For Key Employees’ Bad Faith, Intentional Spoliation, Court Imposes Adverse Inference and Monetary Sanctions

E.I. Du Pont De Nemours & Co. v. Kolon Indus., Inc., No. 3:09cv58, 2011 WL 2966862 (E.D. Va. July 21, 2011)

The court found that defendant breached its preservation duty when key employees intentionally deleted ESI in bad faith.  Acknowledging Kolon’s (insufficient) attempts to place a litigation hold, the court declined to impose default judgment, but ordered sanctions in the form of attorneys’ fees, expenses and costs related to the motion, and an adverse inference instruction.  In so doing, the court rejected arguments that plaintiff suffered no prejudice and that because many of the files were recovered, there was no spoliation.

In this case, plaintiff alleged trade secret misappropriation, theft of confidential business information, conspiracy, and other business torts.  Defendant received plaintiff’s complaint on February 4, 2009.  On February 6th, defendant issued a litigation hold order to certain upper-level employees.  On February 10th, a second litigation hold notice, written in English, was distributed to all employees, most of whom did not speak English.  A third litigation hold was later issued to the IT department, but had little effect on the outcome of the spoliation motion.

Despite knowledge of the relevant complaint and/or receipt of a litigation hold notice, many of defendant’s key employees deleted relevant information from their computers and email accounts.  These deletions were discovered as the result of defendant’s production of several screen shots with handwritten notes that appeared to identify certain files for deletion (e.g., files were marked “Need to Delete,” “Remove All,” “Get Rid Of,” etc.).  Suspicion of spoliation was also raised by the “suspiciously low document production totals” for key employees and the deposition testimony of employees “which assertedly showed that Kolon failed to instruct key employees on their preservation duties. . .”  The extent of the deletions, however, was uncovered only upon the court’s request for additional discovery into the apparent spoliation.  Forgoing the voluminous details of the spoliation, it suffices to say that plaintiff’s expert concluded that defendant’s employees had deleted at least 17,811 files and email items, many of which were highly relevant to the issues of the case.

The court’s analysis of the law was quite extensive.  Applying the relevant law to the facts before it, the court determined that defendant’s key employees had intentionally deleted ESI in bad faith.  Moreover, based on the employees’ bad faith, the court found that the deleted ESI was relevant.  In so finding, the court rejected defendant’s arguments to the contrary.  The court also rejected defendant’s argument that “there can be no spoliation finding because many documents were recovered” and eventually produced.  The court stated:

     Moreover, when the electronically stored information was deleted, there was alteration of evidence.  Alteration of evidence is spoliation. . . .
     When electronically stored information is deleted, it is altered from the form that it was in before deletion.  It certainly is no longer part of the deleting person’s document base.  And, of course, if not recovered, that electronically stored information is destroyed in the traditional sense as well.  Hence, upon deletion, electronically stored information is spoliated.
     . . . The fact that technology permits the undoing of spoliation does not change at all the fact that spoliation has occurred even as to the recovered information.

(Citations omitted.)  The court also noted that not all documents were recovered.  Finally, the court rejected defendant’s argument that its employees’ deletions were outside the scope of their employment and could not be attributed to it.

Having determined that spoliation had occurred, the court turned to the appropriate sanction.  Citing defendant’s attempts to place two litigation holds and the “good fortune that many deleted items were recoverable because of the preservation of Kolon’s backup tapes,” the court found that default judgment was not appropriate.  Instead, the court ordered that an adverse inference instruction would be given to the jury and that defendant would be responsible for plaintiff’s attorneys’ fees, expenses and costs related to this motion.  In reaching this conclusion, the court acknowledged that the spoliation had not foreclosed plaintiff’s ability to present its case, but found that plaintiff had suffered other types of prejudice which justified the imposition of sanctions.

Finally, the court noted that defendant’s spoliation was a violation of the duty owed to the court and the judicial process and that the violation of that duty further supported the imposition of monetary sanctions in the form of attorneys’ fees, etc.

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