Arie Genger could be a patriot trying to protect sensitive national security records. Or he could be the deposed owner of a troubled company who violated a court order directing him to preserve all of his computer records. In an important e-discovery ruling issued Tuesday, five justices of the Delaware state supreme court sidestepped some of the more intriguing assertions Genger's lawyers at Paul, Weiss, Rifkind, Wharton & Garrison raised in their appeal of a $3.2 million sanction imposed on Genger for running a wiping program on his computer hard drives. But the justices took the opportunity of the Genger appeal to provide Delaware litigants and judges with some guidance on the thorny question of unallocated free space.
Unallocated free space, as Justice Jack Jacobs explained in the 47-page opinion of the unanimous court, is the part of the computer hard drive that's not dedicated to programs, documents, and other specified applications. Computers use unallocated free space for temporary storage. When you're copying or a file, for instance, the file copy may exist, unseen, in the computer's unallocated free space. The same is true of apparently-deleted files, which is why unallocated free space can be a rich source of information for techies who know how to recover those unseen files.
In September 2008, in the midst of a heated battle for control of Trans-Resources, Inc, the agrichemical company Genger founded in 1985, Genger's tech expert ran a wiping program called SecureClean on Genger's hard drive and the TRI server. According to Genger, he was worried that unencrypted versions of his personal files-including records of his work as an unofficial liaison between the Bush administration and the Israeli government-lurked in the unallocated free space. In wiping clean the unallocated free space, Genger said he was merely ensuring that his personal files stayed personal. Genger's opponent in the fight for TRI, the Trump Group (not Donald Trump, but Jules and Eddie), claimed that Genger had violated a court order directing him to preserve his files.
Chancellor Leo Strine Jr. sided with the Trump Group. In a December 2009 ruling, he gave Genger's national security argument short shrift, comparing Genger to Austin Powers as an "international man of mystery." Strine found that Genger had acted improperly. "Although I am not free from all doubt on the point, I do not, in the end, embrace Genger's version of events. He is a very sophisticated man who operates in the national security field," Strine wrote. "The most natural inference that arises when sophisticated people act secretively in a process that is governed by a court order and that has been placed under the purview of counsel to ensure compliance is that they have something to hide.I do conclude that he intended to limit the ability of the Trump Group to find additional documents that might aid it in its litigation battles with him." As sanction, Strine imposed limits on Genger's defense in the underlying fight for control of TRI and ordered Genger to pay the Trump Group $3.2 million. The Trumps went on to succeed in ousting Genger from the company he founded.
Genger brought in former Chancery Court vice-chancellor Stephen Lamb of Paul Weiss for the appeal of both the sanctions ruling and the underlying case. Paul Weiss focused on the wiping of the unallocated free space. The court order on document retention, Genger's lawyers argued, didn't specify that he had to preserve files in the unallocated space so he didn't violate the order by wiping that space clean. Moreover, Paul Weiss asserted, any order to preserve unallocated free space would be so crippling that it would prevent a company from using its computers, since computers create and overwrite files in that space all the time.
The Delaware supreme court upheld Strine's sanction of Genger on narrow grounds, finding that the record showed he had taken affirmative steps to conceal information despite an obligation to preserve it. But the court went on to address the broader question of unallocated free space.
"To avoid future repetitions of the 'unallocated free space' issue presented here," Justice Jacobs wrote, "we suggest that the parties and the trial court address any unallocated free space question that might arise before a document retention and preservation order is put in place.In addressing that issue, the parties must be mindful that court-ordered discovery of electronically-stored information should be limited to what is 'reasonably accessible.' That determination, by its very nature, must be made on a case-by-case basis."
In other words, if you're a company that could be sued in Delaware, now's the time to implement a policy on how often you clean out your unallocated free space. The courts will have to take that policy into account in establishing an evidence preservation order.
Genger counsel Lamb of Paul Weiss told OTC that another part of the supreme court ruling, which reverses Strine's finding on the ownership of TRI shares held in trust, means Genger and his daughter can proceed with a Manhattan court case claiming ownership of those shares. "We are disappointed that we were unable to convince the supreme court to grant additional relief to Mr. Genger," Lamb said. "But we are pleased that we were able to secure sufficient relief to permit us to proceed in New York."
Thomas Allingham of Skadden, Arps, Slate, Meagher & Flom, who argued for the Trump Group at the Delaware supreme court said his clients are "obviously delighted" that the justices affirmed his clients' control of TRI-and Genger's sanction. "We are very, very pleased that the supreme court affirmed the holding that Mr. Genger is responsible for his improper conduct," Allingham said.
(Reporting by Alison Frankel)