E-Discovery Alert

Managed Health Care Solutions v. Essent Healthcare, Inc.
2010 WL 33686534( S. D. FL August 23, 2010)

Party moving for sanctions must be able to show destroyed documents are crucial to its claim or defense.
If direct evidence of bad faith is unavailable, the moving party may establish bad faith through circumstantial evidence.
Sanctions (of default judgment or adverse jury instruction) were not justified without a showing of bad faith.

Parties were in a contract dispute (primarily concerned with software licensing fees) that ended up in litigation. During discovery parties had a least eight informal conferences on electronic discovery. At some point the Plaintiffs alleged that Defendant had failed to implement a litigation hold until well after the case had been filed and after the destruction of documents including relevant emails that were the subject of several court orders. The Plaintiffs moved for sanctions including default judgment and the imposition of attorney fees. Defendants argued that the destroyed emails were not within the scope of the anticipated claims of software licensing issues and that it only destroyed the documents that were 13 months old in accordance with its document retention plan. The Court identified the date when the Defendants should have been aware of the subject matter of all Plaintiffs claims and noted that the Defendants did not initiate a litigation hold until four months later.

In its analysis the Court noted that the Plaintiff (movant) was required to show that the spoliated evidence was crucial to its claim or defense. The Court determined that in this case the Plaintiff did not show that the destroyed emails were crucial because the Plaintiff would be able to prove their case through additional already obtained evidence. The Court went on to find show that sanctions were not justified because Plaintiffs failed to show that Defendants acted in bad faith.
Managed Health Care082310.pdf

Victor Stanley, Inc. v. Creative Pipe Inc.

2010 WL 350097 (D. MD September 9, 2010)

Party could be subject to imprisonment for egregious destruction of electronic discovery materials.

Egregious conduct in discovery resulted in default judgment.

The court recorded eight incidents of intentional destruction of evidence on the part of the Defendants. The Court, on a number of occasions, referred to the Defendants culpable state of mind. After noting that he had never seen or read of a case where the conduct was so egregious, the court noted that he had two sources of authority for imposing sanctions--inherent authority and Fed Rules of Civ P. Rule 37 The Court ultimately entered a default judgment for Plaintiffs on their Count I (main count) and also ruled that Defendant CEO would be subject to imprisonment if he failed to pay Plaintiff's attorney fees.

The Court also provided a chart by Circuit of sanctions for spoliation of evidence.

VictorStanley090910.pdf VictorStanleySpoliation Sanctionschart .pdf