Spoliation by Failing to Make Payments to Third Party Storing Electronically-Stored Information, Resulting in Deletion

From Cyntegra, Inc. v. Idexx Laboratories, Inc., 2007 U.S. Dist. LEXIS 97417 (C.D. Cal. Sept. 21, 2007):

Defendant asserts that Plaintiffs failure to preserve business documents constituted spoliation and make sanctions appropriate. Although the documents were stored on NetNation's outsourced servers, they were deleted due to Plaintiff's failure to make payments after March 7, 2006. ***

Unlike defendants, plaintiffs may be imputed notice of the duty to preserve potentially relevant evidence prior to the filing of the complaint. Plaintiffs are "in control of when the litigation is to be commenced" and must necessarily anticipate litigation before the complaint is filed. ***

***Plaintiff claims that the destroyed information was not within its control. Plaintiff claims that NetNation deleted the files, and that it "did not even know the erasure had occurred, until after this suit was filed." *** Nonetheless, courts have extended the affirmative duty to preserve evidence to instances when that evidence is not directly within the party's custody or control so long as the party has access to, or indirect control over, such evidence. See, e.g., King v. American Power Conversion Corp., 181 Fed. Appx. 373, 378 (4th Cir. 2006); Silvestri, 271 F.3d at 591; World Courier v. Barone, C06-3072 TEH, 2007 U.S. Dist. LEXIS 31714 at *2-3 (N.D. Cal. filed April 16, 2007). In Columbia Pictures Indus. v. Bunnell, CV 06-1093 FMC (JCx), 2007 U.S. Dist. LEXIS 46364 at *25 (C.D. Cal. May 29, 2007), the court found that even though a party's electronic information was "temporarily stored" by another party, it retained "control" since it had "the ability to manipulate at will how the [information was] routed." See also United States v. Int'l Union of Petroleum and Indus. Workers, AFL-CIO, 870 F.2d 1450, 1452 (9th Cir. 1989) (defining control as "the legal right to obtain documents upon demand"). Similarly, Plaintiff had sufficient control and legal right over the deleted files to constitute fault. Plaintiff contracted to store business documents on NetNation's computer servers. At least until March 7, 2006, when payment was discontinued, Plaintiff could direct the flow of information to and from NetNation's servers. Because Plaintiff could have anticipated the possibility of litigation by this time, it had an affirmative duty to make payments and preserve the evidence. Plaintiff cannot bypass this duty by abandoning its documents to a third-party and claiming lack of control. Plaintiff could have saved or printed the information after determining it could no longer make payments. Moreover, Plaintiff has made no showing that the costs to save the information was prohibitive or that it lacked funds to rescue the information. A contractual relationship with a third-party entity provides, at a minimum, an obligation to make reasonable inquiry of the third party entity for the data at issue. Columbia Pictures, 2007 U.S. Dist. LEXIS 46364 at *3 n. 1; A. Farber and Partners, Inc. v. Garber, 234 F.R.D. 186, 189 (C.D. Cal. 2006).

Sanction of adverse inference imposed.

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