Courts Issue Stinging Reminders Regarding ESI Obligations

04/10/2024

Arizona courts are turning up the heat on sanctions awards for spoliation of electronically stored information (“ESI”).

Background

Ethical and procedural rules have long required attorneys to keep up with technological developments. See, e.g., Arizona ER 1.1, cmt. 6. Litigation increasingly involves ESI from new and developing communications platforms like Slack, Microsoft Teams, WhatsApp, and Telegram. As these platforms proliferate, the attorney’s obligation to understand, disclose, and meet and confer on these issues becomes more difficult but no less important.

Recent decisions at the federal and state level show that courts are not shying away from enforcing these obligations. These cases present a cautionary tale for litigants and their attorneys who ignore their obligations to understand, preserve, and disclose discoverable ESI. Now more than ever, spoliating evidence can be costly for bad actors—and their counsel!

Ninth Circuit Court of Appeals

In Jones v. Riot Hosp. Group LLC, 22-16465, 2024 WL 927669 (9th Cir. Mar. 5, 2024), the Ninth Circuit Court of Appeals recently affirmed case-terminating sanctions and a monetary award of $69,576 against a plaintiff and her counsel for spoliation of ESI in an employment-discrimination case.

In the District Court of Arizona, Judge Snow had ordered the parties to retain a third-party forensic specialist to address certain discrepancies in plaintiff’s initial ESI production.  That specialist uncovered an “orchestrated effort” by the plaintiff to destroy evidence on her own phones and those of her coworkers. When plaintiff’s counsel subsequently failed to send any of the non-spoliated messages to defendants, Judge Snow ordered $69,576 in sanctions against both plaintiff and her counsel. And, after the messages were finally produced, the Court granted defendants’ motion to dismiss the case with prejudice because of plaintiff’s intentional misconduct.

On appeal, the Ninth Circuit affirmed, concluding that the District Court had not abused its discretion in finding that plaintiff intentionally spoliated evidence and that dismissal was warranted based on the repeated violations by plaintiff and her counsel.  Among other things, plaintiff attempted to argue that her production of numerous other text messages cured any prejudice that defendants had suffered as a result of the spoliation.  The Court, however, rejected that argument, noting that Federal Rule of Civil Procedure 37(e)(2) does not require a showing of prejudice before terminating sanctions may be granted for intentional misconduct.

Arizona Court of Appeals

On the same day that the Ninth Circuit issued its opinion in Jones, the Arizona Court of Appeals issued a similar decision in Brown & Brown Ins. of Ariz., Inc. v. New, 1 CA-CV 23-0327, 2024 WL 945687 (Ariz. App. Mar. 5, 2024) (mem. dec.).

The Brown & Brown plaintiff was an employer who sued several former employees, alleging that they violated non-solicitation provisions of their employment agreements. During discovery, plaintiff requested an independent forensic examination of the defendants’ electronic devices because of various production discrepancies. Judge Agne of the Maricopa County Superior Court granted that request and ordered the examination, which revealed that defendants had deleted over 200,000 files from their computers and over 400 iMessage chats from their phones. Based on that misconduct, Judge Agne awarded an adverse inference against defendants. A five-day bench trial then followed, at which the Court found for the plaintiff on every claim and awarded a total of $1.5 million in monetary relief. That amount included $491,510 in attorneys’ fees and $260,500 in punitive damages, in part because of defendants’ attempts to conceal their misconduct.

Defendants subsequently appealed with regard to a number of issues, including the punitive damages and attorneys’ fees awards.  The Arizona Court of Appeals, however, affirmed the trial court in full.  In doing so, the Court approved of the trial court’s finding that “[d]efendants repeatedly showed disregard for truth and transparency.”  And, in affirming the attorney-fee award, the Court noted that plaintiff had shown that defendants willfully and maliciously misappropriated plaintiff’s confidential information, “then destroy[ed] evidence to cover up their wrongful conduct.”

Superior Court of Arizona

In Omnishield Pest Control Austin, LLC v. Corbin, Maricopa County No. CV-2020-017359 (a case similar to Jones, involving breach-of-contract claims for violations of non-solicitation and anti-piracy provisions), Lewis Roca Partner Alex LaCroix secured a severe sanctions award in the trial court against a group of defendants for disregarding their ESI preservation and disclosure obligations in bad faith.

When discovery commenced in that case, plaintiffs discovered numerous deficiencies in defendants’ productions and broad failures to disclose nearly any ESI (including text and Instagram messages that were likely to be at the heart of the matter). An evidentiary hearing followed, in which it was revealed that defendants had failed to preserve, collect, and produce ESI from multiple sources, and at least one of the defendants had disposed of his cell phone during the pendency of the case as part of Apple’s annual iPhone upgrade program.

After the hearing, the Court found that defendants had spoliated evidence and failed to comply with their preservation and disclosure obligations, which warranted: (1) a discretionary adverse inference against the defendant who had discarded his phone; (2) an order that defendants pay for a new, third-party ESI vendor to collect, search, and produce ESI from multiple sources, including defendants’ personal cell phones; and (3) an order allowing plaintiffs to seek their costs and attorney fees arising from defendants’ misconduct.  Plaintiffs then submitted their application for costs and attorney fees, and the Court awarded $254,010. Among other things, Judge Agne found that defendants made “minimal to no efforts” to comply with their discovery obligations and ignored or purposefully disregarded prelitigation document preservation requests in bad faith.

Conclusion

These cases demonstrate the importance of staying abreast of developments in electronic discovery. Litigators should continue to recognize that their ethical and procedural obligations require familiarity with relevant technologies and, consequently, new forms of ESI.  The failure of a litigant or a litigator to respect the significance of ESI issues can be devastating. But a keenly aware attorney can avoid such mistakes while also ensuring that opposing parties and counsel comply with their ESI-related obligations.