Mosaid Technologies v. Samsung Electronics, No. 01-CV-4340 (WJM).

• Decision Date: 07 December 2004
• Docket Number: No. 01-CV-4340 (WJM).
• Citation: 348 F.Supp.2d 332
• Parties: MOSAID TECHNOLOGIES INCORPORATED, Plaintiff, v. SAMSUNG ELECTRONICS CO., LTD., Samsung Electronics America, Inc., Samsung Semiconductor, Inc., and Samsung Austin Semiconductor, L.P., Defendants.
• Court: U.S. District Court — District of New Jersey

348 F.Supp.2d 332

MOSAID TECHNOLOGIES INCORPORATED, Plaintiff, v. SAMSUNG ELECTRONICS CO., LTD., Samsung Electronics America, Inc., Samsung Semiconductor, Inc., and Samsung Austin Semiconductor, L.P., Defendants.

No. 01-CV-4340 (WJM).

United States District Court, D. New Jersey.

December 7, 2004.

Liza M. Walsh, Connell Foley LLP, Roseland, NJ, Robert C. Kahrl, James L. Wamsley, III, Jones Day, Cleveland, OH, for Plaintiff.

Robert A. White, Morgan, Lewis & Bockius LLP, Princeton, NJ, Richard A. Rothman, David J. Healey, Weil, Gotschal & Manges LLP, New York, NY, for Defendants.

OPINION

MARTINI, District Judge.

This matter is before the Court on defendants Samsung Electronics Co., et al.'s ("Samsung's") appeal of Magistrate Judge Hedges' July 7, 2004 and September 1, 2004 Orders. Samsung appealed four different sanctions. Previously, this Court affirmed two of the four sanctions: proof of infringement as to representative parts determines infringement for all parts, and Samsung is precluded from challenging MOSAID Technologies Inc.'s ("MOSAID's") expert evidence as to the operation of the representative parts to the extent those challenges rely on any assumptions made as a part of performing simulations or other analyses of representative DRAMs. (October 1, 2004 Op. and Order). The remaining two sanctions — a spoliation inference jury instruction concerning Samsung's destruction of e-mails and monetary sanctions constituting attorneys' fees and costs associated with MOSAID's motion for sanctions and attempts to obtain discovery — will now be addressed.

BACKGROUND

In addition to the discovery shortcomings discussed in this Court's October 1, 2004 Opinion, Samsung also came up short in its obligation to preserve and produce e-discovery materials. More specifically, after the inception of this litigation in September 2001, Samsung never placed a "litigation hold" or "off switch" on its document retention policy concerning email. Unchecked, Samsung's automatic computer e-mail policy allowed e-mails to be deleted, or at least to become inaccessible, on a rolling basis. As a result, Samsung failed to produce a single technical e-mail in this highly technical patent litigation because none had been preserved.

For Samsung's complete and utter failure to produce e-mails responsive to MOSAID's document requests, MOSAID sought sanctions before Magistrate Judge Hedges. Magistrate Judge Hedges held several hearings concerning the nonproduction of e-mails, as well as Samsung's other discovery deficiencies. During the May 10, 2004 and May 19, 2004 hearings, Magistrate Judge Hedges expressed serious concern for Samsung's lack of a "litigation hold" preventing the destruction of e-mails. On May 24, 2004, Magistrate Judge Hedges issued a Dunbar notice,¹ informing Samsung that it faced potential serious, non-monetary sanctions. On July 1, 2004, pursuant to the Dunbar notice, he held a hearing during which he stated that he would allow a spoliation inference because of Samsung's actions.

On July 7, 2004, Magistrate Judge Hedges issued his first opinion and order concerning the spoliation inference. After finding Samsung's reasons for failing to produce any technical emails to be unconvincing, he granted MOSAID's request for the spoliation inference. He then directed the parties to submit proposed jury instructions. He also granted MOSAID's request for reasonable attorneys' fees and costs associated with the motion for sanctions and MOSAID's attempts to secure discovery.

On September 1, 2004, Magistrate Judge Hedges issued his second opinion and order concerning the spoliation inference. In this opinion, he discussed the parties' proposed jury instructions and their deficiencies in light of the remedial, punitive and deterrent rationales undergirding spoliation sanctions. Rather than adopt either of the proposed instructions, Magistrate Judge Hedges found that the following instruction was more appropriately tailored to redress Samsung's conduct:

You have heard that defendants failed to produce virtually all technical and other e-mails in this case. Plaintiff has argued that these e- mails were in defendants' control and would have proven facts relevant to the issues in this case.

If you find that defendants could have produced these e-mails, and that the evidence was within their control, and that the e-mails would have been relevant in deciding disputed facts in this case, you are permitted, but not required, to infer that the evidence would have been unfavorable to defendants.

In deciding whether to draw this inference you may consider whether these e-mails would merely have duplicated other evidence already before you. You may also consider whether you are satisfied that defendants' failure to produce this information was reasonable. Again, any inference you decide to draw should be based on all the facts and circumstances of this case.

(Mosaid Techs. Inc. v. Samsung Elecs. Co., 224 F.R.D. 595, 599 (D.N.J.2004)) (citing Zubulake v. UBS Warburg LLC, 2004 WL 1620866, at *15 (S.D.N.Y. July 20, 2004)). Regarding the monetary sanctions, Magistrate Judge Hedges awarded MOSAID a total of $566,839.97 in fees and costs.

Samsung timely appealed those orders. On appeal, Samsung contends that the spoliation inference is an extreme sanction that was wrongly imposed given the facts of this case. According to Samsung, the Magistrate Judge gave short shrift to the following "critical" facts: MOSAID's document requests did not specifically and explicitly state that they sought e-mails and MOSAID never raised the topic of e-mails at any discovery conference prior to the close of fact discovery; MOSAID never complained about Samsung's failure to produce e-mails until after the close of fact discovery; and MOSAID represented to the Court at a January 2003 hearing that it did not need e-mails. Samsung also contends that the spoliation inference jury instruction chosen by the Magistrate Judge is contrary to established Third Circuit law because it would permit an adverse inference to be drawn for negligent destruction of e-mails. And finally, Samsung maintains that any part of the attorneys' fees and costs awarded for its failure to preserve e-mails should be vacated because there was no need for Samsung to retain any e-mails.

DISCUSSION

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 forseeable litigation." Zubulake, 2004 WL 1620866, at *6 (quoting West v. Goodyear Tire & Rubber Co., 167 F.3d 776, 779 (2d Cir.1999)). Evidence of spoliation may give rise to sanctions. Potential sanctions for spoliation include: dismissal of a claim or granting judgment in favor of a prejudiced party;² suppression of evidence;³ an adverse inference, referred to as the spoliation inference;⁴ fines;⁵ and attorneys' fees and costs.⁶ This Court has the authority to impose spoliation sanctions pursuant to the Federal Rules of Civil Procedure and this Court's inherent authority. Scott, 196 F.R.D. at 247-48.

Sanctions are appropriate when there is evidence that a party's spoliation of evidence threatens the integrity of this Court. Spoliation sanctions serve a remedial function by leveling the playing field or restoring the prejudiced party to the position it would have been without spoliation. They also serve a punitive function, by punishing the spoliator for its actions, and a deterrent function, by sending a clear message to other potential litigants that this type of behavior will not be tolerated and will be dealt with appropriately if need be.

Dismissal or suppression of evidence are the two most drastic sanctions because they strike at the core of the underlying lawsuit. As such, they should only be imposed in the most extraordinary of circumstances. Three key considerations that dictate whether such sanctions are warranted are: "(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 v. Milwaukee Elec. Tool Corp., 13 F.3d 76, 79 (3d Cir.1994).⁷

A far lesser sanction is the spoliation inference. Schmid, 13 F.3d at 79. The spoliation inference is an adverse inference that permits a jury to infer that "destroyed evidence might or would have been unfavorable to the position of the offending party." Scott, 196 F.R.D. at 248. This inference is predicated upon the common sense observation that when a party destroys evidence that is relevant to a claim or defense in a case, the party did so out of the well-founded fear that the contents would harm him. Brewer v. Quaker State Oil Refining Corp., 72 F.3d 326, 334 (3d Cir.1995); Schmid, 13 F.3d at 78.

In order for the spoliation inference to apply, four essential factors must be satisfied. First, "it is essential that the evidence in question be within the party's control." Brewer, 72 F.3d at 334 (citing Gumbs v. International Harvester, Inc., 718 F.2d 88, 96 (3d Cir.1983)). Second, "it must appear that there has been actual suppression or withholding of the evidence." Id. Third, the evidence destroyed or withheld was relevant to claims or defenses. Scott, 196 F.R.D. at 248; Veloso v. Western Bedding Supply Co., 281 F.Supp.2d 743, 746 (D.N.J.2003). And fourth, it was reasonably foreseeable that the evidence would later be discoverable. Scott, 196 F.R.D. at 248; Veloso, 281 F.Supp.2d at 746. "While a litigant is under no duty to keep or retain every document in its possession, even in advance of litigation, it is under a duty to preserve what it knows, or reasonably should know, will likely be requested in reasonably foreseeable litigation." Scott, 196 F.R.D. at 249.

In this case, Samsung's...