Like an old vaudeville act, the court spends a meticulous amount of time setting up the punch lines in Merck Eprova AG v. Gnosis S.P.A. et al., 07 cv 5898 (S.D.N.Y. Apr. 20, 2010). Like an old Italian film, the punch lines are subject to interpretation and may have meaning on many levels.
This lawsuit against an Italian manufacturer alleges that defendants mislabeled the nutritional ingredient called methyltetrahydrofolate in violation of the Latham Act and New York state law. The court ultimately holds that the failure to issue a written litigation hold is gross negligence requiring some form of sanction. This is certainly a punch line (although not very funny) for foreign corporations landing in federal court.
The court relies heavily on the Pension Committee case to award costs, attorneys’ fees and a $25,000.00 fine to be apportioned between attorneys and clients. The court leaves it up to defendants and their counsel to determine who pays the sanctions. If they can not agree, the court will apportion it for them. Forcing the lawyers and the clients to agree on who pays what part of the fine seems like another punch line (albeit a cruel one.)
The court reserved decision on whether an adverse inference jury instruction or other severe sanction is appropriate, as discovery is still ongoing. This permits the court to sidestep the heavier issues of “bad faith” and “prejudice.” The court held however, that the Pension Committee case stands for the proposition that “[g]enerally speaking, if the spoiliating party behaved negligently, some sanction should be imposed, with the harshness of the sanction determined by the culpability of the party and, in the case of more sever sanctions, the prejudice caused by the spoliation.” Yet another punch, but more like to the nose, rather than a punch line. This certainly paves the way for sanctions for mere negligence relating to the failure to preserve relevant information.
Now for the real punch line. The court spent pages outlining the painfully slow discovery process in this case. At one point the court called defendants' discovery conduct a “cat and mouse game.” Defendants slowly made repeated supplemental disclosures only after plaintiff threatened motion practice or after a court conference about defendants’ conduct. The delivery is dry and as you read the opinion you will not see this next part coming.
A dispute arose over the sufficiency of documents produced by defendants via e-mail and on a CD. Plaintiff claimed that a transmittal e-mail and subsequent CD did not contain certain e-mails, that defendants represented were being disclosed. Think cover letter saying A through C is enclosed and B is missing. Defendants accused plaintiff of making it up. After a discussion with the court, a paralegal at defendants’ lawyers’ office confirmed the documents were inadvertently left off of the e-mail and CD purporting to disclose them. An evidentiary hearing to look into the mix-up was held.
Now for the punch line. During the January 22, 2010 hearing defendants own CEO, Renzo Berna, stated that nothing was done by his company to preserve relevant information after the lawsuit was filed. Although his testimony was not for the purpose of investigating the company’s preservation efforts, damning testimony slipped out that resulted in the sole basis for sanctions. His testimony speaks for itself:
Q: Why didn't you save this email so that you could answer whatever the disputes are about this product?
A: Repeat. Do you want the answer? I already told you. For me it was proportionate. The request of Merck that we received, if you remember, you asked me to produce worldwide production from the year 2000, to produce what was the agreement that we have with PSF Abbott from 2000. We received so many requests that for us was proportionate. If I need to answer in 2007 your question, I need to stop my company and follow your request. It was unbelievable for us as an entrepreneur. . . .
Q: You decided that even though someone had prepared and sent you a complaint in a federal U.S. court claiming that you were violating certain rules and laws, you decided that it wasn't important enough to begin to save the documentation about the item that you were fighting about? You decided that?
A: No. I decide don't change the operation of the company, for in my opinion there was nothing wrong,"
We will let the court take over from here:
In this case, there is no doubt that Defendants failed to issue a written litigation hold. Even assuming arguendo that there might be circumstances in which a non-written litigation hold could suffice -- for example, when the party, like Gnosis, is a small company whose intra-office communications are primarily oral -- it is clear that Defendants made no significant effort to ensure the preservation of relevant documents. As recently as February 8, 2010, Mr. Berna believed that e-mails more than fifteen days old were still routinely being deleted unless they were specifically saved from deletion. In Mr. Berna's supplemental declaration, he insists that, by telling his staff to "pay attention" to all documents relating to the relevant product, he was effectively telling them to save all relevant documents. This explanation is in significant tension with his testimony at the January 22 hearing. There, he was asked, "Did you tell your staff not to dispose of any materials relating to the manufacture, sale, and distribution of methyl-folate?" He answered, "No, I didn't." When asked as a follow-up whether he gave his "staff instructions not to destroy any emails or let emails be automatically erased with regard to the manufacture and sale of methylfolate," he responded, "No, I don't give instruction to destroy or don't destroy." As such, the Court concludes that Defendants were grossly negligent in fulfilling their fundamental obligation of preserving relevant information when litigation is reasonably anticipated.
The failure to issue a written litigation hold was the sole basis for the court’s award of sanctions, although the court took into account other egregious discovery conduct when setting the award (including defendant’s lawyer coaching a witness, lying about coaching and then being caught when a piece of paper with a note to the witness was uncovered during a deposition.) The court believed that the failure to preserve relevant documents was at the heart of the discovery antics.
For a copy of the opinion click here: Download Merck Eprova v Gnosis - SDNY 4-20-10