Bad faith electronic discovery violations result in dismissal of producers’ summary judgment motion

August 9, 2009 | Leave a Comment

Arista Records, LLC v. Usenet.com, Inc., 2009 U.S. Dist. LEXIS 55237 (S.D.N.Y. Jun. 30, 2009)

In a previous opinion, the court granted an adverse inference as a result of defendant producers’ spoliation of electronic evidence. Although plaintiff requestors repeatedly asked for explanations of producers’ failure to produce internal email communications or other internal documents or reports, producers continued to maintain that they had produced all relevant evidence. However, a “watershed moment” in the case arose when producers’ former assistant newsmaster and email administrator testified to the effect that

Defendants’ employees regularly used internal email for work-related matters, that a significant number of Defendants’ employees stored their emails on their local computer hard drives, and that she had personally checked employees’ work stations to ensure they were implementing proper email retention policies.

Id. at *20-*21. Requestors promptly filed a motion to compel production of responsive documents stored on the employees’ hard drives. At the hearing on the motion, producers’ counsel acknowledged that he had possession of seven hard drives belonging to producers’ employees (the “Seven Hard Drives”). Initially, producers stated that four of the drives had been “wiped,” and that responsive documents existed on the remaining three drives. Later, producers acknowledged that the contents of the remaining three drives had been wiped as well. An expert hired by producers was able to extract 300,000 file fragments from the three drives. Although the fragments were largely unusable, “Plaintiffs’ forensic expert’s analysis revealed that the file fragments contained pieces of incriminating documents, including emails and word processing documents that had been stored on the hard drives.” Id. at *22.

Although producers initially contended that the drives had been separately purchased and never used, they later admitted that they had been pulled directly from the employees’ machines in June, 2008. They later asserted that the drives “would have appeared wiped” as a result of an upgrade to Windows Vista in early 2008. Requestors’ expert refuted this contention:

[D]ata that is simply deleted from a hard drive leaves traces on the hard drive; rather, to “wipe” a drive clean in this fashion requires running specific types of software that permanently eliminates the data and makes it irretrievable….Here, analysis of document fragments indicates that the drives were deleted as late as June 2008….Plaintiffs allege that the user-generated data that had been wiped off these Seven Hard Drives, and not backed up on any central server, including emails and other internal documents, was voluminous and “undoubtedly would have been some of the incriminating evidence in this case.”

Id. at *23-*24.

Producers took other steps to ensure that its computers would be unavailable for discovery. After the termination of several key employees (at the beginning of the discovery period), producers allowed the employees to take their computers as “parting gifts,” without copying or otherwise preserving the data on the computers. The court found that “some fifteen hard drives were either erased or are simply missing and were never produced to Plaintiffs.” Id. at *25.

After the deposition of the email administrator, producer produced additional emails, allegedly from a central email server.

However, the production of these emails revealed significant and unexplained gaps in production, such as the absence of any email “mailboxes” for certain key former employees; the absence of any non-”spam” emails from the email mailbox of Miro Stoichev; the absence of any non-”spam” emails from IT Manager Brad Allison prior to November 13, 2007; the complete absence of emails prior to September 11, 2007 for Sierra’s President Lesa Kraft; and the absence of emails from [the email administrator] Heiberg for the last two months of her employment.

Id. at *25-*26.

Producers then argued that all of the documents on the employee hard drives were backed up on a central server called “Workhorse.” They further argued that “individual employees’ workstation computers were merely ‘dummy’ computers or ‘light stations’ used only to access shared drives and not to save any user-generated documents to their local drives.” Id. at *26. However, this ignored the fact that producers’ own expert was able to recover 300,000 file fragments from the employees’ hard drives. Furthermore, although some documents were saved centrally, “conspicuous gaps in the organization of the server indicates that not all documents created by Defendants’ employees were saved there;” for example, documents from some time periods were missing entirely. In addition, the central server lacked central e-mail functionality, such as inboxes, sent mailboxes, and draft folders—only “scattershot” emails were saved on the Workhorse server. Id. at *26-*27.

The court found that the most “egregious” misconduct of producers was in their wiping of the Seven Hard Drives without storing their content on a central server. The duty to preserve documents arose at least at the start of the litigation, and possibly much earlier, as plaintiff requestors “had sent cease and desist letters months prior to filing their complaint.” Id. at *35. Unlike the previous sanctions order which involved more transitory data (i.e. digital music files), “the data alleged to have been despoiled here was not transitory in nature; rather, it was the sort of data – internal reports, email communication, and the like – that are clearly subject to a preservation obligation.” Id.

In considering whether producers had acted in bad faith, the court noted that they had failed to come up with “a scintilla of credible evidence” to support their assertion that files had been backed up onto a central server. With respect to the Seven Hard Drives, requestors’ expert dispelled the notion that the files were missing due to the upgrade of the computers to the Vista operating system— “complete and permanent evisceration of files from the drives would not have been accomplished by a simple operating system upgrade; rather, ‘wiping’ documents permanently from a computer requires running specialized software.” Id. at *37. In connection with the evidence concerning the central server, the court concluded that the wiping of the Seven Hard Drives was “intentional and in bad faith”, while producers’ failure to back up the drives onto the central server was at least grossly negligent. Although the court found that the nature of the missing documents highlighted their relevance, the destruction of the evidence in bad faith would have been sufficient on its own to establish relevance. Together with other evidence of litigation misconduct, the court held that producers’ actions warranted sanctions for discovery abuse.

Although the court declined to enter a default judgment in favor of plaintiff requestors, the court noted that an alternative sanction was “to preclude the wrongdoer from litigating certain claims or defenses during the remainder of the case.” Id. at *41. Accordingly, the court precluded defendant producers from asserting an affirmative defense upon which their motion for summary judgment was based, and dismissed producers’ motion for summary judgment. Id. at *44.

In the remainder of the court’s opinion, it denied defendants’ motion to exclude certain testimony upon which plaintiffs’ motion for summary judgment was premised. The court then extensively discussed plaintiffs’ motion for summary judgment, and granted the motion, with the only matter remaining being the determination of defendants’ liability for damages.

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