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Dantes Inferno

Jim Shook, Senior Legal Consultant—eDiscovery & Compliance EMC Corp

Jim Shook, Senior Legal Consultant—eDiscovery & Compliance EMC Corp

Circles of Sanctions

In customer meetings and speaking engagements, I sometimes relate eDiscovery sanctions to

Dante’s “Inferno” and its nine circles of hell.  The idea is that those who have poor eDiscovery processes and cannot meet their obligations to preserve relevant ESI have a good chance of facing sanctions.  At that point, the only question becomes the level of sanction – in Dante-speak, the circle of hell – on which to land.  Fortunately for most, the determination of the sanction is based in large part on the level of culpability — but as we will see in a few recent cases, the road to, uh, sanctions can be paved with good intentions.

Judges have a wide variety of sanctions available to remedy eDiscovery violations, which typically revolved under the failure to retain relevant ESI.  From least to most harsh sanction, they are:

  • Further discovery
  • Cost-shifting
  • Fines
  • Special jury instructions
  • Preclusion; and
  • Default judgment or dismissal (terminating sanctions)

(Pension Committee v. Banc of America Securities, 2010 WL 18431 (S.D.N.Y. Jan. 15, 2010) at 19-20).  The court has broad discretion in such matters, with the severity of the sanction normally based upon a combination of (1) the prejudice caused to the innocent party and (2) the degree of culpability of the bad actor.  (Victor Stanley v. Creative Pipe (“Victor Stanley II”), No. MJG-06-2662 at 71-72 (D. Md. Sept. 12, 2010); Pension Committee at 19-20).  As Judge Grimm notes in Victor Stanley II, harsh sanctions can result from a low level of culpability where there has been considerable prejudice to the injured party (to remedy the innocent party); and can also be awarded where prejudice is minimal but the culpability is great (to punish the wrongdoer and discourage future bad actors).  (Victor Stanley II at 72).

The Punishment Fits the Crime

In Victor Stanley II, Judge Grimm deals with a party – Mark Pappas, the president of defendant Creative Pipe – who repeatedly deleted ESI in deliberate attempts to frustrate the discovery process.  If you read the incredibly detailed opinion, you will see that this is not your run-of-the mill case where typical mistakes are made because IT did not talk to legal, or the lawyers did not know about much about IT concerns such as backup tapes or destruction policies.  Pappas intentionally and knowingly deleted thousands of files, deleted email while claiming that he was actually preserving the email in the “Delete” folder, and even used programs in an effort to eliminate more ESI (and his trails).  All along, he intentionally misleads the court and the opposing party about the state of discovery in the case and the defendant’s efforts to preserve and collect data.

Ultimately, Judge Grimm has seen enough, and he fashions one of the most interesting — and severe — sanctions that we have seen in eDiscovery caselaw.  Not only is judgment entered against the Defendant on one of the main claims in the case –the default judgment seems to be a fair response to all of the spoliation activities –- but Judge Grimm finds it important to go a step further:

I order that Pappas’s acts of spoliation be treated as contempt of this court, and that as a sanction, he be imprisoned for a period not to exceed two years, unless and until he pays to Plaintiff the attorney’s fees and costs that will be awarded.

Prison – could it be a secret 10th circle?  This punishment is not even on our original list of possible sanctions!  (Technically, this part of the sanction is for contempt of court and not merely a remedy for violating eDiscovery requirements).   Truly, a sanction like this will apply only in the very rarest of circumstances.  However, before you discount the case as just another “shark bite” case, take a look at the next one.

Little Bad Acts Add Up

In interesting contrast to the totally indefensible acts of Victor Stanley II is Harkabi v. Sandisk Corp., 08 Civ 820 (S.D.N.Y. Aug 23, 2010).  In Harkabi, the defendant (ironically a high-tech, electronic data storage company) never intentionally deleted ESI, but it did make several important mistakes:

  • After segregating and then imaging the plaintiffs’ laptops (former employees), employees ultimately lost all of the data before it could be produced;
  • The company deleted relevant email messages during its transition to a new email archive platform (which also occurred after litigation hold began but before production);
  • The company failed to quickly realize these mistakes and – either as a function of that failure or as a separate mistake – failed to promptly inform the plaintiffs and the courts of these issues.  In fact, the plaintiffs were the first to discover that there were problems with defendant’s production, despite defendant’s assertions that it had not reason to believe that there were any problems.

Unlike Victor Stanley II, these problems seem to arise from a lack of attention to detail and possibly a lack of legal and/or IT knowledge.  While the court takes those circumstances into account, it also notes that in-house counsel was noticeably absent at critical junctures of the case, such as:

(1) when the plaintiffs’ original hard drives, which had been physically set aside, were copied onto a retention server;

(2) when those hard drives were later wiped so that the laptops could be re-issued to other employees; and

(3) during the transfer of email into the new archive system – which was particularly troubling because many of those emails should have been on litigation hold – there is no record that legal was involved at all.

Because much of the data was ultimately recoverable, one could argue that these are mostly minor to or moderate-level transgressions (and they certainly are minor in comparison to Victor Stanley II).  But to the court, taken together they show some serious problems and in response, the court leveled appropriately serious sanctions:

  • To address plaintiffs’ costs and the delays in the eDiscovery process, defendants were ordered to pay money sanctions of $150,000; and
  • Perhaps even more important, the court authorized an adverse inference instruction to be issued to the jury when the case is tried, permitting or requiring the jury to assume that Sandisk destroyed evidence that would have helped the plaintiffs to prove their case.

These are serious sanctions.  While the court stopped short of a terminating sanction (the 9th circle), there are few cases that can reasonably survive a strong adverse inference instruction that seems likely to be given here.  Thus, while the sanctions are vastly different on their face from those in Victor Stanley II (particularly in the issue of incarceration), the practical difference on the actual cases may be very similar.

Conclusions

The language of Pension Committee, Victor Stanley II and other important rulings in 2010 are sounding a common theme: that the bench has less tolerance for eDiscovery violations, and is more willing to order appropriate sanctions for violations.  While you may not always be able to avoid procedural issues with your eDiscovery processes, taking a diligent approach and documenting your processes will help you to avoid serious sanctions.

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