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Practice Edge

case digest
by steven teppler

EDDE Case Digest 41 – 2009-08-28

A spoliation triple header this issue.  First up is a decision from the U.S. District Court for the Southern District of New York involving expensive (read, in the millions) art work, allegations of breach of contract, promissory estoppel and, a motion for sanctions for failure to search for and preserve ESI.  The second decision provides an analysis of spoliation standards in the Sixth Circuit and as applied in the federal courts in the Eastern District of Michigan. The third decision from the U.S. District Court for the Southern District of Georgia involves the imposition of an adverse inference for spoliation, as well as the imposition of an adverse inference in a civil case where a witness invokes his rights against self incrimination, both under Eleventh Circuit doctrinal authority. 

All errata acknowledged in advance.

SWT

Decisions:

Green v. McClendon, 2009 WL 2496275 (S.D.N.Y. 2009)

State Farm Mut. Auto. Ins. Co. v. BMW of North America, LLC, 2009 WL 2447612 (E.D. Mich. 2009)

Smith v. Georgia Energy USA, LLC, 2009 WL 2486896 (S.D. Ga. 2009)

***********

Case:                Green v. McClendon
Citation:           2009 WL 2496275 (S.D.N.Y. 2009)
Date:                2009-08-13
Topics:             Forensic investigation, Second Circuit spoliation sanctions and sanctions severity imposition standard, document retention policy suspension application to individual, discovery obligations run first to counsel, violation of Fed. R. Civ. P. Rule 26(e) obligation to supplement discovery

In this decision from the U.S District Court for the Southern District of New York, U.S. Magistrate Judge Francis is called upon to rule on plaintiff’s motion “for sanctions for failure to preserve and produce certain “electronically stored documents.” That motion asked for sanctions against both defendant and her counsel.

The underlying facts of this action involve are decidedly low-tech but high profile.  Here, plaintiff art dealer brought an action against a New York couple for breach of a contract to purchase a 4.2 million dollar painting (“Work”).  An advance payment of 500,000 was made (the characterization of which was disputed and in the interim, the couple began to experience marital discord. 

Defendants denied entering into a binding contract to purchase the Work, noting first that they never executed a written agreement, and further characterized the initial 500,000 payment as a “refundable deposit.”

The art dealer was not amused, and filed suit for breach of contract and promissory estoppel.  For contract fans, this agreement could have been performed within one year, and so fits quite nicely into a statute of frauds carve out.  Promissory estoppel assertions also work.

Let’s get to the discovery dispute. 

Local District Court Rules Addressing ESI Discovery

First, this is New York. New York City, to be precise, and Manhattan, to be exact.  The Southern and Eastern District Courts of New York share the same local rules-set (see http://www1.nysd.uscourts.gov/courtrules.php) and Local Rule 26.3 provides “Uniform Definitions in Discovery Requests.” Not surprisingly, the definition of “document” is expressly made co-equal in scope with its usage in Fed. R. Civ. P. Rule 34(a):

“(2) Document. The term "document" is defined to be synonymous in meaning and equal in scope to the usage of this term in Federal Rule of Civil Procedure 34(a), including, without limitation, electronic or computerized data compilations. A draft or non-identical copy is a separate document within the meaning of this term.”

Takeaway:  Read applicable the local rules before filing a pleading. Read the applicable local rules when contemplating a discovery motion. Oh, and check to see whether there are jurist-centric standing orders imposing further requirements for discovery motion practice.

That said, plaintiff’s counsel (imo) did the right thing and explicitly incorporated the Southern District’s Local Rule 26.3 in asking for all documents “concerning the Work” and “concerning [plaintiff] or transactions with [plaintiff]”

As might be expected, defendant responded that she had produced “all responsive, non-privileged documents in her possession.”

During the course of email exchanges between counsel concerning plaintiff’s discovery requests, the Court notes that

“…[Defendant] and her counsel repeatedly represented that they had conducted thorough searches for responsive documents and had produced everything in [Defendant]'s possession.” Green v. McClendon, 2009 WL 2496275, 2 (S.D.N.Y. 2009)

Author’s Note: It appears that although both husband and wife were named as defendants, only the wife participated in these proceedings.  Accordingly, where “defendant” is mentioned, the Court refers to the wife.

A plain vanilla proceeding so far, or so it seems. At this point, the picture begins to get murky.

Since this is a spoliation decision, let’s start with a time line:

October 3, 2008 – Plaintiff files lawsuit alleging breach of contract and promissory estoppel against defendant in connection with alleged contract to purchase work of art.

March 16, 2009 – Plaintiff filed a motion to compel production of certain documents, “including documents concerning other art transactions and any non-privileged communications with third parties concerning the Work.”

April 2, 2009 – The Court grants plaintiff’s motion to compel, and orders defendants to produce all documents relating to the work as well as certain information concerning other artworks.

Rule 26 Bonus: Defendants were also ordered to certify the completeness of their responses.

April 24. 2009 – Defendant produced a two page, undated Excel spreadsheet file titled “Fine Art, Miscellaneous Galleries” from her home computer files. The Excel file provided information “on thirty-seven” artworks, including the Work.”

Author’s Note: Undated? No file creation date? Metadata creation date?  Feeling unsatisfied? So was plaintiff’s attorney…

Post-April 24, 2009 – Plaintiff then requested more information about the spreadsheet…

“The plaintiff then requested additional information about the spreadsheet, specifically seeking the date it was created, dates it was modified, and the name of anyone involved with creating or modifying it.” Id., at p. 2

June 9, 2009 - Defendant’s counsel provided what appear to be three additional electronic versions of the spreadsheet with partial electronic history for each.”

“Thereafter, on June 9, 2009, Mrs. McClendon's counsel provided what appear to be three additional electronic versions of the spreadsheet with partial electronic history for each. FN4 (Cahill 7/7/09 Decl., ¶ 20 & Exhs. T, U; Declaration of Michelle R. Drab filed July 17, 2009 (“Drab Decl.”), 112-6). There are some clear differences between the initial spreadsheet provided to the plaintiff in hard-copy form and the additional electronic versions. Most notably, the former lists a purchase price of $4.2 million for the Work whereas the additional versions show no price. In addition, although counsel explained that the spreadsheet was created by an individual hired by the McClendons to organize their art files, no further information about the spreadsheet's creator has been provided. (Cahill 7/7/09 Decl., ¶¶ 15, 18 & Exhs. O, R).” Id.

“FN4. The electronic history was obtained by counsels' inspection of the documents rather than by an expert's inspection of Mrs. McClendon's computer's hard drive. (E-mail of Michelle Drab dated June 10, 2009, attached as Exh. U to Cahill 7/7/09 Decl.).” Id.

Author’s Note: The “what appear to be” language appears to provide a hint as to where the Court is headed.  Interestingly, it also appears that a pre-existing paper document provided some information for the Excel spreadsheet file.

Plaintiff’s counsel was understandably not satisfied with the production of these differing electronic files, and filed the instant motion, requesting, inter alia, an order “authorizing a forensic examination of [defendant]’s computer and appropriate sanctions.”

Defendant’s Response to Motion for Sanctions

Defendant’s response to plaintiff’s motion for sanction stands out as a clarion call for an understanding that computer generated information is, or can be evidence, and that assertions of a lack of technology sophistication will no longer be presumed credible.

File the following excerpt, consisting of defendant’s asserted explanation, in the “you can’t make this stuff up department:

“When Mrs. McClendon responded, however, she disclosed a fact that was previously unknown to the plaintiff and to the Court: in January 2009, “the son of a friend” who is “familiar with computers” reinstalled the operating system on Mrs. McClendon's computer.” Id.

“During this process, all of her files were transferred from her hard drive onto four compact discs…so her computer no longer contains the original version of any of the information that was stored there prior to the reinstallation process.” Id.

“Apparently, [defendant]'s counsel did not obtain these CDs until April 2009, and did not review them until June.” (McClendon Decl., ¶ 4; Drab Decl., ¶¶ 2-3).” Id.

Author’s Note: I still wonder whether anyone checked the Excel spreadsheet file metadata.  Scratch that. I wonder why no one did. No matter, as plaintiff’s counsel chose the nuclear option for digital evidence challenges.

Upon learning that defendant’s computer had been effectively wiped clean of evidence, plaintiff’s counsel withdrew its request for a forensic examination of defendant’s computer, arguing that such activity would now be futile:

“In light of this new information, the plaintiff now withdraws its request for a forensic examination of Mrs. McClendon's computer, contending that such a search would be a “useless exercise.” Id, at p. 3.

Calling the Doctor after the Patient Dies

Defendant did retain a computer specialist to search her computer’s hard drive for relevant documents, but this was done…after the computer’s operating system was reinstalled.

This little point was noted both by plaintiff’s counsel and the Court in a footnote:

“FN5. Indeed, Mrs. McClendon hired a professional to search her computer hard drive for relevant documents in April 2009... Predictably, this search yielded no relevant results...Moreover, there was no trace of the spreadsheet.” Id.

Which of course, should come as no surprise to anyone.

In light of defendant’s actions, plaintiff’s counsel still sought discovery sanctions, arguing that defendant and her counsel breached their discovery obligations, resulting in “the untimely production of documents” and the “loss of electronically stored information.”
Plaintiff’s sought after relief included evidential sanctions, fees and costs:

1) additional time to depose Mrs. McClendon about the spreadsheet and other electronically-stored documents, at her expense, (2) an order directing the defendant to identify the person who created the spreadsheet, (3) payment of costs incurred by the plaintiff in bringing this motion, including attorneys' fees, and (4) an adverse inference that the McClendons understood that they had in fact purchased the Work and added it to their personal collection.” Id.

Second Circuit Spoliation Sanctions Imposition Standard

The Court then embarks on the definition of spoliation followed by federal courts in the U.S. Court of Appeals for the Second Circuit. Note that the definition includes “significant alteration” as well as destruction, and also includes reasonably foreseeable as well as pending litigation:

“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.” Byrnie v. Town of Cromwell, Board of Education, 243 F.3d 93, 107 (2d Cir.2001) (quoting West v. Goodyear Tire & Rubber Co., 167 F.3d 776, 779 (2d Cir.1999)).” Id.

Rules Based and Inherent Powers Sources for Court’s Authority to Impose Sanctions

The Court then provides the authority pursuant to which a federal district court may impose sanctions in response to spoliation.

Violation of Court Order - Fed R. Civ. P. Rule 37  “A court's authority to impose sanctions in response to spoliation derives from at least two sources. Where a party violates a court order-either by destroying evidence when directed to preserve it or by failing to produce information because relevant data has been destroyed-Rule 37(b) of the Federal Rules of Civil Procedure provides that the court may impose a range of sanctions, including dismissal or judgment by default, preclusion of evidence, imposition of an adverse inference, or assessment of attorneys' fees and costs. Fed.R.Civ.P. 37(b); see Residential Funding Corp. v. DeGeorge Financial Corp., 306 F .3d 99, 106-07 (2d Cir.2002); Metropolitan Opera Association, Inc. v. Local 100, Hotel Employees and Restaurant Employees International Union, 212 F.R.D. 178, 219-20 (S.D.N.Y.2003).” Id.

Inherent Powers “In addition, “[e]ven in the absence of a discovery order, a court may impose sanctions on a party for misconduct in discovery under its inherent power to manage its own affairs.” Residential Funding, 306 F.3d at 106-07 (citations omitted); accord West, 167 F.3d at 779.” Id.

Party, Counsel or Both May be Sanctioned Under either standard, “Sanctions may be imposed “on an attorney, a party, or both.” Metropolitan Opera, 212 F.R.D. at 220.” Id.

Spoliation Sanction Severity

The Court then provides an explanation for determining the “appropriate sanction.”  In essence, determinations are made on a case-by-case basis, with the degree of the spoliator’s culpability playing a large role in the decisional process:

“The determination of an appropriate sanction for spoliation, if any, is confined to the sound discretion of the trial judge, and is assessed on a case-by-case basis.” Zubulake v. UBS Warburg LLC, 229 F.R.D. 422, 430 (S.D.N.Y.2004) ( “Zubulake V” ) (quoting Fujitsu Ltd. v. Federal Express Corp., 247 F.3d 423, 436 (2d Cir.2001)). As a general matter, however, the severity of the sanctions imposed should be congruent with the destroyer's degree of culpability. See Arista Records LLC v. Usenet.com, Inc., ---F.Supp.2d ----, No. 07 Civ. 8822, 2009 WL 1873589, at *10 (S.D.N.Y. June 30, 2009); Reino De Espana v. American Bureau of Shipping, No. 03 Civ. 3573, 2007 WL 1686327, at *3 (S.D.N.Y. June 6, 2007); Chan v. Triple 8 Palace, Inc., No. 03 Civ. 6048, 2005 WL 1925579 at *6 (S.D.N.Y. Aug. 11, 2005); see also Metropolitan Opera, 212 F.R.D. at 219 (“In Rule 37 cases, intentional behavior, actions taken in bad faith, or grossly negligent behavior justify severe disciplinary measures.”). Moreover, any “applicable sanction should be molded to serve the prophylactic, punitive, and remedial rationales underlying the spoliation doctrine.” West, 167 F.3d at 779; accord Kronisch v. United States, 150 F.3d 112, 126 (2d Cir.1998).” Id.

Author’s Note:  The Court uses the terms “appropriateness” and “severity.” Imo, the use of the term “appropriate” can result in confusion (and my spoliation law migraines) because it is unclear whether “appropriate” refers to the determination that the imposition of “a” sanction is warranted, or, determining the type of sanction to be imposed.  Imo, the use of the term “severity” is more clear, and also nicely alliterative). 

Plaintff’s Request for Adverse Inference Instruction

The Court then discusses what must be “established” by a party seeking an adverse inference instruction based on spoliation of evidence:

“It is well established that a party seeking an adverse inference instruction based on the spoliation of evidence must establish:

(1) that the party having control over the evidence had an obligation to preserve it at the time it was destroyed;

(2) that the records were destroyed “with a culpable state of mind”; and

(3) that the destroyed evidence was “relevant” to the party's claim or defense such that a reasonable trier of fact could find that it would support that claim or defense. Residential Funding, 306 F.3d at 107; accord ACORN (New York Association of Community Organizations for Reform Now) v. County of Nassau, No. 05 CV 2301, 2009 WL 605859, at *2 (E.D.N.Y. March 9, 2009); Zubulake V, 229 F.R.D. at 430. Accordingly, each of these requirements is examined below.” Id., at p. 4

Author’s Note: Ok, I’ve asked this question before and I still haven’t seen any decisional authority address the issue. What level of proof is required to “establish” the elements required for imposition of an adverse inference instruction? Preponderance? Clear and convincing? More probable than not? This decision does not provide the answer, but I’ll guess that a preponderance standard lurks behind most adverse inference decisions.

Musings (or bemusings) aside, the Court then goes into greater detail in its analysis of the “establishment” requirement for the imposition of an adverse inference instruction sanction for spoliation of evidence.

First Element: Obligation to Preserve Evidence

The Court begins its more in-depth adverse inference elements analysis with a party’s duty to preserve evidence.

Author’s Note: I’m typically not one to quibble (well, not often…well, not unless justified…well, never mind) but the obligation to preserve is really two elements rolled into one. The two elements are control, and duty to preserve. These two elements are easily susceptible of, and quite often engender independent analysis (control vs. duty to preserve).

“Nuff said…back to the opinion.  Not surprisingly, the Court follows the traditional and well established approach provided by nearly ten years of doctrinal authority:

“a. The Obligation to Preserve Evidence

In general, “[t]he obligation to preserve evidence arises when [a] 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.” Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 216 (S.D.N.Y.2003) ( “Zubulake IV” ); accord Fujitsu, 247 F.3d at 436. The duty to preserve attaches at the time that litigation is reasonably anticipated. Zubulake IV, 220 F.R.D. at 217. Although this commonly occurs at the time a complaint is filed, see Kronisch, 150 F.3d at 126, it can also arise earlier, for instance when a disgruntled employee files an EEOC charge or at the point where relevant individuals anticipate becoming parties in imminent litigation. See Zubulake IV, 220 F.R.D. at 216-17.

Document Retention Policy – Not Just for the Enterprise

Think you that document retention policy issues are reserved for enterprise or corporate types?  Think again.  Note the Court’s reference to the Zubulake Court’s use of the term “litigant.”  Something to keep in mind during individual-plaintiff versus individual-defendant federal court actions.  Note also that a producing party’s preservation obligations run in lockstep with its discovery production obligations.  In a word, both are continuing in nature:

“When the duty to preserve attaches, a litigant “must suspend [her] routine document retention/destruction policy and put in place a ‘litigation hold’ to ensure the preservation of relevant documents.” Zubulake V, 229 F.R.D. at 431. This step, however, is only the beginning of a party's discovery obligations. Id. at 432. “Once a ‘litigation hold’ is in place, a party and her counsel must make certain that all sources of potentially relevant information are identified and placed ‘on hold’ ....“ Id. Then, “[c]ounsel must take affirmative steps to monitor compliance so that all sources of discoverable information are identified and searched.” Id. Thereafter, the duty to preserve discoverable information persists throughout the discovery process; a litigant must ensure that all potentially relevant evidence is retained. Id. at 433; see also Fed.R.Civ.P. 26 § e).” Id.

So, what happened here? The Court notes that “there is no question” that defendant had an obligation to preserve “all documents stored on her computer’s hard drive concerning the Work or the plaintiff, including the spreadsheet.”

The Court also founds that defendant’s duty to preserve arose at least as early as October 3, 2008 (the date the lawsuit was filed).  The Court determined that at that time, defendant knew, or reasonably should have known that such information could be relevant ESI or lead to relevant ESI:

“[Defendant’s duty to preserve]… arose no later than October 3, 2008, when this lawsuit was filed; at that point, the defendant should have known that such information would be relevant or could lead to the discovery of admissible evidence. See Arista Records, 2009 WL 1873589, at *10 (“There can be no dispute that the Defendants were under an obligation to preserve all documents and communications stored on their ... computers, at least as early as the start of this litigation.”); see also Turner v. Hudson Transit Lines, Inc., 142 F.R.D. 68, 72 (S.D.N.Y.1991) (“[O]nce a complaint is filed, [a litigant] is under a duty to preserve what it knows, or reasonably should know, is relevant in the action, is reasonably calculated to lead to the discovery of admissible evidence, [and] is reasonably likely to be requested during discovery ...” (citation omitted)).” Id.

The Court also points out that the service of plaintiff’s first discovery request “re-emphasized” defendant’s discovery duties:

“Moreover, the plaintiff's first document request, served on December 23, 2008, explicitly requested all documents “concerning the Work” and “concerning Green or transactions with Green” from January 1, 2007 onward (Pl. Requests at 3-4), thereby re-emphasizing the defendant's discovery responsibilities. There is thus no question that Mrs. McClendon was obligated to preserve the electronically-stored documents at issue.” Id.

Culpability – Preservation Responsibility Runs First to Counsel

There’s an odd component to discovery responsibility concerning which clients of all stripes are typically unaware. Although discovery is provided by a party, the preservation obligation runs first to counsel. The Court notes this, and provides decisional authority from federal district court decisions in New York and California. 

“Moreover, the plaintiff's first document request, served on December 23, 2008, explicitly requested all documents “concerning the Work” and “concerning Green or transactions with Green” from January 1, 2007 onward (Pl. Requests at 3-4), thereby re-emphasizing the defendant's discovery responsibilities. There is thus no question that Mrs. McClendon was obligated to preserve the electronically-stored documents at issue.” Id.

Author’s Note: A colleague recently mentioned that although numerous district courts have adopted the “preservation runs first to counsel” approach, there is (to date) no Second Circuit authority adopting or rejecting the approach as circuit doctrine.

Which raises an interesting, if somewhat metaphysical, additional question.  Although the discovery obligations and the duty to preserve evidence may run in tandem during litigation, the duty to preserve may arise well in advance of litigation, and before any discovery obligation arises. If so, then the obligation of counsel in connection with a duty to preserve arises…when? At the onset of litigation? At the onset of knowledge that litigation might be reasonably foreseeable?

"the preservation obligation runs first to counsel, who has ‘a duty to advise his client of the type of information potentially relevant to the lawsuit and of the necessity of preventing its destruction.’ “ In re NTL, Inc. Securities Litigation, 244 F.R .D. 179, 197-98 (S.D.N.Y.2007) (quoting Chan, 2005 WL 1925579, at *6); see also Fayemi v. Hambrecht and Ouist, Inc., 174 F.R.D. 319, 326 (S.D.N.Y.1997). Moreover, this responsibility is “heightened in this age of electronic discovery.” Qualcomm Inc. v. Broadcom Corp., 05 Civ.1958-B, 2008 WL 66932, at *9 (S.D.Cal. Jan. 7, 2008), vacated in part on other grounds, 2008 WL 638108 (S.D.Cal. March 5, 2008). Indeed, for the current ‘good faith’ discovery system to function in the electronic age, attorneys and clients must work together to ensure that both understand how and where electronic documents, records and emails are maintained and to determine how best to locate, review, and produce responsive documents. Attorneys must take responsibility for ensuring that their clients conduct a comprehensive and appropriate document search. Id.; see also Phoenix Four, Inc. v. Strategic Resources Corp., No. 05 Civ. 4837, 2006 WL 1409413, at *5-6 (S.D.N.Y. May 23, 2006) (emphasizing counsels' affirmative duty to search for sources of electronic information); Zubulake V, 229 F.R.D. at 433 (implying that “active supervision of counsel” is of particular importance when electronically stored information is involved).” Id. at p. 5.

Author’s Note and Side Bar: A colleague recently mentioned that although numerous district courts have adopted the “preservation runs first to counsel” approach, there is (to date) no Second Circuit authority adopting or rejecting the approach as circuit doctrine.

Which raises an interesting, if somewhat metaphysical, additional question.  Although the discovery obligations and the duty to preserve evidence may run in tandem during litigation, the duty to preserve may arise well in advance of litigation, and before any discovery obligation arises. If so, then the obligation of counsel in connection with a duty to preserve arises…when? At the onset of litigation? At the onset of knowledge that litigation might be reasonably foreseeable?

It is therefore helpful to understand where the “preservation obligation run to counsel” doctrine is first articulated. Really, nowhere. From what I’ve researched, the provenance of the doctrine finds its roots in an unnumbered footnote from a 1985 decision from the U.S. District Court for the District of Nebraska citing an excerpt from a U.S. Supreme Court decision in a criminal case involving the acts of “corporate agents who themselves committed the criminal act…” and “…those who by virtue of their managerial positions or other similar relation to the actor could be deemed responsible for its commission.” Here now the excerpt:

“FN* As noted by Chief Justice Warren Burger, the “lack of knowledge” is no defense against a public policy which demands disclosure:

[A corporate manager has] not only a positive duty to seek out and remedy violations when they occur but also, and primarily a duty to implement measures that will insure that violations will not occur. The requirements of foresight and vigilance imposed on responsible corporate agents are beyond question demanding, and perhaps, onerous, but they are no more stringent than the public has a right to expect of those who voluntarily assume positions of authority in business enterprises whose services and products affect the health and well-being of the public that supports them.

“United States v. Park, 421 U.S. 658 at 672, 95 S.Ct. 1903, 1911, 44 L.Ed.2d 489 (1975) (emphasis added), as quoted in Wessel, “Institutional Responsibility: Professionalism and Ethics,” 60 Neb.L.R. 504, at 514 (1981). If the public, and incidentally the courts, have a right to expect such standards on the part of corporate management, it would seem that at least those standards might reasonably be expected from corporate counsel and trial counsel.” Kansas-Nebraska Natural Gas Co., Inc. v. Marathon Oil Co., 109 F.R.D. 12, 18 (D.Neb. 1985)

Now you know why preservation obligations run first to counsel. Appropriate as the principle may be, I think it took quite a bit of jurisprudential contortion necessary to repurpose this as a “well established” principle that a preservation obligation runs first to counsel.

Query: To what extent does retained counsel’s “obligation to preserve” attach to litigation to which only the client (or client’s internal counsel) might “reasonably anticipate” future litigation?

Ok, back to the decision, and defendant’s culpability.

Counsel Failed to Meet Discovery Obligations

The Court next explains that defendant’s counsel failed to meet its discovery obligations, finding that:

“Unless Mrs. McClendon brazenly ignored her attorney's instructions, counsel apparently neglected to explain to her what types of information would be relevant and failed to institute a litigation hold to protect relevant information from destruction. Moreover, despite numerous representations to the contrary, it is highly unlikely that counsel actually conducted a thorough search for relevant documents in Mrs. McClendon's possession in connection with their initial disclosure duties or in response to the plaintiff's first document request. If that had been done, counsel certainly would have found the spreadsheet from Mrs. McClendon's personal computer files.” Id. at. p. 5

Burden to Learn Whether, How and Where Producing Party Keeps Documents

The Court points out that the burden is affirmative, and falls on the producing party:

“The client is charged with knowledge of what documents it possesses.... [The defendant's counsel cannot] simply react to plaintiff's fortuitous discovery of the existence of relevant documents by making disjointed searches, each time coming up with a few more documents, and each time representing that was all they had. Under the federal rules, the burden does not fall on plaintiff to learn whether, how and where defendant keeps relevant documents. Tarlton v. Cumberland County Correctional Facility, 192 F.R.D. 165, 170 (D.N.J.2000); see also Metropolitan Opera, 212 F.R.D. at 221 (quoting Tarlton ).” Id.

Violation of Fed. R. Civ. P. Rule 26(e) Duty to Supplement

The Court also found that there was no justification for defendant’s counsel’s delay in providing relevant documents to plaintiff once the first ESI production set (CDs) were provided to him by his client. The Court noted that defendant, and her counsel violated Fed. R. Civ. P. Rule 26(e) in failing to supplement

“…until the plaintiff specifically demanded additional information about the spreadsheet and other electronically-stored documents, that were, by then, in counsel’s possession.” Id.

Second Circuit Culpable State of Mind for Spoliation Inference Includes Ordinary Negligence

In the Second Circuit, and for purposes of imposition of adverse inference instruction as a sanction for spoliation of evidence, culpability includes ordinary negligence. (In the Tenth and Eleventh Circuits, a finding of bad faith is required).  Here, the Court finds that both defendant and her counsel were “at least negligent” in failing (1) to impose and maintain a proper litigation hold, and (2) to properly search for responsive documents:

“... In this circuit, a “culpable state of mind” for purposes of a spoliation inference includes ordinary negligence. Residential Funding, 306 F.3d at 108. Here, Mrs. McClendon and her counsel were at least negligent in failing to implement a litigation hold, properly search for responsive documents, and supplement discovery responses in a timely and thorough manner. Indeed, the failure to implement a litigation hold is, by itself, considered grossly negligent behavior. See Toussie v. County of Suffolk, No. 01 CV 6716, 2007 WL 4565160, at *8 (E.D.N.Y. Dec. 21, 2007) (“The law is very clear that the failure to implement a litigation hold at the outset of litigation amounts to gross negligence.”); Chan, 2005 WL 1925579, at *7 (“[T]he utter failure to establish any form of litigation hold at the outset of litigation is grossly negligent.”). Thus, the plaintiff has clearly satisfied its burden with respect to the second prong of the spoliation test.” Id., at p. 6

Relevance

The Court turns next to the relevance requirement prong for an adverse inference sanctions imposition. The relevance requirement prong is perhaps the most difficult to establish, primarily because relevance must be argued in connection with a document or documents unavailable for inspection and interpretation. The U.S. Court of Appeals for the Second Circuit recognized this, and in the Residential Funding decision (discussed by the Court in the following excerpt) the Court of Appeals provides that relevance may be presumed by circumstantial evidence of bad faith, and in some cases by a showing of gross negligence.  The Court provides an excellent analysis of the relevance requirement prong, and finds that neither defendant nor her counsel showed bad faith or were grossly negligent:

“When evidence is destroyed in bad faith, that fact alone is sufficient to support an inference that the missing evidence would have been favorable to the party seeking sanctions, and therefore relevant. Residential Funding, 306 F.3d at 109 (“[B]ad faith alone is sufficient circumstantial evidence from which a reasonable fact finder could conclude that the missing evidence was unfavorable to that party.”). By contrast, when the destruction is negligent or reckless, relevance must be proven by the party seeking the sanctions. Zubulake IV, 220 F.R.D. at 221.FN6

As the Second Circuit has explained in connection with an application for an adverse inference,

“FN6. While it is true that under certain circumstances “a showing of gross negligence in the destruction or untimely production of evidence” will support the same inference, Residential Funding, 306 F.3d at 109 (citing Reilly v. NatWest Markets Group Inc., 181 F.3d 253, 267-68 (2d Cir.1999), the circumstances here do not warrant such a finding because the defendant's conduct “does not rise to the egregious level seen in cases where relevance is determined as a matter of law.” Toussie, 2007 WL 4565160, at *8 (declining to award adverse inference even though defendant failed to implement litigation hold and its “foot dragging” delayed litigation).”

“[R]elevant” in this context means something more than sufficiently probative to satisfy Rule 401 of the Federal Rules of Evidence. Rather, the party seeking an adverse inference must adduce sufficient evidence from which a reasonable trier of fact could infer that the destroyed or unavailable evidence would have been of the nature alleged by the party affected by its destruction.
Residential Funding, 306 F.3d at 108-09 (quotation marks, citations, and alterations omitted). “In other words, the plaintiffs here must present extrinsic evidence tending to show that the destroyed [documents] would have been favorable to their case.” Toussie, 2007 WL 4565160, at *8; see also Chan, 2005 WL 1925579, at *8; Zubulake IV, 220 F.R.D. at 221; Turner, 142 F.R.D. at 77.” Id., at p. 6

Noting that defendant’s (and her counsel’s) actions did not create an “unfair evidentiary balance,” the Court declines the invitation to impose an adverse inference instruction, but leaves the door open for a renewed motion should additional information come to light supporting either bad faith or gross negligence: 

“Here, as a result of the defendant's negligence, the electronic record of the spreadsheet originally produced to the plaintiff in hard-copy form has been eliminated. And, in the process of reinstalling her computer's operating system, Mrs. McClendon may have lost other responsive documents. There is no evidence, however, that any destroyed documents would have been unfavorable to Mrs. McClendon. In fact, it is uncertain whether the plaintiff has actually been deprived of any information, since all of the files previously contained on Mrs. McClendon's hard drive were purportedly transferred to the CDs that are now in counsel's possession.” Id.

Under these circumstances, without some proof that the defendant's actions created an unfair evidentiary imbalance, an adverse inference is not appropriate. The plaintiff, is not, however, foreclosed from renewing its request if warranted by the subsequent discovery of additional evidence. Indeed, if it becomes apparent that relevant information was in fact destroyed, or that the defendant acted in bad faith, an adverse inference may be warranted.” Id. at p. 7  

Non-Evidential Sanctions Menu

For those who ponder what might be requested in a spoliation sanctions or discovery abuse motion short of an adverse inference instruction, the Court provides a bountiful selection, with some sanctions specifically tailored to ESI discovery.  These include award of costs, ordering additional discovery, including forensic computer search, preclusion of evidence from introduction at trial. Note that these sanctions are not exclusive:

“Although an adverse inference is not justified at this time, other measures to remedy the defendant's deficient preservation efforts are appropriate. See, e.g., West, 167 F.3d at 780 (finding dismissal inappropriate sanction for spoliation, but endorsing alternative sanctions); ACORN, 2009 WL 605859, at *6-7 (denying request for adverse inference, but awarding costs to moving party); Treppel v. Biovail Corp., 249 F.R.D. 111, 123-24 (S.D.N.Y.2008) (finding adverse inference unjustified, but ordering additional discovery, including forensic search of adversary's computer); Toussie, 2007 WL 4565160, at *9-10 (finding adverse inference not warranted, but awarding costs to moving party); Great Northern Insurance Co. v. Power Cooling, Inc., No. 06 CV 874, 2007 WL 2687666, at *12-14 (E.D.N.Y. Sept. 10, 2007) (finding adverse inference unjustified, but precluding certain evidence from being introduced at trial); Phoenix Four, 2006 WL 1409413, at *9 (imposing monetary sanctions for spoliation and other discovery misconduct after denying other requested relief). As noted above, a court “must determine the appropriate sanction based on the relative fault of the party against whom sanctions are sought and the prejudice suffered by the party seeking sanctions.” Klezmer v. Buynak, 227 F.R.D. 43, 51 (E.D.N.Y.2005). Moreover, “[t]rial judges should have the leeway to tailor sanctions to insure that spoliators do not benefit from their wrongdoing-a remedial purpose that is best adjusted according to the facts and evidentiary posture of each case.” Reilly, 181 F.3d at 267; see also Fujitsu, 247 F.3d at 436 (reiterating Second Circuit's “case-by-case approach to the failure to produce relevant evidence” in determining sanctions).” Id.

The Court, relying on Treppel v Biovail, found that additional discovery and an award of attorneys fees and costs were warranted:

“In this case, the other sanctions requested by the plaintiff are wholly appropriate. Authorizing further discovery concerning the spreadsheet and other electronically-stored documents will allow the plaintiff the chance to determine whether it is in fact missing relevant evidence. See Treppel, 249 F.R.D. at 123-24; In re NTL, Inc. Securities Litigation, 244 F.R.D. at 201. Time shall therefore be allotted for further deposition of Mrs. McClendon. In addition, the defendant shall identify any person who created or modified the spreadsheet, and the plaintiff may take discovery of any such person.

The plaintiff is also entitled to an award of costs, including attorneys' fees. Monetary sanctions are appropriate “to punish the offending party for its actions [and] to deter the litigant's conduct, sending the message that egregious conduct will not be tolerated.” In re WRT Energy Securities Litigation, 246 F.R.D. 185, 201 (S.D.N.Y.2007) (alterations, citation and quotation marks omitted). Furthermore, such an award serves the remedial purpose of compensating the plaintiff for the reasonable costs it incurred in bringing this motion. See id.; Turner, 142 F.R.D. at 77-78.”  Id.

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Case:                State Farm Mut. Auto. Ins. Co. v. BMW of North America, LLC,

Citation:           2009 WL 2447612 (E.D.Mich. 2009)       
Date:                2009-08-07

Topics:             Sixth Circuit spoliation standard federal not state Law

In this decision from the U.S. District Court for the Eastern District of Michigan, U.S District Judge Battani provides an analysis of spoliation law under Sixth Circuit decisional authority, and that federal common law governs the application of sanctions.  This approach reflects a recent Sixth Circuit doctrinal shift to what is the majority view that federal common law, and not state law governs spoliation determinations – see Adkins v Wolever, 554 F.3d 650, (6th Cir. 2009)  discussed in EDDE Case Digest 20, 2009-04-03):

Spoliation is the intentional destruction of evidence that is presumed to be unfavorable to the party responsible for the destruction. U.S. v. Copeland, 321 F.3d 582 (6th Cir.2003). Recently the Sixth Circuit has made clear that federal, not state law governing the application of sanctions. It noted in Adkins v. Wolever, 554 F.3d 650, 652 (6th Cir.2009),

In contrast to our persistent application of state law in this area, other circuits apply federal law for spoliation sanctions. See, e.g., Silvestri v. Gen. Motors Corp., 271 F.3d 583, 590 (4th Cir.2001); Reilly v. Natwest Mkts. Group Inc., 181 F.3d 253, 267 (2d Cir.1999); Glover v. BIC Corp., 6 F.3d 1318, 1329 (9th Cir.1993). We believe that this is the correct view for two reasons. First, the authority to impose sanctions for spoliated evidence arises not from substantive law but, rather, “from a court's inherent power to control the judicial process.” Silvestri, 271 F.3d at 590 (citing Chambers v. NASCO, Inc., 501 U.S. 32, 45-46, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991)). Second, a spoliation ruling is evidentiary in nature and federal courts generally apply their own evidentiary rules in both federal question and diversity matters. King v. Ill. Cent. R.R., 337 F.3d 550, 556 (5th Cir.2003). These reasons persuade us now to acknowledge the district court's broad discretion in crafting a proper sanction for spoliation…In crafting a sanction, the court is guided by both fairness and punitive considerations. Id. Therefore, State Farm's failure to produce the vehicle must be assessed “along a continuum of fault-ranging from innocence through the degrees of negligence to intentionality.” Id.” State Farm Mut. Auto. Ins. Co. v. BMW of North America, LLC,  2009 WL 2447612, 5 (E.D.Mich. 2009)

Author’s Note:  In sanctions for spoliation determination, the Sixth Circuit appears to be an ordinary negligence jurisdiction.

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Case:                Smith v. Georgia Energy USA, LLC

Citation:           2009 WL 2486896 (S.D. Ga. 2009)         
Date:                2009-08-10
Topics:             Eleventh Circuit, Georgia federal district court spoliation standards, adverse inference instruction requirements, invocation of rights against self incrimination permit imposition of adverse inference in civil trial.

First, this is a class certification ruling is from the Southern District of Georgia, which means that Eleventh Circuit spoliation standards are followed.  This in turn means that while federal common law is followed, a federal district court may be “guided” by the spoliation laws of the state in which that court is located.

So, although all federal district courts in the Eleventh Circuit must follow federal common law spoliation principles, they may be guided by Florida, or Georgia, etc. law.  Conversely, a Florida federal district court may refuse to follow the spoliation law of a Georgia federal district court because…the Eleventh Circuit does not impose a uniformity requirement (for spoliation sanctions imposition) on its member district courts.

My spoliation migraine is returning.  Please pass the aspirin.

The Court first turns to the Eleventh Circuit’s “spoliation inference” standard and requirements:

“A court may sanction a party for spoliation of evidence by instructing the jury that there is a rebuttable adverse inference that the missing evidence is harmful to the spoliator. Flury v. Daimler Chrysler Corp., 427 F.3d 939, 945 (11th Cir.2005). “To determine whether spoliation has occurred, a court must address five factors: (1) prejudice to the non-spoiling party as a result of the destruction of evidence, (2) whether-the prejudice can be cured, (3) practical importance of the evidence, (4) whether the spoiling party acted in good or bad faith, and (5) the potential for abuse of expert testimony about evidence not excluded.” Connor v. Sun Trust Bank, 546 F.Supp.2d 1360, 1375-1376 (N.D.Ga.2008). Smith v. Georgia Energy USA, LLC,  2009 WL 2486896, 10 (S.D.Ga. 2009)

The defendants in this case apparently engaged in some ESI evidential pyrotechnics.  Plaintiffs alleged that key evidence was destroyed by defendants in bad faith. Here, the Court provides what can only be described as a terse and turgid spoliation sanctions analysis:

“First, the documents that have been destroyed consisted of credit card information that would have enabled Plaintiffs to locate other members of the class and determine their damages. Second, the harm caused to Plaintiffs by the destruction of this evidence is highly prejudicial. As Moore testified, no other copies of the burned documents exist. Third, because this evidence would have allowed Plaintiffs to identify class members and their ‘damages, it was important to this case. Fourth, the manner of the destruction of this evidence indicates that it was done in bad faith. The fact these documents were burned after the stations were closed down, that the only destroyed documents pertained to when Fairley Cisco owned the stations, and that the papers were burned in Cisco's backyard (as opposed to being taken to the dump) all demonstrate that this activity was done purposely to destroy crucial evidence in an attempt to avoid liability. Fifth, Plaintiffs maintain that the absence of these destroyed documents has hampered their ability to obtain meaningful expert testimony related to damages in this case.” Id., at 10

The Court granted an adverse inference, but limited the period to which the inference would apply only to the period in which destruction of ESI was established.

Invocation of Rights Against Self-Incrimination Permits Court to Draw Adverse Inference in Civil Case

Under Eleventh Circuit precedent, a federal district court in that circuit is permitted to draw an adverse inference where a witness invokes his or her rights against self-incrimination --- in a civil case.

In a civil lawsuit, the Court is permitted to draw an adverse inference against a litigant who invokes his rights against self-incrimination. Eagle Hosp. Physicians, LLC v. SRG Consulting, Inc., 561 F.3d 1298, 1305 (11th Cir.2009). “The decision to invoke the Fifth Amendment does not have to be consequence-free.” Id. “The key to unlocking a court's inherent power is a finding of bad faith.” Barnes v. Dalton, 158 F.3d 1212, 1214 (11th Cir.1998). A litigant demonstrates bad faith when he disrupts litigation. Eagle Hosp. Physicians, LLC, 561 F.3d at 1306.” Id., at p. 8

Here, a co-defendant became a bit cagey when asked whether he engaged in aforementioned evidential pyrotechnics:

“During Fairley Cisco's deposition, he was asked whether he “engaged in the destruction of documents” pertaining to these three businesses, and whether he “burned boxes of documents” at his house relating to the three filling stations. Cisco declined to answer these questions, instead invoking his Fifth Amendment rights. Cisco also refused to reveal whether he had “hired someone to remove several truckloads of documents from a storage location for the purpose of destroying or concealing documents relat[ing] to the business.” Dkt. No. 99, Ex. L, Cisco Dep. 10 & 11. Instead of denying that he had rigged the pumps when he owned the stores, Cisco invoked his rights against self-incrimination.” Id.

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Steven W. Teppler, Esq.
Senior Counsel • KamberEdelson, LLC
941-924-3112
202-253-5670 (m)
941-870-4403 (f)

E-Litigation Blog:  http://securitykernels.blogspot.com

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