Motion for Sanctions Denied Due to DuPont’s Reasonable, Professional Efforts to Implement and Update Litigation Hold Notices

On April 27, 2011, the Court denied Defendant Kolon Industries, Inc.’s (“Kolon”) motion for sanctions against E.I. du Pont De Nemours and Company (“DuPont”) for alleged spoliation of four employees’ e-mail accounts and documents in litigation regarding trade secret misappropriation, theft of confidential information and other related business torts. E.I. du Pont De Nemours and Co. v. Kolon Industries, Inc., Civil Action No. 3:09cv58, 2011 U.S. Dist. (E.D. Va. Apr. 27, 2011). In essence, the Court concluded there was no spoliation because DuPont’s efforts to implement and update litigation hold notices – as well as the company’s commitment to its electronic discovery obligations – were reasonable.

The underlying litigation was based upon the alleged actions of a former DuPont employee, who signed a nondisclosure agreement when he was hired and an employee termination statement in February 2006 where he affirmed that he had returned all documents and would not divulge any trade secret or confidential information. Id. at *5. Despite that affirmation, he retained various computer files containing secret and confidential trade information and then was hired by Kolon as a consultant Id. at *4-6. After DuPont became aware in April or May 2007 that its former employee was consulting for Kolon, DuPont issued its First Hold Order in June 2007, which identified eighteen (18) “key individuals” in the relevant business unit; a Second Hold Order to 2,500 employees when it instituted the litigation in February 2009, and a Third Hold Order, mere days after Kolon filed its Answer and Counterclaim in April 2009. Id. at *7-10.

Consistent with its e-mail deletion policy, DuPont had deleted the former employees’ e-mails and also deleted the employees’ documents, leading to Kolon’s motion for sanctions. Id. at *3. In essence, Kolon argued that DuPont issued its First Hold Order over a year too late; that DuPont’s First Hold Order should have been circulated to a wider group of employees; and, that the deletion of one former employee’s e-mail account occurred under “rather suspicious circumstances.” Id. at *22. Kolon alleged DuPont’s actions resulted in “substantial prejudice” and asked the Court to make various factual findings related to the alleged spoliation, or to issue an adverse inference jury instruction. Id. at *22, 25-26.

The Court concluded that DuPont did not violate its duty to preserve documents. Id. at *39-40. Instead, the Court reasoned that DuPont had no reason to know that the documents and information allegedly within the possession of the former employees “would be relevant, or potentially relevant, to the litigation against [its former employee] or Kolon.” Id. at *40. Moreover, the Court determined that the scope of DuPont’s duty to preserve was satisfied in its First Hold Order because “the universe of DuPont’s knowledge was quite limited at that point,” and the company had no reason to identify the former employees as “key players.” Id. at *41. Overall, DuPont did not have a duty to preserve the former employees’ email accounts, so no spoliation occurred. Id. at *46.

There are some practical pointers to draw from DuPont’s actions, each of which contributed to the Court’s denial of Kolon’s motion for sanctions:

• First, DuPont promptly hired counsel to assess its litigation hold obligations before it commenced litigation.
• Second, DuPont refreshed its litigation hold notice at several points throughout the litigation and did so promptly.
• Third, DuPont ensured that its foreign affiliates were aware of the litigation hold, demonstrating its recognition of the need to educate foreign employees about the U.S. legal process and the duty to preserve.
• Fourth, the Court recognized that DuPont’s employees adequately transferred information to their successors upon leaving the company or changing positions, some of which was ultimately produced to Kolon.
• Lastly, DuPont had a formal policy for deleting the email accounts of its former employees. Although the relative strength of that policy is debatable, DuPont’s institution and maintenance of a formal policy weighed in its favor.

Overall, DuPont demonstrated to the Court that its reasonable, professional attempts to preserve electronically-stored information were appropriate — and that its duty to preserve was satisfied — consequently, there was no spoliation to sanction.