In past blogs, I have discussed the importance of issuing a litigation hold notice (“Hold”), as soon as a litigation is reasonably anticipated. I have also written about various best practices when drafting one’s Hold. [See Practical Tips For an Effective Litigation Hold Notice and Your Litigation Hold Must be Generally Broad And Specifically Tailored]. In an effort to avoid reiterating those blog posts in full, suffice it to say it is critically important to:

  1. provide custodians with detailed instructions on what they are expected to do upon receipt of the Hold; and
  2. ensure that the Hold sets forth the specifics of what information must be preserved, thus limiting any discretion vested in the recipients of the Hold.

A recent decision out of the District of New Mexico reminds us of these best practices.

In N.M. Oncology & Hematology Consultants v. Presbyterian Healthcare Servs., 2017 U.S. Dist. LEXIS 130959 (D.N.M. Aug. 16, 2017), the plaintiff moved the District Court for adverse inference sanctions against the defendants alleging defendants failed to implement a proper litigation hold (“Notice”) because, among other things, the Notice impermissibly gave discretion to employees to determine what information might be relevant to the lawsuit and thus subject to the Notice. Plaintiff contended that permitting such discretion was per se inadequate.

The Court, however, concluded that the discretion the employees were cloaked with in this specific instance was limited and, therefore, the Notice was not inadequate.  Specifically, the employees were directed to retain documents and data “that mention or discuss or relate to any of” an exhaustive list of subjects. The recipient-employees were also directed that if “you are unsure about the relevance of a document, be cautious and preserve it.”

In reaching its conclusion, the Court observed that defendant’s employees were not given a generic retain relevant documents instruction but rather one with sufficient specificity that the employees had little, if any, discretion, and were further instructed to err on the side of preservation.

While the Court further noted that allowing individual employees to exercise discretion as to whether to retain data is not, alone, indicative of bad faith nor does it render a Hold per se inadequate, the decision reminds us that generic “preserve all relevant data” instructions should never be the basis of one’s Hold. The decision also serves as an important reminder that one’s Hold should be drafted in a way that it effectively becomes a checklist for the specific records you seek to preserve.  It is important that you include not only a broad description of the types of documents you seek, but also identify documents or locations with specificity to the greatest extent possible, thus eliminating discretionary decisions to the greatest extent possible.

Ronnie Van Zant, Inc. v. Pyle, No. 17 Civ. 3360 (RWS), 2017 WL 3721777 (S.D.N.Y. Aug. 28, 2017)  

In this case, the Southern District of New York imposed an adverse inference against defendants for their failure to preserve text messages that were in the possession of a non-party.  Specifically, Judge Sweet imposed an adverse inference against defendants based upon the spoliation of non-party text messages after concluding that as a result of the non-party’s: close working relationship with the defendants; his prior production of documents in the litigation; and his financial interest in the at-issue film, defendants had the practical ability to obtain the text messages, irrespective of any legal right to those messages.

The underlying dispute involves certain prohibitions on the use of Lynyrd Skynyrd’s likeness and name. For the readers who may be too young to have a full appreciation of the band and its traumatic history, a brief factual background is provided.

On October 20, 1977, two members of the Lynyrd Skynyrd rock band, and a number of other people were killed in a plane crash in Mississippi.*  However, a number of people, including Artimus Pyle (“Pyle”) (the band’s drummer), survived the crash.  In the years that followed, the three surviving band members and Ronnie Van Zant’s surviving spouse (“Judy”) entered into what has been called a “blood oath.”  Under the blood oath, it was agreed that no surviving band member would ever perform again as Lynyrd Skynyrd.

In 1987, to commemorate the ten year anniversary of the crash, the band’s surviving members reunited for a tribute tour.  Judy disputed use of the band’s name and sought to enjoin use of the band’s name in the performance (the “1988 Lawsuit”).  The 1988 Lawsuit was resolved by the parties’ entry of a consent order, judgment and decree (the “Consent Decree”).  Pyle – who was represented by counsel in connection with the 1988 Lawsuit – was a signatory to the Consent Decree.  Among other things, the Consent Decree set forth various restrictions on the how the parties to the 1988 Lawsuit could use the name Lynyrd Skynyrd, and the name/image/likeness of Ronnie Van Zant and band member Steve Gaines, who also perished in the crash.  Among other restrictions, the parties were prohibited from commercially exploiting the history of Lynyrd Skynyrd without prior written approval.

In 2016, defendant Cleopatra Records, through one of its affiliate divisions (collectively, “Cleopatra”), sought to make a feature-length film based on the 1977 crash. Jared Cohn (“Cohn”) was hired as the director and writer for the proposed film.  Former Lynyrd Skynyrd drummer, Pyle, was hired to work on the script with Cohn and ultimately signed an agreement with Cleopatra that entitled him to 5% of the film’s net receipts.  Pyle also contracted to narrate the film, make a cameo appearance and contribute an original song to the film.  In the course of his work on the film (tentatively titled, Free Bird), Cohn (who was paid by, but not an employee of Cleopatra) worked closely with Pyle, relying almost exclusively on phone calls and text messages to communicate.

Around the end of June, 2016, Cleopatra put out press releases advertising the film and Pyle’s involvement.  On July 15, 2016, Plaintiffs** sent Cleopatra a cease and desist letter (“Letter”).  In the Letter, Plaintiffs requested a copy of the film’s script and outlined the various restrictions in the Consent Decree.  Soon thereafter, Plaintiffs sent Cleopatra a copy of the Consent Decree.  When, many months later, Plaintiffs discovered Cleopatra was proceeding with production, they filed an action in the Southern District of New York alleging a violation of the Consent Decree, seeking a permanent injunction against Cleopatra and an award of costs and attorneys’ fees (“SDNY Lawsuit”).

Cohn was not a party to the SDNY Lawsuit.

While the Opinion and Order of the Court (“Order”) determined the merits of the lawsuit (spoiler alert – Judge Sweet granted the permanent injunction and awarded attorneys’ fees to Plaintiffs), the balance of this blog discusses only that portion of the Order relevant to a party’s preservation obligations. (Ronnie Van Zant, Inc. v. Pyle, No. 17 Civ. 3360 (RWS), 2017 WL 3721777 (S.D.N.Y. Aug. 28, 2017)).

In May 2017 — after commencement of the SDNY Lawsuit — Cohn switched cell phone providers and began using a new phone.  “Although certain data on Cohn’s old phone was backed-up, such as pictures, other data was not preserved, such as Cohn’s text messages, including those sent and received from Pyle.”  As a result, Plaintiffs moved, “either pursuant to Federal Rule of Civil Procedure 37(e) or the Court’s inherent authority” for an adverse inference with respect to the unpreserved text messages between Cohn and Pyle.

In response to Plaintiffs’ motion, Cleopatra argued that it could not be sanctioned for the actions of Cohn (a non-party) because neither Cohn nor his phone were within its control.  The Court, however, disagreed with Cleopatra.  Specifically, Judge Sweet noted the “concept of control”—pursuant to which documents are considered to be under a party’s control—has been construed broadly and is satisfied “if the party has the practical ability to obtain the documents from another, irrespective of his legal entitlement.”  The Court continued:

Here, while Cohn is a non-party, his text messages were, practically speaking, under Cleopatra’s control. Cohn was contracted by Cleopatra to work on the Film, and the evidence has establishes [sic] that he worked closely with Cleopatra for over the past year. Over the course of the instant litigation, Cohn has participated by providing documents and took a deposition sought by Plaintiffs during discovery. As has been found relevant in other cases determining the relationship between a party and non-parties, Cohn also has a financial interest in the outcome of this litigation, since he is entitled to a percentage of the Film’s net receipts, which would be zero should Plaintiffs prevail. In sum, while determining practical control is not an exact science, “common sense” indicates that Cohn’s texts with Pyle were within Cleopatra’s control, and in the face of pending litigation over Pyle’s role in the Film, should have been preserved.

(Citations omitted.)

The Court further noted that Cohn’s actions (i.e., “getting a new phone after Plaintiffs brought the instant action and managing to back-up pictures but, somehow, not text messages”) demonstrate the “kind of deliberate behavior that sanctions are intended to prevent and weigh in favor of an adverse inference.” Docket No. 61, p. 28-29.  Ultimately, the Court concluded that an adverse inference would be presumed against Cleopatra as to the missing text messages.

CONCLUSION

Because this decision concludes a party can be sanctioned for the failures of a third-party, it is critically important to assess what third-parties, if any, you have a practical ability to secure documents/information from when issuing your hold notices.

For example, does your client have the “practical ability” to retrieve documents from its software vendor? From its payroll provider? From its accountant? If so, and that third-party may have responsive information, you should seek to preserve that information and give serious consideration to issuing a litigation hold to that non-party.

*Among those who lost their lives were lead singer and song writer, Ronnie Van Zant.

**Plaintiffs include Ronnie Van Zant, Inc., Gary R. Rossington, Johnny Van Zant, Barbara Houston as the Trustee of the Allen Collins Trust, and Alicia Rapp and Carinna Gaines Biemiller as personal representatives of the estate of Steven Gaines.

*** It is also interesting to note that there was no analysis of prejudice suffered, if any, by plaintiffs as a result of this preservation failure.  This is interesting in light of the fact that the 2015 Amendments to the Federal Rules of Civil Procedure were intended, in part, to allow a party to secure sanctions only when failures to preserve resulted in an actual prejudice or harm.  Here, the decision and order seems to infer there was prejudice – an inference more typically permitted under the pre-amendment rules.

Mueller v. Swift, (D. Col. 2017) 2017 WL 2362137

Some opinions just have it all, and Mueller v. Swift does not disappoint!  Indeed, in this lawsuit, Taylor Swift, the pop sensation who has been sweeping the nation, alleges she was the victim of sexual misconduct, assault, and battery.

What in the world do such allegations have to do with this blog you ask? Well, even the rich and famous sometimes have to confront issues of spoliated electronically stored information (ESI).

Relevant Facts: The scene is downtown Denver—the Pepsi Center—home of the Colorado Avalanche Hockey team, the Denver Nuggets Basketball team, and host to concerts and various social events year round. On June 2, 2013, it played host to one of the biggest stars of the last decade, Taylor Swift (“Swift”). KYGO radio station was one of the entities represented at a “meet and greet” with Swift just prior to Swift’s RED TOUR. The radio station representative, David Mueller (“Mueller”), was invited to pose for a photo with Swift during the meet and greet.   Swift alleges, and uses a photo as evidence, that Mueller reached up her skirt and touched her bottom inappropriately during the photo op.

As a result, KYGO was notified of the incident, and assured Swift’s entourage and representatives that an investigation would be undertaken and, Mueller dealt with accordingly.

Ultimately, Mueller was terminated from his position at KYGO and this civil suit ensued.

As it turns out, Mueller recorded his conversations with KYGO representatives during the meeting that ultimately led to his termination. When compelled to produce those recordings during discovery, it was revealed that Mueller edited the audio clips to reflect those portions he deemed “important.”

The Swift camp was not appreciative of Mueller’s editing “assistance” and advised the Court they were entitled to the 2 hours of audio recordings; not just the “important” soundbites. However, in response to Swift’s demand for the full audio recordings, Mueller interposed a number of reasons why that was not possible, many of which — in my opinion–defied reason.

First, the laptop, on which the recording was stored, was a casualty of Mueller’s early morning routine and suffered an untimely death by a raging torrent of coffee.  Muller, in a desperate attempt to save the data, ran to Apple to try and repair or salvage what he could. Unfortunately, despite the Apple genius bar’s attempt to resuscitate the laptop, the computer — and all of its content — was gone.  But of course a man who worked for a radio station in the digital age was well versed in the benefits of backing up his data so Mueller’s external hard drive — the backup for his laptops — would necessarily have the full recording. While one may expect the recording to reside on the external backup, Mueller advised the external hard drive was lost by him a year or so before the case was filed. As a result, the full audio recording was no longer available.

As a result, Swift’s legal team moved the court for spoliation sanctions against Mueller. Most importantly, Swift wanted an adverse inference jury instruction. In simplest form, the adverse instruction proposed was to allow the jury to infer that whatever was stored on any device that suffered an early fate, was detrimental to Mueller’s causes of action.

The Colorado District Court, however, ruled that spoliation sanctions were reserved for instances where “there is proof that the party who lost or destroyed evidence did so in bad faith.” Relying on Tenth Circuit precedent, the Court stated, “Mere negligence in losing or destroying records is not enough because it does not support an inference of consciousness of a weak case.” Turner v. Pub. Serv. Co. of Colo., 563 F.3d 1136, 1149 (10th Cir. 2009). So, while the incidents that led to the destruction of the evidence were convenient, to say the least, without any evidence the recording was destroyed/modified in bad faith, foreclosed any adverse inference instruction against Mueller.

What does this case mean for E-discovery?

So, what’s the lesson?  When moving for spoliation sanctions under current Rule 37, be mindful the court is looking to punish bad faith conduct not merely negligent behavior.  Therefore, understand the facts and circumstances underpinning the spoliation and, if appropriate, advance the necessary arguments to support a finding of bad faith.

But, this case also reminds us that E-Discovery and ESI issues are everywhere. Indeed, they are not unique to corporate America but plague Hollywood starlets, mom and pop business owners, and individual litigants alike.  In today’s increasingly electronic age, it is a rare few who do not create/receive and/or store information electronically.

*A special thanks to Farrell Fritz Summer law clerk Philip Merenda for his research and drafting assistance with Taylor Swift and the Java-Dump:  An E-Discovery Tale.  Philip is a student at Georgetown University Law and anticipates receiving his J.D. in 2018.

Federal Rule of Civil Procedure 37 (along with others — Rules 1, 16, 26 and 34) was amended, effective December 1, 2015.

The amendment to Rule 37(e) was intended, in part, to ensure practitioners/litigants were fully aware of their preservation obligations, to ensure a uniformity of sanctions imposed upon parties and practitioners who failed to preserve discoverable electronically stored information (“ESI”), and to make adequate preservation a realistic goal, requiring that only “reasonable steps” be taken to preserve information. Indeed, the amendment requires a finding of intent or bad faith before sanctions can be imposed based upon spoliated information. (*)  Now, nearly a year after the enactment, it appears, from a review of the case law, that the amendment to Rule 37 (e) is effective in achieving its intended purposes.

Not only have federal court decisions involving sanctions declined since Rule 37’s amendment but, practitioners appear to be in better compliance with their preservation obligations since the amendment.

What Do the 2016 Statistics Look Like
Forty-nine federal decisions have cited Rule 37(e) since the Rule was amended. (**) Of these 49 decisions (20 of which did not apply Rule 37), thirteen decisions granted sanctions and sixteen decisions denied sanctions and/or reserved imposing sanctions. And so, sanctions were issued by courts approximately 40% of the time. Interestingly, the nature of the sanctions imposed spanned the gamut and included financial sanctions, adverse inferences, evidence preclusion, or a combination of sanctions. However, the most common sanction issued was an adverse inference.

Indeed, of the 13 decisions that granted sanctions:

• one decision entered a default judgment,
• three decisions precluded reliance upon certain evidence,
• seven decisions imposed monetary sanctions, and
• eight decisions imposed sanctions in the form of adverse inference sanctions. (***)

NB: some decisions imposed more than one type of sanction pursuant to 37(e).

Additionally, there was a variety of “lost” ESI at issue in the various decisions. Specifically,

• Twelve decisions involved unpreserved email data,
• Four decisions involved unpreserved text messages,
• Three decisions involved unpreserved portable device data,
• Two decisions involved unpreserved videos,
• Two decisions involved unpreserved phone call recordings,
• Two decisions involved unpreserved Internet browsing history,
• One decision involved unpreserved social media,
• Twelve decisions involved unpreserved non-email business data.

While 49 federal court decisions, in less than a year, have referenced Rule 37(e), that number is far fewer than in years past. In fact, according to research sources, the number of sanction decisions in 2011 totalled 150; and in 2012 that number was 120. Thus, it would appear that sanction decisions are on the decline. Moreover, given that there are 900 sitting federal judges, one could argue that sanctions have not lightly been sought since the Federal Rules amendments.

FOOTNOTES:

* Although Judge Scheindlin’s Zubulake opinions (which made it explicit that parties have a duty to preserve evidence when litigation is imminent) were authored many years ago, lawyers and parties nonetheless continued to fail to preserve evidence.

** Those 49 cases are:
CAT3, LLC v. Black Lineage, Inc., 2016 WL 154116 (S.D.N.Y. 2016)
O’Berry v. Turner, 2016 WL 1700403 (M.D. Ga., Valdosta Div. 2016)
Matthew Enterprise, Inc. v. Chrysler Group LLC, 2016 WL 2957133 (N.D. Cal. 2016)
GN Netcom, Inc. v. Plantronics, Inc., 2016 WL 3792833 (D. Del. 2016)
Learning Care Group, Inc. v. Armetta, 2016 WL 4191251 (D. Conn. 2016)
Best Payphones, Inc. v. City of New York, 2016 WL 792396 (E.D.N.Y. 2016)
Nuvasive, Inc. v. Madsen Medical, Inc., 2015 WL 305096 (S.D. Cal. 2016)
Thomas v. Butkiewicus, 2016 WL 1718368 (D. Conn 2016)
Ericksen v. Kaplan Higher Education, LLC, 2016 WL 695789 (D. Md. 2016)
BMG Rights Mgmt. (US) LLC v. Cox Comms., Inc., 2016 WL 4224964 (E.D. Va., Alexandria Div., 2016)
Brown Jordan Int’l, Inc. v. Carmicle, 2016 WL 815827 (S.D. Fl. 2016)
Core Laboratories LP v. Spectrum Tracer Services, L.L.C., 2016 WL 879324 (W.D. Okl. 2016)
Internmatch, Inc. v. Nxtbigthing, LLC, 2016 WL 491483 (N.D. Cal. 2016)
Living Color Enterprises, Inc. v. New Era Aquaculture, Ltd., 2016 WL 1105297 (S.D. Fl. 2016)
Marshall v. Dentfirst, P.C., 313 F.R.D. 691 (N.D. Ga., Atl. Div.)
Marten Transport, Ltd. v. Plattform Advertising, Inc., 2016 WL 492743 (D. Kansas 2016)
Saller v. QVC, Inc., 2016 WL 4063411 (E.D. Penn. 2016)
Martinez v. City of Chicago, 2016 WL 3538823 (N.D. Ill., Eastern Div. 2016)
Fiteq Inc. v. Venture Corporation, 2016 WL 1701794 (N.D. Cal. 2016)
Accurso v. Infra-Red Services, Inc., 2016 WL 930686 (E.D. Penn 2016)
United States v. Woodley, 2016 WL 1553583 (E.D. Mich., Southern Div. 2016)
Marquette Transportation Co. Gulf Island, LLC v. Chembulk Westport M/V, 2016 WL 930946 (E.D. La. 2016)
Orchestratehr, Inc. v. Trombetta, 2016 WL 1555784 (N.D. Tex., Dallas Div. 2016)
Thurmond v. Bowman, 2016 WL 1295957 (W.D.N.Y. 2016)
Mazzei v. Money Store, 2016 WL 3902256 (2d Cir. 2016)
Brackett v. Stellar Recovery, Inc., 2016 WL 1321415 (E.D. Tenn., Knoxville 2016)
Bagley v. Yale Univ., 2016 WL 3264141 (D. Conn 2016)
Thomley v. Bennett, 2016 WL 498436 (S.D. Ga., Waycross Div., 2016)
Granados v. Traffic Bar and Restaurant, Inc., 2015 WL 9582430 (S.D.N.Y. 2015)
Dr Distributors, LLC v. 21 Century Smoking, Inc., 2016 WL 4077107 (N.D. Ill., Western Div. 2016)
Henry Schein, Inc. v. Cook, 2016 WL 3212457 (N.D. Cal. 2016)
Bruner v. American Honda Motor Co., 2016 WL 2757401 (S.D. Al., Southern Div. 2016)
In re Bridge Construction Services of Florida, Inc., 2016 WL 2755877 (S.D.N.Y. 2016)
Markey v. Lapolla Industries, Inc., 2015 WL 5027522 (E.D.N.Y. 2015) (Tomlinson, U.S.M.J.)
Dao v. Liberty Life Assurance Co. of Boston, 2016 WL 796095 (N.D. Cal. 2016)
Zbylski v. Douglas County School District, 2015 WL 9583380 (D. Colo. 2016)
Redwind v. Western Union, LLC, 2016 WL 1732871 (D. Or. 2016)
Stinson v. City of New York, 2016 WL 54684 (S.D.N.Y. 2016)
Whitesell Corp. v. Electrolux Home Products, Inc., 2016 WL 1317673 (S.D. Ga., Augusta Div. 2016)
Vay v. Huston, 2016 WL 1408116 (W.D. Penn. 2016)
Hammad v. Dynamo Stadium, LLC, 2015 WL 6965215 (S.D. Tex., Houston Div. 2015)
Official Committee of Unsecured Creditors of Exeter Holdings, Ltd. v. Haltman, 2015 WL 5027899 (E.D.N.Y. 2015) (Tomlinson, U.S.M.J.)
United States v. Woodley, 2016 WL 2731186 (E.D. Mich., Southern Div.)
Grove City Veterinary Service, LLC v. Charter Practices Inter., LLC, 2015 WL 4937393 (D. Or. 2015)
United States v. Safeco Ins. Co. of America, 2016 WL 901608 (D. Idaho 2016)
Coale v. Metro-North Railroad Co., 2016 WL 1441790 (D. Conn. 2016)
Fleming v. Escort, Inc., 2015 WL 5611576 (D. Idaho 2015)
Kissing Camels Surgery Center, LLC v. Centura Health Corp., 2016 WL 277721 (D. Colo. 2016)
McIntosh v. United States, 2016 WL 1274585 (S.D.N.Y. 2016)

*** Of the 19 cases in which sanctions were not granted, the reasons for denying sanctions varied. Indeed, courts declined to impose sanctions because the party “took reasonable steps” to preserve data; party was not harmed by the fact the ESI was missing; there was insufficient evidence of bad faith; and the missing data was “restored through other methods.”

In a trademark infringement case pending in the Northern District of California (InternMatch v. Nxtbigthing, 2016 WL 491483 [N.D. Cal. Feb. 8, 2016]), plaintiff requested copies of any documents relating to the defendants’ defense that it had continually and pervasively used the trademark at issue.   The defendants were not able to produce many responsive documents and advised plaintiff that a lightning strike in 2011 and a subsequent power surge in April 2015, destroyed responsive documents, including relevant corporate records.  Defendants further noted that after the power surge, they discarded certain laptops and hard drives that were damaged by the event.

Believing defendants intentionally destroyed electronic versions of responsive documents, plaintiff sought sanctions against defendants.  The Court, following the newly amended FRCP 37(e), found defendants violated their duty to preserve relevant evidence.  The Court specifically noted that defendants failed to run diagnostics on the destroyed computer following the power surge to assess whether the files on the laptop’s hard drive could be recovered prior to discarding it.  Defendants failed to take any recovery efforts despite their claim that the only electronic copies of the marketing materials allegedly establishing “previous use” of the trademark existed on that computer. The Court also found the power surge to be an implausible claim. The Court held that “at the very least, [the] defendants consciously disregarded their obligations to preserve relevant evidence,” and granted the plaintiff’s request for an adverse inference instruction sanction.

This case reminds us that under the new Rule 37(e), courts are authorized to use specific measures, including adverse inference sanctions, if relevant information that should have been preserved is lost – irrespective of the mechanism that caused the loss. The decision also serves as a good reminder that electronic information is susceptible to destruction and modifications based upon uncontrollable events — like power surges — and we remain obligated to take prompt preservative/remedial measures upon learning of such events.

Clear-View Technologies, Inc. v John H. Rasnick, et al (2015 U.S. Dist. LEXIS 63579), reads as a list of the things you do not want to do if you want to avoid spoliation sanctions. The underlying dispute involved the development of an alcohol tracking product, and certain shareholders’ alleged conspiracy to steal the technology and start a new company.

The defendants, however, forgot they had discovery obligations (or they were not properly informed about them by their attorneys). After being on notice of a potential litigation, through a text message where they were threatened with a lawsuit, the defendants failed to take any steps to preserve discovery. Instead, they continued to delete emails and dispose of technology (like iPhones, iPads and computers). They also never even tried to do a fulsome search for responsive materials, but still certifying that they searched for and produced all of their ESI.

Defendants’ discovery failures led the court to require the defendants to turn over all of their devices to an outside consultant to review. This is where things went from bad to worse. The consultant found almost 2,600 relevant documents, totaling almost 12,500 pages of materials the defendants did not produce (12,000 more pages than the defendants entire production). The forensic examiners also found that four separate optimization and computer cleaning programs was run on one of the laptops (including “crap cleaner”) which can be used to “wipe specific files and programs.” This was done six-days after the filing of the motion to compel. The defendants also purged outlook files from an external hard drive and purportedly were unable to provide passwords for certain email accounts.

All in all, the court was not accepting the defendants’ actions lightly. The court issued an adverse inference sanction and over $200,000 in attorney’s fees (though it declined to issue a termination sanction regarding defendants’ counterclaim). Adding insult to injury, the defendants stiffed the forensic expert, even though the court had ordered that they pay its fees. The court therefore issued an order to show cause as to why additional sanctions should not be issued.

HMS Holdings Corp. v. Arendt, 2015 N.Y. Slip Op. 50750(U) (Sup. Ct. May 19, 2015).

In this lawsuit, HMS alleged that the defendants – former employees – misappropriated confidential information, including trade secrets, on behalf of their new employee, Public Consulting Group (“PCG”).  When the lawsuit began, PCG promptly issued a legal hold notice to certain of its employees, including two of the defendants – each of whom were licensed attorneys.

During discovery, the parties entered into a discovery stipulation requiring defendants to make forensic images of their computers and certain other sources of electronically stored information.  Defendant Sean Curtain produced images of his work and personal computers; defendant Danielle Lange imaged her work laptop and personal iPhone.  HMS’ expert promptly inspected those images and found that both attorney defendants had destroyed relevant information.  The Court agreed.*

The Court found both lawyers “engaged in egregious misconduct for which they bear a high degree of culpability” and their misconduct caused “substantial prejudice” to HMS.  Given the intentional and willful spoliation, the Court presumed the lost evidence was both relevant and supportive of HMS’ claims.  Neither Lange nor Curtain could rebut this presumption.

Having established spoliation, the issue left for the Court was one of sanctions.  The Court declined to impose an Order of preclusion because HMS could establish its claims through avenues other than the lost evidence.  However, the Court found a mandatory adverse inference  was appropriate given the “willful and deliberate” misconduct perpetrated by the defendants.  Specifically, the Court found “the trier of fact should be permitted to draw the strongest possible adverse inference from defendants’ bad faith and intentional destruction, deletion and failure to produce relevant evidence.”  The Court also ordered defendants to pay HMS’ attorneys’ fees, costs and all expenses stemming from their willful misconduct.  Finally, the Court forwarded its decision to the Committee on Professional Standards for the Third Department.  According to the Court, given the nature of the conduct undertaken by Danielle Lange, her “honesty, trustworthiness, and fitness to practice law” was severely called into question.

 *Please consult the Court’s full opinion for a detailed description of the egregious misconduct the individual defendants engaged in, including repeated use of  data wiping tools and affirmative misrepresentations of fact.

 

Novick v. AXA Network, LLC, 2014 WL 5364100 (S.D.N.Y. Oct. 22, 2014)

In this contract dispute case, the plaintiff made a motion for sanctions under Rule 37(b)(2) requesting the court strike the defendants’ answer and counterclaims, allow a negative spoliation inference against the defendants and order a monetary fine due to the plaintiff’s “repeated attempts to obtain the at-issue discovery and defendants’ failure to preserve the same.” The plaintiff alleged that the defendants had significantly delayed the discovery process by providing largely irrelevant emails, by withholding emails that were unfavorable to the defendants, by failing to preserve relevant emails and by failing to preserve 10 weeks of audio recordings that constituted “approximately one-third of the entire time period ordered.” The court found that “the defendants acted in bad faith respecting their production of e-mail messages, employed delay tactics, caused substantial costs to be incurred by the plaintiff and wasted the [c]ourt’s time.” The court also found that the defendants had acted in bad faith regarding the missing audio recordings. Thus, the court imposed an adverse inference jury instruction concerning the audio recordings, awarded the plaintiff reasonable attorney’s fees and ordered that certain depositions be retaken at the defendants’ expense.