Cautionary Tale from Brooklyn: Search Terms ‘Designed To Fail’

October 20, 2019

Every lawyer who thinks e-discovery is not important, that you can just delegate it to a vendor, should read Abbott Laboratories, et al. v. Adelphia Supply USA, et al., No. 15 CV 5826 (CBA) (LB) (E.D.N.Y. May 2, 2019). This opinion in a trademark case in Brooklyn District Court (shown here) emphasizes, once again, that e-discovery can be outcome-determinative. If you mess it up, you can doom your case. If a lawyer wants to litigate today, they either have to spend the substantial time it takes to learn the many intricacies of e-discovery, or associate with a specialist who does. The Abbott Labs case shows how easily a law suit can be won or lost on e-discovery alone. Here the numbers did not add up, key custodians were omitted and guessed keywords were used, keywords so bad that opposing counsel called them designed to fail. The defendants reacted by firing their lawyers and blaming everything on them, but the court did not buy it. Instead, discovery fraud was found and judgment was entered for the plaintiff.

Magistrate Judge Lois Bloom (shown right) begins the Opinion by noting that the plaintiff’s motion for case ending sanctions “… presents a cautionary tale about how not to conduct discovery in federal court.” The issues started when defendant made its first electronic document production. The Electronically Stored Information was all produced in paper, as Judge Bloom explained “in hard copy, scanning them all together, and producing them as a single, 1941-page PDF file.” Opinion pg. 3. This is not what the plaintiff Abbott Labs wanted. After Abbott sought relief from the court the defendants on March 24, 2017 were ordered  to “produce an electronic copy of the 2014 emails (1,941 pages)” including metadata. Defendant then “electronically produced 4,074 pages of responsive documents on April 5, 2017.” Note how the page count went from 1,942 to 4,074. There was no explanation of this page count discrepancy, the first of many, but the evidence helped Abbott justify a new product counterfeiting action (Abbott II) where the court ordered a seizure of defendant’s email server. That’s were the fun started. As Judge Bloom put it:

Once plaintiffs had seized H&H’s email server, plaintiffs had the proverbial smoking gun and raised its concerns anew that defendants had failed to comply with the Court’s Order to produce responsive documents in the instant action (hereinafter “Abbott I”). On July 12, 2017, the Court ordered the H&H defendants to “re-run the document search outlined in the Court’s January 17 and January 21 Orders,” “produce the documents from the re-run search to Abbott,” and to produce “an affidavit of someone with personal knowledge” regarding alleged technical errors that affected the production.³ Pursuant to the Court’s July 12, 2017 Order to re-run the search, The H&H defendants produced 3,569 responsive documents.

Opinion pg. 4 (citations to record omitted).

Too Late For Vendor Help and a Search Strategy Designed to Fail

After the seizure order in Abbott II, and after Abbott Labs again raised issues regarding defendants’ original production, Judge Bloom ordered the defendants to re-run the original search. Defendants then retained the services of an outside vendor, Transperfect, to re-run the original search for them. In supposed compliance with that order, the defendants, aka H&H, then produced 3,569 documents. Id. at 8. Defendants also filed an affidavit by Joseph Pochron, Director in the Forensic Technology and Consulting Division at Transperfect (“Pochron Decl.”) to try to help their case. It did not work. According to Judge Bloom the Pochron Decl. states:

… that H&H utilized an email archiving system called Barracuda and that there are two types of Barracuda accounts, Administrator and Auditor. Pochron Decl. ¶ 13. Pochron’s declaration states that the H&H employee who ran the original search, Andrew Sweet, H&H’s general manager, used the Auditor account to run the original search (“Sweet search”). Id. at ¶ 19. When Mr. Pochron replicated the Sweet search using the Auditor account, he obtained 1,540 responsive emails. Id. at ¶ 22. When Mr. Pochron replicated the Sweet search using the Administrator account, he obtained 1,737 responsive emails. Id. Thus, Mr. Pochron attests that 197 messages were not viewable to Mr. Sweet when the original production was made. Id. Plaintiffs state that they have excluded those 197 messages, deemed technical errors, from their instant motion for sanctions. Plaintiffs’ Memorandum of Law at 9; Waters Decl. ¶ 8. However, even when those 197 messages are excluded, defendants’ numbers do not add up. In fact, H&H has repeatedly given plaintiffs and the Court different numbers that do not add up.

Moreover, plaintiffs argue that the H&H defendants purposely used search terms designed to fail, such as “International” and “FreeStyle,” whereas H&H’s internal systems used item numbers and other abbreviations such as “INT” and “INTE” for International and “FRL” and “FSL” for FreeStyle. Plaintiff’s Memorandum of Law at 10–11. Plaintiffs posit that defendants purposely designed and ran the “extremely limited search” which they knew would fail to capture responsive documents …

Opinion pgs. 8-9 (emphasis by bold added). “Search terms designed to fail.” This is the first time I have ever seen such a phrase in a judicial opinion. Is purposefully stupid keyword search yet another bad faith litigation tactic by unscrupulous attorneys and litigants? Or is this just another example of dangerous incompetence? Judge Bloom was not buying the ‘big oops” theory, especially considering the ever-changing numbers of relevant documents found. It looked to her, and me too, that this search strategy was intentionally design to fail, that it was all a shell-game.

This is the wake-up call for all litigators, especially those who do not specialize in e-discovery. Your search strategy had better make sense. Search terms must be designed (and tested) to succeed, not fail! This is not just incompetence.

The Thin Line Between Gross Negligence and Bad Faith

The e-discovery searches you run are important. The “mistakes” made here led to a default judgment. That is the way it is in federal court today. If you think otherwise, that e-discovery is not that important, that you can just hire a vendor and throw stupid keywords at it, then your head is dangerously stuck in the sand. Look around. There are many cases like Abbott Laboratories, et al. v. Adelphia Supply USA.

I say “mistakes” made here in quotes because it was obvious to Judge Bloom that these were not mistakes at all, this was fraud on the court.

E-Discovery is about evidence. About truth. You cannot play games. Either take it seriously and do it right, do it ethically, do it competently; or go home and get out. Retire already. Discovery gamesmanship and lawyer bumbling are no longer tolerated in federal court. The legal profession has no room for dinosaurs like that.

Abbott Labs responded the way they should, the way you should always expect in a situation like this:

Plaintiffs move for case ending sanctions under Federal Rule of Civil Procedure 37 and invoke the Court’s inherent power to hold defendants in default for perpetrating a fraud upon the Court. Plaintiffs move to strike the H&H defendants’ pleadings, to enter a default judgment against them, and for an order directing defendants to pay plaintiffs’ attorney’s fees and costs, for investigating and litigating defendants’ discovery fraud.

Id.

Rule 37(e) was revised in 2015 to make clear that gross negligence alone does not justify a case-ending sanction, that you must prove bad faith. This change should not provide the incompetent with much comfort. As this case shows, the difference between mistake and intent can be a very thin line. Do your numbers add up? Can you explain what you did and why you did it? Did you use good search terms? Did you search all of the key custodians? Or did you just take the ESI the client handed to you and say thank you very much? Did you look with a blind eye? Even if bad faith under Rule 37 is not proven, the court may still find the whole process stinks of fraud and use the court’s inherent powers to sanction misconduct.

As Judge Bloom went on to explain:

Under Rule 37, plaintiffs’ request for sanctions would be limited to my January 17, 2017 and January 27, 2017 Orders which directed defendants to produce documents as set forth therein. While sanctions under Rule 37 would be proper under these circumstances, defendants’ misconduct herein is more egregious and goes well beyond defendants’ failure to comply with the Court’s January 2017 discovery orders. . . .  Rather than viewing the H&H defendants’ failure to comply with the Court’s January 2017 Orders in isolation, plaintiffs’ motion is more properly considered in the context of the Court’s broader inherent power, because such power “extends to a full range of litigation abuses,” most importantly, to fraud upon the court.

Opinion pg. 5.

Judge Bloom went on the explain further the “fraud on the court” and defendant’s e-discovery conduct.

A fraud upon the court occurs where it is established by clear and convincing evidence “that a party has set in motion some unconscionable scheme calculated to interfere with the judicial system’s ability impartially to adjudicate a matter by . . . unfairly hampering the presentation of the opposing party’s claim or defense.” New York Credit & Fin. Mgmt. Grp. v. Parson Ctr. Pharmacy, Inc., 432 Fed. Appx. 25 (2d Cir. 2011) (summary order) (quoting Scholastic, Inc. v. Stouffer, 221 F. Supp. 2d 425, 439 (S.D.N.Y. 2002))

Opinion pgs. 5-6 (subsequent string cites omitted).

Kill All The Lawyers

The defendants here tried to defend by firing and blaming their lawyers. That kind of Shakespearean sentiment is what you should expect when you represent people like that. They will turn on you. They will use you for their nefarious ends, then lose you. Kill you if they could.

Judge Bloom, who was herself a lawyer before becoming a judge, explained the blame-game defendants tried to pull in her court.

Regarding plaintiffs’ assertion that defendants designed and used search terms to fail, defendants proffer that their former counsel, Mr. Yert, formulated and directed the use of the search terms. Id. at 15. The H&H defendants state that “any problems with the search terms was the result of H&H’s good faith reliance on counsel who . . . decided to use parameters that were less robust than those later used[.]” Id. at 18. The H&H defendants further state that the Sweet search results were limited because of Mr. Yert’s incompetence. Id.

Opinion pg. 9.

Specifically defendants alleged:

… the original search parameters were determined by Mr. Yert and that he “relied on Mr. Yert’s expertise as counsel to direct the parameters and methods for a proper search that would fulfill the Court’s Order.” Sweet Decl. ¶ 3–4.  As will be discussed below, the crux of defendants’ arguments throughout their opposition to the instant motion seeks to lay blame on Mr. Yert for their actions; however, defendants cannot absolve themselves of liability here by shifting blame to their former counsel.

Opinion pg. 11.

Here is how Judge Bloom responded to this “blame the lawyers” defense:

Defendants’ attempt to lay blame on former counsel regarding the design and use of search terms is equally unavailing. It is undisputed that numerous responsive documents were not produced by the H&H defendants that should have been produced. Defendants’ prior counsel conceded as much. See generally plaintiffs’ Ex. B, Tr. Of July 11, 2017 telephone conference.

Mr. Yert was asked at his deposition about the terms that H&H used to identify their products and he testified as follows:

Q. Tell me about the general discussions you had with the client in terms of what informed you what search terms you should be using.

A. Those were the terms consistently used by H&H to identify the particular product.

Q. So the client told you that FreeStyle and International are the terms they consistently used to refer to International FreeStyle test strips; is that correct?

A. That’s what I recall.

Q. Did the client tell you that they used the abbreviation FSL to refer to FreeStyle?

A. I don’t recall.

Q. If they had told you that, you would have included that as a search term, correct?

A. I don’t recall if it was or was not included as a search term, sir.

Opinion pgs. 10-11.

The next time you are asked to dream up keywords for searches to find your client’s relevant evidence, remember this case, remember this deposition. Do not simply use keywords that the client suggests, as the attorneys did here. Do not simply use keywords. As I have written here many, many times before, there is a lot more to electronic evidence search and review than keywords. This is the Twenty First Century. You should be using AI, specifically active machine learning, aka Predictive Coding.

You need an expert to help you and you need them at the start of a case, not after sanctions motions.

Judge Lois Bloom went on to explain that, even if defendant’s story of innocent reliance on it lawyers was true:

It has long been held that a client-principal is “bound by the acts of his lawyer agent.” Id. (quoting Link v. Wabash RR. Co., 370 U.S. 626, 634 (1962)). As the Second Circuit stated, “even innocent clients may not benefit from the fraud of their attorney.” Id. . . .

However, notwithstanding defendants’ assertion that the search terms “FreeStyle” and “International” were used in lieu of more comprehensive search terms at the behest of Mr. Yert, it is undisputed that Mr. Sweet, H&H’s general manager, knew that H&H used abbreviations for these terms. Mr. Sweet admitted this at his deposition. See Sweet Dep. 81:2-81:24, Mar. 13, 2018. . . . The Court need not speculate as to why defendants did not use these search terms to comply with defendants’ obligation to produce pursuant to the Court’s Order. Mr. Sweet, by his own admission, states that “on several occasions he contacted Mr. Yert with specific questions about whether to include certain emails in production.” Sweet Decl. ¶ 7. It is inconceivable that H&H’s General Manager, who worked closely with Mr. Yert to respond to the Court’s Order, never mentioned that spelling out the terms used, “International” and “FreeStyle”, would not capture the documents in H&H’s email system. Mr. Sweet knew that H&H was required to produce documents regarding International FreeStyle test strips, regardless of whether H&H’s documents spelled out or abbreviated the terms. Had plaintiffs not seized H&H’s email server in the counterfeiting action, plaintiffs would have never known that defendants failed to produce a trove of responsive documents. H&H would have gotten away with it.

Opinion pgs. 12-13.

Defendants also failed to produce any documents by three custodians Holland Trading, Howard Goldman, and Lori Goldman. Again, they tried to blame that omission on their attorney, who they claim directed the search. Oh yeah, for sure. To me he looks like a mere stooge, a tool of unscrupulous litigants. Judge Bloom did not accept that defense either, holding:

While defendants’ effort to shift blame to Mr. Yert is unconvincing at best, even if defendants’ effort could be credited, counsel’s actions, even if they were found to be negligent, would not shield the H&H defendants from responsibility for their bad faith conduct.

Opinion pgs. 19-20. Then Judge Bloom went on to cite the record at length, including the depositions and affidavits of the attorneys involved, to expose this blame game as a sham. The order then concludes on this point holding:

There is no credible explanation for why the Holland Trading, Howard Goldman, and Lori Goldman documents were not produced except that the documents were willfully withheld. Defendants’ explanation that there were no documents withheld, then that any documents that weren’t produced were due to technical glitches, then that the documents didn’t appear in Mr. Sweet’s original search, then that if documents were intentionally removed, they were removed per Mr. Yert’s instructions cannot all be true. The H&H defendants have always had one more excuse up their sleeve in this “series of episodes of nonfeasance,” which amounts to “deliberate tactical intransigence.” Cine, 602 F.2d at 1067. In light of the H&H defendants’ ever-changing explanations as to the withheld documents, Mr. Sweet’s inconsistent testimony, and assertions of former counsel, the Court finds that the H&H defendants have calculatedly attempted to manipulate the judicial process. See Penthouse, 663 F.2d 376–390 (affirming entry of default where plaintiffs disobeyed an “order to produce in full all of [their] financial statements,” engaged in “prolonged and vexatious obstruction of discovery with respect to closely related and highly relevant records,” and gave “false testimony and representations that [financial records] did not exist.”).

Opinion pgs. 22-23.

The plaintiff, Abbott Labs, went on to argue that “the withheld documents freed David Gulas to commit perjury at his deposition. The Court agrees.” Id. at 24. The Truth has a way of finding itself out, especially with competent counsel on the other side and a good judge.

With this evidence the Court concluded the only adequate sanction was a default judgment in plaintiff’s favor. Message to spoliating defendants, game over, you lose.

Based on the full record of the case, there is clear and convincing evidence that defendants have perpetrated a fraud upon the court. Defendants’ initial conduct of formulating search terms designed to fail in deliberate disregard of the lawful orders of the Court allowed H&H to purposely withhold responsive documents, including the Holland Trading, Howard Goldman, and Lori Goldman documents. Defendants proffered inconsistent positions with three successive counsel as to why the documents were withheld. Mr. Sweet’s testimony is clearly inconsistent if not perjured from his deposition to his declaration in opposition to the instant motion. Mr. Goldman’s deposition testimony is evasive and self-serving at best. Finally, Mr. Gulas’ deposition testimony is clearly perjured. Had plaintiffs never seized H&H’s server pursuant to the Court’s Order in the counterfeiting case, H&H would have gotten away with their fraud upon this Court. H&H only complied with the Court’s orders and their discovery obligations when their backs were against the wall. Their email server had been seized. There was no longer an escape from responsibility for their bad faith conduct. This is, again, similar to Cerruti, where the “defendants did not withdraw the [false] documents on their own. Rather, they waited until the falsity of the documents had been detected.” Cerruti.,169 F.R.D. at 583. But for being caught in a web of irrefutable evidence, H&H would have profited from their misconduct. . . .

The Court finds that the H&H defendants have committed a fraud upon the court, and that the harshest sanction is warranted. Therefore, plaintiffs’ motion for sanctions should be granted and a default judgment should be entered against H&H Wholesale Services, Inc., Howard Goldman, and Lori Goldman.

Conclusion

Attorneys of record sign responses under Rule 26(g) to requests for production, not the client. That is because the rules require them to control the discovery efforts of their clients. That means the attorney’s neck is on the line. Rule 26(g) does not allow you to just take a client’s word for it. Verify. Supervise. The numbers should add up. The search terms, if used, should be designed and tested to succeed, not fail. This is your response, not the client’s. You determine the search method, in consultation with the client for sure, but not by “just following orders.” You must see everything, not nothing. If you see no email from key custodians, dig deeper and ask why. Do this at the beginning of the case. Get vendor help before you start discovery, not after you fail. Apparently the original defense attorneys here did just what they were asked, they went along with the client. Look where it got them. Fired and deposed. Default judgment entered. Cautionary tale indeed.

 

 



Second Circuit Uses “Klipsch” to Speak Loud and Clear on e-Discovery Misconduct

September 23, 2018

Klipsch makes some of the best speakers in the world, especially their high-end Klipschorn speaker series shown here. The Second Court of Appeals used a Klipsch in a dispute recently to sound an alarm about e-discovery abuse and how it will not be tolerated. Klipsch Group, Inc. v. ePRO E-Commerce Ltd., 880 F. 3d 620 (2d Cir, 2018). The unanimous opinion written by Circuit Judge Gerard E. Lynch upheld the lower court’s sanctions against Klipch’s adversary in the suit, ePro. The adverse inference sanction entered means that Klipsch will now almost certainly win the case.

The Second Circuit also affirmed the full amount of monetary sanctions, $2,680,000. Klipsch was compensated for almost* all of the additional discovery efforts occasioned by ePRO’s misconduct. ePro was also required to immediately secure payment of the full $5 Million amount of any future judgment against them, which includes damage trebling and fees. I know that sounded great to Klipsch and their attorneys. Especially since they had a four day evidentiary hearing on their spoliation motion to get there.

* Somewhat sadly for Klipsch, however, as the third footnote explained, under the lower court’s opinion all of Klipsch’s fees and costs incurred were not awarded. There was another $300,000 or so that was not included, only because Klipsch could not produce proper credentials for one of the billing attorneys. Ouch. That is extremely rare and odd. Details are so very important.

The Second Circuit Court’s Rare Ruling on e-Discovery and Sanctions

The Klipsch opinion has language that will carry great weight, not only because it makes sense, but also because it is from a United States Court of Appeals panel. There are not that many appeals court opinions on sanctions or e-discovery so this is a rare and important opinion. It will certainly encourage more courts to do as the trial judge did here and sanction offending parties. It is also controlling law for all federal courts in its jurisdiction, which is Vermont, Connecticut and the all important New York.

In the rest of this blog I will let the language of the Klipsch opinion speak for itself with a few of my favorites selections. Klipsch Group, Inc. v. ePRO E-Commerce Ltd., 880 F. 3d 620 (2d Cir, 2018). The first quote from Circuit Judge Gerard Lynch’s opinion lays out the background.

In the course of defending against claims that it sold counterfeit products, defendant-appellant ePRO E-Commerce Limited (“ePRO”) engaged in persistent discovery misconduct: it failed to timely disclose the majority of the responsive documents in its possession, restricted a discovery vendor’s access to its electronic data, and failed to impose an adequate litigation hold even after the court directed it to do so, which omission allowed custodians of relevant electronic data to delete thousands of documents and significant quantities of data, sometimes permanently. As a result, the United States District Court for the Southern District of New York (Vernon S. Broderick, J.) concluded that ePRO had willfully engaged in spoliation. It accordingly granted in substantial part plaintiff-appellee Klipsch Group, Inc.’s (“Klipsch”) motion for discovery sanctions, including a $2.7 million monetary sanction to compensate Klipsch for its corrective discovery efforts and a corresponding asset restraint in that amount, permissive and mandatory jury instructions, and an additional $2.3 million bond to preserve Klipsch’s ability to recover damages and fees at the end of the case. . . .

We find no error in the district court’s factual findings, and we conclude that the monetary sanctions it awarded properly compensated Klipsch for the corrective discovery efforts it undertook with court permission in response to ePRO’s misconduct. In particular, we emphasize that discovery sanctions should be commensurate with the costs unnecessarily created by the sanctionable behavior. A monetary sanction in the amount of the cost of discovery efforts that appeared to be reasonable to undertake ex ante does not become impermissibly punitive simply because those efforts did not ultimately uncover more significant spoliation and fraud, or increase the likely damages in the underlying case. The district court’s orders imposing sanctions *624 are accordingly AFFIRMED in all respects.

The next quote gives you a good glimpse into the degree of frustration that recalcitrant attorneys who excel in gamesmanship can engender, even in an appellate court panel located in New York City:

[T]he history of the case makes clear that the sanctions and fees awarded in this case were carefully limited to costs Klipsch incurred in direct response to ePRO’s misconduct. Klipsch obtained approval from the magistrate judge prior to each of its substantive efforts, and in each case, that approval was given only after ePRO had already squandered an opportunity to correct its own errors.

For example, ePRO’s failure to implement a litigation hold was first discovered in March 2013, during Klipsch’s first round of depositions with ePRO employees, but ePRO was not sanctioned at that time, nor was Klipsch given carte blanche to explore ePRO’s files. Instead, ePRO was permitted to hire its own discovery expert to correct the error, which resulted in the production of substantial additional discovery. Klipsch then spent approximately $550,000 on a second round of depositions occasioned by that late production.

Paul Klipsch

It is evident that the district court did not detect any abusive conduct on the part of Klipsch, such as the piling on of discovery demands and investigatory initiatives in order to burden its *633 adversary with wasteful expenses, motions practice, and sanctions. ePRO does not appear to contest the reasonableness of permitting Klipsch to take those remedial depositions, nor can it plausibly assert that Klipsch would have insisted on doing so even if ePRO’s initial production had been complete or timely. And only in March 2014, after ePRO had repeatedly shown itself to be an untrustworthy participant in the discovery process, did the magistrate judge determine that Klipsch was “fully justified” in seeking to undertake an independent forensic examination. Joint App. at 1187.

Because the costs for which Klipsch is being compensated were reasonably incurred in direct response to ePRO’s misconduct, we cannot conclude that the district court abused its discretion by requiring ePRO to pay monetary sanctions in that amount.[7]

The defendant ePro then tried the “proportionality card” arguing that the multi-million dollar punitive damages exceeded the amount at issue in the case. That did not work. The Second Circuit explained that is not how proportionality works in sanctions. It has no bearing to the value of the case itself, just the amount of additional reasonable costs incurred because of the unreasonable conduct to be sanctioned. One party should not be damaged by the unreasonable conduct of the other. The offended party, here Klipsch, should, in effect, be indemnified from all of the burden and expense incurred because of what the offending party did or did not do. They are the innocent party. Here is how the court put it.

In sum, we see nothing in ePRO’s proportionality arguments compelling us to conclude that the district court abused its discretion by awarding full compensation for efforts that were ex ante a reasonable response to ePRO’s own evasive conduct.[9] The proportionality that matters here is that the amount of the sanctions was plainly proportionate — indeed, it was exactly equivalent — to the costs ePRO inflicted on Klipsch in its reasonable efforts to remedy ePRO’s misconduct.

The Second Court was cognizant of the issues and problems concerning electronic discovery. They had been briefed on the potential for misuses of spoliation sanctions motions. Although this was not at all present in the Klipsch, Judge Lynch address this concern near the end of the opinion.

Nothing that we say in this opinion should be taken as condoning excessive and disproportionate discovery demands, countenancing the tactical use of discovery sanction motions to inflict gratuitous costs on adversaries, or derogating from the responsibility *636 of district courts to ensure that litigation proceeds in a responsible and cost-efficient manner. See Fed. R. Civ. P. 1 (directing that the Rules of Civil Procedure “should be construed, administered, and employed by the court and the parties to secure the just, speedy, and inexpensive determination of every action”) (emphasis added); Fed. R. Civ. P. 26(b)(1) (scope of discovery should be “proportional to the needs of the case, considering [inter alia] the amount in controversy”). If it turns out, as the district court has estimated, that the amount of actual damages in this case is modest in relation to the costs spent on the litigation, that would be a highly regrettable outcome.

But the question before the district court, and before us, is which party should be held responsible for those costs. ePRO does not ever contend that Klipsch’s initial discovery demands were unreasonable or disproportionate to the merits of the case. Nor does it seriously argue that the magistrate judge erred in allowing Klipsch to take the steps it took to remedy ePRO’s refusal to comply with those demands. The district court reasonably concluded, after a full and fair hearing, that it was ePRO’s noncompliance with its legal obligations that occasioned the excessive costs in this case, and we find no reason why ePRO should not therefore be required to pay them.

I leave you with a short video biography of Paul Klipch, a recognized audio engineer leader whom I have long admired.


Spoliated Schmalz: New Sanctions Case in Chicago That Passes-Over a Mandatory Adverse Inference

March 30, 2018

I am writing today, on Jewish Passover, regarding an opinion that AI found for me, namely a standing search of all of Pacer using Lex Machina. My AI assistant found a sanctions order for spoliation in an employment law case in Chicago. Schmalz v. Village Of North Riverside, et al, No. 1:2013cv08012 – (N.D. Ill., March 23, 2018). The opinion is a Report and Recommendation by U.S. Magistrate Judge Mary Rowland, a rising star in the e-discovery world. Her writing and analysis of Rule 37(e) is excellent. I can assure you that, despite its name, it is not at all schmaltzy. The sanctions granted were good for the moving party, but could have been better, kind of like chicken soup without the matzo balls. Trust me, thanks to my wife, Molly Friedman, I am an expert on that culinary subject.

The lukewarm sanctions in Schmalz were entered against defendants for the inadvertent loss of fifty text messages when key custodian cell phones were not saved after suit was filed. There was no real dispute as to the spoliation, which Judge Rowland called gross negligence. The arguments were about the remedy, the sanctions, if any, to be entered for this spoliation.

The Plaintiff, Schmalz, asked for dispositive sanctions under Rule 37(e)(2), either striking the defense or an adverse inference instruction. Judge Rowland passed-over these harsh sanctions as over-kill. She found that was unnecessary to counteract the prejudice caused to the plaintiff by loss of the text messages. She reached this opinion based on her finding that intentional, or bad faith, destruction of evidence was not shown. Instead, the evidence proved that defendants failure to preserve a few cell phones within their control was gross-negligence, not bad faith. In other words, just doofuses, not bad guys. Judge Rowland did, however, enter sanctions, permitting the plaintiff to present evidence at trial concerning the negligent text message loss. The Order also allows plaintiff to argue to the jury that they should presume that the contents of these texts would be contrary to defense witnesses testimony. Judge Rowland also granted Plaintiff Schmalz a fee award.

At page six of the Schmalz opinion, Judge Rowland explains the background and how the spoliation was discovered by surprising deposition testimony of a key witness:

In his February 2016 deposition, Defendant Niemann revealed that he had “at least 50” text message communications before and after the election with Defendant Hermanek about the police department, who he would promote to the Commander position, why he did not want a lieutenant’s position, and about Plaintiff specifically.

Plaintiff issued a discovery request for the text messages identified in Defendant Neimann’s deposition. (Dkt. 168 at 6). Defendants answered that there were no texts to be produced because “neither defendant Hermanek nor defendant Niemann still possess their cell phones from that time period.” …

Defendants’ duty to preserve the text messages arose as early as August 2013 when they received a litigation hold letter. See (Dkt. 207-1). Further, Defendants admit that they failed to take any steps to preserve the text messages. See (Dkt. 179-2, at 2–3). Likewise, Defendants admit that the text messages have been lost and cannot be replaced by additional discovery as they have exhausted all efforts to retrieve the messages. See (Dkt. 179-2, at 2–3). Given that these predicate elements are met, the Court next determines whether Plaintiff is prejudiced from loss of the text messages. See Fed. R. Civ. P. 37(e)(1).

Judge Rowland then goes on to explain her analysis at pages eight and nine of her opinion.

These text messages are certainly relevant as they involve private communications between the primary defendants and decision-makers in the case during a critical time period, and the alleged subject matter of the text messages involve issues highly pertinent to the underlying claim, including promotions in the police department and the Plaintiff specifically.

Defendants’ argument that Plaintiff is not prejudiced because “there are other means to obtain the contents of the conversations from the defendants, including prior oral discovery and potential trial testimony,” (Def.’s Resp., Dkt. 196 at 5), is unavailing. “A party has the right to prosecute its case in the way it deems fit based on all available relevant evidence.” Larson v. Bank One Corp., No. 00 C 2100, 2005 WL 4652509, at *14 (N.D. Ill. Aug. 18, 2005); see also Hickman v. Taylor, 329 U.S. 495, 507, 67 S. Ct. 385, 392, 91 L. Ed. 451 (1947) (“Mutual knowledge of all the relevant facts gathered by both parties is essential to proper litigation.”). The content of text messages cannot be replaced simply by eliciting testimony from the Defendants, and by having Plaintiff accept that testimony rather than relying on the actual messages to use as they deem fit. Without the lost text messages, Plaintiff is deprived of the opportunity to know “the precise nature and frequency” of those pri-vate communications, which occurred during a critical time period. See Ronnie Van Zant, Inc. v. Pyle, 270 F. Supp. 3d 656, 670 (S.D.N.Y. 2017) (finding prejudice when text messages were lost and “the precise nature and frequency of those communications cannot be verified”). Accordingly, the Court finds that Plaintiff has suffered prejudice as a result of the spoliation of highly relevant text messages. …

Upon a finding of prejudice, a court may order “measures no greater than necessary to cure the prejudice.” Fed. R. Civ. P. 37(e)(1). Under Subdivision (e)(1), the court has much discretion to fashion an appropriate sanction, and “[t]he range of such measures is quite broad if they are necessary for this purpose.” Fed. R. Civ. P. 37(e), 2015 Amendment Advisory Committee Notes.

Judge Rowland then wraps up her analysis at page fifteen of the Schmalz opinion.

Because the Court finds that Defendants acted with gross negligence, which is insufficient to support a finding of intent as required under Rule 37(e)(2), the Court concludes that a lesser sanction under Rule 37(e)(1) is appropriate. … To address the prejudice resulting from Defendant’s spoliation of evidence, the Court recommends that the parties shall be allowed to present evidence to the jury regarding the destruction of the text messages and the likely relevance of the lost information; and that the jury shall be instructed that it may consider this information when making its decision. However, the jury shall not be given specific instructions on any presumption or inference based on the destruction of the text messages.

Conclusion

Do not be a caveman lawyer and forget the cell phones of key custodians. They may need to be preserved, depending on the facts. In Schmalz the cell phones contained key evidence. An interview of the witness at the beginning of the case should have revealed this important fact. The interview should have triggered appropriate preservation. That did not happen here. Judge Rowland found that defendant’s failure was a cave-man lawyer like mistake, grossly negligent and out of touch with 21st Century discovery. For that reason, what appears to have been an easily defendable case has become a nightmare. See Order of Judge Darrah in Schmalz dated October 28, 2016 ($60,000 settlement). The plaintiff can now put on a side-show at trial on cell phone negligence and missing messages. Although better to the defense than a mandatory adverse inference instruction, which is almost certainly a deathblow, this kind of testimony will distract from the otherwise questionable merits of the case.


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