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State Appellate Court Upholds $75,000 Sanctions Award Based on Party’s Failure to Properly Preserve and Timely Produce Expert’s Underlying Computer Data

Posted in CASE SUMMARIES

Vela v. Wagner & Brown, Ltd., 203 S.W.3d 37 (Tex. App. 2006)

In this oil and gas drainage case, Roberto Vela, and the other royalty interest owners and intervenors (collectively, the “Royalty Owners”), appealed from the trial court’s take-nothing judgment. On cross-appeal, Wagner & Brown challenged the trial court’s pre-trial order assessing $75,000 in sanctions against it. The appellate court affirmed the order imposing sanctions and the judgment of the trial court.

The sanctions had been imposed based upon Wagner & Brown’s failure to produce the work product of its expert Bruce Ganer, whose petrophysical calculations were relied on by its drainage and damages expert Rick Garza. At the hearing on the sanctions motion, the Royalty Owners argued that Wagner & Brown had merely re-produced old documents, which did not include Ganer’s underlying data and calculations, and had recently informed them that Ganer’s underlying computer data was “lost.” The Royalty Owners’ attorney stated that counsel for Wagner & Brown had informed him that Ganer “did not retain any of the output provided to Mr. Garza” and “can not find the digitized well log file” because the computer he used was missing. Wagner & Brown had also just informed plaintiffs’ counsel that Ganer did not in fact have the software license or own the computer he used for the calculations, but had used the software program on a computer owned by El Paso Energy Corporation, where he had been working. Apparently, while Ganer was on vacation, El Paso had upgraded and replaced his computer despite his instructions that the computer was not to be removed during his absence. Despite Ganer’s attempts to locate the computer, it and the data supporting his calculations were now “lost.”

At the conclusion of the hearing, the trial court ruled that the Royalty Owners were entitled to the requested Ganer work product, and offered two options: Wagner & Brown could either (1) be ordered to reproduce Ganer’s data and calculations at its expense, or (2) have their expert Garza excluded as a sanction. The judge made clear that he was trying to avoid excluding Wagner & Brown’s expert on the then-eve of trial. The parties conferred, and agreed that Ganer’s work would be re-created at Wagner & Brown’s expense. The court also imposed sanctions of $75,000 consisting of the past expenses incurred by the Royalty Owners in obtaining this discovery and the anticipated future expenses to have an expert analyze Ganer’s work product and to conduct additional depositions to defend against the new calculations. The court’s written order contained lengthy findings of fact and conclusions of law concerning an ongoing pattern of discovery abuse by Wagner & Brown, including its failure to properly preserve and timely produce Ganer’s data which it found constituted spoliation of evidence. The order was specifically based on findings of other discovery abuses as well as spoliation of Ganer’s computer data.

Affirming the sanctions award, the appellate court discussed Texas law governing the imposition of sanctions for discovery abuse:

Before discovery abuse may be found based on a failure to produce relevant evidence, the moving party must establish that the non-producing party had a duty to preserve the evidence. A party’s duty to preserve evidence that it knows or reasonably should know is relevant to imminent or on-going litigation arises as soon as the party has notice that it possesses or controls material evidence relevant to the litigation. A party who intentionally or negligently fails to preserve relevant information may be held accountable for the loss of such information. The affected party may move for sanctions, or request a spoliation presumption or instruction depending on the circumstances. The trial court has discretion “to fashion an appropriate remedy to restore the parties to a rough approximation of their positions if all evidence were available.”

A party is entitled to discovery of all documents, physical models, reports, compilations of data, or other material provided to, reviewed by, or prepared by or for a retained testifying expert. A party is entitled to obtain the same information about a consulting expert whose work was reviewed by a testifying expert as it can obtain from the testifying expert. An expert is required to preserve his work product and the party who retained the expert may be sanctioned if the expert destroys his work product.

The trial court has discretion to impose sanctions for discovery abuse under Rule 215.3. There are three legitimate purposes of discovery sanctions: (1) to secure compliance with discovery rules; (2) to deter other litigants from similar misconduct; and (3) to punish violators. We apply a two-part test to determine whether non-death penalty sanctions are just: (1) a direct relationship between the offensive conduct and the sanction imposed must exist; and (2) the sanction imposed must not be excessive. A “just” sanction must be directed against the abuse and toward remedying the prejudice caused to the party. As to the second prong, the sanction should be no more severe than necessary to satisfy its legitimate purposes, and the court must first consider whether less stringent sanctions would promote full compliance and deter future abuse. A trial court may impose sanctions based on a general pattern of discovery abuse, as well as for filing frivolous objections to discovery requests and for giving false testimony–all of which the trial court found Wagner & Brown engaged in here.

(Citations omitted.) It concluded: “Based on the court’s detailed findings of a general and continuing pattern of discovery abuse and the delay and expenses suffered by the Royalty Owners, which are firmly supported by the record, we hold the trial court did not abuse its discretion in assessing $75,000 in sanctions for specific and general discovery abuse.”