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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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In re Appraisal of Kate Spade Company, C.A. No. 2017-0714-AGB (Del. Ch. June 21, 2018)
The duty to collect and produce non-privileged relevant information extends beyond email to text messages and other forms of electronic communications. Standard practice in Delaware involves at least inquiring of custodians the extent to which they used text messages to engage in substantive communications on potentially relevant topics and to collect text message data when they answer affirmatively, absent an agreement to contrary between the parties. This bench ruling addresses that practice and reflects the Chancellor’s view that text messages often may be a critical source of information.
For years the federal courts have steadily increased the sanctions for not following the rules governing email production in pretrial discovery. Now the Delaware Supreme Court has affirmed that it too will impose harsh penalties when emails are destroyed. The opinion has a useful explanation of the rules governing storage of emails and what should be done to protect them.
The opinion also clarifies that a Delaware court may decide who may vote the stock in a Delaware corporation even when the individuals claiming that right are not before the court. However, the court may not determine who owns that stock unless it has personal jurisdiction over them.
On January 18, the Delaware Court of Chancery issued a one and a half page "Guidelines for Preservation of Electronically Stored Information." In summary, the Guidelines are as follows:
1. There is a common law duty to preserve potentially relevant electronically stored information (ESI) within a party's possession, custody, or control once litigation is commenced or when litigation is "reasonably anticipated."
2. Parties must take reasonable steps in good faith to meet their duty to preserve ESI.
3. Parties and their counsel should confer early in the litigation regarding the preservation of ESI.
4. Parties and their counsel must develop, oversee, and document a preservation process in collaboration with the appropriate client information technology personnel.
5. Parties and their counsel should discuss the need to identify how custodians store their information, including document retention policies and procedures as well as the processes used to create, edit, send, receive, store, and destroy information for the custodians.
6. Counsel should take reasonable steps to verify information they receive about how ESI is created, modified, stored, or destroyed.
7. The preservation process should include a written litigation hold notice to individual custodians instructing them to take reasonable steps, act in good faith, and with a sense of urgency in preserving potentially relevant information.
8. Parties and their counsel may face "serious consequences" for failing to take reasonable steps to preserve ESI.
9. The reasonableness of a party's preservation process is judged on a case-by-case basis.
10. Counsel for all parties should confer about the scope and timing of discovery of ESI and may agree to limit or forgo the discovery of ESI.
This post was written by Edward M. McNally and Christopher J. Spizzirri.
At the recently concluded Georgetown Advanced eDiscovery Institute on November 1, 2010, Judge Joseph Slights commented on the expectations of the judges assigned to the new Complex Civil Litigation Division of the Delaware Superior Court. Briefly, Judge Slights noted: (1) Ediscovery arguments should be broken down to their simplest components, (2) the parties should be prepared at the initial scheduling conference to defend their scope of preservation based on proportionality, (3) he looks to the Sedona Conference for guidance, and (4) he will always sign stipulations for party-paid special discovery masters.
Judeg Slights is 1 of the 3 Superior Court judges assigned to the CCLD.
When there is a failure to produce a relevant document in discovery, the Court must decide what sanction to impose. Here the Court declined to dismiss a case but awarded fees for the discoverey failure of a party. The balancing of the failure and the penalty is interesting.
Delaware law governs privilege disputes in most cases in Delaware courts before it involves Delaware business disputes. This is an important point as Delaware law is more liberal than some states' law in upholding claims of privileged communication.
This is the most important recent decision on the Court's handling of discovery of emails and other e-documents. For spoliation, the Court imposed four forms of sanction: (1) it increased the burden of proof to a clear and convincing standard for the offending party to prove his case, (2) it held his testimony must be corroborated by other evidence to meet that burden, (3) it denied any claim of attorney-client privilege to certain documents, and (4) it imposed attorney fees for the sanction motion work.
This is also a good read for its explanation of how e-documents are stored in computers and servers and may be retrieved long after they were thought to be destroyed.
The Court of Chancery has become increasingly unhappy with litigants who fail to preserve electronic "documents" such as email. In this latest expression of the concern, the Court sets out in detail the duties of client and counsel and explains when sanctions will be imposed for the failure to preserve evidence.
This is a particularly good opinion for its careful analysis of how to determine what sanction should be imposed. The goal is to make the sanction fit the offense, such as by awarding a presumption that the destroyed emails would have hurt the case of the guilty party. Exactly how much this will help remains to be seen, but it is a start.