Failure to Preserve Key Player’s Email and Interview Transcripts Warrants Adverse Inference Instruction, but not Default Judgment

Nursing Home Pension Fund v. Oracle Corp., 2008 WL 4093497 (N.D. Cal. Sept. 2, 2008)

In this class action securities litigation, plaintiffs sought sanctions based on alleged evidence spoliation by defendants.  Plaintiffs moved for terminating sanctions or, in the alternative, for lesser sanctions in the form of adverse inference instructions and an order precluding defendants from relying on spoliated evidence.  Plaintiffs submitted a long list of actions allegedly taken by defendants that led to the failure to preserve or the affirmative destruction of evidence relevant to this lawsuit.

District Judge Susan Illston declined to impose terminating sanctions because the actions alleged to have been taken by defendants did not “eclipse entirely the possibility of a just result.”  The court found that plaintiffs had not demonstrated the degree of prejudice necessary to warrant terminating sanctions, primarily because plaintiffs had received a large quantity of materials in discovery.  In addition, the court noted that public policy strongly favored deciding the case on its merits, and that less drastic sanctions could be imposed that would permit a decision on the merits while also ensuring that defendants did not benefit from any spoliation.

As to lesser sanctions, the court found that adverse inferences in plaintiffs’ favor were warranted with regard to some categories of evidence that defendants had conceded was not produced or preserved.

Defendants’ Preservation Efforts:  Plaintiffs alleged that, after they served defendants with notice of this action, defendants only sent preservation notices to about 30 out of more than 40,000 Oracle employees.  Plaintiffs alleged that defendants improperly focused their preservation efforts only on employees who made the allegedly false statements and those who communicated with them, and therefore did not send preservation notices to employees at the vice-president level, regional sales managers, and others who might have possessed relevant information.  Plaintiffs also claimed that the preservation process itself was inadequate, such that defendant Ellison, who received the preservation notice, did not preserve in his own files hundreds of emails, many of which plaintiffs discovered in other email files.  Plaintiffs sought sanctions for documents that may have been in the possession of employees who did not receive document preservation instructions, and for the loss of defendant Ellison’s email files.  Defendants contended that their preservation notices were adequate, but did not dispute that they produced an extraordinarily small number of emails sent or received by Ellison from his own email files. 

The court declined to impose sanctions for defendants’ alleged failure to communicate document preservation instructions to a sufficient number of employees because plaintiffs had not identified any particular documents that were not preserved as a result of defendants’ preservation efforts.  Further, plaintiffs received a great deal of evidence despite any shortcomings in defendants’ efforts, and had not demonstrated that any such shortcomings in defendants’ preservation efforts were willful.

As to Ellison’s email files, however, the court found that sanctions were appropriate.  It was undisputed that defendants produced only 15 emails sent or received by Ellison from Ellison’s own email files, and defendants did not contend that all of Ellison’s emails were preserved in his files.  Instead, defendants noted that over 1,650 of Ellison’s emails were produced to plaintiffs from the files of other Oracle employees.  The court disagreed with defendants’ argument that plaintiffs were not entitled to receive multiple copies of Ellison’s emails:

It could have been helpful to plaintiffs to demonstrate that certain emails were discovered in Ellison’s files; otherwise, for instance, Ellison could argue that he never actually read or received an email that was sent to him, and thus had no knowledge of its contents.  Moreover, having established with certainty that numerous emails were not produced from Ellison’s email files – because the emails were produced from other files or accounts – it is impossible to know whether additional unproduced emails were also deleted or not turned over.  This uncertainty about the existence of other emails is precisely the reason all of Ellison’s emails should have been preserved and produced.

The court concluded that plaintiffs had adequately demonstrated the relevant factors supporting an adverse inference sanction:  (1) defendants had a duty to preserve Ellison’s email at least as of March 13, 2001, when preservation instructions were sent to certain employees, including Ellison, or as of March 9, 2001, when plaintiffs filed suit; (2) defendants destroyed or failed to preserve Ellison’s emails willfully, because they had “some notice that the documents were potentially relevant to the litigation before they were destroyed”; and (3) Ellison’s emails were relevant because they could have supported plaintiffs’ arguments about his knowledge of certain facts at issue.

Materials related to book entitled Softwar: An Intimate Portrait of Larry Ellison and Oracle (“Softwar"):  Plaintiffs also alleged that defendants failed to preserve or destroyed transcripts and audio files created in preparation of the Softwar book written by Matthew Symonds, who conducted at least 135 hours of recorded interviews with defendant Ellison.  The special master had previously found that, although such materials were in the physical possession of Symonds, Ellison had legal control of them pursuant to a contract between Symonds and Ellison.  As a result, the special master had ordered defendants to produce copies of any interview notes, transcripts or tape recordings related to the book.

Many of these materials were never produced to plaintiffs, however, because it appeared that sometime in late 2006 or January 2007, Symonds destroyed the materials in question by directing a computer repair shop to dispose of the laptop on which Symonds had stored the recorded audio files of interviews with Ellison.  Defendants were able to produce to plaintiffs roughly 200 pages of transcripts from interviews conducted in 2002, but were not able to produce any recordings or transcripts from interviews conducted in 2001.

The primary dispute between the parties on this aspect of the motion for sanctions was whether defendants could have retrieved the materials from Symonds sooner, or whether defendants could have prevented Symonds from destroying the materials.  Defendants argued that no one at Oracle, including Ellison, ever had physical custody or control over the materials, and thus should not be sanctioned for failure to produce them.

The court concluded that sanctions were necessary because Ellison knew of the litigation at the time most interviews were conducted, and failed to take any efforts to preserve the materials despite his obligation to do so.  The court agreed that the contract between Symonds and Ellison gave Ellison authority (and thus “control”) over the materials and the ability to preserve them.

As with Ellison’s emails, the court found that defendants had an obligation to preserve the interview materials, that their failure to preserve them was willful because they had “some notice that the documents were potentially relevant to the litigation,” and that the materials were relevant to plaintiffs’ claims, as demonstrated by some of the transcripts that were produced and the fact that Symonds began interviewing Ellison shortly after the events at issue in the litigation had transpired.

Oracle Sales Online (“OSO”) database and backups:  Finally, plaintiffs contended that defendants failed to preserve data from the OSO database and purged OSO backup tapes four months after plaintiffs filed this action.  The court found that the parties disputed what really happened with regard to this evidence, and that it was unclear whether any spoliation occurred.  Further, the court noted that the special master had denied an earlier motion to compel brought by plaintiffs relating to this material, and that plaintiffs had not appealed that ruling.  As such, the court declined to impose any adverse inference as to this evidence.

The court stated it would take the adverse inferences into account when deciding the parties’ pending summary judgment motions.  The judge asked both sides to revise and re-file their motions for summary judgment to clearly specify the precise contours of the adverse inferences that should be drawn from the emails and Softwar materials.

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