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E-⁠Discovery Case Law Library
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Case shelved under Reasonableness

Severe Sanctions for CEO & Counsel Based on E-Discovery Misconduct

Arrowhead Capital Fin. Ltd. v. Seven Arts Entertainment, Inc.
S.D.N.Y. September 16, 2016
Why This Case is Important

Don’t think that the new Rule 37(e) will lessen punishments if willful or intentional e-discovery misconduct occurs. Bad faith behavior will be met with sanctions, not only for the party, but for counsel as well.

Overview

The plaintiff claimed that the defendants’ improper and reckless behavior during e-discovery warranted sanctions. Specifically, the defendants did the following:

  • CEO directed his lawyers to not produce responsive ESI 
  • Improper objections to e-discovery requests
  • Intentionally including non-responsive documents in a production set to slow down discovery
  • Failure to produce key custodians for depositions
  • Failure to pay bills to 3rd party server provider, resulted in destruction of responsive ESI


To make matters worse, the defendants’ attorney admitted to not even reviewing the discovery responses from the CEO. Based on this egregious list of activities, the plaintiff brought a motion for e-discovery sanctions.

Ruling:
  • CEO Sanction Based on “Flagrant Disregard” for the Pending Discovery Orders. Unusual as it may be, the CEO was sanctioned by the court based on his intent to disrupt and prohibit the production of responsive ESI. On top of this, the court deemed that the defendants’ forfeited one of their claims, had to pay for a portion of the plaintiff’s discovery costs and retain additional counsel to oversee the future discovery process.
  • Defendants’ Counsel Sanctioned as Well. By turning a blind eye to his client’s poor behavior, the court ordered the defendants’ attorney to pay the other portion of the plaintiff’s discovery costs.
  • Multiple Sources for E-Discovery Sanctions. Remember, Rule 26(g) – failure to conduct a reasonable inquiry, Rule 37(e) – spoliation of ESI, Rule 37(b)(2) – violating a court order and a judge’s inherent authority are all possible ways a court can sanction you.
Download Case Law Analysis PDF

Download the PDF version of the Arrowhead Capital v. Seven Arts Entertainment case analysis here.

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