We have written multiple times on the EDVa Update Blog about the Court’s handling of spoliation claims. Recently we covered the 4th Circuit’s remand of a District Court ruling applying an adverse inference following a failure to preserve certain evidence. We have also written on the workings of amended Fed. R. Civ. P. 37(e). With sweeping changes ahead with the amendment to Rule 37(e) (effective date: December 1, 2015), the Court’s analysis of spoliation claims and associated sanctions will undergo major changes.
The Eastern District’s 61-page opinion in Integrated Direct Marketing, LLC v. May & Merkle, Inc., Case No. 1:14-cv-1183 (E.D. Va. Sept. 8, 2015), is likely one of the last pre-Rule 37(e) amendment spoliation rulings we will see. In this case, the ruling is consistent with the analysis that will soon apply, but the District Court in the case took a very different route to get to the same place. Even though the record included substantial evidence of ESI spoliation, the Court based its ruling on its finding of false statements in an affidavit, which allowed it to side-step the current legal swamp on spoliation.
IDM Case Posture: Summary Judgment and Spoliation Arguments
The IDM case presented an unfortunate but common fact pattern. It is alleged in the pleadings that Drew May, an Executive Vice President at IDM, was pushed out of the company. As he left, he allegedly downloaded a large number of IDM’s electronic documents to an external hard drive. May then signed on as new vice president at Merkle, a competitor to IDM. While IDM was threatening suit, the former VP allegedly deleted (on the day before the filing of the Complaint) many of the IDM documents that he allegedly downloaded to his external hard drive. The deletion activity allegedly continued for the next couple weeks. Since the VP knew of the credibly threats of a lawsuit, there was a duty preserve relevant ESI and documents.
IDM sued in the Alexandria Division of the Eastern District on multiple counts. The lead claims were for trade secrets misappropriation, breach of fiduciary duty, beach of a confidentiality agreement, and conversion. The discovery quickly turned to the ESI on the VP’s external hard drive.
IDM retained Craig Ball, a nationally-known eDiscovery attorney and forensic investigator to examine the VP’s external hard drive. Ball uncovered the VP’s conduct and identified more than 500 deleted IDM documents. Ball’s work also identified incriminating dates of the VP’s alleged deletions.
After a prolonged discovery war, both defendants moved for summary judgment arguing that there were no trade secrets involved and there had been no misappropriation. Defendant Merkle was apparently able to distance itself from the VP’s conduct; the Court granted Merkle’s motion on all counts.
The VP’s defense was complicated by the spoliation and false statement issues. The Court’s opinion notes that relevant evidence was not truly lost, and in fact, had been recovered. The Court was nonetheless troubled by the conduct, which included false statements in an affidavit submitted to the Court. IDM’s substantive case, however, was deteriorating. It faced an added hurdle that its designation of experts came late, and the Court had barred the damages experts from testifying—a huge problem in proving IDM’s $46 million claimed damages.
In its post-discovery pleadings, IDM emphasized the evidentiary spoliation and the VP’s false statements, and it targeted the most severe spoliation sanctions—striking of defenses and/or an adverse inference instruction to the jury.
The District Court‘s solution in its rulings was to veer away from spoliation and to focus on the false statements in the VP’s affidavit. Curiously, the Court concluded that since the forensic work led to the recovery of the deleted ESI, there was “insufficient evidence to support a finding of spoliation.” In its remedy, the Court avoided the draconian sanctions requested by IDM, but imposed stiff financial sanctions against the VP.
The VP’s motion for summary judgment was granted on all but the conversion counts, but the Court ordered him to pay a portion of IDM’s attorney’s fees plus the forensic expert’s bill.
Influence of Rule 37(e)’s Upcoming Arrival?
The District Court’s ruling comes under the current rules and case law. In 10 weeks, however, amended Rule 37(e) will be effective, and the requisite analysis will shift. The coming rule will limit the Court’s inherent authority to impose spoliation sanctions (instead, authority will come from the new amended Rule), will structure the factual and legal analysis, and will direct turning away in most situations from the draconian sanctions and towards remedies that are not outcome determinative. Hopefully, what is currently a legal swamp will disappear, and District Courts will then see have a clearer analytical path and predictable sanctions.
Notwithstanding the District Court’s conclusion that there was insufficient evidence to support a finding of spoliation (the findings suggest egregious spoliation but not real prejudice to IDM), it appears that IDM had a serious argument that the VP’s conduct supported striking his defenses or giving IDM an adverse inference instruction. Even under the upcoming new Rule 37(e) provisions, the VP’s spoliation arguably could support the imposition of the requested draconian sanctions. But the new Rule and the accompanying Committee Note state a preference for the alternative yet less-severe sanctions.
The IDM Court arrived at a solution that would be consistent with the coming rule. But the Court arrived at this result by a very different route. The lengthy opinion side-stepped entirely the spoliation issue, and thereby avoided the current legal swamp. Instead, the Court grounded its ruling on the VP’s submission of a false affidavit. This is an understandably safe route, but an unnecessary path after December 1, 2015 under the new Rule 37(e).