In a maritime case arising out of the allision between a number of barges and the Pensacola Bay Bridge during a hurricane, the Eleventh Circuit Court of Appeals affirmed the District Court’s determinations with respect to both the Limitation of Liability Act and the imposition of discovery sanctions under Rule 37.

Notably, on the maritime issues, the Court rejected the shipowner’s argument that the first step in a typical Limitation Act trial necessarily “includes a decision on every element of negligence – duty, breach, injury, and actual and proximate cause – for every claimant” and hence “the district court violated this order of decision by reaching the question of privity and knowledge before fully adjudicating its liability to each claimant.”  The Court held, on the contrary, that: “Once it is apparent that the vessel owner cannot establish a lack of privity or knowledge, then limitation is not at issue. And if limitation is not at issue, then the basis for granting exoneration vanishes. So whenever the court finds that the vessel owner cannot establish a lack of privity or knowledge, it is appropriate to dismiss the petition to protect the claimants’ rights under the saving to suitors clause – even if that means forgoing (in part or in entirety) a decision on the vessel owner’s liability.”

Then, turning to the discovery sanctions, the Court of Appeal initially explained that:

“By its text, Rule 37(e) creates a two-tiered sanctions regime – with lesser sanctions under Rule 37(e)(1) and more severe sanctions under Rule 37(e)(2). Both parts of the rule share two preconditions: (1) electronically stored information that should have been preserved in the anticipation or conduct of litigation was lost because a party failed to take reasonable steps to preserve it and (2) that information cannot be restored or replaced through additional discovery. The requirements diverge after that. Rule 37(e)(1) sanctions are centered on the effect of a violation; they apply only where lost electronic evidence causes ‘prejudice to another party,’ which then justifies sanctions no greater than necessary to cure the prejudice. Rule 37(e)(2) sanctions, on the other hand, look more to the cause of the violation. They require a finding that the party acted with the intent to deprive another party of the information’s use in the litigation. If so, the court is justified in imposing more severe sanctions: adverse jury instructions, and even dismissal or default judgment. What’s more, Rule 37(e)(2) sanctions do not require any further finding of prejudice. 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. 2015 Committee Notes on Rule 37(e)(2).”

Then the Court explicitly held that “intent to deprive another party of the information’s use in the litigation is the equivalent of bad faith in other spoliation contexts.”  And: “In this Circuit’s spoliation precedents, bad faith generally means destruction of evidence for the purpose of hiding adverse evidence.”

In this particular case: “If our review were de novo, this would be a close question. On the one hand, we find Skanska’s utter failure to implement even the most basic data-protection safeguards egregious – so egregious that an inference of bad faith is easy to make. On the other, this is not a case with direct evidence of bad faith; it is also plausible from this record that Skanska was ‘just’ grossly negligent.

“But we review the district court’s finding of bad faith for clear error. And an inference of bad faith here was not clear error. Skanska can provide no reasonable explanation for its conduct other than to plead negligence. True enough, much of the evidence was destroyed through ‘routine’ document destruction policies. But a hands-off implementation of an ordinary corporate destruction policy is not a silver bullet. We have already explained that we would be highly skeptical of a claim that evidence was unintentionally destroyed pursuant to a routine policy after a request that the evidence be preserved. We will not second guess the district court’s skepticism in those very circumstances….

“Our conclusion is further confirmed by the advisory committee notes to Rule 37(e). The reasonableness of evidence preservation efforts depends in part on the party’s sophistication with regard to litigation in evaluating preservation efforts. Skanska is a sophisticated entity – a multinational company tasked with completing a construction contract worth nearly $400 million. Skanska USA even boasts on its website that it is ‘one of the largest, most financially sound construction and development companies in the U.S.’ Even so, Skanska did not bother to take the most fundamental of precautions – starting with backing up the custodians’ cell phones and suspending its policy of wiping those phones. And the company is not being held liable for a failure of imagination – Skanska had an active litigation hold, but took no steps to implement it.

“Finally, Skanska argues that – as a per se rule – a finding of bad faith premised on circumstantial evidence requires an ‘affirmative act’ by the spoliating party. But that argument flouts both the text of Rule 37 and our bad-faith caselaw. As we have explained, the rule provides for sanctions when ‘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.’ Failure to act can thus – by definition – be a violation of Rule 37….

“Skanska’s passivity does not change the basic fact that the evidence was destroyed. Given that other circumstances pointed to a reasonable inference of bad faith by Skanska, it is irrelevant whether an act or a failure to act directly caused the spoliation. The court’s finding of bad faith thus was not clear error, and its imposition of Rule 37(e)(2) sanctions was not an abuse of discretion.”

 

Skanska USA v. Bagelheads, Inc., No.21-13850, 2023 WL 4917108, 2023 U.S.App.LEXIS 19942 (11^th Cir. Aug. 2, 2023).