Legal Hold Pro

The Other Shoe Drops in DuPont v. Kolon: Sanctions for Defendant for Spoliation after Issuing Weak Legal Hold

by Brad Harris

In July, we posted about the DuPont v. Kolon opinion in April which was noteworthy in that DuPont escaped any sanctions in spite of spoliation by having a strong preservation plan in place.  The Eastern District of Virginia’s Senior District Judge Robert E. Payne issued a subsequent ruling on July 21 responding to a counterclaim for misappropriation of trade secrets filed in February 2009.

Despite Kolon producing nearly 1.2 million pages of discovery, in reviewing the outcome, DuPont noted a “suspiciously low document production totals” from certain key players as well as indications of intentional document destruction. (*2)  DuPont filed its spoliation motion and request for a default judgment in August 2010.

This case is an extremely interesting and well-worth a detailed read.  Judge Payne not only provides numerous case cites to back up the court’s findings, but also in discussing how relevance and culpability play such important roles in determining fault.

Judge Payne starts with a discussion of the three elements required when seeking sanctions for spoliation of evidence – that there was there a duty to preserve, that the destruction or loss was accompanied by a “culpable state of mind,” and was the information being destroyed or altered was relevant to the case.

In Kolon v. DuPont, the duty to preserve attached no later than when the case was filed.  Kolon did respond by issuing two litigation hold notices, the first to a handful of upper-level executives, and a second to all employees.  However, after what the court described as a “long, and oftentimes tortuous, journey on the part of DuPont,” (*2) it was determined that key players had indeed engaged in bad faith deletion of files and emails that were subject to their duty to preserve.

When determining appropriate sanctions, the court then needs to consider both the “quantum of fault” and the degree of prejudice suffered.  Judge Payne did conclude that Kolon had “breached its duty to preserve when key employees… deleted files and email items from their personal computers in the days after DuPont filed this action.” (*26)  However, was this enough to warrant a case-dispositive sanction as sought by DuPont?  In this case, the court found insufficient evidence of widespread and wanton disregard of its duty to preserve, ruling instead for the imposition of “sanctions in the forms of attorneys’ fees, expenses, and costs related to this motion, and an adverse inference instruction.” (*37)

The court did cite Kolon’s efforts in issuing litigation holds and subsequent efforts to preserve files (including preserving backup tapes and capturing images of custodian hard drives) in its decision against a default judgment.  However, it found the litigation hold process lacking – the first hold was sent only to a handful of employees, with no evidence that the hold was forwarded on to others in the company.  The second issued a week later was distributed broadly, yet done so in English to mostly non-English speaking employees, and with “insufficient instruction given to employees about the importance of preserving relevant files and email items.” (*5)

As we’ve seen in so many other cases over last two years, the Courts are demanding a more rigorous preservation process and actively engaged counsel.   The continuing battle between DuPont and Kolon illustrates ways to reduce the risk and ultimate cost of spoliation claims – including timely written legal holds addressed to individuals expected to take action, clear and concise instructions as to what is expected of those custodians, routine updates and reminders, and a detailed audit trail documenting the steps taken.

More Reading:

• Electronic Discovery Law Blog, “For Key Employees’ Bad Faith, Intentional Spoliation, Court Imposes Adverse Inference and Monetary Sanctions,” August 12, 2011, K&L Gates
• Full Opinion of E.I. Du Pont De Nemours & Co. v. Kolon Indus., Inc., No. 3:09cv58, 2011 WL 2966862 (E.D. Va. July 21, 2011)

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