The Court’s statutory and inherent authority to impose sanctions for eDiscovery spoliation remains important for the administration of justice and judicial case management. However, sanctions a court imposes to remediate discovery misconduct when a party fails to preserve potentially relevant information and that failure is shown to have been an intentional act to deprive the adversary of the information can have catastrophic consequences.
Because it has been more than six years since the most recent amendments to the Federal Rules of Civil Procedure (FRCP), a brief refresher of Rule 37 is a good starting point. Indeed, Rule 37 (e) of the FRCP explains the standards to apply when parties allow the spoliation of electronically stored information (ESI) relevant to pending or anticipated litigation
If [ESI] that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery, the court: (1) upon finding prejudice to another party from loss of the information, may order measures no greater than necessary to cure the prejudice; or (2) only upon finding that the party acted with the intent to deprive another party of the information’s use in the litigation may: (A) presume that the lost information was unfavorable to the party; (B) instruct the jury that it may or must presume the information was unfavorable to the party; or (C) dismiss the action or enter a default judgment
(id.). And so, determination of the intent to deprive is the baseline of behavior that triggers the imposition of sanctions under Rule 37. Against this backdrop, we examine two cases that provide a good reminder to practitioners that where an intent to deprive a party of discovery is established then drastic remedies – including case ending sanctions – may be justified.
First, QueTel Corp v. Hisham Abbas (4th Cir. July 16, 2020) involves claims of copyright infringement, under the Copyright Act, 17 U.S.C. §§ 101-1332 (2018) and misappropriation of trade secrets, under the Virginia Uniform Trade Secrets Act. The crux of QueTel’s claims was that defendant Abbas—a former QueTel employee— misappropriated source code from QueTel’s copyrighted software for use in defendants’ competing software. Specifically, the plaintiffs alleged defendants stole source code and then, after receipt of a cease-and-desist letter, destroyed the computer that housed the relevant information.
Then, during discovery defendants received a discovery request to identify each computer “used in connection with [defendants’] business” and to indicate “whether [each] device . . . [was] still in [defendants’] possession or control and, if not, [to] state when [defendants] ceased to use and/or otherwise lost possession or control over the device.” And yet, defendants failed to disclose that Abbas had destroyed the computer. In fact, it was not until confronted during a deposition, that defendants admitted the computer had been destroyed.
By the conclusion of discovery, plaintiffs determined defendants deleted “thousands” of potentially relevant files and did so just prior to plaintiffs imaging the relevant data sources. Plaintiffs’ moved for sanctions.
The district court, accepting a recommendation from the magistrate judge, found that, as a result of the cease-and-desist letter, defendants were on notice of potential litigation and had a duty to preserve the destroyed evidence, and that defendants intentionally destroyed the evidence in bad faith, with the intent of depriving QueTel of the evidence’s use in the instant litigation. The court further concluded that QueTel had been irreparably harmed and that the magistrate judge’s recommendation of a jury instruction was insufficient because defendants’ purposeful spoliation effectively deprived QueTel of its ability to pursue it claims.
Defendants appealed arguing the district court abused its discretion in awarding judgment to QueTel as a sanction for defendants’ spoliation of evidence and in imposing a permanent injunction against defendants.
The Fourth Circuit unanimously affirmed the district court finding no abuse of discretion in the decision to impose judgment as a sanction based on the finding that no less drastic sanction would adequately address the prejudice QueTel suffered or adequately deter the type of spoliation that occurred in this case. First, the court stated that the cease-and-desist letter provided actual notice to defendants that litigation was likely. Therefore, defendants should have anticipated at that time that litigation was foreseeable – triggering their duty to preserve potentially relevant information; a duty they failed to comply with. Further, the Circuit Court concluded that the imposition of a permanent injunction while drastic, was appropriate because QueTel suffered the loss of tangible and exclusive rights and would continue to suffer irreparable harm, which monetary damages would be inadequate to compensate if defendants were permitted to continue marketing its software.
A second case of interest is William v. American College of Education (E.D. III. Sept. 16, 2019).In this racial discrimination case, defendant American College of Education (ACE), and plaintiff’s former employer moved for spoliation sanctions after plaintiff purportedly destroyed potentially relevant data with intent to deprive defendant access.Specifically, defendant argued plaintiff installed a “new operating system” on his employer-issued laptop in an effort to preclude access to potentially responsive data on the laptop.
Plaintiff opposed defendant’s motion, denied he installed anything on the laptop, and argued because “he kept a second ACE-issued laptop at ACE’s Indianapolis office,” nothing was destroyed.
In reaching the merits of the motion the court determined plaintiff not only destroyed files when he “install[ed] a new operating system” but also “committed perjury in denying that he had done so.” Specifically, the court noted plaintiff generated “a smokescreen of conspiracy theories to distract from the truth” that he intentionally destroyed data. Indeed, “nothing in the record suggests that reinstalling the operating system…would have served any purpose other than destroying evidence.” The court therefore granted ACE’s sanctions motion” and dismissed plaintiff’s claims. Although a case ending sanction is drastic,the court ruled dismissal was warranted because it empowered the court to “remedy prejudice” to the defendant and “reprimand” the plaintiff, while “deter[ing] future parties from trampling upon the integrity of the court.”
These cases remind practitioners that when a party fails to fulfill its obligations under Rule 37(e) to preserve ESI drastic sanctions may not result. Rather, according to the Rule, and the case law interpreting its application, a court must determine there was an intent to deprive one’s adversary of the ESI in question and a resulting prejudice before the imposition of sanctions under Rule 37 will be appropriate.