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November 03, 2016 Top Story

Deletion of Emails Leads to Sanctions

Terminating sanctions reversed in favor of a prohibition on the presentation of evidence

Matthew S. Mulqueen

An owner's deletion of emails during litigation cost his company the ability to put on proof of liability or damages for the time covering the period of the lost emails. Flagship Theatres of Palm Desert, LLC v. Century Theatres, Inc. serves as a stern reminder of the duty to preserve electronic evidence from the moment litigation is reasonably anticipated.

Act I: Messages Deleted

Plaintiff Flagship Theatres of Palm Desert, LLC operated an independent movie theater complex in Palm Desert, California. After the theater complex found itself unable to obtain as many desirable movies from distributors as it expected, it filed an antitrust action against Century Theatres, Inc., Century's successor Cinemark USA, Inc., and two film distributors. The theater complex alleged Cinemark, owner of a large chain of theaters, had conspired with the distributors to deny the theater complex access to desirable movies.

The case proceeded through years of discovery and motion practice. Six years after the case began, the manager began experiencing problems with his AT&T email address, which he used for both business and personal communications. An AT&T customer service agent suggested Tabor delete emails to restore functionality. Without backing up his account, the manager deleted thousands of messages from 1990 through 2009. Shortly after the deletion, the defendant filed new discovery requests for the manager's emails.

The manager was unable to recover the deleted emails. Because the manager had previously produced emails in 2007, the deletion effectively erased potentially relevant evidence for the years 2007 to 2009. Upon learning of the deletion, the defendant moved for sanctions. The Superior Court of Los Angeles County found the deletion had prejudiced the defendant's ability to defend itself and concluded the prejudice could only be remedied by terminating sanctions. Accordingly, the trial court terminated the case and granted attorney fees and costs to the defendant. The theater complex appealed.

Act II: Reversal of Fortune

The California Court of Appeal reversed the trial court's order and judgment, holding the remedy of terminating sanctions was overbroad. The court remanded the case with instructions for the trial court to impose the lesser sanctions of barring the theater complex from presenting evidence (and collecting damages) for the period for which the manager's emails could not be replaced.

The court began by analyzing whether the defendant had, in fact, suffered prejudice as a result of the deletion. The analysis focused primarily on the defendant's defenses, including arguments that the theater complex, as an independently-owned venue seeking a sophisticated crowd, had not actually tried to license the more popular titles it now claimed it had wanted. Since at least some of the defendant's proposed theories were plausible, the court stated it had to assume the missing emails would have provided the defendant with some useful information. This supported a finding of prejudice.

That finding of prejudice did not, however, support terminating sanctions. Instead, the court held the defendant was entitled to the more tailored remedy of prohibiting the theater complex from presenting evidence or collecting damages for the 2007 to 2009 time period, the period of time for which no emails were available. Because these more limited sanctions ameliorated any prejudice to the defendant, the court held the trial court's decision to terminate the case amounted to an abuse of discretion. The court's award of attorney fees and costs, based on the grant of terminating sanctions, was also reversed.

Act III: The Balancing Game

"I think the opinion is fair," observes Brandon Smith, Atlanta, GA, cochair of the ABA Section of Litigation's Young Advocates Committee. Clients "have to find a way to strike a balance" between the burden of maintaining large amounts of data and the duty to preserve evidence from the moment that litigation is reasonably anticipated, adds Smith. The court's decision not to uphold terminating sanctions was due, in part, on a finding that the manager's deletion of emails was clearly erroneous but not intended to deprive the defendant of evidence.

"The lesson for attorneys is to really understand your client's IT system" and to consider preservation protocols, says James A. King, Columbus, OH, cochair of the Section of Litigation's Trial Practice Committee. While it may be "easy for institutional clients to place holds on custodians," individual clients without servers and IT staff may find it more difficult to preserve data, notes King.

What constitutes "reasonable steps to preserve" electronically-stored information depends on the client's particular email system, agrees Smith. In the federal courts, attorneys should be mindful of new Federal Rule of Civil Procedure 37(e), "Failure to Preserve Electronically Stored Information," notes King. The committee notes on the 2015 amendments to that rule explain "reasonable steps" do not call for perfection and that courts analyzing spoliation of electronic information "should be sensitive to the party's sophistication with regard to litigation in evaluating preservation efforts."

When spoliation is suspected, a party should "find out all of the facts before huffing and puffing and running into court," adds Smith. Courts understand how a party might inadvertently delete emails, and a party's overreaction to the loss of evidence can backfire, agrees King. The best course of action, and often the most successful, is to "err on the side of civility" by "getting into a meeting room with the other side to talk about prejudice right out of the gate," concludes Smith.

Matthew S. Mulqueen is a contributing editor for Litigation News.

Keywords: ethics, email, ESI, spoliation, sanctions

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