Bull v. United Parcel Service, Inc., — F.3d —, 2012 WL 10932 (3d Cir. Jan. 4, 2012)

In this case, the appellate court concluded that “producing copies in instances where the originals have been requested may constitute spoliation if it would prevent discovering critical information,” but found that in the present case, the District Court abused its discretion in finding that spoliation had occurred and in imposing a sanction of dismissal with prejudice.

The plaintiff in this case failed to produce two original notes from her doctor (but did produce copies during discovery).  During trial, when plaintiff’s counsel attempted to introduce a copy of one of the notes, defendant objected on the basis of best evidence.  In the sidebar that followed and in subsequent questioning of the plaintiff by the court, it became clear that there was some confusion between plaintiff and counsel as to the existence of the originals.  Ultimately, plaintiff indicated that the original note “should be” at her home and the there was no reason she did not search for it previously.  This contradicted her attorney’s representation that the plaintiff had been asked for the originals and reported that she could not find them.  Accordingly, the District Court declared a mistrial and invited the defendant to file a motion for sanctions.  Plaintiff produced the original doctor’s notes to the court five days later.  Thereafter, upon consideration of defendant’s motion for sanctions, the District Court invoked its inherent authority and ordered the case dismissed with prejudice.  Plaintiff appealed.

The appellate court’s analysis was lengthy and detailed.  Summarizing broadly, the appellate court first concluded “that–theoretically—producing copies in instances where the originals have been requested may constitute spoliation if it would prevent discovering critical information.”  The court further concluded, however, that the District Court abused its discretion “in ruling that, within its spoliation analysis, Bull intentionally withheld the original documents from UPS.”  A showing of bad faith/intentionality is required to establish spoliation in the Third Circuit.  The appellate court’s finding was based in large part upon its determination that the record lacked a factual foundation to support the premise that plaintiff actually knew that the defendant wanted the originals.

In addition to the question of bad faith/intentionality, the appellate court’s analysis also focused on whether the plaintiff had a foreseeable duty to preserve and produce the original doctor’s notes.  Ultimately, despite some reservations, the appellate court concluded that the District Court did not abuse its discretion in determining that there was a foreseeable duty to preserve the originals, noting that the question was not “whether a particular scenario is possible, but rather whether the duty was objectively foreseeable.”  The appellate court recognized, in footnote, however, a “growing concern not implicated in this case”:

FN12. This highlights a growing concern for us that is not directly implicated in this case.  As electronic document technology progresses, the concept of an “original” document is becoming more abstract.  Moving from the more easily distinguishable photocopy or facsimile to documents created, transmitted and stored in an electronic form means that it will be increasingly difficult to ascertain where the boundary of an objectively reasonable duty to preserve such documents lies.  There are—and increasingly will be—circumstances in which the foreseeability of a duty to preserve the information contained in a particular document is distinguishable—under an objective analysis—from the need to preserve that information in its “original” form or format.  Indeed, arriving at a common understanding of what an “original” is in this context is challenging enough.  Although it does, and always will rest with the courts to preserve the distinction between an objectively foreseeable duty and actual knowledge of such a duty, there is a concomitant obligation that counsel must assume to clearly and precisely articulate the need for parties to search for, maintain, and—where necessary—produce “original” or source documents.  This case gives us one more opportunity to highlight our position that clarity in communications from counsel that establish a record of a party’s actual knowledge of this duty will ensure that this technology-driven issue does not consume an unduly large portion of the court’s attention in future litigation.

The appellate court’s opinion also addressed the District Court’s reliance on its inherent authority to impose terminating sanctions and determined that the court’s decision to dismiss with prejudice was an abuse of discretion.  In addition to finding that several of the relevant factors analyzed by the District Court did not weigh in favor of dismissal, the appellate court also noted the defendant’s efforts “in obfuscating to the District court and this Court the details of its requests for the originals” and concluded that “apart from the merits of the appeal, without the benefit of unclean hands here, UPS should not be the beneficiary of a sanction that we are, under most circumstances, already loathe to affirm.”  Accordingly, the case was reversed and remanded for a re-trial.

A copy of the court’s full opinion is available here.

Background:

Failure to Produce Originals Could be Spoliation in Third Circuit
Source: original article
Author: K&L Gates
Categories: Electronic discovery, e-discovery, ediscovery

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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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In a trademark infringement case involving two restaurants, Katiroll Company, Inc. v. Kati Roll and Platters, Inc. et al., Plaintiff sought a spoliation inference, alleging various discovery abuses involving several types of evidence including social media. Specifically, Plaintiff requested sanctions for the individual Defendant’s failure to preserve his Facebook pages in two different ways. Recognizing that Facebook users change their pages frequently given the nature of the media at issue, Chief Judge Brown of the District of New Jersey crafted a creative remedy, which was based in large part on the level of prejudice to Plaintiff.

Regarding the first Facebook issue, Plaintiff sought PDF versions of Defendant’s Facebook pages before they were taken down pursuant to Plaintiff’s take-down request. The Court declined to sanction Defendants for actions taken at Plaintiff’s request because it would be "unjust."

Plaintiff also sought a spoliation inference because the individual Defendant altered his profile picture on Facebook. The prior picture reflected the infringing trade dress of the restaurant at issue but was not preserved. The Court recited the four requirements for a spoliation inference, which the Chief Judge described as the mildest of sanctions: (1) whether the evidence was in the party’s control; (2) whether the evidence was actually suppressed or withheld; (3) whether the evidence was relevant vis-à-vis the claims or defenses at issue; and (4) whether it was reasonably foreseeable that the evidence at issue would subsequently be discoverable. The Court concluded that the most important consideration in determining what level of fault is required to support the second factor (an issue that is disputed within the District) is the degree of prejudice to the movant. Specifically, the Court concluded that a negligence standard may be appropriate if there was substantial prejudice whereas intentional conduct would be required if minimal prejudice resulted.

The Court had little difficulty finding that Plaintiff met the third requirement. It similarly found that the first requirement was met because "defendants have a discovery obligation to produce [websites]” and “only defendants knew whether the website would be changed." As for the second and fourth requirements, the Court found that, although the individual knew he had to preserve evidence, “it would not have been immediately clear that changing his profile would undermine discoverable evidence" given that a change of a profile picture "changes the picture associated with each and every post that user has made in the past.” Although the Court found that the spoliation was not intentional, the Court also determined that the loss of information was “somewhat prejudicial.” But instead of imposing an adverse inference instruction (as Plaintiff had requested), the Court directed Defendant to post the image of the allegedly infringing picture for a short period of time so that Plaintiff could then print relevant posts; thereafter, Defendant was permitted to re-post the non-infringing picture.

Katiroll demonstrates the Court’s understanding that the nature of Facebook invites changes to postings and pictures, and it teaches that the prejudice to the movant is a significant factor in determining the level of fault required before an adverse inference instruction will be imposed. Katiroll also demonstrates that courts will fashion novel remedies for spoliation in the social media context.

Mara E. Zazzali-Hogan is a Director on the Gibbons E-Discovery Task Force.

Background:

Chief Judge Finds That Alteration of Facebook Page Can Lead to Spoliation Inference
Source: original article
Author: Mara E. Zazzali-Hogan
Categories: Electronic discovery, e-discovery, ediscovery

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Lester v. Allied Concrete Co., Nos. CL.08-150, CL09-223 (Va. Cir. Ct. Sept. 1, 2011); Lester v. Allied Concrete Co., Nos. CL08-150, CL09-223 (Va. Cir. Ct. Oct. 21, 2011)

In this case, significant monetary sanctions were ordered against the plaintiff and his counsel for egregious discovery violations, including intentional deletion of pictures on Plaintiff’s Facebook page per the instructions of Counsel and subsequent efforts to cover those instructions up, among others.

In this wrongful death case, Defendants sought production related to the contents of Plaintiff’s Facebook page, which were presumably relevant to the question of damages suffered by Plaintiff as the result of the tragic death of his wife.  Attached to the request was a picture of the plaintiff "clutching a beer can, wearing a T-shirt emblazoned with ’I ♥ hot moms’ and in the company of other young adults."  Plaintiff’s counsel (with the assistance of his paralegal) determined that the photo likely came from Facebook.  Accordingly, Counsel accessed Plaintiff’s Facebook account and thereafter directed his paralegal to instruct Plaintiff to “clean it up” because “we don’t want blowups of this stuff at trial.”

Because the request for production specifically asked for the contents of Plaintiff’s account “on the day this request is signed,” Counsel also instructed Plaintiff to deactivate his account.  Plaintiff’s response to the request for production, therefore, was that he had no Facebook account on the day the request was signed.  The response was also signed by Counsel.  Thereafter, upon being advised that he was obligated to produce the Facebook materials, Counsel instructed his client (through his paralegal) to reactivate the account.  Plaintiff complied, and following the prior instruction to “clean up” his account, deleted 16 photos before the contents were printed for production by the paralegal (who claimed not to know of the deletions, as did Counsel).  Later, testifying under oath, Plaintiff stated that he had never deactivated his account.

For reasons unknown, Plaintiff’s counsel later forwarded to the defense Plaintiff’s Facebook IP logs which he had acquired directly from Facebook.  Upon examination of the logs, experts for both sides agreed that 16 photos had been deleted.  Accordingly, the court ordered that an adverse inference instruction be given to the jury at trial.

Before trial, Defendants served the above mentioned paralegal with a subpoena duces tecum commanding production of all emails between herself and the plaintiff during the timeframe of the spoliation.  The attendant privilege log and in camera production to the court omitted mention of the email in which the paralegal first instructed Plaintiff to delete photos from his account.  The email was not disclosed until after trial, with the explanation that the omission was the fault of a different paralegal no longer with Counsel’s firm “when, in fact, [Counsel] knew his own misconduct caused the omission.”

At trial, Plaintiff was awarded a significant sum.  Thereafter, Defendants filed several post-trial motions, including a Motion for Sanctions against Plaintiff and Counsel for the above-detailed behavior (among other reasons).

The court concluded that the actions of Counsel and the plaintiff warranted sanctions.  Specifically, Counsel was ordered to pay monetary sanctions equal to the “reasonable expenses, including a reasonable attorneys fee, incurred by Defendants because of [Counsel’s] violation” of court rules by signing the dishonest discovery response.  For Counsel’s omission of the incriminating email from his spoliation privilege log and in camera production and for Counsel’s dishonesty regarding the cause of the omission, the court ordered him to pay monetary sanctions equal to the “reasonable expenses, including a reasonable attorneys fee” incurred by the defendants as the result of his misconduct.  Defendants’ Motion for Sanctions as to Plaintiff was also granted with the amount of the sanction to be determined.

Later, upon submission of Defendants’ Memoranda of Costs and Fees, the court issued a final order containing the specific amounts to be paid: Counsel was ordered to pay $ 542,000 and Plaintiff was ordered to pay $ 180,000.  The court also indicated its intent to refer Counsel’s violations of the Code of Professional Responsibilty to the Virginia State Bar and to refer "matters relating to allegations of perjury on the party of [Plaintiff] to the Commonwealth’s Attorney for the City of Charlotte."

Copies of the court’s relevant orders are available here and here.

Background:

Client & Counsel Sanctioned for Spoliation where Plaintiff was Instructed to “Clean Up” His Facebook Page
Source: original article
Author: K&L Gates
Categories: Electronic discovery, e-discovery, ediscovery

This e-discovery news is syndicated from e-discovery websites and blogs that make their feed available via RSS. Contact us to have your RSS feed added or removed.

The proper preservation of electronic data for discovery has become an increasing source of contention between parties. Two recent cases illustrate the importance of mindfully preserving electronic data during discovery. 

In Gentex Corp. v. Sutter, No. 3:07-CV-1269, 2011 U.S. Dist. LEXIS 122831 (M.D. Pa. Oct. 24, 2011), the district court granted default judgment to the plaintiffs in a spoliation action. Gentex Corporation sued two of its former employees, Brad Sutter and Patrick Walko, for violating non-disclosure agreements. Gentex claimed that Sutter and Walko copied proprietary files when they left the company and shared them with a rival company, Armor. 

In response to the suit, Armor implemented a litigation hold and instructed employees to preserve “all paper documents and electronically stored information concerning the Company’s relationship with Brad Sutter and his work while at the Company.” Armor also obtained a consulting firm to help preserve documents relevant to the litigation. 

Sutter, however, began destroying evidence despite knowledge of the litigation hold. Sutter scrubbed his computer, explaining that he did so “because he was scared because Gentex had sued him.” Sutter destroyed all CD-ROMs containing Gentex information that he possessed and purposely destroyed a thumb drive after his deposition. Sutter also deleted numerous email messages when he was printing them for production to Gentex. 

Similarly, Walko knowingly deleted documents relating to Gentex files on his computer. Walko claimed that various supervisors, including Sutter, instructed him, “Do what you have to do to clean up. If you need to clean up, clean up.” 

Gentex’s expert concluded that the deletions were “intentional and coordinated and designed to circumvent the duty to preserve documents.” The district court agreed and found that Gentex had presented sufficient evidence to show that Sutter and Walko engaged in willful spoliation. The court ultimately determined that granting default judgment to Gentex was the “least onerous” sanction corresponding to the willfulness of the spoliation, given Sutter and Walko’s “unabashedly intentional destruction of relevant, irretrievable evidence.”

By contrast, another court facing similar facts refused to levy the ultimate sanction. In Cedar Rapids Lodge & Suites, LLC v. JFS Dev., Inc., No. C09-0175, 2011 U.S. Dist. LEXIS 110671 (N.D. Iowa Sept. 27, 2011), the court determined that “a stronger showing of bad faith [was] required” before it would grant default judgment to the plaintiffs. In that case, plaintiff investors sued the developers of a proposed hotel for fraudulent inducement. Following a protracted discovery dispute, plaintiffs sought default judgment against one of the defendants for failure to comply with discovery requests and for intentional destruction of evidence. 

The defendant previously produced seven computers, ten hard drives, and 23 CDs for inspection and copying. Although the plaintiffs’ expert extracted over 34,000 relevant documents from these sources, the expert concluded that external drives that had been connected to the laptop were missing. Additionally, the expert contended that a large number of relevant documents, folders, files, and emails had been targeted for strategic deletion. The expert, however, conceded that several innocent explanations existed for the deletions and missing drives. 

Citing an Eighth Circuit decision, the district court determined that there was no proof that the defendant intentionally engaged in spoliation. As an initial matter, the court seemed impressed by the sheer volume of documents that plaintiffs had already recovered from the defendants. The defendant had initially produced 875 documents followed by an additional 2,700 pages, not to mention the 34,000 documents extracted from various hard drives and computers. 

Additionally, the court found that plaintiffs had not met the relevant legal standard. To warrant any sanction, much less a default judgment, the court had to find: 1) intentional destruction indicative of a desire to suppress the truth; and 2) actual prejudice to the other party resulting from the spoliation. Here, the court deemed the defendant to be merely “unsophisticated in the requirements of litigation and preservation of documents” rather than willfully destructive. Further, the plaintiffs suffered no prejudice, as “[i]t would seem that Plaintiffs have plenty of information upon which to pursue their claims.” In denying the motion for sanctions, the court simply stated, “I believe a stronger showing of bad faith is required.” 

While a default judgment represents the ultimate sanction in spoliation cases, destruction of electronic evidence can result in sanctions running the gamut from claim dismissal and suppression of evidence to an adverse inference and attorneys’ fees and costs. As the district court judge in Gentex observed, “I am especially conscious of the deterrence value of harsh sanctions in cases like this where the crucial evidence exists in electronic form, and a party may destroy its opponent’s case with the mere click of a button.” These two cases teach us to beware the fine line that distinguishes behavior worthy of a default judgment and behavior that is merely vexatious.

Background:

Document Preservation: Spoliation and the “Ultimate Sanction”
Source: original article
Author: Diana Lin
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

This e-discovery news is syndicated from e-discovery websites and blogs that make their feed available via RSS. Contact us to have your RSS feed added or removed.

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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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

This e-discovery news is syndicated from e-discovery websites and blogs that make their feed available via RSS. Contact us to have your RSS feed added or removed.

Follow @cspizzirri

UPDATE:

I have amended my post based on some very thoughtful clarification from Dennis Kiker in the comments. Added text is underlined, and deleted text is struckthrough.

ORIGINAL POST (February 28, 2011):

LTN reports that national home builder Pulte Homes was caught deleting emails and wiping hard drives in direct violation of a court order:

Forsyth County Superior Court Chief Judge Jeffrey S. Bagley has ordered sanctions against Pulte Home Corp. for destroying e-mails and other electronic evidence in an environmental lawsuit.

The sanctions… include paying attorney fees for plaintiffs…

"We expect that attorney fees and costs will be in the range of $ 400,000 — making it the largest award of sanctions for willful spoliation of electronically stored information in Georgia history," said Michael P. Carvalho, attorney for Adele and Tim Simerly, who are suing Pulte over stormwater runoff…

In September 2009, Bagley ordered an investigation by a special master into allegations that Pulte’s vice president of land development, George "Ted" Turner, had deleted e-mails related to the case. The order followed a deposition in which Turner said he had deleted e-mails and intended to continue doing so, according to Carvalho…

The Special Master’s report concluded that Pulte employees violated Bagley’s order on spoliation of evidence, specifically deleting e-mails as well as replacing and reformatting hard drives in some computers…

"Pulte argued that despite the fact that significant efforts had been undertaken by the court-appointed forensic expert, ‘only 160 documents’ had been produced as potentially deleted emails," wrote Bagley. "And of these 160 documents, none of the emails was ultimately determined to be a ‘smoking gun,’ which would have otherwise caused this court to conclude that Turner’s deletion was intended to hide, cover up or obfuscate the truth.

"Despite this court’s prior order prohibiting the continued deletion of emails, Pulte continued to engage in a pattern of … spoliation," the judge added.

Read the full post…

Generally, the destruction of information only rises to the level of sanctionable spoliation when (1) the duty to preserve information has attached to a party, (2) the party commits a culpable breach of that duty, and (3) the resulting destruction causes prejudice to the other party. The post above does not mention any direct evidence of prejudice caused by the information destruction, yet the Court—rightfully—still found spoliation. Good.

Why do I say the Court was right in finding spoliation even though one of the elements of spoliation seems missing? Because the requirement that culpably destroyed evidence be shown to have caused prejudice—i.e. to show that what was destroyed was in fact relevant—unfairly shifts the burden to the non-culpable party to prove it was harmed by another’s bad act. To address that inequity, "prejudice may be presumed when the spoliating party acted in bad faith or in a grossly negligent manner…" Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of Am. Sec., 2010 WL 184312 (S.D.N.Y. Jan. 15, 2010) (Amended Order).

The Delaware Court of Chancery employed this logic in TR Investors LLC v. Genger, C.A. 3994-VCS in which the defendant, Genger, culpably knowingly, willfully, and in bad faith destroyed evidence then argued he should not be found to have spoliated evidence sanctioned absent proof from plaintiffs that the documents he destroyed were relevant. The Court had this to say about Genger’s specious argument:

For a party to intentionally violate an order not to destroy or tamper with information and then to claim that he did little harm because no one can prove how much information he eradicated takes immense chutzpah. For a court to accept such a defense would render the court unable to govern situations like this in the future, as parties would know that they could argue extenuation using the very uncertainty their own misconduct had created.

Judge Bagley should say the same thing to Pulte.

Background:

[Update] Pulte Gets Pinched for Spoliation
Source: original article
Author: Christopher Spizzirri
Categories: Electronic discovery, e-discovery, ediscovery

This e-discovery news is syndicated from e-discovery websites and blogs that make their feed available via RSS. Contact us to have your RSS feed added or removed.

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

This e-discovery news is syndicated from e-discovery websites and blogs that make their feed available via RSS. Contact us to have your RSS feed added or removed.