Tag Archives: spoliation

Spoliation Redux in Virginia: Rule 37(e) in the Spotlight

Rule 37(e) remains a lightning rod among the eDiscovery amendments to the Federal Rules. The Rule, which governs ESI spoliation instructions, produced by far the most heated discussions in the 12-year FRCP eDiscovery amendments process. The Rule is now the subject of a May 1, 2018 Judge Robert E. Payne opinion in Steves and Sons, Inc. v.  JELD-WEN, Inc. 2018 WL 2023128. The Rule also seems to have been adopted at least in part by the Supreme Court of Virginia in Emerald Point v. Hawkins, 294 Va. 544 (2017).    Proposed Virginia legislation that would have overruled Emerald Point breezed through the Virginia House of Delegates on a 99-0 vote in February 2018 but stalled just short of becoming law.

Current Rule 37(e) finally made its way into the Federal Rules effective December 1, 2015. The process to shape a spoliation rule, however, had dogged the rule-makers for a more than a decade. An earlier version was included in the 2006 eDiscovery rules amendments but was recognized as a weak placeholder. The rule-makers returned to the task starting with the 2010 Duke Conference. The history and shape of the eventual rule are fully covered in our RPB Rule 37(e) White Paper, The Long-Awaited Proposed FRCP Rule 37(e) and Its Guidance for ESI Preservation (attached and also available for download from the RPB-law.com website).

The battle behind Rule 37(e) is all about the appropriate sanction for the loss or destruction of relevant ESI. The Holy Grail for plaintiffs is an adverse inference jury instruction devoid of any bad faith element—an in limine ruling granting such an instruction likely produces a favorable settlement or puts a defendant in a high-risk gamble. From the other side, a principal target is a requirement for a showing of bad faith.

1. Steves and Sons Inc. v. JELD-WIN, Inc. — EDVa May 2018 Decision

A procedural oddity in this massive case (more than 1500 PACER entries) led to double jury trials in antitrust/trade secrets litigation before Judge Payne. The antitrust trial went to a jury in February 2018, with the result of a $58 million plaintiff’s verdict (which can be trebled to $170 million) for Steves.  In May 2018, another jury heard JELD-WEN’s trade secrets claims against Steves. In competing press releases, both sides claim victory in the second trial.

Prior to the second trial, JELD-WEN moved in limine for a spoliation instruction. Judge Payne denied the motion. The case went to trial, but hobbled by the ruling.

The facts featured John Pierce, a former JELD-WEN employee who consulted for Steves. Discovery showed that before litigation erupted Pierce proposed purging the files of emails, notes, and information that Pierce might have passed to Steves.

Rule 37(e) has four threshold requirements to be met before a court decides if any spoliation sanction is appropriate: (1) ESI should have been preserved; (2) ESI was lost; (3) the loss was due to a party’s failure to take reasonable steps to preserve the ESI; and (4) the ESI cannot be restored or replaced through additional discovery. Sanctions are available under subparts (e)(1) and (e)(2), with the possibility of an adverse inference instruction fund only in subpart (e)(2). Subpart (e)(2) requires proof of “an intent to deprive another party of the information’s use” element. Rule 37(e) does not specify the burden of proof—Judge Payne concludes that the party seeking spoliation sanction must prove all elements by clear and convincing evidence.

Judge Payne’s analysis starts with the threshold issues, with a focus on two issues. Was there a duty to preserve? And then, did JELD-WEN show that Pierce’s lost ESI could not be replaced or restored? Regarding preservation, Judge Payne turned to the eDiscovery stalwart Zubulake and Victor Stanley decisions:

“… a party generally “must suspend its routine document retention/destruction policy and put in place a ‘litigation hold’ to ensure the preservation of relevant documents.” … More or less might be required for preservation in unusual cases, but those principles reflect the standard reasonableness framework.

The finding that Pierce failed to take reasonable preservation steps followed.
It was on the restoration/replacement requirement that the Court found JELD-WEN failed. “This factor does not require that JELD–WEN pursue every possible avenue for replacing or restoring the ESI, but it must show that it made some good-faith attempt to explore its alternatives before pursuing spoliation sanctions.” The Opinion then faults JELD–WEN for not taking “the obvious step of seeking a forensic examination in this litigation of Pierce’s several hard drives, which might have confirmed the impossibility of restoration.”

Having found that JELD-WEN did not clear the threshold issues, John Payne could have stopped. But he continued with the observation that the Fourth Circuit “has not spoken about the level of intent that a court must find to impose a sanction under Rule 37(e)(2).” Pre-2015 amendment cases indicate, however, “that that the spoliating party’s conduct does not need to be in bad faith to qualify as intentional.” The Court concludes that evidence of Pierce’s intent was missing as well, and “[a]n adverse inference instruction would, therefore, not be warranted even if JELD–WEN could satisfy all the threshold Rule 37(e) requirements.”

Steves and Sons demonstrates how difficult the Rule 37(e) test can be in practice. JELD-WEN had seemingly strong evidence on all points, even on Pierce’s intent, but faced a heightened evidentiary standard and came away short-handed. The case will no doubt be cited in future EDVa spoliation fights for the general proposition that trial courts dislike spoliation instructions.

2. Supreme Court of Virginia – Emerald Point LLC v. Hawkins.

Virginia adopted into the Virginia Rules in 2009 nearly all of the 2006 Federal Rules eDiscovery amendments. Virginia did not adopt, however, the 2006 predecessor to Rule 37(e), and Virginia has not incorporated the current Rule 37(e). The Emerald Point case presented the Supreme Court of Virginia with a fairly clean slate to consider spoliation sanctions.

In Emerald Point, a landlord was sued over CO levels from a newly installed furnace. The evidence was that Hawkins suffered permanent injuries from the dangerous CO levels. Hawkins sought a jury instruction that directed the jury to accept as undisputed that the furnace had a “burned through” combustion chamber and that this was the source of the dangerous levels of CO in the apartment. The landlord had stored the furnace for about a year after the events, but the furnace was disposed of before the lawsuit was filed. While the landlord failed to preserve the furnace, there was no evidence of any “bad faith” by the landlord.

The Supreme Court of Virginia turned to FRCP Rule 37(e) for guidance. The Court first acknowledged that Rule 37(e) applies only to spoliation of ESI; nonetheless, it directed that “resolution of a spoliation issue in the Commonwealth should be guided by the same standard and applicable to all forms of spoliation evidence.” That standard, the Court concluded, requires some level of intentional loss or bad faith:

“… that the evidence must support a finding of intentional loss or destruction of evidence in order to prevent its use in litigation before the court may permit the spoliation inference. In short, we agree that “[t]o allow such a severe sanction as a matter of course when a party has only negligently destroyed evidence is neither just nor proportionate.” Brookshire Bros., Ltd. v. Aldridge, 438 S.W.3d 9, 24 (Tex. 2014). (Emphasis added.)

The Supreme Court’s favorable reliance on Rule 37(e) suggests the overall Rule provides the best available guidance for spoliation instructions in the Virginia state courts, and this means that the party pursuing an adverse inference instruction likely must meet the four threshold requirement in Rule 37(e) and then has to prove an intent to destroy the evidence or bad faith.

That is, unless the Legislature directs otherwise.

3. Virginia HB 1336—Spoliation of Evidence; Jury Instruction.

Emerald Point sparked an effort to write a much more lenient spoliation instruction standard into Virginia law. In February 2018 the Virginia House of Delegates voted 99-0 in favor of HB 1336, legislation that would remove any proof of intentional destruction or bad faith requirement for a permissive spoliation instruction. The bill, as amended by the Senate Committee for the Courts of Justice, provided:

If a party, or such party’s agents, employees, or servants, has possession, custody, or control of evidence that such party, or such party’s agents, employees, or servants, has been put on notice that such evidence is material to pending or probable litigation, and such evidence is disposed of, altered, concealed, destroyed, or not preserved by such party, or such party’s agents, employees, or servants, or by another person or entity at the direction or with the consent or knowledge of such party, or such party’s agents, employees, or servants, a court may instruct that a jury may infer, subject to any explanation that may be made by such party, that, if such evidence had been introduced, such evidence would be detrimental to the case of such party.

And, importantly:

The party seeking such instruction need not show that the disposal of, alteration of, concealing of, or failure to preserve such evidence was undertaken intentionally or in bad faith in order for such instruction to be given. (Emphasis added.)

The bill would require that a party at one time had possession of the evidence and had actual notice of litigation, but it would eliminate required proof of intentional destruction or bad faith. Read literally, the proposed law would erase the intent element that anchors Rule 37(e).

The bill did not make it into law in the 2018 Legislative Session but came very close. The 2018 Session ended with the bill still in the Senate Committee. The same bill, or a similar bill, could be introduced in the 2019 Session.

4. Summary

The spoliation war rages on.  Rule 37(e) was a victory for parties fighting off spoliation challenges. Steves and Sons raises the bar in the federal courts even higher and it confirms again the courts’ dislike of spoliation instructions. Emerald Point opens the door to Virginia’s wholesale application of Rule 37(e) in state court litigation. Given the intensity of the fight, Virginia’s consideration of a legislative reversal that eliminates the requisite showing of intentional destruction or bad faith should come as no great surprise.

Before Receiving Spoliation Sanctions, a Party Must Demonstrate Prejudice

In a recent decision, Magistrate Judge Ivan D. Davis of the U.S. District Court for the Eastern District of Virginia denied a spoliation motion aimed at a corporate defendant using a new formulation of necessary legal elements.  In Professional Massage Training Center, Inc. v. Accreditation Alliance of Career Schools and Colleges, 1:12-cv-00911, the plaintiff argued that a telephone call from the plaintiff’s lawyer nine months prior to the filing of the Complaint triggered the defendant’s duty to suspend its regular document retention policy and institute a litigation hold.  After a full-day evidentiary hearing, including expert witness testimony, Judge Davis rejected this argument and instead noted that a mere “conditional threat of litigation” expressed over the telephone, coupled with the plaintiff’s failure to send a written litigation hold letter to the defendant, did not put the defendant on notice of potential litigation.

Judge Davis’s opinion is a useful reminder to practitioners:  Send a written litigation hold letter after any telephone conversation if you anticipate asserting a spoliation claim down the road.  While what is said during a telephone call can be disputed and is subject to the vagaries of memory, a written letter is definite and inexpensive.  (Of course, be careful that your own client has properly initiated its own litigation hold before you announce that “litigation is reasonably anticipated.”).

Judge Davis’s opinion is also noteworthy for his legal analysis.  In addition to finding that the defendant had no duty to initiate a litigation hold prior to receiving the complaint, Judge Davis made the alternate finding that the plaintiff suffered no prejudice from the operation of the defendant’s document retention policy.  While the opinion does not expressly say so, it appears that Judge Davis followed the reasoning of Judge Paul Grimm, a leading e-Discovery jurist from the Federal trial bench in Maryland, and his influential opinion in Victor Stanley, Inc. v. Creative Pipe, Inc., 269 F.R.d. 497 (D. Md. 2010).  In that case, Judge Grimm set forth three elements necessary to warrant spoliation sanctions: 1) a triggered duty to preserve documents or evidence, 2) destruction of relevant evidence accompanied by a “culpable state of mind,” and 3) prejudice resulting to the other party.

This is a subtle yet significant extension (or perhaps modification) of the Fourth Circuit’s controlling spoliation case law, Silvestri v. Gen. Motors Corp., 271 F.3d 583 (4th Cir. 2001).  Silvestri is nearly 13 years old, and the case did not involve the destruction of electronic or digital evidence.  Further, Silvestri states that spoliation sanctions could be ordered under two alternative situations: either that the spoliator’s conduct was sufficiently egregious or the effect of the spoliator’s conduct was sufficiently prejudicial.  Contrast that with Victor Stanley where a party must show all three elements (including prejudice) to warrant an order of spoliation sanctions.  In today’s modern e-Discovery era, Victor Stanley offers better guidance for practitioners than Silvestri, and it appears that Judge Davis finds Victor Stanley persuasive and useful in the e-discovery context.

Spoliation claims against institutional or corporate defendants are becoming more frequent, especially in high-stakes, aggressive litigation.  It is easy to see why:  a successful spoliation motion that leads to an adverse inference jury instruction can be a death knell for a corporate defendant.  It is critical for plaintiff’s counsel to adequately prepare for future spoliation claims through litigation hold letters and early Rule 30(b)(6) depositions of corporate representatives.  On the flip-side, defense counsel should argue the Victor Stanley three-element requirement when defending against spoliation claims.

A copy of Judge Davis’s opinion is available here.

Disclosure:  Redmon, Peyton & Braswell, LLP served as counsel of record for Defendant Accreditation Alliance of Career Schools and Colleges in this case.

The Duke Rules Ahead: Part 2 Rule 37(e) Amendment and No Presumption of Prejudice when Seeking an Adverse Inference Instruction

Read Part 1 here:The Duke Rules: Part 1.

In June 2013, the Standing Committee on Rules of Practice and Procedure approved a series of proposed amendments to the Federal Rules of Civil Procedure.  These proposals were published in August 2013.  The amendment process has several remaining steps, but if the process remains on course, then the new rules will take effect on December 1, 2015, subject to Supreme Court approval and Congressional inaction.

The focus in this Part 2 discussion is on one of the hot-button eDiscovery issues—whether a party aggrieved by spoliation must prove both relevance and resulting prejudice for the court to order an adverse inference instruction.  Since the lost data is obviously not available, proof in either direction will almost certainly be difficult.  Whether or not the law provides presumptions of both relevance and prejudice sharply tilts the playing field in a sanctions fight in one direction or the other.  The proposed amendment to Rule 37(e) would preclude a presumption of prejudice. Thus, a party seeking sanctions must prove prejudice.  In practice, this will limit the availability of an adverse inference instruction. 

Introduction and Summary

While the proposed Rule 37(e) amendment included in the Duke Rules identifies proof elements for serious sanctions, the broader issue is the breadth of the duty to preserve ESI under a litigation hold.  The availability and likelihood of serious sanctions for spoliation will dictate the ESI preservation efforts undertaken by parties.  Preservation costs are high; whatever preservation-related rule amendments emerge in the Duke Rules will impact these costs.

The Committee’s Comments show that it considered three approaches to the preservation issue:  1)  An explicit preservation rule that details when and how ESI must be preserved, 2)A a general preservation rule, but still contains a “front end” solution, that is, directions or guidelines for the ESI preservation process, and 3) A “back end” approach that focuses on the sanctions for failure to preserve relevant evidence.  The Committee has pursued option three.

The impact of a “back end” approach hinges on proof requirements given that the essential ESI has been destroyed.  Does the innocent party get the benefit of certain presumptions?  Or must that party prove the relevance of the destroyed ESI and the resulting prejudice to its case?

We begin with a short analysis of the August 2013 decision by Judge Shira Scheindlin in Sekusui American Corp v. Hart, No. 12 Civ. 3479, 2013 WL 4116322 (S.D.N.Y. Aug. 15, 2013).  Judge Scheindlin, applying 2nd Circuit precedent, started with a showing of willfulness.  Based on this, she provided the aggrieved parties with a presumption of prejudice, which led to an adverse inference instruction.

We then consider the same facts under the proposed replacement for the current Rule 37(e).  The amendment would preclude the prejudice presumption, with the consequence that adverse inference instruction ordered under the Sekusui test likely would not be available.

The sanctions provisions are one of the keys to eDiscovery rules.

Sekusui American Corp v. Hart

In Sekusui, the plaintiff corporation sued the Harts, the former owners of the company, for breach of contract tied to representations made at the time of the company sale.  Sekusui did not impose a litigation hold until 15 months after filing its lawsuit, and then waited another six months before notifying its eDiscovery vendor to preserve data.  During the 15-21 month period, the Harts’ ESI on the company’s servers, including years of email, was intentionally erased by Sekusui employees.  The Harts claimed spoliation and sought an adverse inference instruction.  The magistrate judge denied their motion, refusing to presume prejudice even through the evidence showed gross negligence by Sekusui.

Judge Scheindlin set aside the magistrate’s ruling and ordered the adverse inference instruction. The judge reasoned:

When evidence is destroyed intentionally, such destruction is sufficient evidence from which to conclude that the missing evidence was unfavorable to that party. As such, once willfulness is established, no burden is imposed on the innocent party to point to now-destroyed evidence which is no longer available because the other party destroyed it.

 Id. at 7 (emphasis in original).  Essentially, Judge Scheindlin decided  the fairest way to deal with problem of destroyed ESI is to place the burden on the party that destroyed it.  Her solution is to provide the innocent party with the necessary presumption of prejudice.  The opposing party has the opportunity to rebut the presumption, but it faces the obvious problem that the ESI itself is no longer available.

Proposed Rule 37(e)

The proposed amendment to Rule 37(e) would entirely replace the current rule.   The amendment language plainly requires proof of “substantial prejudice.” Nothing is said about a presumption, but the requirement of proof and the silence regarding any presumption tell all:  This is the opposite of the Sekusui approach.

The core of the amendment is proposed Rule 37(e)(1)(B), which reads:

(1)  Curative measures; sanctions. If a party failed to preserve discoverable information that should have been preserved in the anticipation or conduct of litigation, the court may:

* * * *

(B) impose any sanction listed in Rule 37(b)(2)(A) or give an adverse inference jury instruction, but only if the court finds that the party’s actions:

(i) caused substantial prejudice in the litigation and were willful or in bad faith; or

(ii) irreparably deprived a party of any meaningful opportunity to present or defend against the claims in the litigation.

The critical language is in subsection (1)(B)(i).  Where Judge Scheindlin applied a presumption of prejudice when there was proven willfulness or bad faith, the amended rule requires proof of “substantial prejudice.”

There is a caveat to this rule in subpart (B)(ii) where a party could prove conduct that “irreparably deprived a party of any meaningful opportunity to present or defend against the claims.”  Note that this is more demanding than “substantial prejudice.”

The outcome under the Sekusui facts would therefore likely be different under the proposed amendments.  Amended Rule 37(e)(1)(B)(i) would permit a court to give an adverse inference jury instruction only after proof that the party to be sanctioned has “caused substantial prejudice in the litigation and was willful or in bad faith,” or if the innocent party is “irreparably deprived . . . of any meaningful opportunity to present or defend“ claims in the litigation.

Summary

In sum, the proposed amendment to Rule 37(e) would require in most cases proof of prejudice from the spoliation, with no available presumption, which is in contrast to Judge Scheindlin’s Sekusui opinion.

The flood of comments to this amendment has already begun.  The proposed Rule 37(e) wades straight into a heated debate.  Suffice it to say that the fate of the proposed Rule 37(e) amendments is far from certain.

Committee MemorandumProposed Discovery Rules

Please note:  This blog/Web site is made available by the firm of Redmon, Peyton & Braswell, LLP (“RPB”) solely for educational purposes to provide general information about general legal principles and not to provide specific legal advice applicable to any particular circumstance. By using this blog/Web site, you understand that there is no attorney client relationship intended or formed between you and RPB. The blog/Web site should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you.

Lookout for Spoliation Attacks

A recent appeal of a decision from Judge Gerald Bruce Lee of the Eastern District of Virginia is another cautionary example that counsel defending corporate clients in civil litigation must be ever-vigilant against plaintiff’s claims of evidence spoliation.  In today’s modern commercial litigation, careful lawyers are (rightly) concerned about spoliation claims of Electronically Stored Information (“ESI”).  Civil practitioners in the Eastern District of Virginia are seeing more and more of such claims from parties attempting to gain a decisive advantage in litigation.  The stakes are obviously high: few corporate clients can hope to overcome the sanction of a judge’s jury instruction that the corporation has acted improperly to destroy relevant evidence.  Considering how easy it is to demonize corporate parties in a jury trial, such an obstacle usually leads to a generous settlement offer.

In Zellers v. NexTech Northeast, LLC, Case No. 1:11-cv-00967 (GBL/TRJ), Ms. Zellers sued her former employer, Rite Aid, after she was allegedly exposed to refrigerant coolant that leaked from a gas line in a freezer.  After the leak was discovered, a technician plugged the leak, which presumably contained the remaining refrigerant within the gas line.  Ms. Zellers then filed suit against the employer.  Several weeks later, another technician serviced the gas line after another reported leak and performed a triple evacuation of the freezer system,which removed all traces of the refrigerant in the system.

This technician was never aware of the newly-filed litigation, and instead, was simply following his instructions to service the freezer.  Later in the litigation, an issue developed that turned on the chemical composition of the refrigerant allegedly inhaled by the plaintiff.  But due to the evacuation of the gas lines, there was no refrigerant to test.

The plaintiff filed a motion seeking spoliation sanctions against the defendant which included an adverse inference instruction to be delivered to the jury by the trial judge.  The proposed instruction stated that the defendant had improperly released the refrigerant, and the jury was free to presume that the refrigerant was harmful to the defendant’s case.  As a practical matter, such adverse inference instructions are difficult for defense counsel to overcome.

Ultimately in this case, Judge Lee denied the plaintiff’s motion for sanctions as moot after he excluded the plaintiff’s proffered experts on Daubert grounds and granted summary judgment to the defendant.  But this case is an example and warning to corporate defense counsel.  The routine operations of a company can lead to spoliation claims under expected circumstances.  Thus, defense counsel must be vigilant to safeguard evidence that is connected to claims raised in any lawsuit.

Zellers v NexTech Northeast, LLC Opinion (PDF)

Please note:  This blog/Web site is made available by the firm of Redmon, Peyton & Braswell, LLP (“RPB”) solely for educational purposes to provide general information about general legal principles and not to provide specific legal advice applicable to any particular circumstance. By using this blog/Web site, you understand that there is no attorney client relationship intended or formed between you and RPB. The blog/Web site should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you.