Legal Tech: Winter 2019 E-Discovery Case Law Review

In this contact dispute case, the plaintiff motioned for spoliation sanctions against the defendant for the spoliation of electronic data including “at least 750,0000 messages and attachments.”

In 2012, when notice of pending litigation was received, the defendant sent a boilerplate legal hold that did not include any guidance or follow up instructions on how to preserve data to employees. On top of this, the records manager was not notified of this legal hold until three years after the duty to preserve was triggered, meaning thousands of documents were deleted under the corporate document retention policy.

The plaintiff motioned for spoliation sanctions based on the defendant's “willful blindness,” arguing it equated to an “intent to deprive.”

Ruling

• Minor Sanctions Ordered Under Rule 37(e). Since the court did not find that the defendant had an “intent to deprive” information to the plaintiff and the emails lost could be restored through additional means, the court only granted minor sanctions, including the plaintiff could re-depose witnesses after reviewing the missing emails and the jury would be instructed about the data loss.
• Tongue Lashing By the Court. Even though the defendant was protected from severe sanctions based on Rule 37(e), the court had harsh criticism of the defendant's management of their preservation processes as “arrogance by management, lack of initiative by IT and a pitiable lack of legal leadership.”
• Bad Communication. A defensible preservation process starts with communicating the legal hold to all necessary stakeholders including IT. In this case, Legal did not consult IT about implementing the hold and never ensured that data would be preserved at the start of litigation.

Expert Opinion

“It's really important that your legal hold notice is properly tailored for each individual matter. I don't think anybody can do individual legal hold notices and have every single one of them tailored to each individual. So it's okay to use templated language in your notices, but you have to be specific… You have to make sure that you track your acknowledgements, and follow up with your custodians that they understand the notice.” Tara Jones, Legal Services Manager, Oath

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With No Intent, No E-Discovery Sanctions for Uber

Waymo LLC v. Uber Techs., Inc. (N.D. Cal. Jan. 29, 2018)

Even with deleted evidence after there was a duty to preserve, there is a high threshold for proving that the offending party had the “intent to deprive,” and therefore a basis for serious sanctions.

Case Facts

In this misappropriated trade secrets case involving self-driving car technology, the plaintiff, Waymo, alleged that the defendant, Uber, spoliated a variety of different data types that included “hundreds of text messages,” Slack records, five CDs and a couple of personal laptops.

Throughout discovery, the plaintiff accused the defendant of consistently engaging in discovery misconduct. The plaintiff requested an adverse jury instruction. Even though the defendant conceded that this data was deleted, they countered by arguing that they didn't have a duty to preserve, because they didn't reasonably foresee litigation and that the spoliated evidence was irrelevant.

Ruling

• Judgment withheld. The court could not rule on whether the adverse inference instruction was warranted because the court didn't know if the defendant acted with the requisite intent to deprive. The court “reserves the possibility of an adverse inference instruction” until trial.
• Too much time spent debating e-discovery. The judge felt that the case was becoming less about the merits and if misappropriation occurred and more about “whether or not Uber is an evil corporation.”
• Case settles. Shortly after the court issued this opinion, the two parties came to a settlement of $245 million.

Expert Opinion

“Companies need to be paying much more careful attention to ephemeral [communication] applications. Are you letting your folks use these things? Are you stopping the use of them once litigation has become likely or imminent? Are you preserving? Or in this case, are you actually telling employees, 'Use this stuff to circumvent email, because we don't want stuff being discovered.' All that's very problematic.” Hon. Xavier Rodriguez, U.S. District Judge, Western District of Texas.

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Circuit Court Rules E-Discovery Sanctions Not Limited By Amount in Controversy

Klipsch Group, Inc. v. ePRO E-Commerce (2d Cir. Jan. 25, 2018)

Even with the enactment of Rule 37(e), which tries to curb when and how much e-discovery sanctions should be, the court can use its inherent authority to sanction parties as they see fit to make the non-offending party whole, regardless of the amount in controversy.

Case Facts

In this counterfeiting case, the plaintiff, Klipsch, moved for e-discovery sanctions against the defendant based on the alleged spoliation of discoverable information.

The goal for the plaintiff in discovery was to learn more about magnitude of the defendant's infringing sales by reviewing the defendant's actual sales data. As discovery began, it was evident that the defendant was not complying with its e-discovery obligations, showcased by:

• Twice failing to place an adequate legal hold on electronic data including emails (initially after the start of litigation and subsequently after being reminded by the court)
• Not disclosing 40,000 potentially relevant sales documents
• Custodians “manually delet[ing] thousands of files and emails, us[ing] data-wiping software”

Based on these findings, the district court found that the defendant had “willfully spoliated relevant discoverable information,” ordering an adverse inference jury instruction, and imposed $2.7 million in sanctions to cover the costs incurred by the plaintiff because of the discovery misconduct.

The defendants appealed the ruling, arguing that the $2.7 million sanction was disproportionate and impermissibly punitive considering the amount in damages was only likely to be around $20,000.

Ruling

• Defendant's Appeal Denied. In response to the defendant's interlocutory appeal, the Second Circuit unanimously upheld the district court's factual findings and sanction order, ruling that the sanction amount was not excessive.
• Sanction Was Not Punitive. The $2.7 million sanction was justified because the defendant “overlooks the fact that ePRO (defendant) caused Klipsch (plaintiff) to accrue those costs by failing to comply with its discovery obligations.” The court added, “The proportionality that matters here is that the amount of the sanctions was plainly proportionate — indeed, it was exactly equivalent — to the costs ePRO inflicted on Klipsch in its reasonable efforts to remedy ePRO's misconduct.”
• Good Faith Discovery Required. The court went on to state that when it comes to discovery obligations, “compliance is not optional or negotiable. Rather, the integrity of our civil litigation process requires that the parties before us, although adversarial to one another, carry out their duties to maintain and disclose the relevant information in their position in good faith.”

Expert Opinion

“There are a lot of very discrete inquiries that the court has to undertake before reaching any conclusion about whether a party has engaged in sanctionable conduct. First, it's electronically stored information that should have been preserved. We have to determine that it's actually lost, truly lost, and can't be replaced … if it can be restored or replaced through additional discovery, there's no basis for the court to order sanctions …. [Then] there has to be a finding that the party was actually prejudiced from the loss of information. If that is found, then the court may order measures no greater than necessary to cure the prejudice.” Mike Klein, Assistant General Counsel, E-Discovery and Litigation Support, Altria

Conclusion

The practice of e-discovery continues to be shaped and refined by rulings issued by the courts. These three cases from 2018 have clear implications for organizations at risk of litigation. Ensure that your legal holds are specific and that you follow up on them to ensure compliance. Understand the risks and obligations posed by the various technologies you use for communication, and preserve ESI appropriately. And finally, act in good faith to fulfill your obligations, and you will minimize the risk of being sanctioned for inadvertent missteps that take place along the way.

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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.