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Court Orders Adverse Inference for Spoliation of CEO’s Data but Finds No Obligation to Preserve Relevant Data of Third Party Consultants

Posted in CASE SUMMARIES

Goodman v. Praxair Servs., Inc., 632 F. Supp. 2d 494 (D. Md. 2009)

In this case arising from a claim for breach of contract, plaintiff Goodman alleged that defendant Praxair Services, Inc. (formerly Tracer) (“Tracer/PSI”) spoliated relevant data and was deserving of sanctions.  Specifically, Goodman alleged that Tracer/PSI violated is duty to preserve when it failed to implement a litigation hold resulting in a significant loss of data, including the contents of relevant hard drives and emails, and where its CEO deliberately deleted data, among other things.  Goodman also sought sanctions for the spoliation of Tracer/PSI’s third-party consultants’ files.  The court granted in part and denied in part Goodman’s motion and ordered an adverse inference against Tracer/PSI.

Disagreement arose as to Goodman’s payment for his participation in a project to waive testing requirements for certain of Tracer/PSI’s products.  The dispute revolved around who was responsible for the success of the project, Goodman, or other third-party consultants.  Litigation ensued.  Goodman suspected that Tracer/PSI failed to preserve relevant evidence and filed a motion for sanctions.  The court’s opinion established the following facts:

• Tracer/PSI failed to institute a litigation hold;
• The hard drives of two “key players” and 43 other hard drives were replaced following Praxair Services acquisition of Tracer, despite a duty to preserve;
• Potentially relevant emails were deleted by Tracer’s CEO;
• Tracer’s email systems were “taken off line” in the conversion to Lotus Notes following Praxair’s acquisition of Tracer and no effort was undertaken to search for relevant emails on disaster recovery back up tapes;
• The hard drive of Tracer’s CEO was re-imaged without preserving the relevant data thereon; and
• The working papers of Tracer/PSI’s third-party consultants were not preserved, among other things.

The court established the three elements a party seeking spoliation sanctions must prove:  1) the party controlling the evidence had a duty to preserve it, 2) the destruction of the evidence was accompanied by a “culpable stated of mind”, and 3) the evidence was relevant to the party’s claims or defenses.

The court found that Tracer/PSI had a duty to preserve upon Goodman’s threat of litigation following the parties’ failed negotiations regarding payment. As to the scope of such a duty, the court stated:

"Relevant documents" includes the following:
[A]ny documents or tangible things (as defined by [Fed.R.Civ.P. 34(a)) ] made by individuals "likely to have discoverable information that the disclosing party may use to support its claims or defenses." The duty also includes documents prepared for those individuals, to the extent those documents can be readily identified (e.g., from the "to" field in e-mails). The duty also extends to information that is relevant to the claims or defenses of any party, or which is "relevant to the subject matter involved in the action." Thus, the duty to preserve extends to those employees likely to have relevant information–the "key players" in the case. [Citation omitted.]

Accordingly, the question became:  who were the key players?  Goodman argued that the obligation extended to Tracer/PSI’s CEO, Shannan Marty, and two other employees with whom he worked on the relevant project and to two third-party consultants.  As to the Tracer/PSI employees (who’s data was destroyed as discussed above), the court agreed.  Regarding the third-party consultants, however, the court did not.

Attempting to underplay its violations, Tracer/PSI argued that there was no need for a company wide litigation hold because there was a small universe of relevant documents and because the CEO had preserved the evidence herself through her practice of printing relevant emails.  The court, in footnote, reasoned:

The argument of an accused spoliator that it did not violate its duty to preserve evidence because it retained the "relevant" information and only deleted "irrelevant" information rings particularly hollow. The ultimate decision of what is relevant is not determined by a party’s subjective assessment filtered through its own perception of self-interest.

As to the consultants, the parties’ arguments turned in large part on the nature of the relationship between Tracer/PSI and the third-parties:  were they agents or independent third-party contractors beyond Tracer/PSI’s control?  Such a distinction was important because “a party may be held responsible for the spoliation of relevant evidence done by its agents.”  Relying on precedent, the court analogized the question of control for purposes of a duty to preserve to the question of control pursuant to Fed. R. Civ. P. 34(a):  “Rule 34 "control" would not require a party to have legal ownership or actual physical possession of any documents at issue. Instead, documents are considered to be under a party’s control when that party has “‘the right, authority, or practical ability to obtain the documents from a non-party to the action.’”  The court determined that Tracer/PSI did not have “the sufficient legal authority or the practical ability” to ensure the preservation of documents prepared by its third-party consultants and accordingly found that despite their relevance, Tracer/PSI had no duty to preserve any documents prepared by the third-party consultants at issue.

Rejecting Goodman’s argument that failure to search Tracer/PSI’s disaster recovery tapes constituted spoliation, the court noted Goodman’s lack of authority for such a proposition and, in footnote, articulated the difference between a duty to preserve and the duty to produce.  The court also noted Goodman’s failure to move to compel such a search.

Having determined that sanctions were not appropriate as to the consultants’ materials, the court took up the question of culpability as to the other spoliated evidence and determined that Tracer/PSI was “clearly negligent in its failure to issue a litigation hold to [relevant employees] once the duty to preserve arose” and that “Tracer/PSI acted willfully when it intentionally destroyed the computers of Marty [and the two other relevant employees].”  However, there was insufficient evidence to establish the relevance of the spoliated data on the two employees’ laptops.  Accordingly, the court ordered an adverse inference as to the spoliation of Marty’s evidence only, following its determination that such evidence was likely highly relevant to the litigation.

Turning to Goodman’s request for attorney’s fees and costs, the court noted the inability for a pro se litigant to recover attorney’s fees, but ordered an itemized accounting of reasonable expenses to be filed with the court for consideration.