March 6, 2018
One Bad Apple Spoils the Bunch: Bad Faith Destruction of ESI by a Single Employee Can Carry Large Sanctions
My client recently became aware of a potential lawsuit and promptly issued a litigation hold. My client also held training sessions to ensure compliance with the hold. However, I suspect that one of the senior employees subject to the litigation hold does not intend to comply and may in fact be deleting emails.
My client believes that its prompt litigation hold and training sessions demonstrate that it has taken reasonable steps to preserve data. How can I persuade my client that notwithstanding these steps, the actions of this one employee could put the entire company at risk? Assuming the employee in question has in fact deleted emails, what steps should my client take to address the potential data loss?
Worried in Westchester
You are right to be concerned. Should this potential suit become an active one, the actions of this rogue employee may cause the court to impose severe sanctions. Federal Rule of Civil Procedure 37 (e) outlines the potential consequences for failure to preserve Electronically Stored Information (ESI):
“(e) Failure to Preserve Electronically Stored Information. If electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery, the court:
- Upon finding prejudice to another party from loss of the information, may order measures no greater than necessary to cure the prejudice; or
- only upon finding that the party acted with the intent to deprive another party of the information’s use in the litigation may:
- presume that the lost information was unfavorable to the party;
- instruct the jury that it may or must presume the information was unfavorable to the party; or
- dismiss the action or enter a default judgment.”
Sanctions imposed under Rule 37 (e) can be quite drastic and the courts have broad discretion to sanction parties who fail to preserve ESI, though the harshest penalties are reserved for those who act in bad faith.[i]
One recent case, GN Netcom v. Plantronics, No. CV 12-1318-LPS, 2016 WL 3792833 (D. Del. July 12, 2016), helps flesh out the contours of Rule 37 (e) and illustrates the threat that a rogue employee can pose to an organization’s best laid plans for preservation of data. This case provides both a cautionary tale for your client and may serve as a guide to measures your client could and probably should take to avoid or mitigate the severity of potential sanctions.
In GN Netcom v. Plantronics, Plaintiff GN Netcom sued Defendant Plantronics in the United States District Court for the District of Delaware for attempted monopolization, restraint of trade, and common-law tortious interference with business relations in connection with the Defendant’s distributor program for its headsets. Plaintiff moved for sanctions after learning that Defendant’s Senior Vice President had intentionally deleted emails and directed his subordinates to follow suit. Defendant opposed Plaintiff’s motion for sanctions citing its “extensive document preservation efforts.”
At first glance, Defendant Plantronics seemed to have taken all the right steps to preserve ESI. Upon receiving Plaintiff’s demand letter, Defendant promptly issued a legal hold to relevant employees and provided training sessions to ensure compliance. When Plaintiff subsequently filed the complaint, Defendant issued an updated legal hold, provided additional training sessions and sent quarterly reminders to its employees requiring acknowledgment of compliance. Nonetheless, Defendant’s Senior Vice President continued to delete potentially responsive emails, ultimately more than 40% of his emails during the three-month period that was covered by Defendant’s legal hold.
After discovering what the Senior Vice President had done, Defendant’s Associate General Counsel added the Senior Vice President’s assistant to the legal hold in order to preserve potential duplicates of deleted emails, utilized Defendant’s IT department to implement an “anti-email-deletion litigation feature”, and engaged both an e-discovery vendor and a well-respected forensics vendor in an attempt to locate and restore deleted emails. Defendant also agreed to produce documents from 21 additional custodians who had corresponded with the Senior Vice President. Your client might want to do the same if it turns out its employee deleted emails.
Ultimately, Defendant’s efforts to retrieve the deleted emails seemed mostly for show. Defendant disengaged the leading forensics expert before the investigation was finalized and unrestored the email backup tapes this expert had previously restored. Additionally, Defendant avoided disclosing to Plaintiff that it had retained a forensic expert and refused to disclose that expert’s identity until ordered to do so by the Court. Also, Defendant’s outside counsel told Plaintiff it was “incorrect to assume deletion,” at a time when the Defendant had actual knowledge that its Senior Vice President and at least two other employees had deleted emails despite the legal hold.
The Court found Defendant acted in bad faith, imputing the actions of Defendant’s Senior Vice President to the company based upon his high position within the company, his direct oversight of the distributor program at issue in the underlying anti-competition lawsuit, and because his deletion of emails was motivated by a desire to protect the interests of the company and not for purely personal reasons. The Defendant’s lack of transparency, cooperation and follow through for the email recovery further “buttress[ed]” the Court’s bad faith finding under Rule 37(e)(2).
The Court awarded attorney fees, $3,000,000 in punitive damages and $1,900,000 in monetary sanctions to Plaintiff.[ii] In addition to these financial sanctions, the Court imposed evidentiary sanctions by beginning the evidentiary part of trial with a detailed statement of facts relating to Defendant’s deletion of emails and instructed the jury both preliminarily and in the final instructions that it could draw an adverse inference that destroyed emails would have been favorable to Plaintiff’s case and/or unfavorable to Defendant’s defense.[iii]
If that is not enough to persuade your client that simply issuing a legal hold will not insulate them from sanctions, then maybe nothing will. Your client needs to take immediate steps to enforce compliance with its own policy and make a serious, good-faith effort to retrieve the information that may already have been lost. If it has not already done so, I also recommend that your client explore the use of technology to automate its litigation hold procedures and put in place such features as anti-deletion tools that can lock down an employee’s data and prevent it from being altered or deleted after a hold is in place. There are a range of available products out there, so, with a little digging around, your client should be able to find one that best suits its needs.
Contributing authors from Larimer Law, PLLC:
Heather DiStefano, Esq.
Jennifer Castaldo, Esq.
Lawrence Bice, Esq.