United States: 15-Month Prison Sentence Reminds That Spoliation Can Be A Crime Resulting In Serious Jail Time

"Spoliation." The word sounds ominous, and rightfully so. It refers to the concealment, alteration, or destruction of documents potentially relevant to a legal proceeding.1 Document destruction is not a new phenomenon, but in today's electronic era, where most documents exist electronically, the act of "deleting" does not necessarily mean material is destroyed. Digital forensic experts are well equipped to recover, trace, or detect deleted materials. Detection means those responsible for deletion, in a wide variety of circumstances, can find themselves named in a criminal, obstruction of justice indictment and facing long prison terms. Accordingly, individuals instructed to preserve records in federal (legal or governmental) proceedings should not take their duties lightly.2 Avoid learning this lesson the hard way, as an IT director of a U.S. bus tour company, discussed below, recently did. For spoliating backup tapes, he has been sentenced to prison for 15 months.

The duty to preserve records arises in various settings, the most prevalent of which is litigation, government investigations, and when litigation is reasonably anticipated.3 When parties, with intent to do so, violate their preservation obligations in litigation, and information is lost, they can be subject to sanctions.4 The most severe sanction is dismissal of an action.5 Despite the threat of sanctions, spoliation is a recurrent theme in the case law. A cursory review of Lexis/Nexis, spanning the first 80+ days of 2017, identifies over 250 state and federal decisions in which the presiding court discussed or mentioned spoliation. Why so many cases in that short period? The answer is not clear, but the following plausible explanations come to mind:

  • Litigants have legitimate incentives to pursue spoliation claims, including curing prejudice that can arise from destruction of evidence and obtaining litigation advantages that can flow from a successful spoliation assertion;
  • More tools and resources than ever exist to forensically identify acts of spoliation, particularly in the realm of electronically stored information ("ESI");6
  • The volume of available ESI continues to expand faster than we can meaningfully appreciate,7 which creates more sources from which spoliation can emanate or be detected; and
  • ESI constitutes the vast majority, far more than 90%, of the documents involved in litigation today,8 and, unlike paper, ESI is hard to destroy, It often lingers in one form or another, even after being deleted.

Regardless of the reason for the high number of reported decisions, the number helps demonstrate that if a party tampers with documentary evidence, there are meaningful incentives and resources available, especially for a party with financial wherewithal, to detect an adversary's improper document handling.

Yet, the risk of detection apparently does not dissuade corporate representatives or agents, at times, from acting poorly when it comes to document preservation. Litigation creates risk, and, on occasion, substantial corporate risk. Those loyal to the entity may seek to protect it, but destroying documents to protect an entity may have the opposite result. Spoliation can create not only litigation sanctions detrimental to a party's claims or defenses, but it can foment criminal exposure for a going concern. More importantly, the behavior can land individuals in prison or leave them facing criminal prosecution.9 Two examples follow:

Kolon Industries. On February 3, 2009, DuPont brought suit against a competitor, Kolon, alleging trade secrets malfeasance. During discovery, Kolon produced screenshots of certain employees' email accounts that suggested plans to delete email files after initiation of the litigation. DuPont subsequently retained a digital forensics company to assess whether defendant had spoliated evidence. Kolon eventually admitted that, in the days following the filing of the complaint, Kolon employees met and identified responsive documents for possible deletion. DuPont's forensic expert confirmed that Kolon personnel had deleted ESI and provided precise findings to the court: "After February 1, 2009, Kolon employees deleted a total of 17,811 files and email items. This included 12,836 unique email items, of which 9,010 were keyword-responsive email items. The employees deleted 4,975 electronic files. Of that group, 1,918 files were overwritten, 78 files were partially overwritten, and 145 files were encrypted, totaling 2,141 overwritten or otherwise inaccessible files."10 Based on these and related findings, the court sanctioned Kolon. It awarded DuPont its sanction-related attorneys' fees and costs totaling nearly $4,500,00011 and granted DuPont an adverse inference instruction for trial. Since the case involved claims valued by DuPont in the hundreds of millions of dollars, the adverse inference was no small matter.12 This was but the beginning of Kolon's problems.

The United States charged Kolon and five of its employees with trade secrets crimes as well as "obstruction of justice for deleting information from their computers."13 In 2015, Kolon agreed to pay criminal fines and restitution of $360 million; the action against the individuals is pending – the five employees have not returned to the U.S. to face the criminal charges.14

Ralph Groen. In 2012, the United States and the state of New York challenged, on antitrust grounds, a venture of two "hop on / hop off" bus companies operating in New York City. This civil action sought to correct a perceived anticompetitive combination in the relevant market. No individuals were named or targeted by the government's investigation and lawsuit. Beginning in March 2013, the United States served discovery requests on the defendant. Ralph Groen served as the defendant's IT Director, and in response to the discovery requests he, according to government allegations later conceded by Mr. Groen, "directed one or more of his subordinates to recall, conceal, and destroy several end-of-month backup tapes" containing ESI responsive to the government's discovery.15 Mr. Groen also misled his company's counsel as to the existence of certain responsive material, concealed specific backup procedure materials, and testified in deposition consistent with his conduct. Ultimately, the government uncovered Mr. Groen's spoliation. This led to the filing of a criminal information against Mr. Groen and to him pleading guilty to violating 18 U.S.C. § 1512(c)(2).16 In March, 2017 a district court judge sentenced Mr. Groen to 15 months in prison.

Let me pause here ... the individual going to prison did not participate in the alleged anticompetitive conduct at issue (he handled IT matters), but nonetheless is now a convicted felon for conduct stemming from a civil matter.

Federal statutes targeting spoliation truly have a long reach.17 Again, spoliation can lead to severe criminal consequences for individuals, even if the activity occurs in a non-criminal matter and even if the perpetrator does not participate in the acts precipitating the underlying proceeding. Prosecution can arise when an individual's conduct does not involve a court proceeding, a pending proceeding, or admissible evidence.18 And, while intent is an element of the crime, requisite intent can be proven through circumstantial evidence.19 The act of spoliation does not require a heightened standard of misconduct, but rather knowledge that the individual is purposefully acting to violate a legal duty – here, the duty to preserve a document's integrity or availability for a proceeding.20

An individual convicted for violating federal obstruction statutes can be imprisoned up to 20 years and fined up to $250,000.21 Corporations also face grave repercussions from criminal prosecution (recall Arthur Anderson), but the closing focus here is on individuals. Corporations don't go to jail, people do.

Footnotes

1 See, e.g., Ala. Aircraft Indus. v. Boeing Co., 2017 U.S. Dist. LEXIS 33527, *23 (N.D. Ala. Mar. 9, 2017) (citation omitted) ("Spoliation is the destruction or significant alteration of evidence, or the failure to preserve property for another's use as evidence in pending or reasonably foreseeable litigation.").

2 State laws pertaining to obstruction of justice via document destruction are not addressed in this article, but they should not be forgotten. Because the elements triggering state obstruction laws vary among the states, conduct should be reviewed on a state specific basis.

3 See, e.g., Muhammad v. Mathena, 2016 U.S. Dist. LEXIS 171048, *14 (W.D. Va. Dec. 12, 2016) (4th Cir. citation omitted) ("The duty to preserve material evidence arises not only during litigation but also extends to that period before the litigation when a party reasonably should know that the evidence may be relevant to anticipated litigation.").

4 Fed. R. Civ. P. 37(e). Courts traditionally took different approaches to the "level of intent required before sanctions may be warranted." Victor Stanley, Inc. v. Creative Pipe, Inc., 269 F.R.D. 497, 529 (D. Md. 2010). To create consistency among the federal courts in the treatment of spoliated electronically stored information, Fed. R. Civ. P. 37(e) was revised in 2015 to "foreclose[] reliance on inherent authority or state law to determine when certain measures should be used." Fed. R. Civ. P. 37 Advisory Committee Notes (2015). Rule 37(e) applies only to electronic records.

5 In addition to dismissal, Fed. R. Civ. P. 37(e) identifies the other actions a federal court can take to address spoliation of electronic records. If spoliation pertains to other types of documents, there generally are three types of applicable sanctions: "(1) dismissal of the claim of the party who is responsible for the spoliation; (2) the exclusion of evidence or witness testimony corresponding to the evidence destroyed, or (3) an adverse jury instruction." Renner v. Takeda Pharms. U.S.A. Inc., 2017 U.S. Dist. LEXIS 4862, *5 (D. Mont. Jan. 12, 2017) (citation omitted). Reasonable attorneys' fees and costs incurred in proving spoliation also can be charged to an offending party. See, e.g., United Cent. Bank v. Kanan Fashions, Inc., 2011 U.S. Dist. LEXIS 114490, *71 (N.D. Ill. Mar. 31, 2011).

6 Transparency Market Research estimated the global digital forensics market to be valued at $2 billion in 2014, with that figure expected to more than double in seven years. The research group opined that, "[r]ise in the demand for digital forensics in North America can be attributed to increased acceptance of forensic tools among different industries in this region." Digital Forensics Market - Global Industry Analysis, Size, Share, Growth, Trends and Forecast 2016 – 2026 (July 30, 2015), available at http://www.transparencymarketresearch.com/digital-forensics-market.html.

7 Fed. R. Civ. P. 34 Advisory Committee Notes (2006) (in discussing amendments to the rules of procedure, the committee commented, "the growth in electronically stored information and in the variety of systems for creating and storing such information has been dramatic.").

8 In re Bristol Myers Squibb Securities Litig., 205 F.R.D. 437, 440 n.2 (D.N.J. 2002) (citation omitted) (by 1999, of all documents created ESI constituted 93%).

9 Federal prosecutors can turn to a variety of statutes to pursue criminal charges, depending on the federal proceeding involved and the status of the proceeding. See, e.g., 18 U.S.C. § 1503; 18 U.S.C. § 1505; 18 U.S.C. § 1512; 18 U.S.C. § 1519.

10 E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 803 F. Supp. 2d 469, 480 (E.D. Va. 2011).

11 E.I. Dupont De Nemours & Co. v. Kolon Indus., 2013 U.S. Dist. LEXIS 16295 (E.D. Va. Feb. 6, 2013).

12 A jury awarded DuPont $919.9 million, which the Fourth Circuit vacated because evidence, unrelated to spoliation, had been improperly barred from trial. The circuit court remanded the case. E.I. Dupont De Nemours & Co. v. Kolon Indus., 564 Fed. Appx. 710, 715 (4th Cir. 2014).

13 Top Executives at Kolon Industries Indicted for Stealing DuPont's Kevlar Trade Secrets (Oct. 18, 2012), available at https://www.justice.gov/opa/pr/top-executives-kolon-industries-indicted-stealing-dupont-s-kevlar-trade-secrets.

14 Kolon Industries Inc. Pleads Guilty for Conspiring to Steal Dupont Trade Secrets Involving Kevlar Technology (April 30, 2015), available at https://www.justice.gov/usao-edva/pr/kolon-industries-inc-pleads-guilty-conspiring-steal-dupont-trade-secrets-involving.

15 United States v. Groen, 16 CRIM 683 (S.D.N.Y. Oct. 10, 2016) (Information alleging violation of 18 § U.S.C. 1512(c)(2)); Former Coach USA Inc. Executive Pleads Guilty to Attempting to Obstruct Justice (Oct. 14, 2016), available at https://www.justice.gov/opa/pr/former-coach-usa-inc-executive-pleads-guilty-attempting-obstruct-justice.

16  Id. 18 U.S.C. 1512(c)(2) is the "catch all" provision in 1512 requiring "some reasonable nexus [between the] record, document, or tangible object" and the conduct. United States v. Singleton, 2006 U.S. Dist. LEXIS 47961, *9 (S.D. Tex. July 14, 2006). See also United States v. Pugh, 2015 U.S. Dist. LEXIS 170271, *54 (E.D.N.Y. Dec. 21, 2015) (permitting indictment alleging violation of both 1512(c)(1) and (c)(2)).

17 See, e.g., 18 U.S.C. § 1503(a); 18 U.S.C. § 1512(c); 18 U.S.C. § 1519.

18 See 18 U.S.C. § 1512 (persons can be prosecuted for spoliation in an "official proceeding," which is not limited to court actions); 18 U.S.C. § 1515 (defining "official proceeding"); 18 U.S.C. § 1519 (reaching conduct impeding the "investigation or ... administration of any matter within the jurisdiction of any [U.S.] department or agency"). See also 18 U.S.C. § 1512(f).

19 See United States v. Shively, 927 F.2d 804, 811 (5th Cir. 1991).

20 See United States v. Fumo, 2009 U.S. Dist. LEXIS 51581, *173-74 (E.D. Pa. June 17, 2009) (assessing elements of an action under 18 § U.S.C. 1512(c)).

21 See 18 U.S.C. § 1512(b)(3); 18 U.S.C. § 1519; 18 U.S.C. § 3571(b); 18 U.S.C. 1503(b)(3).

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