E-Discovery Law Review : Electronic Discovery Lawyers & Attorneys : Cozen O'Connor Law Firm : Data Preservation & E-Discovery Disputes

A recent case out of the Southern District of New York has created a bit of buzz on the blogs. In In re A&M Fla. Props. II, LLC, 2010 WL 1418861 (Bankr. S.D.N.Y. Apr. 7, 2010), Chief Bankruptcy Judge Arthur Gonzalez was asked to impose sanctions pursuant to Federal Rule of Civil Procedure 37(d) for intentional obstruction of the discovery process

The facts of the case are pretty simple:

• Lawsuit between Plaintiff GFI Acquisition, LLC and Defendant American Federated Title Corp for breach of a $41 million purchase and sale agreement.
   
• Defendant American Federated sought email communication from GFI related to the purchase and sale agreement.
   
• The requested emails were not produced even after a “company wide" search, and even though American Federated had evidence that the emails existed (American Federated was the recipient of some of the emails at issue).
   
• American Federated and GFI jointly retained a computer forensic technician to search the GFI computer system, but the emails were still not uncovered.
   
• American Federated requested an emergency status conference to discuss the possible spoliation of evidence.
   
• Prior to the emergency status conference, GFI’s counsel disclosed that some emails were kept in archive folders and might not have turned up in the “company wide” search.
   
• The computer forensic technician performed another search, which uncovered the emails at issue. The emails were reviewed by GFI’s outside counsel for privilege, but were not turned over to the plaintiff for several months and only after a motion to compel had been filed.

The court considered imposing terminating sanctions (dismissal with prejudice), but concluded that the lack of intentional destruction of evidence / failure to obey court orders meant that “dismissal would be unjustly harsh here, especially considering that American Federated eventually acquired the documents it sought all along.” For the same reason, the court declined to impose a severe sanction of an adverse inference.

Nevertheless, the court decided to impose monetary sanctions for the substantial delay and cost in producing the requested emails. The absolutely critical point about this case is the recognition by the court that when responding to a discovery request for ESI , outside counsel must become familiar with the client’s document retention system. Here, outside counsel was perhaps unaware of the difference between emails stored in a “live inbox” versus emails that have been archived. Employees of GFI removed emails from the “live inbox” to archived personal folders. The archived emails apparently did not come up in the “company wide” search performed first by GFI and later by a expert consultant.

The take away lesson from the opinion is that outside counsel has an obligation not just to request documents from his/her client, but to search for sources of information. Even without a finding of spoliation of evidence, a party may face sanctions for obstruction of the discovery process:

“Had Nash fulfilled his obligation to familiarize himself with GFI’s policies earlier, the forensic searches and subsequent motions would have been unnecessary. The Court finds that monetary sanctions are appropriate here and orders GFI and its counsel to reimburse American Federated its half of the cost of the forensic searches. GFI and its counsel are also ordered to reimburse American Federated for the costs associated with bringing the motion for sanctions and the motion to compel.”
 

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In a landmark opinion by Judge Lee H. Rosenthal, the court in Rimkus Consulting Group, Inc. v. Cammarata, 2010 WL 645253 (S.D. Tex. Feb. 19, 2010) (opinion) ordered an adverse inference instruction against a group of defendants for intentional spoliation of evidence. The facts of the case are pretty straightforward: A group of forensic engineers left Rimkus Consulting Group to set up their own competing business. After leaving the company, the employees filed suit in Louisiana seeking to nullify certain non-compete agreements. Rimkus filed a separate lawsuit in Texas, alleging that the defecting employees breached the non-competition and non-solicitation covenants in their written employment agreements and that they used Rimkus's trade secrets and proprietary information in setting up and operating a competing business, US Forensics. Rimkus also alleged that the former employees engaged in activity which lead to spoliation of evidence. The court agreed that the defendants, former employees of Rimkus, had participated in intentional spoliation of evidence by failing to preserve relevant ESI, deleting ESI, and destroying laptops with relevant ESI. However, in declining to impose ‘terminating sanctions’ for intentional spoliation, the court held: “The sanction of dismissal or default judgment is appropriate only if the spoliation or destruction of evidence resulted in “irreparable prejudice” and no lesser sanction would suffice.” In liu of ‘terminating sanctions’, the court ordered an adverse inference instruction and for defendants to pay plaintiff’s attorneys fees and costs.

Judge Rosenthal acknowledged the recent Pension Committee case, but was careful to note the differences between the two cases:

“The focus of Pension Committee was on when negligent failures to preserve, collect, and produce documents--including electronically stored information--in discovery may justify the severe sanction of a form of adverse inference instruction. Unlike Pension Committee, the present case does not involve allegations of negligence in electronic discovery. Instead, this case involves allegations of intentional destruction of electronically stored evidence.”

    Many commentators have suggested that the Cammarata decision may end up being equally as influential as the Pension Committee decision. For more analysis about the connection between the two cases, Mary Mack has written an excellent article, which can be accessed: here.

Before the ink was dry on Judge Scheindlin’s groundbreaking “no written legal hold = gross negligence” opinion in The Pension Committee of the University of Montreal Pension Plan, et al. v. Banc of America Securities, et al., 2010 WL 184312 (S.D.N.Y. Jan. 15, 2010) (Amended Order), subtitled “Zubulake Revisited: Six Years Later,” Judge Rosenthal, in Rimkus v. Cammarata, 07-cv-00405 (S.D. Tex. Feb. 19, 2010) drew careful lines around the court’s inherent power to sanction, even in the face of bad faith, and introduced the concept of preservation proportionality. Both opinions are available at the end of this article.
 

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No? Well, you might want to prepare yourself for sanctions. In a recent eDiscovery presentation,  John Jessen,  a chairman of the Sedona Conference executive committee,  hit on the importance of Active Management. Mr. Jessen expressed that  there is a growing expectation that attorneys establish a comprehensive and defensible eDiscovery plan right from the start of a matter. Gone are the days where attorneys may make up eDiscovery management as they go along. Instead, as has been recognized in many of the leading eDiscovery cases, including the Zubulake and Pension Committee decisions, judges are stressing the importance of comprehensive planning. As one judge recently put it:

“Without a discovery plan that incorporates a comprehensive and defensible electronic discovery preservation and processing protocol right from the start---and then active management of the timelines and milestones associated with the plan---the perception of negligence or willful destruction is almost unavoidable”

With the growing consensus among decision makers that the absence of Active Management is per se negligent, Active Management is no longer just an option---it’s a requirement. So how does one pass the Active Management test? While perfection is not required, judges are expecting eDiscvoery models with a reasonable plan for data selection, collection, review and production. A successful model needs to have built in checks and balances to create some likelihood that a good data set will be collected and that a defensible document review protocol will be established. Any defensible eDiscovery model must also memorialize all important project decisions so that if the model is challenged, there is an ability to defend strategic choices made by counsel.

The bottom line is that a practitioner will be much better protected against sanctions with a defensible eDiscovery model and active management to guard against error. Succesful Active Management means having oversight over the eDiscovery process such that potential issues are easily identified and resolved. To find out more information about a comprehensive eDiscovery plan, check out Daticon’s eDiscovery methodology: here 
 

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On January 11, 2010, Judge Scheindlin, who authored the groundbreaking Zubulake opinions, issued a groundbreaking eDiscovery opinion. Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of Am. Scs., 2010 U.S. Dist. Lexis 1839 (S.D.N.Y. Jan. 11, 2010), involved an action against defendants who were connected to a hedge fund that lost money. These defendants sought sanctions against the plaintiffs for their alleged failure to properly preserve and produce documents, including electronically-stored information, and for submitting false declarations relating to their collection and production efforts.

In an 87-page opinion, Judge Scheindlin addressed key issues, including the definition of negligence, gross negligence and willfulness in the discovery context, and what types of conduct constitute this type of behavior. Judge Scheindlin also reviewed the law governing the imposition of sanctions for failure to produce electronically-stored information. In the end, Judge Scheindlin held that all of the plaintiffs were either grossly negligent or just negligent in complying with, and satisfying, their discovery obligations. Ultimately, she decided to issue a permissive spoliation/adverse inference instruction against the plaintiffs.

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