Case Summary: In re Delta/AirTran; Preservation Trigger for Civil Suit following DOJ Anti-Trust Investigation Discussed

In Re Delta/AirTran Baggage Fee Antitrust Litigation, CIVIL ACTION FILE NUMBER 1:09-md-2089-TCB, 2011 U.S. Dist. LEXIS 26945 (N.D. Ga. Feb. 22, 2011).

Plaintiffs brought their respective actions against Delta and AirTran for collusion on baggage fees after a Department of Justice (DOJ) investigation. During its action, the DOJ served a Civil Investigative Demand (CID) on Delta, requiring the airline to produce certain documents. There were some missteps along the way for Delta in its attempts to preserve the targeted data:

• A litigation hold notice failed to include the CEO on it, despite the fact that he was a custodian in the case. The court appears to dismiss concerns on this ground, reasoning that the CEO received verbal instructions, his exchange mailbox was already being preserved by the company’s IT staff, and he did produce documents in accordance with the DOJ’s request.
• Some data from back-up tapes was lost, and there was a dispute as to whether Delta was responsible. Delta claimed they had verbally instructed a third party vendor not to continue the process of rotating (and overwriting) tapes. The process wasn’t changed by the vendor until later, resulting in the deletion of data from some of those tapes.

While plaintiffs argued that the DOJ had been concerned about spoliation because of these missteps, the court noted that:

• Delta worked closely with the DOJ “to ensure all relevant documents were…produced,” and
• The DOJ has not requested additional information from the airline since December 2009.

After the court stated the standard that it would typically use for spoliation analysis, it came to the crux of the issue:

Unlike the quintessential spoliation situation, Plain-tiffs do not contend that Delta destroyed or altered evidence during the course of this litigation. 7 Plaintiffs’ argument is more nuanced; they contend that they are entitled to spoliation sanctions because Delta did not immediately comply with the CID issued by the DOJ.

The court explained that in order to be successful, plaintiff’s must argue that they, as private civil litigants, can enforce the provisions of a CID when the DOJ has not taken such action and where the CID was issued three months prior to the first case in this action.

The court noted that:

Plaintiffs have not cited any authority that would support such a sweeping and novel theory of spoliation. 10 In the absence of such authority, the Court is unwilling to conclude that upon service of a DOJ-issued CID, a duty to Plaintiffs to preserve documents devolved upon Delta even though Plaintiffs did not file this action until three months later. The Court’s caution in this regard is particularly justified given the severe sanctions that Plaintiffs seek.

And the opinion further explained:

During oral argument, Plaintiffs suggested that the duty to preserve documents is a duty that does not attach to any party. Thus, Plaintiffs posit that anyone (including them) could advance a spoliation argument against Delta for its alleged failure to comply with the DOJ’s CID. However, not only is such a suggestion unsupported by any case law, but it flies in the face of the legal definition of the word duty, which defines duty as a “legal obligation that is owed or due to another . . . .” BLACK’S LAW DICTIONARY 580 (9th ed. 2009).

During oral argument, Plaintiffs also chastised Delta for not having found a case that supports its position on the duty issue. However, Plaintiffs, not Delta, have the burden of proof on the spoliation issue, including the legal elements needed to establish spoliation. See Eli Lilly & Co. v. Air Express Int’l USA, Inc., 615 F.3d 1305, 1318 (11th Cir. 2010).

In essence, Plaintiffs ask this Court to hold that, as a matter of law, when a business is served with a CID, an irrebuttable presumption arises that civil litigation filed by one or more parties against the business receiving the CID is reasonably foreseeable. No court has so held, and this Court is unwilling to be the first.

The court concluded with this:

Two important points about the CID must be emphasized. First, it triggered the commencement of a confidential investigation. Indeed, the Government did not publicize its investigation, and all documents and testimony provided to the Government in response to the CID remain confidential. Second, the first case in this MDL action was not filed until May 22, 2009, over three months after Delta was served with the CID. As Delta explains in its briefs, it has been the recipient of numerous CIDs, subpoenas, or similar formal demands for information from the DOJ that have not led to either private or government litigation. For these reasons, when Delta received the CID, it cannot be said that Delta should have anticipated this lawsuit. Consequently, Delta owed no preservation duty to Plaintiffs that it could have breached. If Delta failed to comply with the CID, the DOJ–not Plaintiffs–is the appropriate party to take action.

Case Summary: Nissan N. Am; Court examines Collection Protocol and Request for Protective Order

Nissan N. Am., Inc. v. Johnson Elec. N. Am., Inc., CIVIL ACTION NO. 09-CV-11783, 2011 U.S. Dist. LEXIS 16022 (E.D. Mich. Feb. 17, 2011).

Nissan had already produced “1.79 million” pages of documents, and 84,000 pages of documents from its non-party parent company. The court had ordered Nissan to supplement this production with information specifically identifying data sources not previously searched because, in Nissan;s view, they were “not reasonably accessible.” Johnson Electric, defendant company, crafted “informal” discovery requests requesting that Plaintiff produce:

1. a data map showing what data is stored on each of Plaintiff’s systems, who uses the systems, the retention of the data stored and where and how the data is backed up or archived;
2. document retention policies;
3. tracking records and/or requests for restores; and
4. backup policies.

Johnson Electric believed Nissan was obligated to produced the above to comply with the court’s order. Nissan responded by filing for a protective order denying Defendant discovery on:

1. system-wide searches of Plaintiff’s systems and custodians beyond what has already been provided;
2. sources identified by Plaintiff as “not readily accessible,” including back-ups;
3. Plaintiff’s record retention practices or disaster recovery backup policies;
4. Plaintiff’s tracking records and requests for computer restores to IT and vendors; and
5. a “data map” to provide information on all of Plaintiff’s systems.

Johnson Electric filed a brief in response, and a cross-motion to compel Nissan’s compliance with the earlier order. Johnson Electric also asked the court to impose sanctions on Nissan, arguing that Nissan had failed to comply with their discovery obligations under that order.

The court began by stating the governing standard for its analysis, and the party’s respective arguments:

Federal Rule of Civil Procedure 26(c) allows the Court to issue a protective order for good cause shown to protect a party from annoyance, embarrassment, oppression, or undue burden or expense. Plaintiff has the burden of showing good cause for a protective order. Plaintiff first asks for a protective order denying Defendant discovery of system-wide searches of Plaintiff’s systems and custodians beyond what Plaintiff has already provided. Defendant argues in response that it has not asked Plaintiff to conduct additional searches. Rather, Defendant argues that it merely asked for confirmation that Plaintiff searched its systems for relevant ESI for forty-one employees who are either members of the Task Force assigned by Plaintiff to the recall issue, or who are listed in Plaintiff’s Rule 26 disclosures.

About those Additional System-Wide Searches…
The court concluded that Nissan was barking up the wrong tree. “Letter correspondence” proved that Johnson Electric did not ask for additional searches, but rather that Nissan merely confirm that the computers, email accounts, network shares, and databases associated with 41 specific custodians had been searched. The court ruled against Nissan here, because it couldn’t deny Johnson Electric something for which it hadn’t asked.

Data Sources that aren’t readily accessible
The court first noted Nissan’s description of its Identification protocol:

[] Plaintiff claims to have searched Outlook email data and PST files; hard drives on individual computers, network shares mapped as various drive letters; and the ANEMS, IDOCS, IDEAS, GCARS, WRAPS, CPIA, VHF, CICS PO system, and Legacy business databases. In addition, Plaintiff states that it identified key custodians who were likely to have responsive information relevant to this case and had their documents searched. Plaintiff also asserts that it requested documents and information from its non-party parent company, and that both it and its parent company searched hard copy files for paper documents, for documents stored on CD, DVD, or other external sources, and for physical parts.

Plaintiff has identified in table format electronic data sources identified by key custodians as being potential sources of responsive information and claims that it identified, processed, and produced responsive information from these systems. (Docket no. 79 at 4-7). Plaintiff contends that the only systems it did not search are its disaster recovery or backup systems for email, network shares, and business databases because they are not readily accessible.

Nissan argued that information on its back-up systems are not reasonably accessible because of “undue burden and cost,” evidently supported by an estimate submitted to court. Nissan further contended that searches over these sources wouldn’t produce any new data “because the information on these systems is duplicative of information on [Nissan's] main systems,” which have already been examined.

The court quoted FRCP 26(b)(2)(B):

A party need not provide discovery of electronically stored information from sources that the party identifies as not reasonably accessible because of undue burden or cost. On motion to compel discovery or for a protective order, the party from whom discovery is sought must show that the information is not reasonably accessible because of undue bur-den or cost. If that showing is made, the court may nonetheless order discovery from such sources if the requesting party shows good cause, considering the limitations of Rule 26(b)(2)(C). The court may specify conditions for the discovery.

The court agreed with Nissan that it had shown “that Plaintiff’s backup systems are not reasonably accessible and that Defendant has not shown good cause to search these systems.” Alas for Nissan, however, the court once again stated that Nissan’s argument were off point, stating that Johnson Electric did not appear to ask Nissan to search their back-up systems, but rather, “asked for Plaintiff’s backup policies, and its tracking records and requests for restores, claiming that data that has been restored is reasonably accessible.” The court concluded that Nissan had not shown “good cause” to preclude Johnson Electric from seeking discovery of this data. As Johnson Electric had not asked for searches of back-up systems, there was no reason for the court to grant Nissan’s request on that issue.

Retention Policies

The court quickly denied Nissan’s request to protect it from having to produce its retention policies, stating that Nissan failed to show “good cause” to preclude the production request.

Data Map

The court noted that Johnson Electric had asked Nissan for a data map “to show what data is stored on each of Plaintiff’s systems, who uses the systems, the retention of the data stored and where and how the data is backed up or archived.” The court further noted that Johnson Electric attempted to tie Nissan’s failure to provide the data map to non-compliance to the previously mentioned court order requiring supplemental production from Nissan.

FRCP 26 requires certain mandatory disclosures be made. Nissan claims that Johnson Electric has failed to commit to specific search terms or system limitations. The court warned Johnson Electric that if true, it could see no reason for such a failure. Beyond that, there was no connection between the previous court order and this request from Johnson Electric. This request, the court said, was for new material, separate and distinct from that associated with the earlier order. Although the court could not see compelling production of a data map, it again stated that Nissan had failed to show good cause to preclude production. The court, therefore, denied Nissan’s motion for a protective order, both on this part, and in whole.

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 Summary: Calixto; Court Analyzes Preservation Methodology

Calixto v. Watson Bowman Acme Corp., 2009 U.S. Dist. LEXIS 111659 (S.D. Fla. Nov. 16, 2009)

Case Background: Plaintiff Calixto brought this action against defendants CRT and Watson Bowman Acme Corp. (WABO), alleging infringement of patent and trademark, breach of contract, and tortious interference of an agreement between plaintiff and another party. CRT had signed an Asset Purchase Agreement and was negotiating with Calixto on a licensing agreement for the Asian territory, for use of a patented system for joining concrete slabs that may be used in the construction of parking garages or vehicular roadways and an associated trademark. WABO was to be a sub-licensee of CRT’s rights.

Procedural History: The court addresses a motion to compel by Calixto.

Basic Points:

• Restoration of 30 back-up apes was found to be unnecessary when moving party failed to establih a reasonable expection that doing so would yeild relevant documents not already produced.
• Restoration of a single back-up tape was ordered because of sufficient possibility that new information would be found
• Failing to object to search methodology might be a factor in losing your motion to compel
• Failing to counter expert opinion on pricing might be a factor in losing your motion to compel
• When sending a deman letter to trigger the duty of preservation, make sure it explicitly cites all possible causes of action and directly addresses every potential litigant.

Factual Background: During a deposition, WABO’s former CEO discussed a document retention policy that included measures to ensure the retention of e-mails on offsite storage for, as best as he could recall, a minimum of ten years. In a 30(b)(6) deposition, WABO’s witness implied that there was a systematic data purge for e-mails older than six months that was implemented when BASF AC acquired WABO. However, the deponee was unable to say whether such a purge had been in place prior to the acquisition. Based on this testimony, however, Calixto filed a motion to compel, requesting the court find spoliation had occurred in the face of ongoing litigation.

During the hearing on the motion to compel, Calixito challenged WABO’s actions on two grounds:
1. the destruction of former CEO Burri’s e-mails on his hard drive after Burri left WABO; and
2. WABO’s refusal to restore monthly back-up tapes.

WABO argued that its policy was to destroy ESI from the hard drives of separated employees, and that Mr. Burri left prior to December 1, 2004, which was the earliest date from which it still retained data on back-up tapes. Therefore, no record of Burri’s e-mails existed, and WABO could not recover the e-mails from anywhere.

With respect to the second issue, WABO claimed that nothing relevant that existed on the back-up tapes had not already been produced to Calixto.

The Court ordered WABO to produce an affidavit explaining, among other matters,
(1) how WABO conducted its search for documents responsive to the deposition notice and discovery obligations;
(2) what, if any, documents had been deleted from WABO’s IT system, and the circumstances surrounding any such deletions; and (3) what, if any, options existed for recovery of any deleted documents.

Subsequently, WABO filed the affidavit with the court.

Process Used for Conducting a Search and Collection of Relevant ESI:
WABO first identified and contacted all WABO employees who:
1. had any possible contact with Plaintiff;
2. Who had any possible knowledge of the Trademarks or Patent at issue; or
3. Who possibly had any information relating to the Lawsuit or to Plaintiff’s document requests.

WABO instructed these individuals to search their personal electronic records, including their personal hard drives and computer files, and their personal hard copy records for any responsive documents or information. WABO searched the Lotus Notes mailboxes of the selected group of custodians.

WABO IT searched the server house directories, the shared drives, and the individual files (including archive files) for the identified individuals for keywords and terms, including the terms “Degussa,” “BASF,” “CORTE,” 4 “Calixto, “Asset Purchase Agreement,” “’381 Patent,” “JEENE,” and “ALADIN.” WABO also directed the identified individuals to search their local hard drives and Lotus Notes mailboxes for the same search terms. WABO officers also made personal inquiries of those identified as possibly having responsive information or documents, asking about their knowledge and the location of any pertinent information.

WABO made available to its counsel all documents obtained through the efforts outlined above. Counsel then provided relevant documents to Calixto and listed privileged documents on a log.

The court observed that testimony in the declaration implicitly suggested that reconfiguring the back-up tapes into a searchable format and then searching the reformatted version would not yield additional responsive documents because everything reasonably anticipated to be relevant to the litigation was preserved via the litigation hold and searched pursuant to the procedures articulated above.

WABO stated that the it was a routine business practice to delete a former employee’s email upon separation, although no written policy existed. No documentation recording the deletion operation was generated, and the exact date of deletion could not be recalled, although WABO insisted that the deletion did occur prior to receiving a letter from Plaintiffs threatening litigation.

Back-up Tapes:
Because back-up tapes used a compressed format that rendered data contained by them inaccessible, WABO claimed that the data must be restored in order to render it accessible. Because of the tape rotation schedule, WABO only held data for approximately 30 months, meaning that WABO now only retained tapes containing data from December of 2004. WABO has preserved data from that time forward in order to comply with its discovery obligations.

In reviewing WABO’s IT representative’s testimony, the court noted that IT felt they needed to deleted data to increase performance and liberate memory and disk space. IT generated the policy of deleting emails of departed employees at its own initiative, although it did communicate the fact that it was engaged in this practice to executives at the time. BASF’s newly implemented automatic deletion program exempts those custodians on a litigation hold.

WABO (and BASF) Counsel:

Senior counsel at BASF, who also had a history with WABO also testified on the existence of two letters and their effects on the litigation hold process. The first, dated March 1, 2004, was sent to WABO president Burri, described negotiations with respect to licensing at an impasse, and concluded that no further discussions would occur. The “re” block was “Proposed Exclusive License Agreement Between Jorge Calixto and Shanghai Master Builders Co., Ltd.” It reminded WABO that they were prohibited from making, distributing, or selling any product using the process set forth in the Patent and from using the JEENE trademark in the Asia/Pacific Territory. It warned that Calixto would enforce his rights and remedies under an earlier signed Asset Purchase Agreement, as well as any common law and/or statutory rights in the relevant jurisdiction.

Counsel claimed never to have seen that letter, but contended that he did not view it as threatening imminent litigation against WABO because:
(1) he saw the letter as a demand letter for royalty payments; and
(2) WABO is not a signatory to the Asset Purchase Agreement discussed in the letter

The second letter was dated September 9, 2004. The “re” block on this letter reads, “Breach of Asset Purchase Agreement dated November 17, 2003 by and Between [CRT] and . . . Calixto.” the letter alleges that CRT was engaging in precisely these activities within the Asia/Pacific Territory. Among other instances, Plaintiff’s counsel cited a WABO announcement that it had “changed the name of the ‘JEENE’ system to ‘Aladin’ as of 1st January 2004.’” The letter concluded by demanding that CRT:

cease and desist from engaging in [such] activities. Furthermore, . . . Calixto is entitled to damages as a result of the breach of the Agreement, including the attorneys’ fees and costs he has incurred pursuant to Section 10.2 of the Agreement. Unless we receive a written response from [CRT] within ten (10) days of your receipt of this notice detailing its intended actions for addressing these matters and compensating . . . Calixto, . . . Calixto has authorized us to pursue all rights and remedies available to him under the Agreement and in accordance with applicable law.

Senior counsel testified that he remembered receiving this letter, but he did not view it as triggering document retention requirements at WABO because:
(1) the letter was about CRT’s alleged breach of the Agreement, and WABO was not a party to that Agreement,
(2) it did not appear to him as though litigation was imminent, based on this letter, and
(3) even had it appeared so, because CRT is a German entity and Calixto is a citizen of Brazil, Pendergast did not anticipate that litigation in the United States would occur, and document preservation and discovery requirements in other countries can differ substantially from those in the United States.

Counsel stated he did not consider that WABO might be sued until Calixto actually filed suit against WABO and others in Florida Circuit Court and served it on WABO. More specifically, Pendergast stated, on March 30 or 31, 2005, after learning of the lawsuit, he put a litigation hold in place.

As mentioned above, Calixto sought to obtain letters of request enabling service of subpoenas duces tecum to proceed against BASF SE Construction Chemicals Division, in Germany; BASF Construction Chemicals Asia Pacific in Shanghai, China; Sanfield Industries Ltd. in Hong Kong; and Vispack Co., Ltd., in Thailand. WABO objected, asserting that it had already provided Calixto with documents in its possession regarding all sales during the relevant time frame.

Analysis:

The court observed that it must address two issues in resolving Plaintiff’s Motion to Compel:
(1) Whether WABO’s alleged destruction of the Burri e-mails or its process of searching for documents relevant to this litigation and responsive to Calixto’s requests was so deficient as to justify an order from the Court directing WABO to engage in sampling or some other methodology requiring WABO to reconfigure any or all of its back-up tapes and conduct a search of them; and
(2) Whether WABO’s destruction of the Burri e-mails in 2004 constituted spoliation warranting some type of sanction.

Sufficiency of WABO’s Search:
The court began this part of its analysis by citing FRCP 26(b)(2)(B):

Specific Limitations on Electronically Stored Information. A party need not provide discovery of electronically stored information from sources that the party identifies as not reasonably accessible because of undue burden or cost. On motion to compel discovery or for a protective order, the party from whom discovery is sought must show that the information is not reasonably accessible because of undue burden or cost. If that showing is made, the court may nonetheless order discovery from such sources if the requesting party shows good cause, considering the limitations of Rule 26(b)(2)(C). The court may specify conditions for the discovery.

Rule 26(b)(2)(C), in turn, directs the court to limit discovery when it finds that the discovery sought is, as relevant to the analysis in this case, unreasonably cumulative or duplicative. The burden fell on WABO to demonstrate that the information that Calixto seeks is not reasonably accessible because of undue burden or cost.

WABO submitted an estimate from e-discovery vendor Kroll Ontrack, stating the cost to restore these back-up tapes to a searchable format would be approximately $ 40,000.00. WABO would then have to spend further funds for a review for relevance and privilege any documents resulting from this endeavor. The Court concluded that WABO satisfied its initial burden of showing that the materials that Calixto seeks from the back-up tapes are not reasonably accessible because of undue burden or cost. The court then concluded that Calixto has not established good cause for the Court to require WABO to restore and search the back-up tapes, despite the cost and burden.

The court continued by finding that Calixto has failed to establish a reasonable expectation that restoring and searching all of the back-up tapes will yield relevant documents that WABO’s other search methods have not. Calixto raised no objections to the adequacy of WABO’s search methods, including, among other procedures, the keywords that WABO chose to use in performing its search for relevant and responsive material from its electronic databases. Moreover, the Court’s independent review of WABO’s specified search methodology revealed that it appeared to have been designed to find relevant information, and no obvious significant gaps in the methodology.

The court did find, however, that the very earliest back-up tape should be restored and searched, because of doubts about the actual date of the deletion of former CEO Burri’s email. The court stated that it was possible that such a search would not return merely duplicative data, and the court was not persuaded that searching a single back-up tape would constitute an undue burden.

Spoliation Sanctions:
Spoliation sanctions constitute an evidentiary matter, and in diversity cases, the Federal Rules of Evidence govern the admissibility of evidence in federal courts. The key to unlocking a court’s inherent power requires a finding of bad faith.

Where no direct evidence of bad intent exists, in this Circuit, bad faith may be found on circumstantial evidence where all of the following hallmarks are present:
(1) evidence once existed that could fairly be supposed to have been material to the proof or defense of a claim at issue in the case;
(2) the spoliating party engaged in an affirmative act causing the evidence to be lost;
(3) the spoliating party did so while it knew or should have known of its duty to preserve the evidence; and
(4) the affirmative act causing the loss cannot be credibly explained as not involving bad faith by the reason proffered by the spoliator.

In applying these factors to the deleted emails, it first concluded that it was likely that Burri’s email store contained relevant documents. There was no doubt that WABO affirmatively caused the data to be destroyed. However, the court was not convinced that a duty to preserve attached at the time of destruction, as it decided that neither of the letters discussed above triggered that duty. The court emphasized that WABO was not a signatory of the Asset Purchase Agreement cited in the letters, and that it appeared that WABO was not a proper defendant for a breach of contract claim based on that document.

WABO IT’s representative credibly testified that, as a senior information systems analyst, her primary job was to ensure the security and proper functioning of WABO’s computer system, something that too much information storage threatened. Therefore, no deliberate act of destruction of evidence occurred.

Ultimately, the court agreed to require the restoration and search of a single back-up tape while denying the other requests discussed here.

Case Summary, Lafarge North Amer.; Accusations of Spoliation and E-Discovery Experts

United States Gypsum Co. v. Lafarge North Am. Inc., 670 F. Supp. 2d 768 (N.D. Ill. 2009)

Background: Plaintiffs US Gypsum Co. (USG) claim that Defendants Lafarge North. Am. (Lafarge) infringed USG’s patents and stole confidential information relating to wallboard manufacture.
Procedural Status: The court considers motions by each party to exclude the testimony of the other party’s forensics expert.

Basic Points:

• A witness may be qualified as an expert by knowledge, skill, experience, training, or education.
• An expert witness may testify to those areas within his expertise, which may include areas closely associated with or encompassed in general by their subject of expertise, even if not explicitly stated in their credentials.
• An expert witness may not testify to the state of mind of actor’s without specific qualification, or based on speculative means.
• Accusations of spoliation based on speculation are barred from admission
• Criticisms on one expert’s methodology based solely on a study of that methodology, and absent an independent study, are admissible to the extent the criticisms are based on expert-level knowledge and not speculative means.

Admissibility of Expert Testimony in General:

Under FRE 702, a witness can be qualified as an expert by “knowledge, skill, experience, training, or education. Courts consider a proposed expert’s full range of practical experience as well as academic or technical training when determining whether that expert is qualified to render an opinion in a given area.”

The court stated that the admissibility of expert testimony depends not only on the witness’s qualifications as an expert. Under Daubert, court’s are to consider the following factors, among others that may present themselves:

(1) whether the expert’s technique or theory can be or has been tested–that is, whether the expert’s theory can be challenged in some objective sense, or whether it is instead simply a subjective, conclusory approach that cannot reasonably be assessed for reliability;
(2) whether the technique or theory has been subject to peer review and publication;
(3) the known potential rate of error of the technique or theory when applied;
(4) the existence and maintenance of standards and controls; and
(5) whether the technique or theory has been generally accepted in the scientific community.

The court must ensure, therefore, that the proffered testimony has, at its core, some reliable basis. The testimony must also be relevant, so that it assists the trier of fact in understanding the evidence or in determining a fact in issue.

Testimony of Carl Florez:
Carl Florez was retained by Plaintiffs to testify to the security measures undertaken by USG to protect its proprietary information.
Upon examining Mr. Florez’s qualifications, it concluded that he was a qualified expert in the areas of computer forensics and investigation. In his expert reports, Mr. Florez offered a list of “reasonable” measures a company might take to protect its confidential information, and then compared them to the measures implemented by USG. He concluded that “USG’s efforts to protect the secrecy of its proprietary and confidential information, including the information that is electronically stored, are more than reasonable, and are among the most thorough I have encountered in my experience.”

Defendants Lafarge, contended that Florez is not qualified to render an opinion regarding the steps USG took to protect its confidential information. While acknowledging Florez’s knowledge and experience in the areas of computer forensics, defendants argued that has no apparent expertise in the steps necessary to protect the secrecy of information. Florez’s opinions on these matters are, therefore, unreliable.

In beginning its analysis, the court stated the following rule: whether a witness is qualified as an expert can only be determined by comparing the area in which the witness has superior knowledge, skill, experience, or education with the subject matter of the witness’s testimony. Florez has gained expertise and familiarity with how breaches occur, including the measures and countermeasures used to protect information and to overcome protections. Efforts to protect information and efforts to access confidential information evolve on parallel tracks, such that a person familiar with the challenges of accessing protected information will also be familiar with steps necessary to protect it. Florez’s unique familiarity with computer crime provides him with an understanding of computer security measures. The court concluded that Florez’s testimony passed the test.

Defendants also argued that Florez’s opinion with respect the reasonableness of USG’s data security measuares rested on an unreliable method. Again, the court disagreed. Florez’s failure to undertake a specific experimental analysis in reaching his opinion does not, by itself, require the court to exclude his testimony. Indicators of reliability depend on the particular circumstances of the particular case at issue. Determining whether a particular activity is reasonable in light of other facts is often a function of experience, of which Defendants admit Mr. Florez has a sufficient measure. The court was persuaded that in this case, experience provided a reliable basis for determination of what precautions are reasonable and effective to prevent breaches

Reasonable Measures Cited by Mr. Florez:
Florez cited and expounded on five “generally accepted measures” for protecting electronic information:
(1) establishing and communicating protection polices;
(2) need-to-know distribution of confidential information;
(3) marking information as “confidential” or “proprietary”;
(4) maintaining confidentiality agreements; and
(5) controlling access to information with physical or electronic systems.

In the context of forming his opinion, Florez consulted authoritative sources and publications in the field. He also compared USG’s policies with those at several other organizations he was familiar with, including the FBI. Defendants suggested that these comparisons are inadequate because none of these organizations is in the manufacturing business or construction industry. While the court acknowledged that discussion of confidentiality measures in the manufacturing setting might have been useful, its omission was not fatal, as the need for security in manufacturing sector here cannot be greater than that present at the FBI. The court concluded that Florez’s opinion appeared reasonable, even in the face of his inability to cite specific sources of information used for his analysis.

Mr. Florez’s Analysis of the Intent of Actors:

The court did agree with Defendants assertions that where Mr. Florez made oblique references to the state of mind of certain actors, he appeared to exceeded the scope of his expertise. The court noted that nothing in the record suggested that Florez was particularly qualified to understand the mental attitudes of others. Even assuming he were, he is able to render an opinion on intent only by drawing inferences from the evidence. Such opinions merely substitute the inferences of the expert for those the jury can draw on its own. Thus, the court excluded this type of testimony from the case.

Mr. Florez’s Analysis of Document Spoliation:

In his reports, Florez opined that various Defendants committed intentional acts of spoliation to cover up the misappropriation of USG documents. In an earlier opinion, the court had barred USG, its attorneys and witnesses from offering evidence of any alleged spoliation of evidence by any of the Defendants . . . and precluding all comment or testimony on such matters in the presence of the jury, either directly or indirectly, at any stage of trial from jury selection to verdict. Plaintiff now sought to use Florez’s testimony to explain “what steps were taken resulting in deletion of the documents, how partial information was recovered, and what information is irretrievably lost.”

The court was not persuaded to change its view on the matter of accusations of spoliation. The opinion stated that plaintiffs implicitly conceded that the main purpose of Florez’s testimony was to create the inference that Defendants intentionally destroyed evidence in an attempt to cover up alleged wrongdoing. Because plaintiffs offer no new non-speculative evidence on the issue, the court prohibited all testimony of this type.

Testimony of Andrew Reisman:

Mr. Reisman opined primarily on the validity of Florez’s methods and conclusions, contending that the evidence Florez reviewed failed to establish his subsequent findings. Mr. Reisman conducted no independent investigation or data analysis, but rather he reviewed Florez’s reports and consulted the same data Florez did. Plaintiff suggested that Reisman was obligated to undertake a broader investigation because he “had unfettered access to the entire Lafarge computer network” and concludes that the failure to do so constituted cherry-picking data in a way that fatally undermined the reliability of his conclusions. Defendants respondrf that Reisman would testify, based on his own experience, to “what forensic analysts do, what information they look at, what conclusions they can reach, and what conclusions they cannot reach based on forensic evidence.”

The court concluded that Reisman’s methodological criticisms were sufficiently based on his relevant experience to be reliable, and because computer forensics is a highly complicated area, the jury would benefit from having access to criticism from another expert in the field. However, to the extent that Reisman’s opinion offers speculation with respect to the use or dissemination of USG information at Lafarge, in the guise of criticizing Florez’s methodology, such testimony will be excluded.

The court ruled that any comments from Reisman that appear to divine an actor’s intent through speculative means will also be excluded. Finally, the court also ruled that Reisman may not opine on issues of spoliation or destruction of documents in answer to Florez’s accusations, becuase those accuasations have already been barred. Anything that Reisman would add is therefore not needed.

Case Summary: Cammarata; Court Discusses E-Discovery Misconduct, Proportionality and Reasonableness

Rimkus Consulting Group, Inc. v. Cammarata, 2010 U.S. Dist. LEXIS 14573 (S.D. Tex. Feb. 19, 2010)

Procedural History: In Nov. 2006, Rimkus was sued by former employees Nickie Cammarata and Gary Bell. In this action in Louisiana, Cammarata and Bell sought a declaratory judgment that the forum-selection, choice-of-law, noncompetition, and nonsolicitation provisions in agreements they had signed with Rimkus were unenforceable. In response, Rimkus brought two actions in 2007 against these ex-employees in Texas; one in January and one in February. Rimkus alleged breach of the noncompetition and nonsolicitation covenants in their written employment agreements and that they used Rimkus’s trade secrets and proprietary information in setting up and operating a competitive enterprise (U.S. Forensic). The Texas cases were consolidated in this court.

Procedural Posture: The court convened to hear motions by Rimkus alleging that the Cammarata and Bell and their counsel “conspiratorially engaged” in “wholesale discovery abuse” by destroying evidence, failing to preserve evidence after a duty to do so had arisen, lying under oath, failing to comply with court orders, and significantly delaying or failing to produce requested discovery. Defendants responded by acknowledging that they did not preserve “some arguably relevant emails” but argue that Rimkus cannot show prejudice because the missing emails “would be merely cumulative of the evidence already produced.” Rimkus asked the court to strike the defendants’ pleadings,enter a default judgment against them or give an adverse inference jury instruction, and hold both defendants and their counsel in contempt.

Discussion: The court began its analysis by acknowledging the framework recently set out by Judge Scheindlin in Pension Committee of the University of Montreal Pension Plan v. Banc of America Securities, LLC, No. 05 Civ. 9016, 2010 U.S. Dist. LEXIS 4546, 2010 WL 184312 (S.D.N.Y. Jan. 15, 2010) (see our case summary here). Unlike Montreal Pension Plan, this case involve allegations of intentional destruction of ESI, but common analytical issues existed, nevertheless.

In the fifth circuit, Federal Courts apply federal rules in diversity cases. The court stated that allegations of spoliation are addressed by courts by an applicable statute that adequately addresses the conduct with its attendant limits, and if no such statute exists, by the more flexible inherent power of the court. When inherent power does apply, it is interpreted narrowly, and its reach is limited by its ultimate source–the court’s need to orderly and expeditiously perform its duties. In this case, the court’s inherent power and Rule 37 both apply.

Electronically stored information is routinely deleted or altered and affirmative steps are often required to preserve it. Such deletions, alterations, and losses cannot be spoliation unless there is a duty to preserve the information, a culpable breach of that duty, and resulting prejudice. Generally, the duty to preserve arises when a party has notice that the evidence is relevant to litigation or . . . should have known that the evidence may be relevant to future litigation. Generally, the duty to preserve extends to documents or tangible things (defined by Federal Rule of Civil Procedure 34) by or to individuals likely to have discoverable information that the disclosing party may use to support its claims or defenses.

The court stated that bright-line rules were difficult to draw with respect to acceptable and unacceptable behavior in e-discovery matters, and explained that acceptable conduct turned on the concepts of reasonableness and proportionality with respect to the case.

Analysis depends heavily on the facts and circumstances of each case and cannot be reduced to a generalized checklist of what is acceptable or unacceptable. Determining whether sanctions are warranted and, if so, what they should include, requires a court to consider both the spoliating party’s culpability and the level of prejudice to the party seeking discovery. Culpability can range along a continuum from destruction intended to make evidence unavailable in litigation to inadvertent loss of information for reasons unrelated to the litigation. Prejudice can range along a continuum from an inability to prove claims or defenses to little or no impact on the presentation of proof. A court’s response to the loss of evidence depends on both the degree of culpability and the extent of prejudice.

The court explained that the general rule for the 5th Circuit is that severe sanctions of granting default judgment, striking pleadings, or giving adverse inference instructions may not be imposed unless there is evidence of “bad faith.” This is different from the 2d Circuit’s rule allowing for such rulings in instances of gross negligence, under which the court in Pension Committee of the University of Montreal Pension Plan was operating. The court went on to list the general rule of other circuits, as summarized in the table below.

Circuit Standards for Severe Sanctions

The court then contrasted case law between the 5th and 2d circuits, noting that the Supreme Court’s decision in Chambers v. NASCO, Inc., 501 U.S. 32 (U.S. 1991) might limit the ability of a court to impose sanctions when acting under the authority of its inherent powers.

The court then turned to the issue of burden of proof. A party seeking the sanction of an adverse inference instruction based on spoliation of evidence must establish that: (1) the party with control over the evidence had an obligation to preserve it at the time it was destroyed; (2) the evidence was 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.

The “relevance” and “prejudice” factors of the adverse inference analysis are often broken down into three subparts: “(1) whether the evidence is relevant to the lawsuit; (2) whether the evidence would have supported the inference sought; and (3) whether the nondestroying party has suffered prejudice from the destruction of the evidence.” Like the court in Pension Committee, the court here acknowledged the difficulty and potential unfairness in requiring an innocent party seeking discovery to show that information lost through spoliation is relevant and prejudicial. Fortunately in this case (and many others), the party seeking discovery can also obtain extrinsic evidence of the content of at least some of the deleted information from other documents, deposition testimony, or circumstantial evidence.

The court also stated its belief that such requirements act as an important check on spoliation allegations and sanctions motions. Unlike the 2d circuit, case law in the Fifth Circuit indicates that an adverse inference instruction is not proper unless there is a showing that the spoliated evidence would have been relevant. Also unlike the 2d circuit, the 5th circuit has no case law allowing for the presumption that destroyed evidence was relevant or its loss prejudicial, even in the event that bad-faith is established. Before an adverse inference may be drawn, there must be some showing that there is in fact a nexus between the proposed inference and the information contained in the lost evidence and that “some extrinsic evidence of the content of the emails is necessary for the trier of fact to be able to determine in what respect and to what extent the emails would have been detrimental.

In the present case, the party seeking sanctions for deleting emails after a duty to preserve had arisen presented evidence of their contents. The evidence included some recovered deleted emails and circumstantial evidence and deposition testimony relating to the unrecovered records. There was no need to rely on a presumption of relevance or prejudice.

In determining an appropriate penalty, the court stated that the severity of a sanction for failing to preserve when a duty to do so has arisen must be proportionate to the culpability involved and the prejudice that results. A sanction should be no harsher than necessary to respond to the need to punish or deter and to address the impact on discovery. Adverse inference instructions can take varying forms that range in harshness, and are properly viewed as among the most severe sanctions a court can administer.

The court made the findings necessary to submit the spoliation evidence and an adverse inference instruction to the jury. The court noted, however, that the record also presented conflicting evidence about the reasons the defendants deleted the emails and attachments; evidence that some of the deleted emails and attachments were favorable to the defendants; and an extensive amount of other evidence for the plaintiff to use.

The instruction formulated by the court will ask the jury to decide whether the defendants intentionally deleted emails and attachments to prevent their use in litigation. If the jury finds such misconduct, the jury must then decide, considering all the evidence, whether to infer that the lost information would have been unfavorable to the defendants. Rather than instruct the jury on the rebuttable presumption steps, it is sufficient to present the ultimate issue: whether, if the jury has found bad-faith destruction, the jury will then decide to draw the inference that the lost information would have been unfavorable to the defendants

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 Summary: AccessData; Effects of German Blocking Statute on Discovery Obligations

AccessData Corp. v. ALSTE Techs. GMBH, 2010 U.S. Dist. LEXIS 4566 (D. Utah Jan. 21, 2010).

Background: In May, 2005, AccessData and ALSTE Technologies GmbH (“ALSTE”) entered into a contract allowing ALSTE to resell to their customers. Since executing the agreement, ALSTE has sold “hundreds, if not thousands” of AccessData’s products. AccessData sued ALSTE for breach of contract, alleging that over $79,000 in invoices had not been paid for its FTK toolkit 2.0 software. While ALSTE admits that it hasn’t paid the invoices in question, it asserts that it shouldn’t be made to, as the software is defective. ALSTE also filed a counterclaim for the breach of a technical support agreement requiring AccessData to pay ALSTE $2,000 to $4,000 per month to cover technical support for users of AccessData’s products in Germany who were not also customers of ALSTE.

Procedural History: AccessData made requests to ALSTE for the production of documents containing information on customer complaints and any resulting injury suffered by ALSTE. AccessData also propounded interrogatories asking ALSTE to provide information and document regarding any technical support it provided non-customers under the Technical Support Agreement. ALSTE objected to the interrogatories and production requests, contending they were: 1) overly broad, unduly burdensome, and sought irrelevant information, and 2) the disclosure of information relating to third parties identities would violate German law. Access then filed the motion to compel on which the court rules in this opinion.

Discussion: The court stated that ALSTE assertion that providing personal information about its customers and their employees “would be a huge breach of fundamental privacy laws in Germany,” was not backed up by reference to any specific rule or law. ALSTE failed to cite any provision of the German Data Protection Act (GDPA) or German Constitution to back-up its claim. The court then noted that I, Section 4c of the GDPA, entitled “Derogations,” allows for the transfer of personal information to countries without the same level of data protection if the data subject gives his or her consent, or the transfer is necessary or legally required for the establishment, exercise, or defense of legal claims. The court wrote that ALSTE had not described any difficulties in obtaining consent, or explained why the provisions would not apply to this case.

Even in the event that ALSTE had overcome those challenges, the court stated that it disagreed with ALSTE’s assertion that the court must comply with the Hague Convention’s rules governing disclosure of evidence to courts in foreign countries. Citing Societe Nationale Industrielle Aerospatiale v. United States District Court, 482 U.S. 522, 544, 107 S. Ct. 2542, 96 L. Ed. 2d 461 (1987), the court noted that the law in the U.S. was: “It is well settled that such [blocking] statutes do not deprive an American court of the power to order a party subject to its jurisdiction to produce evidence even though the act of production may violate that statute.”

The Supreme Court referenced the American Law Institute summary of the interplay between blocking statutes and discovery orders generally:

“[W]hen a state has jurisdiction to prescribe and its courts have jurisdiction to adjudicate, adjudication should (subject to generally applicable rules of evidence) take place on the basis of the best information available . . . . [Blocking] statutes that frustrate this goal need not be given the same deference by courts of the United States as substantive rules of law at variance with the law of the United States.”

Ultimately, the court decided on this issue to overrule the objections to the discovery request and required ALSTE to search through their data repositories and produce the requested data.

Case Summary: Bensel; Tests for Spoliation and Imposition of Sanctions

Bensel v. Allied Pilots Assoc., 2009 U.S. Dist. LEXIS 118342 (D.N.J. Dec. 17, 2009)

Background: Plaintiffs, former members of the Allied Pilots Association (ALPA), sued the association, alleging breach of duty of representation of its members.

Procedural History: Plaintiffs accuse Defendant Association of intentionally or recklessly destroyed documents, emails and other communication well into the discovery period for this lawsuit.

Discussion: The court begins by defining spoliation as: “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.” The court noted that when relevant documents are lost or destroyed “the trier of fact generally may receive the fact of the document’s nonproduction or destruction as evidence that the party that has prevented production did so out of the well-founded fear that the contents would harm him.” The court qualified that statement by adding that there must be a finding that the spoliation was intentional and that there was fraud and a desire to suppress the truth before the Court will make a finding of spoliation. The court then articulated the following test for a finding of spoliation.

Generally, to determine spoliation of evidence, four factors must be found:
(1) the evidence in question must be within the party’s control;
(2) it must appear that there has been actual suppression or withholding of the evidence;
(3) the evidence destroyed or withheld was relevant to claims or defenses; and
(4) it was reasonably foreseeable that the evidence would later be discoverable.

The court added that the duty to preserve relevant documents could attach even prior to litigation, although a party is certainly not required to retain every document in its possession. The court then stated the Third Circuit’s test for the imposition of sanctions for spoliation:

(1) the degree of fault of the party who altered or destroyed the evidence;
(2) the degree of prejudice suffered by the opposing party; and
(3) whether there is a lesser sanction that will avoid substantial unfairness to the opposing party and, where the offending party is seriously at fault, will serve to deter such conduct by others in the future.

The court then opined that in the first standard, that for finding spoliation, the second the element appeared to require bad faith. It then decided that the first prong of the test for sanction required bad faith as well.

The court noted that Defendant had only grudgingly complied with its discovery obligations, and recited examples suggesting that there was strong evidence that Defendants had failed to preserve evidence. However, the court also stated that Plaintiffs had not pointed to any evidence of bad faith, and relied only on speculation to explain the deletion of email by Defendants.

The court also wrote that Plaintiffs made vague statements, such as: “ALPA’s spoliation was so widespread and covered such a long period of time it can only be concluded that substantial evidence was destroyed which would have been favorable to Plaintiffs.” Such a catch-all statement, along with vague speculation as to whether evidence has been destroyed or even whether evidence was relevant does not rise to the specificity level required by the Third Circuit to impose sanctions or even make a finding of spoliation. While Defendants should have moved more quickly to place litigation holds on the routine destruction of certain documents and electronic data, the Court saw no evidence of bad faith. The court, therefore, denied the motion for sanctions at this time.

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.