$3 Million Spoliation Sanction Despite Company’s Litigation Hold

16 August 2016 Manufacturing Industry Advisor Blog
Author(s): Melinda F. Levitt

Manufacturers involved in litigation must properly preserve electronically-stored information (“ESI”) or potentially face daunting sanctions. A recent antitrust case, however, demonstrates that lessons—multi-million dollar lessons—remain to be learned about how to satisfy the duty to preserve evidence. The Delaware federal court clearly delivered this message by imposing a $3 million sanction, plus associated fees and costs, for a company’s failure to stop a senior executive from deleting potentially responsive ESI.

The Recent Decision

This case raises the concern that sanctions might be imposed even in situations when a company has made great efforts to preserve ESI. In GN Netcom, Inc. v. Plantronics, Inc., the court imposed sanctions on Plantronics to “punish and deter” the company, and future litigants, from engaging in bad faith destruction of responsive evidence. Upon receiving notice of an antitrust suit, Plantronics promptly issued a litigation hold to relevant employees, provided training sessions to promote compliance, and issued quarterly reminders requiring affirmative acknowledgment of compliance. Despite these efforts to comply with the litigation hold, in-house counsel later learned that one of the company’s high level executives deleted over 40% of his emails and, on several occasions, instructed others to do the same. Upon discovering his conduct, Plantronics made some efforts to recover the emails, including hiring a forensic expert, but was ultimately unable to recover all of the deleted emails. The court decided that despite taking steps to implement and enforce the litigation hold; Plantronics was still on the hook for over $3 million dollars in sanctions because of the executive’s conduct.

Plantronics is a sophisticated company with in-house counsel and a system to ensure preservation of data coupled with training sessions and numerous reminders of the litigation hold. Yet, the conduct of one high-level executive nullified these efforts.

Spoliation Tips

First, recognize that no system is perfect and that vigilance is key to helping to ensure that “rogue” actors will be identified as soon as possible. Companies may consider systems to periodically review specific employees’ compliance with litigation holds.

Second, training is essential. It is too easy to become complacent about the preservation of ESI. Training should include examples of inappropriate conduct and methods to report suspicious instructions or observations.

Third, if spoliation occurs, the litigant must be as open as possible with the court and opposing parties regarding the situation and the steps being taken to remedy the problem. Be sure to coordinate with outside counsel in implementing ESI-preservation systems. No company wants to face sanctions like the seven-figure penalty imposed in GN v. Plantronics.

Please note Foley Summer Associate, Laura P. Mikeworth, was a co-author of this post. The Manufacturing Industry Advisor team thanks her for her contribution.

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