Severe eDiscovery Misconduct: Possible Jail Time for Civil Contempt

“Among the sanctions that this memorandum imposes is a finding, pursuant to Fed. R. Civ. P. 37 (b) (2) (A)(vii), that Pappas’s pervasive and willful violation of serial Court orders to preserve and produce ESI evidence be treated as contempt of court, and that he be imprisoned for a period not to exceed two years, unless and until he pays to Plaintiff the attorney’s fees and costs that will be awarded to Plaintiff as the prevailing party..”

The above quotation from a recent opinion out of the United States District Court for the District of Maryland is striking. The decision, Victor Stanley, Inc. v. Creative Pipe, Inc., 2010 U.S. Dist Lexis 93644 (D. Maryland 2010) contains the most egregious examples of eDiscovery misconduct of any recent case of note (and perhaps ever). In addition to imposing a sanction of possible jail time for civil contempt, the court also imposed a default judgment, and awarded attorney’s fees– the court even considered forwarding the case to the U.S. Attorney’s Office for criminal prosecution as a criminal sanction for discovery misconduct.

The facts of the case are fairly straightforward, though somewhat unusual:

  • Plaintiff Victor Stanley, Inc., (“VSI”) a manufacturer of bike racks, outdoor furniture, and other site furnishings sued, among others, competitor Creative Pipe, Inc (“CPI”) and its president Mark Pappas for alleged violation of copyrights and patents, and unfair competition.
     
  • VSI alleged that someone from CPI logged into VSI’s website to download design drawings and specifications using the pseudonym “Fred Bass.” It was alleged that CPI used the drawings to develop products that would directly compete with similar VSI products. It eventually became clear that “Mr. Bass” was either CPI President Mr. Pappas or another person at CPI working under his direction.

The examples of eDiscovery misconduct in this case are almost too numerous to list:

 

  • As the court explained “[f]or years, Pappas engaged in a cat and mouse game to hide harmful ESI from production during discovery, repeatedly trying to stall or prevent VSI from discovering evidence that he improperly accessed or used VSI’s website or drawings.”
     
  • Just after VSI filed suit, computer forensics indicated 353 user-initiated deletions of files from Pappas’ laptop.
     
  • Pappas sent an email to an Argentine business contact instructing him to “destroy various emails and attachments relating to the VSI drawings” that the Argentine contact was going to convert to CPI drawings.
     
  • Pappas “attempted to delete over 5,000 files,” and later claimed to have moved the emails to a deleted items folder for “storage purposes.”
     
  • Pappas “delayed in producing relevant ESI after Plaintiff indentified it and requested it in discovery, and he lied about the completeness of Defendants’ ESI production.”
     
  • On the eve of a scheduled discovery hearing, “Pappas deleted 9,234 files from his work computer.”
     
  • Four days prior to the plaintiff’s scheduled imaging of Pappas’s work computer, “Pappas deleted almost 4,000 files.”
     
  • The court concluded that the defendants did not even consider, let alone implement a litigation hold after the Plaintiff filed suit or even after the court issued preservation orders. Under the circumstances that court concluded that “ESI would be lost or modified biweekly, under the best of circumstances” because no measures were taken to preserve potentially relevant electronic data.
     
  • Forensic examination of Pappas’s work computer revealed that Pappas had used an external hard drive (“EHD”), and the EHD contained 62, 071 files that were copied from his work computer. The EHD was never produced and Pappas claimed that he had returned the EHD to “Bob from Office Max.”
     
  • 9,282 user-initiated deletions of files from Pappas’s work computer occurred after the court issued a preservation order.
     
  • At a discovery hearing, the court became aware that certain ESI had been deleted. Despite the court’s admonishments to preserve relevant ESI, someone logged onto Pappas’s work computer and ran a Disk Cleanup program, deleted files, accessed the Registry Editor, and ran the system’s Disk Defragmenter. The court concluded that the net effect of these actions was to “ensure that deleted filed could not be recovered.”
     
  • Pappas / the defendants failed to preserve ESI when CPI replaced a server.
     
  •  “Following a series of ESI preservation and production orders by the Court, Defendants allowed their computer consultant to run programs that eliminated temporary internet files.”

As a result of the egregious eDiscovery misconduct described above, the court imposed a sanction of a default judgment for the copyright claims, awarded attorneys fees and costs allocable to spoliation, and found Pappas’s to be in civil contempt. In so holding, the court noted:

“I have explained the relevance of the evidence lost and why the loss caused prejudice to Plaintiff in prosecuting its case. Taken individually, each section demonstrates intentional misconduct done with the purpose of concealing or destroying evidence. Collectively, they constitute the single most egregious example of spoliation that I have encountered in any case that I have handled or in any case described in the legion of spoliation cases I have read in nearly fourteen years on the bench.”
 

Without a doubt, the Victor Stanley opinion is going to be widely cited throughout the country. Chief Magistrate Judge Paul Grimm provides a survey of national case-law on preservation / spoliation issues, which is, as he put it, “an analytical framework” that will enable counsel to “resolve preservation / spoliation issues with a greater level of comfort.” The case is also a welcome articulation of the different standards applied nationwide, which often make predictability on preservation issues difficult.
 

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Posted in contempt, CPI, ediscovery misconduct, Sanctions, spoliation, stanley, victor, VSI

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