Rejecting Arguments Regarding “Transitory Nature” of Data and Server Limitations, Court Finds Defendants Failed to Preserve Evidence in Bad Faith, Orders Adverse Inference and other Sanctions

Arista Records, LLC v. Inc., 2009 WL 185992 (S.D.N.Y. Jan. 26, 2009)

Upon finding that defendants acted in bad faith to deliberately destroy relevant evidence despite a duty to preserve, the court imposed severe sanctions.

Defendant, operated by defendant Gerald Reynolds, is a commercial Usenet provider.  Usenet is a “network of loosely connected computer servers that share message traffic for discussions.”  Users are able to upload content to the system and download content from other users’ postings. Postings to Usenet are known as “articles.”  “Articles” are organized into “newsgroups” – including Music Groups.  In this case, “Plaintiffs contend that Defendants provided their subscribers access to hundreds of music piracy newsgroups containing vast amounts of infringing digital music files copyrighted by Plaintiffs.”

Plaintiffs filed suit and issued discovery requests for certain categories of information.  Among the information sought was Usage Data and Digital Music Files.

Plaintiffs alleged that defendants affirmatively acted to spoliate large portions of the requested data.  For example, plaintiffs claimed that on the same day defense counsel assured production of Usage Data, defendant Reynolds disabled access to over 900 Music Groups, but failed to preserve the Usage Data.  Plaintiffs also alleged that defendants acted affirmatively to manipulate their server system to prevent the retention of relevant data, namely Digital Music Files, and to speed the pace with which those files were overwritten, to prevent their recovery later on.

Soon after the purposeful disablement of the system, defendants re-enabled a significantly smaller number of Music Groups that were then re-populated with new articles and generated new Usage Data.  The server housing those groups was allegedly re-configured to capture and preserve the information requested, but crashed in response to the high volume of data in a matter of days.  Following the crash, no Music Groups were re-enabled.

Some of the data from the re-enabled Music Groups was eventually produced to plaintiffs.  Some “junk” Usage Data was also produced that reflected subscribers failed attempts to access the Music Groups while they were shut down.  For various reasons, however, plaintiffs argued the information produced was not a sufficient replacement for what was lost.

Defendants presented several arguments in their defense.  In large part, however, defendants relied on the automatic operations and limitations of their system as justification for the alleged spoliation.  Specifically, defendants asserted that the systems’ normal operation mode did not preserve the requested data.  Moreover, defendants argued that even if the servers were re-set, the resulting volume of data collected would crash the system.  In fact, defendants asserted that such a crash occurred as a result of their attempts to extract the requested data from the small number of Music Groups that had been re-enabled following defendant Reynolds’s actions.  The system preserved approximately ten days of data prior to the crash and portions of that information were eventually produced to plaintiffs, as discussed above, although portions of that information were also missing or irretrievable.

Regarding the disablement of the Music Groups that resulted in the loss of Usage Data, defendants claimed that this action was taken upon plaintiffs’ insistence that defendants disable access to the allegedly infringing material.  As a result, the requested data “expired off the system ‘through normal system operational attrition.’”  In support of that claim, defendants argued that the information sought was “transitory in nature meaning that in-flow of new articles pushes out the old articles present on the Usenet.”  Thus, defendants argued, any loss of information, specifically during the period of disablement, resulted from the normal function of new articles pushing old articles off the server, and not from the deliberate actions of defendants.

In its analysis, the court first determined that defendants’ duty to preserve arose no later than upon receipt of specific requests for the spoliated information.  Answering defendants’ assertions that there was no such duty in light of the transitory nature of the data, its lack of business purpose, and their systems’ lack of capacity, the court concluded that “once Defendants had actual notice that Plaintiffs were requesting the data, Defendants had the obligation to preserve it…or at least to negotiate in good faith what data they could produce.”  Applying Fed. R. Civ. P. 37(e) by analogy in footnote, the court stated:

Rule 37(e) states: "Absent exceptional circumstances, a court may not impose sanctions under these rules on a party for failing to provide electronically stored information lost as a result of the routine, good faith operation of an electronic information system."  The Advisory Committee notes make clear, however, that "[w]hen a party is under a duty to preserve information because of pending or reasonably anticipated litigation, intervention in the routine operation of an information system" is required.  Advisory Committee Note to the 2006 Amendment to Federal Rule of Civil Procedure Rule 37(e).  Moreover, "[a]mong the factors that bear on a party’s good faith in the routine operation of an information system are the steps the party took to comply with a … party agreement requiring preservation of specific electronically stored information ."

The also court found defendants’ assertions concerning their systems’ capacity to preserve data unpersuasive.  First, the court noted defendants’ failure to address the alleged burden of responding to discovery with a motion for a protective order pursuant to Rule 26(c).  Second, the court pointed to the inconsistency between defendants’ claimed inability to preserve the requested data and their later productions of that same information.  Defendants’ claims were further challenged by statements from plaintiffs’ expert that defendants could have preserved Usage Data that was lost by “changing the size of the files or by copying the files from the servers’ hard drives” and by revelations that Usage Data was logged in the course of normal server operation, contrary to defendants’ assertions, among other things.

Turning to the issue of culpability, the court concluded that defendants’ failure to preserve was in bad faith.  In so finding, the court first rejected defendants’ claim that the disablement was at plaintiffs’ behest.  The court then addressed defendants’ claim that “there is no authority to support the culpability of a party in a situation where the alleged despoiled data is of a transitory nature and where no mechanism exists for saving or backing up the massive amount of data and information that is flowing through the server at any given moment.”  Once again, the court rejected this argument on the basis of the inconsistency created by defendants’ later production of exactly the information they claimed they were unable to preserve and revelations that defendants’ claims about system limitations and capacity, especially surrounding the loss of Digital Music Files, were untrue.  For example, the court discussed at length the extensive system manipulation undertaken by defendants to speed the loss of Digital Music Files from the servers, despite plaintiffs’ specific request to preserve them.

Responding to defendants’ arguments that equivalent data could be gathered by allowing re-enabled Music Newsgroups to re-populate, the court reasoned that “the data would likely understate the pre-spoliation infringement activities” because users likely changed their “usage patterns” following the server crash.  That is to say, when the service crashed and did not return, users likely went elsewhere to find music and were unlikely to come back.

Regarding the relevance of the lost data, the court stated that “[u]ltimately, there can be no dispute that the [requested data] in issue are extremely relevant to Plaintiffs’ claims.”  Thus, the court found, the imposition of sanctions was warranted.

The court rejected a number of plaintiffs’ requested sanctions as dispositive, “a result that would go far beyond simply restoring Plaintiffs to the same position they would have been in had there been no spoliation of evidence,” but granted an adverse instruction as to several issues and precluded defendants from challenging plaintiffs’ statistical evidence “on the grounds that it did not accurately reflect pre-spoliation data.”

The court also awarded plaintiffs attorneys’ fees and costs in an amount to be determined at a later time.

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