United States: Yates v. United States: Supreme Court Reins In Sarbanes-Oxley Act’s "Anti-Shredding" Provision

Last Updated: March 11 2015
Article by Joseph Poluka, Michelle Gitlitz Courtney and Martin S. Krezalek

Action Item: The Supreme Court's decision in Yates v. United States will significantly impact how in-house counsel, outside counsel, and compliance officers alike should advise their clients with respect to evidence preservation in the face of a possible investigation or proceeding.

On February 25, 2015, a divided United States Supreme Court narrowly held that a federal criminal law, enacted after the Enron Corporation accounting scandal prohibiting the destruction of corporate records, cannot be used to prosecute a commercial fisherman arrested for tossing undersized grouper back into the ocean to avoid prosecution.  The ruling split the Court's nine Justices widely on the issue of statutory construction with respect to federal laws.  The Court held that 18 U.S.C. §1519, Sarbanes-Oxley's anti-shredding statute, should not be read expansively to create a coverall spoliation of evidence statute.1  Instead, the Court held that a "'tangible object' within §1519's compass [was] one used to record or preserve information."2 In a plurality opinion by Justice Ruth Bader Ginsburg, joined by Chief Justice John G. Roberts, Jr., and Justices Stephen Breyer and Sonia Sotomayor, the Court applied traditional tools and canons of statutory construction to define the meaning of "tangible object."  Justice Samuel A. Alito concurred, providing the requisite fifth vote.  The Court had to engage in some interpretive gymnastics to overcome the simple fact that a fish is a tangible object.3 Justice Elena Kagan penned a blistering dissent citing to Dr. Seuss, a first for the Supreme Court:  "A fish is, of course, a discrete thing that possesses physical form. See generally Dr. Seuss, One Fish Two Fish Red Fish Blue Fish (1960). So the ordinary meaning of the term "tangible object" in §1519, as no one here disputes, covers fish (including too-small red grouper)."4

The Court's decision will have a significant impact on how, going forward, in-house counsel, outside counsel, and compliance officers alike should advise their clients (external or internal) with respect to evidence preservation when an investigation or proceeding is contemplated.  The reach of the anti-shredding statute is now definitively limited to objects "used to record or preserve information."  Federal prosecutors also are on notice that they cannot use a broadly worded statute that was enacted to prevent the destruction of paper documents in a criminal investigation to pursue cases that do not involve papers and electronic files, or any other device used to record or store information.

The Implications of Yates v. United States

Limiting "tangible object" to objects used to record or preserve information will bode well for Azamat Tazhayakov and Dias Kadyrbayev, two men awaiting sentencing in Boston federal court for obstructing the investigation of the Boston Marathon bombing.  In April 2013, a few days after the bombing, Tazhayakov and Kadyrbayev removed a laptop and a backpack containing fireworks from bomb suspect Dzhokhar Tsarnaev's dormitory room.6 They kept the laptop and dumped the backpack and its contents into a garbage dumpster. The two were charged under the anti-shredding provision. While Kadyrbayev pled guilty to obstructing the investigation of the bombing, Tazhayakov was convicted following a trial.  Significantly, the jury found Tazhayakov guilty only with respect to the backpack (not the laptop). On November 13, 2014, immediately after the Yates argument, the district court judge presiding over their cases postponed the sentencing until after the Supreme Court ruled in Yates.  Now, it appears clear that the backpack dumped by Tazhayakov and Kadyrbayev is plainly not a "tangible object," and the § 1519 conviction could be overturned and the guilty plea vacated.    

Following the Yates decision, it is now apparent that smart phones, tablets, desktops, and laptops are all "tangible objects" for the purposes of the anti-shredding provision.  Similarly, any data storage device, such as thumb drives, servers, hard drives, external drives, cassettes, CDs, or DVDs, and any other data storage/recording medium, should be considered covered by § 1519.  Although it is less certain whether cameras are covered, it is difficult to distinguish a camera with a memory card or other recording capability from a CD or thumb drive for purposes of the anti-shredding provision.  Thanks to the Yates plurality, however, there is no more uncertainty as to whether non-electronic items that may contain information are covered.  For instance, items of clothing and bags of any sort, including backpacks, briefcases, purses, or messenger bags, are now plainly outside of the statute's compass.

The implications of the Court's decision are significant, and the certainty provided by the Supreme Court is welcome.  Understanding the breadth of § 1519 is vital to providing useful advice on which items need to be preserved pursuant to that statute—and other obstruction-of-justice statutes—in the face of a possible investigation.

Footnotes

1. 18 U.S.C. §1519 provides, "Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States . . . or in relation to or contemplation of any such matter or case, shall be fined under the title, imprisoned not more than 20 years, or both."

2. Yates v. United States, No. 13-7451, 2015 WL 773330, at *12 (U.S. Feb. 25, 2015).

3. Eugene Volokh, "The Volokh Conspiracy: Dr. Seuss comes to the Supreme Court," The Washington Post, February 25, 2015 (available at http://www.washingtonpost.com/news/volokh-conspiracy/wp/2015/02/25/dr-seuss-comes-to-the-u-s-supreme-court/ ).

4. Yates, 2015 WL 773330, at *14 (Kagan, J., dissenting).

5. Yates, 2015 WL 773330, at *12.

6. "U.S. judge delays sentencing for Tsarnaev friends over Supreme Court case," Reuters, Nov. 7, 2014 (available at http://www.reuters.com/article/2014/11/07/us-usa-explosion-boston-idUSKBN0IR2AI20141107 ).

7. Patricia Wen, "Jurors convict friend of Tsarnaev," The Boston Globe, July 21, 2014.

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