Sanctionable Conduct Involving E-Discovery

Underscoring litigants' obligations to comply with rules concerning electronic discovery, and the harsh penalties imposed for failure to do so, a Federal Magistrate Judge this month imposed severe sanctions against a civil defendant who deliberately erased electronically stored information (ESI) in a copyright dispute. On September 9, 2010 Magistrate Judge Paul Grimm of the United States District Court for the District of Maryland not only issued a default judgment in favor of the plaintiff, a permanent injunction, and ordered the defendant to pay the plaintiff's fees and costs arising from the four-year discovery dispute. He also found an individual defendant in civil contempt. The judge ordered that a two-year prison sentence be served unless and until that defendant paid the plaintiff's fees.

Judge Grimm's decision, in Victor Stanley v. Creative Pipe, Inc., Civil No. MJG-06-2662 (D. Md.), is also notable for its comprehensive survey of the law across federal circuits concerning consequences for failure to preserve ESI. Judge Grimm observed that there is no consistency among, or even within, circuits, and that this lack of consistency causes "concern and anxiety" for corporations, businesses and other institutional clients "because their activities – and vulnerability to being sued – often extend to multiple jurisdictions, yet they cannot look to any single standard to measure the appropriateness of their preservation activities, or their exposure or potential liability for failure to fulfill their preservation duties." Judge Grimm advised that the only way for such multi-jurisdictional entities to develop "safe" preservation policies is to "design a policy that complies with the most demanding requirements of the toughest court to have spoken on the issue, despite the fact that the highest standard may impose burdens and expenses that are far greater than what is required in most other jurisdictions in which they do business or conduct activities."

While Judge Grimm's advice is undeniably prudent, it is nevertheless – as he concedes – highly inefficient, with businesses and institutions forced to shoulder unnecessarily costly burdens. Indeed, he noted that such litigants already struggle with the costs involved in preservation, especially because those costs are "disproportionately expensive in cases where ESI will play an evidentiary role." Regrettably, this situation is unlikely to improve unless and until courts converge on a common set of ESI protection guidelines. Until then, businesses and individuals working across jurisdictional lines must carefully scrutinize their document retention policies to make sure that they comply with the obligations of the most burdensome district in which they conduct business.

Such a practice, Judge Grimm reasoned, stems directly from one of the few principles common to nearly all jurisdictions: "the duty to preserve evidence relevant to litigation of a claim is a duty owed to the court, not to a party's adversary." Judge Grimm noted that parties frequently forget that principle, and engage in extensive discovery motion practice that not only places greater burdens and costs upon the parties, but also directly interferes with the court's administration of justice by crowding dockets and "divert[ing] court time from other important duties – namely deciding cases on the merits."

In Victor Stanley v. Creative Pipe, Inc., Judge Grimm found that the defendant's conduct amounted to "the single most egregious example of spoliation" that he had ever encountered, even considering the "legion of spoliation cases" that he had read in his fourteen years on the bench. Judge Grimm found that the defendant was responsible for: (1) failure to implement a litigation hold; (2) deleting ESI soon after plaintiffs filed suit; (3) failure to preserve external hard drives, files and emails after plaintiffs demanded preservation of ESI; (4) continued deletion of files after the Court issued preservation orders and admonished the parties to comply with preservation orders; and (5) the use of programs to overwrite the hard drive in order to permanently delete files after the Court had issued production orders.

As noted by Judge Grimm, the penalties for spoliation of ESI run the gamut from default judgments and adverse inferences to awards of attorneys’ fees and possible imprisonment. In fact, Judge Grimm stated he considered referring the case to the U.S. Attorneys Office for a possible criminal contempt prosecution, but ultimately declined to do so only to avoid further wasting judicial and prosecutorial time and resources.

Judge Grimm's ruling underscores the importance, obligations and risks of ESI discovery in civil litigations. To meet preservation obligations, litigants and potential litigants should carefully review the ESI retention requirements in every jurisdiction where they operate, and establish best practice protocols to avoid the possibility of sanction.