As I reported earlier in Sekisui America v. Hart (S.D.N.Y. June 10, 2013), Magistrate Judge Frank Maas declined to issue e-discovery sanctions against the plaintiff because the defendants failed to prove that they were prejudiced from the deletion of a key custodian's email folder.

But the story doesn't end there.

After the defendants had their motion for e-discovery sanctions dismissed, they appealed to the presiding Judge Scheindlin to review the Magistrate Judge's ruling. In what can be considered an eye-opening ruling, Judge Scheindlin reversed Magistrate Maas' ruling and rejected his analysis, ordering multiple sanctions against the plaintiff, including an adverse inference instruction and the costs/attorneys fees in bringing about the motion.

The facts of the case can be found here. Following is my analysis of Judge Scheindlin's ruling.

Applicable Standard for Awarding an Adverse Inference Instruction in the S.D.N.Y.

The moving party must prove the following three familiar elements: (controlling case – Residential Funding Corp. v. DeGeorge Financial Corp. (2d Cir. 2002))

• The party with control over the ESI had an obligation to preserve the ESI when it was destroyed. (not at issue within this case)
• The ESI was destroyed with a culpable state of mind. This element is satisfied if the ESI was “destroyed knowingly, even if without intent to [breach a duty to preserve it], or negligently." Based on the circumstances of the case negligence, gross negligence may also satisfy the culpability requirement.
• The destroyed ESI was relevant to the case (i.e. “the destroyed evidence would have been helpful to the movant"). If evidence is destroyed willfully, this is “sufficient circumstantial evidence" to “conclude that the missing evidence was unfavorable to that party" and that “prejudice to the innocent party may be presumed."

Applying the Case Facts

Contrary to Magistrate Maas' findings, Judge Scheindlin ruled that the plaintiff willfully destroyed ESI. Being aware of the potential risks and ramifications of their actions, the plaintiff knowingly decided to destroy two key custodians' email folders after the duty to preserve potentially relevant ESI was triggered. Though the plaintiff provided a good faith explanation for the deletion, (save space on the server), Judge Scheindlin concluded that “the law does not require a showing of malice to establish intentionality with respect to the spoliation of evidence."

In respects to the plaintiff's preservation process, Judge Scheindlin described it as grossly negligent. The failure to implement a timely legal hold, while it didn't constitute negligence per se, was deemed “egregious" and “grossly negligent" based on the circumstances of the case:

• The plaintiff did not issue a legal hold until 15 months after the notice of the claim.
• As the plaintiff, they had full knowledge of the reasonably foreseeable litigation.
• It took the plaintiff 6 months after the legal hold was issued to notify its IT vendor that they had a duty to preserve potentially relevant ESI.

The real point of contention between Judge Scheindlin and Magistrate Maas' rulings arose around whether the deleted ESI was prejudicial to the defendants. Magistrate Maas ruled that the defendants did not prove that the deleted information would have been helpful to their cause. Judge Scheindlin disagreed. Because the destruction of the ESI was intentional, Judge Scheindlin held that this was “sufficient evidence from which to conclude that the missing evidence was unfavorable to that party." Judge Scheindlin expanded on this notion, “Prejudice is presumed for the purposes of determining whether to give an adverse inference instruction when, as here, evidence is willfully destroyed by the spoliating party."

After finding that all three adverse inference elements were satisfied, Judge Scheindlin ordered an adverse inference sanction along with monetary fines against the plaintiff.

THE E-DISCOVERY BEAT'S TAKE

A common theme throughout my last couple blog posts has centered on proportionality and minimizing preservation standards to reasonable parameters. Some people may interpret the Sekisui ruling as a strike against proportionality and scoping down preservation parameters. I would beg to differ.

It was clearly evident that the plaintiff did not have a reasonable preservation process. Not only did the plaintiff fail to issue a legal hold in a timely manner, key emails, typically the most important form of ESI in civil claims, were deleted. Based on these facts, most experts would agree that e-discovery sanctions were warranted.

Nevertheless, Judge Scheindlin's latest ruling should compel legal teams to examine their own preservation processes and ensure that the standards of defensibility are being met. While there is certainly a place for proportionality, there are three foundational preservation requirements that each party must know and abide by at all times:

1. Automated Legal Hold Process: Upon receipt or awareness of a claim, legal teams must have a system to quickly send out a legal hold to all potentially relevant custodians. If unsure who is a potential custodian, they should start with the obvious people first (those individuals named in the claim or clearly connected to the underlying issues of the matter). Next, they should schedule interviews with these custodians to identify other associated custodians and learn about the types of ESI that may be relevant to the matter and where that ESI resides. Beyond sending out the legal hold notice, parties are under an obligation to track legal hold compliance and remind custodians on a periodic basis that they are under legal hold. In larger matters with 50 to 100 custodians on legal hold or for companies with a high frequency of litigation it can be difficult to track and ensure legal hold compliance. These organizations often leverage specialized software to help automate the legal hold process.

2. Suspend document retention policy: It's imperative that organizations suspend their document retention policy when litigation arises. In Apple v. Samsung, Samsung did not suspend their document retention policy and left it up to their custodians to ensure that potentially relevant ESI was not deleted. Bad idea. Samsung was sanctioned for the spoliation of ESI.

Legal teams should not leave it entirely up to custodians to maintain compliance and actively save and store ESI. Most employees don't understand their companies' systems and policies well enough to take on this responsibility and ESI will eventually fall through the cracks, get lost or be deleted. If modifying the document retention policy is overly cumbersome or unfeasible, organizations should consider using in-place preservation technology to “lock down" ESI at the source.

3. Immediately Preserve Key Custodian ESI: What do a majority of cases center around? In most situations, it boils down to a handful of documents from the key players in the case. To prevent e-discovery troubles, corporate legal teams must be proactive and preserve ESI from these key custodians. That's not to say that all the data on these peoples' systems must be preserved. In most instances, legal teams can utilize keywords and other common filters to capture the right ESI so they can begin analyzing the key information about the case.

To learn more about how to leverage e-discovery technology to meet your preservation requirements watch Exterro's recent webcast, “Mandatory Requirements for Legal Hold Software."

Mike 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. You can find him on, Twitter and Linkedin. Contact him directly at michael.hamilton@exterro.com.