Finding Question of Duty to Preserve Backup Tapes Hinges on Applicability of Exception to the Rule, Court Orders Hearing to Address the Issue

Forest Labs., Inc. v. Caraco Pharm. Labs., Ltd., 2009 WL 998402 (E.D. Mich. Apr. 14, 2009)

In this case, defendants filed a motion seeking a hearing to address plaintiffs’ suspected spoliation of evidence, for an order forbidding plaintiffs from asserting that their drug, escitalopram, did produce unexpected results, and for plaintiffs to pay attorney fees.  Defendants’ motion alleged plaintiffs had destroyed or rendered unsearchable “key electronic records” tending to show that the drug did not produce unexpected results.  Plaintiffs denied the allegation arguing they had preserved all emails on their active file server and had continued their standard operating procedures in good faith.  Finding that inaccessible information stored on plaintiffs’ disaster recovery back up tapes had been destroyed after the duty to preserve arose, the court held that a hearing was necessary to determine whether that information was subject to an exception that would have required the tapes to be preserved.

In its analysis of defendants’ allegations of spoliation, the court first articulated that:

a party seeking an adverse inference instruction based on the destruction of evidence must establish (1) that the party having control over the evidence had an obligation to preserve it at the time it was destroyed; (2) that the records were destroyed "with a culpable state of mind"; and (3) that the destroyed evidence was "relevant" to the party’s claim or defense such that a reasonable trier of fact could find that it would support that claim or defense.

Turning first to the duty to preserve, the court established that the relevant duty to preserve arose in August of 2003.  Plaintiffs conceded that they did not halt the recycling of backup tapes until May of 2005.  Thus, the more substantive issue became whether the duty to preserve extended to information contained on those backup tapes.  Accordingly, the court identified the necessary considerations in addressing that question:

As articulated by the Zubulake court,

[t]he scope of a party’s preservation obligation can be described as follows:  Once a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a "litigation hold" to ensure the preservation of relevant documents. As a general rule, that litigation hold does not apply to inaccessible backup 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. On the other hand, if backup tapes are accessible (i.e., actively used for information retrieval), then such tapes would likely be subject to the litigation hold.

Plaintiffs argued the backup tapes were maintained solely for the purpose of disaster recovery and were not subject to the duty to preserve. Testimonial evidence was offered in support of this position. Defendants offered nothing to rebut plaintiffs’ position and the court found the backup tapes were inaccessible. However, the inquiry did not end there.

As established in Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 216 (S.D.N.Y. 2003), there is one exception to the rule that there is no duty to preserve inaccessible backup tapes:

If a company can identify where particular employee documents are stored on backup tapes, then the tapes storing the documents of "key players" to the existing or threatened litigation should be preserved if the information contained on those tapes is not otherwise available. This exception applies to all backup tapes.

Declining to issue a ruling on the applicability of the exception in the present case, the court indicated its intent to permit the parties to address the issue at an upcoming hearing.

As to the issue of culpability, the court recognized the three “possible states of mind that satisfy the [culpability] requirements” to receive an adverse inference: bad faith, gross negligence, and ordinary negligence. Acknowledging the relationship of culpability to the burden of establishing relevance, the court noted, “‘the more culpable state of mind [bad faith or intentional misconduct] lessen[s] the burden of showing relevance.” However, the court indicated its unwillingness to address the issue of culpability until defendants demonstrated at hearing that plaintiffs’ duty to preserve extended to the backup tapes in question.

Having declined additional consideration of the issues until the establishment of a duty to preserve, the court nonetheless briefly addressed defendants’ burden of showing the relevance of the spoliated information in order to prevail on its motion. Indicating that defendants must show “some evidence suggesting that a document or documents relevant to substantiating [their] claim would have been included among the destroyed files,” the court also cautioned against “‘too high a standard of proof regarding the likely contents of the destroyed [or unavailable] evidence,’ because doing so ‘would subvert the… purposes of the adverse inference, and would allow parties who have destroyed evidence to profit from that destruction.’” (Citations omitted.)

Accordingly, an order was entered scheduling a hearing to address the issue of “whether the Zubulake exception applies and if so, whether Plaintiffs acted with a culpable stated of mind and whether the spoliated evidence is relevant.”