Sanctions Imposed On Defendants For Failing To Preserve Electronic Evidence

UNITED CENTRAL BANK v. KANAN FASHIONS, INC., Dist. Court, ND Illinois 2011 – Google Scholar: The United States District Court for the Northern District of Illinois has imposed sanctions on defendants in a breach of contract action by a Bank. The Defendants failed to safeguard a computer server and, as a result, it was lost. What is interesting about this case is that the Court rejected the Defendants' efforts to blame the loss of the server on their lawyers. The Magistrate Judge conducted a five-day evidentiary hearing on the issue and awarded sanctions to the Plaintiff Bank. The District Court affirmed all the major aspects of the decision. The Defendants attempted to blame their lawyers, but the Magistrate Judge and the District Judge rejected these contentions. The Court wrote: "First, invoking an advice of counsel defense, Defendants contend that because Bailey instructed them that "nothing should be done with or to any of the computers, servers or related equipment" and that they were "not to take any action," they cannot be sanctioned for "doing nothing" to preserve the server. Doc. 434 at 3-4. The argument fails to persuade. Neither the letter nor the spirit of Bailey's instruction to "do nothing" reasonably suggested that Defendants would meet their discovery obligations by not taking the affirmative steps to safeguard critical ESI. What Bailey meant by "do nothing" obviously was to "do nothing" that would compromise the information contained on the server. In any event, "do nothing" in no way characterizes Defendants' conduct regarding the server. As the magistrate judge found: [T]he ultimate responsibility for the spoliation of the warehouse server rests with Defendants. . Defendants [engaged in a] scheme to avoid producing the warehouse server. Defendants repeatedly put [Bailey] off without explaining their delay in transporting the server. They deliberately kept [Bailey] out of the loop regarding their agreement with [First Midwest Bank] and their ongoing negotiations with Associated to purchase the server. … Defendants even orchestrated the sale of the server to a foreign corporation in order to eliminate whatever information is on the server. Doc. 425 at 48. That is, Defendants did precisely what Bailey instructed them not to do: they took affirmative steps that, apparently by design, resulted in the loss of the server and its data." Here, in addition to sanctions (legal fees) the court also gave the Plaintiff an adverse inference instruction as set forth in this quote: "Specifically, the magistrate judge recommended: (1) that United be awarded fees and expenses incurred in bringing and prosecuting the sanctions motion; (2) that Defendants be precluded from introducing any evidence related to data that was on the server and that cannot be found elsewhere; (3) that an adverse inference is warranted; and (4) that the adverse inference be implemented by informing the jury that Defendants abandoned the server and instructing the jury that Defendants' failure to preserve the server may be considered evidence that the server contained information unfavorable to Defendants." Comment: the loss of computers and electronic information can often lead to costly satellite litigation and sanctions against the party that caused the evidence to be lost. Here, the lawyers escaped blame for the client's failure to preserve evidence because they were apparently able to show that they instructed the Defendants to preserve the computer server. Edward X. Clinton, Jr.'via Blog this'

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