Crowell & Moring

Just last week, I published this article with a colleague in BNA’s Digital Discovery & e-Evidence® regarding the implications of a recent federal court decision for common document retention policies. The article—entitled “Terminating Sanction for Destroying Files to Avoid Suit Raises Concern for Document Retention Practices”—analyzes the court’s decision Slep-Tone Entertainment v. Granito (2014 BL 4257D. Ariz., CV 12-298 TUC DCB, 01/08/14). As we observe in the article, the case exemplifies the adage “bad facts make bad law.” If restricted to its rather unusual facts, the case is of little note. But the court’s reasoning in granting summary judgment as a spoliation sanction against the defendant raises concerns for document retention policies motivated by similar objectives.

We counsel clients to significantly limit the volume of ESI they maintain for a variety of reasons. One compelling reason is to reduce litigation expense and exposure. After all, as we note in the article, the less ESI a company maintains, the less risk it produces some ‘‘smoking gun” document in unanticipated litigation and the less expense it incurs in discovery in any such litigation. Limiting ESI prospectively generally involves imposing limits on what and how much information employees can maintain. Auto-delete policies, for example, can be effective tools. Limiting ESI already on hand, however, generally requires deletion.

To be clear, there is absolutely nothing improper about deleting ESI that is not subject to some legal preservation duty, such as statutory requirements like those in Sarbanes Oxley or common law requirements like those attendant to pending or anticipated litigation, even for the express purpose of reducing litigation expense and exposure. The key, of course, is that any litigation to which the ESI is potentially relevant must not be pending or anticipated at the time of the deletion. In other words, as the Granito court acknowledges, such litigation must be no more than a mere possibility.

Despite this acknowledgement, the court appears not only to find spoliation, but also to conclude that the defendant acted in bad faith and that the “drastic” sanction of summary judgment is the only appropriate relief. Yet, the facts set forth in the decision do not necessarily indicate that the litigation was anything more than a mere possibility at the time of the destruction or that the defendant acted in bad faith.

The defendant reportedly admitted that he destroyed certain ESI for the purpose of avoiding litigation with the plaintiffs, akin to a company that adopts a document retention policy requiring the routine destruction of ESI for the purpose of avoiding possible litigation and the expense and exposure such litigation could present down the road. The defendant also evidently admitted to using a forensic wiping tool to delete the allegedly offending files and then destroyed the hard drives. And the defendant admitted that he was aware that others in his industry had been sued by the plaintiffs for similar conduct—but, there is no indication in the decision that the plaintiffs had threatened to sue him at the time of the destruction.

So do the facts of the case support spoliation sanctions—especially summary judgment? More specifically, do the facts support a finding that litigation was more than a mere possibility at the time of the destruction—and a finding of bad faith? We know what the Granito judge concluded. Now you be the judge.