By: Michael Hamilton, J.D.
Most e-discovery case law news surrounds activity concerning whether a court should approve a court order to compel discovery, but what happens if the court grants this order and the producing party subsequently fails to follow it? Federal Rule of Civil Procedure (FRCP) 37 helps answer this question. Primarily, FRCP 37 was enacted to allow parties to move for an order compelling disclosure or discovery, but it also sets the guidelines surrounding what punishments may be handed when a party fails to comply with a court order involving disclosures. Under FRCP 37, if a party fails to obey an order to provide or permit discovery, the court may issue further orders, which includes (1) holding the disobedient party in contempt of court and (2) the court can “order the disobedient party, the attorney advising that party, or both to pay the reasonable expenses, including attorney's fees, caused by the failure." Case in point, Multifeeder Tech, Inc. v. British Confectionery Co., Ltd. (D. Minn. Sept. 18, 2012).
In this breach of contract case, the district court adopted the magistrate judge's recommendation, in part, holding the defendant, British Confectionery, in contempt. The court additionally ordered the defendant to pay $25,000 to the court and $600,000 to the plaintiff, Multifeeder, in monetary sanctions for spoliation (aka the intentional destruction of relevant electronically stored information (ESI)). This ruling had come at the tail end of this lengthy line of events between the parties, which the court noted as an “extremely costly discovery debacle."
In 2010, the plaintiff moved to compel discovery in regards to a number of specified document requests, which the court granted. Six months later, the plaintiff again motioned the court but this time for sanctions due to the defendant's failure to comply with the court's previous 2010 order. The magistrate judge granted the defendant's order for sanctions, but in turn ordered that the parties try to cooperate and come to an e-discovery agreement. If an agreement could not be met, then each side could submit their own proposal in which the court would use to establish an e-discovery protocol. Not surprisingly, the parties could not come to an agreement. In choosing the plaintiff's proposal, the court appointed a computer forensic expert to search and image the defendant's computers, costs being allocated between the parties.
Based on the computer forensics' findings, numerous incidents of spoliation were identified by defendant including:
- Commercial wiping software were found on key custodian's computer along with six deletions occurring after the discovery protocol was ordered by the court
- A vice president's concealment and failure to reveal the existence of encrypted data on his laptop
As a result of these findings, the magistrate judge recommended that the defendant be held in contempt and required to pay $500,000 in monetary sanctions due, in part, to the forensic expert's fees, along with an adverse inference instruction at trial. Both parties objected to the ruling. On appeal, the district court accepted the magistrate judge's recommendations, in part, but increased the monetary sanctions imposed on the defendant from $500,000 to $625,000 (increased payment to plaintiff by $100,000). In coming to this holding, the court justified its ruling on two primary reasons.
- Under Rule 37, the plaintiff was due reasonable expenses caused by the defendant's failure to comply with the original court e-discovery order. Costs included “reasonable legal fees and expenses in litigating this discovery dispute" and unpaid invoices from the appointed computer forensic expert.
- “Rule 37 sanctions should be crafted to both punish and deter." The court noted that the plaintiff suffered considerable prejudice based on defendant's actions, and if the defendant had complied with the original court order none of these costs would have ever incurred. The court stated as evidence “It is no fault of Multifeeder (plaintiff) that documenting the extent of British's (defendant) conduct that resulted in the extensive fees."
THE E-DISCOVERY BEAT'S TAKE
In today's advanced technological age, trying to hide the intentional deletion of responsive ESI in discovery is becoming increasingly difficult, almost impossible. If a party gets caught for spoliation, courts are more apt to severely punish disobedient parties in their wallets and by hurting the strength of their case. Even though courts are willing to take more severe actions, parties still need to be equipped with the right tools to identify sets or categories of information early enough in discovery, so that they know if an opposing party's production is complete and correct.
To accomplish this corporate legal teams are increasingly moving towards a more proactive model in handling e-discovery. Proactive meaning having early access to information that can be leveraged to effectively analyze case facts and risks based on identified key themes, concepts, keywords and specific documents. One kind of proactive activity that has emerged as a groundbreaking tool to more effectively accomplish these goals is predictive technologies - the application of machine learning and human intelligence to automate the identification and categorization of ESI during discovery. This new class of predictive technologies enables legal teams to inform case strategy in advance of collection during early case assessment, at the point of collection and throughout review.
Michael Hamilton, J.D. is a Sr. E-Discovery Analyst at Exterro, Inc., focusing on educating Exterro customers, prospects and industry experts on how to solve e-discovery issues proactively with technology. His e-discovery knowledge, legal acumen and practical experience give him a valuable perspective on bridging the gap between IT and legal teams.