The Oracle Has Spoken Anew: Judge Scheindlin Issues New eDiscovery Decision

23 August 2013 IT-Lex Technology Law Publication
Author(s): Melinda F. Levitt

IT-Lex Technology Law

It has been some time since we have had major guidance from ediscovery “oracle” Judge Shira Scheindlin from the Southern District of New York. The last of Judge Scheindlin’s seminal Zubalake opinions was issued in 2004. Her influential – and controversial – Pension Committee decision was issued in January 2010. Her National Day Laborer’s decision arrived in July 2012. Now, with her very recent decision in Sekisui American Corp. v. Hart, 2013 U.S. Dist. LEXIS 11533 (S.D.N.Y. August 15, 2013), Judge Scheindlin returns to some of the key topics she has touched on before – preservation obligations, negligence or gross negligence in document preservation, and the appropriateness of imposing sanctions for such failures. Moreover, as was true in Pension Committee, this newest opinion is directed at plaintiffs, whom she finds acted negligently and willfully in failing to take proper pre-litigation steps to preserve emails that they should have recognized would be relevant to the likely lawsuit to be filed in the future. And perhaps of most interest to ediscovery attorney “scholars”, her decision overturns the prior decision of Magistrate Judge Frank Maas, who himself is known as one of the “ediscovery” judges – with the two of them taking a different view of Orbit One Commc’ns, Inc. v. Numerex Corp., 271 F.R.D., 429 (S.D.N.Y. 2010), which was authored by yet another “ediscovery” judge, Magistrate Judge James Francis. Thus, the decision represents another chapter in the ever evolving ediscovery body of law, as well as a glimpse into the divergent views of some of the lead judges grappling with the appropriate standards to apply to each new case. Very interesting, indeed.

Turning to the case itself, the facts are fairly straightforward. Plaintiffs purchased a company from defendant Hart and his wife based on a contract that contained various representations and warranties concerning the business operations of the company and its compliance with certain laws and standards. After the purchase, defendant Hart was retained as CEO. About a year and a half later, the new owners were disillusioned and dissatisfied with the company and on October 14, 2010, the new owners fired Hart and provided him with a “notice of claim” concerning likely claims for damages that it would be making against him. The actual complaint against Hart and his wife, however, was filed about a year and a half later on May 2, 2012.

Between the time that Hart was fired and the filing of the law suit, the following occurred. In March and October 2011, the company’s human resources manager authorized the outside vendor, which maintained the company’s computer systems to delete all Hart email files – with the reason being that the computer system was having storage availability issues. The outside vendor questioned very strongly about whether that was a wise step and instead recommended archiving the email folder. That advice was not taken and the email folder was deleted in its entirety. However, before the files were actually deleted, the human resources manager did review Hart’s email files and printed out documents that she believed were relevant to the company’s business.

The human resources manager issued similar instructions about another former employee whose email files very likely would have had information relevant to the law suit, with the instruction being to delete the files from the server “totally in cyberspace – do not archive.” Again, the reason for this deletion had to do with maintaining the efficiency of the computer operating system. Notably, no one maintains that the directions to delete these files were linked to the law suit or a deliberate effort to eliminate relevant information.

Although plaintiffs gave Hart a notice of claim in October 2010, a litigation hold notice was not issued by plaintiffs to the company’s personnel until January 2012 – fifteen months after Hart received his notice. Likewise, after suit was filed, plaintiffs did not notify the outside computer vendor of the need to preserve electronic records until the end of July 2012, almost three months later.

Once discovery began and Hart sought documents in discovery, it became clear that Hart’s former emails were not in existence on the company’s files. To seek to alleviate the problem, plaintiffs undertook a search of other employees’ electronic files to locate emails to or from Hart and searched other possible sources. Ultimately, plaintiffs recovered and produced about 36,000 Hart emails, which included those that had been printed out prior to the destruction of Hart’s emails from the company’s system. As to the second relevant employee whose emails were eliminated, plaintiffs were able to provide about 7,000 emails from archived files and other custodians’ collection.

As one can easily imagine, defendants raised cries of spoliation and sought the imposition of severe sanctions. Judge Scheindlin referred the discovery dispute to Magistrate Maas. He reviewed the situation and found that plaintiffs’ conduct “well may [have risen] to the level of gross negligence” but that such conduct does not by itself entitle Hart to sanctions. 2013 WL 2951924 at *4 (S.D.N.Y June 10, 2013). Rather, he cited Orbit One – i.e., Judge Francis’s 2010 opinion, which followed after Judge Scheindlin’s Pension Committee decision and deviated from what many viewed as its rather harsh analysis – for the proposition that a court should not impose sanctions without a showing, inferential or otherwise, that the moving party had actually suffered prejudice. Id. Judge Maas also pointed out that the Second Circuit, in Chin v. Port Authority of N.Y. & N.J, 685 F.3d 135, 162 (2nd Cir. 2012), had rejected Judge Scheindlin’s finding in Pension Committee that failure to issue a litigation hold notice constitutes gross negligence per se and instead quoted Judge Francis’s Orbit One analysis for the proposition that the better approach is to consider the failure to adopt good preservation practices as but one factor in determining whether sanctions should be imposed. Id.

Based on this analysis, Judge Maas noted that: “Tellingly . . . the Hart Defendants have yet to produce – or even describe – so much as a single relevant email that Sekisui has failed to produce. . . . In these circumstances, although the Hart Defendants may have convincingly established that Sekisui destroyed Hart’s emails with the requisite culpable state of mind, they have not shown, as they must, that relevant information potentially helpful to them is no longer available.” Id. at *5. For this reason, Judge Maas found that sanctions were not warranted either as to the missing Hart files or the files of any other custodian. The Hart defendants filed objections to that decision and sought a second look from Judge Scheindlin.

Well . . . Judge Scheindlin did not look kindly upon this analysis. In particular, she was troubled by the approach that Magistrate Maas took on the question of prejudice and the amount of burden that should be placed on the moving party’s shoulders. She noted that under the Second Circuit’s standards, a culpable state of mind can be satisfied by showing that documents were destroyed knowingly, even if the intent to breach a duty to preserve was absent – or even by a showing of mere negligence. Sekisui, 2013 U.S. Dist. LEXIS at *17 (citing Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99, 108 (2nd Cir. 2002)). Moreover, when evidence is destroyed willfully, that destruction alone is sufficient circumstantial evidence from which a fact finder could find that the missing evidence was unfavorable to the destroying party. Id. at *21. Thus, when evidence is destroyed willfully or through gross negligence, prejudice to the innocent party may be presumed. Id. at*23 (citing S. New England Tel. Co. v. Global NAPs, Inc., 624 F.3d 123, 148 (2nd Cir. 2010)).

Based on these principles, Judge Scheindlin examined Judge Maas’s various findings – and reversed them as contrary to law and clearly erroneous. First, she took issue with Judge Maas’s “apparent” determination that the destruction of the emails was not “willful.” Id. at *26. She instead found “willfulness” present because a conscience decision was made to destroy the emails and “the law does not require a showing of malice to establish intentionality with respect to the spoliation of evidence. . . . That Sekisui provided a good faith explanation for the destruction of Hart’s ESI – suggesting that Taylor’s directive was given in order to save space on the server – does not change the fact that the ESI was willfully destroyed.” Id. at *27. For the same reason, she found that Judge Maas’s “implicit” determination that the destruction of the other key custodian’s emails did not render Sekisui “culpable” also was clearly erroneous. “[E]ven a good faith explanation for the willful destruction of ESI when the duty to preserve has attached does not alter the finding of willfulness.” Id. at *30-31.

As to just how culpable Sekisui was, Judge Scheindlin clarified that the failure to issue a litigation hold in this matter and under the circumstances of the case, while not gross negligence per se (bowing to the Second Circuit’s rejection of that part of her Pension Committee decision), nonetheless was “egregious” and “inexcusable” in particular given that Sekisui is the plaintiff in the case and had full knowledge of the possibility of future litigation. Id. at *32. Thus, she found that “Sekisui’s destruction [of ESI] was intentional and . . . its further failure to meet even the most basic of document preservation obligations constitutes gross negligence.” Id.

Quickly dispensing with the question of whether the missing documents were relevant based on the fact that both Hart and the other custodian were central players in the business operations of the company, Judge Scheindlin then reached the question of prejudice. Here, she completely rejected Judge Maas’s analysis, which relied on the failure of the Harts to show prejudice and instead stated “Because the destruction of evidence was intentional, I find that the imposition of such a burden on the innocent party is contrary to law.” Id. at 35. Rather, she explained that:

Once willfulness is established, no burden is imposed on the innocent party to point to now-destroyed evidence which is no longer available because the other party destroyed it. . . . . 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. Id. at *36 (citing Pension Committee, 685 F. Supp. 2d at 467).

That Judge Scheindlin cited her own Pension Committee decision is interesting because earlier in the Sekisui opinion, she was quick to note that although the Second Circuit in its Chin decision had rejected her Pension Committee declaration that failure to issue a litigation hold notice constitutes gross negligence per se, the Chin decision “did not comment on any other portion of the Pension Committee decision.” Id. at *23, n.59.

Judge Scheindlin then noted that with the irretrievable loss of the data, the Harts were left without “an untold amount of contemporaneous evidence” from which to pursue their defense. Id. at *37. Therefore, Judge Scheindlin stated that “As such, I am left with the ‘definite and firm conviction that a mistake has been committed,’ that the destruction of [the ESI] was willful and that prejudice is therefore presumed. The Magistrate Judge’s Decision denying the Harts’ motion for sanctions was therefore ‘clearly erroneous.’” Id. (citations omitted).

From there, Judge Scheindlin went on to emphasize that “prejudice is only presumed when determining whether an adverse instruction will be given . . . [and] a jury may still determine that the Harts were not prejudiced by Sekisui’s willful destruction of ESI and decline to draw any adverse inference.” Id. at *38. Accordingly, Judge Scheindlin then set forth the text of the instruction that she will give the jury (if the case goes to trial), in which she explains that she already has found as a matter of law that evidence was destroyed and that the evidence was relevant, but that it is up to the jurors to determine whether the evidence would have been favorable to defendants and, if so, whether to draw an inference against Sekisui from that determination. Id. at *38-40.

Judge Scheindlin further found that monetary sanctions in the form of costs and attorneys’ fees, in an amount yet to be determined, also are warranted. Id. at *40.

To say that this decision was a rather sharp rebuke to Judge Maas and the case law on which he relied seems fairly clear. Moreover, Judge Scheindlin also took this decision as an opportunity to rebuke the Standing Committee on Rules of the Judicial Conference of the United States Courts and the proposed changes to the Rule 37(e) of the Federal Rules of Civil Procedure, which just recently have been opened for public comment. Specifically, she notes that the proposed rule would only permit sanctions for spoliation if the destruction caused substantial prejudice and was willful and in bad faith or irreparably deprived a party of a meaningful opportunity to present evidence – and would impose on the innocent party the burden of proving “it had been substantially prejudiced by the loss.” Id. at *18-20 (citing 5/8/2013 Report of the Advisory Committee on Civil Rules at 47). To this, Judge Scheindlin comments “I do not agree that the burden to prove prejudice from missing evidence lost as a result of willful or intentional misconduct should fall on the innocent party.” Id. at 19. Thus, she certainly made quite public her position on the proposed amendment and the analysis that drove it. It remains to be seen whether other jurists will adopt a similar view and are willing to state their position quite so publicly.

All told, Judge Scheindlin has provided us all with another meaty – and controversial – opinion to analyze and digest. How other courts and judges will treat this new decision is, of course, an open question that can only be answered in time. However, it is a near certainty that it will not be ignored in light of its author and the tremendous contribution that she had made to the burgeoning development of the law on ediscovery.

View This Blog

Related Services