United States: Important Decision on Preservation Obligations & Spoliation Relating to ESI

Originally published September 16, 2010

Keywords: ESI, destruction, evidence, preservation, spoliation, Victor Stanley, Creative Pipe, costs

On September 9, 2010, Magistrate Judge Paul W. Grimm of the District of Maryland issued an 89-page opinion addressing a motion for terminating and other sanctions arising out of the defendants' intentional destruction of evidence that includes a detailed analysis of the current state of the law relating to preservation and spoliation. The opinion may have important implications for litigants beleaguered by the escalating costs of implementing expansive preservation programs relating to electronically stored information (ESI) and concerned about potential spoliation claims.   

In Victor Stanley, Inc. v. Creative Pipe, Inc., No. MJG-06-2662, the Court levied sanctions upon the defendants who admittedly breached—in a particularly egregious fashion—their duty to preserve ESI relevant to ongoing litigation, violating several court orders in the process. As discussed below, Judge Grimm recognizes the "collective anxiety" among lawyers and their clients regarding the lack of uniform national standards governing preservation and spoliation, stating that "it is not an exaggeration to say that many lawyers, as well as institutional, organizational, or governmental litigants, view preservation obligations as one of the greatest contributors to the cost of litigation being disproportionately expensive in cases where ESI will play an evidentiary role." 

Further, Judge Grimm explicitly held "that courts must consider issues of proportionality and reasonableness of the alleged spoliator's conduct in determining whether there has been a breach of the preservation duty." The proportionality and reasonableness principles articulated by Judge Grimm may prove to be valuable tools for litigants. 

Plaintiff Victor Stanley, Inc. (VSI) sued defendants Creative Pipe, Inc. (CPI), and Mark Pappas, the President of CPI (Pappas) (among others) alleging, inter alia, unfair competition and certain copyright and patent violations. After the suit was initiated, Pappas engaged for years in "a cat and mouse game" to hide harmful ESI from production during discovery. In addition to the deletion of certain ESI, the Court identified eight discrete preservation failures by CPI and Pappas (whose misconduct, according to the Court, was attributable to him individually as well as to CPI). Among other misdeeds, Pappas asked a business contact to delete relevant emails, lied to the Court about the completeness of defendants' ESI production and knowingly and willfully destroyed files in defiance of multiple Court orders. 

Judge Grimm opined that the collective breaches constituted "the single most egregious example of spoliation that I have encountered in any case that I have handled or in any case described in the legion of spoliation cases I have read in nearly fourteen years on the bench." In the end, even defense counsel was forced to concede that relevant ESI had been destroyed and that entry of a default judgment as to plaintiffs' copyright claims was appropriate under the circumstances.

Noteworthy in Judge Grimm's opinion was his cautious approach to sanctions despite defendants' egregious conduct. While Judge Grimm recommended a default judgment and permanent injunction in plaintiff's favor as to liability on plaintiffs' copyright claim and ordered Pappas to pay attorneys fees and costs to avoid jail time for civil contempt of court, the Judge refused plaintiff's request to issue a judgment on monetary damages on the copyright claim or to recommend a default judgment as to any of plaintiffs' remaining claims. Judge Grimm reasoned that despite clear evidence of defendants' spoliation, plaintiffs had yet to show that the lost information was likely to be relevant to monetary damages or their non-copyright claims.

Finally, setting aside the conduct at issue in Victor Stanley, Judge Grimm attempted to provide an analytical framework for litigants to assist them in the navigating the disparate laws governing preservation and spoliation in the federal courts; the Judge even went so far as to affix to the opinion a 12-page chart identifying the relevant standards for the most common preservation and spoliation issues. Among his most significant observations: 

• Recognizing that the duty to preserve "requires nuance, because the duty 'cannot be defined with precision,'" Judge Grimm held that "assessment of reasonableness and proportionality should be at the forefront of all inquiries into whether a party has fulfilled its duty to preserve relevant evidence." In other words, the burden or expense of the proposed discovery should be weighed against its likely benefit. He noted that, with few exceptions, courts have tended to overlook the importance of the proportionality principle of Fed. R. Civ. P. 26(b)(2)(C) in evaluating the sufficiency of a party's preservation efforts. 
• Judge Grimm also cautioned litigants that in most jurisdictions the duty to preserve evidence is owed to the court, not to a party's adversary. He explained that preservation is critical to "'the integrity of the judicial process' so that litigants do not lose 'confidence that the process works to uncover the truth,'" and found that a court's decision regarding appropriate spoliation sanctions should be informed by recalling that the duty is owed to the court itself. 

While the ultimate import of the Victor Stanley decision remains to be seen, Judge Grimm's decision is one of the first to recognize the immense burden that preservation can impose on an organization and to explicitly acknowledge that the proportionality principle of Rule 26 should apply equally to preservation and production. In many ways, Victor Stanley validates the concerns raised by many commentators and may be a step in the direction of bringing clarity to the still uncertain law relating to preservation and

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