Case Summary: Genworth Fin. Wealth Mgmt.; Court Mandates Forensic Imaging and Imposes Sanctions

The case: Defendants were former employees of Plaintiff company, and were alleged to have misused plaintiff’s proprietary client information, including a database, after leaving. Defendants, according to Plaintiff, used this information to solicit clients of their ex-employer in violation of the Computer Fraud and Abuse Act, the Connecticut Uniform Trade Secrets Act, the Stored Communications Act, and Connecticut common law’s prohibition of tortious interference with business relationships. Defendants asserted that they identified client information for solicitation through permissible means including internet searches and memory.
At Issue Here: Plaintiff filed a motion to compel defendants to submit their computers and media for production and inspection. Plaintiff further requested reasonable attorney’s fees and costs associated with its motion.
Discussion: Defendants productions in response to Plaintiff’s discovery requests, failed to include any e-mail, TJT’s Junxure client management database, or the Portfolio Center client invoicing database (allegedly stolen by Defendants). The Plaintiff sought the Defendants’ assurance that forensic imaging had been undertaken, noting concerns that relevant data was at risk of being erased through automatic deletion of temporary and inactive files. Defendants’ counsel conceded that the Defendants had no intention of imaging any of their computer devices, causing Plaintiff to file the motion to compel. After the Plaintiff filed its motion, Onsite IT Consulting performed imaging of TJT Financial’s computer devices and business laptops used by Defendants McMullan, Cook, and McFadden.
Pursuant to a subpoena, the Charles Shwabb Corp., a custodian of assets for TJT Financial, produced email correspondence from Defendant McMullan and Cook’s personal email account and computer that was not produced as part of the Defendants’ response to Genworth’s discovery requests. The correspondence reflects the Defendants’ submission of Genworth client data and information to Schwab, while still employed by Genworth, as part of efforts to establish TJT Capital and secure Genworth clients for the new entity.
During the proceeding, Defendant McMullan testified that, prior to the start of the instant litigation, he discarded the personal computer onto which he downloaded ACT client information and from which he conducted correspondence with Schwab in anticipation of his departure from Genworth and the formation of TJT Financial. Testimony further reflected however, that the disposal of the personal computer may have occurred after Genworth submitted letters to the Defendants to preserve all relevant documents in anticipation of litigation.

Court’s Analysis: The court began by noting that Rule 34 and Rule 26(b)(2)(B) “strongly suggested” that on such requests is discretionary and should take into account substantive considerations of the burden and expense of the request. . . . and that such relief is entirely within the discretion of the Court to grant or deny.
Defendants contended that the Plaintiffs have “not proffered a sufficient basis with which to justify its demands.” The court referred to FRCP 26(b)(1), however, to quote the rule that a party is entitled to discover any unprivileged matter relevant to a party’s claim or defense, where the discovery “appears reasonably calculated to lead to the discovery of admissible evidence.”

Referring to Rule 34(a) the court noted that a party is required to “produce and permit the party making the request . . . to inspect, copy, test, or sample any . . . electronically stored information.” This right is counter-balanced, however, by a responding party’s confidentiality or privacy interests. A party is therefore not entitled to “a routine right of direct access to a party’s electronic information system, although such access might be justified in some circumstances.”
In defining the extent of discovery to afford to a party, a court should: consider the relationship between the plaintiff’s claims and the defendants’ computers and, in some cases, whether the defendant has fully complied with discovery requests, in determining how the requested electronic discovery should proceed. Even in cases where courts have nonetheless adopted procedures to protect privilege and privacy concerns (quoting Calyon v. Mizuho Securities USA Inc., No. 07 CIV0224IRODF, 2007 U.S. Dist. LEXIS 36961, 2007 WL 1468889, at *3 (S.D.N.Y., May 18, 2007).
The court found persuasive the opinion from Ameriwood Industries, Inc. v. Liberman, No. 4:06 CV 524-DJS, 2006 U.S. Dist. LEXIS 93380, 2006 WL 3825291, at *3, *6 (E.D. Mo. Dec. 27, 2006), amended by 2007 U.S. Dist. LEXIS 98267, 2006 WL 685623 (E.D. Mo. Feb. 23, 2007).

Courts have been cautious in requiring the mirror imaging of computers where the request is extremely broad in nature and the connection between the computers and the claims in the lawsuit are unduly vague or unsubstantiated in nature. For example, a party may not inspect the physical hard drives of a computer merely because the party wants to search for additional documents responsive to the party’s document requests. [A court has previously] declined to allow the examination of any ESI other than the information that had been deleted because the requesting party had not demonstrated that the producing party was unwilling to produce relevant evidence. [Evidence] raises the question of whether defendants have in fact produced all documents responsive to plaintiff’s discovery requests. Furthermore, in cases where a defendant allegedly used the computer itself to commit the wrong that is the subject of the lawsuit, certain items on the hard drive may be discoverable. Particularly, allegations that a defendant downloaded trade secrets onto a computer provide a sufficient nexus between the plaintiff’s claims and the need to obtain a mirror image of the computer’s hard drive.

The Ameriwood court therefore concluded that because the defendants were accused of using “the computers, which [were] the subject of the discovery request, to secrete and distribute plaintiff’s confidential information. How and whether defendants handled those documents and what defendants did with the documents [were] certainly at issue.” The court then adopted the Ameriwood three step protocol for imaging, discovery, and disclosure for hard drives.

Ameriwood Imaging and Production Protocol:

• Imaging:The parties select a computer forensic expert who, operating pursuant to a confidentiality agreement, inspects, copies and images the targeted computer systems at a “non-disruptive” time. The expert provides a detailed report of the “equipment produced and expected.”
• Recovery:The expert recovers, from the mirrored images, all available targeted file types. In Ameriwood, these consisted of word-processing documents, incoming and outgoing email messages, presentations, and files, including “deleted” files. The expert provides the recovered documents in a reasonably convenient and searchable form to the producing party’s counsel, with notice to the requesting party.
• Disclosure:Producing party’s counsel reviews the recovered files for privilege and relevance, supplements earlier responses, creates or appends to a privilege log, and produces relevant non-privileged documents to opposing counsel.

Post Process Note: The court is merely describing a micro version of any e-discovery review project, in which data must first be collected, filtered, reviewed, and finally produced. While the court describes the process as three steps, we prefer to break it down a little differently, as visually depicted in the figure below. Even with the slight increase in granularity below, we note that the process can continue be visually depicted in far more detail than we choose to do.

Neutral Forensics Expert Needed:

The court reasoned that the instant case was sufficiently analogous to Ameriwood to warrant using the imaging protocol. Factors present mandating the use of a neutral forensics expert included:

• One of the defendants used his personal computer and personal e-mail address to download, access, and transmit the Plaintiff’s proprietary information without a scintilla of a reasonable expectation to his entitlement thereto.
• One of the defendants admitted that he spoliated evidence when he discarded a personal computer after having been advised by counsel that he had no right to the data that he had downloaded whille employed by Plaintiff;
• Defendants’ testimony on handling electronic media and on how they had obtained the information at issue in the case had been impeached, indicating inaccuracy or deception on the part of defendant.

Cost-Shifting Analysis:

Producing party contended that they should not be forced to pay for the forensics expert, because they had already hired an expert (although they did not image the drives of the systems at issue here). They also claimed that they were unable to pay. The court was unconvinced by their arguments. The court noted that producing party had initially refused to image any of their systems, and only relented once the motion to compel had already been filed with the court. The motion to compel was only filed once producing party admitted they did not intend to image any of their systems. Their initial refusal was “wholly unjustified” as they “tacitly admitted” by their belated engagement of an expert. The court assigned the producing party 80% of the costs, and the requesting party 20%.

Conclusion:
The court ordered the following:

1. Granted the Plaintiff’s motion to compel forensic imaging to be performed by a neutral court-appointed expert.
2. Producing party was required to submit the targeted systems for inspection by a specific date.
3. The expert is to format the targeted data types in an appropriate structure and provide producing party’s counsel access for privilege and responsiveness review.
4. Cost is distributed, as described above, 80% for producing party, 20% for requesting party.
5. Reasonable attorney fees awarded to requesting party, pending a detailed accounting of those costs.
6. Further sanctions will be imposed should producing party again fail in their obligations.

Genworth Fin. Wealth Mgmt. v. McMullan, 267 F.R.D. 443 (D. Conn. 2010)

Case Blurb: Pension Comm. of the Univ. of Montreal Pension Plan; New Burden Shifting Test Articulated

To ensure that no party’s task is too onerous or too lenient, I am employing the following burden shifting test: When the spoliating party’s conduct is sufficiently egregious to justify a court’s imposition of a presumption of relevance and prejudice, or when the spoliating party’s conduct warrants permitting the jury to make such a presumption, the burden then shifts to the spoliating party to rebut that presumption. The spoliating party can do so, for example, by demonstrating that the innocent party had access to the evidence alleged to have been destroyed or that the evidence would not support the innocent party’s claims or defenses. If the spoliating party demonstrates to a court’s satisfaction that there could not have been any prejudice to the innocent party, then no jury instruction will be warranted, although a lesser sanction might still be required.

Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of Am. Secs, LLC, 2010 U.S. Dist. LEXIS 4546, at *23-24 (S.D.N.Y. Jan. 15, 2010)

The case summary is here.

Case Blurb: Pension Comm. of the Univ. of Montreal Pension Plan; Gross Negligence Defined

“Gross negligence has been described as a failure to exercise even that care which a careless person would use.” According to a leading treatise — Prosser & Keeton on Torts — most courts find that gross negligence is something more than negligence “and differs from ordinary negligence only in degree, and not in kind.”

Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of Am. Secs, LLC, 2010 U.S. Dist. LEXIS 4546 at *9 (S.D.N.Y. Jan. 15, 2010)

Case Summary is here.

Case Blurb: Pension Comm. of the Univ. of Montreal Pension Plan; Negligence Defined

It is useful to begin with standard definitions of each term and then to explore the conduct, in the discovery context, that causes certain conduct to fall in one category or another.

[Negligence] is conduct “which falls below the standard established by for the protection of others against unreasonable risk of harm.” [Negligence] is caused by heedlessness or inadvertence, by which the negligent party is unaware of the results which may follow from [its] act. But it may also arise where the negligent party has considered the possible consequences carefully, and has exercised [its] own best judgment.

Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of Am. Secs, LLC, 2010 U.S. Dist. LEXIS 4546 (S.D.N.Y. Jan. 15, 2010)

Case Summary is here.

Case Summary: Pension Comm. of the Univ. of Montreal; Importance of Litigation Hold Notices

Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of Am. Secs, LLC, 2010 U.S. Dist. LEXIS 4546 (S.D.N.Y. Jan. 15, 2010)

Background: Action brought by investors to recover funds lost upon the liquidation of two hedge funds based in the British Virgin Islands. The court examines the litigation holds practice of the plaintiffs.

Basic Points:

• Spoliation sanctions imposed despite no “egregious behavior.”
• Lit Hold for Plaintiffs often (usually?) occur earlier than or Defendants.
• New Balancing Test for Burden of Proof
• Inefficiencies greatly increased legal fees
• Defendant’s attack mode was effective
• Collection methods placing “total reliance” on the custodian criticized.
• Zubulake a watershed for this case’s participants.

The court begins by noting that we live in an era where there are vast amounts of ESI available for review, causing the discovery process to be complex and expensive. The opinion expresses the consoling thought that courts do not hold parties to a standard of perfection, but follows that with the warning that parties must preserve relevant records once litigation is reasonably anticipated, and must collect, review and produce those records to the other side. Failing to do so damages the integrity of the judicial system.

The Court continues by setting up the basic framework:

From the outset, it is important to recognize what this case involves and what it does not. This case does not present any egregious examples of litigants purposefully destroying evidence. This is a case where plaintiffs failed to timely institute written litigation holds and engaged in careless and indifferent collection efforts after the duty to preserve arose. As a result, there can be little doubt that some documents were lost or destroyed.

The question, then, is whether plaintiffs’ conduct requires this Court to impose a sanction for the spoliation of evidence. To answer this question, there are several concepts that must be carefully reviewed and analyzed. The first is plaintiffs’ level of culpability — that is, was their conduct of discovery acceptable or was it negligent, grossly negligent, or willful. The second is the interplay between the duty to preserve evidence and the spoliation of evidence. The third is which party should bear the burden of proving that evidence has been lost or destroyed and the consequences resulting from that loss. And the fourth is the appropriate remedy for the harm caused by the spoliation.

First, the court provided basic definitions for negligence and gross negligence. The court then discussed culpability (willfulness, gross negligence, and negligence) in the context of electronic discovery. The chart below summarizes the analysis.

Degree of Culpability for Specific Acts

The court qualified its judgments by stating that each case will turn on its own facts.

The court continued by noting that the common law duty to preserve evidence was well-recognized, that the breach of this duty invited sanctions from the court, and that the duty attached at the time a party reasonably anticipates litigation. Because Plaintiff’s control the timing of the litigation, their duty is often triggered before litigation commences. In this case, the court reasoned that by April of 2003, Lancer (one defendant hedge fund) had already filed for bankruptcy; Plaintiff UM had filed a complaint; at least two other plaintiffs (Hunicutt & Chagnon) had retained counsel, and plaintiff Chagnon had been in contact with other plaintiffs. With these facts listed, the court decided that by April 2003, therefore, plaintiffs, all sophisticated investors, should have been aware of pending collapse and litigation. Below, is a table that shows the steps plaintiffs took to preserve data, and the court’s analysis of those steps:

Court Analyzes Plaintiffs' Collections Methods

Interesting, the court describes two attacks on Plaintiffs’ process by Defendants that proved to be successful. By cross-referencing productions from other plaintiffs, former co-defendants, and the receiver in a related SEC action, Defendants identified 311 documents unaccountably absent from production. This, in turn, led to the discovery that almost all declarations were false and misleading or executed by declarants without personal knowledge of its contents.

Next, Defendants were able to convince the court that certain records had to missing, via logic, over plaintiffs’ objection. Defendants argued that:

• All plaintiffs had a fiduciary duty to conduct due diligence before making significant investments in the funds.
• Records must have existed documenting the due diligence, investments and subsequent monitoring of these investments.
• The paucity of records produced by some plaintiffs and the admitted failure to preserve some records or search at all for others by all plaintiffs leads inexorably to the conclusion that relevant records have been lost or destroyed.

Here, then, the attack for defendants worked on two fronts: the technical and the legal.

The court then analyzed sanctions and their relative magnitudes of The discussion of sanctions and severity is summarized below.

Sanctions in Order of Severity

For less severe sanctions, the inquiry focuses more on the conduct of the spoliating party than on whether documents were lost, and, if so, whether those documents were relevant and resulted in prejudice to the innocent party. For severe sanctions, the innocent party must prove the following three elements: that the spoliating party:
(1) had control over the evidence and an obligation to preserve it at the time of destruction or loss;
(2) acted with a culpable state of mind upon destroying or losing the evidence; and that
(3) the missing evidence is relevant to the innocent party’s claim or defense.

Relevance and prejudice may be presumed when the spoliating party acts in bad faith or in a grossly negligent manner. The application of this presumption is at the discretion of the court. Typically, the innocent party must present intrinsic evidence that tends to show that the destroyed evidence was favorable to its case. No matter what level of culpability is found, any presumption is rebuttable. In order to strike a balance, the court crafted a new test:

When the spoliating party’s conduct is sufficiently egregious to justify a court’s imposition of a presumption of relevance and prejudice, or when the spoliating party’s conduct warrants permitting the jury to make such a presumption, the burden then shifts to the spoliating party to rebut that presumption. The spoliating party can do so, for example, by demonstrating that the innocent party had access to the evidence alleged to have been destroyed or that the evidence would not support the innocent party’s claims or defenses. If the spoliating party demonstrates to a court’s satisfaction that there could not have been any prejudice to the innocent party, then no jury instruction will be warranted, although a lesser sanction might still be required.

The court next reviewed the calculus used for the imposition of sanctions. First, it noted that a court has broad discretion to determine the approprate sanction in the event of a breach of a discovery obligation. Sanctions should:

1. deter parties from engaging in spoliation
2. place the risk of an erroneous judgment on the arty who wrongfully created the risk; and
3. restore the prejudiced party to the same position in which it would have been absent the wrongful destruction of evidence

A court should always impose the least harsh sanction that can provide an adequate remedy. Therefore, terminating sanctions are justified only in the most egregious cases, such as:

1. Perjury;
2. Tampering with evidence;
3. Intentional destruction-burning, shredding or “wiping out” computer hard drives;

The court then articulated the standards for various jury instruction types, and this analysis is re-produced in the chart below:

Adverse Instruction Types

The court ultimately imposed monetary fines and the following instruction to the jury:

The Citco Defendants have argued that 2M, Hunnicutt, Coronation, the Chagnon Plaintiffs, Bombardier Trusts, and the Bombardier Foundation destroyed relevant evidence, or failed to prevent the destruction of relevant evidence. This is known as the “spoliation of evidence.”

Spoliation is the destruction of evidence or the failure to preserve property for another’s use as evidence in pending or reasonably foreseeable litigation. To demonstrate that spoliation occurred, the Citco Defendants bear the burden of proving the following two elements by a preponderance of the evidence:

First, that relevant evidence was destroyed after the duty to preserve arose. Evidence is relevant if it would have clarified a fact at issue in the trial and otherwise would naturally have been introduced into evidence; and

Second, that if relevant evidence was destroyed after the duty to preserve arose, the loss of such evidence would have been favorable to the Citco Defendants.

I instruct you, as a matter of law, that each of these plaintiffs failed to preserve evidence after its duty to preserve arose. This failure resulted from their gross negligence in performing their discovery obligations. As a result, you may presume, if you so choose, that such lost evidence was relevant, and that it would have been favorable to the Citco Defendants. In deciding whether to adopt this presumption, you may take into account the egregiousness of the plaintiffs’ conduct in failing to preserve the evidence.

However, each of these plaintiffs has offered evidence that (1) no evidence was lost; (2) if evidence was lost, it was not relevant; and (3) if evidence was lost and it was relevant, it would not have been favorable to the Citco Defendants.

If you decline to presume that the lost evidence was relevant or would have been favorable to the Citco Defendants, then your consideration of the lost evidence is at an end, and you will not draw any inference arising from the lost evidence.

However, if you decide to presume that the lost evidence was relevant and would have been unfavorable to the Citco Defendants, you must next decide whether any of the following plaintiffs have rebutted that presumption: 2M, Hunnicutt, Coronation, the Chagnon Plaintiffs, Bombardier Trusts, or the Bombardier Foundation. If you determine that a plaintiff has rebutted the presumption that the lost evidence was either relevant or favorable to the Citco Defendants, you will not draw any inference arising from the lost evidence against that plaintiff. If, on the other hand, you determine that a plaintiff has not rebutted the presumption that the lost evidence was both relevant and favorable to the Citco Defendants, you may draw an inference against that plaintiff and in favor of the Citco Defendants — namely that the lost evidence would have been favorable to the Citco Defendants.

Each plaintiff is entitled to your separate consideration. The question as to whether the Citco Defendants have proven spoliation is personal to each plaintiff and must be decided by you as to each plaintiff individually.

Case Blurb: Seeley; Court Denies Motion for Sanctions under “Elementary Fairness” Doctrine

Factual Background: Plaintiff, a worker at a Wal-Mart distribution center, was trained on and operated a conveyor belt machine manufactured by Defendant company. During the operation of the equipment, an accident occurred resulting in severe injuries to Plaintiff’s hand. Plaintiff brought this action for products liability and negligence.

Procedural History: Before the court was, inter alia, a motion by Defendants to impose sanctions on Plaintiff, evidently for the destruction of a part of the conveyor belt machine, known as a roller. Plaintiff’s hand was stuck in the machinery, and the roller was primarily responsible for this. The roller was either destroyed or missing, and Defendants asked the court to sanction Plaintiff for the (presumably destroyed) roller.

Discussion:
Sanctions for spoliation can be imposed for either intentional or negligent destruction of evidence. Hartford Fire Ins. Co. v. Regenerative Bldg. Constr. Inc., 271 A.D.2d 862, 863, 706 N.Y.S.2d 236 (N.Y. App. Div. 3d Dep’t 2000). In either case, a litigant must have been responsible for the destruction. Id. A court considers what is necessary for “‘elementary fairness’” when deciding to impose or reject sanctions. Id. (quoting Puccia v. Farley, 261 A.D.2d 83, 85, 699 N.Y.S.2d 576 (N.Y. App. Div. 3d Dep’t 1999). In Hartford Fire Ins., none of the parties knew the location of the unavailable evidence. Id. at 864. The record did not demonstrate who destroyed the evidence or when it was destroyed. Id. The court stated “[u]nder the circumstances . . . it cannot be presumed that plaintiff is the party responsible for the disappearance of such evidence, or, more importantly, that it was discarded by plaintiff in an effort to frustrate discovery.” Id. Accordingly, denial of the defendant’s motion for sanctions was upheld. Id.

Seeley presents a nearly identical situation to that in Hartford Fire Ins. She did not intentionally or negligently destroy the roller that caught her hand. The Wal-Mart facility possessed the roller at all times. The record is unclear as to who destroyed the roller and to when it was destroyed. Nothing suggests plaintiff discarded the roller to impede discovery. Thus, under Hartford Fire Ins., sanctions against Seeley are inappropriate as both situations present a lack of information on the actual destruction but some indication plaintiff was uninvolved. Defendant’s motion to dismiss all claims based on spoliation must be denied.

Seeley v. Logistex, 2009 U.S. Dist. LEXIS 79549 at *12-13 (N.D.N.Y Sept. 3, 2009)(emphasis added)

Case Blurb: Scalera; Inherent Authority of a Federal Court to Impose Sanctions

The court has the inherent power to impose sanctions for the spoliation of evidence, even where there has been no explicit order requiring the production of the missing evidence.

Scalera v. Electrograph Sys., 2009 U.S. Dist. LEXIS 91572 (E.D.N.Y. Sept. 29, 2009)(citing Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 107 (2d Cir. 2002))

See Case Summary here.

Case Blurb: Scalera; Definition of Spoliation

“Spoliation is ‘the destruction or significant alteration of evidence, or the failure to preserve property for another’s use as evidence in pending or reasonably foreseeable litigation.’”

Scalera v. Electrograph Sys., 2009 U.S. Dist. LEXIS 91572 (E.D.N.Y. Sept. 29, 2009)

See the Case Summary here.

Case Blurb: Scalera; Courts states test for Imposition of Adverse Inference for Spoliation (2nd Cir.)

A party seeking an adverse inference instruction as a sanction for the spoliation of evidence must establish that:
(1) “the party having control over the evidence had an obligation to preserve it at the time it was destroyed,”
(2) “the records were destroyed with a ‘culpable state of mind,’” and
(3) “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.”

“A party seeking sanctions for spoliation has the burden of proving that the alleged spoliator had an obligation to preserve evidence, acted culpably in destroying it, and that the evidence would have been relevant to the aggrieved party’s case.”

Scalera v. Electrograph Sys., 2009 U.S. Dist. LEXIS 91572 at *6-7, 23 (E.D.N.Y. Sept. 29, 2009)(citing Toussie v. County of Suffolk, 2007 U.S. Dist. LEXIS 93988, 2007 WL 4565160, at *6 (E.D.N.Y. Dec. 21, 2007) and Ramirez v. Pride Dev. & Constr. Corp., 244 F.R.D. 162, 164 (E.D.N.Y. 2007)).

See Case Summary here.

Case Summary: Scalera; Triggering Mechanism for Litigation Holds

Scalera v. Electrograph Sys., 2009 U.S. Dist. LEXIS 91572 (E.D.N.Y. Sept. 29, 2009).

Status: Plaintiff, an individual, sought sanctions against Defendants (a company and two individuals) for spoliation of evidence.

Factual Background: Plaintiff is a former employee of Defendants. Plaintiff asserted that prior to her employment by Defendants, she had suffered from “noticeable muscular weakness.” Initially diagnosed as Muscular Dystrophy, the diagnosis was changed to Pompe disease. Plaintiff claimed that she was disabled within the meaning of the Americans with Disabilities Act of 1991 (ADA) and the New York Human Rights Law (NYHRL), and that Defendants failed to suitably accomodate her disabilities.

Procedural History: Plaintiff filed the original Complaint on January 4, 2008. She subsequently filed an Amended Complaint on September 30, 2008. Plaintiff served her First Request for Production of Documents upon Defendants on August 13, 2008. Plaintiff requested (1) all emails sent or received by Electrograph employees regarding Plaintiff’s medical condition, (2) all emails sent by Electrograph employees regarding Plaintiff’s request or need for any accommodation for her medical condition, (3) all emails sent on Electrograph’s “Inter-Office email system” to and from Plaintiff from 2005 to the present, “including any emails predating Plaintiff’s employment.” Plaintiff also requested all “backup and/or archive (computer) data which was generated by Defendants” and related to Plaintiff’s employment.

In response to the request, Defendants produced certain documents. Plaintiff characterized the production as consisting of a handful of emails relating to Ms. Scalera. According to Plaintiff, defendants stated that other emails were stored on backup tapes and that these tapes were corrupted and could not be restored. On November 4, 2008, Defendants sent Plaintiff’s counsel a letter stating that Electrograph had retained an outside vendor to restore the electronic data contained on the backup tapes. Defendants provided RDA Enterprises with a total of sixteen backup tapes. First, the vendor ran an inventory process to see if the tapes “met the criteria with restorable data.” Only two of the tapes met that criteria. However, the vendor was not able to restore the data on either of those two email backup tapes.

Argument: The court began by articulating the analytical framework found in Toussie v. County of Suffolk, 2007 U.S. Dist. LEXIS 93988, 2007 WL 4565160, at *6 (E.D.N.Y. Dec. 21, 2007). A party seeking an adverse inference instruction as a sanction for the spoliation of evidence must establish that:
(1) “the party having control over the evidence had an obligation to preserve it at the time it was destroyed,”
(2) “the records were destroyed with a ‘culpable state of mind,’” and
(3) “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.”

Plaintiff argued that Defendants had a duty to preserve the destroyed information while asserted various theories as to when this duty attached. Plaintiff contended that Defendants’ obligation to preserve the information arose immediately following Plaintiff’s July 13, 2006 fall down the steps outside Electrograph’s side entrance. According to Plaintiff, Electrograph’s July 14, 2006 accident report acknowledges that “had a railing been installed, Ms. Scalera might not have fallen.” Plaintiff maintained that if Defendants were aware of Plaintiff’s disability, Defendants had a duty to accommodate that disability — “which would include installing railings, where necessary.” Thus, Plaintiff asserts that if her injury was caused by the absence of the railing, “Defendants should have known that they were potentially liable for failing to accommodate Ms. Scalera’s disability.” Thus, according to Plaintiff, immediately following her July 13, 2006 accident, Defendants knew or should have known that some of their internal employees’ emails would be relevant to a potential litigation and that Electrograph therefore was under a duty to preserve those emails.

Plaintiff also noted that within two weeks of her fall, she had hired an attorney and filed for worker’s compensation. Because, argued Plaintiff, the company was aware of the pending worker’s compensation case and retention of counsel, Defendants were under a duty to preserve documents relating to Ms. Scalera’s disability and injury.

In opposition to Plaintiff’s motion, Defendants stated that they first anticipated litigation regarding any claim of discrimination when they received the Notice of Claim from the EEOC,” which was sometime in late November or early December 2006. Defendants argue that a letter sent by Plaintiff’s attorney to the building landlord — not Electrograph — “making a claim for negligence in maintaining the stair and personal injury” did not put Electrograph on notice that Plaintiff intended to bring a discrimination claim against the company. Defendants also maintained that “plaintiff’s submission of a worker’s comp claim and retaining an attorney for worker’s comp, an employee’s exclusive remedy in New York, also led them to the conclusion that there would be no claim by plaintiff for discrimination.” Defendants added that Plaintiff’s worker’s compensation paperwork was filed in July 2006 and did not make any reference to discrimination.

The court stated that Plaintiff evidently did not address the letter mentioned above by Defendant’s in their written arguments and there was some confusion with this point in their oral arguments. Plaintiff claimed to regularly use her e-mail to communicate with coworkers and supervisors during the tenure of her employment, and this fact on its face establishes that failed to produce numerous documents covered by the discovery request. During oral argument, Plaintiff’s counsel highlighted a statement made by one of Plaintiff’s co-workers, Carolyn Reutter, that emails she received on her Electrograph email system “would stay in her inbox . . . unless she deleted it or the technical support employees purged the emails,” and that this apparently only happened “once every couple of years.”

The Internal Support Manager of Electrograph’s IT department stated that “documents can be stored locally on the hard drives of individual computers assigned to specific employees at Electrograph,” and that such documents “may or may not also be backed up as ‘ESI,’ depending on whether the document was created on the network or only locally at a particular end-user’s computer.” Plaintiff concluded, therefore, that there must have been relevant emails exchanged between Electrograph employees in the relevant time period that were not produced by Defendants.

Plaintiff also pointed to specific examples that “proved” the failure to produce. Plaintiff submitted two e-mails she claimed were not produced in whole. Plaintiff further argued that one of those emails is clearly a “string email,” but Defendants did not “produce the underlying email correspondence. Plaintiff asserted that although Defendants touted their production of emails regarding their provision of a raised chair to Plaintiff as an accommodation for her physical condition, that Plaintiff was the only party producing such e-mail; Defendants failed to produce any Plaintiff continued by claiming that the hard drive on the computer of Defendant Rose Ann Gordon, the former Director of Human Resources for Electrograph, and the computer Plaintiff used at work, were wiped clean because (and according to an affidavit filed by Defendants) once an employee left Electrograph, all data on the hard-drive of the computer assigned to such employee was removed.

Defendants countered that despite all ESI was backed up to tape on a daily basis, although documents stored on local hard drives might not have been backed up, and they were unaware that this material would not be available (remember that the outside vendor was unable to restore data from any of the back-up tapes). With respect to Ms. Gordon’s hard drive, Defendants essentially argued that no relevant documents resided on the drive prior to wiping. Defendants granted that the emails referring to the provision of a raised chair were produced by Defendant but noted that those emails predated the start of Plaintiff’s employment and were made after having extended an offer for employment to Plaintiff but before she had begun working for the company.

Discussion:
The court concluded that Defendant’s obligation to preserve relevant emails arose as of the time Defendants received Plaintiff’s EEOC Charge. The court noted that the general rule that an employee’s disability must be accomodated where the disability is obvious or otherwise known to the employer without notice from the employee. Whether specific accomodations were requested by the Plaintiff was in dispute, and Plaintiff’s claims that a hand-rail had been requested at the spot where she then fell, should have alerted Defendants to possible pending litigation. The court dismissed their arguments to the contrary as pushing logic beyond the boundary of reasonableness.

The court found that the filing of a worker’s compensation claim by Plaintiff did not trigger a duty to preserve. The court did not find “controlling” Defendants’ argument that Plaintiff’s choice to bring a claim under worker’s compensation implied that she would not be bringing a claim under the ADA. The court stated that Plaintiff had failed to point to case law that supported the proposition that an employer should reasonably anticipate a forthcoming disability discrimination action each time an employee files a worker’s compensation claim in circumstances such as those in the instant matter. Finally, the court noted that nothing in the worker’s compensation forms completed by Plaintiff indicated that she had requested a handrail.

As to Plaintiff’s contention that the ADA required the retention of certain documents, the court cited Byrnie v. Town of Cromwell, 243 F.3d 93 (2d Cir. 2001) for the proposition that where a party has violated an EEOC record-retention regulation, a violation of that regulation can amount to a breach of duty necessary to justify a spoliation inference in an employment discrimination case. After examining the language in the Act, the court ruled:

According to the regulations, therefore, upon their receipt of Plaintiff’s EEOC Charge, Defendants were under an obligation to preserve Plaintiff’s “personnel or employment record” as that term is defined in the regulation. The regulation also makes clear that Defendants’ duty did not cease upon their provision of Plaintiff’s HR file to the EEOC during their initial investigation.

The court next reviewed Plaintiff’s arguments concerning Ms. Scalera’s (plaintiff’s) “wiped” hard drive. It quickly dismissed these claims by reasoning that because the “wiping” occurred prior to the notice of the EEOC charge, Defendants were not under a duty to preserve.

The court then moved to the subject of Ms. Gordon’s hard drive, which also had been wiped. The destruction of data in this situation occurred nearly two months after Defendants had received notice of the EEOC charge. The court stated that Defendants’ argument that the destruction of Defendant Gordon’s hard drive did not amount to a breach of a duty to preserve because Defendant Gordon printed all relevant documents and maintained them in Plaintiff’s Human Resources file does not get them off the hook. The court cited Treppel v. Biovail Corp., 233 F.R.D. 363 (S.D.N.Y. 2006) for the proposition that permitting the downgrading of data to a less accessible form — which systematically hinders future discovery by making the recovery of information more costly and burdensome — is a violation of the preservation obligation. The court reasoned that Plaintiff had the right to test the accuracy of Defendants’ representations of facts and is not obligated to simply take Defendants’ word for it that all relevant emails and documents that were on Defendant Gordon’s hard drive actually made their way into Plaintiff’s personnel file.

On the matter of other emails, the court returned to the subject of two “partial” emails that Defendants produced, concluding that these documents fell within the meaning of a “personnel or employment record” that should have been preserved for one year after their creation. If Defendants had executed on that duty, then a duty to preserve would have prevented their destruction once the EEOC charge had been filed.

With respect to those e-mails produced by Plaintiff, but not Defendant, the court was not convinced by Defendants arguments that these had been generated prior to Plaintiff’s employment. The court found that the ADA regulations would have required Defendants to preserve these emails for one year from the time they were created, namely, in September 2005. Even if Defendants had done so, the obligation to preserve these emails would have expired in September 2006 — a month and a half before Plaintiff’s EEOC Charge was filed. Therefore, the court concluded that Defendants had not breached a duty to preserve.

The first element of the analysis, the court stated, was established. However, in turning to the second element, the court articulated the rule that “even where the preservation obligation has been breached, sanctions will only be warranted if the party responsible for the loss had a sufficiently culpable state of mind.” In its examination of the facts, the court concluded that Defendants had been negligent, though not grossly negligent. Defendants, said the court, took no active steps to preserve electronic documents until early 2007, almost two months after the filing of the EEOC charge. Key facts that swayed the court included:

• Searches of key employees’ hard drives were either never completed at all or were not completed for some time after the EEOC Charge was received.
• The message was never communicated to the IT department to search the hard drives of two key custodians.
• And finally, no formal written litigation hold was ever implemented.

The court cited Zubulake v. UBS Warburg LLC, 229 F.R.D. 422, 432 (S.D.N.Y. 2004) in listed the steps expected from parties under a duty to preserve:
(1) issue a litigation hold at the outset of litigation or whenever litigation is reasonably anticipated,
(2) clearly communicate the preservation duty to “key players,” and
(3) “instruct all employees to produce electronic copies of the their relevant active files” and “separate relevant backup tapes from others.”

The court also repeated Zubulake’s admonition that one of the primary reasons that electronic data is lost is ineffective communication with information technology personnel.

In turning to the final element, the court went off on a different direction, finding that Plaintiff had ultimately failed to demonstrate that any destroyed emails would have been favorable to her position. The court noted that relevance may be inferred if the spoliator is shown to have a sufficiently culpable state of mind, such as acting in bad faith or gross negligence. However, the court had already determined that Defendant was merely negligent. The court further found that Plaintiff had not submitted extrinsic evidence tending to demonstrate that the destroyed emails would have been favorable to her case, leaving the third and final element as not being established.

Result: Plaintiff’s motion for sanctions was denied.