SAN DIEGO (LN) — A federal magistrate judge in the Southern District of California on Thursday granted in part Pacific Steel Group’s motion for sanctions under Federal Rule of Civil Procedure 37(e), ruling that CMC Steel Fabricators Inc. and its affiliates failed to preserve text messages and laptop data from departing employees in an antitrust suit alleging below-cost bidding.
Pacific Steel Group, a steel rebar supplier, sued CMC Steel Fabricators Inc., CMC Rebar West, and CMC Steel US LLC, alleging the defendants sold furnishing and installation services below cost to destroy competition in California between October 2017 and December 2022.
The dispute centers on CMC’s practice of routinely wiping and recycling company-issued cellphones and laptops of departing employees. Pacific Steel Group argued that this policy destroyed potentially relevant text messages and local laptop files, including pricing templates critical to its claims.
The court found that CMC had a duty to preserve the electronically stored information (ESI) when litigation was anticipated in late 2020, but failed to send the litigation hold notice to all subsequently agreed-upon custodians or suspend its wiping policy.
"The Court is not persuaded by Defendants’ reliance on the MDM system and employee policy to excuse their duty to preserve," the order stated. "A review of the employee handbook references how employees should access company information. Messages sent through the MDM are preserved whereas text messages are not managed and are therefore not preserved."
The judge rejected CMC’s argument that employees were prohibited from texting about business matters, noting that the company’s 30(b)(6) witness testified there is no policy preventing texting. The court also found prejudice because the lost information could not be restored and was relevant to the pricing templates of the antitrust claims.
The court ordered CMC Steel to pay Pacific Steel Group’s reasonable attorneys’ fees and costs incurred in bringing the sanctions motion and taking two 30(b)(6) depositions regarding the spoliation.
The parties must meet and confer on the specific fee amount by June 2, 2026. If they cannot agree, Pacific Steel Group must file a declaration supporting its requested fees by June 16, 2026, with CMC Steel having until June 30, 2026, to oppose.
The order also mandates that CMC Steel send tailored litigation hold notices to all remaining agreed-upon custodians and to its "Services Delivery" group responsible for wiping devices.
Defendants must also halt the routine wiping of cellphones, laptops, and OneDrive backups for any custodians of information relevant to the litigation.
The sanctions order was issued by a magistrate judge, with the district judge reserving the question of whether an adverse inference instruction should be given to the jury under Rule 37(e)(2).