To Succeed in E-Discovery Do the Opposite of What These Defendants Did
Clear-View Techs., Inc. v. Rasnick, No. 5:13-cv-02744-BLF, 2015 U.S. Dist. LEXIS 63579 (N.D. Cal. May 13, 2015).
In a 21-page order, U.S. Magistrate Judge Paul S. Grewal took the defendants in a business conspiracy case to task for their discovery transgressions, imposing sanctions including a permissive adverse inference and costs and attorneys’ fees amounting to $212,320, to be shared jointly and severally among the defendants and their counsel.
In June 2013, the plaintiff, Clear-View Technologies (“CVT”) sued several shareholders who had plotted to take over the company or form a rival business. The defendants halted their plan when they learned another shareholder planned to invest $3.5 million in CVT and successfully dissuaded him from doing so. CVT began to have difficulty raising capital and ultimately could not continue as an “ongoing business enterprise.”
In February 2014, CVT served discovery requests that yielded a paltry response. The defendants produced a total of 117 pages, including initial disclosures, and swore under oath that they had produced all responsive documents. Nonetheless, in June 2014, they produced an additional 305 pages but did not include any e-mails or text messages between themselves or any co-conspirator and again claimed there were no other responsive documents.
CVT filed a motion to compel, which the court granted. The court also ordered that the defendants appear for depositions regarding their document preservation and production and required the parties to meet and confer about a plan to retain a forensic consultant who would inspect each defendant’s electronic media and e-mail accounts. Ultimately, the court chose Stroz Friedberg. Among other things, Stroz Friedberg found more than 12,000 pages that the defendants failed to produce, discovered that a defendant purged documents from an external hard drive, and determined that someone ran four system optimization and file wiping programs on defendant’s computer, deleting more than 50,000 files and forensic artifacts.
Judge Grewal evaluated whether sanctions were appropriate under a three-part test: (1) whether the defendants had a duty to preserve the evidence when it was destroyed, (2) whether the defendants had a culpable state of mind, and (3) whether the lost evidence was relevant to CVT’s claims or defenses. He found “no doubt” that CVT could satisfy all three prongs.
The defendants knew of the possibility of litigation well before they destroyed evidence and well before CVT filed suit in June 2013. On May 6, 2011, CVT’s CEO sent text messages to Rasnick and Mattingly, informing them that he would sue them “‘for the rest of [their] life.’” Around the same time, the defendants also “discussed the litigation ramifications of their actions in explicit detail.”
In addition, the defendants’ “culpable mindset” was “unmistakable” because despite knowing litigation was foreseeable, they took no steps to preserve evidence and instead “affirmatively destroyed it.” Judge Grewal summarized the defendants’ transgressions as such: “Deployment of ‘Crap Cleaner’ software—with a motion to compel pending. Lost media with relevant documents. False certification that document production was complete. Failure to take any steps to preserve or collect relevant documents for two years after discussing this very suit.” He noted that standing alone, any one of these transgressions could merit sanctions, but “[t]aken together, there can be no doubt.”
Accordingly, Judge Grewal granted CVT the costs and attorneys’ fees associated with this discovery dispute, including the costs of drafting the motion to compel and motion for sanctions, preparing for and taking the spoliation depositions, and negotiating the forensic examination. The court apportioned the $212,320 in costs and fees jointly and severally among the defendants and their prior counsel, who certified discovery responses despite “‘obvious red flags.’”
The judge declined to award terminating sanctions or the mandatory adverse inference that CVT desired; instead, considering the defendants’ fault and prejudice to CVT, the judge imposed a permissive adverse inference instruction. Terminating sanctions were inappropriate because public policy favored disposing of cases on their merits, and less drastic sanctions were sufficient. The court also warned that the defendants could face further sanctions if they did not show cause why they had not paid the fees of Stroz Friedberg.
Judge Grewal’s opinion reads like a recipe for what not to do when you anticipate litigation. It is hard to imagine a more bungled attempt at discovery, and the involvement of counsel makes it even more disturbing.
Given these facts, it seems miraculous that the defendants escaped case-terminating sanctions.