e-Discovery Team Training

Welcome to Module 5-K.

The old “Sick Computer,” “Pig in a Poke,” and “Somnambulist” defenses were tried again with no success.

Some of the best-known excuses for destroying electronic evidence — the “Sick Computer,” “Pig in a Poke,” and “Somnambulist” defenses — were all tried out in one case in the Delaware Court of Chancery: Beard Research, Inc. v. Kates, 2009 WL 1515625 (Del.Ch. May 29, 2009). I am pleased to say that they met with no success. These questionable defenses were not raised by digital pirates as we saw in the prior class. No, the pirates had tried more innovative excuses, such as “wiped the drive by upgrading to Vista,” “made gifts of the computers to departing employees,” and the one I think is destined to become a classic, “we just bought the hard drives already suspiciously wiped like that on eBay.” No, the excuses in Beard Research were not raised by pirates, they were raised by respected scientists. Arr. It seems that when it comes to e-discovery, there is a little bit of pirate and mad scientist in all of us, especially those blessed (or cursed) with high IQs.

A few scientists and other Ph.D. types think that they are smarter than everyone else and so they can get away with stuff. As this case shows, some even think they can destroy electronically stored information (“ESI”) after they have been sued. They figure that they will never get caught, and if they do, that they can hide behind a series of oh-so-clever excuses or subterfuge. Once again, this case was a rude awakening for another smart-alecky practitioner of the dubious art of “a little bit of knowledge is a dangerous thing.” When competent legal counsel is on the other side, truth has a way of coming out. When spoliators are then exposed, a good judge will hold them accountable, pirates and scientists alike.

Dog Ate My Hard Drive Type Excuses

Beard Research is a garden variety unfair competition case where defendants tried some of the classic dog ate my hard drive type excuses. The employer, Beard Research, sued its former employees, scientists all, who went to work for a competitor chemical processing company. One of the defendant chemists, Dr. Michael Kates, was discovered to have destroyed files on his computer after he was sued and even after a request for production was made. He kept on destroying files after discovery orders were entered and did not stop his destruction until just before his computer was turned over to the plaintiffs’ computer forensics expert. At least he did not turn over the laptop while it was still hot from deletions and missing a screw from a hurried reassembly, like the defendant did in another smart-alicky spoliator case, Gutman v. Klein 2008 WL 4682208 (E.D. N.Y. Oct. 15, 2008). The Gutman case is also famous for defendant’s testimony under oath to try to explain his actions: “Whatever. I told him whatever. I did whatever I felt right to do, whatever.”

Dr. Kates was more articulate. He tried to explain his tampering with his computer’s hard drive on multiple occasions with the sick computer excuse, where he in effect said: my computer was sick, it didn’t work right, and so I had to wipe all of the the bad ESI away, in fact, it was so sick I had to wipe, reformat, and wipe again and again, until finally it just died and I had to throw it away. This is probably the most common excuse used by ESI spoliators. See eg.Great American Ins. Co. v. Lowry Development, 2007 WL 4268776 (November 30, 2007, S.D.Miss.) (defendant claimed he had to throw away his hard drive because it had been hit by lightening and did not work right). Dr. Kates compounded his ruse by putting a new hard drive into his computer right after he threw away his old one. Then he later claimed to have forgotten about the switch and so produced the new hard drive to plaintiffs’ expert without telling them it was a different drive. Yup, the old switcherro comes to e-discovery.

Although these sick computer stories are somewhat amusing, they lack the flair and originality of my all time favorite excuse, the attack by midnight hackers, as described in Optowave Co. Ltd. v. Nitikin, 2006 WL 3231422 (M.D. Fla. November 7, 2006). Here the defendant, Dr. Nikitin, who held a Ph.D. in photonic engineering from Leningrad University, claimed that all of his emails were erased when a hacker broke into his computers in the middle of the night and erased them. Dr. Nikitin even filed a police report to try to substantiate his story. So here the dog was replaced by a mysterious Midnight Hacker who ate all of his emails. Bad hacker, but oh so convenient for Dr. Nikitin. Too bad for the Russian scientist that he ran into a judge who is very sophisticated in technology, Magistrate Judge David Baker in Orlando, and opposing counsel that I like to think are very competent, namely my own law firm, Akerman Senterfitt. Dr. Nikitin’s story of the Midnight Hacker was exposed as a bad faith coverup of intentional spoliation and an adverse inference sanction was awarded. Id. We won the case largely based on that inference.

Pig in a Poke Defense

But getting back to the scientists in the Beard Research case, the defendants lawyers tried to buttress their “sick computer” and “old switcherro” maneuvers with two of my favorite legal arguments, the “pig in a poke” defense, that’s discussed in an earlier class, and the “somnambulist” defense, employed in most every sanctions case, but without this catchy name until the fine judge who authored this opinion thought it up.

In the “pig-in-a-poke” defense, you argue that the ESI that no one will ever see because your client destroyed it, was anyway of no value. It goes with the “no harm, no foul” argument. Sure, my client made a mistake, but no one was injured by it, so it does not matter and sanctions are not justified. Under this argument, counsel for the alleged spoliator contends that the computer his client destroyed or wiped did not contain strong evidence, or to follow the analogy, did not contain fat juicy pigs. It just had irrelevant junk, mere inedible cats of no use to anyone. Since the contents are unknown, they are hidden in a “poke,” no one will ever know. The assertion of mere cats is hard to prove wrong. You don’t know what you don’t know.

Yes, this is a classic defense that will surely be repeated many more times, and is sometimes even valid, although with competent opposing counsel and a good judge, you may have a high burden of proof by circumstantial evidence for that argument to prevail. For another case where the pig in a poke argument was accepted by the court, see: Phillips v. Potter, 2009 WL 1362049, *5 (W.D.Pa. May 14, 2009). This argument is, however, often hard to advance because the law presumes that the poke had pigs you did not want your adversary to see and that is why you destroyed the bag.

Somnambulist Defense

The second “Somnambulist” argument has been used many times before, and no doubt will continue to be used, but to my knowledge this is the first time a judge raised the colorful specter of somnambulism to identify it. Beard Research, Inc. v. Kates, surpa. A tip of the hat goes to the author of this opinion, Delaware state court judge Donald F. Parsons, who, by the way, under Delaware tradition is called a Vice Chancellor, not a judge (seems appropriate here somehow). In this argument you claim that although the spoliator may have done it, he did not do it on purpose. It was just an accident and so sanctions are not appropriate, especially the ultimate sanction of a default which requires proof of intent in all jurisdictions. Here is the excellent way Vice Chancellor Parsons put it (footnotes omitted):

*11 Before applying the Sears test to these facts, I pause to define some key terms. The intentional destruction of evidence is reasonably straightforward. “Intention” modifies the actus reus of the destruction in the sense that the act was voluntary. Thus, for example, a somnambulist who lights a match and tosses it onto a pile of relevant documents does not act with the required mental state for spoliation. For spoliation, the spoliator also must have intended to act “with purpose.” In Gallagher, the Delaware Supreme Court “reasoned that an adverse inference is consistent with human nature and common sense: if a party intentionally destroys evidence, it is reasonable to infer that the evidence was not favorable to that party.”

Vice Chancellor Parsons here has it figured out. He correctly compares Dr. Kates excuses for wiping his hard drive with a story of “a somnambulist who lights a match and tosses it onto a pile of relevant documents.”

Wiping Away ESI

The defendants here in Beard Research did the digital equivalent to tossing a match onto a pile of relevant documents when Dr. Kates wiped, then threw away his hard drive. According to Dr. Kates, he had a really sick computer and so his actions should be excused. Here is the story.

Suit was filed on May 5, 2005, thus clearly triggering a duty to preserve at that time. On June 21, 2005, a request for production was served, specifically including a request for email communications among defendants. On October 31, 2005, Dr. Kates was laid off by his new employer, who was by then his co-defendant in this law suit. Naturally, this upset Dr. Kates and he became a very mad scientist. In the court’s words, “he was angered by this development and, therefore, deleted all ASG data and files from the Gateway hard drive and then “emptied” the computer’s trash or recycle bin.” Id. at *2. Of course, any decent forensic expert could still recover the ESI at this point, even though it had been double-deleted.

No doubt Dr. Kates knew this as well, because in December 2005, he claims his computer got sick and crashed. So “he reformatted the hard drive and reinstalled system software.” Id. He claims his computer mysteriously crashed again a few months later, so he reformatted and reinstalled the system software a second time. Now he is thinking the information has been destroyed. In the court’s words: “Kates admittedly understood that reformatting the hard drive or installing a new operating system could “wipe[ ] out the old data.” Id. In fact, I am pretty sure the Ph.D was wrong about that. I assume Craig Ball or someone will correct me if I am mistaken here, but a forensic expert could still recover the original information, perhaps all of it, depending on the interim use of the hard drive to store other ESI. That is because reformatting a hard drive, like deleting files, does not actually wipe away or write over information. It just loses the indexing for the files storing it. The operating system pretends like the information, the ones and zeros, are gone so that new ESI could be written over it. But it is really still there unless and until new information in the form of zeros and ones are actually written over it, which could be never.

The Alleged Death and Switcheroo of Defendant’s Hard Drive

Next, there are a couple of motions to compel production of ESI and orders making it obvious that Dr. Kates computer will likely be subject to expert examination if he does not produce his emails, which of course he knows he cannot do because he has erased everything. Then in September 2007, over two years into the case, Dr. Kates claims that his poor computer once again got sick, crashed, and died. Dr. Kates claimed that this time the hard drive was dead for good and he could not restart it.

By remarkable coincidence this happened at the same time Dr. Kates’ lawyer finally got around to asking him to look for his emails. Remember that the case started on May 5, 2005 and there was a specific request for emails on June 21, 2005, yet Dr. Kates’ lawyer apparently did not speak to his client about retrieving emails until September 2007! Here is what the court says (footnotes omitted):

On September 18, 2007, counsel for Kates and the other Defendants asked Kates how to go about retrieving any emails sent from his personal computer, because Plaintiffs had requested such emails. Kates responded: “The email[s] were sent from my personal computer. However, when I was laid off from [ASG], the computer was reformatted. There are no emails of any kind on the computer. The computer at this point doesn’t even function.” After determining that Kates still had the computer, Defendants’ counsel warned: “Don’t trash it.”

So, what does the scientist defendant do? He immediately trashes it of course. This is starting to sound a lot like the digital pirate defendant in Arista Records LLC v. Usenet.com, Inc., supra at *16, *18, who deleted files the same day his attorney promised they would be produced.

Here is what supposedly happened in Beard Research. After doing God knows what to his computer, on December 11, 2007 Dr. Kates takes it to the IT department of his new employer (who is now also a co-defendant), and asks them to try to fix it. They could not, in fact the IT guy, Scott Biggers, later testified that “he could not fix the hard drive or even get it to “spin”; he also could not make a “ghost” copy of the drive.” Beard Research, supra at *3. They installed a new hard drive for Dr. Kates and then returned his old one to him, the one with all of the information sought by the plaintiffs. That is when Dr. Kates simply threw it away. The court at page *4 provides the relevant quote of his affidavit where Dr. Kates admits to it, well sort of:

At this time, I still do not have a specific recollection of the hard drive being returned by Mr. Biggers but I have no evidence to prove that he is wrong and upon reflection and based on the discussion with Mr. Biggers it is likely that the hard drive was returned to me…. [W]hile I have no independent recollection of doing it, I can only conclude that I discarded the original hard drive at or about the time Scott returned it to me or very shortly thereafter.

The story of the poor sick computer does not end here. A few months after the new hard drive was installed, Dr. Kates claimed the second drive stopped working too. Then “sometime in April or May 2008, Kates removed the new hard drive and put it in a drawer.” Id. At this point Dr. Kates has saved a hard drive all right, just not the one he was supposed to, but a second one that has no chance whatsoever of containing any of the evidence needed. How convenient. No doubt he is thinking that he is a very clever scientist and the lawyers and judges will never catch on to the old switcherro he has just engineered. If you think I am being unfair, consider what happened next.

The plaintiffs next filed a third motion to compel requesting that Kates’s laptop be turned over to them so that it could be searched by Plaintiffs’ IT expert. Here is how Vice Chancellor Parsons described what happened next (footnotes omitted):

Argument on the third motion to compel was set for July 24, 2008. On July 23, 2008, Kates received a call from his counsel advising that he probably would have to produce the laptop the next day. Kates retrieved the computer’s hard drive from a desk drawer and reinstalled it. Kates then “defragmented the hard drive and computer” before turning them over to his counsel on the morning of July 24. As Defendants expected, the Court ordered the laptop produced later that same day.

Hmm. Why would he defragment the hard drive? Moreover, how could he, since he claimed before that it was not working? Perhaps it was working all along? Perhaps defragmenting would make it look like he engaged in half-hearted attempts to hide ESI? Perhaps this would cause all to believe that this was indeed the hard-drive they were looking for, the one that might contain relevant ESI? Of course, he knew it was not. He knew he had “discarded” that hard drive back in December 2007 and that no one knew about that except for him. But does he tell anybody about the switcheroo? No, of course not, that defeats the whole purpose of it. Dr. Kates lets the Plaintiffs’ experts study away and look for treasures that he knows they will never find because he knows it is the wrong drive. No doubt he was quite pleased with himself at that point.

The plaintiffs’ expert report is actually very interesting, even if, unbeknownst to them, it did pertain to the wrong drive. Remember, according to the affidavit of Dr. Kates, this second disk had supposedly been sitting in a drawer from December 2007 to just before when it was produced on July 24, 2008. Yet the experts found that “more than 11,000 files were deleted of which at least 1,062 files had been on the hard drive as of May 3, 2008, but were no longer recoverable.” Id. They stated they were no longer recoverable because:

[O]n July 23, 2008 at 9:19 p.m., the hard drive was defragmented, allegedly making recovery of the deleted data difficult or impossible. Id. On July 24 at 5:34 a.m., a “disk cleanup” program was run, which deleted the contents of the computer’s recycle bin, internet cache, and other temporary storage areas.

My, what a tangled web we weave . . . Now this sure has every appearance of being the right hard drive. Too bad the contents cannot be recovered just because of an innocent defragmentation of the hard drive just before it was produced. So very clever. Or maybe he had something else to hide?

After the expert’s report, on October 6, 2008, the plaintiffs moved for sanctions against Dr. Kates because of his deletion and defragmentation of the hard drive delivered to the plaintiff’s expert. The set up is near perfect. No one seems to know abut the switcherro (that only came out later). All seems to be going according to plan. No doubt Dr. Kates thinks this motion will be easy to defeat. Indeed, it was not even brought up for hearing until February 2, 2009, and the bench trial was scheduled for the next month.

Vice Chancellor Persons Unravels the Tangled Web

Just before the trial begins, however, the Vice Chancellor catches onto the whole ruse, switcherro and all. He puts the pieces of the puzzle together and grants the motion in part, establishing an adverse inference and awarding fees. More importantly, the cat is now out of the bag. Judge Parsons has figured out what happened and is obviously not pleased. He does not grant plaintiff’s full request for a default judgment. That might be easy to reverse on appeal. He plays it safe, after all this is a trial in equity. There is no jury. Only the Vice Chancellor decides the ultimate outcome of the case against Dr. Kates and the other defendants, who have in the meantime taken pains to try to distance themselves as far as possible from Dr. Kates.

Although Vice Chancellor Persons made his oral ruling on the motion for sanctions just before the trial, which took place from March 3-19, 2009 (a fairly long trial for a commercial litigation case such as this), he did not write this sanctions Order until May 29, 2009. By this time he has had the benefit of hearing all of the testimony in the whole case, including that of the lead defendant, Dr. Kates. Vice Chancellor Parsons reserved ruling after the trial concluded on March 19, 2009, and as of the time of writing this opinion on May 29, 2009, the parties had not completed their post-trial memorandums. He will not rule on the merits until this post-trial briefing is complete, but I for one am willing to predict that things will not go well for Dr. Kates. I may be wrong, since I know nothing about this case or the facts except what is stated in this one opinion, but consider the excellent grasp the judge appears to have concerning the spoliation ruse and old switcherro tactic of deception by omission.

First of all, the Vice Chancellor did not believe Dr. Kates story that the first drive was so sick that it died. He instead followed the testimony of plaintiffs’ expert and found that:

Based on Kates’s testimony regarding the information he deleted from the laptop in 2005, the presentation Kates gave to ASDI between December 2003 and March 2004 conceivably still remained on the original hard drive that Kates gave to Biggers. Had Biggers or Kates taken appropriate precautions to preserve that defective drive, the evidence on it likely would be available today. Unfortunately, no such precautions were taken. In these circumstances, Kates is plainly culpable for the loss of the original hard drive. As to ASDI and ASG (co-defendants), their degree of fault is greater than it was in connection with Kates’s actions in November 2005. Despite knowing that the laptop might contain relevant evidence, ASDI, ASG, and their counsel did virtually nothing to preserve that computer. The sole exception was Defendants’ counsel’s admonition to Kates not to trash the laptop.

Id. at *8. The judge nailed it here. Further, he saw through the hard drive shell game and understood perfectly what Dr. Kates had been up to:

In late July 2008, after being advised that the Court was likely to order the immediate production of his laptop, Kates brazenly ran a disk-cleanup program on the new hard drive on the eve of the hearing regarding it. At the time, Kates’s counsel apparently did not know the original hard drive had been replaced. With the benefit of hindsight and the belated development of the surrounding facts, it seems unlikely that the new hard drive would have contained any relevant information. In addition, the information Kates deleted apparently pertained to pornographic images that would have caused him personal embarrassment, rather than material relevant to the case. Nevertheless, Kates tampered with the lap-top without consulting with or providing any advance notice to his own counsel, let alone Plaintiffs. This Court cannot condone such flagrant disregard for the discovery rules and a party’s obligation to preserve potentially relevant evidence.

… neither ASDI, ASG, nor Kates advised Plaintiffs when they produced the laptop that it had a new hard drive. Instead, they allowed Plaintiffs and their IT expert to embark on a wasteful wild goose chase, thinking they were dealing with the original hard drive.

Kates is a highly educated individual, having received a doctorate in chemistry, and a sophisticated businessman. Kates, ASDI, and ASG all were on notice by mid-2005 that electronic documents could be relevant to this action. Moreover, Kates admitted knowing that reformatting his laptop’s hard drive on numerous occasions could overwrite or delete data stored on the hard drive. Nevertheless, around November 2005, Kates intentionally deleted files from the laptop after ASG laid him off. Moreover, in or around September 2007, Mr. Elzufon, then lead counsel for Kates, ASDI, and ASG, explicitly told Kates not to destroy his laptop. Still, within a few months, Kates had his original hard drive replaced by an agent of ASDI and then lost the original drive. I find, therefore, that Kates knew of his duties to preserve evidence, including specifically the information on his laptop, but consciously disregarded those duties. Thus, an adverse inference is warranted based on the replacement and subsequent loss of the original hard drive.

Id. at *8, *9, *11

Still not convinced that the judge gets it and is ready to rule accordingly? Then consider the comments he made at the end of the opinion:

Because the original hard drive was replaced, Plaintiffs were forced to engage in what amounted to a wild goose chase in search of information stored on Kates’s computer. Indeed, the actions of Defendants ASDI, ASG, and Kates have frustrated the Court, because it was forced to sit through a hearing about the laptop when the original hard drive already was missing and to read Plaintiffs’ opening brief on the pending Motion only to be sandbagged, like Plaintiffs, by the admission in the answering papers that the original hard drive already had been replaced by early 2008. The vexatiousness of Kates’s conduct was compounded further by his undisclosed deletion of numerous files from the new hard drive before the July 2008 hearing.

You never want to have a judge feel like he has been sandbagged by you, much less frustrated by your client’s vexatious conduct. Those are strong words for a Vice Chancellor getting ready to pass judgment on your case.

Conclusion

Vice Chancellor Donald Parsons included a general comment on e-discovery and preservation in his Beard Research opinion that all trial lawyers should hear:

In complex commercial litigation today, virtually all discovery involves electronic discovery to some extent. It also is well known that absent affirmative steps to preserve it, at least some electronically stored information (“ESI”) is likely to be lost during the course of litigation through routine business practices or otherwise. These realities counsel strongly in favor of early and, if necessary, frequent communications among counsel for opposing litigants to determine how discovery of ESI will be handled. To the extent counsel reach agreements recognizing and permitting routine destruction of certain types of files to continue during litigation, the Court has no reason to object. Conversely, if the parties do not focus on the handling of e-discovery in the early stages of a case, the Court is not likely to be sympathetic when, for example, one party later complains that stringent measures were not instituted voluntarily by her adversary to ensure that no potentially relevant information was lost. Rather, instead of holding a party to a stringent standard that might have been appropriate if established earlier in the case, the Court probably will apply an approach it deems reasonable, taking into account the insights provided by the case law and some of the guidelines and principles developed by various respected groups that have studied the challenges of electronic discovery.

Id. at *7. I expect that these sentiments are held by all judges in the country, including state court judges like Parson who are just beginning to see e-discovery, as well as federal judges, especially magistrates, many of whom have far greater experience with these issues than state judges.

Preservation should always be job number one at the beginning of any complex commercial litigation case like this. But this task involves far more than lawyers talking to opposing counsel about preservation as Vice Chancellor Parsons states. In fact, such conversations are secondary to the first and far more important conversations between lawyer and client. How could defense counsel here possibly wait over two years to talk to their client about preserving ESI and collecting email?

Beard Research shows that this kind of sleep walking is an invitation to disaster. You never know when one of your clients, or their employees, might be a secret pirate or mad scientist. Some, although smart, may not know that the law requires preservation of ESI. Others may know alright, but think they are above the law and can destroy email with impunity. They may not think it is such a big deal to destroy such casual, ephemeral information. Many people put things in email that they later regret, even scientists and high-powered businessmen. It is just human nature to want to try to hide email and other kinds of ESI they might have on their computer to avoid exposure and embarrassment, not to mention loss of a bitterly contested law suit. The temptation to “bend the rules a bit” might even be greater for high IQ smart-alick types who think they can get away with it.

For these reasons and more, if you are a lawyer it is foolhardy to presume that just because your client is smart and sophisticated, that they already know about preservation and will automatically comply. Remind them. Do it right away when a case first starts. You may even have to cajole them a tad, and sometimes quite a lot. Notices and reminders are important, and so is actual preservation by copying and collection of ESI. Absent express agreement with opposing counsel to the contrary, this must be done at the beginning of the case, not two years down the road as happened in Beard Research. The ethical imperatives of diligence and competence require nothing less. The failure to do so in some circumstances may not only be foolish, but also malpractice, even unethical.

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SUPPLEMENTAL READING: Again, read the cases. No other assignments for this class as the next, almost last class, has lots of reading on three 2016 sanctions cases.

EXERCISE: Do you agree with Vice Chancellor Donald Parsons assertion that today “virtually all discovery involves electronic discovery to some extent.” I’m guessing you do, or you would not be taking this course, much less close to finishing it. But how many lawyers agree? If we are right, and they are wrong, what are the implications of this huge disconnect? In what ways is this an opportunity? How can you personally take advantage of that? In what ways is the disconnect a danger to those of us in e-discovery? What can you do to avoid those dangers?

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