If companies cheat, they get burned

If companies cheat, they get burned

6/5/2005 – Why would a typical jury see fit to award more than $29 million to somebody who might not normally have commanded much sympathy?

Because juries expect fair play, and this jury decided that this plaintiff’s employer did not play fair, not only in its treatment of her but also in its conduct during the litigation. The story has important lessons for employers.

The plaintiff, a former equities salesperson, sued her employer, UBS Warburg, for sex discrimination and retaliation. She was making $600,000 a year, but she felt the company had unfairly passed her over for various promotions and then fired her after she complained of sex discrimination to government agencies.

When the case made its way to a New York courtroom, it took the jury as little time as a trip to the proverbial water cooler to pile $20 million in punitive damages on top of its earlier findings of wrongdoing.

What happened? In a legal word, “spoliation.” In non-lawyer terms, Warburg employees got caught destroying or hiding documents and deleting the electronic data from the company’s computer system. The judge was not impressed, saying, “Once a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a ‘litigation hold’ to ensure the preservation of relevant documents.”

In this age of electronic data, this includes, in particular, e-mails. Warburg reportedly even “lost” or destroyed the back-up tapes storing deleted e-mails.

Warburg’s treatment of evidence in the litigation process probably was a critical factor in the jurors’ minds. One Warburg boss insisted he did not know about the plaintiff’s complaint to the government when he participated in the decision to fire her. This supposed ignorance was a key to Warburg’s defense. That defense exploded in Warburg’s face when it was discovered that he did know of her complaint and tried to cover it up by deleting the e-mail that proved he knew.

The displeased judge gave the plaintiff’s story to the jury. The jurors learned about the lost or destroyed electronic evidence, and the judge said they could conclude that the missing material and back-up tapes would have contained information favorable to her case.

Juries listen to and respect judges. If the judge says there must be something to the destroyed evidence, then so be it. It is a safe conclusion that the jury punished Warburg not only for its discriminatory conduct, but also for the destruction of evidence — that is, for not playing fair.

This is not just a quirky, isolated example of what some might think was a runaway jury. Just a few weeks ago, a Florida jury awarded another seemingly unsympathetic plaintiff, billionaire Ron Perelman, $1.45 billion, including $850 million in punitive damages in a commercial case against Morgan Stanley.

Like Warburg, Morgan Stanley repeatedly did not produce documents and was slow or incomplete in the production of electronic evidence because of technology glitches. As a result of this obstructionist behavior, the judge told the jury to assume that Morgan Stanley had defrauded Perelman.

Last week, the U.S. Supreme Court reversed a jury verdict and appellate case in which Arthur Andersen was criminally convicted for allegedly shredding documents related to the Enron debacle. The court stated: “It is of course not wrongful for a manager to instruct his employees to comply with a valid document retention policy under ordinary circumstances.”

The issue in that case, however, was whether the jury was properly instructed on the elements of a specific criminal statute involving the terms “knowingly” and “corruptly persuaded” — ultimately issues of criminal intent. Although Warburg and Morgan Stanley will probably point to the Supreme Court’s decision in their respective appeals, companies should remain mindful of their duties to maintain evidence, paper or electronic, under the lesser civil standards applied in civil litigation.

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