The Delaware Supreme Court has ruled that a lower court properly imposed $3.95 million in sanctions against a party who effectively removed documents from his work computer while under a preservation order. Genger v. TR Investors, LLC, No. 592, 2010 (Del., decided July 18, 2011). The issue arose in a dispute over who held a controlling interest in a corporation.
After the parties stipulated that the Trump Group held the controlling interest, the group sought to reopen the proceedings when it discovered that certain documents that should have been located on the defendant’s computer were not there in violation of a preservation order imposed by the Court of Chancery. Evidence showed that the defendant deleted the computer files and then directed an employee to use special software that “wiped” the unallocated free space on his computer’s hard drive and a company server. This action “made it impossible, even by use of computer forensic techniques, to recover any deleted files that were stored in those computers’ unallocated free space.” Among other matters, including imposing a heavier burden of proof on the defendant as to remaining issues in the case, the court awarded the Trump Group $750,000 in fees incurred to investigate and litigate the spoliation claims. The parties later apparently agreed that the defendant would pay an additional fee of $3.2 million to the group for all of the related, unreimbursed spoliation expenses.
The defendant argued that the preservation order did not expressly require that he preserve unallocated free space on his computer’s hard drive and thus that the trial court erred by adjudicating him in contempt. He also argued that requiring the preservation of a computer’s unallocated free space “whenever a document-retention policy is in place, would impossibly burden a company-litigant by effectively requiring the company to refrain from using its computers entirely.” According to the supreme court, the contempt findings were based on specific, narrow factual grounds, that is, the defendant “despite knowing he had a duty to preserve documents, intentionally took affirmative actions to destroy several relevant documents on his work computer.” These actions prevented the Trump Group from recovering the deleted documents, and their absence prejudiced the group.
The court carefully limited its ruling so as not to entirely preclude the use of “wiping” programs in all cases particularly when that use falls within ordinary routine data retention and deletion procedures. The court also suggested that, in future cases, “the parties and the trial court address any unallocated free space question that might arise before a document retention and preservation order is put in place.” The court further ruled that the additional $3.2 million in sanctions imposed was not unreasonable because the defendant waived his right to challenge it on that basis and because the figure was not arbitrarily determined and thus did not constitute plain error.