Sixth Circuit Addresses Spoliation, Preservation of Back-up Tapes, Affirms Denial of Sanctions

Automated Solutions Corp. v. Paragon Data Sys., Inc., —F.3d—, 2014 WL 2869286 (6th Cir. June 25, 2014)

In this copyright infringement case, the Sixth Circuit considered plaintiff’s arguments that the district court abused its discretion by denying plaintiff’s motion for spoliation sanctions related to defendant’s failure to preserve the information on a relevant hard drive and a relevant server and that the magistrate judge (and district court) improperly concluded that defendant’s back-up tapes were not subject to the duty to preserve, pursuant to the analysis set forth in Zubulake v. UBS Warburg LLC, 220 F.R.D. 212 (S.D.N.Y. 2003).  As to all issues, the circuit court affirmed the holdings of the district court.

The facts and procedural posture of this case are somewhat complicated.  Broadly stated, however, the relevant facts are as follows.  The parties in this case entered into an agreement to develop a custom software system that would allow newspapers, and more specifically the Chicago Tribune, to track newspaper subscriptions through the use of a handheld device that communicated with a remote server.  After delivery of the system, the parties’ relationship “soured” and defendant terminated the agreement.  Plaintiff sued for a declaratory judgment and the state court eventually found in the plaintiff’s favor, declaring it the sole owner of the software system.

During the course of that litigation, defendant continued its efforts to use the at-issue system in accordance with its obligation to provide support to the Tribune.  In furtherance of that effort, Brent Anderson, an employee of the defendant, was provided with a “Sun Server.”  When he could not make the code work, Anderson was terminated.  When the state court ruled that defendant had no rights to the system, the server was discarded.

Approximately one month after Anderson’s termination, defendant began a new effort to develop a similar system for a different client.  Brian Atkin was the programmer assigned to the task, which was accomplished and delivered in less than one month.  Atkin asserted that he wrote the code from scratch, “primarily in [his] head.”

Plaintiff sued, claiming the second system infringed on the first.  Because defendant did not produce documentary evidence of its development of the allegedly infringing system, defendant was ordered to submit to a forensic investigation of its computer systems.  Based on the results, plaintiff moved for sanctions. Among the issues before the magistrate judge were defendant’s disposal of the “Sun Server,” the loss of information on Anderson’s and Atkin’s hard drives, and the question of whether defendant’s back-up tapes were subject to the duty to preserve.  The magistrate judge found that defendant was “at most negligent” in its failure to preserve and recommended consideration of an adverse inference only for the loss of Atkin’s information, to be imposed at trial and not at the summary judgment stage.  No sanctions were recommended for the loss of the “Sun Server” or the information on Anderson’s laptop and the magistrate judge concluded that the back-up tapes were not subject to preservation.  The magistrate judge also recommended granting partial summary judgment in favor of the defendant.  The district court adopted the recommendations in part and dismissed plaintiff’s claims.  Thus, the court concluded that the sanctions were moot.  Plaintiff appealed.

Taking up the appeal, the circuit court addressed plaintiff’s assertions that the district court abused its discretion by denying sanctions against the defendant.  Regarding the “Sun Server” and Anderson’s hard drive, the magistrate judge and district court found that although the failure to preserve was negligent, the plaintiff had not shown that the devices contained evidence relevant to the litigation.  As the circuit court noted, “relevant” in the context of an adverse inference means “something more” than is required to satisfy ER 401, rather, “the party seeking an adverse inference must adduce sufficient evidence from which a reasonable trier of fact could infer that the destroyed [or unavailable] evidence would have been of the nature alleged by the party affected by its destruction.”  Reasoning that the plaintiff had provided no evidence that Anderson or the server he worked on were ever involved in the development of the allegedly infringing software and that whether the defendant was negligent in its failure to preserve did not “advance” a necessary showing of relevance, the circuit court found that the district court did not clearly err in its conclusion that a reasonable trier of fact could not find that the missing information would support plaintiff’s claim.

Turning to the question of the back-up tapes, the circuit court concluded that the district court did not abuse its discretion in adopting the magistrate judge’s recommendation that the back-up tapes were not subject to the duty to preserve, pursuant to the analysis laid forth in Zubulake v. UBS Warburg LLC, 220 F.R.D. 212 (S.D.N.Y. 2003).  Briefly, the Zubulake court instructed that a “litigation hold does not apply to inaccessible back-up tapes (e.g., those typically maintained solely for the purpose of disaster recovery), which may continue to be recycled on the schedule set forth in the company’s policy.”  In the present case, the magistrate judge reasoned that because “the only evidence in the record suggested that the back-up tapes were rewritten daily and used only for disaster recovery, they were not subject to [defendant’s] duty to preserve.”

Addressing plaintiff’s assertion that the lower courts were wrong to find defendant’s conduct merely negligent, rather than willful or grossly negligent (which would have allowed a presumption of relevance) the circuit court reiterated the “case-by-case” approach of the Sixth circuit and declined to find an abuse of discretion.