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Sent to you by pakurilecz via Google Reader: Failure to Preserve Key
Player's Email and Interview Transcripts Warrants Adverse Inference
Instruction, but not Default Judgment via Electronic Discovery Law by
[log in to unmask] (K&L Gates) on 9/11/08
Nursing Home Pension Fund v. Oracle Corp., 2008 WL 4093497 (N.D. Cal.
Sept. 2, 2008)

In this class action securities litigation, plaintiffs sought sanctions
based on alleged evidence spoliation by defendants. Plaintiffs moved
for terminating sanctions or, in the alternative, for lesser sanctions
in the form of adverse inference instructions and an order precluding
defendants from relying on spoliated evidence. Plaintiffs submitted a
long list of actions allegedly taken by defendants that led to the
failure to preserve or the affirmative destruction of evidence relevant
to this lawsuit.

District Judge Susan Illston declined to impose terminating sanctions
because the actions alleged to have been taken by defendants did not
“eclipse entirely the possibility of a just result.” The court found
that plaintiffs had not demonstrated the degree of prejudice necessary
to warrant terminating sanctions, primarily because plaintiffs had
received a large quantity of materials in discovery. In addition, the
court noted that public policy strongly favored deciding the case on
its merits, and that less drastic sanctions could be imposed that would
permit a decision on the merits while also ensuring that defendants did
not benefit from any spoliation.

As to lesser sanctions, the court found that adverse inferences in
plaintiffs' favor were warranted with regard to some categories of
evidence that defendants had conceded was not produced or preserved.

Defendants’ Preservation Efforts: Plaintiffs alleged that, after they
served defendants with notice of this action, defendants only sent
preservation notices to about 30 out of more than 40,000 Oracle
employees. Plaintiffs alleged that defendants improperly focused their
preservation efforts only on employees who made the allegedly false
statements and those who communicated with them, and therefore did not
send preservation notices to employees at the vice-president level,
regional sales managers, and others who might have possessed relevant
information. Plaintiffs also claimed that the preservation process
itself was inadequate, such that defendant Ellison, who received the
preservation notice, did not preserve in his own files hundreds of
emails, many of which plaintiffs discovered in other email files.
Plaintiffs sought sanctions for documents that may have been in the
possession of employees who did not receive document preservation
instructions, and for the loss of defendant Ellison’s email files.
Defendants contended that their preservation notices were adequate, but
did not dispute that they produced an extraordinarily small number of
emails sent or received by Ellison from his own email files.

The court declined to impose sanctions for defendants' alleged failure
to communicate document preservation instructions to a sufficient
number of employees because plaintiffs had not identified any
particular documents that were not preserved as a result of defendants'
preservation efforts. Further, plaintiffs received a great deal of
evidence despite any shortcomings in defendants' efforts, and had not
demonstrated that any such shortcomings in defendants’ preservation
efforts were willful.

As to Ellison's email files, however, the court found that sanctions
were appropriate. It was undisputed that defendants produced only 15
emails sent or received by Ellison from Ellison's own email files, and
defendants did not contend that all of Ellison's emails were preserved
in his files. Instead, defendants noted that over 1,650 of Ellison's
emails were produced to plaintiffs from the files of other Oracle
employees. The court disagreed with defendants’ argument that
plaintiffs were not entitled to receive multiple copies of Ellison's
emails:
It could have been helpful to plaintiffs to demonstrate that certain
emails were discovered in Ellison's files; otherwise, for instance,
Ellison could argue that he never actually read or received an email
that was sent to him, and thus had no knowledge of its contents.
Moreover, having established with certainty that numerous emails were
not produced from Ellison's email files – because the emails were
produced from other files or accounts – it is impossible to know
whether additional unproduced emails were also deleted or not turned
over. This uncertainty about the existence of other emails is precisely
the reason all of Ellison's emails should have been preserved and
produced.

The court concluded that plaintiffs had adequately demonstrated the
relevant factors supporting an adverse inference sanction: (1)
defendants had a duty to preserve Ellison’s email at least as of March
13, 2001, when preservation instructions were sent to certain
employees, including Ellison, or as of March 9, 2001, when plaintiffs
filed suit; (2) defendants destroyed or failed to preserve Ellison's
emails willfully, because they had “some notice that the documents were
potentially relevant to the litigation before they were destroyed”; and
(3) Ellison’s emails were relevant because they could have supported
plaintiffs’ arguments about his knowledge of certain facts at issue.

Materials related to book entitled Softwar: An Intimate Portrait of
Larry Ellison and Oracle (“Softwar"): Plaintiffs also alleged that
defendants failed to preserve or destroyed transcripts and audio files
created in preparation of the Softwar book written by Matthew Symonds,
who conducted at least 135 hours of recorded interviews with defendant
Ellison. The special master had previously found that, although such
materials were in the physical possession of Symonds, Ellison had legal
control of them pursuant to a contract between Symonds and Ellison. As
a result, the special master had ordered defendants to produce copies
of any interview notes, transcripts or tape recordings related to the
book.

Many of these materials were never produced to plaintiffs, however,
because it appeared that sometime in late 2006 or January 2007, Symonds
destroyed the materials in question by directing a computer repair shop
to dispose of the laptop on which Symonds had stored the recorded audio
files of interviews with Ellison. Defendants were able to produce to
plaintiffs roughly 200 pages of transcripts from interviews conducted
in 2002, but were not able to produce any recordings or transcripts
from interviews conducted in 2001.

The primary dispute between the parties on this aspect of the motion
for sanctions was whether defendants could have retrieved the materials
from Symonds sooner, or whether defendants could have prevented Symonds
from destroying the materials. Defendants argued that no one at Oracle,
including Ellison, ever had physical custody or control over the
materials, and thus should not be sanctioned for failure to produce
them.

The court concluded that sanctions were necessary because Ellison knew
of the litigation at the time most interviews were conducted, and
failed to take any efforts to preserve the materials despite his
obligation to do so. The court agreed that the contract between Symonds
and Ellison gave Ellison authority (and thus “control”) over the
materials and the ability to preserve them.

As with Ellison’s emails, the court found that defendants had an
obligation to preserve the interview materials, that their failure to
preserve them was willful because they had “some notice that the
documents were potentially relevant to the litigation,” and that the
materials were relevant to plaintiffs' claims, as demonstrated by some
of the transcripts that were produced and the fact that Symonds began
interviewing Ellison shortly after the events at issue in the
litigation had transpired.

Oracle Sales Online (“OSO”) database and backups: Finally, plaintiffs
contended that defendants failed to preserve data from the OSO database
and purged OSO backup tapes four months after plaintiffs filed this
action. The court found that the parties disputed what really happened
with regard to this evidence, and that it was unclear whether any
spoliation occurred. Further, the court noted that the special master
had denied an earlier motion to compel brought by plaintiffs relating
to this material, and that plaintiffs had not appealed that ruling. As
such, the court declined to impose any adverse inference as to this
evidence.

The court stated it would take the adverse inferences into account when
deciding the parties’ pending summary judgment motions. The judge asked
both sides to revise and re-file their motions for summary judgment to
clearly specify the precise contours of the adverse inferences that
should be drawn from the emails and Softwar materials.

A copy of the full decision is available here.


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