E-Discovery Insights – Clearwell Systems, Inc.

Sandisk Fails to Find Proper E-Discovery Balance – Gets

Sanctioned
by Dean Gonsowskion September 20th, 2010

In the Southern District of New York it’s easy to get eclipsed (in
the electronic discovery world at least) by the Honorable Shira
A. Scheindlin (of Zubulakefame). And yet, the latest case out of
this district was penned by Magistrate Judge William H. Pauley
and contains one of the most memorable preambles to a case
that I’ve read in a while:

“Electronic discovery requires litigants to scour disparate data

storage mediums and formats for potentially relevant
documents. That undertaking involves dueling considerations:
thoroughness and cost. This motion illustrated the perils of
failing to strike the proper balance.”

In Harkabi v. Sandisk Corp., 08 Civ. 8203 (WHP) (S.D.N.Y. Aug,

23, 2010), aside from the stellar opening, Magistrate Pauley
illustrates that the culpability standard for certain technology companies may actually be higher
than for their low tech counterparts. The discovery dispute began after the plaintiffs claimed
that the defendant Sandisk failed to produce their former laptops and corporate email. When
the underlying action (for failure to pay the plaintiffs their “earn outs” after an acquisition)
began to heat up the plaintiffs wisely sent Sandisk a preservation letter.

Sandisk, upon the receipt of the letter sent a “Do-Not-Destroy” memorandum as well as
securing the laptops issued to plaintiffs. After some time, the laptops were imaged and the data
was saved on a file server. Unfortunately, this is where things took a turn for the worse.

After plaintiffs” evaluation of Sandisk’s production, it was discovered that materials from their
laptops had not been produced and neither had some of their emails. After a significant
amount of wrangling and Sandisk’s “best efforts” they admitted that they couldn’t find the
laptop data anywhere — finally conceding that the laptop images were lost sometime during
the data transfer. Because Sandisk did not “engage this reality” they didn’t commence a search
of backup tapes for some considerable time. So, although the court was confident that the
omission would eventually be resolved, the event might have never been detected but for the
plaintiff’s diligence and in the final analysis it still ended up costing plaintiff considerable sums
ferreting out the issue.

With this as a backdrop the Magistrate began his analysis of the spoliation and delayed
production issues. The plaintiffs proffered four arguments for why a culpable state of mind
could be inferred:

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E-Discovery Insights – Clearwell Systems, Inc.

1. A one month delay in counsel’s issuance of the legal hold memo. This argument was
rejected by the court since the delay didn’t appear to cause any real harm.
2. Failure of Sandisk’s counsel to adequately supervise the legal hold process. Here, the
court concluded that counsel was “notably absent at critical junctures” of the
preservation process, including the copying of the laptop data.
3. Sandisk’s “expertise in electronic data storage.” Here the court appeared to hold
Sandisk to a higher standard, noting that this finding “must mortify *Sandisk+, a global
business that champions itself a leader in electronic data storage.” The court further
gilded the lily by stating that SanDisk’s “size and cutting edge technology raises an
expectation of competence in maintaining its own electronic records.”
4. Sandisk’s delay in revealing that certain information had not been included in its
native production. Here the court also found some lack for forthrightness during
counsel’s representations about discovery completeness.

Not surprisingly, with adverse findings on three of the above arguments, the court found
defendant was “at a minimum” negligent stating that the “cascade of errors” ultimately
aggregated to a “significant discovery failure.”

With these findings in the record the court then went on to the sanctions analysis. Here, there
wasn’t enough evidence supporting terminating sanctions, but an adverse inference instruction
was appropriate since the plaintiffs had “lost access to relevant evidence.”

Turning to the delayed production, the court found that because it appeared that the emails
would eventually be produced, the prejudice “is contained.” Thus, terminating sanctions were
not warranted. Yet, because defendant’s misrepresentations obscured the deficiencies and
“stopped discovery in its tracks” the court found that monetary sanctions in the amount of
$150,000 were appropriate to compensate plaintiffs for their “‘David-and Goliath-like” struggle
for electronic discovery.”

Many of these errors are fairly typical of the types of e-discovery disputes seen today. However,
this case does seem to highlight the raised bar for any company that should “know better”
when it comes to electronic discovery issues. Here, Sandisk certainly isn’t an e-discovery
company per se, but their expertise in ESI storage certainly made it difficult to claim ignorance.
This raised bar was seen in spades when Guidance Software was recently accused of gross
negligence and e-discovery bad faith during an employment dispute. In combination with the
Sandisk case, it’s not surprising to see the standard of care elevated for folks who should really
know better. So, for anyone in the e-discovery (or tangentially related) industry, it’s probably a
good idea to become even more diligent when responding to electronic discovery requests.

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