These tips may be useful to attorneys in family law cases where email, text messages, or FaceBook communications may be an issue, but often the parties don’t have much money. As family law attorneys know, money spent on e-discovery means less money available to pay the attorney’s fees.  Thus, attorneys on both sides may have an incentive to spend less money fighting over e-discovery and work out e-discovery issues in a less expensive manner.

If you have any other tips regarding inexpensive e-discovery, please add them to the conversation. Read the conversation here: Cheap E-Discovery: Inexpensive E-Discovery Tips.

In short, as the world increasingly uses computers for communications and tracking information, evidence in lawsuits is increasingly found on computers and other electronic media. Now consider how each document might have multiple versions, each email includes a copy of the message it replies to, how quickly documents and emails can be created, and how quickly the amount of information can be duplicated as its sent back-and-forth or copied to new locations.

Parties in litigation can’t afford to pay their attorneys to analyze the equivalent of 100,000 pages on a computer, and attorneys are required to scan documents for privileged or relevant information during the litigation discovery process. So when a party in a lawsuit tells the attorney it can’t afford to pay $80,000 in legal fees just to analyze all the documents and emails stored on a computer system, what should the lawyer do? This is the question that courts and attorneys are wrestling with, as they have been adopting new rules and procedures to handle these new challenges.

The blog takes a clever approach to the topic. Each post discusses an e-discovery case that involves an e-discovery mishap, generally by a company employee. It discusses the conduct that constituted the mishap and then offers its “e-lesson” — a suggestion on how to learn from the mistake and avoid it happening to you.

Fernando M. Pinguelo, a New Jersey attorney and Seton Hall law professor, oversees the blog. Law students across the country contribute to the blog’s content.

The case has special importance for understanding the application of Fed. R. Evid. 502 because the case was written by Judge Baylson, who was active in the development of Fed. R. Evid. 502. Judge Baylson served as Liaison from the Advisory Committee on Civil Rules and as a non-voting member of the Advisory Committee on Rules of Evidence of the Judicial Conference.

Applied Discovery provides a helpful summary of this case:

Plaintiff claimed to have inadvertently disclosed over 800 electronic documents that were privileged. Defendant sought an order that privilege had been waived due to plaintiff’s careless production and delay in claiming privilege. In a Solomon approach, the Court determined that the inadvertently produced privileged documents that were promptly added to the privilege log pursuant to Fed. R. Civ. P. 26(b)(5) would be returned to the plaintiff due to the interests of justice factor analysis under Fed. R. Evid. 502.  Defendant had not met its burden of proof in showing any prejudice from having to return the documents.

Read Applied Discovery’s full case summary here.

For more on this subject, consider Leonard Deutchman’s article First Take on Federal Rule of Evidence 502 examining the development of FRE 502 and its treatment in Rhoads Industries. Deutchman also wrote Losing the Balance of Rule 502, discussing whether the judge’s use of the analytical tools was flawed, or whether the test for waiver is itself flawed.

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 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.

Here is my prediction for changes in the e-discovery landscape during the coming year.

E-Discovery plans will become standard at large corporations.

Companies are increasingly realizing the need to have an e-discovery preparedness plan, which includes procedures for the routine destruction of records and documents, steps to implement a litigation hold, and a documented process for e-discovery once litigation occurs. Large and Frequently litigated companies were the first to establish litigation preparedness plans. Large companies will follow, with smaller companies slowing adapting over the next few years.

Infrequently litigated companies will increasingly utilize e-discovery consultants.

Companies first reaction to FRCP e-discovery rules was to figure out e-discovery on their own. This is great for frequently litigated companies. But companies that are rarely in litigation are finding it is not cost effective to have e-discovery staff on payroll.

Small law firms and solo practice attorneys will increasingly use e-discovery in their cases.

Early adopters, those who use e-discovery in litigation, generally included litigators in large, expensive cases or cases clearly necessitating electronic evidence.  But many attorneys simply ignored electronic evidence, possibly because of the complexity of e-discovery and the cost of e-discovery.

As e-discovery awareness improves, and e-discovery solutions get cheaper, mainstream attorneys are increasingly utilizing e-discovery to find evidence in their cases. For example, family law attorneys are starting to see the value of emails in Gmail and Hotmail accounts. Of course, technology-adverse attorneys may remain resistant to e-discovery; these are the attorneys who have refused Microsoft Word because “WordPerfect will do just fine, thank you.”

E-Discovery pricing models will change.

Should e-discovery be based on the amount of data collected, the amount of data reviewed, the number of custodians, or some other factor? The electronic discovery industry is currently wrestling with these questions and some vendors will likely make changes in 2009, if only to differentiate themselves from other e-discovery vendors.

E-Discovery will increasingly expand to include evidence on the internet.

People are increasingly placing information on the internet. This includes what people post to social networking sites (FaceBook, MySpace, LinkedIn, etc.), web mail providers (Gmail, Hotmail, Yahoo Mail, etc.), online forums, wikis, online office suites (Google Docs, Zoho Office, ThinkFree, Ajax13, etc.). As more information gets posted online, attorneys will increasingly seek online data and computer forensic experts to collect the online data.

E-discovery specialization will increase.

Currently, most e-discovery vendors are generalists. E-discovery is so new that there hasn’t been time for specialization. But as the e-discovery industry gets saturated with vendors, companies will start differentiating by specialization. Further, clients will want vendors to have experience in an e-discovery area before they are retained. For example, every vendor will be able to work with Microsoft Outlook. But when a company needs help with a Cray computer, a 50,000 computer network, or encrypted iPhone records, the company will want a vendor with experience and tools for that niche.

Law firms will increasingly establish cross-function e-discovery teams.

As e-discovery becomes more popular, law firms need to have a team that can respond to e-discovery projects. Teams will be comprised of attorneys, paralegals, and IT professionals who can work together to respond to e-discovery tasks that arise from the firm’s litigation.

The electronic discovery industry will continue to grow.

The increasing utilization of e-discovery in litigation will result in higher demand for attorneys who understand e-discovery and vendors who can do the technical e-discovery work. E-discovery is in its infancy, and it will experience another growth spurt in 2009.

That’s my prognostication. What electronic discovery trends or changes do you think will occur in 2009? Leave comment below or talk in the eDiscovery Forum.

. . .

I deleted the remainder of this post and the poll because of a persuasive and gracious comment (see below) from Craig Ball, one of the people originally named in the post as a rockstar. When creating the poll, I failed to consider that

1. the poll failed to include a number of individuals with worthy contributions to e-discovery law, e-discovery best practices, and the e-discovery community in general; and

2. the poll compared individuals to each other, which could result in hard feelings.

The purpose of the poll was to give those who are new to e-discovery some new sources they hadn’t considered, new blogs to follow, and new written works to discover. But I fear that that goal could be over-shadowed by problems. For this reason, the poll has been removed.

In the future, I may publish a list of e-discovery authorities that doesn’t have the problem of comparing rockstar to rockstar. The goal of the list will be to help newcomers to the e-discovery community.

UPDATE: There is a growing list of e-discovery rockstars in the forum.

The report is an international survey of in-house counsel and their practices for managing electronically stored information (ESI) in litigation and internal investigations. The report also separates the findings between the United States and United Kingdom.

The report notes that people are becoming more aware of e-discovery and more states are enacting laws to govern e-discovery.

The report notes a number of interesting results. For example:

United States companies spent an average of $437,000 on e-discovery, which includes planning and practice management. Compare that to U.K companies that spent an average of £208,000 on e-discovery.

You can obtain a copy of Kroll Ontrack’s 16-page Second Annual ESI Trends Report by filling out the form here: 2008 ESI Trends Report.

The 2007 version of the ESI Trends Report is available here: 2007 ESI Trends Report.