Jamie Oliver, a chef and a child advocate focused on ensuring kids receive proper nutrition through their school lunch programs as well as at home, has a television show, Jamie Oliver’s Food Revolution, showing how he changes eating habits in school districts (this season he is in Los Angeles).  In each episode, he creates a visual showing the terrible foods kids are putting in their bodies.  It’s one thing to tell kids (or their parents) that fast food and processed food is bad for them, it is quite another to create a visual showing how bad it is, and creating such a powerful visual that it convinces those kids, their parents and the audience watching the show (including myself) how bad those foods are.  In a recent episode, he filled a family’s house with all the fast food they consume in a year.  Every square inch of furniture and floor was covered.  In another episode, he filled a school bus with sugar to show how much sugar the school board permitted in the kids lunch meals over a year.  It was powerful images like those that made folks change their minds and change their behavior.

When preparing for trial, we can take a page out of Jamie’s book, and think about what visuals (whether a photograph, a diagram, an animation, or some other representation) that encapsulates our theme and does so in such a powerful manner that the image we create carries through the trial, into the deliberation room and turns the jurors’ hearts and minds toward our view-point and toward our position.  Keep a file folder in your office drawer where you include pictures, images and ideas you clip from magazines and newspapers.  These images may later serve you at trial.

Being that it is Monday, my partner Craig Salner has his weekly tip for young lawyers.  This week he discusses the importance of getting involved with social networking.  You can find his post at http://csalner.wordpress.com/.

Ad Age recently posted an article addressing the meteoric rise and overwhelming dominance of the smartphone.  At the end of this holiday season, over 50 percent of mobile phone users will be using a smartphone.  A year from now, that figure is projected to almost double, to 90 percent of mobile users.  Moreover, smartphone capabilities are growing almost as fast as their market saturation.  I regularly use my phone as a search tool, GPS, communications device (most of which centers on e-mail) and social hub, and I do not consider myself to be a “power user.”  Despite the amazing smartphone developments of the past 5 years, there are more on the horizon.  If the experts are right, we will soon be using our phones in place of our wallets, for identification and point of sale purchases.  Phones could be used to unlock and start our cars and to open our garage doors and set our home thermostats.  This week, conference attendees will be using the DRI smartphone App to keep track of their schedule and contact other attendees.  However, like most any “smart” device, the more we use our phones the more data we generate regarding our whereabouts, activities and lifestyles.

Attorneys used to subpoena cell phone records to see if litigants were on their phones at the time of an injury or during an auto accident.  Already, Historical Cellular Reconstruction (HCR) can be used to provide the history of a phone’s probable location, regardless of whether a user was actually on their phone.  HCR is not based on GPS data, but upon data and information maintained by the cellular provider related to a particular cell phone’s connection to a given cell tower.  Although HCR does not result in pinpoint precision, it can often place a phone within a very small vicinity.  If a user’s cell phone is turned on and the GPS is in operation, the precision increases dramatically.

Now attorneys look for information and material addressing whether a litigant was texting, surfing the web, on Facebook or taking one of virtually countless actions on their cell phones during the time of a given event, or in the hours and days leading up to a significant event.  Lawyers can use cell phone records to compare the location of a litigant to their claimed location.  This is particularly relevant where litigants, such as commercial drivers, are required to routinely log their position.  Records may indicate that an allegedly injured party went to an amusement park, or that an allegedly incapacitated person made a purchase.  The possibilities already seem endless, and as smartphone services continue to expand, so will the potential for using the resulting data in litigation.  As more and more opportunities are created by smartphone data, attorneys need to remain mindful of the fact that there may be data available that will impact their case.  

The Pennsylvania Supreme Court will probably soon adopt new discovery and disclosure rules pertaining to Electronically Stored Information.  The Court has been presented with Proposed Recommendation No. 249 which modified Civil Procedure Rules 4009.1, 4009.11, 4009.12, 4009.21, 4009.23, and 4011 Governing Discovery of Electronically Stored Information with Explanatory Comment.  The Rule explains:

Though the term “electronically stored information” is used in these rules, there is no intent to incorporate the federal jurisprudence surrounding the discovery of electronically stored information. The treatment of such issues is to be determined by traditional principles of proportionality under Pennsylvania law as discussed in further detail below.

Sitting in Denver, I’m in no position to guess how the Pennsylvania Supreme Court determines “traditional principles of proportionality.”  But, when changes like this come, the defense bar should take advantage by understanding the rule change and how it can be used to aid in the representation of the client.  Sometimes, my best lessons in life come from living with a growing teenager.  The story, briefly, my daughter was told no e-mails, texts, etc.  She disobeyed the edict and trashed her communications thinking they would not be discovered.  Not very savy, but the retrieval of information from the recycle bin was simple.  She has now lost the ability for electronic communications for an “unfair” period of time. 

For the defense litigator, the story may have two lessons.  Foremost, you do not want your client to trash information that could be linked to the litigation where you are retained.  A reasonable computer forensic search will uncover the information and, if lost or corrupted, the spoliation instruction is damaging.  On the other hand, understanding that your opponent probably does not appreciate the rule change gives you an advantage.  You will know how you want to receive the information, you will be given the choice to “specify the format in which it is to be produced and a responding party or person not a party may object. If no format is specified by the requesting party, electronically stored information may be produced in the form in which it is ordinarily maintained or in a reasonably usable form.”  Rule 4009.1(b).  This gives you an advantage.  Use it to the benefit of the client’s case. 

These lessons, come, in part, from Judge Scheindlin’s sequel to Zubulake in Pension Committee of the Univ. of Montreal Pension Plan v. Banc of Am. Secs., LLC, 685 F. Supp. 2d 456, 463 (S.D.N.Y. 2010) where she made clear that the duty to preserve electronically stored information is practically absolute.  A litigation lawyer, must know that it is “abundantly clear that the duty to preserve means what it says and that a failure to preserve records—paper or electronic—and to search in the right places for those records, will inevitably result in the spoliation of evidence.

This case does not present any egregious examples of litigants purposefully destroying evidence. This is a case where plaintiffs failed to timely institute written litigation holds and engaged in careless and indifferent collection efforts after the duty to preserve arose. As a result, there can be little doubt that some documents were lost or destroyed.

The Pennsylvania litigation defense lawyer (and the rest of the DRIers) must now take the lead and upon retention and advise the client to suspend routine retention and destruction policies and warn the that the client must also preserve any information that could be considered evidence in the case.  Despite its efforts to distance itself from the federal court mandates, the Pennsylvania court now imposes on litigation attorneys, an affirmative obligation to gain a decent understanding of the client’s computer systems.  The same as in the federal arena.  It is no longer sufficient to suggest that litigation counsel be knowledgeable about their clients’ active and stored electronic data systems.  Upon the notice of litigation, the client must be told to immediately prepare an electronic storage log of the information related to the litigation.  This list is not inclusive but includes correspondence, motions, pleadings, original documents in pdf form, emails, zip drives, cd’s, or anything that could be remotely linked to storage of electronic information. 

Be careful out there.

If you have read any DRI e-discovery materials or attended a DRI e-discovery presentation the series of spoliation decision involving Rambus Inc. is nothing new.  An appellate court has now issued a ruling in two cases involving Rambus.  Micron Technology, Inc. et al. v. Rambus Inc., 2011 U.S. App. LEXIS 9730 (Fed. Cir. May 13, 2011) and Hynix Seminconductor Inc. et al. v. Rambus Inc., 2011 U.S. App. LEXIS 9728.  The Micron case upholds one district court’s ruling (Delaware) that Rambus destroyed evidence, but reverses a drastic spoliation sanction declaring Rambus’ patents unenforceable.  The Hynix case reverses the other district court’s ruling (Northern District of California) that the same conduct did not rise to the level of spoliation.  The Hynix case also vacates the patent issues addressed by the California district court.  The circuit court remands both cases back to the district courts for additional analysis of whether Rambus’ conduct was in bad faith and whether Micron was prejudiced by it.
 
The lesson of the series of Rambus cases around the country is straightforward: determining when the duty to preserve evidence is triggered is a fact specific analysis conducted by courts on a case by case basis.  As background, Rambus obtained a series of patents related to random access memory used by personal computers.  As part of its business plan, it decided to enforce its patents by filing lawsuits against infringing companies.  The conduct that has been analyzed by a handful of courts, however, involves the steps taken by Rambus to prepare for litigation.  In addition to implementing a comprehensive document retention policy the company implemented shred days, magnetically erased all of its e-mail backup tapes – except one (which happened to contain helpful information) and asked employees to “look for things to keep” supporting its claims in the midst of the massive destruction of documents.  The Hynix case was pointed out as showing how on essentially the same facts courts could reach different conclusions about when the duty to preserve evidence is triggered.  The Federal Circuit has now sought to bring the Hynix case in line with other courts that have held that Rambus’ document destruction to prepare for litigation was spoliation.

The Federal Circuit affirmed the Delaware District Court’s holding that Rambus spoliated evidence and agreed with the district court’s determination that the duty to preserve was triggered on or about the second shred day.  The appellate court held that Rambus, as plaintiff, controlled the timing of litigation and had affirmatively decided to prepare for reasonably anticipated litigation.  To highlight some of the adverse evidence, internal Rambus documents included a presentation to employees rolling out the records retention policy, entitled: “BEFORE LITIGATION: A document Retention/Destruction Policy.”  Other documents included implementation of the record retention policy as a “to do” item on litigation preparedness plans. 

The Federal Circuit, however, held that the drastic remedy of striking Rambus’ pleadings required specific analysis of bad faith by clear and convincing evidence.  While there were plenty of facts to support the district court’s decision, the appellate court faulted the court’s failure to apply specific facts to a bad faith analysis.  On remand the district court was also asked to analyze whether Micron was prejudiced by the spoliation.  The Federal Circuit gives the district court a road map to potential adverse findings so the reversal is more than likely a prequel to eventual sanctions against Rambus. 

In the Hynix case, the Federal Circuit holds that the Northern District of California was too liberal in its interpretation of when the duty to preserve evidence arose.  Both parties to the litigation agreed that “reasonable foreseeability of litigation” was the applicable standard but disagreed on its meaning.  Rambus argued to the district court and on appeal that "to be reasonably foreseeable, litigation must be 'imminent,' at least in the sense that it is probable and free of significant contingencies."  The district court held that the contingencies (hurdles to litigation) becoming more certain were too many, holding that the duty to preserve evidence was not triggered until after the second shred day.  Accordingly, there was no spoliation of evidence.  The Federal Circuit meticulously analyzes the hurdles to litigation holding that they were largely in Rambus’ control and that litigation was a key part of Rambus’ IP strategy.  The court also dismissed Rambus’ arguments (relied on the district court to show that litigation was not reasonably foreseeable) as insignificant: the lack of (1) board approval for litigation and (2) the lack of a litigation budget.  Lastly the court holds that the Northern District of California’s decision is the only court to hold that there was no spoliation, whereas a handful of other courts held that the same conduct constituted spoliation.

It is important to note that much of the evidence supporting spoliation was in the form of attorney-client communications.  The Federal Circuit affirms both district courts’ piercing of the attorney-client privilege under the crime-fraud exception to the attorney-client privilege.  In both cases, attorney-client communications relating to the establishment of Rambus’ records retention/destruction policy were deemed discoverable based on alleged violation of the California Penal Code section prohibiting the destruction of evidence with intent to prevent it from being produced.  

The advent of cloud computing will inevitably impact the electronic discovery and records management landscape in the years to come.  "Computing in the clouds" commonly refers to the dispersed storage of data and software programs in the cloud, or in servers across state and national boundaries rather than across an entity's local network.  Usually, an entity, small or large, hires a cloud computing vendor which offers storage space on one or more of its many servers.  The dispersed nature of the data storage means that the data is not stored in the traditional repository paradigm reflected in many corporate networks, i.e., a user's My Documents or live e-mail bins, deleted or archived e-mails, a department's shared network, ... 

While cloud computing may be a boon to information technology budgets, it presents challenges to the legal community that has already faced an abundance of case law developments in the area of electronic discovery, particularly as they relate to ethical issues. For example, lawyers and electronic specialists must now design and implement protocols for maintaining and collecting data dispersed across a cloud, as data may have associated user (or other) definitions and settings that are disparate from those associated with more "tangible" data repositories.  Other issues involve the identification of the owners of the data (especially if the vendor or client changes ownership), the collection of data that might be located on servers in foreign countries that may be less receptive to discovery, i.e., in the form of blocking statutes or privacy laws that ban certain types of discovery or cross-border data transport, potential security and confidentiality breaches, data destruction procedures, etc.  Legal and electronic discovery professionals familiar with the ever changing law and technologies will be at the forefront of this new frontier, which will require the development of new methodologies and case by case solutions.

In his article "Crafting Effective E-Mail Disclaimers: Transform your message footer from mere annoyance to pragmatic e-discovery tool",  Joseph Howie highlights the pitfalls of poorly worded, auto-generated  footer disclaimers on emails from attorneys.  He raises some excellent food for thought like, do lawyers necessarily want to assert a claim of privilege as to every communication from the law firm, including food orders to the corner deli? Is your disclaimer/notice worded such that it specifies an intent to be transmitted to the "intended" recipient, so simply the recipients identified in the email? Does the notice cover attachments to the email? And how does one prevent misdirection of emails in the first instance?

All good points. As to the latter, we would add two preventative measures to Howie's "best practices" list: whenever possible, remove from your email address book the names of adversaries and adverse counsel that duplicate or are sufficiently similar to client or colleague names so that auto-population of the "to" field is less likely to be inadvertently incorrect.  Also, configure your firm's email system, and to the extent you can influence them, your client's, such that they provide a warning message when "reply to all" is selected  by the responding party.

And while we're on the topic, note that other risks abound in this area.  There is no question that some traditional practices from the paper era don’t translate well to the world of e-communication. And some are downright dangerous.  Take blind carbon copying.   Back in the day, attorneys would often “bcc” their clients on hard copy correspondence to adversaries, an efficient and relatively safe means of keeping the client apprised.  No longer in the age of email, where the ability to instantly respond invites quick, at times reactionary, replies that can easily fall into the wrong hands, with potentially devastating consequences.

Such was the case in Charm v. Kohn, 27 Mass. L. Rep. 421, 2010 Mass. Super. LEXIS 276 (Mass. Super. Sept. 30, 2010). In that case, defendant Kohn’s counsel sent an email to plaintiff’s counsel, with a copy to co-defense counsel, and a blind copy to Kohn. With the intention of communicating with his counsel only, Kohn inadvertently responded to the email using the “reply to all”  function. This circulated his otherwise privileged communication to all recipients of the original email-- including opposing counsel.  Minutes later, Kohn’s counsel realized what happened and emailed opposing counsel demanding that Kohn’s email be deleted. Opposing counsel declined, and defense counsel did not raise the issue again until the summary judgment stage (at which time plaintiff advised the court that this type of careless transmission had happened another time, even earlier in the case).

Distinguishing this case from the “usual scenario”-- in which privileged documents are inadvertently disclosed in the context of voluminous document productions-- the court addressed whether defendant and/or his counsel took reasonable steps to preserve the confidentiality of the communication. While the court found the transmission was clearly a mistake that counsel tried to immediately rectify, it also warned that blind copying one’s client on a email sent to an adversary “gave rise to the foreseeable risk that [the client] would respond exactly as he did.”  It also did not help that defense counsel left the matter unresolved until the summary judgment motion. After struggling with the issue, the Court erred on the side of protecting the almost sacrosanct attorney-client privilege, holding that, “[o]n balance, and perhaps with some indulgence for human fallibility,” defendant satisfied his burden of showing that he took reasonable steps to preserve the confidentiality of the communication.

Less risk-averse practitioners should derive little solace from this outcome. The court was quite clear that the defendant and his counsel should not expect similar judicial “indulgence” if this happened again. The lesson for attorneys: “Bcc’ing” clients should clearly be avoided. The few extra seconds it takes to forward a copy of the email is well worth the resulting peace of mind.

It should come as no surprise.  The tactic of pursuing sanctions for alleged e-discovery abuse has reached an all time high, as reported by the ABA Journal.  Corporations and their lawyers are facing the “gotcha game” for allegedly failing to preserve electronically stored information more than ever.  As a trend, more and more litigants have added standard spoliation questions to interrogatories, document demands and deposition outlines.  These questions seek information related to document retention policies and procedures, IT infrastructure and ESI storage locations, personnel responsible for document retention and preservation, litigation hold procedures and the efforts taken to preserve ESI.

The game is simple: seek overly broad preservation early – often before or at the time litigation is reasonably certain.  The unwary shrug off the demands for preservation or narrowly preserve limited relevant ESI.  As litigation unfolds, evidence is developed that witnesses and the corporation did not take their ESI preservation obligations seriously, interpreted the scope of preservation narrowly (permitting the destruction of other relevant ESI) or made mistakes that allegedly should have been prevented (like losing a key witness’s laptop).  The problem is compounded by the sheer volume of ESI in existence and the complexity of the computer systems used to store and access ESI.  Even worse, careful litigants can find themselves in the cross-hairs despite eminently reasonable efforts to preserve, collect and produce relevant data.

Summarizing the survey results reported in the ABA Journal, the Catalyst E-Discovery Blog reports:

Court-ordered sanctions for e-discovery abuses have reached an all-time high and are increasingly severe. Sanctions against counsel, while still uncommon, are also on the rise.

These are among the findings of a survey of e-discovery cases published in the December 2010 issue of the Duke Law Journal. The survey analyzes all 401 federal cases prior to Jan. 1, 2010, in which e-discovery sanctions were requested. Of those, it identifies 230 sanction awards. 

“There has been a significant increase in both motions and awards since 2004,” the authors conclude. They were found in all types of cases and all types of courts.

Neutralizing the “gotcha game” takes early diligence.  Corporations and outside counsel must take time early (and prior to threatened litigation if possible) to understand their IT infrastructure, determine how relevant information is stored and develop strategies for timely preservation.  When litigation is threatened, additional diligence is required to identify the defensible scope of relevant data and aggressively take steps to enforce preservation.  A written litigation hold and detailed documentation of preservation efforts are strongly recommended in light of cases like the Pension Committee in 2010.  When facing an unreasonable opponent, get a court involved as soon as practical. 

By implementing a defensible preservation strategy, corporations should be able to take the “gotcha game” off the table.  Worst case, the steps taken to document preservation efforts should avoid sanctions.  A little early diligence will go a long way to counter the current rise in spoliation sanctions as a tactic.

In response to my subpoena, LinkedIn sent me the attached form to have the account holder sign. Once signed and delivered, LinkedIn will produce the subpoenaed records to the holder and his attorney only.

Linked In Release Form 20100521.pdf (34.52 kb)

Rimkus Consulting Group, Inc. v. Cammarata, 2010 WL 645253 (S.D.Tex. February 19, 2010)

The Rimkus decision will likely prove to be one of the most important ediscovery decisions announced in 2010. The decision was written by Judge Lee H. Rosenthal, who chairs the Judicial Conference Committee on Rules of Practice and Procedure. It is a decision that merits the attention of any serious ediscovery practitioner.

The blogosphere has been all “a twitter” about Judge Shira Scheindlin’s recent opinion in Pension Committee of the University of Montreal Pension Plan v. Banc of America Securities, LLC, 2010 WL 184312 (S.D.N.Y. January 5, 2010). However, Rimkus may ultimately prove to have more lasting and widespread significance.

Pension Committee addressed when the failure to properly preserve and collect ESI justifies the sanction of an adverse inference instruction. In a recent blog post about the Pension Committee decision, we raised several concerns about the opinion’s analysis and conclusions. While Rimkus involved allegations of wilful misconduct, including the intentional destruction of emails and other ESI after a duty to preserve had been triggered, Judge Rosenthal noted that there were “some common analytical issues” between Rimkus and Pension Committee, which merited discussion. Judge Rosenthal’s discussion of those common analytical issues in Rimkus addressed several of the concerns we highlighted in our Pension Committee post.

Judge Rosenthal observed that the rules surrounding the duty to preserve ESI and spoliation are not controversial. However, she recognized that applying them “to determine when a duty to preserve arises in a particular case and the extent of that duty requires careful analysis of the specific facts and circumstances.” She then observed:

It can be difficult to draw bright-line distinctions between acceptable and unacceptable conduct in preserving information and in conducting discovery, either prospectively or with the benefit (and distortion) of hindsight. Whether preservation or discovery conduct is acceptable in a case depends on what is reasonable, and that in turn depends on whether what was done – or not done – was proportional to that case and consistent with clearly established applicable standards.

The Seventh Circuit’s Electronic Discovery Pilot Program recognizes that Rule 26(b)(2)(B)’s principle of proportionality applies to the duty to preserve ESI. Principle 2.04(a) of the Seventh Circuit’s Pilot Program provides that parties and their counsel “are responsible for taking reasonable and proportionate steps to preserve relevant ESI ‘within its possession custody or control.’” Judge Rosenthal endorses that approach to preservation efforts in Rimkus. She cites THE SEDONA PRINCIPLES: SECOND EDITION, BEST PRACTICES RECOMMENDATIONS & PRINCIPLES FOR ADDRESSING ELECTRONIC DOCUMENT PRODUCTION 17, cmt. 2.b. (2000), as support for her conclusion on this point. In that comment, the Sedona Principles explain “electronic discovery burdens should be proportional to the amount in controversy and the nature of the case. Otherwise, transaction costs due to electronic discovery will overwhelm the ability to resolve disputes fairly in litigation.”

Judge Rosenthal further recognized that applying a categorical approach to the issue of sanctions can be difficult for similar reasons. When determining if sanctions are warranted and the nature of any sanctions to be imposed “requires a court to consider both the spoliating parties’ culpability and the level of prejudice to the party seeking discovery.” In other words, a court’s response to the loss of ESI depends on both the degree of culpability involved and the extent of any prejudice that results. Even with the intentional destruction of potentially relevant information, if no prejudice to the opposing party results, that should influence the sanctions that are imposed. Judge Rosenthal also recognized that even with an inadvertent loss of ESI, severe prejudice to the opposing party will influence the appropriate response to a request for sanctions, assuming there is some degree of culpability involved.

As a result, even though the defendants in Rimkus intentionally destroyed ESI in bad faith and provided false testimony about the destruction of that evidence, Judge Rosenthal refused to impose terminating sanctions. She noted that between the information the defendants did produce and the records plaintiff obtained through the issuance of subpoenas to several internet service providers, plaintiff had extensive evidence to present at trial. While acknowledging that plaintiff had suffered some prejudice, it was far from irreparable, and the issuance of a terminating sanction (dismissal or a default judgment) is appropriate only if the spoliation of evidence results in “‘irreparable prejudice’ and no lesser sanction would suffice.” Judge Rosenthal did authorize the issuance of an adverse inference instruction, but unlike Pension Committee, the court made the preliminary findings necessary to submit the spoliation evidence and the adverse inference instruction to the jury.

Judge Rosenthal also noted that the Fifth, Seventh, Eighth, Tenth, Eleventh and D.C. Circuits all appear to require evidence of “bad faith” before an adverse inference instruction can issue. She further observed that while the First, Fourth and Ninth Circuits do not necessarily require bad faith if severe prejudice is demonstrated, decisions from those Circuits frequently emphasize bad faith. She further explained that in the Third Circuit, courts balance the level of fault against the resulting prejudice. Thus, Judge Rosenthal concluded that the circuit differences on the degree of culpability necessary to warrant the issuance of an adverse inference instruction, limits the applicability of the approach taken in Pension Committee. And, following the Supreme Court’s decision in Chambers v. NASCO, Inc., 501 U.S. 32, 43-46 (1991), something more than negligence may be required when sanctions are imposed under a district court’s inherent authority.

Intentional deletion of emails and ESI bars the application of issue and claim preclusion.

Several former employees left Rimkus to start their own competing company offering similar investigative and forensic engineering services. Shortly after the new startup company was formed, those former employees filed a declaratory judgment action in Louisiana claiming that the forum-election, choice-of-law, non-competition and non-solicitation provisions in the employment agreements they had signed with Rimkus were unenforceable. Subsequently, Rimkus sued those employees in two separate lawsuits in Texas (that were ultimately consolidated before Judge Rosenthal) alleging they breached the non-competition and non-solicitation covenants of their employment contracts and that they used trade secrets and proprietary information in setting up their competing company.

The former employees were successful in their Louisiana declaratory action. There the court concluded that the challenged provisions of the employment contracts were unenforceable under Louisiana law. In the subsequently filed Texas federal suits, the former employees argued that it should be dismissed based on the preclusive effect of the Louisiana state-court decision which invalidated the non-compete, non-solicitation, forum-election and choice-of-law provisions in the employment contracts. That motion was denied because even if those provisions were unenforceable in Louisiana under Louisiana law, that finding did not make them invalid in all states.

Subsequently however, in the Louisiana state-court action, Rimkus filed an answer and a “reconventional demand,” which is similar to a counterclaim, asserting claims for breach of the employment agreement, breach of fiduciary duty and disparagement, arguing those claims should be governed under Texas state law. The trial court in the Louisiana action granted summary judgment to the former employees on those claims, which set the stage for what came next. The former employees then moved for summary judgment in the Texas federal court action on the grounds of res judicata.

Judge Rosenthal denied that summary judgment motion based on the spoliation of evidence that had occurred. She noted that the Restatement (Second) of Judgments provides, “that fraud, concealment or misrepresentation provide a basis to depart from claim preclusion.” She explained: “Issue preclusion does not apply when one party ‘conceal[s] from the other information that would materially affect the outcome of the case.’ Restatement (Second) of Judgments, §28(f), cmt. j. As a result, after weighing the policies underlying the law of preclusion against the defendants spoliation of evidence relevant to Rimkus’ claims, Judge Rosenthal concluded that exceptional circumstances existed and ruled that neither issue nor claim preclusion could be applied.

The record on summary judgment clearly demonstrated that the defendants had not only deleted emails and other ESI after a duty to preserve had arose, they also delayed producing documents, which demonstrated that information had been taken from Rimkus that was used in setting up the competing company. The defendants also provided incomplete information about their discovery efforts, which would have revealed the spoliation. Because none of the destroyed evidence was available to Rimkus during the course of the Louisiana action, Judge Rosenthal concluded that Rimkus did not have a full and fair opportunity to litigate the misappropriation, breach of fiduciary duty, and disparagement claims in the Louisiana lawsuit.

Rule 37(e)’s “safe harbor” provision was inapplicable.

Judge Rosenthal concluded that a duty to preserve was triggered no later than “when the defendants were about to ‘preemptively’ sue Rimkus” in the Louisiana state-court action. At that point, the defendants had an obligation to preserve documents and information, including ESI, relevant to the dispute with their former employer.

Fed. R. Civ. P. 37(e) precludes the imposition of sanctions where the loss of information results from the routine operation of a party’s computer system, when operated in good faith. The court concluded that Rule 37(e) was inapplicable in Rimkus. One of the former employees testified that he and the others decided on a “policy” of deleting emails more than two weeks old. Such a policy, which was put into place after a duty to preserve had arisen, did not constitute the “routine, good-faith operation of a computer system,” thereby vitiating Rule 37(e)’s protection. Additionally, information presented to the court established that the defendants selectively deleted emails that would have disclosed their activities, which further precluded the potential application of Rule 37(e).

Attached is an article written by Steve Puiszis, DRI's State Rep to Illinois, which originally appeared on Practical Ediscovery, a blog sponsored by Hinshaw & Culbertson LLP.  

Click here to view the orginal article