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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Monetary sanctions, attorneys fees, and adverse inference jury instructions are the more common type of sanctions imposed on litigants for the spoliation of evidence, or not producing relevant documents. Recently, however, a court has increased the severity and impact of sanctions by applying them not only to current litigation, but also to a party’s future litigation, with the effects lingering for years to come.

The Underlying Suit

“Any competent electronic discovery effort would have located this email.” These words were written in an opinion by a United States District Judge in the Eastern District of Texas, filed on March 1, 2011, in Green v. Blitz U.S.A., Inc., No. 2:07-CV-372, 2011 U.S. Dist. LEXIS 20353 (E.D. Tex., Mar. 1, 2011)

Green involved a product liability suit in which the requirement of a flame arrester was in dispute. The jury returned a defense verdict, and the plaintiff collected a low settlement amount as part of a high-low settlement agreement. During discovery in a subsequent case with the same defendant and plaintiff’s counsel, counsel learned of documents that were not produced in Green. The plaintiff then filed a motion for sanctions against the defendant in Green and a motion to re-open the Green case. While the court denied the motion to re-open because the statute of limitations had expired, the court did impose sanctions for the discovery abuse.

The Defendant’s Failure to Conduct Adequate Discovery in Green

After 2004, the defendant had just one employee, Mr. Chrisco, who was responsible for searching for, and collecting, documents relevant to the litigation. Mr. Chrisco would meet with the defendant’s national counsel, go through the claims, and develop an understanding of what he would be searching for. He would then go to various departments, explain what he was looking for, and ask the departments to look for, and collect, documents. As the litigation was about flame arresters, any documents pertaining to that subject were relevant.

This is where Mr. Chrisco’s preservation and collection efforts ended and where his employer’s e-discovery troubles began. The defendant did not “institute a litigation-hold of documents, do any electronic word searches for emails, or talk with the IT department regarding how to search for electronic documents.” As a result an email entitled “FW: Flame Arrester,” of which Mr. Chrisco was a recipient, was never produced. Not disclosing this email showed “the gravity of [the defendant’s] discovery violations for failing to produce relevant documents.”

The court found it even “more shocking” that this email could have been discovered by a simple word search for the “obvious term,” flame arrester. Even worse was that the individual tasked with the defendant’s e-discovery efforts, Mr. Chrisco, admitted to being “about as computer . . . illiterate as they get.” The court concluded that one did not have to look any further than not searching for the phrase, “flame arrester,” to determine that the defendant did not make a reasonable effort to produce relevant documents.

The court also found that the defendant did not properly preserve documents. Instead of issuing a litigation hold, the defendant asked employees to delete electronic documents at least ten times during the two year period that the defendant was in litigation. Moreover, the defendant rotated its backup tapes every two weeks, causing any deleted emails to be permanently deleted.

Imposition of Sanctions

The court imposed three sets of sanctions against the defendant, each seemingly more severe than the previous. First, the court fined the defendant $250,000 to be paid to the plaintiff, the amount by which the court estimated the plaintiff was damaged by not seeing the documents during settlement discussions. Second, the court sanctioned the defendant an additional $500,000, which was to be tolled for thirty days. The court agreed to lift this fine if, in those thirty days, the defendant was able to prove that it issued a copy of the court’s memorandum and opinion to any plaintiff in each lawsuit in which it was involved for the past two years, or in which it is currently involved. Third, the court ordered the defendant to file a copy of the court’s memorandum and order with its “first pleading or filing” in any case in which the defendant was involved, “whether plaintiff, defendant, or in another official capacity,” for the next five years.

No litigant would want an e-discovery violation to be a recurring nightmare, as it was for the defendant in Green. The following are some ways that a party may fulfill its e-discovery obligations and avoid the result in Green.

• Put the Right Employees in Charge. Strategically choose the individual or individuals that are in charge of collection efforts in house (for example, do not choose an individual who is not familiar with the company’s technology).

• Take Advantage of Counsel’s Expertise. Engage in communications with counsel who has experience and expertise in e-discovery issues. This will ensure that obligations at each stage of the process are complied with and can be defended later.

• Issue Litigation Holds. Make sure that a plan is developed to identify triggering events that would give rise to the obligation to issue a litigation hold to your employees and ensure that the litigation holds are promptly issued and include a specific instruction not to delete documents.

The court’s sanctions are becoming increasingly harsh. The sanctions in Green had the same effect as publishing the defendant’s e-discovery violations in a newspaper. The above guidelines can help you avoid becoming the next headline.
 

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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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“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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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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