Doubleline Capital, LLP v. Odebrecht Finance (S.D.N.Y. March 30, 2021) shows that as more information stored digitally in locations undisclosed to the public and used for nefarious means, legal teams must grapple with how to ensure information stored in these areas is preserved. This case is a prime example of how leveraging encryption technology can add an additional layer of complexity to the e-discovery process.
In this securities fraud lawsuit, the plaintiffs sought a mandatory adverse inference based on the claim that the defendants destroyed encryption keys needed to access “an internal, ‘shadow’ accounting system used to track illicit bribe payments.” The defendants admitted to destroying the encryption keys.
The plaintiffs argues that the encryption keys held access to “crucial evidence regarding the scope and nature” of the lawsuit. In response to the motion, the defendants thought it was too early in discovery for the court to determine if sanctions were necessary.
The defendants argue that spoliation sanctions would be “inappropriate because plaintiffs have not (and cannot) demonstrate that the lost information cannot be replaced in discovery.”
- Spoliation Sanction Granted in Part. The court ruled that the plaintiffs could present evidence around the intentional destruction of the encryption keys and the jury may consider that evidence when making its decision. But the court would not require the jury to an adverse inference based on the spoliation.
- Timing of Spoliation Motion.
The court was confused as to why the plaintiffs brought this sanctions motion so early in discovery without a full record of what evidence was available to them.
- No Intent to Deprive. To warrant a mandatory adverse inference the court must find that the spoliating party acted with an intent to deprive. Here, the court said, “Plaintiffs have not shown, and cannot show, that defendants destroyed the physical encryption keys with the intent of depriving plaintiffs in this litigation of that evidence.”
Expert Opinion from Mike Hamilton, J.D. Director of Marketing, Exterro
As more cases deal with encrypted data and a variety of security mechanisms to access data, the court must grapple with how to deter spoliation even if more severe spoliation sanctions like case dismissals and mandatory adverse inference jury instructions aren’t warranted under FRCP 37(e). Courts may look to leverage their inherent authority when FRCP 37(e) may not apply.
Case Law Tip:
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