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Sanctions

Scheindlin Reverses Magistrate Judge Ruling, Orders Sanction for Spoliation of Data – eDiscovery Case Law

If you’re hoping to get away with failing to preserve data in eDiscovery, you might want to think again if your case appears in the docket for the Southern District of New York with Judge Shira Scheindlin presiding.

As reported in by Victor Li in Law Technology News, (Scheindlin Not Charmed When Revisiting Spoliation a Third Time), Judge Scheindlin, who issued two of the most famous rulings with regard to eDiscovery sanctions for spoliation of data – Zubulake v. UBS Warburg and Pension Committee of the Montreal Pension Plan v. Banc of America Securities – sanctioned Sekisui America Corp. and Sekisui Medical Co. with an adverse inference jury instruction for deleting emails in its ongoing breach of contract case, as well as an award of “reasonable costs, including attorneys’ fees, associated with bringing this motion”.

Last year, the plaintiffs sued two former executives, including CEO Richard Hart of America Diagnostica, Inc. (ADI), a medical diagnostic products manufacturer acquired by Sekisui in 2009, for breach of contract.  While the plaintiffs informed the defendants in October 2010 that they intended to sue, they did not impose a litigation hold on their own data until May 2012. According to court documents, during the interim, thousands of emails were deleted in order to free up server space, including Richard Hart’s entire email folder and that of another ADI employee (Leigh Ayres).

U.S. Magistrate Judge Frank Maas of the Southern District of New York, while finding that the actions could constitute gross negligence by the plaintiffs, recommended against sanctions because:

  • There was no showing of bad faith, and;
  • The defendants could not prove that the emails would have been beneficial to them, or prove that they were prejudiced by the deletion of the emails.

The defendants appealed.  Judge Scheindlin reversed the ruling by Magistrate Judge Maas, finding that “the destruction of Hart’s and Ayres’ ESI was willful and that prejudice is therefore presumed” and the “Magistrate Judge’s Decision denying the Harts’ motion for sanctions was therefore ‘clearly erroneous.’”

With regard to the defendants proving whether the deleted emails would have been beneficial to them, Judge Scheindlin stated “When evidence is destroyed intentionally, such destruction is sufficient evidence from which to conclude that the missing evidence was unfavorable to that party.  As such, once willfulness is established, no burden is imposed on the innocent party to point to now-destroyed evidence which is no longer available because the other party destroyed it.”

Judge Scheindlin also found fault with the proposed amendment to Rule 37(e) to the Federal Rules of Civil Procedure, which would limit the imposition of eDiscovery sanctions for spoliation to instances where the destruction of evidence caused substantial prejudice and was willful or in bad faith, stating “I do not agree that the burden to prove prejudice from missing evidence lost as a result of willful or intentional misconduct should fall on the innocent party.  Furthermore, imposing sanctions only where evidence is destroyed willfully or in bad faith creates perverse incentives and encourages sloppy behavior.”

As a result, Judge Scheindlin awarded the defendants’ request for an adverse inference jury instruction and also awarded “reasonable costs, including attorneys’ fees, associated with bringing this motion”.  To see the full opinion order (via Law Technology News), click here.

So, what do you think?  Should sanctions have been awarded?   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 Discovery. eDiscoveryDaily is made available by CloudNine Discovery solely for educational purposes to provide general information about general eDiscovery principles and not to provide specific legal advice applicable to any particular circumstance. eDiscoveryDaily should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you.

Permissive Adverse Inference Instruction Upheld on Appeal – eDiscovery Case Law

In Mali v. Federal Insurance Co., Nos. 11-5413-cv, 12-0174-cv (XAP) (2d Cir. June 13, 2013), the Second Circuit explained the distinctions between two types of adverse inference instructions: a sanction for misconduct versus an explanatory instruction that details the jury’s fact-finding abilities. Because the lower court opted to give a permissive adverse inference instruction, which is not a punishment, the court did not err by not requiring the defendant to show that the plaintiffs acted with a culpable state of mind.

After a fire destroyed a barn converted into a residence, the plaintiffs sought to recover $1.3 to $1.5 million from their insurance policy. The insurance company made three payments before becoming skeptical of the plaintiffs’ claim. In particular, the company balked at the plaintiffs’ statement that they had high-end amenities, such as four refrigerators and copper gutters, and their sketch of the barn’s layout, which showed fourteen rooms, a second floor with four rooms and a bathroom, and four skylights. During discovery, the plaintiffs claimed they had no photographs of the barn, but at trial, an appraiser testified that the plaintiffs had shown her photographs of items in the barn and of the barn, which she testified only had one floor, not two as the plaintiffs claimed.

The defendants asked the court to impose an adverse inference instruction on the plaintiffs as a sanction for destroying the photographic evidence. Over the plaintiffs’ objection, the court instructed the jury that it could draw an adverse inference from the plaintiffs’ failure to produce the photographs. The jury agreed with the defendant and found the plaintiffs had submitted fraudulent claims that forfeited their insurance coverage.

On appeal, the plaintiffs argued that the jury’s verdict should be vacated and that a new trial was required because the court did not make findings to justify this sanction. However, the appellate court ruled that the plaintiffs’ argument was “based on a faulty premise” because the trial court “did not impose a sanction on the Plaintiffs.” Therefore, no findings were required. It also found the plaintiffs’ reliance on a prior Second Circuit decision, Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99, 107 (2d Cir. 2002), where the court ruled that a trial court “must find facts that justify” an adverse inference instruction based on spoliation, inapposite. In Residential Funding, the plaintiff failed to meet its discovery obligations because it did not produce e-mails or backup tapes. The court refused to impose the defendant’s requested sanction, which was an instruction to the jury that it “‘should presume the e-mails . . . which have not been produced, would have disproved [Residential]’s theory of the case,’” because the defendant had not provided facts sufficient to support the sanction.

Here, the Second Circuit explained the distinction between the two types of adverse inferences in these cases: (1) one that punishes “misconduct that occurred outside the presence of the jury during the pretrial discovery proceedings, often consisting of a party’s destruction of, or failure to produce, evidence properly demanded by the opposing party,” and (2) one that “simply explains to the jury, as an example of the reasoning process known in law as circumstantial evidence, that a jury’s finding of certain facts may (but need not) support a further finding that other facts are true.” The court ruled that the latter instruction “is not a punishment” but instead is “an explanation to the jury of its fact-finding powers.”

The Mali court found the trial court’s instructions did not “direct the jury to accept any fact as true” or “instruct the jury to draw any inference against the Plaintiffs.” Because “the court left the jury in full control of all fact finding,” it fell within the explanatory classification of instructions.

So, what do you think?  Was the permissive adverse inference instruction warranted?   Please share any comments you might have or if you’d like to know more about a particular topic.

Case Summary Source: Applied Discovery (free subscription required).  For eDiscovery news and best practices, check out the Applied Discovery Blog here.

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

EEOC Sanctioned for Failing to Comply with Motion to Compel Production – eDiscovery Case Law

As noted previously in this blog, the Equal Employment Opportunity Commission (EEOC) was ordered to turn over social media information related to a class action case alleging sexual harassment and retaliation.  Apparently, they were less than cooperative in complying with that order.

In EEOC v. Original Honeybaked Ham Co. of Georgia, 11-cv-02560-MSK-MEH, 2012 U.S. Dist. (D. Colo. Feb. 27, 2013), Colorado Magistrate Judge Michael E. Hegarty sanctioned the EEOC for failing to provide discovery of social media content.

This has been a busy case with at least eight court rulings in 2013 alone, including ruling where Judge Hegarty barred the EEOC from asserting claims not specifically identified during pre-suit litigation and prohibited the EEOC from seeking relief on behalf of individuals who the defendant could not reasonably identify from the information provided by the EEOC.

In this ruling, Judge Hegarty stated: “I agree that the EEOC has, on several occasions, caused unnecessary expense and delay in this case. In certain respects, the EEOC has been negligent in its discovery obligations, dilatory in cooperating with defense counsel, and somewhat cavalier in its responsibility to the United States District Court.”

Elaborating, Judge Hegarty stated, as follows:

“The offending conduct has been demonstrated in several aspects of the EEOC’s discovery obligations. These include, without limitation, the following. First, the circumstances surrounding the EEOC’s representations to this Court concerning its decision to use its own information technology personnel to engage in forensic discovery of the Claimants’ social media (cell phones for texting, web sites for blogging, computers for emailing), for which I had originally appointed a special master. The EEOC unequivocally requested this change, which I made an Order of the Court on November 14, 2012 (docket #248). Weeks later, the EEOC reneged on this representation, requiring the Court and the Defendant to go back to the drawing board. Second, in a similar vein, the EEOC changed its position — again ostensibly because some supervisor(s) did not agree with the decisions that the line attorneys had made — after lengthy negotiation and agreement with Defendant concerning the contents of a questionnaire to be given to the Claimants in this case, designed to assist in identifying the social media that would be forensically examined. The EEOC’s change of mind in midstream (and sometimes well downstream) has required the Defendant to pay its attorneys more than should have been required and has multiplied and delayed these proceedings unnecessarily.”

Stating that he had “for some time, believed that the EEOC’s conduct was causing the Defendant to spend more money in this lawsuit than necessary”, Judge Hegarty granted (in part) the defendants’ Motion for Sanctions and required the EEOC to “pay the reasonable attorney’s fees and costs expended in bringing this Motion”.  Perhaps more to come.

So, what do you think?  Was the sanction sufficient?  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 Discovery. eDiscoveryDaily is made available by CloudNine Discovery solely for educational purposes to provide general information about general eDiscovery principles and not to provide specific legal advice applicable to any particular circumstance. eDiscoveryDaily should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you.

eDiscovery Trends: Sanctions at an All-Time High

eDiscovery sanctions are at an all-time high, according to a Duke Law Journal law review article.  The article summarizes a study of 401 cases involving motions for sanctions related to discovery of electronically stored information (ESI) in federal courts through 2009, with a total of 230 sanction awards in those cases.  A link to the article can be found here.

In an increasing number of cases, more attention is focused on eDiscovery than on the merits, with a motion for sanctions becoming very common.  The sanctions imposed against parties in many of these cases have been severe, including adverse jury instructions, significant monetary awards and even dismissals. These sanctions have occurred despite the safe harbor provisions of Rule 37(e) of the Federal Rules of Civil Procedure, which have provided little protection to parties or counsel.

The study also found that defendants are sanctioned almost three times as often as the plaintiffs in a lawsuit (175 to 53). The most common type of misconduct to receive a sanction was failing to preserve relevant information (sanctions were granted in 90 cases). Often, multiple types of misconduct led to the sanctions. Other types of misconduct included a failure to produce information and delays in producing the information.

Other key notable stats:

  • 354 of the 401 cases where sanctions were requested and 198 of the 230 sanction awards have occurred since 2004;
  • The most common types of cases with sanctions are employment (17 percent), contract (16 percent), intellectual property (15.5 percent) and tort cases (11 percent);
  • 183 district court judges and 111 magistrate judges from 75 federal districts in 44 states, the Virgin Islands, the District of Columbia, and Puerto Rico, have issued written opinions regarding e-discovery sanctions;
  • Cases involving e-discovery sanctions and sanction awards more than tripled between 2003 and 2004, from 9 to 29 sanction cases, and from 6 to 21 sanction awards;
  • There were more e-discovery sanction cases (97) and more e-discovery sanction awards (46) in 2009 than in any prior year – more than in all years prior to 2005 combined!!

The study also has a year-to-year breakdown of sanctions from 1981 through 2009, with a bar chart that illustrates the tremendous growth in sanction cases and awards in the last six years.  A partner and senior attorneys at King & Spaulding’s Discovery Center assisted the students in analyzing the cases and identifying the trends in sanctions.

So, what do you think?  Have you been involved in any cases where sanctions have been requested or awarded?  Please share any comments you might have or if you’d like to know more about a particular topic.

Sanctions and Other Things that Go Bump in the Night

Sunday is Halloween, so it seems appropriate to try to “scare” you before the big day.  Does this scare you?

“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”

What about this?

“From this Court’s perspective, a monetary sanction of $150,000 should be sufficient to compensate Plaintiffs for their added expense and deter SanDisk from taking shortcuts.”

Or this?

“For his misconduct, Peal has already received a severe sanction in having his complaint dismissed with prejudice.”

How about this?

“A party does not need formal notice to know that spoliation of evidence and misrepresentations may lead to dismissal.”

Scary, huh?  If the possibility of sanctions keep you awake at night, then the folks at eDiscovery Daily will do our best to provide useful information and best practices to enable you to relax and sleep soundly, even on Halloween!

Of course, if you really want to get into the spirit of Halloween, click here.

What do you think?  Is there a particular eDiscovery issue that scares you?  Please share your comments and let us know if you’d like more information on a particular topic.

Happy Halloween!