Lack of Formal Retention Policy Led to Sanctionable Loss of Data, Court Holds

January 1, 0001


Document retention policies have recently received much attention as organizations grapple with their readiness for electronic discovery. The U.S. District Court for the District of Utah recently provided yet another reason for companies to consider adopting or improving on these policies and procedures. Philip M. Adams & Assocs., LLC v. Dell, Inc. et al.[1] Rejecting as unreasonable a defendant’s reliance on individual employees to retain data, the court found that the “lack of a retention policy and irresponsible data retention practices” resulted in the destruction of relevant evidence, violating the company’s duty to preserve.[2]

In Adams, the plaintiff-scientist alleged that several computer companies infringed his patented technology for detecting floppy disk controller (FDC) defects. In particular, Adams claimed that defendant ASUS Computer International (ASUS) used his software programs to conduct tests for FDC defects and to reverse engineer its own software. When ASUS failed to produce source code and other documents relating to such tests and engineering—despite evidence from other parties suggesting that the tests and engineering may have occurred— Adams alleged that ASUS spoliated this evidence, moving for terminating sanctions.

In response to Adams’ motion, ASUS claimed that since receiving a letter from Adams’ counsel threatening suit, it had preserved all relevant evidence and that any preceding destruction had occurred pursuant to its ordinary retention practices. Those practices included: (1) instructing individual employees to save locally any emails considered important or necessary for business operations or legal obligations, while automatically overwriting all other emails; and (2) periodically replacing employees’ existing computers, advising them at that time to download to their new computers any necessary or important documents or emails.[3]

The court found first that ASUS’s duty to preserve arose many years prior to its receipt of Adams’ letter, when various other computer manufacturers were sued for the same FDC defects.[4] Finding that “[t]hroughout this entire time, computer and component manufacturers were sensitized to the issue,” the court held that for at least the preceding five years, ASUS “should have been preserving evidence related to [FDC] errors.”[5]

Examining ASUS’s culpability for the destruction, the court found that the company’s lack of an information management policy “operate[d] to deny Adams access to evidence.”[6] Finding the absence of a document retention policy relevant to ASUS’s liability, the court observed that, “[i]nformation management policies are not a dark or novel art. Numerous authoritative organizations have long promulgated policy guidelines for document retention and destruction.”[7] ASUS’s failure to implement such a policy caused it to rely unreasonably upon employees’ individual determinations about what information to preserve and what information to destroy.[8]

The court rejected ASUS’s reliance on Federal Rule of Civil Procedure 37(e), which precludes sanctions for loss of data due to the “routine, good-faith operation of an electronic information system.”[9] First, the court noted, non-electronic evidence, as well as electronic evidence, appeared to have been destroyed. Second, the court found that the lack of “any sort of backup system or data backup policy, past or present,” coupled with the company’s reliance upon the “mercy of individual employees’ backup practices”, precluded the finding of good faith required for this defense.[10] The court ordered further briefing to determine the extent of prejudice and the appropriate sanctions.

Adams demonstrates the importance of addressing document retention rationally, systematically, and prior to the threat of any particular litigation. In this way organizations will be best-positioned to rely on reasonable policies and practices when defending subsequent preservation disputes.

[1] No. 1:05-CV-64, 2009 WL 910801 (D. Ut. Mar. 30, 2009).
[2] Id. at *15.
[3] Id. at *6.
[4] Id. at *12-14.
[5] Id. at *13.
[6] Id. at *15.
[7] Id.
[8] Id.
[9] Fed. R. Civ. P. 37(e).
[10] 2009 WL 910801, at *13.