Plaintiffs have filed a motion for sanctions as well as a motion for partial summary judgment. Argument on the matters was heard on December 20, 2007, and supplemental briefing regarding the sanctions issue was requested on June 26, 2008.
BACKGROUND
The underlying facts of this case have been discussed at length in prior decisions and need not be restated here. See Nursing Home Pension Fund v. Oracle Corp.,
Also pending is plaintiffs’ request for sanctions based on alleged evidence spoliation by defendants. Plaintiffs have moved for terminating sanctions or, in the alternative, for lesser sanctions in the form of adverse inference instructions and an order precluding defendants from relying on spoli-ated evidence. Plaintiffs put forth a long list of actions allegedly taken by defendants that led to the failure to preserve or the affirmative destruction of evidence relevant to this lawsuit. Plaintiffs allege that after they served defendants with notice of this action on March 9, 2001, defendants only sent preservation notices to about 30 out of more than 40,000 Oracle employees. In so doing, plaintiffs allege that defendants improperly focused their preservation efforts only on employees who made the allegedly false statements and those who communicated with them, and therefore did not send preservation notices to employees at the vice-president level, regional sales managers, and others who might have possessed relevant information. Plaintiffs also claim that the preservation process itself was inadequate, such that defendant Ellison, who received the preservation notice, did not preserve in his own files hundreds of emails, many of which plaintiffs discovered in other email files. Defendants contend that their preservation notices were adequate, but do not dispute that they produced an extraordinarily small number of emails sent or received by Ellison from his own email files.
Next, plaintiffs allege that defendants failed to preserve data from Oracle Sales
In May 2006, plaintiffs asked Special Master Edward Infante for relief regarding some of these spoliation allegations. Specifically, plaintiffs moved for default judgment against defendants for failing to produce certain evidence and failing to preserve or intentionally destroying evidence. See Winkler Deck ex. 1. Special Master Infante denied the motion on July 10, 2006. The special master did not make any factual findings regarding plaintiffs’ allegations of spoliation, but did rule that “plaintiffs’ motion fails at this time” because plaintiffs had failed to demonstrate prejudice. Winkler Deck ex. 9 at
Plaintiffs additionally allege that defendants failed to preserve or destroyed documents created in preparation for a book entitled Softwar: An Intimate Portrait of Larry Ellison and Oracle (“Softwar”). The book was written by Matthew Symonds, an author and editor with The Economist, who conducted at least 135 hours of recorded interviews between March 2001 and August 2002 with defendant Ellison. In October 2006, plaintiffs moved to compel defendants to produce the transcripts and audio files of these Soft-war interviews. Defendants argued that the materials were not in their custody or control, and Symonds also asserted that the materials were his sole property. On January 2, 2007, Special Master Infante determined that although such materials were in the physical possession of Symonds, Ellison had legal control of them pursuant to a contract between Symonds and Ellison. Wink-ler Deck ex. 194. As a result, Special Master Infante ordered defendants to produce copies of “any interview notes, transcripts or tape recordings relating to the book.” Id. at 4. Shortly thereafter, it was revealed that Sy-monds no longer had the materials in question, and it appears that Symonds may have discarded the laptop computer containing the transcripts and audio files after he learned of plaintiffs’ motion to compel.
The Court will now address plaintiffs’ motion for partial summary judgment as well as plaintiffs’ current motion for sanctions.
LEGAL STANDARD
I. Summary judgment
Summary judgment is proper “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(e). The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323,
The burden then shifts to the non-moving party to “designate ‘specific facts showing that there is a genuine issue for trial.’ ” Id. at 324,
In deciding a motion for summary judgment, the evidence is viewed in the light most favorable to the non-moving party, and all justifiable inferences are to be drawn in its favor. Id. at 255,
II. Sanctions
The Court has inherent powers to arising out of “ ‘the control necessarily vested in courts to manage their own affairs so as to achieve the orderly and expeditious disposition of cases.’ ” Unigard Sec. Ins. Co. v. Lakewood Eng’g & Mfg. Corp.,
Courts have developed three types of sanctions for destruction of evidence. First, a court can instruct the jury that it may infer that evidence made unavailable by a party was unfavorable to that party. See, e.g., id.; Akiona v. United States,
In determining whether and what type of sanctions to issue, the Third Circuit has explained that courts should consider three factors: 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.” Schmid v. Milwaukee,
I. Plaintiffs’ motion for partial summary judgment
Plaintiffs have moved for partial summary judgment on the question whether defendants made false or misleading statements regarding Suite lli and financial results for 2Q01. Summary judgment on these claims is not appropriate because defendants have put forth evidence demonstrating that genuine issues of material fact remain, including whether plaintiffs can establish loss causation as to the Suite Hi and 2Q01 claims. The Court therefore DENIES plaintiffs’ motion for summary judgment [Docket No. 1259].
II. Plaintiffs’ motion for sanctions
Defendants’ motion for summary judgment and plaintiffs’ motion for summary judgment against Ellison remain before the Court. Before deciding these motions, the Court believes it is necessary to address plaintiffs’ motion for sanctions because the outcome of that motion could affect the outcome of the summary judgment motions. Plaintiffs have brought a motion for terminating or lesser sanctions against defendants for the alleged spoliation of evidence occurring over the course of this litigation. As mentioned in its June 30, 2008 Order, the Court does not find that default sanctions are appropriate because the actions alleged to have been taken by defendants “do not eclipse entirely the possibility of a just result.” In re Napster, Inc. Copyright Litig.,
As to lesser sanctions, the Court finds that adverse inferences in plaintiffs’ favor are warranted with regard to some categories of evidence that defendants concede was not produced or preserved. In order for a court to impose an adverse inference sanction, plaintiffs must demonstrate “ ‘(1) that the party having control over the evidence had an obligation to preserve it at the time it was destroyed; (2) that [evidence was] destroyed with a culpable state of mind; and (3) that the destroyed evidence was relevant to the party’s claim or defense such that a reasonable trier of fact could find that it would support that claim or defense.’ ” Napster,
The parties debate whether plaintiffs must demonstrate prejudice before the Court can impose lesser sanctions. The Ninth Circuit has recognized that it has sent conflicting signals regarding whether prejudice must be shown in order for the sanction of dismissal to be appropriate. AnheuserBusch, Inc. v. Natural Beverage Distribs.,
Having examined the original briefs of the parties, as well as the parties’ supplemental letter briefs regarding lesser sanctions, the Court finds that while some of plaintiffs’ contentions regarding spoliated evidence do not present adequate grounds for adverse inferences, other contentions are meritorious and the Court is prepared to take plaintiffs’ arguments into account in ruling on the parties’ motions for summary judgment. In their supplemental letter brief, plaintiffs ask for lesser sanctions with regard to five categories of evidence: (1) documents that may have been in the possession of employees who did not receive document preservation instructions from Oracle after this action was filed; (2) defendant Ellison’s email files; (3) materials created during preparation for the book Softwar; (4) documents relating to the audit trail of the November 17, 2000 debit memos; and (5) backup tapes of the OSO database.
With respect to defendants’ alleged failure to communicate document preservation instructions to a sufficient number of employees, plaintiffs have failed to convince the Court that sanctions are warranted. As defendants note, plaintiffs have not identified any particular documents that were not preserved as a result of defendants’ preservation efforts, and, as mentioned above, plaintiffs received a great deal of evidence despite any shortcomings in defendants’ efforts. Plaintiffs also have not demonstrated that any such shortcomings in the preservation efforts were willful. The Court therefore declines to impose sanctions based on defendants’ preservation efforts.
As to Ellison’s email files, the Court finds that sanctions are appropriate. It is undisputed that defendants produced only 15 emails sent or received by Ellison from Ellison’s own email files, and defendants do not contend that all of Ellison’s emails were preserved in his files. Instead, defendants note that over 1,650 of Ellison’s emails were produced to plaintiffs from the files of other Oracle employees. Defendants, relying on Wachtel v. Health Net, Inc.,
Turning to the factors that should be examined before granting an adverse inference sanction, see Napster,
The Court also finds that an adverse inference is appropriate with regard to materials created in connection with the drafting of the book Softwar. The materials in question, according to plaintiffs, are “at least 135 hours of tapes and transcripts of [] interviews with Ellison on topics such as Suite lli, insider trading, forecasting, the economy, and Oracle’s billion dollar savings claim.” Plaintiffs Supplemental Motion at 27. Plaintiffs first moved to compel production of these materials on October 30, 2006, and on December 29, 2006, Special Master Infante granted plaintiffs’ motion to compel production of “any interview notes, transcripts or tape recordings relating to the book.” Wink-ler Deck ex. 194 at 4. Many of these materials were never produced to plaintiffs, however, because it appears that sometime in late 2006 or January 2007, Symonds, the author of Softwar, destroyed the materials in question by directing a computer repair shop to dispose of the laptop on which Symonds had stored the recorded audio files of interviews with Ellison. Winkler Deck ex. 214. It is undisputed that defendants were able to produce to plaintiffs roughly 200 pages of transcripts from interviews conducted in 2002, but were not able to produce any recordings or transcripts from interviews conducted in 2001.
The primary dispute between the parties in relation to the motion for sanctions concerns whether defendants could have retrieved the materials from Symonds sooner or whether defendants could have prevented Symonds from destroying the materials. Defendants argue that no one at Oracle, including Ellison, ever had physical custody or control over the materials, and thus should not be sanctioned for failure to produce them. The Court need not reach the question whether defendants had possession of the materials or whether defendants could have prevented Symonds from destroying the materials, however. Even assuming defendants did have copies of the materials and were powerless to prevent their destruction, the Court finds sanctions necessary because Ellison knew of the litigation at the time most interviews were conducted, and failed to take any efforts to preserve the materials despite his obligation to do so. As Special Master Infante concluded, the agreement signed by Symonds and Ellison in February 2001 does not provide that the materials produced in connection with Softwar would
Indeed, it appears that Ellison had the ability to preserve the Softwar materials at least until sometime in 2003. Symonds stated, in a January 2007 letter to defendants’ attorney, that Ellison “waived all his contractual rights to [the transcripts and audio files] when the work on the book was finished. He said they were mine to do whatever I wanted with.” Winkler Decl. ex. 206. In the same letter, Symonds reiterated that Ellison waived his rights to the materials only four years prior to January 2007, which, under any accounting, would have been after plaintiffs filed this lawsuit. Id. (“But I repeat, Larry waived all his rights in this regard four years ago.”); see also Winkler Decl. ex. 209 at 5 (defendants’ motion stating that the book was published in 2003). It is therefore of no consequence that Symonds, not defendants, destroyed the materials in question. Spoliation includes not only the destruction of evidence, but also “the failure to preserve property for another’s use as evidence.” West v. Goodyear Tire & Rubber Co.,
As for plaintiffs’ request for sanctions for the spoliation of evidence relating to the audit trail of the November 17, 2000 debit memos and the OSO database, the Court finds that adverse inferences are not warranted. The parties dispute what really happened with regard to this evidence, and there have been no factual findings demonstrating that spoliation occurred. It also appears that plaintiffs have abandoned their claim regarding the debit memos. Plaintiffs do not suggest otherwise, and do not clearly explain how this evidence is relevant to any of their other claims. As to the OSO database, it appears that Special Master Infante already denied plaintiffs’ request to compel its production, a ruling that plaintiffs failed to appeal. See Defendants’ Opposition at 22. As a result, any spoliation of this evidence cannot meet the requirements for an adverse inference. See Napster,
To summarize, the Court holds that plaintiffs are entitled to adverse inference instructions with regard to Ellison’s emails and the Softwar-related materials, but not with regard to other evidence. The Court will take these adverse inferences into account when deciding the parties’ summary judgment motions. Specifically, the Court believes that it is appropriate to infer that the emails and Softwar materials would demonstrate Ellison’s knowledge of, among other things, problems with Suite lli, the effects of the economy on Oracle’s business, and problems with defendants’ forecasting model, but the Court notes that such inferences will not assist plaintiffs in demonstrating the existence of genuine issues of material fact for every element of their § 10(b) claims, such as
The Court also asks that in revising then-briefs, the parties address the effect, if any, of recent Ninth Circuit opinions on the issue of loss causation. See Metzler Inv. GMBH v. Corinthian Colls., Inc.,
CONCLUSION
For all of the foregoing reasons, the Court hereby DENIES plaintiffs’ motion for partial summary judgment [Docket No. 1259] and GRANTS IN PART and DENIES IN PART plaintiffs’ request for sanctions [Docket Nos. 1301, 1302 & 1465], The Court DENIES defendants’ motion for summary judgment [Docket No. 1406] and plaintiffs’ motion for summary judgment against defendant Ellison [Docket No. 1257] without prejudice to reconsideration once the parties re-file their motions in accordance with this order. The Court also DENIES AS MOOT defendants’ motion for administrative relief [Docket No. 1471]. All evidentiary motions and motions in limine are also DENIED without prejudice to reconsideration once the parties refile them along with their revised motions for summary judgment [Docket Nos. 1189, 1194, 1199,1248,1249,1250,1255 & 1402],
IT IS SO ORDERED.
Notes
. This matter was pending before the Honorable Martin J. Jenkins until his resignation in April, 2008, at which time the matter was reassigned..
. At the time they worked out their agreement regarding the book, in February 2001, Symonds and Ellison contemplated that numerous interviews of Ellison would take place during 2001 and 2002. Winkler Deck ex. 196 at 1-3.
. This does not include plaintiffs’ motion for partial summary judgment regarding statements about Suite lli and 2Q01 results, because this order denies that motion.