Lender, David J., Bonk, Jason B.
(June 27, 2011, eDiscoverings)
In a rare instance of a Federal appellate court addressing the duty to preserve, the United States Court of Appeals for the Federal Circuit recently issued two opinions reconciling inconsistent spoliation decisions reached by the District of Delaware and the Northern District of California.
See Micron Tech., Inc. v. Rambus Inc., 2011 WL 1815975 (Fed. Cir. May 13, 2011);
Hynix Semiconductor Inc. v. Rambus Inc., 2011 WL 1815978 (Fed. Cir. May 13, 2011).
The facts of both cases revealed that Rambus had instituted a document retention policy as an important component of its litigation strategy against potential infringers of its patents. Pursuant to its newly imposed document retention policy, Rambus held several “shred days” and destroyed significant numbers of documents and backup tapes.
Micron, 2011 WL 1815975, at *3-4. The Delaware court held that Rambus had committed intentional spoliation and declared several of its patents unenforceable against Micron. However, the California court, faced with the same facts, concluded that Rambus destroyed documents before the duty to preserve had triggered, such that no spoliation had occurred.
The Federal Circuit affirmed the Delaware’s court’s spoliation findings (although it reversed and remanded as to the remedy) and reversed the California court’s decision, remanding for reconsideration of the spoliation issue. In doing so, the Federal Circuit clarified that the determination of whether litigation is reasonably foreseeable and thus triggers a duty to preserve is an “objective standard, asking not whether the party in fact reasonably foresaw litigation, but whether a reasonable party in the same factual circumstances would have reasonably foreseen litigation.”
Micron, 2011 WL 1815975, at *6. The Federal Circuit stressed that the reasonably foreseeable test is “a flexible fact-specific standard,” and does not trigger the duty to preserve when litigation is merely possible or “from the mere existence of a potential claim.”
Id.
The California court had relied on the presence of several contingencies that allegedly needed to be cleared before litigation could be commenced – such as, reverse engineering product samples, creating claim charts and obtaining approval for litigation from Rambus’s Board – in finding that litigation was not yet imminent when Rambus destroyed the documents at issue.
Hynix, 2011 WL 1815978, at *6. The Federal Circuit expressly rejected the standard that litigation be “imminent, or probable without significant contingencies” urged by Rambus, and which had arguably been relied upon by the California court.
Id. As the Federal Circuit stated, it “declines to sully the flexible reasonably foreseeable standard with the restrictive gloss proposed by Rambus . . . .”
Id.;
see also Hynix, 2011 WL 1815978, at *7 (“It would be inequitable to allow a party to destroy documents it expects will be relevant in an expected future litigation, solely because contingencies exist, where the party destroying documents fully expects those contingencies to be resolved.”).
The Federal Circuit further clarified the standard for appellate review of spoliation decisions, holding that a district court’s factual findings, such as the date upon which litigation became reasonably foreseeable, should appropriately be reviewed for “clear error” and deference should be afforded to the district court’s determination. A district court’s application of sanctions is reviewed for an abuse of discretion.
The Federal Circuit also held that terminating sanctions should only be imposed in extreme cases, requiring “clear and convincing evidence” of bad-faith spoliation and advantage-seeking behavior, along with prejudice to the opposing party.
Micron, 2011 WL 1815975, at *15. The Federal Circuit defined bad faith as the intent to impair the ability of a potential defendant to present its case.
The Federal Circuit’s decision is noteworthy because it reinforces the standard of “reasonable probability” to trigger the duty to preserve, and makes clear that the duty applies equally to plaintiffs and defendants. In addition, the Federal Circuit held that it is a flexible, fact-based test, meaning that courts will continue to review the reasonableness of preservation decisions made by potential litigants with 20:20 hindsight.
Id. Therefore, it is important to document decisions on whether to issue a litigation hold and to document any such issuance of a litigation hold in order to substantiate a defense in the event those decisions are challenged before the court. Finally, the Federal Circuit’s decision suggests that appellate review of spoliation decisions will be difficult to overturn, other than perhaps the sanction itself, given the highly deferential standard of review. Indeed, it is noteworthy that, under the deferential standard of review, the dissent would have affirmed both the Delaware and California decisions, even though the courts reached opposite conclusions based on the same facts.
Please contact David Lender at (212) 310-8153 or or Jason Bonk at (212) 310-8027 or if you would like to discuss this case or any other electronic discovery issues.