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SAN FRANCISCO � A major fight over alleged spoliation of evidence and the potential for sanctions over electronic discovery may be shaping up in San Francisco federal court for the Oracle Corp. securities class action. The dispute centers on a British author’s audio files of interviews with Oracle CEO Larry Ellison for “Softwar: An Intimate Portrait of Larry Ellison and Oracle” that now seem to have vanished. The digital recordings were made during the very period of class claims in In re Oracle Corp. Securities Litigation, No. C01-988MJJ. Wrangling could come to a head during a May 1 hearing before U.S. District Judge Martin Jenkins, who will decide if a noncitizen with the only contemporaneous audio interviews of Ellison can be compelled to testify, or if a noncitizen may assert a Fifth Amendment right and refuse to discuss the fate of the files. Accusations abound The securities fraud suit accuses Oracle, Ellison and other top executives of falsifying software sales to mislead investors during the 2000 to 2001 period of the dot-com bubble burst. It accuses Ellison of selling $900 million of his own stock before bad news hit the market. The suit raises the issue of whether a party to a suit has an obligation to alert nonparties to save evidence, said Robert Brownstone, an intellectual property attorney in Mountain View, Calif.-based Fenwick & West’s San Francisco office. For third parties, the new electronic discovery rules that took effect on Dec. 1, 2006, do not have as strict a standard. “Companies are not obligated to scour the globe for third parties,” he said. The new amendments to the Federal Rules of Civil Procedure make clear that electronic data is subject to discovery if they are relevant and not too burdensome to produce. More sanctions? Just how expansively judges read the rule is still in flux. “I think the whole electronic discovery phenomenon has focused attention on litigation holds and the need to preserve material,” said Kathy Perkins in Atlanta-based Constangy, Brooks & Smith’s Kansas City, Mo., office an employment attorney who has written on e-discovery issues. “I think we are going to be seeing motions for sanctions and spoliation with greater frequency due to the new electronic discovery rule and explosion in discovery,” she said. Tough sanctions orders regarding discovery have been cropping up lately. In January, federal Magistrate Judge Andrew J. Peck issued a spoliation sanction against NTL Inc. and ordered a severe punishment. Jurors would be instructed to infer the worst of NTL from the missing evidence, and the magistrate judge imposed attorney fees and costs. In re NTL Inc. Securities Litigation, No. 02-CV-3013LAK. “What courts have done recently in electronic discovery, by showing they are more willing to impose sanctions, have in some measure encouraged more of that type of activity,” said H. Christopher Boehning, a securities and general litigation attorney at Paul, Weiss, Rifkind, Wharton & Garrison in New York. Multiple stories In the Oracle dispute, the audio files may be critical to the plaintiffs because a separate derivative lawsuit uncovered “very little in the way of electronic evidence,” said Dario deGhetaldi, a plaintiffs’ lawyer at Corey, Luzaich, Pliska, deGhetaldi & Nastari in Millbrae, Calif. “[Oracle] said their backup tapes had been erased and we didn’t get far pursuing that,” deGhetaldi said of In re Oracle Derivative Litigation, 867 A.2d 904 (New Castle Co., Del., Ch. 2004). During a two-day London deposition last month in the federal case, the British author, Matthew Symonds, who was not a party, asserted a Fifth Amendment right not to testify about allegedly destroyed audio files of his interviews with Ellison. Symonds first said a computer virus destroyed the files, then later admitted that was false and said he turned in the broken computer to a recycler for destruction. Finally, his third statement was redacted in bold black lines from court papers under a sealing order. Attorney Mark Solomon of Lerach Coughlin Stoia Geller Rudman & Robbins in San Diego has challenged Symonds’ right to claim a Fifth Amendment privilege as a non-American living outside the United States in what court papers call a “fabricated and unbelievable story about how, when and why the materials were destroyed.” Solomon declined to discuss the case, stating, “At this stage, all I want to say is: These are serious issues pending before the court and it would be inappropriate for me to comment.” Solomon also wants to force Symonds to discuss whether Oracle had a role in any evidence destruction, according to filings. In a sworn statement filed on March 30, Symonds denied that Ellison provided him with papers, notes or tapes for the book and said the digital recording files “are my sole property” and that he never gave anyone a “right of access” to them. Lawyers for Oracle both inside, and its private lawyers outside, the company declined to comment or did not return several calls seeking comment. Many of the pleadings in the case have been filed under seal as well. Discovery blizzard In 2004, the defense complained that plaintiffs’ lawyers issued a “blizzard of third-party discovery,” sending 107 subpoenas to Oracle customers containing 2,300 requests for documents. The company wanted it stopped. That led to a more controlled process, but did not stop the pursuit of Symonds. “The real issue on the deposition is: Were the defendants at all aware of, or responsible for, alleged misrepresentations. That is going to be the rub,” said Boehning. The electronic discovery rules “are new and courts are learning to deal with them. “Over time, case law will develop. Maybe after peaks and valleys it will settle in terms of sanctions,” he said. New questions Along with potential compelled testimony in the Oracle case, other new questions are springing up in discovery disputes. The plaintiff needs to show good cause before getting access to company backup tapes, said Brownstone. “That is a hot issue waiting for courts to start ruling,” he said. There is also speculation that some court will have to decide how broad a hold on potentially relevant material a company can issue at the outset of litigation, according to Brownstone. Sanctions are likely to result in cases in which a litigation hold was not issued, even in anticipation of litigation, according to Brownstone. Perkins said the unique aspect of electronic data is that it is possible to trace the identity of every person who has handled a document, along with the time and date he or she did so. In the old days, lawyers would attest they had produced all the relevant paper. If a plaintiff couldn’t prove more existed it was difficult to convince a judge something had been destroyed. In the employment context an employer may discover through computer time stamps that a whistleblower only filed a report after he learned he was about to be fired, Perkins said. “The kind of cases that are exploding are Fair Labor Act cases for employees who claim overtime,” she said. “With more and more information stored on badge swipes or when someone logged on to a computer, it is possible to know where employees are and when.”

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