Over a Million Reasons to Stay Out of Prison for Spoliation

Justice Paul Grimm has released his decision in Victor Stanley II, confirming that severe spoliation sanctions are escalating in the United States.

In this unfair competition action, the defendant’s president, Mark Pappas, was accused of destroying (directly and indirectly) thousands of emails relevant to the case and of intentionally deleting relevant electronically stored information from his computer the night prior to its discovery. For good measure, Pappas also ran ‘”defragging” software. He alleged that the emails had been moved to a deleted items folder for “storage purposes”. The court rejected his story, calling Pappas’ conduct “clearly contemptuous”.

The court entered a permanent injunction and default judgment regarding the liability against the defendant with respect to the plaintiff’s copyright claim. However, the balance of the claims were permitted to proceed, as the court held the plaintiff had yet to prove irreparable or substantial prejudice.

The plaintiff was held to be entitled to its legal fees and costs related to the spoliation, violations of court orders relating to discovery, and the plaintiff’s seeking of sanctions. As a result, Pappas was ordered to “be imprisoned for a period not to exceed two years, unless and until he pays to the plaintiff the attorney’s fees and costs that will be awarded.” These costs were substantial at $1,049,850.04.

This must-read case will be to 2011 what the Pension Committee case was to 2010. Of particular interest is the 12 page chart drafted by the court that provides spoliation sanctions by court circuit to assist counsel in avoiding similar results. It’s only the third week of January. Stay tuned.

Live from the Georgetown Advanced e-Discovery Institute – Part 1

This year, the Georgetown University Law Center is holding its 7th Annual Advanced e-Discovery Institute in Arlington, VA. The line up of speakers includes a who’s-who of e-Discovery in the U.S., including the Hon. Paul W. Grimm (Victor Stanley) and the Hon. Shira A. Scheindlin (Zubulake and Pension Fund).

The topics discussed on the first day ranged from a review of e-Discovery rulings in 2010 (at last count, there were over 250 cases this year with specific e-Discovery rulings), Proportionality, the Business of e-Discovery, and a compelling discussion about International e-Discovery.

The first session was a roundtable discussion by six judges. It was generally felt that this year could easily be branded the year of e-Discovery sanctions. While the number of sanctions related to e-Discovery negligence was not great (the four most well known were Pension Fund, Rimkus, Southern New England Telecom and Victor Stanley), the number of cases where sanctions were considered has increased dramatically. Other topics included cooperation, proportionality, obtaining ESI from outside the U.S. and obtaining ESI from third parties (particularly ESI hosting vendors, i.e. the cloud).

A session on the nature of the e-Discovery industry was extremely interesting. The panel and audience agreed that in-sourcing e-Discovery will continue, but will in all likelihood not become the norm. While e-Discovery software certainly makes in-sourcing easy enough, the big stumbling block was viewed as the lack of sufficient qualified people to perform the work. Most of the session centered around the question of whether the market can deliver “cheap and correct” e-Discovery. The general consensus was that the status-quo will continue until the decision makers realise that e-Discovery is as much an IT process as it is a legal process.

Although it wasn’t discussed in any great detail due to lack of time, one forecast of the e-Discovery landscape in 2020 was that it would no longer exist. Of course, discovery would still be around, but by 2020, organizations would have a good handle on the management of their records, and the documents needed for litigation would be available at the click of a mouse…assuming mice are still around in ten years!

Tomorrow’s discussions look to be just as interesting. Stay tuned for part two of this special blog report.

Pension Comm v Banc of Am recent decision…

 This entry is from a special guest and friend of the firm, Jonathan Redgrave.  Jonathan is a partner at Nixon Peabody LLP in Washington, D.C., and was the first chair (and is currently chair emeritus) of the original Sedona Conference Working Group on Electronic Document Retention and Production in the United States.  He has spoken at numerous conferences in Canada (as well as the rest of the world) and has been a key supporter of the work of Sedona Canada.

E-Discovery News from Across the Border 

Nothing like starting the year with e-discovery fireworks like an 87 page opinion from the Hon. Shira A. Scheindlin, a U.S. District Judge from the Southern District of New York.   Judge Scheindlin, of the Zubulake series of cases that have been oft-cited in cases and conferences on both sides of the border, had occasion in her latest opinion to walk through her concerns relating to legal holds, preservation and sanctions.  While the precise legal holdings of the case are certainly limited to her courtroom, the practical impact of the detailed decision is likely to have far reaching import. 

Fittingly for this blog, the first named plaintiff (of thirteen) hails from Canada: The Pension Committee of the University of Montreal Pension Plan, et al. v. Banc of America Securities, LLC, et al., U.S. District Court, Southern District of New York, January 10, 2010).  In the course of the 87 page sojourn through facts and law, Judge Scheindlin take the different plaintiffs to tasks for various failures to preserve and produce information.  Her findings range from negligence to gross negligence, and sanctions imposed include additional (limited) discovery, an award of fees and, for some, an adverse inference jury instruction. 

What in particular can Canadians learn from below the border?  The failure to have a meaningful, written instruction to employees  to preserve information is simply inexcusable for Judge Scheindlin.  Making sure that this written instruction provides adequate instructions allowing the custodian to take appropriate action  is also critical to avoid negligence.  Further, leaving custodians to execute legal holds without supervision is also a no-no.  

The opinion also documents concurrent failures to disseminate the holds broadly enough and to capture and preserve appropriate stores of electronic information   In some instances, some key employees simply were not identified and informed.  In others, pertinent back-up tapes and computers were ignored and the evidence ultimately lost.  In the end, the defendants were able to demonstrate the gaps and omissions were significant enough to warrant the sanctions imposed on the plaintiffs. 

This opinion continues a trend that is emerging from other cases at the end of 2009 in the United States—judicial patience with inadequate and inept discovery preparedness and execution is wearing thin.  The premium on getting discovery (especially e-discovery) right is rising quickly.  There is a clear warning to corporate and institutional parties large and small—you need to know what you are doing with respect to the preservation and production of electronic information or else face significant consequences for failures. 

These lessons are not confined by the border by passport control, and Canadian clients and counsel alike should take heed.

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