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    Spoliation of Electronic Evidence

    Given the volume of electronic data that is used as evidence in civil and criminal proceedings, it is only a matter of time before a Wisconsin court confronts the spoliation of electronically stored information. As Wisconsin prepares to implement its new e-discovery rules, it is important that attorneys and courts have a standard to follow in cases involving spoliation of e-evidence.

    Timothy D. Edwards & Daniel P. McAlvanah

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    Wisconsin LawyerWisconsin Lawyer
    Vol. 83, No. 11, November 2010

    Keyboard on Fire The amount of evidence that is produced in electronic format has increased substantially in the past several years. Given the prevalence of electronic data, and the ease with which it can be deleted or modified, it is not surprising that most of the recent federal-court cases in which sanctions have been imposed for spoliation of evidence have involved electronically stored information. However, as Wisconsin prepares to implement its new e-discovery rules, there are no reported Wisconsin cases that address the issue of spoliation involving electronically stored information. This is likely to change soon.

    This article addresses spoliation of electronically stored information and endorses a standard for Wisconsin courts to follow in cases involving spoliation of e-evidence. First, the article outlines the law of spoliation in Wisconsin and highlights its similarity to well-settled principles of spoliation that are being applied throughout the United States. Next, the article identifies how Wisconsin’s spoliation law can be connected to existing federal law that provides a sophisticated formula for imposing sanctions when e-evidence is destroyed. Finally, the authors recommend that the Wisconsin courts borrow from this well-established body of law in deciding spoliation cases involving electronically stored evidence.

    Wisconsin Spoliation Law

    Wisconsin law defines spoliation as the “destruction or withholding of critically probative evidence resulting in prejudice to the opposing party.”1 The purpose of forbidding spoliation – and imposing appropriate sanctions – is two-fold: 1) to uphold the judicial system’s truth-seeking function; and 2) to deter parties from destroying evidence.2 Wisconsin courts apply a two-step analysis to determine whether spoliation has occurred. First, courts consider “whether the party responsible for the destruction of evidence knew, or should have known, at the time it destroyed the evidence that litigation was a distinct possibility.”3 Second, courts weigh “whether the offending party destroyed documents which it knew, or should have known, would constitute evidence relevant to the pending or potential litigation.”4

    When spoliation occurs, courts are empowered to impose a wide range of sanctions, including outright dismissal of a case. The severity of the sanction is directly tied to the state of mind of the culpable party and the resulting prejudice. For example, dismissal is a proper sanction when “the party in control of the evidence acted egregiously in destroying the evidence.”5 Egregious behavior is “a conscious attempt to affect the outcome of the litigation or a flagrant, knowing disregard of the judicial process.”6 While the severity of dismissal is obvious, other available spoliation sanctions can have an equally dramatic impact on the course of litigation. These include independent tort actions against parties that intentionally or negligently destroy evidence, pretrial discovery sanctions, and adverse-inference jury instructions.7

    Recent cases demonstrate how courts apply these principles. In Olson v. Bauer,8 the buyer of a home sued the seller for allegedly failing to disclose defects that caused basement flooding. The plaintiff filed her complaint in July 2007. Two months later, the plaintiff’s attorney sent the defendant’s attorney a letter stating that the plaintiff planned to have repair work done on the property and offering the defendant an opportunity to inspect the property. Although the letter did not identify the nature of the repairs, the defendant’s counsel responded that “we assume there will be no spoliation of evidence that would somehow affect our ability to defend this case.” The parties agreed to an inspection date in December 2007. However, just before the scheduled inspection, the plaintiff completed substantial repair work to the basement, including a replacement of the drain-tile system.

    After learning of these repairs, the defendant filed a motion to dismiss – which the circuit court granted – in which the defendant argued that the plaintiff had destroyed critically relevant evidence. In affirming the dismissal order, the court of appeals primarily considered whether the plaintiff’s decision to carry out the repair work satisfied the “egregious conduct” standard. In considering this question, the court rejected the plaintiff’s argument that dismissal was warranted only if she “acted deliberately to sabotage [the defendant’s case].” The court noted that the egregious conduct standard can be met regardless of whether a party deliberately destroys relevant evidence, and that it encompasses the destruction of evidence that a party “should have known” was relevant to the pending litigation. Because the plaintiff’s decision to completely remodel her basement met the objective, should-have-known standard, the court held that dismissal was warranted.9

    In situations in which the defendant destroys evidence – and, clearly, dismissal is a counterintuitive remedy – an adverse-inference instruction may represent an equally powerful sanction. A good example is S.C. Johnson & Son Inc. v. Morris, in which an employer brought an action against two of its employees and several transportation companies for their involvement in a kickback scheme.10 At trial, the court held that a transportation company defendant had intentionally destroyed relevant bank account records “when their importance and significance to contemplated or pending litigation would have been known.” Accordingly, the circuit court instructed the jury that it could infer that the records were destroyed “because producing them [to the plaintiff] would have been harmful to [the transportation company’s] interests.”11 While the exact effect of the adverse instruction given in S.C. Johnson is unclear, it may have provided some impetus for the jury’s $203 million damages award.

    Wisconsin courts have imposed sanctions for spoliation even when there is an “innocent explanation” for the destruction of documents.12 In short, “[t]here is a duty on a party to preserve evidence essential to the claim being litigated. The failure to take adequate steps to preserve evidence that [is] totally within [one party’s] control is sufficient to justify the imposition of sanctions.”13 As discussed below, this principle has direct application to spoliation cases involving the discovery of electronic data.

    Spoliation in Cases Involving Electronically Stored Information

    Electronically stored information is different than hard-copy documents or other identifiable objects that have potential evidentiary value. Electronic data can be destroyed or altered through the routine application of a document retention system that destroys data on a scheduled basis. Metadata contained within electronically stored information can be modified or overwritten by merely copying or sending a document. For these reasons and others, parties must take special efforts to preserve electronically stored information once litigation is reasonably foreseeable. Carrying out this obligation, known as a litigation hold, is the first step in protecting a party from spoliation sanctions when electronically stored evidence may be relevant to a pending dispute.

    The seminal case involving the preservation of electronically stored information pursuant to a litigation hold is Zubulake v. UBS Warburg LLC.14 Zubulake makes clear that once a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a litigation hold to ensure the preservation of relevant documents. This requires counsel to communicate with the key players in the litigation and, further, to instruct all employees to produce electronic copies of their relevant, active files.15 Counsel also must make sure that all backup media with relevant information are identified and stored in a safe place. Ultimately, “[i]t is not sufficient to notify all employees of a litigation hold and expect that the party will then retain and produce information. Counsel must take affirmative steps to monitor compliance so that all sources of discoverable information are identified and searched.”16

    In a recent decision, Judge Scheindlen of the U.S. District Court for the Southern District of New York revisited the duty to preserve and the sanctions that follow when the duty is not satisfied. In Pension Committee of University of Montreal Pension Plan v. Banc of America Securities LLC,17 the plaintiffs failed to implement a legal hold and engaged in careless and indifferent collection efforts after the duty to preserve arose. In evaluating the appropriate sanction, the court made it clear that “the duty to preserve means what it says and … a failure to preserve records – paper or electronic evidence – and to search in the right places for those records, will inevitably result in the spoliation of evidence.” More specifically, the court noted that “the failure to issue a written litigation hold constitutes gross negligence because the failure is likely to result in the destruction of evidence.”18 Perhaps more significantly, the failure to collect electronically stored information “constitutes gross negligence or willfulness” in the sanctions analysis. Put another way:

    Timothy D. Edwards Daniel P. McAlvanah

    Timothy D. Edwards, Wayne State 1989, is a litigation partner at Axley Brynelson LLC, Madison. He chairs the firm’s electronic discovery and records management team. He can be reached at com TEdwards axley axley TEdwards com.

    Daniel P. McAlvanah, U.W. 2006, is a litigation associate at the firm. His practice focuses on class-action litigation, and he is a member of the firm’s electronic discovery committee. He can be reached at (608) 260-2489.

    “After a discovery duty is well established, the failure to adhere to contemporary standards can be considered gross negligence. Thus, after the final relevant Zubulake opinion in July, 2004, the following failures support a finding of gross negligence when the duty to preserve has attached: to issue a written litigation hold; to identify all of the key players and to ensure that their electronic and paper records are preserved; to cease the deletion of email or to preserve the records of former employees that are in a party’s possession, custody or control; and to preserve backup tapes when they are the sole sources of relevant information and they relate to the key players, if the relevant information maintained by those players is not obtainable from readily accessible sources.”19

    Both Zubulake and Pension Committee create a framework for analyzing allegations of spoliation involving electronically stored information. Under this framework, counsel is provided with clear guidelines for preserving electronic data and the proper implementation of a litigation hold. Those guidelines require counsel to take steps to ensure that electronically stored data is preserved during the course of the litigation. If those guidelines are not followed, sanctions can be imposed on a graduated basis, depending on the parties’ state of mind and the likelihood that relevant data was destroyed. The failure to implement a written legal hold constitutes gross negligence, invites a presumption that relevant data has been destroyed, and ultimately supports the imposition of severe sanctions, including an adverse-inference instruction. These are strong principles that direct the spoliation analysis in cases involving electronic discovery.

    Conclusion: What will Wisconsin Courts Do?

    Wisconsin has not yet addressed a case involving the spoliation of electronically stored information. Given the volume of electronic data that is used as evidence in civil and criminal proceedings, it is likely that a Wisconsin court will confront this issue in the near future. At that time, the court will have at its disposal a robust body of Wisconsin spoliation law that mirrors the formula for sanctions used in the federal e-discovery context by focusing on state of mind and prejudice. Similarly, the court will have substantial Wisconsin authority that makes it clear that a party must preserve relevant evidence when litigation becomes foreseeable. This authority is consistent with the principles set forth in Zubulake and Pension Committee, and it fits nicely into a proper analysis of spoliation in the electronic discovery context.

    The question, then, is whether Wisconsin will follow the guidance from Zubulake and provide specific instructions to litigants regarding their preservation obligations when electronic discovery is involved. It is also unknown whether Wisconsin courts will follow the Pension Committee decision’s graduated-sanctions formula, and its correlating presumption that the failure to institute a litigation hold constitutes gross negligence that permits an inference that relevant evidence has been destroyed. These specific rulings fortify the importance of the immediate preservation of electronically stored evidence and provide proportional sanctions for those who refuse to comply with these obligations. If incorporated into Wisconsin law, the rulings would provide an appropriate addition to our existing spoliation law, which will translate well into the growing world of electronic discovery.

    Endnotes

    1Neumann v. Neumann, 2001 WI App 61, ¶ 79, 242 Wis. 2d 205, 626 N.W.2d 821.

    2Insurance Co. of N. Am. v. Cease Elec. Inc., 2004 WI App 15, ¶ 16, 269 Wis. 2d 286, 647 N.W.2d 886.

    3Id. ¶ 15.

    4Id.

    5American Family Mut. Ins. Co. v. Golke, 2009 WI 81, ¶ 42, 319 Wis. 2d 397, 768 N.W.2d 729.

    6Id.

    7Neumann, 2001 WI App 61, ¶ 80, 242 Wis. 2d 205. See also Wis. Stat. § 804.12(2)(a) (outlining applicable discovery sanctions, including dismissal).

    8No. 2009AP1143, 2009 WL 2047274 (Wis. Ct. App. July 16, 2009) (per curiam).

    9Id. ¶¶ 6-10.

    102010 WI App 6, ¶¶ 5-6, 322 Wis. 2d 766, 779 N.W.2d 19.

    11Id.

    12Morrison v. Rankin, 2007 WI App 186, ¶ 17, 305 Wis. 2d 240, 738 N.W.2d 588 (disregarding innocent explanation for destruction of documents and affirming circuit court’s entry of directed verdict against wrongdoer); Sentry Ins. v. Royal Ins. Co. of Am., 196 Wis. 2d 907, 918-19, 539 N.W.2d 911 (Ct. App. 1995) (holding that valid personal reason for destroying documents does not relieve party of obligation to preserve evidence for trial).

    13See Morrison, 2007 WI App 186, 305 Wis. 2d 240; Sentry Ins., 196 Wis. 2d 907.

    14Zubulake v. UBS Warburg LLC (Zubulake IV), 220 F.R.D. 212 (S.D.N.Y. 2003).

    15Zubulake v. UBS Warburg LLC (Zubulake V), 229 F.R.D. 422, 432 (S.D.N.Y. 2004).

    16Id.

    17685 F. Supp. 2d 456 (S.D.N.Y. 2010).

    18Id. at 465.

    19Id. at 471.




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