Spoliation of Evidence

Two recent opinions by the United States District Court for the Eastern District of Virginia have highlighted an area of the law overlooked by many businesses, including banks. This is the duty to preserve information – especially Electronically Stored Information (ESI) – when litigation is foreseeable. While the legal doctrine[1] of spoliation (pronounced spoh-lee-ay-shən) has been long recognized, federal courts especially are now applying it with greater frequency in connection with information stored in electronic format.

Spoliation refers to the destruction (or material alteration) of evidence or to the failure to preserve property for another’s use as evidence in litigation that is actually pending or reasonably foreseeable at the time of the destruction or alteration. If a party either fails to preserve or destroys potential evidence in foreseeable litigation, it risks sanctions for the spoliation of evidence. 

In the case of E.I. du Pont de Nemours & Co. v. Kolon Indus., 2011 U.S. Dist. LEXIS 79406 (E.D. Va. July 21, 2011)(Richmond), a trade secret misappropriation suit, the court held that due to spoliation by the defendant, the plaintiff manufacturer was entitled to sanctions consisting of: (1) attorneys’ fees and costs incurred in moving for sanctions; and (2) an adverse inference instruction (discussed below) regarding spoliation. The court determined that the record established intentional and bad faith deletion of relevant files and e-mail by key employees of the defendant after suit was filed.  Ultimately, jurors deliberated for two days before finding Kolon liable for wrongfully obtaining proprietary information about Kevlar from DuPont, resulting in a $919 million jury verdict for DuPont.

In the “slip and fall” case of Aaron v. Kroger L.P., 2011 U.S. Dist. LEXIS 111004 (E.D. Va. Sept. 27, 2011)(Norfolk), the Court held that “Kroger was on notice of Plaintiff's request that the evidence be preserved. Kroger also knew or should have known that the security video footage — whether or not it showed Plaintiff's actual fall — might later prove relevant, such that preserving the tapes was clearly the more prudent course of action. Because this Court finds that Kroger willfully and deliberately destroyed the video footage from the day of the incident in question, Plaintiff's request for an adverse inference instruction is granted.”

While spoliation of evidence may give rise to court imposed sanctions, the acts of spoliation generally do not themselves give rise in civil cases to independent substantive claims or defenses.  In other words, there must be some separate litigation or cause of action, within which case a spoliation allegation is made and relief requested.  To make a finding of spoliation in federal court, a court must be satisfied that (1) the party alleged to have spoliated evidence had a duty to preserve the evidence; and (2) the party then breached the duty through the destruction or alteration of the evidence. 

Once a court determines the duty was breached, any level of fault, whether it is bad faith, willfulness, gross negligence, or ordinary negligence, suffices to support a finding of spoliation. In other words it does not matter whether the evidence is lost or destroyed inadvertently, for reasons unrelated to the litigation, or from intentional acts, calculated to prevent the other party from accessing the evidence. 

Following a finding of spoliation, the court may impose sanctions. Courts have broad discretion to choose an appropriate sanction, but the sanction typically will be crafted to (1) “level the evidentiary playing field” and prevent the spoliating party from profiting from its actions; and (2) sanction (punish/deter) the improper conduct. When assessing what sanction to impose, courts consider the degree of culpability and the extent of the prejudice, if any. Generally, entry of default judgment, dismissal, or other similar sanction, is justified only in circumstances of bad faith or other like action, and courts impose sanctions that dispose of a case only in the most egregious circumstances.   However, bad faith conduct by a one party may not be needed to justify dismissal if the spoliation effectively renders the other party unable to prosecute or defend its case.[2]

A more common sanction allows the drawing of an adverse inference against a spoliating party, meaning the judge can instruct a jury to infer that the missing evidence would have been unfavorable to the spoliating party’s case. This applies not just to one whose intentional conduct causes the destruction of evidence, but also against one who fails to preserve or produce evidence, including the testimony of witnesses. Additionally, awarding attorneys' fees and expenses to the party who brought the motion for sanctions for alteration of evidence is common, as that party often incurs significant legal fees and expenses “to set the record straight.”

Courts often say that the argument of an accused spoliator that it did not violate its duty to preserve evidence because it retained the relevant information and only deleted irrelevant information rings particularly hollow. The ultimate decision of what is relevant is not determined by a party's subjective assessment filtered through its own perception of self-interest. 

Additionally, 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. The duty is owed to the court, and not to the party's adversary, a subtle, but sometimes consequential, distinction.

ESI is a part of the operations of every bank in Virginia today. In certain actions, such as litigation, receipt of a subpoena, or an inquiry by the SCC, the bank should take immediate steps to preserve ESI and to document that preservation. Failure to do so can lead to costs incurred in the form of sanctions or expensive court ordered activity to remedy the failure.

Litigants are not required to preserve every shred of paper, every e-mail or electronic document, and every back up tape. Indeed, such a rule would cripple large corporations. A party that anticipates litigation, however, is under a duty to preserve what it knows, or reasonably should know, is (1) relevant in the action[3]; (2) reasonably calculated to lead to the discovery of admissible evidence; (3) reasonably likely to be requested during discovery; and/or (4) the subject of a pending discovery request. Consequently, upon anticipation of litigation, parties must: (1) put in place a “litigation hold” to ensure the preservation of relevant documents; (2) suspend their routine document retention/destruction policies; and (3) monitor and stringently document the maintenance of these procedures to ensure compliance with the litigation hold.  

[1] While this article focuses on the rapidly developing federal law of spoliation, Virginia law recognizes a spoliation or missing evidence inference as well. Where one party has within his control material evidence and does not offer it, there is an inference that the evidence, if it had been offered, would have been unfavorable to that party. A spoliation inference may be applied in an existing action if, at the time the evidence was lost or destroyed, a reasonable person in the spoliator's position should have foreseen that the evidence was material to a potential civil action. The elements of a Virginia common law claim for spoliation of evidence are: “(1) pending or probable litigation involving the non-spoliator; (2) knowledge on part of the spoliator that litigation exists or is probable; (3) willful destruction of evidence by the spoliator designed to disrupt non-spoliator 's case; (4) disruption of non- spoliator 's case; and (5) damages proximately caused by the spoliator's acts.” Austin v. Consolidation Coal Co., 256 Va. 78 (1998)
[2] The United States Court of Appeals for the Fourth Circuit has prescribed the following approach for district courts considering dismissal as a sanction for a given instance of spoliation: dismissal is appropriate only if either (1) the spoliator's conduct was so egregious as to amount to a forfeiture of his claim, or (2) the effect of the spoliator's conduct was so prejudicial that it substantially denied the defendant the ability to defend the claim.
[3] For spoliation, relevant documents include: any documents or tangible things, as defined by Federal Rule of Civil Procedure Number 34(a), made by individuals likely to have discoverable information that the disclosing party may use to support its claims or defenses. The duty also includes documents prepared for those individuals, to the extent those documents can be readily identified, for example, from the “to” field in e-mails. The duty also extends to information that is relevant to the claims or defenses of any party, or which is relevant to the subject matter involved in the action. Thus, the duty to preserve extends to those employees likely to have relevant information--the key players in the case.

Spotts Fain publications are provided as an educational service and are not meant to be and should not be construed as legal advice. Readers with particular needs on specific issues should retain the services of competent counsel.