In “‘David-And-Goliath-Like’ Struggle for Electronic Discovery”, Court Orders Adverse Inference, Monetary Sanctions for Spoliation and Delay

Harkabi v. Sandisk Corp., 08 Civ. 8203 (WHP) (S.D.N.Y. Aug, 23, 2010)

For failing to preserve the laptops issued to plaintiffs while working for defendant, the court found defendant was “at a minimum” negligent and indicated that an adverse inference would be crafted after all the evidence had been received.  For “prolonged delay” in producing relevant emails the court denied terminating sanctions but ordered monetary sanctions in the amount of $150,000.

This opinion begins:  “Electronic discovery requires litigants to scour disparate data storage mediums and formats for potentially relevant documents.  That undertaking involves dueling considerations:  thoroughness and cost.  This motion illustrated the perils of failing to strike the proper balance.”

Plaintiffs were fired by defendant and thereafter brought suit for breach of contract, among other things.  With the dispute “brewing”, plaintiffs’ counsel sent defendant a preservation letter.  Accordingly, a “Do-Not-Destroy” memorandum was distributed by defendant and the laptops issued to plaintiffs while employed with defendant were secured in storage.  Later, however, following installation of a new email archive service, the laptops were imaged and the data was saved on a file server.

Upon plaintiffs’ request for electronic discovery, defendant discovered it could not locate the laptops’ data.  Rather than revealing the loss, however, defense counsel informed plaintiffs that laptops were typically recycled after employees left the company.  A statement from defendant’s in-house counsel indicated “no reason to believe” that the “Do-Not-Destroy” instructions were not “fully complied with”.  Later, defendant characterized a large native production of ESI as “everything.”  Defendant thereafter refused to produce plaintiffs’ hard drives asserting all relevant documents from the drives had been produced.

Upon plaintiffs’ careful inspection of the production, it was discovered that materials from their laptops had not been produced and neither had some of their emails.  Defendant later confirmed that the hard drives had not been included and, several months after that, admitted that despite what it characterized as “best efforts”, including review of a catalogue of backup tapes and an index of all available laptop images, it had been unable to locate the laptops’ data on servers or backup tapes.  Regarding plaintiffs’ emails, defendant eventually conceded that the native production did not include some emails because they had been lost in the transfer to the new archive system.  As the court noted, the “Do-Not-Destroy” memo appeared to have been ignored.  However, “because [defendant] did not engage this reality, it did not search its backup tapes – an undertaking that would require processing billions of pages of documents at significant cost.”  After briefing on the current sanctions motion, however, defendant discovered the missing emails on backup tapes and began to recover them for production.

As the court noted, while it appeared that defendant would make a complete production of the emails, “the deficiencies in its native production might have gone undetected were it not for plaintiff’s diligence.  Moreover, the incomplete native production spawned significant delay and expense for Plaintiffs.”

Addressing plaintiffs’ request for sanctions, the court indicated that the laptop images and missing emails presented two discreet issues:  spoliation and delay, and went on to state that where a party seeks such a severe sanction as dismissal, the movant must prove:  “(1) that the spoliating party had control over the evidence and an obligation to preserve it at the time of destruction or loss; (2) that the party acted with a culpable state of mind upon destroying or losing the evidence; and (3) that the missing evidence is relevant to the movant’s claim or defense.”  There was “no dispute” that the first element was satisfied.  Regarding defendant’s “state of mind”, the court indicated that the second factor could be satisfied even upon a finding of negligence.  Plaintiffs advanced four arguments for why a culpable state of mind could be inferred, including defendant’s “expertise in electronic data storage” – an argument the court noted “must mortify [defendant], a global business that champions itself a leader in electronic data storage” – and defendant’s delay in revealing that certain information had not been included in its native production.  The court found defendant was “at a minimum”, negligent.  The court also determined that the lost laptop data was relevant.

Taking up the question of appropriate sanctions, the court first addressed the missing laptop data and found that although terminating sanctions were unwarranted, an adverse inference instruction was appropriate where plaintiffs had “lost access to relevant evidence.”  The court went on to note that courts had adopted adverse inference instructions with varying degrees of harshness, and indicated its intent to fashion an appropriate remedy following receipt of all evidence.  Turning to the delayed production of emails, the court found that because it appeared that the emails would be produced, the “prejudice to [plaintiffs]…is contained.”  Thus, terminating sanctions were not appropriate.  However, because defendant’s misrepresentations “obscured the deficiencies and stopped discovery in its tracks”, the court found “a monetary sanction is appropriate to compensate [plaintiffs] for their ‘David-and Goliath-like’ struggle for electronic discovery.”  Noting that “[i]ntegral to a court’s inherent power is the power to ensure that the game is worth the candle – that commercial litigation makes economic sense”, the court ordered monetary sanctions in the amount of $150,000.

A copy of the order is available here.