FINDINGS, RECOMMENDATION AND ORDER

CHERYL R. ZWART, Magistrate Judge.

This matter is before the court on Defendants' motion for protective order, (filing no. 158), Defendants' motion for leave to amend their amended answer, (filing no. 179), and Plaintiff's motion for sanctions, (filing no. 135). For the reasons set forth below, Defendants' motion for protective order is granted in part and denied in part, Defendants' motion to amend is denied, and Plaintiff's motion for sanctions is granted in part and denied in part.

FACTUAL BACKGROUND

This case involves claims by Plaintiff Peter Kiewit Sons', Inc. ("Kiewit") against Defendants Wall Street Equity Group, Inc. ("WSE""), Wall Street Group of Companies, Inc. ("WSG"), Shepherd Friedman ("Friedman"), and Steven West ("West")(collectively "Defendants") for the alleged violation of various aspects of federal and state trademark law, unfair competition, and commercial misrepresentation. Filing No. 1.

Plaintiff is a construction and mining company with its principal place of business in Omaha, Nebraska. Defendants are in the mergers and acquisitions business and assist with introducing potential buyers to clients who are interested in selling their business. As part of this process, Defendants require their clients to pay Defendants for a valuation of their businesses. Defendants' quoted fees for the valuations ranged from $19,000 to $22,000 in one instance, (filing no. 11, p. 5), and from $20,000 to $30,000 on a second occasion, (filing no. 11, p. 10).

Plaintiff alleges the Defendants have misused the service mark "Kiewit," U.S. Service Mark Registration No. 2569239 (the "Kiewit Mark" or the "Service Mark"), in Defendants' attempts to solicit clients. Specifically, Kiewit contends Defendants have improperly used the Kiewit Mark by "falsely representing an association with and/or authorization from Kiewit to Defendants' customers and potential customers." Filing No. 1, ¶9. Plaintiff concurrently filed a motion for a temporary restraining order in order to prevent Defendants from using the Kiewit Mark in connection with any representations Defendants were making to clients or potential clients, or otherwise representing that Defendants were associated with Kiewit. Filing No. 7, ¶¶1 & 2.

In support of its motion for a temporary restraining order and preliminary injunction, Kiewit submitted copies of two letters between Defendants (or a representative of Defendants) and third parties in which Defendants, or representatives thereof, suggested Kiewit as a potential buyer of the potential client's business. Filing No. 11. For instance, a letter dated April 23, 2010 to Hladky Construction Corp. signed by Defendant Steven West stated he had enclosed "[b]ackground on buyer, Kiewit" and indicated he would "seek out 2 additional buyers to create competition for Kiewit."1 Filing No. 11, pp. 4-5. Plaintiff alleges it was not aware the name "Kiewit" was being used in this capacity and asserts this conduct was unauthorized and amounts to a misuse of the Kiewit Mark. Defendants did not oppose the motion for a TRO,2 and the TRO and preliminary injunction were ordered by the Honorable Laurie Smith Camp on October 4, 2010. Filing No. 17.

Defendants filed an answer to the Complaint denying Plaintiff's allegations and alleging three affirmative defenses: 1) Plaintiff did not establish a right to an accounting; 2) Plaintiff's claims are barred by the doctrine of unclean hands; and 3) Plaintiff suffered no damages or failed to mitigate damages. Filing No. 28, ¶¶ 40-42. The parties completed their Rule 26(f) planning report on December 6, 2010. Filing No. 36. The final progression order was entered on December 14, 2010. Filing No. 38.

On February 2, 2011, Defendants moved for Rule 11 sanctions against Kiewit and its counsel, asserting the claims lacked any factual or legal basis.3 (Filing No. 39). The motion was denied. Filing No. 49.

The parties commenced written discovery and depositions in February of 2011 with only minor skirmishes between the parties.4 On August 1, 2011, Kiewit filed a notice of intent to serve a Subpoena Duces Tecum on Arthur Bertke. Filing No. 73. Mr. Bertke is the landlord of the building where the corporate defendants' offices are located and Defendants' records are kept. Bertke also provided certain computer services for Defendants, such as data recovery, registering domain names, and server storage. Filing No. 137, Ex. A. The subpoena commanded Bertke to produce the following documents and electronically stored information:

Filing No. 73, p. 3. Defendants objected to Plaintiff's intent to serve the subpoena on Bertke. Filing No. 78.

On September 9, 2011, Kiewit filed a motion for an order authorizing service of a Subpoena Duces Tecum to Bertke. Filing No. 87. Kiewit asserted that Bertke maintained back-up files of Defendants' electronic business records. Kiewit claimed Defendants failed to provide complete answers to Plaintiff's discovery requests, and stated it believed Defendants' electronic files likely contained documents responsive to Plaintiff's discovery requests. Filing No. 88. In support of its motion, Plaintiff filed an affidavit of Tara Bethel, a former employee of defendant WSE. Bethel swore that she "observed at least one-hundred (100) instances in which a WSE employee would represent to a prospective client-business owner that Peter Kiewit Sons', Inc. was a ready, willing, and interested buyer of the prospective client-business owner's business." Filing No. 119-1, ¶ 8. She stated Defendants drafted proposals for clients and saved the proposals in computer files named "Carla" and "Carlita," (filing no. 119-1, ¶7), and Mr. Bertke maintained Defendants' electronic files. Filing No. 119-1, ¶¶ 5-7.

On October 7, 2012 Defendants objected to the issuance of the subpoena on Bertke, arguing that Bertke did not have access to or maintain a copy of the electronic files created by Defendants. Filing No. 117; Filing No. 117-12, West Aff. ¶3 (dated October 7, 2011); Filing No. 117-13, West Aff. ¶32 (dated October 7, 2011); Filing No. 117, p. 18. Defendants further denied that Bertke possessed a back-up copy of WSE's and WSG's business records. Filling No. 117-12, West Aff. ¶ 3; Filing No. 117-13, West Aff. ¶32 Filing No. 117, p. 18. Defendants also moved to strike the affidavit of Tara Bethel asserting it was "full of blatant misrepresentations." Filing No. 121, Verified Motion to Strike Affidavit, ¶4. Defendants filed two affidavits from employees who stated Bethel was not in the same office as the company telemarketers and that during the time Bethel worked for WSE, "the name `Kiewit' was never mentioned in the office where Bethel worked, verbally or in writing." Filing Nos. 121-3, ¶¶ 4-5; 121-4, ¶¶ 4-5. A third affidavit, submitted by West stated: "During the time Bethel worked for WSE, the name `Kiewit' was mentioned by me and only on the one occasion I spoke to Mike Hdladky of Hdlaky Construction in April 2010." Filing No. 121-5, ¶5.

On September 28, 2011, the plaintiff filed a Motion to Compel, (filing no. 105), and a Motion for Leave to File an Amended Complaint. Filing No. 101. Plaintiff's motion to amend sought leave to raise allegations to pierce the corporate veils of WSG and WSE, and to hold Friedman and West personally liable to the Plaintiff. The Motion to Compel sought a court order directing Defendants to supplement their discovery responses related to Defendants' business transactions and valuations, finances, and records containing the term "Kiewit." Filing No. 105.

Defendants objected to the motion to compel and argued strenuously that most of Plaintiff's discovery requests amounted to a "fishing expedition" and that it did not possess any documents containing the word Kiewit. Defendants further asserted that many of the documents, such as its customer lists and financial documents, were protected by confidentiality and, if produced, would severely damage the business. Defendants submitted the following evidence in opposition to the motion to compel:

A hearing was conducted on the pending motions on October 12, 2011 and the undersigned heard argument on the motions to amend the pleadings, the motion to issue a subpoena, the motion to strike the affidavit of Tara Bethel, and the motion to compel. With regard to the motion to strike, Defendants' counsel argued passionately and unequivocally that Tara Bethel was "a documented liar." Filing No. 124, Audio File at 48:00-50:00. Counsel further offered as "an officer of the court" to attest that "almost everything in [Bethel's affidavit]" is a "lie."5 Filing No. 124, Audio File at 48:00-50:00. Specifically, defense counsel argued that Kiewit was using the affidavit to try and get records from Bertke that "he does not have" and that Kiewit was never mentioned while Bethel was working for Defendants. Id.

The undersigned granted the plaintiff's motion to amend beyond the motion deadline because the facts underlying Plaintiff's claim to pierce the corporate veil were not known, and could not reasonably have been discovered prior to deposing Defendants' corporate representatives. See Filing No. 124, Audio File at 26:30-28:40. Therefore, Plaintiff had exercised due diligence and good cause existed for permitting the complaint to be amended beyond the deadline set by the court's scheduling order. Id.

For the reasons stated on the record during the hearing, and in the court's memorandum and order filed thereafter, the court granted the plaintiff's motion to issue a subpoena, granted in part and denied in part the motion to compel, and denied the motion to strike the affidavit of Tara Bethel. Filing No. 128. The court determined Defendants' essentially non-existent document retention policy rendered them an unreliable source of discovery thereby "open[ing] avenues of third party discovery which would have been closed had the defendant retained documents consistent with standard business practices.. . ." Filing No. 128, p. 12. The court ordered Defendants to respond to the majority of the disputed interrogatories and requests for production. The memorandum and order was filed on October 25, 2011.

On November 3, 2011, Plaintiff moved for sanctions, alleging Defendants were playing a "shell game" with the electronically stored documents requested in the Bertke subpoena. Filing No. 135. The Plaintiff alleged:

Plaintiff asserted West's actions were a deliberate attempt to deprive it of discoverable information and were conducted in bad faith. A hearing was held on the matter on November 8, 2011. Defendant West was instructed to bring the external hard-drives to the hearing. In anticipation of the hearing, Defendants submitted affidavits from West and Bertke alleging the following:

A hearing was held on the matter on November 8, 2011, with several witnesses giving testimony, including Bertke, West, and Romano. With leave of the court, defense counsel, and the witnesses from Florida, participated in the hearing from the video-teleconference (VTC) facility located in the United States District Courthouse in Fort Lauderdale, Florida. Defendants brought three external hard drives to the hearing; two black and one blue. West testified that the black hard drives were the drives Bertke created at West's request, and the blue hard drive was the one made by the "independent third party" on November 3, 2011. West admitted that his previous affidavit statement that Bertke did not have access to electronic copies of Defendants' business records, (filing no. 115-16, ¶32) was not accurate. Filing No. 207, 48:13-21. West further testified that when he asked Bertke on October 26, 2011 to return the external hard drives in Bertke's possession, West was "aware that in general there was substantial discussion about discovery" but he was not "completely" aware that the court had entered an order on October 25, 2011 granting Kiewit's motion to issue a subpoena on Bertke. Filing No. 207, 45:22-46:4.

Romano testified that she was assigned the task of searching Defendants' computers for the term "Kiewit." When asked about her ability to perform this work, she explained that she had graduated from high school and was two credits short of receiving an associate's degree in business management, (filing no. 207, 86:1-2), but she had no professional training with computers and is not a "computer expert." Filing No. 207, 91:25-92:2 & 95:9-14. Bertke had shown her how to perform a key word search from her work station on the "whole network" using the term "Kiewit," but she did not search the hard drives on any of the individual work stations. Filing No. 207, 88:3-11. She testified her word search returned only two documents, neither of which were the types of solicitation materials or letters for which Plaintiff was searching. Filing No. 207, 92:14-22.

A ruling on Plaintiff's motion for discovery sanctions6 was delayed until Defendants submitted their computer equipment (including Server 27 and the external hard drives) for forensic examination. Since the defendants had participated in the hearing by VTC, at the close of the hearing, defense counsel was ordered to take possession of the three external drives and secure them as an officer of the court for delivery to the plaintiff. The undersigned ordered Defendants to make its computer equipment available to be examined by Continuum Worldwide by November 16, 2011.

On November 10, 2011, Plaintiff filed an emergency motion to make the server, hard drives, and other computer equipment available for examination on Friday, November 11, 2011. Defense counsel was leaving the United States for at least two weeks beginning November 12, 2011, and the plaintiff wanted possession of the external hard drives and Defendants' servers imaged8 without having to wait for defense counsel to return from that trip. The court granted Plaintiff's motion. Filing No. 160.

Continuum Worldwide representative Rick Clyde traveled to Florida on November 11, 2011 and commenced imaging Server 2 at Defendants' offices. Filing No. 182-3, Clyde Aff. ¶ 4. Server 1 was not available for imaging; West had thrown it in a trash dumpster, without the approval of Kiewit's counsel or the court, sometime between August 20, 2011 and November 11, 2012. Filing No. 239, 97:24-99:13. One of Defendants' employees, Richard Calabria, was present while Clyde imaged Server 2. Filing No. 182-3, ¶ 9. Clyde was also given three external hard-drives by Bertke which Clyde transported to Nebraska for imaging. Filing No. 182-3, Clyde Aff. ¶ 11.

Clyde completed the server imaging and returned to Omaha to begin searching for any documents that contained the word "Kiewit." At the court's order, Plaintiff submitted a supplement to its motion for sanctions providing a preliminary report from Continuum. Filing No. 182-1. The report contained a finding that the keyword search of "Kiewit" returned 3,771 files, of which 181 were carved files.9 Filing No. 182-1, p. 2. As to whether information had been intentionally removed or destroyed, the report stated the following:

Filing No. 182-1, p. 2

The undersigned ordered a hearing on Plaintiff's motion for discovery sanctions. Filing No. 184. The hearing was held on January 30, 2012, and upon Defendants' motion, was reopened for additional evidence and argument on March 9, 2012.10 Clyde provided testimony regarding his search of the documents found on Defendants' computer equipment. Clyde testified that he was at Defendants' offices from 12:30 p.m. on November 11, 2011 until 5:00 a.m. on November 12, 2011 to conduct the imaging of Server 2. Filing No. 239, 20:9-10. Upon returning to Omaha, Clyde made duplicates of the hard drives which, due to the volume of data they contained, took approximately 6 days. Filing No. 239, 23:9-13. The information was then made into a "working copy" and indexed.11 The indexing process took almost three weeks. Filing No. 239, 25:14-16.

Clyde testified that the search produced 3,771 files containing the term "Kiewit."12 Filing No. 239, 28:15-21. Clyde was able to identify some letters and emails containing the word "Kiewit" which had not previously been produced. These included letters to third parties that were very similar in content to the letters sent to Hdlaky Construction Corp. and Waterfront Marine Construction that prompted this lawsuit. But at least one document that had previously been produced in the litigation was not found during Clyde's extensive search of the three hard drives and Server 2.13 Filing No. 239, 45:22-24.

At the hearings held on January 30 and March 9, 2012, West testified:

Defendant Shepherd Friedman also appeared at the January 30, 2012 hearing and provided the following testimony:

On March 9, 2012, the final hearing on the pending motions, testimony from Richard Calabria, president of Defendant WSE, was elicited. Mr. Calabria testified:

ANALYSIS

Before the court are three separate motions: (1) Defendants' motion to amend its complaint; (2) Defendants' motion for a protective order; and (3) Plaintiff's motion for sanctions.

Motion to Amend

Once the time for amending a pleading as a matter of course has expired, a pleading may be amended only if the opposing party provides written consent or with leave of the court. Fed. R. Civ. P. 15(a)(2).

In general, courts are encouraged to allow amendments liberally. See Shen v. Leo A. Daly Co., 222 F.3d 472, 478 (8th Cir. 2000). However, "[i]f a party file[s] for leave to amend outside of the court's scheduling order, the party must show cause to modify the schedule." Sherman v. Winco Fireworks, Inc., 532 F.3d 709, 716 (8th Cir. 2008) (quoting Popoalii v. Corr. Med. Servs., 512 F.3d 488, 497 (8th Cir. 2008). Indeed, the "good cause" requirement found in Fed. R. Civ. P. 16(b) for amending pleadings after the expiration of the scheduling deadline for doing so has passed "is not optional." Id. at 716. "The primary measure of good cause is the movant's diligence in attempting to meet the order's requirements." Id. at 716-17 (quoting Rahn v. Hawkins, 464 F.3d 813, 822 (8th Cir.2006).

The Defendants' initial answer was filed on November 12, 2010. Filing No. 28. The deadline for filing amendments to pleadings was February 11, 2011. Defendants filed a motion to amend their answer on August 29, 2011. The Plaintiff filed a motion to amend its complaint on September 28, 2011. After extensive briefing and oral argument, the undersigned granted Plaintiff's motion to amend16 and denied as moot Defendants' motion to amend. Filing No. 123. Defendants filed their amended answer in response to the amended complaint on October 30, 2011.

Defendants requested leave to amend their amended answer on December 12, 2011. Defendants seek to add the following affirmative defenses: (1) Defendants' alleged use of the term "Kiewit" did not constitute trademark use and (2) Defendants' alleged use of the Service Mark constitutes nominative fair use. Filing No. 181-4.

In an attempt to meet their burden of proving good cause exists, Defendants argue that a brief filed by Plaintiff in regard to a motion for protective order "brought into sharp and imminent focus Plaintiff's claim of a need and a right to contact Defendants' clients without court approval or oversight." Filing No. 180, ¶ 11. Further, "[d]iscussions with others in the industry . . . caused Defendants to consult trademark counsel, to determine whether they could now support trademark defenses." Filing No. 180, ¶ 14. Defendants allege that it was not until December 8, 2011 that "Defendants' learned from trademark counsel that they indeed now have the basis necessary to allege additional affirmative defenses against Plaintiff's claims, in the context of Plaintiff's demands to contact Defendants' client without any oversight. . . ." Filing No. 180, ¶15. Finally, Defendants argue their attempts to gain information regarding Plaintiff's intellectual property claims were thwarted by Plaintiff during discovery. Filing No. 180.

From its inception, this law suit has centered on Plaintiff's allegations that Defendants violated federal and state law addressing intellectual property, including claims under the Lanham Act for trademark infringement, unfair competition and false representation. See Filing No. 1, ¶¶ 13-39. Plaintiffs further detailed the factual basis for their trademark claims in the Rule 26(f) Report and in response to Defendants' First Set of Interrogatories. Filing No. 36. Simply put, Defendants have been on notice from the moment they were served with the complaint that Plaintiff's primary claims alleged violations of federal and state trademark law.

Defendants' two alleged justifications for waiting almost a year after the deadline to amend their answer are unpersuasive. Defendants first assert that the issue was not brought into "sharp and imminent" focus until Plaintiff professed its desire to contact Defendants' clients without court supervision.17 Having been provided multiple opportunities to brief the matter, to present evidence, and to provide oral argument, Defendants have failed to provide any connection between Plaintiff's allegedly sudden revelation of intent to contact Defendants or former clients and the proposed additional affirmative defenses. Case law provided by Defendants addressed the merits of the proposed affirmative defenses, but did not explain why they could not have been asserted until Defendants allegedly first learned of Plaintiffs' discovery intentions. Indeed, the court can find no reason why Plaintiff's desire to conduct discovery on Defendants' clients or former clients would suddenly motivate the Defendants to assert affirmative defenses against the primary claims in this law suit.

Moreover, even if there was some connection between Plaintiff's discovery plan and the affirmative defenses, at the October 12, 2011 hearing, Defendants stated their concern with Plaintiff contacting Defendants' clients, (see Filing No. 124, Audio File at 52:05 to 52:25), providing clear evidence Defendants were aware of Plaintiff's plan of discovery. By October 31, 2011 Defendants' were certainly aware of the possibility of Plaintiff contacting current and former clients and could have moved to add the proposed affirmative defenses to their answer that day.

Defendants also assert that Plaintiff has stonewalled Defendants' discovery attempts to receive information regarding Plaintiff's trademark claims. However, when pressed by this court to explain what information they could have received in discovery that would have sparked them into action earlier, Defendants can point to none. To the contrary, the Plaintiff described the conduct that led to the filing of this suit in their discovery answers. See Filing No. 186-5, p. 3, Answer to Interrogatory No. 5. If Defendants believed Plaintiff was not being forthcoming in discovery, Defendants could have sought court intervention through a motion to compel. They did not, thus their claims that Plaintiff's objections to discovery prevented Defendants from obtaining the information necessary to raise the proposed affirmative defenses rings hollow.

More likely the key to Defendants' delay in amending its answer can be found in their brief in support of their motion to amend — "[d]iscussions with others in the industry . . . caused Defendants to consult trademark counsel, to determine whether they could now support trademark defenses." Filing No. 180, ¶ 14. Waiting to contact an attorney with expertise in the subject area of the litigation does not constitute good cause for seeking to amend a pleading after the deadline has passed. Accordingly, Defendants' motion for leave to amend is denied.

Motion for Protective Order

A court will enter an order protecting a party from certain types of discovery only upon a showing of good cause. See Fed. R. Civ. P. 26(c). The party seeking the protective order bears the burden of demonstrating the existence of good cause for entering such an order. See Miscellaneous Docket Matter No. 1 v. Miscellaneous Docket Matter No. 2, 197 F.3d 922, 926 (8th Cir. 1999). A showing of "good cause" requires "a particular and specific demonstration of fact, as distinguished from . . . conclusory statements." Gulf Oil Co. v. Bernard, 452 U.S. 89, 102 n. 16 (1981) (quoting 8 C. Wright & A. Miller, Federal Practice and Procedure § 2035, p. 265 (1970)); Miscellaneous Docket Matter, 197 F.3d at 926. Thus, the parties seeking protection must show that specific prejudice or harm will result if no protective order is granted. See Frideres v. Schiltz, 150 F.R.D. 153, 156 (S.D.Iowa 1993). A determination of whether "good cause" for a protective order exists "must also include a consideration of the relative hardship to the non-moving party should the protective order be granted." General Dynamics Corp. v. Selb Mfg. Co., 481 F.2d 1204, 1212 (8th Cir. 1973) (citing United States v. Kordel, 397 U.S. 1, 4-5 (1970)). The court has broad discretion in determining whether a protective order is warranted and the degree of protection required. Roberts v. Shawnee Mission Ford, Inc., 352 F.3d 358, 362 (8th Cir. 2003).

Plaintiff has stated it has no objection to the entry of a protective order, however the parties disagree over the amount of protection necessary. At the heart of the dispute is whether, and to what degree, Plaintiff should be allowed to contact Defendants' current or former clients. Plaintiff argues that it should be able to contact Defendants' clients and former clients in an effort to determine whether Defendants used the Kiewit Mark to solicit business and what, if any, representations Defendants made regarding their relationship with Kiewit. Defendants have strenuously argued that any contact with their current or former clients will cause Defendants' business to suffer "irreparable harm" because any such contact would violate confidentiality agreements Defendant entered into with their clients. Defendants seek not only a protective order, but a court-controlled procedure for Plaintiff's contacts with Defendants' current or former clients wherein all correspondence with Defendants' clients would be conducted in writing. See Filing No. 158, ¶¶ 22-23 & Filing No. 177, pp. 15-16.

It is true that courts are often reluctant to allow direct contact with litigants' clients or customers in lawsuits involving intellectual property disputes. In general, these courts are concerned with the impact such contacts may have on the litigants' businesses, such as when the parties are "fierce competitors" and the information sought could be gained by other means. See Joy Technologies, Inc. v. Flakt, Inc., 772 F.Supp. 842, 849 (D. Del. 1991).

Kiewit must first demonstrate the information it seeks from Defendants' clients is relevant and necessary.18 In re Remington Arms Co., Inc., 952 F.2d 1029, 1032 (8th Cir. 1991). Kiewit has represented that it intends to ask Defendants' past and current clients to what extent, if any, Defendants represented Kiewit was an interested or potential buyer of the clients' businesses. Kiewit seeks information regarding written correspondence and any other communications Defendants had with their clients regarding Kiewit's role in a potential sale.

In the Memorandum and Order regarding the initial discovery dispute in this case, the court noted that Defendants were an unreliable source of information because of their document retention19 policies. Filing No. 128, p. 11-13. After many discovery disputes and reams worth of discovery motions, briefs and other filings, the court's initial impression has been reinforced, not allayed. Defendants are simply not a reliable source of information.

At the heart of the matter is what representations, if any, Defendants made to their clients regarding Kiewit's interest in buying the clients' respective businesses. Initially, Defendants stated the Kiewit name was invoked only twice in communications with potential clients, and those contacts did not result in a business valuation or a completed sale. During his deposition, Hdlaky (one of the recipients of the correspondence Defendants initially acknowledged) stated that during follow-up communications with Defendants, they reiterated Kiewit's interest in purchasing his company. Defendants deny this assertion.

A forensic examination has been done: Defendants' initial assertion regarding the number of times it referenced Kiewit to a potential buyer was patently false. Additional contacts with other potential clients discussing Kiewit as a potential buyer were discovered. At least four of those clients paid Defendants for a business valuation. Filing No. 239, 133:21-25.

Defendants continue to attempt to use client confidentiality as a means of preventing Plaintiff from discovering relevant information. They argue Plaintiff has not asserted it has any damages in this case. However, in Lanham Act cases, successful plaintiffs are entitled to a defendant's profits for misuse of a service mark. 15 U.S.C. § 117(a). Without speaking directly to Defendants' clients regarding any written and verbal communications, Plaintiff has no reliable means of discovering exactly what, if any, representations were made to the clients beyond what appears in the limited written communications that have been produced. Plaintiff has met its burden of showing the information sought is relevant and necessary to its case.

Under In re Remmington, the court must balance the injury Defendants will suffer against Kiewit's need for the information. Defendants argue their business will be essentially ruined, and they offered the testimony of no fewer than four experts to discuss the importance of confidentiality in the field of mergers and acquisitions. Having reviewed the testimony of each expert, the court has no doubt confidentiality is viewed as essential in the field of mergers and acquisitions. However, even the experts were not able to offer anything more than speculation as to what impact, if any, Plaintiff's discreet contacts with clients or former clients may have.

More importantly, Defendants share the majority of the responsibility for whatever peril they face if Plaintiff contacts Defendants' clients. Defendants' lack of records retention, its disorganized method of storing the documents they do keep, and its lack of candor with the Plaintiff and this court during the discovery process convinces me that Plaintiff must contact Defendants' clients to reliably obtain relevant discovery. For example, this court previously ordered Defendants to produce "every record . . . showing the number of appraisal and/or business valuation [Defendants] have sold since 2008" and identifying the number of appraisals and valuations sold since 2008 and the fee collected for each one of the appraisals or valuations sold. Filing No. 128. In response to the court's order, Defendants submitted a hodgepodge of documents including deposit slips and redacted bank statements that are barely decipherable and offer little in the way of identifying the number of valuations sold since 2008. Had Defendants maintained or produced anything resembling complete and accurate records in an organized fashion, and had they been honest and forthright in the discovery process from the beginning, other discovery options might have been available for determining whether, and to what extent, Defendants profited from using the Kiewit name. At a minimum, Kiewit could have reviewed correspondence and contracts without first contacting the clients. Based on that information, Kiewit, and this court, could have better decided to what extent Kiewit would be allowed to contact Defendants' clients.

But that option is not available. This court has no confidence that Defendants have fully met their discovery obligations or will fully respond to Plaintiff's discovery requests. The court will enter a protective order, but will not require the restrictions proposed by Defendants. Plaintiff will be allowed to contact Defendants' former and current clients, subject to the following restrictions as tailored for this case:

This method of discovery is aimed at ensuring Plaintiff's inquiries remain discrete and limited while providing Plaintiff an opportunity to discover information that either proves or disproves its claims.21 See, e.g., Gen-Probe, Inc. v. Becton, Dickinson & Co., case no. 09cv2319, 2010 WL 2011526 (S.D.Cal 2010) (allowing plaintiff to make contact with defendant's customers, but ordering plaintiff to make inquiry based on information provided by the defendant).

Motion for Sanctions

Plaintiff seeks sanctions for the Defendants' obstreperous conduct during the course of this litigation, particularly as it pertains to false statements in discovery responses and during court hearings, and its destruction and failure to produce electronic discovery.

Under the facts presented in this case, the court's authority to sanction the misconduct of parties and their attorneys is derived from the Federal Rule of Civil Procedure and the inherent power of the court. See Fed. R. Civ. P. 11 & 37; Chambers v. NASCO, Inc., 501 U.S. 32, 44 (1991); Sylla-Sawdon v. Uniroyal Goodrich Tire Co., 47 F.3d 277, 280 (8th Cir. 1995). The court has the power to shape the appropriate remedy including default judgment, striking pleadings, an adverse jury instruction, and an award of attorney's fees and costs. See Stevenson v. Union Pacific R. Co., 354 F.3d 739, 745-46 (8th Cir. 2004). The most severe sanctions are reserved for those litigants demonstrating "`blatant disregard of the Court's orders and discovery rules' [and] engaging in a pattern of deceit by presenting false and misleading answers and testimony under oath in order to prevent their opponent from fairly presenting its case." Chrysler Corp. v. Carey, 186 F.3d 1016, 1022 (8th Cir. 1999).

1. False Affidavits and Testimony.

Defendant West submitted several affidavits to the court in which he stated there were two and only two instances in which Defendants represented Kiewit as a potential buyer to clients. He further confirmed this testimony during a deposition. During the course of this litigation, West has made the following statements under oath, which are now known to be false:

Defendants' counsel made numerous other statements in briefs strenuously arguing that no records existed beyond the two letters that were the basis for this lawsuit. Filing No. 115, p. 40 (Defendants' brief in opp. to motion to compel) (Defendants have no documents mentioning Kiewit); Filing No. 117, p. 16 (Defendants' brief in opp. to subpoena); Filing No. 117, p. 19 (Defendants' brief in opp. to subpoena) (asserting no additional records naming Kiewit).

Defendants and their counsel called witness and Defendants' former employee, Tara Bethel, a liar.23 Bethel provided an affidavit, submitted to the court by the Plaintiff, which stated that while she worked for WSE, she "observed at least one-hundred (100) instances in which a WSE employee would represent to a prospective client-business owner that Peter Kiewit Sons' Inc. was a ready, willing, and interested buyer client-business owner's business. These representations were made both orally over the telephone and in written follow-up letters." Filing No. 119-1. In the end, the forensic examination, which West so vehemently resisted and attempted to delay, revealed Bethel was telling the truth.

But West, WSE Vice President R.J. Rios, and WSE group employee Steven Blum did provide false statements to this court. The Continuum examination revealed additional documents comparable to the Hdlaky and Waterfront Marine letters and naming Kiewit as a potential buyer. The examination also revealed email correspondence that was purportedly from Defendant West which mentions Kiewit as a potential buyer of companies. The evidence also establishes that Bertke possessed back-up copies of Defendants' electronic files at the time West stated he did not. The Rios affidavit submitted of record stated that "[d]uring the time [Tara] Bethel worked for WSE, the name `Kiewit' was never mentioned in the office where Bethel worked, verbally or in writing." Filing No. 121-3, ¶5. Blum submitted an identical affidavit. Filing No. 121-4, ¶5. The assertions made by West, Rios, and Blum are directly contradicted by the documents obtained as a result of the forensic examination, to include emails naming Kiewit as a potential buyer, sent under Rios' signature by Bethel, and of which Rios received a copy. See, e.g., Filing No. 182-1, pp. 3, 6, 9 &12.

Defendants appear surprisingly unconcerned that they misrepresented a large portion of the factual basis upon which their initial defense of this lawsuit relied.24 Rather than initiating a contrite dialogue with Plaintiff's counsel and this court to fix the mess they caused, the Defendants waited for the Plaintiff to report the problem, and Defendants then attempted to explain away their patently false and repeated statements from multiple sources by stating they were simply "mistaken." Defendants have seamlessly changed their defense from "there were only 2 letters total" to "there were only 23 letters over five years," Filing No. 259, 257:8-9.

Defendants also assert they could not have known about the additional letters mentioning Kiewit because it was their practice to delete solicitations that did not produce business for them. This claim is simply not believable. Defendants' search of their electronic files to provide discovery responses was woefully inadequate. And having heard and observed Defendant West testify on several occasions, the undersigned magistrate judge finds Defendant West is not a credible witness, and his claim that he cannot remember communicating with potential clients regarding Kiewit is not credible. The forensic examination produced several copies of letters bearing West's signature and indicating he had spoken with the individuals personally regarding the potential sales of their companies to Kiewit. See, e.g., Filing No. 182-1, pp. 39, 48, 53, 55, 60. West was presented as a 30(b)(6) witness, yet there is no indication he diligently prepared for those depositions, and he was quick to claim he did not have any first hand knowledge of any list of WSE's and WSG's clients. The lists were, at least at one time, in the Defendants' possession. Filing No. 239, 112:7-115:5. West claims he knows nothing about computers, but admits he dumped Server 1 in the trash, after the discovery battles had erupted and with no notice to the Plaintiff or this court, upon concluding the motherboard was "fried." Simply put, West was not a believable witness and his pattern of dishonesty under oath, and cavalier attitude while doing so, is a "direct affront to the court." Chrysler Corp., 186 F.3d at 1021.

2. Electronic Discovery

Once a party is involved in or reasonably anticipates litigation, several duties arise related to finding and preserving discoverable information. These duties include:

Cache La Poudre Feeds, LLC v. Land O'Lakes, 244 F.R.D. 614, 625 (D. Colo. 2007) (citing Zubulake v. UBS Warburg LLC, 229 F.R.D. 422, 431-433 (S.D.N.Y. 2004).

a. Equipment in Arthur Bertke's possession.

Plaintiff asserts Defendants intentionally moved electronic storage devices in order to prevent Bertke from responding to a subpoena issued by Plaintiff. Plaintiff served its notice to issue a subpoena on Bertke on August 1, 2011. The proposed subpoena commanded Bertke to produce:

Filing No. 73.

Defendants served a notice that they intended to object to the issuance of the subpoena and Plaintiff subsequently moved for a court order to issue the subpoena. Defendants objected stating that they did not have any records referencing "Kiewit" and further asserted by affidavit:

A second affidavit submitted by West swore that "WSE's landlord does not have and does not maintain a copy of the electronic files created by Defendants." Filing No. 115-16, ¶ 32.

These assertions were false. Defendants had placed copies of their electronic files in the possession of Bertke — WSE's landlord. Moreover, immediately after the undersigned authorized the issuance of the subpoena on Bertke, but before it was actually served on Bertke, West contacted Bertke and instructed him to return equipment containing Defendants' electronically stored information. Bertke did so and by the time he received the subpoena, he no longer possessed any responsive materials. Having learned of West's actions, Kiewit moved for sanctions.

West again asserted the false statements in his affidavits were mistakes and that he simply forgot Bertke possessed copies of Defendants' files. He also asserts his motivation in removing the equipment from Bertke's possession was to ensure its safety because he walked by the room where Bertke stored Defendants' files, noticed the usually locked door was ajar, and simultaneously remembered Bertke had the equipment. This allegedly prompted West to contact Bertke and ask for all of the equipment to make sure it was safely stored. Further, West asserted he had only a general knowledge that discovery in the suit was ongoing, but was not aware Bertke was going to be served a subpoena directing him to produce the exact equipment West commanded Bertke to return.

West's explanation for retrieving all computer drives from Bertke before a subpoena could be served is not credible, and his actions were in bad faith. Plaintiff initially noticed the subpoena of Bertke on August 1, 2011. The matter was contested, with briefs and evidence submitted by both parties. At the motion hearing, West testified that he was not fully aware of the discovery process because Defendants' main communication with their attorney came through Richard Calabria, the current President of WSE. But West himself submitted an affidavit, filed on October 7, 2011, in support of Defendants' objection to issuing the Berktke subpoena. West also testified as Defendants' 30(b)(6) witness, has testified at multiple hearings, and has submitted several affidavits in this case. To suggest he was unaware of the discovery process, including the particulars involved in the dispute over the issuance of the subpoena to Bertke, is disingenuous.

Defendants removed the electronic storage devices from Bertke on the eve of the service of the court ordered subpoena and only produced the equipment after the undersigned ordered the Defendants to do so.25 The court finds Defendants' conduct with regard to the initial objection to the Bertke subpoena and the subsequent movement of the electronic storage devices to constitute bad faith.

b. Search for Electronically Stored Evidence.

Fed. R. Civ. P. 26(b)(2) addresses a party's duty in preserving and producing electronic data.

Fed. R. Civ. P. 26(b)(2)(B).

The federal rules further provide that a court may limit the frequency or extent of discovery if it determines that:

Fed. R. Civ. P. 26(b)(2)(C).

Thus, unless the producing party can make a showing that the discovery requests at issue seek inaccessible information, or responding to those requests will be overly burdensome in light of other options available for obtaining the requested information, the producing party will bear the cost of production. See Rowe Entertainment, Inc. v. William Morris Agency, Inc., 205 F.R.D. 421, 428 (S.D.N.Y. 2002); see also Zubulake v. UBS Warburg LLC, 217 F.R.D. 309, 318 (S.D.N.Y. 2003) (cost-shifting should only be considered when electronic discovery imposes an "undue burden or expense" on the responding party).

Zubulake, 217 F.R.D. at 318.

In this case, Plaintiff is seeking to require Defendants to pay for the costs associated with the forensic computer examination conducted by the representative from Continuum. Conversely, Defendants argue they were incapable of finding the letters and other communications discovered as a result of the forensic examination. Defendants' basis for their argument is two-fold: 1) Defendants argue they had Romano, their most "computer literate" employee, conduct a keyword search for "Kiewit" from her work station and that search revealed no letters or communications with potential clients containing the term "Kiewit;" and (2) the search conducted by Continuum took several weeks and Defendants could not have performed such an extensive search on their own.

Defendants cite to no authority stating they may meet their burden of showing the electronic discovery in this case was unduly burdensome and too costly to produce because the information was not disclosed through a keyword search at a computer work station. Although Romano, who performed the keyword search, testified she consulted with Bertke prior to performing the search, she is not a computer expert and has no formal training in computer sciences. Defendants have offered no evidence that they spoke with a forensic examiner or any other computer expert to even evaluate what the cost and burden of thoroughly searching Server 2. Considering Defendants' very liberal policy of not keeping documents, consolidating their records in one location, or organizing their files, their efforts to locate relevant electronic files were woefully inadequate.

Defendants' argument that they were not capable of performing a search similar to Continuum's search is equally unpersuasive. Defendants focus on the amount of time it took Clyde to complete the imaging and search of their electronic equipment. However, the length of a search has very little to do with whether the requested data was accessible. Simply stating the Continuum analysis took a long time, and no one in the employ of Defendants could perform the search, does not meet the burden of showing the information was "inaccessible" for the purposes of discovery. See Zubulake, 217 F.R.D. at 320 (even "accessible"data may take "days" to actually access).

Thus, Defendants have not shown the documents were inaccessible. Further, by relying on an employee's simple key word search from her work station, the court finds Defendants did not conduct a good faith search for the electronically stored information. Accordingly, Defendants shall pay for Plaintiff's reasonable attorney's fees and the expenses associated with Continuum's forensic examination of Defendants' computer equipment, and for filing and litigating the motion to compel and all other motions and hearings associated with retrieving and searching Defendants' computer files.

c. Spoliation.

Plaintiff alleges Defendants should be sanctioned for intentionally destroying evidence. "A spoliation-of-evidence sanction requires `a finding of intentional destruction indicating a desire to suppress the truth.'" Greyhound Lines, Inc. v. Wade, 485 F.3d 1032, 1035 (8th Cir. 2007) (quoting Stevenson v. Union Pac. R.R. Co., 354 F.3d 739, 746 (8th Cir. 2004)). Intent is rarely proved by direct evidence, and a district court has substantial leeway to determine intent through consideration of circumstantial evidence, witness credibility, motives of witnesses in a particular case, and other factors." Morris v. Union Pac. R.R., 373 F.3d 896, 902 (8th Cir. 2004). Where evidence has been intentionally destroyed to suppress the truth, one appropriate sanction is an adverse jury instruction regarding the contents of the destroyed evidence. See Stevenson, 354 F.3d at 746-47.

Plaintiff alleges Defendant West intentionally destroyed evidence when he discarded Server 1 after it crashed in August or September of 2011. West admits to disposing of Server 1, but alleges all of the information on Server 1 was preserved on a hard drive prior to the time it was discarded. In support of this contention, West offered affidavits from Bertke with the following statements:

West instructed Romano to create a back-up copy, presumably on one of the black hard drives that was subjected to the forensic examination, of all the files on Server 1 prior to its disposal. Filing No. 259, 175:14-25 & Filing No. 207, 91:13-92:2. Thus, West argues that all of the files on the crashed server had been preserved. West further argues that he knows very little about computers and despite being in the middle of contentious litigation, did not think keeping the "fried" server was necessary. West states that he did not dispose of Server 1 with the intent to destroy evidence.

Although Romano may be the most "computer literate" person employed by Defendants, she undoubtedly lacks the experience or training to ensure that all files and other information from Server 1 were preserved in the transfer. And Bertke provided credible evidence, but his testimony regarding what was transferred to a hard drive from Server 1 was qualified; Bertke states the information it contained was what he "would expect to find" on the backup of Server 1 and the amount of information was "consistent" with being all of the data from Server 1. He could not unequivocally state that all of the data and files were transferred before Server 1 was discarded. Finally, the Plaintiff presented evidence of one letter sent by Defendants containing the term "Kiewit" that was not located during the forensic examination conducted by Continuum — the June 25, 2008 letter addressed to Randy Sutton at Waterfront Marine. Filing No. 259, 175:14-25. This lends support to Plaintiff's claim that evidence was destroyed, with no backup copy, when West tossed Server 1 in a dumpster.

West disposed of Server 1 in the middle of this litigation, and shortly after he was on notice of Plaintiff's intention to seek and review Defendants' electronic records and equipment. Defendants claim they experienced numerous computer problems over time and have been through several servers,26 but this argument misses the point. The Plaintiff is not complaining that Defendants replaced a server: It is stating West intentionally tossed out the "fried" Server in the middle of litigation without first taking reasonable measures to determine whether all the information was preserved or forensically examined.

West's false affidavits and false deposition testimony, particularly combined with the false affidavits submitted by Rios and Blum (see filing nos. 121-3, ¶¶ 4-5; 121-4, ¶¶ 4-5), West's conduct of throwing a computer server in a dumpster while motions for discovery of electronic information were pending, and his removal of computer hard drives and servers from Bertke's possession immediately after the court ruled that Bertke could be subpoenaed to produce these drives, provide ample evidence that Defendants intentionally submitted false evidence and testimony in bad faith, committed fraud on this court, and intentionally destroyed evidence with a desire to suppress the truth in this case.27 Such conduct warrants the imposition of an adverse jury instruction. See Stevenson, 354 F.3d at 750 (finding the power to give an adverse jury instruction is support by Fed. R. Civ. P. 37 or the "court's inherent power"). Specifically, the defendants's discovery abuse warrants instructing the jury that it may assume that the contents of the discarded server would have been adverse, or detrimental, to Defendants' case.

CONCLUSION

As summarized below, Defendants, and particularly Defendant West, engaged in a pattern of sanctionable conduct.

West attempts to explain away these multiple misrepresentations and improper actions as the "mistakes" of a computer illiterate.28 This explanation is neither satisfactory nor believable. In fact, the more West testified regarding these matters, the less credible he appeared. One false affidavit statement may be a mistake. A series of misrepresentations, particularly in the context of the pattern and timing of the events in this case, is conduct committed in bad faith to perpetuate fraud on the court. Severe sanctions are warranted.

IT IS ORDERED:

IT IS FURTHER HEREBY RECOMMENDED to the Honorable John M. Gerrard that an adverse jury instruction be given at trial, with the jury instructed as follows: