2009-06-13 Early Stage eDiscovery Failures, Spoliation Standards in Delaware State Courts, and The Three Bases for a Court's Imposition of Sanctions for eDiscovery Abuse


Back on track with this week’s digest. Three for review. The first case, from the U.S. District Court for the District of Minnesota provides a what-not-to-do (or what not to not do) in the early stages of discovery. This analysis stands as the longest digest of the shortest decision yet. The second decision involves spoliation sanctions determination and imposition in Delaware state courts. This decision was given an in depth analysis because the Delaware state courts handle a significant volume of commercial and public company litigation. The third decision from the U.S. District Court for the Northern District of Georgia addresses the three sanctions available to a court to address a party’s discovery abuse. The defendant in that case “escaped” evidential sanctions, but not much else.

SWT

Decisions:

In re ZURN PEX PLUMBING PRODUCTS LIABILITY LITIGATION, 2009 WL 1606653 (D. Minn. 2009)
Beard Research, Inc., et al. v. Kates, et. al., 2009 WL 1515625 (Del.Ch. 2009)
Kipperman v. Onex Corp., 2009 WL 1473708 (N.D.Ga. 2009)


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Case: In re ZURN PEX PLUMBING PRODUCTS LIABILITY LITIGATION
Citation: 2009 WL 1606653 (D. Minn. 2009)
Date: 2009-06-05
Topics: Fed. R. Civ. P. Rule 26 and ESI discovery interpretation, counsel opinion no substitute for expert evidence

This eDiscovery decision from the U.S. District Court for the District of Minnesota arises out of a class action matter. While U.S. District Judge Montgomery first notes that “the parties have worked amicably throughout the discovery process, and [defendant produced] substantial amounts of hard copy, there appeared to be evidentiary gaps of relevant evidence from documents provided by non-parties, and the class plaintiff filed a motion to compel production of ESI.

Following depositions, plaintiffs requested, and defendants produced the names of individuals who had received a “legal hold” (presumably from defendant’s counsel). Plaintiffs then requested that defendant search the emails of these individuals as well as shared server drives. Not surprisingly, as the Court notes, defendant “balked at the request.”

Some extended context is helpful here. In class action litigation it is routine for a court to bifurcate the discovery process into two phases, the first addressing class certification issues and the second addressing others issues, including the merits. This case was no exception: U.S. Magistrate Judge Erickson bifurcated discovery, and ordered the parties to first focus on the issue of class certification.

That said, by the time plaintiff’s “Motion to Compel Production of Electronically Stored Information (“ESI”) was filed, defendant had already produced a substantial volume of hard copy material.

Author’s (Extensive) Note: I typically reserve observations for last, or at least after some analysis, but this case stands out (or may stand out, as the record provided in the decision is somewhat sparse) as a prime “how not to conduct discovery.” This relatively brief opinion deserves proper analysis, but in order to do so, some in-depth background is (at least imo) helpful. So, anything between the dashes (or hyphens set forth in repetitive fashion below) comes from the author, and not the court.

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Fed. R. Civ. P. Rule 26

The complaint in this matter was filed well after the effective date of the 2006 amendments to the Federal Rules of Civil Procedure. The hint lies in the index number for that case, which bears an “08” prefix. The two-digit prefix in federal district court civil case numbers indicates the year of filing.
It’s also a good idea to set forth those portions of Rule 26 pertinent to this decision. For those who want to view the source, from the source, here’s the link:

http://www.uscourts.gov/rules/CV2008.pdf

Fed. R. Civ. P. Rule 26(b) - “…General Provisions Governing Discovery

(1) Scope in General. Unless otherwise limited by court order, the scope of discovery is as follows: Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense — including the existence, description, nature, custody, condition, and location of any documents or other tangible things and the identity and location of persons who know of any discoverable matter. For good cause, the court may order discovery of any matter relevant to the subject matter involved in the action. Relevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence. All discovery is subject to the limitations imposed by Rule 26(b)(2)(C).
(2) Limitations on Frequency and Extent.
(A) When Permitted. By order, the court may alter the limits in these rules on the number of depositions and interrogatories or on the length of depositions under Rule 30. By order or local rule, the court may also limit the number of requests under Rule 36.
(B) Specific Limitations on Electronically Stored Information. A party need not provide discovery of electronically stored information from sources that the party identifies as not reasonably accessible because of undue burden or cost. On motion to compel discovery or for a protective order, the party from whom discovery is sought must show that the information is not reasonably accessible because of undue burden or cost. If that showing is made, the court may nonetheless order discovery from such sources if the requesting party shows good cause, considering the limitations of Rule 26(b)(2)(C). The court may specify conditions for the discovery.
(C) When Required. On motion or on its own, the court must limit the frequency or extent of discovery otherwise allowed by these rules or by local rule if it determines that:
(i) the discovery sought is unreasonably cumulative or duplicative, or can be obtained from some other source that is more convenient, less burdensome, or less expensive;
(ii) the party seeking discovery has had ample opportunity to obtain the information by discovery in the action; or
(iii) the burden or expense of the proposed discovery outweighs its likely benefit, considering the needs of the case, the amount in controversy, the parties’ resources, the importance of the issues at stake in the action, and the importance of the discovery in resolving the issues.

Fed. R. Civ. P. Rule 26(f) CONFERENCE OF THE PARTIES; PLANNING FOR DISCOVERY.

(1) Conference Timing. Except in a proceeding exempted from initial disclosure under Rule 26(a)(1)(B) or when the court orders otherwise, the parties must confer as soon as practicable — and in any event at least 21 days before a scheduling conference is to be held or a scheduling order is due under Rule 16(b).
(2) Conference Content; Parties’ Responsibilities. In conferring, the parties must consider the nature and basis of their claims and defenses and the possibilities for promptly settling or resolving the case; make or arrange for the disclosures required by Rule 26(a)(1); discuss any issues about preserving discoverable information; and develop a proposed discovery plan. The attorneys of record and all unrepresented parties that have appeared in the case are jointly responsible for arranging the conference, for attempting in good faith to agree on the proposed discovery plan, and for submitting to the court within 14 days after the conference a written report outlining the plan. The court may order the parties or attorneys to attend the conference in person.
(3) Discovery Plan. A discovery plan must state the parties’ views and proposals on:
(A) what changes should be made in the timing, form, or requirement for disclosures under Rule 26(a), including a statement of when initial disclosures were made or will be made;
(B) the subjects on which discovery may be needed, when discovery should be completed, and whether discovery should be conducted in phases or be limited to or focused on particular issues;
(C) any issues about disclosure or discovery of electronically stored information, including the form or forms in which it should be produced;

So, subject to certain limitations, (i.e., burden, duplication, expense, previous opportunity to discover, and burden-benefit analysis) Fed.R. Civ. P. Rule 26(b) provides that parties may obtain discovery or non-privileged relevant matter. Specific limitations on discovery of ESI may be imposed if a party can show inaccessibility by reason of undue burden or cost.

But wait, before we can undertake eDiscovery, parties are required to “meet and confer” to discuss ESI discovery issues as part of their general meet and confer obligations pursuant to Fed. R. Civ. P. Rule 26.

Fed. R. Civ. P. Rule 26(f)(3)(c) is particularly instructive, as it requires the parties to discuss and attempt to resolve any (emphasis added) ESI discovery issues, including form or production.

So, the Rules give parties specific procedural marching order prior to engaging in discovery generally, and in eDiscovery in particular. In plain language, parties are permitted by the Federal Rules of Civil Procedure to engage in discovery of ESI (subject to limitations set forth above). Before commencing discovery, however, the parties must
1. Meet and discuss eDiscovery issues, including preservation and form of production
2. Prepare some report or proposed case management or scheduling order outlining what issues (including ESI discovery) on which the parties agree, or disagree. The Court then decides disputed discovery issues.

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Blognote: There is no language in the Federal Rules permitting a court a priori to prevent a party from undertaking ESI discovery.

Blognote: There is a somewhat fine distinction between undertaking ESI discovery (that is, discovering electronically stored information) and producing ESI. In this action, and although the terminology used by the Court is less than perfectly clear, the issue centered on ESI production and not ESI discovery.

With that out of the way, let’s return to the rather sparsely reported record in this case. No mention is made whether any Rule 26(f) meet and confer took place, or what was discussed, agreed to, or disputed, and no mention is made of any case management order provisions other than discovery bifurcation. What we do know is that this is a class action, and as is typical in class actions, discovery was bifurcated into phases, with the first described as “class certification.” The current discovery dispute arose during this first class certification phase.

This case also qualifies as a top contender for the “what-not-to-do” award for 2009.

Why? It appears that plaintiff’s counsel requested production of ESI in native format (rather than hard copy of ESI) only after “voluminous” hard copy of ESI by defendant:

“The parties have worked amicably throughout the discovery process, and Zurn has produced substantial amounts of hard copy documents.” In re Zurn Pex Plumbing Products Liability Litigation 2009 WL 1606653, 1 (D. Minn. 2009)

But wait, after acquiescing to the production of hard copy printouts of ESI from defendant, plaintiff saw clouds on the otherwise “amicable” discovery event horizon:

“It appears, based on third party discovery, that all of the communications regarding warranty claims and aggressive water have not been disclosed” Id.

Plaintiffs’ counsel then took a more aggressive stance, and requested ESI discovery, specifically a search of certain of defendant’s servers and drives. Not surprisingly, defendant’s response was an objection:

“[After depositions were taken] Plaintiffs requested, and Zurn produced, the names of Zurn employees who have received a legal hold notice in relation to this action. Raiter Aff. Ex. N. Plaintiffs responded with a list of 26 search terms that they wanted Zurn to use to search the emails of the identified employees as well as the shared servers (the J and K Drives). Id. Ex. O. Zurn balked at the request, arguing that the information was not necessary for class certification and that the request was overly broad and would be extremely costly.” Id.

The Court’s eDiscovery Analysis

Plaintiffs argued that the Magistrate Judge foreclosed the production of ESI. The Court disagreed, relying on what is (at least imo) a rather tortured interpretation of Fed. R. Civ. P. Rule 26(b). The Court’s language seems to conflate the discoverability of ESI (which for the most is expressly permitted by the rules) with the production of discovered ESI, which may be limited by a Court:

“The Federal Rules of Civil Procedure anticipate the need for ESI. Rule 26(b)(2)(B), however, places specific limitation on the production of ESI. “A party need not provide discovery of [ESI] from sources that the party identifies as not reasonably accessible because of undue burden or cost.” Fed.R.Civ.P. 26(b)(2)(B). On a motion to compel discovery, “the party from whom discovery is sought must show that the information is not reasonably accessible because of undue burden or cost.” Id. Additionally, a court order can further limit discovery. Id. 26(b)(1). i at p. 2" Id.

“As a threshold matter, Zurn argues that Judge Erickson's October 26, 2007 Order foreclosed the production of ESI. It does not. The Order specifically contemplated that the parties would be allowed to revisit the issue of ESI should they discover “voids in the information disclosed in hard copy form.” October 26, 2007 Order at *9. The emails from the Zurn distributor that discuss fittings failures and aggressive water, and which had not been produced by Zurn directly, suggest that there are gaps in the hard copy information already disclosed. See Raiter Aff. Exs. A, B, C. Accordingly, this Court will revisit the ESI issue in light of Rule 26(b)(2)(B).” Id., at p. 2" Id.

Author’s Note: The Court’s language is interesting because it does seem to confuse ESI discoverability with ESI production itself. I think the definition of ESI production, absent agreement to the contrary by the parties, is not so plastic. One may argue that the production of a hardcopy of a pdf of a word processing file, or a hardcopy of a tiff of an email, is production of ESI, but it is more likely that the hapless requester who is painted into this corner may have supplied both paint and brush to the Court. In this case, plaintiff did accept “voluminous” hard copy.

What plaintiff might have done in lieu of this acquiescence was to appeal the order of the Magistrate Judge to the District Judge. There are risks attendant to this admittedly infrequent, and frequently unsuccessful approach, but the denial of ESI discovery in the form chosen by the requesting party seems appropriate to bring “upstairs” to the District Judge.

Interestingly enough, and in seeming contradiction to its eDiscovery position stated above, the Court then describes the underlying purpose of discovery:

“Zurn first cites the voluminous documents it has already disclosed and makes the argument that Plaintiffs have sufficient discovery to adequately argue the first phase of the class certification issue. Def.'s Mem. in Opp'n to Mot. to Compel [Docket No. 67] at 11-13. This argument glosses over the purpose of discovery, which is to broadly enable parties to obtain the factual information needed to prepare a case for trial. See Alpern v. UtiliCorp United, Inc., 84 F.3d 1525, 1536 (8th Cir.1996). Even focusing on the narrower issue of class certification, there is a presumption in favor of discovery of Zurn's ESI.” Id. at p. 2

Magistrate Judge Erickson’s Decision

What makes this decision intriguing is that the excerpt provided by the District Court of Magistrate Judge Erickson ESI discovery ruling, which appeared to deny plaintiff’s request for discovery of ESI rather than the form of production, stating that:

“[W]hile ESI may prove relevant to the first stage of discovery, we cannot meaningfully make that prediction now, and require the parties to engage in what could be vastly more expensive, and yet utterly futile, discovery.” Id. However, Judge Erickson also stated that “should the parties uncover voids in the information disclosed in hard copy form, they are ... at liberty to press for further discovery including electronically stored information.” Id. at *9.” In re Zurn Pex Plumbing Products Liability Litigation, 2009 WL 16706653 (D. Minn. 2009).

Blognote: eDiscovery is discovery about discovery, irrespective whether that discovery involves class certification, jurisdiction, merits, or otherwise. To hold ESI discovery “meaningful” in one set of circumstances and not in another is to misapprehend the ubiquitous nature of computer generated information as evidence across the spectrum of case types in modern day litigation. Moreover, if Magistrate Judge Erickson’s comments are directed to ESI discovery, his position is also undercut by the fact (and by the acknowledgment of many other judges) that 99 percent of all evidence used in modern litigation is computer generated. That said, the magistrate judge did leave himself an out, permitting a revisitation of the issue (to permit ESI discovery) if circumstances later necessitated same.

ESI Production after Production of Hard Copy Not Duplicative

Not surprisingly, circumstances necessitated revisiting the issue, and the District Court took the more expansive approach, and turns first to defendant’s initial assertion that ESI production would be duplicative and therefore should be denied pursuant to Fed. R. Civ. P. Rule 26(b)(2)(C)(i). District Judge Atherton disagrees, and couches her language on the general schema of broad discovery contemplated by the Federal Rules.

“Zurn first cites the voluminous documents it has already disclosed and makes the argument that Plaintiffs have sufficient discovery to adequately argue the first phase of the class certification issue. Def.'s Mem. in Opp'n to Mot. to Compel [Docket No. 67] at 11-13. This argument glosses over the purpose of discovery, which is to broadly enable parties to obtain the factual information needed to prepare a case for trial. See Alpern v. UtiliCorp United, Inc., 84 F.3d 1525, 1536 (8th Cir.1996). Even focusing on the narrower issue of class certification, there is a presumption in favor of discovery of Zurn's ESI.” Id., at p. 2

Undue Burden and Cost, and Attorneys Representations Thereof

Defendant then argued that the ESI search and production would result in undue burden and cost for defendant, and to this issue the Court accorded greater concern.

“Zurn's second argument, however, that the production of ESI would be unduly burdensome and costly, is a greater concern for the Court. Plaintiffs request roughly 361 gigabytes of data. Brumagin Aff. ¶¶ 2, 3, 4; Freestone Aff. [Docket No. 69] ¶ 5. Zurn represents that by using the generally accepted standard of 75,000 pages per gigabyte, Plaintiffs' request amounts to nearly 27 million pages of documents. Def.'s Mem. in Opp'n to Mot. to Compel at 13, n .4. If the K drive were not searched, the remaining data consists of 48 gigabytes. FN1 Zurn also states that a search of the custodians' emails and J drive files will require approximately seventeen weeks and cost $1,150,000, exclusive of vendor collection and processing costs, to review and process the data. Freestone Aff. ¶ 9.” Id., at p. 2

The colloquy here is interesting. Defendant’s representations as to “generally accepted standard of 75,000 pages per gigabyte” or 27 million pages, is accorded little weight by the Court. Why? Obvious, my dear Watson. Defendant’s counsel, made the assertion without any expert testimony supporting her assertions. The Court notes that counsel’s naked assumptions didn’t count for all that much.

The Court first disagreed with defendant’s math:

“By the Court's calculation, a search of the custodians' emails and J drive files, as well as the DVD copies of information of former Zurn-employee custodians, consists of roughly 3.6 million pages of documents. It is unclear whether Zurn's cost and time numbers are based on a review of 27 million pages of documents, the 3.6 million pages of documents limited to the J Drive and custodians' emails, or a smaller sample of document pages likely to be flagged as a result of a search for certain relevant terms proposed by Plaintiffs.” Id.

What was at stake here? More than one million dollars in asserted discovery costs for defendant, and a significant expenditure of time:

“Zurn also states that a search of the custodians' emails and J drive files will require approximately seventeen weeks and cost $1,150,000, exclusive of vendor collection and processing costs, to review and process the data.” Id. at p. 1

Did defendant utilize an expert to help the court understand why significant costs and time would be required to comply with plaintiff’s ESI discovery request? The answer is no, and the Court doesn’t skip a beat in weighing in on the probative value of naked argument by counsel:

“The affidavit of Ms. Freestone, an attorney and not an expert on document search and retrieval, is not compelling evidence that the search will be as burdensome as Zurn avers.’ Id.

Yowch.

Call this a stellar example of being penny wise and pound foolish. I’m sure that the cost of hiring an expert to provide evidence for this assertion would have been orders of magnitude less expensive (read: much cheaper) than having to comply with what ultimately was the Court’s decision, and that was to engage in fairly extensive ESI discovery:

“In an effort to control costs, the Court will limit the search to the following fourteen terms based on the likelihood that they will produce relevant documents without including a vast number of documents that are likely irrelevant to the litigation. Zurn shall search the J Drive, the custodians' emails, and the DVDs of the information on the computers of former Zurn-employee custodians using the following terms:

(1) AADFW, (2) Corrosion, (3) Corrosive, (4) Corrosive Water, (5) Crack, (6) Dezinc, (7) Dezincification, (8) DZR, (9) Fail, (10) IMR, (11) Leak, (12) MES, (13) SCC, (14) Stress corrosion cracking.” Id. at p. 3

Oh, and the Court did leave open the door for defendant to raise the burden and cost issue, but reminded counsel to bring an expert for the occasion:

Additionally, if the search, as ordered by the Court, proves to be overly burdensome or costly, Zurn may renew its objection by presenting the Court with specific information including evidence from computer experts on applying the search terms, the number of documents identified, and the cost and time burdens of vetting documents.” Id.

Takeaway -- Producing Party: The author has been there, done that, and has been run over by the same truck that struck defendant’s counsel in this case. In order to prevent such lamentable outcomes, a wise strategy includes having a technology expert on hand to assist a court in understanding that which you are asserting is “generally accepted” as true. “That” of course, in this case, meaning matters technological.

Takeaway – Requesting Party: This motion appears to have been argued without the benefit of having a technology expert present to substantiate counsel’s claims, and this inured to plaintiff’s disadvantage in proceedings before the magistrate judge. Yes, it appears that plaintiffs will get their ESI discovery. That said, had counsel been supported by the declaration or testimony of any expert, ESI discovery might have commenced at the outset.

This decision provides a clarion call (or shout) to counsel to understand that an attorney’s representation about what technology is, or isn’t or about what technology costs, or does, or doesn’t do, amounts to no more than lay opinion to a court. Forewarned is forearmed.


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Case: Beard Research, Inc., et al. v. Kates, et. al.
Citation: 2009 WL 1515625 (Del.Ch. 2009)
Date: 2009-05-29
Topics: Delaware duty to preserve, adoption of Zubulake and Sedona guidelines, request for production triggers duty to preserve, basis for imposition of default judgment or adverse inference instruction as sanction for ESI spoliation

This spoliation decision arises from a trade secrets misappropriation and tortious interference with business relation action from the Court of Chancery of Delaware.

The allegations involve the ubiquitous ex-employee, a former employer, the ex-employee’s subsequent employer, and a laptop computer. The sanctions sought were, alternatively, default or an adverse inference jury instruction:

“In particular, Plaintiffs contend that an ex-employee's laptop computer was irretrievably altered after a duty to preserve that evidence had arisen and that the ex-employee and his subsequent employers are responsible for that alteration. By way of remedy, Plaintiffs urge this Court to grant a default judgment in their favor on Counts I and II of their Complaint for tortious interference with business relations and misappropriation of trade secrets, respectively. Alternatively, Plaintiffs request an adverse inference that the destroyed evidence contained information that would favor their claims. Plaintiffs also seek imposition of attorneys' fees and costs. Defendants vigorously oppose the motion for sanctions.” Beard Research, Inc. v. Kates,” 2009 WL 1515625, 1 (Del.Ch. 2009)

Duty to Preserve Under Delaware Law

The Court first provides an analysis of a party’s duty to preserve relevant evidence under Delaware law. Note the reliance on Zubulake IV and the Sedona Guidelines. Not surprisingly the duty to preserve includes evidence that might be relevant to anticipated future litigation:

"A party in litigation or who has reason to anticipate litigation has an affirmative duty to preserve evidence that might be relevant to the issues in the lawsuit.FN62 Whether a person has reason to anticipate litigation depends on whether the “facts and circumstances ... lead to a conclusion that litigation is imminent or should otherwise be expected.” FN63 A court may sanction a party who breaches this duty by destroying relevant evidence or by failing to prevent the destruction of such evidence.FN64" Id.

"FN62. See Triton Constr. Co. v. E. Shore Elec. Servs. Inc., 2009 WL 1387115, at *8 (Del. Ch. May 18, 2009); Acierno v. Goldstein, 2005 WL 3111993, at *6 (Del. Ch. Nov. 16, 2005); see also Brandt v. Rokeby Realty Co., 2004 WL 2050519, at *11 (Del.Super.Sept.8, 2004) (“A party, anticipating litigation, has an affirmative duty to preserve relevant evidence.”); Positran Mfg., Inc. v. Die bold, Inc., 2003 WL 21104954, at *2 (D.Del. May 15, 2003) (citations omitted); Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 216 (S.D.N.Y.2003).” Id.

“FN63. The Sedona Guidelines: Best Practice Guidelines & Commentary for Managing Information & Records in the Electronic Age (“ Sedona Guidelines ”) 40 n. 1 (2004), available at http:// thesedonaconference.org/content/miscfiles/TSG9_05.pdf; see also id. at 40 (citing numerous federal cases) (“An organization's information and records management program should anticipate circumstances that will trigger the suspension of normal destruction procedures.”). Id.

In this instance, at issue was [the ex-employees] laptop computer, an original hard drive, and a “substitute” hard drive, and as is typically asserted in this type of proceeding, crashes, reformats and reinstalls. And the deletion of nearly 11,000 relevant files as evidence by forensic examination. Oh my.

It is helpful at this point to provide a truncated event timeline:

October 2007: Plaintiff’s explicitly requested production of the laptop as a source of potentially relevant evidence.

Defendant refused to produce the computer without a court order. No matter, said the Court. The duty to preserve was nonetheless triggered at least as early as that time:

“Whether or not Defendants' position in that regard was substantially justified, Kates, ASDI, and ASG knew as of October 2007, at the latest, that Plaintiffs believed the laptop contained relevant information. In those circumstances, each of those three Defendants had an affirmative duty to preserve the Gateway as evidence.” Id.

But wait, noted the Court: there was an arguably earlier preservation trigger. Here’s why:

February 2004: Defendant [the ex-employee] resigns from plaintiff.
March 2004 (approx): Defendant is employed by co-defendant ASG
Early 2004: Defendant ex-employee understands likelihood of being sued by ex-employer
May 2005: Ex-employee and new employer are sued by plaintiff
June 2005: Plaintiff serves first set of discovery requests to defendant ex-employee

Beginning in 2003 and at all times pertinent thereto, defendant ex-employee used a laptop computer for his everyday work and personal matters.

Plaintiff asserted three arguments in support of its contention that the ex-employee had tampered and with both the original and substitute hard drives “in a way that destroyed or threatened to destroy relevant evidence on a number of occasions:

“(1) Kates's deletion of all ASG data and files from the original hard drive in or around November 2005;
(2) Biggers's installation of a new hard drive in the laptop in or around December 2007 and return of the original hard drive to Kates, who then could not account for its whereabouts; and
(3) Kates's tampering with the laptop and deletion of certain files in July 2008, just before I ordered Defendants to produce it for Plaintiffs' inspection. ” Id. at p. 6

As to the November 2005 actions, the Court first finds that the by deleting files and emptying the trash or recycle bin, the employee had destroyed data. The Court also found that the ex-employee had already been in litigation for a number of months at the time (November 2005) he deleted files and emptied the laptop’s recycle bin.

The Court also determined that the ex-employee’s new employers (both co-defendnats) also had an obligation to preserve “well before 2005” as they shared the same counsel, and had shared the same counsel, since the commencement of the litigation.

But wait, argued the co-defendants. No specific request was made for the ex-employee laptop, as of November 2005, and so there was no duty to preserve it. Not so, said the Court.

But first, the Court explains that the problems it will later describe might have been prevented by early meet and confer between adversary counsel. The message to future litigants appearing before this court is clear: Agree on ESI issues (including preservation and destruction) and the Court will generally not interfere. Fail to agree, and the Court will not look kindly on a party’s failure to impose stringent preservation measures in a challenge mounted by an adversary. In other words, the Court is likely to hold a party who destroys evidence in the absence of an agreement between the parties to a much higher standard of preservation.

“In complex commercial litigation today, virtually all discovery involves electronic discovery to some extent. It also is well known that absent affirmative steps to preserve it, at least some electronically stored information (“ESI”) is likely to be lost during the course of litigation through routine business practices or otherwise.” Id.

“These realities counsel strongly in favor of early and, if necessary, frequent communications among counsel for opposing litigants to determine how discovery of ESI will be handled. To the extent counsel reach agreements recognizing and permitting routine destruction of certain types of files to continue during litigation, the Court has no reason to object." Id.

“Conversely, if the parties do not focus on the handling of e-discovery in the early stages of a case, the Court is not likely to be sympathetic when, for example, one party later complains that stringent measures were not instituted voluntarily by her adversary to ensure that no potentially relevant information was lost. Rather, instead of holding a party to a stringent standard that might have been appropriate if established earlier in the case, the Court probably will apply an approach it deems reasonable, taking into account the insights provided by the case law and some of the guidelines and principles developed by various respected groups that have studied the challenges of electronic discovery [Footnote omitted].” Id. at p. 7.

Takeaway: In Delaware, negotiate an advantageous (to your client) ESI preservation and destruction agreement with your adversary as early as possible.

Failure to Impose Litigation Hold

The Court also points out that there was “no evidence” produced by any defendants indicating that any actions to preserve evidence were taken as of November 2005. The foreseeability standard will be familiar:

“Defendants knew or, at least, should have known that Kates had a laptop that might contain information relevant to the litigation and, therefore, should be preserved. The complete absence of any evidence that Defendants ASDI, ASG, or Kates took any action to satisfy their obligation to preserve relevant information on Kates's laptop in 2005 leads me to conclude that ASDI and ASG bear some responsibility for the destruction of evidence that occurred in November 2005, albeit much less than Kates himself.” Id.

December 2007: In December 2007, defendant ex-employee “twice successfully and once unsuccessfully” tried to reformat what was apparently a failing hard drive in the laptop. The Court notes that each of these acts “created a risk that relevant information on the original hard drive would be overwritten and effectively destroyed.”

At this time, plaintiff had specifically requested the ex-employee’s laptop (and drive) and that the ex-employee refused to produce same without a court order. The Court points out that even though the hard drive did fail mechanically (failed to spin up), there was still an opportunity to retrieve relevant evidence that defendant ex-employee had a duty to preserve. During that time, the ex-employee’s new employer replaced the failed drive with a new drive. The location of the original drive? Whereabouts unknown.

The Court was not amused:

After determining that the hard drive would not “spin” and that he could not make a “ghost” copy of the drive, Biggers replaced it with a new drive and returned the original to Kates. The original drive has not been seen since then.

The loss of the original hard drive deprived Plaintiffs of the opportunity to examine what might have been relevant evidence. Plaintiffs' IT expert, Paul Herrmann of EVI, has sworn that, even though the hard drive did not spin or operate when Biggers examined it, there is a high likelihood that the drive could have been repaired with full recovery of all data from it.FN68 Defendants did not rebut Herrmann's testimony, and I find it credible." Id. at p. 8

Based on this and other evidence, the Court found that all defendants had breached their duty to preserve relevant evidence.

Late July 2008: Suffice it to say that in late July 2008, “after being advised” that the Court was likely to order the immediate production of the laptop, defendant ex-employee “brazenly ran a disk-cleanup program on the new hard drive on the eve of the hearing regarding it.”

The Court was singularly unimpressed with defendant ex-employee’s attempts at computer hygiene:

“Kates tampered with the laptop without consulting with or providing any advance notice to his own counsel, let alone Plaintiffs. This Court cannot condone such flagrant disregard for the discovery rules and a party's obligation to preserve potentially relevant evidence.” Id.

Delaware Standards for Application of Appropriate Sanctions for Spoliation of Evidence

Under Delaware, a court has the power to impose sanctions under two theories: The first theory is resembles the federal court’s “inherent powers” to manage its own affairs. Indeed, the Court points to the Second Circuit’s decision in Residential Funding v DeGeorge, and the Third Circuit’s decision in Schmidt v. Milwaukee Elec. Tool Corp. in support of its assertions:

“The Court has the power to issue sanctions for discovery abuses under its inherent equitable powers, as well as the Court's ‘inherent power to manage its own affairs.’FN70“ Id.

“FN70. Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 106-07 (2d Cir.2002); see also Schmid v. Milwaukee Elec. Tool Corp., 13 F.3d 76, 79 (3d Cir.1994).” Id., at p. 9

Borrowing again from federal court decisions (this time, from the Court’s home federal District of Delaware, the Court explains that sanctions serve three functions:

“Sanctions serve three functions: a remedial function, a punitive function, and a deterrent function.FN73 Keeping these purposes in mind, the Court will consider the following factors in determining the appropriate sanctions:

FN73. Micron Tech., Inc. v. Rambus Inc., 255 F.R.D. 135, 148 (D.Del.2009) (citation omitted).
(1) the culpability or mental state of the party who destroyed the evidence;
(2) the degree of prejudice suffered by the complaining party; and
(3) the availability of lesser sanctions which would avoid any unfairness to the innocent party while, at the same time, serving as a sufficient penalty to deter the conduct in the future.FN74

FN74. Positran Mfg., Inc. v. Die bold, Inc., 2003 WL 21104954, at *2 (D.Del. May 15, 2003) (citation omitted).” Id. at 9

“The Court has wide latitude to fashion an appropriate remedy, but the remedy must be tailored to the degree of culpability of the spoliator and the prejudice suffered by the complaining party.” Id

Default Judgment or Dismissal

The Court then discusses the menu of sanctions types it could impose under Delaware law.

"To impose a default judgment, the spoliator must have acted “willfully or in bad faith and intended to prevent the other side from examining the evidence.” FN78 Entry of a judgment against the spoliating party should be regarded as “a last resort,” FN79 however, and a motion for such relief should be “granted only if no other sanction would be more appropriate under the circumstances.” FN80 Id. at p. 10

“FN77. Sundor Elec., Inc. v. E.J.T. Constr., 337 A.2d 651, 652 (Del.1975).FN78. Positran, 2003 WL 21104954, at *2 (citations omitted).FN79. Baliotis v. McNeil, 870 F.Supp. 1285, 1290 (M.D.Pa.1994).” Id.

The Court determines that entry of default would be an “extreme sanction” and that the record in this case did not support it. The Court reasons that while it had been demonstrated that computer information had been deleted, plaintiffs had not shown that the any deleted would have shown that defendant’s had acted in the manner alleged in the complaint. The Court reasoned further that an adverse inference instruction on that issue to be appropriate under the circumstance.

Although the Court acknowledges intentionality to some degree by each defendant, the “marginality” of relevance of the evidence shown to have been destroyed augured in favor of the lesser sanction of an adverse inference instruction rather than a default judgment.

Adverse Inference Sanctions Under Delaware Law – The Sears Test

The Court then provides an analysis for the imposition of sanctions for spoliation under Delaware law.

“As the Delaware Supreme Court said, ‘[i]t is the duty of a court, in such a case of willful destruction of evidence, to adopt a view of the facts as unfavorable to the wrongdoer as the known circumstances will reasonably admit.’ FN82 Id. at p. 10

FN82. Equitable Trust Co. v. Gallagher, 102 A.2d 539, 541 (Del.1954). Id.

The Court then describes the Delaware Supreme Court’s recently announced standards for the adverse inference imposition:

“More recently, the Supreme Court articulated the standard for drawing an adverse inference as follows:

“An adverse inference instruction is appropriate where a litigant intentionally or recklessly destroys evidence, when it knows that the item in question is relevant to a legal dispute or it was otherwise under a legal duty to preserve the item. Before giving such an instruction, a trial judge must, therefore, make a preliminary finding that the evidence shows such intentional or reckless conduct.FN83" Id.

FN83. Sears, Roebuck & Co. v. Midcap, 893 A.2d 542, 552 (Del.2006).” Id.

Adverse Inference Sanctions Imposition Requires Preliminary Finding of Intent or Recklessness

The Court then further explains that under Supreme Court of Delaware’s Sears test, a Court may impose an adverse inference instruction only after a preliminary finding of intent or recklessness:

“It is not enough that the “absence of evidence is not adequately explained.” FN84 Likewise, the negligent destruction of evidence does warrant drawing an adverse inference; rather, the drawing of an adverse inference requires as a predicate a “preliminary finding of intentional or reckless destruction of evidence. [footnote omitted]” FN85 Id.

The Court then proceeds to define “intent” and “recklessness” when applying the Sears adverse inference propriety test. “Intent” is defined in its traditional manner, and presumes some purposefulness :

“The intentional destruction of evidence is reasonably straightforward. “Intention” modifies the actus reus of the destruction in the sense that the act was voluntary. Thus, for example, a somnambulist who lights a match and tosses it onto a pile of relevant documents does not act with the required mental state for spoliation. For spoliation, the spoliator also must have intended to act “with purpose.” Id., at p. 11

The Court then admits that it has more of a challenge when defining “recklessness” within a spoliation context.

On a spectrum of possible states of mind, recklessness exists somewhere between intentional conduct on one side and negligent conduct on the other side. In Jardel v. Hughes, the Delaware Supreme Court defined recklessness in a civil context as “a conscious indifference to the rights of others.” FN88 In further describing civil recklessness, the Court stated: “Where the claim of recklessness is based on an error in judgment, a form of passive negligence, plaintiff's burden is substantial,” because the “ precise harm which eventuated must have been reasonably apparent but consciously ignored in the formulation of the judgment.” Id.

All that said, the Court appears to have little difficulty in fashioning a simple definition based on “knowing disregard:”

“Reckless conduct reflects a knowing disregard of a substantial and unjustifiable risk. It amounts to an “I don't care attitude.” Recklessness occurs when a person, with no intent to cause harm, performs an act so unreasonable and so dangerous that he or she knows, or should know, that harm will probably result.’ Id.

Blognote: This resembles the “continuum” of culpability (from negligence to intentionality) utilized by federal courts. See, e.g., Technical Sales Associates, Inc. v. Ohio Star Forge Co. 2009 WL 728520 (E.D.Mich. 2009) [Digested in EDDE 19]

Result: As to defendant ex-employee, the Court found that he had prior notice of the trigger of his duty to preserve, that he was a highly educated individual, and that he with knowledge that he was under a duty to preserve evidence, nonetheless took action on “numerous occasions” to reformat, and then, without real explanation, lost the original hard drive of his laptop computer. The Court found this sufficient basis for the imposition of an adverse inference sanction:

“Moreover, Kates admitted knowing that reformatting his laptop's hard drive on numerous occasions could overwrite or delete data stored on the hard drive. Nevertheless, around November 2005, Kates intentionally deleted files from the laptop after ASG laid him off. Moreover, in or around September 2007, Mr. Elzufon, then lead counsel for Kates, ASDI, and ASG, explicitly told Kates not to destroy his laptop. Still, within a few months, Kates had his original hard drive replaced by an agent of ASDI and then lost the original drive. I find, therefore, that Kates knew of his duties to preserve evidence, including specifically the information on his laptop, but consciously disregarded those duties. Thus, an adverse inference is warranted based on the replacement and subsequent loss of the original hard drive.” Id.

Adverse Inference and Substantive Proof

The Court next addresses the issue of what adverse inference language to use. While the plaintiff urged the Court to infer that the missing evidence (here deleted emails and a PowerPoint presentation) would have provided evidence proving plaintiff’s claims, the Court split adverse inference analysis.

Missing eMail

The Court notes that there was no proof that any such emails existed, and accordingly refuses to take “absence of evidence equates to evidence of absence” argument bait. Following Delaware decisional authority, the Court explains that an adverse inference should never take the place of substantive proof:

“There are two problems with Plaintiffs' argument vis-á-vis the emails. First, Plaintiffs have no direct evidence that these emails ever existed. The Delaware Supreme Court has held that “even if [a party] were entitled to some kind of inference from [another party's] failure to produce records, this inference does not amount to substantive proof and cannot take the place of proof of a fact necessary to [the first party's] case.” FN91 In other words, an adverse inference is exactly that-an inference and not substantive proof. Plaintiffs argue that the paucity of emails produced FN92 in comparison to the seventy or so phone calls between Blize and Kates suggests that there may have been more emails that were deleted. To obtain an adverse inference, however, a party must offer more than mere speculation and conjecture that a particular document existed. Id. at p. 12

Blognote: This makes eminent sense. An adverse inference providing substantive proof would be tantamount to a default judgment.

Existence of Email Evidence from Other Sources

The Court also refuses to give an adverse emails in connection with missing emails because the emails still existed and could be obtained from other sources. In so holding, the Court notes that the emails exist on both the send and receive ends, and that some of those emails had indeed been produced.

Adverse Inference and PowerPoint Presentation

The Court took a different tack in addressing the issue of the missing PowerPoint presentation. Here, the only version of the PowerPoint presentation, which was considered relevant evidence, had been irretrievably lost, but only after defendant’s duty to preserve had been triggered.

Consequently, it is reasonable to infer the information for the presentation would have been on the original hard drive for the Gateway. Due to the recklessness of, at least, Kates and arguably ASDI and ASG, as well, in late 2007 and thereafter, in the face of their obligations to preserve potentially relevant evidence, the original hard drive is “gone” and cannot be examined for purposes of this litigation. In these circumstances, I consider it appropriate under the standard set forth by the Supreme Court in Sears to draw an adverse inference that the presentation did include a copy of information from the CB catalog.FN93 Whether additional adverse inferences are warranted will need to await the completion of the post-trial briefing and argument. Id.

Attorneys Fees, Costs, and Wild Goose Chases

The Court awarded attorneys fees and costs. The language used by the Court strongly suggests that although spoliation issues directly affect parties to a lawsuit, the wasting of judicial resources are never far from the mind of the typical jurist:

“Because the original hard drive was replaced, Plaintiffs were forced to engage in what amounted to a wild goose chase in search of information stored on Kates's computer. Indeed, the actions of Defendants ASDI, ASG, and Kates have frustrated the Court, because it was forced to sit through a hearing about the laptop when the original hard drive already was missing and to read Plaintiffs' opening brief on the pending Motion only to be sandbagged, like Plaintiffs, by the admission in the answering papers that the original hard drive already had been replaced by early 2008. The vexatiousness of Kates's conduct was compounded further by his undisclosed deletion of numerous files from the new hard drive before the July 2008 hearing.” Id., at p. 13


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Case: Kipperman v. Onex Corp.
Citation: 2009 WL 1473708 (N.D.Ga. 2009)
Date: 2009-05-27
Topics: Fed. R. Civ. P. Rule 26(g) certification violation, eDiscovery Abuse ND Georgia
This decision comes to us from the U.S. District Court for the Northern District of Georgia. The underlying action involved transfer fraud arising out of a bankruptcy. The Court found that defendant had violated its Fed.R. Civ. P. Rule 26(g) certification obligations. This is the second Rule 26(g) violation case this year (the first was Covad v Revonet, see EDDE Digest 30)

That said, it bodes ill for one party or another when the Court, after noting that the action has fostered more than 600 docket entries, opens up with this:

The lengthy discovery process, which has spawned four discovery hearings, has been contentious at best and abusive at worst, and the court has expressed its displeasure with the parties' behavior on numerous occasions. Kipperman v. Onex Corp., 2009 WL 1473708, 1 (N.D.Ga. 2009)

Both sides filed motions for sanctions, including sanctions for eDiscovery abuse. The Court required additional information as a result of the “severity” of plaintiff’s request for sanctions. Plaintiff’s response, in pertinent part alleged “electronic or email discovery abuse.”

Electronic Discovery

The Court first notes that the parties had “throughout” their dispute battled over defendant’s obligations to provide back-up electronic documents in response to plaintiff’s document production requests. Defendants “had originally agreed to search their client’s active computer files and servers.” The parties discovered that eighteen emails, “at least one” of which came from a Blackberry, were not produced. Plaintiff then demanded restoration and search of backup media (at defendant’s expense, of course) to produce those emails.

As the Court notes:

“The parties engaged in extensive back and forth beginning in March of 2007 as Plaintiff sought to determine what e-mails Defendants had produced from the live server ( i.e., what data stays on the server and for how long), what types of e-mail might be on backup tapes, other sources for such e-mails, and the costs of restoration. Id.., at p. 6

The plaintiff took the only course then available, and filed its motion to compel. Defendants had 40 backup tapes that could have held relevant evidence. The Court noted that plaintiff did not request that all 40 back-up tapes be restored initially, and the Court ordered that two back-up tapes be sampled.

“The court directed Plaintiff to designate two tapes and design a search and directed Defendants to pay for it. The court made Plaintiff the guarantor of the search's success, however, and granted Defendants the right to demand fees if it produced little discoverable material. Plaintiff selected its tapes and provided its terms by January 16, 2008. Defendants performed a search on the two tapes, received hits resulting in thousands of documents, and began releasing documents to Plaintiff on a rolling basis.” Id., at p. 7

The term “thousands of documents” should be kept in mind…

Plaintiff thereafter filed a motion to compel defendant’s full compliance with the Court’s order, and the next day received what the Court described as “an enormous” production of documents.

Defendant’s Misrepresentation

Defendant had represented in a hearing to the Court that [defendant’s] back-up tapes did “overlapped” each other as asserted by defendant’s counsel. During the course of this voluminous production, plaintiff determined that defendant’s back-up did not overlap, and that as such, the back-up tapes produced did not cover the entire period they were asserted to cover by defendant.

The Court held an additional hearing, during which plaintiff argued the value of defendant’s production, and requested one additional tape, a certification of completion from defendant, and “some mechanism to deal” with the fact that plaintiff deposed many witnesses without full access to relevant documents.

The Court examined some email samples and delivered some unpleasant news to the defendant:

“The court itself examined examples of some of the e-mails produced to assess relevance: “I don't consider myself enough of an expert on the law in this area to declare these to be smoking guns but they certainly are hot and they certainly do smell like they have been discharged lately.” Id. at p. 8.

“…In conclusion, the court found, “It is apparent to the court that the Defendants did not do what the court ordered them to do previously, and so this is an instance where I could impose sanctions.” Id.
It’s never a good sign when a Court provides an excerpt from a hearing in a footnote that goes something like this:

“During the hearing defense counsel attempted to justify his earlier statements to the court about e-mail and justify Defendants' actions. Defense counsel also conceded that Defendants should have asked for a protective order with respect to its initial production. The court notes:

“I appreciate the fact that you wish to say that. I thought the Plaintiff's Motions for Sanctions was exceptionally well done. As a young judge I probably would have granted it.”

“I am trying to tell you in the clearest way that I know how that you're about a millimeter away from having your answers struck, and it goes back to the beginning argument we had today to come through this.”

... I didn't say come close. I said this is what you have to do. That's an order of the court, and as an officer of the court you are obliged to follow that or to get a protective order to get relieved of that, and failing either, maybe you have to get rid of your client, I don't know, but what I'm trying to explain to you is something that's been said a lot before. Close doesn't count in hand grenades, horseshoes and it doesn't count here when you have to abide by an order of the court.” Id.

Lying in the [eDiscovery] Bed One Makes, Misrepresentations

Ok, just a footnote, perhaps, but the Court doesn’t stop there. What follows are excerpts from the body of the opinion:

Notwithstanding the fact that the Court was “not unsympathetic” to the “massive” amount of discovery in this litigation:

"Defendants' actions have delayed the production of electronic discovery throughout this litigation. Defendants have consistently tried to minimize the likely value of this discovery. The court's minimal forays into the electronic discovery that has been produced has shown just the opposite. Id., at p. 9

“Therefore, the court gave Defendants numerous tools by which to reduce the burden of e-mail discovery, including an opportunity to limit Plaintiff's search terms and an opportunity to provide a list by which the number of people and the number of boxes being searched could be reduced. Defendants did not take advantage of these opportunities. Defendants must now lie in the bed that they have made.” Id.

The Court then characterizes defendant’s assertions as to the value of email ESI discovery as an unsuccessful attempt to influence the Court’s ruling:

“The court does condemn Defendants, however, for making blatant misrepresentations about the value of e-mail discovery in this case in an effort to influence the court's ruling, for refusing to follow the court's ruling once made, and for behaving as if they, and not the court, got to decide what electronic material was relevant and discoverable under Rule 26 and what material was not.” Id.

Nor was the colloquy between defendants and the Court spared scrutiny:

“Experienced defense counsel misrepresented the scope and value of e-mail discovery to this matter.” Id.

Defendant’s Counsel Representations As Akin to Willful Omission or Misrepresentation

It appears that the Court characterizes defendant’s counsel’s misrepresentations to the Court as arising only from two possibilities: incompetence or some degree of intentionality:

“Further, the court finds it absolutely inconceivable that defense counsel did not know in January of 2008, more than two years into the case and more than one year into full discovery, whether his client readily used e-mails. Any competent counsel should be expected to ask his client such questions in the infancy of discovery. If counsel did not know, it was because he did not wish to know, and reckless indifference to the truth of a matter is a close brother to willful omission or misrepresentation.” Id., at p. 10

Local Counsel On the eDiscovery Abuse Hook

Think you that it may be possible to beard eDiscovery abuse by pinning blame on local counsel? Consider the following footnote [Footnote 6] to the Court’s decision, and think again:

“FN 6. The court finds it notable that Defendants' legal team chose to have local counsel argue the e-mail portion of the hearing. Local counsel likely had the least personal knowledge about the workings of Onex and Magnatrax and the least daily telephone and face contact with the clients. Therefore, the court can conceive of a situation in which local counsel had not had discussions about e-mail usage with his client. Regardless, he was responsible for being familiar with the state of the record. Further, his co-counsel were responsible for ensuring that he made no misrepresentations to the court or for correcting any made. Id.

Blatant Disregard for Court Order

It’s also not a good sign when a party is singled out for not complying with a court’s discovery order:

“Defendants blatantly disregarded the court's order that they produce all documents responsive to Plaintiff's search terms on the two tapes designated. Rather than seeking a protective order Defendants determined themselves that it would be overly burdensome to search the e-mail boxes of hundreds of individuals employed with Onex and its related companies that had no role in the Magnatrax transactions.” Id., at p. 11

Violations of Fed. R. Civ. P. Rule 26(g) Certification

This is the second decision in which a federal district court discusses how eDiscovery abuses may comprise a Fed. R. Civ. P. Rule 26(g) certification violation. The first was Magistrate Judge Facciola’s May 27, 2009 (has it really been that long-lol?) decision in Covad v. Revonet --- F.R.D. ----, 2009 WL 1472345 (D.D.C. 2009)

The Court first acknowledges the Eleventh Circuit’s position that discovery imposes costs on all participants:

“As the Eleventh Circuit has recognized, discovery imposes costs on the litigant from whom discovery is sought, the party seeking discovery, and the judicial system itself. Chudasama v. Mazda Motor Corp., 123 F.3d 1353, 1367 (11th Cir.1997).” Id. at p. 16.

Not surprisingly, the Court also discusses how discovery abuse wastes scarce judicial sources. Here, the Court also explains that a discovery abuse resulting in a Fed. R. Civ. P. Rule 26(g) certification violation may be addressed by a court’s inherent sanctions powers:

“The judicial system uses scarce judicial resources that must be diverted from other cases to resolve discovery disputes. As such, trial courts have numerous mechanisms to discourage discovery abuse. A district court may sanction the parties before it for discovery abuse under the Federal Rules of Civil Procedure or under its own inherent power.” Id.

Federal civil procedure fans (and litigators practicing in federal courts) are no doubt familiar with Rule 26(g). The certification language is no walk in the park, and the Court so notes:

“Fed.R.Civ.P. 26(g) was “designed to curb discovery abuse by explicitly encouraging the imposition of sanctions.” Malautea v. Suzuki Motor Co., Ltd., 987 F.2d 1536, 1542 (11th Cir.1993). Rule 26(g) states:

(1) Signature Required; Effect of Signature. Every disclosure under Rule 26(a)(1) or (a)(3) and every discovery request, response, or objection must be signed by at least one attorney of record.... By signing, an attorney or party certifies that to the best of the person's knowledge, information, and belief formed after a reasonable inquiry:

(A) with respect to a disclosure, it is complete and correct as of the time it is made; and
(B) with respect to a discovery request, response, or objection, it is:

(i) consistent with these rules and warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law, or for establishing new law;
(ii) not interposed for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation; and
(iii) neither unreasonable nor unduly burdensome or expensive, considering the needs of the case, prior discovery in the case, the amount in controversy, and the importance of the issues at stake in the action.
....
(3) Sanction for Improper Certification. If a certification violates this rule without substantial justification, the court, on motion or on its own, must impose an appropriate sanction on the signer, the party on whose behalf the signer was acting, or both. The sanction may include an order to pay the reasonable expenses, including attorney's fees, caused by the violation.” Id., 16-17

Rule 26(g) provides one of the rare examples of what can only be described as “strict liability” in the Federal Rules. It is important to understand that sanctions imposition is mandatory (rather than discretionary with the Court) once a Rule 26(g) certification violation has been determined. It should also be noted that while sanctions imposition is mandatory, determination of sanction severity is still left to the Court’s discretion:

"The decision whether to impose sanctions under Rule 26(g)(3) is not discretionary,” and “[o]nce the court makes the factual determination that a discovery filing was signed in violation of the rule, it must impose ‘an appropriate sanction.’ ” Id. at 1372. The court does have considerable discretion in determining what sanction is appropriate.” Id
.
Greater Sanctions Imposition Discretion Under Fed. R. Civ. P. Rule 37

The Court then discusses a court’s greater flexibility for sanctions determination and imposition under Fed.R. Civ. P. Rule 37. Civil procedure fans already know that a sanctions determination pursuant to Rule 37 requires the violation of a discovery order. And so explains the Court:

“A district court may impose sanctions against a party which violates a discovery order 'as are just'.
Such sanctions may include:

(i) directing that the matters embraced in the order or other designated facts be taken as established for purposes of the action, as the prevailing party claims;
(ii) prohibiting the disobedient party from supporting or opposing designated claims or defenses, or from introducing designated matters in evidence;
(iii) striking pleadings in whole or in part;
(iv) staying further proceedings until the order is obeyed;
(v) dismissing the action or proceeding in whole or in part;
(vi) rendering a default judgment against the disobedient party; or
(vii) treating as contempt of court the failure to obey any order except an order to submit to a physical or mental examination. Fed.R.Civ.P. 37(2)(b)(2). “ Id.

The Court then completes the discovery abuse sanctions triad with a discussion Eleventh Circuit doctrinal overview for sanctions imposed under a court’s inherent powers:

“A court may also sanction litigation misconduct using its inherent power “to manage [its] own affairs so as to achieve the orderly and expeditious disposition of cases.” Eagle Hosp. Physicians, LLC v. SRG Consulting, Inc., No. 08-11026, 2009 WL 613603, *5 (11th Cir. Mar.12, 2005) ( citing Chambers v. NASCO, Inc., 501 U.S. 32, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991)). The court must exercise its power, however, with restraint and discretion. Id. “The key to unlocking the court's inherent power is a finding of bad faith,” and a party may demonstrate bad faith by delaying or disrupting litigation or hampering the enforcement of a court order. In re Sunshine Jr. Stores, Inc., 456 F.3d 1291, 1304 (11th Cir.2006). A party is entitled to due process before a court determines that the party has acted in bad faith and the court invokes its inherent power to impose sanctions and assess fees.” Id. at p. 18

The Court then delivers the first hammer blow:

“The court regards the instant case as a textbook case of discovery abuse.” Id.

Why a “textbook” case? Let us count the ways:

1. Defendant’s Acts Prejudiced Plaintiff in Two Ways: “[The] Trustee has been denied all the documents necessary to depose witnesses and prepare expert reports and the Trustee's preparation has been made disjointed and difficult and it has been forced to expend a fair amount of time and money and effort to get that which should have been more easily obtained.” Id.

2. Defendants eDiscovery Abuse: “The court is most disturbed about Defendants' behavior with respect to the transfer interrogatories and e-mail discovery. In both of these areas, Defendants have blatantly ignored orders of the court and prompted multiple motions to compel. Defendants' only defense is their unpersuasive argument that they have now complied and Plaintiff has suffered no prejudice.” Id.

So, under what theory might sanctions be imposed?

The Court’s language indicates that sanctions are appropriate for the triad of reasons discussed above: Fed. R. Civ. P. 26(g) certification, Fed. R. Civ. P. Rule 37(f) violation of a discovery order, and as an exercise of a court’s inherent powers to sanction, and hints at its ultimate decision:

“In both of these areas, Defendants have blatantly ignored orders of the court and prompted multiple motions to compel. Defendants' only defense is their unpersuasive argument that they have now complied and Plaintiff has suffered no prejudice. Defendants' defense completely ignores the burdens the court and Plaintiff have endured to garner their compliance and the destructive precedent this court would set were it to allow Defendants to escape the consequences of three years of bad behavior simply because they believe they have now complied.” Id.

It’s never a good sign when a court talks about preventing a litigant from escaping discovery abuse consequences. Plaintiff, for its part, requested that the Court impose the “ultimate sanction” and strike defendant’s answer.

Luckily for the defendant (ok, I use that term somewhat loosely) the Court determined that the determination of an outcome determinative sanction would trigger an ad damnum clause that could potentially result in hundreds of millions of dollars, thereby triggering “the largest default judgment in history.” The Court also found only moderate prejudice, as plaintiff had the “raw resources” to proceed with its case through additional discovery (and redepositions).

Blognote: Under the circumstances, and perturbed as the Court was by defendant’s behavior, it appears that its exercise of judicial restraint represented a tacit acknowledgment of the likelihood of appeal and reversal for the imposition of a default.

Result: The Court found that defendant’s acts violated Fed. R. Civ. P. Rules 26 and 37, denied plaintiff’s motion for evidential sanctions, and imposed 1,022,700 in monetary sanctions on defendant.

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