The amended version of Rule 37(e) of the Federal Rules for Civil Procedure was intended to narrow the latitude that courts have when imposing sanctions on a company for failing to preserve electronically stored information required for discovery in a lawsuit. In light of that, some observers find it surprising that on July 12 the U.S. district court in Wilmington, Delaware slapped Plantronics with as harsh a penalty as it did—a $3 million fine—based on an estimated thousands of deleted e-mails that were likely relevant to the plaintiff’s antitrust allegations against Plantronics.
The impetus for the Advisory Committee appointed by the U.S. Supreme Court to update the Federal Rules of Civil Procedure was “concern that the burden and expense of discovery were making it difficult for cases to be heard on the merits,” says Christopher Boehning, a partner at Paul Weiss Rifkind Wharton & Garrison, who has written extensively on e-Discovery and Rule 37(e) in the New York Law Journal. Regarding Rule 37(e), the inconsistency [or disparity] in penalties imposed in different federal circuits “made it very difficult for multinationals or even just companies that operate in many jurisdictions in the United States to set an appropriate [data] preservation policy with some confidence that they wouldn’t be subject to sanctions.” In the second circuit (covering New York, Connecticut, and Vermont), for example, “simple negligence was sufficient for even the most serious sanctions like an adverse inference [case-terminating sanctions], whereas in other circuits a showing of bad faith or an intent to deprive your adversary of the documents was required before the most severe sanctions could be imposed,” he says.
In amending Rule 37(e), the advisory committee intended “to foreclose reliance on courts’ inherent authority to impose sanctions.” Under the amended rule, which took effect on Dec. 1, 2015, the most severe sanctions, such as judgments that dispose of all claims in favor of the plaintiff and terminate the case, will be permitted only when there is proof of an “intent to deprive” the harmed party of the use of the ESI in its case.
Proving it was the company’s intent to deprive the plaintiff of information in Plantronics’ case is no simple matter. The actions of an individual employee—senior vice president of sales Don Houston, who is also one of 12 members of the executive committee—rather than any specific failings in the company’s compliance program related to e-Discovery requests were what got Plantronics into trouble. Disregarding the litigation hold, Houston not only deleted more than 40 percent of his e-mails between Nov. 18, 2013, (one month after the court denied Plantronics’ motion to dismiss the case) and Feb. 19, 2014, but double-deleted them, from both his legal folder and his deleted files folder. He also instructed members of his sales team on two separate occasions to delete e-mails that discussed competition from GN Netcom.
The severity of the penalty imposed in GN Netcom v. Plantronics has been seen by some observers as unusual in light of Plantronics’ attention to complying with GN Netcom’s e-Discovery request in the early stages of the litigation and certain of its later efforts, including hiring a forensics expert to run a statistical analysis of the lost e-mails and restore as many of them as possible. As soon as it received GN Netcom’s demand letter in May 2012, Plantronics issued a litigation hold to relevant employees and provided training to ensure compliance with the opinion. Five months later when the lawsuit was filed, the company updated the litigation hold and provided additional training and quarterly reminders that required affirmation of compliance by affected employees.
“With storage costs decreasing, the use of email archivers make more sense because the cost of keeping the data is not as expensive as it once was.”
Oral Pottinger, Senior Associate, Antitrust Practice, Mayer Brown
Frank Nolan, an associate at Sutherland Asbill Brennan, believes the decision is significant for a couple of reasons. First, the court attributed an individual executive’s actions to the company because of how senior Houston’s position was. Second, the court imposed heavy sanctions “in spite of otherwise relatively proper behavior [by] the company and its counsel” before and immediately after the lawsuit was filed and later on learning that many e-mails had been deleted, Nolan says.
“It just goes to show that you really can never be too careful and the senior executives at a company really have to take this extremely seriously,” he says. Nolan is quick to point out that the sanctions were imposed not to punish Plantronics or Houston but as “remedial measures because all these e-mails were lost and a certain percentage of the deleted e-mails would likely be relevant, so there was no way that the plaintiff in the case would have been able to recover from that.” In addition, he says the court meant to send a clear message to caution other companies about making similar mistakes in the future.
Boehning’s reading of the decision is that some of the company’s conduct raised suspicions about whether or not its actions were taken in good faith. The court opinion cites the company’s decision to hire forensics expert Stroz Friedberg to recover only Houston’s e-mails and to ask its discovery vendor, BlackStone, to collect back-up tapes only for Houston, despite knowing that spoliation extended to other custodians within the company. Searching the back-up tapes of other custodians’ deleted e-mails “would have increased the likelihood of recovering Mr. Houston's deleted e-mails, but Plantronics chose not to do so. Plantronics also chose not to pay the estimated additional $2,000 to $5,000 that would have been necessary for Stroz to complete its statistical analysis and it decided to ‘unrestore’ back-ups it had previously paid Stroz to restore,” the opinion reads.
The amended rules, by providing a more precise definition of which sanctions are available and when, limit the discretion that judges have to impose sanctions for spoliation of ESI, which would be expected to result in less severe penalties overall, says Boehning. “The new rules expressly provide that the judge has to choose the least severe option,” he says. However, he says he doesn’t find it ironic that Plantronics’ penalty was as harsh as it was “because I think the conduct there arguably is the type of conduct that the rule anticipated would receive harsh sanction.”
However unique some may regard the conduct by Plantronics employees and the company itself to have been, it clearly argues for the need for companies to confirm they are doing all they can to ensure compliance with e-Discovery requests. Once a lawsuit is filed or can be reasonably anticipated, a company should not only send a memo warning employees who have relevant information to save it, but should start collecting this information, says Theodore Banks, a partner at Scharf, Banks, Marmor in Chicago. “The collection piece of it is extremely important, particularly when you can do it electronically from one desk,” he says. “Obviously, if things are on people’s individual PCs or even their phones, then it may be more of a challenge. But here we’re talking about corporate e-mails on a server somewhere that someone could have said, ‘with regard to this case and these employees, let’s set up a secure library of documents’ the same way you’d collect paper documents by going through someone’s files, and grab them so they are safe.”
The following excerpt is from Judge Leonard Stark’s opinion in GN Netcom v. Plantronics Inc. (pp. 13-14).
A. Reasonable Steps to Preserve ESI
Plantronics argues there can be no finding of spoliation because it "went to great lengths to ensure that its employees were aware of and understood their preservation obligations," and upon learning ''that there might be a problem with Mr. Houston's emails[,] Plantronics immediately took steps to preserve documents and prevent any further loss of data, and to recover whatever missing data it could." (DJ. 271 at 8) Although it is undisputed that Plantronics issued multiple litigation holds, conducted training sessions to ensure compliance with these holds, and responded promptly to Mr. Houston's deletion of emails (see, e.g., D.l. 272 at A2-8, Al 0-15, A34-38), the Court agrees with GN that Plantronics' reliance on these actions to excuse the intentional, destructive behavior of Mr. Houston requires a "perverse interpretation" of Rule 37(e), one which would set a dangerous precedent for future spoliators (see DJ. 280 at 1-3). Plantronics' extensive document preservation efforts do not absolve it of all responsibility for the failure of a member of its senior management to comply with his document preservation obligations.
It is undisputed that, despite the litigation hold, Mr. Houston, a top-level Plantronics executive, intentionally deleted thousands of emails - more than 40% of his total emails from November 18, 2013 through February 19, 2014- and instructed others to do so as well. (See, e.g., D.I. 281Ex.1at149-50; D.I. 272 atA27-28, A71-74, A82; D.I. 263 Ex. 5 at STROZ 000031; see also D.I. 263 Ex. 6 at 107; D.I. 263 Ex. 7) Mr. Houston's conduct is the opposite of taking reasonable steps to preserve ESI, and it is not excused by his professed belief that he thought IT personnel would nevertheless continue to have access to the deleted emails. (See D.I. 272 at A69-70, A76-81, A87-97) Importantly, Mr. Houston is not a low-level employee, but rather the Senior Vice President of Sales, to whom the Vice President of U.S. Commercial Sales, who oversees the POD program on a day-to-day basis, reports.
Source: Opinion: GN Netcom v. Plantronics
The longer a company relies on somebody else to save things that may be needed in litigation, the greater the risk, Banks warns. “If a lawsuit is filed, you have to get around to people who have documents or may be witnesses and start to collect the right away and not let too much time pass.”
The proliferation of e-mail as the way that people communicate—and in many cases the way that they document a legal agreement in the absence of a formal contract—makes having an organized recordkeeping system that saves documents in appropriately named subject folders very important, says Banks. Using some kind of unified storage for all types of records—such as a managed cloud-based service—is also worth considering, he says.
Banks recognizes how hard it is to force employees to store their e-mails in the proper place. One way around that, he suggests, as soon as there’s an e-Discovery demand, is to use available search tools, such as key-word searches, to locate information and start to capture whatever is expected to be included in an eventual request. The compliance officer or department can certainly be involved in setting up such internal systems, he adds.
It’s impossible to protect against every instance of misconduct by bad actors, but one protective measure companies can take is to implement e-mail archiving, where essentially every e-mail is retained, regardless of what the user does, says Oral Pottinger, senior associate in Mayer Brown’s antitrust practice. “With storage costs decreasing, the use of e-mail archivers makes more sense because the cost of keeping the data is not as expensive as it once was,” he says. “They can turn off certain settings from an enterprise system standpoint [that might enable] employees to delete e-mails. They might delete an e-mail from an inbox or sent items, but it’s still maintained on the server.”
To avoid the mistake that Plantronics made in aborting the e-mail restoration efforts of the forensics expert it had hired, “you want more than one person at the table when making these types of decisions,” Pottinger advises. He encourages companies to have an e-Discovery response team comprised of different stakeholders, including representatives from the legal, compliance, and IT departments, as well as Human Resources if appropriate, “so that when something happens or when decisions are made that might affect the company just outside of that particular matter, that it’s a collective decision and you’re not exposing the company to undue harm.”
Banks suggests that people from the company’s legal department, compliance department, and whoever is responsible for records management work as a team to provide frequent reminders of what’s expected of employees when there’s an e-Discovery request. He recommends using a variety of media to disseminate these messages, including e-mails, podcasts, and sending text messages to smart phones if that’s how the company communicates. Taking a page from the advertising playbook, Banks says it usually takes at least a dozen repetitions of a message to get someone to take action. “You should start the messaging at new employee orientation and orient them to know this is the way we do things here,” he says. Managers need to reinforce that messaging by telling employees in their departments how to do things right, and they need to make sure people are available to answer employees’ questions about procedures.
Companies that are advanced in this area offer compliance training covering various topics annually. Training could delve into a particular area of law such as antitrust or litigation readiness, Pottinger says. One way to reinforce e-Discovery messaging is to share cautionary tales with employees such as what happened at Plantronics, but he suggests balancing that with success stories, such as the benefits of adhering to the company’s records management program, which might include cost savings from avoiding repetitious product design.
Boehning says he doubts the Plantronics decision will provide useful day-to-day guidance for other companies because of how stark the facts in the case are. “The reality is most companies look at those sanction decisions and say, ‘That’s not [us]. We would never do that.’”
Banks disagrees, calling the Plantronics decision “a terrific training tool,” whose juicy e-mail quotes should be used to educate management and the board of directors as to why following litigation holds is so important. “When people see actual quotes, actual e-mails that went through, they instantly realize this is reality. It’s not something someone cooked up. So I think it should be part of the communications program of every compliance person, or everyone responsible for records management.”