Welcome to Module 5-D

Six Super Sanctions Cases.

Surveys of published decisions in the federal system have shown that most e-discovery opinions pertain to sanctions. To do e-discovery litigation means to know and be involved with sanctions cases. Hopefully you will enjoy this stuff as much as I do because this is where the action is. Here are six more, if not fun, then at least moderately interesting sanctions cases. By this time you will understand why competence and ethics are such huge issues in this new field.

The first case out of Ohio involves what the court calls “hide the ball” gamesmanship. Not a good thing for a court to say about your conduct. The second opinion out of North Carolina results in the entry of an adverse inference against the plaintiff employee. In the third case out of Massachusetts the court refers to the Plaintiff’s skullduggery. The fourth case involves a bankruptcy case in Florida that the judge calls a deplorable scenario. The fifth, again in Ohio, involved what the court called “persistent and egregious noncompliance with a series of discovery orders” where the judge could not decide if the lawyer was responsible, or his client. In the last case out of New York the Louis Vuitton company is sanctioned for sand-bagging.

This module has especially challenging questions and research at the end, including issues pertaining to the Lehman Brothers bankruptcy case and e-discovery. The Lehman Brothers report shows just how massive e-discovery today can become.

Case Where the Court Disapproves Defendant’s “Hide the Ball” Discovery Gamesmanship

A case in Ohio illustrates a poor electronic discovery strategy by a defendant employer in a wrongful termination case. May v. Pilot Travel Centers, LLC, 2006 WL 3827511 (S.D. Ohio December 28, 2006). The defense here has seriously annoyed the presiding district court judge, who, right or wrong, is now convinced that missing electronic records are evidence that the defense has engaged in “hide the ball gamesmanship and deception.”

The plaintiff here, a Wendy’s franchise restaurant manager, alleged that he was fired for exercising his rights to be with his newborn child under the Family and Medical Leave Act. The employer defended by claiming that the discharge was for cause. The employer claims the manager had been using the restaurant’s computer to “cook the books” electronically. The manager was alleged to have altered the records to make the restaurant look more profitable. In this way, he was able to increase his formula bonus payments. For instance, the plaintiff was alleged to have altered vendor payment dates, and to have revised employee time records to avoid overtime compensation.

After the discovery period ended in nine months, apparently with no discovery disputes, the defendant moved for summary judgment. The plaintiff responded with a motion for sanctions for spoliation, alleging that defendant had destroyed evidence, namely some of the computer records at issue in the case. The defendant employer responded vigorously to the sanctions motion. It moved to strike the affidavit supporting the motion, and to be awarded attorney fees because it alleged the sanctions motion was meritless and filed in bad faith.

Defendant first made a procedural argument, correctly pointing out that there had been no motion to compel, not even a phone call from plaintiff’s counsel. Defendant argued that because of these omissions there was no basis for a sanctions motion. The court disagreed with this procedural argument. Aside from parsing a construction of the local discovery rules involved, the court was strongly influenced by the fact that defendant produced new evidence after the plaintiff filed his motion for sanctions. The court referred to this as a “curiously belated supplementation” and held:

The suspect timing of Defendant’s post-motion supplementation suggests improper conduct. The documents were in Defendant’s possession and should have been turned over far before they were.Defendant’s violation of its duty to supplement in a timely manner was neither harmless nor substantially justified. This Court therefore finds Defendant’s conduct to be sanctionable.

The Court was also disturbed by defendant’s arguments that some of the documents were not previously produced because they were not specifically requested, pointing out the mandated initial disclosure requirement under Rule 26(a)(1)(B). The Court was also disturbed by what it called the defendant’s “coy avoidance” of whether it had destroyed computer records as plaintiff alleged. Apparently the defense responded to the spoliation accusations by stating that the “documents might have been lost when defendant converted to a new computer system.”

That response did not go over well. The court stated:

If the records exist, then Defendant should know this and must produce them. If the records no longer exist in any form, then Defendant should be able to provide this answer and an explanation as to how and why the records were destroyed-and by whom. To avoid the answer by blaming Plaintiff at this juncture creates an inference of gamesmanship that disturbs this Court.

The district court buttressed its holding by reliance on the Sixth Circuit’s remarks:

The Sixth Circuit has recognized that “[o]ur system of discovery was designed to increase the likelihood that justice will be served in each case, not to promote principles of gamesmanship and deception in which the person who hides the ball most effectively wins the case.” Abrahamsen, 92 F.3d at 428-29.

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Case Where an Adverse Inference is Entered Against a Plaintiff Employee

In employment litigation, spoliation sanctions are usually a tactic of the employee plaintiff against the big corporate employer. The employer is the one with the vast collection of computer records where it is easy to mess up on the duty to preserve and produce. For this reason the employer is usually the one charged with spoliation. That was certainly the case in the Zubulake decisions. But lately employers have seen the value of e-discovery and their own spoliation motions. That is exactly what happened in Charlotte, North Carolina, where Target Stores is defending a sex discrimination claim. Teague v. Target Corporation, 2007 WL 1041191 (W.D.N.C. April 4, 2007). One of Target’s affirmative defenses to the suit is “failure to mitigate.”

In deposition, Plaintiff revealed that after she was fired she engaged in an extensive job search on her home computer. This would tend to rebut Target’s defense of failure to mitigate. She also testified that she used the computer to communicate regarding her alleged discriminatory firing, and the circumstances of her discharge. Problem is, she no longer has that computer anymore. She said her home computer crashed and that her brother, who “dabbles in computers,” was unable to get the hard drive to work. So, she threw it away. Big mistake! Because by that time she had already retained legal counsel to sue Target, and had already filed charges with the EEOC. With her home computer gone, she had very few records regarding her claim. It was all pretty much a matter of her word against Target’s. Still, her deposition testimony indicated that her computer, if it were still around, would have had evidence that the court held “related directly to her law suit against Target.”

Once the employer discovered these facts, it moved for sanctions on the basis of spoliation of the computer evidence. The court found that the plaintiff had a duty to preserve the evidence, even though suit had not yet been filed, because she had retained counsel and filed EEOC charges. The destruction of the evidence by throwing away her computer was sufficient to show she had a “culpable state of mind.” The motion was granted. Although the court did not find her conduct severe enough to warrant complete dismissal of the case, it was severe enough to warrant an adverse inference jury instruction. Such an inference is almost always case dispositive.

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Case Where the Plaintiff’s e-Discovery “Skullduggery” Leads to Further Punishment by the Court

The employee Plaintiff, James Plasse, was punished again by the district court for his alteration and destruction of electronic evidence, and ordered to pay the employer defendant $55,472.32. Plasse v. Tyco Elec. Corp,2006 WL 3445610 (D.Mass. Nov. 8, 2006).

This is a sequel to a decision where the Plaintiff’s case was dismissed with prejudice as a sanction for his inartful attempt to change the dates on documents on his home computer, and other e-discovery abuses. Plasse v. Tyco Elec. Corp.,2006 WL 2623441, (D.Ma. Sept. 7, 2006). In Plasse I, a forensic examination of the plaintiff’s home computer exposed his clumsy fraud. At the end of the opinion in Plasse I, the court invited the defendant to move for fees and costs, suggesting that further punishment was in order against Plasse.

In Plasse II, the court awarded one half of the fees incurred, and all of defendant’s e-discovery costs. The fees were awarded under the court’s inherent equitable power to do so “against the party that has acted in bad faith, vexatiously, wantonly, or for oppressive reasons.” Only one-half of the fees sought were awarded because the Court found “some degree of duplication and overkill.” All of the costs were awarded as punishment for the plaintiff who tried to mislead the Court by altering data on his computer. In the words of the judge: “The court will award Defendant its full costs, since retention of experts was particularly necessary to uncover Plaintiff’s skullduggery.”

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Case Where the Bankruptcy Court Imposes Sanctions in an Adversary Proceeding

A bankruptcy court in Florida considered e-discovery abuses and imposed sanctions against the defendant law firm and its attorneys. In re ATLANTIC INTERNATIONAL MORTGAGE COMPANY, Debtor; Steven S. Oscher, Liquidating Trustee For Atlantic International Mortgage Company, Plaintiff, v. The Solomon Tropp Law Group, P.A., et al, defendants. The sanctions imposed required The Solomon Tropp Law Group, and its attorneys, to pay all of the Debtor’s costs and all fees incurred in connection with discovery in this complicated adversary proceeding in Bankruptcy Court in Tampa, Florida. The decison begins with words all too common in this type of case:

The matter before this Court presents a deplorable scenario under which the ultimate issues raised by the pleadings are completely overcome by discovery disputes which have gained their own life.

The e-discovery disputes begin when the Plaintiff finds a memo suggesting that many more emails must exist than have been produced:

This discovery dispute arose after the Trustee discovered a post-petition communication dated December 8, 1999, between Livingston and the Solomon Firm directing that all communications with him should be by email. . . . The Trustee has maintained throughout this proceeding that in accordance with these instructions, there ought to be a substantial record of electronic communications and activities between the Solomon Firm and Livingston, far more than what has been produced by the Solomon Firm pursuant to the Trustee’s Request for Production and the Electronic Records Production Order.

There were a number of e-discovery abuses noted in the opinion, but perhaps the most interesting from a “geek perspective” was the one concerning the disputed use of the Forensic Toolkit software by the law firm’s expert, and the contradictory findings by the expert appointed by the court. Again, in Judge Paskay’s words:

On September 27, 2005, the Solomon Firm filed an Amended Affidavit by the Firm’s technology manager, William Kent (Kent) in an attempt to refute the information contained in the Computer Expert’s report and the Motion for Default Judgment. (Doc. No. 344). Not only is this Affidavit of questionable veracity, but it has been totally refuted by competent evidence before this Court. The Kent affidavit asserted that the document recovery program, Forensic Toolkit, had not been used to search for and recover any documents related to the present adversary proceeding. However, the Computer Expert found evidence on the Solomon Firm’s computers which proved that Forensic Toolkit had, in fact, been used to search for documents relating to Atlantic and Livingston. Responsive documents recovered by the Solomon Firm at that time were not produced to the Trustee.

The Court denied the Plaintiff/Debtor’s demand for entry of a default judgment against the Defendant law firm, but did state that fees and costs would be awarded against both Defendant law firm and its attorneys holding:

Modern discovery was designed to eliminate litigation by ambush and surprise. Cooperation and candor by all parties are crucial to the proper function of the discovery process; obstreperous conduct and deceptive tactics designed to delay and impede have no place in the discovery process. . . . This Court is not satisfied that the Solomon Firm’s conduct rises to the level required to sustain a motion for default judgment at this time. While the remedy of the entry of a default judgment is too drastic an action under the facts presented in the hearing, this Court is convinced that monetary sanctions are appropriate. Under FRBP 7037(b)(2), reasonable expenses, including attorneys’ fees may be awarded against a party, its attorney, or both. Such sanctions, when awarded against a party’s attorneys serve to “remind attorneys that service to their clients must coexist with their responsibilities toward the court, toward the law and toward their brethren at the bar.” Devaney v. Cont’l Am. Ins. Co., 989 F.2d 1154, 1162 (11th Cir.1993). Based on the foregoing, this Court is satisfied that the appropriate sanction is to impose monetary sanctions against the Solomon Firm and its counsel, F. Lorraine Jahn, Esq., and Michael J. McGirney, Esq., by awarding the Trustee his reasonable attorneys’ fees and costs incurred in pursuing all discovery in this adversary proceeding.

The plaintiffs’ filed motions to determine the amount of the sanctions award, wherein they sought computer expert costs of around $100,000, and fees of approximately $600,000.

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Sanctions for e-Discovery Abuses – Is the Attorney to Blame?

A district court in Ohio decided that sanctions were appropriate due to plaintiff’s “persistent and egregious noncompliance with a series of discovery orders”, but could not decide whether to impose the sanctions against the plaintiff or its attorneys. Exact Software v. Infocon, 479 F.Supp.2d 702 (N.D. Ohio, Dec. 5, 2006).

In an unusual order, the plaintiff software company was granted leave to show cause why sanctions should be imposed against its attorneys, and not it. The question of blame arose when new counsel appeared for plaintiff and filed an affidavit by plaintiff’s CEO swearing that the prior attorney failed to inform the company of the court orders and pending motion for default. Id. Fn. 25.

The Court was ready to sanction the plaintiff by dismissing its case, entering default judgment for the defendant on its counter-claims, and taxing all fees and costs. But as the court noted, it should not sanction a party “where the fault lies with inattentive, inept, or incompetent counsel” so that the “party does not suffer for the ineptness or incompetence of its counsel.” Since the court only knew that its orders were not followed, and did not know why, it provided plaintiff with an evidentiary hearing to prove that its prior attorneys were to blame, not it.

The opinion at Fn. 2 notes that the plaintiff has been represented in this dispute by at least four different attorneys. This is usually a red flag that it is the client who is the problem. Still, the opinion suggests that the third attorney, whose motion to withdraw was still pending, could be partially at fault because most of the discovery failures happened on her watch.

One of the most interesting failings noted in the order had to do with the use of keyword searches of plaintiff’s records. Plaintiff blamed its failure to produce certain relevant documents upon the opposing party’s poor choice of search terms. Plaintiff argued that the search terms defendant used did not produce a hit on these known documents, and so they did not produce them. The court soundly rejected this saying:

Their attitude and approach were not appropriate. Just as a party asking for production of a paper document does not have to specify the room, cabinet, drawer, and file in which the document is to be found, a party calling for production of electronically created and kept information is not required to plot the search with exactitude. If the party from whom discovery is sought can comprehend with reasonable certainty what is being asked for, it is up to it to access its storage system to retrieve the document. If problems are encountered due to uncertainty about what is being sought, the party conducting the search of its own system and records is to ask for further clarification.

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Louis Vuitton Sanctioned for Sand-Bagging

An adverse inference and fees sanction was entered against the plaintiff, Louis Vuitton (“LV”), in Louis Vuitton Malletier v. Dooney & Bourke, Inc., 2006 U.S. Dist. LEXIS 87096 (S.D.N.Y. Nov. 30, 2006). LV, the well known maker of expensive leather bags and accessories, is supposedly the most counterfeited brand in fashion history. It is no wonder they often sue for trademark infringement.

They may still win this case, but they are off to a very shaky start. The magistrate’s 50 page order sanctioned LV for misleading the court about e-discovery. The Court also disapproved of LV’s refusal to use outside experts to help LV’s IT personnel extract emails from its computer database.

In the words of Magistrate Dolinger, who seems quite upset:

There is no question that LV has failed to comply with its discovery obligations, misled its adversary and the court, and flouted a court order. . . . That application triggered a representation by LV that it had undertaken an appropriate search for customer communications about S-lock products and had no such communications. It is evident that this representation was false, and in the absence of any explanation by LV for this misstatement, we have no reason to infer that it was other than knowingly false.

So once again we see a party burned for saying it searched and had no emails, when later events show this to be false. Nothing new here. But the Court’s criticism of LV’s reliance solely on its IT department is unusual and no doubt will be heavily cited by vendors in the future.

The affidavit by LV’s IT employee swore to the difficulties they had in searching the emails maintained in their Kana Oracle database. In footnote 10, the reason alleged for this difficulty was, in the words of LV’s IT employee, that:

the e-mails are stored in a raw format which includes both HTML-formatted e-mails as well as e-mails with foreign-language encoding

LV went on to argue that they would have had to hire experts in both Oracle and Lotus Notes to properly search and extract the emails. The ironic footnote 10 recounts how LV considered the $15,000 price tag for those expert services to be too expensive, and so they tried to do it themselves. As you might imagine, the work they did was deficient in the magistrate’s view, not to mention late. Ultimately LV was hammered with an adverse inference, and ordered to pay the defendant’s reasonable fees, which, it is safe to assume, will make the $15,000 quote seem cheap.

SUPPLEMENTAL READING and EXERCISE: Find the Lehman Brothers bankruptcy case and look for the 2010 report on the trustee’s  e-discovery activities. Name five things that you found astounding about the report and why. What was the final outcome of this case?

Discretionary Bonus Exercise: If you were the Trustee in the Lehman Brothers case, how would you have handled the e-discovery differently and why? Separate question, did they look at too much? Why or why not? Now do some more research and look at the monies the Trustee was able to obtain and the other claims pending. Does this change your opinion?

Students are invited to leave a public comment below. Insights that might help other students are especially welcome. Let’s collaborate!

Copyright Ralph Losey 2015

 

Ralph Losey is a practicing attorney who specializes in electronic discovery law. He is a principal in a U.S. law firm with over 50 offices & 800 lawyers where he supervises electronic discovery work and litigation support. Ralph has written over two million words on law and technology, including six books on electronic discovery. His latest books are "E-Discovery for Everyone" (ABA 2017) and "Perspectives on Predictive Coding" (ABA 2017) (ed. & contributor). His blog is widely read in the industry: "e-DiscoveryTeam.com." Ralph is the founder and principal author of "Electronic Discovery Best Practices" and "e-Discovery Team Training," a free online course covering all aspects of e-discovery. Ralph's sub-speciality is the search and review of electronic evidence using multimodal methods, including artificial intelligence. He also has a free online training program to teach these advanced methods - the "TAR Course." Ralph has devoted a month of his time each year since 2013 to research and test various AI-enhanced document review methods. In 2015 and 2016 Ralph and his Team participated in the TREC Total Recall Track experiments sponsored by the National Institute of Standards and Technology. Ralph has been involved with computers and the law since 1978. His full biography is found at RalphLosey.com. Ralph is the proud father of two children, Eva M. Losey and Adam Colby Losey, a high-tech lawyer married to another e-discovery lawyer, Cat Jackson Losey, and, best of all, Ralph has been married since 1973 to Molly Friedman Losey, a mental health counselor and life-long friend.

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