Archive for April 2015

Crews v. Avco Corp., No. 70756-6-I, 2015 WL 1541179 (Wash. Ct. App.  Apr. 6, 2015)

In this case, the trial court held Defendant in contempt and ultimately imposed a “death penalty order” for discovery violations, including the failure to produce relevant information.  Notably, the trial court rejected Defendant’s reliance on its document retention policy as an explanation for why the information was unavailable.  On appeal, the appellate court affirmed the imposition of sanctions but remanded for amendment of the final judgment to reflect any offsets authorized by statute.

The claims in this case arose from a plane crash in which several people were killed.  Plaintiffs alleged that the engine failure was caused by a faulty carburetor and sought discovery relating to the design and manufacture of the carburetor and any communications indicating Defendant’s knowledge of defects or malfunctions, among other things.  Despite multiple motions to compel and court orders to produce and a finding of contempt, Defendant failed to satisfy Plaintiffs’ discovery demands.

In its defense, Defendant relied in part upon its document retention policy.  Specifically, after being held in contempt, Defendant submitted a declaration from counsel detailing its efforts to comply with the court’s order to produce, explaining that “pursuant to company policy” certain categories of documents were “‘retained only for fixed periods of time’” and stating that many of the documents supplied by another defendant (which tipped off Plaintiffs to Defendant’s possible possession of relevant, unproduced evidence) were “‘beyond the various retention periods in [Defendant’s] Records Management Policy.’”  However, the policy itself was not provided.

In response to a subsequent motion for sanctions alleging continued failure to produce requested evidence, Defendant again explained that “under its records management policy, many of the documents that [another party] produced were no longer in [it’s] possession.”  Plaintiffs, in turn, noted that Defendant “failed to submit any employee affidavit stating that no responsive documents existed or that certain evidence was destroyed under the records management policy” and relied instead upon the declaration of counsel, which had been “rejected” by the prior judge when addressing earlier motions.

At argument regarding sanctions on the first day of trial, Defendant produced a copy of the policy for the trial court.  The court, in turn, found that “it was unclear whether the policy extended to the documents requested by the plaintiffs” and indicated it was “‘not satisfied . . . that some of the documents requested by the plaintiff couldn’t have been produced.’”  The motion for sanctions was orally granted and a written order followed the next day.  Among other things, the written order stated that Defendant’s “justification for nonproduction was insufficient” and reasoned that “‘[t]he court examined the [records management policy], which was provided without affidavit or declaration and here finds the categories within it, combined with counsel’s assignment of documents to the categories within it, to be overly vague.’”

The trial also court found that Defendant’s “‘continued disregard and violation of the discovery and contempt orders’” was willful and that it continued to prejudice the Plaintiffs.  Accordingly, the trial court imposed severe sanctions, including that all allegations against the defendant were deemed admitted and that all of Defendant’s defenses were stricken. Ultimately, the jury awarded one Plaintiff $17,283,000 (the other Plaintiff settled after the compensatory damages phase).

Defendant appealed, arguing that the sanctions order violated due process and challenging the sanctions as too severe and in error.  Analyzing Defendant’s objections, the appellate court laid out the requisite showing to justify harsh sanctions under CR 37(b)—that the discovery violations were willful or deliberate, that the opposing party was substantially prejudiced, and that the trial court explicitly considered lesser sanctions—and, following substantial analysis, largely affirmed the findings of the lower court.  Notably, the appellate court acknowledged that “[d]iscovery sanctions serve to deter, punish, compensate, educate, and ensure that the wrongdoer does not profit from the wrong,” and, when addressing whether lesser sanctions would have sufficed, found that it was reasonable for the trial court to find that “although monetary sanctions could have compensated [Plaintiff], they would not adequately punish, deter, or educate.”

Specifically regarding the lower court’s rejection of Defendant’s reliance on its document retention policy, the appellate court noted that the policy was not part of the record, but nonetheless found there was no abuse of discretion:

The scope and operation of the policy is unclear and unsupported. Avco’s attorney declarations and pleadings do not explain how the policy applies to the “various categories” of documents requested. Avco did not submit any other evidence, such as employee affidavits, about how the policy applied to the requested documents and their destruction. As the trial court noted, it would require a “leap of faith” to conclude that the policy covered the evidence in question here.

The appellate court went on to consider Defendant’s failure to comply with the lower court’s order to produce responsive documents and affirmed the lower court’s finding that Plaintiff was prejudiced.

Ultimately, despite largely affirming the sanctions imposed, the appellate court remanded the case for “amendment of the final judgment to reflect any offsets authorized pursuant to chapter 4.22 RCW.”

A full copy of the court’s opinion is available here.

Crews v. Avco Corp., No. 70756-6-I, 2015 WL 1541179 (Wash. Ct. App.  Apr. 6, 2015)

In this case, the trial court held Defendant in contempt and ultimately imposed a “death penalty order” for discovery violations, including the failure to produce relevant information.  Notably, the trial court rejected Defendant’s reliance on its document retention policy as an explanation for why the information was unavailable.  On appeal, the appellate court affirmed the imposition of sanctions but remanded for amendment of the final judgment to reflect any offsets authorized by statute.

The claims in this case arose from a plane crash in which several people were killed.  Plaintiffs alleged that the engine failure was caused by a faulty carburetor and sought discovery relating to the design and manufacture of the carburetor and any communications indicating Defendant’s knowledge of defects or malfunctions, among other things.  Despite multiple motions to compel and court orders to produce and a finding of contempt, Defendant failed to satisfy Plaintiffs’ discovery demands.

In its defense, Defendant relied in part upon its document retention policy.  Specifically, after being held in contempt, Defendant submitted a declaration from counsel detailing its efforts to comply with the court’s order to produce, explaining that “pursuant to company policy” certain categories of documents were “‘retained only for fixed periods of time’” and stating that many of the documents supplied by another defendant (which tipped off Plaintiffs to Defendant’s possible possession of relevant, unproduced evidence) were “‘beyond the various retention periods in [Defendant’s] Records Management Policy.’”  However, the policy itself was not provided.

In response to a subsequent motion for sanctions alleging continued failure to produce requested evidence, Defendant again explained that “under its records management policy, many of the documents that [another party] produced were no longer in [it’s] possession.”  Plaintiffs, in turn, noted that Defendant “failed to submit any employee affidavit stating that no responsive documents existed or that certain evidence was destroyed under the records management policy” and relied instead upon the declaration of counsel, which had been “rejected” by the prior judge when addressing earlier motions.

At argument regarding sanctions on the first day of trial, Defendant produced a copy of the policy for the trial court.  The court, in turn, found that “it was unclear whether the policy extended to the documents requested by the plaintiffs” and indicated it was “‘not satisfied . . . that some of the documents requested by the plaintiff couldn’t have been produced.’”  The motion for sanctions was orally granted and a written order followed the next day.  Among other things, the written order stated that Defendant’s “justification for nonproduction was insufficient” and reasoned that “‘[t]he court examined the [records management policy], which was provided without affidavit or declaration and here finds the categories within it, combined with counsel’s assignment of documents to the categories within it, to be overly vague.’”

The trial also court found that Defendant’s “‘continued disregard and violation of the discovery and contempt orders’” was willful and that it continued to prejudice the Plaintiffs.  Accordingly, the trial court imposed severe sanctions, including that all allegations against the defendant were deemed admitted and that all of Defendant’s defenses were stricken. Ultimately, the jury awarded one Plaintiff $17,283,000 (the other Plaintiff settled after the compensatory damages phase).

Defendant appealed, arguing that the sanctions order violated due process and challenging the sanctions as too severe and in error.  Analyzing Defendant’s objections, the appellate court laid out the requisite showing to justify harsh sanctions under CR 37(b)—that the discovery violations were willful or deliberate, that the opposing party was substantially prejudiced, and that the trial court explicitly considered lesser sanctions—and, following substantial analysis, largely affirmed the findings of the lower court.  Notably, the appellate court acknowledged that “[d]iscovery sanctions serve to deter, punish, compensate, educate, and ensure that the wrongdoer does not profit from the wrong,” and, when addressing whether lesser sanctions would have sufficed, found that it was reasonable for the trial court to find that “although monetary sanctions could have compensated [Plaintiff], they would not adequately punish, deter, or educate.”

Specifically regarding the lower court’s rejection of Defendant’s reliance on its document retention policy, the appellate court noted that the policy was not part of the record, but nonetheless found there was no abuse of discretion:

The scope and operation of the policy is unclear and unsupported. Avco’s attorney declarations and pleadings do not explain how the policy applies to the “various categories” of documents requested. Avco did not submit any other evidence, such as employee affidavits, about how the policy applied to the requested documents and their destruction. As the trial court noted, it would require a “leap of faith” to conclude that the policy covered the evidence in question here.

The appellate court went on to consider Defendant’s failure to comply with the lower court’s order to produce responsive documents and affirmed the lower court’s finding that Plaintiff was prejudiced.

Ultimately, despite largely affirming the sanctions imposed, the appellate court remanded the case for “amendment of the final judgment to reflect any offsets authorized pursuant to chapter 4.22 RCW.”

A full copy of the court’s opinion is available here.

Perez v. Metro Dairy Corp., No. 13 CV 2109(RML), 2015 WL 1535296 (E.D.N.Y. Apr. 6, 2015)

Plaintiffs in this collective action sought spoliation sanctions for Defendants’ failure to produce certain relevant evidence, including payroll records, W-2s, cashier sheets, etc.  Defendants objected to the motion on the grounds that “all of their books, records and computers were seized” pursuant to the court’s order in a different case and that there was no opportunity to make any copies or back ups.  Accordingly, the court reasoned that Defendants had not destroyed their records and found that “[u]nder the specific circumstances of this case … defendants did not have an obligation to copy their books and records before complying with the court order.”  The court also reasoned that even if Defendants did have an obligation to preserve, there was no evidence of Defendants’ requisite culpable state of mind.  Plaintiffs’ motion for sanctions was denied.

Plaintiffs sought serious sanctions for Defendants’ failure to produce requested employment documents and records.  Defendants objected, asserting that their books, records and computers were seized pursuant to the court’s order in another case.  More specifically, Defendants asserted that the books and records were seized within twenty-four hours of the court’s order, and that “they did not have an opportunity to copy or electronically back up their files.”

Despite the non-party’s possession of Defendants’ computers and records (as the result of the seizure), some discovery was undertaken.  Three hundred pages of payroll records were provided to Plaintiffs as a result of Defendants’ counsel’s contact with counsel for the non-party.  Additionally, Plaintiffs subpoenaed the records from the non-party and conducted an inspection of the records prior to filing the motion for sanctions.  To the extent that some records were no longer available, Defendants argued that “they had no control over the records and were not complicit in their loss or destruction.”

Assessing Defendants’ duty to preserve and noting the failure of Plaintiffs or the court to identify case law addressing a comparable situation, the court found that “under the specific circumstances of this case,” Defendants had no obligation to copy their records before complying with the court’s order regarding seizure of their property.  Moreover, the court found that even if Defendants did have a duty to “copy or otherwise preserve” the records prior to seizure, there was “no suggestion that they acted with any intent or knowledge that the records would be unavailable to plaintiffs in discovery.”   Thus, the court found no evidence that Defendants had the “requisite culpable state of mind.”

A full copy of the court’s order is available here.

Blue Sky Travel & Tours, LLC v. Al Tayyar, —Fed. Appx.—, 2014 WL 1451636 (4th Cir. Mar. 31, 2015)

In this case, a magistrate judge imposed severe sanctions for Defendants’ failure to preserve “all documents” once litigation began.  Specifically, the magistrate judge held that “once litigation began, [Defendants] had a duty to stop its document retention policies ‘and to preserve all documents because you don’t know what may or may not be relevant.’ (Emphasis added.)”  The sanction was upheld by the district court and resulted in a $10 million award for lost profits damages.  On appeal, however, the Fourth Circuit found that the “standard applied by the magistrate judge constituted an abuse of discretion, because a party is not required to preserve all its documents but rather only documents that the party knew or should have known were, or could be, relevant to the parties’ dispute.”  Accordingly, the circuit court vacated the lower court’s profit-based damages award and remanded the case for a determination regarding: 1) when Defendants should have known that the at-issue evidence  (original invoices) could be relevant; 2) when the at-issue evidence was destroyed; and 3) whether a new trial on lost profits damages was necessary.

“This case involves a breach of contract dispute between two travel agencies and their respective principals.”  Broadly summarized, Plaintiffs agreed to (and did) assist Defendants in procuring tickets to be re-sold to the Saudi Arabian Ministry of Higher Education (“the Ministry”) for Saudi Arabian students traveling outside of the country.  When the relationship soured, Plaintiffs filed a Complaint alleging, among other things, that Defendants had not upheld the agreement to share 50% of the profits generated from sales to the Ministry.

In the course of discovery, Plaintiffs sought the production of invoices involving other ticket vendors who provided tickets to Defendants.  When Defendants failed to produce the invoices despite an order of the court, sanctions were imposed.  In their motion for reconsideration, Defendants indicated that the original invoices had not been retained.  Accordingly, the court addressed the question of spoliation:

At a hearing held in September 2013 to determine whether ATG spoliated evidence, the magistrate judge admonished counsel for ATG, stating that “when this litigation started, the defendants were required by law to preserve. Any document retention policy you had had to be stopped.” The magistrate judge further informed counsel for ATG that “[o]nce you are put on notice that there is litigation pending or once litigation starts, you are required … to stop [your] normal document retention policies and to preserve all documents because you don’t know what may or may not be relevant.” The magistrate judge rejected ATG’s argument that Blue Sky’s complaint did not put ATG on notice that invoices relating to vendors other than Blue Sky could be relevant in the case. Additionally, the magistrate judge did not make any credibility findings concerning Ragaie’s affidavit.

At the conclusion of the hearing, the magistrate judge ordered an adverse inference “permitting the jury to presume that ATG made $20 million in profits in reselling to the Ministry the tickets originally purchased by [Plaintiffs].”  The sanction was affirmed by the district court.  Ultimately, it was the district court, and not a jury, that determined the amount of lost profits damages.  Accordingly, the court construed the adverse inference sanction “as creating an evidentiary presumption applicable at the damages hearing,” resulting in an award of $10 million in damages related to the alleged 50% profit sharing agreement.

Defendants appealed and argued that the magistrate judge and district court “applied an incorrect legal standard” when assessing Defendants’ preservation obligation.   The circuit court agreed:

A party may be sanctioned for spoliation if the party (1) had a duty to preserve material evidence, and (2) willfully engaged in conduct resulting in the loss or destruction of that evidence, (3) at a time when the party knew, or should have known, that the evidence was or could be relevant in litigation.   Turner v. United States, 736 F.3d 274, 282 (4th Cir.2013). In the present case, neither the magistrate judge nor the district court made the crucial finding whether ATG destroyed or failed to preserve the evidence at issue, despite having known or should have known that the evidence could be relevant in the case. See Silvestri, 271 F.3d at 591; see also Turner, 736 F.3d at 282.

Instead, the magistrate judge held that once litigation began, ATG had a duty to stop its document retention policies “and to preserve all documents because you don’t know what may or may not be relevant.” (Emphasis added). The standard applied by the magistrate judge constituted an abuse of discretion, because a party is not required to preserve all its documents but rather only documents that the party knew or should have known were, or could be, relevant to the parties’ dispute. See Turner, 736 F.3d at 282. Further, the district court’s imposition of the sanction based on spoliation created severe prejudice, because the evidentiary presumption effectively relieved Blue Sky of its burden to prove its damages claim for lost profits.

The lower court’s profit-based damages award was vacated.  On remand, the district court was therefore ordered to determine “whether [Defendants] spoliated evidence, what sanctions, if any, are appropriate, and whether a new trial on lost profits damages is necessary.”

A full copy of the court’s opinion is available here.