The Other Shoe in Adams v. Dell Drops Gently
In one of the most watched and controversial electronic discovery cases of 2009, the federal court in Utah held that the defendant Asus Computer International had, and violated, a duty to keep certain electronic and paper documents relevant to the federal Utah action for alleged patent infringement. United States Magistrate Judge David Nuffer found the violation of the preservation duty, but postponed the entry of sanctions until more evidence could be developed about what sanction was appropriate. Now, Judge Nuffer has decided that no terminating sanctions are appropriate. Court's Opinion.
The Adams Controversy
Plaintiff Phillip M. Adams & Associate LLC has brought lawsuits against several computer companies claiming infringement of patented technology aimed at fixing alleged defects in certain computer floppy disk controllers. In this federal action in Utah (the cast of defendants has evolved, and 2009's Adams v. Dell is now captioned Adams v. Winbond), Adams claimed that Asus destroyed relevant source code and other documents from the 1999-2002 period and sought sanctions for spoliation. Asus acknowledged that relevant electronic and paper documents no longer existed, but argued that Asus had no duty to keep those documents created some five years before the 2005 litigation was brought.
The court held that, given the well-known litigation in the late 1990s involving the floppy disk controllers, and given Asus' involvement with the controllers, Asus had a duty as early as 1999 to keep documents relevant to the controllers even though Asus was not a party to that litigation. Judge Nuffer found that Asus had violated that duty, but ruled that no sanctions would be entered until after the close of discovery. He ordered that after discovery the parties could present evidence as to the prejudice, if any, Adams suffered in the litigation by the loss of the documents, and the degree of culpability of Asus in losing the documents.
Since Judge Nuffer's decision, electronic discovery experts around the country have debated the four pivotal legal questions of Adams. In his recent decision, Judge Nuffer re-affirmed three of these four issues, and issued a ruling on the fourth issue, which he had left unresolved in 2009.
Reasonably Foreseeable Litigation
The first pivotal issue was when the duty to preserve documents for litigation should arise. The parties in Adams agreed with the nearly-universal legal standard -- a person has a duty to preserve documents when that person actually foresees or reasonably should foresee that the documents are relevant to likely or actual litigation. The rub is applying this legal standard. In the 2009 decision, the court found that Asus' knowledge of litigation about the controllers created the preservation duty in 1999. Judge Nuffer re-affirmed that ruling in his recent decision: "In the 1999-2000 environment, Asus should have been preserving evidence related to floppy disk controller errors."
Asus argued in 2009 that it should be protected from sanctions by the Rule 37(e) "safe harbor," which provides that a party generally may not be sanctioned for "failing to provide electronically stored information lost as a result of the routine, good-faith operation of an electronic information system." Judge Nuffer rejected this argument in his 2009 opinion in part because some of the documents were paper, not electronic, and because Asus' expert failed to provide sufficient evidence that Asus' practices and policies satisfied the requirement to show that the loss resulted from the routine, good-faith operation of an electronic information system. In his recent ruling, Judge Nuffer did not return to Rule 37(e), and let his prior ruling stand.
Information Retention Policies and Practices
In 2009, Judge Nuffer found that Asus' loss of relevant documents was culpable in part because Asus lacked adequate document retention policies and practices. Judge Nuffer affirmed and has now supplemented his criticism of Asus' retention policies and practices for lack of specific retention requirements and for inadequate data migration practices when an employee left the company:
Engineers would maintain data on their own, and had no specific requirements on data retention. Another ASUS witness testified that "when an individual left the company, the hard drive should be left with the company. But there was no SOP or standard SOP.
No Terminating Sanctions
Returning to the question the court had left open, the court denied Adams' motion for "terminating sanctions" -- for a judgment of liability in plaintiff's favor based upon spoliation of relevant evidence. The court found that the evidence -- from Adams and Asus and the other parties -- did not support a finding that Asus had acted intentionally or in bad faith when it lost relevant documents. Judge Nuffer found it persuasive that parties other than Asus likewise had little evidence from the earlier (1999-2002) period. Instead of entering the sanction of a judgment that Adams sought, the court held that Adams could present evidence of the loss of relevant documents in an effort to persuade the jury to rule in favor of Adams on the underlying issues in the case.