In re Kmart Corp.

United States Bankruptcy Court · Corporations

CorporationsBankruptcyDiscoverySpoliationspoliationlitigation holdduty to preserveRule 37(b)

Facts

Global filed administrative claims alleging, among other things, breach of contract, tortious interference, and defamation by Kmart, supported by detailed attachments describing the alleged conduct and large claimed damages. After Global served discovery requests, the parties entered a July 11, 2005 stipulation and order requiring Kmart to produce responsive documents from headquarters and stores by specified deadlines, but Kmart's production was delayed, piecemeal, and incomplete for months. Kmart had preexisting email deletion and hard-drive cleansing practices, and it did not implement a formal litigation hold when its preservation duty arose. By the time of the sanctions hearing, Kmart had produced over 20,000 pages but still had not adequately searched all data repositories, including its P-drive and W-drive.

Issue

Whether Kmart should be sanctioned for spoliation of evidence and for violating the court's July 11, 2005 discovery order. More specifically, the court had to decide when Kmart's duty to preserve arose, whether Kmart acted with willfulness, bad faith, or fault, whether Global showed destruction of relevant evidence and resulting prejudice, and what relief was appropriate for Kmart's deficient compliance with discovery obligations.

Rule

A party's duty to preserve evidence arises when it is on notice that documents are potentially relevant to pending or likely litigation, and that notice may arise before a complaint is filed. Sanctions for spoliation require both a preservation duty and a sufficient culpability showing; default judgment or dismissal ordinarily requires clear and convincing evidence of willfulness, bad faith, or fault, while lesser sanctions may be imposed on a lesser showing. Under Rule 37(b), a violation of a court order is a prerequisite to sanctions, and sanctions must be proportionate to the offending conduct, with prejudice considered especially where the conduct amounts only to fault. Failure to implement an adequate litigation-hold or preservation program is relevant evidence of fault, though not automatically enough to justify spoliation sanctions.

🔒

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

One of 10 multiple-choice questions for this case. Pick an answer to see why.

Summit Retail Group, headquartered in Columbus, receives a detailed pre-suit demand from vendor Nora Patel in Cleveland. The demand alleges breach of contract, tortious interference, and defamation, attaches emails and a confidentiality agreement, and claims losses exceeding $3 million annually. Summit continues ordinary deletion practices for months until a complaint is filed.

When did Summit’s duty to preserve most likely arise?

Explanation. A preservation duty arises when a party is on notice that documents are potentially relevant to pending or likely litigation, and that notice may arise before a complaint is filed. A detailed, high-value demand describing concrete legal theories and supporting facts is enough to make litigation likely. The majority rejected rigid timing rules and focused on whether the submission gave sufficient notice.