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Time Line #2

During the 2003 audit of Global's books by KMart, Debtor's management knew that Global was less than happy that KMart had apparently started contacting Global's subs, the very thing KMart was asked not to do. Quoting from the opinion:

"Global is seeing the writing on the wall and realizing that their business with KMart is slipping away.

The only thing we have to be careful of is not using their sub contractors. As the business melts away on them I am certain they will take legal action."

The court, without citing any authority other than KMart's proposed conclusions, stated that "it would be impractical and illogical to hold that the claim filing date triggers a preservation duty." The court decided that the Debtor's obligation to preserve ESI arose sometime after June 19, 2003. As was also absent in the Krause opinion from a Kansas bankruptcy court, the Court did not consider sec. 521 of the Bankruptcy Code, nor did the Court appear to consider any of the elevated standards or duties of a debtor-in-possession. (While your gonna have to wait for the book to see the full analysis, remember that you heard it here first. This type of conclusion ultimately is harmful to creditors, and to the bankruptcy system in general...).

The testimony before the Court indicated that KMart in-house senior counsel was responsible for "helping to resolve outstanding bankruptcy claims..." which included attending to KMart's response to the February 2005 discovery requests. For the first of many bites at the discovery apple, the response was apparently left in the hands of a contract attorney. [ISSUE 9]

It was the contract attorney whose efforts, it appears, led to the initial production of just 66 pages of documents in response to the discovery requests. From the court's opinion, it seems that no one really knows who the contract attorney talked to, or what the contract attorney did, in terms of locating responsive ESI.

When Global appropriately started it's slow burn over the initial production, in-house counsel apparently started spending some summer fun time towards the ESI. According to the testimony, in-house counsel apparently provided no guidance to individual employees as to where they should look within the company's digital enterprise for responsive ESI, because "I don't know where any individual employee would keep their specific information." In-house also testified having no recollection as to telling employees not to delete ESI, nor could In-house recall tee-ing up a litigation hold as to the Global claims.

Finally, in the fall of 2005, In-house involves the IT department in the search for responsive ESI, although the results of that involvement were not reviewed by KMart lawyers until February of 2006 (a full year after the initial request) and were not produced to Global until March 2006 when Global filed its spoliation motion.

The ESI resulting from IT's initial involvement resulted in 1.45 gigabytes of information being reviewed by KMart's counsel, and some additional 456 pages of documents later being produced to Global.

This search however, was limited to the ESI of 25 former employees. By this time, current employees were instructed to conduct their own search of their own ESI. As a related matter, KMart counsel indicated to the court that the first round of ESI review included both the .pst files (email) and the "H-Drive" files. KMart counsel later learned that the first round of ESI included only the .pst files, and not the H-Drive files. According to In-house, KMart had no policy for ESI review of former employees "H Drive" files until October 2005, which was the same month that IT got involved with this proceeding.

More after the break....

The H Drive issues notwithstanding, KMart also discovered that it had other problems related to the care and feeding of its ESI in relation to previous employees. Former Employee proved to be a source of ESI for Global, as Former Employee had at home an old computer that had been replaced by KMart, and that Former Employee had kept after his termination. When he had still been gainfully employed, Former Employee had the ability to work remotely, and also had the ability to download emails onto his laptop. The court pointed out that, had the emails not resided on Former Employee's laptop, they likely would have been automatically deleted sometime in May or April 2003. Despite the auto-delete policy, Former Employee's emails were part of the 456 pages produced in March 2006.

Testimony from existing employees was not much better. Regional Manager testified in February 2006 that his search for ESI was, "Just a search of any documents that I stored on my computer." However, the computer that Regional Manager had apparently been using during some of the relevant time periods was a laptop that had been stolen at Detroit Metro Airport.

Although the opinion doesn't seem to cover what or why, there is some humor in noting that, at some point, KMart had the cajones to file a motion for production, seeking ESI in its native format. The Court granted KMart's motion January of 2007.

In Part 3, one geeky lawyer's opinion on at least 9 fundamental points illustrated by the KMart opinion...

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