By Brad Harris
Since Judge Francis’s Orbit One in October 2010, we haven’t read a lot about preservation issues. But that ended suddenly with two opinions that had come to light in recent weeks.
If the building case law has not been convincing enough, then take note of these sanctions that turn up the heat on preservation issues, including a $250,000 monetary sanction, adverse inference instructions, default judgment and even a referral for criminal prosecution! Following are briefs of both opinions, but be warned that you should be sitting down when you read them.
Green v. Blitz U.S.A., Inc. 2011 U.S. Dist. LEXIS 20353 (E.D. Tex. Mar. 1, 2011)
Coming from the Eastern District of Texas, Green v. Blitz was issued by Judge T. John Ward and involved a product liability case resulting in the accidental death of the plaintiff’s husband. The plaintiff took the case to trial, the jury found for the plaintiff and she received a modest monetary award.
As it is often the case with product liability claims, the plaintiff’s attorney was involved in a similar litigation and uncovered “extremely relevant material” and petitioned to have the case re-opened a year after the trial. Although the petition to reopen the case was denied due to the stature of limitations, the court did proceed with a review of alleged discovery abuse and motion for sanctions, finding the defendant’s discovery practices to have been shoddy at best (and that’s putting it generously).
In addition to its analysis concerning inadequate search and document production, the court also addressed preservation obligations:
The Court also holds that Blitz failed to properly preserve documents for litigation. When litigation commences, a party must suspend its routine document retention and destruction policy and establish a “litigation hold” to ensure the preservation of relevant documents. (*7)
The opinion continued:
But Blitz also failed to preserve its electronic documents. Far from instituting a litigation hold on relevant electronic documents, Blitz actually asked its employees to routinely delete electronic documents. From 2004 through 2007, Blitz’s IT department head, Paul Hale, routinely sent emails to all Blitz employees instructing them and encouraging them to delete email. (*8)
So Blitz U.S.A. made very little effort to preserve relevant information, and encouraged employees to purge information, despite ongoing lawsuits and the expectation of the Court for it not to do so. This also commenced in the post-Zubulake world so precedent had been set for a higher standard for preservation practices.
Naturally, none of this sat well with Judge Ward who found that the defendant willfully violated the Court’s Discovery Order resulting in “indisputably relevant” documents not being produced and the plaintiff being prejudiced. With that in mind, the Court issued a $250,000 sanction for civil contempt. The Court further ordered as a “sanction to encourage future compliance” that the defendant provide its Memorandum Opinion and Order “to every plaintiff in every lawsuit it has” currently or with in the past two years or suffer an additional $500,000 sanction. The coup de grace was that the same Memorandum must be provided to the opposition in every lawsuit involving Blitz for the next five years. Ouch.
Philips Electronics North America Corp., et al. v BC Technical No. 2:08-CV-639-CW-SA, 2011 WL 677462 (D. Utah Feb. 16, 2011)
The opinion issued in mid-February is the adoption of the recommendations that were originally issued July 28, 2010, by U.S. Magistrate Samuel Alba in the District of Utah, so this is not a brand new case.
To review, the case started in January 2005 and involved a suit alleging copyright infringement and misappropriation of trade secrets for software that BC Technical (BCT) was selling and distributing. The plaintiff motioned the Court for spoliation sanctions. The 48-page opinion goes into great detail about the “who,” “when,” and “what” of the spoliating parties.
Magistrate Alba in his recommendations cites Pension Committee thus continuing to reinforce Judge Scheindlin’s opinion as the recognized standard for preservation issues. The Court found in its research that the defendant did not issue a proper litigation hold for 19 months during which time five employees wantonly destroyed incriminating evidence. BCT argued that the employees acted on their own, but the Court didn’t buy it:
BCT’s behavior such as failing to timely issue a litigation hold, failing to follow up on that litigation hold, failing to request discovery documents from key employees, and so forth, reveals its intentional failure to meet discovery obligations and its flagrant disregard of the obvious risk that it was highly probable the destruction of relevant documents would result from its behavior, and BCT’s conscious indifference to the consequences of that risk. *47, Philips Elecs. N. Am. Corp. v. BC Tech., No. 2:08-CV-639-CW-SA, 2010 WL 5838993 (D. Utah July 28, 2010)
The problem was that the defendant’s claims had zero credibility because they had not demonstrated a single good-faith effort to preserve evidence. When push came to shove, Magistrate Alba declared their efforts to be in “bad faith.”
The resulting sanctions are about as tough as they get because they rose to the level of “bad faith” and “willful behavior.” As the Court stated: “[E]xtreme sanctions are warranted in this case where discovery abuses of a serious magnitude involving bad faith and willful disregard of two direct court orders occurred.” (Id.,*57)
Upon review at the U.S. District level, Judge Clark Waddoups affirmed Magistrate Alba’s overwhelming sanctions including summary judgment for the plaintiff, dismissal of counterclaims, attorneys’ fees (ed. — not insignificant!), and finally a referral for criminal prosecution for perjury.
Admittedly, the spoliating behavior of the five employees in Philips Elec. v. BCT was egregious. However, one must wonder how the outcome could have changed if BCT had implemented an effective litigation hold policy. The same data may have been lost, but perhaps the argument could have been made that the company acted in good faith, or at the very least helped support BCT’s claims that the employees acted individually. Unfortunately, they did not and now they join the ranks of Creative Pipe CEO Mark Pappas, the villain from Victor Stanley II, as cautionary tales of how intolerant the courts can be when faced with failed preservation due to willful destruction of evidence.
What Green and Philips Mean to Legal Holds
When looking at these two cases, here are a few takeaways for practitioners:
1. Without a defensible, repeatable process in place the “bad actor” defense is toothless. Both of these cases involved very poor preservation practices that were intentional in order to conceal evidence. In Philips, the defense tried to isolate the bad behavior as the actions of individuals. In retrospect it appears that was highly unlikely, but what if it was true? The fact that BCT had no process in place completely undermined this assertion. If the actions were truly the fault of “bad actors” and they had a legal hold process in place they may have either intervened before spoliation had occurred, kept copies of key evidence, and even if evidence was lost BCT may have been inoculated from severe sanctions stemming from determinations of “grossly negligent” and “willful” conduct.
2. The lack of a written record makes defensibility that much more problematic. Reading the transcript from the Show Cause Hearing in Green, the dialogue between the Court and the key witness about the lack of preservation efforts is precisely as one would anticipate when attempting to rely on the recollections of verbal conversations.
3. Spoliation sanctions are becoming more severe. The culprits in Green and Philips made decisions that were intentionally meant to undermine the judicial process. The defendants paid the price for those choices with the most severe spoliation sanctions that we have seen in some time. For Blitz U.S.A., the company will likely pay out damages on active and future product liability cases that will dwarf the $250K monetary sanction. As for BCT, the case was lost on the spot and they have to pay attorneys’ fees in a high-stakes case that endured for several years. This further reinforces the intolerance that we have been seeing building through 2010 with opinions such as Victor Stanley II.
Be sure to have your preservation processes in order today. Imagine standing in a courtroom a few years from now in the “post-Pension Committee” era and needing to defend your process. What would you show the Court and how confident would you be?
- Losey, Ralph, “Another “Fox Guarding the Hen House” Case Shows the Dangers of Self-Collection,” e-Discovery Team blog, March 20, 2011
- Electronic Discovery Law Blog, “Court Orders Monetary Sanction of $250,000, that Defendant Provide the Court’s Order to Plaintiffs in All Cases, and that Defendant File the Order in Every Case for 5 Years,” March 29, 2011, K&L Gates
- Electronic Discovery Law Blog, “Bad Faith or Culpability ‘May Not Mean Evil Intent, but May Simply Signify Responsibility and Control.’” March 18, 2011, K&L Gates.