“Bad Faith or Culpability ‘May Not Mean Evil Intent, but May Simply Signify Responsibility and Control.'”

Philips Elecs. N. Am. Corp. v. BC Tech., No. 2:08-CV-639-CW-SA, 2010 WL 5838993 (D. Utah July 28, 2010);  Philips Elecs. N. Am. Corp. v. BC Tech., No. 2:08-CV-639-CW-SA, 2011 WL 677462 (D. Utah Feb. 16, 2011)

In this case, the court imposed terminating sanctions against defendant after finding that five employees had destroyed “thousands of computer files” in bad faith prior to the production of their laptops for examination and that defendant had attempted to hide those deletions from plaintiffs and the court.

Plaintiffs alleged copyright infringement, misappropriation of trade secrets and related claims.  In the course of discovery, the court entered orders compelling defendant’s production of relevant evidence, including the production of all of defendant’s computers and servers, and requiring preservation of the same.  The court found that, despite these orders, a proper litigation hold was not issued until 19 months after the duty to preserve arose and thousands of files were deliberately deleted from the laptops of five employees prior to their production for examination.  Accordingly, plaintiffs moved for a finding of contempt and for sanctions.

Sparing the details (of which there are many), the court found defendant in contempt of court for violating the court’s orders compelling production and preservation of relevant evidence.

Turning to the question of spoliation, the court found that defendant breached its duty to preserve, that plaintiffs were prejudiced by the breach of that duty, and that the defendant had acted in bad faith.  With regard to bad faith, the court held that “[b]ad faith or culpability ‘may not mean evil intent, but may simply signify responsibility and control.”  The court concluded that defendant “not only had the responsibility to preserve information relevant to this litigation on the five laptops, but that it also had control over those laptops and information stored on them.”

The court then addressed the arguments of the defendant that “BCT as a company was not responsible for the ESI’s destruction” (1) because the employees accused of deleting evidence had simply been deleting personal information and had inadvertently deleted other files, and (2) because the executives and employees who destroyed the files “were acting individually and contrary to BCT’s express directives not to delete documents from their laptops.” The court quickly rejected the first argument.

Taking up the argument that the employees were acting individually, the court first “examin[ed] BCT’s behavior and attitude throughout this case towards meeting its responsibility to preserve evidence” and found them to be lacking:

BCT’s behavior such as failing to timely issue a litigation hold, failing to follow up on that litigation hold, failing to request discovery documents from key employees, and so forth, reveals its intentional failure to meet discovery obligations and its flagrant disregard of the obvious risk that it was highly probable the destruction of relevant documents would result from its behavior, and BCT’s conscious indifference to the consequences of that risk.

Consequently, the court concluded that BCT was liable for the actions of its employees:

BCT cannot escape responsibility by claiming the computers it owned, which were being used by its Chief Technical Officer, a Vice President, a part owner and Regional Service Manager, and others, had information deleted because these employees did not know of the court’s orders or because they were acting in violation of BCT’s directives.  BCT is not some abstract entity; instead, BCT is comprised of its executives and employees.  BCT’s executives, in particular, act as company representatives.  In this case, those executives disregarded court orders, willfully destroyed the evidence, and lied under oath.

BCT is the party; it has the responsibility; it must follow the court’s orders.  The justice system would break down if company employees could claim that they did not know about the court orders and simply disregard them.  BCT has not pointed to any case that supports its argument.  As a result, the court rejects BCT’s second argument–that the BCT executives and employees were acting as individuals against the company’s wishes–thus seeking to obviate itself of its responsibility of the massive deletions of ESI from the five BCT laptops.

*48 Therefore, because BCT had control and responsibility over the five laptops, that alone is enough to establish that BCT acted with bad faith in the spoliation of the evidence.

The court also identified other evidence that supported a finding of bad faith, namely “the timing of the deletions at issue; the number of deletions made; the lack of effective communication BCT had with its employees regarding their duty to preserve evidence; BCT’s employees’ lack of credibility and attempts to cover up and deny the deletions that occurred; and the deliberate, calculated, and methodical behavior involved in the deletions.”

Having determined that an adverse inference was warranted, the court nonetheless turned to careful consideration of the Enrenhaus factors to determine the most appropriate sanction.  Those factors are:  “(1) [T]he degree of actual prejudice to the defendant; (2) the amount of interference with the judicial process; … (3) the culpability of the litigant"; (4) whether the court warned the party in advance that dismissal of the action would be a likely sanction for noncompliance; and (5) the efficacy of lesser sanctions.”  Following a brief discussion of each factor, the court concluded that “extreme sanctions are warranted in this case where discovery abuses of a serious magnitude involving bad faith and willful disregard of two direct court orders occurred.”  Accordingly, the court recommended that defendant’s answer be stricken, its counterclaims dismissed, and that judgment by default be entered for the plaintiff.  The court also concluded that monetary sanctions were appropriate and that the matter should be referred to US Attorney’s Office for investigation and criminal prosecution.

On February 16, 2011, the District Court adopted the recommendations of the magistrate.