MICHAEL LESH, M.D. and ERIC VAN DER BURG, acting jointly as the Shareholder Representatives for former shareholders of Appriva Medical, Inc., Plaintiffs,
EV3, INC. Defendant.
Judge Calvin L. Scott, Jr.
AND NOW, TO WIT, this 16th day of April, 2013, IT IS HEREBY ORDERED as follows:
1. Plaintiffs are former shareholders of Appriva Medical, Inc. ("Appriva"), a company that developed an implantable cardiac medical device known as "PLAATO." On May 20, 2005, a suit was filed against Defendant ("ev3") by two former shareholders of Appriva based on various claims, namely breach of contract arising from a merger agreement between ev3 and Appriva. Plaintiffs bring this motion for an adverse inference jury instruction on the grounds that ev3 has likely destroyed critical evidence by failing to suspend the auto-deletion of e-mails and documents of former employees until three years after its duty to preserve documents arose and eighteen months after it issued a legal hold. Plaintiffs assert that ev3 anticipated litigation as early as October 9, 2003 and, thus, ev3 was under a duty to preserve evidence at that time. ev3 argues that it was under no duty to preserve evidence until the suit was filed in May 2005 since no evidence has been plaintiffs threatened litigation or that the circumstances suggested imminent threat of litigation.
2. Appriva entered into the Merger Agreement with ev3 on July 15, 2002 ("Merger Agreement") and the merger closed on August 10, 2002. Pursuant to the Merger Agreement, Appriva shareholders would receive an "Initial Merger Consideration" of $50 million. In addition, shareholders were entitled to contingent merger consideration based on four "Milestones" related to certain regulatory events for the PLAATO device. The first contingency payment, $50 million, was required if ev3 submitted an application ("IDE Application") to and received approval from the Food and Drug Administration ("FDA") for a pivotal clinical trial by January 1, 2005.
3. Plaintiffs allege that, prior to the merger, ev3 expressed that it planned to submit the IDE Application to the FDA by October 2002. However, by the middle of 2002, ev3 had not submitted the IDE Application. Thereafter, Plaintiffs contacted ev3 to learn the reason for ev3's failure to submit the application.
4. On October 9, 2003, ev3 met with Plaintiffs to discuss the circumstances regarding the delayed submission of the IDE application. After the meeting, Paul Buckman ("Buckman"), who was CEO of ev3 at the time, stated in an email that "[an Appriva shareholder present at the meeting] specifically stated that she now thinks we had no intention of ever submitting an IDE and that she would not have agreed to a milestone based deal had she known this."
5. To support their motion, Plaintiffs have included ev3 internal documents dated October 29, 2003 relating to the ev3 Board of Directors Meeting. These documents were prepared by Ginny Kirby, a non-attorney in ev3's regulatory department. The documents each contained an "Attorney Client Privileged-Protected Work Product" stamp.
6. Plaintiffs have also included an additional e-mail from Buckman dated November 12, 2003. In the email, Buckman stated
Curiously, [an Appriva shareholder] has not responded in any fashion. I don't know if she is pissed, talking to lawyers, knows she can't fight it, or just doesn't care anymore. I have been pleased with the reaction by our investigators. They understand and support our decision but desparately (sic) want us to find some way to make it available.
When Buckman was questioned during his deposition about this e-mail he admitted that he had "guessed" that the shareholder might have been talking to lawyers about pursuing litigation. However, when he stated that the shareholder knew that she could not "fight it" he was referring to her ability to challenge ev3's sole discretion over filing the IDE application and its position on the clinical data regarding PLAATO.
7. ev3 had in place a document retention policy, effective July 31, 2003, in which all e-mails older than 6 months were required to be "purged from the ev3 server on a daily basis." However, on July 16, 2004, ev3 issued a notice for individuals to preserve and retain documents related to PLAATO with a "Clean Up Day", where employees were to sort through dated files and have the option to submit e-mails or documents relating to Appriva or PLAATO to a company e-mail address. Also in July 2004, ev3 directed its IT department to preserve any existing electronically stored information created or formerly maintained by certain former ev3 employees, including Paul Buckman, Deb Lano, and Bruce Krattenmaker. The e-mail mailboxes of these former employees had rotated off of ev3's servers as a result of its document retention policy.
8. Plaintiffs request an adverse inference instruction that would allow the jury to infer that the destroyed emails contained evidence that ev3 did not pursue the milestones in good faith. A party who requests that the Court issue an adverse inference must "offer more than mere speculation and conjecture that a particular [item] existed" and show that the item "supported the aggrieved party's position." In order to issue an adverse inference instruction, the trial court must make a "preliminary finding of intentional or reckless destruction of evidence". If a litigant "takes part in the destruction of evidence while being consciously aware of a risk that he or she will cause or allow evidence to be spoiled by action or inaction and that risk would be deemed substantial and unjustifiable by a reasonable person." A party's awareness of a risk that it will cause evidence to be destroyed by inaction presents a unique issue in the context of electronically stored information. The Chancery Court has recognized that "[i]t is also well known that absent affirmative steps to preserve it, at least some electronically stored information ("ESI") is likely to be lost[…] through routine business practices or otherwise." However, the Third Circuit Court of Appeals has held that "[w]hen data is destroyed pursuant to a normal recordkeeping practices (and in particular when it is destroyed in relation to a major life event like an employee's retirement), no adverse inference is warranted."
9. Once the Court makes a finding of intentional or reckless destruction, it must then analyze to whether such evidence was destroyed where the litigant "[knew] that the item in question [was] relevant to a legal dispute or it was otherwise under a legal duty to preserve the item." A party is under a legal duty to preserve evidence when it has "reason to anticipate litigation" or when the facts and circumstances indicate that ligation is imminent or should be expected.
10. Plaintiffs have failed to show that ev3 should have anticipated litigation or that the facts indicated that litigation was imminent before it initiated steps to preserve documents and the emails belonging to the former employees. The only evidence which suggests that ev3 had reason to anticipate litigation as of the October 9, 2003 meeting is the e-mail from Buckman explaining that a shareholder thought that ev3 intended never to pursue the IDE Application and mentioned that she would not have entered into the Merger Agreement based on that intention. Plaintiffs also suggest that ev3 had reason to anticipate litigation on November 12, 2003 based on Buckman's e-mail about whether a shareholder was "talking to lawyers" and Buckman's indication that he "guessed" that she might be talking to lawyers about pursuing litigation. The ...