1. The court finds that the plaintiffs have not sustained their allegation that the defendants downloaded and printed 750,000 pages of e-mail for production to the SEC, nor have they proved that defendants downloaded and printed any more than the 34,000 pages the defendants have now produced. The linchpin of the plaintiffs' proof was a former employee, Kenneth Kane, whose testimony at the hearing was so substantially at odds with his earlier affidavit and with the allegations made by the plaintiffs that the court is unable to rest any findings on his testimony or affidavit.

The plaintiffs have, however, convinced the court that the defendants failed to comply with its discovery obligations as to the 34,000 pages of e-mail. Although the defendants did not have an obligation to disclose that it had downloaded and printed e-mail for the SEC, once that material had been printed, the defendants had the obligation to review that material for documents responsive to the other document requests made by the plaintiffs. Such review and production may well have indirectly disclosed the fact of the SEC investigation and the downloading process that had already occurred, indeed that may have been the reason counsel chose not to produce those documents, but that does not absolve the defendants. The defendants' failure to meet that obligation requires the court to impose a sanction. Because the plaintiffs have now reconsidered the possibility of reviewing the stored e-mail by keyword searches, the defendants shall bear the cost of downloading and printing up to 10,000 pages of additional documents responsive to appropriate keyword searches requested by the plaintiffs. The defendants may withhold documents identified by such searches only upon an assertion of privilege; no “relevance” objections will be permitted.

In addition, counsel for the plaintiffs are to be permitted to inspect, in the presence of counsel for the defendants, the 12 boxes identified by Ms. DeBenedetto in her testimony at the hearing for the limited purpose of reviewing the e-mail in the boxes to determine whether the e-mail produced to the plaintiffs corresponds with the e-mail there. The inspection shall be limited to no more than 8 hours. At the time of the inspection Ms. DeBenedetto personally shall confirm that the boxes presented for inspection are the boxes to which she referred in her testimony.

2. The plaintiffs have sustained their allegation that the defendants destroyed documents, stored in the computer “hard” drives of various personnel, in violation of two court orders requiring the preservation of documents. Indeed, one of the orders specifically referred to documents stored in computers. The defendants, not entirely unreasonably, argue that they cannot “freeze” their business by maintaining all hard drives inviolate, but rather must erase and reformat their computer hard drives as people leave and as business needs dictate. The documents could have been preserved, however, without keeping the hard drives inviolate; the information on those drives could simply have been copied to other relatively inexpensive storage media. If the defendants found that to be so burdensome, an application to the court was the appropriate procedure, not ignoring the court's orders.

*2 Prejudice to the plaintiffs has not been clearly established, however. The defendants, including both outside and inside counsel, undertook various efforts to identify and preserve hard copies of relevant documents before the hard drives were erased, and the plaintiffs have not identified with specificity any information that is unavailable. Therefore, the plaintiffs' request for jury instructions about adverse inferences arising from unavailable evidence is too harsh a sanction and is rejected.

Short of the above, the court is unable to fashion a sanction to remedy whatever prejudice may have occurred because of the defendants' conduct in erasing from all of their hard drives information relating to fiscal year 1994 and earlier. A sanction must, however, be imposed for the defendants' non-compliance with the court's orders. Accordingly, the defendants shall pay the sum of $5,000 to the court for failure to obey the court's order, and $10,000 in attorneys' fees to the plaintiffs as the reasonable expenses the have incurred in making this motion because of the defendants' failure to heed the court's order. The sanctions are to be paid by September 2, 1997.

All other applications for relief by the plaintiffs are denied.

SO ORDERED.