[EDRM Editor’s Note: This article was first published here on April 17, 2023 and EDRM is grateful to Michael D. Berman, founder and managing director of E-Discovery LLC for permission to republish.]

Government Employees Health Assoc. v. Actelion Pharmaceuticals, Ltd., __ F.R.D. ___, 2023 WL 316578 (D. Md. Jan. 19, 2023)(Coulson, J.), provides a textbook application of Fed.R.Civ.P. 37(e) in an antitrust lawsuit with a complex fact pattern.

The Court rejected Rule 37(e)(2) sanctions and engaged in a sophisticated analysis to fashion Rule 37(e)(1) sanctions that were curative, but did not “have the effect of measures that are permitted [only] under subdivision (e)(2).” Id. at *10, quoting the Advisory Committee Notes to Rule 37(e).

In doing so, the Court carefully walked a fine line.

RELEVANT, PROPORTIONATE DATA WENT MISSING

AFTER THE DUTY TO PRESERVE AROSE

It isn’t possible in this blog to cover every twist and turn in Actelion. Suffice it to say that a legal hold was instituted on a merging company. The successor company relied on the attorney for its predecessor to scope the legal hold. Id. at *2. The spoliation issue centered on ESI of employees of the predecessor who were not hired by the successor. Id. at *2. Unless put on hold, that ESI was deleted during the data migration.

The predecessor’s former in-house counsel identified key players; however, five key custodians were missed. The Court wrote that the facts “demonstrate that ESI from the five at issue custodians should have been preserved”; however, it was instead deleted approximately eight months after suit was filed. Id. at *6, 7 (emphasis added).

The producing party, somewhat belatedly,[1] disclosed the failures. The parties conferred and, in substantial part, agreed to add other custodians and additional search terms. Id. at *3-4. As a result, 33,800 documents that were “associated with” the missing custodians were produced. Some of those went to the central issue. Id. at *4.

However, despite the production of approximately 1.6 million pages, gaps remained. Id. at *7 & n. 13. Plaintiff estimated that 83,000 documents were lost from only two of the five key people. Id. at *7 n. 13.

GIVEN THE FAILURE TO PRESERVE AND PRODUCE ESI,

DISCOVERY-ABOUT-DISCOVERY WAS ORDERED

One discovery dispute turned on discovery-about-discovery, also known as “culpability discovery” or “satellite discovery.”

Plaintiff requested discovery about defendants’ document preservation policy and efforts. Id. at *4.[2] The Court ordered production of the preservation policy and directed filing of a declaration “summarizing [defendant’s] efforts and timing pursuant to that policy….” Id. In response, the defendant filed an affidavit from its legal project manager. Id. at *5.

For an early discussion of the evaporating privileges in satellite discovery, see The Hon. Paul W. Grimm, M. Berman, et al., “Discovery About Discovery Does the Attorney-Client Privilege Protect All Attorney-Client Communications Relating to the Preservation of Potentially Relevant Information?,” 37 U.Balt.L.Rev. 413 (2008).

THE FAILURE TO TAKE REASONABLE STEPS

DOES NOT EQUATE TO AN “INTENT TO DEPRIVE” UNDER RULE 37(e)(2)

The Court found that the predecessor of the producing party did not take reasonable steps to preserve the responsive information. That failure, however, did not equate to intent to deprive the opponent of ESI under Rule 37(e)(2).

Instead, the Court held that it must look at “all the circumstances,” and it did so. Id. at *8.

First, defendant’s production of hundreds of thousands of documents, including: those from a supervisor of the missing custodian; fifteen other custodians; and, non-custodial central sources (such as databases and shared folders), “belies an intentional plan to deprive Plaintiff of relevant ESI in this litigation.”

Second, in initial disclosures and discussions, defendant identified at least four of the five missing custodians. That was deemed inconsistent with an intent to deprive plaintiff of their data.

Third, a lengthy gap between the decision not to preserve the data and the decision to delete it, undermined intent to deprive “in that one would expect such deletion to occur closer in time to institution of the litigation hold.” Id. at *8.

Fourth, because it was not obvious early on that one deleted custodian was key, “a nefarious party would have also had to have been somewhat omniscient” at the time of deletion. Id.

After considering all these circumstances, the Court concluded that “it is just as likely that the [former in-house attorney] approved the deletion through inattention.” Id. at *9.

That finding foreclosed Rule 37(e)(2) sanctions. Fortunately for the plaintiff, the plaintiff also asked for sanctions under Subsection (e)(1), and it was successful there.[3]

THE COURT PROVIDED A TEXTBOOK RULE 37(e)(1) ANALYSIS

The Court wrote that plaintiff was required to, and did, show prejudice. Id. at *10. Prejudice under Rule 37(e)(1) “occurs when, as a result of the spoliation, the party claiming spoliation cannot present evidence essential to its underlying claim.” Id. at *7 (cleaned up).

Finding sufficient prejudice under Subsection (e)(1), the Court then quoted the Advisory Committee Note on fashioning a curative sanction. Id. It wrote:

“Care must be taken … to ensure that curative measures under subdivision (e)(1) do not have the effect of measures that are permitted under subdivision (e)(2) ….” Fed. R. Civ. P. 37(e) Advisory Committee Notes.

In fashioning its remedy, i.e., a curative measure under Subsection (e)(1), the Court looked at how the parties had addressed the breach. It wrote that “Actelion worked with Plaintiff to provide data from other sources in mitigation.” Id. at *10. It stated:

In looking for an appropriate cure, the Court is mindful of how the parties themselves, in significant part, devised the appropriate cure to such prejudice during discovery when it was disclosed that the data was destroyed but the timing of the destruction was not yet known….

Id. at *11. The Court added:

With all of this in mind, the Court concludes that the remedy should somehow account for the missing data without conferring undue advantage to either side or running afoul of the Advisory Committee’s admonition against Rule 37(e)(1) remedies that are de facto Rule 37(e)(2) remedies. The Court also believes that it should fashion a remedy that provides some deterrence as future litigants consider their obligations.

Id. at *11.

The Court recommended an instruction at trial that was customized to any of the “at issue” custodians who testified or who were referred to at trial, or whose documents played a meaningful role. Id. The recommended instruction was:

You are instructed that some electronically stored information for the following former Actelion employees was not preserved by Actelion, despite a duty to do so: Michael Flinn, Terry Cato, Juniette Kang’a, Shalom Jacobovitz, and Lisa Wong. You should not speculate as to what that electronically stored information might have included, or which party (if any) it might have supported. However, you should not conclude based merely on any perceived absence of this information from these five individuals that Plaintiff has failed to meet its burden of proof. Rather, you should consider all the evidence and testimony in the case in determining whether the parties have or have not met their respective burdens without regard to which side produced it or the relative volume of information each side produced.

Id. (emphasis added). The Court also awarded half of the requested attorneys’ fees.

CONCLUSION

Two decades ago, draconian sanctions were often imposed. I have written that, when that occurs, civility suffers. See Historical ESI Highlights – Part III – The “Marquee E-Discovery Disaster Cases”. I explained that, in my opinion:

In December 2015, with the amendment of Fed.R.Civ.P. 37(e), the pendulum began to swing back. That amendment is designed to dim the marquee lights and cabin the federal spoliation doctrine.

“There are good reasons to approach sanctions decisions with great caution.” Berman, “Electronically Stored Information in Maryland Courts” at 277-78. They often arise in an unclear context. While they may be necessary and appropriate, they may negatively impact civility and unfairly destroy careers. Id. Qualcomm[4] demonstrated that there is a substantial risk of error for which the impact could be irreparable. Id. at 279.

Id.

Actelion is an example of a thoughtful, modern analysis under the 2015 amendments to Fed.R.Civ.P. 37(e).

____

[1] The Court wrote that it was “troubled” by the delay in disclosure. For a discussion of the issue of candor, see, e.g., Damage Control Method; Is There a Duty to “’Fess Up?”; and, Candor Pays Off When It Comes to Alleged Spoliation: Notice + Accrual = Claims Bar.

[2] While not stated in the opinion, it appears that plaintiff likely relied on a histogram to determine a gap in email production.

[3] Putting all of one’s eggs in one Subsection (e)(2) basket may lead to a strategic loss. It would seem generally prudent to request sanctions under both subsections of Rule 37(e).

[4] Qualcomm is described in Historical ESI Highlights – Part III – The “Marquee E-Discovery Disaster Cases”. Suffice it to say that career-ending sanctions were imposed on six attorneys and, more than a year later, reversed. By then, the harm was done.

Read the original article, Recent “Textbook” Analysis of Fed.R.Civ.P. 37(e) here.