Most of us are aware that electronic discovery abuse and spoliation of evidence can lead to monetary sanctions. But one recent case shows that such failures also can lead to adverse judgments and even potential imprisonment. In Victor Stanley, Inc. v. Creative Pipe, Inc., Chief Magistrate Judge Paul Grimm, of the United States District Court for the District of Maryland, was called upon to resolve the plaintiff’s motion for terminating and other sanctions arising out of the defendants’ alleged intentional destruction of evidence and other litigation misconduct.
In his memorandum, order, and recommendation to the Court, Magistrate Grimm noted that during four years of discovery, during which time the President of the defendant company actually was aware of the duty to preserve relevant information, the defendants nevertheless “delayed their electronically stored information (‘ESI’) production; deleted, destroyed, and otherwise failed to preserve evidence; and repeatedly misrepresented the completeness of their discovery production to opposing counsel and the Court.” As a result, “substantial amounts of the lost evidence cannot be reconstructed.” Indeed, the plaintiff identified “eight discreet preservation failures.” The plaintiff contended that the defendants did not provide certain categories of discovery notwithstanding numerous prior court orders to do so.
The defendants did not disagree with, and actually agreed that the majority of the plaintiff’s assertions were true. They also stated their willingness to abide by the entry of a default judgment against them on the primary cause of action against them for copyright infringement. Magistrate Grimm remarked that the fact that the defendants would willingly accept a default judgment for failure to preserve ESI in the primary claim filed against them speaks volumes about their own expectations with respect to what the unrebutted record shows of the magnitude of their misconduct, and the state of mind that must accompany it in order to sustain sanctions of that severity.
In addition to his recommendation to the court to grant this default judgment, Magistrate Grimm concluded that the defendant President’s pervasive and willful violation of serial Court orders to preserve and produce ESI evidence be treated as contempt of court, and that he be imprisoned for a period of not to exceed two years, unless and until he pays to Plaintiff the attorney’s fees and costs that will be awarded to the Plaintiff as the prevailing party. Magistrate Grimm reflected that imposing contempt sanctions particularly including a sentence of imprisonment, is an extreme sanction, but this is an extreme case. He went on to say that for such clearly contemptuous behavior, a very serious sanction is required.
Magistrate Grimm pointed out that there would be further proceedings to determine that amount of attorney’a fees and costs owing to the plaintiff and that this should total a significant figure. Notwithstanding the foregoing ruling of civil contempt, Magistrate Grimm was clear that the defendant President can avoid imprisonment by promptly paying the fees and costs that are determined, and that the commencement of any confinement will be set when the amount of attorney fees and costs are determined.
Magistrate Grimm stressed that the potential for imprisonment is absolutely essential as a civil contempt sanction because, without it, I am convinced that [the defendant President] will do all that he can to avoid paying any money judgment or award of attorney’s fees that is in the form of a civil judgment alone. He went on, without the threat of jail time, [the defendant Presidents] future conduct would be predicated by his past, and Plaintiff will receive a paper judgment that does not enable it to recover its considerable out-of-pocket losses caused by [the defendant President] spoliation.
This case, while involving repeated and egregious failures to comply with discovery and evidence preservation obligations (in addition to spoilation of evidence), makes universally plain that getting it right up-front in the discovery process is essential. Anything less causes greater expense in the long-run, and can lead to monetary sanctions, issue preclusion and adverse judgments, and even the potential for imprisonment in very extreme cases. Companies should work pro-actively internally, with their outside counsel who are skilled in this area, and appropriate vendors to do the right thing!