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K&L Gates Obtains Ruling Denying Defendant’s Motion for Contempt Against Plaintiff’s Technical Consultant, and Court Grants Plaintiff’s Motion for Sanctions for Deletion of Data during Pendency of Litigation

Posted in CASE SUMMARIES

Technical Sales Assocs., Inc. v. Ohio Star Forge Co., Nos. 07-11745, 08-13365 (E.D. Mich. Mar. 19, 2009)

In this case arising from a dispute over sales commissions, the court denied Defendant Ohio Star Forge Company’s (“OSF’s”) motions for contempt and sanctions and granted plaintiff, Technical Sales Associates, Inc.’s (“TSA”), motion for sanctions for destruction of electronic evidence.  The court concluded that OSF deleted approximately 70,000 files and moved several email folders to the recycling bin despite a duty to preserve relevant evidence.

In July 2007, TSA sought the production of all emails between certain specified persons for the purpose of obtaining a particular email alleged by TSA to exist on OSF’s information system and, specifically, in the e-mailbox of OSF employee Patrick Billups.  Notwithstanding numerous targeted requests for the e-mail, OSF did not produce it.

Thereafter, TSA sought and received permission to examine OSF’s computer system.  The parameters of the examination were set forth in a Stipulated Order.  Essentially, Midwest Data Group, LLC (“Midwest”), a consulting company retained by TSA to conduct the examination, was to make a mirror image of OSF’s system hard drive and each of two computers previously or currently used by OSF employee Patrick Billups.  Midwest was then to perform a narrowly tailored search and provide the results to OSF’s counsel along with an acquisition report detailing additional information about the search.  Midwest was not to provide the search hit results or the acquisition report to TSA until OSF had had the opportunity to conduct a privilege and confidentiality review.

Midwest conducted the inspection, but did not locate the email in question or any other relevant electronically stored information.  In other words, it had no “hits” from the court-ordered searches.

However, in the course of its examination, Midwest determined that in April 2008, eight months after TSA’s initial discovery requests had been served on OSF, OSF moved what OSF deemed to be the “necessary” files from Billups’ computer to a new computer assigned to him, and then deleted from the old computer approximately 70,000 files through the use of a software wiping tool called “Eraser.”  Midwest also discovered that, at 2:08 a.m. on the morning after the court signed the order allowing Midwest to inspect OSF’s computer systems, OSF moved folders named “Pat’s Personal Folder Mailbox” and “Pat’s Mailbox” to the recycle bin.  Midwest drafted a report outlining these discoveries (the “Examination Report”) and provided it to TSA.  A copy was not provided to OSF. Upon receipt of the report, TSA filed its motion for sanctions.

In response, OSF filed a motion for contempt and for sanctions against Midwest and TSA, arguing that Midwest violated the Stipulated Order by providing its Examination Report to TSA , and arguing that TSA violated the Stipulated Order by using the Examination Report to file TSA’s motion for sanctions.  In other words, OSF claimed that the Stipulated Order precluded Midwest from providing any information whatsoever to TSA, even information about OSF’s own apparent spoliation.

After entertaining briefing and oral argument, the court determined that Midwest did not violate the Stipulated Order.  Specifically, the court found that there was nothing in the order requiring Midwest to disclose only to OSF and not to TSA the absence of data or its conclusion that OSF had deleted data.  In so holding, the court reasoned that the “Stipulated Order is clearly aimed at protecting the discovery of actual data, not the absence of data.”

Regarding TSA, the court again determined that no violation occurred where the Examination Report revealed an absence of evidence, a subject not covered by the Stipulated Order.

The court then turned to TSA’s motion for sanctions.  OSF presented several arguments in its defense, including that if the email ever existed it would have been on TSA’s own computer, but apparently was not, that the email could still be found on other sources like servers or back up tapes, and that the deletions on Billups’ old computer were done in the ordinary course of business because of severe operational issues and that “all of the necessary files” were transferred to Billups’ new workstation.  OSF further asserted that if the email was not found, it either never existed or Midwest performed an incomplete search.

The critical portion of TSA’s response was, essentially, that the important issue was not the existence of the email, but rather the fact that 70,000 files were deleted and others were moved to the recycle bin during litigation.

The court agreed and stated, “it is difficult to find that OSF did not intentionally destroy electronic information on both of Billups’ computers after such information was requested.”

Supporting its conclusion, the court noted that although OSF made assurances that “all necessary files” had been transferred to Billups’ current computer and that any files deleted were irrelevant, there was no way to verify that claim where the deleted files had been overwritten with a series of zeros.  The court also relied on Midwest’s explanation that moving files to the recycle bin resulted in a change to the dates of the emails therein such that they would be dated outside of the relevant search range, and on its own observation that “the timing of the destruction appears more than coincidental.”  For example, the 70,000 files were erased “at about the same time TSA informed OSF that it wished to conduct a forensic examination” and, as the court pointed out in footnote, “There is no explanation as to the reason that the move of the emails [sic] folders to the recycle bin occurred during the middle of the night. It is odd to say the least.”

Finally, the court held that “Fed. R. Civ. P. 37(e) does not provide safe harbor for OSF’s conduct.”  The rule states:  “Absent exceptional circumstances, a court may not impose sanctions under these rules on a party for failing to provide electronically stored information lost as a result of the routine, good-faith operation of an electronic information system.”  The court explained, “[t]he rule is intended to protect a party from sanctions where the routine operation of a computer system inadvertently overwrites potentially relevant evidence, not when the party intentionally deletes electronic evidence.”

Accordingly, the court determined that “[w]hile we may never know whether the [emails] ever existed, OSF’s conduct merits a sanction.”  Determination of a dollar amount for a monetary sanction as well as TSA’s entitlement to an adverse jury instruction was delayed until trial, however, when the harm of OSF’s actions could be better determined.

A copy of the opinion is available here.

Midwest Data Group, LLC was represented in this action by Thomas J. Smith, a Partner in the e-Discovery Analysis & Technology Group at K&L Gates, and his team.