New England Biz Law Update
A judge’s decision to dismiss a plaintiff’s breach-of-contract lawsuit and sanction him $243,000 for destroying critical evidence in an employment dispute is a warning to civil litigants who do not cooperate during discovery, lawyers say.
“The system can’t work if parties engage in this kind of misconduct, particularly where it looks as though it was intentional,” said defense counsel Brian A. Davis of Boston’s Choate, Hall & Stewart. “We have essentially been treading water for a year as we tried to get to the bottom of this. This case otherwise would have already been tried.”
Davis said the case sends a clear message: Litigants who hold back during the discovery process can kiss their claims good-bye when they “show up in court and ask for the judge’s help in obtaining relief.”
In Stein v. Clinical Data, Inc., Massachusetts Superior Court Judge Judith A. Fabricant dismissed a plaintiff doctor’s complaint and ordered him to pay attorneys’ fees after finding that he withheld evidence and ignored a court order by installing software that destroyed a series of relevant e-mails.
John F. Welsh of Bello, Black & Welsh in Boston, who was not involved in the case, said Massachusetts typically imposes more severe sanctions than other jurisdictions.
“What [Fabricant] did here is consistent with Massachusetts’ more stringent approach toward spoliation, especially when you’re dealing with misrepresentations or perhaps even perjury used to conceal evidence,” Welsh said. “In those circumstances, what we’re seeing is that our judges tend to come down much harder than other courts.”
Peter F. Carr II of Eckert, Seamans, Cherin & Mellott in Boston, who represented the plaintiff, did not return multiple calls for comment.
Citing ‘Stein’
Despite the plaintiff’s disregard of the judge’s discovery orders, Davis said, Fabricant did not find him liable on a related set of defense counterclaims.
Instead, the judge said she would allow opposing counsel to introduce evidence of the plaintiff’s misconduct at trial. Fabricant said she would then instruct the jury that it could infer that the materials existed and that they would have “provided evidence of facts inconsistent with [the plaintiff’s] position.”
Welsh, who persuaded Superior Court Judge Diane M. Kottmyer to impose a similar sanction in a 2006 employment matter, said that what makes cases like Stein so important is the lack of appellate law on the subject.
Although the Massachusetts Supreme Judicial Court has held that trial judges have the authority to dismiss complaints when presented with evidence of intentional destruction, few cases go up on appeal, Welsh said.
“There is almost no higher court precedent on this,” he said. “The appellate courts have said that dealing with spoliation issues is a matter within the wide discretion of the trial judge and is to be decided on an abuse-of-discretion standard, which makes them extremely hard to overturn.”
Consequently, said Worcester, Mass., attorney Abigail R. Williams, lawyers will likely cite Fabricant’s decision in Stein when seeking sanctions in their own cases.
“This is a pretty unusual sanction,” said Williams, who has handled several spoliation matters. “People are going to be looking to the facts of this case and asking whether their case rises to the level of what happened here.”
As for the jury instruction, Williams said, it is “the one that everybody wants to get with spoliation. What happened here is about as severe a penalty as you’re going to see and usually only occurs when a judge is really sure that there has been a willful and purposeful destruction of evidence.”
Scrubbing the software
The plaintiff physician, Israel Stein, served as an executive at defendant Clinical Data Inc. (CDI), until he resigned in 2006. His employment agreement entitled him to severance pay and contained a one-year non-compete, which prohibited him from using trade secrets and soliciting employees.
At the time of Stein’s departure, CDI was preparing to sell its vital diagnostics division through a private auction process.
In 2007, the company believed that Stein was interfering with that process by communicating with potential bidders and using confidential information.
When the parties were unable to resolve their differences, the company terminated Stein’s severance pay and benefits. In response, Stein filed suit, asserting breach of contract and other related violations. CDI counterclaimed that Stein had interfered with the auction process, disclosed company secrets and improperly consulted with its competitors.
During discovery, CDI sought Stein’s e-mail communications with various individuals connected to the case. Although Stein produced some e-mails under a court order, CDI remained convinced that more existed, both because of the small quantity provided and because of discrepancies with materials received from third parties.
When Stein failed to comply with an agreed-upon protocol for inspection of documents, Fabricant directed him to turn over his computer. An examination of the computer by a forensic expert revealed there were no e-mails from the relevant period.
However, Fabricant later found that the computer did contain evidence indicating that, between the time CDI served its motion to examine the computer and Nov. 30, 2008, Drive Scrubber 3 software had been installed on the computer that permanently removed certain items from it.
As a result, CDI moved for sanctions against Stein. In response, Stein denied any intentional destruction and said he ran the software in an innocent effort to clear space.
For the first time he also stated that he had installed different software, which automatically deleted e-mails every seven days. At an April deposition, Stein said that he had put his e-mail archives on CDs and provided them to his counsel.
When the company received a court order to inspect those CDs, several relevant e-mails were found.
Stein went on to assert “his extreme concern for his own and his family’s personal privacy stating that ‘I never intended to hide or destroy any information relevant to this case. I just could not trust CDI with my private personal information.’”
‘Utter disregard’
In imposing the sanctions, Fabricant wrote that Stein should have known that his e-mail communications with third parties would be relevant. Once a litigant has that knowledge, she said, the law imposes a duty to act scrupulously to preserve the materials.
“Viewing his own privacy interest as ‘paramount,’ Stein took it upon himself to decide what was relevant, and what was too private and sensitive to risk disclosure, acting in utter disregard of his obligations and of the authority of the court,” she wrote.
As a result of his misconduct, Fabricant said, CDI spent a large amount of money and attorney time in chasing down the e-mails. In addition, the court had conducted three hearings, reviewed “voluminous materials” and entered three orders, she said.
“Stein’s conduct has impaired CDI’s ability to conduct effective and timely discovery and to defend [his] claims and prosecute its own claims fairly,” she wrote, “and has impaired the Court’s ability to adjudicate both sides’ claims justly.”
Fabricant, who noted she was required to impose the least severe sanction necessary to remedy the prejudice, said she had no choice but to dismiss the plaintiff’s claim and give the jury powerful instructions on the counterclaim.
