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Plaintiff eDiscovery Lesson from Multifeeder

Posted on December 26th, 2012

Computer Forensics Expert Uncovers Defense Spoliation

In the modern realm of electronic discovery, the impulse to obfuscate and destroy evidence is often a tempting one, particularly to individual witnesses who sometimes operate under the false belief that they can conceal their tracks by use of data purging or encryption software. But as the District Court of Minnesota recently demonstrated in Multifeeder Technology, Inc. v. British Confectionary Company Limited (2012 WL 4135848 (D. Minn)), engaging in such wrongful conduct can be an expensive proposition.

MultifeederCase Background: Computer Forensics Expert Ordered

Plaintiff Multifeeder manufactured printing systems and defendant British Confectionary printed lottery tickets. The parties entered into a contract for Multifeeder to design a printing system for British Confectionary. Once production began, British Confectionary contended that the system was not functioning correctly and cancelled the contract. Plaintiff Multifeeder sued for breach of contract. British Confectionary countersued. Plaintiff served electronic discovery requests, seeking specific information regarding communications and email chains between British Confectionary and a third party, which according to Plaintiff would demonstrate that its system was able to perform to the contract’s specifications. However, British Confectionary barely produced responsive documents and data to the requests.

Following a motion for sanctions for failure to comply with an order to compel, the Magistrate Judge entered an ESI Protocol Order including appointing a third party computer forensics expert to image and search British Confectionary’s computers for responsive electronic data.

Computer Forensics Expert Uncovered Definitive Defense Spoliation

In the course of its review, the computer forensics expert found that certain files on one key employee’s computer were purged, deleted and wiped clean with specialized software after the ESI Protocol Order was entered. The expert also found that a second key employee installed encryption software on his computer after the lawsuit was filed, concealed an encrypted file and destroyed email threads on the computer after the ESI Order was entered and prior to the computer forensics expert’s arrival.

Such actions, according to the Magistrate Judge, constituted clear and convincing evidence that the defendant’s key employees engaged in spoliation of evidence. Having found such conduct to be in bad faith, the Magistrate Judge recommended the following significant sanctions for British Confectionary’s violations of the ESI Protocol Order:

1. An adverse inference instruction with regard to the destruction of evidence; and

2. Civil contempt and order to pay $25,000 to the court and $475,000 to plaintiff for costs of litigating discovery.

Court Finds Timing of Spoliation Evidences Intentional Wrongful Acts

The District Court adopted the Magistrate Judge’s recommendations and overruled each of the defense objections. While the District Court noted that the use of commercial wiping and encryption software on a computer does not, in itself, necessarily evidence intentional wrongful acts, in this instance, defendant’s conduct, coupled with the timing of the actions (less than two weeks after the ESI Protocol Order was entered), constituted clear and convincing evidence of defense spoliation.

The District Court also raised the sanctions award to $600,000 to compensate for the expert costs and attorney fees in recognition of plaintiff’s significant prejudice and to secure defendant’s compliance with future court orders. In justifying the increased award, the Court reasoned that the blame for the escalated fees fell squarely upon the defendant’s shoulders.

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