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Court Orders Monetary Fine for Gross Negligence and Intentional Spoliation of ESI, Including Emails, Text-Messages, and Skype Messages : Electronic Discovery Law

May 12, 2010 By 1 Comment
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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.

via Court Orders Monetary Fine for Gross Negligence and Intentional Spoliation of ESI, Including Emails, Text-Messages, and Skype Messages : Electronic Discovery Law.

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Court Rules Failure to Copy Files on Flash Drive Prior to Failure of the Drive Violated Duty to Preserve : Electronic Discovery Law

May 10, 2010 By Leave a Comment

Wilson v. Thorn Energy, LLC, 2010 WL 1712236 (S.D.N.Y. Mar. 15, 2010)

In this case, the court ordered sanctions for defendants’ failure to preserve relevant data where defendants failed to back up a flash drive containing all relevant financial records and where that data was lost as the result of the flash drive’s failure.

In short, a dispute arose between the parties related to plaintiffs’ loans to and investment in defendants’ petroleum-related project in Africa.  In the course of litigation, plaintiffs sought an accounting of defendants’ use of their funds.

At an initial pretrial conference, defendants’ counsel agreed to provide the accounting.  Despite a subsequent court order compelling its production and defendants’ continued promises to comply, the accounting was never provided.  Seven months after defense counsel promised to provide the accounting, defendants’ 30(b)(6) deponent testified that “all of the LLC’s records concerning the monies that allegedly were sent to Africa had been stored on a USB ‘flash drive’ that she maintained” and that the drive failed in the summer of 2008 – long before the promised production of the accounting.  The deponent further asserted that efforts to recover the information in a useable form were unsuccessful and the drive was eventually discarded.  Accordingly, plaintiff sought an order finding defendants in contempt and for sanctions.

For sanctions to be imposed, plaintiffs needed to show that defendant had a duty to preserve the data, that the data was lost or destroyed with a “culpable state of mind”, and that the evidence was relevant.  As to the first element, the court determined a duty to preserve arose upon plaintiffs’ demand for payment of their money, “well before the flash drive allegedly failed.”  Addressing defendants’ state of mind, the court noted that negligence was sufficient to warrant sanctions and, citing the recent case, Pension Comm. of Univ. of Montreal Pension Plan v. Bank of Am. Secs., LLC, 2010 WL 184312 (S.D.N.Y. Jan. 15, 2010), found that “the failure to collect evidence in a timely manner from a key witness, such as [the 30(b)(6) deponent], constitutes ‘gross negligence or willfulness’” and that “[i]t was consequently at least grossly negligent for the Defendants not to have made a copy of the flash drive before it allegedly failed.”  The lost data was also found to have been relevant.

via Court Rules Failure to Copy Files on Flash Drive Prior to Failure of the Drive Violated Duty to Preserve : Electronic Discovery Law.

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Court Orders Monetary Sanctions for Production Delay Resulting from Counsel’s Failure to Become Familiar with Plaintiff’s Retention Policies and Systems : Electronic Discovery Law

April 14, 2010 By Leave a Comment
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In re A&M Fla. Props. II, LLC, 2010 WL 1418861 (Bankr. S.D.N.Y. Apr. 7, 2010)

Where plaintiff’s counsel “failed in his obligation to locate and produce all relevant documents in a timely manner” by failing to gain a sufficient understanding of plaintiff’s computer systems resulting in significantly delayed production of relevant documents, the court declined to impose terminating sanctions or an adverse inference but ordered monetary sanctions against plaintiff and counsel in an amount to be determined.

Upon plaintiff’s production of requested discovery, defendant was surprised by the lack of internal emails produced.  Thereafter, plaintiff retained new counsel who, in an effort to settle the issue, ordered plaintiff to perform a “company-wide” search for responsive information.  The search was conducted under the direction of Deborah Garfinkle, plaintiff’s Chief Technology Officer.  Unfortunately, counsel was “uninformed on the detailed workings of [plaintiff’s] computer system and email retention policies.”  Specifically, counsel was unaware of the existence of archive folders to which employees regularly moved emails.  The archive folders were therefore not searched.

Eventually, defendant brought the lack of email production to the court’s attention.  The parties thereafter agreed to jointly retain a forensic expert to search plaintiff’s computer system.  Because plaintiff’s counsel remained unaware of the archive folders, the forensic search did not include them.  When certain emails were not found in the forensic search, defendant suspected intentional spoliation.

Responding to the accusation of spoliation, Garfinkle informed defendant’s counsel of the existence of archive folders.  Upon plaintiff’s own subsequent search of those folders, additional responsive emails were found.  Plaintiff argued that the situation could have been avoided had defendant included archives in its search request.  Defendant argued that plaintiff should have known to search the archives.  Both sides agreed to a second search by the forensic expert, including the archives.

Following the second forensic examination, plaintiff’s counsel’s “mistaken impression” regarding the methodology for production of the recovered ESI resulted in a two-month delay in the production of certain responsive emails to defendant.

via Court Orders Monetary Sanctions for Production Delay Resulting from Counsel’s Failure to Become Familiar with Plaintiff’s Retention Policies and Systems : Electronic Discovery Law.

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