Part Two: Eight Years of Imminence – Utah Court Mines Safe Harbor Rule 37(e) Into Oblivion

Utah mapThis is a continuation of my last blog on Phillip M. Adams & Associates, L.L.C., v. Dell, Inc.2009 WL 910801 (D.Utah March 30, 2009). If you have not already read Part One, skip down to the preceding blog, or click here, and read Part One first. Otherwise, this blog may not make a whole lot of sense (and even then I make no promises).

U.S. Magistrate Judge
David Nuffer

Arthur Anderson and the mentioned policy arguments, including privacy rights, were not cited in the opinion, nor were they raised in the parties’ motions. Since these arguments were not made, you can hardly blame Judge David Nuffer for not addressing them. It pains me to have to disagree with Judge Nuffer at all, since he is a fellow blogger and computer nerd, which, in my world, is a high compliment. His blog concerns the federal court electronic filing system and is called the Utah District Court CMECF Updates.

By all reports, Judge Nuffer is also a frequent lecturer on technology and legal issues. Judge Nuffer is clearly one of the more high-tech judges on the federal bench. He even has a page on FaceBook. He is also obviously a strong believer in active, centralized, information management systems and knows a lot about the computer industry.

Evidentiary Rulings on ESI

Although I must respectfully disagree with Judge Nuffer’s holdings on the mentioned issues of duty to preserve and data retention policies, I do wholeheartedly agree with his other rulings in this opinion on the admissibility of electronic evidence. Here, Judge Nuffer gets it right and excludes one piece of electronic evidence as double hearsay, but allows all of the rest, overruling ASUS’ weak authenticity and hearsay objections to email and other electronic documents. Here is his ruling in Phillip M. Adams at *7 and *9 on these points:

The purpose of authentication is to buttress reliability and filter untrustworthy evidence. ASUS is using the requirement of authentication, in conjunction with its internal evidence vacuum, to eliminate the only evidence available because ASUS will not repudiate, authenticate or contradict it. That the evidence comes from other sources will be considered as to the weight the evidence may have, but ASUS should not be able to prevent consideration of the best evidence available, which has reasonable assurances of authenticity.

The Winbond emails are admissible business records of Winbond. They reflect the activities and knowledge of Winbond and only mention involvement of ASUS. The emails do not contain conclusive statements similar to those in the Woon Report. Because the records themselves are the actual communications, they are timely recorded, regular activities; they memorialize events and conditions; and they have no indicia of untrustworthiness. They do not purport to reflect statements of unidentified third parties.

See Losey, R., The Ninth Step: Review of George Paul’s New Book “Foundations of Digital Evidence”. 

confused babyASUS had another objection to admissibility of ESI that was original, but lame. They claimed the evidence was confusing because it included some computer code, hexadecimal and even zeros and ones, along with readable text. They actually argued that this would be so confusing to a jury that it would prejudice them. They wanted to keep this evidence from the jury, even though the readable text was obviously relevant. Judge Nuffer rejected this by saying at *10  “Computer gobblydegook is not confusing or prejudicial.” You have got to admire a judge who says computer gobblydegook, a phrase I have not heard in many years. I guess the defendants picked the wrong judge for a dazed and confused by computers argument. I wonder if that argument has actually worked for them before with someone else?

Could a Duty to Preserve Possibly Commence
Eight Years Before a Suit is Filed?

crystal ballJudge Nuffer thought that ASUS should start preserving ESI in 1999, eight years before it was sued by Phillip M. Adams & Associates, L.L.C.. On its face, this is a shocking ruling that seems to defy common sense. What about statutes of limitations? What about laches? What about the practical problems of keeping a litigation hold in place for eight years? What about the rights of privacy and to be left alone from intrusive government interference? What about due process? Must we all now employ soothsayers to comply with the law?

I think it is an obviously wrong decision and, I suspect, so will the District Court Judge who decides the pending appeal. I think it will be reversed, but, in fairness, I must tell you that at least one other expert vehemently disagrees with me. Craig Ball at the “International Litigation Support Leaders Conference” in D.C. this week publicly disagreed with my assessment of this case and its likely reversal. He thinks it will certainly be upheld. To emphasize his point, he promised the attendees that he would buy me a steak dinner in Orlando if the opinion is reversed! I have great respect for Craig Ball, who gave a brilliant Keynote speech to start the conference, but I am not backing down, and by the way Craig, I like my steak medium rare.

I will not attempt to dissect Craig’s reasoning (you can see it for yourself in a blog he wrote), but I will examine the reasoning stated in the opinion of Judge Nuffer.  Here is the actual language in Phillip M. Adams at *5 and *12, which provides the background on this eight-year hold holding:

It is true that most of the documentation on which Adams relies on this motion was produced by parties other than ASUS. Only the executable “ifdc.exe;” the patent application; and the two Yang emails were produced by ASUS. The two Yang emails were produced months after this motion was filed. Because ASUS has produced so little, Adams therefore draws the conclusion that ASUS has destroyed evidence.

The universe of materials we are missing is very large. Indisputably, we have very little evidence compared to what would be expected. The next issue is ASUS’ duty to preserve evidence, and whether the lack of evidence is due to breach of that duty. ASUS claims that its duty to preserve documents related to these claims arose only in early 2005.

ASUS claims that Adams’ delay in giving notice and bringing suit is the reason it has so little documentation.

Adams and ASUS agree that a litigant’s duty to preserve evidence arises when “he knows or should know [it] is relevant to imminent or ongoing litigation.” Jordan F. Miller Corp. v. Mid-Continent Aircraft Service, Inc., No. 97-5089, 1998 WL 68879, *5 (10th Cir. Feb. 20, 1998).

Stickman-Action-Figure-Sign-Warns-Of-Imminent-DangerThis is the judge’s view of the general background and parties’ positions. It is surprising to see that the parties agree on the law of their Circuit, which, by the way, is stricter than most. It requires not just a reasonable likelihood of litigation, but that litigation be imminent. This makes the ultimate ruling all the more confusing. Eight years of imminence? The explanation comes in the next paragraph at *12, *13:

ASUS’ arguments pin this date to the first letter from Plaintiff’s counsel. However, counsel’s letter is not the inviolable benchmark. In 103 Investors I, L.P. v. Square D Co., 470 F.3d 985 (10th Cir.2006), the plaintiff building owner sued an electrical parts manufacturer for failure to warn of proper care for a part alleged to have been the fire ignition point. “[A]fter the fire … without notice to the defendant [manufacturer], plaintiff threw away fifty to sixty feet of the busway and saved only four feet. The portion of the busway that was saved was not a piece that would have contained a warning [label].”FN123 The disposition of the busway was long before suit was filed. But “[t]he district court found that plaintiff had a duty to preserve the evidence because it knew or should have known that litigation was imminent….”FN124

*13 In late 1999, Toshiba paid billions of dollars in a class action settlement related to the floppy disk errors at issue FN125 and a class action lawsuit was filed against HP.FN126 In early 2000, Sam Yang was writing emails about his work on the software ASUS was using “to verify the FDC write-data distortion.”FN127 In late 2001, a patent application was filed by Yang and ASUS.FN128 In April 2000 a class action lawsuit was filed against Sony based on this alleged defect.FN129 Throughout this entire time, computer and component manufacturers were sensitized to the issue. The time period was the technology equivalent of the 103 Investors’ building fire. The building owner may not have known that a defective wiring bus caused the fire, or that suit would be filed, but the owner had a duty to preserve immediately after the fire. In the 1999-2000 environment, ASUS should have been preserving evidence related to floppy disk controller errors.

The problem with Judge Nuffer’s reliance on 103 Investors, and other cases like it, is that the party with the early duty to preserve is always the plaintiff. In 103 Investors, the building owner threw away the evidence before suing the manufacturer. The plaintiff (building owner) had the duty to preserve, not the defendant manufacturer. The building owner decided to wait for years before it filed suit, so of course it was fair to impose an early duty to preserve upon them. It made sense to sanction the plaintiff in 103 Investors for spoliation.

The same logic does not apply to a defendant. How was ASUS to know if and when they would be sued for the industry rage of suits in 1999 about floppy disk errors? Absent notice of imminent threat of a particular official proceeding in which those documents might be material, ASUS had no duty to preserve its email and other electronic records. If something as vague and ephemeral as sensitization to an issue triggers a duty to preserve, then unless we suddenly enter a world devoid of controversy, no one will ever delete an email again. We will soon drown in a deluge of data or risk spoliation when someone decides to sue eight years later. There will be no trigger of a duty to preserve, you will instead have a perpetual duty to preserve anything that someone, someday, might want to use in court against you for God knows what. 

My Theory of the Real Reasoning
Behind the Phillip M. Adams Opinion

Judge Nuffer is known to be technologically sophisticated and probably has extensive knowledge and background of the computer industry. His opinion includes recitations of allegations and information inferring his agreement with the plaintiff’s allegations of intentional patent infringement by ASUS. For example (bold emphasis added):

Adams alleges that “ASUS has destroyed the source code and documents relating to [two] test programs” created with “Adams’ patented and proprietary technology….” FN15 Adams also claims ASUS destroyed “documents that would have conclusively demonstrated ASUS’ piracy.” FN16 Adams’ stated factual basis for this motion is twofold: first, that ASUS has illegally used Adams’ patented software; and second, that ASUS has destroyed evidence of that use. The first assertion is identical to the liability issue in this case. The second assertion is premised on the first: Assuming ASUS used Adams’ software, ASUS’ failure to produce evidence of that use is sanctionable spoliation. Adams has no direct proof of destruction of evidence but is inferring destruction or withholding of evidence. Since Adams is convinced that ASUS infringed, Adams is also convinced that failure to produce evidence of infringement is sanctionable.

Because ASUS has produced so little, Adams therefore draws the conclusion that ASUS has destroyed evidence. ASUS’s only response is that it has produced a large volume of documents. That may be the case; but, it has not produced the most critical documents – those that relate to its misappropriation, its copying, and its willful behavior. The only conclusion after all this time is that ASUS has destroyed critical evidence that it simply cannot show did not exist.FN54

Certainly, other parties have provided evidence that one would expect ASUS to have as well. And the volume and tenor of the Winbond communication and concurrent Yang emails would suggest ASUS should have far more evidence than it has produced in this case. ASUS’ own statements and productions highlight data that is missing. … ASUS has produced a CD with program files from the time at issue,FN109 but somehowthe ASUS source code at issue in this case was not available.

The universe of materials we are missing is very large. Indisputably, we have very little evidence compared to what would be expected.

*13 In late 1999, Toshiba paid billions of dollars in a class action settlement related to the floppy disk errors at issue FN125 and a class action lawsuit was filed against HP.FN126 In early 2000, Sam Yang was writing emails about his work on the software ASUS was using “to verify the FDC write-data distortion.”FN127 In late 2001, a patent application was filed by Yang and ASUS.FN128 In April 2000 a class action lawsuit was filed against Sony based on this alleged defect.FN129 Throughout this entire time, computer and component manufacturers were sensitized to the issue. 

Similarly, here, ASUS’ system architecture of questionable reliability which has evolved rather than been planned, operates to deny Adams access to evidence. This should not be excused.

ASUS’ practices invite the abuse of rights of others, because the practices tend toward loss of data. The practices place operations-level employees in the position of deciding what information is relevant to the enterprise and its data retention needs. ASUS alone bears responsibility for the absence of evidence it would be expected to possess. While Adams has not shown ASUS mounted a destructive effort aimed at evidence affecting Adams or at evidence of ASUS’ wrongful use of intellectual property, it is clear that ASUS’ lack of a retention policy and irresponsible data retention practices are responsible for the loss of significant data. Prejudice might be considerable.

Id. at *2, *5, *11, *12, *13, *15. In ASUS’ objection memorandum appealing this decision to the District Court Judge, they point out that many of the above facts are not in the record at all. They also strongly protest the accuracy and relevance of the alleged Toshiba and Sony settlements, arguing there is no basis to connect those cases or settlements to this case, much less their activities or alleged spoliation.

Reading between the lines throughout the opinion and in the paragraph at *5 quoted above, right on the lines, it seems to me that Judge Nuffer has already made up his mind as to the ultimate merits of this case. He appears to be convinced that ASUS is guilty as charged and this has colored his whole decision. See especially his statement at * 5: “… it (ASUS) has not produced the most critical documents – those that relate to its misappropriation, its copying, and its willful behavior.” Obviously the judge believes that ASUS has illegally reverse-engineered and copied plaintiff’s computer code as the plaintiff alleges, and their destruction of email, source code, and other ESI is all part of an elaborate cover-up. 

I am afraid that this view is based on knowledge and facts way outside of the record presented to him, and in any event, Judge Nuffer does not make any such specific findings of infringement (except perhaps for the quoted sentence in *5 above, which is, I think, more of a Freudian slip than anything). Moreover, Magistrate Judge Nuffer does not have the authority as a Magistrate Judge to so rule on the ultimate merits of the case. A motion for summary judgment has not even been filed yet by the plaintiff, much less referred to him by the District Court Judge for adjudication. Further, the recitation of general industry “facts” in this opinion suggests that Judge Nuffer has relied on his experience and knowledge of events outside of the record of this case. This is also impermissible, but is a common danger faced by all learned judges, especially when a case concerns an area or industry in which they may have some special knowledge and expertise. 

Judge Nuffer’s unstated view of the ultimate merits of the case appears to be the real reason that he found a duty to preserve going back eight years. What Judge Nuffer is really saying is that a retention policy designed and manipulated to hide illegal activities was not a policy carried out in good faith. Since he has already determined that illegal activities occurred, for that reason alone the defendants were not entitled to the safe harbor protection of Rule 37(e). Of course, the opinion does not expressly say anything like this, there are no findings of infringement, which makes the opinion all the more difficult for ASUS to appeal. The real reasons are hidden behind the interpretation of Rule 37(e) and opinions as to the reasonability of document retention policies, which are in themselves also clearly erroneous and contrary to law as previously shown.

Since Judge Nuffer believes, or at least suspects, that ASUS intentionally copied the plaintiff’s computer code, he considers all subsequent deletion of this illegal activity to be intentional spoliation, regardless of any actual knowledge or not on ASUS’s part of imminent litigation. In other words, since ASUS knows it did wrong, they must also know that litigation against them is at all times imminent. Imminent thus become immanent (which means “part of its inherent nature” from the Latin in manere – “to remain within”).

To generalize, this means that any person or entity who commits a civil wrong has a duty to preserve evidence of that wrongdoing and this duty continues, in perpetuity, until such time as a suit against them is actually filed. This quite literally confuses imminence with immanence (which, ironically, is a philosophical belief common in Utah). This may be good theology, but it is bad law. Barring specific records retention laws, there is no inherent legal duty to preserve evidence that may be used against you some day in civil dispute resolution. People and businesses should not be required to keep a permanent record of everything they do just because someone may someday allege that what they did violated their rights in some way. This is over-litigiousness gone mad.

Lady JusticeJudge Nuffer’s decision should be reversed because he has improperly imposed sanctions based on the merits of the case, even though he was not asked to rule on the merits and has not made any express findings of the merits. Remember, the plaintiff did not sue for spoliation, it sued for patent infringement. The only findings of wrongdoing Judge Nuffer expressly makes is his questionable finding that ASUS’ method of record keeping was negligent. Judge Nuffer exceeds the jurisdiction allotted to him as a Magistrate Judge when he rules on a discovery issue based on his opinion of the merits. Judge Nuffer was assigned to hear a spoliation motion, nothing more. By addressing the merits, without even a pending motion for summary judgement, or other proper notice and hearings, he deprives ASUS of due process of law. It is fundamental that without due process, there can be no justice.

Conclusion

The facts in Phillip M. Adams do not warrant the imposition of spoliation sanctions. I understand Judge Nuffer’s concerns and suspicions on the merits, and perhaps the District Court Judge or  jury will feel the same way, if and when this case goes to trial. But this is not a valid reason to inviserate Rule 37(e) and impose sanctions for spoliation. It is just the basis for argument of inference, nothing more nor less. 

The lack of email retained by ASUS can be argued as part of the plaintiff’s overall case. This can be a strong and compelling argument. If a judge or jury is inclined to think that ASUS did what the plaintiff alleged, then it only makes sense that ASUS would not want to leave an electronic trail of their wrongdoing. Deletion of all but two emails is consistent with a guilty conscience. This is, I think, a fair inference that the plaintiff should be free to argue, so long as counsel does not go beyond the facts. Conversely, the defense is free to counter with their own version of why things were deleted, not saved. These are issues for trial, not for a Magistrate Judge adjudication under the pretext of e-discovery spoliation.

The missing evidence issues in this case should not be blown out of proportion. It is just the tail of the dog, not the dog itself. It is just one of many possible inferences that both sides will ask the jury to make to rule on the merits of the alleged patent infringement. If the jury is not inclined to believe the case against the defendants, then the issue of missing email does not come into play. This is as it should be. The case should be decided on the merits, not by spoliation sanctions. The jury should be allowed to determine infringement or not. The lack of remaining emails by ASUS should be just one factor among many to consider. This is, after all, a case about patent infringement, not about email retention and the desirability of decentralized information management practices. 

I predict Magistrate Judge Nuffer’s opinion will be reversed on appeal to the District Court Judge, or if not, it will be contradicted and criticized by numerous later courts into obscurity. If I am wrong and Phillip M. Adams becomes generally accepted, then the validity of all document retention policies in the country will be in doubt, except only those that say save everything forever. If this comes to pass, plaintiff’s attorneys, hard disk manufacturers, archive and search companies will have great cause for rejoicing.

6 Responses to Part Two: Eight Years of Imminence – Utah Court Mines Safe Harbor Rule 37(e) Into Oblivion

  1. Craig Ball says:

    Medium rare works for me as well, with a side of good Bernaise, if you please.

    As always, Ralph lays out his thinking with lucidity and passion. So, why do I think that it won’t be found to be an abuse of discretion? I lay out my thoughts in my April 12, 2009 post on the decision published at: http://www.eddupdate.com/2009/04/computer-gobblydegook-is-not-confusing-or-prejudicial.html

    In a nutshell, I don’t think it will be found that Judge Nuffer abused his discretion in reaching the result; most particularly in light of the sanctions imposed. Ah, yes, just what were the sanctions imposed?? That’s right: none at this juncture.

    But I see now that Ralph is defining reversal as an opposing outcome by the district judge. I wasn’t thinking of that, but of an appeal to the appelate courts. Still, Ralph’s interpretation of the procedural review of a Magistrate’s recommendation is the right one. So no matter, the wager is still very much on, and if the District Court reverses Judge Nuffer’s determination (which is to say exonerates ASUS from executory sanctions or rebukes Judge Nuffer for his remarks), I’m still good for the steak. That seem fair? If the outcome is “kiss your sister,” we can go dutch!

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  2. Ralph Losey says:

    Read Craig’s full blog and then weigh in on this controversy with a yes/no vote. Feel free to also leave a full comment to explain your vote or what you think about this case.

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  3. Paul Easton says:

    You should have titled this post “Eight Years of Imminence.” Great phrase!

    I hope you win a fully paid-for steak dinner.

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  4. Ralph Losey says:

    Paul – I took your suggestion and changed the title. Thanks for the good suggestion.

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  5. […] OF PART ONE. Stay tuned for Part Two, the exciting conclusion <yeah right> of this story where I will reveal the “metadata” […]

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  6. […] two-part blog about it: Utah Court Mines Safe Harbor Rule 37(e) Into Oblivion – Part One and Part Two: Eight Years of Imminence. I was surprised that some experts, including my friend Craig Ball, argued to the contrary that I […]

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