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E-Discovery Corp Loses Case Over Missing E-Mails

February 15, 2009

An arbitrator has charged Guidance Software Inc. of violating their own practices in an internal digital search, the Associated Press reported.

Guidance bills themselves as the leading provider of technology that helps companies dig up old e-mails and other electronic documents that might be evidence in a lawsuit.

It is unknown whether the company intentionally hid documents or just couldn’t find them, but its inability to produce certain e-mails, even over several months, led an arbitrator to accuse it of “gross negligence and proceeding in bad faith.”

Discovery – the exchange of information between parties at the start of a lawsuit ““ has become increasingly complex in the search for electronic evidence.

George Socha and Tom Gelbmann, directors of the industry group Electronic Discovery Resource Model, the the AP that “E-discovery” software and services have grown from a $40 million business in 1999 to nearly $2.8 billion in 2007.

With sales of $89 million over the last four quarters, Pasadena, Calif.-based Guidance Software is one of the largest software specialists. The company has special programs for searching corporate networks for digital evidence.

In a case involving its former marketing director, Cassondra Todd, Guidance had to turn that expertise on itself.

After a particularly harsh performance review in 2007, Todd believed Guidance’s chairman pressured her manager to fire her, in part because she is a woman. So she decided to ask for a formal investigation over her termination.

Todd said in an interview she was quite confident that whatever information was produced would wipe clean what was going on, since that was essentially the service Guidance provided.

Yet her former company told her it found no evidence of discrimination and apologized for the harshness of the review, but wouldn’t delete it from her file.

Todd was laid off a few weeks later after hiring Arnold Peter, an attorney with Los Angeles-based Raskin Peter Rubin & Simon, to review her case.

She then proceeded to file a wrongful-termination claim that forced both sides to perform discovery, a hunt for documents that might matter to the case.

Guidance’s initial run of e-discovery produced far fewer emails than Todd anticipated, but she couldn’t argue Guidance was holding back – intentionally or not – until she got a break a few months later.

Todd’s first manager at Guidance, Tim Leehealey, now the head of a rival company, had printed and saved some memos from the time of Todd’s bad performance review, including e-mails about her that Guidance hadn’t turned over. One particular memo showed Leehealey even questioned whether someone in the company was setting Todd up to be fired.

Victor Limongelli, now Guidance’s chief executive, said other than Guidance Chairman Shawn McCreight’s hatred for Todd, she was a good employee who produced good work.

Leehealey said whether Guidance didn’t find his memos about Todd or whether it chose not to hand them over was “extremely damning” either way.

“Those documents were on people’s hard drives for sure, and they didn’t produce them,” said Leehealey, whose company, AccessData Inc., tried to buy Guidance last year but was turned down.

An arbitrator ordered Guidance to do a more thorough round of e-discovery and after the company came back empty-handed, except for news that one of its e-mail backup tapes had been corrupted, the arbitrator lost his patience with the company.

Court transcripts show the arbitrator, William McDonald, told Guidance’s attorney: “I want this game-playing stopped.”

McDonald was disturbed that Todd kept identifying documents the company hadn’t unearthed, and upon learning the corrupted backup tape had purportedly gone unnoticed for nearly a year, he had harsh words for the company.

“These are routine things in this business. And it wasn’t done until pulling and screaming and kicking and facing the ultimate sanction,” McDonald said, referring to his option to end the case in Todd’s favor. “We’re looking at people who should be very sophisticated in this area, given Guidance’s business.”

McDonald then ordered the company to pay for Todd’s expert witnesses and her travel costs, plus the cost of rescheduling the trial. Guidance was required to search the backups, despite its arguments that it would take weeks””amounting to a task Guidance would charge customers $100,000 to perform.

Limongelli said he didn’t know why Guidance didn’t initially find many of the files Todd identified as missing, though he blamed a lost laptop for one oversight. Also, the company was not legally required to search its backup tapes at first, given the expense of reading them, Guidance executives said.

Limongelli said it wasn’t an attempt to hide any information. “We think we followed what is a quite normal course.”

However, there is some support for Guidance’s argument about the backup tapes, according to experts not involved with the case.

All electronically stored information is potentially discoverable under federal rules. But the rules distinguish between “reasonably accessible” files and ones that are too expensive to tackle, at least in initial e-discovery. Scott Carlson, co-chair of e-discovery for the law firm Seyfarth Shaw, said backup tapes often count as overly burdensome.

Todd hired outside experts that gave the arbitrator more critical assessments of Guidance’s actions.

“The way Guidance saved documents once it knew of Todd’s legal actions was not performed to commonly accepted standards within the e-discovery field and in great part did not occur at all,” wrote Brett Harrison, a director in FTI Consulting Inc. (FCN)’s electronic evidence consulting group.

William Moylan of Aon Consulting Inc. was another expert on the case who questioned why Guidance asked that deleted files be ignored during discovery because hunting for them would be a burden.

“Recovery and searching of deleted files is at the very heart of computer forensics,” he wrote.

In the end, the arbitrator found enough information to decide in Todd’s favor””awarding her more than $300,000, about twice her annual compensation.

Todd may even receive damages under separate laws that prohibit discrimination once her case goes to federal court. Todd’s attorney now plans to focus on whether Guidance attempted to thwart e-discovery during arbitration.

Todd said Guidance was egregiously in violation of everything they report to be best practices.

“They had every resource at their disposal. They didn’t want to take it seriously.”

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