IN RE HITACHI TELEVISION OPTICAL BLOCK CASES This document relates to all actions Civil No. 08cv1746 DMS (NLS) United States District Court, S.D. California Signed October 20, 2010 Counsel Jeffrey A. Koncius, Kiesel Law LLP, Beverly Hills, CA, Jennifer S. Czeisler, Pro Hac Vice, Sanford P. Dumain, Pro Hac Vice, Milberg LLP, New York, NY, Robert I. Lax, Pro Hac Vice, Lax LLP, New York, NY, Joseph J.M. Lange, Joseph J. M. Lange Law Corporation, El Segundo, CA, Peter G. Safirstein, Pro Hac Vice, Safirstein Law LLC, Ridgewood, NJ, for Darrin Lingle, Matthew Wagner, George Yakoubian. Jeffrey A. Koncius, Kiesel Law LLP, Beverly Hills, CA, Robert I. Lax, Pro Hac Vice, Lax LLP, New York, NY, Spencer Paul Browne, Reyes Bartolomei Browne, Dallas, TX, for Stan Gor, Crystal Markee. Alfredo Ortega, Seth Eric Pierce, Mitchell Silberberg & Knupp LLP, Los Angeles, CA, for Hitachi Home Electronics (America), Inc., Hitachi America, Ltd., Hitachi Ltd. Stormes, Nita L., United States Magistrate Judge ORDER RE PLAINTIFF'S MOTION REQUESTING FORENSIC INVESTIGATION OF SPOLIATED DATA AND 30(b)(6) TESTIMONY I. INTRODUCTION & BACKGROUND *1 This is a putative class action alleging a defect in the optical block of Hitachi's rear projection televisions. Plaintiffs contend that the Hitachi-brand LCD Rear Projection televisions (“LCD RPTV”) failed prematurely. Hitachi assembled the LCD RPTV in Mexico through its U.S. subsidiary, HIMEX. HIMEX and its engineers were responsible for implementing design changes and reconditioning TVs that malfunctioned. In response to a Rule 30(b)(6)[1] request, Hitachi designated Mr. Koji Kato, the former Chief Engineer in Quality Assurance of HIMEX as its person most knowledgeable regarding the cause of the alleged defect and any measures taken to counter it. Just before his deposition scheduled in July 2010, Hitachi “de-designated Mr. Kato” upon learning that he had deleted electronic files relevant to the litigation that he had been directed to preserve. Plaintiffs thereafter took Kato's deposition in his individual capacity. Kato testified in relevant part that he worked at HIMEX between 2002 and July 2007. He took work files home on occasion and saved them on his personal computer which had limited storage capacity. He then transferred the work files to a 200 GB Maxtor External Hard Drive, and eventually transferred the work files to an 80 GB Maxtor External Hard Drive. In doing so, Kato deleted the files off his home computer and the 200 GB hard drive which no longer functions. After Hitachi designated him a 30(b)(6) witness and just prior to his deposition, he deleted the work files off the 80 GB hard drive and ran a disk optimization utility knowing that it would make the files difficult to recover. Upon learning of Kato's destruction of files, Hitachi hired a forensic consultant, Ji2, to restore as much of the 80 GB drive as could be salvaged and now claims that most of the files have been recovered. Plaintiffs, on the other hand, have filed the current motion based on their belief that a more thorough search and technique needs to be implemented to determine the extent of information lost. [Doc. No. 99.] The Court held oral argument on Plaintiff's motion on October 15, 2010 and issued a ruling from the bench which is incorporated in this written order. II. PLAINTIFFS' MOTION Plaintiffs seek an order from this Court requiring: 1. the forensic data analysis of Kato's 200GB external hard drive and personal computer internal hard drive on which deleted documents were previously stored; 2. Plaintiffs' forensic computer expert, Mr. David P. Stenhouse, to conduct a full forensic examination of all three devices using a protocol he devised or in the alternative to have Hitachi's consultant Ji2 or a court-designated expert to perform the examination with the Stenhouse protocol; and 3. Hitachi to designate a Rule 30(b)(6) witness to testify regarding its data systems, its policies regarding document preservation and production of electronic documents in this case, and the measures taken to restore and access the deleted data. *2 For the following reasons, the court GRANTS IN PART Plaintiffs' motion and makes specific provisions for further discovery as outlined at the end of this order. III. DISCUSSION To establish spoliation, Plaintiffs must show: 1) the party with control over the evidence had an obligation to preserve it at the time of destruction; (2) the evidence was destroyed with a “culpable state of mind”; and 3) the evidence was relevant to the party's claim or defense. Zubulake v. UBS Warburg, LLC (“Zubulake IV”), 220 F.R.D. 212, 220 (S.D.N. Y 2003); see also In re Napster, Inc., 462 F.Supp.2d. 1060, 1078 (N.D. Cal. 2006). Relevance is presumed where evidence is destroyed intentionally or willfully. Zubulake, 220 F.R.D. at 220. A. Kato's Spoliation The record before the Court demonstrates that Kato spoliated relevant data. Indeed, the parties do not dispute that: (1) Kato intentionally deleted his work files from the 80 MB Maxtor External Hard Drive in June 2010 after he learned Hitachi had designated him as a Rule 30(b)(6) “person most knowledgeable” about alleged defects in the optical block of its rear projection TVs. (2) After he deleted the documents, he ran a disc optimization utility that he knew would make recovery of these files more difficult. (3) At the time he deleted these documents, Kato knew about the company's “litigation hold” and knew he had specific instructions to preserve them. (Kato Dec. 1, ¶22.) B. Hitachi is Responsible for Kato's Conduct Hitachi endeavors to distance itself from Kato, arguing he acted on his own and in direct violation of the company's litigation hold. Hitachi contends it knew nothing about Kato's “secret files” so it cannot be held responsible for Kato destroying them. (Def.'s Opp. at 12-13.) Additionally, Hitachi contends no spoliation actually occurred because virtually all of the deleted files were recovered through the efforts of Hitachi's forensic consultant Ji2. (Id. at 12-14). In other words, “no harm, no foul.” The court disagrees. Kato purposely deleted relevant files knowing he had an obligation to preserve them. His conduct as Chief Engineer of the Quality Assurance Department at HIMEX and the person initially designated by Hitachi as most knowledgeable about problems with the televisions that are the subject of this litigation must be imputed to the company under standard principles of agency law.[2] See In re Hawaiian Airlines, No. 03-00817, 2007 WL 3172642, at *6 (Bankr. D. Haw. Oct. 30, 2007); see also N.J. Mfrs. Ins. Co. v. Hearth & Home Techs., Inc., No. 3:06-CV-2234, 2008 WL 2571227, at *7 (M.D. Pa. June 25, 2008). Kato's act of taking home relevant company files was reasonably foreseeable to Hitachi, as was his decision to transfer those electronic files to his personal computer and external hard drives and take them back with him to Japan. Indeed, Hitachi concedes that Kato “made this personal copy to bring back to Japan for reference in the event his successor contacted him with questions.” (Def.'s Opp. at 6 citing Kato Decl. 1, ¶¶ 13, 14.) Thus, Kato copied the company files in the course and scope of his employment and for Hitachi's benefit, not just his own. In this regard, Hitachi's reliance on Nucor Corp. v. Bell, 251 F.R.D. 191 (D.S.C. 2008) is misplaced. Nucor is clearly distinguishable. In Nucor, a former employee of Nucor (Bell) left Nucor to join SeverCorr. Id. at 195. Bell, the employee-spoliator, used his SeverCorr computer to upload Nucor proprietary files. Id. The Court reasoned that because Bell had not disclosed the proprietary information, or its existence, to SeverCorr, “he was not acting within the scope of his employment, but for his own benefit.” Id. at 196. Here, by contrast, Hitachi concedes that Kato copied the files for the benefit of his successor at HIMEX, presumably to ease the transition, and thus ultimately for the benefit of Hitachi. (Def.'s Opp. at 6 citing Kato Decl. 1, ¶¶ 13, 14.) *3 Hitachi protests that “Kato was repeatedly asked, both before and after this litigation was filed, whether he possessed any work files at his home. He repeatedly certified in writing that he did not.” (Def.'s Opp. at 6). Further, Hitachi says “[h]e (Kato) was also specifically asked whether he took any computer files with him when he left HIMEX. He said no - including on the very day (but before) he deleted them.” Id. This claim to ignorance is somewhat disingenuous. Hitachi was on notice that Kato had taken work files home in the past as evidenced by his responses to Hitachi's employee surveys of September 7, 2007 and September 1, 2008. (See Kato Decl. 1, ¶ 18, 20). Having previously had work files at home in violation of company policy, it is reasonably foreseeable he might do so again. However, Hitachi never asked Kato to produce any documents. (Pls.' Mot. at 8:21-22, citing Kato Dep. Tr., at 46:6-23, Ex. 12 to Koncius Decl). Their sole effort was to ask Kato questions that put him in the untenable position of either lying to his employer, which he initially did, or admitting to his employer that he had violated company policy and that he possessed potentially damaging information. Despite Kato's representations that he had no work files at home, Hitachi should have taken independent steps to gather and preserve Kato's and other pertinent employee work files and thereby prevent their destruction. See Cache La Poudre Feeds, LLC v. Land O'Lakes, Inc., 244 F.R.D. 614, 630 (D. Colo.,2007) (beyond a “litigation hold” a reasonable search for responsive documents would include “independent action to verify the completeness of the employees' document production” or information by exhausting avenues through the company's document and data retention systems); see also Scalera v. Electrograph Systems, Inc., 262 F.R.D 162, 177 (E.D.N.Y. 2009) (implementation of a litigation hold is only the beginning of a reasonable investigation which should include instruction to all employees to produce electronic copies of relevant files and “separate relevant backup tapes from others”). Whether Hitachi took such steps has yet to be determined.[3] In any event, Kato acted in the course and scope of his employment when he copied company files, took them home, took them to Japan, and ultimately destroyed them. Hitachi must be held accountable for his conduct. C. The Appropriate Sanction Having established spoliation, the question is what sanction, if any is appropriate? As Plaintiffs point out, the record is not fully developed on that score. To its credit, Hitachi has made significant efforts to restore the files deleted by Kato. Just last week, Hitachi produced “thousands of documents” recovered via forensic reconstruction of Kato's 80GB hard drive. These documents according to a declaration filed yesterday by Plaintiffs' liaison counsel, Jeffrey Koncius, appear to contain evidence Mr. Koncius characterizes as “highly relevant.” He points out that a word search he performed revealed terms like “burnt” and “temp” which bear on the issues in this case. The court is not in a position to determine what remedy is appropriate for Kato's spoliation because the court is unable at present to assess the degree of prejudice to Plaintiffs by reason of his deleting relevant company files. It may be, as Hitachi contends, that most if not all of the files are recoverable. It may also be, as Plaintiffs contend, that certain relevant files may be forever lost. Whether and to what extent Plaintiffs' ability to prove its claims has been compromised by Kato's conduct must await determination at a later date. In order to fully develop the record, the Court grants Plaintiffs' motion as outlined below. D. Rule 30(b)(6) Deposition Also to assist in the development of the record, Hitachi shall designate and produce a Rule 30(b)(6) deponent (maximum two deponents) to testify regarding its data systems in place during the relevant time frame (2002 through March 2010), its policies regarding document preservation and production of electronic documents in this case, and the measures it has undertaken to restore and assess the deleted data. This deposition is to be focused on the chain of custody of Kato's work files and computer(s) and what efforts the company took to preserve and restore them after the litigation was filed. With regard to this deposition, the “litigation hold” notice itself and communications between Hitachi and its counsel are presumptively privileged and need not be produced at this time. IV. CONCLUSION *4 Based on the above analysis, the Court GRANTS IN PART Plaintiffs' motion and ORDERS the following: 1. Hitachi's consultant Ji2 shall perform the full forensic examination on all three devices. 2. Ji2 shall follow the Stenhouse protocol and Mr. Stenhouse may participate via “WebEx” conference with Ji2 to view the process used. 3. Plaintiffs bear the cost of the forensic examination, with the understanding that costs may be shifted at a future date depending on the outcome of any future motion for sanctions. 4. Hitachi will designate and produce a Rule 30(b)(6) deponent (preferably one, maximum two) to testify regarding data systems, electronic document preservation and production, and restoration measures. The deposition shall be focused on the chain of custody of Kato's work files, and Hitachi's restoration efforts regarding those files, during the relevant time frame of 2002 through March 2010. The Court FURTHER ORDERS the following Schedule: October 29, 2010: Deadline for Ji2 to Complete Forensic Examination November 19, 2010: Deadline for Production of Restored Documents to Plaintiffs December 19, 2010: Deadline for Completion of Rule 30(b)(6) Deposition Counsel shall meet and confer in an effort to agree on the scope of proposed “data carving” recommended by Mr. Stenhouse. IT IS SO ORDERED. Footnotes [1] References to rules are to the Federal Rules of Civil Procedure. [2] The court does not imply that the company necessarily participated in, ratified or condoned Kato's behavior. See Rouse v. Lee, 339 F.3d 238, 249 (4th Cir. 2003) (actions of attorneys attributable to client not because of client's participation or ratification but because attorneys were agents of client). [3] As Plaintiffs point out there is some basis to dispute reasonable steps were taken. Another Hitachi engineer witness, Koji Hirara, testified he was never asked to search for, or produce relevant documents for this case. Pls. Motion at 8 n. 6, citing Hirata Dep.Tr. At 21:13, Ex. “12” to Koncius Decl.)