Timing is Everything: Court Declines to Impose Spoliation Sanctions where Critical Evidence was Destroyed Before Duty to Preserve Arose

U.S. v. Maxxam, Inc., 2009 WL 817264 (N.D. Cal. Mar. 27, 2009)

In this case, which arose from the joint purchase of the Headwaters Forest by the United States Government and the State of California, plaintiffs moved for sanctions due to the alleged spoliation of “critical” evidence by defendants Maxxam and Hurwitz. Despite finding that “certain evidence was not preserved,” the court declined to impose spoliation sanctions where there was no evidence that the destruction was intentional and where, at the time of the destruction, there was no duty to preserve.

In the 1990’s, the U.S. Government and the State of California agreed to purchase the Headwaters Forest from Pacific Lumber, which had recently been taken over by defendant Maxxam, Inc., a company controlled by defendant Hurwitz. As a condition of purchase, Pacific Lumber agreed to develop and implement a sustained yield plan (“SYP”) for its retained properties, subject to approval. An SYP was prepared by Pacific Lumber’s consulting company, VESTRA, using computer modeling and was eventually approved. Later, plaintiffs determined that the SYP was fraudulent in many respects and a lawsuit was filed in December 2006.

Plaintiffs’ lawsuit was not the first dispute surrounding the SYP. In 1999, the Environmental Protection Information Center (“EPIC”) filed an administrative mandamus challenging the approval of the SYP. In 2001, a relator assigned to review Pacific Lumber’s timber harvesting plan (“THP”) for another piece of property discovered discrepancies in the modeling, among other problems, allegedly resulting in Pacific Lumber’s use of an alternative modeling program in the future. In January 2006, Pacific Lumber filed its own suit against the State of California related to the Headwaters Agreement.

During discovery, it was revealed that certain “critical” evidence could not be found. The evidence included some data underlying the computer modeling used to create the SYP. Eric Johnson, a former VESTRA employee, explained that the inputs for the modeling simulations were “typically not saved,” and that it was “general practice” to “discard material that no longer had business value.” Johnson also indicated that by the time he left the company in 2006, “not all of the data related to the [relevant computer modeling] existed” and that he was unable to locate certain “critical” input files. Thus, he believed the data went missing prior to his departure.

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Source: ediscoverylaw.com