Spoliation

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This is Part 2 in a multi-part blog discussing various core requirements that can serve as the road map to allow a lawyer to fulfill his/her duty of technological competence. [Click here to read Part 1]

2.  Implement Appropriate Preservation Procedures

ESI spoliation remains a real issue that lawyers must confront.  The best way to prevent spoliation is to take deliberate and prompt preservation steps.

So, the first question to ask yourself is has my duty to preserve data arisen?  While different jurisdictions have different rules, the federal standard, and the one New York subscribes to, was announced in Zubulake v. UBS Warburg LLC (“Zubulake IV”), 220 F.R.D. 212, 218 (S.D.N.Y. 2003).  That case stands for the proposition that one’s duty to preserve potentially relevant information begins “once a party reasonably anticipates litigation.”

Assuming your duty to preserve has been triggered, now what?

A lawyer must issue an effective litigation hold notice.  I have written previously on how to draft an effective hold [See Litigation Hold Notices Should Not Cloak the Recipient with Discretion Over What Documents to Preserve, Practical Tips For an Effective Litigation Hold Notice, and Your Litigation Hold Must Be Generally Broad and Specifically Tailored] and refer you to those posts, but note it is critically important that the Hold is clear, comprehensive and provides a resource for questions.  Minimally it should provide custodians with detailed instructions on what they are expected to do upon receipt of the Hold; and 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.  Additionally, prior to issuance, an attorney must identify which custodians/entities are receiving the Hold; what third-parties over whom the client has practical control, if any, should receive the Hold; and what procedures will you implement to audit compliance with the Hold.

Have questions?  Please contact me at kcole@farrellfritz.com.

 

Often viewed as a necessary evil, the Rule 26(f) conference can serve as an invaluable opportunity to meaningfully discuss discovery such that the process is streamlined and seeks to avoid unnecessary (and often costly) disputes.   Generally speaking, Rule 26(f), among other things, sets the deadline for the conference as soon as practicable and at least 21 days before the scheduling conference, and lists several required topics for the conference, including preserving discoverable information. Although a litigant should use the Rule 26(f) conference to reduce the risk of spoliation claims through agreements on preservation, as well as reduce costs by limiting the scope of e-discovery, achieving results is almost entirely dependent on the attorney’s preparation.  Indeed, being well informed about your client, its documents ‒ including ESI ‒ and its goals will allow for a productive discussion rather than an empty formality.  But, how exactly do you prepare and what should you think about before the conference?

To prepare for the conference, it helps to think about the end game and to formulate the steps necessary to get there.  The below thoughts on preparation/topics are intended merely as a guidepost and are not exhaustive.

  • Understand your client’s ESI:  What kind of ESI is required to prosecute the client’s claims and defend against those of the adversary?  Where does that ESI reside?  To this end, it is important to become familiar with your client’s network architecture, including what hardware exists, and where.   You should strive to understand the client’s knowledge management (when/how is ESI stored), system knowledge (what is stored and where) and who is responsible for maintaining and storing data.  For example, are there physical email servers on site, or are the servers virtual?  What is necessary to access and collect data from each server?  Relatedly, give thought to addressing admissibility and how authenticity may be established over the documents (See “The New Rules of Federal Evidence Have Arrived“).
  • Identify Custodians:  Take time to identify employees/custodians likely to have potentially responsive ESI.  Preservation comes at a cost and if you fail to understand your custodians, you may over-preserve.  Consider, for example, if the client is a national organization with offices throughout the U.S.  If all of the relevant custodians work out of the Omaha office, with all of the potentially responsive data located on a particular server, is there need to preserve the content of all other servers?  Consider interviewing those custodians to identify other relevant custodians.
  • Understand the timing and execution of Hold Notices, and Related Thorny Issues: At the conference the parties should determine the scope of the duty to preserve.  For example, be prepared to disclose (and ask adversary about) the status of the litigation hold.  Has one been issued?  If so, when and who received it.  If not, why not?  You may even seek to inquire about what subjects and sources the Hold covers and if there is any procedure in place for auditing compliance.  Are there any time-sensitive data sources involved and if so, have auto-delete and auto-archive functions been turned off for those data sources?  Is data from third-parties potentially responsive?  And, if so, what steps, if any, have been taken to preserve that data?   Have any key custodians left the company or potentially leaving?  If so, what steps are being taken to preserve his/her data?  Because of the large increase in e-data and the various locations where that data may reside, think about ways to narrow defensibly the scope of what you preserve.
  • Understand Collection:   While you may agree to preserve all of Katy Cole’s emails from 2010 to the present, that doesn’t mean you are agreeing to review for production all of that data.  What will be done to identify the materials that will be reviewed?  Can the parties agree upon search terms, date delimiters and other methodologies to limit the universe of material? Consider entering an agreement as to appropriate date ranges, custodians, systems, file types, and search terms.
  • Understand Privilege Obligations:  You should also discuss privilege during the Rule 26 conference.  Consider seeking a stipulation or Rule 502(d) order stating that disclosure of privileged information does not constitute a waiver of the attorney-client privilege in the instant or another proceeding.  Discuss whether a traditional privilege log is practical or burdensome for large volumes of ESI. Would it be preferable to log privileged emails by thread groups (i.e., a message and its attachments; related messages in a string of replies and forwards)?  Or are categorical logs (i.e., those that describe withheld categories instead of listing withheld records) preferable?
  • Understand Production Format:  Don’t leave format to the whim of your adversary.  Discuss expectations.  Indeed, there is little worse than receiving a thumb drive that contains various unsearchable PDFs (well, maybe a paper production is worse).  Discuss your production specifications and be prepared to produce in the same format you demand production.  Relatedly, is there any paper in the production?  If so, be certain to request that Optical Character Recognition (OCR [i.e., the process by which paper documents are converted into editable, searchable computer files]) be applied for ease text-search ability.  And, are you producing in a fell swoop or will the parties engage in phased discovery?

A meaningful and productive Rule 26(f) conference can streamline discovery, avoid unnecessary costs and avoid spoliation concerns.  It should be embraced as an opportunity to reach agreement and engage in a cooperative discovery process that will promote proportionality.

Have questions?  Please contact me at kcole@farrellfritz.com.

On August 1, 2018, Judge Beetlestone (E.D. Pa.) granted Defendants’ motion for sanctions based upon unequivocal evidence that Plaintiffs manipulated and fabricated emails material to the litigation.  Although the Court imposed the drastic sanction of dismissing Plaintiffs’ complaint, the Court provided a detailed and instructive analysis supporting its ultimate conclusion.  The Court’s analysis, addressed below, can be read in full here.

Facts

The underlying matter arises from the sale of Second Opinion, Inc., (“SO”).  SO was a service business that connected lawyers representing personal injury plaintiffs with medical professionals who could serve as experts in litigation.  Plaintiffs entered into an agreement to purchase the assets of SO and eventually filed a lawsuit alleging fraud, misrepresentation and breach of contract against Howard and Wendy Weiss – the prior owners of SO and Defendants to the lawsuit.   The gist of the dispute was that the Defendants made false representations about the nature of SO and the assets the Plaintiffs were to receive pursuant to the purchase agreement.

In response to a letter request by the Defendants, the Court held a hearing on the record in December 2017 to decide a discovery dispute concerning whether Defendants’ interrogatories contained an impermissible number of subparts.  At that hearing, the Court was advised of a newly discovered issue – that there were a number of significant discrepancies between emails produced by Defendants and emails produced by Plaintiffs.

A forensic expert was retained to examine each party’s computer(s) and eventually the Defendants moved for sanctions.  In late June 2018, the Court received an ex parte fax from Plaintiff requesting dismissal of the suit, including the counterclaims filed by Defendants.

On July 5, 2018 the Court held a conference upon the record to discuss Defendants’ pending motion for sanctions.  During that conference Plaintiff – in a radical departure from his faxed letter– represented to the Court he had no knowledge of any counterclaim against him.  At the conclusion of the hearing, the Court scheduled another hearing to address the spoliation motion.

Spoliation

At its core, the issue boiled down to 7 emails and which, among them, were authentic.

For example, Email 3 – an email purportedly from Plaintiff to Defendant — stated, “[w]e are interested in cutting off training.  We are interested in taking over the business and moving it forward. We believe we can do this.”

Yet, Email 4  — an email sent at the exact same time as Email 3 and also from Plaintiff to Defendant stated, “[we] are not interested in cutting off training.  We are interested in taking over the business and moving it forward while still learning.  We believe we can do this.”

The forensic examiner testified that Email 3 was found only on Plaintiff’s computer and was a fabrication; and Email 4 was found on both Plaintiff’s and Defendant’s computer.  In what the Court observed was the most telling indicia of purposeful fabrication, is that Email 4 (the authentic email) was located in three different locations in Plaintiff’s computer, indicating that he had deleted the file.   Plaintiff testified but the Court found his testimony not credible, confused and riddled with inconsistencies.

Decision

In order to determine the appropriate sanction, a Court must weigh three factors:

(1) the degree of fault of the person who destroyed or altered the evidence;

(2) the prejudice suffered by the opposing party; and

(3) the existence of alternative sanctions.

In assessing these factors the Court concluded that Plaintiff “intentionally altered and manipulated evidence” and when confronted with the altered emails he “accused the Defendants of having manipulated the authentic emails.  [Plaintiff] actively deleted emails and the evidence shows that he continued to delete pertinent files as recently as…after the deposition when he was confronted with the fabricated emails.”  And so, the Court determined Plaintiff’s actions were intentional and willful.

The Court then determined that notwithstanding the early discovery of Plaintiff’s actions, the prejudice “was substantial.”  Specifically, Defendants had to hire an expert and expend significant sums of money (motion practice, full day of testimony).  Additionally, the fabricated emails materially assisted Plaintiff’s case against Defendants.  Such actions, said the Court, is a “wrong against the institutions set up to protect the public….fraud cannot be complacently tolerated…”  Thus, the Court found Plaintiff’s behavior threatened to undermine the public’s faith in courts and the discovery process.

Finally, the Court assessed the various sanctions available to it inherently and specifically pursuant to Rule 37.  The Court chose not to impose an adverse jury instruction as that would not remediate the prejudice to Defendants, would not deter this type of egregious conduct, and would be a minimal sanction where, as here, there was significant effort and costs imposed during the process.  In opting not to impose only a financial sanction the Court noted that doing so would convey the wrong message to litigants that money could cure one’s improper actions.   And so, according to the Court, based upon well-established law in the Third Circuit, the only remedy available that was proportional to the deleterious and egregious fraudulent conduct involved here was the outright dismissal of Plaintiffs’ claims.  Indeed, “[a] party’s resort to fabricated evidence justifies denial of all relief to that party.”

Conclusion

There is little that needs to be said about this decision, as we all understand the egregious and continual conduct that was at play in this matter and the need for swift and severe sanctions.  The decision, however, reminds us of the vast discretion a Court has when imposing sanctions.

Have questions?  Please contact me at kcole@farrellfritz.com.

“Self-collection” refers to the situation in which the custodians of information potentially relevant to a legal proceeding undertake to identify and collect that information on their own and provide the collected content to counsel.

The typical self-collection situation involves some limited instruction or oversight from counsel (in-house or outside).  For example, outside counsel issues a litigation hold notice identifying various topics and potentially responsive data.   A recipient of that notice undertakes to review his/her paper files, self-designates what he/she deems relevant, and provides that “relevant” content to in-house counsel.  Similarly, the self-collecting custodian may run key words in his/her Outlook mailbox and drag and drop “hits” to a designated folder in Outlook.

Such self-collection efforts, however, are often not an advisable course in any litigation, as the risks and consequences of employing self-collection can be significant.

Time Commitment

Consider for example, the salesperson with a computer who has received a legal hold notice and who is deemed to be in possession of potentially responsive information.   Assuming the individual acknowledges receipts of the hold notice (obtaining an acknowledgment of receipt and an intent to comply can often be a task in and of itself), does the individual have the time needed and interest to commit to a thorough and comprehensive collection?  If not, what are the chances the collection is done well, if at all?

Understanding the Scope of What is Required

Does the individual really understand the legal and factual scope of the proceeding at issue?  Even the most thoughtfully drafted hold notice does not necessarily convey to a non-lawyer unfamiliar with the matter the precise scope of relevant materials.  If the custodian doesn’t understand completely the factual and legal scope of the proceeding at hand, relevant materials may be overlooked.  And, assuming there is more than one custodian undertaking a self-collection exercise, how does counsel verify each self-collector’s respective understanding is consistent with those of other self-collectors?  In other words, custodian A may understand that widgets are clearly relevant, while custodian B understands only certain categories of widgets are relevant.

Technical Know How; Potential Conflict of Interest

Putting aside the timing and factual issues that can undermine a self-collection, do the custodians have the technical know-how to complete a defensible and sound collection?   This concern is, in my opinion, more troubling than the first two issues.  Indeed, the technical rube could inadvertently alter or delete relevant content and metadata, which may ultimately affect the data’s evidentiary value.  Or worse, the ill-intentioned self-collector whose interest may be contrary to the client’s interests, could intentionally omit or destroy content (which, could, potentially lead to spoliation motions and sanctions).

Given the potential risks presented by self-collection, lawyers should think long and hard before allowing it.  In the words of the Honorable Shira Scheindlin, “[s]earching for an answer on Google (or Westlaw or Lexis) is very different from searching for all responsive documents in the FOIA or e-discovery context…” and “most custodians cannot be ‘trusted’” to effectuate a legally sufficient collection.  National Day Laborer Org. Network v US Immigration and Customs Enf. Agency, (10 Civ. 3488 [SAS] [SDNY 2012]).

(See related post, Litigation Hold Notices Should Not Cloak the Recipient With Discretion Over What Documents to Preserve).

Have questions regarding data collection in legal proceedings?  Please contact me at kcole@farrellfritz.com.

In Barcroft Media, Ltd. et al. v. Coed Media Grp., LLC, No. 16-CV-7634 (JMF) (S.D.N.Y. Sept. 28, 2017), Plaintiffs – providers of entertainment-related photojournalism and owners of celebrity photographs – interposed various intellectual property claims against Defendant Coed Media Group, LLC (“CMG”).  The claims related to the allegedly infringing use of certain celebrity photographs (the “Images”) on CMG’s pop culture and celebrity gossip websites.  Because CMG purportedly failed to preserve the “webpages” on which it displayed the Images, Plaintiffs filed a motion for spoliation sanctions pursuant to Federal Rule of Civil Procedure 37.

In deciding the sanctions motion, Judge Furman discussed the relevant provisions of Rule 37 and its 2015 amendment.  Specifically, the Court noted that a sanction may be imposed only if the ESI that should have been preserved is lost because a party failed to take reasonable steps to preserve it and the ESI cannot be restored or replaced through additional discovery.  Once that standard is met, the next step in the inquiry is to determine whether; (1) the non-offending party has been prejudiced from the loss of ESI; and (2) the offending party acted with the intent to deprive another party of the information’s use in the litigation. Even a cursory reading of the (not so newly) amended Rule 37 makes plain that mere loss of data alone is not enough for sanctions. Rather, loss coupled with a prejudice is necessary and, even then, the resulting sanction must only be as great as needed to cure the prejudice. Thus, only after a Court identifies a prejudice to the aggrieved party, may the Court order measures necessary to remediate that prejudice.

Against this backdrop, the Court concluded Plaintiff’s motion for sanctions was without merit and bordered on frivolous.  Specifically, the Court found there was no foundation for the imposition of any sanctions.

“Given the plain language of [Federal Rule 37(e)], Plaintiffs’ motion borders on frivolous, for the simple reason that they cannot even show that the evidence at issue was ‘lost.’ Several of the images are still hosted on CMG’s websites…And the record makes clear that Plaintiffs themselves possess copies of the other Webpages—in the form of screen captures taken when they displayed the Images (the ‘Screenshots’)…In fact, Plaintiffs themselves list the Screenshots as trial exhibits…Given that…, there is no foundation to impose sanctions under Rule 37(e).”

The Southern District went on to conclude that “Plaintiffs obviously cannot show prejudice ‘as [they] actually possess[ ] copies’ of the relevant evidence” and sanctions are not appropriate.[1]

This decision serves as an important reminder that practitioners need to remain current in their understanding of the Federal Rules and the standards articulated under those Rules.  Indeed, a sanction for lost ESI cannot be predicated merely upon loss alone.  Rather there must be a loss of relevant ESI coupled with a prejudice before sanctions may be imposed.

[1] Bear in mind the decision is limited to spoliation issues, not authenticity and best evidence.

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.

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.

According to the Complaint filed in Michael Distefano and Nicole Distefano v Law Offices of Barbara H. Katsos, PC and Barbara H. Katsos, Michael DiStefano and a non-party were owners of a limited liability company that was the franchisee of three Cold Stone Creamery Inc. ice cream parlors.  In 2006, the three stores suffered financial difficulties due to an extended power failure earlier in 2006.  The Complaint further alleges that as a result, DiStefano sought legal advice from Barbara Katsos, Esq., and eventually retained her for the purposes of commencing a Chapter 11 bankruptcy proceeding.   That proceeding was ultimately withdrawn in 2010 and subsequently the DiStefanos filed the instant lawsuit. The Complaint interposes claims of legal malpractice in connection with the Chapter 11 proceeding along with claims for breach of contract and breaches of fiduciary duty.

The focus of this blog will be Katsos’ failure to preserve data relevant to the malpractice lawsuit.

Relevant Facts Per Court’s Decision

During a discovery status conference before Magistrate Judge A. Kathleen Tomlinson, counsel for Defendants advised the Court that Katsos had discarded her computer at some point prior to the malpractice litigation being commenced.  In response, the Court directed defense counsel to provide the Court with an affidavit detailing the circumstances of how the computer was discarded.   After receipt of the affidavit, the DiStefanos moved for spoliation sanctions pursuant to Rule 37.   The Court temporarily denied that motion, without prejudice, pending a hearing.  See DiStefano v Law Office of Barbara H. Katsos, PC, No. CV 11-2893, 2013 WL 1339548, at *9 (EDNY Mar 29, 2013).  Specifically, the Court found that “a hearing is necessary to explore the circumstances under which the alleged spoliation occurred” (id. at *8) (internal quotations omitted).  The Court instructed Katsos to be prepared to testify – or bring someone who could testify – as to specific topics relevant to the issue of spoliation (i.e., the document preservation undertaken when the DiStefanos instituted an adversary proceeding in March 2010).

Which Rule 37 Applies?

Before assessing the testimony presented at the evidentiary hearing, Judge Tomlinson was required to determine which version of Rule 37(e) was applicable to the motion – those in effect pre-2015 amendment? Or those currently in effect in 2017?    Citing Magistrate Judge Francis’ decision in Cat3, LLC v Black Lineage, Inc. (144 FSupp3d 488 [SDNY 2016]) (previously mentioned in my August 31, 2016 E-Discovery Update: ESI Sanctions in Federal Court During 2016 (Well, through July)), the Court noted that for cases filed before the effective date of the amendments, courts have discretion to determine which version of the Rule to apply based upon what is “just and practicable.”    Thus, Judge Tomlinson opted for the older version of the Rules based upon three considerations. First, the parties briefed the spoliation motion in 2013 based upon the former Rule 37 in.  Second, the evidentiary hearing was conducted under the tenants of former Rule 37.  And third, the conduct relevant to the motion began more than seven years before the current version of Rule 37 took effect.

Relevant Testimony At Hearing*

According to the Court, the testimony at the evidentiary hearing established the following facts:

  • While representing the DiStefanos in 2009, Katsos’ office computer crashed and a freelance computer technician told Katsos it “was bad and that nothing could be recovered”;
  • That same technician replaced the defective computer parts and drilled holes in the replaced hard drives;
  • At no time after this litigation began did Katsos take any affirmative steps to save electronic information;
  • Katsos did not issue any written instructions to her staff regarding the obligation to preserve ESI;
  • Katsos testified she was “amazed” she did not find more emails when searching her AOL accounts;
  • Katsos contacted her email provider only to learn that AOL “had no ability to save emails past the 27-day mark” absent some affirmative action by Katsos earlier;
  • Katsos’ electronic retention policies were essentially non-existent in that “everything was made in hardcopy” (and emails Katsos deemed subjectively relevant were often printed) and filed in storage cabinets;
  • There was no backup system in place to preserve electronic data;
  • Katsos was unaware of any method to set up automatic deletion of emails from her email account nor was she aware of how emails might be saved or deleted from a “sent folder”; and
  • Katsos’ office manager was not computer savvy and Katsos knew this when she hired the office manager.

Court’s Conclusion

Notwithstanding the foregoing facts, Magistrate Judge Tomlinson spared Katsos the most severe sanctions available to the Court under the pre-amendment Rule 37(e) because the Court believed that Katsos’ actions were not taken in bad faith.   Specifically, the Court noted that “[r]ather than bad faith…Katsos’ actions were occasioned by (1) her position as a solo practitioner utterly naïve about her obligations to preserve electronic evidence and (2) her total reliance upon and complete delegation to an outside consultant the responsibility for setting up and maintaining the computer system in her office.”   Moreover, the Court found that Katsos’ “utter ignorance of (i) her ESI preservation responsibilities and (ii) her efforts to save ‘substantive’ emails can be considered, to some degree, as ‘positive evidence’ of good faith.”

Ultimately, the Court concluded, “on the ‘continuum of fault ranging from innocence to the degree of negligence to intentionality’….this case falls on the spectrum between negligence and gross negligence, and closer to the former than the latter.’” Indeed, the Court found no evidence of intentional or malicious spoliation but said Katsos had “at the very least, acted with a ‘pure heart and an empty head.’”

Thus, the Court ordered Katsos to pay Defendants’ attorneys’ fees and costs incurred in connection with the spoliation motion as a sanction.

Lesson

Although the Court demonstrated leniency when imposing its sanctions, there are many important lessons to internalize from the Court’s 60-page decision.  Included among them:

  • The pre-Amendment Rules are alive and well.  Given that litigations tend to span many years, it is possible you/client could be subject to stiffer sanctions under the still-viable former Rule 37(e);
  • Ignorance of one’s preservation obligations will not insulate you from sanctions.  In fact, while Katsos’ lack of computer sophistication may have helped her when it came time for sanctions to be imposed (i.e., she was merely negligent), the fact remains she was sanctioned!  And remember – certain state’s ethics decisions expressly find that ignorance of technology is a violation of one’s duty of competence; and
  • Finally, there are resources available to help smaller firms and solo practitioners comply with their various discovery obligations – including me!  Farrell Fritz’s E-Discovery practice group is always willing to help so don’t hesitate to contact us if confronted with an ESI issue

* Memorandum and Order, dated May 10, 2017

In Hsueh v. N.Y. State Dep’t of Fin. Servs., (No. 15 Civ. 3401 [PAC], 2017 WL 1194706 [S.D.N.Y. Mar. 31, 2017]) the Southern District imposed spoliation sanctions (specifically, an adverse inference) on the plaintiff in a sexual harassment case, because of her intentional deletion of a recorded conversation relevant to her allegations.  While the court deemed the recording ESI, it ultimately concluded the Rule 37(e) applied only to situations where a party failed to take reasonable steps to preserve ESI; not to situations where, as here, a party intentionally deleted relevant information.

Factual Background

Hsueh filed her sexual harassment complaint on May 1, 2015. During her deposition almost a year later (April 20, 2016), plaintiff stated she did not believe she had any recorded conversations relevant to her lawsuit, but it was possible she may have such recordings.  As the deposition continued, however, Hsueh eventually revealed that she had recorded one conversation with a Human Resources representative but later deleted the recording because it was not “worth keeping” and “was not very clear.” She testified she deleted that recording in either December 2015 or January 2016.

A few weeks after Hsueh’s deposition, defendants filed a letter with the Court requesting a pre-motion conference on a proposed motion for spoliation sanctions in connection with Hsueh’s intentional deletion of the recording. Immediately before Plaintiff’s response was to be filed, Plaintiff’s counsel informed the Court that Hsueh provided him with a recording of the deleted conversation, which Plaintiff was able to recover with the help of her husband.  The result – discovery was reopened for 90 days so that Defendants could depose (again) Plaintiff and her husband.  The Court also reserved the right to impose upon Plaintiff the attorney’s fees and the costs incurred by Defendant’s in connection with reopening discovery.

Notwithstanding the additional discovery and depositions, Defendants proceeded with their sanctions motion.

Relying upon the plain language of Rule 37(e), the Court found the Rule 37 inapplicable in the present instance. The Court continued:

“Because Rule 37(e) does not apply, the Court may rely on its inherent power to control litigation in imposing spoliation sanctions. A party seeking an adverse inference instruction based on the destruction of evidence must establish (1) that the party having control over the evidence had an obligation to preserve it at the time it was destroyed; (2) that the records were destroyed with a culpable state of mind; and (3) that the destroyed evidence was relevant to the party’s claim or defense such that a reasonable trier of fact could find that it would support that claim or defense. If these elements are established, a district court may, at its discretion, grant an adverse inference jury instruction insofar as such a sanction would serve the threefold purpose of (1) deterring parties from destroying evidence; (2) placing the risk of an erroneous evaluation of the content of the destroyed evidence on the party responsible for its destruction; and (3) restoring the party harmed by the loss of evidence helpful to its case to where the party would have been in the absence of spoliation.”

The Court also rejected Plaintiff’s argument that sanctions were not appropriate because the recording in issue was ultimately produced.*

Thus, having concluded Hsueh’s actions were the result of a culpable mind, rather than inadvertence, the Court exercised its inherent powers, imposed an adverse inference on Plainiff and granted to Defendants its attorneys’ fees and costs incurred in bringing the spoliation motion and in reopening discovery.

*Specifically, the Court concluded the produced recording was incomplete due to a number of factors including the length of the recording, that it cut off in mid-sentence, and Plaintiff’s husband’s concession that he could not be sure the recording was complete.

In Arrowhead Capital Fin. Ltd. v. Seven Arts Entertainment, Inc. 2016 U.S. Dist. LEXIS 126545 (S.D.N.Y. Sept. 16, 2016), District Judge Katherine Polk Failla imposed significant sanctions upon both the Chief Executive Officer (“CEO”) and the lawyer for defendant Seven Arts Entertainment Inc. (“SAE”).

Background

Arrowhead Capital Finance, Ltd. (“Arrowhead”) sued SAE in 2014 seeking to enforce a judgment it had little ability to enforce because all of the assets held by the debtor had been sold to SAE.  SAE filed a motion to dismiss, arguing the Court lacked personal jurisdiction.  The Court denied the motion pending discovery.

In a letter dated September 21, 2015, Plaintiff claimed SAE and its counsel had engaged in various misconduct during discovery.  The violations alleged to have been undertaken to slow down discovery included:

  • SAE inflated their document productions with nonresponsive documents;
  • SAE refused to produce critical responsive documents;
  • SAE’s discovery responses were incomplete and replete with improper objections; and
  • SAE refused to produce key witnesses for deposition.

The Court held a conference to address Arrowhead’s complaints.  During that conference, SAE’s counsel acknowledged he had not reviewed the discovery responses interposed by his client and merely forwarded to his attorney the materials he received from SAE’s CEO.

As a result of this admission, the Court stated it had no confidence SAE would meet its discovery obligations and ordered SAE’s CEO to personally appear to testify concerning the alleged misconduct.  The Court also ordered SAE to produce the responsive documents Arrowhead requested but never received.

Notwithstanding the Court’s various orders, SAE refused to produce witnesses for deposition or produce the required documents.

Because the Court deemed SAE’s CEO to be directing counsel not to comply with the Court’s orders, Arrowhead moved for sanctions.  In response, the CEO testified his offices were “paperless” and the third-party server upon which documents were maintained was destroyed as a result of SAE’s failure to pay its bills (which he claimed was unintentional).  The CEO also cast blame on various staff people to whom he had purportedly delegated the task of complying with the Court’s orders.

The Court concluded SAE was willfully making misrepresentations to the Court and showed “flagrant disregard for” Court orders for the purpose of withholding information from Arrowhead.  As a result, the Court held SAE forfeited its jurisdictional arguments due to non-compliance with Court orders.  The Court further determined a spoliation instruction would be provided in connection with any claims ultimately submitted to the jury.  Defendants’ CEO also was ordered to pay Arrowhead’s costs in association with bringing its various motions and was ordered to retain separate legal counsel to conduct a thorough review of SAE’s files to assess whether additional responsive information remained to be produced.  Defendants’ counsel, who was deemed complicit in the violations,  was ordered to pay a portion of Plaintiff’s costs.

Conclusion

This decision reinforces that counsel may not turn a blind eye to a client’s behavior nor may counsel simply follow the instructions of clients.  Rather, counsel has a duty to ensure that good faith efforts are taken to comply with discovery obligations.  This case also reminds us that the amended Rule 37(e) does not lessen punishments for willful or intentional e-discovery misconduct.  Rather, bad faith behavior will be met with sanctions, not only for the party, but for counsel as well.