FleetMatics' service was just such a relationship that gave J4 all of the rights it needed to preserve the data that FleetMatics' equipment generated from the J4 fleet.

         The “Access and Use” terms of the FleetMatics agreement support a finding that J4 had the necessary control to preserve the data.

         H. INTELLECTUAL PROPERTY RIGHTS

         Copyright and all other intellectual property rights subsisting in the Service is owned by FleetMatics or the providers of such information. The customer may use information retrieved from the Services only for its own use which means that the Customer may not sell, resell, retransmit or otherwise make the information retrieved from the Services available in any manner or on any medium to any third party unless the Customer has obtained FleetMatics' prior written consent.

         Id. (emphasis added). This section more specifically reflects FleetMatics' concern with defending its intellectual property rights. The data it gathers from its customers, by itself, is not claimed as intellectual property. It is the manner in which the data is processed and displayed that it seeks to protect. This section reinforces J4's control over the data sufficient to preserve it. FleetMatics only seeks to limit disclosure without its consent. J4 neither sought nor was denied this consent.

         The “Intellectual Property Rights” terms do not affect J4's control for purposes of preservation.

         I. USE OF THE FLEETMATICS SERVICE

The customer is responsible for all use of the Services made using any usernames and passwords registered by or allocated to it . . . .
FleetMatics may provide hypertext links to sites on the internet . . . FleetMatics . . . takes no responsibility for and gives no warranties, guarantees or representations in respect of linked sites. . . .
. . . FleetMatics assumes no responsibility for the accuracy of [maps, routing instructions and driving directions]. . . .
The Equipment and Services are designed to collect certain data and information from Customer's vehicles, including, without limitation, data regarding the location of the vehicles, rate of travel, ignition on/off, idle time, number of stops and other similar information (collectively “Vehicle Information”). Customer acknowledges and agrees that as between Customer and FleetMatics, Fleetmatics owns all Vehicle Information, including all rights in and to such Vehicle Information. Without limiting the generality of the foregoing, Customer acknowledges and agrees that, as the owner of the Vehicle Information, Fleetmatics may review, analyze, manipulate, copy and modify the Vehicle Information. Fleetmatics may also distribute reports, analyses and data based upon the Vehicle Information, provided, however that Fleetmatics agrees that it shall not disclose to any third parties any Vehicle Information that identifies specifically Customer or any of the drivers of Customer's vehicles. It being understood, however, that the foregoing restriction shall not apply to disclosures of Vehicle Information that are (i) required by law or in response to a request from law enforcement authorities, (ii) made in connection with a subpoena or other similar demand, (iii) made in connection with a contemplated merger, acquisition or similar transaction, (iv) made to Fleetmatics' affiliates or related companies, and/or (v) made to Fleetmatics' service providers.

Id. (emphasis added).[7] This language limits FleetMatics' responsibility regarding derivative services. FleetMatics will serve the registered users and Customer is obligated to safeguard usernames and passwords. FleetMatics will provide links to third party services whose websites Customer accesses without reliance on FleetMatics. It will provide geographical information that Customer uses at its own risk. And it will generate data that Customer cannot prevent it from using to further develop its engineering, ...


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