In 2000, David Ronsen launched Orbit One Communications, Inc., a corporation that sold satellite communications services and manufactured tracking devices reliant on satellite technology. In 2006, Numerex Corp., another satellite communications company, initiated negotiations to acquire Orbit One. These negotiations resulted in a 2007 agreement for Numerex to acquire Orbit One’s outstanding assets. Numerex asked the three executives that were also equity owners in Orbit One, (Ronsen, Scott Rosenzweig, and Gary Naden) to continue to run Orbit One as a division of Numerex, to the tune of over $6 million in “incentives,” meaning that if certain projected earnings targets were met, they would receive “earn out” payments.

But April Fools! Big bonuses did not come as promised.

Sales fell short and needless to say, the execs were less than pleased. In conjunction with shareholders, they brought a suit against Numerex for interfering with the new division’s ability to meet the earnings targets by impeding Ronsen’s management of the division. Numerex counterclaimed. During the course of discovery, it was brought to light that when Ronsen’s laptop hard drive was replaced, Microsoft Word files had been lost. Over 2,000 files were found on the back-up drive that were no longer on the laptop.

The court adopted West’s definition of spoliation, stating it is “’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.’” Based on this definition alone, the loss of computer files would likely constitute spoliation. The court also states that a party can not only be sanctioned for violating a preservation order directly, but also be liable for sanctions if it cannot produce requested evidence because the evidence has been destroyed.

However, the court noted that when a party wants an adverse inference instruction based on spoliation, it has to establish the following:

1. That the party having control over the evidence had an obligation to preserve it at the time it was destroyed;
2. That the records were destroyed “with a culpable state of mind”; and
3. That the destroyed evidence was “relevant” to the party’s claim or defense such that a reasonable trier of fact could find that it would support that claim or defense.”

This is where things get dicey; destroyed evidence that cannot be produced must be shown to be “relevant” to the requesting party’s claim in order for an adverse inference instruction to be granted. This makes spoliation the chicken-or-the-egg dilemma of discovery sanctions. How can a party show evidence is relevant or not if they can’t get their hands on it? The court brought up the opposite argument, however, questioning how a party can be sanctioned for the purposeful or negligent destruction of evidence without a showing that the evidence was even “minimally relevant” to the case.

The court ultimately held that “‘[n]o matter how inadequate a party’s efforts at preservation may be… sanctions are not warranted unless there is proof that some information of significance has been lost.’”

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Comments (6):

1. Reply

   Michael Tucker said:
   May 2, 2011 at 12:11 AM

   I am still a bit flummoxed by the holding in this case. If the choice is between sanctions without proof of relevance or no sanctions without proof of relevance it would seem logical that the court should encourage proper preservation by issuing sanctions when the evidence that could show relevance is what has been destroyed. This standard is far to difficult to meet, and will likely cause unscrupulous parties to delete first and cross their fingers.
2. Reply

   maria cross said:
   August 12, 2011 at 3:25 AM

   Can not be agree with Michael Tucker any more!
3. Reply

   Mike Paragano said:
   April 6, 2011 at 8:22 AM

   I believe this decision creates some confusion. As you stated, this is a chicken-or-the-egg problem. How can a party show that significant information has been lost if they do not have the ability to figure out what information is significant? There may be a need for a more bright line rule. Essentially, this court seems to suggest that there is a heavy burden on the requesting party to show that the producing party has information that is relevant.

   While they should have SOME burden, it seems that this court wants them to carry the entire burden of figuring out what is significant. Proof is required and as stated before, it may be difficult to prove anything without access to that information in the first place.
4. Reply

   Bill Brennan said:
   April 7, 2011 at 7:38 AM

   Not a great outcome from a discovery perspective. Seems to me that a litigation hold, a discovery order and/or a production request ought be enough to get a spoliation Order. Afterall the destroyed information was being sought at the time it was destroyed, how much more culpable does the state of mind have to get?
5. Reply

   S.K.K. said:
   April 11, 2011 at 4:49 PM

   I agree with you (and Mike) that this is chicken-and-the-egg at its finest. Some of the spoliation rules have proved unworkable and need revision. Yes, it should be shown that there is a correlation to the case at bar in destroyed evidence but proof of relevancy might be placing the bar too high to overcome.
6. Reply

   Phil Ryan said:
   April 14, 2011 at 9:59 AM

   It seems to me that if this is the standard-a very high one-for a party seeking an inference then in almost incentivizes destruction of evidence. If the other party has to show BOTH culpability and relevance then why would someone worry too much about culpability if it is so hard for the other side to prove relevance?