Welcome to module 5-L.

This second to last class of the program covers three sanctions cases decided in 2016 under revised Rule 37(e). McQueen v. Aramark Corp., 2016 BL 396068, D. Utah, No. 2:15-CV-492-DAK-PMW (D. Utah, Nov. 29, 2016). Cahill v. Dart, No. 13-cv-361, 2016 WL 7034139 (N.D. Ill. Dec. 2, 2016). Arrowhead Capital Fin., Ltd. v. Seven Arts Entertainment, Inc., No. 14 Civ. 6512 (KPF), 2016 U.S. Dist. LEXIS 126545 (S.D.N.Y. Sept. 16, 2016).

McQueen v. Aramark Corp

judge_paul_warnerThere was an interesting opinion in 2016 arising in Salt Lake City and written by U.S. Magistrate Judge Paul M. Warner. McQueen v. Aramark Corp., 2016 BL 396068, D. Utah, No. 2:15-CV-492-DAK-PMW (D. Utah, Nov. 29, 2016).

This wrongful death case of a construction worker involving late or no preservation notices by Defendant and the destruction of ESI and related paper records. The ESI destruction and paper shredding were allegedly done in accordance with regular practices of the corporation, but after the time in which a hold should have been implemented that suspended such practices. This spoliation was discovered by Plaintiff during a deposition of a key witness who made an off-hand reference to work orders. He later tried to “correct” (change) his testimony with an affidavit, but of course this was denied as not permitted under Rule 30(e).

It is interesting to note that Judge Warner had to order the parties to file supplemental briefs on the impact of revised Rule 37(e). Apparently both sides failed to know that this was the governing law. This kind of mistake is especially damaging to the party defending the sanctions motion, here the Defendant, as the revisions to Rule 37(e) favor the accused. Incredible that defendant missed that.

rule_37eFollowing in a general way the elements of 37(e) (we must assume that the briefing eventually provided by counsel was not very good), “the court finds that Defendant acted with gross negligence, which is insufficient to show bad faith or intent. See Browder, 2016 U.S. Dist. LEXIS 76397, 2016 WL 3397659, at *8.” The court then sanctioned the Defendant as follows:

Thus, the court concludes that a lesser sanction is appropriate. The court orders that the parties will be permitted to present evidence to the jury regarding the spoliation of the work orders and ESI and to argue any inferences they want the jury to draw. The jury will not, however, be specifically instructed regarding any presumption or inference regarding the destruction of those materials. To avoid impinging on the trial judge’s purview in presiding over and conducting the trial, this court leaves to the trial judge to determine the appropriate mechanism for permitting the presentation of the evidence and argument at trial on this issue.

Although a “lesser sanction,” the ultimate ruling here may well still be case dispositive. Just allowing this to be argued to a jury can be very damaging. An actual instruction on presumption (adverse inference instruction) is a guaranteed loss, but the argument alone is a very close second. Motion in limines may be required when, unlike in McQueen, there is some ambiguity on this point in the court’s ruling.

Cahill v. Dart

This excellent opinion is a sanctions order by District Judge John Z. Lee in Chicago. Cahill v. Dart, No. 13-cv-361, 2016 WL 7034139 (N.D. Ill. Dec. 2, 2016). The order affirmed in part, and reversed in part, Magistrate Judge Cox’s prior report and recommendation on Plaintiff’s motion for sanctions.

The Plaintiff had sued the Chicago Police Department alleging false arrest by planting a bag of cocaine. A portion of the video of the Plaintiff’s incarceration that showed the first appearance of the cocaine was destroyed by the police. The Plaintiff moved for sanctions based on the partial destruction of the video after the duty to preserve had been triggered.

Magistrate Cox’s recommendation for sanctions was based on her determination that the Plaintiff was severely prejudiced by the loss of the video. Judge Cox also found that their was no intent to deceive by the Sheriff’s Department’s partial destruction of the video, and so denied the case dispositive remedies under 37(e)(2), namely striking defense or adverse inference instruction. The Plaintiff complained that this let the Defendant off too easily and, on review, Judge Lee agreed.

rule_37eredRevised Rule 37(e)  is fairly short and simple, so every e-discovery lawyer should start to memorize this. You are going to see it for years, but note that it does not apply to paper records destruction, only to the destruction of ESI:

Rule 37(e)
If electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery, the court:

(1) upon finding prejudice to another party from loss of the information, may order measures no greater than necessary to cure the prejudice; or
(2) only upon finding that the party acted with the intent to deprive another party of the information’s use in the litigation may:

(A) presume that the lost information was unfavorable to the party;
(B) instruct the jury that it may or must presume the information was unfavorable to the party; or
(C) dismiss the action or enter a default judgment.

First note that the finding of prejudice is not required for the drastic remedies under subsection two, but, as a practical matter, it helps. Still, remember the moving party does not have to prove prejudice to obtain case dispositive sanctions. They only have to prove intentional destruction. You do not have to prove both prejudice and intent. The Rules Commentary leaves no room for doubt on that point and neither does Cahill v. Dart.

If a judge finds any kind of prejudice under subsection one, then you are entitled to lesser sanctions under subsection one without proof of intent. Lesser sanctions include, without limitation, additional discovery, cost shifting and attorney fee awards. The lesser sanctions can also include allowing presentation of evidence to the jury concerning the destruction of the ESI. The idea is to try to “cure the prejudice” with the judge having wide discretion of what is reasonably required, and what might be overkill. Note again that the moving party does not bear the burden of proof of prejudice. It is a shared burden.

The Sheriff defendant in Cahill v. Dart did not appeal the Magistrate’s finding of “severe” prejudice, still the District Judge Lee reviewed all evidence de novo and also concluded there was severe prejudice. He went on to slightly disagree with Judge Cox on the intent issue. Judge Lee found that it was a close question and should be put to the jury to decide the Defendant’s intent. Thus Judge Lee’s ruling keeps alive Plaintiff’s request for dispositive sanctions and opens the door to presentation of all arguments and fact presentation to jury.

Here is Judge Lee’s language:

… the jurors will be instructed that, if they are persuaded that the destruction was intended to deprive Cahill of the evidence, they must presume the lost evidence would have been unfavorable to Defendants.

Note Judge Lee’s ruling is completely inline with the meaning and intent of new rule 37(e). The Commentary expressly states that a judge may put the issue of intent to a jury (unlike the issue of prejudice in subsection one). Here is the appropriate Commentary extract:

Subdivision (e)(2) requires a finding that the party acted with the intent to deprive another party of the information’s use in the litigation. This finding may be made by the court when ruling on a pretrial motion, when presiding at a bench trial, or when deciding whether to give an adverse inference instruction at trial. If a court were to conclude that the intent finding should be made by a jury, the court’s instruction should make clear that the jury may infer from the loss of the information that it was unfavorable to the party that lost it only if the jury first finds that the party acted with the intent to deprive another party of the information’s use in the litigation. If the jury does not make this finding, it may not infer from the loss that the information was unfavorable to the party that lost it.

This is a short, well written opinion and easy read. Cahill v. Dart, No. 13-cv-361, 2016 WL 7034139 (N.D. Ill. Dec. 2, 2016)

Arrowhead Capital Fin., Ltd. v. Seven Arts Entertainment, Inc.

judge_katherine_faillaThis is another interesting sanctions case where both defendant and its attorney were sanctioned under Rule 37 for e-discovery misconduct. It was written by Katherine Polk Failla, District Judge for the Southern District of NY. She called the misconduct “as deep as it is wide.” Arrowhead Capital Fin., Ltd. v. Seven Arts Entertainment, Inc., No. 14 Civ. 6512 (KPF), 2016 U.S. Dist. LEXIS 126545 (S.D.N.Y. Sept. 16, 2016).

The sanctions were severe. They included issue preclusion, spoliation instructions, a contempt finding, and attorneys’ fees. The misconduct included a blatant violation by defense counsel of Rule 37(e). He simply forwarded the ESI collected by the client without even reviewing the documents. He completely abdicated the attorney’s duty under Rule 37(e) to supervise the document search, review and production. Here is the description in the opinion by District Judge Katherine Failla:

And during a September 3 telephone conference between the parties, defense counsel allegedly admitted that he had not been reviewing the discovery responses — even as he had personally signed several of them — and was merely forwarding what he had received from Mr. Hoffman.

Practice Pointer: Please do not let this ever happen in your law office. You cannot just sign the response under Rule 26(g) based on your merely forwarding documents that the client finds and decides are relevant. You must closely supervise the response. Your signature vouches for the reasonability of the efforts. You cannot possibly do that unless you have knowledge of what was done.

Another thing defense counsel here did wrong here was designate all documents as confidential. The documents so produced included press releases.

Other mistakes made by Defense counsel include, in Judge Failla’s words:

(i) made untimely and improper objections to Plaintiff’s discovery requests; and (ii) “[p]uff[ed] up” their document production with non-responsive documents, while simultaneously refusing to produce obviously responsive documents (including bank records for various Seven Arts entities.

Defendant also failed to preserve documents located on a third party server by failing to download all of them before they lost access by non-payment.

There were also numerous instances of deposition misconduct, with defense witnesses not showing up, etc. That only aggravated the e-discovery misconduct.

Defense counsel blamed the client for the non-production of documents, causing this reaction by Judge Failla:

Because Mr. Hoffman seemed to be directing defense counsel not to produce responsive documents, Plaintiff’s counsel asked the Court to find Mr. Hoffman in contempt of court.

This led to a contempt hearing where the judge questioned the defendant, Mr. Hoffman. The questioning went on for five hours! In this Sept. 16, 2016 Order months later Mr. Hoffman was held in contempt. This is one of the reasons we found this order so interesting.

In addition to the sanctions mentioned, another unusual sanction was entered. The Defendant was stripped of its right to contest the court’s jurisdiction. I had never seen that before. Here is Judge Failla’s ruling on the point:

However, the Court need not reach the merits of Defendants’ jurisdictional arguments because those arguments have been forfeited. The Second Circuit has long recognized that a defendant can “forfeit[] its argument that personal jurisdiction is lacking.” Corporación Mexicana De Mantenimiento Integral, S. De R.L. De C.V. v. Pemex-Exploración y Producción, _ F.3d _, No. 13-4022, 2016 WL 4087215, at *5 (2d Cir. Aug. 2, 2016); see also, e.g., City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 139 (2d Cir. 2011); Hamilton v. Atlas Turner, Inc., 197 F.3d 58, 62 (2d Cir. 1999). One way to accomplish such a forfeiture is “noncompliance with discovery orders.” Robertson v. Dowbenko, 443 F. App’x 659, 661-62 (2d Cir. 2011) (summary order). Here, the Court believes that Defendants’ persistent violations of the Court’s discovery orders prevented Plaintiff from obtaining evidence that could be used to prove its jurisdictional allegations. The Court will not allow these violations to go unredressed. As one of several sanctions for Defendants’ misconduct, the Court now precludes Defendants from contesting the issue of personal jurisdiction.

Here are more excerpts from Judge Failla’s extended bench slaps, slaps which were, in our opinion, well deserved by this defendant and it’s attorney:

Defendants’ misconduct in this litigation is as deep as it is wide.[15] …

Defendants’ failure to make prompt arrangements to move or copy all of their documents from the Zed One server could be seen as reckless. See Fed. R. Civ. P. 37(e) (noting that a party can be sanctioned if it does not take reasonable steps to preserve discoverable electronic information). But, on this record, the Court is convinced that Defendants’ conduct transcended recklessness. At the December 15 hearing, Mr. Hoffman offered a laundry list of excuses for the deficiencies in Defendants’ document production. (See generally, Goldin Decl., Ex. 10). As this list grew longer, the excuses grew flimsier and Mr. Hoffman grew simultaneously angrier and less credible. By the end of the hearing, and particularly after observing Mr. Hoffman’s demeanor throughout that hearing, the Court was left with the distinct impression that Mr. Hoffman was making it up as he went along in order to conceal his true motive: shielding assets, and the information relating to those assets, from Defendants’ creditors, including Plaintiff in this litigation. ,,,

In light of Defendants’ willful efforts to derail the discovery process, the Court considered entering default judgment against Defendants on all counts in the Amended Complaint. However, precluding Defendants from litigating the issue of personal jurisdiction — and giving a spoliation instruction, as appropriate, on any claims that are ultimately submitted to the jury — are intermediate steps that will give Plaintiff a fair opportunity to present its case to the ultimate finder of fact. This intermediate course of action is sufficient. …

Another unusual sanction is that Judge Failla ordered defendants to:

… retain a second outside counsel — other than Mr. Markovich — to do a thorough review of Defendants’ files and determine whether Defendants possess additional discoverable information. This second outside counsel must represent Defendants for any remaining discovery-related proceedings.

Next the court sanctioned existing defense counsel, Mr. Markovich, by requiring him to pay “some portion” of the attorney fee award taxed on defendant. This vagueness of the allocation is, we note, bound to provoke interesting discussions between Hoffman and Markovich. Judge Failla apparently has a sense of humor.

The sanction of the defendant’s attorney was made under the court’s “inhere authority” as here explained:

The Court has “inherent power to supervise and control its own proceedings and to sanction counsel or a litigant for bad-faith conduct.” Sussman v. Bank of Israel, 56 F.3d 450, 459 (2d Cir. 1995); see also 28 U.S.C. § 1927 (“Any attorney . . . who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.”). Here, the Court believes that defense counsel Markovich acted in bad faith and in a manner that improperly lengthened the proceedings in this litigation on at least two occasions.

Bottom line: Discovery misconduct, including hide the ball tactics and sharp practices, is a sure-fire way to lose a case. Discovery abuse is bad. Do not do it. Moreover, any counsel of record who signs a document discovery response has a duty to verify that the document review was properly conducted. You cannot just accept and pass through what the client did.

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SUPPLEMENTAL READING: Again, read the cases, and this time also look for any commentaries on these cases, aside from those of Ralph Losey.

EXERCISE: See if you can find any case where there was an adverse inference instruction of any kind given, permissive or mandatory, and the spoliator still won the jury verdict. Exclude the well-known Apple v Samsung case where both sides were spoliators facing an instruction.

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GO TO THE FINAL CLASS – CLOSING ADVICE.

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

 

Copyright Ralph Losey 2017

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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