Patel v. Havana Bar, Restaurant & Catering, No. 10-1383, 2011 WL 6029983 (E.D. Pa. Dec. 5, 2011)

In this opinion addressing the parties’ cross motions for sanctions, the court ordered an adverse inference for defendants’ failure to preserve relevant video surveillance footage and an adverse inference for plaintiff’s failure to preserve relevant witness statements.  For plaintiff’s other discovery violations, including delayed and piecemeal production of witness statements and failure to timely produce a full copy of the relevant police report, as well as for the spoliation of witness statements, the court ordered re-deposition of several witnesses at plaintiff’s expense.  The court also awarded defendants’ attorneys fees and costs “for the time and effort they expended in attempting to obtain discovery that they were entitled to receive.”

Plaintiff was injured when he “fell” from a second story balcony/loft at defendants’ bar and restaurant. Whether plaintiff fell or jumped was apparently in dispute.  There was also a question as to whether plaintiff was intoxicated at the time of his “fall.”

Defendants recorded video surveillance near the time of plaintiff’s fall which was viewed by the restaurant owner on the night of the accident.  He claimed the video did not reveal how the fall occurred. At deposition, the owner explained that he had attempted to copy the video but was unable, despite a call to the system’s provider.  He further stated that although the system could print still images, he did not print any.  Thus, the video was automatically recorded over and no footage was preserved.  The court found that spoliation had occurred.  Accordingly, following its identification of the relevant considerations and after noting that “even ‘negligent destruction of relevant evidence can be sufficient to give rise to the spoliation inference,” the court ordered an adverse inference instruction.

The court’s opinion also addressed defendants’ motion for sanctions.  Specifically, it was revealed that a year after the accident, in September 2008, plaintiff’s sister solicited, via Facebook, witness statements in support of her brother’s case.  Plaintiff’s sister was explicit regarding the type of information sought, specifically asking for comments refuting the idea that plaintiff was intoxicated.  Approximately two years later (in 2010), plaintiff’s sister sought additional statements but this time asked for information indicating that plaintiff was intoxicated and that defendants “recklessly continued to serve him drinks.”  She specifically indicated that any statements that accused plaintiff of jumping from the balcony would not be included in her collection.

Neither the 2008 nor 2010 statements were provided to defense counsel during the initial discovery period. When the existence of the statements was discovered during a deposition, they were produced in a “piecemeal” fashion, and only immediately prior to each witnesses deposition. No 2008 statements were ever produced and the family and counsel provided conflicting evidence over who had possessed the statements and when.  Plaintiff’s counsel also failed to timely produce a police report of the incident and, when it was produced, failed to include relevant witness statements (which cast doubt on plaintiff’s claim that he fell) or plaintiff’s guest check from the evening of the accident.  The court found this to be a violation of plaintiff’s Rule 26 obligations following discussion of the requirements for initial disclosures.

Regarding the 2008 witness statements, the court found that spoliation had occurred.  Accordingly, an adverse inference instruction was warranted.  Further, for the delay in production of the 2010 statements (and again noting the spoliation of the 2008 statements), the court ordered that several witnesses be re-deposed at plaintiff’s expense.  The court also awarded defendants’ attorneys fees and costs “for the time and effort they expended in attempting to obtain discovery that they were entitled to receive.”

Although plaintiff’s counsel was not separately sanctioned, the court was clearly displeased with counsel’s discovery behavior and specifically took issue with counsel’s failure to initially disclose the existence of the witness statements and with the belated disclosure of those statements as well as the incomplete police report.  The court also criticized counsel’s claims that the witness statements were work product in light of the delay in raising the claim and the absence of a privilege log.

A copy of the full opinion is available here.

Background:

Court Grants Cross Motions for Spoliation Sanctions, Imposes Adverse Inference Against Both Parties
Source: original article
Author: K&L Gates
Categories: Electronic discovery, e-discovery, ediscovery

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Naaco Materials Handling Group, Inc. v. Lilly Co., No. 11-2415 AV, 2011 WL 5986649 (W.D. Tenn. Nov. 16, 2011)

In this case, the court found that defendant “failed to take reasonable steps to preserve, search for, and collect potentially relevant information . . . after its duty to preserve evidence was triggered by being served with the complaint” which may have resulted in the destruction of relevant evidence.  Further, defendant failed to present an adequately prepared and knowledgeable 30(b)(6) deponent.  Accordingly, sanctions were imposed, including, among other things, additional discovery, additional forensic imaging at defendant’s expense, and monetary sanctions.

Plaintiff accused defendant of illegally accessing its proprietary website on over 40,000 occasions.  Early in the litigation process, the court granted plaintiff’s motion for expedited discovery which  resulted in an order allowing plaintiff’s expert to conduct a forensic examination of defendant’s computers to determine which, if any, were used to access plaintiff’s proprietary information and to make a copy of any hard drive on which such access was detected.  Evidence of access was found on 17 of the 35 computers subject to examination.  As litigation progressed, and in particular following the deposition of defendant’s 30(b)(6) deponent, plaintiff became concerned that relevant information had been lost and moved to prevent further spoliation and for defendant to bear many discovery-related costs.

The court’s opinion identified several discovery violations, including defendant’s failure to adequately and timely disseminate a legal hold notice; defendant’s failure to “to prevent emails from being deleted, to prevent data from being overwritten, or to identify and preserve backup tapes which might contain the only electronic evidence of access to [plaintiff’s] secure dealer website;” and defendant’s failure to “collect evidence from the key players or to search key players’ computers to see if ESI existed or had been deleted.”  Further, defendant “left collection efforts to its employees to search their own computers without supervision or oversight from management” and took no effort to follow up with its employees or to document any of its search and collection efforts.  Defendant also failed to provide an adequately prepared 30(b)(6) deponent.  Accordingly, the court determined that defendant was “at a minimum, negligent in discharging its discovery obligations.”  The court noted, however, that plaintiff did not produce proof that relevant evidence was in fact destroyed and that the extent of prejudice was therefore in question; more substantial sanctions were therefore not warranted.  Nonetheless, the court found that lesser sanctions were appropriate.

Noting that the sanctions ordered were necessitated by defendant’s preservation and collection failures, the court ordered that defendant bear the cost of a second 30(b)(6) deposition; that defendant bear the cost of the forensic examinations and imaging already undertaken; that defendant bear the costs of additional analysis of nine of defendant’s employees’ computers which were used to access plaintiff’s website; that defendant bear the costs of imaging of all computers in defendant’s service department (where plaintiff provided proof that certain software “which would only be needed by the service department” had been downloaded); and that defendant pay monetary sanctions equal to plaintiff’s reasonable costs, including attorney’s fees, associated with bringing the present motion.  Defendant was further ordered to provide a detailed affidavit outlining its preservation and collection efforts and certification that automatic delete functions had been suspended and that backup tapes containing unique evidence were also preserved.

The court concluded:

Lilly failed to take reasonable steps to preserve, search for, and collect potentially relevant information, particularly electronic data, after its duty to preserve evidence was triggered by being served with the complaint.  Lilly’s failure to take steps to preserve evidence may have resulted in the destruction of relevant evidence.  In addition, Lilly failed to present an adequately prepared and knowledgeable 30(b)(6) deponent. Therefore, the sanctions set forth in this order are appropriate.

A copy of the full order is available here.

Background:

Sanctions Ordered for Failure to Adequately “Preserve, Search for, and Collect Potentially Relevant Information”
Source: original article
Author: K&L Gates
Categories: Electronic discovery, e-discovery, ediscovery

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United Cent. Bank v. Kanan Fashions, Inc., No. 10 CV 331, 2011 WL 4396912 (N.D. Ill. Mar. 31, 2011); United Cent. Bank v. Kanan Fashions, Inc., No. 10 C 331, 2011 WL 4396856 (N.D. Ill. Sept. 21, 2011)

In this case, the magistrate judge recommended sanctions against defendants for their bad faith spoliation of a relevant server where the evidence strongly suggested that defendants arranged for the sale of the server to company in Dubai, which resulted in the unavailability of its admittedly relevant contents.  The magistrate judge declined to sanction defendants’ attorneys, however, where the evidence indicated that they made efforts to ensure preservation but were misled by their clients and unaware “of what was going on behind the scenes.”

Plaintiff alleged that defendants were in default on several loans and sought damages accordingly.  In the course of discovery, defense counsel repeatedly informed defendants of their obligation to preserve relevant information.  Despite their obligation to preserve and their assurances to counsel that all appropriate efforts were being undertaken, defendants took steps to ensure the unavailability of a relevant server which was maintained in one of defendants’ warehouses.  The details of defendants’ efforts are numerous and complex.  Summarizing broadly, when defendants experienced significant financial problems and defaulted on both the lease of the at-issue server and the loan related to the warehouse in which it was stored, Defendant Shah (who controlled the four corporate defendants) entered into an agreement for a “friendly foreclosure” on the warehouse and for the foreclosing bank to purchase the server’s lease (which was owned by a different bank and also in default) and to resell the server to Shah.  This agreement was reached after plaintiff’s complaint had been filed and after defendants had been informed of their duty to preserve.  Despite this, the arrangements for the bank’s purchase of the lease and resale of the server to Shah were not revealed to defense counsel.  Rather, defendants’ attorneys were assured that preservation was ongoing and repeated these assurances to the court and to the plaintiff, without correction or clarification from defendants.  When counsel eventually learned that the server had been left at the warehouse following defendants’ eviction and was in the possession of the bank, defendants assured counsel that access would not be a problem; such assurances continued for several months.

When it was finally revealed that the server had been left in the warehouse and had not been accessed (negotiations for the terms of the purchase and resale had been ongoing), the court ordered defendants to obtain the server or a forensic copy within a matter of weeks.  Several days later, defendants announced that the server was sold by the bank to a company in Dubai.  The details surrounding the sale were quite unusual, however, and led the magistrate judge to conclude that defendants had been involved (or had fabricated the sale).  Upon news of the sale, plaintiff moved for sanctions.

Following extensive analysis of the facts, the magistrate judge found that defendants were “at fault” for the spoliation and had acted “willfully and in bad faith.”  The magistrate judge also concluded that defendants deliberately withheld information from counsel and allowed them to make misrepresentations to the plaintiff and the court.

Plaintiff also sought sanctions against counsel, alleging that that they “failed to take an adequately active role in supervising their client’s discovery obligations.”  While the magistrate judge acknowledged that counsel could have done more and should not have accepted defendants’ assurances that they were upholding their discovery obligations, he concluded that their actions were not sanctionable.  In so holding, the magistrate judge reasoned that counsel had issued an initial litigation hold, had “continuously” reminded defendants of their discovery obligations, and had repeatedly instructed defendants to move the server to a more secure location.  Meanwhile, he pointed out, “Defendants were working against them with their own scheme to avoid producing the warehouse server.”  The analysis also included a discussion of Zubulake v. UBS Warburg LLC, 229 F.R.D. 422 (S.D.N.Y.2004) and Qualcomm, Inc. v. Broadcom Corp., No 05–cv–1958–B, 2010 WL 1336937 (S.D.Cal. Apr.2, 2010)—two cases in which counsels’ supervision of discovery was also at issue.

The magistrate judge recommended that the District Court order defendants to reimburse plaintiff for all expenses and fees related to the Motion for Sanctions and that defendants “be barred from introducing any evidence at trial regarding information on the server, and that the jury be instructed that Defendants’ failure to preserve the server may be considered evidence that the server contained information unfavorable to Defendants’ position.”

Upon review, the District Court adopted the recommendations of the magistrate judge, except to remand for a determination of whether the magistrate judge intended to sanction all six defendants, or only those most closely involved in the sanctionable behavior.

A copy of the Magistrate Judge’s Report and Recommendation is available here.

A copy of the District Court’s order is available here.

Background:

Court Sanctions Defendants for Elaborate Spoliation, Declines to Sanction Misled Counsel Unaware of “What was Going on Behind the Scenes”
Source: original article
Author: K&L Gates
Categories: Electronic discovery, e-discovery, ediscovery

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Failure to properly preserve electronic evidence continues to provide at-risk litigants with the ability to steer the court from scrutiny of the merits, and drastically shift the balance of litigation leverage.

The latest example of this is NVE, Inc. v. Palmeroni out of the District of New Jersey. This case involved NVE’s claims of breach of fiduciary duty against its former employee Palmeroni. At least on the specific Complaint allegations, NVE’s case against Palmeroni seems formidable — while working as a NVE salesman, the defendant allegedly entered into secret kickback arrangements with product purchasers, and formed a dummy entity with another NVE employee to divert sales of NVE’s products for their own benefit. Palmeroni was terminated in 2006 and later sued by NVE. Seems like a pretty good case, if the court and a jury could get to it.

But the defendant, not unexpectedly, had other ideas. After initial discovery and communications between counsel raised concerns, Palmeroni moved for spoliation sanctions claiming the NVE has discarded relevant documents and destroyed key sources of relevant information before the litigation commenced but after it was on notice of the potential for litigation. District Judge Esther Salas granted the motion, directing an adverse inference instruction and monetary sanctions in the form of attorneys fees incurred to pursue the missing evidence and costs of the motion. The Court specifically found that NVE:

1. failed to institute and document a litigation hold as of the date of the defendants termination — years before the complaint was filed;
2. permitted the retirement and effective destruction of an invoicing and sales data system at or around the time of the defendant’s termination;
3. disposed of relevant stored documents — purportedly in the ordinary course of business — several years after the litigation hold was triggered, without knowledge of or input from counsel; and
4. delayed in notifying the defendant of the destruction of the evidence until well into the discovery process.

Finding this conduct "grossly negligent" under the circumstances, Judge Salas stressed that the plaintiff "has been unable to clearly articulate the steps taken to preserve, search and produce the requested discovery." Additionally, in addressing the litigation hold deficiencies and NVE’s somewhat vague assertion that they did circulate "an email" requesting preservation, the Court noted:

this Court has no proof of the content of this communication nor can the Court be convinced that [plaintiff’s CFO's] memory is correct. Moreover, NVE’s counsel, …. hired in or around May 2006, admits that it failed to issue a written litigation hold. As to collection and review, NVE’s CFO, Mr. Jensen, who is not a licensed attorney, has been responsible for not only gathering documents to produce in discovery but making relevance calls without the assistance of counsel. The Court was extremely surprised to learn that Mr. Jensen has received of assistance from counsel, nor has any counsel … visited NVE over the five years this litigation has been pending to review documents. The Court cannot fathom how NVE can be confident that it has produced all relevant information and that no relevant information has been destroyed when there has not been a single attorney reviewing documents to confirm this fact is true.

The NVE opinion reinforces several now fundamental tenets of e-discovery and spoliation law:

• litigation hold obligations can arise years before a case is filed;
• the termination of an employee, under certain circumstances can trigger a litigation hold obligation;
• the inability to document and fully explain the litigation hold process can be fatal to a party’s contention that an effective hold was instituted;
• negligent conduct can support a spoliation finding and sanctions, including adverse inference;
• written litigation hold notices and effective follow up provide greater protection in the event of loss of evidence;
• whenever possible, parties should involve their counsel in all aspects of the litigation hold process, and particularly in decisions to retire systems, discard potentially relevant documents and replace or repurpose relevant computer software and hardware; and
• proper initiation and execution of a litigation hold is an obligation shared by parties and their counsel.

Prior posts discussing litigation hold obligations can be found here.

Mark S. Sidoti Chairs the Gibbons E-Discovery Task Force.

Background:

New Jersey District Judge Grants Spoliation Sanctions Citing Negligent Litigation Hold Procedures
Source: original article
Author: Mark S. Sidoti
Categories: Electronic discovery, e-discovery, ediscovery

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Even after a particular case has concluded, the risk of sanctions arising from e-discovery violations persists. Green v. Blitz U.S.A. was one of many products liability suits alleging injuries resulting from the defendant’s failure to equip its gas can with a “flame arrester.”

Over a year after the conclusion of the trial and entry of final judgment in Green, the court entered monetary and non-monetary sanctions against the defendant for its failure to adequately preserve and identify potentially relevant documents. Because the matter had closed, many of the non-monetary sanctions under Rule 37(b)(2) were not available. Accordingly, the court fashioned a creative non-monetary sanction requiring the defendant (1) to provide the sanctions opinion to all plaintiffs in any litigation against the defendant for the prior 2 years; and (2) to file the opinion with any court in any new lawsuit in which the defendant is a party for 5 years following entry of the opinion.

Like many opinions issuing sanctions for e-discovery violations, at first glance, Green appears to present somewhat extreme facts reflecting the defendant’s electronic discovery failures:

• The defendant’s employee charged with the collection of relevant information testified that he was computer illiterate;
• That employee did not perform any electronic search for emails or talk to the IT department in connection with his search;
• No litigation hold directive was given to employees; and
• Over the course of the relevant period, numerous emails were sent by the IT department instructing employees to delete old emails.

The result: numerous relevant and inculpatory documents were never produced (and others, likely, were not preserved).

Long after the Green trial concluded, some of these documents were produced in another suit against the defendant arising out of the same alleged product defect. Perhaps most notably, these documents included an email received by the employee charged with the document collection with “Flame Arrester” as the subject which — contrary to defendant’s defense at trial — admitted that the relevant technology existed. As to this document, the court found that “[a]ny competent electronic discovery effort would have located this email.”

While the facts giving rise to the defendant’s e-discovery failures seem extreme, Green provides valuable lessons for executing any e-discovery preservation and collection plan. For example, Green once again highlights the dangers of not having developed a litigation hold procedure and issuing an adequate litigation hold when appropriate. Likewise, while charging a computer illiterate employee with sole responsibility for discovery collection is an obvious gaffe, Green should nonetheless serve as a reminder that choosing appropriate personnel to work in conjunction with counsel is critical to a defensible collection plan. Finally, given the nature of the sanctions here, parties involved in repeated litigation should be aware that they could continue to face consequences from e-discovery violations even well after the conclusion of the litigation in which they occurred.

Jennifer A. Hradil is a Director on the Gibbons E-Discovery Task Force.

Background:

E-Discovery Sanctions May Be Entered and Have Consequences Long After Litigation Concludes
Source: original article
Author: Jennifer A. Hradil
Categories: Electronic discovery, e-discovery, ediscovery

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On April 27, 2011, the Court denied Defendant Kolon Industries, Inc.’s (“Kolon”) motion for sanctions against E.I. du Pont De Nemours and Company (“DuPont”) for alleged spoliation of four employees’ e-mail accounts and documents in litigation regarding trade secret misappropriation, theft of confidential information and other related business torts. E.I. du Pont De Nemours and Co. v. Kolon Industries, Inc., Civil Action No. 3:09cv58, 2011 U.S. Dist. LEXIS 45888, at *4 (E.D. Va. Apr. 27, 2011). In essence, the Court concluded there was no spoliation because DuPont’s efforts to implement and update litigation hold notices – as well as the company’s commitment to its electronic discovery obligations – were reasonable.

The underlying litigation was based upon the alleged actions of a former DuPont employee, who signed a nondisclosure agreement when he was hired and an employee termination statement in February 2006 where he affirmed that he had returned all documents and would not divulge any trade secret or confidential information. Id. at *5. Despite that affirmation, he retained various computer files containing secret and confidential trade information and then was hired by Kolon as a consultant Id. at *4-6. After DuPont became aware in April or May 2007 that its former employee was consulting for Kolon, DuPont issued its First Hold Order in June 2007, which identified eighteen (18) “key individuals” in the relevant business unit; a Second Hold Order to 2,500 employees when it instituted the litigation in February 2009, and a Third Hold Order, mere days after Kolon filed its Answer and Counterclaim in April 2009. Id. at *7-10.

Consistent with its e-mail deletion policy, DuPont had deleted the former employees’ e-mails and also deleted the employees’ documents, leading to Kolon’s motion for sanctions. Id. at *3. In essence, Kolon argued that DuPont issued its First Hold Order over a year too late; that DuPont’s First Hold Order should have been circulated to a wider group of employees; and, that the deletion of one former employee’s e-mail account occurred under “rather suspicious circumstances.” Id. at *22. Kolon alleged DuPont’s actions resulted in “substantial prejudice” and asked the Court to make various factual findings related to the alleged spoliation, or to issue an adverse inference jury instruction. Id. at *22, 25-26.

The Court concluded that DuPont did not violate its duty to preserve documents. Id. at *39-40. Instead, the Court reasoned that DuPont had no reason to know that the documents and information allegedly within the possession of the former employees “would be relevant, or potentially relevant, to the litigation against [its former employee] or Kolon.” Id. at *40. Moreover, the Court determined that the scope of DuPont’s duty to preserve was satisfied in its First Hold Order because “the universe of DuPont’s knowledge was quite limited at that point,” and the company had no reason to identify the former employees as “key players.” Id. at *41. Overall, DuPont did not have a duty to preserve the former employees’ email accounts, so no spoliation occurred. Id. at *46.

There are some practical pointers to draw from DuPont’s actions, each of which contributed to the Court’s denial of Kolon’s motion for sanctions:

• First, DuPont promptly hired counsel to assess its litigation hold obligations before it commenced litigation.
• Second, DuPont refreshed its litigation hold notice at several points throughout the litigation and did so promptly.
• Third, DuPont ensured that its foreign affiliates were aware of the litigation hold, demonstrating its recognition of the need to educate foreign employees about the U.S. legal process and the duty to preserve.
• Fourth, the Court recognized that DuPont’s employees adequately transferred information to their successors upon leaving the company or changing positions, some of which was ultimately produced to Kolon.
• Lastly, DuPont had a formal policy for deleting the email accounts of its former employees. Although the relative strength of that policy is debatable, DuPont’s institution and maintenance of a formal policy weighed in its favor.

Overall, DuPont demonstrated to the Court that its reasonable, professional attempts to preserve electronically-stored information were appropriate — and that its duty to preserve was satisfied — consequently, there was no spoliation to sanction.

Jennifer Marino Thibodaux is an Associate on the Gibbons E-Discovery Task Force.

Background:

Motion for Sanctions Denied Due to DuPont’s Reasonable, Professional Efforts to Implement and Update Litigation Hold Notices
Source: original article
Author: Jennifer Marino Thibodaux
Categories: Electronic discovery, e-discovery, ediscovery

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As interest in e-Discovery continues to grow, there’s no question what’s the driving force that grabs the headlines. Sanctions, of course.   It is the water cooler of the ESI world.  Sanctions capture clients’ interest, and motivates unwitting attorneys to pay attention to the growing field that is e-discovery. And while it may be known that significant sanctions have recently been imposed for e-discovery violations, what is missing is perspective. How often are sanctions requested? When will they be imposed? How severe will the punishment be? What did the client and/or attorney do wrong?

A recent study by three King & Spalding attorneys that was published in the Duke Law Journal, attempts to provide some of this perspective. A full copy of the article can be found here. They identified 401 e-discovery cases where sanctions were sought dating back to the early 1980′s and through January 1, 2010. Of those cases, sanctions were awarded in 230 cases.

How many cases are there today? Likely many more. It should be no surprise that the number of e-discovery sanction cases has been growing in recent years — and exponentially.  As recently as 2003, there were only seven e-discovery sanction cases. In 2009? That number spiked to 111. To put this in perspective, these 111 cases outnumber the total for all of the years prior to 2005 combined, and accounted for over 25% of the all cases ever reported.

So sanctions are being sought and awarded on average in over fifty percent of the cases (401/230).  But how severe are the penalties?  Courts awarded in excess of $ 5 million in five of the cases identified, and in excess of $ 1 million in four of the cases. Courts also terminated the action, either by dismissal or default judgment, in thirty-six of the identified cases.

Note, however, that the above cases involved extreme misconduct. Of the thirty-six cases that courts terminated, thirty-four involved willful misconduct or bad faith behavior. Only two involved gross negligence, and none involved negligence. Moreover, these extreme examples are the minority. They only account for ten percent of the e-discovery sanction cases, and twenty percent of the cases where sanctions were awarded.

The study also revealed that defendants were sanctioned three times more often than plaintiffs. This makes sense because for defendants are more likely to hold ESI relevant to the lawsuit and to face broad discovery demands from plaintiffs. The most common misconduct was failure to preserve ESI followed by failure to produce and failure to produce in a timely fashion.

Judicial sanctions of counse — whether through money or orders to attend certain legal education classes – are also increasing, though this is still considered a drastic remedy. The study identified thirty cases where counsel was sanctioned, including seven instances in 2009 alone. The vast majority of these cases involved a pattern of misconduct as opposed to isolated incidents. The predominant sanction was an award of attorneys’ fees and costs, which ranged from $ 500 to $ 500,000.

The bottom line:  sanctions for e-discovery are on the rise and they can be exorbitant. Clients and practitioners can take some solace, however, in two facts:  (a) the most severe sanctions only result from the most egregious misconduct; and (b) while sanctions may be growing, they still remain relatively small in number and infrequent.

For additional thoughts on this topic and the Duke Law Journal article, please visit the excellent article in the ABA Journal by Debra Cassens Weiss or the report from the Catalyst E-Discovery Blog.
 

Background:

The Litigator’s Guide to E-Discovery Sanctions: Who Pays the Piper When ESI “Disappears”?
Source: original article
Author: Kevin Burns
Categories: Electronic discovery, e-discovery, ediscovery

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Victor Stanley, Inc. v. Creative Pipe, Inc., No. MJG-06-2662 (D. Md. June 15, 2011)

In another chapter of the Victor Stanley saga, the defendant objected to payment of the remaining balance of the monetary sanction ordered as a result of its spoliation of evidence (see Victor Stanley II).  Specifically, the defendant had been ordered to pay a monetary sanction “equivalent to Plaintiff’s fees and costs ‘associated with all discovery that would not have been un[der]taken but for Defendant’s spoliation, as well as the briefings and hearing regarding Plaintiff’s Motion for Sanctions.’”  The total award of sanctions amounted to $ 1,049,850.04.  Defendant objected to payment of fees which it alleged were unrelated to its spoliation.  The District Court disagreed and found that the recommended award was proper.  Accordingly, defendant was ordered to pay the remaining balance of the sanction, $ 571,440.12, by July 15, 2011.

A copy of the order is available here.

Background:

Court Rejects Objection to Portion of Monetary Sanctions, Orders Payment of 1,440.12 by July 15
Source: original article
Author: K&L Gates
Categories: Electronic discovery, e-discovery, ediscovery

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PIC Group, Inc. v. LandCoast Insulation, Inc., No. 1:09-CV-662-KS-MTP, 2011 WL 2669144 (S.D. Miss. July 7, 2011)

A Special Master determined that defendant’s discovery failures were largely the result of a “callous and careless attitude” rather than a “craven effort to hide or destroy information”, save one instance of intentional deletion by defendant’s Manager of Legal Affairs.  Adopting in part the Special Master’s recommendations, the court ordered sanctions, including production of the non-privileged contents of the manager’s hard drive and payment of plaintiff’s attorney’s costs and fees, with the condition that payment be rendered by defendant, not its insurance company.

A Special Master tasked with investigating defendant’s discovery efforts determined that several discovery failures had occurred, including spoliation.  Indeed, when describing his initial findings, the Special Master characterized defendant’s efforts as “wholly devoid of competence, yet only once motivated by guile.”  Among the failures reported were: 1) a lack of evidence of “any corporate policy, procedure, or concerted effort” on the part of defendant to “preserve electronic data;” 2) a lack of evidence that defendant or counsel “‘engaged anyone to preserve, collect, or examine potentially responsive ESI until long after’ it should have been” (the Special Master was able to easily locate ESI that defendant had not previously identified by “simply looking for it, in the same manner that a secretary looks for a document or email”); 3) defendant’s admission that an employee’s laptop had been stolen from his car and that the image of that drive taken before the theft had been lost; and 4) defendant’s admission that another computer had been erased two to three months after the incident from which this suit arose.  Most noteworthy, however, was the discovery that defendant’s Manager of Legal Affairs, a disbarred attorney acting as defendant’s “unofficial general counsel,” used antiforensic software to wipe his hard drive on the day it was collected.  Accordingly, the Special Master recommended sanctions to which defendant objected, particularly on the grounds of proportionality.

Summarized broadly, defendant’s arguments against sanctions were that the manager’s deletion of potentially relevant evidence was not intentional, that none of its discovery failures were the result of bad faith, and that plaintiff suffered minimal prejudice (a fact conceded by the Special Master).  Following consideration of the Special Master’s report and of defendant’s arguments, the court concluded that sanctions were warranted.  In so finding, the court indicated that the primary effects of defendant’s misconduct were “1) the tremendous expense of time and other resources that they have occasioned, and 2) the potential threat to the judicial process posed by such casual disregard for discovery obligations.”  The court cautioned against dismissing such effects as inconsequential, noting that the parties “will easily have rung up over a half million dollars in combined attorney’s fees, expenses, and costs associated with this discovery dispute, and the Court will have expended far more of its resources than it should have over the production of a few documents of questionable worth.”  The court also identified specific actions that warranted sanctions, namely those discussed above.  Regarding the issue of prejudice, the court reasoned that plaintiff had been prejudiced “by having to fight this discovery battle in the first place” and that plaintiff had been forced to incur substantial fees and expenses and was prevented from “timely and appropriate preparation for trial.”

Accordingly, the court declined to shift any portion of the Special Master’s fees to plaintiff; ordered defendant to pay plaintiff’s attorney’s fees and costs incurred as a result of defendant’s discovery failures; ordered production of the contents of the Manager of Legal Affair’s laptop (imaged after the erasure had taken place), save those contents that were subject to attorney-client privilege or which discussed settlement in this matter; and re-opened discovery on a limited basis.  The court declined the Special Master’s recommendation for additional monetary sanctions but adopted the recommendation that those already ordered were to be paid by the defendant and that defendant “shall not seek indemnification or reimbursement from their insurance company.”  In supporting its position, the court noted that other district courts had issued similar orders and reasoned that “[i]f corporate parties believe that they will be indemnified by their liability insurer for sanctions imposed due to misconduct in litigation, the punishment necessarily loses some of its sting.  The court’s primary purpose in imposing sanctions here is to ensure that the party responsible for this discovery dispute bears the resulting costs.”  The court also cited the secondary purpose of deterring such conduct in future, whether by the current parties or any others before the court.

A full copy of the opinion is available here.

Background:

For e-Discovery Efforts “Wholly Devoid of Competence” and for Spoliation, Court Orders Sanctions and Prohibits Indemnification from Insurer
Source: original article
Author: K&L Gates
Categories: Electronic discovery, e-discovery, ediscovery

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Two recent decisions in the same case illustrate that, when it comes to imposing sanctions for spoliation of evidence, what matters is not simply whether you’ve intentionally deleted relevant evidence, but how you go about deleting it, and what the record reflects about your intentions. Although both the plaintiff and the defendant in E.I. du Pont De Nemours and Co. v. Kolon Industries, Inc., Civil Action No. 3:09cv58, demonstrated that the other intentionally destroyed relevant evidence, as is detailed below, the Court sanctioned only defendant Kolon Industries, Inc. (“Kolon”) based on its manifest bad faith (read the decision here). As is discussed in an earlier post on Gibbons’ E-Discovery Law Alert (which you can read here), plaintiff E.I. du Pont de Nemours and Company (“DuPont”) escaped a similar fate based on its demonstrable good faith. In short, this case teaches that the intentional deletion of relevant evidence does not per se lead to sanctions. Rather, the parties’ conduct — or misconduct, as the case may be — must be judged contextually.

Dupont filed a Complaint against Kolon on February 3, 2009, alleging trade secret misappropriation, theft of confidential business information, and conspiracy based on Kolon’s efforts to recruit former DuPont employees and otherwise unlawfully obtain DuPont’s proprietary information. When Kolon produced in discovery screenshots of key employees’ computers taken after they had notice of the Complaint that appeared to show that they marked emails with instructions such as “Delete,” “Need to Delete,” “Remove All” and “Get Rid Of,” DuPont moved for sanctions for spoliation of evidence.

Before deciding DuPont’s spoliation motion, the Court ordered targeted discovery concerning the apparent spoliation, including forensic analysis. In addition to Kolon’s “overall obfuscatory conduct,” the targeted discovery specifically revealed that:

• On February 6, 2009, two days after it learned of the DuPont Complaint, Kolon’s legal department issued its first legal hold to only select upper-level employees, who were advised only that they “might want to provide the order to other personnel,” though nothing in the record demonstrated that the hold order was, in fact, communicated to any other employees at that time.
• On February 10, 2009, Kolon issued its second litigation hold, this time sending it to all employees. However, most of them were South Korean and did not speak English, and the hold was in English. • Shortly after learning of the DuPont Complaint but likely prior to the issuance of the litigation hold, a senior Kolon manager gathered several other employees to discuss “identifying documents on their computers that they may want to consider deleting at a later date.”
• It was not until February 23, 2009 that Kolon issued a third litigation hold to its IT department instructing them to “safeguard documents stored on Kolon’s server by backing up material on tapes and suspending the routine, good faith operation of Kolon’s document retention practices . . . .” Thereafter, Kolon imaged the hard drives of key employees.
• According to DuPont’s forensic analyst, who performed deletion analyses of the computers of thirteen Kolon employees, after February 1, 2009, Kolon’s employees deleted at least 17,811 files and emails (and perhaps hundreds more), many of which were deemed relevant to the case based on keyword searches and a review of recoverable data as well as analyses of file names and metadata (e.g., files with “last written” dates many years before they were deleted).

Based on these facts, the Court found that “key employees . . . intentionally deleted relevant files and email items . . . after Kolon’s duty to preserve had been triggered and with knowledge of the filing of DuPont’s Complaint” — i.e., that Kolon spoliated evidence. Citing “[s]tandard principles of agency law,” the Court rejected Kolon’s argument that its employees’ conduct should not be attributed to it since their actions were “unauthorized,” “outside the scope of their employment,” “not taken . . . to aid Kolon” and “directly contradicted corporate directives.” And although some of the deleted data was recoverable, the Court summarily rejected Kolon’s argument that this mitigated its spoliation, noting that “[t]he fact of deletion has evidentiary significance.”

Notwithstanding the bad faith conduct of its employees, because Kolon attempted to put two litigation holds in place and also implemented a widespread effort to preserve files, and given that many deleted items were recoverable because Kolon preserved certain back-up tapes (thereby minimizing the prejudice to DuPont), the Court declined to enter a default judgment against Kolon. Instead, the Court imposed a “permissive” adverse inference jury instruction and awarded DuPont its attorneys’ fees, expenses and costs related to the motion.

There are several key takeaways from this decision:

• First, written litigation hold notices, which of course should be issued promptly after learning of litigation or when litigation is anticipated, must be issued to all employees who may have documents and information that are reasonably likely to be requested during discovery, and the record should reflect that these key employees received hold notices.
• Second, the litigation hold notice must explain the importance of preserving relevant data and, if any employees do not speak English, the litigation hold notice should be translated.
• Third, in-house IT professionals should be among the first recipients of the hold notice, as they are best positioned to act as guardians of potentially relevant evidence and, as such, they may be able to safeguard data on behalf of the company, insulating the company from any rogue employees who might otherwise spoliate evidence.
• Lastly, both counsel and corporate executives should closely monitor compliance with the litigation hold, particularly if the target of the hold is a foreign company unfamiliar with the preservation obligations imposed by the U.S. legal system.

Taking note of Kolon’s mistakes, and DuPont’s good example (as detailed in this post), will go a long way in insulating your company from spoliation sanctions.

Suzanne Herrmann Brock is an Associate on the Gibbons E-Discovery Task Force.

Background:

DuPont v. Kolon: A Lesson In How To Avoid Sanctions For Spoliation Of Evidence
Source: original article
Author: Suzanne Herrmann Brock
Categories: Electronic discovery, e-discovery, ediscovery

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