This is the fourth in a series of posts summarizing the 7 most important eDiscovery cases in Delaware in 2014.
In re ISN Software Corporation Appraisal Litigation, C.A. No. 8388–VCG, Oral Argument on Petitioners' Third and Fourth Motions to Compel and Partial Rulings by the Court, September 12, 2014.
In the ISN case, the Petitioners filed a Petition for Appraisal, requesting that the Court make an independent valuation of the company under Section 262. In this Motion to Compel hearing, the Respondent called to the stand the chairman and CEO of ISNfor live testimony regarding the document collection process and ISN’s email system and network. Vice Chancellor Glasscock commented at the end of the hearing that it was his first time having live testimony in a Motion to Compel hearing and that he had found it to be quite helpful. While it will likely not be common practice to allow live testimony for most Motions to Compel, this could be a viable solution for cases with more complex discovery issues.
Petitioners then outlined for the Court the many concerns they had with respect to Respondent’s entire discovery process, most of which the Vice Chancellor agreed were extremely troubling. One of the first issues was Respondent’s failure to issue a Litigation Hold letter. While the CEO testified that his counsel had given him verbal instructions to keep all relevant documents, there was no evidence that these instructions had been passed on to the individual custodians in the case or that the custodians had complied with them. Even more concerning was the automatic email all custodians would receive whenever their email inboxes reached the company’s 1GB limit, advising them that they had to archive or delete any unwanted messages to free up space (including deleting their trash folders, or permanently deleting those messages). Respondent admitted that custodians continued to receive these messages, even while litigation was pending, and that there was no archiving system to capture later-deleted emails.
The next issue was that the CEO had himself collected his own emails and those of the other custodians and that ISN did not turn over their computers for imaging until several months into the litigation. Respondent attempted to distinguish this case from other self-collection cases (such as the KFC case and Eagle Rock) by stating that the CEO, who had formerly been the company’s email administrator and was therefore the most knowledgeable, had collected under attorney supervision, because his counsel had instructed him to collect “everything.” They further stated that he had complied with those instructions by not picking and choosing what emails to collect, but rather by copying the entire PST files. The Vice Chancellor was not swayed by these arguments. While he was not accusing the CEO of lying, the Vice Chancellor was concerned that “a record upon which th[e] court can confidently rely” was not created. Despite the testimony that “everything” had been collected, the fact that the most interested party to the litigation had conducted the collection, without supervision from counsel, could not be overlooked. When coupled with the facts that there was no Litigation Hold sent to the custodians, they were receiving automatic messages prompting them to delete unwanted messages, and there was no forensic evidence to establish that those custodians had not deleted anything prior to the CEO’s collection, the Court was not confident that a complete record had been created. There was an additional issue in that the shared drive where potentially relevant documents were stored was periodically cleaned out and this process was not suspended for the discovery period either.
Given the many “questionable practices” throughout the discovery process, the Vice Chancellor ordered that a limited forensic examination be conducted to determine whether there had been any spoliation or inadvertent document loss. Vice Chancellor Glasscock further ordered fee-shifting to cover the cost of preparation and attendance at the hearing.
This case was a good reminder that not only must Litigation Hold letters be disseminated, but that counsel should follow up later to make sure the hold is being complied with. In order to effectively do this, counsel needs to become familiar with the client’s processes and systems. It also puts Delaware counsel even further on notice that self-collection is not permissible and will be questioned by the Court. It is crucial that Delaware counsel be actively involved in the collection process and it is advisable to enlist the help of an independent vendor to perform any necessary collections.