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Court Upholds Sanctions against “International Man of Mystery” citing Affirmative Actions to Destroy Relevant Documents in Unallocated Space

Posted in CASE SUMMARIES

Genger v. TR Investors, LLC, No. 592,2010, 2011 WL 2802832 (Del. July 18, 2011)

As previously summarized on this blog (here), the Delaware Court of Chancery ordered sanctions against the defendant for wiping the unallocated space on his company’s computer system, despite a court order prohibiting such destruction.  On appeal, the Delaware Supreme Court upheld the sanctions, citing the defendant’s intentional, affirmative actions to destroy documents, and clarified that it did not “read the Court of Chancery’s Spoliation Opinion to hold that as a matter of routine document retention procedures, a computer hard drive’s unallocated free space must always be preserved.”

Briefly refreshing your recollection: defendant Genger is a true “International Man of Mystery” who performed “sensitive tasks” related to national security for his government contacts in Israel.  Apparently, Mr. Genger maintained information related to those contacts on his company’s computer system.  In the course of the underlying litigation, he sought to segregate those very personal files from those relevant to the action and recruited legal assistance in doing so.  After the fact, however, upon learning that the unallocated space (which was not preserved for litigation during the segregation efforts) may contain sensitive information, the defendant instructed his personal IT consultant to wipe the data.  At the time of the deletion, however, the defendant was subject to the court’s Status Quo Order which specifically prohibited the destruction of “Company-related” materials.  Moreover, based on evidence that documents expected to be contained on the defendant’s computers were not found there, the court concluded that relevant information had likely been deleted by the defendant and was then permanently destroyed when the unallocated space was wiped.  Accordingly, the court found that the defendant was in contempt and that intentional spoliation had occurred.  Sanctions were ordered, including payment of attorney’s fees and expenses related to the sanctions motions.  In the Final Judgment, the court awarded $3.2 million in fees, an amount that was agreed upon by the parties.  The defendant appealed.  On appeal, the Supreme Court of Delaware upheld the sanctions imposed by the Court of Chancery.

In reaching its conclusions, the Supreme Court addressed the defendant’s arguments that because the court’s Status Quo order did not expressly address unallocated space, no spoliation or contempt findings were warranted, and that requiring a party to preserve unallocated space would “impossibly burden” a “company-litigant” by “effectively requiring the company to refrain from using its computers entirely.”  The court explained:

We do not read the Court of Chancery’s Spoliation Opinion to hold that as a matter of routine document-retention procedures, a computer hard drive’s unallocated free space must always be preserved.  The trial court rested its spoliation and contempt findings on more specific and narrow factual grounds– that Genger, despite knowing he had a duty to preserve documents, intentionally took affirmative actions to destroy several relevant documents on his work computer.

Further, the court stated:

Our affirmance should not be viewed as extending beyond the confines of this setting–i.e., where a party is found intentionally to have taken affirmative steps to destroy or conceal information to prevent its discovery at a time that party is under an affirmative obligation to preserve that information.

Finally, the court offered the following suggestion:

To avoid future repetitions of the "unallocated free space" issue presented here, we suggest that the parties and the trial court address any unallocated free space question that might arise before a document retention and preservation order is put in place.  We recognize that instances may arise where a party-litigant will have a legitimate reason to preserve unallocated free space on a computer’s hard drive. In addressing that issue, the parties must be mindful that court-ordered discovery of electronically-stored information should be limited to what is "reasonably accessible." [FN50]  That determination, by its very nature, must be made on a case-by-case basis. [FN51]

The court also found that the fees awarded were not plain error, noting that the defendant had expressly waived his right to challenge the reasonableness of that award.