What do I always tell you in my books, blogs, and podcast? Don’t use your backup system as an archive system. And heaven help you the day you try to satisfy a big e-discovery case using only backup tapes. I often say that doing so can result in what the legal world calls an adverse inference instruction, which can cost you the case. This is the story of the most infamous case in US history where that happened. Not only did they lose the case; it resulted in a $1.5B award!
In 2004, Coleman (Parent) Holdings, Inc. (CPH) sued Morgan Stanley & Co., Inc. (MS) for fraud having to do with CPH’s sale of its stock in Coleman, Inc. to Sunbeam Corporation.
According to the court, Morgan Stanley failed to preserve email, despite being notified of the lawsuit. They continued to delete emails as per their usual policy. This is often referred to as a failure to preserve.
They also didn’t fully comply with an order to search and produce relevant emails from their backup tapes. They partially complied with the order (producing some emails), but in the process found some new backup tapes that would likely contain more emails – 1200 of them. Instead of informing the court of the new tapes, they falsely certified that they had complied with the order! MS then processed them secretly, and eventually told the court that they had additional emails from “newly discovered tapes.” (The court said that the evidence showed that MS and their counsel knew of the tapes before certifying they were done.)
During hearings on CPH’s motion for an adverse jury instruction, Judge Maass said that MS made misrepresentations and lacked candor in their response. Judge Maass found that MS’s actions were willful, grossly negligent, and in bad faith, hindering CPH’s ability to proceed with the case.
As a result, Judge Maass granted CPH’s motion for an adverse inference instruction, allowing CPH to argue that Morgan Stanley’s concealment of its role in the Sunbeam transaction is evidence of malice or evil intent. This adverse instruction ultimately caused MS to lose the case, which resulted in a judgment of $1.5B. (Luckily for MS, the case was reversed on appeal, but not because anyone that the AI instruction was wrong. They said CPH failed to prove causation – that MS’s actions were the proximate cause of their loss.
This case is a stark reminder of the importance of having a solid email retention policy and the need to take eDiscovery seriously. It’s also imperative to know what is backed up or archived where, and how you can retrieve things like email from it. Unfortunately trying to extract email from a backup tape is an extremely difficult multi-step process. And this case shows that failing to do so can lead to severe consequences, as MS learned the hard way.
If you find yourself in the middle of an e-discovery request that will be using backup tapes as the source, then take a look at this article that describes what you’re in for. It’s a lot, and a lot is at stake, as you learned here. If you’d like a quicker, easier and less expensive way to do this, you should talk to the folks at S2|Data.
Written by W. Curtis Preston (@wcpreston), four-time O'Reilly author, and host of The Backup Wrap-up podcast. I am now the Technology Evangelist at Sullivan Strickler, which helps companies manage their legacy data
