<b><i>Legal Tech</b></i><br>Circumstantial Evidence vs. Speculation: What Warrants e-Discovery Sanctions

Losing Spoliation Claims

No Prejudice, No Spoliation Sanction:
Archer et. al. v. York City School District, et. al. (M.D. Pa. Dec. 28, 2016)

Under new FRCP Rule 37(e), prejudice is required to warrant spoliation sanctions. With no proof of prejudice, there are no spoliation sanctions. This case is a great example of this point. In response to the plaintiffs' legal claims that were in protest of the defendant's decision not renew their school's charter, the defendant motioned for summary judgment. The plaintiff claimed within their response to this motion that the defendant spoliated relevant data, i.e., the deletion of a key custodian's email account.

The key issue in this case was whether the email account was deleted with prejudice. The defendant contended that the email account was probably deleted within 90 days of the key custodian's departure in February 2012, which would be in accordance with the defendant's general practice. The plaintiffs argued that the key custodian's emails were “purged sometime after 2012.”

Ruling

The plaintiffs offered no evidence showing the defendants intended to destroy evidence that would be helpful to the plaintiffs' case, and the court found no “factual basis” to support prejudice, quoting the Third Circuit: “Although a District Court has discretion to draw inferences from the record on a party's intent, it strays beyond the bounds of its discretion when … there is no factual basis to do so.”

Likewise, the defendant justified the email account deletion by showing that they purged the key custodian's email account within 90 days of her departure, and litigation did not commence until a year after the deletion occurred, supporting the notion that defendant had no intent to deprive.

Additionally, the court found the defendant was under no duty to preserve the key custodian's email account since litigation was not reasonably foreseeable when the deletion occurred.

Where There's Smoke, Doesn't Mean There's Fire:
HCC Ins. Holdings, Inc. v. Flowers (N.D. Ga. Jan. 30, 2017)

Speculation and circumstantial evidence of spoliation is not enough to warrant an adverse inference instruction under Rule 37(e). In HCC v. Flowers, the defendant, Ms. Flowers, is accused of misappropriating trade secrets after she left her company and started a competitive company. The plaintiff, HCC, claims that when the defendant left the company, she took confidential files with her to benefit her new company.

A neutral examiner found no evidence that any of the plaintiff's documents were on the personal computer owned by the defendant. However, the examiner did find that the defendant used multiple programs that are commonly used to cover up spoliation activities.

Based on this activity by the defendant, the plaintiff motioned for an adverse inference instruction for the spoliation of ESI.

Ruling

The court rejected the plaintiff's motion, because the plaintiff never proved that relevant data was deleted from defendant's personal devices and only offered mere “speculation,” even though there was a lot of circumstantial evidence presented that may have implied an intent to deprive. Specifically, that the defendant could have “utilized several methods to transfer HCC's trade secret to Flowers' personal devices without leaving an evidence on her HCC computer” and subsequently used a program called “evidence eliminator” twice between the discovery order issuance and the plaintiff's inspection. However, circumstantial evidence does not prove intent, and there was no evidence introduced by the plaintiffs to show that any of the materials were actually exfiltrated from the company.

Spoliation Only Occurs If There Is Proof

First American Title Insurance Company v. Northwest Title Insurance Agency, LLC (D. Utah Aug. 31, 2016)

Just because it may seem like spoliation may have or should have occurred, doesn't mean it did. Here, two employees of the plaintiff, First American Title Insurance, began working together to create a competing title insurance company. When the two employees resigned, they immediately began working for their own company, Northwest Title Insurance Agency (the named defendant in this case).

Subsequently, the plaintiff sought sanctions against the defendants for alleged spoliation of evidence, which included: 1) issuing a verbal only legal hold; and 2) deleting documents from a company issued computer and iPad when defendants worked for plaintiff.

Ruling

Aside from a thumb drive that went missing, the court rejected the plaintiff's motion for spoliation sanctions due to the fact no evidence was presented that: 1) responsive data was deleted; and 2) that the plaintiff was prejudiced by any of the defendant's actions.

The plaintiff offered no evidence that the deleted data from the defendant's old company issued computer and iPad was responsive to this case (only personal files had been deleted), and they failed to try to resolve this issue by researching alternative remedial measures.

Winning Spoliation Claim

Rule 37(e)'s Intent Standard Clarified in This Lost Cell Phone Case
Brown v. Certain Underwriters at Lloyds, London (E.D. P.A. June 9, 2017)

Based on the court's analysis, this ruling can help legal teams clarify what will amount to enough circumstantial evidence to prove intent to deprive under Rule 37(e). In this insurance fraud case, the defendants filed a motion for spoliation sanctions due to the plaintiff not producing his cell phone device during discovery.

Brought about by a fire at the plaintiff's property, the defendants refused to pay an insurance claim issued by the plaintiff. During a non-judicial hearing, the defendants requested the plaintiff's cell phone to recover data relating to the time of the fire due to a suspicion that the plaintiff set the property on fire himself.

The day before the plaintiff was scheduled to produce his cell phone in this case, the plaintiff filed an objection because he could no longer produce the phone, which he had lost months prior. As a result, the defendant filed a motion of spoliation sanctions.

Ruling

The court ruled that the plaintiff had spoliated cell phone data, which was done in bad faith, leading to an adverse inference instruction and payment for the defendant's fees and costs associated with filing the motion.

Intent was proven based on the timing of notice. The plaintiff waited until just before the phone was due to be produced — literally hours before — to notify the defendant that the phone was missing. Based on the defendant's story, he would have known that his cell phone was lost for four months.

On top of the time gap in notification, the plaintiff failed to offer a defense or reason for how he lost his phone, and evidence was produced (cell phone screen shots from a colleague) showing the plaintiff may have been colluding with this colleague to commit insurance fraud, creating a motive for the plaintiff to hide his cell phone. Based on these surrounding circumstances, the court reasoned that a bad faith intent was proven and issued spoliation sanctions.

Conclusion

Whether you're in e-discovery or not, relying on speculation is never a good practice. Knowledge of the facts is always vital, and recent case law is a good place to gain understanding of how the FRCP rules are being defined by various courts. The bottom line is you should save everyone's time and money and not request spoliation sanctions if there isn't direct proof that relevant data was deleted/modified.

*****
Mike Hamilton is the Director of E-Discovery Programs at Exterro. With a legal and business background, Mike is experienced and passionate about creating thoughtful, out-of-the-box educational resources that help keep legal teams interested and on top of emerging need to know e-discovery issues.

We've all heard, “It's not whether you win or lose, but how you play the game.” But how you play the game is often a big part of ending up on the winning side in e-discovery. In today's political climate, it has almost become “normal” that people frivolously make speculative statements without any proof that the statement is true. While this may be standard practice in the political world, in court this practice will not be convincing to any judge, especially when making an argument for e-discovery sanctions based on new rule FRCP 37(e) — updated spoliation standard for electronically stored information (ESI).

But it seems that a lot of parties accusing their opposition of spoliation didn't get this memo or have been misguided by forces outside the courtroom. Case in point, a rash of recent court rulings denying motions for spoliation sanctions under 37(e).

In this article, you'll find rulings from both sides: three cases in which parties relied on speculation to justify their unsuccessful spoliation claims, along with an outlier case, in which one party used enough circumstantial evidence to win their spoliation argument.

Losing Spoliation Claims

No Prejudice, No Spoliation Sanction:
Archer et. al. v. York City School District, et. al. (M.D. Pa. Dec. 28, 2016)

Under new FRCP Rule 37(e), prejudice is required to warrant spoliation sanctions. With no proof of prejudice, there are no spoliation sanctions. This case is a great example of this point. In response to the plaintiffs' legal claims that were in protest of the defendant's decision not renew their school's charter, the defendant motioned for summary judgment. The plaintiff claimed within their response to this motion that the defendant spoliated relevant data, i.e., the deletion of a key custodian's email account.

The key issue in this case was whether the email account was deleted with prejudice. The defendant contended that the email account was probably deleted within 90 days of the key custodian's departure in February 2012, which would be in accordance with the defendant's general practice. The plaintiffs argued that the key custodian's emails were “purged sometime after 2012.”

Ruling

The plaintiffs offered no evidence showing the defendants intended to destroy evidence that would be helpful to the plaintiffs' case, and the court found no “factual basis” to support prejudice, quoting the Third Circuit: “Although a District Court has discretion to draw inferences from the record on a party's intent, it strays beyond the bounds of its discretion when … there is no factual basis to do so.”

Likewise, the defendant justified the email account deletion by showing that they purged the key custodian's email account within 90 days of her departure, and litigation did not commence until a year after the deletion occurred, supporting the notion that defendant had no intent to deprive.

Additionally, the court found the defendant was under no duty to preserve the key custodian's email account since litigation was not reasonably foreseeable when the deletion occurred.

Where There's Smoke, Doesn't Mean There's Fire:
HCC Ins. Holdings, Inc. v. Flowers (N.D. Ga. Jan. 30, 2017)

Speculation and circumstantial evidence of spoliation is not enough to warrant an adverse inference instruction under Rule 37(e). In HCC v. Flowers, the defendant, Ms. Flowers, is accused of misappropriating trade secrets after she left her company and started a competitive company. The plaintiff, HCC, claims that when the defendant left the company, she took confidential files with her to benefit her new company.

A neutral examiner found no evidence that any of the plaintiff's documents were on the personal computer owned by the defendant. However, the examiner did find that the defendant used multiple programs that are commonly used to cover up spoliation activities.

Based on this activity by the defendant, the plaintiff motioned for an adverse inference instruction for the spoliation of ESI.

Ruling

The court rejected the plaintiff's motion, because the plaintiff never proved that relevant data was deleted from defendant's personal devices and only offered mere “speculation,” even though there was a lot of circumstantial evidence presented that may have implied an intent to deprive. Specifically, that the defendant could have “utilized several methods to transfer HCC's trade secret to Flowers' personal devices without leaving an evidence on her HCC computer” and subsequently used a program called “evidence eliminator” twice between the discovery order issuance and the plaintiff's inspection. However, circumstantial evidence does not prove intent, and there was no evidence introduced by the plaintiffs to show that any of the materials were actually exfiltrated from the company.

Spoliation Only Occurs If There Is Proof

First American Title Insurance Company v. Northwest Title Insurance Agency, LLC (D. Utah Aug. 31, 2016)

Just because it may seem like spoliation may have or should have occurred, doesn't mean it did. Here, two employees of the plaintiff, First American Title Insurance, began working together to create a competing title insurance company. When the two employees resigned, they immediately began working for their own company, Northwest Title Insurance Agency (the named defendant in this case).

Subsequently, the plaintiff sought sanctions against the defendants for alleged spoliation of evidence, which included: 1) issuing a verbal only legal hold; and 2) deleting documents from a company issued computer and iPad when defendants worked for plaintiff.

Ruling

Aside from a thumb drive that went missing, the court rejected the plaintiff's motion for spoliation sanctions due to the fact no evidence was presented that: 1) responsive data was deleted; and 2) that the plaintiff was prejudiced by any of the defendant's actions.

The plaintiff offered no evidence that the deleted data from the defendant's old company issued computer and iPad was responsive to this case (only personal files had been deleted), and they failed to try to resolve this issue by researching alternative remedial measures.

Winning Spoliation Claim

Rule 37(e)'s Intent Standard Clarified in This Lost Cell Phone Case
Brown v. Certain Underwriters at Lloyds, London (E.D. P.A. June 9, 2017)

Based on the court's analysis, this ruling can help legal teams clarify what will amount to enough circumstantial evidence to prove intent to deprive under Rule 37(e). In this insurance fraud case, the defendants filed a motion for spoliation sanctions due to the plaintiff not producing his cell phone device during discovery.

Brought about by a fire at the plaintiff's property, the defendants refused to pay an insurance claim issued by the plaintiff. During a non-judicial hearing, the defendants requested the plaintiff's cell phone to recover data relating to the time of the fire due to a suspicion that the plaintiff set the property on fire himself.

The day before the plaintiff was scheduled to produce his cell phone in this case, the plaintiff filed an objection because he could no longer produce the phone, which he had lost months prior. As a result, the defendant filed a motion of spoliation sanctions.

Ruling

The court ruled that the plaintiff had spoliated cell phone data, which was done in bad faith, leading to an adverse inference instruction and payment for the defendant's fees and costs associated with filing the motion.

Intent was proven based on the timing of notice. The plaintiff waited until just before the phone was due to be produced — literally hours before — to notify the defendant that the phone was missing. Based on the defendant's story, he would have known that his cell phone was lost for four months.

On top of the time gap in notification, the plaintiff failed to offer a defense or reason for how he lost his phone, and evidence was produced (cell phone screen shots from a colleague) showing the plaintiff may have been colluding with this colleague to commit insurance fraud, creating a motive for the plaintiff to hide his cell phone. Based on these surrounding circumstances, the court reasoned that a bad faith intent was proven and issued spoliation sanctions.

Conclusion

Whether you're in e-discovery or not, relying on speculation is never a good practice. Knowledge of the facts is always vital, and recent case law is a good place to gain understanding of how the FRCP rules are being defined by various courts. The bottom line is you should save everyone's time and money and not request spoliation sanctions if there isn't direct proof that relevant data was deleted/modified.

*****
Mike Hamilton is the Director of E-Discovery Programs at Exterro. With a legal and business background, Mike is experienced and passionate about creating thoughtful, out-of-the-box educational resources that help keep legal teams interested and on top of emerging need to know e-discovery issues.