Legal Hold Pro

The Drumbeat Continues: Judge Turns Up the Heat with $25,000 Sanction

By Brad Harris

Merck Eprova AG v. Gnosis S.p.A. et al., 07 Civ. 5898 (S.D.N.Y. Apr. 20, 2010)

On April 20, 2010, U.S. District Judge Richard Sullivan hammered home the need for proper legal holds in a big way.  In a case that not only echoes Judge Scheindlin’s Pension Committee opinion, but takes it a step further, Judge Sullivan reinforces that the courts are becoming increasingly impatient with poor legal hold practices. Thanks to John Jablonski for his in-depth profile of the case.

This civil case was originally filed in June 2007 as a result of an alleged mislabeling of a nutritional ingredient.  The defendant, an Italian biomedical company called Gnosis, did a “haphazard” (p.7) job of meeting its discovery obligations.  Following a failed settlement agreement (any bets on whether the defendant wishes that had worked out?), the litigants entered into a year-long discovery battle.

After months and months of pushing by the Plaintiff, details emerged about what the Defendant did and – more importantly – did not do.  In a hearing on January 22, 2010, the Gnosis CEO admitted that the company had not issued “an explicit litigation hold, much less a written one.”  Further, employees continued to delete, “or at least fail to prevent automatic deletion of” relevant emails, and the company failed to produce responsive documents because the custodians decided that they were not relevant. (p.6)

Judge Sullivan relied heavily on Judge Scheindlin’s Pension Committee treatise, including the expectation that a written legal hold represents reasonableness and good faith when responding to a preservation obligation.  Gnosis’ CEO claimed he had instructed employees to “pay attention” to saving relevant documents. Yet the Court responded: “there is no doubt that Defendants failed to issue a written legal hold” (p.11) and ruled this failure a “clear case of gross negligence.” (p.12)

After failing in the discovery process in so many ways, it was time for the sanctions to be meted out.  The Court ordered that the Defendants should pay costs and attorneys’ fees (no doubt sizable given the months of wrangling involved).  Additionally, and a clear reflection of the Court’s growing impatience, Judge Sullivan fined the Defendants $25,000 “to deter future misconduct…and to instill a modicum of respect for the judicial process.” He continued: “Lesser sanctions…would simply be insufficient to achieve these purposes” (p.12).  Additionally, a decision on an adverse jury instruction is pending further discovery, as well as consideration for more sanctions “down the road.” (Footnote 10)

With Merck v. Gnosis, the expectation for timely written legal holds is once again reinforced, continuing the drumbeat promulgated by the Pension Committee, Rimkus v Cammarata, Crown Castle v. Nudd Corp and others. The behavior of this Defendant was egregious; and the consequences magnified by a described lack of respect being shown to the judicial process.

Reference: Jablonski, John, “Failure to Issue Written Litigation Hold: Costs, Attorneys’ Fees and $25,000 as Sanctions,” Legal Holds and Trigger Events Blog, April 26, 2010

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