In a recent case, the Eastern District of Virginia decided that sanctions were warranted against a party that destroyed evidence prior to the start of litigation. Here, the court held that documents deleted from a computer were lost and irreplaceable, and that the individual demonstrated an intent to deprive the other party of use of the information, which warranted the imposition of sanctions. This case offers helpful guidance on when a court may choose to impose sanctions when potential evidence is similarly destroyed.
GMS Industrial Supply, Inc. v. G&S Supply, LLC
Westly Greer worked as a sales agent for GMS Industrial Supply, Inc. (“GMS”), an industrial sales company, before being promoted to district manager and then Director of Sales, serving as head of the entire sales team. In this role, Greer was given wide access to GMS’ confidential, proprietary, and trade secret information. In 2015, while still employed at GMS, Greer started a business, HMC Supply, LLC with another sales agent, Gregory Spires, and two other GMS sales agents. In 2017, Greer and Spires started a new company, G&S Supply, LLC (“G&S”), through which they sold standard industrial products to GMS customers. Greer and Spires recruited other GMS sales agents to sell G&S goods to GMS customers. In January of 2019, Greer stepped down as Director of Sales for GMS and became a contract sales agent for G&S.
On April 1, 2019, GMS discovered the existence of G&S and that Greer and Spires owned G&S and conspired with other GMS sales agents to compete with GMS. On April 2, Greer connected a USB device to his GMS-issued desktop. On April 3, 2019, through counsel, GMS sent letters to Greer, Spires, and other sales agents working with G&S terminating their sales agreements with GMS. The letter to Greer also informed him of his legal obligation to preserve all potentially relevant information and his responsibility to suspend any document destruction policies and automatic deletion functions. On April 17, 2019, GMS sent another letter to Greer informing him of GMS’ awareness that he continued to breach his contractual agreement and directing Greer to return GMS’s property, including a laptop computer and a desktop computer.
When GMS employees logged into Greer’s desktop and laptop computers, they discovered that all user-created files had been deleted from the desktop. GMS sent the computer equipment to a digital forensics firm (“BDO”) and BDO performed a forensic examination on the laptop and desktop computers. The forensic examination found: over 43,000 files and folders were deleted from the laptop computer, 7,075 of which were deleted after Greer was terminated and received the litigation hold letter; and over 24,000 files and folders were deleted from the desktop computer, 11,791 of which were deleted after Greer was terminated and received the litigation hold letter. BDO also discovered that on April 19, Greer connected a USB storage device to the desktop computer, then downloaded and installed a file shredding program from File Shredder. After the installation, Greer ran the file shredding program, permanently deleted 3,397 files from the computer, and then uninstalled the shredding program.
GMS filed suit against G&S, Greer, and others seeking injunctive relief and damages. After a series of legal filings, GMS filed a Motion for Sanctions against Greer and G&S.
Appropriateness of Sanctions
Federal Rule of Civil Procedure 37(e) governs the spoliation of electronically stored information (“ESI”) and gives the court authority to levy sanctions on an individual that spoils evidence. “Spoliation refers to the destruction or material alteration of evidence or to the failure to preserve property for another’s use as evidence in pending or reasonably foreseeable litigation.”
An individual must establish four threshold requirements before a court can decide if any spoliation sanction is appropriate: (1) ESI should have been preserved; (2) ESI was lost; (3) the loss was due to a party’s failure to take reasonable steps to preserve the ESI; and (4) the ESI cannot be restored or replaced through additional discovery.” Spoliation requires “more than the ‘negligent loss or destruction of evidence,’ as ‘the alleged destroyer must have known that the evidence was relevant to some issue in the anticipated case, and thereafter willfully engaged in conduct resulting in the evidence’s loss or destruction.’”
Here, only elements two and four are in dispute. Information is “lost” under element two “only if it is irretrievable from another source, including other custodians.” Irreplaceability does not require a party to “pursue every possible avenue for replacing or restoring the ESI, but it must show that it made some good-faith attempt to explore its alternatives before pursuing spoliation sanctions.”
Of the documents downloaded by Greer, a number of them have never been produced or otherwise received by GMS. BDO was unable to recover a set of downloaded files and, while the defendants provided some documents, none of the documents produced matched the request numbers of the files downloaded and deleted by Greer. Since GMS had Greer’s laptop forensically examined, issued a subpoena to DLA, and sent discovery requests encompassing the documents in an effort to recover the documents, the court held that GMS made a “good-faith attempt” to explore alternatives for replacing or restoring the destroyed documents. Thus, the court found that the missing documents and permanently deleted files are both lost and irreplaceable.
After a party makes the threshold showing under Rule 37(e), he must establish one of two options that would permit imposing sanctions: (1) “prejudice to another party from loss of the information,” or (2) “the party acted with the intent to deprive another party of the information’s use in the litigation.” Previous cases indicate that the spoliating party’s conduct “does not need to be in bad faith to qualify as intentional.” “A party’s ‘conscious dereliction of a known duty to preserve electronic data—whether passive or active—is both necessary and sufficient to find that the party acted with the intent to deprive another party of the information’s use.”
The court here concluded that Greer’s actions “demonstrate an intent to deprive Plaintiff of use of the information stored on his desktop.” Greer received a letter from GMS in which he was instructed to “preserve any potentially relevant documents and information relating to” the breach of contract allegations. Despite the clear instructions to preserve potentially relevant documents and information, Greer proceeded to download File Shredder onto his desktop and destroyed all of the user-created files.
The court also found G&S liable for Greer’s spoliation. Greer is a partial owner of G&S and was employed by G&S at the time of the spoliation. Greer also used the GMS-issued laptop for work related to G&S. Since the laptop was clearly used in the course of his employment with G&S, and in “furtherance of the master’s business,” the court held that Greer was an agent of G&S at the time of the spoliation and, thus, G&S is also liable for Greer’s spoliation.
“If spoliation has occurred, then a court may impose a variety of sanctions, ranging from dismissal or judgment by default, preclusion of evidence, imposition of an adverse inference, or assessment of attorney’s fees and costs.” The court here found that Greer’s “blatant and intentional disregard for his obligation to preserve ESI on his desktop” warrants an adverse inference instruction and also determined that Greer and G&S must pay GMS’s reasonable attorneys’ fees and costs. The adverse inference instruction is an instruction to the jury “that it may or must presume the information was unfavorable” to Defendants.
The court here offered some helpful and clear guidance on when sanctions may be appropriate after an individual deletes potential electronic evidence. First, a party must establish that (1) ESI should have been preserved; (2) ESI was lost; (3) the loss was due to a party’s failure to take reasonable steps to preserve the ESI; and (4) the ESI cannot be restored or replaced through additional discovery.” Implied is a requirement that the destroyer must have known that the evidence was relevant to some issue in the anticipated case, and thereafter willfully engaged in conduct resulting in the evidence’s loss or destruction.” Additionally, there must either be prejudice to another party from loss of the information, or the party must have acted with the intent to deprive another party of the information’s use in the litigation.
Since the party requesting sanctions must establish that the destroyer knew the evidence was relevant to a case, it’s clear that there must be some level of anticipated litigation at the time the evidence was deleted for sanctions to be appropriate. Here, that was clear when Greer received a letter from GMS through counsel instructing him to preserve all potentially relevant information and to suspend any document destruction policies and automatic deletion functions. For individuals in similar situations, after receiving letters instructing the preservation of evidence, great care should be taken before deleting anything that may be related to a matter that could be the basis of litigation. Before destroying any evidence after receiving notice of a responsibility to preserve litigation, individuals should seek guidance from counsel to avoid potential sanctions, as was the result here.
If you need more guidance or information, contact General Counsel, PC today at 202-360-4230. Attorneys at General Counsel, PC are specialized in litigation and related matters and have experience working with business owners and individuals across Virginia, specifically in Fairfax County, Arlington, Loudoun County, and Prince William.