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eDiscovery Update: May the Force be with you!

Peter Coons

Peter Coons

I was one of the millions of lucky nerds who saw the movie on opening day. I had high expectations and couldn’t wait to experience some of the magic from my childhood, when I was first introduced to the force and giant, hairy Wookies. I’ll have to admit, I walked out of the movie slightly disappointed; it was so similar to the first one in almost every way. But then my 11-year-old son turned to me and said, “… That was the greatest movie I have ever seen.” Maybe I was being too critical. Maybe the writers thought if it worked once, why not just redo a bit of the same. That is sort of like eDiscovery. Build a solid, sound, reasonable and defensible litigation response strategy and keep doing it while keeping in mind that timing is everything!

A solid, sound, reasonable and defensible process in eDiscovery is one that includes issuing a hold when litigation is anticipated and preserving potentially relevant ESI. That didn’t occur in the matter of Ocwen Loan Servicing, LLC (“Ocwen”) v. Ohio Public Employees Retirement System (“OPERS”). Defendants in this matter failed to preserve critical ESI and as a result were sanctioned.

In this action, Plaintiff, a trust servicer, sought to recover approximately $5 million from Defendant on the grounds that OPERS mistakenly received principal distributions to which it was not entitled.

The timeline
• Between January 2007 and August 2009, Ocwen miscalculated payments of monthly principal distributions to the M–1 class totaling $10 million and corresponding underpayments to the lower classes.

• In May 2009, an investor brought the error to Ocwen’s attention and in September 2009, Ocwen verified the error and corrected the monthly distributions.

• On or about June 16, 2010, Ocwen informed JPMorgan, as record owner of OPERS’ certificate, that it was overpaid $4,782,739.27 and requested the return of the funds.

• On July 26, 2010, Ocwen sent JPMorgan a second request for the funds.

• Ocwen learned that OPERS was the beneficiary of the certificates held by JPMorgan, so, in early 2011, Ocwen requested the return of the funds directly from OPERS.

• OPERS rejected the demand and has not returned any portion of the $4,782,739.27.

• Ocwen filed the complaint on Dec. 21, 2012, asserting, among other things, a claim of unjust enrichment against OPERS.

• On Jan. 28, 2013, OPERS, at the direction of in-house counsel, distributed a written litigation hold notice to certain employees.

Timing is crucial
Sounds like a pretty straightforward timeline and OPERS even issued a litigation hold memo in early 2013, shortly after it received notice of claim. Further, OPERS had their IT department disable the auto-purging of emails in their archiving system. The notice also “… directed employees to preserve hard copies of any documents that might be relevant, as well as electronically-stored information (“ESI”). OPERS also instructed employees to save relevant emails in their Microsoft Outlook accounts. OPERS then had the IT department run “forty-two unique search terms across the preserved ESI from the “journal” mailbox and the “home directories” in search of relevant documents. The search collected 10,000 documents, which were reviewed for responsiveness and produced in accordance with Ocwen’s written discovery requests.

So what was the issue? After all of that why was the Defendant sanctioned for spoliation?

Just like Luke Skywalker trying to fit a torpedo into a 2-meter hole in an effort to blow up the Death Star, it’s all about timing.

Apparently, OPERS knew this might turn sour long before the claim was filed in late 2012. In fact, an email was uncovered between Samuel Nieves, a senior analyst at Ocwen, and Eric France, an OPERS employee:

“Here, the record demonstrates that litigation was contemplated between the parties as early as April 2011 and no later than May 2011. First, emails sent between Samuel Nieves, a senior analyst at Ocwen, and France show that by the end of March 2011, OPERS was aware of Ocwen’s claim against it for $4.8 million due Ocwen’s distribution error. France responded to Nieves’ email about the claim by asserting that due to Ocwen’s error, he sold OPERS’ position in the ABFS Trust for less than it was worth. In response to another email from Nieves, asking whether OPERS would pay, France wrote, on April 14, “I have requested a meeting with our legal counsel. It appears that only legal action will rectify the issue.”
The court stated that, “Contrary to OPERS’ assertion that it had no obligation to preserve documents before Ocwen filed the complaint, the obligation arises once a party is “on notice of a credible probability that it will become involved in litigation, seriously contemplates initiating litigation, or when it takes specific actions to commence litigation.”

While OPERS did the right thing by issuing a hold after receipt of the complaint, it should have done so much earlier. And here is the lightsaber to the hand, France retired in June 2011, a couple of months after OPERS counsel should have been aware that litigation was possible. OPERS counsel should have issued the hold notice prior to France’s departure, which would have possibly halted any auto-purging of potentially relevant ESI. However, following the standard IT procedure for departing employees, OPERS “wiped France’s computer as per company policy and instructed Bloomberg to terminate access to his account.” That’s akin to wiping R2D2’s memory before the feisty droid has a chance to share the Death Star’s blueprints. In the end Plaintiff’s motion for spoliation sanctions was granted as they “demonstrated prejudice as a result of OPERS’ failure to preserve France’s ESI and Bloomberg messages.”

Defendant’s failure to preserve the hard drive and other ESI for France was their Jar Jar Binks (for you non-Star-Wars folks, that’s not good).

Here we have a case where an organization, at first glance, did all the right things when a claim was filed. However, timing is crucial. Employees must hit the alarm and notify counsel if there is a whiff of litigation, which should set in motion a repeatable, clear and well defined litigation strategy and preservation plan.

May the force be with you, the force to go out and build a better litigation strategy plan, one that focuses on both reasonable preservation and timing!

Peter Coons is a senior vice president at D4, providing eDiscovery and digital forensics consulting services to clients. Peter is a Certified Information Systems Security Professional (CISSP), an EnCase Certified Examiner (EnCE), an Access Data Certified Examiner (ACE), and a Certified Computer Examiner (CCE). He belongs to various digital investigation and information security based organizations. Peter holds a master’s degree in Digital Forensics Management from Champlain College and a bachelor’s degree in Economics from the State University of New York at Oneonta.