Why it’s important for employees to preserve evidence.

Under What Circumstances Will a Judge Enter Default Judgment as a Sanction for Spoliation of Evidence?

Author: Caiti Derenze
Case Citation: Organik Kimya, et al. v. ITC, 843 F.3d 994 (U.S. App. 2017)
Employee/Personnel/Employer Implicated: Employees
eLesson Learned: Parties facing litigation need to give employees a litigation hold notice.
Tweet this: Destroying evidence can lead to a default judgment.

What does destroying a hard drive with a hammer, leaving a laptop in a rest-stop bathroom, and overwriting a computer’s hard drive all have in common? The answer is that these actions can lead to a default judgment as a sanction for spoliation of evidence.

In May 2013, Dow Chemical Plant filed a complaint that alleged Organik Kimya (“Petitioner”) infringed on Dow patents and misappropriated trade secrets. During the proceedings, Petitioner was obligated under a discovery order issued by an Administrative Law Judge (“ALJ”) to present an employee’s laptop to Dow’s forensic investigator. Instead, Petitioner overwrote the laptop’s files, backdated the computer’s internal clock to hide the fact that the overwriting took place after the discovery order was issued, and used a program to delete large portions of the laptop’s C and D drives.

Petitioner’s spoliation did not stop there. After Dow served Petitioner with its complaint, a former Dow employee who gained employment with Petitioner also destroyed evidence. Petitioner’s employee “removed the hard drive from his personal computer and smashed it with a hammer and threw it in the garbage” and destroyed a bag filled with zip drives to ensure that information could not be recovered. O

The last two occurrences of spoliation took place one day after the ALJ ordered one of Petitioner’s employee’s files to be preserved. First, someone logged into that employee’s computer and deleted 2,742 files and folders. Then, the same employee brought his computer bag, which contained his computer and storage devices, “into a bathroom of a highway rest stop, but ‘accidentally’ left [it] there.”

The ALJ found that Petitioner never gave its employees “a litigation hold notice, instead leaving it up to each individual employee whether to save or delete electronic files.” It further concluded that Petitioner acted in bad faith when overwriting the first employee’s laptop, the spoliated evidence contained on the laptop was relevant to Dow’s allegation of trade secret misappropriation and that its destruction was prejudicial to Dow’s ability to prosecute its case. As for the second employee who destroyed his hard drive with a hammer, the ALJ did not find sufficient evidence to prove that Petitioner was destroying data deliberately. Finally, for the third employee, the ALJ found that the deletion of the 2,742 files and folders “evinces an attempt to cover-up wrong doing.”  The ALJ was also shocked that this cover-up took place after the ALJ put Petitioner on notice of the massive spoliation of evidence on the first employee’s laptop.

Ultimately, Dow moved for sanctions, including a default judgment, against Petitioner. The ALJ granted Dow’s motion because Petitioner “deliberately destroyed evidence, and then actively attempted to deceive [the ALJ] as to what it had done.” Additionally, the ALJ concluded that it could give a lesser sanction to Petitioner because it would not deter other parties destruction of evidence.

On review, the Commission upheld ALJ’s finding of default, and it issued a 25-year limited exclusion order and cease and desist order. Petitioner argued that the ALJ failed to consider its proposed lesser sanctions. However, the Commission opined that the default judgment held Petitioner accountable and was the best method of deterrence. Then, the United States Court of Appeals for the Federal Circuit heard the case. Petitioner argued that the Commission erred under Micron Technology v. Rambus, 645 F.3d 1311 (Fed. Cir. 2011), asserting Dow was minimally prejudiced by the spoliation, and the Commission did not sufficiently address the proposed lesser sanctions. However, the Court held that Micron did not apply; instead, it evaluated the sanctions under Commission Rule 210.33(b) and Federal Rule 37(b). The Court noted that the two rules were “coextensive” and under the rules, a court can issue certain types of sanctions at its own discretion. Therefore, the Commission has the discretion to impose a default judgment sanction when a party disobeys a discovery order if that party’s conduct warrants that type of sanction. Furthermore, Commission’s and ALJ’s choice of sanctions is reviewable by the Court of Appeals. The Court can set aside a sanction decision “only if it is legally erroneous, arbitrary and capricious, or constitutes an abuse of discretion.”

Caiti Derenze graduated from the College of the Holy Cross located in Worcester, Massachusetts where she earned a B.A. in Political Science in 2013. Prior to attending Seton Hall University School of Law, Caiti taught 5th grade and Kindergarten as a Teach for America corps member in Miami, Florida. After graduating law school in May 2018, Caiti will serve as a clerk to a judge in the Appellate Division of New Jersey. 

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