It’s your worst nightmare: the court has just issued a sanctions order in the company’s long-running case against a bitter competitor and not only is your client sanctioned, but you are personally charged with spoliation of evidence.  How could this happen?  You have thoughtfully considered all of the myriad sources of company data, designed a comprehensive data policy and issued litigation hold notices for the case, as discussed previously in this series.  This column focuses on what can go wrong in litigation from a discovery perspective, with examples from federal cases around the country.

The comprehensive amendment of the Federal Rules of Civil Procedure (FRCP) in 2006, and states that have followed suit and amended discovery rules, reflect the growing importance and prevalence of electronically stored information (ESI) in litigation. 

The amended FRCP does not directly address sanctions for failing to preserve and produce ESI, aside from a “safe harbor” provision in Rule 37(e), whichsays that “[a]bsent exceptional circumstances, a court may not impose sanctions under these rules on a party for failing to provide electronically stored information lost as a result of the routine, good-faith operation of an electronic information system.”  Note that this “safe harbor” only applies to ESI lost prior to the time that a duty to preserve attaches, for example, email that is automatically deleted in accordance with a data retention policy.

State and federal courts have broad inherent powers to sanction litigants for discovery abuses, including spoliation and failure to comply with discovery orders.  Several years before the FRCP amendments, Judge Shira Scheindlin of the Southern District of New York penned four groundbreaking opinions on e-discovery issues, eventually ordering an adverse inference jury instruction regarding lost emails and that the defendant pay costs after finding that failure to issue a written litigation hold notice “constitutes gross negligence.”  Zubulake v. UBS Warburg LLC.

In a later case, Judge Scheindlin ordered an adverse inference instruction due to the plaintiff’s “gross negligence” in waiting three years to issue a litigation hold, and for making “careless and indifferent” document collections.  Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of America Sec. LLC

Similarly, Judge Rosenthal ordered an adverse inference instruction at trial to sanction the failure to issue a litigation hold, failure to preserve relevant information, and intentional deletion of emails.  Rimkus Consulting Group Inc. v. Cammarata.

Other courts have gone even further in tailoring sanctions for spoliation to the egregiousness of the misconduct.  In Victor Stanley, Inc. v. Creative Pipe, Inc., the defendant was ordered to pay more than $1 million in attorneys’ fees and costs due to spoliation.  The sanctions order recommended that the defendant’s president serve two years in jail for contempt if the monetary sanctions were not paid (later overturned).

What these cases underscore is that timely identification and preservation of relevant data within the corporation’s possession, custody and control is a critical discovery obligation, and that even good faith, albeit negligent, efforts can lead to the severe sanction of an adverse inference at trial.  The next column will provide strategies for meeting this key obligation but in an efficient, cost-effective manner.