Lightning Lie Results In Sanctions For Spoliation Of ESI

Posted by Gregg Mayer on Monday, March 31st, 2008   

As noted here and here on CIOLaw.org, it is never a good idea to try to destroy ESI after a legal hold is triggered creating a duty to preserve the information. Here’s is another example of why:

In Great American Ins. Co. of New York v. Lowry Development, the insurance company Great American wanted to see the personal computer files of Danny Groves, who operated Groves & Associates, which was a party in the litigation. Groves used his personal computer for business correspondence, including sending email, to the insurance company.

At first, Groves said lightning had damaged his computer and it was not repairable. As a result, he said, he just abandoned it with the technician.

Later, apparently forgetting his first response, Groves said he had the computer, but that the motherboard was damaged by lightning and a computer technician told him that all of the files were lost.

The insurance company did the obvious: it called the computer technician. The technician swore in an affidavit that he was able to fix the computer and none of the files were lost.

In response, Groves said what he really did was throw the computer away after it malfunctioned a second time following the repair from the lightning strike. Needless to say, the court had a hard time believing him:

Groves offers no explanation for his untruthful testimony or for his inaccurate and incomplete response to Great American’s request for inspection…I am of the opinion that Great American has established, by clear and convincing evidence, that the destruction of this computer has deprived the parties and the Court of the benefit of any records that may have been contained in the computer hard drive.

Consequently, the court said it would read an adverse inference instruction at trial and lower the burden of proof for Great American on one of its claims.

Court Considering Sanctions Against USDA For ESI Spoliation

Posted by Gregg Mayer on Friday, March 28th, 2008   

In a decision this month, a district court has indicated it may sanction the U.S. Department of Agriculture for failing to preserve electronically stored information (“ESI”).

In Consumer Federation of America v. U.S. Dep’t of Agriculture, the CFA requested in 2004 copies of official calendars – including related ESI – maintained by certain USDA officials. The USDA at first refused, but then was ordered to produce the information in 2006 by the Court of Appeals for the District of Columbia.

However, the USDA never implemented a legal hold until after the 2006 order. Consequently, ESI related to the request was never archived and it was overwritten before it could be produced to the CFA.

The court observed:

In this case, it is clear that defendant’s initial searches were inadequate. Indeed, counsel for the defendant acknowledged during oral argument that the documents in this case were ‘not handled in the way they should have been…[However] the defendant has [subsequently] conducted – albeit belatedly – a search reasonably calculated to under all relevant documents…

Nevertheless, it appears some ESI is irretrievably lost. As a result, the court is considering sanctions against the USDA:

In view of defendant’s acknowledgement during oral argument that its search was not handled as well as it might have been, and in order to ensure that defendant carries out future FOIA searches responsibly from the outset, the Court directs defendant to file a supplemental declaration detailing: (1) the specific steps the agency will take when responding to a FOIA request, particularly one including electronic documents; and (2) the steps, if any, the agency has taken to correct the problems that led to the loss of responsive documents in this case.

The USDA has until April 30 to file its supplemental pleading with the court.

AMD v. Intel Part Three: Costly Remediation In Restoring Lost Email And Other ESI

Posted by Gregg Mayer on Friday, March 28th, 2008   

Read Part One in this three-part series about the ongoing AMD v. Intel litigation. 

Read Part Two here.   

In this third part, we look at the ways Intel proposed to restore the missing ESI, including the multimillion dollar remediation plan.

By the time Intel filed it Remediation Plan to recover lost email, it estimated it had already spent approximately $3.3 million in outside vendor costs in its efforts to restore back-up tapes. Intel estimated it would spend “millions more” to complete all of the remediation.

According to Intel’s Remediation Plan:

Intel is cataloging, indexing and, to the extent appropriate, restoring thousands of backup tapes. Intel is willing to undertake this massive effort because it regrets the lapse in its retention practices, wants to set them right, and wishes to get the case back on the path to being resolved on the merits.

Intel is relying on “complaint freeze tapes” and “weekly backup tapes” in its efforts to restore as much of the data as possible. Intel concedes, however, that not all of the information lost due to the problems with the litigation hold will be retrieved.

In its efforts to avoid sanctions, Intel proposed the following remediation:

It re-issued its litigation hold notice, and will send out reminders every six months

Intel is also calling by telephone all 1,023 custodians to verbally remind them of the litigation hold

The legal department will have the say-so over whether any laptops in the future can be scrubbed

Intel will harvest and re-harvest all ESI from custodians working for Intel

Intel utilized an email archive company to capture all of the email from the custodians as a way to retain all relevant email

AMD has argued that Intel has not been forthright about the amount of data lost; however, AMD supported Intel’s decision to move ahead with its remediation plan.

No final cost is determined, but it will likely be in the tens of millions. Intel describes it as a “perhaps unprecedented” amount of resources to implement the Remediation Plan. AMD argues no matter how much Intel spends, that’s not an indicator of how much was lost because some data will be irretrievably gone.

AMD has said:  

Any honest assessment of this fiasco requires Intel to acknowledge that it cannot remediate the irremediable.

The court approved Intel’s plan on October 22, 2007.

Potential sanctions from the court – including a spoliation finding – still loom, despite Intel’s efforts to restore the data. In the court’s order approving the Remediation Plan, the court states:

(A)lthough [plaintiffs] acknowledge that Intel’s Proposed Remediation Plan contains all elements that should reasonably be required of Intel under the circumstances to remediate its documents preservation lapses, Plaintiffs do not acknowledge or concede that Intel’s Proposed Remediation Plan, even if fully executed, will effectively or substantially remediate Intel’s lapses, and for which lapses Plaintiffs specifically reserve the right to seek sanction.

In short, after discovery ends, AMD may – likely will – move for sanctions against Intel, including asking for an adverse inference instruction to be given to the jury. As has been forewarned by the Zubulake case, an adverse jury instruction could result in a multimillion dollar verdict. That remains to be seen for AMD v. Intel.

Sanctions For Failing To Disclose ‘Unstripped’ ESI, But Not For Deleting ‘Smoking Gun’ Email

Posted by Gregg Mayer on Thursday, March 27th, 2008   

In an ongoing intellectual property lawsuit between ClearOne Communications and WideBand Solutions, the judge was recently faced with two e-Discovery issues: (1) should he sanction WideBand for failing to disclose a “smoking gun” email, and (2) should he sanction WideBand for only disclosing a stripped version of a source code when ClearOne had requested another version of source code with comments.

In the end, the court sanctioned WideBand for misrepresenting it did not have a source code with comments. The court ordered an adverse inference instruction.

The court did not sanction WideBand for failing to disclose the “smoking gun” email. The court reasoned that since the email was automatically deleted from the company’s “sent” folders as part of its routine retention policy, then sanctions were not warranted. However, the court did describe this type of retention policy as a “significant irregularity” and “questionable.”

Here’s a more detailed rundown of the e-Discovery issues:

First, ClearOne sought a sanction against WideBand for failing to disclose an email sent by WideBand’s founder that was relevant to the litigation. The email surfaced when the company that received it disclosed the email in litigation. WideBand said the email had been automatically deleted from its system as part of its policy not to retain any items in the “sent” folder.

The court found WideBand’s deletion policy unusual:

For any business this is a significant irregularity; almost unimaginable for a technology company; and even more unlikely for a person of [the founder’s] importance in such a company.

However, since WideBand followed its routine policy in good faith, then the court opted not to sanction the company since it was not under a duty to preserve that email right after it was sent.

Second, ClearOne accused WideBand of stripping comments from source code that WideBand had provided to another party. The source code was at the heart of the infringement litigation.

ClearOne wanted “any and all versions, derivatives, and forms of the computer code.” WideBand only disclosed a stripped version of the code.

Of course, as it was discovered at the end of May, there was another copy of the source code and it does contain comments. Very shortly after this discovery, the source code with comments was provided to ClearOne.

During a deposition, a WideBand representative failed to disclose there existed a source code with comments, even though he was asked about it. As a result, the court ordered an adverse inference instruction against WideBand.

This is a serious remedy for a serious situation. It is not dispositive or case-terminating remedy, but it is significant. Such a jury instruction will have a considerable impact on the jury.

Read an analysis of the case and the court’s opinion here.

Court Rules ESI Records Kept Past Statute Of Limitations Still Have To Be Disclosed

Posted by Gregg Mayer on Wednesday, March 26th, 2008   

A court recently ordered a company to disclose old employee records even though the statute of limitations – a time period in which a lawsuit may be filed related to those records – had expired.

This is an illustrative case that shows if a company has records – including ESI – within its possession, and those records are relevant to litigation, then the records will have to be disclosed even if the law would have permitted destroying those records earlier.

In Thong v. Andre Chreky Salon, a Fair Labor Standards Act (FLSA) lawsuit filed in 2006, the employee wanted time cards, work schedules, notes and any other reports dating back to 1998. The employer, who had disclosed payroll records, objected to going back for the other records. The employer argued that going back to 1998 was too far. The statute of limitations to bring a claim under the FLSA is three years. Essentially, the employer said it should not have to provide documents past 2003.

The court disagreed in an opinion rendered earlier this year:

This Court finds that the request is reasonably calculated to lead to admissible evidence related to matters other than the alleged FLSA violations, including plaintiff’s claim that Mr. Chreky reduced plaintiff’s work schedule as a form of punishment for resisting his alleged sexual advances.
…
To the extent that defendants have within their possession, custody or control documents – other than payroll records and time cards previously produced – evidencing hours worked, this Court shall order defendants to provide such documents to plaintiff. If, in fact, defendants have no additional documents responsive to Request No. 19, this Court shall require defendants to provide an amended, verified discovery response stating that fact.

In short, even though the company could have destroyed those documents and deleted ESI under the law, when it decided to retain the information, then that information became open for disclosure in litigation. CIOs should consider the implications about unnecessarily retaining ESI for too long.

If Relevance Of ESI On Backup Tapes Is Unclear, Court May Adopt Phased Restoration

Posted by Gregg Mayer on Tuesday, March 25th, 2008   

Companies that have archived electronically stored information (“ESI”) on backup tapes may face the costly consequence of having to restore those tapes if needed for litigation.

Generally, under the Federal Rules of Civil Procedure, ESI that is not “reasonably accessible” does not have to be restored and disclosed unless the other side can show good cause.

A problem emerges when it is unclear exactly what ESI is stored on the backup tapes. Neither side wants to pay for a full restoration only to discover the email on the backup tapes has no bearing on the litigation. On the flip side, if there is relevant ESI and it should be disclosed, then the court will want those backup tapes restored.

One solution courts have implemented is a phased restoration of certain tapes. This happened in AAB Joint Venture v. United States last year.

In this case, involving a contractor suing the Government, the contractor wanted the Government to restore email from backup tapes that were believed to be relevant to the litigation. During the course of the legal discovery, it was unclear whether the government improperly allowed some email to be deleted that should have been preserved.

The Government acknowledged some relevant email may be on the backup tapes. However, the Government complained the restoration was too costly compared to the benefits of any email retrieved.

The court was faced with two questions: (1) should the tapes be restored? and (2) who pays for it if they should?

In the end, the court decided a sample of the backup tapes – picked out by the contractor – should be restored. If those tapes proved relevant, they could restore more.

A phased approach will allow the Court to engage in a more meaningful benefit-burden analysis before determining whether to require cost-shifting or cost-sharing…The Court believes that restoration of one-fourth of the total back-up tapes is warranted.

The Government had to pay for the initial restoration. Once those tapes were restored, the parties could argue if more tapes were necessary and whether the Government would have to pay for more restoration, or if the contractor would have to split the costs.

‘Safe Harbor’ Protection Gives Way To ‘Legal Hold’

Posted by Gregg Mayer on Monday, March 24th, 2008   

One of the more interesting e-Discovery rules to the Federal Rules of Civil Procedure is Rule 37(e). 

This rule provides that as long as a company follows in good faith its regular document retention policy, then it cannot be sanctioned if electronically stored information (“ESI”) is destroyed, even if that ESI may have been useful in subsequent litigation.  This rule is often called the “safe harbor” rule.

Importantly, however, the “safe harbor” offers no protection if a company allows ESI to be deleted subsequent to a “duty to preserve” – or “litigation hold.” A duty to preserve kicks in when a company reasonably anticipates litigation.

An illustrative way to understand how these two concepts work together is through the case of Doe v. Norwalk Community College.

In Doe, the plaintiff (who was referred to as “Jane Doe” in the lawsuit) sued the college in 2004 after a professor sexually assaulted her. As part of the litigation, the plaintiff wanted to inspect the professor’s computer hard drive.

Before her inspection, the college “wiped” the professor’s hard drive.  Consequently, the plaintiff asked the court to sanction the college.  Specifically, the plaintiff wanted an “adverse inference instruction” in which the court told the jury it could consider the lost ESI in the worst possible light against the college.

In its defense, the college argued the “safe harbor” provision precluded sanctions.  The college argued that the hard drive was wiped as part of the college’s routine deletion practices and it could not be sanctioned for failing to have it on hand.

The court disagreed with the college for two reasons.

First, the college never implemented a legal hold.  The college wiped the hard drive after the plaintiff’s lawyer had sent a demand letter in September 2004.  The demand letter had put the college on notice of the impending lawsuit.  The college should have preserved relevant ESI, including the professor’s hard drive.  As a result, even if the college had a routine deletion practice, a legal hold would have taken priority.

Second, the college failed to routinely follow its own retention policy.  Some email had been backed up for a year, some six months.  The dean acknowledged the college did not follow its retention policy as it relates to hard drives.  Since the college did not have a consistent policy, it could not rely on the safe harbor as a defense.

Litigation holds trump the safe harbor provision.  When a duty to preserve relevant ESI attaches, a company must modify its retention policy to accommodate the change.  Blindly allowing ESI to be deleted after a duty to preserve kicks in is an unacceptable practice.  As the college learned, courts will find spoliation and enter sanctions.

Moreover, once a company has a policy, follow it. It does no good to have a retention policy in writing but actually delete on a different schedule. There is no “safe harbor” protection if a company does not follow in good faith a routine policy.

Court Recently Ordered Third-Party Company To Disclose ESI

Posted by Gregg Mayer on Monday, March 24th, 2008   

As CIOLaw.org recently discussed , courts have the authority to require businesses to retrieve and disclose electronically stored information (“ESI”) even if those businesses are not named in a lawsuit. This occurred in a recent case this year.

Taubman Centers, Inc., a company in Michigan, was on the receiving end of a third-party subpoena recently as part of a lawsuit in Nevada. Taubman was not a named party in the lawsuit.

The subpoena sought 20 categories of ESI going back to 2001. After a preliminary review of the subpoena, Taubman determined it would take three employees working full time for four weeks to retrieve and review all of the 250,000 files at issue. Taubman argued this rendered the subpoena “unduly burdensome.”

The court disagreed, although the judge told the parties to work in good faith to reduce the scope of the subpoena, such as by shortening the time frame or changing key word searches.

Discovery of electronic files…is commonplace in business litigation. The Court believes that the parties should be able to narrow the scope of this subpoena so that it does not generate an overly burdensome amount of documents.

Regardless of the amount, the non-party company still has to bear the costs of disclosing the ESI. The case highlights the importance of companies being ready to retrieve and respond to subpoenas in the most cost-efficient way possible.

Read more about the case here.

New E-world Replaces Musty Boxes in Basement

Posted by Gregg Mayer on Friday, March 21st, 2008   

“Electrons have replaced ink and paper,” according to an article in The Journal of Legal Technology Risk Management.

Archiving in the past meant “moving around dusty boxes of paper in the basement.”  Today, it means the dynamic world of storing email and other electronically stored information (“ESI”).

Increasingly, regulations and litigation are forcing companies to take stronger and broader strides in ensuring retention programs are up to date and effective. As the article explains:

New regulations, such as Sarbanes-Oxley and the December 2006 revisions to the United States’ Federal Rules of Civil Procedure have made the need for archiving electronic information in a manner that makes the information retrievable without crippling the enterprise more urgent. A fully functional enterprise archiving system is no longer “nice to have,” but should be now a “must have” for all business enterprises, particularly those in highly regulated environments such as the financial or healthcare industries. Unfortunately for business, most enterprises have no such system; those that do often find the employees not following the rules. Without such an implemented system, the enterprise must spend massive amounts of time and money finding documents that may be kept in backup media because the enterprise does not have useful archives, or that may be kept on CDs or DVDs tossed in some employees’ desk drawers.

The article offers 13 tips to consider when developing an archiving system. Here are the first three:

1. Understand that archiving is a long term project that sheds a whole new light on needs and may test all existing technological knowledge and assumptions, requiring constant monitoring and revising;

2. Assess the enterprise’s current electronic policies and define or redefine processes and procedures to account for worldwide regulation affecting the enterprise;

3. Assess the total document repository size in terms of the number of individual documents rather than in storage capacity, which is a misleading metric since the number of documents not their size defines scale;

Read the entire article from The Journal Of Legal Technology Risk Management here. 

AMD v. Intel Part Two: The Mistakes Made And The Data Lost

Posted by Gregg Mayer on Friday, March 21st, 2008   

In Part I, we explored the obstacles Intel faced in implementing a massive legal hold.  In this part, we discuss the mistakes made and the data lost as a result of failing to implement a 100-percent effect legal hold across the company.

In this Part II, we explore the mistakes Intel made in trying to implement its legal hold.  Intel blames various mistakes made by individuals - such as failing to notify specific employees about the hold.  

Humans – not the policy – were the problem when Intel discovered it lost thousands of email messages, according to Intel.

These human errors were “misunderstandings or errors by individual employees, with ongoing day to day business responsibilities, working diligently to carry out the complex and unprecedented scope of preservation obligations in this case,” according to the company. It was not an intentional effort to delete email to prevent AMD from seeing them, according to Intel.

Of course, human errors or not, failing to preserve email when a litigation hold is in place will be costly. The party will either wind up paying to restore backup tapes – as Intel is having to do – or worse, the judge will order an adverse inference instruction, possibly even ordering a default judgment. An adverse instruction or other court-ordered sanction is still possible here.

So how much and what email was lost in Intel’s case?

Here’s a breakdown of what Intel acknowledges:

The first problem: Several custodians identified by Intel failed to properly save email messages as they were supposed to do. Some of those individuals failed to archive “sent” items from their email. Others failed to archive email for the period of time required. Still others failed to archive all of the proper email messages. Adding to the troubles, some of the custodians had computer crashes or other technical problems that caused a loss of data.
Consequently, these individual losses resulted in lost email.

The second problem: Some of the “custodians” were not told about the litigation hold by the company’s in-house counsel. This occurred for “newly selected” custodians as the list of custodians evolved. As a result, about 378 employees did not get word of the notice until February and March of 2007.

The third problem: Departed employees. According to Intel, 73 employees left and Intel only captured the hard drives for 60 of them. Thirteen were missed.

Backup sources exist for some of these lost email messages, but it will cost Intel millions to retrieve. Moreover, it appears at least some of the data may be lost forever.

AMD summarizes Intel’s losses as:

(C)ombined with the reckless decision to leave its auto-delete system running after this litigation began, one of Intel’s most fundamental ‘lapses’ was its failure to notify hundreds of its Custodians of their obligation to preserve evidence. All told, 378 of Intel’s Custodians, or 37% of the individuals on its Custodian List, received no evidence preservation instructions until late February or early March 2007 – twenty-one months after AMD and the Class commenced suit – or, in the case of employees who left Intel in the interim, not at all.

Intel has started taking steps to retrieve the data that it can. Without question, it will be expensive.

NEXT FRIDAY: Part Three - Intel’s proposed remedial measures and its cost

« Previous Entries