Proving once again that it is a “dog-eat-dog world,” plaintiffs’ lawsuit stemmed from a dispute involving a dog-pedigree software program. Plaintiffs developed the software program from information found on the defendants’ web-sites, which plaintiffs claimed was in the public domain. Plaintiffs claimed that defendants subsequently “engaged in a concerted campaign of blast emails and postings on their websites,” which accused plaintiffs of stealing their information and “urging dog enthusiasts to boycott plaintiffs’ products.”

Over six years after plaintiffs filed their original complaint (that is more than 40 years in dog years), defendants filed a motion to dismiss plaintiffs’ seventh amended complaint and sought a stay of discovery. While the court recognized that motions to stay discovery may be appropriate when a claim is patently frivolous, a party raises a potentially dispositive threshold issue such as standing, pending resolution of the defense of qualified immunity, or in some antitrust actions, it refused to enter a discovery stay when the defendants’12(b)(6) motion did not involve or raise those types of issues. The court further observed that because plaintiffs’ claims had been pending for over six years, the motion to stay was unlikely to significantly expedite the ultimate resolution of those claims.

While the court rejected the requested discovery stay, it did explain that the proportionality principles set forth in Rule 26(b)(2)(C)(iii) provide judges with significant flexibility and discretion to limit discovery to insure that the “scope and duration” of discovery is “reasonably proportional” to the needs of the case. The court observed that when a lawsuit “is in its early stages,” phased discovery may be warranted beginning with “relevant information located in the most accessible and least expensive sources.” The court noted that phasing the discovery in this fashion could allow the parties to later determine if more burdensome or expensive discovery is actually required.

Noting that plaintiffs’ claims “have been in constant flux” and that the pending motion to dismiss could alter or limit the scope of discovery, the court directed the parties to engage in a “phased approach” to discovery. The court allowed only written discovery to be served on the named parties and directed that non-party discovery be postponed until a later phase of the case. The parties were further directed to focus their efforts on completing or updating their Rule 26(a) disclosures before proceeding to any other written discovery. The parties were also directed to identify those claims that were most likely to survive the pending motion to dismiss and to concentrate their discovery efforts on those claims. Finally, the court directed the parties to prioritize their efforts by focusing on discovery which was less expensive and burdensome.

To ensure that a phased discovery approach was followed, the parties were directed to meet in person and prepare such a discovery schedule, consistent with the case management procedures outlined in the Seventh Circuit’s Electronic Discovery Pilot Program Principles. The parties were also directed to become familiar with the Sedona Conference Cooperation Proclamation, and to “actively engage in cooperative discussions to facilitate a logical discovery flow.” The court reiterated that under Sedona’s Cooperation Proclamation “[c]ooperation [between attorneys] does not conflict with the advancement of their clients’ interests – it enhances them. Only when lawyers confuse advocacy with adversarial conduct are these twin duties in conflict.”

While Tamburo presents a unique fact pattern, the decision demonstrates how the use of Rule 26(b)’s proportionality principles can potentially limit ediscovery costs. The phased discovery approach taken by the court in Tamburo is one that should be considered when bringing a Rule 12(b)(6) motion to dismiss.

And, when it comes to dogs, always remember: “Never judge a dog’s pedigree by the books he does not chew.” Anonymous.

The sanctions entered in Victory Stanley II, which included a civil contempt finding and potentially up to two years of jail time for egregious ediscovery violations, obscure the decision’s deeper significance. In Victor Stanley II, Judge Paul Grimm establishes the need for uniform federal standards for spoliation sanctions.

In what he described as “the single most egregious example of spoliation” encountered in nearly 14 years on the bench, Judge Grimm concluded that the defendant’s “pervasive and willful” acts of spoliation should be treated as contempt of court. He entered an uncontested default judgment on the plaintiff’s copyright infringement claim, and further directed the defendant be imprisoned for a period not to exceed two years, “unless and until” the defendant pays the plaintiff’s attorneys fees and costs “with respect to all efforts expended throughout the case to demonstrate the nature and extent of the defendant’s spoliation.” Judge Grimm explained that the sanction of civil contempt with the specter of jail time was “absolutely essential” because without it, the defendant would do everything possible to avoid paying any money judgment or fee award entered as a result of the defendant’s discovery misconduct.

The defendant’s misconduct in Victor Stanley II was truly outrageous. It involved repeated instances of successfully deleting or attempting to delete relevant ESI after the entry of several preservation orders and shortly before a forensic examination of the defendant’s computer had been ordered to take place. Judge Grimm concluded the defendant had engaged in “repeated, deliberate measures to prevent the discovery of relevant ESI, clearly act[ed] in bad faith, and in affidavits, depositions, and open court, … nonchalantly lied about what he had done.” He determined that the defendant’s contemptuous conduct had been “established by clear and convincing evidence.”

When have you ever heard of a party acquiescing to the entry of a “consent judgment” on liability and a “consent injunction” on a copyright infringement claim in an attempt to limit the scope of potential discovery sanctions? The defendant unsuccessfully attempted that very strategy in Victor Stanley II. The defendant’s discovery misconduct, however, was so outrageous that the proffer of a judgment on one of the plaintiff’s claims did not prevent the imposition of additional sanctions by the court. The misconduct was so extreme that the plaintiff asked the court to refer the matter to the United States Attorney for possible perjury or criminal charges against the defendant. While Judge Grimm gave serious consideration to that request, he ultimately chose to employ the sanction of civil contempt because it had “the obvious benefit of being warranted on the existing record, without the need for initiating new proceedings.”

While the use of civil contempt and jail time has grabbed the attention of legal commentators and bloggers, the entry of a contempt finding is a recognized, albeit rarely used, sanction available under Rule 37(b)(2). It is an extreme sanction used in this instance for extreme misconduct. Unfortunately, while the sanctions imposed in Victor Stanley II have garnered much attention, they have obscured the deeper significance of the decision. As explained below, in Victor Stanley II, Judge Grimm effectively makes the case for the need to establish uniform culpability standards under the federal rules for spoliation.

Recognizing the deeper significance of Victor Stanley II

The Judicial Conference of the United States is charged with carrying on “a continuous study of the operation and effect of the general rules of practice and procedure” used in our federal courts. The Chief Justice of the Supreme Court is the presiding officer of the Judicial Conference. Under 28 U.S.C. § 331, the Judicial Conference strives to promote “simplicity in procedure, fairness in administration, the just determination of litigation and the elimination of unjustifiable expense and delay.” Various committees have been established which make policy recommendations to the Judicial Conference. One of the Judicial Conference’s Committees is the Civil Rules Advisory Committee. Judge Grimm, the author of Victor Stanley II, is a member of the Civil Rules Advisory Committee.

In May of this year, the Civil Rules Advisory Committee held a two-day conference at Duke Law School to address whether changes are needed to our federal system of civil justice. Significant concerns over the cost, burden and complexity of ediscovery were primary factors which triggered the conference at Duke. In Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 559 (2008), the Supreme Court recognized “the success of judicial supervision in checking discovery abuse has been on the modest side,” and that “the threat of discovery expense will push cost-conscious defendants to settle even anemic cases.”

The Civil Rules Advisory Committee recently issued a Report to Chief Justice Roberts about the conference at Duke which can be read here. While there was significant disagreement over whether wholesale changes to the federal rules are needed, it appears that concensus was initially reached on two issues that frequently arise with ediscovery. The first involves the need to provide more precise guidance on a party’s obligation to preserve information. One panel at the Conference produced a document entitled: “ELEMENTS OF A PRESERVATION RULE,” which can be read here. The second area of consensus involved the need to establish uniform culpability standards for ediscovery sanctions. Given that background, it is not too difficult to recognize the significance of Victor Stanley II in light of the Civil Advisory Committee’s Report concerning the 2010 Conference on Civil Litigation.

Why uniform standards under the federal rules are needed

In Victor Stanley II, Judge Grimm began his analysis of ESI spoliation issues by observing:

Recent decisions … have generated concern throughout the country among lawyers and institutional clients regarding when the duty to preserve potentially relevant evidence commences, the level of culpability required to justify sanctions, the nature and severity of appropriate sanctions, and the scope of the duty to preserve evidence and whether it is tempered by the same principles of proportionality that Fed. R. Civ. P. 26(b)(2)(C) applies to all discovery in civil cases. Moreover, concern has been expressed by some commentators that court decisions finding spoliation and imposing sanctions have, in some instances, imposed standards approaching strict liability for loss of evidence without adequately taking into account the difficulty — if not the impossibility — of preserving all ESI that may be relevant to a lawsuit, the reasonableness of the measures that were taken to try and preserve the relevant ESI, or whether the cost that would be incurred by more complete preservation would be disproportionately great when compared to what is at issue in the case. The lack of a national standard, or even a consensus among courts in different jurisdictions about what standards should govern preservation/spoliation issues, appears to have exacerbated this problem. It is not an exaggeration to say that many lawyers, as well as many institutional, organizational, or governmental litigants, view preservation obligations as one of the greatest contributors to the cost of litigation being disproportionately expensive in cases where ESI will play an evidentiary role.

Addressing the duty to preserve evidence, Judge Grimm notes that with few exceptions, “courts have tended to overlook the importance of proportionality in determining whether a party has complied with its duty to preserve in a particular case, [and] this should not be the case because Fed. R. Civ. P. 26(b)(2)(C) cautions that all permissible discovery must be measured against the yardstick of proportionality.”

Judge Grimm then observes: “Unfortunately, in terms of what a party must do to preserve potentially relevant evidence, case law is not consistent across the circuits, or even within individual districts.” Currently, corporations and businesses whose activities extend to multiple jurisdictions “cannot look to any single standard to measure the appropriateness of their preservation activities, or their exposure or potential liability for failure to fulfill their preservation duties. A national corporation cannot have a different preservation policy for each federal circuit and state in which it operates.” Therefore, Judge Grimm acknowledges that the only “safe” approach is to design a preservation policy which “complies with the most demanding requirements of the toughest court to have spoken on the issue, despite the fact that the highest standard may impose burdens and expenses that are far greater than what is required in most jurisdictions in which they do business or conduct activities.”

Judge Grimm observed that in the Second and Fourth Circuits, documents are considered under a party’s control, which triggers a duty to preserve them, when a party “has the right, authority, or practical ability to obtain the documents from a non-party to the action.” However, he also noted that district courts in the Third, Fifth and Ninth Circuits “have held a preservation duty extends only when the party controls the evidence, without extending that duty to evidence controlled by third parties.” Finally, he pointed out that in the First and Sixth Circuits, “there is also a duty to notify opposing party of evidence in the hands of third parties.” Thus, Judge Grimm rhetorically asks what should a company that conducts business in each of these circuits “do to develop a preservation policy that complies with the inconsistent obligations imposed by these circuits?”

He then notes that various courts also “differ in the fault they assign when a party fails to implement a litigation hold.” Judge Grimm compares the approaches taken in the in the Southern District of New York and the Northern District of Illinois on this point. He observes that in Pension Committee v. Bank of Am. Sec., LLC, 685 F. Supp.2d 456 (S.D.N.Y. 2010), the court concluded that the failure to implement a written litigation hold constitutes gross negligence per se. However, in Haynes v. Dart, 2010 WL 140387 (N.D. Ill. Jan. 11, 2010), the court ruled that while the failure to institute a litigation hold was a relevant consideration, it was not per se evidence of sanctionable conduct.

Judge Grimm further notes that in the Seventh, Eighth, Tenth, Eleventh and D.C. Circuits, severe sanctions such as the entry of a default judgment, striking pleadings, or the issuance of an adverse inference may not be imposed unless “there is also evidence of ‘bad faith.’” He also points out that in several circuits, unintentional conduct is insufficient to raise a presumption of relevance when spoliation sanctions are sought. But conversely, he explains that in the Second Circuit, both relevance and prejudice “may be presumed” when the spoliating party acted in a “grossly negligent” manner.

Perhaps in a bit of understatement, Judge Grimm acknowledges that the lack of uniform national standards “has created uncertainty” for organizations regarding how to conduct themselves in a way that will comply with these multiple, inconsistent standards. He even attached to his decision an appendix, which charts the approaches taken in each of the federal circuits on preservation and spoliation sanctions. That chart can be seen here. Because Judge Grimm was well aware of these concerns, he explained:

Nothing in this Memorandum should add to this collective anxiety. Defendants do not dispute that spoliation took place, relevant evidence was lost, and Plaintiff was prejudiced accordingly; that Defendant’s misconduct was sufficiently egregious to warrant sanctions; and that the sanctions warranted are serious. Nor is this a case where defendants have claimed or demonstrated that what they did was reasonable and it involved effort and expense that were proportionate to what is at stake in the litigation. In such an instance, the Court could be excused for simply acknowledging Defendants’ concessions and applying the applicable law of the Fourth Circuit without considering the broader legal context in which preservation/spoliation issues are playing out in litigation across the country. While justified, such a narrow analysis would be of little use to lawyers and their clients who are forced, on a daily basis, to make important decisions in their cases regarding preservation/spoliation issues, and for whom a more expansive examination of the broader issues might be of some assistance.

While the sanctions imposed in Victor Stanley II have certainly grabbed the headlines, the deeper significance of the decision lies in the fact that a member of the Civil Rules Advisory Committee effectively makes the case for the need to develop uniform federal standards involving the issuance of spoliation sanctions.

Examining the source of the duty to preserve

Judge Grimm concluded that except in those jurisdictions “that view spoliation to be an actionable tort,” the duty to preserve evidence is a “duty owed to the court, not to a party’s adversary.” He expressed the view that the proper recognition of this distinction should inform a court about the appropriate sanction to impose for spoliation. On this point, we part ways with Judge Grimm. His logic suggests that the sanctions imposed for the same discovery mishap in federal proceedings could vary depending on the source of the preservation duty under the common law of the particular jurisdiction where the mishap occurred. That approach would be inconsistent with the concept of uniform culpability standards, and in our view, reinforces their need. Sanctions for the same discovery mishap should not vary in federal proceedings as one moves across state lines.

Applying common sense to the imposition of certain ediscovery sanctions

One point from Victor Stanley II with which we wholeheartedly agree is Judge Grimm’s conclusion that certain sanctions make no logical sense when applied to particular breaches of a preservation duty. He explains:

[A]n adverse instruction makes little logical sense if given as a sanction for negligent breach of the duty to preserve, because the inference that a party failed to preserve evidence because it believed that the evidence was harmful to its case does not flow from mere negligence–particularly if the destruction was of ESI and was caused by the automatic deletion function of a program that the party negligently failed to disable once the duty to preserve was triggered. The more logical inference is that the party was disorganized, or distracted, or technically challenged, or overextended, not that it failed to preserve evidence because of an awareness that it was harmful.

Rule 37 sanctions for violations of preservation orders warranted

Judge Grimm recognized that the duty to preserve evidence “is a common law duty, not a rule-based duty,” and that that “[o]n its face, Rule 37(b)(2) permits sanctions for disobedience of ‘an order to provide or permit discovery.’” In Victor Stanley II, the orders he entered merely called for the preservation of ESI. So, Judge Grimm addressed whether Rule 37 sanctions could be entered for court orders that merely command the preservation of evidence. Ultimately, he concluded that Rule 37 sanctions were appropriate because a court order to preserve information “has as its core purpose, the objective of insuring that ESI can be ‘provided’ during discovery and is intended to ‘permit’ that discovery,” Thus, a court has the authority to impose Rule 37 sanctions for the violation of a court-issued preservation order, even if the order does not actually mandate the production of that evidence.

Victor Stanley II is a blockbuster decision that should be thoroughly reviewed by any serious ediscovery practitioner. Judge Grimm is once again on the leading edge of hot ediscovery issues important to anyone engaged in federal-court practice.

One of the limitations in the protection provided by Fed.R.Civ.P. 37(e)’s “Safe Harbor” provision is that it ostensibly only applies to ediscovery sanctions “under these rules.” For that reason, I have referred to Rule 37(e) as a “wading pool,” rather than a safe harbor. So, when a court points to Rule 37(e) as a basis for exercising restraint when sanctions are sought under the court’s inherent authority, it bears highlighting.

Grubb involved a claim brought by a former professor at the University of Illinois that the University violated the Computer Fraud and Abuse Act when it accessed a laptop computer he had been using in order to remove University software. That laptop was not owned by the professor but rather by the American Board of Orthodontics (“ABO”), and allegedly contained personal and sensitive information as well as testing data and private patient information. After plaintiff filed suit, ABO gave him a new laptop to use and he returned the one that was involved in his claim against the University. Subsequently, ABO “wiped” the hard drive of that laptop. When the University learned of this development, it filed a motion which sought terminating sanctions under the court’s inherent authority arguing that plaintiff had permitted the destruction of evidence relevant to his claim. The University contended that plaintiff had allowed the spoliation of evidence to occur which rendered it impossible to refute the plaintiff’s Computer Fraud and Abuse claim.

In rejecting the University’s claim for sanctions, the district court noted that in Chambers v. NASCO, Inc., 501 U.S. 32, 44 (1991), the Supreme Court warned that a court’s use of its inherent powers “must be exercised with restraint and discretion.” Pointing to Fed.R.Civ.P. 37, the district court observed “restraint seems imminently sensible given the content of the federal rules.”

The district court in Grubb also pointed to the plaintiff’s lack of computer expertise as a basis for exercising restraint. The court noted that plaintiff’s computer expertise, “like most people, falls somewhere in that broad swath between technophobe and technophile.” Taking a common-sense approach to the issue, the district court aptly noted, “it cannot be said that everyday people would possess an understanding of how data are stored and how access history can be reconstructed (or destroyed).” Because plaintiff testified that while he knew how to turn on his laptop but little else about how computers work, the court had little difficulty in concluding that plaintiff did not take any actions for the purpose of hiding adverse information.

The court’s decision in Grubb should be contrasted with Green v. McClendon, 2009 WL 2496275 (S.D.N.Y. Aug. 13, 2009) where a defendant’s lack of computer expertise did not save her from the imposition of sanctions. The Green decision was critically analyzed in one of our prior posts, which can be found here. The outcomes reached in these decisions underscore the practical reality that parties and counsel now face – that the outcome of an ediscovery sanctions motion frequently turns on the approach generally taken in a given district court and by a given district court judge in particular. While uniformity will never be achieved, a more consistent approach would certainly ease the burdens of ediscovery on clients and their counsel, and is one of the reasons why various organizations are pushing to have the federal ediscovery rules amended.

Here at Practical Ediscovery, we are always on the lookout for decisions that bring a little bit of sanity to the crazy world of ediscovery. Therefore, we thought the Haynes decision was worth a mention. While Haynes involved the alleged failure to preserve paper records, not ESI or emails, the decision addressed a motion for sanctions which claimed that evidence was lost as a result of the alleged failure to impose a formal litigation hold at the onset of the case.

While a party has a duty to preserve potentially relevant information once litigation is “reasonably anticipated,” the court in Haynes, further explained that the duty to preserve potentially discoverable information does not require a party to retain every scrap of paper in its possession. In fact, the court acknowledged that the steps a party must take “to satisfy its obligation to preserve evidence may vary from case to case.” Significantly, the court in Haynes observed that while the failure to institute a litigation hold was a “relevant” consideration, it was “not per se evidence of sanctionable conduct.” The court observed that this case was one of many pending against the Sheriff’s Office, which runs the largest single site jail in the country, “and that the establishment of a formal litigation hold in every case could cause an undue burden.” Because of the “breadth of the plaintiffs’ claims and discovery requests,” the court in Haynes could not conclude “that the absence of a large-scale litigation hold was objectively unreasonable.” The court also found it significant that the lost evidence involved the handwritten notes of a jail superintendent and that there was “no evidence that relevant documents were destroyed pursuant to a routine destruction policy that defendants failed to curb.”

So, while Haynes is helpful, the decision does have its limits and should not be viewed as a “Get Out of Jail Free Card.” Obviously, the safest approach in any case is for the client to take reasonable steps to preserve potentially relevant information once litigation is reasonably anticipated. Decisions such as Haynes provide only a limited backstop, should a misstep occur.

Haynes bears mentioning for another reason. Various ediscovery decisions seemingly require an attorney to follow up and confirm that the client’s “key personnel” are aware of the litigation hold and are preserving potentially relevant ESI. Attorneys frequently ask how they can or should identify the key personnel to whom these decisions vaguely refer. After-the-fact criticisms always speak with the wisdom of 20-20 hindsight. The court in Haynes noted that the particular employee of the defendant whose notes were the subject of plaintiffs’ motion for sanctions had been listed in plaintiffs’ Rule 26(a)(1) initial disclosures as someone likely to have discoverable information. Therefore, the court concluded that the witness should have been instructed to preserve relevant information no later than the date of that initial disclosure. Accordingly, one common-sense approach to identifying the client’s “key personnel” is to work from the parties’ Rule 26(a)(1) disclosures. Occasionally, there may be other key employees, but in many, if not most instances, the witnesses listed in those initial disclosures will be the persons most likely to possess relevant information that should be preserved.

The duty to preserve electronically stored information (ESI) can arise long before a lawsuit is ever filed. Several of our prior posts, such as the ones found here and here, chronicle the problem of determining whether a pre-suit duty to preserve is triggered by a letter from a putative plaintiff which contemplates the possibility of litigation. So, any decision which recognizes a landmark that can be readily followed when navigating the pre-suit preservation minefield bears highlighting. Sinai provides such a beacon to follow.

The work-product doctrine encompasses documents that are prepared “in anticipation of litigation.” Siani reached “the common sense conclusion” that if litigation was reasonably foreseeable for one purpose, “it was reasonably foreseeable for all purposes.” 2010 WL 3170664 at *5. Thus, Siani recognizes a direct relationship between the assertion of the work-product doctrine and a duty to preserve ESI in a pre-suit context.

Thus, before asserting the protection of the work-product doctrine, an attorney would be wise to also confirm that the client has instituted a litigation hold to preserve potentially relevant ESI in the context of that anticipated litigation. Claiming the protection of the work-product doctrine means that litigation was reasonably anticipated and that a duty to preserve potentially relevant ESI has been triggered.

Pension Committee is an ediscovery opinion that is sure to garner a lot of attention. The opinion was written by Judge Shira Sheindlin, who authored the Zubulake decisions. Judge Scheindlin includes a subheading in Pension Committee that her decision is: “Zubulake Revisted: Six Years Later.” While noting that “[c]ourts cannot and do not expect that any party can meet a standard of perfection,” she nonetheless concludes “courts have a right to expect that litigants will take the necessary steps to ensure that relevant records are preserved when litigation is reasonably anticipated.”

In Pension Committee, ninety-six investors brought suit claiming the violation of federal securities law seeking to recover $550 million dollars in losses stemming from the liquidation of two British Virgin Island based hedge funds. Shortly after being retained, counsel telephoned and emailed the plaintiffs to begin document collection and preservation. Besides calling and emailing the clients, counsel also distributed memoranda instructing the plaintiffs to be over-inclusive, rather than under-inclusive in their efforts and noting that emails and electronic documents should be included in the production. After suit was filed, a stay of discovery was issued pursuant to the Private Securities Litigation Reform Act. However, a formal written litigation hold was not issued until after the discovery stay was lifted several years later. After discovery commenced, gaps were found in plaintiffs’ document productions, which prompted a motion for sanctions asserting plaintiffs failed to properly preserve and produce documents and electronically stored information.

Monetary sanctions were awarded against thirteen plaintiffs in Pension Committee for failing to timely issue a written litigation hold. An adverse inference instruction was also issued against a smaller group of plaintiffs found to be grossly negligent for engaging in “careless and indifferent collection efforts after the duty to preserve arose.”

A plaintiff’s duty to preserve evidence is typically triggered before a lawsuit commences because the duty is triggered when a party reasonably anticipates litigation and the plaintiff controls the decision to file and the timing of the suit. Judge Sheindlin concluded that counsel’s initial instructions did not meet the standard for a litigation hold because they did not direct the plaintiffs’ employees “to preserve all relevant records – both paper and electronic” and because they did not “create a mechanism for collecting the preserved records so that they could be searched by someone other than the employee.”

The court was also critical of placing “total reliance on the employee to search and select what the employee believed to be responsive records without any supervision from counsel.” Ultimately, the court found the conduct of several plaintiffs to be grossly negligent because they failed to execute a comprehensive search of documents and/or failed to sufficiently supervise or monitor their employee’s document collection efforts.

Pension Committee is remarkable for Judge Scheindlin’s attempt to define degrees of unacceptable conduct in an ediscovery context. When the most severe sanctions for spoliation are sought, e.g. dismissal or the issuance of an adverse inference instruction, a court must consider whether the missing evidence was “relevant” and whether the party seeking the sanctions suffered any prejudice as a result of the loss. However, relevance and prejudice may be presumed when the spoliating party acted in bad faith or in a “grossly negligent” manner. Thus, whether a court labels a party’s alleged discovery failures as negligent or grossly negligent will impact the availability of terminating sanctions or the issuance of an adverse inference instruction as well as the burden of proof required to obtain those sanctions. Acknowledging that concepts of negligence, gross negligence and willfulness have no clear definition in the context of discovery misconduct, the approach Judge Scheindlin proposes to define these terms itself proves to be problematic.

Conflict with the Advisory Committee Notes to Rule 26(g).

After announcing her original opinion criticizing counsel’s failure to supervise the client’s collection efforts, Judge Scheindlin withdrew that decision and replaced it with an amended opinion in which she added “not every employee will require hands on supervision from an attorney. However, attorney oversight of the process, including the ability to review, sample and spot-check the collection efforts is important.” While softening the duty imposed on an attorney to monitor a client’s collection and production efforts, the decision nonetheless still appears to go well beyond the “reasonable inquiry” approach historically espoused in the Advisory Committee Notes to Rule 26(g) which provide: “The duty to make a ‘reasonable inquiry’ is satisfied if the investigation undertaken by the attorney and the conclusions drawn therefrom are reasonable under the circumstances.” The Notes further state: “In making the inquiry, the attorney may rely on the assertions by the client and on communications with other counsel in the case as long as that reliance is appropriate under the circumstances.” The Notes highlight that an attorney’s signature “certifies that the lawyer has made a reasonable effort to assure that the client has provided all the information and documents available to him that are responsive to the discovery demand.”

Generalizations about degrees of unacceptable ediscovery failures should be avoided.

Initially, Judge Scheindlin cites Prosser & Keeton’s venerable treatise on Torts in an attempt to delineate negligence from gross negligence and willful misconduct in an ediscovery context. However, that treatise undermines her approach because it explains: “Although the idea of ‘degrees of negligence’ has not been without its advocates, it has been condemned by most writers … as a distinction ‘vague and impracticable in [its] nature, so unfounded in principle,’ that it adds only difficulty and confusion to the already nebulous and uncertain standards which must be given to a jury.” Prosser & Keeton on Torts §34 at 210. That treatise further provides “[t]here is no generally accepted meaning” to the term gross negligence. Id. at 212.

Moreover, the Seventh Circuit in Archie v. City of Racine, 847 F.2d 1211, 1219 (7th Cir. 1988), concluded that a line could not be clearly drawn between negligent and grossly negligent conduct explaining:

Gross negligence blends into negligence; there is an indistinct and unusually invisible line between benefits exceeding the costs of precautions (negligence) and benefits substantially exceeding the costs (gross negligence). The malleable quality of these terms has produced scoffing among many, who see gross negligence as simply negligence “with the addition of a vituperative epithet.”

Thus, the applicable standards are not only vague and nebulous, but the distinction between negligence and gross negligence is also unworkable. Judge Scheindlin further acknowledges that the decision to award sanctions is “inherently subjective” and recognizes that discovery misconduct “cannot be measured with exactitude and might be called differently by a different judge.” She also notes: “Each case will turn on its own facts and the varieties of efforts and failures are infinite.” Because any sanctions inquiry by necessity requires a fact-driven approach, the search for consensus as to what type of conduct constitutes gross negligence as opposed to mere negligence, is like searching for the pot of gold at the end of the rainbow, enticing, but always out of reach.

In Judge Scheindlin’s view, once conduct is found unacceptable “the only question is how bad is the conduct.” While acknowledging that the terms negligence and gross negligence have no generally accepted meaning in a discovery context, Judge Scheindlin notes they “describe a continuum.” As an abstract principle she is right, but given the endless varieties of information systems and document retention practices, these concepts are context specific and generalizations should be avoided. Judge Scheindlin recognizes these points when she writes: “while it would be helpful to develop a list of relevant criteria a court should review in evaluating discovery conduct, these inquiries are inherently fact intensive and must be reviewed case by case.”

Nevertheless, she expresses the view that “[a]fter a discovery duty is well established, the failure to adhere to contemporary standards can be considered gross negligence.” She then states that under this contemporary standards approach, when a duty to preserve is triggered, the failure to: 1) issue a written litigation hold; 2) identify the key players and ensure their electronic and paper records are preserved; 3) cease the deletion of email or to preserve the records of former employees; and 4) preserve backup tapes when they are the sole source of relevant information or when they relate to key players if their relevant information is not obtainable from readily accessible sources, will support a finding of “gross negligence.”

In addition to the problems noted above, another difficulty with the contemporary standards approach to defining gross negligence in this context is that most ediscovery decisions are decided at the district court level. However, district court decisions are not considered precendential and do not clearly establish the law. See, e.g., Anderson v. Romero, 72 F.3d 518, 525 (7th Cir. 1995) (explaining district court decisions are “not authoritative as precedent, and therefore, do not establish the duties of nonparties”); Futuresource, LLC v. Reuters. Ltd., 312 F.3d 281, 283 (7th Cir. 2002) (observing “[t]he reasoning of district judges is of course entitled to respect, but the decisions of district judges cannot be controlling”); Colby v. J.C. Penny, 811 F.2d 1119, 1124 (7th Cir. 1987) (concluding district court judges “must not treat the decisions of other district judges … as controlling”).

Additionally, the proposed contemporary standards view of gross ediscovery negligence from Pension Committee fails to give any consideration to Rule 26(b)(2)(C)’s proportionality standard that applies to all discovery efforts under the federal rules. The Seventh Circuit’s Electronic Discovery Pilot Program has developed a series of principles which have been codified into a standing order. Principle 2.04, entitled Scope of Preservation, provides that parties “are responsible for taking reasonable and proportionate steps to preserve relevant and discoverable ESI.” One of our recent posts addresses Principle 2.04(d), which identifies categories of ESI that are not generally discoverable in most cases. Principle 2.04(e) requires that in the event of a dispute concerning the scope of a party’s preservation efforts, the parties must meet and confer to explain their reasons for believing that “additional efforts are not reasonable and proportionate pursuant to Rule 26 (b)(2)(C).

Take the two examples outlined below and ask for example, whether a failure to identify all key players amounts to gross negligence. The first example involves a family-owned business with a relatively small work force that has a practice of retaining all paper and electronic documents and emails. Contrast that small company that retains everything, with a Fortune 100 corporation that has a sophisticated IT department and follows a practice of automatically deleting all emails after 120 days unless they are moved to a folder by an employee. I can see how the failure to identify key employees in the later scenario could potentially result in the loss of information but not the former. Moreover, is Judge Scheindlin correct when she writes, “the failure to issue a written litigation hold constitutes gross negligence because the failure is likely to result in the destruction of relevant information,” in both of the examples described above? With the small company that has a practice of retaining everything, I think not. In the Fortune 100 scenario, a written litigation hold and even more may be advisable because the risk of loss is much greater. So, generalizations should be avoided even when from an esteemed Judge as Judge Scheindlin. Attempts to define ediscovery conduct that is negligent or grossly negligent simply should not be separated from the information system and data retention context in which that conduct occurs.

Obviously, attorneys should endeavor to issue written litigation hold directives in their cases. However, should such a failure occur, the totality of the circumstances should be examined before any conclusions are drawn or labels affixed to that failure.

Adverse inference instruction may result in a mini-trial about discovery failures.

Perhaps even more problematic for trial attorneys is the adverse inference instruction that will be given to the jury in Pension Committee as to those plaintiffs found to be grossly negligent. That adverse inference instruction allows the jury to decide if the missing evidence was “relevant” and would have been favorable to the defendants. In making those determinations, the jury is permitted to take into account the “egregiousness of the plaintiffs’ conduct in failing to preserve the evidence.” You can read that instruction here. That instruction will likely shift the jury’s focus from the merits of the plaintiffs’ claims to their efforts to preserve and produce relevant information.

While the court provided plaintiffs with the opportunity to rebut the adverse inference, wouldn’t a better approach allow the plaintiffs this opportunity at a pretrial hearing rather than at trial? Generally, evidence must be relevant to be admissible. Even relevant evidence may be excluded when the danger or prejudice or confusion outweighs its probative value. Typically, a judge makes these rulings, but that all changes with this instruction. The role of the judge is taken over by the jury which must determine whether the missing evidence is relevant. If evidence is not relevant, it should not be presented to the jury, missing or not. And, the test for relevancy in this context “means something more than sufficiently probative to satisfy Rule 401 of the Federal Rules of Evidence. Residential Funding Corp. v. De-George Fin. Corp., 306 F.3d 99, 108-09 (2d Cir. 2002). How is a jury supposed to make that determination? The proposed instruction provides no guidance. A mini-trial about the missing evidence and the parties attempts to preserve it will ensue, making a difficult case even more problematic to try.

In Pension Committee, the defendants were permitted to take discovery about the missing discovery and with the proposed instruction, now a trial about that missing discovery. How is that approach consistent with Rule 1 of the Federal Rules of Civil Procedure, which requires they be “construed and administered to secure the just, speedy and inexpensive determination of every civil action and proceeding”?

Practical ediscovery tip: In light of Judge Scheindlin’s view that the failure to identify key players and preserve their information constitutes “gross negligence,” be sure to cover this issue with opposing counsel at your initial Rule 26 conference. If opposing counsel agrees on those data custodians or key persons whose information should be preserved and produced, counsel will be hard pressed to later claim that additional persons should have been included.

The Report of the Judicial Conference Committee on Rules of Practice and Procedure (“Standing Committee Report”) which predated the enactment of the 2006 ediscovery amendments to the federal rules provided some insight. The Standing Committee Report did note that the features of an information system that make it burdensome or costly to access ESI can vary from system to system and will change over time. However, it provided several examples of “current technology” that do not generally fit under the rubric of reasonable accessibility. Those examples included “deleted information, information kept on some backup-tape systems for disaster recovery purposes, and legacy data remaining from systems no longer in use.” See THE NEW E-DISCOVERY RULES, Dahlstrom Legal Publishing, Inc. (2006) at p. 15. Unfortunately, that guidance was not carried over into the 2006 Advisory Committee Note to Rule 26(b)(2)(B).

The difficulty identifying and then proving that a particular source of information was inaccessible under the Rule has resulted in decisions such as Starbucks Corp. v. ADT Sec. Services, Inc., 2009 WL 4730798 *6 (W.D.Wash. April 30, 2009), where one court concluded:

The Court cannot relieve Defendant of its duty to produce those documents merely because Defendant has chosen a means to preserve the evidence which makes ultimate production of relevant documents expensive…. To permit a party to ‘reap the business benefits of such technology and simultaneously use technology as a shield in litigation would lead to incongruous and unfair results.

All is not lost, help has arrived. The task of identifying sources of ESI that are inaccessible has been streamlined by one of the principles promulgated in the Seventh Circuit’s Electronic Discovery Pilot Program. One of our prior blog posts highlighted the main features of the Seventh Circuit’s Pilot Program [Info about the program - PDF] which was developed in response to comments by the business community and practicing attorneys that the civil justice system’s pretrial discovery process is in need of reform. The purpose of the Seventh Circuit’s Pilot Program is to assist courts in the administration of Fed.R.Civ.P. 1 and secure “the just, speedy, and inexpensive determination” of every civil case.

A series of ediscovery principles were developed and codified into a standing order that is used as part of the Seventh Circuit’s Pilot Program. Principle 2.04(d) addresses the scope of preservation and identifies categories of ESI that are generally not discoverable in most cases. Those categories of ESI are:

• “Deleted,” “slack,” “fragmented,” or “unallocated” data on hard drives;
• Random access memory (RAM) or other ephemeral data;
• On-line access data such as temporary internet files, history, cache, cookies, etc.;
• Data in metadata fields that are frequently updated automatically, such as last-opened dates; and
• Backup data that is substantially duplicative of data that is more accessible elsewhere;
• Other forms of ESI whose preservation requires extraordinary affirmative measures that are not utilized in the ordinary course of business.

Principle 2.04(d) further provides that if any party intends to request the “preservation or production of these categories” of ESI, then that should be discussed at the party’s initial meet and confer conference or as soon thereafter as practicable. Obviously, Principle 2.04(D) streamlines the process of identifying inaccessible sources of information. While it does not categorically prohibit discovery of ESI from those sources, it suggests that discovery from them will not be permitted unless a good reason or compelling need is shown.

While this principle will primarily benefit those attorneys practicing in district courts within the Seventh Circuit’s boundaries, attorneys practicing outside of the Seventh Circuit’s “friendly confines” should be aware of principle and consider raising it as persuasive authority when resisting attempts to obtain discovery from those sources of ESI identified in Principle 2.04(d).

Please remember however, that identifying a source of ESI as inaccessible under Rule 26(b)(2)(B) does not obviate the client’s need to preserve that information. The Advisory Committee Note to Rule 26(b)(2)(B) highlights that conundrum by explaining: “whether a responding party is required to preserve unsearched sources of potentially responsive information that it believes are not reasonably accessible depends on the circumstances of each case.” Thus, the need to continue to preserve ESI from inaccessible sources should be another topic of potential discussion with opposing counsel at

Photo courtesy Flickr user eurleif under this Creative Commons license.

Today’s post demonstrates the importance of a document retention/destruction policy applicable to a company’s paper and electronic records that is consistently applied and routinely followed.

In Mohrmeyer, plaintiff sought discovery sanctions in the form of an adverse inference instruction because Wal-Mart failed to preserve certain records relevant to his accident. The particular record, a maintenance log, was not typically preserved in the ordinary course of the company’s business. It was routinely discarded on a weekly basis. Plaintiff noted that Wal-Mart employees attended to him immediately after his fall, called 911 and summoned an ambulance to take him to the hospital. As a result, the plaintiff in Mohrmeyer claimed that Wal-Mart’s duty to preserve all relevant documents was triggered immediately following his fall because Wal-Mart “should have known” that his accident would result in litigation.

Mohrmeyer is significant because the court recognized:

The law does not and should not require businesses to preserve any and all records that may be relevant to future litigation for any accidental injury, customer dispute, employment dispute, or any number of other possible circumstances that may give rise to a claim months or years in the future, and there is absolutely no contemporaneous indication that a claim is likely to result at the time the records are destroyed pursuant to a routine records management policy.

That Wal-Mart preserved some records relating to the plaintiff’s accident pursuant to its policy involving accidental injuries did not change the result in the court’s view because the particular maintenance log was only temporarily retained and was routinely discarded. Merely because Wal-Mart summoned an ambulance for the plaintiff did not make the litigation more likely to occur. The court found no deliberate or improper conduct by Wal-Mart involving its failure to preserve what the court described as a “transient record.”

The court recognized that a duty to preserve applies only when a party has been put on notice that evidence is relevant to pending litigation or which may be relevant to future litigation that is likely to occur. It concluded that at the time the maintenance log was discarded, there only existed a speculative possibility that a lawsuit might be brought. The court observed that before the log was destroyed Wal-Mart had received no telephonic or written warning from the plaintiff or his counsel raising the possibility of a lawsuit and there was no history of litigation between the parties which made a lawsuit more likely to occur. The court was not willing “to presuppose the likelihood of litigation for every slip and fall accident that occurs.”

The court in Mohrmeyer distinguished the factual scenario presented from an airline disaster where the “trigger date” for the preservation of evidence would clearly be the date of the disaster “because of the high likelihood of litigation following such [an event].” The mere fact that an accident had occurred was insufficient to establish that litigation was likely to ensue.

The court also noted that the plaintiff testified in his deposition that he did not even consider filing a lawsuit until a couple of months after the accident occurred, which was long after the maintenance records were destroyed in the ordinary course of the company’s business. This is a good practice point to remember in discovery in any matter where discovery sanctions potentially may be sought.

Accordingly, Mohrmeyer concluded that when evidence is destroyed pursuant to a company’s “routine, good-faith records management practices” before any notice of the likelihood of litigation is received, discovery sanctions of any type are not warranted.

Vitruvian Man image courtesy Flickr user Michael Licht under this Creative Commons license.

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.

In Einstein, a trial judge in the Supreme Court of the State of New York recently entered sanctions against several defendants for their failure to implement a litigation hold which resulted in the loss of emails relating to the presale condition of a condominium unit purchased by the plaintiffs in Brooklyn, New York. The trial judge recognized that even though New York had not yet enacted any rules addressing electronic discovery, and that its Civil Practice Law Rules and common law decisions were silent on the need to institute a litigation hold, New York courts have turned to the Federal Rules of Civil Procedure and case law interpreting them for guidance in other contexts.

The crux of the problem in Einstein was the limited storage capacity of the company’s email server. Each of the company’s brokers were allocated 200 megabytes of space, and once that limit was reached, a broker could not send or receive emails until that space was cleared for more email traffic. As a result, brokers had to clear old emails from the system in the ordinary course of their business. Unfortunately, a litigation hold was never instituted, and as a result, emails (several of which the plaintiff’s produced to the defendants) were not preserved. While emails were forwarded through a central server, the company’s email system was configured in such a way that once an email was deleted by an individual user from the user’s inbox, it was also deleted on the central server. While daily, weekly and monthly backup tapes were made of the email server, the daily and weekly backups were periodically reused. Thus, if emails sent or received during a particular month were also deleted during that month, the monthly backup would not capture those deleted emails.

The court concluded the defendants’ counsel and the company’s IT director failed to investigate the basic mechanics of the company’s email system and its retention practices until 11 months after plaintiffs first served their document demands upon the defendants. The court further concluded that defendants were aware of the fact that the contents of their emails would be relevant to the litigation and recalled that it had repeatedly warned defendants about the need to make a complete production of those emails. Accordingly, the court ruled that the defendants’ failure to take any steps “to implement a litigation hold, relying instead on backup tapes that a reasonable investigation would have revealed failed to capture relevant emails deleted manually by individual users,” constituted gross negligence, and warranted a finding of spoliation.

Therefore, the court imposed sanctions in the form of an adverse inference instruction relating to the missing emails, and awarded attorneys’ fees as well as expert costs associated with the review of the defendants’ hard drives.

While admittedly, a trial court decision lacks any precedential value, Einstein amply demonstrates that parties who are sued in state court, even in those states which have not enacted their own set of ediscovery rules, are not immune from ediscovery sanctions. One of our recent posts identified those states which had adopted their own set of ediscovery rules. Outside counsel would be wise to advise their clients of the need to impose a litigation hold in every case in which they are retained, even state-court proceedings, and seek to preserve ESI in state-court litigation. Counsel also would be wise to investigate the client’s email and information systems as well as its paper and electronic retention/destruction policies. Companies and their counsel can no longer safely assume that because a particular state has not enacted its own set of ediscovery rules that the client has no obligation to preserve and produce relevant electronically stored information.

Photo courtesy Flickr user Mike Licht under this Creative Commons license.

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