- A Fifth Circuit opinion vacating the district court’s order finding the defendant’s attorney in contempt of court for failing to produce a thumb drive and iPad in discovery, holding that the attorney had insufficient notice of the show-cause hearing and had not engaged in sanctionable conduct;
- A Southern District of New York decision finding that the intentional destruction of a damaged (but potentially recoverable) computer without consulting an information technology expert constituted bad faith and grounds for spoliation; and
- A Northern District of California opinion sanctioning plaintiff for failing to obey explicit judicial orders to produce discovery and recommending to the district court that plaintiff be found in civil contempt.
1. In Waste Mgmt. of Washington, Inc. v. Kattler, 2014 WL 178996 (5th Cir. Jan. 15, 2015), the United States Court of Appeals for the Fifth Circuit vacated a district court order finding the defendant’s attorney in contempt for failing to produce a thumb drive and iPad in discovery, holding that the attorney had insufficient notice of the show-cause hearing and, in any event, had not engaged in sanctionable conduct.
The plaintiff alleged that the defendant, a former employee, misappropriated confidential business information and violated the terms of his employment agreement by accepting a job with a competitor. Id. at *1. Shortly after the onset of the litigation, the district court issued a preliminary injunction directing the defendant to produce all of the defendant’s personal electronic devices except those “provided to [the defendant] by” the new employer. Id. (emphasis omitted). Citing concerns about the potential disclosure of attorney-client communications, the defendant’s attorney argued that certain devices should not be subject to the production requirement. Id. The attorney also contended—based on the defendant’s representations—that a thumb drive sought by the plaintiff did not exist. Id.
After it became clear that the defendant would not produce certain devices, the district court granted the plaintiff’s motion for a show-cause hearing as to why the defendant should not be held in contempt. Id. At the hearing, the defendant’s attorney objected to the production of one device—an iPad—on grounds that it contained attorney-client communications. Id. The defendant’s attorney also claimed, once again, that the defendant did not have the requested thumb drive. Id. The district court recognized the defendant’s privilege concerns as to the iPad, but nevertheless required the defendant to produce it subject to the understanding that such production would not waive the privilege. Id. The district court declined to hold the defendant in contempt but did issue an order requiring the parties to comply with all court orders. Id. Following the hearing, the defendant informed his attorneys that he did, in fact, own the requested thumb drive. Id. at *2. The attorney thereafter withdrew as the defendant’s counsel in the case. Id.
The defendant, represented by a new attorney, produced an image of the iPad, but a portion of its memory was not accessible. Id. After the defendant refused the plaintiff’s request to produce the iPad itself, rather than an image, the plaintiff again moved for a show-cause hearing, which the district court granted. Id. The notice of the hearing on the docket indicated that the hearing related to the plaintiff’s latest show-cause motion, and listed the defendant as the “sole potential contemnor whose liability was to be addressed.” Id. Following the hearing, the district court found both the defendant and his prior attorney in contempt, holding that they (i) “misled the [district] court as to the existence of a . . . thumb drive,” (ii) “failed to produce an image of [the defendant’s] iPad,” and (iii) “failed to produce the iPad device itself.” Id. The defendant’s prior attorney appealed, claiming that he was not provided adequate notice of the second show-cause hearing and that he had not engaged in sanctionable conduct. Id.
As an initial matter, the Court of Appeals explained that “due process requires that one charged with contempt of court be advised of the charges against him, have a reasonable opportunity to meet them by way of defense or explanation, have the right to be represented by counsel and have a chance to testify and call other witnesses.” Id. (internal quotations and citation omitted). Further, the Court of Appeals noted that “[a]dequate notice typically takes the form of a show-cause order and a notice of hearing identifying each litigant who might be held in contempt.” Id. at *3 (citation omitted). Here, because the notice of the show-cause hearing “did not signal to [the prior attorney] that he could be found in contempt because it identified [the defendant] alone as the party whose contempt liability was to be adjudicated,” the Court of Appeals vacated the contempt order as it pertained to the prior attorney. Id.
In addition, the Court of Appeals found that the district court had abused its discretion in finding that the prior attorney engaged in sanctionable conduct. Id. First, the court noted that the defendant had “misled [the prior attorney] as to the existence of the thumb drive and, as a consequence, [he] was unaware the thumb drive existed until after the first show-cause hearing” and upon learning of its existence, withdrew from representing the defendant. In addition, within a week, defendant had submitted a sworn statement regarding the existence of the thumb drive. Id. at *4. Second, the Court of Appeals held that the prior attorney’s failure to produce an image of the iPad—although clearly in violation of the district court’s preliminary injunction—was “excusable” because “a person to whom . . . an order [requiring the production of privileged communication] is directed may resist the order, and yet not be guilty of contempt if the order is declared invalid on appeal.” Id. at *5 (citation omitted). Thus, in the court’s view, “a party’s good-faith claim of attorney-client privilege can serve as a valid defense to a finding of contempt,” and in this case, “it [wa]s clear that the iPad contained privileged information.” Id. Finally, the Court of Appeals held that the prior attorney could not be sanctioned for failing to produce the iPad itself because there was not “definite and specific order of the court” requiring such production. Id. Accordingly, the Court of Appeals also vacated the district court’s contempt order on these grounds. Id. at *6.
2. In Dorchester Financial Holdings Corp. v. Banco BRJ S.A., 2014 WL 7051380 (S.D.N.Y. Dec. 15, 2014), U.S. District Court Judge Kimba M. Wood held that the intentional destruction of a damaged (but potentially recoverable) computer without consultation of information technology experts constituted bad faith and grounds for spoliation, with a mandatory adverse inference as a remedy.
Dorchester Financial Holdings Corp. filed suit against Banco BRJ S.A., claiming breach of contract and fraud as a result of defendant’s failure to honor a $250 million letter of credit in favor of Dorchester. Before this suit was filed, Dorchester’s officer and attorney, T.J. Morrow, gathered all documents relating to the dispute and saved all electronic documents on the hard drive of his personal computer. After the suit was filed, in preparation for a hearing, Morrow printed some relevant documents, but the computer crashed several days later. Morrow asked his brother-in-law (who lacked formal computer training) to look at the computer. Without consulting anyone else, Morrow destroyed the computer. Dorchester did not mention the computer’s destruction to BRJ until two years later. Id. at *2-*3.
Upon learning of the destruction of the computer, BRJ filed a motion alleging spoliation and requested sanctions. The Magistrate Judge found spoliation and precluded the use of the evidence that Morrow had printed from the destroyed computer. Dorchester challenged the Magistrate Judge’s ruling, and the district court reviewed the matter de novo.
The District Court agreed with the Magistrate Judge’s finding of spoliation. To establish spoliation, a party must show: (1) that the party having control over the documents had a duty to preserve them; (2) that the evidence was destroyed with a “culpable state of mind”; and (3) that the evidence destroyed was relevant to a party’s claim or defense “such that a trier of fact could find that it would support that claim or defense.” Id. at *4 (internal quotations omitted) (quoting Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 220 (S.D.N.Y. 2003)).
On the preservation obligation, Judge Wood concluded that, when Morrow’s computer crashed, Dorchester was under an obligation to preserve evidence. Dorchester, 2014 WL 7051380, at *5. Dorchester was actively litigating its claim against BRJ at the time. As to culpability, the court concluded that Morrow’s decision to destroy his computer was, “at a minimum, grossly negligent.” Id. Judge Wood reasoned that some evidence “likely could have been recovered by a computer specialist,” and that declining to find spoliation here could “invite similar misconduct in the future.” Id. at *6. Though the court might err in concluding that the evidence was recoverable, the risk of such error appropriately resided with Dorchester, which wrongfully created the risk. Id. Judge Wood pointed out that courts in the Second Circuit had not addressed the precise issue of destroying a damaged computer that contained potentially recoverable information but noted that the court’s conclusion was consistent with another federal court decision. Id. (citing Beck v. Test Masters Educ. Servcs., Inc., 289 F.R.D. 374 (D.D.C. 2013)). Finally, on the relevance of the data, because the defendant acted with gross negligence, the court was permitted to assume that the data was relevant. Dorchester, 2014 WL 7051380, at *7. Further, Morrow admitted that he chose not to print information that was not “beneficial” to Dorchester. Id.
Having concluded that Dorchester committed spoliation, the court turned to the appropriate sanction. Morrow’s hard drive was the only source of relevant electronic information in Dorchester’s possession. The prejudice to BRJ, therefore, was quite extreme, and a “substantial sanction” was appropriate. Id. at *8. The court concluded that the preclusion of the paper copies printed by Morrow could hurt both parties and that the more appropriate sanction was a mandatory adverse inference, along with an award of attorneys’ fees to BRJ.
3. In Cuviello v. Feld Entertainment, Inc., 2015 WL 877688 (N.D. Cal. Feb. 27, 2015), Magistrate Judge Paul S. Grewal sanctioned plaintiff for failing to obey explicit judicial orders to produce discovery and recommended to the district court that plaintiff be found in civil contempt.
In this action by plaintiff relating to the alleged mistreatment of circus animals, the Magistrate Judge addressed the plaintiff’s failure to comply with an order (the “Order”) to produce various documents relating to plaintiff’s activities against the defendant. Id. at *1. Plaintiff produced two pages of his public Facebook postings before the deadline set by Magistrate Judge Grewal. Plaintiff sought relief from the Order, which District Judge Lucy H. Koh promptly denied. Id. Shortly after the Ninth Circuit denied plaintiff’s petition for mandamus—after the deadline for compliance with the Order—plaintiff made another limited production, redacting the names of others involved in the protest activities. Id. at *2. Defendant moved for an order awarding fees and costs, coercive sanctions and a recommendation that plaintiff be held in civil contempt. Id.
Magistrate Judge Grewal granted defendant’s motion, noting first that it was not disputed that plaintiff had violated the Order. Applying Federal Rule of Civil Procedure 37, Magistrate Judge Grewal held that plaintiff had failed to meet his burden of establishing a substantial justification for his noncompliance with the Order. Id. Magistrate Judge Grewal reasoned that plaintiff never sought a stay of the Order from him, but only sought one from Judge Koh after filing his petition for a writ of mandamus in the Ninth Circuit. Id. “Critically, no stay was ever granted.” Id. Magistrate Judge Grewal emphasized that, even if plaintiff could “self-stay” the order while seeking relief in the Ninth Circuit, his eventual production was still non-compliant, as “[t]his court never permitted [plaintiff] to redact any information in documents ordered produced.” Id. at *3. Rejecting plaintiff’s argument that his redactions were justified to protect his First Amendment right to freedom of association, Magistrate Judge Grewal noted that he had previously ruled that the First Amendment did not apply to the communications at issue, a ruling that neither Judge Koh nor the Ninth Circuit disturbed. Id. Magistrate Judge Grewal further found that there was no inadvertence or technical concern that could justify a delayed production, noting that Cuviello admitted in an unrelated hearing following the deadline set for compliance that he had not complied with the Order. Id. Magistrate Judge Grewal thus granted defendant’s request for fees and costs in litigating the motion.
Magistrate Judge Grewal further determined that coercive sanctions were warranted, citing plaintiff’s delay, refusal to follow the court’s specific directions and unauthorized redactions as meriting such a sanction. Id. Magistrate Judge Grewal thus imposed a daily sanction of $500, allowing that plaintiff could seek relief from the sanction after he fully complied with the Order. Id.
The Magistrate Judge also recommended that the presiding district judge hold plaintiff in civil contempt, finding that defendant had satisfied Rule 37’s standard of showing by clear and convincing evidence that plaintiff had violated the Order. Id. In making that recommendation, Magistrate Judge Grewal emphasized that plaintiff was a seasoned litigant who openly admitted to violating the Order. The Magistrate Judge concluded his opinion with the statement: “Rules have to matter.” Id.
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