The opinion
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NORTH CAROLINA
CHARLOTTE DIVISION
DOCKET NO. 3:17-cv-00427-FDW-DCK
MB REALTY GROUP, INC. and MATT )
BECKHAM, )
)
Plaintiffs, )
)
vs. ) ORDER
)
THE GASTON COUNTY BOARD OF )
EDUCATION, GASTON COUNTY, )
CARSTAPHEN FAMILY FOUNDATION, )
THE STOWE FOUNDATION, INC., )
CATHERINE ROBERTS, and TRACY )
PHILBECK, )
)
Defendants. )
)
THIS MATTER is before the Court on Plaintiffs’ Motion for Default Judgment and
Sanctions Against Defendants Tracy Philbeck (“Philbeck”) and Catherine Roberts (“Roberts”).
(Doc. No. 93). Defendants Philbeck and Roberts responded to the motion, (Docs. Nos. 95, 97),
Plaintiffs replied, (Docs. Nos. 111, 112), and this matter is now ripe for review. For the reasons
stated below, Plaintiffs’ Motion for Default Judgment and Sanctions against Defendants is
DENIED. Plaintiffs’ earlier Motion for Default Judgment and Sanctions, (Doc. No. 92), is hereby
DENIED AS MOOT.
I. BACKGROUND
In the interests of judicial economy, the Court provides a general overview of the case here
but summarizes the specific background relevant to the issues raised by the parties’ motions and
answers in the analysis. This litigation stems from Plaintiffs’ contention MB Realty Group, Inc.
(“MBRG”) was “cut . . . out” of a deal wherein Plaintiffs planned to purchase a 78-acre parcel
from Defendants Carstarphen Family Foundation and The Stowe Foundation (“the Foundations”)
and then subsequently sell the same parcel of land to Defendant Gaston County Board of Education
(“GCBOE”) whereby Plaintiffs would realize a roughly $400,000 profit. (Doc. No. 32, pp. 4-8).
After Plaintiffs failed to close on the property by the extended closing date of May 16, 2017,
provided by the Foundations, the GCBOE eventually purchased the parcel directly from the
Foundations. Id.
Plaintiffs sued Defendants Philbeck and Roberts for libel per se, unfair and deceptive trade
practices (“UDTPA”), and punitive damages. Id. at 13-14. Plaintiffs alleged Defendant Roberts,
a member of the GCBOE, published and Defendant Philbeck, a Gaston County Commissioner,
“re-published an email to various members of GCBOE and others,” which:
“[M]ade false statements about a prior transaction involving Mr. Beckham,
specifically stating that ‘Pearson, Gray and Hoyle refuse to take the commission
owed to them, due to the fact of the land purchase going on before the foreclosure
process and because of the relationship between Kevin and Matt Beckham. Matt
Beckham is paid a commission fee.’”
Id. at 5.
Plaintiffs’ Motion for Default Judgment and Sanctions Against Defendants Philbeck and
Roberts (“Motion”) seeks an order pursuant to Federal Rule of Civil Procedure 37(e) containing
the following: (1) a presumption that the lost information from the emails was unfavorable to
Defendant Philbeck, (2) a default judgment against Defendant Philbeck, (3) in the alternative, a
jury instruction to presume the information in the emails was unfavorable to Philbeck, (4) a
presumption the information in the text messages not handed over by Roberts was unfavorable as
to Roberts, (5) a default judgment against Roberts, (6) a jury instruction presuming the information
in the text messages was unfavorable to Roberts, (7) “measures no greater than necessary to cure
the prejudice,” and (8) Defendants Philbeck and Roberts to be liable jointly and severally for
reasonable expenses and attorney’s fees connected to the Motion. (Doc. No. 93-1, p. 5).
II. LEGAL STANDARD
A sanction for spoliation of evidence should “(1) deter the parties from engaging in
spoliation; (2) place the risk of an erroneous judgment on the party who wrongfully created the
risk; and (3) restore the prejudiced party to the same position he would have been in absent the
wrongful destruction of evidence. . . .” Eshelman v. Puma Biotechnology, Inc., No. 7:16-cv-18-
D, 2017 WL 2483800, at *11-12 (E.D.N.C. June 7, 2017) (quoting West v. Goodyear Tire &
Rubber Co., 167 F.3d 776, 779 (2nd Cir. 1999)). There are two avenues by which a court may
impose sanctions for spoliation, “(1) Fed. R. Civ. P. 37(e); and (2) [the Court’s] ‘inherent power’”
Silvestri v. Gen. Motors Corp., 271 F.3d 583, 590 (4th Cir. 2001) (quoting Chambers v. NASCO,
Inc., 501 U.S. 32, 45 (1991)).
According to Rule 37(e) of the Federal Rules of Civil Procedure:
If electronically stored information that should have been preserved in the
anticipation 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).
“[I]n ascertaining the[] meaning [of the Federal Rules of Civil Procedure] the construction
given to them by the [Advisory] Committee is of weight.” Nuvasive, Inc. v. Kormanis, No. 1:18-
cv-282, 2019 WL 1171486, at *2 (M.D.N.C. Mar. 13, 2019) (citing Mississippi Publishing Corp.
v. Murphee, 326 U.S. 438, 444 (1946)). Rule 37(e) as amended “forecloses reliance on inherent
authority or state law to determine when certain measures should be used” and “displaced judicial
inherent authority as a mechanism for sanctioning ESI spoliation.” Nuvasive, 2019 WL 1171486
at *2; see also Chambers, 501 U.S. at 47-49 (stating “the inherent power of lower federal courts
can be limited by statute or rule” and then looking to whether the “Advisory Committee’s Notes
on [an] Amendment to [a Federal Rule of Civil Procedure] repeal[ed] or modif[ied] existing
authority of federal courts to deal with abuses under inherent power.” (internal ellipsis and
quotation marks omitted)). A movant seeking a spoliation sanction pursuant to Rule 37(e) must
satisfy the following four requirements: “(1) ESI should have been preserved; (2) ESI was lost; (3)
the loss was due to a party’s failure to take reasonable steps to preserve the ESI; and (4) the ESI
cannot be restored or replaced through additional discovery.” Eshelman, 2017 WL 2483800, at
*4.
Rule 37(e)(1) requires a “finding of prejudice to another party” before sanctions can be
imposed. Id. at *14. The Advisory Comments to Rule 37(e) note the Court may, in its discretion,
consider if the lost information is “unimportant, or [whether] the abundance of preserved
information [] appear[s] sufficient to meet the needs of all parties.” Fed. R. Civ. P. 37(e) advisory
committee’s note to 2015 amendment. The Court may also “requir[e] the party seeking curative
measures to prove prejudice.” Id.
Pursuant to Rule 37(e)(2), “only upon finding that the party acted with the intent to deprive
another party of the information’s use in the litigation,” the Court may imply a negative
presumption regarding the lost information or “dismiss the action or enter a default judgment.”
Id.; see also Shaffer v. Gaither, No. 5:14-cv-00106-MOC-DSC, 2016 WL 6594126, at *2
(W.D.N.C. Sept. 1, 2016) (holding Rule 37(e)(2) allows sanctions for “spoliation only where [the]
party acted with an intent to deprive.”).
III. ANALYSIS
Plaintiffs’ Motion and brief in support thereof states “Pursuant to Rule 37(e), Plaintiffs
seek appropriate sanctions.” (Doc. No. 93, p. 1; Doc. No. 93-1, p. 1). Because the 2015
amendment to Rule 37(e) “forecloses reliance on inherent authority” when pursuing sanctions
under Rule 37(e), and Plaintiffs only request sanctions pursuant to Rule 37(e), analysis of the
Court’s “inherent power” to impose sanctions is unnecessary.1 See Nuvasive, 2019 WL 1171486,
at *2-3 (declining to impose sanctions on “inherent” grounds and relying on the Advisory
Committee’s notes that indicate Rule 37(e) “forecloses reliance on inherent authority” regarding
ESI sanctions).
A. Defendant Philbeck
On January 31, 2019, Plaintiffs filed this Motion against Defendant Philbeck, alleging
“Defendant Philbeck has not produced any emails related to his personal email account
[tracy@tracyphilbeck.com] even though some emails were produced by other parties” and “he
deleted emails after receiving the preservation of evidence letter.” (Doc. No. 93-1, pp. 2-3).
Plaintiffs claim Defendant Philbeck’s emails would have revealed “at least part of the plan among
the defendants in this action to harm the Plaintiffs.” Id. at 5.
Defendant Philbeck responded to Plaintiffs’ Motion, claiming he did in fact preserve all
emails relating to his work as a Gaston County Commissioner sent to his personal account by
forwarding them to a “gaston.gov” (“Gaston”) email account to “create[] a public record.” (Doc.
No. 97, pp. 3-4). Defendant Philbeck further asserts that upon receipt of the preservation letter
sent by Plaintiffs, he checked his personal email account “at least twice to make sure” all relevant
1 However, should “inherent power” remain a viable means for imposing sanctions for spoliation of ESI, this Court
would not reach an outcome contrary to its determination here under Rule 37(e). See Nuvasive, 2019 WL 1171486,
at *2-3 n.2, 4, 5 (citing Worldpay, US, Inc. v. Haydon, No. 17-cv-4179, 2018 WL 5977926, at *3 n.1 (N.D.Ill. Nov.
14, 2018)).
emails had been forwarded to a Gaston account. Id. at 4. Defendant Philbeck further states that
his personal email server began having technical problems in April 2018, and upon the advice of
his information technology provider, the only way to fix the problem was to delete all emails from
the server. Id. Defendant Philbeck asserts he had already forwarded all work-related emails to a
Gaston address for preservation, allowing him to delete all the emails from his personal server
without causing any loss of information since Defendant Philbeck knew all the emails forwarded
to a Gaston account would be produced in discovery by Gaston County. Id. Since Defendant
Philbeck does not have access to Gaston County’s email server, he answered in response to
Plaintiffs’ discovery requests that he did not have “possession, control, or custody” of the emails
requested by Plaintiffs. Id. Gaston County did produce in its discovery requests emails forwarded
from Defendant Philbeck’s personal email to a Gaston email. Id.
For Rule 37(e) sanctions to be applicable, the four threshold requirements in Eshelman,
2017 WL 2483800, must be met. First, Defendant Philbeck’s emails relating to the property at
issue are materials to be preserved for discovery. Second, while Plaintiffs claim Defendant
Philbeck’s emails relating to this action are lost, (Doc. No. 93-1, p. 4), Defendant Philbeck argues
that although he cannot access emails through his personal server from before April 2018, all
relevant emails were forwarded to and preserved on his Gaston account. (Doc. No. 97, p. 5). For
purposes of this decision, this Court will assume emails were lost.2
The third factor is met if the ESI is lost because of a failure to take reasonable steps to
preserve the information. Eshelman, 2017 WL 2483800, at *4. The Advisory Committee’s
Comment to Rule 37(e) provides that “reasonable steps” to preserve evidence “does not call for
perfection” and further instructs courts to “be sensitive to the party’s sophistication with regard to
2 This assumption is made to streamline the Court’s analysis but should not be construed as a finding of fact by this
Court.
litigation in evaluating preservation efforts . . . particularly individual litigants, [who] may be less
familiar with preservation obligations. . . .” Fed. R. Civ. P. 37(e) advisory committee’s note to
2015 amendment. Defendant Philbeck provided an affidavit stating he received advice that
forwarding his personal emails to his Gaston account would preserve any such emails. (Doc. No.
97-1, pp. 7-9). Furthermore, Defendant Philbeck stated it was his practice to delete emails from
his personal account after forwarding them to a Gaston account and only after “knowing that I had
gone through and transferred all emails from this account that involved this lawsuit to
gastongov.com,” did he authorize the deletion of all emails from his personal server. Id. Because
Defendant Philbeck, an individual with likely little litigation experience, was advised that
forwarding his emails to a Gaston account would preserve them, and he refrained from deleting
emails from his server before checking his personal email account twice for any remaining relevant
emails, this Court finds Defendant Philbeck took reasonable steps to preserve the emails at issue.
Therefore, Rule 37(e) sanctions are not warranted.
Even assuming arguendo reasonable steps for preservation were not taken, and the fourth
factor in Eshelman requiring the ESI to be irreplaceable through additional discovery are met,
Plaintiffs’ Motion is unpersuasive to this Court. Plaintiffs’ claims against Defendant Philbeck for
libel per se and unfair and deceptive trade practices are based on an email Plaintiffs possessed
even before filing their amended complaint. (Doc. No. 32, p. 5). Furthermore, Plaintiffs have not
shown support for a claim that Defendant Philbeck sent or received any additional emails beyond
those turned over by Gaston County or other parties in the course of discovery that would be
helpful to proving their case for libel and UDTPA. To the extent any emails were lost, this Court
finds no prejudice to Plaintiffs, and therefore no grounds for sanctions, including assessment of
attorney’s fees, under Rule 37(e)(1), because any lost information appears insignificant and
unimportant in light of the numerous emails from Defendant Philbeck’s personal account which
Plaintiffs received during discovery.
Plaintiffs argue Defendant Philbeck “acted with the intent to deprive” Plaintiffs of
information by “purposefully deleting the emails.” (Doc. No. 93-1, p. 4). Defendant Philbeck,
however, maintains he only deleted emails after being advised they had been preserved on Gaston
County’s server and double-checking his personal inbox “at least twice to make sure all emails
relating to Gaston County matters had been forwarded.” (Doc. No. 97, p. 4). Based on these facts
in the record, this Court is unpersuaded Defendant Philbeck “acted with the intent to deprive”
Plaintiffs of the emails, and therefore, finds no grounds for sanctions under Rule 37(e)(2).
Furthermore, Plaintiffs’ requests for negative inference jury instructions or the entering of a default
judgment are mooted by this Court’s ruling granting summary judgment to Defendant Philbeck on
all claims. (Doc. No. 145).
B. Defendant Roberts
Plaintiffs filed this Motion requesting entry of default judgment and/or sanctions against
Defendant Roberts alleging she “purposefully delet[ed]” text messages that would have revealed
“at least part of the plan among the defendants in this action to harm the Plaintiffs.” (Doc. No. 93-
1, pp. 4-5). Defendant Roberts argues she keeps text messages on her phone “for a few weeks or
a couple months at most.” (Doc. No. 95, p. 4). Although Defendant Roberts does not remember
exactly when she was informed to “preserve information on her cell phone, which she understood
to mean emails,” the earliest possible time Defendant Roberts could have known about the letter
was when Kevin Bringewatt, GCBOE’s attorney, received a letter on April 13, 2017, about six
weeks after Defendant Roberts sent the email Plaintiffs contend was libelous. Id. at 3. Defendant
Roberts also contends she never had any “substantive discussions by text” regarding this matter
but rather may have sent short messages to her fellow board members consisting of “Please call
me, that sort of thing.” Id. at 4. Furthermore, Defendant Roberts asserts “[t]here is no evidence
that [she] exchanged text messages with anyone other than fellow GCBOE members and
Superintendent Booker” and that Plaintiffs’ argument “relies wholly on speculation that Roberts
sent text messages that were somehow related to the claims of libel and UDTP[A] against her.”
Id. at 4-5.
“A successful claim for spoliation of evidence cannot be premised on mere speculation on
the existence of such evidence.” Wimbush v. Matera, No. SAG-11-1916, 2014 WL 7239891, at
*32 (D. Md. Dec. 17, 2014). “[S]peculative or generalized assertions that the missing evidence
would have been favorable to the party seeking sanctions are insufficient.” In re Ethicon, Inc.
Pelvic Repair Systems Product Liability Litigation, 299 F.R.D. 502, 523 (S.D.W.Va. Feb. 4, 2014).
Here, Plaintiffs rely on “mere speculation” that Defendant Roberts’s text messages between May
2017 and August 2017, several months after Defendant Roberts published the alleged libel in
February 2017, would benefit them in showing “the plan among the defendants in this action to
harm the Plaintiffs.” (Doc. No. 93-1, p. 5). This Court finds Plaintiffs’ claims regarding the
deleted text messages speculative because Plaintiffs’ do not present any evidence supporting their
assertion that Defendant Roberts’s text messages to her fellow GCBOE members, or other persons
if such communications existed, three months after the alleged libel3 occurred “would have been
favorable to” Plaintiffs. In re Ethicon, 299 F.R.D. at 523.
Assuming arguendo Plaintiffs’ assertion that Defendant Roberts’s text messages would be
helpful to their case is not based on speculation, the text messages should have been preserved, the
text messages were lost because of Defendant Roberts’s failure to take reasonable steps to preserve
3 This Court has already held that the UDTPA claim against Defendant Roberts is contingent on the libel per se claim.
(Doc. No. 145, p. 5).
them, and the text messages cannot be restored or replaced through additional discovery, this Court
remains unpersuaded that sanctions are warranted under Rule 37(e). See generally Eshelman,
2017 WL 2483800, at *4 (explaining the latter four factors discussed above as threshold
requirements for Rule 37(e) sanctions).
The Court must find that the party seeking sanctions has been prejudiced before imposing
sanctions under Rule 37(e)(1). Id. at 14. Plaintiffs have not shown prejudice because they have
failed to show how the deletion of text messages between Defendant Roberts and members of the
GCBOE consisting of requests to call each other would be important to proving their case for libel
per se. Furthermore, Plaintiffs have failed to show how the text messages develop their UDTPA
claim against Defendant Roberts given the fact there is no evidence showing Defendant Roberts
communicated via text with anyone outside the GCBOE regarding this matter. This Court
therefore finds no grounds for sanctions, including assessment of attorney’s fees, against
Defendant Roberts under Rule 37(e)(1).
To the extent Plaintiffs’ request for sanctions pursuant to Rule 37(e)(2) is not mooted by
this Court’s Order on Summary Judgment, (Doc. No. 145), this Court does not find that Defendant
Roberts “acted with the intent to deprive” Plaintiffs of the use of the text messages in this litigation.
Fed. R. Civ. P. 37(e)(2). In her deposition, Defendant Roberts testified she thought the instruction
given her “to preserve electronic information on her cell phone” was referring only to emails, and
therefore, she maintained her usual practice of deleting her text messages every “few weeks or a
couple months at most.” (Doc. No. 95, pp. 3-4). Furthermore, Defendant Roberts did not seek to
deprive Plaintiffs of the contents of text messages in her deposition since she stated that any texts
relating to this matter were short messages such as “call me.” Id. at 4. Defendant Roberts indicated
her deletion of messages was part of her usual practice, not an attempt to prevent Plaintiffs from
obtaining the text messages, and upon realizing Plaintiffs desired her text messages, she attempted
to recount their contents to Plaintiffs. Id. The evidence in the record does not support a finding
that Defendant Roberts “acted with the intent to deprive” Plaintiffs of the information, and
therefore, this Court finds no grounds for sanctions against Defendant Roberts under Rule 37(e)(2).
IV. CONCLUSION
Because this Court finds no grounds for sanctions against either Defendant Philbeck or
Defendant Roberts under Rule 37(e)(1) or Rule 37(e)(2), Plaintiffs’ Motion for Default Judgment
and Sanctions, (Doc. No. 93), against Defendant Tracy Philbeck and Defendant Catherine Roberts
is DENIED.
IT IS SO ORDERED.
Signed: May 28, 2019
Frank D. Whitney □□
Chief United States District Judge ~“»*"
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