Spoliation of Evidence Can Result in Dismissal or Default

When specific and identifiable litigation becomes reasonably foreseeable, those likely to be involved in the litigation and with awareness of their likely involvement have a duty to preserve potentially relevant evidence. Failure of such a party to take reasonable steps to preserve the evidence–or intentional alteration, concealment, or destruction of evidence–is known as “spoliation of evidence” (often misspelled as “spoilation of evidence,” which is not a thing) and can result in severe sanctions if other litigants are prejudiced by their inability to use the missing evidence at trial. (See Va. Code § 8.01-379.2:1) Typically, the court will instruct the jury that it may (or must) presume that the evidence–had it been preserved–would have been unfavorable to the party who failed to preserve it. Sometimes, however, in particularly egregious circumstances, the court can dismiss the action (if the plaintiff is guilty of spoliation) or enter a default judgment (if spoliation was committed by the defendant).

Case in point: QueTel Corp. v. Hisham Abbas, No. 18-2334 (4th Cir. (Va.) July 16, 2020). QueTel brought this action against Hisham Abbas, Shorouk Mansour, and Finalcover, LLC, for misappropriation of trade secrets, copyright infringement, and other claims. The gist of the lawsuit was that Abbas–a former QueTel employee–allegedly stole source code from QueTel’s copyrighted software (TraQ Suite 6) and used it in a competing product (CaseGuard). QueTel sent the defendants a cease-and-desist letter in which it demanded that they:

  1. cease infringing on QueTel’s intellectual property including the source code underlying the TraQ Suite 6 software;
  2. cease all advertising, promotion, and sale of the CaseGuard software;
  3. provide an accounting of all sales of the CascGuard software made to date; and
  4. allow QueTel to copy and inspect a complete copy of all versions of the CaseGuard source code as well as any computers that Abbas used during the period from January l, 2014 to the present.

As noted in the magistrate judge’s report, the letter also contained the following detailed description of the defendants’ duty to preserve evidence:

Beyond the above-referenced obligations, please be aware that you must preserve all potentially relevant evidence relating to the matters addressed in this letter. This duty to preserve potentially relevant evidence extends to all such evidence, regardless of the format in which it may exist. It specifically includes, but is not limited to, any e-mails (whether in a personal or business e-mail account), any documents stored on any personal or business computers, servers, electronic storage devices, external hard-drives, or other similar devices, and/or cloud storage accounts concerning the subject matter of this letter, CaseGuard and/or TraQ Suite 6. Failure to preserve such evidence may result in sanctions. The possible sanctions include an inference in judicial proceedings that the failure to preserve such evidence indicates knowledge of wrongdoing and liability, and that any destroyed evidence would have helped establish the Company’s claims, as well as monetary and other judicially imposed sanctions.

Litigation ensued, and it was eventually discovered that Abbas had “disposed of” the computer he used to develop CaseGuard several months after receiving the cease-and-desist letter. That computer had a source code control system installed on it that would have tracked changes to the program’s source code, which could shredder-71772_960_720-300x200have been used to help establish whether CaseGuard was derived from TraQ Suite 6. This information was lost forever when the computer was “disposed of.”

In the course of discovery, QueTel sent the defendants an interrogatory asking them to identify each computer “used in connection with [their] business from April 1, 2014[,] through the present” and to indicate “whether [each] device…[was] still in [their] possession or control and, if not, [to] state when [they] ceased to use and/or otherwise lost possession or control over the device.” This would have been a good time to reveal to QueTel that the computer used to develop CaseGuard had been destroyed, but apparently the response to the interrogatory did not include that information.

In federal court, as in state court, a party may be sanctioned for spoliation where the party had a duty to preserve material evidence and willfully engaged in conduct that resulted in the loss or destruction of such evidence at a time when the party knew—or should have known—that the destroyed evidence was or could be relevant in litigation. (See Turner v. United States, 736 F.3d 274, 282 (4th Cir. 2013)). Here, the district court found that the defendants were on notice of potential litigation as a result of the cease-and-desist letter and had a duty to preserve the computer used to develop CaseGuard. The district court further found that the magistrate judge’s recommendation that it give the jury an instruction to presume the destroyed evidence was unfavorable to the defendants was not enough.

Not only did the defendants not preserve the evidence, but the court found they destroyed the evidence intentionally and in bad faith, intending to deprive QueTel of access to the evidence it needed to prove its claims. QueTel had been irreparably harmed by this destruction of evidence, so a jury instruction was deemed by the district court judge to be an insufficient sanction. Instead, the district court entered a judgment (as to liability) against the defendants, handing QueTel a victory. The Fourth Circuit upheld that judgment on appeal.

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