Citing General Counsel’s Willful Failure to Preserve and Other Violations, Court Orders Partial Default Judgment, an Adverse Inference Instruction & Monetary Sanctions

Day v. LSI Corp., No. CIV 11-186-TUC-CKJ, 2012 WL 6674434 (D. Ariz. Dec. 20, 2012)

In this case arising from the alleged breach of an employment contract, discrimination, and related claims, the court found that Defendant was “at fault” for failing to preserve relevant evidence and imposed serious sanctions accordingly.  Notably, the court’s analysis focused significantly on the actions of Defendant’s General Counsel, who the court found had “at least acted willfully” in his failure to preserve particular evidence, and also relied, in part, on Defendant’s failure to follow its own document retention policies.

Simply stated, Plaintiff accused Defendant of failing to preserve relevant documents, including those belonging to a particularly relevant custodian who had been involved in Plaintiff’s hiring and performance processes.  Upon receipt of notice of Plaintiff’s potential claims, Defendant’s General Counsel notified several employees of the need to preserve, but failed to include the relevant custodian.  While the custodian was ultimately identified as relevant to the litigation—6 months later—Defendant’s efforts to retrieve his ESI resulted in the production of an incomplete set of data covering approximately four months.  Moreover, several other categories of information were also alleged to have been lost as a result of Defendant’s preservation failures.

In the course of discovery surrounding the issue of spoliation, the inadequacy of Defendant’s discovery efforts was further revealed.  Sparing the details, it became clear that Defendant’s preservation and search efforts were neither timely nor comprehensive.  Further, contradictory testimony was provided by General Counsel and another employee as to the instructions that General Counsel gave with regard to the parameters of the search for responsive information.  Specifically, General Counsel testified that he instructed the relevant employee to locate “any and all data” regarding the Plaintiff, while the employee stated that he was requested “to only search for specific emails and data.”

The court determined that some spoliation had occurred.  Specifically addressing the failure to preserve documents belonging to the relevant custodian who had been involved in Plaintiff’s hiring, etc., the court found that General Counsel had a “culpable mind” for purposes of the spoliation analysis and, in particular, that he had “at least acted willfully” in his failure to preserve that custodian’s documents.  In so finding, the court noted that General Counsel “knew or should have know [sic]” that the custodian had been involved in Plaintiff’s employment, that General Counsel appeared to have “misstated the facts” regarding the search instructions he issued, and that Defendant’s retention of documents did not comply with its own document retention policies.

As to a particularly relevant HR document that Defendant also failed to produce, the court found that Defendant was on notice of Plaintiff’s claims (to which the missing document would have been relevant) and that “in light of [General Counsel’s] culpable mind” as to the above-discussed custodian’s documentation, “a culpable mind [could] be imputed to [Defendant]” as to the at-issue HR document as well.  The court also found that Defendant had a “culpable mind” as to the spoliation of a particular email because Defendant had not provided an “adequate reason” for its non-disclosure.

Turning to the question of an appropriate sanction, the court found that Defendant’s “conduct was at fault for failing to preserve potentially relevant evidence in this case” and, summarizing its reasoning, again noted General Counsel’s “contradicted testimony” regarding his directions to search and Defendant’s failure to follow its own document retention policies.  The court also considered that “the individual determining the parameters of the retained documents was not simply a clerical employee, but [Defendant’s] inhouse counsel.”

Because certain lost evidence was particularly relevant to one of Plaintiff’s claims and thus the risk of substantial prejudice was “great,” the court awarded partial default judgment as to that claim. Because the risk of substantial prejudice as to the other claims was “not great,” however, the court found that lesser sanctions were appropriate.  Accordingly, the court found that “an adverse instruction at trial w[ould] be appropriate in this case” and also ordered Defendant to pay $10,000 in monetary sanctions “to represent the additional litigation efforts needed by [Plaintiff] to address the spoliation issues.”

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