A pair of decisions by the U.S. Court of Appeals for the Federal Circuit seeks to set an objective standard for when the duty to preserve evidence begins. Hynix Semiconductor Inc. v. Rambus Inc., decided May 13, 2011, reversed a district court’s decision that Rambus had not spoliated documents at a “shred day” held when litigation was a future possibility. Micron Technology, Inc. v. Rambus Inc., decided the same day, sustained a different district court’s decision that litigation was already reasonably foreseeable and that the same actions constituted spoliation.
Adopting the Fourth Circuit’s definition of spoliation as “the destruction or material alteration of evidence or the failure to preserve property for another’s use as evidence in pending or reasonably foreseeable litigation,” the Federal Circuit Court observed in both cases that the determination of when to preserve evidence “must balance the reality that ‘litigation is an ever-present possibility in American life’ … with the legitimate business interest of eliminating unnecessary documents and data.”
The district court in Hynix had concluded that litigation was not reasonably foreseeable before the “shred day” because it was not “imminent, or probable without significant contingencies.” The Federal Circuit, however, held that “imminent” is not part of the determination. “[T]he important inquiry is … whether the totality of the circumstances as of the date of document destruction made litigation reasonably foreseeable.” The Court observed that “[t]his 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.” Reversal of the district court’s Hynix decision was required because the resolution of the contingencies was itself reasonably foreseeable.
Although it sustained the district court’s Micron determination that litigation was reasonably foreseeable when Rambus destroyed documents, the Federal Circuit vacated and remanded the lower court’s order, based on findings of bad faith and prejudice, that the spoliation be sanctioned through dismissal of Rambus’s patent claims.
According to the Federal Circuit, the proper inquiry regarding bad faith is “whether Rambus ‘intended to impair the ability of the potential defendant to defend itself’ ... without regard to whether Rambus ‘should have known’ of the propriety of its document destruction.” A bad faith finding would be justified if the district court had determined that Rambus aimed to gain an advantage in litigation by controlling information and evidence. It would not be justified, however, if the court had found that Rambus implemented its document retention policy for legitimate business reasons, such as general housekeeping. The district court’s order was vacated because it had not fully explained its bad faith determination.
The question of prejudice was also remanded in Micron because the burden shifts depending on whether the spoliator acted in bad faith. The Federal Circuit held: “Prejudice to the opposing party requires a showing that the spoliation ‘materially affect[s] the substantial rights of the adverse party and is prejudicial to the presentation of his case.’”