Commercial Litigation and Arbitration

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.

Share this article:

Facebook
Twitter
LinkedIn
Email

Recent Posts

(1) Appellate Review of Inherent Power Sanctions (7th Circuit): Factual Findings Reviewed for Clear Error, Choice of Sanction for Abuse of Discretion — 4-Element Test for Reversal; (2) Sanctions and Class Actions: Monetary Sanctions Properly Imposed on Defendants for Improper Communications with Class Members (Represented Parties) — “[I]f The Class And The Class Opponent Are Involved In An Ongoing Business Relationship, Communications From The Class Opponent To The Class May Be Coercive” (Good Quote); (3) Monetary Sanctions under Goodyear v. Haeger: If Same Fact-Gathering Would Have Been Conducted Absent The Misconduct, No But-For Causation — But Only “Rough Justice” Required, “Not Accountant-Like Precision” (Good Quote) — Once Misconduct Is Clear, Time Spent Ferreting It Out Compensable under Goodyear; (4) Goodyear Did Not Overrule Long-Standing Rule That Courts May Impose Modest Civil Monetary Sanctions to Curb Litigation Abuse; (5) Appellate Jurisdiction Lacking Where Sanctioned Attorney Fails to File Notice of Appeal and Lawyer’s Intent to Appeal Not Apparent from Client’s Notice; (5) Rule 11 Improper Purpose — Party May Have Many Purposes for Pursuing Claim — As Long As Claim Is Supported by Good Faith Belief in the Merits, “A Parallel Reason Does Not Violate Rule 11” — To Deny A Motion for Sanctions, The District Court Need Not Address Every Argument: “Arguments Clearly Without Merit Can, And For The Sake Of Judicial Economy Should, Be Passed Over In Silence” (Good Quote); Non-Monetary Sanction on Counsel: Complete Twice The Required Amount Of Professional Responsibility Hours For Her Next Continuing Legal Education Cycle Imposed By The State Bar

Archives