Sanctions Were Not Required Based On The Failure To Preserve Irrelevant Data

When a party clearly failed to preserve data during litigation, Sixth Circuit reviews whether sanctions were warranted; the case reviews the burden on the party seeking sanctions including to show that that evidence was relevant to issues in the case, in Automated Solutions Corp. v. Paragon Data Systems, Inc., _ F.3d _ (6th Cir. June 25, 2014) (Nos. 13-3058, 13-3025)

Relevancy under FRE 401 is a primary standard that applies to the admission of all evidence. The Sixth Circuit recently considered this standard in the context of whether sanctions were warranted after one party failed to preserve evidence during the litigation.

Trial Court Proceedings: Declining To Impose Sanctions

Originally, plaintiff Automated Solutions Corporation (ASC) entered into a contract with Paragon Data Systems, Inc. (Paragon) to support computer software to track newspaper deliveries and subscriptions for the Chicago Tribute. After Paragon terminated the contract, ASC prevailed in state court on a contract declaratory judgment action. See Automated Solutions Corp. v. Paragon Data Sys., Inc., 856 N.E.2d 1008 (Ohio Ct. App. 2006). A second suit in federal court alleged copyright and trademark infringement and related claims. In the federal proceeding, the court concluded that Paragon had a duty to preserve data on a hard drive and server yet failed to do so. Nonetheless, the federal court declined ASC's request to impose sanctions based on spoliation of evidence. On appeal, ASC challenged this ruling as error.

Sixth Circuit Review: Considering The Relevancy Of The Data

The Sixth Circuit affirmed the denial of sanctions based on the failure to preserve the data. There was no dispute that the data was subject to preservation. The issue was whether sanctions were warranted.

The Sixth Circuit concluded that the trial court did not err in denying sanctions to the plaintiff, despite judge finding that defendant "was under a duty to preserve" the despoiled evidence and had negligently not done so. Automated Solutions Corp., _ F.3d at _. The circuit noted that whether the defendant "was negligent in failing to preserve the [despoiled evidence] does not advance a showing of relevance, which is a necessary finding for the district court to impose sanctions." As the circuit explained the burden,

[A] party seeking an adverse inference instruction based on the destruction of evidence must establish (1) that the party having control over the evidence had an obligation to preserve it at the time it was destroyed; (2) that the records were destroyed with culpable state of mind; and (3) that the destroyed evidence was relevant to the party’s claim or defense such that a reasonable trier of fact could find that it would support that claim or defense.

Beaven v. U.S. Dep’t of Justice, 622 F.3d 540, 553 (6th Cir. 2010) (citation omitted). The issue focused on the third relevancy factor. The circuit observed that relevancy under this factor requires “something more than sufficiently probative to satisfy Rule 401 of the Federal Rules of Evidence. Rather, the party seeking an adverse inference must adduce sufficient evidence from which a reasonable trier of fact could infer that the destroyed [or unavailable] evidence would have been of the nature alleged by the party affected by its destruction.” Automated Solutions Corp., _ F.3d at _ (quoting One Beacon Ins. Co. v. Broad. Dev. Group, Inc., 147 F. App’x 535, 541 (6th Cir. 2005) (quoting Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 108–09 (2d Cir. 2002)) (brackets in original, internal quotation marks omitted)).

While ASC contested the relevancy of the data, the circuit affirmed the lower court. The circuit noted:

ASC does not cite any evidence that suggests that either Anderson or the Sun Server that he worked on were used to develop the DRACI software. ASC repeats its assertions (and the magistrate judge agreed) that Paragon was under a duty to preserve the hard drive and the Sun Server and that Paragon was negligent in failing to preserve both pieces of equipment. However, whether Paragon was negligent in failing to preserve the Sun Server and hard drive does not advance a showing of relevance, which is a necessary finding for the district court to impose sanctions. To the extent that ASC cites a transcript of an interview that its investigator held with Anderson as support for its argument that Paragon used the SCDS as a model for DRACI, we note that the interview appears to have been highly suggestive, and in any event, Anderson’s statements during the interview are unsworn, and thus of limited reliability. The district court did not clearly err in determining that a reasonable trier of fact could not find that the missing Anderson hard drive and Sun Server would support ASC’s claims.

Automated Solutions Corp., _ F.3d at _ (footnote omitted).

Conclusion

The Automated Solutions Corp. case provides a recent example of the applicable factors to determine whether sanctions are warranted to support sanctions based on the failure to preserve evidence. Even where there is a failure to preserve evidence, the availability of sanctions will turn on whether the data was relevant to the litigation.

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Photo Description: Sixth Circuit Court of Appeals, Potter Stewart U.S. Courthouse, Cincinnati, OH. Learn more about the courthouse which was named after U.S. Supreme Court Justice Potter Stewart who served for twenty-three years on the Court.

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