Delaware Supreme Court Affirms Enhanced Burden of Proof, Corroboration Requirement and $3.2 Million Award as Sanctions for Wiping Unallocated Space, Deleting Traces of Spoliation and Destroying Electronic Documents

From Genger v. TR Inves., LLC, 2011 Del. LEXIS 371 (Del. Sup. Ct. July 18, 2011):

Two weeks after the entry of the stipulated final judgment, the Trump Group moved for relief from that judgment and to re-open the Section 225 proceeding. The Trump Group claimed that, after taking control of Trans-Resources, they discovered that Genger had destroyed documents relevant to the Section 225 action in violation of a document preservation order entered by the Court of Chancery on August 29, 2008 (the "Status Quo Order"). The Vice Chancellor granted the Trump Group's motion and re-opened the case. After conducting a trial in September 2009, the trial court concluded that Genger had violated, and was in contempt of, the Status Quo Order, because he had caused the deletion of files stored on his work computer at Trans-Resources. The trial court further found that after deleting those computer files, Genger directed an employee to use special software that "wiped" the unallocated free space on both his computer's hard drive and on a Trans-Resources computer server. That made it impossible, even by use of computer forensic techniques, to recover any deleted files that were stored in those computers' unallocated free space.

As a sanction for those acts of spoliation, the Court of Chancery raised Genger's evidentiary burden by one level. That is, on any issue in which Genger had the burden of proof, he would have to satisfy that burden by clear and convincing evidence, rather than by a preponderance of the evidence. Because Genger's conduct called his credibility into question, the trial court also ruled that Genger's uncorroborated testimony would not be sufficient to establish any material fact. Finally, the trial court awarded the Trump Group $750,000 of the attorneys' fees they incurred to investigate and litigate Genger's spoliation of computer documents. The parties later agreed that Genger would pay an additional $3.2 million fee to the Trump Group, an amount that the court also awarded. ***

Footnote 21 The $3.2 million represented the additional reasonable expert fees, technology consultant fees, special master fees, and other unreimbursed expenses incurred in investigating and litigating Genger's spoliation of evidence. ***

A trial court has broad discretion to fashion and impose discovery sanctions. In exercising appellate review, this Court "will not disturb a trial judge's decision regarding sanctions imposed for discovery violations absent an abuse of discretion." "Although we may not substitute our own notions of what is right for those of the trial judge, the trial judge's decision to impose sanctions must be just and reasonable." To the extent a decision to impose sanctions is factually based, we accept the trial court's factual findings so long as they are sufficiently supported by the record, are the product of an orderly and logical reasoning process, and are not clearly erroneous. Moreover, "[where] factual findings are based on determinations regarding the credibility of witnesses . . . the deference already required by the clearly erroneous standard of appellate review is enhanced." ***

A. Was There A Basis For The Trial Court To Find Spoliation And Adjudicate Contempt?

Genger first claims that the evidence was insufficient to establish that he had destroyed relevant documents or that the Trump Group was thereby prejudiced. Because there can be no spoliation without a factually-grounded determination that documents were destroyed, Genger argues, the trial court's spoliation finding lacks record support. Moreover, because the Status Quo Order did not expressly require the unallocated free space on his computer's hard drive to be preserved, no spoliation or contempt finding would be proper. That Order directed only that the parties refrain from "tampering with, destroying or in any way disposing of any [Trans-Resources]-related documents, books or records." Because no provision in the Status Quo Order expressly addressed his computer's unallocated free space, Genger claims that the trial court erred by adjudicating him in contempt.

Footnote 39. In computing terms, "unallocated space" refers to the logical (as opposed to physical) space on a hard drive that the computer's operating system, such as Microsoft Windows, can write to, because it is considered empty or "free." Unallocated space is the opposite of "allocated" space, which is the space on the hard drive where the operating system has already written data files to. Normally, files can only be written to the unallocated "free" space. See, e.g., What is unallocated space?, WHERE IS YOUR DATA? (Oct. 3, 2008), http:// whereismydata.wordpress.com/ (hereinafter "Unallocated Space").

On a new (or newly-formatted) hard drive, virtually all of the hard drive space is unallocated space. That unallocated space is normally filled with zeros (as opposed to ones). As the computer writes files to the hard drive, the zeros are overwritten with the file data. When a file is deleted from a computer, the computer's operating system marks the previously allocated space as unallocated. The data from the file itself, however, remains on the hard drive. See, e.g., Nucor Corp. v. Bell, 251 F.R.D. 191, 198 (D.S.C. 2008) (explaining unallocated space as it relates to deleted files). For example, assume that a user saves a 10GB movie file onto a new 500GB hard drive. Once the movie file's data is written to the hard drive, the computer's operating system recognizes that the hard drive is 2% allocated space (i.e., the movie file), and 98% unallocated space. If the user now deletes the movie file, the operating system updates the hard drive status to show that there is 100% unallocated space. Of the 500GB of unallocated space, 10GB of that would be the old movie file data, while the remaining 490GB would be zeros. See, e.g., Unallocated Space. With normal computer usage, until new files are written to the hard drive, the [deleted] movie file data will remain deleted but still be recoverable from the hard drive. Even if new files are written to the hard drive, those new files must overwrite the same unallocated space as the movie file data, before the movie file is destroyed and becomes unrecoverable. See, e.g., Nucor, 251 F.R.D. at 198; MMI Products, Inc. v. Long, 231 F.R.D. 215, 216 (D. Md. 2005).

By using special software, computer forensic experts can recover the 10GB movie data file, even though that file has already been deleted by the user. This recovery process, however, can be performed only if the unallocated free space has not been "wiped" — i.e., overwritten with zeros — or written over with new data files. In the example above, wiping the unallocated free space would result in overwriting the old movie data with zeros, thereby making recovery of that movie file impossible. See, e.g., Leon v. IDX Sys. Corp., 464 F.3d 951, 956 (9th Cir. 2006) (affirming district court's finding that the unallocated free space on a user's computer had been intentionally wiped, thereby making recovery of any files in that space impossible); Krumwiede v. Brighton Assoc., L.L.C., 2006 U.S. Dist. LEXIS 31669, 2006 WL 1308629, at *5 (N.D. Ill. May 8, 2006) (explaining how defragmentation will overwrite existing unallocated space).

Genger also urges us to reverse on a broader ground — namely, that requiring a party-litigant to preserve a computer's unallocated free space whenever a document-retention policy is in place, would impossibly burden a company-litigant by effectively requiring the company to refrain from using its computers entirely. Genger argues that in the course of a computer's normal operation, its operating system is constantly overwriting the unallocated free space by creating and deleting temporary files. Given that technological reality, to expand the scope of a routine document-retention order so as to require preservation of unallocated free space would impose an unworkable standard.

. 40 For example, every time a user powers on a computer, the computer's operating system will write temporary files to the unallocated hard drive space. Those temporary files are then deleted when the computer is shut down. See, e.g., Mintel Int'l Group, Ltd. v. Neergheen, 2010 U.S. Dist. LEXIS 2323, 2010 WL 145786, at *8 (N.D. Ill. Jan. 12, 2010) (finding that even non-user initiated software may have destroyed data); Antioch Co. v. Scrapbook Borders Inc., 210 F.R.D. 645, 652 (D. Minn. 2002) (discussing how normal computer usage may destroy data); see also Schedule Disk Defragmenter to run regularly,http://windows.microsoft.com/en-US/windows-vista/Schedule-Disk-Defragmenter-to-run-regularly (indicating that Windows automatically schedules disk defragmentation actions to occur at least once a week to improve computer performance).

We do not read the Court of Chancery's Spoliation Opinion to hold that as a matter of routine document-retention procedures, a computer hard drive's unallocated free space must always be preserved. The trial court rested its spoliation and contempt findings on more specific and narrow factual grounds — that Genger, despite knowing he had a duty to preserve documents, intentionally took affirmative actions to destroy several relevant documents on his work computer. These actions prevented the Trump Group from recovering those deleted documents for use in the Section 225 and the New York litigations. The record establishes that Genger acted furtively, by (among other things) directing an employee to wipe his computer's unallocated free space using a program called "SecureClean" at around 1:00 a.m. on September 8, 2008. Thereafter, that same employee ran SecureClean on the Trans-Resources company server on September 10, 2008. At no point did Genger ever consult with the Trump Group or its counsel before directing that those actions be taken.***

[C]opies of eight separate documents and/or emails should have been — but were not — found on either the Trans-Resources company server or Genger's work computer. The absence of those documents was determined to have prejudiced the Trump Group, because "[d]ifferent versions of documents or e-mail chains can take on material importance if there are alterations or additions to them. And who received what and when can be crucial." From those missing documents the trial court inferred that other relevant documents would likely have been stored on Genger's computer and/or the Trans-Resources server, and had been permanently deleted and were now unrecoverable. It was on that specific, narrow factual basis that the trial court: (i) found that Genger had spoliated evidence by intentionally destroying documents, (ii) sanctioned him for that spoliation, and (iii) adjudicated him in contempt of the August 29, 2008 Status Quo Order.

We affirm the Court of Chancery's findings and resulting sanctions, because the trial court did not abuse its discretion or commit any erroneous finding of law or fact. Our affirmance should not be viewed as extending beyond the confines of this setting--i.e., where a party is found intentionally to have taken affirmative steps to destroy or conceal information to prevent its discovery at a time that party is under an affirmative obligation to preserve that information. It is noteworthy that there is no evidence or claim in this case, that the use of the SecureClean program fell within Trans-Resources' ordinary and routine data retention and deletion procedures.

To avoid future repetitions of the "unallocated free space" issue presented here, we suggest that the parties and the trial court address any unallocated free space question that might arise before a document retention and preservation order is put in place. We recognize that instances may arise where a party-litigant will have a legitimate reason to preserve unallocated free space on a computer's hard drive. In addressing that issue, the parties must be mindful that court-ordered discovery of electronically-stored information should be limited to what is "reasonably accessible." That determination, by its very nature, must be made on a case-by-case basis.

B. Was the $3.2 Million Fee Award An Abuse of Discretion?

***Assuming without deciding that $3.2 million falls on the higher end of the range of a reasonable fee, the record establishes that Genger expressly waived his right to challenge the reasonableness of that award. The Court of Chancery's Final Judgment Order expressly recites that Genger "agree[d] that he w[ould] not challenge the reasonableness of the amount of such fee award (whether on appeal or otherwise), except on the ground that it was improper to award any sanction . . . for [the Court of Chancery's] contempt finding. . . ." Therefore, this issue was not properly preserved for appeal and, at most, is reviewable only for plain error.

We find no plain error. The $3.2 million figure was not arbitrarily determined. The amount of attorneys, expert, and technology consultant fees was hotly contested, and that $3.2 million figure was the result of the parties' compromise.54 In these circumstances, the reasonableness of that fee award does not, nor could it, constitute plain error. Consequently, that award must be upheld.

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