November 05, 2013 Top Story

Spoliation of Electronic Data Results in Severe Sanctions

Deletion of laptop files leads to monetary sanctions and inference of bad faith

Caitlin Haney

Bad-faith failure to preserve electronic data is punishable by monetary sanctions and an irrefutable adverse inference that the data contained information unfavorable to the culpable party at trial. Such harsh sanctions make it even more important for attorneys to advise their clients about the duty to preserve electronic data.

Failure to Preserve Electronic Data

In Barrette Outdoor Living, Inc. v. Michigan Resin Representatives, the plaintiff, Barrette Outdoor Living, Inc. (Barrette), alleged that a former employee, John Lemanski, defrauded the plaintiff during the course of his employment as its purchasing agent. After informing Lemanski that they would begin investigating his actions, Barrette emailed a notice to preserve electronically stored information to Lemanski. Lemanski then obtained a new cellphone and returned his old cellphone to his mobile provider. Lemanski claimed that he did not read the notice prior to relinquishing his phone.

Barrette filed its lawsuit against the defendants in the U.S. District Court for the Eastern District of Michigan, naming Lemanski as a defendant. Barrette filed a motion to compel seeking, among other things, Lemanski’s laptop for imaging. Lemanski subsequently deleted approximately 270,000 files from his laptop. Lemanski maintained that the files were personal in nature and did not contain information relevant to the claims against him.

Destruction of Documents Constituted Spoliation 
Barrette filed a spoliation motion seeking sanctions against Lemanski. The magistrate judge found that at the time Lemanski disposed of the cellphone the duty to preserve evidence had already arose. The magistrate judge noted that shortly after his employment ended, Barrette informed Lemanski, through several different correspondences, that there were concerns that misconduct had occurred. The magistrate judge further found that the cellphone was destroyed in bad faith and likely contained relevant information. The magistrate judge made a similar finding with regards to the files that Lemanski deleted from his laptop.

In light of these findings, the magistrate judge recommended that Lemanski compensate Barrett $25,000 for the fees and costs associated in bringing the spoliation motion and $10,000 for Barrett’s increased cost in conducting discovery without the destroyed evidence. The magistrate judge also recommended that Lemanski be burdened at trial with an adverse inference that the cellphone and laptop contained information unfavorable to Lemanski, including evidence that he was involved with conducting a fraudulent purchasing scheme.

Lemanski argued that the sanctions were unduly harsh and that the inference should be permissive, rather than irrefutable. The district court agreed with the magistrate judge and rejected Lemanski’s arguments. The district court ordered Lemanski to comply with the magistrate judge’s recommendations.

Severity of Sanctions 

“The combination of these three things—sanctions, fees, and a damaging jury instruction—are quite common in cases of willful destruction,” notes Carla R. Walworth, New York, NY, cochair of the ABA Section of Litigation’s Electronic Discovery Subcommittee of the Pretrial Practice & Discovery Committee. “In fact, the dollar amount of the sanction was relatively low, most likely because the court took into account that the culpable party was an individual, rather than a corporation,” Walworth adds.

When deciding the dollar amount of sanctions to award, courts will “take into account both the ability of the party to pay as well as the complexity of the case,” says Aaron H. Gould, Newark, NJ, cochair of the Section of Litigation’s Electronic Discovery Subcommittee of the Pretrial Practice & Discovery Committee. Not only is leveling a sanction that will never be paid not an effective deterrent, but “recovering information from a corporate system is more complicated, and therefore, more expensive,” Gould adds.

The negative inference sanction is arguably more significant than the monetary sanctions. The negative inference “leaves the jury free to judge the culpability of a person who destroyed documents in the middle of litigation,” says Walworth. Not only is the jury likely to “infer that because they lied about the documents, they lied about other things, but the jury is given free rein to imagine which documents were destroyed,” according to Walworth.

Duty to Preserve

This case highlights the importance of “making sure that attorneys take a hands-on approach, and advise the client that acting in this manner can be extremely detrimental to their case,” notes Gould. Attorneys generally “need to pay attention to what their clients are doing and advise them of all of their duties. It is especially important to emphasize the importance of the maintenance of electronic data,” says Gould.

Lawyers need to inform their clients about the duty to preserve electronic data. “Especially when dealing with individuals, it is important to impress upon them early and often that they have to save their documents because the harm from destroying them is so much greater than any difficulty in explaining their contents,” advises Walworth.

An “ordinary part of the document retention protocol should state that generally, when there is a known legal dispute, documents should be retained,” advises Walworth. “Although not all jurisdictions have held that a written litigation hold is absolutely necessary in every single case, they are nevertheless highly advisable,” adds Walworth.

Caitlin Haney is a contributing editor for Litigation News.

Keywords: spoliation, electronic data, discovery, sanctions

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