“Sophisticated” Parties: Beware of Heightened E-Discovery Expectations

Posted: January 6, 2011

In recent years, some courts have cited a party’s “sophistication” to justify a lack of tolerance for preservation errors, deny requests for the relief from allegedly unduly burdensome discovery, and uphold severe sanctions for failure to preserve and produce ESI. These decisions illustrate an increasing expectation on the part of the judiciary that “sophisticated” companies utilize the necessary resources to locate, preserve, access and produce a wide-variety of ESI when litigation arises.

Is it fair to expect a company that is sophisticated in its business practices to also be sophisticated about e-discovery issues? We aren’t making that judgment call, but we do want to highlight a few key examples of what courts are saying:

The federal court in Starbucks Corp. v. ADT Security Servs., Inc. granted a motion to compel requiring ADT to produce emails from a legacy email archiving system that ADT claimed would cost more than $800,000 to collect, process and produce. The court noted that ADT’s costs estimates were inconsistent and overstated and also noted “the fact that a company as sophisticated as ADT… chooses to continue to utilize [an archival system that makes the data difficult and expensive to access] … instead of migrating its data to its now-functional archival system should not work to plaintiff’s disadvantage.” The Starbucks court further noted that “both parties in this case have the substantial resources necessary to conduct this litigation.”

Similarly, in Magaña v. Hyundai Motor Am., Hyundai was sanctioned with a default judgment in the amount of $8 million for e-discovery violations, including failing to produce any ESI from any department other than the legal department. In upholding this sanction, the Supreme Court of Washington cited to the trial court’s finding that

“Hyundai had the obligation not only to diligently and in good faith respond to discovery efforts, but to maintain a document retrieval system that would enable the corporation to respond to plaintiff’s requests. Hyundai is a sophisticated multinational corporation, experienced in litigation.”

In another example, an insurance company lost its effort to defeat a motion to compel certain electronically-stored claims information by arguing that the requests for the ESI were unduly burdensome because the claims data sought by plaintiffs was not segregated by claim amount, claim type, or reason for denial of claim. The court in Zurich Am. Ins. Co. v. Ace Am. Reinsurance Co. criticized this argument by stating that a “sophisticated reinsurer that operates a multimillion dollar business is entitled to little sympathy for utilizing an opaque data storage system, particularly when, by the nature of its business, it can reasonably anticipate frequent litigation.”

Is your company “sophisticated” enough for these expectations to apply? These decisions have not defined the criteria fpr sophistication, but it appears being a large, multi-national, profitable business frequently engaged in litgation could land you in this category. Alternately, having a business that in any remote way touches on technology or computers – such as data storage – may also subject you to higher expectations. For example, Sandisk Corporation, “a global business that champions itself a leader in electronic data storage,” was sanctioned with $150,000 in costs as well as an adverse inference instruction to the jury in Harkabi v. Sandisk Corp.. Sandisk failed to preserve laptop data of employees who left the company after an obligation to preserve was triggered and delayed in producing emails restored from backup media to make-up for this loss of data. Plaintiffs’ citation to Sandisk’s “expertise in electronic data storage” in support of sanctions struck a chord with the court.

What is a sophisticated company to do?

• Plan for litigation before it arises

• After litigation arises, develop case-specific e-discovery plans that address the specific needs of the case as well as your specific data sources

• Identify problems early, including preservation failure or inaccessible sources

• Craft reasonable solutions for producing ESI before having one forced upon you

• Understand the specific burdens and costs associated with sources you want to claim are not reasonably accessible

• Don’t overstate what you have produced

• Don’t overstate the burdens of what you have not produced

• Support your burden arguments with appropriate detail and documentation

Following these tips can’t guarantee a sophisticated party won’t make a mistake, but awareness of the heightened expectations and planning accordingly should help mitigate the risk.

For additional information regarding litigation readiness and all things e-discovery, contact Alison Grounds.