Spoliation of e-mail leads to monetary sanction on SunTrust in subprime mortgage suit
There's no telling if Mary Pettitt knew she was costing her employer hundreds of thousands, perhaps millions, of dollars when she tried to rewrite history on the archived e-mails. But at least one federal judge thinks the former SunTrust senior vice president – along with the bank’s senior executives, general counsel and outside counsel – should have known better.
On March 29 in Richmond, Va., District Judge Robert Payne sanctioned the mortgage division at SunTrust by ordering the bank to pay the legal fees related to the pretrial discovery-related work of its adversary, United Guaranty Residential Insurance Co. of North Carolina (UG), a mortgage insurance subsidiary of AIG. SunTrust sued UG in 2009 after the insurer refused to pay claims by SunTrust as the global financial meltdown caused epic defaults and foreclosures for US homeowners. SunTrust is currently suing UG for $88 million in damages.
Pettitt worked as a liaison between SunTrust and UG during the first stanza of the dispute in early 2008. Her e-mails to her counterpart at UG regarded complex underwriting techniques and numerous other facts that later figured in the lawsuit.
SunTrust's own IT staff found spoliation of Pettitt's e-mails
In August 2008, Pettitt provided her fellow SunTrust executives and general counsel with these e-mails, but there was a problem: Pettitt's texts didn't match the versions of the same message provided by UG. In nine e-mails, Pettitt's versions lacked crucial verbiage that supported a key tenet of SunTrust's argument about the underwriting.
UG's versions of the e-mails contained wording that supported UG's argument. SunTrust's information technology (IT) team took forensic images of Pettitt's computer and determined she had altered the messages.
What happened next nearly cost SunTrust the case.
"Instead of interviewing the employee who likely had all the answers, [SunTrust] chose to conduct a records-based investigation that kept Ms. Pettitt in the dark about what [SunTrust] knew. And even [SunTrust's] efforts in this regard were tepid at best," wrote Judge Payne in his opinion.
SunTrust GC's message was clear: Don't confront
Illustrating the judge's point was a December 2008 conference with SunTrust's lawyers and executives, attended by senior vice presidents Keith Reynolds, Debra Hovatter and Susan Thurman, as well as by general counsel Ray Fortin. Outside counsel Joshua Gold of Anderson Kill & Ollick called in, and a note he left in his case file said the general counsel's message was clear.
"Ray Fortin instructed that he would like to avoid confronting or placing on leave/firing Mary Pettitt for fear it will adversely affect the insurance claim against AIG," Gold wrote.
Although SunTrust did not use the altered records in the dispute, it also made no effort to address the issue. After finally confronting Pettitt in March 2009, SunTrust did not follow up to find out exactly how many e-mails she had altered. The company eventually fired Pettitt in January 2010, ten months after that confrontation.
Monetary sanction, yes, adverse inference, no
SunTrust's case is still alive, however. Judge Payne will not allow the e-mail spoliation to be used as the basis for an adverse inference instruction to the jury when the trial begins this month – meaning the jury cannot infer that SunTrust’s failure to produce Pettitt’s un-doctored e-mails means they would have been adverse to SunTrust’s position in the case. Without the sword of adverse inference hanging over its head, SunTrust has moved for summary judgment on its $88 million claim against UG.
Experts say the case underscores how crucial electronically stored information (ESI) will be in what is sure to be a years-long series of legal disputes over pre-bust mortgage lending.
“Information is easy to change, but you have a trail to ESI with e-discovery. Issues like this one highlight the importance of having properly documented forensic techniques,” says William Belt, Jr., a lawyer with no connection to the case who leads the Discovery Solutions Practice at LeClair Ryan, in Richmond.
A 'defensible process' is necessary for self-collection
“In the electronic discovery grand scale, it’s a self-collection, self-preservation issue. When lawyers get relevant documents and turn them over to the opposing party, they have to get them in a sensible way. You want to structure it so employees can’t tamper with them,” says Daryl Shetterly, an attorney also unaffiliated with the case who’s also a Discovery Solutions partner at LeClair Ryan. He added that in the case of SunTrust, the behavior of the executives and lawyers nearly crossed the line from negligence to malicious because they sought to sweep Pettit's actions under the rug.
“Self-collection is not always wrong,” adds Belt. “The collection approach depends on many things, like the type of case, how many employees are involved. Use a defensible process.”
Judge Payne agreed that aside from its obvious mistakes, SunTrust should have done more to bulletproof its forensics process. He suggested it would have been prudent in “investing additional resources in its own efforts or enlisting the support of outside investigative services” in collecting its ESI and determining whether Pettitt’s emails were authentic. The use of outside specialists, he said, would have gone a long way toward making their actions legally defensible.
“The significance of whether the emails were genuine was obvious: if the emails were fraudulent, Ms. Pettitt’s characterization [that SunTrust had no obligation to underwrite certain loans] also might be suspect,” wrote the judge. He concluded that the altered email “could jeopardize [SunTrust’s] ability to collect tens of millions of dollars in insurance payouts from UG.”
Lawyers at Reed Smith and Anderson Kill & Olick, who represent AIG’s lawyer, Christopher Dusseault of Gibson Dunn & Crutcher, would not comment to ACEDS on two occasions.
