Bad Faith Deletion of Emails Warrants Punitive Sanctions
By Joseph Laizure, Litigation News Contributing Editor – November 17, 2016

A federal court decided deletion of emails by a senior manager during litigation should result in multi-million dollar punitive sanctions under amended Federal Rule of Civil Procedure 37. This decision highlights the choices that companies must make when preserving electronically stored information (ESI) and the significant consequences when they choose poorly.

In GN Netcom, Inc., v. Plantronics, Inc., the U.S. District Court for the District of Delaware imposed $3,000,000 in punitive sanctions after one of the defendant's senior managers deleted tens of thousands of emails. The plaintiff's motion sought the imposition of sanction notwithstanding the fact that the defendant had issued a litigation hold, updated that litigation hold, and held trainings for its employees to promote compliance with the litigation hold.

Showing of Bad Faith Key
In this antitrust action, the defendant allegedly stopped the plaintiff from working with distributors to bring its product to market. The defendant's head of sales, a key senior manager considering the claim, deleted the emails that were the focus of the plaintiff's motion.

The defendant argued it took reasonable steps to preserve the emails. Deleting emails went against its directives, according to the defendant. The court rejected these arguments and found the defendant acted in bad faith with intent to deprive the plaintiff of discovery.

When the defendant learned the senior manager had deleted emails and instructed others to delete emails despite the litigation hold, the defendant asked its discovery vendor to create backups to preserve the senior manager's emails. The court found these backups only preserved emails created in the last several months and left more emails unrecovered.

The court also found the defendant did not finish recovering the emails and "unrestored" the previously restored backup tapes the forensic expert created. These actions constituted bad faith, the court found, and left the backup tapes unavailable to the plaintiff.

Once the court found the defendant spoliated evidence in bad faith, the burden shifted to the defendant to show lack of prejudice. The court found the defendant could not carry that burden.

"High Degree of Fault" Prompts Court to Impose Substantial Sanctions
In deciding on the proper sanction, the court considered whether a discovery sanction would be enough to cure the prejudice that the plaintiff had suffered. Rule 37(e) provides for sanctions if a party prejudices another party by failing to preserve ESI. Rule 37(e)(1) enables a court to "order measures no greater than necessary to cure the prejudice[.]" If the party that failed to preserve the ESI "acted with the intent to deprive another party of the information's use in the litigation[,]" Rule 37(e)(2) allows a court to impose additional sanctions.

"'[L]esser sanctions' are inadequate to fully redress the prejudice" to the plaintiff, the court stated. To reach this conclusion, the court considered the defendant's "high degree of fault" and its bad-faith intent to deprive the plaintiff of discovery. The court imposed punitive sanctions along with fees and costs, ordered an instruction that a jury may draw an adverse inference about the deleted emails, and left open the possibility of evidentiary sanctions.

Tough Choices about Preserving Evidence
Companies must answer tough questions about how to preserve ESI in the hands of its employees, note ABA Section of Litigation leaders. "If you have a higher-level person, how much discretion are you going to vest in that person? Should a company go to some kind of automated process or take the person out of it? It is not enough to issue a litigation hold," according to Ronald J. Hedges, New York, NY, cochair of the Motion Practice and Discovery Subcommittee of the Section of Litigation's Pretrial Practice & Discovery Committee.

A written record retention policy can help companies to preserve ESI, Hedges states, but sometimes information that such a policy would not preserve is subject to discovery. Companies must still preserve that information, says Hedges.

Electronic preservation options exist for companies, but monitoring is critical. "In the e-discovery industry there are various types of software that can preserve information," Hedges says. Whether a company vests discretion with an individual or uses software-based preservation systems, "somehow you have to monitor," Hedges adds.

A litigation hold is a first step, agrees John D. Rue, Montclair, NJ, cochair of the E-Discovery Subcommittee of the Section's Pretrial Practice & Discovery Committee. "Even if a lower-level or senior management thereafter destroys evidence, a company could still possibly avoid sanctions. After learning of any spoliation, a company should immediately take all possible corrective measures to recover any records that were destroyed from all possible sources and ensure prospective compliance," Rue says.

"Sanctions may still have been imposed had the misfeasor been a lower-level employee rather than a senior manager," Rue states. The court may have imposed sanctions "because the company did not take sufficient action to recover the emails after it learned of the spoliation, the employee deleted the emails in bad faith (i.e., with the purpose of circumventing discovery), and the spoliation was prejudicial."

Weighing the appropriateness of sanctions depends on the particular facts. "Every case is unique," Hedges says. "Appellate review is about abuse of discretion. It is rare to have an appellate decision on spoliation overruling the judge making the decisions."

Keywords: Rule 37, spoliation, bad faith, electronically stored information, ESI, sanctions

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