Electronic Discovery & Computer Forensics : RenewData : Austin, Texas

E*Trade Securities LLC v.Deutsche Bank AG, et al., Civil No. 02-3711 RHK/AJB and Civil No. 02-3682 RHK/AJB (D. Minn. Feb. 17, 2005)

This is a Report and Recommendation by Magistrate Boylan on e-discovery disputes in a fraudulent securities lending scheme. Two of the Plaintiffs moved for sanctions for certain Defendant’s spoliation of evidence and failure to conduct a reasonable inquiry in response to discovery requests.  The Defendants opposed the sanctions motion and requested attorneys' fees & costs. Judge Boylan recommended that the Plaintiffs’ motions for sanctions be granted and that the Defendants’ motion be denied. He concluded that the Defendants had wrongfully destroyed three categories of evidence:

Hard Drives: One of the Defendants, Nomura Canada, permanently erased all the company's hard drives in Mid-2002, approximately 6 months after its duty to preserve was triggered. Nomura Canada argued this was done for a valid business purpose.  Nomura Canada’s President ordered the wiping clean of the hard drives because the company was shutting down business, and because the computers were being given to the employees, he did not want confidential business information on the computers. Also, Nomura Canada argued that before cleaning the hard drives, all relevant information had been removed from the employee's hard drives and therefore, no relevant information was lost and the Plaintiffs suffered no prejudice. Judge Boylan concluded that Nomura Canada's acts with respect to its destruction of the hard drives were sanctionable.

Telephone Recordings: Nomura Canada recorded and preserved its trader’s calls on DVDs. As soon as one DVD was full, it switched to the second. When the second DVD filled, the system would automatically switch back to the first DVD and record over the previously saved telephone calls. Nomura Canada made no changes in the taping system until about 9 months after the duty to preserve arose. Judge Boylan found that the communications of Nomura Canada's traders regarding the alleged lending scheme would have been highly relevant, and the Defendant’s failure to retain the audio recordings was spoliation, and thus, sanctionable.

Email: A 30(b)(6) witness designated by Nomura Securities International ("NSI") stated in a deposition that a litigation hold was put into effect in 2001. No litigation hold had been put into place for retention of email messages because all email would be preserved on backup tapes, which she thought would not be destroyed. According to NSI's retention policy, however, backup tapes for email messages were only retained for 3 years. Due to the fact that NSI relied on its backup tapes to preserve evidence that was not preserved through a litigation hold, Judge Boylan determined that NSI should have retained a copy of relevant backup tapes because it was the only source of “relevant evidence”. He also found that, because NSI had not placed an adequate litigation hold on email, and made no changes to its retention policy, unique information relevant to the time period of the stock transactions was destroyed. He found that "[t]he substantial and complete nature of the destruction of the evidence contained in the recorded telephone conversations and hard drives destroyed by Nomura Canada, justifies a finding of prejudice." Additionally, Judge Boylan held that the failure to preserve email "has prejudiced the plaintiffs”. Accordingly, the judge recommended that the district court instruct the jury that it may infer that the information that Nomura Canada and NSI failed to preserve, would have been favorable to Plaintiffs and disadvantageous to the Defendants.

He recommended that NSI be sanctioned $5,000 for failing to conduct a reasonable inquiry into Plaintiffs' discovery requests prior to responding. Plaintiffs presented evidence that, on several occasions, the Defendants denied the existence of certain documents and which was later found to be untrue through depositions of witnesses who could locate said document.  The judge also recommended that Nomura Canada be sanctioned $5,000 for failing to conduct a reasonable inquiry into requested audio recordings and for certifying that all calls during a particular time period were inaudible.  The calls were found to be audible.  Interestingly, even though Judge Boylan found Defendants’ actions to constitute bad faith, he did not find enough evidence to indicate that the Defendants deliberately misrepresented facts to this court or opposing counsel or engaged in 'deliberate fabrications.'

Magistrate Boylan’s recommendation was adopted by U.S. District Judge Kyle. See E*Trade Securities LLC v. Deutsche Bank AG, 230 F.R.D. 582 (D.Minn. Apr 18, 2005) (NO. 02-3711(RHK/AJB), 02-3682(RHK/AJB)).

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Williams v. Mass. Mutual Life Insurance Company, 226 F.R.D. 144 (D. Mass. 2005)

MassMutual employee filed employment discrimination suit against employer. Employee moved to compel discovery and appointment of neutral expert in computer forensics.

Employee plaintiff was seeking a particular email that he claimed to have seen and possessed at one point, but now claimed was not in his possession. Plaintiff, who is African-American, was referring to a hard copy of an October 24, 2002 email message sent by either the Senior Vice President, Nancy Roberts, or Stephanie Allsup to Robert O'Connell, MassMutual's Chief Executive Officer. That email message, "spelled out" a policy or practice by MassMutual of using disciplinary actions as a pretext for terminating minority employees. Plaintiff sought an order appointing a neutral computer forensics expert to search for the email, and once the email was discovered, to further investigate the location of all electronic communications related to his employment and termination that have not as yet been produced by defendants. He also sought an order requiring defendants to "'preserve all documents and information, whether in electronic or paper form, to suspend all recycling of any backup tapes, any automated deletion of email, the reformatting of hard drives, and/or that an appropriate medium for retention of this type of data be disclosed and utilized.'" Defendants claimed the plaintiff’s motion was based on "'flimsy and implausible assertions'" and that their own forensic analysis did not identify any email message resembling the one the plaintiff alleged he had once seen and possessed.

The court noted that plaintiff sought "significant relief -- the search of Defendants' information systems -- based not only on uncorroborated evidence but, curiously, on a document which Plaintiff himself claims to have had in his possession but which he can no longer locate."  The court refused the plaintiff’s request to appoint a neutral expert in computer forensics so that he can “confirm what is highly speculative conjecture that the October 24, 2002 email message, which he claims exists, is something other than the October 24, 2002 memorandum which Defendants have produced." The court concluded that the plaintiff had no credible evidence that defendants had withheld relevant information.  The court also did not allow plaintiff to conduct a forensic search at his own expense because he did not “present at least some reliable information that the opposing party's representations are misleading or substantively inaccurate."

However, the court ordered defendants "to preserve all documents, hard drives and email boxes which were searched by their forensic expert in response to Plaintiff's motion." In the court's estimation, this order was not unduly burdensome and was necessary to preserve plaintiff's appellate rights.

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