eDiscovery Daily Blog

• October 12, 2012

 

In Multifeeder Tech. Inc. v. British Confectionery Co. Ltd., No. 09-1090 (JRT/TNL), (D. Minn. Sept. 18, 2012), the defendant had been previously sanctioned $500,000 ($475,000 to the plaintiff and $25,000 to the court) and held in contempt of court by the magistrate judge for spoliation, who also recommended an adverse inference instruction be issued at trial.  The defendant appealed to the district court, where Minnesota District Judge John Tunheim increased the award to the plaintiff to $600,000.  Oops!

Background

In this breach of contract case, the magistrate court granted the plaintiff’s motion in 2010 to compel discovery of several specific document requests after the defendants failed to comply with those requests.  After the defendant had still failed to comply six months later, the plaintiff motioned the court for sanctions due to the defendant’s failure to comply with the court’s previous 2010 order. While granting the plaintiff’s motion for sanctions, the magistrate judge also ordered that the parties try to cooperate to agree on the handling of eDiscovery in the case. Failing an agreement, each side would then be permitted to submit a proposal for the court to use to establish an eDiscovery protocol.

Forensic Examination of Defendant’s Computers

When the parties could not come to an agreement, they did so, and the court chose the plaintiff’s proposal, appointing a computer forensic expert to image and examine the defendant’s computers, allocating the forensic discovery costs between the parties.  The forensic examination identified several occurrences of spoliation by the defendant, including commercial wiping software found on one custodian’s computer with “six deletions occurring after both the commencement of the lawsuit and issuance of the ESI Protocol Order” and concealment of an encrypted volume and deletion of a PST file by a vice president of the company.

Sanctions Ordered by Magistrate Court

After reviewing the facts and sanctions at the Court's disposal, the Magistrate Judge recommended that:

(1)   An adverse inference instruction be given with regard to the defendant’s destruction of evidence;

(2)   The defendant be held in civil contempt, and ordered to pay $25,000 to the Court and $475,000 to the plaintiff.  With regard to the $475,000, the Court found that amount to constitute reasonable expenses under Fed. R. Civ. P. 37(b)(2)(C) because "it encompasses much of CFS's current unpaid invoices, some past paid amounts by Multifeeder to CFS, and reasonable legal fees and costs for litigating this discovery debacle."

Both Parties Object to Sanction Amount

The defendant objected with regard to the finding of spoliation by the two individuals, objected that the $475,000 sanction was too high because the plaintiff was partly responsible for the “massive” costs for the forensic examination and appealed to the district court.  In turn, the plaintiff also objected to the sanction amount, indicating that the “award fails to adequately cover the reasonable expenses it incurred as a result of [the defendant’s] conduct” and asked that the total amount be raised to over $692,000.

Sanction Amount is Increased, not Decreased

Judge Tunheim upheld the finding of spoliation against the two individuals.  With regard to the sanction amount, Judge Tunheim noted that “the recommended $475,000 sanction is insufficient” and found as follows:

“The Court has also considered that this is not the first sanctions order in this case; British's repeated violations of the Court's discovery orders warrant significant sanctions to deter British from further misconduct. Therefore, the Court finds that a sanction of $600,000 represents reasonable expenses and attorneys' fees because it encompasses much of CFS's current unpaid invoices, at least some past paid amounts by Multifeeder to CFS, and reasonable legal fees and expenses in litigating this discovery dispute.” [emphasis added]

Judge Tunheim also ordered the defendant to pay “half of the sanctions award, $300,000, within 90 days of the date of this Order. The second half of the sanctions award will be payable no later than 120 days of the date of this Order.”

So, what do you think?  Should the defendant appeal again or quit before they get further behind?  Please share any comments you might have or if you’d like to know more about a particular topic.

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