Dong Ah Tire & Rubber Co. v. Glasforms, Inc. v. CTG Int’l (North America) Inc, Case No. 06-3359 (N.D. Cal. Sept. 19, 2008)
This case arose out of alleged defects in fiberglass reinforced high voltage insulator rods. CTG, the US distributor for Taishan Fiberglass, Inc., supplied Glasforms with fiberglass, which Glasforms used to manufacture insulation products. The instant motion for spoliation sanctions came after a three-day Rule 30(b)(6) deposition of Taishan’s manager of quality assurance, Zhang Guo, who was unable to provide meaningful testimony on a variety of topics. On August 25, Magistrate Judge Richard Seeburg ordered Taishan to produce a fully prepared witness, to conduct a diligent search and reasonable inquiry into Glasforms' requests for production, and to produce all internal email regarding the subject matter of the case, communications between Taishan and CTG, relevant documents Taishan identified but did not produce, and documents for which the deponent admitted no search had been undertaken. In this opinion, Judge Seeburg responds to Glasforms motion for sanctions relating to the same discovery defects.
The timeline is important here:
- In the latter half of 2004, Zhang learned of Glasforms' complaints about the fiberglass problems from Zhicun Li (“Calvin Li”), CTG's CEO in North America.
- In October 2004, Zhang learned that Glasforms was experiencing arcing and fires in its production line that occur when there is metal contamination.
- Near the end of 2004, Glasforms sent rod samples to Taishan, which were tested.
- In December 2004, Glasforms terminated all fiberglass orders.
- At the end of February 2005, Zhang and an engineer prepared a seventeen point report on the results of an investigation of Taishan's assembly line in response to Glasforms' contamination complaints. The report suggested the probability of contamination from certain sources, including graphite powder, which was ranked as a high probability.
- On September 6, 2005, CTG stated in a letter that the report and CTG's own technical findings confirmed an isolated case of graphite contamination.
- In 2006, Taishan received notice it was being sued and instructed its employees to preserve relevant documents. Glasforms instituted this action on January 12, 2006.
Two factors are relevant to Taishan’s document retention. It had a document retention policy and it is an ISO compliant company, which means it is required to keep records for a reasonable amount of time so that the company can trace root causes of problems when they occur, even if several years have passed. Nonetheless, Taishan apparently lost a number of key pieces of evidence:
- Tunnel oven in/out records for the second half of 2004, which are to be maintained for two years under Taishan’s policy, are missing.
- The graphite rollers and gathering shoes which experienced smoking and fires, which Taishan had received for testing, were destroyed.
- Taishan’s shift change records and equipment repair and maintenance logs from 2004 were destroyed.
- Faxes sent by Zhang to CTG regarding Taishan's seventeen point report identifying possible contamination sources appear to have been lost.
- Miscellaneous relevant documents and items were destroyed.
The court noted that a party seeking an adverse inference instruction must establish that: (1) the party having control over the evidence had an obligation to preserve it; (2) the records were destroyed with a culpable state of mind; and (3) the destroyed evidence was relevant to the party's claim or defense. The second prong, the mental culpability factor, is satisfied where the party acted knowingly or negligently.
Not surprisingly, the court was troubled by the events surrounding the missing evidence. It also felt, however, that the record was inadequate to ascertain who knew what when, in terms of anticipating litigation:
[I]t can safely be said that Glasforms terminated all orders of CTG glass in December 2004. It is also apparent that Taishan knew it might have problems with its product when it made its seventeen point report in 2005 as suggested on September 6, 2005, by Calvin Li, CTG's CEO, when he stated in a letter that: “Your report and our technical findings does confirm an isolated case of graphite contamination.” Pfaff Decl., Ex. G. This date could signal “probable litigation.” Upon receipt of this letter, Glasforms would not be expected to send immediately a threatening letter indicating a lawsuit was imminent when first being apprised of the possible source of the problem. At the same time, the party making such a claim arguably should know a dispute is looming.
Slip Opinion at 7.
The court was particularly troubled by the discrepancy between Taishan’s retention obligations pursuant to its policy and what was preserved here. Finally, the court was unable to discern the parameters of what was actually lost.
Accordingly, the court wanted more information and posed eight specific questions it wants addressed by the parties:
- Why was the document destruction policy not followed?
- Who was responsible for not following the document destruction policy?
- When were the items identified above destroyed, and when were they supposed to be destroyed under the document destruction policy?
- When did Taishan and CTG select their counsel for events relating to this litigation?
- What further facts and dates can be added to the general timeline noted above based on evidence submitted after this Court's August 25, 2008 Order? Such evidence would come from, but is not limited to, documents that were found, lost/destroyed documents that were found, and the new Rule 30(b)(6) deposition(s).
- Explain why should the letter from Calvin Li, in which he admitted graphite contamination, should/should not be the date of “anticipated litigation” for purposes of determining sanctions.
- Explain why the seventeen point report should/should not be the date of “anticipated litigation” for purposes of determining sanctions.
- How does the destroyed/lost evidence relate to the party's respective claim or defense?
The court requested additional briefing on (1) what was destroyed; (2) when it was destroyed; and (3) when Taishan could have reasonably anticipated litigation, as well as the eight questions.