310 A.3d 548
Del. Ch.2024Background
- Denner (founder of Sarissa Capital) learned of Sanofi’s interest in Bioverativ in May 2017; shortly thereafter Sarissa purchased over 1,000,000 shares in a rapid accumulation that materially increased its position.
- Multiple litigation holds were issued (Bioverativ Feb. 21, 2018; Sanofi Mar. 15, 2018; Sarissa Sept. 5, 2019) that expressly required preservation of ESI, including text messages on personal devices.
- Defense counsel never imaged or backed up key personal devices; several custodians (Denner, Sarissa GC DiPaolo, head trader Garofalo) had no responsive texts: DiPaolo lost texts after a phone repair (Sept. 2020), Denner had no texts before Oct. 2021 after an iPhone upgrade, and Garofalo had auto-delete set to 30 days.
- Plaintiff sought texts in discovery, subpoenaed third parties (Verizon, Lazard) without locating the missing messages, and moved for spoliation sanctions after other parties produced texts showing Denner did text about the matter.
- The court found the texts irretrievably lost, that Denner and Sarissa failed to take reasonable preservation steps (including custodian interviews and imaging), and that the failures were at least reckless; it granted sanctions to cure prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Duty to preserve ESI | Duty attached at least by Feb. 21, 2018 (Bioverativ hold) and extended to personal-device texts | Denfendants implied little risk of loss and relied on internal policy that texting wasn’t used for business | Duty existed from the holds; holds explicitly covered texts and personal devices, so duty satisfied |
| Are texts lost and irretrievable | Texts from key custodians are gone and cannot be restored; third-party subpoenas failed to locate copies | Defendants contend lost texts resulted from benign events (iPhone upgrade, phone repair) and they searched available sources | Texts are lost and not recoverable from other sources; deposition testimony cannot replace contemporaneous messages |
| Failure to take reasonable preservation steps / mental state | Defendants never imaged devices, failed to disable auto-delete, relied on self-collection and misleading assurances; conduct was at least reckless | Denner/others claim inadvertent loss and no intentional deletion; they attempted searches and vendor contacts | Defendants and key custodians breached preservation duties; conduct was reckless (satisfies Ct. Ch. R. 37(e)(2) culpability requirement) |
| Appropriate sanctions to cure prejudice | Plaintiff seeks adverse presumptions, preclusion of exculpatory testimony, heightened burdens, and attorneys' fees | Defendants opposed extreme sanctions and disputed culpability and extent of prejudice | Court: (1) presumes at trial that Sarissa traded on nonpublic Sanofi approach and that trading tainted the sale process; (2) raises defendants’ burden of proof one level (to clear and convincing) on issues they would bear; (3) awards plaintiff reasonable fees/expenses related to spoliation efforts |
Key Cases Cited
- Equitable Tr. Co. v. Gallagher, 102 A.2d 538 (Del. 1954) (courts may adopt inferences adverse to a despoiler of evidence)
- Sears, Roebuck & Co. v. Midcap, 893 A.2d 542 (Del. 2006) (adverse inference requires reckless or intentional destruction under Delaware law)
- Beard Rsch., Inc. v. Kates, 981 A.2d 1175 (Del. Ch. 2009) (discusses preservation duties and culpability for spoliation)
- Zubulake v. UBS Warburg LLC, 220 F.R.D. 212 (S.D.N.Y. 2003) (litigation-hold, custodians and preservation obligations)
- Paisley Park Enters., Inc. v. Boxill, 330 F.R.D. 226 (D. Minn. 2019) (text messages are discoverable ESI and parties must suspend auto-delete)
- DR Distribs., LLC v. 21 Century Smoking, Inc., 513 F. Supp. 3d 839 (N.D. Ill. 2021) (ESI discovery process: identification, preservation, collection, review, production)
- Steves & Sons, Inc. v. JELD-WEN, Inc., 327 F.R.D. 96 (E.D. Va. 2018) (loss of ESI and analysis of reasonable preservation steps)