Federal Evidence Review

District Court concludes duty to preserve electronic and other evidence commenced on pre-complaint telephone call, warranting adverse-inference instruction sanction, in KCH Services, Inc. v. Vanaire, Inc., et al., _ F.Supp.2d _ (W.D. Ky July 22, 2009) (Civil Action No. 05-777-C)

When electronic of other evidence is destroyed, the court may impose an appropriate sanction for the spoliation of evidence. A recent case explored when the duty to preserve evidence arises and the litigation consequence for failing to do so.

In the case, president Hankinson, of software company KCH Services, Inc., telephoned company owner Vanegas, Sr. and advised that he believed that Vanaire, Inc. was wrongfully using its software. A civil action was subsequently filed and an evidence-preservation letter was sent to the defendants. The plaintiff learned that Vanaire destroyed electronic and other records before the action commenced. The plaintiff moved for entry of default judgment, sanctions, or an adverse-inference instruction based on the spoliation of evidence, refusal to provide discovery, and other obstructionist tactics to block or impede discovery by the defendants.

In a Memorandum Opinion And Order, U.S. District Court Judge Jennifer B. Coffman, of the Western District of Kentucky, concluded the duty to preserve evidence commenced when the company president telephoned:

“Hankinson’s telephone call to Vanegas, Sr. in October 2005 should have put the defendants on notice that issues of software may be relevant to future litigation. For the duty to preserve to have attached, it is not required that Vanegas, Sr. actually knew that litigation was on the horizon, or that the software would be relevant, but only that he ‘should have known’ the software ‘may be’ relevant to future litigation…. Vanegas, Sr. ordered the software deleted immediately after the telephone call, before KCH had an opportunity to inspect.… The defendants’ conduct in regard to electronically stored evidence falls beyond the scope of ‘routine, good faith operation of an electronic information system.’ See Fed. R. Civ. P. 37(e). Vanegas Sr.’s order to delete the software and the defendants’ continued unwillingness to place a meaningful litigation hold on relevant electronic information after being placed on notice resulted in a loss of evidence relevant to the plaintiff’s case. Whether the evidence was lost in good faith or was ‘an intentional attempt to destroy evidence,’ Fujitsu, 247 F.3d at 436, the plaintiff is bereft of the very subject of the litigation as well as any e-mail correspondence contemporaneous to the software’s installation and use.”

KCH Services, Inc., _ F.Supp.2d at _ (citations and footnotes omitted).

Having concluded that spoliation of evidence occurred, the court turned to the appropriate remedy. The court concluded the request for entry of default judgment was too drastic:

“In fashioning a remedy for spoliation, courts generally consider whether the spoliation was prejudicial, whether it can be cured, the importance of the missing evidence, whether the spoliating party was acting in good faith or bad faith, and the deterrent effect of the remedy compared with a lesser sanction. In this case, even though the spoliation of the software and the e-mail was prejudicial to the plaintiff and cannot be fully cured, default judgment for the plaintiff is not warranted because a less drastic measure will redress the spoliation. An adverse-inference instruction concerning the software and e-mail will fairly compensate the plaintiff for lost evidence that may have been presented to the jury.”

KCH Services, Inc., _ F.Supp.2d at _ (citations and footnote omitted).

For another case resulting in the entry of default judgment based on spoliation of electronic evidence, see Default Judgment For Destroying And Falsifying Electronic Records Upheld By District Court. For other cases, see Spoliation and Electronic Evidence.