Transcript Coleman (Parent) Holdings, Inc. v. Morgan Stanley & Co., Inc.

Coleman (Parent)
Holdings, Inc. v. Morgan
Stanley & Co., Inc.
Not Reported in So.2d, 2005 WL 679071 (Fla.Cir.Ct.)
Ediscovery, Fall 2010
Francis Eiden

Plaintiff: Coleman (Parent) Holdings, Inc.

Defendant: Morgan Stanley & Co., Inc.
◦ Financial Advisor to Sunbeam Corporation
Parties

Coleman Holdings sued Morgan Stanley & Co., Inc. for fraud in
connection with CPH's sale of its stock in Coleman, Inc., to
Sunbeam Corporation for Sunbeam stock. The issue of the case
was whether MS & Co. had knowledge of the fraudulent scheme
used by Sunbeam. CPH has sought access to MS & Co.'s files.

On April 16, 2004, the Court entered an Order requiring MS to
search the backup tape for employees involved in the transaction.

January 26, 2005, Coleman Holdings filed the Motion at issue
here, asking the Court to instruct the jury that MS & Co.'s
destruction of e-mails and noncompliance with the Agreed Order
can justify an adverse inference being read to the jury.
Legal Framework

Though MS & Co. instructed its employees to preserve paper documents
in connection with the Sunbeam transaction , however , they continued to
overwrite e-mails after 12 months, despite an SEC regulation requiring all
e-mails be retained for two years.

May 14, 2004, MS produced 1,300 pages of email on time. The
manager in charge of the project, Mr. Riel, did not certify compliance
until June 23, 2004.

Sometime before May 6, 2004, Mr. Riel and his team learned of 1,423
backup tapes in Brooklyn, New York (Brooklyn Tapes). These tapes were
never processed, making Mr. Riel's certification false. Mr. Riel knew that
these tapes covered the responsive time period, but never withdrew the
certification nor informed CPH.

Mr. Riel was replaced with Ms. Gorman, who did nothing regarding until
November 17, 2004, when she stated that the certificate of compliance
was incorrect due to the discovery of more material. An additional 8,000
pages of email was produced the next day.
Facts

CT said that: MS & Co. spoiled evidence by failing to maintain email in
readily accessible form as required by SEC regulations.

Sanctions are also justified based on willful disobedience of the Agreed
Order of the court.

The court ruled that there was a willful and gross abuse of the discovery
obligations:
◦ 1. failure to timely notify CPH regarding the new tapes.
◦ 2. failure to produce all email attachments.
◦ 3. failure to locate potential backup tapes until February 12.
Analysis
The Court granted Plaintiff's motion for an
adverse inference instruction.
 CPH was allowed to argue that MS & Co.'s
concealment of its role in the Sunbeam
transaction "is evidence of its malice or
evil intent, going to the issue of punitive
damages."
 compensate CPH for costs and fees
associated with the motion.

◦ Awarded CPH 1.45 billion in monetary damages
OUTCOME

37(E): failure to produce electronically stored
information

37(F): Sanctions

17 C.F.R 240.17a-4 (1997)
◦ Spoliation of Evidence
◦ SEC regulation that you keep all documents readily
accessible for at least two years
E-DISCOVERY ISSUES

Should there be an exception for
employee turnover in a situation where
the person being replaced was heading
the compliance?

Is it fair for the SEC to require large
corporations to maintain documents for
up to two years?
CLASS DISCUSSION