Magistrate Judge Recommends Default Judgment in Favor of Plaintiffs and for Defendants to Pay “All Reasonable Costs” Related to Discovery Dispute

Gutman v. Klein, 2008 WL 4682208 (E.D.N.Y. Oct 15, 2008)

In this case arising from accusations of fraud, among other things, plaintiffs moved for spoliation sanctions against the defendants to include default judgment, reimbursement of plaintiffs’ attorney’s fees and costs incurred as a result of the discovery dispute, and punitive monetary sanctions.  Specifically, plaintiffs alleged egregious spoliation of defendant Klein’s laptop.  Suspicion of spoliation initially arose when Klein resisted the court’s order to allow his laptop and other computers to be copied, and was later exacerbated because when the laptop was finally produced it was “hot to the touch and a screw was missing from its hard drive enclosure.”  In light of these facts, the court appointed a forensic expert to examine the evidence for spoliation and provide a detailed report.

The expert’s report identified several areas for concern, including evidence that:

• someone visited several websites related to the Windows XP operating system, data recovery and data deletion two days prior to the forensic imaging;
• someone downloaded a file deletion program from one of the visited sites (although there were no indications it was utilized);
• someone deleted “hundreds of user documents” in the days prior to the forensic imaging;
• several files that had been identified as “irrelevant,” “privileged,” or “confidential” in Klein’s privilege log had been irretrievably deleted from the laptop;
• there had been “large scale modification” of the laptop’s operating system, including reinstallation of the operating system two days prior to the forensic imaging; and
• someone deleted 313 more files following the reinstallation of the operating system

In addition to the deletion of relevant files and other tampering, the forensic expert identified several other troubling facts including evidence that the system clock had been changed at least seven times on the morning of imaging which lead to “numerous incidents of incorrect file dating” on the laptop.  For example, some of the timestamps found were for dates after the forensic imaging took place.  The expert also identified inconsistencies in the timing related to the creation of several user accounts.  Additionally, evidence on the laptop demonstrated that someone copied “‘thousands’ of files bearing erroneous, backdated time stamps” onto the laptop, likely on the day of the forensic imaging.  The expert concluded that these facts were indicative of an attempt to permanently delete files and then cover up the chronology of the system changes.  The expert further concluded that the facts suggested that a “wide scale data deletion and time stamp alteration may have been conducted with a privilege review in anticipation of the production of so-called non-privileged data.”  He further attested that it was “unlikely” that the changes made occurred accidentally.

Defendants conceded many of the expert’s findings but attempted to provide legitimate reasons for the activity.  For example, defendants admitted to the reinstallation of the operating system but claimed it was in furtherance of larger efforts to recover lost data.  Likewise, defendants claimed that the changed clock and copied files were part of the same efforts.  Rejecting these explanations, the court noted the “greater than average level of computer sophistication” of one of the persons who assisted defendants in their alleged recovery efforts and reasoned that his actions “were not consistent with a computer technician’s search for hidden, old files.”

The court found that “plaintiffs have demonstrated that Klein spoliated the Klein laptop.”  In support of this finding, the court relied on several things.  First, the court found that the Klein was aware of his duty to preserve data at the time he and others “tampered” with the laptop.  Second, the court found that the evidence strongly suggested the tampering was undertaken with a culpable state of mind.  Finally, the court found that the lost evidence was relevant to plaintiffs’ case for three reasons: 1) many of the deleted files had been listed on Klein’s privilege log, 2) defendants had previously indicated that the laptop contained relevant information, and 3) the record indicated that Klein acted in bad faith to destroy the information.  The court also concluded that Klein’s, and his alleged assistant’s, “vague and evasive testimony” left “little doubt that they were not telling the truth.”  This conclusion was further bolstered by contradictions in their testimony.

In addition to the spoliation of the laptop, the court addressed defendant Klein’s contention that a thief had stolen another laptop containing relevant evidence.  Although Klein claimed that the laptop originally requested by plaintiffs had been stolen and that the laptop produced for imaging was its replacement, he failed to disclose that fact at the time the laptop was imaged.  The court expressed doubt about the veracity of the claim in light of Klein’s failure to report the theft to the police, the court or his insurer.  The court also weighed the general untrustworthiness of his other testimony.  Concluding that Klein did not credibly establish the existence of a missing laptop, the court held that regardless of whether he fabricated the tale altogether or simply failed to inform the court and the plaintiff that the copied laptop was not the machine originally requested, sanctions were appropriate.

Because lesser sanctions were “ill-suited” to a case where “the spoliator has, in bad-faith, irretrievably deleted computer files that likely contained important discovery information,” the magistrate judge presiding over the discovery dispute recommended default judgment in favor of the plaintiff.  Justifying his recommendation, the magistrate judge explained that the harshest sanctions were warranted where lesser sanctions would not deter future misconduct, that the “most serious forms of spoliation merit the harshest sanctions,” and that the lesser sanction of adverse inference could not remedy the prejudice to the plaintiffs.

The magistrate judge also recommended that defendants pay plaintiffs the “reasonable expenses” including attorney’s fees associated with the dispute.  He declined, however, to recommend punitive monetary sanctions, reasoning that the recommended sanctions were “sufficiently severe.”

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