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Business socked with punitive damages for rogue executive’s actions
A "litigation hold" prohibiting the deletion of documents while litigation takes place—as well as instructing employees to honor that hold—may not be enough to prevent employees from deleting e-mails anyway. So a technological backup of electronically stored information during litigation may be in order.
A court imposed $3 million in punitive sanctions on a company this summer for an employee's destruction of tens of thousands of e-mails, which occurred even after the company issued a litigation hold and held training on what that means (GN Netcom v. Plantronics, No. 12-1318-LPS (D. Del. July 12, 2016)).
What made it worse was that the person who destroyed the e-mails was an executive. "In Plantronics, the employee who committed the spoliation [destruction of evidence] was a chief executive who was very aware of the retention and litigation hold policies and violated them anyway," said Maribeth Meluch, an attorney with Isaac Wiles in Columbus, Ohio. She said the lesson learned from the case was to have the IT department immediately back up electronically stored information as soon as any hint of a possible lawsuit arises.
"The Plantronics case should be a wake-up call" for employers, said Collin Hite, an attorney with Hirschler Fleischer in Richmond, Va.
The e-mails in this case were "double deleted," or removed first from an inbox and then from the trash. Double deleting makes it virtually impossible to recover e-mails from a computer, said Frank Nolan, an attorney with Sutherland Asbill & Brennan in New York City. However, there are ways to prevent someone from doubling deleting e-mails, he said, such as granting network administrators more control over e-mail.
David Ries, an attorney with Clark Hill in Pittsburgh, said, "In a case like this one, the harm that led to the harsh sanctions most likely could have been prevented or reduced by having IT preserve the complete e-mail boxes of the relevant custodians at the initiation of the litigation hold."
It all started when GN sued Plantronics, alleging monopolization and wrongful interference with business relations based on its Plantronics Only Distributor program for distributors of its headsets. After Plantronics received a letter about the imminent litigation, the company issued a litigation hold on May 25, 2012, to relevant employees and provided training to ensure compliance.
But Don Houston, the company's senior vice president of sales, double deleted between 36,397 and 90,574 e-mails from May 25, 2012, to the last date for which the company does not have backup tapes, Nov. 4, 2013, according to a forensics expert that Plantronics hired. Houston's actions made it impossible to specify exactly how many e-mails had been deleted.
Plantronics retained a forensics expert to look into Houston's e-mails because Plantronics' associate general counsel became concerned about his document retention in 2014. She put Houston's assistant on a litigation hold in case the assistant had duplicate e-mails. IT provided backup tapes going back to November 2013.
Plantronics' forensics expert estimated that 952 to 2,354 of Houston's deleted e-mails were likely to have been responsive to GN's requests for information during litigation. However, GN's forensics expert estimated that 2,380 to 15,309 e-mails would have been responsive and were not recovered.
Plantronics could have spent $5,000 to recover some of the e-mails but chose not to, Nolan said—a choice he described as "penny-wise and pound-foolish."
In addition to deleting thousands of his own e-mails, Houston urged members of his team to delete e-mails pertaining to competition from GN.
Denials About Deletions
In addition to deleting the e-mails, Houston attempted to cover his tracks.
During a deposition on Jan. 27, 2015, Houston denied that he had deleted any e-mails that had to do with competitive issues. And on Feb. 19, 2015, Plantronics' CEO testified that he was aware of only three instances in which Houston had deleted e-mails and instructed others to delete them. It was during the CEO's deposition that GN learned for the first time that Plantronics had engaged a forensics expert.
The court said Plantronics' "repeated obfuscation and misrepresentations" related to Houston's e-mail deletion convinced it that the company had acted in bad faith. And the spoliation made it harder for GN to win its case by leaving "a spotty and incomplete factual picture of the marketplace with which to combat Plantronics' claims."
The court imposed a sanction in the amount of $3 million—three times the $1 million financial penalty Plantronics imposed on Houston personally. The court also instructed the jury that it may infer that e-mails destroyed by Plantronics would have been favorable to GN's case and/or unfavorable to Plantronics' defense.
Understanding a Litigation Hold
While training didn't do much good in this case, one reason to conduct training is that many employees don't understand what a litigation hold means.
"Once a party anticipates litigation, then all relevant or potentially relevant evidence should be preserved from that point forward," Hite said. "Many employees believe this means that only official corporate records must be preserved, but not items such as personal notes, working files or personal e-mails. That understanding is mistaken."
He added, "Everyone must understand the role they play in preserving documents and that harsh penalties can be leveled against the company for the actions of the negligent or rogue employee."
He recommended periodically reminding employees about the litigation hold during litigation.
The sanctions for destroyed evidence can be drastic, Hite noted. "If the judge determined the destruction of electronic evidence was intentional, then the court may go as far as entering a judgment against the party. In other words, the other party automatically wins the case," he said.
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