Document Preservation: Spoliation and the “Ultimate Sanction”

The proper preservation of electronic data for discovery has become an increasing source of contention between parties. Two recent cases illustrate the importance of mindfully preserving electronic data during discovery. 

In Gentex Corp. v. Sutter, No. 3:07-CV-1269, 2011 U.S. Dist. LEXIS 122831 (M.D. Pa. Oct. 24, 2011), the district court granted default judgment to the plaintiffs in a spoliation action. Gentex Corporation sued two of its former employees, Brad Sutter and Patrick Walko, for violating non-disclosure agreements. Gentex claimed that Sutter and Walko copied proprietary files when they left the company and shared them with a rival company, Armor. 

In response to the suit, Armor implemented a litigation hold and instructed employees to preserve “all paper documents and electronically stored information concerning the Company’s relationship with Brad Sutter and his work while at the Company.” Armor also obtained a consulting firm to help preserve documents relevant to the litigation. 

Sutter, however, began destroying evidence despite knowledge of the litigation hold. Sutter scrubbed his computer, explaining that he did so “because he was scared because Gentex had sued him.” Sutter destroyed all CD-ROMs containing Gentex information that he possessed and purposely destroyed a thumb drive after his deposition. Sutter also deleted numerous email messages when he was printing them for production to Gentex. 

Similarly, Walko knowingly deleted documents relating to Gentex files on his computer. Walko claimed that various supervisors, including Sutter, instructed him, “Do what you have to do to clean up. If you need to clean up, clean up.” 

Gentex’s expert concluded that the deletions were “intentional and coordinated and designed to circumvent the duty to preserve documents.” The district court agreed and found that Gentex had presented sufficient evidence to show that Sutter and Walko engaged in willful spoliation. The court ultimately determined that granting default judgment to Gentex was the “least onerous” sanction corresponding to the willfulness of the spoliation, given Sutter and Walko’s “unabashedly intentional destruction of relevant, irretrievable evidence.”

By contrast, another court facing similar facts refused to levy the ultimate sanction. In Cedar Rapids Lodge & Suites, LLC v. JFS Dev., Inc., No. C09-0175, 2011 U.S. Dist. LEXIS 110671 (N.D. Iowa Sept. 27, 2011), the court determined that “a stronger showing of bad faith [was] required” before it would grant default judgment to the plaintiffs. In that case, plaintiff investors sued the developers of a proposed hotel for fraudulent inducement. Following a protracted discovery dispute, plaintiffs sought default judgment against one of the defendants for failure to comply with discovery requests and for intentional destruction of evidence. 

The defendant previously produced seven computers, ten hard drives, and 23 CDs for inspection and copying. Although the plaintiffs’ expert extracted over 34,000 relevant documents from these sources, the expert concluded that external drives that had been connected to the laptop were missing. Additionally, the expert contended that a large number of relevant documents, folders, files, and emails had been targeted for strategic deletion. The expert, however, conceded that several innocent explanations existed for the deletions and missing drives. 

Citing an Eighth Circuit decision, the district court determined that there was no proof that the defendant intentionally engaged in spoliation. As an initial matter, the court seemed impressed by the sheer volume of documents that plaintiffs had already recovered from the defendants. The defendant had initially produced 875 documents followed by an additional 2,700 pages, not to mention the 34,000 documents extracted from various hard drives and computers. 

Additionally, the court found that plaintiffs had not met the relevant legal standard. To warrant any sanction, much less a default judgment, the court had to find: 1) intentional destruction indicative of a desire to suppress the truth; and 2) actual prejudice to the other party resulting from the spoliation. Here, the court deemed the defendant to be merely “unsophisticated in the requirements of litigation and preservation of documents” rather than willfully destructive. Further, the plaintiffs suffered no prejudice, as “[i]t would seem that Plaintiffs have plenty of information upon which to pursue their claims.” In denying the motion for sanctions, the court simply stated, “I believe a stronger showing of bad faith is required.” 

While a default judgment represents the ultimate sanction in spoliation cases, destruction of electronic evidence can result in sanctions running the gamut from claim dismissal and suppression of evidence to an adverse inference and attorneys’ fees and costs. As the district court judge in Gentex observed, “I am especially conscious of the deterrence value of harsh sanctions in cases like this where the crucial evidence exists in electronic form, and a party may destroy its opponent’s case with the mere click of a button.” These two cases teach us to beware the fine line that distinguishes behavior worthy of a default judgment and behavior that is merely vexatious.

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