The Good, The Bad And The Ugly (of an ediscovery decision)

November 25th, 2009 | By Steve Puiszis

Scalera v. Electrograph Systems, Inc., 2009 WL 3126637 (E.D.N.Y. Sept. 29, 2009)

Today’s blog post is named after the 1967 epic spaghetti western starring Clint Eastwood. Wikipedia explains that the movie’s plot “centers around three gunslingers competing to find a fortune in buried confederate gold.” Intended by its director to be a “tongue-in-cheek satire on run-of-the-mill westerns,” Quintin Tarentino once called it “the best-directed film of all time.”

While that might be a bit of a stretch, The Good, The Bad and The Ugly aptly summarizes the court’s holding in Scalera v. Electrograph Systems. While you won’t find any confederate gold, bounty hunters or ghost towns in the decision, there are a number of important points that can be gleaned from the opinion. However, as with many ediscovery decisions, there are several bad, and at least one downright ugly finding entered by the court. Luckily, while the court concluded the company “unquestionably breached a duty to preserve emails,” the plaintiff failed to establish that any of the destroyed emails would have been favorable to her claim and, thus, the court denied plaintiff’s request for an adverse inference instruction. As a result, on several levels, Scalera is a decision that merits your attention.

Setting the Scene.

The plaintiff in Scalera suffered from Pompe disease which causes severe muscle weakness and results in limited mobility. Following her termination, plaintiff filed an ADA claim against her former employer alleging that it failed to accommodate her disability by not installing a handrail at its side door, which was the only entrance plaintiff could use to enter or exit the building due to her medical condition. Plaintiff alleged that due to the absence of a handrail, she fell while exiting the building which aggravated her condition. The company disputed whether plaintiff ever requested the installation of a handrail at its side entrance. The company argued that any request for an accommodation would come to its Human Resource (“HR”) department, where all documents relating to a person’s employment, disability, workplace accidents, requested accommodations and termination would be filed. All materials and emails received by the HR department were printed and placed in an employee’s file. All documents in an employee’s personnel file were scanned into a computer file. Both plaintiff’s HR file and electronic records were produced to her.

In discovery, plaintiff sought all emails sent or received by any employee concerning her medical condition, her request or need for an accommodation or which predated her employment with the company. The company produced “a handful of emails that were stored on backup tapes” and none of plaintiff’s emails to the company which predated her employment. The company explained that its backup tapes became corrupted and could not be restored. As a result, plaintiff filed a motion for sanctions seeking the issuance of an adverse inference, claiming the company failed to timely institute a litigation hold and preserve evidence under its control.

In response, the company submitted the affidavit of a Support Manager of its IT department which explained that documents can be stored locally on the hard drives of individual computers which may or may not be backed up depending on whether the document was created and stored on the network or locally at an employee’s computer. Because company computers were not tagged or catalogued, it was not possible to track a specific computer to any former employee. Additionally, once an employee left the company, all data on the employee’s computer was wiped from it. For company executives, this occurred within 30 days of their last day of employment and for non-executives, data on the hard drive was removed immediately. As a result, after the plaintiff was terminated, her computer’s hard drive was immediately wiped of all data. The company’s HR Director retired two months after plaintiff filed her EEOC charge and the hard drive of the Director’s computer was also wiped pursuant to company policy, making it impossible to search those hard drives for emails from the plaintiff.

The company also submitted the affidavit of its General Counsel who explained that she instructed several employees who dealt with the plaintiff to retain any relevant documents. She also collected copies of documents from the company’s HR department, and was told that all documents and emails were backed up. The affidavit explained that because the company did not have a document destruction policy, and knowing that its systems were backed up, the General Counsel was confident that all necessary documents had been properly preserved.

The Good (il buono) – When the duty to preserve was triggered.

Plaintiff raised several arguments as to when the duty to preserve was triggered, most of which the court in Scalera rejected. Plaintiff initially claimed that because the company knew she was disabled when it hired her, it had a duty from the outset of her employment to preserve information about her, and her accommodation requests. Plaintiff pointed to the Second Circuit’s decision in Brady v. Wal-Mart Stores, Inc., 531 F.3d. 127, 135 (2d Cir. 2008), which held that an employer has a duty to accommodate an employee’s disability if the disability was obvious. Simply because a request for an accommodation may not be a prerequisite for to ADA liability in certain instances does not impact when a duty to preserve information is triggered. They are separate issues and would require an employer to anticipate it would be involved in litigation whenever it hires an employee who may be disabled. In the court’s view, the logic of such an argument went “beyond the boundary of reasonableness.”

The court in Scalera also rejected the plaintiff’s argument that the filing of a worker’s compensation claim triggered a duty to preserve. While the court rejected plaintiff’s exclusive remedy argument because the exclusive remedy provision of the State of New York’s worker’s compensation law did not preclude the filing of a federal disability claim, it concluded that there was nothing in the plaintiff’s worker’s compensation claim that should have put her employer on notice that she would file a federal disability lawsuit against it.

The plaintiff sent a pre-suit letter to the building’s landlord after her fall, asserting negligence and making a claim for injuries. The court in Scalera concluded that letter did not trigger a duty to preserve by her employer because it was directed to the landlord and not the defendant.

Federal regulations implementing the ADA require employers to preserve any personnel or employment records, including accommodation requests, for one year from the date of making the record or the personal action involved, whichever occurs later. See 29 CFR §1602.14. Where an employee has been involuntarily terminated, the regulation requires an employer to retain the employee’s personnel records for one year from the date of termination. Where a charge of discrimination has been filed under Title VII or the ADA, an employer is obligated to preserve all personnel records relevant to the charge until the final disposition of the action. Scalera cited Byrnie v. Town of Cromwell, 243 F.3d 93, 109 (2d Cir. 2001) for the proposition that where a party violates an EEOC record-retention regulation, that violation can justify a finding of spoliation. The court in Scalera noted it was unclear from the record whether the plaintiff’s alleged request for the installation of a handrail was made in writing. The court concluded, however, that to the extent documents evidencing such a request ever existed, they should have been preserved for a period of one year from the date the accommodation was requested.

The company acknowledged receiving plaintiff’s EEOC charge in either late November or early December of 2006. Because the plaintiff’s hard drive was erased within thirty (30) days of her employment being terminated, no duty to preserve was triggered since the EEOC charge was not received until after that hard drive had been erased.

Plaintiff produced several emails that she sent to the company before she began her employment which requested certain accommodations, and argued that the company’s failure to produce them established that they had not properly preserved relevant electronic information. While rejecting the company’s argument that it had no obligation to preserve those emails because they were created before plaintiff’s employment began, the court noted that the ADA regulation only required that they be kept for one year, and the obligation to preserve them expired before plaintiff filed her EEOC charge. Therefore, the court ruled that defendants had not breached any duty by failing to preserve the specific emails plaintiff had sent to the company.

The Bad (il bruto) – Failing to interrupt routine destruction practices.

As noted above, the company had a practice of wiping the hard drives of departing employees. While that practice was fine for those employees who had no involvement with plaintiff, the company failed to interrupt it once a duty to preserve was triggered. The court in Scalera concluded that in addition to the ADA record retention regulation, a duty to preserve was triggered by the filing of plaintiff’s EEOC charge. Therefore, the company should have prevented the hard drive of the computer used by HR Director from being erased because she retired at least a month or two after the company had received plaintiff’s EEOC charge. The court ruled because the company failed to preserve the emails and documents contained on that computer, it breached its duty to preserve. The court rejected the company’s argument that it did not breach any duty because it produced all relevant documents from plaintiff’s HR file. Citing Treppel v. Biovail Corp., the court noted that a party is not permitted to downgrade electronic data to a less accessible form which makes the recovery of information more costly and burdensome, and doing so constitutes a violation of its preservation obligation.

The Ugly (il cattivo) – Failing to properly institute and communicate a litigation hold.

The court in Scalera concluded that no formal litigation hold was ever implemented. Moreover, it concluded that no steps were taken to preserve information until almost two months after the EEOC charge was filed. The court also noted that there was inadequate communication between the company’s General Counsel and its IT department. While the IT department searched the hard drives of several employees to see if information was stored locally on those drives, not all of the key employees who the General Counsel advised to preserve information had their computer hard drives searched. More importantly, the IT department failed to preserve information stored on the computer of the HR Director after she retired. The court found the company’s conduct was negligent and that information was lost as result of its “omissions and ineffective communication.”

Why an adverse inference was not imposed.

In order to obtain sanctions for the spoliation of evidence, the party seeking those sanctions must demonstrate the destroyed evidence was relevant to her claims. The court in Scalera noted that when an adverse inference is sought, relevance requires “something more than sufficiently probative to satisfy Rule 401 of the Federal Rules of Evidence.” The court also noted that a party’s bad faith or gross negligence will typically support a finding of relevance. Here, it ruled that company’s total reliance on its backup tapes was shortsighted. While a formal litigation hold was never issued, the General Counsel did advise key players to preserve information. Admittedly, while more effective communication with the IT department may have prevented the loss of information, some steps were taken to preserve information. Thus, the court concluded that while the company’s conduct was negligent, it did not rise to the egregious level needed to establish relevance as a matter of law. And because plaintiff failed to produce extrinsic evidence demonstrating the destroyed emails would have been favorable to her case, the court denied plaintiff’s request for sanctions in the form of an adverse inference.

One critic’s review – the performance does not warrant two thumbs up.

The company in Scalera dodged a bullet. The Seventh Circuit has explained that the distinction between negligent conduct and gross negligence is so narrow that it cannot be adequately defined. See, e.g., Archie v. City of Racine, 847 F.2d 1211, 1219 (7th Cir. 1988) (en banc). Given the slight degree of variation between negligence and gross negligence, a different judge when presented with a similar factual scenario might conclude the loss of information merited an adverse inference or imposed some lesser form of sanctions. Additionally, while the motion was denied, think of the time, expense, resources and effort that were expended to defeat the motion which potentially could have been avoided.

Scalera demonstrates that a close working relationship between a company’s General Counsel and its IT Department is essential to the avoidance of ediscovery sanctions. Additionally, the decision once again shows that a prudent course to follow in any regulatory, investigative or litigated matter is to impose a formal litigation hold at the outset. A party should endeavor to identify its key personnel who may have relevant information and notify them -preferably in writing – of the duty to preserve. This should include a company’s IT department. A company should notify its IT department about any litigation hold so that any automated or automatic process, such as the erasure of departing employee’s hard drives, can be interrupted and potentially relevant information preserved. The company should advise its IT department who the key players involved in the litigation hold are and the nature of the information that should be preserved. IT should be made part of the hold process, and Scalera demonstrates how potentially relevant information can be lost when they are not made full active participants in the process.

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