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UNITED STATES DISTRICT COURT DISTRICT OF SOUTH CAROLINA BEAUFORT DIVISION ROBERT MARK STROUD Plaintiff, v. WELLS FARGO BANK, N.A., SCOTT ZARDENETTA and CHUCK OWENS, Defendants. ) ) Civil Action No.: 9:12-cv-03641-SB ) ) ) PLAINTIFFS MEMORANDUM IN ) SUPPORT OF HIS MOTION FOR ) SANCTIONS AND TO STRIKE WELLS ) FARGOS ANSWER ) ) ) )

The plaintiff, Robert Mark Stroud, submits the following memorandum in support of his motion to strike Wells Fargos answer due to Wells Fargos managers admitted destruction of critical evidence. FACTS 1. The central evidence in this case is text messages between Wells Fargo District

Manager Scott Zardenetta, Wells Fargo Mortgage Banker Brain Natale, and Wells Fargo employee, former Banker and current Manager, Wendy Baxley. Of particular importance is a text message from Zardenetta to Natale referencing drug use and desired group sex among several Wells Fargo employees, including himself, Baxley, and Natale. Natale forwarded that text message to Wendy Baxley. The plaintiff, along with other Wells Fargo employees, learned of this text message. The plaintiff alleges he was terminated from Wells Fargo as a result of his reporting this text message and Zardenettas criminal behavior as district manager to Wells Fargo Human Resources. The defendants specifically deny that any such text message exists or has ever existed. The existence of the text message, however, has been confirmed by numerous

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witnesses - both current litigants in the state court companion case and by at least one independent witness. See e.g., affidavit attached as Exhibit 1. 2. In order to prove his case, the plaintiff has gone to great lengths to obtain the

necessary cell phone records and cell phones to confirm these text messages existence. 3. No cell phone records from Mr. Natale, Mr. Zardenetta, or Ms. Baxley have been

produced by Wells Fargo to-date. Instead, Wells Fargo has fought every effort by the plaintiff to obtain these individuals cell phones or cell phone records. See letter dated January 8, 2013 attached as Exhibit 2 and Motion to Quash attached as Exhibit 3. 4. As for Wendy Baxley, the plaintiffs sent her an evidence preservation letter on

August 22, 2012 requesting that the text message from Brian Natale as well as other cell phone records be preserved. See letter attached as Exhibit 4. A preservation letter was sent not only to Baxley, but also to Wells Fargo District Manager Scott Zardenetta and Well Fargo Corporate Security Officer Chuck Owens. See letters attached as Exhibit 5. 5. The plaintiffs in a companion state court case issued subpoenas from the South

Carolina Court of Common Pleas, Beaufort County to Wendy Baxley on November 12, 2012. See subpoena attached at Exhibit 6. The state court plaintiffs served a second subpoena on December 27, 2012 for the same records. See subpoena attached as Exhibit 7. Instead of responding to those subpoenas, Baxley wrote plaintiffs counsel stating that she had no documents or information. See letter from Baxley attached as Exhibit 8. 6. The plaintiff served discovery requests on Wells Fargo on January 9, 2013

requesting all electronic communications between Zardenetta, Natale, and Baxley. Wells Fargo produced no text messages in response to this request and instead objected to the request as overly broad and unduly burdensome and, among other things, on grounds that it sought

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personal or confidential information pertaining to individuals who are not parties to this lawsuit. See Wells Fargos responses to plaintiffs requests for production attached as Exhibit 9. 7. The state court plaintiffs also sent a subpoena to Wells Fargo and Brian Natale

seeking production of his cell phone or cell phone records. Wells Fargo, rather than attempt to facilitate the production of this supposedly exonerating evidence, filed a motion to quash the state court plaintiffs' subpoena. See Exhibit 3. Judge Dukes ordered that the parties agree to the scope of the production from Natale. The parties continue to work on this issue but no text messages of any kind have been produced by Wells Fargo to date. 8. The plaintiff in this case and the plaintiffs in the companion state court case then

noticed Wendy Baxleys deposition on July 10, 2013 and noted that plaintiffs counsel intended to question the witness regarding any and all documents produced or made available by any party during the course of discovery, as well as those obtained through subpoena records requests. See deposition notice of Baxley attached as Exhibit 10. Baxley brought no documents with her to her deposition. 9. It was not until Wendy Baxley was sworn in during her deposition that she

revealed the following, which is the basis for this motion: a. She owned and used two cell phones in 2012 and 2013. See pp. 24 26 of Wendy Baxleys Deposition, attached as Exhibit 11. b. Both of those cell phones are still in her possession. See Dep. of Baxley, pp. 30 31, attached as Exhibit 11.

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c. The day before her deposition, Ms. Baxley destroyed all text messages on her cell phones to or from Brian Natale. See Dep. of Baxley, pp. 59; 66 68, attached as Exhibit 11. 10. Baxley freely admitted at her deposition that she had control of documents

responsive to the plaintiffs subpoena, did not produce these documents, and destroyed these documents the day prior to her deposition despite receiving an evidence preservation letter from the plaintiffs, two subpoenas from the plaintiffs, and a deposition notice referencing these documents from the plaintiffs. Id. 11. Baxley was served with another South Carolina Court of Common Pleas

subpoena for the same materials on the date of her deposition. See subpoena attached as Exhibit 12. She was required to respond by August 15, 2013. She has not responded, but has filed a motion to quash the subpoena. See August 27, 2013 Motion to Quash attached as Exhibit 13. 12. Before and during this litigation, Wells Fargo took no steps whatsoever to make

sure its employees preserved evidence critical to this case or that they were aware of their duty to preserve evidence. Rather, Wells Fargo has fought every attempt by the plaintiff to obtain Baxley's phones or the text messages critical to this case. Wells Fargo has objected to the plaintiff's discovery requests seeking this evidence, see Exhibit 2, filed motions to quash subpoenas seeking this evidence, see Exhibit 3, and incredibly now takes the position that even after destroying the text messages central to this case, that it cannot require its manager Wendy Baxley to produce her phone or cell phone records. After fighting to make sure this central evidence was never provided to the plaintiff, Wells Fargo has put it beyond discovery by destroying it.

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ARGUMENT 1. Wendy Baxleys Conduct Binds Wells Fargo Wells Fargo is bound by Wendy Baxleys conduct. It is axiomatic that a corporation, like Wells Fargo, acts through its employees, like Baxley. In the context of spoliation of evidence [o]rdinary agency principles govern a party's responsibility for spoliation committed by its employees. See Nucor Corp. v. Bell, 251 F.R.D. 191, 196 (D.S.C. 2008) (citing Valentine v. Mercedes-Benz Credit Corp., 1999 WL 787657, at *4 (S.D.N.Y.1999) (Mukasey, J.)); see also R.R. Co. v. Hanning, 82 U.S. 649, 657 (1872) (A corporation is liable for the acts of its employees, although it did not authorize or did not know of the acts complained of). In general, an agent's acts are binding on their employee when they act in the course and scope of their employment. Baxley is a management level employee at Wells Fargo and, as Wells Fargo's attorney Jennifer Dunlap conceded at Baxley's deposition, "[Wendy Baxley] is a manager of Wells Fargo and can make statements to bind the company." See Dep. of Baxley, p. 43 attached at Exhibit 14. Baxley was in possession of critical evidence in a case pending against her employer and deleted those messages despite numerous attempts by the plaintiff to preserve or obtain those messages from her or Wells Fargo. The deletions by Baxley were almost certainly to Wells Fargo's advantage. In these circumstances, Baxley's conduct binds Wells Fargo. Any other result would allow corporations to routinely flout their duty to preserve evidence by simply claiming that if an employee destroys evidence they are not liable. This is contrary to the Rules of Civil Procedure and basic principles of agency. The plaintiff anticipates Wells Fargo will argue that Baxleys conduct is not imputable to it since the text messages she deleted were contained on her personal cell phones and since Wells Fargo did not own or control those cell phones. This is not a defense to Baxleys conduct. The

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Fourth Circuit has held that even where a party does not own or control the evidence, he still has an obligation to give the opposing party notice of access to the evidence or of the possible destruction of the evidence if the party anticipates litigation involving that evidence. Silvestri v. Gen. Motors Corp., 271 F.3d 583, 591 (4th Cir. 2001). Here, Wells Fargo not only anticipated litigation (See Evidence Preservation Letters, attached as Exhibits 4 and 5), but was actively engaged in litigation and its management-level employee destroyed evidence the day before her deposition. Wells Fargo had a duty to preserve text messages on Baxleys cell phones whether those phones were owned by it or owned by Baxley. It cannot now distance itself from Baxleys conduct by claiming an inability to control Baxleys conduct with regard to her cell phones. This position is especially frustrating given Wells Fargo's repeated attempts to block the plaintiff from obtaining these very records. See Wells Fargo Motion to Quash Subpoena to Brian Natale, attached as Exhibit 3. After fighting the plaintiff's subpoenas, discovery requests, and evidence preservation letters, Wells Fargo ultimately got what it wanted by the convenient destruction of the evidence sought from a management level employee. Wells Fargo had a duty, as explained by the Fourth Circuit, to take steps to preserve this evidence. It failed and its conduct should be sanctioned. 2. Wells Fargo had a Duty to Preserve Baxleys Text Messages and Breached that Duty The duty to preserve material evidence arises not only during litigation but also extends to that period before the litigation when a party reasonably should know that the evidence may be relevant to anticipated litigation. Sylvestri v. General Motors Corp. 271 F.3d 583, 590 (4th Cir. 2001). This duty extends to corporations. As explained by the United States District Court for the Southern District of New York, the scope of a party's preservation obligation can be described as follows: Once a party reasonably anticipates litigation, it must suspend its routine
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document retention/destruction policy and put in place a litigation hold to ensure the preservation of relevant documents. Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 218 (S.D.N.Y. 2003); see also ABA Sample Litigation Hold Notice, attached as Exhibit 15. Courts have frequently sanctioned corporations for their failure to insure that their employees did not preserve evidence. See e.g., In re: Prudential Ins. Co. of Am. Sales Practices Litig., 169 F.R.D. 598, (D.N.J. 1997) ($1 million sanction for failure to develop and implement an evidence preservation program); Illinois Tool Works, Inc. v. Metro Mark Prods., Ltd. 43 F. Supp. 2d, 951 (N.D. Ill.); Wm. T. Thompson Co. v. General Nutrition Corp., 593 F. Supp. 1443 (C.D. Cal. 1984) (striking defendants answer for failure to ensure employees preserved evidence). Here, Wells Fargo did nothing to ensure that Wendy Baxley did not destroy the critical evidence in this case. Instead, counsel for Wells Fargo has claimed that it had an attorney-client relationship with Wendy Baxley at her deposition, but had not provided her with legal advice, and did not represent her and has no responsibility for her compliance with subpoenas issued to her for her cell phone records and text messages. Wells Fargo has also failed to produce any text messages to or from any employees despite the plaintiffs request for all electronic communications between Baxley, Natale, and Zardenetta. See Exhibit 9. Allowing such

piecemeal representation of current, management level employees of corporate defendants would allow companies to game the discovery system at-will by simply claiming it is not responsible for discovery directed at employees and is not responsible for an employee who decides to destroy evidence, an argument at odds with common sense, the Rules of Civil Procedure and agency principles. Rather, Wells Fargo had a duty to make sure that one of its managers, Wendy Baxley, did not destroy evidence relevant to this litigation. It failed to do so and now evidence

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critical to the plaintiffs case has been destroyed. Wells Fargo should not get the benefit of its defenses while depriving the plaintiffs of the opportunity to prove their case. 3. This Courts Inherent Power to Sanction Wells Fargo under U.S. v. Shaffer Striking a partys pleadings is a drastic remedy, and the plaintiff does not make this motion lightly; however, this Court has the power to sanction Wells Fargo and strike its answer. Chambers v. NASCO, Inc., 501 U.S. 32, 45 (1991). In Chambers, the Supreme Court held that a federal district court has the inherent power to sanction discovery abuses that occur in bad faith. Id. This inherent power may be invoked even if rules or statutes provide other or additional sanctions against a party for the same conduct. Id. at 49. Where a court determines that a statute or the Rules are not up to the task of adequately sanctioning a partys particular conduct, the court may use this inherent power to sanction the party. Id. at 50. In United States v. Shaffer Equip. Company the Fourth Circuit explained the circumstances in which a district court should strike a party's pleadings. See, U.S. v. Shaffer Equip. Co., 11 F.3d 450, 462 (1993) (Due to the very nature of the court as an institution, it must and does have an inherent power to impose order, respect, decorum, silence, and compliance with lawful mandates. This power is organic, without need of a statute or rule for its definition, and it is necessary to the exercise of all other powers."). This power should only be invoked where a party has willfully deceived the court and engaged in conduct utterly inconsistent with the orderly administration of justice. Id. (quoting U.S. v. Natl Med. Enterp., Inc. 792 F.2d 906, 912 (9th Cir. 1986)). Since this sanction is extreme, the Court must consider the following factors in deciding whether to strike a partys pleadings: (1) the degree of the wrongdoer's culpability; (2) the extent of the client's blameworthiness if the wrongful conduct is committed by its attorney, recognizing that we seldom dismiss claims against blameless clients; (3) the prejudice to the judicial process and the administration of justice; (4)
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the prejudice to the victim; (5) the availability of other sanctions to rectify the wrong by punishing culpable persons, compensating harmed persons, and deterring similar conduct in the future; and (6) the public interest. Id. at 462-63. Although the Shaffer factors were initially held to pertain to the dismissal of a plaintiffs action, courts have used the factors when considering the striking of a defendants answer as well, as striking [a defendants] answer to the complaint-is equivalent to an entry of judgment for [the plaintiff]. Interstate Narrow Fabrics, Inc. v. Century USA, Inc., 2006 WL 435726 (M.D.N.C. Feb. 22, 2006). Using the Shaffer factors to strike pleadings must be done with the greatest restraint and caution, and then only to the extent necessary. Shaffer, 11 F.3d at 461. However, using inherent powers for this purpose is not unprecedented within this Circuit. See, e.g. Tesar v. Potter, 2007 WL 2783386 (D.S.C. Sept. 21, 2007) (striking pleadings where a litigant lied during her testimony); Sinclair v. Mobile 360, Inc., 2011 WL 3804413 (W.D.N.C. Aug. 29, 2011) (striking pleadings where a plaintiff submitted false affidavits); Kronberg v. LaRouche, 461 F. App'x 222, 225 (4th Cir. 2012) (considering the Shaffer factors in affirming a trial courts dismissal without prejudice due to discovery abuse). 4. Application of the Shaffer Factors Warrants Striking Wells Fargos Answer A consideration of Wells Fargo's conduct in light of the Shaffer factors shows that striking its answer is an appropriate remedy. A. The Degree of Wells Fargo's Employee's Culpability Wells Fargos manager admitted that she destroyed evidence the day before her deposition. She acknowledged that she received the plaintiffs preservation letter before suit was filed. See Dep. of Baxley at pp. 44 45 attached as Exhibit 16. She acknowledged receiving multiple subpoenas prior to her deposition commanding her to produce her text messages. See
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Dep. of Baxley at pp. 41 42 attached as Exhibit 17. Wells Fargo was served with requests for production to produce all electronic communications between Baxley and Natale. Instead of responding to one of these subpoenas or taking steps to make sure that the evidence was preserved, Wells Fargos manager deleted the exact evidence the plaintiff sought. This evidence is not trivial; it is the core of the plaintiffs allegations against Wells Fargo. Within ninety days after reporting the contents of Baxley's text messages, the plaintiff was fired from Wells Fargo. Wells Fargo denies the text messages exist but has never examined the cell phones of the recipient of the text message, produced the messages, or taken even a single step to make sure that its management level employee did not destroy the text messages. By failing to make even the slightest effort to make sure that its management level employee did not delete the central evidence in this case, Wells Fargo and Wendy Baxley demonstrate the highest possible contempt for these proceedings and for this Court. This

contempt is explicit in the timing of the evidence's destruction the day prior to Baxleys deposition. This contempt is galling considering that Wells Fargo has not only failed to make sure this evidence was preserved, it has actually fought every effort by the plaintiff to seek this information during discovery. After objecting to discovery requests seeking this evidence, filing motions to quash subpoenas seeking this evidence, Wells Fargo took the ultimate step to make sure the evidence was not obtainable by destroying it. This brazen conduct is not defensible. If Wells Fargo is correct and the text message from Natale never existed, the company could easily prove its case by producing the cell phones. They still have not done so and continue to object to producing Baxleys phones even after she has deleted all messages from Natale. Wells Fargos conduct demonstrates the highest degree of culpability and should not be allowed.

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B. The Extent of the Clients Blameworthiness if the Wrongful Conduct is Committed by its Attorney Wells Fargo shoulders all the blame for the deletion of evidence. While its attorneys have taken the position that it cannot produce Baxley's phones or phone records because Wells Fargo does not own the phones, there is no evidence that its attorneys took part in the destruction of the evidence. Rather, the fault lies with Wells Fargo and the neglect of its duty to take steps to make sure its employees preserve evidence relevant to pending litigation. It is impossible to believe that a corporation the size of Wells Fargo was unaware of its duty to make sure its employees, including managerial level employees, preserved evidence. Its attorneys have not committed wrongful conduct, and Wells Fargo alone must accept fully the consequences of evidence destruction. See Hennigan v. Barnes, 2011 WL 4894076 (M.D.N.C. Oct. 12, 2011) (holding that where the party and the partys attorney committed the wrongful act this factor weighs in favor of sanctions). C. The Prejudice to the Judicial Process and the Administration of Justice There is no greater obstacle to the administration of justice than a litigant who destroys evidence. A trial has been described a search for the truth. See Nix v. Whiteside, 475 U.S. 157, 166, (1986). A lawsuit, it has been well said, is not a sporting event, and discovery is founded upon the policy that the search for truth should be aided. McDougall v. Dunn, 468 F.2d 468, 473-74 (4th Cir. 1972) (internal citations omitted). Evidence destruction impedes the search for truth because it creates inaccuracy if the fact of destruction is unknown and uncertainty if the fact of destruction is revealed. Destruction of evidence is unfair because it potentially creates inequality of access to information. Rambus, Inc. v. Infineon Technologies AG, 222 F.R.D. 280, 288 (E.D. Va. 2004) (quoting Lawrence B. Solum & Stephen J. Marzen, Truth & Uncertainty:

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Legal Control of the Destruction of Evidence, 36 Emory L.J. 1085, 1138 (1987)). Destruction of evidence impedes the judicial goals of truth and fairness. Id. Here, Wells Fargo's employee destroyed the central evidence in the case - the text messages upon which the plaintiff's complaint is based. Wells Fargos destruction of evidence prejudices every facet of the plaintiff's case by depriving him of the opportunity to prove that these messages exist and his reporting of these messages was the reason he was terminated. This is not spoliation of ancillary evidence but strikes right at the core of whether this proceeding can be fair to the plaintiff and accomplish the administration of justice. D. The Prejudice to the Victim Much like the prejudice to the judicial process, the victim, Mark Stroud has also suffered significant prejudice. Mark Stroud reported the contents of the subject text message from Natale to Baxley to Wells Fargos Human Resources Department. See, Summary of Strouds Report to Human Resources in email from Claudia Tokarz to Mark Stroud, Bates Numbered WF(S)_00091 92 and Attached as Exhibit 18. Wells Fargo investigated the allegations by interviewing Baxley, Natale, and Zardenetta. See, Summary of outcome of Claudia Tokarzs investigation and notes, Bates Numbered WF(S)_00094 95 and Attached as Exhibit 19. Wells Fargo did not inspect or request to inspect Baxley, Natale, or Zardenettas phone. 1 Baxley, Natale, and

Zardnenetta denied and continue to deny the text message ever existed. In Wells Fargos answer it denied the text message existed. See Paragraph 11 of the Wells Fargos Answer to Plaintiffs Complaint. The existence or non-existence of this text message continues to be a critical question in the case. Stroud has been deprived of his ability to prove his case and to prove the
Wells Fargos investigator, Chuck Owens, testified that Wells Fargo has a Computer Forensic Investigation Team in Charlotte, North Carolina that completes computer forensic work and could almost certainly inspect the subject cell phones and determine what relevant text messages between Natale, Zardenetta, and Baxley exist. Wells Fargo has apparently not sought out the services of this unit. See Deposition of Chuck Owens at pp. 40 - 42, attached as Exhibit 20.
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text message exists. The prejudice to him favors the imposition of the most significant sanctions against Wells Fargo. E. The Availability of Other Sanctions to Rectify the Wrong by Punishing Culpable Persons, Compensating Harmed Persons, and Deterring Similar Conduct in the Future In 2012, Wells Fargo earned over $86.1 billion in revenue. See, January 11, 2013 Wells Fargo Full Year and Quarterly Net Income Report, Attached as Exhibit 21. A monetary fine or award of attorneys fees is unlikely to deter similar conduct in the future. Wells Fargo, by and through its management, is the sole culpable party. In this case, Mark Stroud is the sole harmed person. The only sanction available to accomplish the goal of punishing and deterring Wells Fargo and compensating Mark Stroud is to strike Wells Fargo defenses and allow Mark Stroud to proceed with his case as if all his allegations are true especially his allegations related to the text messages between Zardenetta, Natale, and Baxley. Since Wells Fargo has deprived Stroud of his ability to present his case, it should be punished by losing its ability to present its defenses. F. The Public Interest There is a public interest in cases being decided based on the facts and evidence. The public interest is severely compromised when facts cannot be discovered and evidence is destroyed. The public interest is negatively impacted when the destruction of evidence is not severely sanctioned. Wells Fargos deleting of these text messages was not an inadvertent destruction of evidence or one in which a spoliation of evidence charge at trial can cure Wells Fargos managers conduct. Rather, Wells Fargo has repeatedly sought to impede the plaintiff from obtaining this evidence and ultimately destroyed this evidence. Allowing a party to insure that facts cannot be obtained before being destroyed compromises the public interest. Wells Fargo's conduct merits the severe sanction of striking its pleading.

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5. Conclusion Based on the foregoing, the plaintiff requests that the Court strike Wells Fargos answer in this case, enter default judgment on behalf of the plaintiff, and set a hearing on the plaintiffs damages at the next available term of court. They further request that Wells Fargo pay its costs and attorneys' fees for preparing, submitting, and arguing this motion. Respectfully submitted, /s/ John R.C. Bowen John R.C. Bowen (Fed Bar #1403) john@laughlinandbowen.com P.O. Drawer 21119 Hilton Head, SC 29925 (843) 689-5700 Attorneys for the Plaintiff

September 13, 2013 Hilton Head Island, SC

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