Patents May Be Held Unenforceable as Spoliation Sanction — -Subjective Bad Faith for Inherent Power (Not “Should Have Known”) — Crime-Fraud Exception to Attorney-Client Privilege Due to Spoliation (= Obstruction)

From Micron Tech., Inc. v. Rambus Inc., 2011 U.S. App. LEXIS 9730 (Fed. Cir. May 13, 2011):

Rambus Inc. ("Rambus") appeals the decision of the United States District Court for the District of Delaware holding that the twelve Rambus patents asserted against Micron Technology, Inc., Micron Electronics, Inc., and Micron Semiconductor Products, Inc. (collectively, "Micron") are unenforceable due to Rambus's spoliation of documents. Micron Tech., Inc. v. Rambus Inc., 255 F.R.D. 135 (D.Del. 2009) ("Decision"). Rambus also appeals the district court's order piercing Rambus's attorney-client privilege on the basis of the crime-fraud exception, Micron Tech, Inc. v. Rambus Inc., No. 00-792 (D. Del. Feb. 10, 2006) ("Privilege")***.

In 1997, Rambus hired Joel Karp as its vice-president in charge of intellectual property, and on January 7, 1998, Karp was directed by Rambus's CEO Tate to develop a strategy for licensing and litigation. ***

In August or September 1998, Rambus hired outside counsel to perform licensing and patent prosecution work as well as to begin preparing for litigation against SDRAM [synchronous dynamic random access memory] manufacturers. In October 1998, Karp advised Rambus executives that he was planning to assert Rambus's patents against SDRAM manufacturers in the first quarter of 2000, explaining that there were good business reasons for the delay in bringing suit, particularly Rambus's interest in getting licensing revenues from RDRAM [Rambus DRAM] manufacturers, who would be the same parties it would seek to license for the production of SDRAM. ***

Thereafter, in 1998, Rambus also began implementing the portion of Karp's litigation strategy that required the institution of a document-retention policy. In the second quarter of 1998, Rambus established "Top Level Goals" for "IP Litigation Activity." These goals included "[p]ropos[ing] [a] policy for document retention." In the third quarter of 1998, Rambus established "Key Goals" for "IP Litigation Activity." These goals included "[i]mplement[ing] [a] document retention action plan." On July 22, 1998, Karp presented the finished document retention policy to Rambus employees. The slides used for this presentation were titled "BEFORE LITIGATION: A Document Retention/Destruction Policy." The policy explicitly stated that destruction of relevant and discoverable evidence did not need to stop until the commencement of litigation. Despite the policy's stated goal of destroying all documents once they were old enough, Karp instructed employees to look for helpful documents to keep, including documents that would "help establish conception and prove that [Rambus had] IP."

The document destruction policy extended to the destruction of backups of Rambus's internal email. ***

In addition to destroying the email backup tapes, Rambus began destroying paper documents in accordance with its newly-adopted document-retention policy.***

In June 1999, the first patent in suit issued. On June 24, 1999, Karp was instructed by the Rambus CEO to "hammer out . . . our strategy for the battle with the first target that we will launch in October [1999]." In June 27, 1999, Rambus established its "IP 3Q '99 Goals," including goals for "Licensing/Litigation Readiness." These goals included "[p]repar[ing] litigation strategy against 1 of the 3 manufacturers," being "[r]eady for litigation with 30 days notice," and "[o]rganiz[ing] [the] 1999 shredding party at Rambus." Planning for litigation continued when, on July 8, 1999, Fenwick & West prepared a time-line for the proposed patent infringement suits showing that Rambus planned to file a patent infringement complaint on October 1, 1999.

On August 26, 1999, Rambus held the "shredding party" it had planned as part of its third-quarter intellectual property litigation readiness goals. Rambus destroyed between 9,000 and 18,000 pounds of documents in 300 boxes.***

Litigation did not ultimately start as planned on October 1, 1999. Still, conditions eventually deteriorated to the point that Rambus felt it could no longer delay the litigation it had started planning in early 1998*** In November 1999, negotiations with Hitachi broke down. Rambus instituted a litigation hold in December 1999, and Rambus sued Hitachi on January 18, 2000. The suit against Hitachi was settled on June 22, 2000. In the meantime, Rambus negotiated SDRAM licenses with Toshiba, Oki, and NEC. Rambus continued to litigate against the members of the chip-making industry by bringing suit against Infineon on August 8, 2000. Infineon, 155 F. Supp. 2d at 671. Before that litigation began, Rambus's in-house counsel reminded Rambus executives on July 17, 2000, to continue destroying drafts and other materials related to license negotiations.

On August 18, 2000, Rambus approached Micron about the possibility of Micron taking a license for its SDRAM production. Micron filed a declaratory judgment action against Rambus in the District of Delaware on August 28, 2000, asserting invalidity, non-infringement, and unenforceability. The following day, Hynix Semiconductor filed a similar declaratory judgment suit against Rambus in the Northern District of California. Hynix Semiconductor, Inc. v. Rambus, Inc., 591 F. Supp. 2d 1038 (N.D. Cal. 2006) ("Hynix I"). The issue of whether Rambus had destroyed relevant documents after it had a duty to begin preserving documents was litigated in both suits. The Northern District of California reached the issue first. Following a bench trial, that court ruled in January 2006 that "Rambus did not actively contemplate litigation or believe litigation against any particular DRAM manufacturer to be necessary or wise before its negotiation with Hitachi failed, namely in [November] 1999." Id. at 1064. The Northern District of California ruled that this made Rambus's adoption of its document-retention policy in mid-1998 a permissible business decision, and the destruction of documents pursuant to that policy did not constitute spoliation. Id. The appeal of that decision is the subject of the companion Hynix case decided herewith. Hynix II, Nos. 2009-1299, -1347.

Meanwhile, in the Micron litigation in the District of Delaware, Micron sought access to communications between Rambus and its attorneys relating to the adoption of Rambus's document-retention policy. Courts in Hynix and Infineon had previously required production of these documents, and in February 2006, the District of Delaware agreed after finding that the adoption of the policy on the advice of counsel raised the likelihood that Delaware and California criminal statutes prohibiting destruction of evidence had been violated. The court held that the attorney-client privilege could be breached under the crime-fraud exception because Rambus and its counsel had possibly committed a crime. ***

A. Spoliation

As the Supreme Court has noted, "[d]ocument retention policies, which are created in part to keep certain information from getting into the hands of others, including the Government, are common in business. It is, of course, not wrongful for a manager to instruct his employees to comply with a valid document retention policy under ordinary circumstances." Arthur Andersen LLP v. United States, 544 U.S. 696, 704 (2005) (internal citation and quotation marks omitted). Thus, "a party can only be sanctioned for destroying evidence if it had a duty to preserve it." Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 216 (S.D.N.Y. 2003). The duty to preserve evidence begins when litigation is "pending or reasonably foreseeable." Silvestri v. General Motors Corp., 271 F.3d 583, 590 (4th Cir. 2001). See also West v. Goodyear Tire & Rubber Co., 167 F.3d 776, 779 (2d Cir. 1999) (applying the same standard). Thus, "[s]poliation refers to the destruction or material alteration of evidence or to the failure to preserve property for another's use as evidence in pending or reasonably foreseeable litigation." Silvestri, 271 F.3d at 590. This is an objective standard, asking not whether the party in fact reasonably foresaw litigation, but whether a reasonable party in the same factual circumstances would have reasonably foreseen litigation.

When litigation is "reasonably foreseeable" is a flexible fact-specific standard that allows a district court to exercise the discretion necessary to confront the myriad factual situations inherent in the spoliation inquiry. Fujitsu Ltd. v. Fed. Express Corp., 247 F.3d 423, 436 (2d Cir. 2001). This standard does not trigger the duty to preserve documents from the mere existence of a potential claim or the distant possibility of litigation. See, e.g., Trask-Morton v. Motel 6 Operating L.P., 534 F.3d 672, 681-82 (7th Cir. 2008). However, it is not so inflexible as to require that litigation be "imminent, or probable without significant contingencies," as Rambus suggests. *** This court declines to sully the flexible reasonably foreseeable standard with the restrictive gloss proposed by Rambus in light of the weight of contrary authority and the unnecessary generosity that such a gloss would extend to alleged spoliators. See Silvestri, 271 F.3d at 591; West, 167 F.3d at 779 ("Spoliation is the destruction or significant alteration of evidence, or the failure to preserve property for another's use as evidence in pending or reasonably foreseeable litigation."); Kronisch v. United States, 150 F.3d 112, 126 (2d Cir. 1998) ("This obligation to preserve evidence arises when the party has notice that the evidence is relevant to litigation . . . as for example when a party should have known that the evidence may be relevant to future litigation."); MOSAID Techs. Inc. v. Samsung Elecs. Co., 348 F. Supp. 2d 332, 336 (D.N.J. 2004) (noting that a litigant "is under a duty to preserve what it knows, or reasonably should know, will likely be requested in reasonably foreseeable litigation"); Scott v. IBM Corp., 196 F.R.D. 233, 249 (D.N.J. 2000) (same). See also United States v. Rockwell Int'l, 897 F.2d 1255, 1266 (3rd Cir. 1990) (holding that for attorney work product to be shielded by the work product privilege, "[l]itigation need not be imminent . . . as long as the primary motivating purpose behind the creation of the document was to aid in possible future litigation." (internal citations omitted)). Moreover, it would make little sense to enjoin document destruction only when the party clears all the hurdles on the litigation track, but endorse it when the party begins the race under the reasonable expectation of clearing those same hurdles. Thus, the proper standard for determining when the duty to preserve documents attaches is the flexible one of reasonably foreseeable litigation, without any additional gloss.

After carefully reviewing the record, the district court determined that "litigation was reasonably foreseeable no later than December 1998, when Karp had articulated a time frame and a motive for implementation of the Rambus litigation strategy." Decision, 255 F.R.D. at 150. In coming to this conclusion, the district court applied the correct standard, noting that "[a] duty to preserve evidence arises when . . . . litigation is pending or imminent, or when there is a reasonable belief that litigation is foreseeable." Id. at 148.

This court reviews the district court's factual findings, such as the date at which litigation was reasonably foreseeable, for clear error. Citizens Fed. Bank v. United States, 474 F.3d 1314, 1321 (Fed. Cir. 2007); Port Auth. of N.Y. & N.J. v. Arcadian Corp., 189 F.3d 305, 315 (3d Cir. 1999); Brewer v. Quaker State Oil Ref. Corp., 72 F.3d 326, 334 (3d Cir. 1995). Rambus argues that when litigation was reasonably foreseeable is a "mixed question of law and fact reviewed de novo." However, the cases it cites do not support such a standard in this context. For example, Traveler's Indemnity v. Ewing, Cole, Erdman & Eubank, 711 F.2d 14 (3d Cir. 1983), addressed the "issue of whether the level of care exercised by the defendant measured up to the standard expected of reasonably prudent architects" as a mixed question of law and fact. Id. at 17. However, that question is more about whether a duty is breached than when the duty commenced. Similarly inapposite, Pell v. E.I. DuPont de Nemours, 539 F.3d 292 (3d Cir. 2008), concluded that "the District Court's determination that 1972 is the appropriate adjusted service date is a mixed conclusion of law and fact," and that this question is broken down into its "components and [the appeals court applies] the appropriate standard of review to each component." Id. at 305. Pell does not specify whether the date at which the duty arises is a law component or a fact component, and thus does not persuade this court to review the issue de novo. In a variety of contexts, foreseeability of an event is a traditional issue of fact, and is reviewed with deference to the district court. Cates v. Dillard Dep't Stores, Inc., 624 F.3d 695, 697 (5th Cir. 2010) (noting that whether a risk of harm was reasonably foreseeable is a question of fact); Citizens Fed. Bank v. United States, 474 F.3d 1314, 1321 (Fed. Cir. 2007) (noting that "[f]oreseeability is a question of fact reviewed for clear error" in the damages context); United States v. Cover, 199 F.3d 1270, 1274 (11th Cir. 2000) (reasonable foreseeability of a co-conspirators actions is a question of fact). This court likewise applies a clear error standard of review. ***

The exact date at which litigation was reasonably foreseeable is not critical to this decision; the real question is binary: was litigation reasonably foreseeable before the second shred day or after? Therefore, the question this court must answer is whether the district court clearly erred when it determined that, at some time before the second shred day in August of 1999, litigation was reasonably foreseeable. This court cannot conclude that the district court clearly erred for at least the following five reasons.

First, it is certainly true that most document retention policies are adopted with benign business purposes, reflecting the fact that "litigation is an ever-present possibility in American life." Nat'l Union Fire Ins. v. Murray Sheet Metal Co., 967 F.2d 980, 984 (4th Cir. 1992). In addition, there is the innocent purpose of simply limiting the volume of a party's files and retaining only that which is of continuing value. One might call it the "good housekeeping" purpose. Thus, where a party has a long-standing policy of destruction of documents on a regular schedule, with that policy motivated by general business needs, which may include a general concern for the possibility of litigation, destruction that occurs in line with the policy is relatively unlikely to be seen as spoliation. Here, however, it was not clear error for the district court to conclude that the raison d'etre for Rambus's document retention policy was to further Rambus's litigation strategy by frustrating the fact-finding efforts of parties adverse to Rambus. This is a natural reading of getting "[b]attle ready." *** Taken together, the implementation of a document retention policy as an important component of a litigation strategy makes it more likely that litigation was reasonably foreseeable. Cf. United States v. Adlman, 134 F.3d 1194, 1203 (2d Cir. 1998) (adopting a test for work product immunity where a document is prepared in anticipation of litigation where the document "can fairly be said to have been prepared or obtained because of the prospect of litigation") (emphasis added) (citing 8 Charles Alan Wright, Arthur R. Miller, and Richard L. Marcus, Federal Practice and Procedure § 2024, at 343 (1994)).

Second, Rambus was on notice of potentially infringing activities by particular manufacturers. Once the patent issued, the gun was loaded; when the targets were acquired, it was cocked; all that was left was to pull the trigger by filing a complaint. While it may not be enough to have a target in sight that the patentee believes may infringe, the knowledge of likely infringing activity by particular parties makes litigation more objectively likely to occur because the patentee is then more likely to bring suit. Here, numerous internal documents manifest Rambus's plan "to play [its] IP card with the DRAM companies" against SDRAM products, either through a patent infringement or a breach of contract suit. See Decision, 255 F.R.D. at 138-48 (noting that even in the early 1990s, Rambus was already "concerned that DRAM manufacturers were using Rambus'[s] technology to develop their own competing DRAMs," and detailing Rambus's campaign to capitalize on non-compliant products' infringement); id. at 144 ("The [Nuclear Winter Memorandum] indicated specifically that Rambus already had claim charts showing that Micron infringed one of the Rambus patents."). ***

Third, Rambus took several steps in furtherance of litigation prior to its second shredding party on August 26, 1999. Karp had already concluded that Rambus would "need to litigate against someone to establish [a] royalty rate and have [the] court declare [the Rambus] patent[s] valid," had prioritized defendants and forums, had created claim charts and determined an expected timeline for litigation that it would "launch in October [1999]," and had as its goal to "be ready for litigation with 30 days notice" "against 1 of the 3 manufacturers" by the third quarter of 1999. ***

Rambus strongly argues that the steps it did not yet take in furtherance of litigation, i.e. the contingencies, compel a finding that litigation was not reasonably foreseeable. Rambus cites the contingencies accepted by Judge Whyte in the companion Hynix case as precluding Rambus from reasonably foreseeing litigation:

(1) the direct RDRAM ramp had to be sufficiently developed so as not to jeopardize RDRAM production; (2) Rambus's patents covering non-RDRAM technology had to issue; (3) product samples from potentially infringing DRAM manufacturers had to be available in the market; (4) the non-compatible products had to be reverse engineered and claim charts made showing coverage of the actual products; (5) Rambus's board had to approve commencement of negotiations with a DRAM manufacturer; and (6) the targeted DRAM manufacturer had to reject Rambus's licensing terms.

Hynix, 591 F. Supp. 2d at 1062. It is of course true that had these contingencies been cleared, litigation would have been more foreseeable. However, it was not clear error to conclude that overcoming the contingencies was reasonably foreseeable. For example, Rambus makes much of the inadvisability of jeopardizing its relationship with the manufacturers through litigation over SDRAM, because those same manufacturers were producing RDRAM, which Rambus hoped would become the market leader. However, as was made clear in the Nuclear Winter Memorandum, if RDRAM did not become a market leader, Rambus would go after the manufacturers of SDRAM and if RDRAM did become a market leader, and the RDRAM ramp "reache[d] a point of no return," then Rambus could come out from "stealth mode," and could then "ROCK THE DIRECT BOAT" because the manufacturers would be locked in to the RDRAM standard. Hence the use of definitive language of future intention, such as asking "WHAT'S THE RUSH [to assert patents against RDRAM partners]?" and noting that it should "not asserts patents against Direct [RDRAM] partners until ramp reaches a point of no return (TBD)." (emphasis added). Similarly, obtaining product samples would certainly be a reasonably foreseeable event, particularly because Rambus had explicitly broadened its claim coverage in prosecution to cover standard-compliant products, which, by the terms of the standard, all the manufacturers would meet. It was also reasonably foreseeable that the manufacturers would reject Rambus's licensing terms, because Karp proposed a five percent royalty rate to the board in March 1998 that attorney Johnson had called "ridiculous," and that the Cooley attorneys informed him would result in a lawsuit. In December 1998 or January 1999, Karp opined that in situations where Rambus was "not interested in settling," they should propose a royalty rate between five and ten percent, and noted that "we should not be too concerned with settlement at this point and should push for very high rates." It is thus not clear error to conclude that Rambus reasonably foresaw that the manufacturers would reject its licensing offer. The same is true for the other listed contingencies. Thus, Rambus's preparations for litigation prior to the critical date, including choosing and prioritizing manufacturers to sue, selecting forums in which to bring suit within a planned time-frame, creating claim charts, and including litigation as an essential component of its business model, support the district court's decision that Rambus reasonably foresaw litigation before the second shredding party on August 26, 1999.

Fourth, Rambus is the plaintiff-patentee, and its decision whether to litigate or not was the determining factor in whether or not litigation would in fact ensue. In other words, whether litigation was reasonably foreseeable was largely dependent on whether Rambus chose to litigate. It is thus more reasonable for a party in Rambus's position as a patentee to foresee litigation that does in fact commence, than it is for a party in the manufacturers' position as the accused. Fifth, as discussed above, the relationship between Rambus and the manufacturers involving RDRAM did not make litigation significantly less likely, it only delayed the initiation of litigation until the manufacturers were either too invested in RDRAM for the SDRAM litigation to negatively impact Rambus's sales, or until Rambus had no choice but to sue because RDRAM was rejected. In general, when parties have a business relationship that is mutually beneficial and that ultimately turns sour, sparking litigation, the litigation will generally be less foreseeable than would litigation resulting from a relationship that is not mutually beneficial or is naturally adversarial. Thus, for example, document destruction occurring during the course of a long-standing and untroubled licensing relationship relating to the patents and the accused products that ultimately become the subject of litigation is relatively unlikely to constitute spoliation, while destruction of evidence following repeated failures of a licensee to properly mark products or remit royalties, is more likely to constitute spoliation. Because the relationship regarding RDRAM did nothing to make litigation significantly less likely, and because Rambus and the manufacturers did not have a longstanding and mutually beneficial relationship regarding SDRAM, Rambus cannot use its delay tactics regarding RDRAM to undermine the other considerations herein discussed. ***

B. The District Court's Choice of Sanction

***Rambus challenges the district court's imposition of the dispositive sanction of dismissal, arguing that Micron failed to prove bad faith or prejudice, and that the district court was limited to applying some lesser sanction than dismissal. ***

i. Bad Faith

To make a determination of bad faith, the district court must find that the spoliating party "intended to impair the ability of the potential defendant to defend itself." Schmid, 13 F.3d at 80. See also Faas v. Sears, Roebuck & Co., 532 F.3d 633, 644 (7th Cir. 2008) ("A document is destroyed in bad faith if it is destroyed 'for the purpose of hiding adverse information.'") (citation omitted); In re Hechinger Inv. Co. of Del., Inc., 489 F.3d 568, 579 (3d Cir. 2007) (noting that bad faith requires a showing that the litigant "intentionally destroyed documents that it knew would be important or useful to [its opponent] in defending against [the] action"); Anderson v. Cryovac, Inc., 862 F.2d 910, 925 (1st Cir. 1988) (finding bad faith "where concealment was knowing and purposeful," or where a party "intentionally shred[s] documents in order to stymie the opposition"); Gumbs v. Int'l Harvester, Inc., 718 F.2d 88, 96 (3d Cir. 1983) (noting that an adverse inference from destruction of documents is permitted only when the destruction was "intentional, and indicates fraud and a desire to suppress the truth") (citation omitted). The fundamental element of bad faith spoliation is advantage-seeking behavior by the party with superior access to information necessary for the proper administration of justice.

Here, the district court's analysis of bad faith follows its conclusion on spoliation and does not fully explain the factual underpinnings of its bad faith determination:

55. The court concludes that litigation was reasonably foreseeable no later than December 1998, when Karp had articulated a time frame and a motive for implementation of the Rambus litigation strategy. Moreover, because the document retention policy was discussed and adopted within the context of Rambus' litigation strategy, the court finds that Rambus knew, or should have known, that a general implementation of the policy was inappropriate because the documents destroyed would become material at some point in the future. Therefore, a duty to preserve potentially relevant evidence arose in December 1998 and any documents purged from that time forward are deemed to have been intentionally destroyed, i.e. destroyed in bad faith.

Decision, 255 F.R.D. at 150. A determination of bad faith is normally a prerequisite to the imposition of dispositive sanctions for spoliation under the district court's inherent power, and must be made with caution. In determining that a spoliator acted in bad faith, a district court must do more than state the conclusion of spoliation and note that the document destruction was intentional. See Mathis v. John Morden Buick, Inc., 136 F.3d 1153, 1155 (7th Cir. 1998) ("That the documents were destroyed intentionally no one can doubt, but 'bad faith' means destruction for the purpose of hiding adverse information.") (emphasis added). From the district court's sparse analysis, this court is unable to determine whether the district court applied the applicable exacting standard in making its factual determination that Rambus acted in bad faith.

The district court's opinion alludes to several key items, including: (1) facts tending to show that Rambus's document retention policy was adopted within the auspices of a firm litigation plan rather than merely carried out despite the reasonable foreseeability of such litigation, e.g., Decision ¶¶ 17, 53, 55 and n.29; (2) facts tending to show the selective execution of the document retention policy, e.g., Decision ¶ 13 and n. 23, 27; (3) facts tending to show Rambus's acknowledgement of the impropriety of the document retention policy, e.g., Decision ¶¶ 6, 38 and n.24, 47; and (4) Rambus's litigation misconduct, Decision ¶¶ 37-39. While these items may lead to a determination of bad faith, the district court did not make clear the basis on which it reached that conclusion.

"It is not our task to make factual findings," Golden Hour Data Sys., Inc. v. emsCharts, Inc., 614 F.3d 1367, 1380 (Fed. Cir. 2010), and we will leave it to the district court's sound discretion on remand to analyze these, and any other, relevant facts as they apply to the determination of bad faith, see Thomas v. Capital Sec. Servs., Inc., 836 F.2d 866, 873 (5th Cir. 1988) (en banc) ("[T]he district court will have a better grasp of what is acceptable triallevel practice among litigating members of the bar than will appellate judges.").

We note that the district court applied a "knew or should have known" standard in its bad faith determination. On remand, the district court should limit its bad faith analysis to the proper inquiry: whether Rambus "intended to impair the ability of the potential defendant to defend itself," Schmid, 13 F.3d at 80, without regard to whether Rambus "should have known" of the propriety of its document destruction.

Litigations are fought and won with information. If the district court finds facts to conclude that Rambus's goal in implementing its document retention policy was to obtain an advantage in litigation through the control of information and evidence, it would be justified in making a finding of bad faith. If, on the other hand, the district court determines that Rambus implemented its document retention policy for legitimate business reasons such as general house-keeping, a finding of bad faith would be unwarranted. Without a finding either way, however, "the opinion explaining the decision lacks adequate fact findings, [and] meaningful review is not possible." Dennison Mfg. Co. v. Panduit Corp., 475 U.S. 809, 811 (1986). This court therefore remands for the district court to further assess the factual record in reaching a determination on bad faith.

ii. Prejudice

Prejudice to the opposing party requires a showing that the spoliation "materially affect[s] the substantial rights of the adverse party and is prejudicial to the presentation of his case." Wilson v. Volkswagen of Am., Inc., 561 F.2d 494, 504 (4th Cir. 1977) (internal quotation marks omitted). In satisfying that burden, a party must only "come forward with plausible, concrete suggestions as to what [the destroyed] evidence might have been." Schmid, 13 F.3d at 80 (emphases added). See also Leon, 464 F.3d at 960 ("[B]ecause any number of the 2,200 files could have been relevant to IDX's claims or defenses, although it is impossible to identify which files and how they might have been used. . . . the district court did not clearly err in its finding of prejudice."). If it is shown that the spoliator acted in bad faith, the spoliator bears the "heavy burden" to show a lack of prejudice to the opposing party because "[a] party who is guilty of . . . intentionally shredding documents . . . should not easily be able to excuse the misconduct by claiming that the vanished documents were of minimal import." Anderson v. Cryovac, Inc., 862 F.2d 910, 925 (1st Cir. 1988). See also Coates v. Johnson & Johnson, 756 F.2d 524, 551 (7th Cir. 1985) ("The prevailing rule is that bad faith destruction of a document relevant to proof of an issue at trial gives rise to a strong inference that production of the document would have been unfavorable to the party responsible for its destruction."). The proper resolution of this issue turns largely on whether Rambus has the burden to show lack of prejudice or Micron has the burden to show prejudice. As discussed above, this turns on whether the district court, on remand, concludes that Rambus was a bad faith spoliator. The question of prejudice is therefore also remanded.

iii. Dispositive Sanction

In addition to reassessing on remand its determination of bad faith and prejudice, the district court should also explain the reasons for the propriety of the sanction chosen (if any) based on the degree of bad faith and prejudice and the efficacy of other lesser sanctions.***

[T]he presence of bad faith and prejudice, without more, do not justify the imposition of dispositive sanctions. In gauging the propriety of the sanction, the district court must take into account "(1) the degree of fault of the party who altered or destroyed the evidence; (2) the degree of prejudice suffered by the opposing party; and (3) whether there is a lesser sanction that will avoid substantial unfairness to the opposing party and, where the offending party is seriously at fault, will serve to deter such conduct by others in the future." Schmid, 13 F.3d at 79 (emphases added). See also Leon, 464 F.3d at 958 (noting that the district court must consider "(1) the public's interest in expeditious resolution of litigation; (2) the court's need to manage its dockets; (3) the risk of prejudice to the party seeking sanctions; (4) the public policy favoring disposition of cases on their merits; and (5) the availability of less drastic sanction"). The sanction ultimately imposed must be commensurate with the analysis of these factors.

The district court must "select the least onerous sanction corresponding to the willfulness of the destructive act and the prejudice suffered by the victim." Schmid, 13 F.3d at 79 (citing Jamie S. Gorelick, Steven Marzen and Lawrence Solum, Destruction of Evidence, § 3.16, p. 117 (1989)). While the district court noted that "[s]anctions such as adverse jury instructions and preclusion of evidence are impractical, bordering on meaningless, under these circumstances and in the context of a typical jury trial," and that "the simple imposition of fees and costs is wholly inadequate under the facts of this case," Decision, 255 F.R.D. at 151, it did not explain why only dismissal would "vindicate the trifold aims of: (1) deterring future spoliation of evidence; (2) protecting the defendants' interests; and (3) remedying the prejudice defendants suffered as a result of [Rambus's] actions." See West, 167 F.3d at 180. ***

C. Piercing of the Attorney-Client Privilege

The district court's spoliation rulings depended in part on evidence from communications between Rambus and its attorneys; these communications were in the record only because they had been ordered produced by Rambus after the district court pierced the attorney-client privilege that otherwise would protect the communications from disclosure. Rambus appeals the privilege-piercing ruling, arguing that the district court erred by finding that Micron had made the required prima facie showing that Rambus had committed or intended to commit a fraud or crime and that the attorney-client communications in question were in furtherance of that crime or fraud. Rambus is correct that the crime-fraud exception to the attorney-client privilege requires such a prima facie showing. In re Grand Jury Subpoena, 223 F.3d 213, 217 (3d Cir. 2000). But making a prima facie showing is "not a particularly heavy" burden, In re Grand Jury Investigation, 445 F.3d 266, 274-75 (3d Cir. 2006), and this court agrees with the district court that Micron did indeed carry that burden here. Specifically, there was enough evidence to find a likely violation of § 135 of the California Penal Code, which provides that

[e]very person who, knowing that any book, paper, record, instrument in writing or other matter or thing is about to be produced in evidence upon any trial, inquiry, or investigation whatever, authorized by law, willfully destroys or conceals the same, with intent thereby to prevent it from being produced, is guilty of a misdemeanor.

Share this article:

Facebook
Twitter
LinkedIn
Email

Recent Posts

Archives