E-discovery is a constantly developing topic in the legal world, and the word, “world,” should be taken literally.  Across the globe, different nations and their legal system are formulating new rules to tackle new discovery issues that can arise almost as quickly as new technology and means of communication can develop.  The only problem with this, however, is that different nations are addressing their e-discovery issues with different solutions.  This problem usually rears its ugly head when one of the parties in a lawsuit is a multinational company.  What is a British company supposed to do when it’s sued in an American because of a foul-up by its French Subsidiary?  Do they supply all of the e-discovery materials required by American courts?  What if e-discovery that the American court requires no longer exists because it never needed to be stored in the first place by   French or British?

The European Commission, the executive arm of the European Union (“EU”), responsible for proposing legislation and implementing decisions in addition to running the EU on a day-to-day basis and upholding EU treaties, recently took steps toward untangling this e-discovery web of confusion and contradiction.  The European Commission had previously established the working party, an independent advisory board charged with handling issues relating to data protection and privacy in the EU.

The working party recently addressed the issue of transborder e-discovery relating to data held in Europe that was required to be produced as a result of legal proceedings occurring in the United States.   It recognized that a certain tension had mounted as a result of disclosure obligations under American legal rules differing with data protection requirements in the EU,  the working party also recognized that this was particularly relevant to European affiliates of multinational companies that were getting caught while trying to balance their obligations as a result of American e-discovery demands in connection to litigation and the various data protection and privacy laws governing the transfer of personal information that also varied among the different countries within the EU.  The working party saw that there was a need to reconcile the U.S. litigation requirements and EU data protection provisions and as a result, recommended a set of guidelines to be followed by EU data controllers.  These guidelines were eventually adopted in February 2009.  Among the guidelines adopted were a number of provisions applicable to lawsuit parties, businesses, lawyers, courts, & governments.

One conflict addressed by the working party that is likely the most applicable to e-discovery problems is what is to be done when a foreign company has to concern itself with American document retention rules that may conflict with the rules in the country where the company operates.   Due to the fact that different countries each have different time limits for potential litigants to bring a claim, it was not practical for the working party to establish a particular uniform period of time for data to be stored.  Thus, the guidelines provide as a solution that data controllers in the EU should have a clear policy on data storage, management, and retention.   So as long as the policy comports with local applicable guidelines and the policy is adhered to, the data controller will not be found to be at fault with US law because US rules of civil procedure merely require that existing information be disclosed to the adverse party.   An exception to this, however, is that if there is data relevant to a specific, imminent litigation process, it should be stored even such storage would not otherwise be required by the data storage policy in order to prevent spoliation of evidence.  The guidelines also address the process to be followed when an American court, a “litigation hold of pre-emptive requirement that information be retained.  In such scenarios, the data storage policy and/or and data destruction policy for documents that may be relevant to the legal claim is to be suspended.

This is just one of many problems addressed by the working party.  Their recently adopted guidelines also resolve globally conflicting laws relating to e-discovery issues that include, but are not limited to disclosure of sensitive personal data, consent, proportionality, transparency, rights of access and erasure, data security, and transferring data to third parties.  As a result, any company that does business in the U.S. as well as the EU would be best served by familiarizing itself with the working party’s recently adopted guidelines.

Frank received his B.a. from Wesleyan University.  In addition to being an award winning gardener, he is a third-year law student at Seton Hall University School of Law and can be contacted at fgiantomasi@gmail.com.  After graduating, he will clerk for a New Jersey Superior Court judge.

According to the 9^th circuit, the answer is a NO!

In Quon v. Arch Wireless Operating Co., 529 F.3d 892 (9^th Cir. 2008), the City of Ontario Police Department (“OPD”) had a formal policy governing city-owned computers and associated equipment that limited its use to City related business.  It also warned that the users should have no expectation of privacy or confidentiality when using these resources.  When the OPD issued pagers to its employees, it clarified that the policy also applied to the use of pagers.  Under the OPD’s contract with its service provider, each pager was allotted 25,000 characters, after which it incurred overage charges.

Quon’s supervisor informally allowed employees to pay for their overages thereby avoiding the need to audit the messages.  Accordingly, employees paid their share when they exceeded the character limit and avoided an audit.  Quon’s repeated overages, however, frustrated the supervisor, who pursuant to the formal policy requested an audit to determine if the exceedances were due to city related business.  The audit revealed that many of the messages were personal in nature and often sexually explicit.  It also revealed that at least in one instance the pagers were used to undermine a narcotics investigation.

Quon filed suit against the OPD, alleging breach of privacy among other claims.  The ninth circuit held that despite the OPD’s formal anti-privacy policy warning users not to expect privacy or confidentiality when using OPD-issued resources, Quon’s expectation of privacy in his text messages was reasonable.  According to the court, the supervisor’s informal policy not to audit text messages if the employee paid the additional charges, trumped OPD’s formal policy because the supervisor was in charge of the pagers and his statements carried a great deal of weight.

This serves as an important lesson for the employers.  Make sure that your managers and supervisors are strictly enforcing the policies that you have in place.  Any deviation could leave you open to unnecessary lawsuits.  Strict enforcement might be difficult depending on the operational realities of the department, but it is nonetheless critical to ensure the effectiveness of the existing policies.  If the supervisor had simply enforced the policy it already had in place every time there was an overage, this lawsuit would probably not have arisen.

Another interesting aspect of Quon is the 9^th circuit’s application of the Stored Communications Act or the SCA.  The Congress enacted the SCA (as part of the Electronic Communications Privacy Act) to address access to stored wire and electronic communications and transactional records arising from the advent of the Internet.  It prohibits providers of either “an electronic communication service” (ECS) or a “remote computing service” (RCS) from knowingly divulging the contents of a communication while in electronic storage or any other information pertaining to a subscriber or customer of that service.

There are exceptions.  If the provider is an ECS, then the information stored by it may be disclosed, with the lawful consent of only the author, the addressee or the intended recipient of that communication.  In the case of a RCS, the information may be disclosed with the lawful consent of the subscriber of the service.

This distinction was critical in Quon because along with the City of Ontario, the plaintiffs sued the wireless service provider for divulging the contents of their text messages to the City.  Since the City was the subscriber of the service, its authorization to release the content of the messages would be sufficient to absolve only a RCS of any liability.

This begs the question: what determines whether a provider is an ECS or a RCS?  The SCA defines a RCS as the provision to the public of computer storage or processing services by means of an electronic communication system.  Whereas, an ECS is any service which provides to its users the ability to send or receive wire or electronic communications. Under the SCA, an ECS could temporarily store the electronic communication incidental to its transmission or for the purposes of backup protection.

Reviewing the legislative history and plain language of the SCA, the 9^th Circuit concluded that the City’s provider, Arch Wireless, was merely an ECS.  Arch Wireless provided Quon and other users the ability to send or receive text messages and therefore fell squarely within the definition of an ECS.  It did archive those messages and therefore “store” them on its server, but Congress contemplated this exact function as one an ECS could perform.  Therefore, any information stored on Arch Wireless’ server after delivery was deemed by the court to be for backup protection.  The type of “storage” required by a RCS is akin to that of a virtual filing cabinet, such as when physicians and hospitals maintain medical files in offsite databanks.

The 9^th Circuit did hint that if a provider were to retain a permanent copy of the text messages (beyond the underlying message’s expiry in the normal course) or stored them for the benefit of the subscriber, it could become an RCS.

This decision could have far-reaching implications for many, including any employers that provide pagers or subscribe to communication services for their employees.  If the employer does not itself store the messages sent and received on the pagers, then despite any anti-privacy policy, the employer may be unable to monitor those messages.  As only a subscriber, it would not have the lawful authority to authorize its provider to release those messages.

The decision is also a warning to Internet Service Providers (ISPs) to enact and enforce policies that ensure that its employees do not release information simply upon the authority of their subscriber, whether in connection with litigation or otherwise.  It is certainly possible that an ISP could be an ECS to one client and a RCS to another if it also provides storage and processing services.  Therefore, any analysis of a request for information from a subscriber must begin by determining the ISPs relationship to the subscriber.  If, and only if, the ISP is an RCS for that particular client, can the ISP release the information upon the subscriber’s authority.  Enterprising ISPs may use this opportunity to broaden their relationship with their subscribers by offering storage and processing services and thereby converting the relationship to a RCS.

It is likely that employers could just avoid all this uncertainty by requesting the employee to sign a written consent authorizing the ISPs to disclose any information transmitted or received by that pager or associated with it prior to supplying that employee with a pager or communication service.

One can also imagine the impact of Quon’s decision extending to cloud computing.  Although the analysis of its application is beyond the scope of this post, one should be mindful that under the court’s interpretation an example of processing services offered by a RCS include businesses that transmit their records to remote computers to process sophisticated information.

Bridgewater, NJ (April 23, 2010) – Fernando Pinguelo, a Member of Norris McLaughlin & Marcus, P.A., appeared as a guest on Fox News Channel’s live web show, The Strategy Room, hosted by Kimberly Guilfolye.  Pinguelo was interviewed about today’s headlines featuring internet abuse, including the Security and Exchange Commission Office of Inspector General’s 5-year investigation that revealed SEC employees and contractors visiting porn sites and viewing sexually explicit pictures using government computers. Ms. Guilfoyle’s guests today also included Richard “Bo” Dietl and Dr. Kathryn Smerling. 

The Strategy Room airs weekdays from 9 a.m. to 5 p.m. ET for a discussion of the day’s top stories, plus a variety of hour-long shows on topics like business, health, technology, and entertainment.

“Casual use of the internet in the workplace is on the rise.  With up-to-the-minute Facebook statuses and Twitter ‘tweets,’ the use of company time for personal internet use has become common place.  This has become so common that it is obvious employees don’t realize their actions can be tracked and saved.  This new breaking story testifies to the fact that many workers don’t realize the implications of their actions online,” said Pinguelo.

Pinguelo, Co-Chair of the firm’s Response to Electronic Discovery and Information (REDI) Group, devotes his practice to complex litigation with an emphasis on business disputes, electronic discovery, and media and employment matters.  He has experience in all facets of litigation (trial, mediation, arbitration, and appellate) in both federal and state courts. As a former prosecutor, he has tried numerous cases.  Today, Pinguelo handles a broad spectrum of disputes including copyright infringement, misappropriation of trade secrets, fraud, breach of non-compete covenants, discrimination, and business torts, and is able to address a rapidly evolving crisis or emergency.

A leader in the emerging area of electronic discovery, Pinguelo works with business owners, C-level executives, in-house counsel, and human resources, information technology, and risk managers to develop strategies to manage business and legal issues related to electronic documents. He recognizes that complex contract and statutory considerations impact the evolving business environment. This understanding enables him to help clients comply with the broad array of laws that regulate document management. Pinguelo focuses on preventing claims and pursues strategies that enhance a client’s ability to manage electronic documents because he is keenly aware of the financial and public relations fallout that can result from high-profile electronic discovery abuses and negligence.

Notably, Pinguelo was involved in New Jersey’s first case addressing its new electronic discovery rule amendments, and has lectured numerous times on the topic, including at the Judicial College which provides judges with a wide range of academic programs. He has designed a state-of-the-art electronic discovery law course and teaches one of only a handful of such courses in the country at Seton Hall University School of Law.  Recently, the Fulbright Program, the U.S. government’s flagship international exchange program, designated Pinguelo a Fulbright Specialist for his work in eDiscovery, and he will engage in a project at a university in one of over 100 participating countries.  Pinguelo was also invited to be a member of eDiscovery Group of The Sedona Conference® Working Group Series, a prestigious series of think-tanks consisting of leading experts brought together by a desire to address various “tipping point” issues in each area under consideration.

To view the official press release, click here.

Pinguelo earned his J.D. from Boston College Law School in 1997 and his B.A., magna cum laude, from Boston College in 1994.  He is admitted to practice in New Jersey, New York, and the District of Columbia, and is the founder of eLessons Learned.

While electronically stored information (ESI) may be a rather esoteric concept for many of us (perhaps most), in the eyes of the law and the court, ESI is just as real as traditional paper documents; and one’s failure to search for and disclose ESI in a timely manner could lead to big problems for an attorney and the client.  In one case, it may have cost one company $25 million.

Only six-months ago, in B & G Management v. Lexington Insurance, the United States District Court for the Middle District of Florida, Orlando Division, granted a motion for Rule 37 Discovery Sanctions brought by defendant Lexington Insurance Co. (“Lexington”) against plaintiff B & G Management (“B&G”) that effectively defeated B&G’s claim for $25 million in damages.

In that case, B&G filed a complaint against Lexington, its insurer, for breaching the commercial property insurance policy it issued B&G.  B&G had filed a claim with Lexington for business interruption losses allegedly incurred as a result of damage to its Treasure Island Resort caused by Hurricane Jeanne.  B&G’s claimed the $25 million policy limit.

Throughout discovery, time and time again, B&G failed to satisfy its obligation to search for, locate, and disclose electronically stored documents containing information relevant to B&G’s business interruption losses in accordance with Lexington’s discovery demands.  B&G also ignored court orders establishing discovery disclosure timeframes and mandating B&G’s production of certain documents.

Even so, B&G twice managed to side-step Lexington attempts for court ordered sanctions.  B&G’s luck ran out on Lexington’s third attempt.  The court granted Lexington’s motion for sanctions and, reflecting the severity of B&G’s misconduct, barred B&G from using the very information that could have supported its claim for $25 million in damages.

Yet, were B&G’s failures the result of sloppy work or a calculated business decision to deprive its adversary of the very information most beneficial to its case?  In the end it does not matter whether it was the former or the latter – B&G’s discovery failures led to court ordered sanctions effectively defeating its claim.

“It” (Stengart, the fuss, the Supreme Court of New Jersey, this post, all this blog attention) all boils down to whether this employee had a reasonable expectation of privacy in emails between the employee and her lawyer sent and received (during work hours) using the employer’s computer and IT systems.

According to the trial court, Stengart did not have a reasonable expectation of privacy and the emails were properly retrieved and used by the employer and its lawyers in defense of the lawsuit.  According to the appeals court, not only did she (have a reasonable expectation of privacy), but also the appeals court took issue with the way the company lawyers handled the situation and queried whether the lawyers acted inappropriately when they retrieved and used these emails – and whether they should be sanctioned and/or thrown off the case.  Ouch!

This case is serious stuff, my friends, for lawyers, employees, and employers alike.  For those new to the case, here are some key elements of the Stengart line of cases for you to consider as the whole world (and blogosphere) awaits a ruling by the Supreme Court of New Jersey on the issues both the trial and appeals courts addressed and ruled upon.

The Facts (in a nutshell)

Loving Care Agency (the defendant in the case) is in the business of providing home care services for children and adults. The plaintiff, Maria Stengart, was its Director of Nursing for all of Loving Care’s branches as well as the Branch Manager at Loving Care’s Fort Lee office. Ms. Stengart was also one of the first two employees when Loving Care first opened for business in 1994.

Loving Care maintains an employee handbook which is distributed to all employees and which is also available to employees electronically via Loving Care’s servers. During Ms. Stengart’s tenure as Director of Nursing and Branch Manager for Loving Care, she assisted in the creation and distribution of the employee handbook. Among other things, the handbook governs an employee’s use of Loving Care’s computers and other technology resources. Under a section entitled “Electronic Communications,” the handbook provides, among other things:

• Technology resources are considered company assets.
• Email and voicemail messages, internet use and communication, and computer files are considered part of the company’s business and client records. Such communications are not to be considered private or personal to any individual employee.
• The principal purpose of email is for company business communications. Occasional personal use is permitted; however, the system should not be used to solicit for outside business ventures.
• Certain uses of the email system are specifically prohibited, including but not limited to job searches or other employment activities outside the scope of company business.

During her employment at Loving Care, Ms. Stengart was provided with a company-issued laptop computer and assigned a Loving Care email account for business use. She also maintained a personal email account through Yahoo. Ms. Stengart occasionally accessed her password-protected Yahoo account to write emails during work hours on her company-issued laptop.

In December 2007, Ms. Stengart resigned from Loving Care. Two months later, she filed a lawsuit against Loving Care alleging that the hostile work environment had led to her constructive discharge. In April 2008, Loving Care’s attorneys in the employment lawsuit caused to have made an image of Ms. Stengart’s company laptop computer hard drive. The image preserved the electronic information contained on her employer-issued laptop. The hard drive was then sent to a company that could restore and recover deleted information located on the hard drive.

The Legal Path

eDiscovery: In October 2008, Loving Care served plaintiff its Answers to Ms. Stengart’s first set of interrogatories. In response to an interrogatory, Loving Care stated that it had obtained information contained in “email correspondence from Ms. Stengart’s office computer on December 12, 2007 at 2:25 p.m.” between plaintiff and her lawyer. This email was uncovered by the company hired to restore and recover deleted information located on the hard drive of plaintiff’s employer-issued laptop. The email in question was sent from Ms. Stengart’s password protected Yahoo account to her lawyer.

Loving Care’s answer to this interrogatory prompted Ms. Stengart to demand that all emails between her and her lawyer held by Loving Care be returned or destroyed. She claimed that the attorney-client privilege protected all such emails. Loving Care refused to return or destroy the emails, claiming that the content of the emails was not protected by the attorney-client privilege because Ms. Stengart waived the privilege by using Loving Care’s computer and server during business hours to make the communication. Ms. Stengart thereafter filed an Order to Show Cause alleging Loving Care’s attorneys breached her attorney-client privilege when Loving Care recovered and retained email correspondence made between her and her lawyer.

The trial court: The court determined that Loving Care’s policy (as detailed above) placed plaintiff on notice that all of her internet-based communications are not to be considered private or personal. In addition, Loving Care’s policy put employees on notice that the technology resources made available to employees were to be used for work-related purposes, particularly during business hours. The court found that the company’s policy adequately warns employees that there is no reasonable expectation of privacy (not outright prohibition of use) with respect to any communication made on company issued laptop computers and servers, regardless of whether the email was sent from Ms. Stengart’s work email account or her personal web-based email account. It was with Loving Care’s technology resources, laptop computer, and company time that Ms. Stengart communicated with her lawyer.

Thus, the court found that when Ms. Stengart decided to use company time, equipment, and resources to communicate with her lawyer, she did so with knowledge that such use would not be personal or private to her. Ms. Stengart’s choice of using her employer’s resources to communicate with her lawyer was her voluntary choice; and the court held that it constitutes a waiver of her attorney-client privilege.

The appeals court: The appeals court reversed the trial court and remanded the case.  The appeals court held that employees have a reasonable expectation of privacy in personal communications on a company owned computer. In sum, it held that a policy purporting to transform all private communications into company property “merely because the company owned the computer used to make private communications“ furthers no legitimate business purpose.

The appeals court concluded reversal of the trial court by addressing the issue of attorney discipline for the company’s law firm that uncovered and kept the emails. The appeals court determined that the law firm violated New Jersey Rule of Professional Conduct 4.4(b) because the lawyers failed to cease reading and examining the emails upon discovery and failed to notify plaintiff’s lawyer promptly of their discovery. The appeals court ultimately determined that whether the company’s attorneys should be disqualified is a matter for resolution upon remand to the trial court.

Where The Case Stands, Today

On July 29, 2009, the Supreme Court of New Jersey granted a motion for leave to appeal the appellate division ruling.  See 200 N.J. 204 (2009).  On December 2, 2009, the Court heard oral argument on the case.  You may view the oral argument webcast at:   http://njlegallib.rutgers.edu/supct/args/A_16_09.php (click on Video Feed )

A decision is expected any day.  Click here for immediate notification of the Supreme Court of New Jersey’s decision and other eDiscovery posts.

eLessons Learned has been following the Stengart case closely since its inception.  Read our past blog posts and coverage of this important case here.

Don’t take your discovery obligations lightly!  When your adversary requests documents from you during discovery, it becomes your obligation to undertake a thorough search of your files (electronic or otherwise) to locate those documents and produce them in a timely manner and in the format requested by your adversary.  Failing to do so could cost you more than $25 Million dollars, as it did to the plaintiff in B & G Management v. Lexington Insurance.  Can you afford that?

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In B & G Management, B&G sued Lexington for business interruption losses, among other things,  supposedly attributable to Hurricane Jeanne at the Treasure Island Resort (Resort), one of B&G’s properties.  According to B&G, the losses for this claim amounted to $25 Million dollars.

To prove that the Resort was non-operational before Jeanne and therefore no operation losses could be attributed to the hurricane, on August 17, 2007, Lexington requested B&G to produce every document, including electronically stored information (ESI), which constituted hotel bills for each hotel stay (Room Folios) at the Treasure Island property starting from August 13, 2004.  Lexington defined ESI as “information, without deletion or alteration of metadata, in its native form, [with indication of the] computer hardware and the software program(s) needed to translate the information into useable form in the information’s native format.”

On November 9, 2007, B&G objected on the basis that it was irrelevant.  The standard for relevance, however, is so broad that this objection essentially amounted to a flat-out NO!  When faced with a motion to compel, B&G submitted supplemental answers but this time it was more defiant in its refusal to produce the requested documents.

Lexington filed another motion to compel and this time the court ordered B&G to produce the responsive documents in the format requested by Lexington on or before April 30, 2008.

On April 30, 2008, B&G’s counsel delivered 7 discs to Lexington.  The discs, however, did not contain the ESI in the form specified by Lexington, and nor did it contain the Room Folios.

This time Lexington filed a motion for sanctions.  Rather than imposing sanctions, the court gave B&G yet another chance and ordered it to produce all responsive information in the ESI format requested by Lexington on or before July 11, 2008.  B&G did not produce the requested information by that time.

On July 29, 2008, during the deposition of a B&G representative, Lexington learned that B&G used the electronic property management system, IQWare, and that if Room Folios existed then they would be contained in that system.  The representative also testified that he had NEVER been asked to search for the Resort Room Folios.

Finally, in mid-to-late December 2008, B&G asked its in-house legal assistant to search for the Room Folios for the Resort.  When she accessed IQWare, she found a large number of room folios for the requested time period; but in order to produce the documents as quickly as possible she did not analyze them to determine if they were complete.  She also did not download the documents with metadata in its native form because the system did not permit her to do so.  B&G forwarded these documents to its outside counsel on December 31, 2008 claiming that it was the complete set.  On January 9, 2009, B&G’s attorneys forwarded the documents to Lexington.

Meanwhile, on January 7, 2009, the court had issued another order advising both parties, among other things, that if their production needs to be supplemented, then it must be served no later than 5 business days after the information is discovered by counsel.

When Lexington’s expert reviewed the documents produced in January 2009, he discovered significant disparity between the rooms sold as suggested by the Room Folios and by B&G’s financial records.  He concluded that either all of the Room Folios were not provided or that B&G’s rooms sold statistics were over stated.

When B&G’s counsel received Lexington’s expert report, he asked the in-house assistant to search for the rest of the Room Folios.  This time on April 29, 2009, the assistant reviewed an index of boxes stored in B&G’s offsite storage facility and found additional Room Folios for the requested time period.  Without analyzing the Room Folios she sent them to B&G’s outside counsel on May 4, 2009.  She was not instructed to ensure that these were all the Room Folios that existed and so she stopped looking at that time.

On May 11, 2009, B&G’s expert reviewed the new documents and concluded that a large number of Room Folios were still missing.  B&G’s attorneys withheld producing the new documents until May 18, 2009, twice the 5-business-day period specified in the January 7, 2009 order.  In the meantime, B&G’s counsel again requested the assistant to search for the missing Room Folios.  Finally, she found additional records on May 26, 2009.
Lexington again sought sanctions for the violation of the discovery orders.  This time the court held that B&G had an obligation to diligently search for and timely produce all requested documents, after being ordered by the court to do so.

As a result of B&G’s stubborn disobedience, the court precluded B&G from presenting any evidence regarding its business interruption losses at the Resort caused by Hurricane Jeanne.  The Court rejected the argument that such a severe sanction should not be imposed on B&G because the decisions regarding discovery were made by its lawyers.  In so finding, the court held that B&G was responsible for its counsel’s conduct.  If it were otherwise, parties such as B&G could hide behind its chosen counsel whenever it felt free to flout a court’s discovery orders.  The loss of a $25 Million dollar claim was not all she wrote for B&G.  B&G and its attorneys were also ordered to pay Lexington’s attorneys fees and costs, which, in a case of this magnitude could certainly be significant.

We may never know why B&G or its attorneys never conducted a thorough search for the documents requested by Lexington when such a huge amount was at stake.  B&G’s costly mistakes serves as an important lesson to all of us:  Conduct a thorough search of your files and produce the requested documents in a timely manner or you could be out $25 Million dollars.

Jignesh Shah, a recent law grad and Senior Business Litigation Associate admitted to practice in New Jersey and New York, currently consults on a per diem basis.  He can be contacted at jigses@gmail.com

Dr. Philip Adams found himself in this precarious situation when he brought a patent infringement action against ASUSTEK Computer, Inc. and ASUS Computer International (collectively hereinafter “ASUS”) alleging spoliation of relevant evidence.  Adams claimed that ASUS should be sanctioned due to the spoliation claims.

It all began in the late 1980s, when Dr. Adams developed a patent to resolve defects discovered in FDCs.  Previous alleged misuse resulted in several lawsuits, including litigation against Gateway that settled.  The current case arose when Dr. Adams alleged patent infringement and that ASUS had destroyed critical evidence.  Dr Adams allegations of spoliation were based on his assumption that ASUS had obtained Adams’s test programs and used them to address its own defects and develop its own technology.  During the trial, ASUS produced limited evidence and Dr. Adams claimed that ASUS’ failure to produce evidence was indirect evidence of spoliation.

ASUS’ main response was that its information management and data retention policies explained the absence of evidence.  ASUS claimed that its servers were not designed for archival purposes and that any e-mails of long term value were preserved locally.  However, a determination of long term value was left to the individual employees.  Another hurdle in producing evidence was that computers were routinely replaced and any information not saved was erased.  Lastly, ASUS had no centralized storage for other electronic documents, choosing instead to allow employees to maintain the documents on their individual work stations.

The Court’s threshold issues for spoliation were establishing (a) that evidence has been lost, destroyed or made unavailable and (b) that the party against whom sanctions are sought had a duty to preserve the evidence.

The Court reasoned that ASUS should have had far more evidence, especially based on its assertion that its information management practices did not restrict destruction before 2005 (the date at which ASUS claims it thought that litigation might ensue).  The Court rejected ASUS’ assertion, however, that its duty to preserve began in 2005.  Instead, the Court determined that the duty to preserve arose between 1999 and 2000, when several lawsuits were ongoing regarding floppy disk errors.

The Court rejected the safe harbor argument by ASUS because the document management practices were not reasonable or in good faith due to its reliance on individual employees.

In considering the appropriate sanctions, the Court considered the culpability of ASUS in the loss of evidence.  It relied on the Sedona Guidelines, which state that “[a]n organization should have reasonable policies and procedures for managing its information and records.”  As a result, the Court found that ASUS should bear responsibility for the absence of evidence that it was deemed expected to possess and that the lack of viable data retention policies and practices contributed to the loss of significant data.

Overall, the Court reasoned that ASUS violated its duty to preserve because the loss of evidence did not result from the “routine, good faith operation of electronic information systems.”  Therefore, it just goes to show you that a company should implement effective data retention policies and procedures in order to preserve evidence to prevent spoliation claims.

Matthew is a magna cum laude graduate of Seton Hall University, where he received a B.S. degree with a concentration in Accounting, and is currently a third year student at Seton Hall Law.

Plaintiff had argued that the company failed to demonstrate that it had ever adopted or distributed the policy in question, that she was unaware that the policy applied to her, and even if the policy did exist, the company had not previously enforced it. The company argued that it had disseminated the policy, and that the policy did apply to the plaintiff. The appellate court determined that issues of material fact existed as to whether the policy at issue was in place and disseminated at the time of plaintiff’s employment and as to whether the policy applied to plaintiff; and that these issues could not be resolved by the trial judge without a hearing on the matter.

The appellate court held that employees have a reasonable expectation of privacy in personal communications on a company owned computer. In sum, it held that a policy purporting to transform all private communications into company property “merely because the company owned the computer used to make private communications“ furthers no legitimate business purpose.

The appellate court concluded by addressing the issue of attorney discipline for the company’s law firm who uncovered the emails. The appellate court determined that the law firm violated New Jersey Rule of Professional Conduct 4.4(b) because the lawyers failed to cease reading and examining the emails upon discovery, and failed to notify plaintiff’s attorney promptly of their discovery. The appellate court ultimately determined that whether defendant’s counsel should be disqualified is a matter for resolution upon remand to the trial court.

Click here for full article.