e-Discovery Docket Sheet

In a suit alleging a fraudulent sale of stock, the plaintiff filed a motion for an adverse inference instruction against the defendant for destroying e-mails and failing to comply with a court order to compel e-mail discovery. Despite an SEC regulation requiring e-mail retention for 2 years, the defendant continued its practice of overwriting e-mails every 12 months. Based on this, the court ordered the defendant to produce backup tapes, review e-mails, conduct searches, produce responsive e-mails and a privilege log, and certify compliance with the order. The defendant issued the compliance certification in spite of having more than 1400 backup tapes containing data not yet processed or produced. Throughout the discovery process, the defendant overwrote e-mails, failed to notify and process in a timely fashion hundreds of DLT and 8 mm tapes, and failed to produce e-mails and attachments. The court found the plaintiff did not receive relevant e-mail because of the defendant's discovery tactics and granted the motion for an adverse inference instruction noting, “[t]he conclusion is inescapable that [the defendant] sought to thwart discovery.” The court ordered the defendant to continue complying with the earlier discovery order and to pay costs associated with the plaintiff's motion. The court also noted the defendant “gave no thought to using an outside contractor to expedite the process of completing the discovery, though it had certified completion months earlier; it lacked the technological capacity to upload and search the data at that time, and would not attain that capacity for months.” Coleman (Parent) Holdings, Inc. v. Morgan Stanley & Co., Inc., 2005 WL 679071 (Fla. Cir. Ct. Mar. 1, 2005). See also, Coleman (Parent) Holdings, Inc. v. Morgan Stanley & Co., Inc., No. CA 03-5045 AI (Fla. Cir. Ct. Mar. 23, 2005).

Accusation of 'Inexcusable' Discovery
Conduct Results in Dismissal and Sanctions

The plaintiff brought a breach of warranty and fraud class action against the defendants. In the complaint, the plaintiff accused the defendants of employing deceptive marketing and sales techniques to sell software on the Internet. Contrary to his representation in the complaint, the plaintiff himself never actually used or paid for the product, although a consultant evaluated the product and determined it did not do what it purported to do. Discovery revealed that the plaintiff, under the guise of an organization interested in purchasing the software, corresponded with the defendants via e-mail and then posted the information he learned on his personal Internet Web page. During discovery, the plaintiff withheld much of the Web page's content from the defendants. Meanwhile, the defendants discovered the entire content of the page ' which the plaintiff did not disclose – when they conducted an Internet search. The defendants moved for dismissal and sought attorney fees, stating that the plaintiff and its counsel acted frivolously and in bad faith. Finding the plaintiff's behavior “inexcusable,” the court dismissed the suit and ordered the plaintiff and his counsel to pay the defendants $25,000. The court stated, “[w]ithout ensuring that [the plaintiff] and his counsel bear appropriate responsibility for their inappropriate conduct by awarding a substantial, but fair, sanction of fees and costs against them, this court would do a disservice not only to [the defendants] and other litigants in this court, but also to those plaintiffs whose interests are well-served by the availability of class action suits.” Beck v. Atlantic Coast PLC, 2005 WL 352437 (Del. Ch. Feb. 11, 2005).

The plaintiffs ' who alleged the defendants engaged in a fraudulent securities lending scheme ' sought sanctions against the defendants for “convert[ing] the litigation process into a sport of dirty tricks and obfuscation” by allegedly destroying evidence, suppressing discoverable material and failing to search for responsive documents. The defendants counterclaimed, arguing they complied with all discovery requests and requested an award of attorney fees and costs. A magistrate judge analyzed the defendants' duty to preserve their computer hard drives, telephone recordings and e-mail. The magistrate found sanctions were appropriate because the defendants acted in bad faith by permanently erasing all of the company's hard drives in mid-2002, despite being on notice of potential litigation in January 2002. The magistrate also found that the defendants' failure to preserve relevant phone calls ' recorded on DVDs ' warranted sanctions because they should have realized the recordings would be highly relevant and, as a result, should have halted their recycling policy. Finally, the defendants argued they were not obligated to halt their e-mail retention policy because they had stored the e-mail on backup tapes. However, the magistrate found this unsatisfactory because the defendants recycled their backup tapes every 3 years. The magistrate recommended an adverse inference instruction and $10,000 in sanctions, declaring the “destruction of potentially relevant evidence … prejudiced the plaintiffs.” E*Trade Securities LLC v. Deutsche Bank AG, et al., No. 02-3711 RHK/AJB and No. 02-3682 RHK/AJB (D. Minn. Feb. 17, 2005).

In a breach-of-contract action, the defendant sought sanctions against the plaintiff for ignoring its discovery obligations, violating document production orders, and irremediably prejudicing the defendant's ability to prepare for its case. The defendant claimed that the plaintiff engaged in partial and delayed document production throughout the discovery period, specifically in one instance producing more than 600 pages of e-mail one day before a scheduled court conference. In assessing the defendant's motion, the magistrate judge found no “coherent justification” for the plaintiff to have “engaged in an excruciatingly slow and disjointed disclosure of documents, stretching over a period of one year, under the guise of a 'rolling' production or a production in 'waves.'” The magistrate also noted that the plaintiff should have sought discovery extensions, produced substantially all of its documents early on, and ensured that document searches were careful and thorough. The magistrate declined to dismiss the case and instead issued a detailed protocol that outlined remedial discovery measures, including payment of attorney fees and costs relating to the motion, preclusion of some evidence, and reopening of specified depositions. Lava Trading, Inc. v. Hartford Fire Ins. Co., 2005 WL 459267 (S.D.N.Y. Feb. 24, 2005).

Court Grants Adverse Inference
Instruction For 'Thwarting' e-Mail Discovery