A Cautionary Tale About Ediscovery Sanctions
When one defendant turned against the others in Pacific Packaging Products, Inc. v. Barenboim, No. 09-4320, Mass. Super. Ct., a Massachusetts Superior Court judge turned against all of them. Judge Bruce Henry ordered default judgments, dismissed counterclaims, and ordered the payment of attorneys’ fees upon discovering the defendants in this trade secrets case had committed fraud upon the court, spoliated evidence, and ignored a preliminary injunction. Further, the judge enjoined the defendants for one year from selling any products to any client whose business the defendants poached from the plaintiffs.
The case originated after the defendants, former salespeople at Pacific Packaging, left to set up a competing company. Pacific alleged the defendants had misappropriated confidential customer information and used it to solicit business from Pacific’s customers. Pacific sought an expedited discovery order to preserve evidence. When it was clear that the defendants had not produced all the relevant electronically stored information (ESI), Pacific sought a preliminary injunction.
At a hearing, the defendants testified that they had turned over all ESI relevant to the plaintiff’s claims. The judge found the defendants took confidential information belonging to Pacific and used some of the information to pitch business to potential customers. The court enjoined the defendants from doing business with that one customer.
But the real trouble stemmed from the defendants’ discovery fraud. During the course of the litigation, one defendant had a dispute with the others and decided to come clean about the defendants’ misconduct. That defendant informed the court that the testimony given at the earlier hearing had been false: not only had the defendants falsified affidavits to the court, but they had also kept the proprietary information and used it to compete with the plaintiff in disregard of the injunction orders.
The plaintiff filed an emergency motion for default judgment predicated on the fraud committed on the court. The judge found the defendants spoliated evidence by withholding and later deleting e-mails and by failing to produce all relevant electronic devices, including USB drives. The defendants had failed to preserve the electronic files and devices in violation of their discovery obligations and court orders. The judge further found the defendants committed an “unconscionable scheme” of fraud by claiming they had complied with the injunction, whereas, in fact, they had deliberately avoided compliance.
The remaining questions in the litigation are whether the defendants could have won the customers’ business without the proprietary information, the amount of damages, and the amount of attorneys’ fees and costs the defendants must pay to the plaintiff for the fraud hearings.
Although this is an egregious case, it highlights how savvy judges are in ediscovery matters and how harsh the penalties are for those who try to dupe the court. Outside counsel must be equally savvy and exacting. Upon the reasonable anticipation of litigation, counsel should issue a litigation hold letter immediately, specifically detailing the scope and procedures for the preservation of relevance. But that is not sufficient; litigation counsel must actively supervise and manage the litigation hold to ensure that their client preserves ESI. Counsel should refer to this case as a cautionary tale for clients about the high risks that will result if they neglect their discovery obligations.