Williams Mullen E-Discovery And Information Governance Team: 'No Harm, No Foul? No Way'

 

By Monica McCarroll and Stephen E. Anthony

E.D. Va. Court issues adverse inference jury instruction for intentional bad faith deletion of emails despite the fact that many eventually were recovered from back-up tapes.  The prompt issuance of litigation hold notice by counsel precluded default judgment.

Finding that a defendant's employees "set out to willfully and intentionally, and in bad faith, delete from their computers relevant documents, files, and emails that contained what they believed to be, possibly damaging information to [the Company] . . . [many of which] are not recoverable," Judge Robert E. Payne, United States District Judge for the Eastern District of Virginia, issued an adverse inference jury instruction, wherein the jury could infer that the deleted evidence was helpful to the plaintiff and harmful to the defendant and could be taken into account in assessing defendant's intent and knowledge as to the underlying allegations of conspiracy to steal and theft of trade secrets.  E. I. DuPont v. Kolon Industries, Inc., Civil Action No: 3:09cv58.[1]  Opinion 87-88 [enhanced version available to lexis.com subscribers].  In addition, the Court awarded the defendant its attorneys' fees, costs, and expenses related to its motion.   

In a Complaint filed on February 3, 2009, E. I. DuPont ("DuPont") alleged that Kolon Industries, Inc., a South Korean company, and its United States subsidiary, Kolon U.S.A., Inc. ("Kolon"), hired former DuPont employees, and attempted on at least one occasion to hire a current DuPont employee, in order to obtain DuPont's trade secrets and confidential information related to DuPont's "Kevlar" aramid fiber, a material used in many products, including bullet-proof vests.  Opinion at 1-4.  One of the former DuPont employees whom Kolon pursued and conspired with was Michael Mitchell ("Mitchell"), who once held a position with DuPont related to selling and marketing Kevlar.  DuPont alleged that Mitchell kept numerous documents and files containing DuPont proprietary information related to Kevlar and funneled that information to Kolon to assist in Kolon's efforts to develop a competing para-aramid fiber called "Heracron."  Mitchell pled guilty in a related criminal case to theft of trade secrets and to obstruction of justice.   

Despite Mitchell's admissions, Kolon not only denied that it stole trade secrets or was involved in a conspiracy to steal trade secrets, but further denied that it was engaged in intentional destruction of documents to preclude DuPont from proving the contrary.  During discovery, Kolon produced 1.2 million pages of documents, including a series of "screenshots" from three different employees' computers showing certain files annotated with the words "Delete," "Need to Delete," "Remove All," and "Get Rid Of."  Opinion at 4.  Despite the large volume of documents produced overall, DuPont noticed "suspiciously low document production totals for . . . key Kolon employees."  Opinion at 5.  DuPont ultimately moved for sanctions, alleging spoliation of evidence, asserting that "key executives and employees . . . deliberately deleted relevant evidence and then engaged in prolonged efforts to conceal that conduct."  Opinion at 1.  In response, Kolon conceded that one lone employee, J.H. Choi ("Choi"), Vice President and senior executive of Kolon's Heracron division, did, in fact, delete relevant documents from his computer following DuPont's Complaint in an effort to avoid getting "involved" in the lawsuit.  Opinion at 6, 33-37.  Kolon claimed, however, that Choi's act was isolated and not a part of a larger conspiracy by Kolon to destroy evidence.  Kolon further contended that its efforts to preserve documents were sufficient, as evidenced by two separate litigation holds, one issued three days after the Complaint was filed to only a few employees, and another issued four days later to a larger group.  Opinion at 12-13, 51-52. 

Unfortunately for Kolon, its own evidence undermined this argument.  The Court found that Kolon engaged in numerous delay tactics and evasive conduct described by the Court as "long, and oftentimes tortuous . . . complicated by the numerous objections (many of which lacked substantive merit) lodged by Kolon and by its overall obfuscatory conduct throughout the ensuing proceedings."  Opinion at 5-6.  Following the initial evidentiary hearing, "it became obvious [to the Court] that Kolon had not complied with the Court's instructions to counsel (at the end of [a prior] evidentiary hearing) to expedite the remaining production and analyses" of electronic data.  Opinion at 9.  It was the Court's meticulous perusal of the forensic analysis conducted by DuPont's experts, however, that brought Kolon's defiant and obstructionist conduct into stark relief.  Carefully and methodically, the Court identified the number of relevant files and emails each custodian deleted from his or her computer in the days following DuPont's Complaint, and identified whether those files and emails were recoverable from other sources.  In total, the Court noted that, after February 1, 2009, Kolon deleted 17,811 emails and electronically stored items, with approximately 11,670 being potentially relevant to the litigation.  Of the 4,975 electronically stored, non email items, only 2,834 were recoverable.  Opinion at 15.  The Court also noted that the number of deleted files could be larger because 134 of the overwritten files were email containers, which could hold an abundance of emails.  Opinion at 15.   

Though the level of direct defiance of Court orders coupled with egregious evasiveness and misconduct in this case seemed to warrant the ultimate harsh penalty of default judgment, the Court rejected such a sanction for what many consider the penultimate penalty of an adverse jury instruction.  In the Fourth Circuit, default judgment is the severest and the "ultimate sanction for spoliation," only justified in circumstances of bad faith or "in the most egregious circumstances."  Opinion at 62 (collecting cases).  In addition, default judgment "'may be necessary if the prejudice to the [movant] is extraordinary, denying it the ability' to adequately pursue its case."  Opinion at 62 (citing Silvestri, 271 F.3d at 593).  

At minimum, "to justify the harsh sanction of [default judgment], the district court must consider both the spoliator's conduct and the prejudice caused and be able to conclude either (1) that the spoliator's conduct was so egregious as to amount to a forfeiture of his [case], or (2) that the effect of the spoliator's conduct was so prejudicial that it substantially denied the [aggrieved party] the ability to [prove its] claim." 

Opinion at 62 (citing Silvestri, 271 F.3d at 593) (emphasis added).   

In its analysis of the facts before it, the Court found that key Kolon employees intentionally deleted likely relevant files after Kolon's duty to preserve was triggered and after they knew of DuPont's Complaint.  Opinion at 66.  Further, the Court found that such deletions occurred in bad faith, that is, with the "purpose of depriving [DuPont] of evidence."  Opinion at 56, 66.  In support of its findings, the Court recounted the acts of each custodian who deleted files, noting their (generally high) position with Kolon and their apparently culpable state of mind in deleting files and emails.  The Court found that seven (7) of Kolon's key employees acted "willfully," and "in bad faith," in deleting emails and files.  Opinion 66-75.  Perhaps most damning was Kolon's reluctant admission that following DuPont's Complaint and notice to Kolon employees of the litigation, certain Kolon employees held a meeting "wherein the attendees discussed identifying documents on their computers for later deletion, marking email items for possible deletion, and deleting folders that contained DuPont proprietary information" in response to this litigation.  Opinion at 11, 17.  

The Court stopped short of issuing findings that would compel default judgment, however, finding that, "[a]fter reviewing the record developed throughout these proceedings, the Court cannot agree with DuPont that Kolon encouraged and countenanced a policy of widespread deletion by key employees, or that widespread, concerted deletion among key employees was afoot in the days following the filing of the Complaint.  The record does not support a finding of a conspiracy to delete relevant files and email items among Kolon's employees."  Opinion at 65-66.  In light of this conclusion, the Court's holding provides some clarity as to the breadth of conspiracy to spoliate evidence one must show to demonstrate that a party's actions "were so egregious as to amount to forfeiture of its defense, or the spoliation's effect was to inflict such prejudice on [the innocent party] that it denied [said party] the ability to prosecute its case."  Opinion at 84.  While the evidence showed an agreement among certain Kolon employees to delete files, it did not support a finding that such agreement was either "widespread" or "concerted."  Moreover, the Court gave considerable credit to Kolon's attempts, however faulty, to issue litigation holds: 

Though the actions taken by the key employees discussed herein were intentional, in bad faith, and quite serious, they are not such as to warrant a forfeiture of Kolon's ability to defend itself against DuPont's allegations.  The deletions that Kolon's executives and employees made were numerous and were made intentionally and in bad faith.  Kolon, however, did attempt to put in place two litigation hold orders, and it implemented a widespread effort to preserve files.  And, Kolon was aided by good fortune in that many deleted items were recoverable because of the preservation of Kolon's back-up tapes.  The recovery of the deleted information has provided DuPont with much information to help prove its case and to meet Kolon's defenses. 

Opinion 84-85.  The Court went on to find that, "as a whole, the circumstances attending the spoliation are not such as to warrant forfeiture of such defenses as Kolon may have.  Nor can the Court find that DuPont suffered the degree of prejudice required under the case law to enter default judgment against Kolon."  Opinion at 85.  Specifically, the Court distinguished this case, in terms of prejudice, from Silvestri, where the defendant destroyed the "only evidence" from which the plaintiff could develop its case.  Opinion at 85.  In this case, the Court recognized that a number of the deleted files, though illegally altered and, thus, spoliated, were recoverable in some form or fashion and, thus, were usable by DuPont.  

DuPont v. Kolon provides perhaps the strongest impetus yet out of the Eastern District of Virginia for litigants not only to issue litigation holds but also to monitor and ensure compliance with those holds by all potential custodians, regardless of rank.  It was only the actions of Kolon's counsel in issuing the holds and of Kolon's IT department in preserving back-up tapes that saved Kolon from the entry of a default judgment.  Not surprisingly, however, this "victory" proved short-lived.  In September 2011, the jury found that Kolon maliciously and willfully misappropriated DuPont's technology and awarded DuPont $919 million in damages.  In January 2012, the Court upheld that award.


[1] E. I. DuPont v. Kolon Industries, Inc., 2011 U.S. Dist. LEXIS 45888 (April 27, 2011). 

For more information about this topic, please contact the authors or any member of the Williams Mullen eDiscovery and Information Governance Team. 

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