Tag Archives: duty to preserve

D. Minn Court Holds Defendant in Contempt (ESI)

Multifeeder Tech. Inc. v. British Confectionery Co. Ltd., No. 09-1090 (JRT/TNL), 2012 WL 4135848 (D. Minn. Sept. 18, 2012)

In this case, the Magistrate Judge recommended that an adverse inference be issued, that Defendant be held in contempt and that significant monetary sanctions be imposed upon his determination that two of Defendant’s employees had intentionally spoliated evidence by deleting certain information and by failing to reveal the existence of encrypted data.  Upon the parties’ objections, the District Court adopted in part the Magistrate Judge’s recommendation, but increased the monetary sanctions imposed.

While the details provided in these opinions are somewhat complicated, the bottom line is simple: two of Defendant’s employees were found to have intentionally spoliated evidence.  The spoliation was discovered by a forensic investigator who had been appointed by the court following Plaintiff’s first motion for sanctions.  At the time of that appointment, pursuant to an ESI protocol crafted by the court, the parties were each ordered to bear a portion of the costs of further investigation.

Briefly, the relevant incidents of spoliation included the use of wiping software by Defendant’s Director of Quality Assurance and the deletion of a PST file by the Vice President of Sales and Marketing.  The Magistrate Judge also found that the Vice President’s failure to reveal the existence of encrypted data on his laptop despite an order requiring that Defendant provide the court-appointed forensic investigator with “reasonable access to personnel and facilities,” which encompassed the custodian’s computers, amounted to spoliation:

[He] knew that an encrypted and passwordprotected [sic] volume was installed and in use on his computer, and he failed to provide any notice that such a volume existed.  Encryption software exists so that—without notice and a password—entities like CFS are unlikely to find and access the ESI stored on encrypted volumes.  Thus, the failure to provide any notice of the encrypted volume until November 2011 violated the ESI Protocol Order and amounts to spoliation of evidence.

(CFS was the court-appointed forensic examiner.)

In light of Defendant’s spoliation, the Magistrate Judge recommended that an adverse inference be imposed at trial and that Defendant be held in contempt and required to pay $25,000 to the court and $475,000 to the plaintiff.  The Magistrate Judge’s order took into account Plaintiff’s “reasonable expenses” caused by Defendant’s actions, including the significant fees of the forensic examiner.

Both parties objected.  Upon review, the District Court adopted the recommendations of the Magistrate Judge, in part, but increased the amount of monetary sanctions to be paid to Plaintiff.  The court indicated that the amount was increased for several reasons, including to better compensate Plaintiff for the significant costs of the forensic investigator and its attorneys’ fees and in light of the court’s consideration of other circumstances, such as the “significant prejudice” suffered by Plaintiff (which the District Court determined could not be mitigated to the extent indicated by the Magistrate Judge) and the fact that this was not the first sanctions order in this case.

The District Court largely rejected Defendant’s assertion that Plaintiff was “at least partially responsible” for the investigator’s “ballooning costs” (Plaintiff initially estimated the cost of the investigation would be around $10,000 + travel) and that some portion of the fees were not reasonably attributable to Defendant because of Plaintiff’s failure to timely inform Defendant or the Court that the fees would be far greater than expected.  Despite acknowledging the disparity between the estimated and final cost and that Plaintiff should have disclosed the “exploding” costs sooner, the court ultimately determined that it was largely Defendant’s conduct that resulted in the extensive fees: “It is no fault of Multifeeder that documenting the extent of British’s drive wiping was extremely time consuming.”

Accordingly, the court raised the sanction to $600,000, an amount which “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.”  The court also ordered Defendant to pay the recommended $25,000 to the court.

Indicating its reluctance to modify the previously imposed ESI protocol which ordered Plaintiff to pay a portion of the investigator’s costs, but recognizing that the fees owed could financially devastate Plaintiff absent receipt of the payment ordered from Defendant, the court ordered Defendant to make staggered payments to Plaintiff and that Plaintiff in turn pay the investigator its fees within a time certain.

A copy of the Magistrate Judge’s order is available here, a copy of the District Court’s order is available here.

via For Spoliation, Court Holds Defendant in Contempt, Orders $600,000 to be Paid to Plaintiff, $25,000 to be Paid to the Court : Electronic Discovery Law.

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Courts Increasingly Cognizant of eDiscovery Burdens, Reject “Gotcha” Sanctions Demands

Courts are becoming increasingly cognizant of the eDiscovery burdens that the information explosion has placed on organizations. Indeed, the cases from 2012 are piling up in which courts have rejected demands that sanctions be imposed for seemingly reasonable information retention practices. The recent case of Grabenstein v. Arrow Electronics (D. Colo. April 23, 2012) is another notable instance of this trend.

In Grabenstein, the court refused to sanction a company for eliminating emails pursuant to a good faith document retention policy. The plaintiff had argued that drastic sanctions (evidence, adverse inference and monetary) should be imposed on the company since relevant emails regarding her alleged disability were not retained in violation of both its eDiscovery duties and an EEOC regulatory retention obligation. The court disagreed, finding that sanctions were inappropriate because the emails were not deleted before the duty to preserve was triggered: “Plaintiff has not provided any evidence that Defendant deleted e-mails after the litigation hold was imposed.”

Furthermore, the court declined to issue sanctions of any kind even though it found that the company deleted emails in violation of its EEOC regulatory retention duty. The court adopted this seemingly incongruous position because the emails were overwritten pursuant to a reasonable document retention policy:

“there is no evidence to show that the e-mails were destroyed in other than the normal course of business pursuant to Defendant’s e-mail retention policy or that Defendant intended to withhold unfavorable information from Plaintiff.”

The Grabenstein case reinforces the principle that reasonable information retention and eDiscovery processes can and often do trump sanctions requests. Just like the defendant in Grabenstein, organizations should develop and follow a retention policy that eliminates data stockpiles before litigation is reasonably anticipated. Grabenstein also demonstrates the value of deploying a timely and comprehensive litigation hold process to ensure that relevant electronically stored information (ESI) is retained once a preservation duty is triggered. These principles are consistent with various other recent cases, including a decision last month in which pharmaceutical giant Pfizer defeated a sanctions motion by relying on its “good faith business procedures” to eliminate legacy materials before a duty to preserve arose.

The Grabenstein holding also spotlights the role that proportionality can play in determining the extent of a party’s preservation duties. The Grabenstein court reasoned that sanctions would be inappropriate since plaintiff managed to obtain the destroyed emails from an alternative source. Without expressly mentioning “proportionality,” the court implicitly drew on Federal Rule of Civil Procedure 26(b)(2)(C) to reach its “no harm, no foul” approach to plaintiff’s sanctions request. Rule 2626(b)(2)(C)(i) empowers a court to limit discovery when it is “unreasonably cumulative or duplicative, or can be obtained from some other source that is more convenient, less burdensome, or less expensive.” Given that plaintiff actually had the emails in question and there was no evidence suggesting other ESI had been destroyed, proportionality standards tipped the scales against the sanctions request.

The Grabenstein holding is good news for organizations looking to reduce their eDiscovery costs and burdens. By refusing to accede to a tenuous sanctions motion and by following principles of proportionality, the court sustained reasonableness over “gotcha” eDiscovery tactics. If courts adhere to the Grabenstein mantra that preservation and production should be reasonable and proportional, organizations truly stand a better chance of seeing their litigation costs and burdens reduced accordingly.

via e-discovery 2.0 » Blog Archive » Courts Increasingly Cognizant of eDiscovery Burdens, Reject “Gotcha” Sanctions Demands.

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