Court Finds Defendant's Lack of Preservation Grossly Negligent

Posted by Littler e-Discovery Counsel on April 05, 2012

emails on laptop.JPGIn Star Direct Telecom, Inc. v. Global Crossing Bandwidth, Inc. [pdf], No. 05-CV-6734T (W.D.N.Y. Mar. 22, 2012), U.S. Magistrate Judge Marian W. Payson, granted, in part, plaintiff U.S. Telesis Inc.’s Motion for Spoliation Sanctions holding that the defendant failed to preserve the email and  computers of key custodians after the commencement of litigation.  The court found the defendant’s conduct grossly negligent, but awarded only monetary sanctions in the absence of bad faith or a showing by the plaintiff of prejudice.

In this case, plaintiffs Star Direct and U.S. Telesis have alleged breach of contract and a variety of tort claims against the defendant.  The dispute arose between January 2005 and May 2005 with the parties working toward a negotiated solution until the complaint was filed in December 2005.  The court previously ordered the defendant to search its archived databases and produce its internal emails related to the parties’ Concurrence Agreement.  To comply with the court’s order, the defendant agreed that it would search seven key employees’ email accounts using sixteen search terms.  The defendant produced a total of 275 pages of emails from the 2004 time frame.  The defendant blamed their low response rate on the loss of electronically stored information and records during the defendant’s storage tape to disk migration in 2005.

Plaintiff U.S. Telesis moved for spoliation sanctions arguing that the defendant had an obligation to preserve and not destroy emails from the 2004 time frame.  The defendant countered that it was not under a duty to preserve until the complaint was filed in December 2005.  The defendant argued that they could not have anticipated litigation earlier based on the plaintiff’s grievances, particularly where in the same time period the defendant received 2,218 billing disputes and only the plaintiff’s case resulted in litigation. Similarly, in 2006, the defendant had more than 1,600 billing disputes and only two customers initiated litigation.

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Court Orders Adverse Inference Instruction for Bad Faith Spoliation of ESI

Posted by Littler e-Discovery Counsel on April 05, 2012

gavel and laptop.JPGIn Aviva USA Corp. v. Vazirani [pdf], No. 11-0369 (D. Ariz. Jan. 10, 2012), U.S. District Court Judge James A. Teilborg, denied the plaintiffs’ request that they be granted judgment on liability and granted the plaintiffs’ request for an adverse inference instruction against the defendants for their bad faith spoliation of evidence related to the lawsuit.  The court also awarded the plaintiffs’ attorneys’ fees and the cost of bringing their motion against the defendants. 

The plaintiffs brought an action alleging that the defendants engaged in conduct that infringed on the plaintiffs’ trademarks, resulted in unfair competition, and constituted impermissible racketeering.   Specifically, the plaintiffs alleged that the defendants, with the assistance of a public relations firm, developed commercial websites that infringed upon the plaintiffs’ trademark and trademark dress rights and disparaged plaintiffs.  The plaintiffs also alleged that the defendants registered fraudulent domain names. 

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Court Denies Spoliation Motion Holding Plaintiff Fully Complied with its Preservation Obligation

Posted by Littler e-Discovery Counsel on April 05, 2012

In Spanish Peaks Lodge, LLC v. Keybank National Assoc. [pdf], No. 10-453  (W.D. Penn. Mar. 15, 2012), Senior U.S. District Judge Donetta W. Ambrose denied Keybank’s motion for spoliation sanctions holding that defendant Voyager Holdings  (Voyager) failed to present any evidence that Voyager instituted a document retention policy for the sole purpose of destroying documents relevant to the litigation.

In this lender liability action, Keybank claimed that emails obtained in discovery prove that Voyager knew that litigation was imminent and hastily put together a plan to destroy relevant documents.  The court disagreed, holding that the emails at issue did not discuss litigation or suggest that Voyager had the state of mind to destroy evidence.  Rather, Voyager implemented a timely litigation hold when it was sued by Keybank. The court further rejected Keybank’s contention that the dates on documents from Voyager’s privilege log should be used to determine when Voyager anticipated litigation.

Court Orders Forensic Inspection in Part Due to Plaintiffs Failure to Timely Respond to Discovery

Posted by Littler e-Discovery Counsel on April 05, 2012

In Wynmoor Community Council, Inc. v. QBE Insurance Corporation [pdf], No. 10-62411 (S.D. Fla. Mar. 5, 2012), U.S. Magistrate Judge Lurana S. Snow granted the defendant’s motion to compel electronic discovery and ordered the plaintiffs to submit to a court-ordered forensic inspection of its electronic information systems at the defendant’s cost.

The plaintiffs alleged breach of an insurance policy.  The defendant served discovery requesting relevant electronically stored information (ESI).  The plaintiffs failed to timely object, and instead requested more time to produce ESI.  When the plaintiffs failed to produce ESI, the defendant moved to compel and further sought a court-ordered forensic inspection in light of deposition testimony from the plaintiffs’ employees indicating that potentially relevant documents and ESI were routinely destroyed.

The court ruled that the plaintiffs’ untimely response to the document request waived their burden and expense objections.  However, the court noted that on the merits the plaintiffs’ failed to meet their burden and that their argument was unsupported by the evidence, particularly given that the plaintiffs’ information technology manager testified in deposition that he had not halted the automatic or routine destruction of ESI in anticipation of litigation. In granting the motion to compel, the court indicated that it would appoint an independent computer expert to mirror image the plaintiffs’ computer system and give the defendant an opportunity to draft search terms.  The search terms would be applied to the plaintiffs’ ESI and the plaintiffs would be given time to review and produce responsive documents and a privilege log.  The court ordered the defendant to bear the cost of the expert, but cautioned that cost-shifting would be revisited if there is evidence of the plaintiffs’ improper deletion of ESI or any other associated misconduct.

Court Finds Party Complied with ESI Request, but Sanctions for Failure to Produce Paper Records

Posted by Littler e-Discovery Counsel on April 05, 2012

hard drive 2.JPGIn Firestone v. Hawker Beechcraft Int’l Service Co. [pdf], No. 10-1404 (D.Kan Mar. 16, 2012), U.S. Magistrate Judge K. Gary Sebelius, granted in part, and denied in part, the defendants’ motion for sanctions, holding that the defendants failed to demonstrate that the plaintiff destroyed relevant evidence.  However, the court granted the defendants’ request for sanctions in light of the plaintiff’s failure to produce income tax records and a copy of his diploma per the court’s prior order.

In this breach of contract action, the plaintiff alleges that the defendants failed to pay him $650,000 in severance and other earned income.  The defendants counter that the plaintiff was not entitled to additional compensation because he allegedly failed to act as a “good and faithful servant” and copied or removed confidential and proprietary information from the defendants’ computer systems.  The defendants moved to compel 12 USB drives that they contended the plaintiff used on his company-issued laptop prior to his termination.  The plaintiff produced eight USB devices, but only three matched the serial numbers that the defendants’ forensic expert claimed were related to USB drives attached to the plaintiff’s computer.  However, the court held that the defendants failed to meet their burden that the serial numbers were related to relevant electronically stored information, particularly considering that four of the serial numbers turned out to be for the defendants’ modems. The court, however, did sanction the plaintiff for failing to turn over his income tax and diploma pursuant to a prior court order.

Court Orders Cost-Shifting for Production of Inaccessible Accounting Data

Posted by Littler e-Discovery Counsel on April 05, 2012

In Annex Books v. City of Indianapolis [pdf], No. 1:03-cv-918 (S.D. Ind. Mar. 14, 2012) [pdf], U.S. Magistrate Judge Tim A. Baker granted the defendants’ motion to compel the plaintiffs’ bookkeeping data, but held that the defendants would be required to pay all future costs and expenses associated with additional attempts to compile or import the data.

The plaintiffs, a group of adult bookstores and newsstands, sued the defendant city over its zoning ordinance.  The defendant sought the plaintiffs’ bookkeeping records, but the defendant had problems reviewing the data using their own software.  However, the plaintiffs demonstrated that they made significant efforts to produce the data in a reasonable usable format including hiring two forensic computer vendors to compile the data and purchasing the defendant’s review software in an effort to import the data into the defendant’s preferred software.

The court held that the plaintiffs ordinarily maintained their accounting records on a server known as “Platinum” while the defendant used Quickbooks.  The programs were not compatible and therefore data could not be imported from Platinum to Quickbooks. The court held that the plaintiff made a good faith effort to comply with its discovery obligations, but that the data was “not reasonably accessible” due to undue cost and burden under FRCP 26(b)(2)(B).  While the court found that the defendant had demonstrated “good cause” to warrant the production of the bookkeeping data, the court ordered the defendant to pay the cost of any further production efforts related to the data.

Court Denies Motion for Sanctions Absent Evidence Information Existed and Was Destroyed

Posted by Littler e-Discovery Counsel on January 24, 2012

In Kincaid v. Wells Fargo Securities LLC, et. al. [pdf], No. 10-CV-808 (N.D. Okla. Jan. 19, 2012), U.S. Magistrate Judge Paul J. Cleary denied Plaintiff’s Motion for an Adverse Inference Instruction, holding that the plaintiff failed to prove that any relevant evidence was destroyed or withheld.  As a result, the plaintiff could not prove the element of bad faith required to warrant an adverse inference instruction in the Tenth Circuit.

In this breach of contract case, the plaintiff contended that the defendants failed to pay him deferred compensation upon termination from the defendants’ Tulsa office.  In discovery, the plaintiff sought information related to the defendants’ decision to close the Tulsa office as well as Microsoft Windows log-on/log-off data from certain employees’ computers.  Pursuant to the court’s prior order, the parties agreed upon search terms to identify electronically stored information.  After the search terms had been run and responsive documents produced, the plaintiff recalled a September 28, 2010 email related to “trade mandates” between him and other Wells Fargo employees.  The defendants explained that the email was not located because it was not keyword positive to the agreed upon search terms.  As a result, the defendants conducted an additional search of the relevant custodian mailboxes by date range and using search terms related to “trade mandates” to locate and produce the relevant email.

The plaintiff contended that the failure to produce the email was proof that other documents and emails existed and were not produced.  The court disagreed and found that the production of the September 28 email was actually further evidence that the defendants had complied with their obligation to preserve evidence and that the initial failure to locate the email was based on the plaintiff’s failure to include the relevant search term.  The court held that the plaintiff failed to present any evidence that documents were destroyed and rejected the plaintiff’s general spoliation allegations based on his “belief.”  However, the court ordered the defendants to produce certain custodians’ log-in/log-off data.

Court Denies Motion to Compel Facebook Authorization Citing Insufficient Showing of Relevance

Posted by Littler e-Discovery Counsel on January 23, 2012

hand%20on%20mouse.jpgIn Tompkins v. Detroit Metropolitan Airport, et. al. [pdf], No. 10-1-413 (E.D. Mich. Jan 18, 2012), U.S. Magistrate Judge R. Steven Whalen denied Defendant Northwest Airlines’ Motion to Compel Plaintiff to Execute Facebook Authorizations, holding that the defendant failed to demonstrate the plaintiff’s Facebook activity contained information relevant to the litigation. The court further held that the request for the entire account, which would contain voluminous irrelevant information, was woefully overbroad and amounted to a “fishing expedition.”

While the court agreed with the defendant that the information was not subject to claims of privacy or privilege, Judge Whalen was reluctant to authorize wholesale access to the plaintiff’s Facebook account absent a threshold showing that the requested information was reasonably calculated to lead to discoverable information.  See also McMillen v. Hummingbird Speedway Inc. [pdf], No. 113-2010 CD (Pa.Com.Pl. 2010) and Romano v. Steelcase, Inc. 2010 NY Slip Op 20388.  The court found the evidence submitted by the defendant, including photographs showing the plaintiff holding a small dog, were not inconsistent with her claimed injuries. The court denied the parties’ request for an in camera review of the plaintiff’s private Facebook postings noting that such reviews are generally limited to a determination of privilege and not relevance.

Court Grants Preservation Order

Posted by Littler e-Discovery Counsel on January 13, 2012

In Bakhtiari v. Al-Khadedy, et. al. [pdf], No. 4:11-CV-971 (E.D. Missouri Dec. 30, 2011), U.S. District Court Judge Stephen N. Limbaugh, Jr. granted the defendants’ motion for a preservation order and limited discovery to examine the plaintiff’s electronically stored information. The court held the order was necessary given allegations related to the plaintiff’s prior destruction of emails.

Court Rejects Defendant's Spoliation Claim and Grants Plaintiff's Motion for Summary Judgment

Posted by Littler e-Discovery Counsel on January 13, 2012

hands on computer.JPGIn Securities and Exchange Commission v. Gonzales [pdf], No. 10-CV-5268 (N.D. Ill. Dec. 28, 2011), U.S. District Court Judge Arvin E. Aspen granted the plaintiff’s motion for summary judgment, rejecting the defendant’s argument that alleged spoliation by the plaintiff was sufficient to defeat summary judgment given the SEC failed to demonstrate bad faith by the plaintiff or that the destroyed information was relevant to the case.

The SEC brought this insider trading action against the defendants who profited from large returns on investments (more than 1000%) in a relatively risky and obscure series of one-week trades.  The plaintiff filed a motion for summary judgment and the SEC countered that circumstantial evidence related to the trade and the plaintiff’s spoliation of evidence was sufficient to defeat summary judgment.  Earlier in the case, the court ordered the plaintiff to preserve relevant information that existed in his laptop and desktop computers.  Both computers were inspected by a forensic expert pursuant to the parties’ stipulation. The expert found that several files had been deleted after the court’s order to preserve and that the plaintiff had installed file optimization software that had deleted approximately 200 files from the plaintiff’s temporary internet history and recycle bin.  The court rejected the SEC’s position that the file optimization software evidenced “bad faith” destruction of evidence.  Further, the SEC failed to establish that any of the deleted files were relevant to the case or that the SEC had suffered any prejudice as a result of the deletion.