November 13, 2007

On December 1, 2006, Congress amended the Federal Rules of Civil Procedure to address the developing area of electronic discovery (e-discovery). The amendments were designed to modernize the rules and provide guidance to litigants and attorneys on their obligations to preserve and produce electronic documents.

Most significantly, the amendments reinforce that electronically stored information, much like traditional evidence, is discoverable in litigation. Furthermore, to ensure that parties do not ignore their e-discovery obligations until late in litigation - when relevant information is less likely to exist - the amendments require the parties to discuss their e-discovery needs early in the discovery process. A party's failure to act promptly may preclude it from advancing (or defending) a spoliation claim later in the litigation. The amended rules also provide limited protections for parties that lose electronically stored information in the course of routine business operations so long as the operations are carried out in good faith.

During the nine months since the e-discovery amendments became operative, a number of decisions have interpreted the new rules and highlighted the dangers of noncompliance. Not surprisingly, most of the cases involve workplace law. The following is a summary of some of the more significant e-discovery decisions:

Nonmonetary Sanctions

• In Teague v. Target Corp., 2007 U.S. Dist. LEXIS 25368 (W.D.N.C. 2007), the plaintiff alleged the defendant terminated her because of her gender. She sought damages, including lost wages, against her former employer. The defendant claimed the plaintiff failed to mitigate her damages by seeking employment after her termination. During discovery, the plaintiff admitted that she recently discarded the home computer on which she conducted her job searches for nearly 10 years. Thus, the defendant was unable to corroborate the plaintiff's representations regarding her job search efforts. It asked the court to sanction the plaintiff for spoliation of evidence. The court granted the defendant's request and issued a jury instruction adverse to the plaintiff's interest. The court found the plaintiff had a duty to preserve such evidence, that she had a "culpable state of mind" in not preserving the evidence, and that the evidence could have supported the defendant's mitigation of damages defense.
  
• In May v. Pilot Travel Centers, 2006 U.S. Dist. LEXIS 94507 (S.D. Ohio 2006), the plaintiff, a former employee of the defendant, brought a retaliation claim under the Family and Medical Leave Act. The plaintiff sought sanctions against the defendant for failing to produce electronic evidence. The court found the defendant altered its computer system by destroying or losing invoices relevant to its decision to terminate the plaintiff after it knew litigation was pending. The defendant had no satisfactory reason for its failure to produce the requested information. The court ordered the defendant to produce the requested information, or account for its absence, and warned that failure to abide by the order would result in further sanctions. Not only was the defendant ordered to produce emails and investigation notes, items typically expected to be preserved in an employment-related case, but it also was ordered to produce invoices, month-end invoice reports, and time and payroll records.

Monetary Sanctions

• In In re September 11th Liab. Ins. Coverage Cases, 2007 U.S. Dist. LEXIS 43734 (S.D.N.Y. 2007), an insurance company deleted an electronic version of a document that it was obligated to produce during discovery. The court found the insurance company exercised control over the document, was obligated to produce the document, and, with a culpable state of mind, failed to produce the document in a timely fashion. The court also found the document relevant to the opposing parties' claims. In granting the application for sanctions, the court ordered the insurance company to pay $500,000 to its adversaries to cover costs related to the company's failure to fulfill its discovery obligations and to deter future discovery violations.
  
• In Claredi Corp. v. SeeBeyond Tech. Corp., 2007 U.S. Dist. LEXIS 16593 (E.D. Mo. 2007), the defendant failed to produce certain electronic communications between the defendant and various third parties. While the plaintiff was able to retrieve the communications from third parties, because the communications were important pieces of evidence and the defendant failed to satisfy its discovery obligations by not preserving the communications, the court awarded the plaintiff $54,000 in costs. Moreover, the court ordered the defendant to pay the court an additional $20,000 for abusing the discovery process as its actions "unnecessarily prolong[ed] and increase[ed] the expense of this litigation."
  
• In Google Inc. v. Am. Blind & Wallpaper Factory, Inc., 2007 U.S. Dist. LEXIS 48309 (N.D. Cal. 2007), the plaintiff was awarded $15,000 in monetary sanctions because the defendant did not conduct an adequate search of its email system for documents requested during discovery. The court reasoned that the penalty should reimburse the plaintiff for a portion of its expenses in bringing the action and deter future violations while avoiding an undue financial hardship on the defendant.
  
• In PML N. Am., LLC v. Hartford Underwriters Ins. Co., 2006 U.S. Dist. LEXIS 94456 (E.D. Mich. 2006), the defendant failed to produce electronic information from a USB drive and backup servers. Furthermore, it produced for inspection a hard drive that was badly tampered with, which prevented experts from salvaging any information. (The hard drive had been reformatted and was missing screws, caps and pads.) Since the defendant failed to provide a credible reason for the damage, and because the hard drive contained valuable information, the court granted default judgment, and ordered the defendant to pay all of plaintiff's costs related to the litigation. The court stated that such a penalty was warranted due to the defendant's willful and intentional destruction of key evidence.
  
• In United Medical Supply Co., Inc. v. United States, No. 03-289C (Fed. Cl. 2007), the court ordered the defendant to pay the plaintiff for costs related to the defendant's failure to preserve documents relevant to a contract dispute. The court found the defendant's failure to preserve, while not intentional, was reckless enough to warrant monetary sanctions.
  
• In Wachtel v. Health Net, Inc., 2006 U.S. Dist. LEXIS 88563 (D.N.J. 2006), the defendant failed to locate, preserve, and provide electronic evidence to the plaintiffs. Additionally, the defendant did not comply with discovery orders related to the production of electronic documents. The plaintiffs asked the court to issue a default judgment in their favor and sanctions against the defendant for abusing the discovery process. Although the court did not issue a default judgment, it imposed monetary sanctions against the defendant. The court stated that it would wait until it reviewed the defendant's financial records before providing a specific monetary amount for the penalty.

Denial of Sanctions

• In Columbia Pictures Industries v. Bunnell, 2007 U.S. Dist. LEXIS 46364 (C.D. Cal. 2007), a copyright infringement action, at issue was whether the defendant, an Internet website operator, had a duty to preserve data stored on his website's servers in random access memory. (RAM is temporary memory, as opposed to permanent memory stored on a computer's hard drive.) The defendant asserted he was not obligated to preserve the data because: (1) the temporary data was not under his control; (2) obtaining the data would be unduly burdensome; and (3) handing such data over to the plaintiff would violate his website users' privacy rights. Ultimately, the court ordered the defendant to preserve and produce the RAM data and to mask the users' IP addresses to protect their privacy. However, it did not sanction the defendant or order him to pay the plaintiff's litigation costs. It reasoned that the lack of precedents regarding discovery requirements of RAM data failed to provide the defendant with sufficient notice that RAM data was discoverable. However, this case signals to future litigants that RAM data may have to be preserved for litigation.
  
• In Floeter v. City of Orlando, 2007 U.S. Dist. LEXIS 9527 (M.D. Fla. 2007), a sexual harassment case, the plaintiff sought sanctions against the defendant for spoliation because it removed the hard drive from a company computer, which, the plaintiff argued, contained key evidentiary documents. The court decided that for sanctions to apply: (1) the evidentiary documents must have existed at one time; (2) the defendant must have had a duty to preserve the documents; (3) the documents must have been crucial to the plaintiff's prima facie case of sexual harassment; and (4) the defendant must have had acted in bad faith in not producing the documents. The court ultimately denied sanctions because it found the defendant had removed the hard drive pursuant to its standard operating procedures and not to thwart the discovery of evidence.
  
• In Anadarko Petroleum Corp. v. Davis, 2006 U.S. Dist. LEXIS 93594 (S.D. Tex. 2006), the defendant, a former employee of the plaintiff, resigned to work for a competitor. The plaintiff accused the defendant of stealing trade secrets from its computer system. Following his attorney's advice, the defendant transferred all information he took from the plaintiff's computer system to a USB drive and deleted the information from the hard drive of the computer he used. The plaintiff then alleged that the defendant transferred only one of seven gigabytes stored on the hard drive. The defendant accounted for the missing data by claiming that he deleted duplicate documents prior to the transfer. The court denied the plaintiff's request to sanction the defendant for spoliation of evidence, stating that there was not enough information before the court to show the defendant had destroyed the information in bad faith. Rather, the court found the defendant merely deleted files he thought were duplicates. The court did note, however, that sanctions might be appropriate should a forensic investigation later reveal the defendant acted in bad faith.

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Jackson Lewis is a leader in helping organizations navigate through e-discovery and law-related workplace technology issues and to be E-Discovery Ready™. Our national workplace law firm has established an E-discovery and Workplace Technology practice group dedicated to assisting employers in establishing practical electronic information retention policies, in implementing effective litigation hold procedures and in handling complex and emergent e-discovery matters. The Firm's E-discovery and Workplace Technology practice group also provides ongoing internal training through the Jackson Lewis E-Discovery U™ program so that our attorneys and other professional staff are fully prepared to handle e-discovery and digital evidence.

© 2007 Jackson Lewis LLP.  Reprinted with permission.  Originally published at www.jacksonlewis.com.  Jackson Lewis LLP is a national workplace law firm with offices nationwide.

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