I can remember all too well as a child hearing the KMart PA announcement that there was a blue light special in the children's shoes department... the pushing, clawing, and biting... running over poor little old ladies standing in line at those horrid KMart snack bars, leaving in our wake a tangle of wrinkled skin, bent and battered walkers intermingled with Cherry Icees and nacho cheese. Oh, the humanity!
The more things change, the more they stay the same, as yet another KMart special leaves me both breathless and impervious to the immediate short-term safety of any little old ladies that might wander into my path. An opinion in KMart bankruptcy released July 31 is nearly as precious to me as those white metallic Christmas trees with (you guessed it) blue plastic bulbs for ornaments. The opinion is related to certain claims objections as to the claims of Global Property Services, and the opinion (notated as being released for electronic publication only) is being reported at 2007 Bankr. LEXIS 2541. In the interests of full disclosure, William J. Barrett is listed as counsel for KMart in this matter. So far as I am aware, there is no relationship between myself and Mr. William J. Barrett, nor am I aware that he ever experienced the joy of leg-wrestling a complete stranger for the last set of Blue Light special high tops.
The opinion alludes to many topics that I have wanted to discuss previously, but never really had the proper vehicle. So many in fact, that this post may only topically point out those areas of interest, with more in-depth discussions being fleshed out in a more formal forum.
KMart filed its bankruptcy on January 22, 2002, and it s plan of confirmation was entered on or about April 23, 2003. In June of 2003, Global filed admin claims, and filed an amended claim in September of 2003.
KMart filed an objection to Global's claims in February 2004, which Global responded to in March 2004.
In February 2005, Global served out discovery requests related to the claims objection. Two month later, in April 2005, KMart responded by producing 66 pages of documents. Global corresponded with KMart's attorneys the following week, to get some assurance that KMart was preserving responsive evidence. [ISSUE ONE]
On July 11, 2005, the bk court entered an order reflecting the parties' stipulation that KMart would produce all responsive documents, including e-mail, from the corporate office by July 8, 2005, and from all the individual stores by July 31, 2005. In July 11 correspondence, KMart counsel represented that all the corporate head quarter's documents had been produced. [ISSUE TWO]
By mid-August 2005, KMart had produced 2,614 pages from headquarters. In September of 2005, another 287 pages trickled in. Additional documents were also produced in relation to the subsequent depositions of KMart's senior commercial attorney and from the highest ranking member of management to have dealt with the Global issue before it became an issue.
In January 2006, KMart produced 83 pages of documents concerning, or at least tangentially related to, email access and other corporate protocols. [ISSUE THREE] In February 2006, an additional 5600 pages of documents from corporate were produced. Throughout February, additional depositions led to the production of additional documents.
On March 7, 2006, Global filed a motion for sanctions, for spoliation, to compel discovery and an application to force KMart counsel to wear last season's discontinued line of blue light special off the rack men's suits. Six days later KMart produces more documents, including electronically stored information (or ESI). Included in Global's list of grievances was that KMart had only recently started digging through its own ESI.
One of the issues raised in KMart's response was that Global did not identify a "trigger date" for KMart's preservation duty. [ISSUE FOUR]. KMart argued that the date to trigger its obligations to preserve evidence would not have occurred until February 2, 2004, and that any destruction of documents under its document retention and destruction policy [ISSUE FIVE] would have occurred prior to that point.
The court heard two days of evidence on the matter, April 25 and 26, 2006.
The Digital Enterprise
Global had been acting as a general contractor for KMart nationwide, by coordinating the subcontractors responsible for exterior cleaning and landscaping services, or "white and green service" as referred to throughout the court's opinion. In Spring of 2003, Kmart indicated it intended to do an audit of Global's books, to which Global apparently responded positively, so long as KMart executed a non-disclosure and confidentiality agreement, to prevent KMart from cutting Global out as the middleman and dealing directly with the subs. The agreement was executed March 20, 2003. According to Global, within weeks it learned that KMart's agreement lasted only about as long as the typical blue light special, as KMart was reportedly doing the very thing it had promised it would not. The admin claim that Global filed that same year alleged a $25 million claim against KMart for muscling in on the white and green subs.
At trial on the sanctions motion, a KMart IT employee testified as to the system architecture. According to the testimony, KMart used Microsoft Exchange and 5 email servers. Employees had the option of storing email on the email server, on an "H-drive" that was also a server location. E-mails could also be stored on their local hard drive in their workstation. Finally, e-mail could be stored on any other medium, including CD or sushi-shaped USB drives. [SEE ISSUE FIVE]
Exchange based emails were subject to KMart's retention policies, which included automatic deletion guidelines (i.e. emails in the Inbox are deleted after 90 days). Emails could remain in Exchange longer though, in part through the mere act of moving an email from the Inbox to a user-defined file (the user defined files had 180 day deletion schedules), but also through, well, the mere act of moving an email from the Inbox to a user-defined file (the deletion date was triggered by the "date sent", but when a user moved an email from the Inbox to a user defined file, the metadata concerning that email was changed, and modified the "date sent" parameter). [SEE ISSUE FIVE]
The ESI stored on the H: and C: drives was not subject to any automatic deletion date. [ISSUE SIX]
Part of KMart's document retention and destruction policy is also based on, get this, unwritten, policy. A second IT type testified that the computers of former employees would be collected and stored for 2 weeks in an "asset cage", before they cleansed and recycled by an open source "boot and nuke" utility. Reportedly, boot and nuke over-rights to DOD standards, which makes me wish, just this once, I had the artistic ability to draw a cartoon of the prez wearing boots and a cowboy hat... The computers of former employee's who were identified as being on "legal hold" were stored under lock and key rather than being subjected to boot and nuke (that sounds like a hip, happening new kind of adult beverage).
The court also addressed the steps taken to back-up the various segments of KMart's digital enterprise, which I don't feel possessed to address here.
In addition to the H: drive, employees also had access to P: and W: drives, the former being a "public" drive, and the latter being a "working group" drive. The P: drive was accessible by all KMart employees, and hosts Word, Excel, and lord knows what else. The employee's testimony, according to the opinion, indicated that employee email could not be stored on P: drive. [In point Seven, I will Explain Why that just Ain't True]
The W: drive is "more secure", whatever that might mean. Again, the testimony seems to reflect that e-mail cannot be stored on the W: drive. [SEE ISSUE SEVEN]
An interesting side note, one of the KMart attorneys indicated that she was not aware of the existence of either of these two drives until the day before the hearing on Global's motion. Based on timeline #1, I can imagine that the paint on the inside of counsel's office needs to be replaced after the whithering anger and frustration she must have experienced upon learning of yet another digital landmine so late in the game. [NEVERTHELESS, SEE ISSUE EIGHT]. While there is no automatic deletion of either the P or W drives, KMart IT folks do have some ability to prevent employees from deleting data stored on those drives.
In the next post, look for Timeline #2, which was the cause of both incredulity and an embarrassing string of expletives, and we will cover the 8+ fundamental issues the KMart case raises. (Sorry, but billable work beckons).
Finally, for those keeping score, Judge Sonderby denied the spoliation motion, but granted sanctions. I promise this is not a plot spoiler though, because you don't want to miss Timeline #2!