Lack Of Prejudice Results In Limited Sanction Against Defendant

by Jackson Lewis P.C.

[Co-author: Daniel Butler]

In one of the first cases interpreting newly amended Fed. R. Civ. P. 37, F.T.C. v. DirecTV, Inc., 15-cv-01129-HSG, 2016 U.S. Dist. LEXIS 176873 (N.D. Cal. Dec. 21, 2016), Magistrate Judge Maria Elena James of the Northern District of California denied plaintiff’s motion to exclude spoliated evidence that was relied upon by defendant’s expert, reasoning that the plaintiff failed to show sufficient prejudice to warrant such a sanction.  The Court, however, did order that defendant’s expert sit for a four hour deposition to cure any prejudice resulting from defendant’s failure to engage in “best practices” related to the preservation of such evidence.

This is a lawsuit about DirecTV’s online marketing tactics. More precisely, plaintiff, the Federal Trade Commission (FTC), claims that defendant, DirecTV, deceptively and unfairly advertises its subscription services to consumers, in violation of the Federal Trade Commission Act (“FTC Act”) and the Restore Online Shoppers’ Confidence Act (“ROSCA”).

In its motion for sanctions under Fed. R. Civ. P. 37(e)(1), the FTC argued that despite being on notice since 2010, DirecTV failed to preserve three categories of ESI related to its website.

Interactive Versions of 2015 DirecTV website

The FTC argued that DirecTV did not preserve interactive versions of its 2015 website, which were relied upon by DirecTV’s expert. DirecTV responded by stating that it informed the FTC in June 2010 and February 2014 that it was not preserving all versions of its interactive website because it was technologically infeasible to do so.  Instead, in August 2013, DirecTV advised the FTC that it would produce monthly screenshots of its website, and ultimately made available source code and two 30(b)(6) experts on such code that would supposedly enable the FTC to reconstruct the website.

The FTC also argued that DirecTV failed to preserve “thousands” of A/B tests that it conducted from 2011 until 2015. “A/B testing refers to the common practice of presenting different experiences to subsets of consumers and analyzing how consumers respond.”  DirecTV’s failure to preserve this ESI, the FTC argued, prejudiced its ability to compare DirecTV’s litigation evidence with similar evidence prepared in the ordinary course of business and has deprived the FTC of an opportunity to commission a counter-study.  DirecTV countered by explaining that it produced the single A/B test mentioned in its expert’s report and reminded the court that the parties already resolved this dispute in July 2016 when DirecTV agreed to produce other records relating to its consumer research studies.

Website Analytics Data

Finally, the FTC argued that DirecTV failed to preserve analytics data on the behavior of users navigating the company’s website. Without this data, the FTC argued that DirecTV should be precluded from using it to defend the case.  DirecTV responded by attacking the FTC’s delay in recognizing and raising this issue, and also alleged that the dispute was similarly resolved by the parties’ July 2016 agreement on consumer research studies.

In deciding the issue, the court stated that “[w]hile DIRECTV’s decisions may not constitute best practices, the Court finds that the FTC ultimately has not shown that it has been prejudiced to warrant exclusion of the information.” With regard to DirecTV’s failure to preserve interactive versions of its website for the time period used in the consumer surveys, the court stated that while plaintiff “may have preferred” preservation and production in a different format, plaintiff failed to show that DirecTV’s production of screenshots and source code was inadequate for its purposes.  With regard to the A/B tests, the court chastised plaintiff’s argument that “potentially relevant” data was lost, citing amended Rule 26(b)(1) to explain that the FTC was only allowed to seek information relevant to the claims and defenses, not information that “may lead to the discovery of admissible evidence,” an obsolete standard.  Finally, with respect to alleged lost website analytics, the court rejected plaintiff’s plea for evidence exclusion, noting the FTC’s delay in seeking sanctions on this issue and the lack of evidence that FTC’s experts needed additional data to evaluate defendant’s expert report.

Ultimately, the court denied the FTC’s request to exclude these categories of ESI, but did order that DirecTV produce its expert for a four hour deposition “should the FTC find this option useful” because the FTC was entitled to “confirm that the information [defendant’s expert] relied upon is consistent (in all material respects) with information from different time periods.”

The court’s refusal to impose a more severe sanction such as evidence exclusion highlights Rule 37(e)(1)’s requirement that the moving party has a burden to show prejudice. Further, the case reaffirms the rule’s directive that courts fashion remedies “no greater than necessary” to cure whatever prejudice identified.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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