Legal Tech: Spring 2019 E-Discovery Case Law Review

In this employment discrimination case, the plaintiff motioned for discovery sanctions against the plaintiff for not producing instant messages between key custodians about the claim.

The two sides had numerous conflicts over the plaintiff's request for instant messages from the defendant, including:

• Defendant waited “more than a month” after there was a threat of litigation to issue a legal hold (which included a direction to preserve instant messages);
• Defendant “wiped” a key custodian's computer days after litigation was highly anticipated; and
• Defendant never instructed IT to stop the “auto-delete of any saved 'instant messages,” leading to only a handful of relevant instant messages being produced.

Ruling

• Discovery Sanctions Ordered Against Defendant. The magistrate judge found that the defendant “bollixed its litigation hold — and it has done so to a staggering degree and at every turn,” leaving “little question that sanctions are warranted.”
• Adverse Jury Instruction? As a result of the defendant's discovery misconduct, the magistrate judge recommended to the district court than an adverse jury instruction be given due to the “defendant's faulty and failed litigation hold.”

Expert Opinion

“As long as courts continue to ignore or misconstrue the clear mandate of Rule 37(e) — that intent is a required element for consideration of an adverse inference instruction — companies must be super vigilant in applying legal holds. Companies need to have clear policies that are consistently applied and supervised by in-house our outside counsel. Here, the defendant narrowly escaped the instruction, but the court left the door open after evidence is presented at trial.” Anne Bentley McCray, Partner, McGuireWoods

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E-Discovery Sanctions Issued in Jimi Hendrix Weed Case 

Experience Hendrix, LLC et al. v. Pitsicalis et al. (S.D.N.Y. Nov. 27, 2018)

If you don't produce and then take multiple steps to hide relevant data, in most instances the court will issue significant e-discovery sanctions against you.

Case Facts

In this copyright infringement case, the plaintiffs motioned for e-discovery sanctions against the defendant for a variety of misconduct including spoliation and hiding evidence.

The defendants, including Jimi's brother, started a marijuana business and were attempting to use Jimi Hendrix's image to sell their products. The estate of Jimi Hendrix, the plaintiffs, challenged the use of Jimi's image, and within e-discovery, there were numerous incidents of “non-compliance with basic discovery obligations” by the defendants, which included:

• Failure to produce forensics images as ordered;
• Deletion of relevant text messages; and
• Using anti-forensic software to delete relevant files.

After three court orders and continuing failure of the defendant to produce all relevant data, the plaintiffs motioned for case dismissal or an adverse inference jury instruction.

Ruling

• Sanctions Granted in Part. The court ruled against the defendant by issuing an adverse inference instruction and ordered them to pay fees and costs to plaintiffs in bringing the motion. However, the court declined to terminate the case or issue an injunction against the defendants.
• Repeated Misconduct by Defendants. The court ruled that defendants “overwhelmingly” breached their duty to preserve data by using anti-forensic software, failing to produce relevant evidence and deleting text messages,
• Intent Found. The use of anti-forensic software was evidence to the court that the defendants acted with an intent to deprive, opening up the door for an adverse inference instruction.

Expert Opinion

“A litigation party's use of specialized anti-forensic or deletion software on files likely to contain relevant information will almost always provide courts with a sufficient basis to find an “intent to deprive another party,” opening the door to imposing on the offending party the severe sanctions permitted under FRCP 37(e)(2).” David Cohen, Chair, E-Discovery Group, Reed Smith LLP

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“Mortal Mistake” in Delaying Preservation Activities Leads to Sanctions

Fishman v. Tiger Natural Gas (N.D. Cal. Nov. 20, 2018)

A party's duty to preserve potentially relevant data extends to contracted third parties. A delay in this communication can lead to spoliation and sanctions.

Case Facts

In this class action lawsuit for fraudulent telemarketing, the plaintiffs motioned for discovery sanctions against the defendants for failing to keep recordings of sales pitches after the duty to preserve was triggered.

Before filing the initial complaint, the plaintiff sent multiple demand letters notifying the defendants “not destroy evidence in its possession,” including audio recordings of sales pitches that allegedly showcased misrepresentations made by defendants. The defendants were required by law to keep these recordings. However, when plaintiffs requested these audio recordings, the defendants claimed they did not have any call recordings aside from the recording with the named plaintiff in this case, Fishman.

As a result, the plaintiffs motioned for “an order prohibiting defendants from introducing any evidence in an attempt to show that any putative class member received a sales call different from the sales call received by Fishman.”

Ruling

• E-Discovery Sanction Granted. The court granted a permissive adverse inference, meaning the jury would be informed of the spoliation and be permitted to decide whether “the call made to Fishman was representative of the sales pitches made to the putative class members.”
• Reasonable Steps to Preserve Not Taken. It was a year after the initial demand letter was received that the defendants told their telemarketing firm to preserve the audio recordings at issue. The court noted: “[T]his delay has turned out to be a mortal mistake.”
• Defendants' Excuses Rejected. The defendants go on to claim that plaintiffs' early demand letters didn't specifically ask for these audio recordings. The court rejects this argument, stating a reasonable party in the defendant's situation would have preserved the audio recordings.

Expert Opinion

“Despite the fact that there was no finding of intent, the court ordered what is essentially an adverse inference instruction, proving, once again, that the Amended Rule 37 is not being taken very seriously by the Judiciary.  Companies must be mindful of this and ensure that holds are issued timely and to the right persons and entities — even third-party vendors.” Anne Bentley McCray, Partner, McGuireWoods

Conclusion

While demonstrating intent to deprive will open you up to e-discovery sanctions, the inverse is not necessarily true. As long as courts continue to sanction on the basis of their inherent authority, negligence, whether in the timing or application of preservation, can still result in e-discovery sanctions. Make sure you avoid this fate by developing reasonable, documented preservation processes and following them scrupulously.

Stay informed on all the latest e-discovery case law at Exterro's E-Discovery Case Law Library.

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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.