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Victor Stanley II Ruling Decries Lack of Uniform Standards for Electronic Discovery

September 28, 2010

Magistrate Judge Paul Grimm’s recent opinion in Victor Stanley, Inc. v. Creative Pipe, Inc. (“VSII”)[1] offers a comprehensive summary—and a strong critique—of the divergence among the standards governing electronic discovery across the circuits.  While this 89-page ruling is notable for the egregiousness of the electronic evidence spoliation at issue and the novelty of the resulting sanctions, its recitation of the dilemmas arising from variations in the case law may well have a broader impact on more typical cases.  The decision recognizes—in a way prior cases have not—the “collective anxiety” created by “the lack of a uniform national standard” for the duty to preserve, and possible sanctions for its violation.[2]  As the opinion notes, this disparity is particularly acute for companies that regularly litigate in multiple jurisdictions, since “[a] national corporation cannot have a different preservation policy for each federal circuit and state in which it operates.”[3]

 

Plaintiff Victor Stanley, Inc. (“VSI”) sued Creative Pipe, Inc. (“CPI”) and its president Mark Pappas, among others, for alleged violation of unfair competition laws and copyright and patent infringement.[4]  VSI alleged that CPI downloaded design drawings and specifications from VSI’s website using an alias, and then used those drawings to compete with VSI.[5]  Through materials produced in initial discovery, it became clear that Mr. Pappas either downloaded or directed the download of the drawings.[6]

 

During more than four years of discovery, defendants continually avoided their discovery obligations through “a cat and mouse game,” according to the opinion.[7]  Defendants “delayed their electronically stored information (“ESI”) production; deleted, destroyed, and otherwise failed to preserve evidence; and repeatedly misrepresented the completeness of their discovery production to opposing counsel and the Court.”[8]  Much of the destruction was irremediable and in violation of numerous court orders compelling discovery.[9]

 

VSII addressed plaintiff’s fourth motion for sanctions.[10]  Plaintiff demonstrated eight discrete preservation failures, including the failure to implement a litigation hold; deletion of ESI after filing suit; failure to preserve an external hard drive, files and emails after plaintiff demanded preservation; deletion of ESI after the Court issued its first preservation order; continued deletion of ESI and use of programs to permanently remove files after the Court’s second preservation order; failure to preserve ESI when Mr. Pappas replaced CPI’s server; and Pappas’ further use of programs to permanently delete ESI ordered by the Court to be produced.[11]  Describing this conduct as the “single most egregious example of spoliation that I have encountered in any case that I have handled or in any case described in the legion of spoliation cases that I have read in nearly fourteen years on the bench,”[12] Judge Grimm recommended the imposition of a default judgment against CPI pursuant to Fed. R. Civ. P. 37(b)(2)(A)(vi), and civil contempt sanctions against Mr. Pappas pursuant to Fed. R. Civ. P. 37(b)(2)(A)(vii).[13] The contempt sanction entailed a jail term of up to two years, which would be suspended if Mr. Pappas paid VSI’s attorneys fees and costs incurred for litigating spoliation issues in the action.[14]

 

Noting that the conduct at issue was unusually egregious, Judge Grimm provides a “more expansive examination” of variations in electronic discovery case law, to “provide . . . an analytical framework” for preservation and spoliation motions in general.[15]  Among other issues, he notes the differences among circuit and district courts as to:  (1) when documents are considered to be under a party’s “control”;[16] (2) the consequences of failing to implement a proper litigation hold;[17] (3) preservation of backup tapes;[18] (4) the level of culpability required for various sanctions;[19] and (5) whether a party is required to show that spoliated evidence was relevant.[20]  To illustrate these disparities, the opinion includes a 12-page chart comparing decisions across the circuits to “enable [counsel] to resolve preservation/spoliation issues with a greater level of comfort that their actions will not expose them to disproportionate costs or unpredictable outcomes of spoliation motions.”[21]

 

VSII is not only a valuable summary of current standards for electronic discovery, but important authority for the proposition that parties’ duties can vary from jurisdiction to jurisdiction.  Litigants will derive some comfort from the mere recognition of the “concern that institutional and organizational entities have expressed regarding how to conduct themselves in a way that will comply with multiple, inconsistent standards.”[22]  While it may be some time before greater uniformity emerges, either through additional rulemaking or increased guidance from appellate courts, the decision stresses the importance in each case of understanding and adhering to the governing standards in any district, circuit or state court.

 

[1] Civil No. MJG-06-2662, 2010 U.S. Dist. LEXIS 93644 (D. Md. Sept. 9, 2010).

[2] Id. at *65, *68.

[3] Id. at *91.

[4] Id. at *4-5, *13.

[5] 2010 U.S. Dist. LEXIS 93644, at *13.

[6] Id. at *17, *20.

[7] Id. at *15.

[8] Id. at *4.

[9] 2010 U.S. Dist. LEXIS 93644, at *4, *56-57.

[10] Id. *58

[11] Id. at *11-12.

[12] Id. at *60.

[13] 2010 U.S. Dist. LEXIS 93644, at *6-7, *98.  CPI did not contest default judgment as to VSI’s copyright claim.  Id. at *5.

[14] Id. at *156-57.

[15] Id. at *68-69.

[16] Id. at *91-93.

[17] 2010 U.S. Dist. LEXIS 93644, at *93-95.

[18] Id. at *96-97.

[19] Id. at *112-19.

[20] Id., at *123-25.

[21] 2010 U.S. Dist. LEXIS 93644, at *69.

[22] Id. at *125.