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Ex Parte Contact with Independent Forensic Examiner Results in Forfeiture of Opportunity for Forensic Examination and Denial of Motion for Sanctions with Prejudice

Posted in CASE SUMMARIES

G.K. Las Vegas Ltd. P’ship v. Simon Prop. Group, 2009 WL 4283086 (D. Nev. Nov. 30, 2009)

Following a determination that defendants participated in improper ex parte communications with an independent, court-appointed forensic expert and thus destroyed its impartiality, the district court held that defendants had forfeited their right to a forensic examination of plaintiffs’ relevant computer systems and modified its prior order to deny defendants’ motion for spoliation sanctions with prejudice.

In this case stemming from a partnership formed for the development and management of a Las Vegas Strip shopping complex, defendants suspected plaintiffs of the spoliation of relevant electronically stored evidence (“ESI”) and filed a motion for sanctions accordingly.  At a hearing on the motion, the court indicated its unwillingness to grant the motion in light of the possibility that the ESI could be located on other hard drives in plaintiffs’ possession and authorized the forensic examination of plaintiffs’ relevant computers by an independent expert.  If the parties agreed, they were instructed to contact the court to “work out an order.”  The court also indicated that defendants would bear the cost of such an examination, but that the costs could be shifted upon the proper showing of spoliation.  Accordingly, defendants’ spoliation motion was denied without prejudice.

Thereafter, the parties agreed that FTI Consulting (“FTI”) would perform the forensic examination.  Accordingly, defendants made contact with FTI to determine its willingness to participate.  Defendants also provided FTI with various documents for review, but did not notify plaintiffs of the exchange.

After defendants’ initial communications with FTI as described above, the court entered an order governing the forensic examination.  The scope of the order was quite specific and charged the examiner with two tasks.  First, FTI was to determine whether the relevant computers/servers contained the ESI at issue, to restore the ESI if found, and to perform an agreed upon search to identify potentially relevant emails to be provided to plaintiffs for review.  Second, FTI was to determine whether any such ESI had been deleted and if so, to determine the details of that deletion.

When FTI indicated its intention to execute an agreement to proceed with both sides, defendants’ counsel quickly objected stating, “Let’s have [defendant] as the engaging party since it the only one paying the bills.”  The agreement was thereafter executed between FTI and defendants only.  Subsequently, defendants’ counsel made arrangements for three FTI consultants to fly to defendants’ offices for a meeting with counsel.  Plaintiffs were not informed of or invited to this meeting.  Additionally, in the course of the process leading up to the examination, defense counsel requested that FTI inquire of plaintiffs about the possibility that certain data from an allegedly water damaged laptop had been copied to another computer.  It was this inquiry that subsequently raised plaintiffs’ suspicion of improper ex parte contact.

Following plaintiffs’ resistance to additional participation in the examination process, defendants sought to compel plaintiffs to respond to certain interrogatories and to compel participation in all future communications with FTI to prevent additional allegations of bias, among other things.  Plaintiffs in turn sought to vacate the forensic examination order, disqualify FTI, and modify the court’s initial denial of defendants’ spoliation motion to be entered with prejudice.

Tasked with analyzing the competing motions, the magistrate judge first noted the court’s power to appoint an independent expert witness pursuant to Evid. R. 706 (as opposed to an expert advisor to the court) and thereafter established that this had been the district court’s intention, despite the absence of explicit language in the order for forensic examination.

Rule 706 provides that the expert witness will be informed of his or her duties by the court. In the present case, the magistrate noted, the order did not contain an explicit prohibition against ex parte contact.  Nonetheless, as the magistrate stated, defendants were “obviously aware” of the district court’s repeated statements that the forensic experts would need to be independent.

Accordingly, the magistrate determined that while defense counsel’s initial contact with FTI to determine its willingness to serve was reasonable, the choice to provide FTI with certain documents absent approval from plaintiffs was not.  Moreover, the magistrate objected to defendants’ decision to execute the contractual agreement with FTI without plaintiffs, despite the fact that defendants were to bear the initial cost of the examination.

“Most disturbing,” per the magistrate’s recommendation, was defense counsels’ decision to invite FTI for an ex parte meeting without notifying plaintiff.  The magistrate rejected arguments that the meeting was necessary to determine FTI’s qualifications because FTI had already been approved by the court and because plaintiffs had an equal interest in the qualifications of the expert, but were not invited to participate in the meeting.

Finally, the magistrate found defendants’ decision to involve FTI in its efforts to obtain information related to whether specific data on a laptop subject to water damage had been copied to an alternative source improper. Specifically, such activity on the part of FTI was outside the scope of the court’s examination order and therefore was not authorized.

The magistrate determined that “defendants’ counsel have compromised FTI’s appearance of independence and have thereby diminished the assurance that the forensic examination will be performed in an impartial manner.”  Thus, the magistrate recommended that the court find defendants had forfeited the opportunity to obtain an independent forensic examination and that their motion to enforce the examination order be denied.  The magistrate left to the district court judge the decision as to plaintiffs’ motion to modify the court’s prior order to deny defendants’ motion for spoliation sanctions with prejudice.

Upon the parties’ objections to the magistrate’s recommendation, the district court took up review of the issues presented.  The district court’s order, in large part, addressed (and rejected) defendants’ argument that FTI was not an independent court-appointed expert, but rather a “party-retained independent expert” such that defendants’ ex parte contact would have been permissible.  As to the ex parte contact, the court indicated its agreement with the magistrate judge that “FTI’s role as an independent expert ha[d] been compromised.”

Accordingly, the district court judge adopted the recommendations of the magistrate judge and vacated the order for forensic examination of plaintiffs’ computers.  Also addressing the question of the modification of its prior order, the district court found that such modification was warranted, and modified the prior order to deny defendants’ motion for spoliation sanctions, with prejudice, noting that “defendants have not met their burden to demonstrate spoliation.”