Preservation

eDiscovery Case Week continues.  We’ll cover four cases this week (catching up on a couple from earlier this year) and we’ll cover our Wednesday webcast Key eDiscovery Case Law Review for First Half of 2017 (click here to sign up for that) as well.  Here’s the next case.  And, unlike the “Phelps vs. Shark” debacle, I promise nothing about this post was computer generated… :o)

In HCC Ins. Holdings, Inc. v. Flowers, No. 1:15-cv-3262-WSD (N.D. Ga., Jan. 30, 2017), Georgia District Judge William S. Duffey, Jr. denied the plaintiff’s motion for adverse inference sanctions despite evidence that the defendant had used evidence wiping software twice after being ordered to produce her personal computer, stating that the plaintiff “offers only bare speculation that any of its trade secrets or other data were actually transferred” to the defendant’s laptop.

Case Background

In this case, the defendant was accused of misappropriating trade secrets after she left her company and started a competitive company. The plaintiff claimed that when the defendant left the company, she took confidential files with her to benefit her new company and also claimed that, after receiving the lawsuit papers in this case, and after the Court ordered the defendant to produce her personal computer, she destroyed data on her personal laptop and also on a thumb drive that was plugged into her personal computer on September 20, 2015 (which was after she received a preservation notice and the complaint in the case).

The defendant’s husband, an experienced IT professional, claimed he inserted his personal thumb drive on September 20 to back-up data on the defendant’s personal laptop, but the thumb drive was corrupted and did not work, and that he therefore threw it away (the defendant’s own computer forensic expert claimed that it did work properly the second time, when it was plugged in for 38 seconds.

On September 19, 2015, and again three days later, the day after the Court ordered the defendant to produce her personal computer, the computer wiping program CCleaner was manually run on her personal laptop.  During that time, the program Defraggler (program that overwrites deleted files in unallocated space on a computer’s hard drive) was also run and so was a program called WinUndelete (which is used to recover deleted files).  The plaintiff claimed the defendant’s husband used WinUndelete to confirm that he had destroyed evidence, but he claimed he ran the program off of his work thumb drive to familiarize himself with it for future use for work purposes.  After running extensive searches over several weeks, a neutral examiner did not locate any of the plaintiff’s confidential information or trade secrets on any of the devices produced by the defendant.

Judge’s Ruling

In reviewing the results, Judge Duffey stated: “HCC’s Motion is based on a series of events it casts as suspicious, but HCC offers only bare speculation that any of its trade secrets or other data were actually transferred from HCC Life’s systems to Flowers’ personal laptop. A party seeking spoliation sanctions must prove that (1) the missing evidence existed at one time; (2) the defendant had a duty to preserve the evidence; and (3) the evidence was crucial to the plaintiff’s prima facie case… Here, after extensive discovery, including examinations by a neutral forensic examiner and the parties’ expert forensic examiners, depositions, and subpoenas of email and cloud-based storage companies, HCC does not provide any evidence to show that Flowers or her husband actually transferred any data from HCC Life to her personal devices or cloud storage media she controlled.”

As a result, Judge Duffey ruled as follows: “Though Flowers’ and her husband’s actions are troubling, and in breach of her duty to preserve, the Court finds spoliation sanctions are not warranted.”

So, what do you think?  Is this ruling troubling?  Or should the motioning party be required to show evidence of actual responsive ESI deleted?  Please share any comments you might have or if you’d like to know more about a particular topic.

Case opinion link courtesy of eDiscovery Assistant.

Disclaimer: The views represented herein are exclusively the views of the author, and do not necessarily represent the views held by CloudNine. eDiscovery Daily is made available by CloudNine solely for educational purposes to provide general information about general eDiscovery principles and not to provide specific legal advice applicable to any particular circumstance. eDiscovery Daily should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you.

In Eshelman v. Puma Biotechnology, Inc., No. 7:16-CV-18-D (E.D.N.C. June 7, 2017), North Carolina Magistrate Judge Robert B. Jones, Jr., among other rulings, denied the plaintiff’s motion for an order permitting a jury instruction in response to the defendant’s failure to preserve certain internet web browser and search histories, concluding that the plaintiff “is not entitled to a sanction pursuant to Rule 37(e)(1)” and that the plaintiff “is not entitled to an adverse jury instruction as a sanction pursuant to Rule 37(e)(2).”

Case Background

In this case involving alleged defamatory statements made by the defendant against the plaintiff in an investor presentation, two weeks after the complaint was filed in February 2016, the defendant issued an internal litigation hold notice related to the plaintiff’s claims in this case which defined documents to include electronically-stored information and advised employees to err on the side of preservation if there was a question as to whether material qualified as documents, but did not explicitly reference internet browser histories, internet search histories, or internet sites visited.  In May 2016, approximately 120 days after the publication of the investor presentation, counsel for the plaintiff sent a letter to the defendant’s counsel requesting that the defendant preserve, among other things, the “web browser histories” of individuals involved in the drafting of the January 7, 2016 presentation.  The plaintiff reiterated that request in its document requests in June 2016.

Counsel for the defendant responded that the defendant uses Google Chrome as an internet browser, which deletes web browser history after 90 days, and accordingly, the web browser history information sought in the discovery requests no longer existed and did not exist at the time of the May letter, leading to the motion filed by the plaintiff seeking “a jury instruction to mitigate the harm caused by the defendant’s failure to preserve electronically stored information.”

Judge’s Ruling

Judge Jones initially observed that “while the plaintiff states that he seeks a jury instruction to mitigate the harm caused by the defendant’s failure to preserve electronically stored information (“ESI”), the plaintiff does not define the particular instruction sought.”  Considering Rule 37(e)(1) and Rule 37(e)(2), Judge Jones determined the following:

Observing that “the plaintiff has not established one of the threshold elements of Rule 37(e)—namely, that the lost ESI ‘cannot be restored or replaced through additional discovery. . . .’”, Judge Jones stated that “other avenues of discovery are likely to reveal information about the searches performed in advance of the investor presentation. For example, the plaintiff could seek information about the internet searches performed by the individuals who prepared the investor presentation through deposition testimony.”  Judge Jones also stated that “the plaintiff has failed to make a sufficient showing of prejudice to support relief under Rule 37(e)(1). In order to impose a sanction under Rule 37(e)(1), the court must have some evidence regarding the particular nature of the missing ESI in order to evaluate the prejudice it is being requested to mitigate.”  As a result, Judge Jones determined that “the plaintiff is not entitled to a sanction pursuant to Rule 37(e)(1).”

Judge Jones also ruled that “the plaintiff has also failed to show that the defendant acted with the requisite intent to deprive him of the ESI in order to support the imposition of an adverse jury instruction under Rule 37(e)(2),” noting that “[a]t most, the circumstances indicate the ESI was lost due to the defendant’s negligence, but do not suggest the presence of intentional conduct. Negligence, however, will not support an award of sanctions under Rule 37(e)(2).”  As a result, Judge Jones determined that “the plaintiff is not entitled to an adverse jury instruction as a sanction pursuant to Rule 37(e)(2).”

So, what do you think?  Should internet histories be a standard form of ESI to be preserved in litigation?  Or does it depend on the case?  Please share any comments you might have or if you’d like to know more about a particular topic.

Disclaimer: The views represented herein are exclusively the views of the author, and do not necessarily represent the views held by CloudNine. eDiscovery Daily is made available by CloudNine solely for educational purposes to provide general information about general eDiscovery principles and not to provide specific legal advice applicable to any particular circumstance. eDiscovery Daily should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you.

In Omnigen Research et. al. v. Wang et. al., No. 16-00268 (D. Oregon, May 23, 2017), Oregon District Judge Michael J. McShane granted the plaintiffs’ Motion for Terminating Spoliation Sanctions and agreed to issue an Order of Default Judgment in favor of the plaintiffs (while dismissing the defendants’ counterclaims) due to the defendants’ intentional destruction of evidence on several occasions.

Case Background

In this case (for breach of contract, intentional interference with economic relations, misappropriation of trade secrets, copyright infringement, false advertising and unfair competition, and breach of fiduciary duty filed against a former employee of the plaintiff, Yongqiang Wang), the plaintiffs alleged that in 2012, while still employed by the plaintiff, he stole trade secrets and created two rival businesses, including the defendant company Bioshen.  The plaintiffs, concerned in part about the possible destruction of evidence early in the case, filed a Motion for Preliminary Injunction, which was granted in May 2016, to force the defendants to “immediately produce to Plaintiffs all electronic media in their custody, possession or control for purposes of verifying that they do not contain Plaintiff’s confidential and/or copyrighted material.”

Eleven days later, the plaintiffs filed a Motion for Order to Show Cause because Wang had left for China without producing his laptop as required by the Preliminary Injunction. A hearing on the issue was held and, in addition to other requirements, the defendants were ordered to “download all of the contents of the computer in China on a portable hard drive and have it mailed to defense counsel within 7 days, and deliver any computers or portable storage data to defense counsel by 5/27/2016.”

The plaintiffs were required to seek court intervention regarding discovery on multiple occasions because of the failure of the defense to adequately respond to their requests for production.  Ultimately, the plaintiffs filed their Motion for Terminating Spoliation Sanctions on 3/3/2017, with oral arguments heard on the motion on 4/18/2017.

Judge’s Ruling

Before detailing all of the instances where the defendants “intentionally” deleted or destroyed evidence, Judge McShane stated:

“As stated during oral arguments on 4/18/2017, the Court finds the destruction of evidence by the defendants was intentional. The plaintiffs’ Motion for Terminating Spoliation Sanctions describes in full detail the many ways the defendants intentionally hid or destroyed evidence in this case. In summary, Plaintiffs allege that the defendants made their desktop computer unavailable by “donating” it to Goodwill, that the defendants intentionally deleted thousands of documents from Wang’s personal Lenovo computer, that the defendants intentionally deleted and refused to produce relevant emails from multiple email accounts, and that the defendants intentionally destroyed metadata. These actions have deprived the Plaintiffs of evidence central to their case and undermined the Court’s ability to enter a judgment based on the evidence. For these reasons, default judgment and terminating sanctions for the spoliation of evidence is warranted FRCP 37(b)(2), Rule 37(e), and the Court’s inherent authority to sanction abusive litigation practices.”

As a result, Judge McShane granted the plaintiffs’ Motion for Terminating Spoliation Sanctions and agreed to issue an Order of Default Judgment in favor of the plaintiffs while dismissing the defendants’ counterclaims.

So, what do you think?  With the new Rule 37(e) (since December 2015), do you think it takes this level of intent to obtain significant sanctions?  Please share any comments you might have or if you’d like to know more about a particular topic.

Disclaimer: The views represented herein are exclusively the views of the author, and do not necessarily represent the views held by CloudNine. eDiscovery Daily is made available by CloudNine solely for educational purposes to provide general information about general eDiscovery principles and not to provide specific legal advice applicable to any particular circumstance. eDiscovery Daily should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you.

In Taylor v. Thrifty Payless, Inc., d/b/a Rite-Aid, No. 16-00474 (D. Oregon, May 12, 2017), Oregon District Judge Marco A. Hernandez granted the defendant’s motion for summary judgment after denying the plaintiff’s request for spoliation sanctions against the defendant for failing to preserve store videos that were taken on the day of her slip and fall in the defendant’s store.

Case Background

In this slip and fall case in a defendant store, the plaintiff sued the defendant after she slipped and fell in a large puddle, eventually claiming “significant pain” to her hand and wrist.  As a result, the plaintiff filed suit, alleging that the defendant “a) failed to make the premises reasonably safe; b) failed to take reasonable steps to promptly remove the puddle of liquid from the Rite-Aid store floor; c) failed to adequately warn Plaintiff by placing cones around the area of the liquid on the floor; and d) failed to properly secure the area, knowing that the puddle of liquid could pose additional risks to patrons of the store.”  After discovery, the defendant moved for summary judgment.

On the day of the spill, the store manager reviewed the security tapes from the time of the incident, and did so again a day or two later with the defendant’s Risk Management group, and found that the cameras did not cover the area of the spill.  As a result, the defendant did not keep the footage of that day’s events, adhering to its policy of deleting video footage every thirty-seven days.  The plaintiff argued that the defendant’s failure to preserve was the reason for her lack of evidence and asked the court to deny summary judgment as a sanction for the defendant’s destruction of the security video.  The defendant argued it had no obligation to preserve the video because the video did not show the spill itself and, therefore, would not have contained any relevant evidence.

Judge’s Ruling

In considering the facts associated with deletion of the video footage, Judge Hernandez stated: “Defendant did not destroy the videos in response to this litigation. Cases make clear that ‘in response to litigation’ means after a complaint has been filed, a discovery request has been made, a letter openly threatens litigations, or some other reason indicating that litigation is likely… Plaintiff herself points out that the surveillance footage is erased from Defendant’s hard drive every thirty-seven days…The erasure occurred when Defendant knew only that Plaintiff had fallen and hurt her wrist. There was no basis for Defendant to conclude that litigation was likely.”  As a result, Judge Hernandez concluded that “Sanctions for spoliation are inappropriate here.”

Therefore, in granting the defendant’s motion for summary judgment, Judge Hernandez stated: “Plaintiff’s arguments are not supported by direct evidence or logical inference. Instead, she relies on speculation and conjecture which is insufficient to create an issue of material fact precluding summary judgment.”

So, what do you think?  Do plaintiffs in “slip and fall” cases face an uphill battle in obtaining sanctions for deletion of video at the site of an accident?  Please share any comments you might have or if you’d like to know more about a particular topic.

Disclaimer: The views represented herein are exclusively the views of the author, and do not necessarily represent the views held by CloudNine. eDiscovery Daily is made available by CloudNine solely for educational purposes to provide general information about general eDiscovery principles and not to provide specific legal advice applicable to any particular circumstance. eDiscovery Daily should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you.

In Hsueh v. N.Y. State Dep’t of Fin. Services, No. 15 Civ. 3401 (PAC) (S.D.N.Y. Mar. 31, 2017), New York District Judge Paul A. Crotty relied upon inherent authority to impose sanctions and determined “that an adverse inference is the appropriate remedy” for the plaintiff’s deletion of a recorded conversation with an HR representative, agreeing with the defendants that “Rule 37(e) applies only to situations where ‘a party failed to take reasonable steps to preserve’ ESI; not to situations where, as here, a party intentionally deleted the recording.”

Case Background

In this case arising from claims of sexual harassment at work, the plaintiff, at an April 2016 deposition, initially stated that she did not think she had recorded any conversations with an HR representative (Allison Clavery) from the company about her allegations, but eventually explained that she thought she had recorded one meeting with Clavery in either December of 2015 or January of 2016, and that she deleted the recording in “[e]ither the course of 2016 or 2015” because “the voice recording itself. . . was not very clear, so [she] did not feel it was worth keeping.”  As a result, in June and early July 2016, the defendants filed a motion for spoliation sanctions.

On July 11, 2016 — the day the plaintiff’s opposition to the spoliation sanctions motion was due — plaintiff’s counsel submitted a letter to the Court advising that “I received an e-mail from my client at 10:16 p.m. last evening, which contained an audio recording attachment of a meeting between my client and Allison Clavery.”  Plaintiff’s counsel noted that “the e-mail indicated that the recording had been recovered with the help of Plaintiff’s husband” and that plaintiff’s counsel stated that he was “awaiting any further instructions with regard to Defendant DFS’s motion.”  As a result, discovery was reopened and the plaintiff and her husband were deposed.  Despite recovery of the recording, the defendants continued to pursue spoliation sanctions, as they had only received materials relating to the plaintiff’s mental health history “over the past few weeks, despite requesting them back in December 2015.”

The defendants stated that it was unclear as to whether Rule 37(e) applied here, arguing that the audio recording might not be ESI and also arguing that Rule 37(e) applies only to situations where “a party failed to take reasonable steps to preserve” ESI; not to situations where, as here, a party intentionally deleted the recording.  The plaintiff, on the other hand, argued that, since the recording was restored, no sanctions were warranted.

Judge’s Ruling

With regard to the defendant’s argument that the recording is not ESI, Judge Crotty stated “The Court disagrees. The recording was made using a digital recorder, and was saved in a digital format.”

However, with regard to the defendant’s argument that Rule 37(e) doesn’t apply when the party intentionally deletes the recording, Judge Crotty said “This makes sense. The Committee Notes to the 2015 Amendment to Rule 37 explain that Rule 37(e) is meant to address ‘the serious problems resulting from the continued exponential growth in the volume of’ ESI as well as ‘excessive effort and money’ that litigants have had to expend to avoid potential sanctions for failure to preserve ESI…These considerations are not applicable here. It was not because Hsueh had improper systems in place to prevent the loss of the recording that the recording no longer existed on her computer; it was because she took specific action to delete it. The Court therefore concludes that Rule 37(e) does not apply.”

As a result, Judge Crotty, determining that “the Court may rely on its inherent power to control litigation in imposing spoliation sanctions”, ruled “that an adverse inference is the appropriate remedy” for the plaintiff’s deletion of the recording and granted the defendants’ motion for spoliation sanctions.

So, what do you think?  Should Rule 37(e) have applied here?  Please share any comments you might have or if you’d like to know more about a particular topic.

Disclaimer: The views represented herein are exclusively the views of the author, and do not necessarily represent the views held by CloudNine. eDiscovery Daily is made available by CloudNine solely for educational purposes to provide general information about general eDiscovery principles and not to provide specific legal advice applicable to any particular circumstance. eDiscovery Daily should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you.

In Coyne v. Los Alamos National Security, LLC et. al., No. 15-0054 (D. N.M., Mar. 21, 2017), New Mexico Magistrate Judge Karen B. Molzen recommended that the court grant the defendants’ motion to dismiss after the plaintiff’s erased and reset her iPhone the day before it was produced for forensic examination, the “culmination of her and her husband’s willful failure to comply with their discovery obligations in this case.”

Case Background

In this case where the plaintiff alleged wrongful termination (among other complaints) after she was terminated pursuant to a Reduction in Force policy (the plaintiff contended it was retaliation for taking leave under the Family Medical Leave Act after an alleged assault by a co-worker), the Court had already granted Motions to Compel against both Plaintiff and Defendants.  However, only the plaintiff and her husband had been sanctioned for discovery violations with various fees, including attorney’s fees, to the tune of over $11,000 (most of which was still unpaid).

The parties continued to proceed with discovery, and on September 30, 2016, the defendants served plaintiffs’ counsel with a request for a forensic inspection of the plaintiff’s iPhone, seeking text messages between the plaintiff and her husband and between the plaintiff and her treating psychiatrist.  The plaintiff not only did not object to the request, she even cooperated with the defendants’ attempts to retrieve them from her cellular carrier and from Apple before agreeing to the inspection.

On January 4, 2017, the plaintiff’s counsel called the defendants’ to report that he was ready to ship the iPhone to the forensic examiner and it was sent the next day.  The forensic examiner discovered that the phone had been erased and reset six hours before the plaintiff had turned it over to her attorney to be sent for examination. In his affidavit testimony, the forensic examiner explained that erasing and resetting an iPhone cannot happen accidentally or inadvertently, but the plaintiff claimed to have no knowledge of what had happened. As a result, the defendants moved the Court to dismiss the plaintiff’s case in its entirety with prejudice “as a sanction for Plaintiff’s intentional and permanent erasure of all the data on her iPhone the day before it was produced” for the forensic evaluation.

Judge’s Ruling

Judge Molzen considered the relevant factors necessary to determine whether dismissal was warranted.  Those factors are: (1) The degree of actual prejudice to the defendant; (2) The amount of interference with the judicial process; (3) The culpability of the litigant; (4) Whether the court warned the party in advance that dismissal of the action would be a likely sanction for noncompliance; and, (5) The efficacy of lesser sanctions.  With regard to those factors, Judge Molzen determined that all were satisfied, with the possible exception of the fourth factor, but stated that she “is not convinced such a specific warning was required in this case”.  Judge Molzen also determined that none of the available sanctions options were sufficient, noting that “almost all” of the monetary sanctions levied against the plaintiff “remain unpaid”.

Determining that “Plaintiff’s decision to erase and reset her iPhone the day before it was produced” was “but the culmination of her and her husband’s willful failure to comply with their discovery obligations in this case”, Judge Molzen recommended that the court grant the defendants’ motion to dismiss.

So, what do you think?  Was the recommended sanction too harsh?  Please share any comments you might have or if you’d like to know more about a particular topic.

Disclaimer: The views represented herein are exclusively the views of the author, and do not necessarily represent the views held by CloudNine. eDiscovery Daily is made available by CloudNine solely for educational purposes to provide general information about general eDiscovery principles and not to provide specific legal advice applicable to any particular circumstance. eDiscovery Daily should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you.

A lot has been discussed about the most recent changes to the Federal Rules, especially with regard to Rule 37(e) and the requirement of the intent to deprive standard to apply more serious sanctions.  But, what activities constitute intent to deprive?  Should failing to issue a litigation hold be considered intent to deprive a party of potentially responsive ESI when that ESI is not preserved?

Rule 37(e)(2) says the following:

(2) only upon finding that the party acted with the intent to deprive another party of the information’s use in the litigation may:

(A) presume that the lost information was unfavorable to the party;

(B) instruct the jury that it may or must presume the information was unfavorable to the party; or

(C) dismiss the action or enter a default judgment.

{emphasis added}

Since the rules – including 37(e) – were implemented in December 1, 2015, there have been several cases where a request for sanctions were not granted because the court ruled a lack of bad faith or intent to deprive.  In one case, Nuvasive v. Madsen Medical, the court (in October 2015) had granted the defendants’ motion for adverse inference sanctions against the plaintiff for failure to preserve text messages from four employees suspected of secret coordination with the plaintiff.  However, after the 2015 Rules changes were adopted, the plaintiff sought relief under Rule 60(b) based on the amendment to Rule 37(e).  California Chief District Judge Barry Ted Moskowitz, having previously found the plaintiff did not intentionally fail to preserve the text messages, reversed the previous ruling and granted the plaintiff’s motion for an order vacating the Court’s previous order that granted the defendants’ Motion for Sanctions.  So, the ruling changed as a result of the Rules changes.

Here are four other cases since the beginning of 2016 where sanctions were denied because of a lack of bad faith or intent to deprive.  Of course, sanctions do still happen and they can still be severe — here are two cases with examples of severe sanctions.

In the Pension Committee case in 2010, New York District Court Judge Shira Scheindlin defined negligence, gross negligence, and willfulness from an eDiscovery standpoint and she stated: “[O]nce a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a ‘litigation hold’ to ensure the preservation of relevant documents.”  Judge Scheindlin also noted that by July 2004, when the final relevant Zubulake opinion was issued, “the failure to issue a written litigation hold constitutes gross negligence because that failure is likely to result in the destruction of relevant information.”

Granted, gross negligence and intent to deprive are not the same thing.  But, it’s 2017 now, not 2010 (much less 2004).  Given what most attorneys know today (or should know) about the requirement to issue a written litigation hold, should failure to do so be considered bad faith?

Not only that, but it’s possible to automate a good portion of the litigation hold issuance and tracking process, so it’s easier than ever to demonstrate due diligence in the litigation hold process.  There’s less excuse than ever to manage an effective litigation hold and meet your duty to preserve.

So, what do you think?  Should failing to issue a litigation hold be considered intent to deprive?  Please share any comments you might have or if you’d like to know more about a particular topic.

Disclaimer: The views represented herein are exclusively the views of the author, and do not necessarily represent the views held by CloudNine. eDiscovery Daily is made available by CloudNine solely for educational purposes to provide general information about general eDiscovery principles and not to provide specific legal advice applicable to any particular circumstance. eDiscovery Daily should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you.

In Shawe v. Elting, Case No. 487, 2016 (Supreme Court of Delaware, Feb. 13, 2017), the Delaware Supreme Court found that the Court of Chancery followed the correct legal standards and made no errors of law in its sanctions award of over $7 million against the appellant, agreeing with the lower court that his behavior was “unusually deplorable”.

Case Background

The plaintiff appealed an order of the Court of Chancery sanctioning him for misconduct throughout litigation with his current business partner and former romantic partner, where, after an evidentiary hearing, the Court of Chancery found that the plaintiff committed several violations, including:

• Breaking into the defendant’s office, having the President of the company’s forensic technology business image her hard drive, concealing the activities with a write blocker, and replacing the computer to cover his tracks (several times over a two year period);
• Remote accessing the defendant’s computer at least 44 times on 29 different occasions, gaining access to 19,000 emails, including 12,000 privileged communications between the defendant and her attorney;
• Hiring another third party to break into the defendant’s office, take pictures, and remove hard copies of documents;
• Claiming (after the suit was filed) that his niece dropped his phone in a cup of soda and he ultimately threw it away because he found it in a drawer with rat droppings;
• Deleting nearly 19,000 files from his laptop, which was discovered because his computer had made volume shadow copies and his own expert discovered it;
• Lying about his activities in his discovery responses and at his deposition, as well as giving false trial testimony and submitting a false affidavit during post-trial briefing.

The court also found that the plaintiff’s improper conduct impeded the administration of justice, unduly complicated the proceedings, and caused the court to make false factual findings. The Court of Chancery ordered the plaintiff to pay 100% of the fees the defendant incurred in connection with bringing the motion for sanctions, and 33% of the fees the defendant incurred litigating the merits of the case, awarding the defendant a total of $7,103,755 in fees and expenses.

On appeal, the plaintiff argued that the Court of Chancery erred in three respects: (1) by finding that he acted in bad faith when he deleted the files from his laptop and failed to safeguard his cell phone; (2) for failing to afford him criminal due process protections before sanctioning him for “perjury”; and (3) by awarding the defendant an excessive fee.

Judge’s Ruling

With regard to intent, the Court noted that the plaintiff/appellant “deleted 41,000 files from his laptop in December 2014 in the face of two litigation hold notices, one of which he issued, and an expedited discovery order that permitted Elting to conduct forensic discovery of Shawe’s laptop.”  Even though most of those files were recovered due to the laptop’s volume shadow copy system, the Court ruled that “does not negate his illicit intent” and also found that the “Court of Chancery was well within its discretion to sanction Shawe for his litigation misconduct” for throwing out his cell phone.

With regard to the “perjury” sanction, the Court stated: “While Shawe’s conduct may have constituted perjury, the court did not charge or convict him of perjury. Rather, the court imposed a civil sanction against him for his repeated lies under oath in interrogatory responses, at deposition, at trial, and in a post-trial affidavit to cover up what he had done. Shawe’s falsehoods wasted the court’s time, needlessly complicated and expanded the proceedings, and caused the court to find erroneous facts in its Merits Opinion. The Court of Chancery thus acted well within its discretion to sanction him for lying during the litigation.”

With regard to the claim that the defendant was awarded an excessive fee, the Court noted that the “Court of Chancery has broad discretion in fixing the amount of attorneys’ fees to be awarded” and “[a]bsent a clear abuse of discretion”, declined to reverse the award.

As a result, the Court affirmed the award, stating: “After a careful review of the record, we find that the Court of Chancery followed the correct legal standards and made no errors of law in its sanctions ruling. Shawe’s behavior was ‘unusually deplorable,’ and thus the Court of Chancery acted well within its discretion by sanctioning him for his bad faith conduct.”

So, what do you think?  Did the actions merit such a stiff sanction?  Please share any comments you might have or if you’d like to know more about a particular topic.

Disclaimer: The views represented herein are exclusively the views of the author, and do not necessarily represent the views held by CloudNine. eDiscovery Daily is made available by CloudNine solely for educational purposes to provide general information about general eDiscovery principles and not to provide specific legal advice applicable to any particular circumstance. eDiscovery Daily should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you.

In Below v. Yokohama Tire Corp., No. 15-cv-529 (W.D. Wisc. Feb. 27, 2017), Wisconsin District Judge William M. Conley, deciding on several pre-trial motions, granted (to an extent) the defendants’ motion for relief due to spoliation of evidence for failing to preserve the truck involved in a crash, stating that “defendants persuasively argue that the absence of this evidence should at minimum preclude plaintiffs from using it as a sword, even if defendants cannot use it as a shield.”

Case Background

In this product liability case related to a truck crash due to an alleged defective tire produced by the defendants that left the plaintiff severely injured, the defendants contended that the plaintiff’s pickup truck was destroyed at a salvage yard before plaintiffs filed this lawsuit.  The defendants argued that destruction of the truck hampered their defense because they were unable to evaluate, among other things, the suspension and steering systems, the seatbelt, the electronic data recorder and the other three tires.  Asserting that the plaintiffs or their “agents” sold the plaintiff’s pickup truck to a salvage yard with the knowledge that it would be destroyed after inspecting it, taking photographs and preserving the failed tire, defendants moved for a spoliation instruction.  Because of the plaintiffs’ actions, as well as receipt of $22,000 in insurance proceeds from the sale of the truck to the plaintiffs, the defendants argued that the plaintiffs’ bad faith could be inferred.

The plaintiffs asserted that the salvage yard agreed to the request from an investigator (retained by plaintiffs’ counsel) to preserve the truck in October 2013 (about a month and a half after the accident). In May of 2014, another of its investigators (Tom Malone) followed-up with the salvage yard to ask them to continue to preserve the truck and to notify him about any storage charges. Despite these efforts, plaintiffs’ counsel later “discovered” in the fall of 2015 that the truck had been destroyed on October 23, 2014.

Judge’s Ruling

Judge Conley noted that “A spoliation instruction is only obtainable if the proponent shows an intentional act or bad faith by the party in possession of the destroyed evidence.”

With regard to the plaintiffs’ failure to preserve all but the allegedly defective tire from the truck, Judge Conley stated: “Left unexplained is how plaintiffs ended up with the single, allegedly defective tire without preserving the other three; why other steps were not taken to preserve similar evidence, including possible electronic evidence that must be preserved under Fed. R. Civ. P. 37(e); and perhaps most important, why plaintiffs waited another, two full years after the accident without notifying Yokohama of the availability of this piece of key evidence, despite knowing that it was the focus of plaintiffs’ liability claims within months of the accident itself. These questions are all the more troubling because plaintiffs were represented by a sophisticated personal injury law firm, who know full well of their duty to maintain evidence relevant to likely litigation, to provide notice of a possible claim, and notice of ‘the existence of evidence relevant to that claim.’…Plus, Malone’s letter to the salvage yard presents many more questions than it answers, as to timing and whether any agreement ever existed with the salvage yard.”

As a result, Judge Conley ruled, as follows: “Based on this record, plaintiffs’ counsel certainly should have taken additional steps to ensure that the truck (or at least potentially key evidence) was preserved, as well as notified likely defendants timely of the opportunity to inspect it. The failure to do so falls somewhere between negligence and gross negligence, but perhaps short of bad faith or intentional conduct requiring an adverse inference instruction. Even so, defendants persuasively argue that the absence of this evidence should at minimum preclude plaintiffs from using it as a sword, even if defendants cannot use it as a shield. Therefore, the defendants motion is GRANTED to the extent that (1) defendants may explore how information from an inspection of Below’s truck could have affected the experts’ opinions at trial; and (2) plaintiffs may not argue that defendants or their experts failed to explore or prove something if prevented from doing so by plaintiffs’ negligence in preserving evidence. Defendants’ motion is otherwise RESERVED pending a further proffer and argument at the final pretrial conference, including defendants request for a spoliation instruction.”

So, what do you think?  Did the judge go far enough in addressing the spoliation of truck evidence?  Please share any comments you might have or if you’d like to know more about a particular topic.

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