Coleman (Parent) Holdings, Inc. v. Morgan Stanley & Co., Inc. Not Reported in So.2d, 2005 WL (Fla.Cir.Ct.) Ediscovery, Fall 2010 Francis Eiden

Parties Plaintiff: Coleman (Parent) Holdings, Inc. Defendant: Morgan Stanley & Co., Inc. ◦ Financial Advisor to Sunbeam Corporation

Legal Framework 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 s and noncompliance with the Agreed Order can justify an adverse inference being read to the jury.

Facts Though MS & Co. instructed its employees to preserve paper documents in connection with the Sunbeam transaction, however, they continued to overwrite s after 12 months, despite an SEC regulation requiring all s be retained for two years. May 14, 2004, MS produced 1,300 pages of on time. The manager in charge of the project, Mr. Riel, did not certify compliance until June 23, 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 was produced the next day.

Analysis CT said that: MS & Co. spoiled evidence by failing to maintain 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 attachments. ◦3. failure to locate potential backup tapes until February 12.

OUTCOME 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

E-DISCOVERY ISSUES 37(E): failure to produce electronically stored information 37(F): Sanctions ◦Spoliation of Evidence 17 C.F.R a-4 (1997) ◦SEC regulation that you keep all documents readily accessible for at least two years

CLASS DISCUSSION 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?