July Edition of Notable Cases and Events in E-Discovery
This update addresses the following recent developments and court decisions involving e-discovery issues:
- A Seventh Circuit decision affirming harsher sanctions imposed by a district court than recommended by the magistrate judge and upholding entry of a $413 million default judgment based on a series of discovery abuses relating to the failure to preserve and produce relevant electronic documents;
- A Central District of Illinois opinion denying plaintiff’s motion for default judgment and sanctions for the destruction and delayed production of certain school board audiotapes, finding that plaintiffs failed to show that defendants (i) had a specific duty to preserve the audiotapes, (ii) acted in bad faith in destroying and/or failing to timely produce the audiotapes, or (iii) intentionally withheld the audiotapes from production;
- An Eastern District of California decision granting a defendant’s motion for a judgment of acquittal on criminal obstruction of justice charges, ruling that the government failed to prove that the defendant destroyed or concealed business emails with the intent to obstruct a government investigation; and
- A District of Nevada decision denying plaintiffs’ motion for summary judgment due in part to their failure to authenticate more than half of their supporting exhibits, including websites, emails, text messages and a YouTube video transcript.
1. In Domanus v. Lewicki, 742 F.3d 290 (7th Cir. 2014), the U.S. Court of Appeals for the Seventh Circuit affirmed harsher sanctions imposed by a district court than recommended by the magistrate judge and upheld entry of a $413 million default judgment based on a series of discovery abuses relating to the failure to preserve and produce relevant electronic documents.
Shareholders filed suit against current and former shareholders of Krakow Business Park alleging a fraudulent scheme to steal from the company. After several discovery abuses and missed deadlines, the magistrate judge imposed sanctions, but the district judge agreed with plaintiffs that greater sanctions were warranted, including contempt and an order barring defendants’ use of certain evidence. After further discovery abuses, the district court granted plaintiffs’ subsequent motion for default judgment and awarded $413 million in damages. The defendants appealed the harsher sanctions, entry of default judgment and calculation of damages. Id. at 295.
First, the Seventh Circuit affirmed the district court’s imposition of harsher sanctions. The appeals court noted that it reviewed a district court sanctions order on an “abuse of discretion” basis. The district court had imposed harsher sanctions for defendants’ discovery abuses than the magistrate judge because the court found defendants’ testimony to be not credible and the explanation and evidence insufficient to support a failure to produce relevant documents. For example, the district court concluded that defendants acted in bad faith in failing to produce relevant electronically stored information (“ESI”) and in claiming that the hard drive containing the ESI had been destroyed, leading to the “inescapable conclusion that Defendants destroyed evidence and lied about it.” Id. at 299 (quoting district court). The district court had ordered defendants to obtain the requested emails from their service providers and barred defendants from introducing any documents that had been produced. The Seventh Circuit affirmed the harsher sanctions because it found the district court’s bad faith conclusion was reasonable, and it was permissible to infer that the missing evidence would have been harmful to defendants. Id.
Second, the Seventh Circuit affirmed the district court’s entry of a default judgment based on the “drumbeat of discovery abuse” involving missing bank records, hard drives and emails, the failure to attend scheduled depositions, and unproduced tax documents. Id. at 300-01 (citation omitted). Noting that “[d]efault judgment is strong medicine for a discovery abuse,” the appellate court stated that such an order is appropriate where other measures prove unavailing or a party displays willfulness, bad faith or fault. Id. Moreover, it concluded that the district court had not abused its discretion: “Taken together, these discovery abuses form a mosaic that convincingly shows both a ‘clear record of delay or contumacious conduct,’ and ‘willfulness, bad faith, or fault.’” Id. at 302 (citation omitted). The Seventh Circuit found that the district court properly focused on defendants’ discovery conduct as a whole and concluded that a default judgment was warranted.
Finally, the Seventh Circuit ruled that the district court did not abuse its discretion in awarding $413 million based on its calculation of damages. The damages calculations were properly based on expert testimony not persuasively rebutted by defendants.
2. In Sokn v. Fieldcrest Community Unit School District, 2014 WL 201534 (C.D. Ill. Jan. 17, 2014), Judge Joe McDade denied plaintiff’s motion for default judgment and sanctions for the destruction and delayed production of certain school board audiotapes, finding that plaintiffs failed to show that defendants (i) had a specific duty to preserve the audiotapes, (ii) acted in bad faith in destroying and/or failing to timely produce the audiotapes, or (iii) intentionally withheld the audiotapes from production.
In this gender discrimination action, the plaintiff—who served for three years as the principal at one of four schools in the Fieldcrest Community School District—alleged that she was forced to perform more duties and received less pay than the male principals at the District’s three other schools. Id. at *1-*2. In the course of discovery, the plaintiff sought the production of audiotapes of closed-door school board meetings during which the board members allegedly discussed matters material to the plaintiff’s claims. Id. at *2. The defendants had destroyed certain audiotapes—potentially in violation of Illinois law and the School Board’s own policies—and only belatedly produced others. Id. The plaintiff moved for default judgment and sanctions on those grounds, alleging, in pertinent part, that the defendants had spoliated and withheld evidence in violation of the Federal Rules of Civil Procedure. Id. at *1.
Judge McDade disagreed. First, he found that the plaintiff had failed to prove two essential elements of a spoliation claim under federal law: that the defendants (i) had a specific duty to preserve the evidence; and (ii) had acted in bad faith in failing to do so. Id. at *5. Judge McDade noted that the duty to preserve in the spoliation context—which arises when a party knows or should know that litigation is “imminent”—must be “specific” to the litigation at issue, as opposed to the “general” duty to preserve under Illinois law. Id. The court could not determine whether such a duty had been violated in this case because the plaintiff had presented no “evidence of when the destruction [of the audiotapes] occurred.” Id. at *7. Nor could Judge McDade “infer bad intent” based on when the destruction occurred relative to the “destroyer’s knowledge that the evidence was relevant to potential litigation.” Id. Because the plaintiff’s claims were based on “mere speculation,” Judge McDade found that it would be “improper” to impose sanctions for destroying the audiotapes. Id.
Judge McDade also found that the defendants had not withheld audiotapes in violation of the Federal Rules. Id. at *8. He noted that there was “no evidence of intentional withholding of anything” in light of the defendants’ explanation that they simply “missed” the audiotapes during their initial review. Id. Further, Judge McDade explained that “[t]here [wa]s nothing for the Court to even infer bad faith.” Id. The plaintiff had “not explained what the Defendants ha[d] gained by withholding” the audiotapes, as the “majority of the ‘smoking gun’ evidence” cited by plaintiff consisted of evidence developed during a deposition, and that deposition was being continued after production of audiotape evidence. Id. After observing that “perhaps defense counsel should improve their document review procedures and skills,” Judge McDade held that the belated production was not sanctionable. Id.
3. In United States v. Katakis, 2014 WL 1884213 (E.D. Cal. May 9, 2014), Judge William B. Shubb of the United States District Court for the Eastern District of California granted the defendant’s motion for a judgment of acquittal on obstruction of justice charges, ruling that the government failed to prove that the defendant destroyed or concealed business emails with the intent to obstruct a government investigation.
Starting in 2009, the government investigated alleged anticompetitive conspiracies between the defendant and other purchasers at foreclosure auctions in San Joaquin County, California. Id. at *1. The government ultimately charged the defendant with antitrust violations, conspiracy to commit mail fraud and obstruction of justice. Id. After a 23-day trial, the jury found the defendant guilty of antitrust violations and obstruction of justice, but not conspiracy. Id. The government’s case-in-chief on obstruction of justice relied “primarily, if not exclusively,” on evidence that the defendant “purchased and ran a program called DiskScrubber3 . . . on at least four computers and the company mail server shortly after he received a copy of the subpoena” notifying him of the government’s investigation. Id. Specifically, the government focused on 10 Microsoft Outlook emails that the government was unable to find on the computers or mail server and claimed, in part, that the defendant had “double-deleted” those emails, i.e., removing them from both the inbox and then from the deleted items folders of his Microsoft Outlook account. Id. at *2.
The defendant moved for a judgment of acquittal on the obstruction of justice charges under Federal Rule of Criminal Procedure 29. Id. at *1. Under Rule 29, a court will uphold a conviction if the evidence, “viewed in the light most favorable to the government, . . . would allow any rational trier of fact to find the essential elements of the crime beyond a reasonable doubt.” Id. at *2 (quotations and citation omitted). In this case, the jury had to find, beyond a reasonable doubt, that (i) the defendant “knowingly altered, destroyed, or concealed electronic records or documents,” (ii) the defendant “acted with the intent to impede, obstruct, or influence an investigation that he either knew of or contemplated,” and (iii) the investigation concerned a matter within the jurisdiction of the United States Department of Justice. Id. (citations omitted).
In granting the defendant’s motion, the court rejected three theories advanced by the government in support of the obstruction of justice verdict. Id. First, the government claimed that the defendant deleted the 10 emails using DiskScrubber3. Id. Although the court found that the government presented sufficient evidence that the defendant purchased, installed, and used DiskScrubber3, the court noted the uncontested expert testimony at trial that the program could not have deleted the emails from the defendant’s Exchange Database. Id. at *3.
Second, the government argued that the defendant manually deleted the 10 emails from the computers and mail server. Id. at *2. The government presented no evidence at trial that the defendant did so; rather, the government “rel[ied] on the inference that, because the 10 emails in question were not found on [the computers or email server, the defendant] must have double-deleted them.” Id. at *4. But even accepting this inference in favor of the government in ruling on the defendant’s motion, the court noted that the government still presented no evidence that he “knew of or contemplated the investigation at that time.” Id. “In fact,” the court ruled, “there was not even circumstantial evidence from which the jury could have inferred an approximate date when [the defendant] double-deleted the emails.” Id.
Finally, the government contended that the defendant “manually moved” emails to the deleted items folder on one of the computers. Id. at *2. The evidence established, however, that the emails actually were recovered from the deleted items folder of that computer. Id. at *6.
Accordingly, the court found that “none of the evidence was sufficient for the jury to find beyond a reasonable doubt that [the defendant] knowingly destroyed or concealed the emails with the intent to obstruct an FBI investigation that he knew of or contemplated.” Id. at *7. As such, the court granted the defendant’s motion, set aside the obstruction of justice charge, and ordered the Clerk to enter a judgment of acquittal on that charge. Id. at *8.
4. In Randazza v. Cox, 2014 WL 1407378 (D. Nev. Apr. 10, 2014), United States District Judge for the District of Nevada Jennifer A. Dorsey denied the plaintiffs’ motion for summary judgment due, in part, to their failure to authenticate more than half of their supporting exhibits, including websites, emails, text messages and a YouTube video transcript.
The plaintiffs accused the defendants of violating individual cyberpiracy and cybersquatting protections for various registered websites, the plaintiffs’ right of publicity and related claims. Id. at *1. Specifically, the plaintiffs claimed that the defendant “registered several domain names containing the Plaintiffs’ names, that [the defendant’s] blog posts contained objectionable characterizations of the Plaintiffs, and that these acts were designed to extort and harass the [plaintiffs] and capitalize on and damage the[ir professional] goodwill.” Id.
The plaintiffs moved for summary judgment but “failed to authenticate more than half of their proffered exhibits,” and the court denied the motion. Id. The court noted that “unauthenticated documents cannot be considered in a motion for summary judgment.” Id. at *2 (quotations and citation omitted). To authenticate a document, the proponent must offer “evidence sufficient to support a finding that the [document] is what its proponent claims.” Id. (quotations and citation omitted). The “most direct” method of authenticating a written communication is an attestation by an individual with personal knowledge—i.e., someone “who wrote it, signed it, used it, or saw others do so”—although “circumstantial indicia of authenticity” may help with authentication. Id. at *2-*3 (quotations and citations omitted). Because the evidence must be “of the same caliber of evidence that would be admitted at trial,” it is “insufficient for a litigant to merely attach a document to a summary judgment motion . . . without affirmatively demonstrating its authenticity.” Id. at *2.
The plaintiffs failed to properly authenticate “several categories” of their supporting exhibits. Id. *2. For example, the court explained that “website print-outs were sufficiently authenticated where the proponent declared that they were true and correct copies of pages on the internet and the print-outs included their webpage URL address and the dates printed.” Id. at *2 (quotations and citation omitted). The plaintiffs, however, did not provide dates for several of the websites included as exhibits, and the court ruled that this evidence had not been properly authenticated and did not consider this evidence in support of the summary judgment motion. Id.
Additionally, the plaintiffs provided “insufficient circumstantial indicia of authenticity” to authenticate an email chain containing an unaddressed “gap” in the correspondence, as plaintiffs did not present evidence by someone with personal knowledge of this “gap.” Id. Similarly, the court found that the plaintiffs had not provided evidence regarding text message “screen shots” indicating who compiled the screen shots, when they did so, or the phone numbers involved. Id. at *3.
Finally, the plaintiffs failed to authenticate the transcript of a YouTube video because they did not have personal knowledge of who prepared the transcript or whether it was “complete and accurate.” Id. at *4 (citations omitted).
These “evidentiary limitations” led in part to the court’s conclusion that plaintiffs were not entitled to summary judgment on their claims. Id.
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