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“International Man of Mystery” Sanctioned for Contempt of Court and Intentional Spoliation

Posted in CASE SUMMARIES

TR Investors, LLC v. Genger, 2009 WL 4696062 (Del. Ch. Dec. 9, 2009) (Unpublished)

In this case, defendant Arie Genger was held in contempt and found to have intentionally spoliated relevant documents in violation of a court order following his instruction to his personal IT consultant to wipe the unallocated space of his company’s computer system which his consultant then carried out.  Declining to impose terminating sanctions, the court instead ordered that Genger produce 10 documents previously subject to a claim of privilege, that the burden of persuasion as to Genger’s affirmative defenses and counter-claims be raised one level, that Genger was precluded from prevailing on any material factual issue by reason of his testimony alone, and that Genger pay for plaintiffs’ reasonable attorneys’ fees and expenses in the amount of $750,000.

As of June 2008, defendant Genger was the Chief Executive Officer of Trans-Resources, Inc. ("TRI"), a company that he founded.  Plaintiff, The Trump Group, owned a sizeable portion of the company’s stock and had representatives on the board of directors.  Eventually, for reasons unimportant to the discovery issues at hand, The Trump Group sought to take over TRI and to remove Genger from his position.  Litigation ensued.  While attempting to settle their disputes, the parties submitted to the court a stipulated status quo order which included a provision that prohibited tampering with or destroying company records.

It turned out that Genger was not a run of the mill CEO.  Instead, aside from his usual business interests, Genger had high level contacts within the Israeli government for whom he performed “sensitive tasks” related to Israel’s national security.  (As the court noted, “[a]lthough Mike Myers may have made millions by bringing to the big screen his take on what it is like to be an "international man of mystery," Arie Genger, as it turns out, is such a man.”)  Highly sensitive documents related to his Israeli contacts were stored on his work computer and server, along with other personal documents.  Concerned that his personal information would be viewed by members of The Trump Group, Genger undertook to segregate his personal documents from those relevant to the litigation.  In doing so, Genger was substantially assisted by attorneys for TRI who in turn employed an outside technology firm to identify and encrypt personal confidential documents and to preserve documents related to the business of TRI.

When imaging TRI’s computer system, however, the outside technology firm failed to capture the unallocated space.  Nor did they review TRI’s email server, because it was maintained off-site, and they were not made aware of it.  Thereafter, Genger’s personal IT consultant, Oren Ohana, informed Genger that non-encrypted versions of his personal files may be present in the unallocated space on TRI’s system, despite the technology consultants’ efforts to protect their confidentiality.  Ohana then ran wiping software to “take care of” the problem.  Because the consultants failed to capture the unallocated space, the deleted data had not been preserved by their efforts.  Neither Genger nor Ohana informed anyone of their actions, even when obvious opportunities to do so arose.  When “caught,” Genger claimed his actions were merely intended to erase copies of any unencrypted versions of his personal documents.  For a myriad of reasons, including the suspicious timing of the deletion, the technical savvy of Ohana, and the parties’ failure to disclose their actions, the court did not accept this justification.

To establish civil contempt, the court noted, the petitioner must “demonstrate that the [contemnors] violated an order of this Court of which they had notice and by which they were bound.”  Rejecting Genger’s claims that he was merely disposing of copies of documents and his defense that there was no evidence that “any particular documents were lost”, the court identified several documents that were “likely” to have been erased by Genger’s actions and found him in contempt of court.

Turning to the issue of spoliation, the court identified the need for a showing of intentional or reckless spoliation of documents subject to a duty to preserve to justify the imposition of dismissal claims of an adverse inference.  Specifically as to an adverse inference, the court went on to note, there must also be a showing that the “allegedly destroyed evidence existed and supported the aggrieved party’s position.”

The court found that Genger spoliated evidence.  In so holding, the court first found that Genger was under a clear duty to preserve as evidenced by both the ongoing litigation and the clear language of the Status Quo Order.  The court next found that the spoliation was intentional or, “at the very least reckless,” stating, “If Genger believes that running wiping software without advice of counsel or court permission in this context does not constitute recklessness, he has an unusual dictionary.  The law uses a more traditional lexicon.”  Finally, the court found that The Trump Group had met its burden of showing that relevant documents were destroyed as evidenced by the existence of relevant documents that were not found on Genger’s or TRI’s computer systems (and thus, reasoned the court, were likely deleted by the wiping of the unallocated space.)

Having found Genger in contempt and having determined that he participated in the spoliation of relevant documents, the court turned the question of sanctions.  The court laid out the appropriate considerations:  “(1) the culpability of the spoliating party; (2) the degree of prejudice suffered by the aggrieved party; and (3) the availability of lesser sanctions that could both avoid unfairness to the aggrieved party and serve as an adequate penalty to deter such future conduct.”

With these considerations in mind, the court first found that “Genger was improperly motivated and intended to limit the Trump Group’s ability to gather evidence” but also that “part of his motivation was to protect the confidentiality interests of his personal information.”  Next, the court found that the Trump Group did not suffer a high degree of prejudice” because the misconduct only affected unallocated space and in light of the Trump Group’s own bad conduct which, although insufficient to warrant denying TRI relief, was “relevant in deciding to deny default judgment.”  Finally, the court found the extreme remedy of default judgment inappropriate where lesser sanctions were sufficient.

Accordingly, as noted above, the court ordered that Genger produce 10 documents previously subject to a claim of privilege, that the burden of persuasion as to Genger’s affirmative defenses and counter-claims be raised one level, that Genger was precluded from prevailing on any material factual issue by reason of his testimony alone, and that Genger pay for plaintiff’s reasonable attorneys’ fees and expenses in the amount of $750,000 – an amount suggested by the judge as reasonable.

  • http://www.smarsh.com/blog Adam Bullock

    Really excellent summary, thanks for sharing!

  • Mark Hyde

    Unlike tangible evidence such as fingerprints, digital evidence presents a new challenge for today’s judges to overcome. While the court viewed the wiping of the unallocated space as the deletion of a source of information that may have been relevant to the court’s proceedings, this assumption is questionable. Also, the court’s consideration of unallocated space as a legitimate backup for digital information may sound to be legally valid, but in today’s electronic technical advanced world, it is problematic at best and probably economically and practically unworkable.
    Please read the recent review I wrote about the lawsuit against Arie Genger.