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Agent’s Spoliation Results in Serious Sanctions

Posted in CASE SUMMARIES

Rosenthal Collins Group, LLC v. Trading Techs. Int’l, No. 05 C 4088, 2011 WL 722467 (N.D. Ill. Feb. 23, 2011)

In this case, the court ordered default judgment, ordered plaintiff to pay $1,000,000 in monetary sanctions, and ordered counsel to pay “the costs and attorneys fees incurred in litigating this motion” where plaintiff’s agent modified metadata related to relevant source code and wiped several relevant disks and devices prior to their production and where the court found counsel participated in “presenting misleading, false information, materially altered evidence and willful non-compliance with the Court’s orders.”

After plaintiff filed for summary judgment its retained consultant admitted in deposition that he had modified relevant source code prior to its production.  Upon defendant’s motion for sanctions, the court declined to order default judgment but imposed monetary sanctions, struck the consultant’s declaration in support of summary judgment, and struck plaintiff’s motion for summary judgment.

Thereafter further spoliation was revealed.  Specifically, the consultant admitted to “turning back the clock” to change the “last modified” date on the previously modified source code to make it appear that the modifications had occurred much earlier and to wiping 6 of 7 disks produced for inspection (while the seventh disk was also wiped, it remained unclear who was responsible).  It was also discovered that “various disks, USB drives and computers that RCG finally produced had been ‘wiped’” prior to production and that the hard drive produced in the “test machine” had been manufactured in 2008 (much later than would be expected in light of relevant time frames).  Accordingly, defendant moved for additional sanctions.

In its defense, “RCG [did] not dispute any of the new allegations of misconduct” but instead sought to distance itself from “its own agent, employed for the purposes of pursuing this litigation” and disavowed any “actual knowledge” of wrongdoing.  RCG’s counsel similarly disavowed “any personal wrongdoing and any actual knowledge of any wrongdoing, while unequivocally distancing themselves and RCG from [the consultant].”

Despite such disavowals, the court found sanctions were warranted:

The imposition of sanctions, however, does not require actual knowledge, but gross negligence or recklessness, i.e., RCG knew or should have known.  See Porche v. Oden, 2009 WL 500622, at *7 (N.D.Ill. Feb.27, 2009).  Even if this Court were to accept that RCG had no actual knowledge of the evidence destruction and modification that occurred, RCG’s conduct still warrants the imposition of a default judgment.  See, e.g., Grochicinski v. Schlossberg, 402 B.R. 825, 842-43 (N.D.Ill.2009) (finding bad faith sufficient to impose default judgment because "[e]ven if Schlossberg did not destroy the files himself, the bankruptcy court found that at the very least Schlossberg acted in ‘reckless disregard’ of his discovery obligations").

*12 Even if RCG and its counsel had no actual knowledge of the spoliation, the wiping and reformatting of the thumb drives and the computers might have been avoided if RCG had promptly complied with Court’s orders to produce the material.  At minimum, RCG and its counsel had a duty to preserve the evidence, which they could have done by taking physical possession of, or obtaining forensic images, of the evidence.  It appears that RCG took no steps after the first order to collect the evidence to ensure its preservation.  See Cyntegra, Inc. v. Idexx Labs., Inc., 2007 WL 5193736, at *5 (C.D.Cal. Sept.21, 2007) ("[C]ourts have extended the affirmative duty to preserve evidence to instances when that evidence is not directly within the party’s custody or control so long as the party has access to, or indirect control over, such evidence.")  Parties to a lawsuit have a duty to preserve admissible evidence as well as evidence that is discoverable because it is "reasonably calculated to lead to the discovery of admissible evidence."  Wiginton v. CB Richard Ellis, No. 02 C 6832, 2003 WL 22439865 at *4 (N.D. Ill. Oct 27, 2003); Fed.R.Civ.P. 26(b)(1).  RCG claims that it told Buist, a non-lawyer, several times to preserve everything related to the Wit DSM.  However, it is evident to this Court, and should have been equally apparent to counsel for RCG, who actually interacted with Buist, that Buist’s understanding of what "preserve" means was dramatically different from what is intended by that word for litigation purposes.  Moreover, simply telling Buist to preserve everything related to the Wit DSM, does not strike this Court as a reasonable means of ensuring preservation of evidence material to this lawsuit, especially after the Court had specifically ordered certain pieces of equipment to be produced.  Nor does it explain RCG’s failure to comply with discovery orders by producing the media in a timely manner.

The court went on to reason that “it strains credulity that RCG now claims it had no knowledge of anything [its consultant] was doing and he was just a ‘non-party fact witness’ for whom it bears no responsibility.”  The court found that the record reflected that the consultant was “under RCG’s control and was its paid agent,” as evidenced by a myriad of facts laid out by the court.

The court’s discussion identified several other instances of sanctionable conduct including delayed production of certain evidence and several instances in which plaintiff’s counsel was not entirely honest with the court, including one instance, for example, in which counsel remained silent despite his co-counsel’s direct contradiction of his prior sworn statement.

Accordingly, finding that plaintiff and its counsel "acted in bad faith and with willful disregard for the rules of discovery and this Court’s orders," the court entered default judgment in favor of defendant and dismissed the claims and defenses of plaintiff.  The court also ordered plaintiff to pay sanctions in the amount of $1,000,000 and, for their part in presenting "misleading, false information, materially altered evidence, and willful non-compliance with the Court’s orders," ordered counsel to "pay the costs and fees incurred in litigating this motion."