ABA Section of Business Law
ABA Section of Business Law
Business Law Today
March / April 2000
Compute this!
Taking the right precautions in the Information Age — a
tale of spoliation
By JAMES J. MARCELLINO and HEATHER EGAN
Did you know that companies on notice of litigation can expose themselves to the risk of costly and damaging discovery sanctions if they fail to preserve discoverable electronic information stored on computer back-up tapes?
Indeed, Rule 37(b)(2) of the Federal Rules of Civil Procedure and comparable state rules allow for sanctions against a litigant who is on notice that documents and information in its possession are relevant to current or potential litigation, or are reasonably calculated to lead to the discovery of admissible evidence, and destroys such documents and information.
It is well settled that "documents" and "information" include computer information, data compilations and electronic mail. However, many companies still fail to consider their computer system back-up tapes when preserving potentially relevant documents and information. When these tapes are taped over, even as part of a routine recycling program, courts across the country have construed this to be spoliation of evidence and have sanctioned offenders with increasing severity.
For example, a Massachusetts superior court recently meted out such a sanction against a defendant who failed to preserve electronic data stored on back-up tapes. In Linnen, et al. v. A.H. Robbins Co. Inc., et al. , 1999 WL 462015, at *11 (Mass. Super. June 16, 1999), the defendant had maintained several different software systems for providing intra-office communication capabilities over the years prior to the start of litigation. Each of these systems was regularly backed up onto tapes, so that in the event of a system-wide computer crash, stored information could be retrieved and restored. The back-up tapes contained every piece of information saved on the defendant’s computers, including word-processing files, spread sheets, models and even copies of e-mail that had since been deleted by individual computer users. These tapes were reserved for three months and then, according to widely accepted business practice, were taped over, or "recycled."
Once litigation had begun, the plaintiffs served their first requests for production of documents. However, for reasons not spelled out in the opinion, the defendant failed to suspend the recycling of back-up tapes until three months later. Plaintiffs filed a motion for sanctions based on the destruction of those three months worth of tapes. While the court declined to impose the $1 million fine requested by the plaintiffs, it did grant the request for an adverse inference instruction, as well as costs and attorney fees associated with bringing the motion.
How can your company avoid such a fate? Normal business practice and a "pure heart" may provide a safe-harbor from a spoliation claim. For example, in Ordonez v. M.W. McCurdy & Co. , 984 S.W.2d 264, 274 (Tex. App.—Houston [1st Dist.] 1998), plaintiff moved for sanctions when the defendant could not produce several log books that were potentially relevant to the litigation. However, since the missing log books were thrown away following normal business practice of keeping such logs for only six months, and there was no evidence the log books were destroyed for the purpose of concealing them, the court held that a spoliation instruction was not appropriate.
Of course, evidence of normal business practices will likely find a better reception than an assertion that a party did not intend to destroy documents. The question of spoliation arises only when the records are destroyed after the party knew or should have known not to destroy them. In assessing whether the destruction was done with a "pure heart," the court looks at the evidence destroyed, when it was destroyed, who destroyed it and how it was destroyed. See Randolph A. Kahn and Kristi L. Vaiden, "If the slate is wiped clean: Spoliation, what it can mean for your case," Business Law Today (May-June 1999).
To be sanctionable for spoliation, the moving party must generally establish four elements:
• "an act of destruction;
• discoverability of the evidence;
• an intent to destroy the evidence;
• occurrence of the act at a time after suit has been filed, or if before, at a time when the filing is fairly perceived as imminent."
Klupt v. Krongard, 728 A.2d 727, 737 (Md. App. 1999).
"Intent means knowledge, actual or constructive, that discoverable evidence is relevant to pending litigation. . . . Actual knowledge refers to a subjective disposition to destroy the evidence. At the same time, a party may be deemed to constructively know that a document is relevant to litigation because [the party] was placed on notice by the opposing party."
The court may select from the sanctions available under Fed. R. Civ. P. 37 and its state-law analogs. The range of sanctions for failing to preserve potentially relevant stored computer information has been construed to include fines, expenses and fees incurred while bringing the motion for sanctions, adverse inference instructions, summary judgment, entrance of a default judgment or outright dismissal of the case. Courts also may sanction for destruction of evidence under their inherent power to sanction misconduct such as spoliation during the pre-trial phase of litigation. See West v. Goodyear Tire & Rubber Co ., 167 F.3d 776, 779 (2nd Cir. 1999).
In White v. Office of the Public Defender for the State of Maryland, 170 F.R.D. 138, 147 (D. Md. 1997), the court considered a third source of authority to sanction, namely, Rule of Professional Conduct 3.4, which deals with counsel’s obligation of fairness to an opposing party and counsel. This rule is particularly applicable where a lawyer is involved in the destruction.
While the sanctions of default and dismissal are generally reserved for the most egregious of behavior, the "adverse inference" instruction is a tool increasingly used for remedying spoliation of electronic information. Under this sanction, the court may instruct "the jury to infer that the party who destroyed potentially relevant evidence did so ‘out of a realization that the [evidence was] unfavorable.’" Linnen, 1999 WL 462015, at *12 (citing Blinzler v. Marriott Int’l Inc. , 81 F.3d 1148, 1158 (1st Cir. 1996)). This instruction may be used against a party regardless of whether or not there was a discovery order in place.
However, a moving party must meet a heavy burden in order to obtain such a harsh sanction. First, the moving party must demonstrate that the destroyed information was relevant to the litigation. In Gates Rubber Co. v. Bando Chem. Indus., 167 F.R.D. 90, 104 (D. Col. 1996), the court found that the moving party "must establish a reasonable possibility, based on concrete evidence rather than a fertile imagination, that access to the [destroyed material] would have produced evidence favorable to his cause." Second, the moving party must show that "this loss of evidence would prejudice its case." LEXIS-NEXIS v. Beer, 41 F. Supp. 2d 950, 955 (D. Minn. 1999). Finally, the destruction must be shown to have been in bad faith before it can give rise to an inference that production of the document would have been unfavorable to the party responsible for destruction. Aramburu v. Boeing, 112 F.3d 1398, 1407 (10th Cir. 1997).
In New York State N.O.W. v. Cuomo, 1998 U.S. Dist. LEXIS 10520, at *6 (S.D.N.Y. 1998), the court held that the adverse inference was unavailable as a remedy because destruction occurred as part of a general purging of records and, thus, was merely negligent rather than intentional effort to impede litigation. "Mere negligence in destroying records is not enough because it does not support an inference of consciousness of a weak case."
Some courts have dispensed with this bad-faith requirement altogether. In Hartford Ins. Co. of the Midwest v. American Automatic Sprinkler Sys. Inc ., 23 F. Supp. 2d, 623, 626 (D. Md. 1998) the court noted that, even in the absence of bad faith, a court has broad discretion to permit a jury to draw an inference from a party’s loss of evidence, failure to preserve evidence or destruction of evidence, that the evidence would have been unfavorable to the party responsible for its destruction.
Where a moving party fails to meet the substantial burden for the adverse inference instruction, a court still has the inherent authority to impose significant monetary fines for conduct that the court feels has violated the duty to preserve any evidence that may be relevant to the pending litigation.
In a recent Massachusetts case, the trial court judge was confronted with a separate cause of action based on an insurer’s agents’ or employees’ negligently or intentionally spoliating evidence of the cause and origin of a fatal fire. Fletcher v. Dorchester Mutual Ins . Co., No. 98-497-B (Dec. 10, 1999). According to the judge, 26 states have considered whether to adopt a separate tort of spoliation, but only six have done so. Of those six, only one (Ohio) recognizes both intentional and negligent spoliation. Not surprisingly, the determining factor in finding no such cause of action in Massachusetts was the availability of appropriate sanctions, including exclusion of evidence, in the underlying claim.
So what can the company you’re advising do to avoid the risk of sanctions for spoliation of electronic documents and information? You should consider instituting data-retention policies, whereby all potentially relevant information is preserved until resolution of pending litigation. An effective data-retention policy organizes computer data, categorizes information and provides for an efficient method of searching volumes of stored information to determine relevancy when responding to discovery requests. The policy should also facilitate communication between management and the department in charge of recycling information since the duty to preserve evidence attaches when a party is on notice, in the words of the Klupt court, that "the filing [of litigation] is fairly perceived as imminent."
Avoiding sanctions is not the only reason to institute such a policy. In most litigation, the producing party generally bears the costs of searching its databases for responsive documents. However, while many companies spend enormous sums to maintain meticulous file rooms for the retention of paper documents, their computer files and electronic information are often haphazardly organized and stored. See Charles A. Lovell and Roger W. Holmes, "The dangers of e-mail: The need for electronic data retention policies," 44 R.I. B. J. 7, 8 (Dec. 1995). A data-retention policy that effectively and efficiently manages electronic information can save a company significant time and expense in meeting its own discovery obligations.
For example, in In re Brand Name Prescription Antitrust Litigation, producing documents under a discovery request entailed sifting through approximately 30 million pages of haphazardly stored electronic mail at an estimated cost of $50,000 to $70,000. See 1995 WL 360526, at *2 (N.D. Ill. 1995). The court required the producing party to bear the full cost of this endeavor, reasoning that the requesting party "should not be forced to bear a burden caused by [the producing party’s] choice of electronic storage."
With this in mind, short-term investment to implement a more efficient method of cataloging and referencing stored data and electronic mail may make the searching for the proverbial needle in a haystack both easier and cheaper in the long run. For a detailed analysis of the merits and methods of creating a data-retention program to suit the individual company needs, see Christopher V. Cotton, Note, "Document retention programs for electronic records: Applying a reasonable standard to the electronic era," 24 Iowa J. Corp. L. 417 (Winter 1999).
While spoliation of evidence is hardly a new concept, sanctioning for destruction of electronic evidence is still an evolving doctrine. As of yet, courts have not adopted uniform standards for defining when the duty to preserve data attaches, nor what conduct requires which sanction.
One thing is certain: The amount of information generated and stored on corporate America’s computers can only continue to multiply in the coming years. Instituting efficient and effective data-retention policies, and using thoughtful methods for storing and retaining electronic information, will not only help companies avoid sanctions, but will aid companies in fulfilling their own discovery obligations.
Marcellino is a partner at McDermott, Will & Emery in Boston. Egan is a third-year student at Boston College Law School.
