Learn how to avoid ediscovery sanctions from Cool Hand Luke

December 27th, 2008 | By Steve Puiszis

Keithley v. The Home Store.com, Inc., 2008 WL 3833384 (N.D.Cal., Aug.12, 2008)

What is the one line from the movie Cool Hand Luke that everyone remembers?

No, it’s not Carl the floor walker’s speech about spending “a night in the box” for various rule violations. And no, it’s not Dragline’s comments about Lucille as she washes a car in front of the chain gang while they are cutting down weeds on the side of a road. It’s the Captain’s infamous line after he knocks Luke to the ground with a billy club: “What we’ve got here is failure to communicate.” And that is today’s tip for avoiding ediscovery sanctions.

So what does a “failure to communicate” have to do with avoiding ediscovery sanctions, you ask? In short, just about everything. To paraphrase Carl the floor walker’s speech from Cool Hand Luke, if you fail to properly notify your client in writing about the need to impose a litigation hold, you get “a night in the box,” if you fail to follow up with key personnel to make sure they have been advised of the hold and are preserving information, you get “a night in the box.” And if you fail to follow up with periodic reminder notices to the client, you get “a night in the box.”

Avoiding ediscovery sanctions is an issue that we all have to take very seriously. Kroll Ontrack recently surveyed ediscovery decisions published in 2008 and amazingly found that 25% of those decisions addressed the imposition of sanctions. The sheer number of cases addressing ediscovery sanctions should give you pause. The decision of Keithley v. The Home Store.com, Inc. made the top of Kroll’s hit parade, so it’s worth your time to review to see how things went off track.

The district court in Keithley specifically quoted United Medical Supply Co. v. United States, 77 Fed. Cl. 257, 258-59 (Fed.Cl. 2007), to explain how it viewed the sanction’s motion before it:

Aside perhaps from perjury, no act serves to threaten the integrity of the judicial process more than the spoliation of evidence. Our adversarial process is designed to tolerate human failings –erring judges can be reversed, uncooperative counsel can be shepherded, and recalcitrant witnesses compelled to testify. But when critical documents go missing, judges and litigants alike descend into a world of ad hocery and half measures — and our civil justice system suffers.

The magistrate judge described the discovery misconduct in Keithley as “among the most egregious” the court had ever seen. However, several of the ediscovery issues the court addressed could have been potentially avoided simply through proper communication.

The first “failure to communicate” occurred when counsel neglected to issue a written litigation hold notice. While the defendant’s chief information technology officer was instructed not to destroy any materials that might be relevant to the potential litigation, nothing was ever reduced to writing — a critical mistake in the court’s view. As the court explained: “The lack of a written document retention and litigation hold policy and procedures for its implementation, including timely reminders or even a single email notice to relevant employees, exemplifies Defendants’ lackadaisical attitude with respect to these important documents.”

A second “failure to communicate” occurred when the client failed to identify its key personnel who may have possession of potentially relevant data and when counsel apparently failed to promptly follow up on this issue so that the key players could be timely contacted concerning the need to preserve and produce potentially relevant data.

Keithley also provides a reminder that counsel should endeavor to explain, as broadly as possible, where the various sources of potentially relevant electronic information may be found so that none are overlooked.

The case involved allegations of patent infringement, where source code information for computer website software was critical to plaintiff’s case. A 30(b)(6) witness had testified that sometime after 2001, a database containing earlier versions of source code had been eliminated so that earlier versions of the source code were no longer available. However, shortly after a hearing was held on plaintiffs’ sanction’s motion, defendants produced a CD with 220 megabytes of missing source code. One engineer, who only had been contacted weeks earlier about the missing source code, found an archived CD in a drawer in her cubicle, and another engineer found additional source code on a crashed hard drive which he had stored at his home.

The court was “frankly shocked” by this development since it had ordered all versions of source code to be produced fifteen months earlier. The court explained: “The ignorance of technical personnel of the importance of old source code to Defendants’ preservation obligation is not, of course, a legitimate excuse. Defendants had a duty to notify and periodically remind technical personnel of Defendants’ preservation obligation and ensure that they took adequate steps to safeguard the data. At a minimum, Defendants were reckless in their conduct.”

In Phoenix Four, Inc. v. Strategic Resources Corp., 2006 WL 1409413 (S.D.N.Y. May 23, 2006), a district court criticized counsel for simply accepting a client’s representation that because an entity had gone out of business, there was no electronic data to be found, when in fact, information remained on a network server. Keithley provides a similar example of that type of communication breakdown.

The plaintiffs in Keithley had sought production of reports concerning how the defendants’ websites were used. At the sanctions hearing, counsel for the defendants represented to the court that his clients’ web sites operated like Google, that they permit users to make ephemeral queries but do not store the responses – in other words, there were no reports to produce. To make such a representation, counsel must have received that information from the client. However, a little over two weeks later, defendants produced over 480,000 reports found on a hard drive. While the court found that defendants did not destroy any reports, the fact that they represented to the court that no reports existed when in fact they did, constituted “serious misconduct that [was] grounds for sanctions.”

Significantly, the court in Keithley noted that under Rule 37, sanctions can be imposed for negligent conduct, and that bad faith is not required for the issuance of an adverse inference instruction. The court ultimately recommended that a large monetary sanction be awarded (in addition to a prior award of $126,000 in fees and costs to plaintiffs associated with their original spoliation motion), and also recommended that an adverse inference instruction be given.

In real estate, they say location is the key to success. With ediscovery, the first key to success is communication. So take a tip from Cool Hand Luke and don’t have Carl the floor walker sentence you to time in the ediscovery sanction’s box for a failure to communicate.

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