[Update] Pulte Gets Pinched for Spoliation
UPDATE:
I have amended my post based on some very thoughtful clarification from Dennis Kiker in the comments. Added text is underlined, and deleted text is struckthrough.
ORIGINAL POST (February 28, 2011):
LTN reports that national home builder Pulte Homes was caught deleting emails and wiping hard drives in direct violation of a court order:
Forsyth County Superior Court Chief Judge Jeffrey S. Bagley has ordered sanctions against Pulte Home Corp. for destroying e-mails and other electronic evidence in an environmental lawsuit.
The sanctions... include paying attorney fees for plaintiffs...
"We expect that attorney fees and costs will be in the range of $400,000 -- making it the largest award of sanctions for willful spoliation of electronically stored information in Georgia history," said Michael P. Carvalho, attorney for Adele and Tim Simerly, who are suing Pulte over stormwater runoff...
In September 2009, Bagley ordered an investigation by a special master into allegations that Pulte's vice president of land development, George "Ted" Turner, had deleted e-mails related to the case. The order followed a deposition in which Turner said he had deleted e-mails and intended to continue doing so, according to Carvalho...
The Special Master's report concluded that Pulte employees violated Bagley's order on spoliation of evidence, specifically deleting e-mails as well as replacing and reformatting hard drives in some computers...
"Pulte argued that despite the fact that significant efforts had been undertaken by the court-appointed forensic expert, 'only 160 documents' had been produced as potentially deleted emails," wrote Bagley. "And of these 160 documents, none of the emails was ultimately determined to be a 'smoking gun,' which would have otherwise caused this court to conclude that Turner's deletion was intended to hide, cover up or obfuscate the truth.
"Despite this court's prior order prohibiting the continued deletion of emails, Pulte continued to engage in a pattern of … spoliation," the judge added.
Generally, the destruction of information only rises to the level of sanctionable spoliation when (1) the duty to preserve information has attached to a party, (2) the party commits a culpable breach of that duty, and (3) the resulting destruction causes prejudice to the other party. The post above does not mention any direct evidence of prejudice caused by the information destruction, yet the Court—rightfully—still found spoliation. Good.
Why do I say the Court was right in finding spoliation even though one of the elements of spoliation seems missing? Because the requirement that culpably destroyed evidence be shown to have caused prejudice—i.e. to show that what was destroyed was in fact relevant—unfairly shifts the burden to the non-culpable party to prove it was harmed by another's bad act. To address that inequity, "prejudice may be presumed when the spoliating party acted in bad faith or in a grossly negligent manner..." Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of Am. Sec., 2010 WL 184312 (S.D.N.Y. Jan. 15, 2010) (Amended Order).
The Delaware Court of Chancery employed this logic in TR Investors LLC v. Genger, C.A. 3994-VCS in which the defendant, Genger, culpably knowingly, willfully, and in bad faith destroyed evidence then argued he should not be found to have spoliated evidence sanctioned absent proof from plaintiffs that the documents he destroyed were relevant. The Court had this to say about Genger's specious argument:
For a party to intentionally violate an order not to destroy or tamper with information and then to claim that he did little harm because no one can prove how much information he eradicated takes immense chutzpah. For a court to accept such a defense would render the court unable to govern situations like this in the future, as parties would know that they could argue extenuation using the very uncertainty their own misconduct had created.
Judge Bagley should say the same thing to Pulte.
Nice post, Chris, and I generally agree with your comments - with one reservation. Spoliation doesn't require that information be "culpably" destroyed. Even innocent or negligent destruction of evidence is, technically, spoliation. See, e.g., Silvestri v. General Motors, 271 F. 3d 583, 490 (4th Cir. 2001) (defining spoliation as the "destruction or material alteration of evidence or...the failure to preserve property for another's use as evidence in pending or reasonably foreseeable litigation"). The real question is whether sanctions are appropriate for any given act of spoliation, and that is where culpability comes into play. In the Pulte case, there doesn't seem to be any question where a company executive admits to not only violating a court order, but his intention to continue doing so. Likewise, in TR Investors, the court describes an intentional violation of a court order. In such cases, I agree that prejudice can be presumed. I don't think that prejudice, as an element of the sanctions decision, can be entirely omitted, or we are looking at what Judge Grimm refers to as a strict liability standard.
Consider the case of mere negligence, where, in a large company of tens of thousands of employees, someone makes a mistake and overwrites a hard drive or recycles a backup tape. In such a case, I do not believe that prejudice can be presumed. Certainly there are consequences to the destruction of evidence, even if only negligent, but the degree of those consequences must be informed by the degree of prejudice to the opposing party. The most recent Victor Stanley opinion by Judge Grimm does an excellent job of outlining the law on this point, including whether spoliation is, in his words, "sanction-worthy."
Thanks Dennis. Good point. I may edit the post to incorporate your clarifications, in case some readers don't see the comments (not everyone looks).