Avoiding Discovery Sanctions in an Ever-Evolving Technological World
This article was written for the American Bar Association and was published August 24, 2023. It was reprinted and distributed in Volume 53, Issue 3 of The Arbitrator by the Society of Maritime Arbitrators.
As new technologies develop and new apps proliferate in the workplace, both lawyers and litigants must be mindful of the need to preserve and produce relevant data across myriad platforms or face the risk of severe (and even terminating) discovery sanctions. Recent case law from across the country demonstrates the dangers of assuming that electronically stored information (ESI) obligations end with the production of emails. As the three cases outlined below show, counsel should ensure that they fully understand the technologies their clients use to communicate on relevant topics, as well as the clients’ routine deletion and preservation policies, and remain actively involved in the preservation, collection, and review of data for discovery purposes.
Clients’ Auto-Deletion Policies
In Columbia Pictures Industries, Inc. v. Galindo, the court not only ordered defendant Alejandro Galindo to pay the plaintiffs’ reasonable lawyer fees due to the defendant’s refusal to participate in discovery but also issued terminating sanctions against him. No. 2:20-cv-03129, 2022 WL 3009463 (C.D. Cal. June 14, 2022), report & recommendation adopted, 2022 WL 3369629 (C.D. Cal. Aug. 15, 2022). Among many other discovery violations, including deleting relevant email accounts and hiding and destroying devices, Galindo also obfuscated business-related messages that he exchanged in the Telegram app by changing the app’s settings to auto-delete messages every seven days. Galindo “took these actions despite being told by his counsel not to destroy evidence.” Galindo, 2022 WL 3009463, at *4. After a year of litigating Galindo’s discovery abuses, the court eventually imposed severe sanctions under Federal Rule of Civil Procedure 37 and terminated the case in the plaintiffs’ favor. It also ordered Galindo to pay $181,080 in lawyer fees to the plaintiffs. In issuing sanctions, the court specifically called attention to Galindo’s decision to set the Telegram app to auto-delete, which destroyed relevant ESI, and noted that Galindo had “no excuse for his continued use of Telegram set to automatically delete messages.” Id. at *12.
Clients’ Preservation Techniques
John Schnatter, the founder and former CEO of the Papa John’s pizza chain, learned a similar lesson in ESI preservation requirements in Schnatter v. 247 Grp., LLC. No. 3:20-cv-00003, 2022 WL 2402658 (W.D. Ky. Mar. 11, 2022). Schnatter brought claims against 247 Group, LLC, a company that provided marketing services to Papa John’s and whose employees had been on a recorded call with Schnatter in 2018 when he used a racial slur—a story later reported by Forbes Magazine. Schnatter subsequently separated from Papa John’s, and the Papa John’s name was removed from the University of Louisville’s football stadium. Schnatter sued 247 Group, alleging that it had tortiously interfered with his business contracts, including Papa John’s naming rights agreement with the University of Louisville, and harmed his reputation. At the outset of engagement, Schnatter’s counsel issued him a litigation hold letter, which outlined in detail his ongoing obligations to preserve relevant documents and data.
Over the course of years of litigation, 247 Group discovered that Schnatter had a practice of deleting all emails and text messages immediately after sending or receiving them. Moreover, Schnatter revealed that during the relevant period, he possessed 11 different cell phones, most of which had never been subject to imaging in discovery, and most of which had been discarded during the course of the litigation. In sum, due to Schnatter’s actions, significant ESI had been lost. Schnatter, 2022 WL 2402658.
Accordingly, the defendants moved for spoliation sanctions. The court concluded that Schnatter “failed to take reasonable steps to preserve [ESI]” and that “he deliberately deleted every text message he sent and received since his preservation duty was triggered”—and, finally, determined that there was no indication that the lost data could be recovered or duplicated. Id. at *10, *12. The court ultimately decided, though, that Schnatter’s conduct did not warrant sanctions under Federal Rule of Civil Procedure 37(e)(2), which requires a showing of intent to deprive another party of the information’s use in the litigation, because Schnatter was able to show that from 2014 (well before the onset of the litigation), it was his routine practice to delete messages as he sent and received them. The court’s conclusion was further supported by the fact that Schnatter had not retained data favorable to him while deleting unfavorable data. However, as the court noted, “[t]his does not mean that Schnatter’s conduct was harmless.” Id. at *14. Ultimately, the court ordered Schnatter to pay 247 Group’s reasonable lawyer fees and costs associated with the discovery dispute and granted 247 Group a permissive inference based on the spoliation, meaning that 247 Group was allowed to present evidence of Schnatter’s destruction of data to the jury. In coming to its conclusion, the court also chastised Schnatter’s counsel; and although it did not sanction them, it noted that “counsel failed to intervene in order to mitigate the effects of Schnatter’s conduct.” Id. at *19.
Clients’ Methods of Communication and Use of Acceptable Discovery Actions
Finally, in the lengthiest and most detailed exploration of a litigant’s discovery wrongdoing, the court in Red Wolf Energy Trading, LLC v. Bia Capital Management, LLC issued terminating sanctions and lawyer fees against defendants Bia Capital Management, LLC, and Gregory Moeller. 626 F. Supp. 3d 478 (D. Mass. 2022). After years of litigation and deficient discovery responses, including some for which the defendants were sanctioned, and after Moeller submitted multiple false affidavits attesting that he and his company had searched for and produced all relevant data, the court opined:
At best, defendants’ repeated failures to produce required documents for three years was in reckless disregard of their duties established by the Federal Rules of Civil Procedure and court orders. This misconduct was extreme. The fact that it occurred after stern warnings from the court exacerbates it. Red Wolf has been severely prejudiced by defendants’ extreme misconduct. It has also seriously injured the court’s ability to manage this case and many others on its docket.
Id. at 482.
At the heart of the defendants’ misconduct was their obfuscation of Slack messages that supported the plaintiff’s allegation that the defendants had misappropriated their trade secrets by using an algorithm that the plaintiff had developed for its trading business. The defendants’ explanation for the missing Slack message constantly evolved. First, they claimed that Slack could not be searched, until an expert e-vendor testified that was untrue. Next, they claimed that hiring a vendor to handle the Slack messages was cost-prohibitive, so they engaged a “consultant” to create his own search mechanism to respond to discovery. However, the “consultant” was an individual living in Kazakhstan who had never before undertaken such a project and who received no cash payment for his services, only equity in Moeller’s company.
The defendants’ recalcitrance in discovery wreaked havoc on the court’s docket. The court was forced to extend the discovery deadline several times to permit the plaintiff the opportunity to obtain all discovery relevant to the case. Moreover, after the defendants repeatedly “found” and produced relevant and responsive documents beyond the discovery deadline, the court allowed key witnesses to be redeposed on the contents of those materials, again delaying the proceedings. Finally, after the defendants discovered and produced yet more responsive documents on the eve of trial, the court was forced to delay the trial and instead consider additional discovery sanctions against the defendants.
The court determined that the defendants’ conduct was “extreme” and “prejudicial.” Id. at 506. It noted that these were the worst and most persistent discovery issues presented to it in over 37 years of litigation disputes. Finally, it ordered Moeller to pay the plaintiff’s reasonable lawyer fees and costs related to the plaintiff’s motion for sanctions, and issued terminating sanctions in the plaintiff’s favor:
In this case, ordering default judgment as the sanction for defendants’ repeated violations of court orders despite stern warnings that severe sanctions could be imposed if they were violated is also justified in order to deter others from emulating defendants’ misconduct. The law is not a game, and, as the court told defendants, civil discovery is not a game of hide and seek. The decision in this case should encourage litigants to understand that it is risky business to recklessly or deliberately fail to produce documents, and perilous to disobey court orders to review and, if necessary, supplement prior productions.
Id. at 507–08.
Conclusion
Galindo, Schnatter, and Red Wolf provide stern warnings to counsel to properly oversee the preservation, collection, and production of relevant and responsive ESI, lest they or their clients face significant discovery sanctions. As Galindo and Schnatter illustrate, it may not be enough that an lawyer issues a client a detailed litigation hold letter or otherwise instructs the client not to destroy evidence—that lawyer must then make a good faith effort to ensure that the lawyer’s advice is being followed and that all relevant and responsive information is preserved. And as Galindo and Red Wolf further evince, counsel would be well served by closely monitoring a client’s methods of preserving data across all relevant modes of communication, including inquiring as to any auto-deletion policies and ensuring that search and review techniques meet the standards expected under the Federal Rules of Civil Procedure. Otherwise, the consequences could be severe.
Please contact Lindsay Calhoun of Phelps’ Litigation team if you have any questions or need compliance advice or guidance.
