A duty to over preserve? How disregarding foreign data privacy laws may keep litigants out of a jam.

• Author: Clarke, Ellen

IN 2009, E.I. du Pont de Nemours and Company filed suit against Kolon Industries, Inc., a South Korean corporation, and its U.S. subsidiary alleging that Kolon conspired to misappropriate DuPont's trade secrets and confidential information about DuPont's KEVLAR aramid fiber. (1) The action against Kolon, a relative new-comer to the aramid fiber market, was prompted by Kolon's entering into a consulting agreement with a former DuPont employee, Michael Mitchell. (2) Upon leaving DuPont, Mitchell violated the terms of his employment agreement by keeping "documents and files containing DuPont proprietary information related to Kevlar." (3) While consulting for Kolon, Mitchell transferred DuPont's trade secrets and confidential business information to Kolon, allowing Kolon to successfully enter the market for aramid fibers. (4)

DuPont's trade secret suit against Kolon prompted a counterclaim for attempt to monopolize the U.S. para-aramid fiber market in violation of Section 2 of the Sherman Act. (5) The ensuing volley of discovery requests, motions, and rulings would eventually take the case up to the Fourth Circuit led Kolon to produce "nearly 1.2 million pages of discovery." (6) DuPont uncovered screenshots taken by Kolon employees in the days following the filing of DuPont's complaint that indicated that employees deleted or intended to delete emails from their personal email accounts. (7) DuPont moved for sanctions relating to Kolon's spoliation of evidence, alleging that key Kolon executives and employees "deliberately deleted relevant evidence and then engaged in prolonged efforts to conceal that conduct." (8)

After an independent third party engaged in targeted discovery into the spoliation of the evidence, (9) the court found that "key employees, who were likely to have relevant evidence, intentionally deleted relevant files and email items from their personal computers after Kolon's duty to preserve had been triggered and with knowledge of the filing of DuPont's Complaint." (10) Simply put, Kolon spoliated evidence.

The court held that default judgment was an inappropriately stringent punishment, even though the actions were taken intentionally and in bad faith. (11) Despite the numerous deletions by Kolon employees, the company had circulated two litigation hold memos and had preserved numerous other files. (12) Additionally, prejudice to DuPont was minimized because Kolon was able to retrieve some of the files from back up tapes. (13) But, Kolon's spoliation compromised and limited DuPont's ability to present its case, in addition to spurring additional time and expense in litigating the spoliation issue. (14) The court awarded DuPont attorneys' fees, expenses, and costs related to the spoliation motion and granted an adverse inference instruction for the unrecoverable deleted information. (15)

In Kolon, the foreign defendant was sanctioned for spoliation of electronic documents where its employees had intentionally and in bad faith destroyed the information. Had Kolon been headquartered in a jurisdiction where production of the spoliated documents was prohibited by that jurisdiction's law, should Kolon still have been subjected to spoliation sanctions? This article suggests that the foreign forum's data privacy laws would not be sufficient to insulate the foreign defendant from liability for spoliating electronically stored information, and thus local sanctions remain appropriate.

This article first provides a brief overview of electronically stored information ("ESI"). This article next discusses the federal law that allows a United States court to order discovery in contravention of foreign laws and provide a brief overview of some of the foreign laws that would prohibit the production of ESI to a United States court. After briefly discussing spoliation and its accompanying sanctions, this article asks whether a United States court would sanction a foreign defendant for ESI spoliation where the defendant is operating in a jurisdiction where domestic law would prohibit providing that data to a foreign court. This article concludes by considering the implications on business practices of foreign defendants and whether imposing these kinds of sanctions should be within the power of American courts.

1. Electronically Stored Information

   Electronic evidence has emerged as a primary means of proving or disproving a case in international litigation, as business is increasingly conducted over the internet. (16) Patties seek production of e-mail messages, computer "documents," and native format files, hoping to find a "smoking gun" (17) in the thousands--or even millions (18)--of files produced in response to discovery requests.

   While the sheer volume of electronic discovery poses a problem for courts and litigants, difficulties also arise in applying antiquated discovery rules to new forms of "documents." The 2006 Amendments to Federal Rule of Civil Procedure 34(a) aimed to "confirm that discovery of electronically stored information ["ESI"] stands on equal footing with discovery of paper documents. (19) The amended text of Rule 34 does not provide a definition for ESI, stating only that parties may be compelled, pursuant to Rule 26, to produce:

   "electronically stored information--including writings, drawings, graphs, charts, photographs, sound recordings, images, and other data or data compilations--stored in any medium from which information can be obtained either directly or, if necessary, after translation by the responding party into a reasonably usable form ..." (20) The Committee notes announced that the terms of Rule 34(a) conferred "broad" and "dynamic" discovery obligations for ESI: "Rule 34(a)(1) is expansive and includes any type of information that is stored electronically... ." (21) ESI is "understood to mean information created, manipulated, communicated, stored, and best utilized in digital form, requiring the use of computer hardware and software." (22)

   ESI is created when a computer user creates a document, spreadsheet, email message, or other file. But computers generate exponentially more information in the form of "metadata". (23) Metadata is created when the computer records information about a file to assist it in storing or retrieving the file. (24) Most "metadata is neither created by nor normally accessible to the computer user." (25) For the most part, the "action of 'deleting' an electronic file does little more than change the name and eliminate reference to it in the operating system's list of active files." (26) True destruction is difficult and unlikely, particularly in the networked environments that are de rigeur for corporations acting on an international scale. (27) In this context, data preservation and spoliation provide challenges for litigants and courts alike.

2. Discovery Of Materials Located Abroad Under U.S. Law

   When considering whether a court should sanction spoliation of ESI where the production of ESI would be barred by a foreign jurisdiction, the threshold issue before the court is whether the court has power to order discovery from the foreign defendant in the first place.

   The judicial system in the United States grants litigants broad power to discovery from parties and non-parties alike. (28) Federal Rule of Civil Procedure ("Rule") 26 allows parties to "obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense." (29) A court may, "for good cause... order discovery of any matter relevant to the subject matter involved in the action." (30) Litigants in the United States enjoy comparatively broad access to discovery. (31) These broad provisions, which include access to ESI, may stand in stark contrast to the "discovery" laws in a foreign litigant's home jurisdiction. (32)

   In foreign jurisdictions, two types of laws would hinder the objectives of U.S. discovery orders. (33) Blocking statutes punish a state's citizens for complying with discovery requests issued in connection with other jurisdictions' litigation. (34) The Netherlands, Canada, and France all have enacted such statutes. (35) The European Union has also adopted a data Privacy Directive that prohibits the transfer of data originating within its borders to countries that lack adequate data protection standards, including the United States. (36) All EU member countries are required to enact laws that uphold these standards. (37) Depending on the member state's implementing legislation, violators of the Privacy Directive may be subject to fines or imprisonment. (38)

   Under United States law, discovery orders will change based on the underlying substantive claims: in claims brought under antitrust, patent, securities, or product liability law, patties may bring "sweeping demands" for business records, including electronically stored documents. "After all," as one court recently noted in a trans-border dispute, "electronic discovery is, at bottom, just discovery, and ... the usual limitations to which all discovery is subject apply with equal force to electronic discovery." (39) A foreign party seeking to avoid electronic discovery can attempt to rely on a foreign law prohibiting production, arguing that the law fits within the framework of these "usual limitations."

   1. Undue Burden or Cost

      Under Rule 12(b)(2)(B), a party is not required to produce "electronically stored information from sources that the party identifies as not reasonably accessible because of undue burden or cost." (40) The party resisting production has the burden to show that "the information is not reasonably accessible." (41) Conceptually, this provision could provide a basis for parties to avoid production requirements based on foreign law that would expose the party to criminal or civil sanctions.

      Where a foreign defendant seeks to excuse production on the basis of foreign civil or criminal laws, that party has the "burden of demonstrating that such law actually bars the...