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Myriad Newsbyte Article (June 2009 / Volume 4)

The facts of a recent unpublished California Court of Appeal case, OZ Optics Limited v. Hakimoglu ¹ present an interesting scenario about the propriety of “scrubbing,” i.e. permanently erasing, electronically stored information (ESI). Many organizations have in place document retention policies governing the retention and disposal of information. No doubt, however, there are numerous organizations that either do not maintain such policies, or which do not monitor those policies if they have them. And certainly, in the case of individuals as opposed to formal organizations, retention of ESI is generally a haphazard matter. Permanent deletion, on the other hand, is usually motivated by a desire to actively hide information.

There is a Non-Tort Duty to Retain Relevant Information in Anticipation of Discovery Requests:

When a dispute arises and litigation either ensues or appears likely, obligations regarding preservation of information become clearer. Whenever litigation appears likely, deletion of “potentially relevant data” should be suspended, and relevant data already deleted should be retrieved. ² Clearly, when litigation arises, parties should reasonably anticipate that “relevant” data will be the subject of discovery requests. Thus, the obligation to preserve such data commences, at the latest, upon the onset of litigation. However, in Cedars-Sinai Med. Ctr. V. Sup. Ct., ³ the California Supreme Court held that in California a party may not be sued in tort for destroying or “spoliation” of evidence. ⁴ But such conduct may nevertheless be subject to court sanctions. The Court stated that “[d]estroying evidence in response to a discovery request after litigation has commenced would surely be a misuse of discovery within the meaning of section 2023 [now section 2023.010], as would such destruction in anticipation of a discovery request.”⁵

Which brings us to the Hakimoglu scenario. In that case, a Canadian company hires a high level executive as its vice president of development and names her president of its US subsidiary. The company charges her with advising its founder and chief executive officer of potential acquisition targets in the US. In time, the executive locates an acquisition target and, on her advice, the company acquires the target. The executive is placed in charge of running the target. But under the executive’s leadership, the acquired company fails to meet deadlines or to generate any revenue, so the company fires the executive.

Shortly after firing her, the company discovers that while she was still employed with the company, the executive was apparently planning to form a competing company. In light of that information, the company sues the executive for breach of fiduciary duty and fraud. During discovery, the company requests a forensic examination of the executive’s company-issued laptop. The executive fails to respond to the company’s written requests for production and the court grants the company’s motion to compel and orders the executive to respond without objection.

Eventually, the executive produces the computer for inspection. During the inspection, the company’s forensic examiner discovers that a “wiping” program called “Sure-Delete” had been installed on the computer by the executive, and the computer’s files and data have been “scrubbed.” The company brings a motion for monetary and terminating sanctions -- arguing that the executive violated the court’s order by intentionally deleting and destroying relevant documents on the computer -- an abuse of the discovery process.

The trial court denies the company’s request for terminating sanctions (because the company did not show that the executive’s conduct would have prevented the company from proving its case). However, the court agrees that the executive’s conduct violated the court’s discovery order, and awards the company $90,000 in monetary sanctions.

Under the discovery abuse standard mentioned in Cedars-Sinai, it seems appropriate that the executive was sanctioned, since she deleted information from a computer she was obligated by a court order to turn over to the opposing party for forensic examination. But what about her argument that she only deleted insignificant and irrelevant data? Unfortunately for the executive, she waived those objections when she failed initially to respond to the discovery requests. As a consequence of her failure to respond, the court ordered a response without objections. Otherwise, her argument may have had some merit because, under the Code of Civil Procedure, the scope of discovery is limited to non-privileged information that is relevant to the subject matter involved in the pending action.⁶

The Right to Inspect Electronically Stored Data During Litigation:

ESI, like other information, is subject to inspection during litigation. As far back as 2002, concerted efforts were begun to address the unique issues involved in the production of electronic information in discovery. As a result of those efforts, The Sedona Conference® Working Group on Electronic Document Retention and Production was formed. ⁷ The Sedona Conference Working Group has developed a set of fourteen (14) core principles for the guidance of the production of ESI. The first of these principle states:

“Electronically stored information is potentially discoverable under Fed. R. Civ. P. 34 or its state equivalents. Organizations must properly preserve electronically stored information that can reasonably be anticipated to be relevant to litigation.”⁸

Both the Federal Rules of Civil Procedure and the California Code of Civil Procedure recognize a party’s right to inspect ESI. The California Code of Civil Procedure provides that a party may inspect “documents” and “tangible things.” ⁹ Any devise on which the ESI is stored may also be inspected, photographed, tested, or sampled. ¹⁰ Thus, during litigation, ESI may be inspected no matter how or where it is stored, whether on hard drives, peripheral storage devises, thumb drives, lap tops, cell phones, and personal data assistants (PDAs).¹¹

Preserving ESI through “Litigation Hold” Requests:

It is advisable, when litigation ensues, for legal practitioners to send litigation “hold” or “freeze” letters to potential adversaries “at the outset of a contested matter even before filing suit.” ¹² Such “Litigation Hold” advices have the effect of clarifying the onset of an obligation to preserve relevant information and makes it more likely that subsequent deletion or destruction of ESI will be viewed as spoliation and, therefore, subject to court sanctions. The Sedona Principles advocate that organizations should adopt “rational and defensible” document retention and disposal policies and teach employees to act accordingly.¹³ “Employees would then be responsible for implementing the policy, neither destroying documents and electronically stored information prematurely, nor retaining them beyond their useful life. Any such program should include provisions for legal holds to preserve documents and electronically stored information related to ongoing or reasonably anticipated litigation, governmental investigations, or audits. The existence, reasonableness and effectiveness in practice of such a program should be a significant consideration in any spoliation analysis.”¹⁴

The Sedona Principles also espouse early conferences between or among litigants to discuss the preservation and production of ESI and agreements about each parties respective rights and responsibilities in that respect. Indeed, Fed. R. of Civ. Proc. 26(f) now requires such a meeting and early conference.¹⁵ Litigation holds should be reasonably related to the contested issues. It is unreasonable to expect either organizations or individuals to suspend their routine document retention practices in order to preserve all potentially relevant documents, let alone those not even remotely connected with the contested issues.¹⁶

Deletion of Irrelevant, Insignificant, or Private Material Even During Litigation Appears Permissible:

Going back to the hapless executive in Hakimoglu, the court was unsympathetic to her claim that she had only deleted insignificant and irrelevant material from her computer. As stated earlier, the executive could have, initially, objected to the discovery request, and perhaps sought a protective order. This would have preserved her privacy objection. The court’s sanctions ruling was based on the executive’s violation of a court order to turn over the computer for examination without objection, rather than on the substantive merit of her objections.

In another California deletion case, R.S. Creative, Inc. v. Creative Cotton, Ltd.,¹⁷ a plaintiff sued for breach of contract pursuant to a written contract that she later claimed was typed on a desk top office computer that she took to her home. She attached a copy of the purported contract to the complaint, but it turned out that the copy she attached was not the contract that the parties signed. The defendants noticed her deposition and requested documents evidencing the contract that was attached to the complaint, including any information stored on a computer.

At her deposition, the plaintiff was confronted with both versions of the contract, and she was unable explain discrepancies in the documents. She claimed that she prepared one version on her home computer and the parties had gone back and forth with different versions. The defendants sought, and obtained, a stipulation that she not use either her laptop or desktop until they had examined the computers. The stipulation was obtained in lieu of getting an emergency court order for production of the two computers. Although the defendants’ forensic expert was available to immediately examine the computers, the plaintiff did not permit inspection until several days later. The expert determined that the stipulation was violated and that files had been deleted from the two computers and were unrecoverable. In the meantime, the plaintiff failed to show up for her continued deposition.

In a subsequent motion for terminating sanctions, the trial court found that the plaintiff had violated the stipulated orders to turn over the computers for examination. On appeal, the Court of Appeal rejected the plaintiff’s argument that there was no evidence that the files on the computers were destroyed in violation of the stipulation. The court also rejected the argument that the request for “the complete hard drive from someone’s home computer is, on its face, overly broad.” Instead, the court relied exclusively on the fact that the plaintiff had engaged in an “egregious example of …discovery games to uphold the sanctions. Thus, the court did not address the underlying issues addressing the plaintiff’s arguments of no evidence of prejudicial deletions of information and that the plaintiff had a right to delete private information from her home computer. On the latter point, the court noted that the plaintiff had not sought a protective order.¹⁸

In that respect, Sedona Principles Principle 14 is instructive. It states, “[s]anctions, including spoliation findings, should be considered by the court only if it finds that there was a clear duty to preserve, a culpable failure to preserve and produce relevant electronically stored information, and a reasonable probability that the loss of the evidence has materially prejudiced the adverse party.” In R.S. Creative, it is arguable that there was no showing that the defendant had suffered clear prejudice from the deleted files. Certainly, there was a clear duty (by virtue of the stipulation) to not use the computers until after examination, which duty was in fact violated. Further, the plaintiff failed to show up to her continued deposition. On those facts, like those in Hakimoglu, the sanctions orders turn on the violation of court orders rather than the mere fact that information was deleted.

Conclusion:

In the absence of anticipation of a discovery request in a contested matter upon commencement of litigation, or a “litigation hold” specifying the type of information to be preserved, or a court order ordering preservation of information, it would appear that an organization or individual may routinely delete ESI either in accordance with document retention policies, in accordance with past practice, or to protect privacy concerns without being subject to sanctions or liability.

Article Contributed by Stephen K. Lubega, Attorney at Law