Posted on February 28, 2013 by Susan L. Nardone

A Bad "Day" for a Company Whose In-House Attorney Failed to Properly Preserve Relevant Documents

An Arizona federal court has determined that default judgment, an adverse instruction and monetary damages are proper remedies for in-house counsel’s failure to take the proper steps to preserve potentially relevant evidence after receiving notice of potential litigation. In Day v. LSI Corporation, Docket No. CIV-11-186-TUC-CKJ, the United States District Court for the District of Arizona granted, in part, the plaintiff-employee’s motion for entry of a default judgment and imposed additional sanctions against the defendant-employer, concluding that the employer’s in-house attorney had a “culpable mind” and acted willfully in failing to carry out the company’s preservation obligations.

During his October 2010 exit interview, the employee complained about alleged discrimination. Three months later, in January 2011, the company received a letter from an attorney representing the employee setting forth various contractual and other claims. In-house counsel was aware of both the exit interview complaint and the attorney letter and, in January 2011, issued a written document retention notice. The notice was not sent to a critical witness with relevant knowledge of some of the claims, though the company maintained that the witness was not identified in the attorney letter and that it was not aware that the witness had potentially relevant knowledge until receiving the employee’s initial disclosures seven months later. By then, the witness was no longer with the company and his emails had been purged from the company’s server.

The Court’s decision contains a lengthy discussion of the parties’ spoliation-specific discovery dispute, which included the depositions of the in-house attorney and members of the company’s IT department. There are some important lessons to be learned from the missteps in this case:

1. A legal hold notice directing employees to preserve paper and electronically stored documents and information should be issued to all witnesses with potentially relevant knowledge or information, not just those specifically identified in an attorney letter or lawsuit. Here, the Court determined that the witness’ involvement “should reasonably have been known” to the company and that had notice been issued as required, relevant documents would have been preserved. A “culpable mind” or willfulness on the part of the non-preserving party may be imputed where, as here, the in-house counsel knew or should have known of the importance of the witness.

2. Where in-house counsel assumes responsibility for litigation hold and preservation activities, s/he should investigate not only the identity of potential witnesses, but also work closely with the company’s IT professionals to identify the sources of or locations where relevant data may be stored. In this case, the in-house attorney testified that he directed the preservation of data and electronic files, wherever they may have been located (a “universal hold”), though the company disputed that a universal hold was required, relying on Fed.R.Civ.P. 26(b)(2(C) and Zubulake v. UBS Warburg, LLC, 220 F.R.D. 212 (S.D.N.Y. 2003). Contradictory testimony was offered by the company’s IT staff that only specific locations were identified by the in-house counsel and only those were searched and preserved. Whether the search was intentionally limited or the result of mere miscommunication, the end result for this company was a default judgment as to the claim for which the employee was substantially prejudiced because of the missing documents, an adverse instruction as to the remaining claims, and an award of $10,000 in monetary damages.

3. Courts are not afraid to impose serious sanctions for spoliation. The District Court for the District of Arizona determined that a default judgment was appropriate as to one of the claims because the company’s conduct led to the destruction of evidence that would have assisted the employee in the litigation, the public’s interest in expeditious litigation was hampered by the company’s failure to timely provide relevant discovery, and the employee was substantially prejudiced by the destruction of evidence, which “threatened to interfere with the rightful decision of the case.” Lesser, though still severe, sanctions were imposed concerning the employee’s other claims only because the Court determined that the risk of substantial prejudice was not significant.


Susan L. Nardone is a Director in the Gibbons Employment & Labor Law Department and a member of the Gibbons E-Discovery Task Force.
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Posted on June 29, 2012 by Gibbons P.C.

New Jersey State Courts Enter the E-Discovery Arena in Earnest; Award Sanctions for Email Spoliation

On June 18, 2012, an Appellate Court in New Jersey issued Goldmark v. Mellina, which held that asserting the attorney-client privilege does not excuse counsel and parties from their obligation to preserve relevant e-mails or other documents. There, the Court upheld the trial judge’s award of $5,502.50 in sanctions against a prominent New Jersey law firm because it had failed to timely produce electronic documents, which had temporarily disappeared, even though the lapse was not knowing. Because there were virtually no prior opinions (published or unpublished) addressing e-discovery in this jurisdiction, Goldmark is an important first-step towards providing e-discovery guidance to New Jersey practitioners.

At issue in this real estate construction litigation was whether the underlying construction dispute was settled as the purchasers contended or whether the purchasers breached the contract, which was the basis of the sellers’ claim. Although the Trial Court determined that no settlement agreement had been consummated, it also held that the sellers had both repudiated and breached the contract. In reaching that determination, the judge “relied upon and quoted extensively two [March 2008] emails” between the sellers and their attorney.

Where the sellers and their subsequent attorneys, who were ultimately sanctioned erred, was in thwarting the purchasers’ efforts to obtain those emails during discovery. Although the sellers’ attorneys properly produced a privilege log that listed those two e-mails, they failed to provide them to the judge for an in camera inspection in the context of a discovery motion. As a result, the trial judge allowed discovery to be re-opened, and the sellers testified that the e-mails had long been deleted.

After the purchasers hired a forensic specialist to inspect the hard drive of the sellers’ former attorney and the network of his former firm (as he passed away while the litigation was pending), the e-mails were found on that firm's server back-up tapes. The e-mails were turned over to the judge, examined in camera and ordered to be turned over to the sellers. The judge awarded sanctions against the sellers and their counsel “because their failure to preserve the e-mails resulted in additional and unnecessary efforts by purchasers.” The judge split the sanctions evenly between the sellers and their attorneys. As noted by the Appellate Division, “[i]t would make a mockery of our discovery rules to allow a party or its counsel -- after identifying privileged information -- to destroy or carelessly lose or misplace the materials in question.”

While the court’s opinion in Goldmark does not give the level of practical guidance that numerous federal cases have offered such as the seminal case in e-discovery, Zubulake v. UBS Warburg, LLC, it does represent a first step by the Appellate Division towards accepting some of the general ESI preservation principles outlined in Zubulake and its progeny. Hopefully, New Jersey case law and court rules will soon take the next step and specifically adopt these principles without reservation so that e-discovery obligations are clear. As we discussed in a prior post, New York state courts appear to be moving in that direction as evidenced by the decision in U.S. Bank N.A. v GreenPoint Mtge. Funding, Inc. As the U.S. Bank court held, “We are now persuaded that the courts adopting the Zubulake standard are moving discovery, in all contexts, in the proper direction.”


Kevin W. Weber is an Associate in the Gibbons Business & Commercial Litigation Department.
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Posted on May 18, 2012 by Paul E. Asfendis

New York Court Dismisses $20 Million Case as Spoliation Sanction

In a recent decision out of the New York State Supreme Court in Manhattan, a spoliator’s worst fears were recognized when the Court dismissed its entire Complaint as a sanction for failing to preserve electronic evidence. The decision, 915 Broadway Associates, LLC, v. Paul, Hastings, Janofsky & Walker, LLP, 2012 NY Slip. Op. 50285U (N.Y. Sup. February 16, 2012), is instructive in its clear statement and analysis of New York’s spoliation law and its demonstration of the Court’s willingness to impose the ultimate spoliation sanction where warranted.

The case involved a bungled real estate transaction and resulting legal malpractice lawsuit. After a non-party pulled out of the transaction, Plaintiff failed to draw on a $20 million letter of credit before it expired. Although there was evidence that Plaintiff itself was responsible, at least to some degree, for the failure to draw on the $20 million, Plaintiff sued its attorneys claiming that they should have drawn on the letter of credit or, instead, advised Plaintiff that the letter of credit was due to expire.

Importantly, in late March 2008, the reneging nonparty in the failed real estate transaction filed an action in New Jersey seeking a declaration that it was not in breach of contract. Upon serving Plaintiff on or about April 1, 2008, the nonparty included a litigation hold letter to Plaintiff. Plaintiff, which chose not to attempt to recover the $20 million from the other party to the failed transaction, but rather to seek to recover the money from its counsel in a legal malpractice action, failed to preserve documents in compliance with the litigation hold.

Specifically, one of Plaintiff’s principals intentionally and routinely deleted emails for 2 ½ years after the litigation hold was issued, emails that may have supported its former counsel’s defense that Plaintiff itself was responsible for monitoring the letter of credit expiration. There were other failures as well. Plaintiff failed to investigate the ways in which emails were stored and retained by its principals, or to make any effort to ensure that custodians were complying with their preservation duties. Six of eleven principals, who also were primary custodians, completely failed to suspend automatic deletion functions associated with their files, even after receipt of the litigation hold. Plaintiff also failed to suspend deletion of back-up tapes or to create electronic images of their data. But most egregiously, in the Court’s view, was Plaintiff’s replacement of its email servers in 2011 - after the Defendant had raised concerns to the Court about spoliation - which rendered impossible any potential recovery of deleted emails.

Based on the identity and roles of the spoliating individuals in the failed real estate transaction, the Court found that the deleted emails were relevant to the critical issue of who was responsible for monitoring the expiration of the letter of credit. The Court pointed out that even if relevance of the deleted emails had not been established, it could be presumed because Plaintiff’s destruction of evidence was at least grossly negligent (and probably willful). The Court issued the ultimate sanction and dismissed Plaintiff’s Complaint in its entirety. The Court also awarded Defendant fees incurred in connection with the motion.

The Court’s finding of spoliation is in line with recent binding precedent out of New York State’s Appellate Division, First Department (covering Manhattan and Bronx Counties), which adopted the approach taken by the Southern District of New York in the well known Zubulake decisions. (A link to a prior blog post on the referenced Appellate Division case- Voom H.D. Holdings LLC v. EchoStar Satellite LLC, 2012 N.Y. Slip Op. 00658 (1st Dep't 2012)- can be found here.) The 915 Broadway Associates decision affirms that blatant destruction of evidence after the duty to preserve has arisen will result in sanctions in New York State, and that New York courts are not afraid to issue the ultimate sanction- dismissal of an action- where warranted.


Paul E. Asfendis is a Director on the Gibbons E-Discovery Task Force.
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Posted on April 24, 2012 by Gibbons P.C.

Surf at Your Own Risk: For the First Time in New Jersey, Judge Holds Juror In Contempt for Internet Use During Deliberations

Last month, the Hon. Peter E. Doyne, A.J.S.C. found jury foreperson Daniel M. Kaminsky to be in criminal contempt pursuant to R. 1:10-2 for violating several orders of the trial judge that prohibited jurors from engaging in any independent research during trial as set forth in In re Kaminsky, (N.J. Sup. Ct., Bergen County, Mar. 12, 2012). After a mistrial was declared in the underlying criminal drug case and two fellow jurors reported Kaminsky’s Internet use, the Court found beyond a reasonable doubt, in the context of an Order to Show Cause hearing and related in camera proceedings, that (1) Kaminsky conducted independent research; (2) the act was contemptuous; and (3) the conduct was willful and contumacious, “with a complete disregard of the court’s authority and instructions.” Although the foreperson was subject to a maximum punishment of six months in prison, a $1,000 fine or both, he was only fined $500.

During the proceedings, the jury was repeatedly advised that Internet and other independent research was prohibited because their deliberations and the verdict should be based solely on the evidence introduced in the courtroom. They were informed of the prohibition during the voir dire process, after being sworn, before each break, and at the end of the day. Nonetheless, during the deliberation phase, the jury foreperson researched the defendant's potential punishment on the Internet, concluding that the penalty could range from ten to twenty years. He found this result to be particularly severe because the defendant was a young man, to the point that the foreperson became physically sick and very emotional at the thought of the defendant be subjected to a long incarceration.

One of the jurors who reported the foreperson felt he had become “tainted” because his independent research concerning the potential penalty drove his deliberations and likely influenced two other jurors. The Court concluded that the foreperson had not researched the specifics of the case at issue was of no moment. Similarly, that the trial judge did not specifically “elucidate every single possible subject which a juror is prohibited from researching” was not relevant. The critical fact was that the foreperson was relying on information that was not admitted as evidence, thereby disobeying the Court’s instructions.

Judge Doyne acknowledged that in New Jersey the “sanctioning of a juror who has violated a jury instruction to refrain from independent research, generally by way of the internet, appears to be absent.” This improper research, however, was not a novel issue for this particular Judge. Click here for a prior blog post regarding Judge Doyne. Nor, as we have previously discussed, is it a unique phenomenon. (For reasons why social media seems to be improperly perceived differently from other traditional means of communication, click here.) Ultimately, Judge Doyne was concerned that there exists the greater problem of general juror disobedience and the failure of some jurors to “conscientiously discharge their duties.” At the same time, he made clear how much he valued the courage and honesty of the two jurors who reported the foreperson. He also emphasized that that the foreperson did not have evil or malevolent intentions. It is clear from this opinion and his prior experience that the Judge did not want to attack jurors and respects their essential functions. Rather, he recommended here, as he had before, that the State’s Model Criminal Jury Charges be revised “to better communicate the importance of obedience to the court’s instructions,” including an explanation of the “reasons for the prohibition on juror research” as well as the “possible punishments for disobedience.”

Will revising the State’s Model Criminal Jury Charges eradicate all instances of jurors conducting research on the Internet? Given the prevalence of such conduct, probably not. But as Judge Doyne noted, jurors generally “possess sufficient discipline, patience, and sense of civic duty” to obey court directives. Thus, if the importance of those directives is clearly conveyed, we will hopefully see a decline in the objectionable behavior and an accompanying improvement in the jury trial system.

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Posted on February 21, 2012 by Gibbons P.C.

Lester v. Allied Part 2: "Clean Up" of Compromising Social Media Evidence Can Result in Severe Sanctions

Though some practitioners might be in denial, the follow-up sanctions orders in Lester v. Allied Concrete Co. et al. dated May 27, 2011 and September 23, 2011 should leave no room for doubt that preservation of social media is as important as any other electronic data or discovery. Similarly, the penalty for intentionally destroying such evidence may reach beyond the purse strings.

As reported late last year in a blog posting regarding Lester Part I, defense counsel moved for sanctions against plaintiff Isaiah Lester and his attorney, Matthew B. Murray, for spoliation of Facebook evidence. Ultimately, although defense counsel’s request for a new trial was denied after the jury had reached a $10.6 million verdict related to the tragic death of Lester’s wife in an automobile accident, Lester and Murray were ordered to pay defense counsel respectively, $180,000 and $542,000. But the sanctions did not end there; Murray’s misconduct was referred to the Virginia State Bar and allegations of Lester’s perjury were referred to the local prosecutor.

During discovery, defendants sought production of the contents of Lester’s account because they believed it would help their case on the issue of damages. Defendants were inspired to pursue this evidence after discovering a photo on Facebook depicting “Lester clutching a beer can, wearing a T-shirt emblazoned with ‘I [heart] hot moms.’” Specifically, they served discovery requests that sought information relating to Lester’s Facebook account including screen-prints and attached the compromising picture.

After reviewing Lester’s Facebook page in conjunction with the discovery requests, Murray’s paralegal (at Murray’s direction) advised Lester via e-mail to “clean up” the Facebook page because “we do NOT want blow ups of other pics at trial so please, please clean up your facebook and myspace.” She also advised there were “other pics that should be deleted.” Thereafter, Murray concocted a scheme to deactivate Lester’s Facebook account and to advise defense counsel that on the date the answer to the discovery was signed that Lester had no Facebook page.

Shortly thereafter, Lester deleted 16 photos (which were ultimately available at trial) to ensure he complied with Murray’s initial “clean up” request, although Murray denied knowledge of deletion of these photos in discovery responses. Thereafter, Murray and Lester attempted -- unsuccessfully -- to cover up these communications and related acts. (Defendants’ internet technology expert was ultimately able to confirm deletion of the photos).

The amount and scope of sanctions in Lester make clear that social media evidence is as important as other electronic discovery, and that the penalties for its spoliation can be as severe as those for destroying other evidence. While the egregious malfeasance of Lester and Murray (and Murray’s paralegal, who was under his supervision) did not result in an overturned verdict (though it was reduced by around $4 million for other reasons), both counsel and client paid a high price for their cavalier treatment and destruction of Facebook evidence.
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Posted on December 16, 2011 by Gibbons P.C.

Chief Judge Finds That Alteration of Facebook Page Can Lead to Spoliation Inference

In a trademark infringement case involving two restaurants, Katiroll Company, Inc. v. Kati Roll and Platters, Inc. et al., Plaintiff sought a spoliation inference, alleging various discovery abuses involving several types of evidence including social media. Specifically, Plaintiff requested sanctions for the individual Defendant’s failure to preserve his Facebook pages in two different ways. Recognizing that Facebook users change their pages frequently given the nature of the media at issue, Chief Judge Brown of the District of New Jersey crafted a creative remedy, which was based in large part on the level of prejudice to Plaintiff.

Regarding the first Facebook issue, Plaintiff sought PDF versions of Defendant's Facebook pages before they were taken down pursuant to Plaintiff’s take-down request. The Court declined to sanction Defendants for actions taken at Plaintiff’s request because it would be "unjust."

Plaintiff also sought a spoliation inference because the individual Defendant altered his profile picture on Facebook. The prior picture reflected the infringing trade dress of the restaurant at issue but was not preserved. The Court recited the four requirements for a spoliation inference, which the Chief Judge described as the mildest of sanctions: (1) whether the evidence was in the party’s control; (2) whether the evidence was actually suppressed or withheld; (3) whether the evidence was relevant vis-à-vis the claims or defenses at issue; and (4) whether it was reasonably foreseeable that the evidence at issue would subsequently be discoverable. The Court concluded that the most important consideration in determining what level of fault is required to support the second factor (an issue that is disputed within the District) is the degree of prejudice to the movant. Specifically, the Court concluded that a negligence standard may be appropriate if there was substantial prejudice whereas intentional conduct would be required if minimal prejudice resulted.

The Court had little difficulty finding that Plaintiff met the third requirement. It similarly found that the first requirement was met because "defendants have a discovery obligation to produce [websites]” and “only defendants knew whether the website would be changed." As for the second and fourth requirements, the Court found that, although the individual knew he had to preserve evidence, “it would not have been immediately clear that changing his profile would undermine discoverable evidence" given that a change of a profile picture "changes the picture associated with each and every post that user has made in the past.” Although the Court found that the spoliation was not intentional, the Court also determined that the loss of information was “somewhat prejudicial.” But instead of imposing an adverse inference instruction (as Plaintiff had requested), the Court directed Defendant to post the image of the allegedly infringing picture for a short period of time so that Plaintiff could then print relevant posts; thereafter, Defendant was permitted to re-post the non-infringing picture.

Katiroll demonstrates the Court’s understanding that the nature of Facebook invites changes to postings and pictures, and it teaches that the prejudice to the movant is a significant factor in determining the level of fault required before an adverse inference instruction will be imposed. Katiroll also demonstrates that courts will fashion novel remedies for spoliation in the social media context.
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Posted on November 16, 2011 by Robert D. Brown, Jr.

The Fifth Annual Gibbons E-Discovery Conference Kicks Off with an Interactive and Thought-Provoking Overview of the Past Year's Pivotal E-Discovery Case Decisions

The Fifth Annual Gibbons E-Discovery Conference kicked off with an interactive overview of the important judicial decisions from 2011 that shaped and redefined the e-discovery landscape. Before an audience of general and in-house counsel, representing companies throughout the tri-state area, the esteemed panel of speakers, including Michael R. Arkfeld, Paul E. Asfendis, and Mara E. Zazzali-Hogan, moderated by Scott J. Etish, tackled the issues faced by the courts over the past year. Through a series of hypotheticals, the panelists and attendees analyzed and discussed how to handle the tough e-discovery issues that arose and how the courts’ decisions again reshaped the e-discovery landscape as we know it. Litigation hold protocols and spoliation concerns, the use of social media in discovery with its attendant ethical concerns, and the use of social media and the Internet in the courtroom were the hot topics of the day. This interactive overview of the past year’s hot button, e-discovery issues was an instant success and clearly set the tone for the remainder of the conference.

Right out of the gate, the panelists and audience examined and debated Judge Scheindlin’s aggressive litigation hold protocol set forth in Pension Committee and the ramifications and aftermath it has since had on litigants. The attendees were treated to an in-depth, interactive discussion of two critical opinions from 2010-11 decided in the Southern and Western Districts of New York. These decisions made it clear that there are other approaches to the problems raised in Pension Committee other than the “gotcha game” that has since ensued. The panelists and attendees discussed the significance of the split in authority clearly seen in Pension Committee (S.D.N.Y), Orbit One (S.D.N.Y.) and Steuben Foods, Inc. (W.D.N.Y.). The implications of whether the more liberal and practical approach found in the Orbit One and Steuben Foods decisions were also discussed at length, during which time the attendees were asked to offer their insights on whether and how they would approach their existing litigation hold protocols as a result of these recent opinions. This examination served as a perfect segue into the analysis of other key issues raised by litigation hold protocols and the production of electronic evidence, including spoliation of evidence, sanctions, and waiver of privileges by inadvertent production of data.

In addition to the considerable discussion afforded to the recent changes in the litigation hold area, the panelists next offered a thought-provoking analysis of the important developments shaping the continued evolution of e-discovery disputes stemming from discovery requests for information maintained by a litigant or witness on social media host sites. As social media has become a modern replacement for face-to-face communications, its role in the litigation of cases has increased exponentially. The panel debated the primary question of whether counsel should be afforded access to the private sections of a litigant’s Facebook, MySpace or other social media account and how the courts and local bar associations answered this question over the past year. The discussion also focused on what measures counsel can and should employ to obtain access to this private information once litigation is threatened. As the panel emphatically stressed, the past year’s decisions and bar association opinions clearly demonstrate that “friending” a litigant or using deceptive practices to gain private access is extremely risky and could result in discipline. The issue of spoliation of evidence in this context, an issue recently addressed by the District of New Jersey in Katiroll Company, Inc. was also addressed by the panel.

Before wrapping up this important roadmap to the ever increasing e-discovery issues faced by litigants and their counsel, the panel discussed and examined the challenges faced by the court with the advancements in technology and the Internet. As we are all aware, gone are the days when it took considerable time to learn about an important event or to research an issue. With the advent of smart phone devices and websites like Wikipedia, information about virtually everything is at one’s fingertips. Although extremely useful and beneficial in every day life, such instant access to information has been detrimental, at times, to the efficient administration of the law. The final hypothetical of the segment brought this very point to light when the distinguished attendees were asked to analyze what a juror did wrong when he decided to perform some research on Wikipedia regarding a critical fact of the case and then printed it out for review by his fellow jurors.

It is clear that the creation and storage of electronic data and the utilization of social media is here to stay with new advancements everyday. With these advancements, however, come new disputes and more intervention by lawyers and the courts to develop and manage methods to best keep up. It is clear that the landscape of e-discovery protocol is still unsettled with changes in methodology and philosophy popping up at a rapid pace. As the overview panel discussion made it equally clear, Gibbons is at the forefront in this area of the law and continues to strive to stay ahead for the benefit of its clients and those who may need assistance in the future.

The PowerPoint presentation that was used for this panel discussion can be found here.


Robert D. Brown, Jr. is an Associate on the Gibbons E-Discovery Task Force.
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Posted on October 25, 2011 by Suzanne Herrmann Brock

ABA Formal Opinion 11-460 is at Odds With Stengart v. Loving Care Agency, Inc.

The American Bar Association recently published Formal Opinion 11-460 to provide guidance to attorneys regarding their ethical duty upon discovering emails between a third party and the third party’s attorney. The Opinion interprets Model Rule 4.4(b) literally, concluding that neither that rule nor any other requires an attorney to notify opposing counsel of receipt of potentially privileged communications. The Opinion is of particular note because it directly contradicts the New Jersey Supreme Court’s opinion in Stengart v. Loving Care Agency, Inc. 201 N.J. 300 (2010).

Formal Opinion 11-460 addresses the increasingly familiar situation in employment litigation where counsel’s review of an employee’s workplace computer reveals potentially privileged emails between the employee and his/her attorney. The specific question posed by the Opinion is whether the employer’s counsel has any legal or ethical duty to inform opposing counsel. In answering the question in the negative, the ABA concluded that Model Rule 4.4(b) only addresses emails that were “inadvertently sent,” and since the emails in question were not “inadvertently sent” by either party, Model Rule 4.4(b) is inapplicable. The ABA acknowledges that its Opinion is in direct contrast to the New Jersey Supreme Court’s decision in Stengart. Specifically, in Stengart, the New Jersey Supreme Court held that defense counsel violated New Jersey RPC 4.4(b), which is substantially similar to Model Rule 4.4(b), by not setting aside and notifying opposing counsel of their possession of emails between Stengart and her counsel, which were obtained through a forensic image of Stengart’s work laptop.

Significantly, while Formal Opinion 11-460 holds that Model Rule 4.4(b) does not independently impose an ethical duty to notify opposing counsel of the receipt of private, potentially privileged communications, it makes clear that Courts may impose disclosure obligations pursuant to their supervisory authority. The Opinion also explains that the rules of civil procedure, discovery, statutory or case law in a particular jurisdiction may require notification and return of the emails. Further, the Opinion explains that the best practice will often be for counsel to give notice to their adversary and obtain a judicial ruling as to the admissibility of the employee’s attorney-client communications before attempting to rely on them, and if possible, before attorney review. Finally, the Opinion cautions that attorneys need to explain the various implications and available alternatives, if any, of disclosure of the potentially privileged emails to their client.

As a practical matter, the ABA’s Opinion may do little to change how an attorney reacts when coming into possession of a privileged communication since many jurisdictions, including New Jersey, require the disclosure of potentially privileged communications uncovered during the review of electronic discovery. Nevertheless, the ABA’s Opinion adds the voice of a well-respected national organization to this debate and may persuade courts or lawmakers to reconsider their view in the future. To read more about the Stengart decision and its implications for employers and their counsel, click here.


Suzanne Herrmann Brock is an Associate on the Gibbons E-Discovery Task Force.

 
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Posted on September 27, 2011 by Jennifer A. Hradil

E-Discovery Sanctions May Be Entered and Have Consequences Long After Litigation Concludes

Even after a particular case has concluded, the risk of sanctions arising from e-discovery violations persists. Green v. Blitz U.S.A. was one of many products liability suits alleging injuries resulting from the defendant’s failure to equip its gas can with a “flame arrester.”

Over a year after the conclusion of the trial and entry of final judgment in Green, the court entered monetary and non-monetary sanctions against the defendant for its failure to adequately preserve and identify potentially relevant documents. Because the matter had closed, many of the non-monetary sanctions under Rule 37(b)(2) were not available. Accordingly, the court fashioned a creative non-monetary sanction requiring the defendant (1) to provide the sanctions opinion to all plaintiffs in any litigation against the defendant for the prior 2 years; and (2) to file the opinion with any court in any new lawsuit in which the defendant is a party for 5 years following entry of the opinion.

Like many opinions issuing sanctions for e-discovery violations, at first glance, Green appears to present somewhat extreme facts reflecting the defendant’s electronic discovery failures:

  • The defendant’s employee charged with the collection of relevant information testified that he was computer illiterate;
  • That employee did not perform any electronic search for emails or talk to the IT department in connection with his search;
  • No litigation hold directive was given to employees; and
  • Over the course of the relevant period, numerous emails were sent by the IT department instructing employees to delete old emails.

The result: numerous relevant and inculpatory documents were never produced (and others, likely, were not preserved).

Long after the Green trial concluded, some of these documents were produced in another suit against the defendant arising out of the same alleged product defect. Perhaps most notably, these documents included an email received by the employee charged with the document collection with “Flame Arrester” as the subject which -- contrary to defendant’s defense at trial -- admitted that the relevant technology existed. As to this document, the court found that “[a]ny competent electronic discovery effort would have located this email.”

While the facts giving rise to the defendant’s e-discovery failures seem extreme, Green provides valuable lessons for executing any e-discovery preservation and collection plan. For example, Green once again highlights the dangers of not having developed a litigation hold procedure and issuing an adequate litigation hold when appropriate. Likewise, while charging a computer illiterate employee with sole responsibility for discovery collection is an obvious gaffe, Green should nonetheless serve as a reminder that choosing appropriate personnel to work in conjunction with counsel is critical to a defensible collection plan. Finally, given the nature of the sanctions here, parties involved in repeated litigation should be aware that they could continue to face consequences from e-discovery violations even well after the conclusion of the litigation in which they occurred.


Jennifer A. Hradil is a Director on the Gibbons E-Discovery Task Force.
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Posted on September 6, 2011 by Suzanne Herrmann Brock

DuPont v. Kolon: A Lesson In How To Avoid Sanctions For Spoliation Of Evidence

Two recent decisions in the same case illustrate that, when it comes to imposing sanctions for spoliation of evidence, what matters is not simply whether you’ve intentionally deleted relevant evidence, but how you go about deleting it, and what the record reflects about your intentions. Although both the plaintiff and the defendant in E.I. du Pont De Nemours and Co. v. Kolon Industries, Inc., Civil Action No. 3:09cv58, demonstrated that the other intentionally destroyed relevant evidence, as is detailed below, the Court sanctioned only defendant Kolon Industries, Inc. (“Kolon”) based on its manifest bad faith (read the decision here). As is discussed in an earlier post on Gibbons’ E-Discovery Law Alert (which you can read here), plaintiff E.I. du Pont de Nemours and Company (“DuPont”) escaped a similar fate based on its demonstrable good faith. In short, this case teaches that the intentional deletion of relevant evidence does not per se lead to sanctions. Rather, the parties’ conduct — or misconduct, as the case may be — must be judged contextually.

Dupont filed a Complaint against Kolon on February 3, 2009, alleging trade secret misappropriation, theft of confidential business information, and conspiracy based on Kolon’s efforts to recruit former DuPont employees and otherwise unlawfully obtain DuPont’s proprietary information. When Kolon produced in discovery screenshots of key employees’ computers taken after they had notice of the Complaint that appeared to show that they marked emails with instructions such as “Delete,” “Need to Delete,” “Remove All” and “Get Rid Of,” DuPont moved for sanctions for spoliation of evidence.

Before deciding DuPont’s spoliation motion, the Court ordered targeted discovery concerning the apparent spoliation, including forensic analysis. In addition to Kolon’s “overall obfuscatory conduct,” the targeted discovery specifically revealed that:

  • On February 6, 2009, two days after it learned of the DuPont Complaint, Kolon’s legal department issued its first legal hold to only select upper-level employees, who were advised only that they “might want to provide the order to other personnel,” though nothing in the record demonstrated that the hold order was, in fact, communicated to any other employees at that time.
  • On February 10, 2009, Kolon issued its second litigation hold, this time sending it to all employees. However, most of them were South Korean and did not speak English, and the hold was in English. • Shortly after learning of the DuPont Complaint but likely prior to the issuance of the litigation hold, a senior Kolon manager gathered several other employees to discuss “identifying documents on their computers that they may want to consider deleting at a later date.”
  • It was not until February 23, 2009 that Kolon issued a third litigation hold to its IT department instructing them to “safeguard documents stored on Kolon’s server by backing up material on tapes and suspending the routine, good faith operation of Kolon’s document retention practices . . . .” Thereafter, Kolon imaged the hard drives of key employees.
  • According to DuPont’s forensic analyst, who performed deletion analyses of the computers of thirteen Kolon employees, after February 1, 2009, Kolon’s employees deleted at least 17,811 files and emails (and perhaps hundreds more), many of which were deemed relevant to the case based on keyword searches and a review of recoverable data as well as analyses of file names and metadata (e.g., files with “last written” dates many years before they were deleted).

Based on these facts, the Court found that “key employees . . . intentionally deleted relevant files and email items . . . after Kolon’s duty to preserve had been triggered and with knowledge of the filing of DuPont’s Complaint” — i.e., that Kolon spoliated evidence. Citing “[s]tandard principles of agency law,” the Court rejected Kolon’s argument that its employees’ conduct should not be attributed to it since their actions were “unauthorized,” “outside the scope of their employment,” “not taken . . . to aid Kolon” and “directly contradicted corporate directives.” And although some of the deleted data was recoverable, the Court summarily rejected Kolon’s argument that this mitigated its spoliation, noting that “[t]he fact of deletion has evidentiary significance.”

Notwithstanding the bad faith conduct of its employees, because Kolon attempted to put two litigation holds in place and also implemented a widespread effort to preserve files, and given that many deleted items were recoverable because Kolon preserved certain back-up tapes (thereby minimizing the prejudice to DuPont), the Court declined to enter a default judgment against Kolon. Instead, the Court imposed a “permissive” adverse inference jury instruction and awarded DuPont its attorneys’ fees, expenses and costs related to the motion.

There are several key takeaways from this decision:

  • First, written litigation hold notices, which of course should be issued promptly after learning of litigation or when litigation is anticipated, must be issued to all employees who may have documents and information that are reasonably likely to be requested during discovery, and the record should reflect that these key employees received hold notices.
  • Second, the litigation hold notice must explain the importance of preserving relevant data and, if any employees do not speak English, the litigation hold notice should be translated.
  • Third, in-house IT professionals should be among the first recipients of the hold notice, as they are best positioned to act as guardians of potentially relevant evidence and, as such, they may be able to safeguard data on behalf of the company, insulating the company from any rogue employees who might otherwise spoliate evidence.
  • Lastly, both counsel and corporate executives should closely monitor compliance with the litigation hold, particularly if the target of the hold is a foreign company unfamiliar with the preservation obligations imposed by the U.S. legal system.

Taking note of Kolon’s mistakes, and DuPont’s good example (as detailed in this post), will go a long way in insulating your company from spoliation sanctions.


Suzanne Herrmann Brock is an Associate on the Gibbons E-Discovery Task Force.
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Posted on August 8, 2011 by Gibbons P.C.

How a "Stink Bomb" E-Mail and Its Proof That Facebook Pictures Were Deleted Might Have Blown Up a $10.6 Million Verdict

Parties in all types of cases often post pictures and messages on Facebook that might be detrimental to their cases. After his wife died tragically in an automobile accident, and he brought a wrongful death case, Isaiah Lester did just that when he posted a photo of himself wearing an “I [love] hot moms” t-shirt and garter belt on his head while he had a beer in hand. That was his first bad choice.

The defense attorneys, who represented the driver of the vehicle and his employer, saw the picture and requested similar pictures and screen shots from Lester’s Facebook account. The next day, Lester’s attorney, Matthew B. Murray (who is the Virginia Trial Lawyers Association’s immediate past-president), allegedly instructed his paralegal to advise Lester to delete some Facebook pictures. Lester, however, purportedly informed Murray that he had deleted his Facebook account. Clearly, these actions reflect additional unwise decisions. Defense attorneys are now challenging the $10.6 million verdict, which may be the state’s largest wrongful death case.

What was even more egregious according to defense counsel, however, was that Murray denied that Lester had a Facebook account on two specific dates on which he in fact did. They further contend that to add insult to injury, Murray denied up until the time of trial that he dictated any alteration of the Facebook account. Defense attorneys also contend that if the misrepresentations made to the court and opposing counsel were not sufficiently disconcerting, that Murray then deliberately withheld evidence, namely, a “stink bomb” e-mail reflecting that indeed, Murray had essentially directed his client to delete pictures from his Facebook page. Lester and Murray were also accused of other improprieties.

Ultimately, defense counsel proposed to the court there possible solutions: (1) dismiss Lester’s claim and enter a verdict in favor of the defendants; (2) throw out Lester’s claim, set aside the verdict and allow a new trial, which would limit Lester’s recovery of damages and prohibit Murray or his firm from representing Lester; or (3) reduce the verdict to $2.2 million or $1.1 million and preclude Lester’s attorney or the firm from collecting any contingent fees. A hearing regarding this issue will be held on September 23, 2011.

Murray has reportedly since retired from the practice of law and resigned from his firm on July 6, 2011. It is unclear if any ethical or disciplinary proceedings will follow. But suffice it to say that while attorneys should advise their clients not to post potentially damning photographs or messages to social media websites, they should be wary of the consequences of advising their clients to delete or alter such information -- particularly when it is the subject of a discovery request. (Click here for information on how to obtain Facebook discovery or preserve postings/pages through Facebook’s “Download Your Information” feature.) Indeed, that may be an obvious and prudent course of action for most attorneys. At least one attorney, however, failed to answer the clue phone on that issue.
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Posted on July 5, 2011 by Jennifer Marino Thibodaux

Motion for Sanctions Denied Due to DuPont's Reasonable, Professional Efforts to Implement and Update Litigation Hold Notices

On April 27, 2011, the Court denied Defendant Kolon Industries, Inc.’s (“Kolon”) motion for sanctions against E.I. du Pont De Nemours and Company (“DuPont”) for alleged spoliation of four employees’ e-mail accounts and documents in litigation regarding trade secret misappropriation, theft of confidential information and other related business torts. E.I. du Pont De Nemours and Co. v. Kolon Industries, Inc., Civil Action No. 3:09cv58, 2011 U.S. Dist. (E.D. Va. Apr. 27, 2011). In essence, the Court concluded there was no spoliation because DuPont’s efforts to implement and update litigation hold notices – as well as the company’s commitment to its electronic discovery obligations – were reasonable.

The underlying litigation was based upon the alleged actions of a former DuPont employee, who signed a nondisclosure agreement when he was hired and an employee termination statement in February 2006 where he affirmed that he had returned all documents and would not divulge any trade secret or confidential information. Id. at *5. Despite that affirmation, he retained various computer files containing secret and confidential trade information and then was hired by Kolon as a consultant Id. at *4-6. After DuPont became aware in April or May 2007 that its former employee was consulting for Kolon, DuPont issued its First Hold Order in June 2007, which identified eighteen (18) “key individuals” in the relevant business unit; a Second Hold Order to 2,500 employees when it instituted the litigation in February 2009, and a Third Hold Order, mere days after Kolon filed its Answer and Counterclaim in April 2009. Id. at *7-10.

Consistent with its e-mail deletion policy, DuPont had deleted the former employees’ e-mails and also deleted the employees’ documents, leading to Kolon’s motion for sanctions. Id. at *3. In essence, Kolon argued that DuPont issued its First Hold Order over a year too late; that DuPont’s First Hold Order should have been circulated to a wider group of employees; and, that the deletion of one former employee’s e-mail account occurred under “rather suspicious circumstances.” Id. at *22. Kolon alleged DuPont’s actions resulted in “substantial prejudice” and asked the Court to make various factual findings related to the alleged spoliation, or to issue an adverse inference jury instruction. Id. at *22, 25-26.

The Court concluded that DuPont did not violate its duty to preserve documents. Id. at *39-40. Instead, the Court reasoned that DuPont had no reason to know that the documents and information allegedly within the possession of the former employees “would be relevant, or potentially relevant, to the litigation against [its former employee] or Kolon.” Id. at *40. Moreover, the Court determined that the scope of DuPont’s duty to preserve was satisfied in its First Hold Order because “the universe of DuPont’s knowledge was quite limited at that point,” and the company had no reason to identify the former employees as “key players.” Id. at *41. Overall, DuPont did not have a duty to preserve the former employees’ email accounts, so no spoliation occurred. Id. at *46.

There are some practical pointers to draw from DuPont’s actions, each of which contributed to the Court’s denial of Kolon’s motion for sanctions:

  • First, DuPont promptly hired counsel to assess its litigation hold obligations before it commenced litigation.
  • Second, DuPont refreshed its litigation hold notice at several points throughout the litigation and did so promptly.
  • Third, DuPont ensured that its foreign affiliates were aware of the litigation hold, demonstrating its recognition of the need to educate foreign employees about the U.S. legal process and the duty to preserve.
  • Fourth, the Court recognized that DuPont’s employees adequately transferred information to their successors upon leaving the company or changing positions, some of which was ultimately produced to Kolon.
  • Lastly, DuPont had a formal policy for deleting the email accounts of its former employees. Although the relative strength of that policy is debatable, DuPont’s institution and maintenance of a formal policy weighed in its favor.

Overall, DuPont demonstrated to the Court that its reasonable, professional attempts to preserve electronically-stored information were appropriate -- and that its duty to preserve was satisfied -- consequently, there was no spoliation to sanction.


Jennifer Marino Thibodaux is an Associate on the Gibbons E-Discovery Task Force.
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Posted on March 21, 2011 by Gibbons P.C.

The Rising Tide of Sanctions for E-Discovery Failures

To echo a popular tag line frequently heard on Top 40 radio stations, when it comes to court-imposed sanctions for e-discovery failures, “the hits just keep on comin’!” According to a recent study published in the Duke Law Journal, sanctions for e-discovery violations are occurring more frequently than ever. Dan H. Willoughby, Jr., Rose Hunter Jones, Gregory R. Antine, Sanctions for E-Discovery Violations: By The Numbers, 60 Duke Law J. 789 (2010). However, there may be light at the end of the tunnel, as it appears that the frequency of sanctions awards is trending downward after hitting an all-time high in 2009.

Increase in Sanctions

The Duke study was based upon a review of 230 sanctions awards in 401 federal cases decided before January 1, 2010. The authors found sanctions motions and awards have increased significantly since 2004, and the so-called “safe harbor” provisions of Federal Rule of Civil Procedure 37(e) have provided minimal cover for parties and attorneys. It is not clear whether this increase is due to the complexities of e-discovery rules as embodied in the 2006 amendments to the FRCP, or rather, due to an increase in bad behavior. In any event, the authors note that leading practitioners have advocated for more uniform standards and guidelines that embrace concepts of “reasonableness” and “proportionality” and a standardized adverse inference instruction.

Significance of Increase and Types of Cases

According to the study, there were more e-discovery sanctions cases decided and sanctions awarded in 2009 than in any other year. In fact, the staggering magnitude of the increase is reflected by the fact that the number of 2009 e-discovery sanctions cases and awards exceeded the aggregate total in all years prior to 2005. The study also revealed that sanctions motions have been filed in all federal courts, in all types of cases, and have been granted based upon a mix of rules of procedure, statutes and powers. One of the more interesting statistics is that defendants have been sanctioned three times more often than plaintiffs, a statistic that has remained constant over the past decade.

Sanctionable Conduct and the Range of Potential Sanctions

Sanctions were awarded most often in response to failures to preserve ESI but were also awarded for ESI production failures and delays. In response, courts have imposed a range of sanctions, from the most severe -- dismissal of all claims or defenses, adverse jury instructions and monetary awards, some as high as $5 million -- to lesser but still significant sanctions, such as witness or evidence preclusion, shifts in burdens of proof and supplemental discovery. Some courts have devised more creative penalties by, for example, ordering participation in court-administered ethics programs or payments to fund bar association educational programs.

Attorneys Are Not Immune from Sanctions

In addition to discussing sanctions against litigants, the study also highlighted the increase in sanctions imposed against both in-house and outside counsel. These most commonly took the form of attorneys’ fees and cost awards in amounts from $500 to $500,000. In some instances, both counsel and the parties were responsible for paying those fees and costs. Those awards emanated from various levels of misconduct including negligence, gross negligence, reckless and intentional conduct. 

* * *

Although sanctions motions and awards increased steadily through 2009, the Duke authors conclude that the pendulum may be swinging back to a more reasonable and proportional approach by the courts; although the number of sanctions motions filed in 2010 increased, courts granted 55% of those motions as compared with 70% in 2009. See 2010 Year-End Electronic Discovery and Information Law Update, published by Gibson Dunn. Thus, while the overall number of successful sanctions motions and awards remains staggering and a potent reminder of the pitfalls that await the unwary, perhaps courts in the sanctions context are implicitly recognizing the complexities and challenges of e-discovery as well as more practical and reasonable threshold inquiries such as whether discovery-relevant information was actually lost. A good example of this approach is the sanctions analysis in the recent Orbit One case. Orbit One Communications, Inc. v. Numerex Corp., 2010 WL 4615547 (S.D.N.Y. Oct. 26, 2010). Additional discussion of this case can be found here.
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Posted on February 22, 2011 by Jennifer Marino Thibodaux

Davis v. Grant Park Holds That Sanctions Motions for Breach of Duty to Preserve Electronic Communications are Premature Until the Close of Discovery

Magistrate Judge John M. Facciola recently struck down, without prejudice, a motion for sanctions for the alleged destruction of electronic communications, finding it “premature to consider the question of sanctions until discovery ends and the Court can assess accurately what prejudice, if any, the loss of the electronically stored information has caused.” Davis v. Grant Park, No. 08-cv-1764 (PLF/JMF), 2010 U.S. Dist. LEXIS 118853, at *3-*4 (D.D.C. Nov. 9, 2010). Deeming the assessment of prejudice the critical issue, and citing D’Onofrio v. SFX Sports Group, Inc., No. 06-cv-687 (JDB/JMF), 2010 U.S. Dist. (D.D.C. Aug. 24, 2010) (Facciola, J.), Judge Facciola determined that “the nature and extent of the loss suffered” could not be “accurately gauged” until “all the information that is available” is gathered, which occurs at the close of discovery. Id. at *3. As such, the court directed plaintiff to decide whether to renew the motion after discovery ended, noting further that a renewed motion should “show as clearly as possible the nature of the prejudice,” and that defendant’s submission should “make a similarly precise showing in opposition.” Id. at *4. The decision is consistent with D’Onofrio, wherein Judge Facciola instructed, “[i]t is only after establishing the prejudice the plaintiff suffered that any resulting sanction will fairly address that prejudice, consistent with this Circuit’s insistence that any sanctions imposed be a function of the prejudice done to a party by its offending opponent.” 2010 U.S. Dist. LEXIS 86711, at *11 (citing Bonds v. District of Columbia, 93 F.3d 801, 808 (D.C. Cir. 1996)). Judge Facciola’s directive serves as an important reminder to litigants that any sanctions imposed should ultimately bear a relationship to the prejudice suffered by the other party, and that such prejudice may not be discernable until the close of discovery in a contested matter.


Jennifer Marino Thibodaux is an Associate in the Gibbons Business & Commercial Litigation Department.

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Posted on February 14, 2011 by Gibbons P.C.

Orbit One: Inadequate ESI Preservation Does Not Merit Sanctions Absent Evidence That Relevant Information Has Been Destroyed

Orbit One Communications, Inc. v. Numerex Corp., 2010 WL 4615547 (S.D.N.Y. Oct. 26, 2010) represents a dichotomy in jurisprudence on ESI preservation efforts and the imposition of automatic sanctions. In Orbit One, Magistrate Judge James C. Francis, IV found that regardless of how inadequate a litigant’s preservation efforts may be, sanctions are not appropriate without proof that “information of significance” has been lost. The court determined that the threshold determination must be “whether any material that has been destroyed was likely relevant even for purposes of discovery.” In so holding, the court discussed and diverged from Judge Shira A. Scheindlin’s decision in Pension Committee of the University of Montreal Pension Plan v. Banc of America Securities, LLC, which earlier held that sanctions may be warranted for inadequate preservation efforts even if no relevant evidence is lost. 685 F. Supp.2d 456, 465 (S.D.N.Y. 2010).

In Orbit One, defendant Numerex acquired substantially all of Orbit One’s assets through an asset purchase agreement. Numerex also entered into employment agreements with Orbit One principals and David Ronsen, the founder of Orbit One. Shortly thereafter, Orbit One’s sales became poor and revenues were not meeting projections. On January 7, 2008, Ronsen commenced litigation against Numerex. During discovery, Orbit One’s information technology (“IT”) administrator Christopher Dingman disclosed that he was not informed of the litigation hold regarding the Numerex litigation (or of a litigation hold regarding an earlier instituted matter) and that certain actions taken by him and at Ronsen’s direction resulted in the loss of ESI data from Ronsen’s desktop computer, laptop and email account. Upon discovery that information had been deleted and removed, Numerex sought an adverse jury instruction against Orbit One and Ronsen on the ground that these parties are responsible for the spoliation of electronically stored information.

Judge Francis itemized the instances where Orbit One and Ronsen failed to adopt and implement model preservation procedures, but also observed that the data on Ronsen’s laptop, hard drive, backup disks and email account either had been archived, was uncompromised, was otherwise still retrievable and/or had actually been previously produced. As such, the court concluded that sanctions, particularly the severe sanction of an adverse inference, was not appropriate because there was insufficient evidence that any of Orbit One and Ronsen’s actions resulted in the loss of any “discovery-relevant” information -- information that is likely relevant even if only under the broad definition of the Federal Rules. The court noted that sanctions, particularly in the form of an adverse inference, are predicated on the loss of information that is “relevant” to a claim or defense and to “ameliorate any prejudice to the innocent party by filling the evidentiary gap created by the party that destroyed evidence.” Accordingly, the sanction of an adverse inference for inadequate preservation efforts must be tied to a showing of the loss of “discovery-relevant” materials and prejudice to the innocent party, not simply to the spoliating party’s gross negligence or bad faith. Magistrate Judge Francis took issue with Pension Committee for its omission of the discovery-relevance requirement and for the suggestion that sanctions are warranted by a mere showing that a party’s preservation efforts were inadequate. Under that standard, the court reasoned that litigation would become a “gotcha” game between the parties regarding lost information, however inconsequential, rather than a full and fair opportunity to address the merits of a dispute. Thus, Magistrate Judge Francis held that sanctions are only appropriate if the inadequate preservation efforts resulted in the destruction of “discovery-relevant” materials.

The law on sanctions, spoliation and preservation efforts favors a factored analysis approach to the imposition of sanctions, rather than a categorical approach that ignores culpability or the lack of any real damage to the innocent party. Thus, most courts have held that sanctions for the destruction of ESI data should be dictated by circumstances of individual cases and should only be imposed if discovery relevant material has been destroyed. Nonetheless, this contrast of opinions between two highly respected jurists and e-discovery specialists from the same jurisdiction highlights the controversial and constantly evolving nature of these principles, and cautions that the most prudent course is to always engage in broad, methodical and well-documented preservation practices.
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Posted on January 3, 2011 by Gibbons P.C.

New York Courts Address ESI Inconsistencies at State and Federal Level: An Erie Solution?

A panel of New York state and federal judges recently convened to discuss the differing standards between New York state and federal law governing the pre-litigation preservation of ESI and to make recommendations to resolve such inconsistencies. The panel’s findings are reported in the publication, Harmonizing the Pre-Litigation Obligation to Preserve Electronically Stored Information in New York State and Federal Courts. The critical issue is determining when a litigant’s duty to preserve ESI is triggered, how that duty is fulfilled, and the potential consequences for breaching the duty. The panel recognized that the disparate treatment that litigants may receive in New York state courts versus federal courts could lead to a great deal of confusion and uncertainty, even for parties that cautiously implement ESI strategies with an eye towards future litigation. For example, the trend in New York federal courts has been in favor of the adoption of per se culpability when determining a litigant’s state of mind. In Zubulake, the court held that once the duty to preserve ESI attached, any destruction of documents would be, at a minimum, negligent. In Pension Committee, the court held that failure to issue a written litigation hold constituted “gross negligence.” State courts, on the other hand, have largely declined to adopt such per se rules, preferring instead to analyze a litigant’s culpability on a case-by-case basis, as the courts did in cases such as Deer Park and Ecor Solutions.

The panel identified three separate mechanisms to resolving the potential conflict of laws and uncertainty for litigants:

  1. “exercising judicial discretion and respect for the other system by considering the separate bodies of law when deciding specific cases;”
  2. “adopting procedural rules requiring deference by one court system to the other system’s law governing the pre-litigation duty to preserve ESI,” akin to Federal Rules of Evidence 302 and 501; and
  3. “determining whether the pre-litigation duty to preserve ESI is a matter of substantive law under the Erie doctrine.

While the first and second mechanisms pertain to the courts’ rule-making authority, the third mechanism -- application of the Erie doctrine -- offers a practical approach founded upon existing jurisprudence. Under the Erie doctrine, unless there is an express federal law or regulation addressing the retention and/or the destruction of particular ESI, state law would govern the pre-litigation duty to preserve ESI, the scope of the duty, when the duty is triggered, the breach of the duty and the imposition of sanctions. The main issue is whether the general pre-litigation duty to preserve ESI would be considered procedural or substantive in nature. If New York courts were to interpret ESI duties as substantive, then under the Erie doctrine, New York state and federal courts would be bound to apply New York common law as it applies to pre-litigation preservation of ESI and spoliation of evidence sanctions. Application of the Erie doctrine is well-reasoned because the duty to preserve ESI, like the substantive rules espoused by Erie, is grounded in the common law obligation to preserve evidence and the substantive obligation of litigants to avoid tortious conduct. Although there is disagreement among the other federal circuits regarding the application of Erie to the pre-litigation duty to preserve ESI, the panel nonetheless encouraged arguments favoring the Erie doctrine because the Supreme Court had not yet ruled on the issue, suggesting that federal courts in New York would consider the Erie doctrine’s sound and reasoned approach to resolving the potential conflicts between New York state and federal law.
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Posted on December 7, 2010 by Paul E. Asfendis

Lawyers for Civil Justice Plea for Change in ESI Preservation Rules; Report Submitted to Civil Rules Advisory Committee

Lawyers for Civil Justice ("LCJ") recently submitted a formal comment to the Advisory Committee on Civil Rules regarding problems related to the preservation of information in litigation. The comment, which can be found here, pleads for a change in the current approach to preservation of electronically stored information ("ESI"), in which preservation obligations are largely created by individual courts on an ad hoc basis. This approach, LCJ points out, creates heavy burdens on litigants: The cost of preservation is too high, the risk of spoliation sanctions is too great, and the impact of ancillary litigation proceedings on discovery disputes is too debilitating. Substantive issues in many cases have become overshadowed by issues of preservation.

Part of the problem, LCJ points out, is that the concept of spoliation has not evolved to meet the demands of 21st Century litigation. Courts do not simply ask whether evidence was destroyed to prevent its use in litigation, but instead focus too heavily on inadvertent destruction of evidence, which requires complex determinations as to whether a party took "reasonable" steps to preserve. LCJ argues for a modified approach, in which courts focus less on the lost evidence, and more on the remaining evidence. Ideally, LCJ suggests, Congress should codify preservation obligations to the extent possible and create bright line rules to replace the current maze of case law.

LCJ's approach is bold and fresh, particularly in its recommendation that parties only be subjected to sanctions for willful destruction of evidence. This approach could certainly cut down on litigation of ancillary preservation issues, particularly with some well thought out guiding commentary. To be sure, no model is likely to prove perfect, and adoption of LCJ's model could have drawbacks of its own, such as removing the incentive for individuals and companies to diligently preserve some information or categories of ESI (as long as destruction is not willful). However, LCJ's approach appears to strike a reasonable balance between litigants' need for full discovery and reduction of uncertainty and costs, both to litigants and the Courts, associated with the current model. This approach is worth a closer look.


Paul E. Asfendis is an Associate on the Gibbons E-Discovery Task Force.

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Posted on November 19, 2010 by Melissa DeHonney

District Judge Overturns Part of Victor Stanley II Ordering Immediate Jail Time to a Defendant Based on a Possible Future Failure to Pay Spoliation Sanctions

As previously reported, in Magistrate Judge Grimm’s September 9, 2010, decision and order, often referred to as Victor Stanley II, defendant Creative Pipe, Inc. and its principal, defendant Mark T. Pappas, were sanctioned for intentionally violating the court’s preservation and production orders. Among other things, Magistrate Judge Grimm ordered defendants to pay plaintiff’s costs and attorneys’ fees allocable to their spoliation. Judge Grimm further ordered that Mr. Pappas be imprisoned for no more than two years, “unless and until” he pays the fee award. Judge Grimm regarded this sanction as “absolutely essential” in light of his conviction that, “[w]ithout the threat of jail time, … Plaintiff will receive a paper judgment that does not enable it to recover its considerable out-of-pocket losses caused by Pappas’s spoliation.” By Order dated September 30, 2010, the Honorable Marvin J. Garbis, U.S.D.J., entered Magistrate Judge Grimm’s September 9 order essentially verbatim, including that, “[p]ursuant to Fed. R. Civ. P. 37(b)(2)(A)(vii), Defendant Pappas’s acts of spoliation shall be treated as contempt of this Court, and as a sanction, he shall be imprisoned for a period not to exceed two (2) years, unless and until he pays to Plaintiff the attorney’s fees and costs that will be awarded ….” (Emphasis added.)

Pursuant to Magistrate Judge Grimm’s September 9 decision and order and the relevant local rule, however, defendants were allowed to object to the same order. In that briefing, Mr. Pappas’ counsel argued that “[t]his Court’s power to impose a coercive civil contempt sanction … is limited by a party’s ability to comply with the order,” and further that, “[i]f the fee awarded is so large that Mr. Pappas is unable to pay it, the ordered confinement would not be coercive, but punitive, and could not be imposed without criminal due process protections.” Defendants thus requested that Magistrate Judge Grimm’s order be modified such that, following the quantification of the fee award, Mr. Pappas be permitted to demonstrate his inability to pay it, and further to provide that Mr. Pappas would only be confined if he is able to pay but refuses to do so. The District Court agreed with Mr. Pappas’ counsel and, on November 1, 2010, issued a Memorandum and Order holding as follows: “[T]he Court does not find it appropriate to Order Defendant Pappas incarcerated for a future possible failure to comply with his obligation to make payment of an amount to be determined in the course of further proceedings. Certainly, if Defendant Pappas should fail to comply with a specific payment order, the Court may issue an order requiring him to show cause why he should not be held in civil contempt for failure to comply with that payment order. Also, under appropriate circumstances, criminal contempt proceedings might be considered.” (Emphasis added.)

That same day, the Court further ordered that defendants must pay plaintiff the amount of $337,796.37 by November 5 and, if such payment is not made, defendants must appear on November 8 for a civil contempt hearing. Moreover, if defendants failed to pay and Mr. Pappas failed to appear at the civil contempt hearing, “a warrant may be issued for his arrest so that he shall be brought before the Court as soon as may be practicable.” From the docket it appears that ultimately the parties resolved the issue between them without the need for a further contempt proceeding.


Melissa DeHonney is an Associate on the Gibbons E-Discovery Task Force.

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Posted on November 11, 2010 by Scott J. Etish

The 2010 E-Discovery Landscape: Panel Discussion on the Essential E-Discovery Decisions of 2010 at Gibbons Fourth Annual E-Discovery Conference

Gibbons’ Fourth Annual E-Discovery Conference kicked off with a panel discussion on the essential e-discovery decisions from 2010. The panel, comprised of renowned e-discovery authority Michael Arkfeld of Arkfeld & Associates, Scott J. Etish, Esq., an associate at Gibbons and member of the firm’s E-Discovery Task Force, and the Hon. John J. Hughes, United States Magistrate Judge for the District of New Jersey (Retired), addressed numerous recent decisions related to the following areas: (1) the need for outside and inside counsel to monitor compliance; (2) obtaining electronically stored information from foreign companies; (3) cooperation between adverse parties; (4) social media discovery; (5) searches and inadvertently disclosed privilege documents; and (6) legal holds and sanctions. The panel provided guidance as to best practices related to numerous areas, including navigating e-discovery challenges in the aftermath of the seminal Pension Committee, Rimkus and Victor Stanley II decisions. A brief summary of all of the cases the panel discussed is available here.


Scott J. Etish is an Associate on the Gibbons E-Discovery Task Force.

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Posted on October 6, 2010 by Gibbons P.C.

Willful Destruction of Electronic Evidence Can Lead to Jail Time

In Victor Stanley, Inc. v. Creative Pipe, Inc., 2010 U.S. Dist. LEXIS 93644 (D. Md. Sept. 9, 2010), Magistrate Judge Paul Grimm sanctioned Defendants CPI and Mark Pappas, its president - and threatened to imprison Pappas - for the willful destruction of evidence and violation of his discovery orders. The Court’s lengthy decision gives a comprehensive analysis of preservation and spoliation issues across the federal circuits that will benefit every practitioner and corporate litigant.

Plaintiff sued CPI for violations of copyrights and patents, and unfair competition, based on CPI’s alleged use of copyrighted design drawings and specifications from plaintiff’s website. Certain information initially produced by CPI supported the claims. As the decision chronicles in detail, CPI’s discovery violations persisted from the time Plaintiff’s Complaint was filed, including the following:

  • Failure to implement a litigation hold;
  • Deletions of electronically stored information (“ESI”) after Plaintiff filed suit;
  • Failure to preserve Pappas’ external hard drive after demande for preservation;
  • Failure to preserve files and emails after demand for preservation;
  • Deletion of ESI after the Court issued its first preservation order;
  • Continued deletion of ESI and use of programs to permanently remove files after the Court admonished the parties of their duty to preserve evidence and issued its second preservation order;
  • Failure to preserve ESI when the company’s server was replaced; and
  • Use of programs to permanently delete ESI after the Court issued numerous production orders.

Based on this willful destruction of ESI, the Court presumed the destroyed ESI was relevant, and that it prejudiced Plaintiff’s efforts to prove its claims against CPI. The Court recommended entry of a permanent injunction and default judgment on liability. Indeed, CPI consented to the default judgment. The Court also held that, as the prevailing party, Plaintiff was entitled to attorney’s fees and costs allocable to the spoliation. The Court declined for the moment to pursue criminal sanctions, but held that Pappas’s individual violations warranted civil contempt sanctions so that Pappas would be imprisoned for two years unless and until he pays the attorney’s fees and costs awarded to Plaintiff. Notably, the decision also includes an invaluable 12-page chart entitled, "Law of Spoliation," that identifies the prevailing standards for preservation and spoliation issues by jurisdiction. This benchmark decision is a must read for anyone involved in e-discovery issues.
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