So, the Destruction of Evidence Is Not a Good Idea…

Employers holding a problematic piece of evidence may be tempted to dispose of it, in the hopes that once it is gone, so too will any legal claims disappear. But such actions can result in much bigger problems for the employer, as the U.S. Court of Appeals for the Fifth Circuit recently highlighted.

In Calsep v. Dabral. an executive of Calsep left to join another company, IPSS, that was owned by his friend, Dabral, which then surprisingly developed a product that was “functionally identical” to the first company’s product. Calsep discovered that the executive had copied hundreds of files prior to his departure, including the software source code for the product. Calsep then sued the executive, IPSS, and Dabral for the theft of trade secrets.

In discovery (when parties request and must produce relevant information and documents to each other), Calsep requested all information related to the development of the product, including the complete source code control system, which contains the development history of the product. This would reveal whether Calsep’s data was used in IPSS’s product development. After an extended dispute, with an incomplete source code control system disclosed, a magistrate judge ordered Dabral to comply with his discovery obligations. Dabral claimed that he had produced the entire source code control system with the exception of files deleted in the regular course of business prior to suit. However, Calsep claimed that Dabral deliberately made multiple deletions from the source code control system during the litigation, including after the judge’s compliance order. Additionally, hundred of thousands of records had been deleted before his earlier discovery productions.

At an evidentiary hearing, the magistrate judge found that Dabral had filed false affidavits about his actions with the court, intentionally delayed discovery, manipulated data, and deleted electronic evidence from the source code control system. Based on the judge’s findings and recommendations, the trial court entered a default judgment against Dabral and awarded damages plus fees to Calsep. Dabral then appealed.

The Fifth Circuit had no sympathy for Dabral, explaining that courts have the power to sanction parties for failing to comply with a court order, and that it has “broad discretion” with regard to the sanction – up to dismissal or default judgment. The Fifth Circuit further noted that parties have an obligation to preserve electronic evidence, and the failure to do so is likewise sanctionable by dismissal or default judgment. But before entering a “litigation-ending sanction,” the Fifth Circuit noted that a court must make four findings: (1) the discovery violation was committed willfully or in bad faith; (2) the client, rather than counsel, is responsible for the violation; (3) the violation substantially prejudiced the opposing party; and (4) a lesser sanction would not substantially achieve the desired deterrent effect.

Here, the Fifth Circuit found that all those factors were met. Dabral’s actions were deliberate and he was responsible for them. It also found that, without the information, Calsep would not be able to perform the analyses that were required to prove its misappropriation claims. And here, where Dabral destroyed crucial evidence and disregarded multiple court orders, lesser sanctions were insufficient.

So the lesson for employers here is rather simple: Don’t destroy evidence. Even bad evidence. Almost all documentation now has an electronic trail – whether in its creation, transmission or retention – and those savvy tech experts can find those trails. Just remember that the coverup is often worse that the original wrongdoing!