In Reino de Espana v. The American Bureau of Shipping, Inc., 2008 U.S. Dist. LEXIS 62865 (S.D.N.Y. Aug. 18, 2008), the District Court overruled Spain’s objections to sanctions against Spain ordered by Magistrate Judge Ronald Ellis for discovery abuses, including attorneys’ fees and costs incurred by defendants in making their motions to compel. 

Defendants sought production of Spain's electronic documents beginning with its first discovery request, which was served in January 2004.  After Spain failed to produce responsive ESI, defendants moved to compel its production. After considering the moving papers, responses and respective arguments, Judge Ellis found that Spain’s failure to produce ESI was sanctionable and determined that Spain’s contention that certain ESI did not exist lacked merit. Judge Ellis further found that Defendants’ ESI request was reasonable and restrained, and that Spain had failed to preserve ESI, specifically, by failing to institute a timely litigation hold.   

In its objections to Judge Ellis’ order, Spain argued that the judge denied Spain an opportunity to prepare for and present evidence on the preservation issue. In addition, Spain contended that the Judge Ellis did not spend adequate time exploring the merits of its arguments. 

The District court disagreed on both counts.  First, the court noted that Spain had ample opportunity to prepare and was given multiple chances to present evidence and indeed presented evidence regarding the preservation issue.  Second, the court rejected Spain’s contention that ruling on the preservation issue required “a systematic, staged inquiry” analogous to that performed in the Zubulake v. UBS Warburg opinions.  The District Court disagreed holding that Judge Ellis spent considerable time on the issue and conducted a thorough analysis of Spain’s search for ESI and found that “[Spain’s] failure to conduct a timely and effective search for electronic discovery records undermines Spain’s position [that it has produced all discovery records from the casualty period] and indicates that evidence related to [this litigation] was likely lost. The District Court further agreed with Judge Ellis’ award of sanctions and noted that Judge Ellis denied defendants’ other sanctions requests (which included dismissal of the action and adverse inference instructions).

Court Awards Monetary Sanctions and Recommends Adverse Inference Instruction for “Egregious” Discovery Misconduct 

In Keithley v. The Home Store, 2008 U.S. Dist. LEXIS 61741 (N.D. Cal. Aug. 12, 2008), Magistrate Judge Elizabeth LaPorte sanctioned the defendants for their “egregious” discovery misconduct and recommended the district court give a tailored jury instruction to address the defendants’ spoliation of evidence.  Although the case resolves plaintiffs’ February 2008 motion for sanctions, the issues in the case stem from the court’s December 2006 order that defendants produce (1) source code; (2) early architectural, design and implementation documents; and (3) relevant reports. 

Duty to Preserve   

A preliminary, yet threshold, issue in this case involved the common law duty to preserve relevant information.  A party has a duty to preserve evidence that it knows or should know is relevant to imminent litigation.  This action was brought in October 2003 by plaintiffs alleging infringement of a method patent for accessing industry specific information, such as real estate properties for sale through multimedia personal computers. Plaintiffs argued the preservation duty arose shortly after the patent issued in December 1996 or, in the alternative, sometime in 1998 based on a letter to defendants regarding licensing.  The court acknowledged that pinning down an exact date the defendants knew information would be relevant to future litigation would be difficult.  Nonetheless, the court held that defendants should have known by August 2001 when plaintiffs sent a demand letter stating, “we assume that [defendants] want to litigate this matter . . .” 

Defendants failed to preserve evidence even after the litigation was filed and, according to the court, as late as 2004 recklessly allowed the destruction of electronically stored information (“ESI”) including source code.  The court further found that although one defendant’s chief information officer and chief technology officer testified that he was instructed not to destroy relevant information, all of the defendants failed to provide any specific information about their document retention policy and conceded that there was no written litigation hold policy in place during the relevant time periods.  “The lack of a written document retention and litigation hold policy and procedures for its implementation, including timely reminders or even a single email notice to relevant employees, exemplifies defendants’ lackadaisical attitude with respect to discovery of these important documents.”  

The resulting harm caused by the lack of a preservation policy was compounded by defendants’ failure to diligently search for responsive documents in alternative locations until the defendants were faced with a motion for sanctions for spoliation.  The court found that one defendant’s Rule 30(b)(6) (person most knowledgeable) witness was never even asked to collect relevant reports in response to discovery requests until after the hearings on plaintiffs' spoliation motions.  Another Rule 30(b)(6) witness testified that defendants “eliminated” some relevant ESI and other data was downgraded and put on tapes.  

Post-Litigation “Catastrophic” Computer Failure   

In 2004, one of defendant's computers suffered a catastrophic failure and its contents became unreadable.  Defendants claimed they did not realize the computer failure might raise issues of preservation and destroyed related backup tapes.  The court ruled that the ignorance of the technical personnel to defendants' preservation obligation was not an excuse.  Defendants have a duty to notify and periodically remind technical personnel of defendants’ preservation obligation to ensure that they take adequate steps to safeguard the data.  Failure to do so, at a minimum, is evidence of recklessness. 

Defendants Failure to Search and Locate Responsive Documents   

In December 2006, the court ordered defendants to produce reports and the relevant source code in their native format.  According to the court, defendants failed to search for and produce such information and instead argued that the documents were not relevant or available on their computers due to “space limitations.”  Defendants’ position on the ordered production continued to shift and at a March 2008 hearing on the motions for sanctions in response to the court’s questioning, counsel for defendants told the court that the information was ephemeral and not kept in the ordinary course of business. Two months after the hearing, defendants located and produced numerous reports that were responsive to the court’s December 2006 order.  In total, nearly 500,000 hard copy repots were produced, including screen shots of available internal reports.  Defendants further provided plaintiffs with online access to several report systems, each of which showed reports that had been generated since 2005. The defendants did produce some source code files, but they were produced in a TIFF format, rather than the native format ordered by the court.  Defendants argued in response, notwithstanding the court order, that the TIFF images were the “most meaningful format available.”  The court rejected the claim.  

Award of Sanctions   

The court held that, “as a whole, defendants’ discovery misconduct in this case was both reckless and frivolous.”  Having already awarded nearly $150,000 in sanctions to plaintiffs for the cost of bringing the motion to compel, the court awarded additional monetary sanctions, as well as a curative adverse-inference instruction to deal with defendants’ destruction of potentially relevant evidence.

In White v. Graceland College Center for Prof. Dev. & Lifelong Learning, Inc., 2008 WL 3271924 (D. Kan. Aug. 7, 2008), U.S. Magistrate Judge David Waxse held that defendants PDF/paper production was inadequate because defendants failed to produce emails in either the form in which they were ordinarily maintained, or in a “reasonably usable form” as required by Federal Rule of Civil Procedure 34(b)(2)(E)(ii).  Plaintiff had sought re-production of certain documents, mainly emails, that were converted to a PDF format and produced in paper.  Plaintiff contended that without the electronic and native copies of the documents, she would be unable to confirm or contradict that the documents were prepared at the time defendants allege they were prepared.

The court ruled defendants’ conversion of the emails and attachments to PDF documents and production of the PDF documents in paper format did not comply with the option to produce them in a reasonably usable form.  Judge Waxse, citing the advisory notes for the 2006 FRCP amendments, ruled that defendants’ option to produce in a reasonably usable form did not mean they were free to convert electronically stored information ("ESI") from the form in which it is ordinarily maintained to a different form that makes it more difficult or burdensome for plaintiff to use the information efficiently in litigation.   

The court noted that the discovery dispute could have been avoided altogether had the parties met and conferred at their Rule 26(f) conference regarding the production of ESI.  Accordingly, the court ordered defendants to re-produce approximately 25 documents in their native format.