– GN Netcom, Inc. v. Plantronics, Inc., 930 F.3d 76 (3d. Cir. 2019)
The Third Circuit’s decision in GN Netcom illustrates how Federal Rule of Civil Procedure 37(e) has elevated the bar to obtaining a default judgment based on spoliation, raising the question of what level of egregious conduct would justify that penalty. The decision also is notable for its exploration of the evidentiary support that aggrieved parties should be permitted to submit when the lesser penalty of a permissive adverse inference instruction is ordered. In a split decision, the appellate court granted a new trial because plaintiff’s expert was precluded from testifying as to the degree of spoliation, which might have impacted the outcome of the case.
Defendant’s Spoliation of Evidence
GN Netcom involved an antitrust action over alleged monopolization of telephone headsets that quickly devolved into discovery disputes. The District Court found spoliation by defendant that was “large-scale” and pervasive.
The court recounted three instances in which defendant’s vice president of sales, Don Houston, instructed employees “to delete certain emails that referenced Plantronics’ competitive practices or its competitors, particularly those concerning GN or its products.” Houston’s instructions regarding email deletion were quite clear:
[I]n November 2012, about a month after GN filed its lawsuit, Houston replied to an email chain stating, “Team, please be careful about competitive statements like what was said below. I would suggest everyone immediately delete this message.” … In October 2013, Houston sent an email stating, “Given the sensitive nature of this issue and the on going legal issues, please delete this entire string of emails for everyone that has been copied ASAP!” Houston deleted his own emails, and other Plantronics executives took actions to hide relevant data. When asked of these actions “[d]uring depositions, Plantronics executives, including Houston … were either forgetful or dishonest.”
Plantronics’ IT efforts to remediate the deletions fell short. Its E-Discovery vendors were able to recover only some of the emails that Houston “double-deleted” by emptying his deleted emails folder. Further, Plantronics destroyed backup tapes of Houston’s emails and never obtained backup tapes to determine whether two other employees, each of whom deleted at least one email chain, had deleted others. This issue of backup tape destruction was never explored, but as Houston’s emails may have appeared on a significant number of backup tapes, their restoration could have produced not only the missing data, but also additional evidence of deliberate intent to deprive GN of probative information.
District Court Sanctions for Spoliation, but a Verdict for Defendant
GN moved for a default judgment as a result of the spoliation. Despite finding “bad faith” with an “intent to deprive GN” of the missing information, the District Court refused to award a default judgment, and instead issued an adverse inference instruction to the jury. The Court also fined Plantronics $3 million and ordered it to pay GN’s spoliation-related fees.
The District Court also refused to allow testimony by GN’s expert regarding the extent and circumstances of the spoliation, instead only permitting “stipulations” regarding the spoliation to be read to the jury at trial. The District Court expressed concern that the expert’s testimony would result in the issue of spoliation “taking over” the trial, and that there was a “risk of unfair prejudice given the inflammatory nature of the evidence.”
Without this expert testimony, the jury ultimately found for Plantronics on the merits, despite the spoliation by Plantronics’ opponents. The District Court denied GN’s motion for a new trial, and GN appealed.
The Third Circuit Reverses
The Third Circuit affirmed the District Court’s application of Rule 37 sanctions against Plantronics, rejecting GN’s argument that Plantronics’ bad faith spoliation mandated a default judgment because the District Court in this fact-specific inquiry appropriately concluded that a lesser sanction would avoid substantial unfairness and deter future misconduct.
The Third Circuit reversed, however, on the question of whether the trial court should have allowed the testimony of GN’s expert. The court ruled that proposed expert testimony was relevant and “could have helped provide the jury with a fuller picture” regarding the spoliation, which “could have had an impact on the merits of GN’s antitrust claims.” GN proffered that the expert would have testified that the analytic techniques of the defense expert, Stroz Friedberg, resulted in an estimate on the number of emails deleted by Houston that was up to five times (12,000 emails) more than Plantronics reported. The court found that this could have impacted the jury’s assessment of the egregiousness of the deletions and the chances of evidence harmful to the defense having been destroyed. Compounding the error, the court found that the stipulation shared with the jury was vague on the number of permanently deleted emails and adopted an even lower range: “[I]t may be that several hundred or even up to 15,000 potentially responsive relevant emails were deleted or destroyed.” As such, the expert’s testimony “could have shaped the jury’s verdict, and the District Court’s error in excluding it was not harmless.” The Third Circuit remanded the case for a new trial.
Are terminating sanctions really available? The evidence of spoliation here was clear and egregious: a company officer directed employees to destroy relevant evidence after litigation, the company took steps to ensure permanent destruction of evidence, and the company did not bother to look at the only potential recovery sources for the information. Notwithstanding plaintiff’s bad faith conduct, however, the Third Circuit found that default judgment was not warranted. This decision suggests that default judgment sanctions face an incredibly high bar, to the point of being almost unattainable – at least in the Third Circuit.
Expert testimony on spoliation may be admissible, even with an adverse inference instruction. The Third Circuit also found that, in egregious cases of spoliation like this one, expert analysis may be used to bolster evidentiary and credibility arguments, even where the court has already given an adverse inference instruction. This signals an emphasis in the Third Circuit on ensuring the adverse inference instructions following spoliation have teeth, and ensuring that juries have a full opportunity to understand party misconduct and the impact it may have on evidence presented and the merits of the claims.