E-Discovery Sanctions: Scare Tactic or Serious Concern?

Guidance Software Since the Federal Rules were amended in 2006 to incorporate electronically stored information into the list of discoverable materials, electronic discovery has become a booming market. Articles, white papers and webinars frequently warn lawyers about the consequences of improperly conducting e-discovery, including the possibility of sanctions. But how real is this threat?

Of course, everyone is familiar with the multi-billion dollar sanctions issued against Morgan Stanley in 2005. That case — which initially resulted in about $1.4 billion in sanctions but was later reversed on other grounds — is still frequently brought up as a warning to deter others from committing similar egregious e-discovery errors. Additionally, although sanctions in the billions are unlikely in most cases, the threat of sanctions against a party for improperly managing e-discovery is very real.

A 2010 report published in the Duke Law Journal highlights the reality of e-discovery sanctions over the last few years. The paper's authors undertook a comprehensive survey of written opinions from cases in federal courts prior to Jan. 1, 2010 involving motions for sanctions related to e-discovery. In total, the survey identified 401 sanction cases and 230 sanction awards. It also showed a startling trend — that sanction motions and awards have increased at a steeper rate over the last five years. This includes sanctions against counsel, which, although rare, are increasing in frequency.

Not surprisingly, the most common basis for e-discovery sanctions is a failure to produce electronic information. Sanction types range from monetary sanction to sanctions of dismissal, default judgment and adverse jury instructions. Additionally, the article authors have determined that Rule 37(e) — which states that a court may not impose sanctions on a party for failing to provide ESI lost as a result of the routine good-faith operation — has not provided consistent or comprehensive protection from sanctions.

What is somewhat surprising is the fact the highest frequency of sanctions occurred during 2009, three years after the Federal Rules were amended. One takeaway from this factoid is that despite the education efforts of organizations such as the Sedona Conference, consultancies, publications and software providers, counsel are still struggling to create repeatable and defensible solutions to the e-discovery quandary. Part of this may be due to the burdens that e-discovery places on organizations, especially those that lack experience or resources to properly manage e-discovery.

It is important to take a proactive stance to tackling the e-discovery issue. In-house counsel need to work with knowledgeable experts to design an e-discovery repeatable and defensible plan that works for their organization. Also critical to effectively managing e-discovery is a robust and comprehensive software solution, specifically one that incorporates powerful analytical capabilities.

Here are some other interesting statistics from the article:

• Seventeen percent of sanctions occurred in employment cases, while 16 percent occurred in contract cases, 15.5 occurred in IP cases and 11 percent in tort cases.
• The most prevalent bases for sanctions were Rule 37. In fact, Rule 37 served as the basis in 136 of the 230 cases in which sanctions were awarded.
• Defendants were sanctioned nearly three times more often than plaintiffs.
• Failure to preserve ESI is the most prevalent sanctionable conduct.
• There were 77 cases in which monetary sanctions were issued. Sanction amounts ranged from $250 to more than $8.8 million.

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Russ Gould is director of product marketing at Guidance Software.