Diabetes Centers of America, Inc. v. Health PIA America, Inc., Case No. 06-3457 (S.D. Tex. February 5, 2008)

Faced with cross motions for sanctions for spoliation and discovery abuse, District Judge Nancy F. Atlas admonished both sides, characterizing them as “too quick to criticize the other side for any infraction of the discovery rules,” but denied their motions. The case concerned allegations of breach of contract over diabetes cell phones designed to test and read a patient’s glucose levels, store the test results, and transmit the results to physicians or others designated by the patient. In the pending motions, each side sought an adverse inference instruction against the other as well as monetary sanctions.

The court noted that “a spoliation instruction entitles the jury to draw an inference that a party who intentionally destroys important documents did so because the contents of those documents were unfavorable to that party.” Slip Opinion at 3. In the Fifth Circuit, a party is entitled to an adverse inference instruction “only if the opposing party acted in ‘bad faith.’” Id. “Mere negligence is not enough to warrant an instruction on spoliation.” Id. The Fifth Circuit standard for adverse inference instructions was previously discussed here.

Plaintiff’s motion was based upon the failure of the defendants to back up emails that were subsequently lost when two laptops containing the emails were stolen. One was stole from an employee’s friend’s car, the other was stolen from another employee’s office cubicle. The emails had not been backed up, but, as the court pointed out, they were handled in accordance with defendant Healthpia’s standard procedures.

Defendants’ motion was based upon an inadequate search conducted by a junior associate of plaintiff’s counsel, who “worked with little or no direction or supervision”:

The search terms used by the associate were inadequate – they did not even include the term “phone” – and, as a result, she failed to locate or perceive the significance of the emails about which Defendants now complain.

Id. at 4-5. The key, however, was that neither party presented evidence of bad faith:

The Court credits Defendants' evidence that the laptops were stolen, and not intentionally destroyed or hidden. Defendants may not have taken adequate steps to preserve emails through a back-up process, but Defendants followed the company's standard procedures. If anything, there has been a showing of negligence derived from lax electronic document maintenance procedures. Similarly, at most, Plaintiff's counsel may have been lax in that inadequate direction and oversight was given to the associate to guide her search for relevant and responsive emails. There is no evidence that he or the associate acted in bad faith. The Court, in an exercise of its discretion, denies both parties' requests for an instruction on spoliation.

Id. at 5.

Seemingly, this decision, particularly as it applies to plaintiff’s counsel’s actions, runs counter to the prevailing trend in the Federal Courts. Numerous courts have imposed significant obligations on outside counsel to monitor and supervise document preservation and collection. Failing to supervise an associate to the point where she doesn’t include the term “phone” in a word search for electronic documents in a case that centers on a contract for the delivery of phones seems to border on gross negligence. Presumably, the court was basing its decision on the overall ignorance of counsel, particularly the associate. One has to wonder how long ignorance will be a defense.

The decision is also an excellent example of how a retention policy will protect a party in the event that electronic documents disappear. Had the defendants’ retention policy required that the laptops be backed up such that their files would still exist, the court would necessarily looked into the failure to follow the retention policy. This could well have resulted in a different outcome.

Read the case