Does the imposition of discovery sanctions require a “culpable state of mind”?

Is proof of prejudice to the requesting party sufficient?

“I’m sorry/So sorry/Please accept my apology/”

As 2007 comes to close, corporate and outside counsel are grappling with one of the more difficult issues in e-discovery practice: What is the law regarding the imposition of discovery sanctions? Do courts require a culpable state-of-mind or is proof of prejudice to the requesting party sufficient? And, if prejudice alone is not enough to warrant sanctions, is negligence a sufficiently culpable state-of-mind? Adoption by the courts of either a prejudice or negligence standard would have a material adverse impact on both the risks and costs of e-discovery practice.

So, in an attempt to determine what the state of the law may be, and with profound apologies to Bill Safire (and Brenda Lee), R+P offers its readers a holiday gift: a one question Office Pool. (For 2008 we promise more questions and, if it is a really good year, prizes for the correct answers.)

Test your e-discovery awareness and answer the question that follows these quotes:

“Our interpretation of Supreme Court authority concerning a court’s inherent power to sanction counsels that a finding of bad faith is not always necessary to the court’s exercise of its inherent power to impose sanctions.”“[T]here must be a finding of intentional destruction indicating a desire to suppress the truth.”“We have never approved of giving an adverse inference instruction on the basis of pre-litigation destruction of evidence through a routine document retention policy on the basis of negligence alone.”

“Where a routine document retention policy has been followed in this context, we now clarify that there must be some indication of an intent to destroy the evidence for the purpose of obstructing or suppressing the truth in order to impose the sanction of an adverse inference instruction.”

“The prelitigation destruction of the voice tape in this combination of circumstances, though done pursuant to a routine retention policy, creates a sufficiently strong inference of an intent to destroy it for the purpose of suppressing evidence of the facts surrounding the operation of the train at the time of the accident.”

“Sanctioning the ongoing destruction of records during litigation and discovery by imposing an adverse inference instruction is supported by either the court’s inherent power of Rule 37 of the Federal Rules of Civil Procedure, even absent an explicit bad faith finding, and we conclude that the giving of an adverse inference instruction in these circumstances is not an abuse of discretion.”

 

Are these quotes from

Different Circuit Courts? Different District Courts?Different Judges?
The same opinion?

As you’ve probably already guessed, the six quotes are drawn from the same opinion: Stevenson v. Union Pac. R.R. Co., 354 F.3d 739 (8th Cir. 2004). Stevenson is a prime example of the confusion in many of the opinions discussing discovery sanctions. Despite some language in Stevenson that seems to require a finding of bad faith, in “Electronic Discovery Sanctions in the Twenty-First Century”, Judge Scheindlin and her co-author Kanchana Wangkeo cite the Eighth Circuit’s opinion as the lead case in a two-page string site supporting the proposition that “[a]ppellate courts have made clear that a finding of bad faith is not required to impose discovery sanctions”. 11 Mich. Telecomm. Tech. L. Rev. 71, 80 (2004) (footnote omitted) (emphasis added.) The language from Stevenson that Judge Scheindlin chose to support her conclusion that appellate courts do not require bad faith was the last quote above. (“Sanctioning the ongoing destruction ….”.)

Judge Scheindlin’s analysis in her article of all of the written opinions discussing sanctions between January 1, 2000, and the date of publication, including federal and state cases, was written in conjunction with the Civil Rules Advisory Committee’s consideration of the inaptly named “safe harbor provision” of the amended federal rules. The article remains the most extensive and coherent study of e-discovery sanctions. (A link to Judge Scheindlin’s article may be found in the “Other Resources” section of this blog.)

Judge Scheindlin concluded “we did not discover a single case where the court sanctioned a party solely for following its document retention and recycling policy; there was always another consideration … Courts tended to focus on the prejudice to the party seeking discovery, as well as on the spoliator’s culpable state of mind”. The trend, and almost certainly the majority view, is that prejudice plus negligence is a sufficient basis to impose sanctions, including an adverse inference instruction. Negligence, however, may not be sufficient for more severe sanctions such as preclusion or dismissal.

Despite Judge Scheindlin’s view, Stevenson continues to be cited by the Eighth Circuit as holding that spoliation sanctions require evidence of bad faith. In Greyhound Lines, Inc. v. Wade, 2007 WL 1189451 (8th Cir. 2007), the court (quoting Stevenson) held that “[a] spoliation-of-evidence sanction requires ‘a finding of intentional destruction indicating a desire to suppress the truth’”. Other courts have also found that bad faith is required before discovery sanctions are imposed. See, e.g., In re: Seroquel Products Liability Litigation, 2007 U.S. Dist. Lexis 61287 (August 21, 2007) (“A finding of bad faith, however, is required to impose sanctions based on the Court’s inherent power.”)

The preponderant view (that negligence is sufficient) is ably expressed by Judge Allegra of the Court of Claims in United Medical Supply Company, Inc. v. The United States, 77 Fed. Cl. 257 (Fed. Cl. 2007). Judge Allegra attempted what she called a “tour d’horizon” to determine whether a culpable state of mind was required before a court could impose sanctions pursuant either to its inherent power or Rule 37 of the Federal Rules of Civil Procedure. She found that “[t]here is, in fact, a division of authority among the circuits”, with a “distinct minority” requiring a showing of bad faith before “any form of sanction is applied at all”. (Emphasis added.) She then concluded “[g]uided by logic and considerable and growing precedent … an injured party need not demonstrate bad faith in order for the court to impose, under its inherent authority, spoliation sanctions.” (Emphasis added.)

It is worth taxing your patience to quote Judge Allegra at length:

Several reasons lead to this conclusion. For one thing, it makes little sense to talk of a general duty to preserve evidence if, in fact, the breach of that duty carries no real legal ramifications. Requiring a showing of bad faith as a precondition to the imposition of spoliation sanctions means that evidence may be destroyed willfully, or through gross negligence or even reckless disregard without any true consequences. … [T]his approach is tantamount to suggesting that the “duty” to preserve evidence is not much of a duty at all. Second, imposing sanctions only when a spoliator can be proven to have acted in bad faith defenestrates three of the four purposes underlying such sanctions – to protect the integrity of the fact-finding process, to restore the adversarial balance between spoliator and the prejudiced party, and to deter future misconduct – and severely frustrates the last, to punish. These objectives are hardly served if the court, in effect, is constrained to say to the injured party—‘sorry about that, but there is nothing I can do, except to let you present your case, such as it remains. Indeed while some commentators have asserted otherwise, the history of the spoliation doctrine suggests that it was not designed solely to punish those who consciously destroy inculpatory documents, but also to address the manifest unfairness inherent in the loss of relevant evidence. Even if such sanctions were once rooted in an inference of consciousness of a weak case, that is neither the controlling rationale nor the prevailing rule nowadays.

(Footnotes and citations omitted; emphasis added.)

Judge Allegra’s view is shared by the Second Circuit. In Residential Funding v. DeGeorge Financial Corp. , 306 F.3d 99 (2nd Cir. 2002), the court quoted Magistrate Judge Francis approvingly:

“[The] sanction [of an adverse inference] should be available even for the negligent destruction of documents if that is necessary to further the remedial purpose of the inference. It makes little difference to the party victimized by the destruction of evidence whether that act was done willfully or negligently. The adverse inference provides the necessary mechanism for restoring the evidentiary balance. The inference is adverse to the destroyer not because of any finding of moral culpability, but because the risk that the evidence would have been detrimental rather than favorable should fall on the party responsible for its loss.”

(Quoting from Turner v. Hudson Transit Lines, Inc., 142 F.R.D. 68, 75 (S.D.N.Y. 1991).)

Contrary to some speculation it does not appear that the courts are willing to go so far as to impose sanctions in the absence of at least negligent conduct. However, conduct that might once have been considered innocent is being defined as negligent. As the availability and adoption of web-based legal holds systems increases and more and more companies implement and enforce policies to suspend records management schedules it will become increasingly difficult to argue that the failure to preserve information in response to actual or anticipated litigation was anything other than negligence.

Preservation Triggers

Whether or not the Stevenson court’s view ever becomes more than a minority position, its analysis of preservation triggers and a party’s obligation to suspend the routine operation of a document retention policy is of more than passing interest to e-discovery practitioners. Stevenson involved a car-train grade crossing accident. Plaintiffs alleged that the train crew did not properly sound the horn and that vegetation at the crossing blocked their view of the train as it approached the crossing. Pursuant to separate document retention policies Union Pacific destroyed (i) the tape of radio communications between the train crew and the dispatchers on the date of the accident and (ii) all track maintenance records just before the accident.

The collision occurred on November 6, 1998; the complaint was filed on September 20, 1999. Plaintiffs’ document demand was filed on October 25, 1999, but was not received by Union Pacific until November 17, 1999. Within 90 days of the accident, sometime around February 1999, and well before Union Pacific had “actual knowledge that litigation was imminent”, the tapes were overwritten, pursuant to Union Pacific’s 90-day tape retention policy. Despite the pendency of the lawsuit and the receipt of a document demand, Union Pacific destroyed the track maintenance records pursuant to its routine one year document retention policy. (The exact date is not clear from the opinion.)

The Eighth Circuit found that although destruction of the voice tapes “test[ed] the limits of what we are able to uphold as a bad faith determination, the district court did not abuse its discretion by sanctioning Union Pacific’s prelitigation conduct of destroying the voice tape”. The circuit found that the district court’s bad faith determination was supported by the following facts:

Union Pacific knew that “litigation is frequent when there has been an accident involving death or serious injury”. Union Pacific had “general knowledge that such tapes would be important to any litigation over an accident that resulted in serious injury or death”.The only “contemporaneous recording of conversations at the time of the accident will always be highly relevant to potential litigation over the accident”.

Union Pacific’s general knowledge “weighs heavier than its lack of actual knowledge that litigation was imminent”.

Union Pacific preserved voice tapes in other cases where tapes proved to be beneficial.

Union Pacific “made an immediate effort to preserve other types of evidence”.

Although there was no evidence that the voice tape contained information that could be classified as a smoking gun, the court held that the loss of the tape was prejudicial to plaintiffs. (It is easy to conceive that under these facts another court would have no trouble finding that these facts constituted bad faith.)

As to the track maintenance records, Union Pacific argued that corporate counsel’s failure to secure the tapes was innocent because (i) he didn’t know the track maintenance records were relevant since he had never before managed litigation involving a grade crossing collision, (ii) he didn’t know where the records were kept, and (iii) he was distracted by a derailment and his vacation. Even though Union Pacific was found not to have acted in bad faith because it was not put on notice that the track records should be preserved until almost a year after the accident, and even though “the condition of the track was not formally at issue until the second amendment to the complaint in May 2000”, almost 18 months after the accident, the court found that an adverse inference instruction was not an abuse of discretion.

For e-discovery practitioners the important conclusion to draw is that, whatever state of mind is required to sustain the imposition of sanctions, courts are likely to find that the failure to suspend a document retention program and to preserve evidence warrants sanctions if a company is aware that litigation is reasonably likely in a given set of facts even if it lacks actual knowledge that litigation is imminent.