Fewer E-discovery sanctions in courts

The year just ended was an extraordinarily interesting one in the e-discovery area. Highlights included:

  • There were increasing calls for reform of the discovery process as it relates to electronically stored information (“ESI”).
  • Competing views of the standards that should apply to sanctions and preservation clashed in the high-profile Pension Committee, Rimkus, and Victor Stanley decisions, which highlighted the splits among the circuits and even within the same district. In Orbit One, a case decided in the same district as Pension Committee, the magistrate judge expressly disagreed with some of the sanctions standards set forth in Pension Committee.
  • In perhaps the most important development in the sanctions area, the overall frequency of courts granting sanctions declined substantially compared to 2009 (granting sanctions in 55% of the cases where sought in 2010 from 70% in 2009). Many courts evaluated sanctions requests more cautiously and required a showing that the missing documents would have been relevant and favorable to the party seeking sanctions.
  • In response to calls for a proportionality standard in preservation, at least one court cautioned that the concept may prove too amorphous to provide much comfort to a party deciding what files it may delete in the face of a preservation obligation.
  • With respect to cooperation, courts did not look kindly on parties that failed to work together reasonably, with one court describing an e-discovery dispute as “the litigation equivalent of the cafeteria food fight scene in the infamous movie Animal House.”
  • The use of computer algorithms for clustering, predictive coding, initial document culling, and other search technologies was on the rise in 2010, offering some hope for decreasing the burden and expense of review.
  • Courts clarified prosecutors’ duties with regard to ESI, the government’s e-discovery obligations in civil cases, and limits on the government’s ability to obtain ESI in its investigative capacity.
  • Several courts held that there is no reasonable expectation of privacy or confidentiality relating to social networking communications

2010 Sanctions Awarded in E-Discovery
By Type and Percentage of Cases Where Sought

2010 Sanctions Awarded in E-Discovery

Monetary Sanctions

As in 2009, the most common sanctions awarded in 2010 were monetary–generally the fees and costs associated with the discovery dispute. These were granted in 62% of 2010 cases seeking such relief (36 of 58). Courts on occasion also levied monetary fines independent of attorneys’ fees and costs, generally to punish or deter willful conduct. For example, in Cenveo Corp. v. Southern Graphic Systems, Inc., No. 08 CV 5521, 2010 WL 3893709, at *4 (D. Minn. Sept. 30, 2010), the court levied a $100,000 fine where the defendant intentionally destroyed evidence. Notably, one court was careful to impose monetary sanctions that covered only the movant’s reasonable expenses incurred in exposing the sanctionable conduct. In Amerisource Corp. v. Rx USA International, Inc., 2010 WL 2730748, at *2-4 (E.D.N.Y. July 6, 2010) (Azrack, Mag. J.), the plaintiff sought nearly $2.8 million, the entire cost of the litigation, from the defendant company and its non-party principal based on the principal’s fabrication of emails. The court, while finding the principal and company culpable, nevertheless awarded only $50,000 payable to the plaintiff and $50,000 payable to the Clerk of the Court. Id. at *7-8. The court found that the plaintiff’s litigation costs were not “an appropriate measure” of sanctions, and even much of the plaintiff’s costs in pursuing sanctions were “superfluous,” “unnecessary, and did nothing to advance the inquiry.” Id. at *7.

Adverse Inference and Evidence Preclusion

In 2010, litigants received some form of adverse inference instruction in 37% of cases where requested (14 of 38), and an evidence preclusion sanction in 43% of cases where requested (6 of 14). Courts continued to differ as to the level of culpability required before imposing these sanctions, with some imposing an adverse inference sanction based solely on negligent or reckless conduct, while others required bad faith. For example, in Harkabi v. Sandisk Corp., No. 08 Civ. 8203, 2010 WL 3377338, at *6 (S.D.N.Y. Aug. 23, 2010), the court held that “[t]he sanction of an adverse inference may be appropriate in some cases involving the negligent destruction of evidence because each party should bear the risk of its own negligence,” while In re Global Technovations, Inc., 431 B.R. 739, 782 (Bankr. E.D. Mich. 2010) required “bad faith on the part of a spoliator, rather than mere negligence, before imposing an adverse inference.”

Amidst this continuing split, more courts last year crafted different–and often lesser–adverse inference and preclusion sanctions than those the parties requested, tailoring the remedy more precisely to the culpable conduct. For example, in Moore v. Napolitano, 723 F. Supp. 2d 167, 184 (D.D.C. 2010), the district judge construed the magistrate judge’s preclusion sanction to ensure ¬†“a proportional remedy to the alleged harm” and avoid an “unsupported litigation-ending sanction.” And in Rockwood v. SKF USA Inc., 2010 WL 3860414, at *1 (D.N.H. Sept. 30, 2010), the court stated that the defendant “is entitled to some relief, just not the relief it has requested” and imposed an adverse inference sanction rather than the requested terminating sanction for the intentional deletion of emails in violation of a discovery order. Id. at *5. See also In re Oracle Corp. Sec. Litig., No. 09 CV 16502, 2010 WL 4608794, at *5 (9th Cir. Nov. 16, 2010) (holding that district court did not abuse its discretion by limiting adverse inference where requested broader adverse inference would have defeated defendant’s challenge to insufficiency of plaintiff’s prima facie case).

Case Terminating Sanctions

Courts continued to reserve the harshest sanction of dismissal or default judgment for cases where the culpable party violated its e-discovery obligations willfully and in bad faith. Dismissal or default judgment was granted in 57% of cases in which it was sought (12 of 21). In ten of these cases, the court found that the culpable party had violated court orders and/or lied to the court. See, e.g., S. New England Tel. Co. v. Global Naps, Inc., 624 F.3d 123, 128 (2d Cir. 2010) (affirming default judgment against defendants for failure to comply with discovery orders). In eight cases, the culpable party intentionally destroyed evidence and even fabricated evidence. See, e.g., Maggette v. BL Dev. Corp., No. 07 CV 181, 2010 WL 3522798, at *4, 18 (N.D. Miss. Sept. 2, 2010) (granting dispositive sanctions after defendant “repeatedly and knowingly” concealed information, acted in bad faith to prevent discovery of relevant information, and because “lesser sanctions did not have the desired effect of forcing compliance”). In Leor Exploration & Production, LLC v. Aguiar, Nos. 09 CV 60136/60683, 2010 WL 3782195, at *5-6 (S.D. Fla. Sept. 28, 2010), the only case granting terminating sanctions that did not involve the violation of a court order or the destruction of evidence, the culpable party had hacked into the opposing party’s email account to gain a litigation advantage.

In sum, it was certainly an interesting, albeit frustrating, year in the e-discovery sanctions area. Although some decisions fueled the collective anxiety among attorneys and their clients regarding preservation issues and sanctions, there are signs that some courts are becoming more careful about whether to impose sanctions and, if so, what those sanctions will be–a trend that we hope and expect will continue in 2011.

– Research by Gibson, Dunn & Crutcher

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