Throwing Computer In Dumpster Not Way To Handle e-Discovery

Posted by Gregg Mayer on Monday, March 10th, 2008   

A federal district court judge recently affirmed a $99,000 sanction and an adverse inference instruction against an individual and his company for purposely throwing a computer into a dumpster after becoming aware it was needed for litigation.

This odd case demonstrates the wrong way to handle a request for electronically stored information (“ESI”).

In APC Filtration, Inc. v. Becker, APC sued Becker for use of proprietary information and contacts that Becker gained while employed at APC. Becker had gone to work with SourceOne, a competitor of APC’s.

During the litigation, APC requested all communications between Becker and SourceOne, including email communications. Becker responded that he had communicated with SourceOne over email, but he no longer had those communications.

Pressed to explain, Becker at first said his personal computer crashed and any email messages were irretrievably lost. Later, Becker admitted he took the personal computer to a construction site some 20 miles from his home and threw the computer into a dumpster.

Unhappy with this turn of events, the magistrate judge in an October 12, 2007 opinion outlined the timeline of the litigation to explain Becker had proper notice that he should have preserved the computer:

APC’s complaint was filed on March 15, 2007…Becker admits to throwing the computer away sometime after March 21, 2007…In this case, Becker had notice [to preserve the computer] based on the nature of APC’s allegations that the computer could become part of the discovery process.
…
The Court specifically finds, in light of what Becker did (traveling 20 miles to dispose of the computer in a construction site Dumpster) and when he did it (within days of receiving notice of APC’s lawsuit), that Becker acted in bad faith in order to prevent APC from discovering potentially damaging evidence.

Consequently, the magistrate agreed to impose sanctions for spoliation.  First, the magistrate agreed to deem it “conclusively proven” that Becker communicated with SourceOne while Becker was still employed at APC, and that Becker tried to solicit business for SourceOne rather than APC while still employed at APC. Moreover, the magistrate imposed monetary sanctions of $99,462 to pay for APC’s attorney fees and expenses.

Since this opinion came from a magistrate judge, who generally handles preliminary aspects of litigation, including discovery, Becker and SourceOne appealed the monetary sanctions to the federal district court judge.

On Feb. 25, 2008, the federal district judge affirmed the magistrate’s sanctions.

CIOs, In-House Counsel Have Lessons To Learn From Qualcomm As Well

Posted by Gregg Mayer on Monday, March 10th, 2008   

Much of the blogosphere and legal discussions about the recent e-Discovery sanctions against Qualcomm focus on the amount of the sanction - $8.5 million – and the problems with six outside lawyers retained by the company.  Just last week, the district court lifted sanctions against those six outside lawyers to allow them the opportunity to fully defend themselves, although the sanctions against Qualcomm and its in-house team stand. 

In fact, the court in sanctioning Qualcomm made a specific point of noting that Qualcomm had an extensive in-house legal staff but the company simply “lacked the desire” to properly conduct e-Discovery.  The court listed the in-house failures:

Qualcomm employees were integral participants in hiding documents and making false statements to the court and jury. Qualcomm’s in-house lawyers were in the unique position of (a) having unlimited access to all Qualcomm employees, as well as the emails and documents maintained, possessed and used by them, (b) knowing or being able to determine all of the computers and databases that were searched and the search terms that were utilized, and (c) having the ability to review all of the pleadings filed on Qualcomm’s behalf which did (or should have) alerted them to the fact that either the document search was inadequate or they were knowingly not producing tens of thousands of relevant and requested documents.

As part of the sanctions, the Qualcomm in-house counsel have to participate in a court-ordered detailed analysis to identify all of the factors that contributed to the discovery problems, as well as evaluating proposals to ensure those problems do not happen again. The analysis program is known as CREDO (“Case Review and Enforcement of Discovery Obligations”).

As Qualcomm illustrates, in-house lawyers have a distinct responsibility to ensure companies comply with e-Discovery, even if outside counsel have been retained. The Qualcomm court explained that in-house lawyers are in the best position to understand a company’s organizational structure, know the extent of archived email and other ESI, and know the employees whose computers should be searched. In-house lawyers are simply better positioned to understand e-Discovery issues than any other lawyers involved in litigation.

Consequently, in-house lawyers should work with IT staff to understand how a company archives email and other ESI. CIOs should help spearhead this effort. Ignoring the e-Discovery implications of improper ESI disclosures is far more costly than investing in detailed e-Discovery management before a lawsuit ever happens.

Employee Who Refused To Destroy ESI May Proceed With Lawsuit Against Wal-Mart

Posted by Gregg Mayer on Friday, March 7th, 2008   

In a whistle-blower lawsuit in Arkansas, a former employee of Wal-Mart who refused to destroy paper copies of digitized documents – hard copies of electronically stored information (“ESI”) – recently received court approval to go forward with her lawsuit.

The plaintiff, Rita Miles, alleges Wal-Mart bosses and co-workers retaliated against her when she refused to destroy ESI-related documents after Wal-Mart was served with a subpoena in a criminal investigation.

According to the January 25, 2008 court opinion:

On May 24, 2005, Wal-Mart attorney Robert DeMoss sent an email to each member of the Wal-Mart Labor Relations Department instructing them to preserve all documents responsive to the grand jury subpoena. However, some 15 minutes later, a meeting was called in the library, where Plaintiff’s project team was instructed to place paper copies of digitized documents in a tub for shredding. Plaintiff refused to destroy documents that might be subject to the subpoena.

Rita Miles alleges she was treated with hostility by her supervisors and co-workers after she refused to destroy the documents. The court agreed to let her lawsuit move ahead despite Wal-Mart’s arguments that no genuine issue of material fact exists.

This lawsuit is far from over, but it offers an easy lesson: do not instruct employees to destroy documents – including ESI – when subpoenaed for that information. Moreoever, destroying ESI can lead to spoliation sanctions during litigation, or even a default judgment.

If you are curious about the related criminal investigation into Wal-Mart, read about the Wal-Mart executive who pleaded guilty in the case, as well as more about Rita Miles, here.

Qualcomm Agrees To $8.5 million Sanctions For e-Discovery Violation

Posted by Gregg Mayer on Friday, February 29th, 2008   

Qualcomm, Inc. has agreed to pay more than $8 million in sanctions for apparently hiding the existence of damaging email during litigation.

The discovery violation came to light during a patent dispute between Qualcomm and competitor Broadcom.

In January, a federal magistrate judge ordered Qualcomm to pay $8.5 million in sanctions for not disclosing email to Broadcom despite Qualcomm’s lawyers’ knowledge of the existence of the email. It was described as a “monumental” discovery violation.

According to a law.com article:

The attorneys “assisted Qualcomm in committing this incredible discovery violation by intentionally hiding or recklessly ignoring relevant documents, ignoring or rejecting numerous warning signs that Qualcomm’s document search was inadequate, and blindly accepting Qualcomm’s unsupported assurances that its document search was adequate,” [Judge] Major wrote.

The judge also sanctioned Qualcomm for intentionally withholding “tens of thousands of e-mails.” Qualcomm will have to pay Broadcom’s $8.5 million attorney fees — though that award mirrors a sanction already imposed by another judge.

Late this month, Qualcomm has paid the money. As reported on the e-Discovery law blog:

Qualcomm states that it acccepts the sanctions imposed by Magistrate Judge Barbara Lynn Major and is not appealing or filing any objections to the January 7, 2008 Sanctions Order. Qualcomm further advises that it has now paid to Broadcom the full $8,568,633.24 monetary sanction ordered by the Magistrate Judge, and notes that it is participating in good faith in the CREDO program.

Read the full report, including Qualcomm’s court pleading, here.

Judge warns: ‘You can’t just throw up your hands’ at ESI obligations

Posted by Gregg Mayer on Friday, February 29th, 2008   

In a slow-developing lawsuit in New York, a federal judge recently took the County of Suffolk to task for its “lack of diligence” in disclosing electronically stored information (“ESI”).

In a nutshell: the county at first said it only had two email messages to disclose; then, the county acknowledged that it had email on inaccessible back-up tapes, including several back-up tapes damaged by a water pipe burst; later, the county said the tapes could be restored at a great expense, and the water pipe burst was not so bad; finally, the county hired a vendor that restored more than 2,400 pages of email, most of which needed to be disclosed.

It is a remarkable case of e-Discovery gone awry.

How The Case Developed

The case is Toussie v. County of Suffolk. As brief background, Toussie sued the county in 2001 for a violation of his civil rights for denying him an opportunity to purchase 31 acres of property, according to The New York Times.  A second lawsuit with additional plaintiffs commenced in 2005 and was joined with the first lawsuit.

During the discovery process – a process where both sides disclose evidence to the other side – the county disclosed only two emails. Toussie complained this was insufficient – after all, what business, let alone a county, only has two emails to disclose with so much communication taking place over computers? The court agreed with Toussie.

The court ordered the county to search its servers for email. The county responded it did not have the resources to fully search the back-up tapes. Moreover, it was clear the county did not implement a litigation hold on email once the litigation was underway. This lapse drew the court’s ire at a subsequent hearing:

You can’t just throw up your hands and say we don’t store email in an accessible form and then expect everybody to walk away. The question is, how can a plan be implemented to provide for some production.

Threatened with sanctions

Pressed by the court to do something, the county estimated it would cost nearly $934,000, and take 960 man hours, to retrieve email. The county said hiring an outside consultant would cost between $617,000 and $672,000. In addition, the county said it would take approximately two-and-one-half years to restore all of the email and complete production.

After receiving the county’s estimates, the court scheduled another hearing to try to implement a less costly and time-consuming search. At this next hearing, however, the county lawyers said a water pipe had burst and destroyed some of the back-up tapes. No one had told the other lawyers or the judge of this disaster.

The court threatened a spoliation sanction for the lost email, and the county responded it would hire an outside vendor to restore the tapes that were not damaged. The cost to hire the vendor would range from $418,000 to $963,500.

Following the threatened sanctions, the county was able to restore some tapes on its own. Then, the outside vendor was asked to restore 417 back-up tapes. Of those, the vendor could not restore 9 percent – or 36 tapes. The water pipe burst, it turns out, had only damaged “one tray of tapes,” and other tapes were not recoverable for other reasons, such as formatting problems. (It is worth noting the vendor was able to restore the 400-plue tapes in under 80 days – far less time than the two-and-a-half years the county initially estimated.)

No Spoliation, But Must Pay Attorney Fees

In the end, the vendor retrieved more than 2,400 pages of email messages, of which only 200 were withheld due to attorney-client privilege issues. There were still problems with this ESI disclosure, according to Toussie, and there were still missing email messages. Toussie still wanted spoliation sanctions against the county.

The court concluded, however, that even if there were some missing email messages, that was not enough to warrant a dismissal or adverse jury instruction:

While the evidence is clear that at least 9% of the back up tapes were destroyed and the plaintiffs may be correct that e-mails have been deleted by users, there is no reason to believe that any of those e-mails would have provided any additional support of plaintiffs’ claims.

Accordingly, the plaintiffs have not sufficiently demonstrated that the destroyed/lost emails were favorable or relevant and the motion for a default judgment or an adverse inference instruction is denied.

The county was ordered to pay Toussie’s attorney fees for the e-Discovery debacle.

For another discussion of this case, and to read the court opinion, see the e-Discovery Team blog.

What Happens To A Spoliator?

Posted by Gregg Mayer on Thursday, February 28th, 2008   

A spoliation finding may be the worst thing that could happen to a company involved in litigation.

Generally, spoliation of evidence is when you do not preserve evidence after you reasonably anticipate litigation. This includes deleting email after being on notice to save it. Consequences for spoliation include an adverse jury instruction, or even a default judgment.

One of the most famous ESI spoliation findings was in Zubulake v. UBS Warburg.  Spoliation in Zubulake resulted in an adverse instruction and ultimately led to a multimillion dollar jury verdict.

A less well-known case is Leon v. IDX Systems Corporation, which was affirmed by the Ninth Circuit Court of Appeals. Leon is an example of intentional spoliation.

In Leon, an employee and employer were involved in litigation over whether the employee could be fired without violating the anti-retaliation provisions set out in federal law.

At issue in the case was a laptop computer the company issued to the employee. When trouble started brewing between the two, the employer told the employee not to destroy or modify files on the laptop.

The employee did not listen. He purposely deleted files and then wrote a program to wipe any deleted files from unallocated space on the hard drive. This did not sit well with the court.

Both the trial judge and the Ninth Circuit Court of Appeals concluded the employee purposely deleted files that he knew he should not, and he was a spoliator. Consequently, the employee’s lawsuit against the employer was dismissed. Moreover, the employee was fined $65,000 to pay his employer’s attorney fees because of his intentional destruction of evidence.

Here is how the Ninth Circuit explained spoliation:

A party’s destruction of evidence qualifies as willful spoliation if the party has some notice that the documents were potentially relevant to the litigation before they were destroyed…Moreover, because the relevance of … [destroyed] documents cannot be clearly ascertained because the documents no longer exist, a party can hardly assert any presumption of irrelevance as to the destroyed documents.

The district court concluded that Leon’s behavior amounted to willful spoliation because he knew he was under a duty to preserve all data on the laptop, but intentionally deleted many files and then wrote a program to write over deleted documents. The court rejected Leon’s explanation that the deleted documents were “personal,” observing that “personal” documents are highly relevant to an employment discrimination claim and noting the IDX-proffered evidence that work-related documents were also deleted and written over.

Spoliation can be fatal to a party’s litigation. Although Leon is an extreme example, it offers a warning that steps should be taken to preserve ESI, including email, when under a duty to implement a litigation hold.

Stolen Laptops, Lost Data, But No Sanctions For Spoliation

Posted by Gregg Mayer on Monday, February 25th, 2008   

In a lawsuit in Texas, both sides claimed that the other side failed to preserve email that was relevant to the litigation. However, the judge in a Feb. 5, 2008 decision declined to order sanctions.

As brief background, Diabetes Center of America, Inc. (DCOA), a treatment center for persons with diabetes, is suing Healthpia America, Inc., a company that develops mobile healthcare devices, for breach of contract. As part of the litigation, both sides sought email.

First, DCOA alleged Healthpia should have backed-up email messages that were lost when two laptop computers were stolen. According to the court opinion, one laptop was stolen “from a friend’s car outside Kennedy Airport,” and the other laptop was stolen from an employee’s Healthpia office cubicle. Healthpia had a standard procedure of not backing up email from laptops. The court declined to order sanctions. The judge wrote:

Defendants may not have taken adequate steps to preserve emails through a back-up process, but Defendants followed the company’s standard procedures. If anything, there has been a showing of negligence derived from lax electronic document maintenance procedures.

But any “negligence” was not enough to warrant sanctions. Consequently, the judge denied DCOA’s request that Healthpia be sanctioned.

Next, Healthpia argued DCOA failed to preserve email that was contrary to DCOA’s position in the litigation. Healthpia later obtained the relevant email from third parties, but Healthpia argued there may be more email that it had not received. DCOA acknowledged that a junior lawyer was assigned to search through the databases for the appropriate email messages to give to Healthpia. The junior associate used “inadequate” search terms, the judge wrote, but neither the junior associate nor DCOA’s senior lawyer acted in bad faith. The judge wrote:

(A)t most, Plaintiff’s counsel may have been lax in that inadequate direction and oversight was given to the associate to guide her search for relevant and responsive emails. There is no evidence that he or the associate acted in bad faith.

As a result, the judge declined to order sanctions.

As an aside, in regard to the stolen laptops from Healthpia, it is worth noting that this is not a Rule 37 (“safe harbor” provision) ruling from the judge, but the underlying premise for the rule is important here. As you may know, Rule 37 provides:

Absent exceptional circumstances, a court may not impose sanctions under these rules on a party for failing to provide electronically stored information lost as a result of the routine, good-faith operation of an electronic information system.

Here, stolen laptops do not equate losing data as part of a routine, good faith operation. However, the fact that Healthpia maintained a formal retention policy, and followed that policy, certainly was helpful – if not determinative – in precluding sanctions once those laptops were stolen and there was nowhere else to gather the email.

The case is Diabetes Centers of America, Inc. v. Healthpia America, Inc. It is filed in the southern district of Texas. Read more about the case and see the opinion at this blog.

Unwrapping Zubulake - Part II

Posted by Gregg Mayer on Thursday, February 21st, 2008   

In Part I, we discussed the opening stages of the Zubulake e-Discovery opinions, including the court’s order that UBS restore a sampling of backup tapes to determine the extent of the costs involved in restoring all of the backup tapes. Now we continue with the court’s later opinions.

*Zubulake IV – October 22, 2003

While restoring the backup tapes, UBS and the employees discovered some backup tapes were “missing.” Moreover, some email was deleted even though UBS knew it should have preserved them.

Despite these troubling developments, the judge was still not ready to drop the hammer on UBS. Instead, the judge ordered that Laura Zubulake could redepose certain witnesses to learn more about the missing email and backup tapes. UBS had to pay for those depositions.

In addition, UBS was not yet slammed with any sanctions for spoliation of evidence. As explained by the judge:

Spoliation is the destruction or significant alteration of evidence, or the failure to preserve property for another’s use as evidence in pending or reasonably foreseeable litigation. The spoliation of evidence germane to proof of an issue at trial can support an inference that the evidence would have been unfavorable to the party responsible for its destruction.

Put another way, once a company is under a duty to preserve evidence, if the company fails to do so, it can be sanctioned.

In explaining the duty to preserve, the judge wrote: “The obligation to preserve evidence arises when the party has notice that the evidence is relevant to litigation or when a party should have known that the evidence may be relevant to future litigation.”

This analysis involves two different boundaries: when did the duty to preserve start and what must be preserved. Implementing the process is known as a legal hold.
The judge said UBS had a duty to preserve the missing backup tapes. However, since it appeared the loss of the tapes was at best only negligent, the judge ruled she would not yet give an adverse inference jury instruction since Zubulake had not shown that the lost evidence would have supported her claims.

The additional depositions, though, were scheduled to learn about the apparent deletion of email. UBS was running out of time. The deleted email would prove costly.

*Zubulake V – July 20, 2004

Eight months later, the deleted email resulted in the judge ordering an adverse jury instruction. The reason: since UBS employees deliberately deleted the email, and there was no way to retrieve them, then an adverse instruction was the only way to level the playing field for Zubulake’s day in court.

“The proof is clear,” the judge wrote. “UBS personnel unquestionably deleted relevant e-mails from their computers…”  The judge continued:

At the end of the day … the duty to preserve and produce documents rests on the party. Once that duty is made clear to a party, either by court order or by instructions from counsel, that party is on notice of its obligations and acts at its own peril.

As a result, UBS was found to be a spoliator. To remedy the destruction of evidence, the judge ordered an adverse inference instruction, which read:

You have heard that UBS failed to produce some of the e-mails sent or received by UBS personnel in August and September 2001. Plaintiff has argued that this evidence was in defendants’ control and would have proven facts material to the matter in controversy.
 If you find that UBS could have produced this evidence, and that the evidence was within its control, and that the evidence would have been material in deciding facts in dispute in this case, you are permitted, but not required, to infer that the evidence would have been unfavorable to UBS.
 In deciding whether to draw this inference, you should consider whether the evidence not produced would merely have duplicated other evidence already before you. You may also consider whether you are satisfied that UBS’s failure to produce this information was reasonable. Again, any inference you decide to draw should be based on all of the facts and circumstances in this case.

The adverse jury instruction would make it nearly impossible for UBS to win.     

*Zubulake VI – March 16, 2005

This opinion tidied up what the jury could hear in terms of the prior court rulings, including the prior sanctioning of UBS for spoliation.

The judge ruled the jury would not hear any evidence regarding those prior decisions. Of course, the adverse inference instruction would still be given.

Other orders in this opinion also determined what evidence could be admitted, including preventing Zubulake’s attorney from calling UBS’s attorney to the stand to talk about the e-Discovery issues.

Conclusion

In the end, the jury awarded Zubulake a $29 million verdict in 2005.

As noted above, Zubulake’s precedent-setting rulings on e-Discovery are often cited in other e-Discovery court opinions.  Familiarity with the issues raised in the opinions helps understand future developments of e-Discovery law. 

Unwrapping Zubulake – Part I

Posted by Gregg Mayer on Friday, February 15th, 2008   

No legal case receives more attention regarding electronically stored information (“ESI”) than Zubulake v. UBS Warburg LLC. Without question, it is a landmark case in e-Discovery circles. Judges across the country turn consistently to the reasoning in Zubulake when rendering e-Discovery opinions.

One problem for lawyers and non-lawyers alike is trying to understand everything laid out in Zubulake. The case is spread over six different opinions written in a period of two years. Throughout, we read about the important of maintaining an effective email archiving system and ability to retrieve email.

In the end, CIOs will be convinced that email retention policies are not only important but necessary. More importantly, a company should have an archiving system with the ability to retrieve email – even those purposely deleted by rogue employees.

Zubulake is an employment discrimination case. At issue in the e-Discovery opinions are back-up tapes and deleted email. Ultimately, we learn UBS could not retrieve deliberately deleted email. That results in extraordinary consequences.

This post summarizes the key Zubulake opinions leading up to the multi-million dollar jury verdict. It is meant to provide a basic understanding to CIOs about how Zubulake developed and why it is important. These opinions are chock full of key legal phrases most often used in e-Discovery matters.

CIOs should be familiar with these key phrases and understand a company’s responsibility in retaining and retrieving email and other ESI.

Background

Laura Zubulake, an equities trader who was fired from UBS shortly after filing an EEOC complaint, sued UBS for gender discrimination, failure to promote, and retaliation under federal, state and city law. Zubulake argued key evidence to prove her case was contained in email sent by UBS employees and stored with UBS. At the beginning of the litigation, the email was believed to be on back-up tapes in the control of UBS.

Zubulake I - May 13, 2003

In this first opinion, we learn that UBS claims it will cost approximately $175,000 to restore email on backup tapes that Zubulake wants to review. In this opinion, the judge discusses cost-shifting analysis – that is, who has to pay all that money to restore those backup tapes. In this case, there were 94 backup tapes with potentially responsive email.

Courts may consider cost-shifting analysis when the ESI sought is “not reasonably accessible” – such as back-up tapes – and the other side was not under a duty to preserve the data before moving it onto back-up tapes.

At this stage, the judge believed cost-shifting may be appropriate. In other words, the employee, Laura Zubulake, would have to pay some of the costs associated with retrieving the email. In deciding this, the judge developed a seven-part test to determine how much costs should be shifted:

1. The extent to which the request is specifically tailored to discover relevant information;
2. The availability of such information from other sources;
3. The total cost of production, compared to the amount in controversy;
4. The total cost of production, compared to the resources available to each party;
5. The relative ability of each party to control costs and its incentive to do so;
6. The importance of the issues at stake in the litigation; and
7. The relative benefits to the parties of obtaining the information.

The first two factors are the most important, the judge wrote. But in order to do a thorough analysis, the judge ordered UBS to restore five backup tapes and detail the results. By examining those five, then the judge could determine how much – if any – of the costs to restore the entire 94 backup tapes should be split with the employee.

Zubulake III – July 24, 2003

Just over two months later, after Zubulake II (which was not an e-Discovery opinion), the court issued its next opinion involving e-Discovery issues.

The judge considered the costs predicted by the sample restoration ordered in the last opinion. Examining the five backup tapes, which cost more than $19,000 to restore, UBS found approximately 600 responsive messages. UBS now estimated it would cost $273,649 to restore the rest of the backup tapes.

With that information at hand, the judge applied the seven-factor test it developed in Zubulake I.

The judge ruled UBS should pay 75 percent of the cost to restore the remaining tapes and the employee the other 25 percent.

Now the stage is set to have the backup tapes restored and the case to move forward. Unfortunately for UBS, it doesn’t go that smoothly.

Coming Soon: Part II - Problems for UBS

Something You Never Want To Have To Tell A Judge

Posted by Gregg Mayer on Friday, February 15th, 2008   

Attorneys for New Century Financial Corp. had to confess to a United States Bankruptcy Judge that, due to a “mishap,” more than 700,000 email messages were not disclosed to the bankruptcy examiner. The attorneys blamed an outside vendor. Because of the misplaced email, more trouble may loom for New Century with the bankruptcy court:

As for the document production mishap, Missal [the bankruptcy examiner] has not yet made any filings about it. But he has consistently complained about delays and difficulties in conducting the investigation. The U.S. trustee in the case seized on New Century’s e-mail admission to support Missal’s pending request for more time to complete his investigation.

“Based upon communications with the examiner, the U.S. trustee understands that the debtors previously indicated to the examiner that the e-mails at issue had, in fact, been produced,” the trustee wrote.

The “mishap” highlights the importance of having reliable email archiving. Know where your email messages are and know how to get them.

Read the story here.

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