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Didn’t We Learn Something From Enron?

Ever since the Enron destruction of documents debacle, one would think that corporate executives would realize that destroying evidence probably isn’t the greatest idea.  Nonetheless, they seem to keep on shredding and pressing delete as if there were no tomorrow.

In Smith v. Slifer, one of the defendant entity’s executives, after being served with notice of the lawsuit,  allegedly took it upon himself to download and use a program called Anti Tracks in order to wipe clean his home personal computer of allegedly damaging evididence.  I emphasize the word “allegedly” because the Anti Tracks program was apparently pretty effective, rendering it impossible for plaintiff’s experts to garner any concrete evidence that relevant evidence was in fact destroyed (although they were easily able to establish that several documents were deleted).

The court (citing Cache La Poudre Feeds, LLC v. Land O’Lakes, Inc., 244 F.R.D. 614 (D.Colo.2007)) set forth the pertinent rules of law as follows:

  1. Putative litigants have a duty to preserve documents that may be relevant to pending or imminent litigation;
  2. Spoliation means the destruction or significant alteration of evidence, or the failure to preserve property for another’s use as evidence in pending or reasonably foreseeable litigation;
  3. A party may be sanctioned for spoliation by way of default judgment or adverse inference instruction.

The court noted that there was no “smoking gun” establishing who caused the loss of data, but nonetheless found that plaintiff’s established, at least by a preponderance, that defendants destroyed evidence in bad faith after the duty to preserve the evidence had arisen.  The court based its finding primarily upon the “highly-suspect timing” of the usage of Anti Tracks.

Based on its finding of bad faith spoliation, the court granted plaintiff’s request for an adverse inference instruction.

So, to reiterate the lesson that should have been learned from Enron and countless subsequent cases involving the destruction of evidence: once there’s a possibility that you’ll be sued, don’t shred or delete.

MWS is a third-year law student at Seton Hall University in Newark, New Jersey.

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Comments (10):

  1. ‘The court based its finding primarily upon the “highly-suspect timing” of the usage of Anti Tracks.’
    So, if the executives in question used Anti Tracks on a regular basis, say monthly – as part of a computer security routine, there might have been a different outcome…

    • @uk visa lawyer,
      Absolutely. A litigation hold should be issued on all electronically stored information the moment litigation is deemed imminent. You should also see this article (http://ellblog.com/?p=824) for an even more aptly named bit of software, “Evidence Eliminator.”

      The point you make, and what the court is suggesting, is the same we have seen in other cases: Make all reasonable efforts to preserve relevant data for pending or reasonably anticipated litigation, and if you can’t, be prepared to explain why. This includes having a data management protocol in place for managing the routine maintenance and deletion of data.

      Read our article on Peskoff v. Faber for another take on this: http://ellblog.com/?p=513
      Or watch the video eLesson, here: http://ellblog.com/?p=1229

      Thanks for your comment!

    • @uk visa lawyer,
      Unbelievable that something like that could happen post Enron.

  2. [...] 5. Didn’t We Learn Something From Enron?  http://ellblog.com/?p=1804 [...]

  3. This story of the Enron scandal is told from the standpoint of new employee Brian Cruver (it is never made clear whether he was a real person, but it doesn’t really matter). Cruver learns quickly what is expected of Enron employees and how they can get rich. What he isn’t told is that the people getting rich are doing it by falsifying numbers and making everything look good with future projected earnings as I like it and it is useful .

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    Adam Smith

    Find Attorney

  4. I believe there is a distinct difference between not making a reasonable effort to preserve relevant data, and destroying data in the manner in which the defendant did here (allegedly). The court wasn’t fooled by the defendant’s actions, but without the necessary evidence, the adverse inference instruction seems to be the appropriate solution. This is another example of how far executives will go in an attempt to cover their mistakes.

    • @Al Cooley,

      The timing here is what sets this case apart. There may be legitimate reasons to use something like the Anti Tracks program, but it’s hard to justify using it when you’re in anticipation of litigation. You’re giving the judge little choice but to impose an adverse inference instruction.

  5. In addition to default judgment, I believe monetary sanctions should be imposed on those who intentionally or negligently destroy evidence. An adverse inference is not enough to deter executives from destroying particularly damning evidence. Supposing the evidence is of the smoking gun variety, why wouldn’t an executive destroy it? When the only consequence to destroying strong evidence is an adverse inference, the executive is better off destroying the evidence and attempting to overcome the inference.

  6. A case like this makes one wonder how far a party would have to go to warrant a default judgment. Is there a good example of a case where a court found the circumstances sufficient to overcome a desire to try a case on its merits (whatever merits remain after the shredder shuts down)?

  7. I agree with the above comments. When someone actively destroys data, with a program whose only purpose is to destroy the data, it seems like an adverse inference is not a harsh enough punishment. While the adverse instruction was what the plaintiff requested, I think the person who destroyed evidence got off easy.

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