TranSystem Case Companion

A recent decision in a breach of contract and indemnification action in Federal Court, Middle District of Pennsylvania, serves to highlight the critical importance for potential litigants to understand the obligation to preserve data and avoid its destruction.  Crucially for companies and attorneys, grasping how data is actually used and preserved by your company or client can mean the difference between winning and losing your case.

This case continues a trend, as seen in the CAT3, LLC v. Black Lineage, Inc., No. 14 Civ. 5511 (AT) (JCF), 2016 WL 154116 (S.D.N.Y. Jan. 12, 2016) decision, of judicial reliance on “inherent authority” to issue sanctions.  While the recent changes to FRCP 37(e) limit the provision’s scope to ESI sanctions for intentional conduct, judges are increasingly relying on their inherent authority to sanction negligent or inadvertent ESI destruction.

The TranSystems decision also draws attention to the trend of judges demanding greater transparency and cooperation in eDiscovery, particularly where mistakes occur. In the words of Magistrate Judge Martin C. Carlson, the opinion’s author:  “candor is always the best course.”

 

Headline: 

A very recent federal decision in Pennsylvania may provide some guidance for potential litigants on how Courts will address sanctioning in cases of negligent spoliation of ESI.

 

Long story short: 

Magistrate judge sanctions plaintiff based on “inherent sanctioning authority of court” where plaintiff company had negligently wiped employee computers on the erroneous assumption all relevant files were backed up to company server, and where plaintiff did not reveal the ESI destruction for two years after filing suit.

 

eDiscovery Pointers:

-Negligence will not excuse failures to preserve, even for a plaintiff.

-Judges can draw on inherent authority to sanction negligent failure to preserve.

-Employees often find ways to save important files to their local machines or use data in ways not contemplated by corporate policies/procedures, and in ways not immediately apparent to internal IT or the “higher-ups”.

-Consulting a third party computer forensics expert can be a tremendous help to spot these issues and prevent them ripening into problems, by offering solutions such as custodian interview or forensic imaging, saving your company/client a lot of money and wasted effort.

 

Long story less short:

Case caption: Transystems Corp. v. Hughes Assocs. (US District Court for the Middle District of Pennsylvania, June 30, 2016, Civil No. 1:14-CV-1541)

Judge: Martin C. Carlson, United States Magistrate

Facts:

-Plaintiff was subcontracted to design and install a fire suppression system as part of an Air National Guard hangar construction.

-Plaintiff in turn hired Defendant as a sub consultant to design the hangar.

-Plaintiff failed to fulfill its contract in a timely and professionally competent manner.

-Contractor sued and settled with Plaintiff in a prior action.

-Plaintiff wiped relevant custodian hard drives on belief files were all on main server.

-Plaintiff was mistaken, in fact custodians had been saving files to individual computers.

-Plaintiff then sued Defendant on contract and indemnification grounds.

-Plaintiff did not disclose preservation failure for nearly two years after filing suit.

-Due to its mounting discovery deficiencies, Plaintiff filed a notice of voluntary dismissal.

-Defendant objected to dismissal, and filed motion for sanctions.

-Decision addresses the latter motion.

 

Decision:

-Judge Carlson sanctioned Plaintiff for its negligent destruction of evidence it should have known could be relevant for its litigation AND for its delay in “coming clean”.

-Sanctions were based in Court’s inherent sanctioning authority.

-Sanctions limited to $1,000, tempered by the fact that Plaintiff had abandoned its $500,000 suit, and that further dispute here would unduly prolong the litigation.

-Even without a dispositive sanction, failing to preserve properly can end a party’s case.

 

 

About the Authors:

Jared Harary, Esq. is an attorney licensed in New York and is a principal at vdiscovery.  He graduated from Columbia University (’02), and from the Fordham University School of Law (’07).  Mr. Harary consults attorneys and their clients on the development of defensible and cost-saving electronic discovery strategies for internal and regulatory investigations, and for the full cycle of litigation matters.  Given Mr. Harary’s legal background and his nine years in electronic discovery, he frequently acts as a liaison, and in certain cases, a translator, between the lawyers, their clients, and their supporting technology teams (client IT, law firm IT, and vdiscovery IT).  Mr. Harary has also developed, and co-presented on numerous occasions an accredited CLE entitled “eDiscovery – Managing the Madness”.

About the Authors:

Yitzy Nissenbaum, Esq. is a licensed attorney in New York and New Jersey and is a Project Manager, as well as a staff writer, at vdiscovery.  He is a graduate from the University of Maryland, Baltimore County (’05) and from the Fordham University School of Law (’08).  Mr. Nissenbaum was previously an Of Counsel at Kirkland & Ellis, LLP and as an Associate at Kenyon & Kenyon, LLP, where he worked on high stakes patent litigation matters.  Mr. Nissenbaum’s prior experience included significant involvement with eDiscovery, including having served as a Subcommittee Chair on eDiscovery for NYCLA’s Federal Courts Committee.  Additionally, he has written and lectured extensively on a number of eDiscovery issues relating to both Federal and State courts.

 

 

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