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

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.

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Although deleted data can be recovered – perhaps at significant cost – destroyed data is likely gone forever. Perhaps it is for this reason that a recent federal court was reluctant to apply a strict proportionality test to a preservation dispute.

In Pippins v. KPMG LLP, 2011 U.S. Dist. LEXIS 116427 (S.D.N.Y. Oct 7, 2011), the court denied the defendant’s request for a protective order to limit its preservation obligations. A group of plaintiff sued their former employer alleging that the employer deprived them of overtime pay by purposefully misclassifying them as exempt employees under federal and state employment laws. These plaintiffs moved for class certification, causing the court to stay discovery until it ruled on the certification question. This stay necessitated that the employer indefinitely preserve the hard drives of over 7,500 potential class members.

After racking up over $1,500,000 in preservation costs, the employer sought a protective order, arguing that the burden of preserving the hard drives was disproportionate to the benefit they might provide and that there were less burdensome methods of preserving any relevant information on the hard drives. While cautioning against the application of a proportionality test in preservation disputes, the court assessed three factors in evaluating the employer’s duty to preserve the drives.

First, the court looked to see if the material was relevant. The former employees believed that the drives contained information relevant to the dispute, such as job responsibilities and hours worked. The employer, on the other hand, argued that similar information was contained in sources such as human resources files and time records. It was not entirely clear exactly what information was on the drives, however, because the employer had not allowed anyone to inspect them. This uncertainty, along with the extremely broad concept of relevance, led the court to conclude that the employer could not establish that the material was not relevant.

Second, the court looked to see if the material on the hard drives was created by or for “key players,” namely, people likely to have relevant information. The employer argued that only the named plaintiffs were key players because they purported to represent the entire class. The court disagreed. It reasoned that not only was every former employee a potential plaintiff in the class action, but also that the employer was on notice that the hard drives could contain material relevant to future litigation even if the class was not certified and, thus, had a duty to preserve the hard drives in either situation.

Finally, the court considered whether the continuing preservation merely maintained information that was available from other, less burdensome, sources. The employer argued that the information was duplicative because it also was contained in a variety of other sources, and because the former employees could testify to their job responsibilities. Nevertheless, the court found that the unofficial information on the hard drives could supplement the official information in the employer’s records. As a result, the information on the hard drives was deemed to be not duplicative.

On balance, the court ruled that the employer had to continue to preserve the hard drives. In the end, there were too many unknowns, such as, the ultimate length and cost of preservation, the relevance of the information on the hard drives, and the outcome of the motion for class certification, for the court to weigh the benefits and burdens in a satisfactory manner. The finality of the destruction that would have accompanied the protective order likely led the court to err on the side of preservation.

Note that the duty to preserve potentially relevant information is much broader, and arises much earlier, than the duty to produce information that is relevant and responsive to discovery requests in pending litigation. The Pippins decision speaks only to the preservation phase of electronic discovery and does not address the scenario where additional potentially relevant information continues to be created and stored on various hard drives after initial preservation efforts are complete (or, stated another way, the issue of the ongoing creation and preservation of electronic data). Businesses may be able to avoid these costs and potential pitfalls by encouraging, if not requiring, employees to save data, not on their individual hard drives, but in a central location that is backed-up on a daily basis. In an ideal scenario, any potentially relevant information would be stored on a back-up and shared server and, at most, duplicate that which is contained on individual hard drives. This may eliminate, or provide strong arguments in favor of eliminating, the need to, and cost of, preserving multiple hard drives multiple times.

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A corporate defendant discovers that it will be subject to litigation, yet it actively destroys probative, relevant evidence. Many of us have read, or heard of, opinions where judges have punished a spoliating-defendant by issuing sanctions anywhere from an adverse inference instruction to an entry of default judgment. In recent years, however, it is not only the client that has felt the weight of the responsibility in discovery matters. Starting with Zublake v. UBS Warburg (“Zublake V”), 229 F.R.D. 422 (S.D.N.Y. 2004), courts all over the country have emphasized the duty placed on counsel—both in-house and outside—to ensure that clients comply with their discovery obligations.

Many courts have quoted Zubulake V’s famous line, stating that counsel “must take affirmative steps to monitor compliance so that all sources of discoverable information are identified and searched.” In Qualcomm Inc. v. Broadcom Corp., 05-cv-1958, 2008 U.S. Dist. LEXIS 911 (S.D. Ca., Jan. 7, 2008), for example, the Southern District of California found Qualcomm’s counsel responsible for a “monumental discovery violation” because counsel “did not conduct a reasonable inquiry into the adequacy of Qualcomm’s document search and production.”

This responsibility is not restricted to outside counsel. In Danis v. USN Communications, Inc., No. 98 C 7482, 2000 U.S. Dist. LEXIS 16900 (N.D. Ill. Oct. 23, 2000), the court recognized that in-house counsel did not establish any meaningful document retention program. In-house counsel failed to: 1) give notice to employees to preserve documents; 2) provide criteria as to what should and should not be saved; 3) review any documents that were being thrown away; and 4) review existing practices related to document retention.

Although both in-house and outside counsel can be, and have been, sanctioned for failing to adequately monitor their clients’ compliance with discovery obligations, the following are some steps that can be taken to avoid this result:

• Be proactive. Identify the triggering events that give rise to the duty to preserve. Once that obligation is triggered, issue a timely and comprehensive litigation hold.

• Communicate effectively and often. Do not assume that employees understand what the litigation entails, what their obligations are under the litigation hold, or what documents may be relevant to the litigation.

• Identify and interview key employees. Focus on employees who are likely to have relevant information to: educate them as to the case; learn about, and preserve, relevant information; and ensure compliance with your litigation hold.

• Contact opposing counsel. Explain your process for collecting relevant information to opposing counsel. If the other side has any issues with your process, it is better to resolve these sooner rather than later.

• Communicate frequently. Do not assume that once you issue a litigation hold, your obligations are fulfilled. Do frequently follow-up to ensure that all employees are preserving potentially relevant documents and data.

• Consider the Court’s involvement. One of the clearest ways to ensure that your clients’ discovery obligations, and yours, are fulfilled is to ask the court to set specific standards with respect to the scope and duration of preservation and how data will be reviewed and produced. Being willing to seek court intervention early on will educate the court as to the volume of information and the cost involved and may lead the court to set limits on ongoing preservation and document production.

The responsibility for compliance with the rules with respect to discovery is shared between the client and their counsel. In-house and outside counsel and the various custodians of potentially relevant information need to work as a team and keep the lines of communication open to ensure that their obligations are fulfilled. This allows all involved to comply with their discovery obligations and to identify key documents—favorable and unfavorable—early on and develop their litigation strategy accordingly.
 

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Although the imposition of sanctions for misconduct involving electronic discovery continues to gain momentum, it is still rare that courts turn to the ultimate sanction: the dismissal of a lawsuit. One plaintiff in an Illinois tort case left the court with little choice. In Peal v. Lee, et al., 2010 Ill. App. LEXIS 760 (Ill. App. Ct. 1st Dist. July 30, 2010), the appellate court affirmed the dismissal of a lawsuit due to the plaintiff having intentionally destroyed over 20,000 computer files the day before the defendants’ expert was to inspect the computer.

The plaintiff ice skating instructor sued his employer and others for, among other things, defamation and intentional infliction of emotional distress. While the Complaint alleged that the tortious conduct occurred in 2005, the defendants were in possession of letters that the plaintiff had submitted to the defendants in 2004 complaining of the same conduct. As a result, the defendants moved to dismiss under the statute of limitations, but the court refused to do so because the plaintiff denied authoring those documents.

Fast forward to discovery: The defendants sought to obtain evidence confirming that the plaintiff had written those 2004 letters. After the plaintiff violated a court order requiring that he produce his computer, the court again ordered that the computer be produced by April 10, 2009. The defendants’ forensic expert would later uncover that, on April 9, 2009, the plaintiff used four different data “wiping” programs to permanently delete data from the hard drive, and that before that date, the plaintiff had used three other such programs. This, notwithstanding that his attorney had sent him defense counsel’s electronic discovery preservation letter.

The defendants wisely moved to dismiss the case because of spoliation. To say the least, the trial court was not humored by the plaintiff’s explanation that he had downloaded “cleaning programs” to remove viruses on his computer. After an evidentiary hearing, the court dismissed the case with prejudice. The appellate court found “no evidence” showing that the trial court abused its discretion in dismissing the case. The court’s disdain for the plaintiff’s misconduct was evident, and perhaps best reflected in its colorful description of plaintiff’s arguments: “completely disingenuous,” “nervy,” “hollow,” “patently untruthful,” and “pure pettifoggery.” The plaintiff claimed he did not act in bad faith; the court responded that the plaintiff’s conduct is “the personification of bad faith.”

Few can be surprised by the trial court’s dismissal and the appellate court’s biting affirmance given the plaintiff’s shocking conduct. Still, this case demonstrates that courts can and will resort to the sanction of all sanctions when a party takes such nefarious steps to thwart the discovery process and more generally to undermine the integrity of the judicial system.

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