Court Finds Failure to Preserve and Produce Material from Third Party Electronic Database Improper Grounds for Dismissal

Procter & Gamble Co. v. Haugen, 427 F.3d 727 (10th Cir. 2005)

In 1995, the Proctor & Gamble Company and the Procter & Gamble Distributing Company (collectively “P&G”) sued Randy Haugen (“Haugen”) (an Amway Corporation distributor) and others under the Lanham Act and Utah common law. P&G alleged that Haugen had associated P&G with the Church of Satan via a voice mail message distributed to other Amway distributors, causing P&G to lose business.

By 2003, only the Lanham Act claim against distributor defendants remained subject to litigation. The district court then dismissed that claim as a sanction for P&G’s alleged spoliation of electronic evidence and because P&G’s expert testimony was found inadmissible. P&G appealed the dismissal and other rulings. The 10th Circuit reversed the dismissal.

To assess damages in connection with the Satanism rumors, P&G used market share information from Information Resources Incorporated (“IRI”), an unrelated third party that maintains consumer purchase databases. These databases are dynamic – as new data is added, old data is simultaneously deleted. After P&G’s in-house analyst allegedly found that online IRI data was inconclusive regarding damages (apparently because it was organized by city), P&G hired experts Dr. Harvey Rosen and Dr. Robert Hall. Both looked at IRI data in order to form their opinions. Dr. Rosen used IRI archival data formatted by zip code, for which P&G paid approximately $75,000.

Defendants claimed that they had made three requests for production or access to IRI data between November 1995 and October 1996, but P&G failed to adequately respond. Defendants also asserted that the district court had issued four separate orders requiring production of the IRI data before finally issuing the sanction and dismissing the case.

The first time that P&G had been specifically instructed to produce IRI data was on December 8, 1998. The magistrate judge ordered production of IRI data which related to the competing products from which P&G made its claim of loss. It was to be produced in an electronic database format if P&G had it available in that form. The judge noted that Amway had not previously requested non-Tide-related information and indicated that he would not impose sanctions for failure to produce evidence.

P&G defended its production of documents, pointing out that defendants had been provided with all IRI data accessed by Dr. Rosen in preparing his report, P&G would only be seeking lost profits in connection with the three products focused on by Dr. Rosen so the data provided should be sufficient, and defendants were simply trying to force P&G to pay for access to IRI data. Defendants asserted that all IRI data available to P&G between November 1996 and December 1998 should be produced yet P&G failed to download and maintain such data. Defendants acknowledged, however, that the magistrate had only ordered P&G to produce data previously provided to P&G’s own experts.

On April 18, 2003, defendants filed a motion for sanctions based on P&G’s alleged spoliation. Defendants asserted that IRI data available to P&G between November 1995 and December 1998 was critical – its expert needed all of the data rather than only Dr. Rosen’s “highly selective data” which provided no scientific basis for his conclusions. Furthermore, defendants claimed that P&G had willfully failed to preserve the data, P&G experts had access to the database but only saved and purchased carefully-selected material used by its expert, P&G was in violation of court orders by its failure to produce, and default judgment would be an appropriate sanction. At the hearing, defendants claimed that P&G could have provided a terminal allowing the defense access to the data at no cost.

P&G asserted that it was merely an IRI subscriber and could not download all databases under the terms of its contract (besides, it would have needed to purchase a new mainframe to store such data.) Furthermore, it had produced all documents which incorporated or referenced IRI data accessed by its employees, IRI data in the form regularly accessed by its employees would be useless for this litigation, IRI had offered to make the databases available but defendants did not want to pay for access, and P&G had not violated any discovery-related orders.

On August 19, 2003, the district court granted defendants’ motion and dismissed the case with prejudice. It found that plaintiffs had failed to preserve critically relevant electronic data in violation of court orders, defendants could not defend the case without such data (which is no longer available), and plaintiffs’ damages evidence is inadmissible because it is based on insufficient facts (too few products of the more than forty products at issue) so its claims must fail.

The 10th Circuit reversed the dismissal on several grounds, including:

-The district court abused its discretion by failing to address any of the factors outlined in Whrenhaus v. Reynolds, 965 F.2d 916 (10th Cir. 1992). Factors include: (1) the degree of actual prejudice, (2) the amount of interference with judicial process, (3) the culpability of the litigant, (4) whether the court warned of dismissal as a likely sanction for noncompliance, and (5) the efficacy of lesser sanctions.

-There was no evidence that P&G acted willfully, in bad faith, or with culpability. Indeed, it was unclear how P&G was to produce the data in these circumstances as each available option was problematic. Providing defendants with ongoing access to the database would have given them access to ever-changing information which did not seem to comport with the request. P&G apparently could not have downloaded and archived all the data without purchasing a new mainframe computer. Purchasing all of the archive information from IRI would have cost roughly thirty million dollars.

-The order of December 8, 1998 addressed IRI data “possessed” by P&G and did not require P&G to take any particular action regarding preservation or production in connection with data that was merely available to it online via its IRI subscription. It was not clear what was to be considered the relevant electronic data that P&G was to preserve and produce. Only on February 26, 2003 did the district court address IRI data, and it merely directed P&G to be sure that it had produced all IRI data in its possession – it did not require the purchase of any archival data.

-The district court’s finding of prejudice was unsupported by a detailed explanation and is in error. It is not clear whether or to what extent defendants suffered prejudice by not having access to all IRI data. P&G found the online data as provided under its contract with IRI useless, and there is little, if any, evidence that access to all IRI online data would have been helpful to rebut Dr. Rosen’s testimony as he utilized differently formatted and separately purchased archive data.

-The ruling that Dr. Rosen’s testimony is inadmissible because it was based on insufficient facts is also problematic. P&G was given no warning that the court would be considering or ruling on the admissibility of such testimony. Also, the court did not sufficiently develop the record such that it could be determined whether the court had properly applied relevant law. It looks like the court simply made an off-the-cuff decision and thus abused its discretion.