Case Summary: Vol. 1/Case 1

TranSystems Corporation. v. Hughes Associates, Inc., Civil No. 1:14-CV-1541, 2016 U.S. Dist. LEXIS 85548 (M.D. Pa., Jun. 30, 2016).

The relevant facts are straightforward: Kinsley, a general contractor, subcontracted Plaintiff TranSystems to install a fire suppression system as part of an airport hangar construction project. TranSystems in turn hired Defendant, Hughes Associates, as a subconsultant to design the fire suppression system. When delays mounted, Kinsley terminated its contract with TranSystems for failing to “perform its contractual obligations”. TranSystems Corp. v. Hughes Assocs., Civil No. 1:14-CV-1541, 2016 U.S. Dist. LEXIS 85548, *4 (M.D. Pa., Jun. 30, 2016). Kinsley and TranSystems entered a settlement agreement wherein Plaintiff reserved the right to sue Defendant.

Following the settlement, but prior to initiating suit against Hughes, TranSystems shut down its offices tasked with overseeing the hangar project—and, believing that all the files had been saved to the company server, wiped the hard drives of all the individual employees who had worked there. Contrary to Plaintiff’s assumption, employees had in fact been saving files directly to their personal computers, not to the company server. Thus, erasing the individual hard drives led to Plaintiff’s irretrievable loss of relevant electronic documents. TranSystems further exacerbated the problem by failing to disclose its destruction of evidence to the Court for almost two years after the lawsuit’s initiation.

Ultimately, TranSystems filed a notice of voluntary dismissal of its action against Hughes, primarily due to the lost electronically stored information (ESI). Hughes objected to the voluntary dismissal of the action and sought sanctions against TranSystems.

The Court, drawing on its inherent authority, determined that sanctions were warranted for the “negligent oversights by the plaintiff in the course of discovery”. Id. at *10. These oversights were “exacerbated by a delay in disclosure of the loss of this information”. Id. at *16. The Court, “mindful of the fact that this lawsuit has now drawn to a close on its merits, and recognizing that any efforts to calculate sanctionable costs directly attributable to discovery shortcomings would be complicated and unduly prolong this litigation,” imposed only a “nominal sanction of $1,000.” Id. at *16, *18.

This scenario serves as a prime example of the potential costs to a party, even a Plaintiff, of failing to properly preserve data where litigation is anticipated. Had TranSystems employed defensible measures, like consulting an expert, interviewing custodians, and imaging devices prior to wiping them, its case for the recovery of more than $500,000 would have continued on the merits.

Also, the eDiscovery practitioner should note the trend in sanctions after the Federal Rules of Civil Procedure (FRCP) Amendments. Like Judge James C. Francis IV in CAT3, LLC v. Black Lineage, Inc., No. 14 Civ. 5511 (AT) (JCF), 2016 WL 154116 (S.D.N.Y. Jan. 12, 2016), Judge Martin C. Carlson relied here on “inherent authority” to issue sanctions. See Id. at *12. While the recent changes to FRCP 37(e) limit the provision’s scope to ESI sanctions for intentional conduct, judges are increasingly relying on their inherent authority to sanction negligent or inadvertent ESI destruction.

Finally, this case not only underscores the need to be eDiscovery ready, it also reminds us that Courts will be particularly tough on parties that are not transparent before the Court or delay informing the Court concerning any eDiscovery failure. The growing judicial emphasis on transparency is best summed up in the words of the Court that “[i]n life, and in litigation, candor is always the best course. It avoids confusion and criticism, and prevents others from perceiving darker motives behind altogether human shortcomings”. Id. at *16.