The Careful eDiscovery Balance: Cost vs. Thoroughness

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A recent case out of Southern District of New York demonstrates the “perils of failing to strike the proper balance” between thoroughness and cost in analyzing data sets for relevant documents. In Harkabi v. SanDisk Corporation, 2010 U.S. Dist. Lexis 87483 (2010), Judge William Pauley III imposed an adverse inference and a monetary sanction of $150,000 against electronic storage giant SanDisk for discovery misconduct.



 Facts of the Case:

Plaintiffs Dan Harkabi and Gidon Elazar were executives and principal shareholders of a software development company bought by SanDisk.  They sued SanDisk for breach of contract related to the failure  to pay the plaintiffs for the use of their software in devices sold by SanDisk.

While employed by SanDisk, the plaintiffs were issued laptops and corporate email accounts. In 2007, when it became clear that litigation would be likely, plaintiffs’ counsel sent SanDisk a document preservation letter.  SanDisk’s in-house counsel issued four “Do-Not-Destroy” memoranda and instructed SanDisk’s Director of Global Operations to preserve the laptops that were issued to the plaintiffs.

The laptops were put in a secure storage area where they remained for approximately one year. Sometime in early 2008, SanDisk’s in-house counsel was forwarded a request from a “helpdesk employee” to reimage and reissue the plaintiffs’ old laptops.  According to the “helpdesk employee,” the request was approved. Before the re-imaging, data from the laptops was allegedly saved on a SanDisk file server.

In December of 2008, the plaintiffs requested electronic discovery from SanDisk. In response, SanDisk’s outside counsel advised the plaintiffs that when employees leave the company, laptops are typically recycled 30 days later.  SanDisk’s counsel omitted the fact that the plaintiffs’ laptops had been secured for more than a year and that SanDisk was unable to locate the laptop data on its servers.

When the plaintiffs noticed a Rule 30(b)(6) deposition of SanDisk on topics related to the preservation of documents, SanDisk provided a declaration from its in-house counsel stating “I have no reason to believe that the four ‘Do-Not-Destroy’ Memoranda issued on April 12, 2006 were not fully complied with by SanDisk and its employees, temporary employees, and contractors.”

The plaintiffs later served SanDisk with a specific request for copies of the hard drives of the SanDisk-issued laptops.  SanDisk produced 1.4 million electronic documents and labeled that production as “everything,” and refused to produce the hard drives stating “all electronic documents from the hard drives that are relevant to the dispute have already been produced.”

Despite spending considerable time and effort examining SanDisk’s native production for the laptop data and email files, the plaintiffs were unable to locate any of the material that they remembered being on the laptops.

SanDisk’s counsel later disclosed that information from the hard drives had not been included in the native production, and acknowledged that SanDisk was unable to locate the laptop data on SanDisk’s servers or backup tapes despite its “best efforts.”

After analyzing SanDisk’s native production, the plaintiffs hypothesized that SanDisk had not produced data from agreed upon records custodians.  The plaintiffs subsequently filed a motion for sanctions against SanDisk under Rule 37 of the Federal Rules of Civil Procedure.

Spoliation of the Laptops:

A party moving for a severe sanction such as dismissal or an adverse instruction for spoliation, must prove, among other things, that the opposing party “acted with a culpable state of mind upon destroying or losing the evidence.”

The plaintiff advanced several arguments on SanDisk’s culpable state of mind, and one of the most salient was the contention that “SanDisk’s expertise in electronic data storage undermines its claim of an innocent mistake.”

In accepting this argument the court noted:

Plaintiffs’ third argument must mortify SanDisk, a global business that champions itself a leader in electronic data storage. Its size and cutting-edge technology raises an expectation of competence in maintaining its own electronic records. The concatenation of omissions and missteps at SanDisk reveal a lack of attention to detail that has worked a hardship on the Plaintiffs and delayed this litigation.

The court held that “at a minimum SanDisk was negligent” due to “a cascade of errors, each relatively minor, which aggregated to a significant discovery failure.” Nevertheless, the court did not consider SanDisk’s conduct egregious enough to warrant terminating sanctions, and instead chose to fashion an adverse instruction to the jury.

Sanctions for the Late Produced Emails:

If not for the plaintiffs’ herculean effort in “forensic analysis and their counsel’s persistence,” the nature of SanDisk’s discovery deficiencies may never have become known.  The court imposed a sanction of $150,000 against SanDisk for compensation of the “David-and-Goliath-like struggle for electronic discovery” and specifically for the late produced emails.  In so holding, the court recognized the delicate economic balance at hand:

Integral to a court’s inherent power is the power to ensure that the game is worth the candle—that commercial litigation makes economic sense. Electronic discovery in this case has already put that principle in jeopardy. From this Court’s perspective, a monetary sanction of $150,000 should be sufficient to compensate Plaintiffs for their added expense and deter SanDisk from taking shortcuts. Experienced counsel on both sides of this litigation may accept this Court’s view or not. If either side believes it necessary to litigate the precise dollar amount of a monetary sanction, then this Court will entertain further submissions. But any further detour into Rule 37 should be expedited because the parties are well past the time that they should be addressing the merits of this lawsuit.

Take Away Points:

Proving electronic discovery misconduct can be incredibly expensive. In Harkabi, plaintiffs’ counsel contended that their attorney time and expenses related to the sanctions motion were estimated to be $201, 096.25.  The plaintiffs, who were computer experts, also spent a considerable amount of their valuable time analyzing data sets to prove discovery deficiencies. The costs that the plaintiff incurred  point to the frustrating reality that, unfortunately, in many cases, it may not be cost effective to undertake the effort necessary to prove discovery misconduct.

Another important lesson from the Harkabi case is that cooperation between inside counsel, outside counsel, and employees within a company is critical to proper compliance with a litigation hold.  The judge in  Harkabi  noted that SanDisk’s in-house counsel was “notably absent at critical junctures” including during an upgrade of SanDisk’s computer systems which may have impacted the storage of the plaintiffs data.  Without active and continued cooperation, the management, processing, and maintenance of relevant electronic data sets is difficult—even for an expert in electronic data storage like SanDisk.

Although electronic data storage has made life much easier in many ways, the fact that we now store much larger volumes of data than in the past is not without significant costs.  In Harkabi, the court noted that in order to respond to the plaintiffs’ electronic discovery request, SanDisk would have needed to search its backup tapes, which would require the processing of billions of pages of documents “at significant cost.”  There is no indication that SanDisk weighed the cost of complying with the electronic discovery request (considerable) against the probable cost of sanctions for non-compliance (also considerable), but many companies likely engage in this calculus.  In order to deter bad actors, judges will often take into consideration the incentives and disincentives inherent within the rules governing electronic discovery.  But as Judge Pauley recognized, it is also important, given the soaring costs of electronic discovery disputes, that  judges not allow eDiscovery related litigation to add significant delay or burden to resolution of an underlying dispute on the merits.

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