Contractual Spoliation

A contractual duty to preserve data may suffice to trigger spoliation sanctions if the data are destroyed in violation of the contract -- at least if another party to the contract is pursuing the claim. The Asset Purchase Agreement in In re: Quintus Corp. (Avaya, Inc. v. Gwynne), 2007 U.S. Dist. LEXIS 87628 (D. Del. Nov. 29, 2007), required the purchaser to retain copies of the seller’s files and business records for seven years after the Closing Date. However, several months after the Closing Date, an unknown employee of the purchaser deleted the electronic version of the books and records when reformatting a computer server. The bankruptcy court considered this to have been done “deliberately ... in order to give itself more computer space.” Thereafter, the bankruptcy trustee of the seller sued the purchaser for failing to pay certain liabilities under the contract, and the deleted documents were relevant to the dispute. District Judge Sue L. Robinson affirmed the bankruptcy court’s entry of judgment against the purchaser as a sanction for spoliation. She reversed and remanded the entry of judgment in favor of the creditors whose claims were at issue in light of “the prospect of a windfall for certain creditors, i.e., those whose proofs of claim may not be tested against what records do exist or against a common sense approach to the claims process.” Remanded “for clarification of this issue.” Query whether a typical no-third-party beneficiary clause would be sufficient to prevent such an inference if the claim were brought directly by a third party (such as the creditors in this case). If the duty arises as a matter of law, the fact that the contract adds no additional duty may be irrelevant.

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