Reckless and Grossly Negligent Failure to Preserve Results in Sanctions for Defendant
June 7, 2010
Jones v. Bremen High School Dist. 228, 2010 WL 2106640 (N.D. Ill. May 25, 2010)
Despite receipt of plaintiff’s EEOC claim alleging employment discrimination, defendant failed to institute a litigation hold. Instead, defendant identified three individuals likely to possess responsive information and asked them to identify and preserve relevant evidence. Some of the individuals identified were substantially involved in the alleged discriminatory treatment of the plaintiff. Despite this failure, defendant eventually produced most of the requested information, although some email was deemed likely to have been lost forever. Finding defendant’s preservation efforts “reckless and grossly negligent”, the court ordered sanctions.
Following a long period of alleged discrimination, plaintiff sued defendant. Defendant received notice of plaintiff’s EEOC charges on or before November 30, 2007, thus triggering its duty to preserve. Despite that, defendant failed to issue a litigation hold and instead instructed individual employees, some of whom had been accused of harassing the plaintiff, to identify and preserve relevant evidence. There was no evidence presented that their assessment was guided by counsel. It was not until the spring of 2009 that all employees were finally placed under litigation hold. Despite that failure, in October of 2008 defendant began automatically saving all emails from district users in a searchable archive. Accordingly, all potentially relevant emails created thereafter were preserved. Any email purposefully or automatically deleted prior to that could not be recovered, however. Prior to October 2008, employees had the ability to permanently delete emails from the system.
Also of note during discovery was defendant’s decision, when ordered to produce its document retention policy, to instruct its technological director to put in writing the district’s email retention policy, rather than producing a document retention policy discovered by plaintiff posted on the district’s website.
Plaintiff deemed defendant’s responses to discovery insufficient noting an absence of emails expected to have been produced and filed a Motion for Sanctions. Thereafter, defendant produced a large volume of additional documents thus filling the “gaps” in production. Despite the delayed production, however, the danger that relevant emails were deleted remained because defendant failed to immediately place a litigation hold and because employees had the ability to permanently delete emails from the system.
Beginning its analysis, the court laid out the appropriate legal standards and noted that in the Northern District of Illinois, “failure to issue a litigation hold is not per se evidence that the party breached its duty to preserve”, rather, “reasonableness is the key to determining whether or not a party breached its duty”. Accordingly, the court determined that defendant breached its duty to preserve by failing to immediately issue a litigation hold to “all employees who had dealings with plaintiff” and by relying on only a few individual employees to identify and preserve responsive email:
It is unreasonable to allow a party's interested employees to make the decision about the relevance of such documents, especially when those same employees have the ability to permanently delete unfavorable email from a party's system. As one court has noted, "simply accept [ing] whatever documents or information might be produced by [its] employees," without preventing defendants from clearing the hard drives of former employees, was improper. Most non-lawyer employees, whether marketing consultants or high school deans, do not have enough knowledge of the applicable law to correctly recognize which documents are relevant to a lawsuit and which are not. Furthermore, employees are often reluctant to reveal their mistakes or misdeeds. [Citation ommitted.]
The court also rejected defendant’s argument that placing a proper litigation hold would have resulted in burden to the defendant and noted the troublesome nature of defendant’s failure to produce the document retention policy posted on the district’s website. The court then determined that plaintiff had been harmed by the delayed production of documents as well as the possibility that emails had been permanently deleted.
Finally, turning to defendant’s level of culpability, the court determined its actions were reckless and grossly negligent, but not willful. Specifically, the court found fault with defendant’s reliance on employees, particularly those “whose conduct was in question in the lawsuit”, and with defendant’s initial efforts to obtain documents from only three employees. The court also questioned defendant’s failure to produce the document retention policy, calling it “another example of the defendant’s negligence in handling preservation and production of electronic documents in this litigation.”
Declining to impose an adverse inference absent evidence of deliberate efforts to conceal, the court granted the following sanctions:
1) the jury in this case should be told that the defendant had a duty to preserve all email concerning plaintiffs' [sic] allegations beginning in November 2007, but did not do so until October 2008. Accordingly, defendant will be precluded from arguing that the absence of discriminatory statements from this period (November 2007 until October 2008) is evidence that no such statements were made; 2) defendant will be assessed the costs and fees of plaintiff's preparation of the motion for sanctions; and 3) plaintiff will be permitted to depose witnesses concerning emails produced on May 14, 2010 if it so chooses. Defendant will pay for the cost of the court reporter for those depositions.
A copy of the full opinion is available here.
Court Resolves Dispute Regarding Scope of Discovery, Addresses Search Terms, Custodians, and Backup Tapes
June 4, 2010
Helmert v. Butterball, LLC, 2010 WL 2179180 (E.D. Ark. May 27, 2010)
In this collective action brought under the Fair Labor Standards Act, plaintiffs and defendant reached significant impasse regarding the appropriate scope of discovery, including disagreement regarding search terms, the number and identity of custodians, the sources of data to be searched, and who should bear the costs. Resolving each issue in turn, the court’s discussion focused in large part upon weighing the burden of plaintiffs' requests against the potential to discover relevant information, including a discussion of the discoverability of backup tapes. The court also declined to shift the costs of production.
Following defendant’s initial production of 887 documents, including 87 emails, plaintiffs sought to compel defendant to conduct additional searches. Defendant objected to the number of proposed search terms and custodians and, despite several attempts, no agreement could be reached. Eventually, plaintiffs sought to compel defendant to search for additional information “from all possible sources of ESI belonging to 43 custodians” using 70 separate terms. Defendant consented to searching the active and archived email folders of 33 custodians using 12 previously proposed terms and argued any additional searching would be unreasonably duplicative, would impose significant burden, and would require searching locations deemed “not reasonably accessible.”
Addressing each issue in turn, the court first took up the question of appropriate search terms and analyzed each of plaintiffs’ four categories of terms individually. The court’s analysis included consideration of Fed. R. Civ. P. 26(b)(2)(B) related to defendant’s assertion of undue burden and noted that defendant had not provided evidence of the estimated costs of the allegedly burdensome searches. As to at least one category, the court relied upon the results of a sample search to assess the likelihood of discovering responsive information. Ultimately, three of the four categories were approved.
As to additional proposed custodians, the court approved certain of plaintiffs’ proposals for expanding the number of custodians, including ordering the search of certain “non-Butterball ESI sources”, e.g., the personal and professional email accounts of upper management who were not on defendant's email system during the relevant time period. The court declined, however, to order defendant to conduct searches of custodial sources unlikely to contain responsive material and sources deemed not reasonably accessible, namely backup tapes.
Defendant objected to searching backup tapes, arguing that they were not reasonably accessible. Specifically, defendant asserted that to conduct such a search it would need to recover the emails stored on the tapes, build a server, install new software, and restore “an entire post office”. The hardware to restore the post office alone was estimated to cost $10,000. All of this was necessary before any searching could be conducted. Accepting defendant’s arguments, the court found the backup tapes were not reasonably accessible. Pursuant to the rule, however, plaintiffs asserted the search should nonetheless be compelled because they had good cause to obtain the information on the backup tapes. Analyzing each of the seven factors identified for consideration by the advisory committee notes to rule 26(b)(2), the court declined to compel the search. Specifically, the court found it “most significant that the plaintiffs have no idea what, if any, discoverable information may be obtained by rebuilding a server post office and searching the emails of the above-listed persons that are stored on the backup tapes” and concluded that “the slim likelihood that new and relevant information may be discovered does not outweigh the substantial burden and expense required to retrieve the information from the backup tapes.”
Because the court did not compel discovery of any ESI that was not readily accessible, the court found cost shifting was inappropriate.
A full copy of the opinion is available here.
For Discovery Violations, Court Indicates Likelihood of Finding Agency Relationship Existed as a Matter of Law
June 2, 2010
Maggette v. BL Dev. Corp., 2010 WL 2010816 (N.D. Miss. May 17, 2010)
For defendant’s and counsels' discovery violations discovered with the assistance of a special master, including failing to adequately search for responsive material and misrepresenting search efforts to the court, the court indicated a likelihood that it would find as a matter of law that an agency relationship existed between defendant and another entity implicated in the underlying accident claims. Accordingly, a hearing was set to address the possible sanctions as well as the implications of counsels’ actions for their involvement with the case.
Plaintiffs sued defendant for negligence following a tragic bus accident in which a bus operated by the Walters Bus Company (“Walters”) overturned while carrying passengers to the Grand Casino Tunica. A “central question” in the case was whether defendant BL, owner of the Grand Casino Tunica, was vicariously liable for any negligence committed by Walters.
Discovery was contentious and a special master was appointed. As a result of the special master’s reports and the discovery orders issued by the Magistrate Judge, the court, upon its own motion, took up the question of appropriate consequences for defendant’s discovery violations. While the details are many and varied, the court concluded that defendant’s efforts to locate materials responsive to plaintiffs' requests were vastly insufficient and that, as reported by the special master, defendant’s descriptions of search efforts were “clearly calculated to give the appearance of diligence and compliance” but proved “absurd upon closer scrutiny.” This determination was further supported by the reports of the special master, including his account of “discovering” a “large trove” of responsive materials previously asserted to have been lost in Hurricane Katrina in a warehouse owned by the defendant. Moreover, the special master described many instances where data previously reported as lost or destroyed was, in fact, located exactly where it might be expected to be and simply was not produced.
The special master also reported egregious behavior on the part of counsel, including one attorney’s adamant representations that particular documents were not in his possession, despite evidence of his receipt of such documents in email, and another who claimed to have searched for responsive material in “every conceivable database” – an assertion later proven false as evidenced by the discovery of responsive data “at the ordinary and customary locations where they would be expected to be found”.
The court thereafter expressed its lack of certainty that all responsive materials had been produced and, noting defendant’s and counsels’ misbehavior, questioned “what other evidence might have existed…which has been effectively concealed?” and why the court should presume that damaging documents had not been removed from the locations discovered by the special master.
Taking up the issue of appropriate sanctions, the court acknowledged that some Fifth Circuit authority suggests that dispositive sanctions are warranted only upon a showing of bad faith and that the missing evidence was relevant and probative. However, the court went on to state that the “issue of primary concern in this case is not the ‘mere’ spoliation of evidence but rather the repeated flouting of discovery orders in such a manner as to call into question the integrity of this court’s order and to also raise questions regarding exactly what, if anything, BL might be attempting to hide in this case.”
Following further discussion of the nature of the issue before it, the court noted that defendant had been warned of the danger of severe sanctions by the Magistrate Judge during previous discovery conflict and that despite such warning, defendant had “doubled-down on its deception”. Accordingly, the court acknowledged that it appeared to “have no real choice but to find that an agency relationship exists as a matter of law between BL and Walters.” The irony of such a sanction, the court noted, was that it may to BL’s advantage where the alternative, an adverse inference instruction, may have put the jury in a “punitive mindset” when it considered underlying liability. Recognizing that “the responsibility for punishing BL for its discovery violations lies with the court, rather than the jury”, though, the court indicated it saw “no reason why the jury should even be told of BL’s discovery violations, unless the violations are shown to impact the liability and damages issues before it.”
Wishing to provide the parties an opportunity to “argue the issues raised” in the present order, the court set a hearing for June 30th at which the primary topics for discussion would be: “1) the proper handling of the vicarious liability issue and pretrial motions relating to the same; and 2) the conduct of BL counsel in this case.. and the implications of the same for them in this case.” The court also noted that the question of whether to adjust previously imposed monetary sanctions in light of the most recent revelations would remain the determination of the Magistrate Judge.
A full copy of the order is available here.
Seventh Circuit Issues Report on Phase One of Electronic Discovery Pilot Program
June 2, 2010
Last month, the Seventh Circuit’s Electronic Discovery Pilot Program Committee released its report on phase one of its Electronic Discovery Pilot Program. Initiated as a “multi-year, multi-phase process to develop, implement, evaluate, and improve pretrial litigation procedures that would provide fairness and justice to all parties while seeking to reduce the cost and burden of electronic discovery consistent with Rule 1 of the Federal Rules of Civil Procedure”, the first phase of the program ended on May 1, 2010, after a seven month period in which the committee’s Principles Relating to the Discovery of Electronically Stored Information were tested in practice. Although limited in its geographic scope and number of participants, the results of phase one provide valuable insight into possible ways to better the current civil system. The second of three phases will begin on July 1, 2010 and may be expanded to increase the number of cases and participating judges.
Too lengthy to summarize, the full report is available here.
Judge Scheindlin Amends Recent Pension Opinion
June 1, 2010
On May 28th, Judge Shira Scheindlin entered an order amending her recent opinion in Pension Comm. of Univ. of Montreal Pension Plan v. Bank of Am. Secs., LLC. The order provides important clarification regarding the scope of a party’s obligation to collect records from its employees. The order states:
At page 10, lines 7-10, replace <By contrast, the failure to obtain records from all employees (some of whom may have had only a passing encounter with the issues in the litigation), as opposed to key players, likely constitutes negligence as opposed to a higher degree of culpability.> with <By contrast, the failure to obtain records from all those employees who had any involvement with the issues raised in the litigation or anticipated litigation, as opposed to just the key players, could constitute negligence.>.
A full copy of the order is available here.
Failure to Test Keywords by Sampling a Prominent Consideration in Court’s Finding of Waiver
May 24, 2010
Mt. Hawley Ins. Co. v. Felman Prod., Inc., 2010 WL 1990555 (S.D. W. Va. May 18, 2010)
Where plaintiff (Felman Production, Inc.) failed to take sufficiently reasonable precautions to prevent the disclosure of a privileged email, privilege was waived.
In this case, the court addressed a number of issues, including the parties’ compliance with their clawback agreement and the applicability of the crime-fraud exception to 377 inadvertently produced, privileged emails. The primary focus of this summary, however, is the court’s analysis of whether the privilege was waived as to one specific email, “the May 14th email”, and in particular, its analysis of the reasonableness of plaintiff’s precautions to prevent such disclosure.
The May 14th email was inadvertently produced by the plaintiff amidst “a massive disclosure of e-discovery”. Plaintiff learned of the email’s production several months later when defendants attached the email to a motion to amend their answer. Three days later, plaintiff sent a letter noting that the email had been listed on plaintiff’s privilege log and demanding the email’s return. Thereafter, disagreement arose between the parties and the question of waiver was brought before the court.
Taking up the issue, the court first highlighted the five-factor test established in Victor Stanley, Inc. v. Creative Pipe, Inc., 250 F.R.D. 251 (D. Md. 2008): 1) the reasonableness of the precautions taken to prevent inadvertent disclosure; 2) the number of inadvertent disclosures; 3) the extent of the disclosures; 4) any delay in measures taken to rectify the disclosure; and 5) overriding interests in justice. Next, the court laid out the relevant provisions of Fed. R. Evid. 502(b) and indicated its intent to “apply Rule 502(b), considering Victor Stanley and similar cases as to reasonableness.” The court then quickly determined that the production was inadvertent and that plaintiff promptly took reasonable steps to seek the email’s return. Accordingly, the remaining issue for consideration was the reasonableness of plaintiff’s efforts to prevent such production in the first place.
Following a brief discussion highlighting factors for consideration, including the volume of documents produced, any applicable time constraints, the use of analytical software applications and linguistic tools, and fairness, the court then noted Judge Grimm’s remarks in Victor Stanley, namely, that “[t]he only prudent way to test the reliability of the keyword search is to perform some appropriate sampling of the documents determined to be privileged and those determined not to be in order to arrive at a comfort level that the categories are neither over-inclusive nor under-inclusive.” The court also pointed out the very interesting detail that plaintiff’s counsel had “participated in the Victor Stanley case ‘after all the events that are relevant…had taken place.’”
The court next provided a lengthy list of the steps taken by plaintiff and counsel to produce relevant documents while protecting privilege, including using “privileged search terms” to identify materials for individual review and conducting an “eyes on” review of those documents. The court also found that an unexplained glitch in the vendor-created database files contributed to plaintiff’s failure to identify the inadvertently disclosed email(s) where the file from which many of the inadvertently produced documents originated failed to build a complete index of potentially privileged materials.
Nonetheless, the court was unwilling to find that the inadvertent production of 377 privileged documents (plus the email primarily at issue in this summary) was “solely attributable” to the technological glitch and found that plaintiff and counsel “failed to perform critical quality control sampling to determine whether their production was appropriate and neither over inclusive nor under-inclusive, even though that firm was counsel in the Victor Stanley case”, among other things.
Applying the five-factor test established in Victor Stanley “in the context of [the court’s] findings and the commentary to the rules”, the court found that plaintiff and counsel did not take reasonable steps to prevent disclosure and that the privilege was therefore waived:
First, the precautions taken to prevent inadvertent disclosure were not reasonable. As warned in Victor Stanley, 250 F.R.D. at 257, the failure to test the reliability of keyword searches by appropriate sampling is imprudent. Second, the number of inadvertent disclosures is large, more than double the number discussed in Victor Stanley, a number which underscores the lack of care taken in the review process. The May 14 email resonates throughout this case--a bell which cannot be unrung. Its content has had great influence on Defendants' discovery requests and deposition questions. Confidentiality cannot be restored to that document. Third, the extent of the disclosures is not known to the Court because the 377 documents have not been submitted in camera. Fourth, there has been delay in measures taken to rectify the disclosure of the documents. It is an important fact that identification of privileged documents which were disclosed to Defendants was made by the Defendants, not Felman or its counsel. Finally, as in Victor Stanley, id. at 263, Felman has "pointed to no overriding interests in justice that would excuse them from the consequences of producing privileged/protected materials."
A copy of the full opinion is available here.
Court Order Provides Students, Parents Opportunity to View Images Captured by School-Issued Laptops
May 20, 2010
For anyone who hasn’t heard, a school district in Pennsylvania has recently come under fire for using the webcams on school-issued laptops to capture images of students both during and outside of school hours – about 56,000 of them, according to reports. According to the complaint filed in this case, students and parents were not informed of the school’s ability to use the webcams. In at least one instance, a student was called to the assistant principal’s office to discuss an image captured by the webcam on his laptop. His family has now sued the district and hopes that other students will join them. According to the school district, the webcams were intended for tracking lost or stolen computers.
On May 14th, the court ordered that affected students and their parents be provided an opportunity to view the captured images. The order requires that students and their parents receive separate notifications of the opportunity to view the images and, notably, provides students the opportunity to object to their parents’ viewing of certain images. Upon objection, the student will discuss with the judge “how to handle the situation.”
A full copy of the order is available here.
For those interested in learning more about this very interesting case, a link to a recent article on the lawsuit is available, here.
Upcoming Events
May 19, 2010
Washington State Bar Association: Washington Civil Procedure: Let’s Do it Right! – How to Navigate Washington’s Civil Rules for Your Client’s Benefit
May 26, 2010
8:25 AM - 4:45 PM
Red Lion Hotel, Emerald Ballroom II
1415 Fifth Avenue
Seattle, WA
K&L Gates Partner Todd Nunn will present a discussion entitled, “Electronic Discovery: What You Must Know to Correctly Steer Your Client”. Attendees can expect to learn more about e-Discovery best practices and privilege issues for e-discovery (and discovery in general) as well as what is happening with the state rules of civil procedure and the possibility they will be amended to incorporate electronic discovery.
For more information or to register, click here.
Whatcom Law Advocates: Electronic Discovery and Live Depositions
June 2, 2010
1:30 – 1:45 PM (after the Bar lunch)
Northwood Hall
3420 Northwest Avenue
Bellingham, WA
K&L Gates partner Thomas Kelly will present a discussion entitled “Electronic Discovery in the less Than Million Dollar Case”.
For more information or to register, click here.
National Conference on Professional Responsibility
June 2-5, 2010
Westin Seattle
1900 5th Avenue
Seattle, WA 98101
K&L Gates partner Thomas Kelly will participate in the breakout panel discussion “The Year in Review in Confidentiality and Attorney-Client Privilege” at 10:35 AM on Friday June 4th and will specially address international privilege issues.
To learn more about this event or to register, click here.
Federal pilot program curbs e-discovery fights
May 14, 2010
From The National Law Journal:
By: Leigh Jones
May 13, 2010
The results of the first phase of a closely watched federal court pilot program on electronic discovery show that having a set of fair-play rules at the outset of a case helps quell pretrial brawls between parties.
The goal of the program, launched in May 2009 and spearheaded by James Holderman, chief judge of the Northern District of Illinois, was to find ways to reduce the massive costs and burdens of electronic discovery. Chairing the program is Magistrate Judge Jan Nolan, also of the Northern District of Illinois.
The first-phase of the 7th Circuit's pilot program indicated that when judges and attorneys had a set of specific principles to guide electronic discovery, it improved the process — or, at least, didn't make it worse.
Click here to read the entire article at Law.com.
Court Orders Monetary Fine for Gross Negligence and Intentional Spoliation of ESI, Including Emails, Text-Messages, and Skype Messages
May 11, 2010
Passlogix, Inc. v. 2FA Tech., LLC, 2010 WL 1702216 (S.D.N.Y. Apr. 27, 2010)
Upon finding that defendants spoliated relevant information, including emails, Skype messages, and computer logs, the court declined to order an adverse inference, to preclude defendants from the presentation of arguments implicating the discarded documents, or to order defendants to pay plaintiff’s costs, but ordered monetary sanctions in the amount of $10,000, after balancing “2FA’s litigation conduct with its status as a small corporation.”
In this opinion, the court addressed plaintiff’s allegations that defendants, specifically defendant Gregory Salyards, committed fraud on the court by creating and sending an anonymous email “in an effort to expand discovery, cause Passlogix competitive harm, and garner a favorable settlement.” Defending against the accusation, Salyards proffered the affirmative defense of IP spoofing, “stating that a Passlogix employee may have ‘spoofed’ his IP address in an effort to impersonate him on the internet.” Passlogix also sought spoliation sanctions arguing that defendants failed to implement a legal hold and took part in intentional spoliation of data, including emails and text messages.
Although beyond the scope of this summary, the court’s lengthy discussion of the anonymous email(s) and Salyards’ defense of “IP spoofing” is fascinating and showcases how ever-advancing technology has created scenarios for consideration that, not long ago, seemed more the stuff of spy novels than of litigation in our federal courts.
Returning to the topic of spoliation, plaintiff sought sanctions for defendants’ failure to implement a litigation hold and deletion of electronically stored information (“ESI”) despite their duty to preserve. Specifically, plaintiff alleged that defendants wrongfully destroyed a relevant, anonymous email received by defendant Salyards; destroyed written communications between defendant Salyards and Chris Collier, a former Passlogix employee and key figure in the accusations of IP spoofing; and failed to preserve computer logs from defendants’ investigation surrounding the alleged IP spoofing. In order to prevail, plaintiff was required to show that defendants had a duty to preserve at the time of the alleged spoliation, destroyed or failed to preserve the documents with a “culpable state of mind”, and that the documents were relevant to plaintiff’s claim or defense.
Regarding the anonymous email, defendant Salyards admitted deleting the email (which allegedly contained “Passlogix functional specifications”) after determining it was “improper for [defendants] to have it.” The court determined that the deletion occurred when defendants’ had a duty to preserve evidence. Additionally, the court determined that defendant Salyards’ deletion of the email and admitted failure to implement a litigation hold amounted to gross negligence. However, the court declined to infer the relevance of the deleted email absent evidence of bad faith.
The question of relevance was tied to the particulars of the IP spoofing defense, namely a question of whether defendant Salyards authored the anonymous email himself. Because Passlogix could present no evidence of such authorship, the court was not persuaded that a reasonable trier of fact could find the email hurtful or helpful to either party. Accordingly, the court declined to find that defendants’ had spoliated the anonymous email.
Regarding the written communications between defendant Salyards and Chris Collier, the court determined that defendant Salyards “was on notice that some of his written communications with Collier were probative of the underlying litigation when the communications were deleted”, that Salyards’ “failure to preserve these written communications, in addition to 2FA’s overall failure to issue a written litigation holds notice, constitutes gross negligence”, and that the written communications were relevant to the litigation. Accordingly, the court found that defendants “engaged in spoliation of evidence”, including emails, text-messages, and Skype messages.
Finally, the court addressed 2FA’s failure to preserve computer and network logs from its investigation of the source of the anonymous emails implicated in the IP spoofing controversy. Again, the court found the data was not preserved, despite a duty to do so. Beyond gross negligence, however, the court found the failure to preserve the computer and networks logs intentional, where the investigator admitted to withholding the logs because of his “subjective belief that the logs would have appeared to point falsely to Salyards as the author of the September 3 email.” In so finding, the court noted that “[t]he duty to preserve documents is meant to prevent these sorts of ‘judgment calls’ by litigants…”
Because the court found the spoliation intentional and in bad faith, the relevance of the documents was presumed and the burden shifted to 2FA to show that Passlogix was not prejudiced by the absence of the missing information. “Because Passlogix [did] not have a copy of 2FA’s computer logs and because the logs [were] likely no longer available as a result of 2FA’s continued deletion of records”, the court held that Passlogix was prejudiced by 2FA’s spoliation of the logs.
Turning to an appropriate sanction, the court denied Passlogix’s request for an adverse inference, for an order precluding Passlogix from making arguments implicating the “discarded documents”, and for Salyards to pay the costs of Passlogix’s investigation into the anonymous emails. Rather, the court determined that the appropriate sanction would be a monetary fine of $10,000:
The Court holds that a monetary fine of $10,000 against 2FA best suits "the facts and evidentiary posture of [this] case." Reilly, 181 F.3d at 267. 2FA is a small company founded only in 2006, and Salyards and Cuttill--who the Court both finds responsible for the spoliation of evidence in this case--are 2FA's sole principals and co-founders. Here, a fine against 2FA serves the dual purposes of deterrence and punishment. See Green, 262 F.R.D. at 292. Because Salyards and Cuttill are the sole principals of 2FA, a fine directed at 2FA will affect them directly. In concluding that a fine of $10,000 is the most appropriate sanction, the Court balances 2FA's litigation conduct with its status as a small corporation.
A full copy of the opinion is available here.