What Happened?

In Gutman v. Klein, the defendant searched for and downloaded software to wipe his hard drive of evidence relevant to the case. Instead of using the data wiping software, the defendant manually deleted files. Then he reinstalled Windows XP, presumably to cover his tracks.

Stroz Friedberg did a forensic examination of the laptop. Much of the spoliation evidence was identified through Stroz Friedberg’s analysis of file system meta data, file meta data, and system logs.

Based on this spoliation, the magistrate judge recommended a sanction of default judgment against the defendant and a sanction of attorneys fees related to the discovery.

E-Discovery Law

This case offers an excellent review of current e-discovery law related to spoliation and subsequent sanctions. This Report and Recommendation was written on October 15, 2008.

You wouldn’t cite this Report and Recommendation directly (since it is written by a magistrate judge and has not yet been considered by the district court judge). However, you may find the case quotes and citations helpful when working on your own electronic discovery matters.

Spoliation Law

The court explained spoliation:

“Spoliation is the destruction or significant alteration of evidence, or the failure to preserve property for another’s use as evidence in pending or reasonably foreseeable litigation.” West v. Goodyear Tire & Rubber Co., 167 F.3d 776, 779 (2d Cir. 1999) (citation omitted). A party bringing a spoliation claim must demonstrate

(1) that the party having control over the evidence had an obligation to preserve it at the time it was destroyed;

(2) that the [evidence was] destroyed with a culpable state of mind; and

(3) that the destroyed evidence was relevant to the party’s claim or defense such that a reasonable trier of fact could find that it would support that claim or defense.

Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 107 (2d Cir. 2002) (internal quotation marks and citation omitted).

The court then applied spoliation law:

As for the first prong, a party becomes obliged to preserve evidence when it “has notice that the evidence is relevant to litigation . . . [or] should have known that the evidence may be relevant to future litigation.” Kronisch v. United States, 150 F.3d 112, 126 (2d Cir. 1998) (citations omitted); accord Fujitsu Ltd. v. Fed. Express Corp., 247 F.3d 423, 436 (2d Cir. 2001).

As for the second prong, the Second Circuit has held that negligence is a sufficiently culpable state of mind for spoliation. See Residential Funding Corp., 306 F.3d at 108; see also NTL, Inc. Sec. Litig., 244 F.R.D. 179, 197-98 (S.D.N.Y. 2007); Phoenix Four, Inc. v. Strategic Res. Corp., No. 05 Civ. 4837, 2006 WL 1409413, at *4 (S.D.N.Y. May 23, 2006).

As for the third prong, the burden of proving that evidence would have been relevant to a party’s claims or defense is proportional to the mens rea of the party who destroyed the evidence. For example, a court may infer relevance when “a party acted in bad faith because ‘bad faith alone is sufficient circumstantial evidence from which a reasonable fact finder could conclude that the missing evidence was unfavorable to that party.’” Phoenix Four, Inc., 2006 WL 1409413, at *4 (citing Residential Funding Corp., 306 F.3d at 109). In contrast, where the party destroyed evidence due to ordinary negligence, “[t]he burden falls on the ‘prejudiced party’ to produce ‘some evidence suggesting that a document or documents relevant to substantiating his claim would have been included among the destroyed files.’” Byrnie v. Town of Cromwell, Bd. of Educ., 243 F.3d 93, 108 (2d Cir. 2001) (quoting Kronisch, 150 F.3d at 128). However, the court should avoid “holding the prejudiced party to too strict a standard of proof regarding the likely contents of the destroyed evidence,” as doing so “would subvert the prophylactic and punitive purposes of the [spoliation sanctions].” Kronisch, 150 F.3d at 128.

. . . .

. . . the record demonstrates that Klein acted in bad faith when he destroyed evidence on the Klein laptop. See Phoenix Four, Inc., 2006 WL 1409413, at *4 (citing Residential Funding Corp., 306 F.3d at 109); see also Handwerker v. AT&T Corp., 211 F.R.D. 203, 209 (S.D.N.Y. 2002) (“Noncompliance may be deemed willful ‘when the court’s orders have been clear, when the party has understood them, and when the party’s non-compliance is not due to factors beyond the party’s control.’” (quoting Bambu Sales, Inc. v. Ozak Trading Inc., 58 F.3d 849, 852-53 (2d Cir.
1995))).

Sanctions

The court discussed sanctions for spoliation:

A district court has wide discretion in sanctioning a party for discovery abuses, “[w]hether exercising its inherent power, or acting pursuant to Rule 37.”14 Reilly v. Natwest Mkts. Group Inc., 181 F.3d 253, 267 (2d Cir. 1999); accord Zubulake v. UBS Warburg LLC, 229 F.R.D. 422, 430 (S.D.N.Y. 2004); see also Fed. R. Civ. P. 37(b)(2) & (c)(1); West v. Goodyear Tire & Rubber Co., 167 F.3d 776, 779 (2d Cir. 1999); Fleming v. City of New York, No. 01 Civ. 8885, 2006 WL 2322981, at *5 (S.D.N.Y. Aug. 9, 2006) (citing Nat’l Hockey League v. Metro. Hockey Club, Inc., 427 U.S. 639, 643 (1976)); Hollingsworth v. City of New York, No. 95 Civ. 3738, 1997 WL 91286, at *2 (S.D.N.Y. Mar. 4, 1997). When deciding how to sanction a party, a court generally must consider, “in light of the full record in the case,” Cine Forty-Second St. Theatre Corp. v. Allied Artists Pictures Corp., 602 F.2d 1062, 1068 (2d Cir. 1979), “‘(a) willfulness or bad faith on the part of the noncompliant party; (b) the history, if any, of noncompliance; (c) the effectiveness of lesser sanctions; (d) whether the noncompliant party had been warned about the possibility of sanctions; (e) the client’s complicity; and (f) prejudice to the moving party.’” Fleming v. City of New York, No. 01 Civ. 8885, 2007 WL 4302501, at *3 (S.D.N.Y. Dec. 7, 2007) (quoting Am. Cash Card Corp. v. AT&T Corp., 184 F.R.D. 521, 524 (S.D.N.Y. 1999) (citing Jodi Golinsky, Note, The Second Circuit’s Imposition of Litigation- Ending Sanctions for Failures to Comply with Discovery Orders, 62 Brook. L. Rev. 585, 596-97 (1996))). In the spoliation context, the court also must consider the “prophylactic, punitive, and remedial rationales underlying the spoliation doctrine.” West, 167 F.3d at 779. In other words, the sanction should “(1) deter parties from engaging in spoliation; (2) place the risk of an erroneous judgment on the party who wrongfully created the risk; and (3) restore ‘the prejudiced party to the same position he would have been in absent the wrongful destruction of evidence by the opposing party.’” Id. (quoting Kronisch, 150 F.3d at 126).

Use of the harshest sanctions is limited to cases involving “willfulness, bad faith, or any fault” of the disobedient party. Salahuddin v. Harris, 782 F.2d 1127, 1132 (2d Cir. 1986) (citing Societe Internationale pour Participations Industrielles et Commerciales, S.A. v. Rogers, 357 U.S. 197, 212 (1958)); accord Hollingsworth, 1997 WL 91286, at *2; Urban Elec. Supply & Equip. Corp. v. N.Y. Convention Ctr. Dev. Corp., 105 F.R.D. 92, 98 (E.D.N.Y. 1985); see also Cine Forty-Second St. Theatre Corp., 602 F.2d at 1064, 1066. A court will dismiss a case “only in extreme circumstances, usually after consideration of alternative, less drastic sanctions.” West, 167 F.3d at 779 (quotation marks and citation omitted). Similarly, to obtain an adverse inference instruction, the moving “party must establish that the unavailable evidence is relevant to its claims or defenses.” Residential Funding Corp., 306 F.3d at 108 (internal quotation marks and citations omitted). “‘[R]elevant’ in this context means something more than sufficiently probative to satisfy Rule 401 of the Federal Rules of Evidence.”15 Id. at 108-09. The party “must adduce sufficient evidence from which a reasonable trier of fact could infer that the destroyed or unavailable evidence would have been of the nature alleged by the party affected by its destruction.” Id. at 109 (internal quotation marks, alternation, and citations omitted).

Sanctions: Terminating the Case

The magistrate judge explained the ultimate sanction of default judgment before recommending that a sanction of default judgment be entered against the defendant:

The ultimate sanction of a default judgment is “not to be imposed lightly,” particularly when “[a]lternative remedies are sufficient to address the spoliation.” Kyoei Fire & Marine Ins. Co. v. M/V Mar. Antalya, 248 F.R.D. 126, 145 (S.D.N.Y. 2007). But lesser sanctions such as adverse inferences are ill-suited to a case like this, where the spoliator has, in bad faith, irretrievably deleted computer files that likely contained important discovery information. See, e.g., Leon v. IDX Sys. Corp., 464 F.3d 951 (9th Cir. 2006); S. New Eng. Tel. Co. v. Global NAPs, Inc., 251 F.R.D. 82 (D. Conn. 2008); Arista Records, L.L.C. v. Tschirhart, 241 F.R.D. 462 (W.D. Tex. 2006); cf. Miller v. Time-Warner Commc’ns, Inc., No. 97 Civ. 7286, 1999 WL 739528 (S.D.N.Y. Sept. 22, 1999) (imposing sanction of dismissal on plaintiff who had erased her handwritten notes from discovery documents and testified falsely about the erasures, even though the spoliation did not prejudice defendants). But cf. Nucor Corp. v. Bell, 251 F.R.D. 191, 201 (D.S.C. 2008) (finding adverse inference appropriate when defendant’s spoliation of laptop did “not ma[k]e it impossible for plaintiff to determine what was on the device—and thus did not make it impossible for plaintiff to prosecute its claims”).

This case involves a convoluted set of interconnected claims. (See, e.g., Report and Recommendation and Order, dated Sept. 26, 2007.) The spoliated computer files labeled “Privileged” and “Confidential,” and those from the “Gutman Litigation” and “Copy of Gutman Litigation” folders, might have related to any one or more of the claims. Because defendant spoliated the files, “it is impossible to identify which files [were relevant to plaintiff’s claims] and how they might have been used.” Leon, 464 F.3d at 960. Accordingly, “it is impossible to know what [plaintiffs] would have found if [defendants] and [their] counsel had complied with their discovery obligations.” Metro. Opera Ass’n v. Local 100, Hotel Employees & Rest. Employees Int’l Union, 212 F.R.D. 178, 230 (S.D.N.Y. 2003).

Under such exceptional circumstances, the only appropriate non-monetary sanction is a default judgment in plaintiffs’ favor, pursuant to Federal Rule of Civil Procedure 37(b)(2)(A)(vi) and the court’s inherent powers. First, lesser sanctions would not adequately deter misconduct of this severity. Cf. Arista Records, 241 F.R.D. at 465 (“One who anticipates that compliance with discovery rules and the resulting production of damning evidence will produce an adverse judgment, will not likely be deterred from destroying that decisive evidence by any sanction less than the adverse judgment she is tempted to thus evade.”). This is especially true where, as here, the court has previously imposed lesser sanctions on the responsible party for other discovery misconduct. (See Order, dated Nov. 30, 2007 (awarding plaintiffs attorney’s fees for their “efforts in addressing a serious violation [by defendants] of the discovery schedule”).) Second, the most serious forms of spoliation merit the harshest sanctions, and in this case, the destruction of evidence was of the worst sort: intentional, thoroughgoing, and (unsuccessfully) concealed. Finally, the lesser sanction of an adverse inference would not “restor[e] the prejudiced part[ies] to the same position [they] would have been in absent the wrongful destruction of evidence by the opposing party.” Kronisch, 150 F.3d at 126. Here, defendants’ obliteration of the laptop files may well have deprived plaintiffs of crucial evidence. 16 Cf. S. New Eng. Tel. Co., 251 F.R.D. at 92-93 (“[Plaintiff] is not required to show that the destroyed files were material as long as it can prove that the deletion of the files was in bad faith.”).

Attorney’s Fees & Costs

The magistrate judge evaluated a sanction of attorneys fees before recommending a sanction of attorneys fees, requiring the defendant to cover the plaintiff’s attorneys fees that resulted from discovery of evidence the defendant attempted to destroy.

To remedy the extensive delays and waste of resources that defendants’ spoliation has caused them, plaintiffs also seek recovery of all reasonable attorney’s fees and costs associated with the current discovery dispute. See Fed. R. Civ. P. 37(b)(2)(C) (“Instead of or in addition to the orders above, the court must order the disobedient party, the attorney advising that party, or both to pay the reasonable expenses, including attorney’s fees, caused by the failure, unless the failure was substantially justified or other circumstances make an award of expenses unjust.”); see also Novak v. Wolpoff & Abramson LLP, 536 F.3d 175, 178 (2d Cir. 2008) (stating that although “[w]e have never held that Rule 37(b)(2) expenses are mandatory and need not do so here, . . . . [t]he use of the word ‘shall’ certainly suggests that an award of expenses is mandatory unless one of the two exceptions . . . applies”); Cine Forty-Second Street Theatre Corp. v. Allied Artists Pictures Corp., 602 F.2d 1062, 1066 (2d Cir. 1979) (“The mildest [sanction under Rule 37] is an order to reimburse the opposing party for expenses caused by the failure to cooperate.”). I respectfully recommend awarding plaintiffs attorney’s fees encompassing all of their discovery expenses related to the Klein laptop from November 30, 2005 through the date of this Report and Recommendation.

“A district court must calculate fees . . . by multiplying the number of hours reasonably expended on the litigation times a reasonable hourly rate.” I.B. ex rel. Z.B. v. N.Y. City Dep’t of Educ., 336 F.3d 79, 80 (2d Cir. 2003) (internal quotation marks and citations omitted); see also Arbor Hill Concerned Citizens Neighborhood Ass’n v. County of Albany, 522 F.3d 182, 183-84 (2d Cir. 2008) (listing factors relevant to calculating a “presumptively reasonable fee”). Accordingly, I recommend that plaintiffs be ordered to submit detailed accounts of the relevant expenses for examination in order for the court to calculate an appropriate fee award.

Other Monetary Sanctions

Finally, the magistrate judge recommended that other sanctions not be imposed against the defendant, noting that default judgment and attorneys fees were sufficient sanctions.

Keeping in mind that the “rationales underlying the spoliation doctrine” are “prophylactic, punitive, and remedial,” West v. Goodyear Tire & Rubber Co., 167 F.3d 776, 779 (2d Cir. 1999), I recommend that no other sanctions be entered against defendants.

Conclusion

The Report and Recommendation was written by United States Magistrate Judge Robert M. Levy in the United States District Court, Eastern District of New York.

I liked this case because it provided a valuable summary of e-discovery law related to spoliation and sanctions for spoliation. The citations included in this R&R will be helpful for e-discovery attorneys. For example, an attorney could simply cut-and-paste much of the language here into a discovery motion or summary judgment motion.

What happens when I delete a file?

Steve Burgess explains what’s left over when a file is deleted, and what happens when it is created?

Deleted data is becoming a bigger issue, especially in cases where one party is attempting to destroy evidence. For example, a number of white collar criminal cases have involved executives attempting to destroy data. Sometimes the email destruction is attempted by simply deleting the file, sometimes hard drives are reformatted, and sometimes special software tools are used to delete and overwrite the incriminating data.

In this video, Steve Burgess explains the basics of deleting data, and why a file that is deleted is not necessarily gone.

Steve Burgess is a computer forensics expert. He can be reached at Burgess Forensics.

This video explains the basics of computer forensics and provides answers to questions like

• What is the science of computer forensics?
• When is computer forensics needed in litigation?
• What should a computer forensics engineer/expert do for attorneys?
• How can a computer forensic report be useful in litigation?
• What are some examples of computer forensics influencing a case?
• What should corporation’s do to prepare for litigation e-discovery?

Video: Computer Forensics 101

What is Electronic Discovery Software?

Attorneys, paralegals, and IT staff use e-discovery software to assist in the electronic discovery process. Many e-discovery service providers use their own proprietary software to do e-discovery. If you choose to do it yourself, you have a number of software options to consider.

Software for Various E-Discovery Stages

One of the initial questions is, what stage in the e-discovery process do you need software for? You have a number of options:

• Information/records management prior to litigation
• Identification of electronically stored information (ESI)
• Preservation and collection of ESI
• Processing/filtering and review of ESI
• Production of ESI

No e-discovery software application can handle all e-discovery tasks because that would result in a gigantic, bloated application. Rather, e-discovery software providers offer various tools to assist with each e-discovery phase or task.

E-Discovery Tools

The next question is, what types of tools do you need? E-discovery software can be used for a variety of tasks. For example, electronic discovery software can be used to

• Search for relevant data and emails on a network, Microsoft Exchange Server, or PC
• Recover deleted or lost data (including email) on a PC, network, or other media
• Collect data in a forensically sound manner to preserve file system and file meta data
• Review and mark ESI as relevant, privileged, confidential, or other categories (ESI may include documents, email, spreadsheets, sound, or video)
• Destroy and erase data after litigation is completely over

E-Discovery Software Companies
Some of the largest electronic discovery software and service providers include Kroll Ontrack, Fios, Electronic Evidence Discovery, Renew Data, Zantaz, and Applied Discovery. There are also many small shops that provide e-discovery services.

Electronic Discovery Software Advice

1. Buying e-discovery software is not simple. Courts will not tolerate attorneys with an incompetent e-discovery process that results in missed data or spoliation. The consequences of doing e-discovery wrong has included monetary sanctions, spoliation inferences, and more.

2. If you do your own e-discovery, be sure you know what you are doing. First, the person using the e-discovery software should understand the hardware and software technology where the ESI may reside. Second, the the person using the e-discovery software should understand the court rules governing electronic evidence discovery.

3. Know when to get help. If you don’t have experience doing e-discovery, hire someone who does, such as an e-discovery vendor. If you do e-discovery frequently, it may be worth training someone on your staff to do the work and buying the software tools that are necessary. (Even then, you may outsource some of the complex e-discovery tasks.) If you rarely do e-discovery, hire an e-discovery vendor to do the work for you, which will be substantially cheaper and will ensure the work is done right.

February 2-4, 2009
LegalTech 2009
New York City

March 31 – April 1, 2008
ARMA Collaboration and E-Discovery Seminar
New York City

April 2-4, 2009
ABA Techshow
Chicago, IL

April 27-29, 2009
Computer Forensics Show
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May 17-20, 2009
CEIC (Computer and Enterprise Investigations Conference)
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Fall 2009
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Ongoing and Reoccurring E-Discovery Events:

Women in E-Discovery (WIE) has a number of regional events occuring each month.

The webinar will highlight findings from the Second Annual ESI Trends Report and offer practical guidance through real world examples. Topics to be covered include:

• Trends in policy enactment;
• Creation and maintenance of an ESI policy;
• Development of an ESI response team; and
• Best practices for litigation preparedness.

To watch the webinar, register here.

The part of Fulbright’s Litigation Trends Survey related to e-discovery is helpful for those who want to understand corporate law department’s current approaches to e-discovery, their preparedness, and their progress towards adapting to e-discovery law.

You can download Fulbright’s Litigation Trends Survey here (by filling out the form) or download previous annual trends reports here.

This is the fifth year Fulbright has polled corporate law departments in the U.S. and U.K. on the state of global litigation. The 2008 survey drew input from 358 in-house counsel on both sides of the Atlantic, including 251 U.S. respondents. The survey, initially launched by Fulbright in 2004, is the largest canvas of corporate counsel on litigation issues and trends.

E-Discovery is included in the Trends Survey.

For e-discovery, the report included a number of findings. Fulbright’s press release noted this:

Of course, e-discovery and electronically stored information remain an important part of the litigation process, as a normal part of discovery and document production. And it appears that some jurisdictions may still lag behind on dealing with electronic discovery. Twelve percent of companies said they had been before a court or other litigation tribunal ill-equipped to deal with complex electronic data discovery. For financial services and technology firms, which have mounds of e-files and other electronically stored data, 19% and 18%, respectively, reported facing courts and tribunals not up to the challenge.

Survey Details

Fulbright explains more details about the report for those who are interested in how the survey was conducted:

The 2008 Fulbright & Jaworski Litigation Trends Survey was conducted from May 22 through July 18 by Greenwood Associates, a business research firm in Houston that has produced previous editions of the report. The survey, launched by Fulbright in 2004, is the largest polling of corporate counsel on litigation issues and concerns. This year’s Trends Survey canvassed 358 in-house counsel in the U.S. and U.K. More than two-thirds identified themselves as either general counsel or deputy general counsel with 7% holding title of senior counsel, 10% associate general counsel, and 15% staff counsel.

The 2008 survey asks in-house counsel to consider the types of cases they fear most, as well as their attitudes on outside counsel, litigation costs and staffing, arbitration and regulatory issues, and projections for the future. Most of the respondents identify themselves as principal general counsel and senior counsel.

Spanning 10 industry groups—from financial services to energy, manufacturing, health care, retail, real estate, insurance, education, and technology and telecommunications—companies were spread across all regions of the country and were well represented by size: 22% report revenues under $100 million, while 39% have sales of between $100 million and $999 million, and another 39% at $1 billion and above. Forty-four percent of companies are publicly held (including 58% on the NYSE) and 57% maintain at least one foreign office, with 19% boasting locations in more than 20 countries worldwide.

For a related trends survey, see Kroll Ontrack’s 2008 Electronic Discovery Trends Survey or this discussion on e-discovery trends in the forum.

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Register today for a complimentary EXHIBITS ONLY PASS or for one of the LegalTech 2009 educational packages. Learn more by visiting www.legaltechshow.com or calling 212-457-7905.

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What is a keyword search and how do I design an effective keyword search?

Steve Burgess explains keyword searches - what they are, how to design an effective search, and differences between electronic data discovery (EDD) and computer forensics.
Click here to view the embedded video.

Steve Burgess is a computer forensics expert. He can be reached at Burgess Forensics.

Can you recover email?

Steve Burgess explains what can and cannot be recovered from different kinds of email programs, such as Outlook, Eudora, and Webmail.

A substantial number of documents in e-discovery are e-mails. For this reason, it is espcecially important to understand whether deleted emails are recoverable and available for e-discovery.

Email recovery is important in all cases, especially employment cases. Steve Burgess does a good job of explaining the basics of email recovery in this short video.

Steve Burgess is a computer forensics expert. He can be reached at Burgess Forensics.