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The Dangers of Electronic Discovery: Lessons From Morgan Stanley

By John R. Bielema, Jr. and Michael P. Carey

As has been widely publicized, on May 16 a Florida state court jury awarded $604.3 million in compensatory damages and later an additional $850 million in punitive damages to Coleman Holdings, Inc., the camping gear maker formerly owned by billionaire investor Ronald Perelman, in Coleman's fraud suit against powerhouse investment banker Morgan Stanley & Co. The verdict was notable not only because of its size, but also because of how it came about.

Shortly before the trial, after nearly 2 years of litigation, Judge Elizabeth Maass issued a partial default judgment against Morgan Stanley for what she characterized as a repeated failure to produce e-mails requested by Perelman during discovery. Judge Maass indicated that she would affirmatively instruct the jury to assume that Morgan Stanley had participated in a fraud. At the beginning of the trial, Judge Maass did exactly that; telling the jury that it was to assume that “Morgan Stanley participated in a scheme to mislead (Coleman) and others and to cover up massive fraud.” Though Perelman still needed to prove that he relied on Morgan Stanley, the judge's extraordinary instruction rendered an adverse verdict against Morgan Stanley a fait accompli.

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