ESI and Spoilation
What is spoliation? The alteration, destruction or concealment of information which is relevant to pending or threatened litigation, when a party knows or should know that the information is relevant and is on notice of the litigation or potential litigation, which denies the party’s opponent access to such access to such information to its detriment. Determining whether sanctions are warranted for spoliation of ESI is challenging because it is easier to intentionally or inadvertently delete or modify ESI and it is more difficult for parties to craft preservation policies that ensure that the appropriate data is being preserved. Once a finding of spoliation has been made, courts may address whether the specific act of spoliation in question justifies an extreme sanction, such as an adverse inference jury instruction, issue preclusion, or judgment/dismissal, rather than a less severe sanction, such as additional discovery with shifting of costs and a monetary sanction Once a finding of spoliation has been made, courts may address whether the specific act of spoliation in question justifies an extreme sanction, such as an adverse inference jury instruction, issue preclusion, or judgment/dismissal, rather than a less severe sanction, such as additional discovery with shifting of costs and a monetary sanction ESI presents numerous issues regarding the scope of discovery, the allocation of costs, the form of production, and the preservation of data and spoliation. To manage these issues, courts need to understand the relevant technology at a level that allows communication between all parties involved. 2009 sampling of Court decisions in regards to Spoliation: First published at Lexis.com In Micron Technology, Inc. v. Rambus, Inc., (D.Del., Jan. 9, 2009) On January 9, 2009, District Court Judge Sue L. Robinson, in a patent infringement action that was filed in 2000, sanctioned defendant Rambus Inc. for spoliation conduct including the destruction of “innumerable documents relating to all aspects of Rambus’ business” dating back to the late 1990s. The dispute between Micron and Rambus related to Micron’s alleged infringement of multiple Rambus’ patents. After a bench trial on the issue of alleged spoliation of evidence and unclean hands, Judge Robinson declared that the patents in suit were unenforceable against Micron. For Rambus, this is the third decision from three different jurisdictions (Delaware, Virginia and California) where Rambus has been charged with spoliation of evidence based upon its licensing, litigation and record retention plans including its now-infamous “Shred Days.” The Virginia court (Rambus, Inc. v. Infineon Techs. AG, 220 F.R.D. 264 (E.D. Va. 2004) found that Rambus had spoliated evidence, however, a California court (Hynix Semiconductor Inc. v. Rambus, Inc., No. C-00-20905 RMW, 2006 WL 565893 (N.D. Cal. Jan. 5, 2006) found that Rambus did not spoliate evidence. TeleQuest International Corp. v. Dedicated Business Systems, Inc., 2009 U.S. Dist. (D.N.J. Mar. 11, 2009) An adverse inference sanction was imposed against a defendant who ran a defrag program and a data wiping program on his computer before turning the computer over to plaintiff’s forensics expert pursuant to a court order. Technical Sales Associates, Inc. v. Ohio Star Forge Co., 2009 U.S. Dist. LEXIS 22431 (E.D. Mich. Mar. 19, 2009 Sanctions against defendant were deemed appropriate because intentional deletion of evidence by defendant just prior to forensic examination was not protected by the safe harbor provision of Fed. R. Civ. P. 37(e) for information lost from the routine, good faith operation of an electronic information system. In Adorno, et. al. v. Port Authority of New York and New Jersey, 2009 U.S. Dist. LEXIS 27505 (S.D.N.Y. Mar. 31, 2009),
District Court Judge Denny Chin granted defendants' summary judgment motion in part and denied plaintiffs' motion for spoliation sanctions holding that although defendants had a duty to preserve evidence, plaintiffs could not demonstrate that the evidence allegedly lost or destroyed by defendants was harmful to defendants' case. The case was brought by a group of Hispanic employees who sued the defendants alleging discrimination on the basis of national origin, race and ethnicity related to defendants' appointment and promotion practices. Defendants moved for summary judgment and plaintiffs moved for spoliation sanctions under FRCP 37. In early 2005, plaintiffs filed a charge with the EEOC alleging discrimination. The EEOC issued right to sue letters to all plaintiffs in October 2005. The complaint was filed in January 2006. The court noted that defendants' duty to preserve some documents arose in 2001 as a result of an on-going discrimination litigation filed on behalf of certain Asian officers. Because the Asian officer litigation overlapped to some extent with plaintiffs' claims, defendants had a duty to preserve relevant documents beginning in February 2001. In the Second Circuit, spoliation sanctions are warranted when the court determines that the party with control of the evidence was under an affirmative duty to preserve relevant documents and failed to do so. A party seeking sanctions must show that the party with control over the evidence had a "culpable state of mind." Spoliation sanctions are not limited to cases where the evidence was destroyed willfully or in bad faith, but may also be imposed when a party negligently loses or destroys evidence. The spoliated evidence must be relevant to the party's claims or defenses such that a reasonable trier of fact could find that it would support those claims or defenses. Defendants argued unsuccessfully that because the Asian officer EEOC charge did not relate to the specific promotion classifications at issue in the present litigation, defendants were not on notice to preserve documents related to those promotion classifications. The court rejected the argument stating that the allegations in the Asian officer litigation were broad enough to cover all such promotions. The court concluded that defendants' failure to preserve documents was, at worst, negligent. The court was unconvinced that defendants failed to put a litigation hold in place or otherwise communicate document preservation or destruction policies to its employees, such that a finding of gross negligence by defendants would be appropriate. Plaintiffs cited witness deposition testimony indicating that certain employees were unaware of or unfamiliar with defendants' document preservation and destruction policies. The court found that this evidence alone was insufficient to demonstrate the lack of any such policies. Nor was any evidence presented that defendants acted willfully or with the intent to destroy evidence that it believed would be adverse to its interests. The court refused to sanction defendants as the court was not persuaded that a reasonable jury could find that the evidence was harmful to defendants' defense of the case stating that "when the culpable party was negligent, there must be extrinsic evidence to demonstrate that the destroyed evidence was relevant and would have been unfavorable to the destroying party. Electronic Funds Solutions, LLC v. Murphy, “Electronic Funds II”, 2009 Cal. App. Unpub. LEXIS 4956 (Cal. App. 4th Dist. 2009) A second default judgment against defendants for wiping computer drives was affirmed because defendants continued after reversal of the first default judgment to fail to comply with a trial court discovery order. However, the court ordered the trial court to strike a "ruinous" $50 million punitive damages award included with the second default judgment. Oz Optics v. Zeynep, 2009 Cal. App. Unpub. LEXIS 2952 (Cal. App. 1st Dist. Apr. 15, 2009) Monetary sanctions against defendant for scrubbing data on her laptop before turning it over for inspection pursuant to a court order were properly limited to an amount that would not affect her ability to defend herself. Beard Research, Inc. v. Kates, 2009 Del. Ch. LEXIS 94 (Del. Ch. May 29, 2009) An ex-employee and his new employers were jointly obligated to preserve evidence in a misappropriation of trade secrets action and were sanctioned with an adverse inference for spoliation of evidence on the ex-employee's laptop computer. Realnetworks, Inc. v. DVD Copy Control Association, 2009 U.S. Dist. LEXIS 38221 (N.D. Cal. May 5, 2009) Plaintiffs that could not locate notebook computers of an employee whose employment was terminated less than a week prior to the filing of plaintiffs’ action were sanctioned for failing to preserve the notebooks. However, sanctions were limited to an award of attorney fees and costs for defendants because the contents of the notebooks were unknown and other sources of information were available. Next Up: ESI and Planning John Randall President Randall Consulting
Plaintiff alleged its former employee stole a list of plaintiff’s customers and vendors. An email of a competitor of plaintiff sent by the former employee attached a printout of plaintiff’s customers and vendors. Two orders were issued to the competitor and the employee to produce their computers for forensic examination, but only the employee, appearing pro se, produced a computer for inspection. Plaintiff’s forensic consultant determined that the computer had been “defragged” two days before delivery and that a data wiping program had been run on the computer and then uninstalled on the day the computer was delivered. According to the forensic consultant, data could not be recovered from the hard drive of the computer using conventional forensic tools. Plaintiff sought sanctions, including a default judgment or an adverse inference, against the employee and the competitor.
The court noted that a default judgment already had been entered against the competitor for failure to plead. Although the former employee’s running of a “defrag” program and a data wiping program directly violated court orders and the employee’s duty to preserve evidence, the sanction of striking his answer and entering a default judgment was extreme. The “far lesser sanction” of an adverse inference sanction was warranted concerning “all materials deleted or destroyed following the commencement of this lawsuit.
Plaintiff sought sanctions against defendant for spoliation while defendant sought an order holding plaintiff and its computer forensics expert in contempt. In preparing to search defendant’s computer files for a disputed email, plaintiff’s computer forensics expert found that a file wiping program had been installed on a personal computer formerly used by the recipient of the disputed email and nearly 70,000 email documents had been deleted or altered so that they could not be read. Also, the recipient’s mailbox on his current computer was deleted just before the forensic examination. Defendant contended plaintiff and its computer forensics expert should be held in contempt for violating the stipulated court order for the examination by not first reporting to defendant what had been found during the examination. Plaintiff sought sanctions for the file wiping and the mailbox deletion.
The court held that the report to plaintiff did not violate the order to first allow defendant to review data captured from the search. The court’s order was “clearly aimed at protecting the discovery of actual data, not the absence of data.” On the other hand, sanctions to be determined at trial against defendant were appropriate. Defendant contended that the files wiped from the email recipient’s prior personal computer (after plaintiff had sought production of information from the files) had been “copied and relocated” to the recipient’s current computer. However, there was no way to prove that contention. Also, while defendant contended email folders deleted at 2 a.m. on the day before the examination could be recovered from the recycle bin, plaintiff’s expert declared that moving the files to the recycle bin could have changed dates of email in the folders to fall outside the range of dates being searched to find the disputed email.
The court concluded that defendant’s actions concerning files on the recipient’s computers violated defendant’s obligation to preserve evidence. Fed. R. Civ. P. 37(e) did not provide a “safe harbor” for defendant because the “rule is intended to protect a party from sanctions where the routine operation of a computer system inadvertently overwrites potentially relevant evidence, not when the party intentionally deletes electronic evidence.” The court held that monetary sanctions and plaintiff’s entitlement to an adverse inference instruction to the jury would be determined at trial.
A $24 million default judgment entered as a discovery sanction against defendants who "wiped" a computer hard drive just prior to turning the drive over for plaintiff's inspection was reversed. Electronic Funds Solutions v. Murphy, "Electronic Funds I", 2005 Cal. App. LEXIS 1910 (Cal. App. 4th Dist. Dec. 14, 2005). Plaintiffs amended their complaint, and the trial court again struck defendants' answer. A second default judgment was entered for a total of $67.3 million, including $50 million in punitive damages. Defendants appealed again on the ground that there was no evidence that they had continued to disobey discovery orders following entry of the first default judgment.
The court held that the trial court did not abuse its discretion in again issuing terminating sanctions because defendants still had not complied with existing discovery orders. Although defendants asserted they were willing to turn over copies of computer hard drives made before the drives were wiped clean, defendants failed to do so. Defendants also failed to take steps to produce materials that they claimed were turned over to a third party. However, the court instructed the trial court to modify its judgment by striking the $50 million punitive damages award. Plaintiffs had not introduced evidence of the financial condition or net worth of the individual defendants, and the $50 million punitive damages award was six times the corporate defendant's annual income. According to the court, "[s]uch an award would be ruinous to any company, not to mention its owners."
A jury determined that defendant, after being placed in charge of a company acquired by plaintiff, breached her employment agreement with plaintiff by working to set up a competitor of the acquired company while working for plaintiff. The jury awarded plaintiff $370,000 while awarding defendant $4,513 for plaintiff’s breach of its severance agreement with her. Defendant admitted that she used scrubbing software on the laptop issued to her by plaintiff just before turning the laptop over to plaintiff pursuant to a court order. Plaintiff appealed in part on the ground that a sanction for the destruction of evidence on the laptop should have been more than $90,000.
The court affirmed the trial court’s sanction of $90,000 as a reasonable amount designed to compensate plaintiff for its attorney fees and costs in dealing with defendant’s discovery abuse. The trial court had found that a greater sanction would have affected defendant’s ability to defend herself. Plaintiff could not receive its full $234,000 in fees and costs incurred as a result of defendant scrubbing files because the sanction was meant to reimburse plaintiff rather than penalize defendant, and a sanction greater than $90,000 would have been punitive by hampering defendant from defending herself.
Plaintiffs, two related outsourcing firms in the chemicals industry, filed suit against a former employee and his subsequent employers for tortuous interference with business relations and misappropriation of trade secrets. Plaintiffs sought a default judgment against defendants as a sanction for the former employee's deletion of files on his laptop, replacement of the hard drive on the laptop and loss of the original hard drive, and additional deletion of files from the laptop just before its production for inspection pursuant to court order. The subsequent employer defendants contended that the former employee acted alone. According to the former employee, the original hard drive had simply been lost and files deleted just before production of the laptop were deleted only to avoid embarrassment over the nature of the files.
The court pointed out that the two subsequent employers and the former employee became defendants in the action at the same time, hired the same attorney, and received plaintiffs’ document requests. The "complete absence of any evidence" that any of the defendants took any steps to preserve relevant evidence on the laptop thus led the court to conclude that the subsequent employers bore at least some responsibility for destruction of evidence on the laptop. An adverse inference was appropriate, according to the court, regarding a missing PowerPoint presentation to shareholders of a subsequent employer. However, an adverse inference was not appropriate regarding missing email to or from the former employee. There were two sides to any email, and no email from the other side of the former employee's email was discovered by plaintiffs. Defendants also were ordered jointly and severally to reimburse plaintiffs for their attorney fees and expenses, including expert expenses, in seeking sanctions.
Plaintiffs filed an action for a declaratory judgment that they had not breached a license agreement on technology to prevent copying of videos, and defendants counterclaimed for breach of contract. Defendants deposed an employee of plaintiffs whose job had been terminated just prior to plaintiffs’ action. The former employee testified that she had been instructed to delete relevant email and that she had turned over her notebooks when she left her job. Another employee of plaintiffs testified at deposition that he deleted “tons of stuff” every day. A consultant for plaintiffs testified at deposition that he had not been instructed to preserve relevant documents before erasing documentation at the end of his consultancy. Defendants sought sanctions, including an order precluding plaintiffs from impeaching the former employee’s testimony and precluding plaintiffs from offering testimony from the consultant or other employee.
The court first determined that plaintiffs’ duty to preserve evidence in anticipation of the litigation arose only shortly before plaintiffs released their product and defendants objected to the release. According to the court, “[a] general concern over litigation does not trigger a duty to preserve evidence,” and plaintiffs’ duty to preserve evidence arose only when plaintiffs knew there was potential litigation. That duty arose after the consultant had finished his work and disposed of documents. In any event, the consultant located a backup drive at his home with non-email documents and turned over those documents.
The court noted that the employee who testified that he deleted “tons of stuff” submitted a declaration after his deposition that he had not deleted relevant email or documents received or generated in connection with his work and that he had not been instructed to delete any email. Also, the content of the lost notebooks of the former employee was not known, and information on the five issues the former employee was expected to testify about was available from sources other than the notebooks. The court thus concluded that an order precluding plaintiffs from impeaching or contradicting the former employee’s testimony was not warranted. However, plaintiffs had failed to preserve the notebooks, and defendants were awarded their attorney fees and costs for pursuing the evidence of spoliation of the notebooks.
