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“Willful Indifference” to Preservation Obligations Warrants Evidentiary and Monetary Sanctions

Posted in CASE SUMMARIES

Google Inc. v. Am. Blind & Wallpaper Factory, Inc., 2007 WL 1848665 (N.D. Cal. June 27, 2007)

In this trademark litigation, Google sought terminating, evidentiary, or monetary sanctions based on the alleged failure of defendant American Blind to preserve, collect, and produce evidence.  Google’s motion was premised on two types of alleged misconduct:  First, Google contended that American Blind made inadequate efforts to preserve, collect, and produce relevant evidence.  Second, Google contended that in May of 2006, American Blind’s founder and CEO, Steve Katzman, intentionally destroyed evidence when he “voluntarily resigned” from his position and erased electronic data from certain computers.

Google served American Blind with summons and the complaint in this action seeking declaratory relief in December of 2003.  The presiding judge had previously ruled that a justiciable controversy arose between the parties no later June of 2002, when counsel for American Blind sent Google a “cease and desist” letter that portended litigation.  Thus, the court found that American Blind’s duty to preserve relevant evidence arose no later than December of 2003, and likely arose some eighteen months earlier. American Blind did not argue to the contrary.

With respect to the first basis for the motion, Google made a factual showing that:

(a) No deposed employee or ex-employee of American Blind recalled the existence of any document retention policy, recalled being instructed to preserve relevant documents, or recalled engaging in any preservation efforts before or after the litigation began.

(b) At least some American Blind employees routinely deleted draft documents.

(c) Email was regularly used as a means of communication at American Blind.

(d) Shortly after the litigation commenced, various American Blind employees were instructed to compile and print out any and all emails between American Blind and Google.  With almost no exceptions, the emails produced by American Blind in this action are confined to such communications between the two companies, which were already in Google’s possession.  The total number of emails produced by American Blind is not consistent with the evidence as to how American Blind conducted its business and its contention that no relevant evidence was lost or destroyed.

American Blind offered little if any evidence to rebut this factual showing.  After it expressed concern about possibly waiving privilege if it divulged what was done to comply with its discovery obligations, the court ordered American Blind to provide declarations from its employees stating “what they did with respect to preserving and collecting documents” without regard to the content of communications between American Blind representatives and the company’s counsel.  Thereafter, American Blind filed four declarations.  The court found that two declarants “both conclusorily assert that they were each instructed to preserve and collect relevant documents and that they did so on one or more occasions.”  The court found that neither declaration provided any meaningful detail as to what the declarants did, what they found, or what happened to any documents they collected.  The court found another declaration “even more terse.”  That declarant “asserts that he was instructed to preserve and collect relevant documents, but stops short of claiming that he ever did so.”  The court found that nothing in the declarations created a substantial conflict with the deposition testimony cited by Google or otherwise served to rebut the factual showing made by Google.

Thus, the court found that the evidence demonstrated “a willful indifference on the part of American Blind with respect to fulfilling its discovery obligations in the early stages of this litigation.”  The court concluded that certain evidentiary and monetary sanctions were appropriate, since it appeared likely that relevant materials may have been lost or destroyed as a result of such indifference.  However, the court found that the record did not support imposing the extreme remedy of terminating sanctions.

The second basis for Google’s motion was less successful.  After American Blind’s founder and CEO (Katzman) resigned, American Blind discovered that he had taken with him a company-owned laptop computer, and that electronic data on two computers in his office had been erased.  American Blind ultimately filed suit against Katzman and sought a temporary restraining order to prevent Katzman from using any proprietary or confidential information and to obtain the return of such information.  Subsequently, Katzman provided declarations asserting that, to the best of his knowledge, he did not destroy or erase any documents relevant to this litigation.  Katzman further asserted that the documents and files that he deleted were, again to the best of his knowledge, all copies of files that still exist elsewhere.  Google countered that Katzman’s declarations fell short of establishing with certainty that every document he erased still existed and was available to American Blind for review and for production to Google if relevant.

Google further argued that it was possible that Katzman had from the outset made a deliberate effort to gather relevant documents that might be elsewhere in the company to ensure those materials were retained only on the computers in his office (or home), and that Katzman consciously chose to withhold (and later destroy) those documents, together with any relevant materials that had always been located only on those computers.  The court found that the argument was supported only by sheer speculation and that the evidence did not warrant drawing a conclusion that such deliberate and conscious wrongdoing took place.  Rather, the court found that the most Google had shown was that Katzman may have been grossly negligent in carrying out American Blind’s discovery obligations, and that he thereafter was involved in a dispute with American Blind as to whether he acted inappropriately with respect to its proprietary and confidential information.  Thus, the court concluded that, while there remained a possibility that at least some relevant documents may have been lost as a result of Katzman’s conduct in May of 2006, the weight of the evidence did not support an inference that any wholesale destruction of relevant evidence took place at that time.