Goldstein v. Denner

Court of Chancery of the State of Delaware · 2024 · Corporations

Updated August 22, 2026

CorporationsESI preservationspoliationdiscovery sanctionsRule 37(e)ESItext messageslitigation hold

Facts

The plaintiff sought texts from Alexander Denner, the principal of activist hedge fund Sarissa, and from other key Sarissa personnel. Denner received three litigation hold notices that expressly required preservation of text messages on personal devices, but he took no action and later claimed his texts disappeared during an October 2021 iPhone upgrade; Sarissa's general counsel, DiPaolo, likewise failed to preserve texts and later claimed they were lost after a phone repair following a pool incident, while Sarissa's head trader left his phone set to auto-delete texts every thirty days even after receiving a hold. The court found no evidence that Sarissa or its personnel imaged phones or otherwise took reasonable preservation steps, despite the holds, the SEC subpoenas, and this litigation. Other parties produced some texts from Denner, but the lost texts from Denner, DiPaolo, and the head trader could not be restored or replaced through additional discovery.

Issue

Whether the defendants' failure to preserve text messages from key custodians warranted sanctions under Court of Chancery Rule 37(e). More specifically, the court considered whether the defendants had a duty to preserve the texts, whether the texts were lost because defendants failed to take reasonable preservation steps, whether the plaintiff was prejudiced, and whether defendants acted at least recklessly so as to justify adverse presumptions and related sanctions.

Rule

Under Court of Chancery Rule 37(e), sanctions for lost ESI require a showing that (i) the responding party had a duty to preserve the ESI, (ii) the ESI is lost and cannot be restored or replaced through additional discovery, (iii) the loss resulted from the responding party's failure to take reasonable steps to preserve it, and (iv) the requesting party suffered prejudice. To obtain a presumption that lost information was unfavorable or a default-type sanction, the requesting party must show the responding party acted recklessly or with the intent to deprive another party of the information's use in the litigation.

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A derivative action is threatened against Redwood Peak Capital, a Delaware fund based in Denver, after a contested merger announcement. On March 1, the fund's general counsel sends a litigation hold to managing partner Nora Patel that expressly directs preservation of text messages on personal phones and cloud backups; Nora does nothing, and six months later her preexisting texts are gone after she replaces her phone.

If stockholders later seek sanctions for the lost texts, which is the strongest argument that the duty to preserve had attached?

Explanation. Under Rule 37(e), the threshold question is whether the ESI should have been preserved in the reasonable anticipation of or actual notice of imminent litigation. The opinion treats an express litigation hold as strong evidence that the duty had attached, and it also makes clear that business-related texts on personal devices fall within possession, custody, or control. Service of discovery requests is not required to trigger the duty, and admissibility is not a prerequisite to the existence of the preservation obligation. (Derived from Goldstein v. Denner (n.d.).)