November 20, 2018 Practice Points

Spoliation of Evidence: The Surest Road to Sanctions

Simple steps to avoid a claim of spoliation

by Matthew C. Plant

Although there are potential pitfalls at every step of the discovery process that parties and their counsel need to consider and avoid, spoliation of electronically stored information (ESI) ranks at the top of the list, and subjects the non-compliant party to a substantial likelihood of sanctions. An order recently issued by the U.S. District Court for the Southern District of Florida in FTC v. Dluca, et al., Case No. 0:18-cv-60379-KMM, Doc. No. 145 (S.D. Fla. Oct. 29, 2018), illustrates how sanctions for failure to preserve ESI can be imposed.

In Dluca, the Federal Trade Commission brought a claim against three defendants alleging that they created a cryptocurrency investment pyramid scheme. In April 2018, the court entered a preliminary injunction that required the defendants to turn over to the FTC ESI regarding their “promotion of money-making opportunities since January 1, 2014” and to further “preserve certain business records relevant to the instant cause.” (See Order at p. 1). Following the entry of the preliminary injunction, and despite actual notice of its preservation provisions, one of the defendants, Dluca, deleted all the emails that were stored in his Gmail account prior to May 2018.

The court found that Dluca violated the preliminary injunction by deleting his emails and that the FTC was prejudiced as a result. Therefore, the court sanctioned Dluca by (1) permitting the introduction of a rebuttable adverse inference at trial or in connection with a summary judgment motion “that the deleted emails would have supported the factual allegations of the Complaint … [and] that the deleted emails would tend to negate the factual allegations underlying [Dluca’s] purported ‘Affirmative Defenses’”; (2) barring Dluca from “introducing any evidence of the contents of the deleted emails”; and (3) striking Dluca’s “Good Faith” and “Mootness” affirmative defenses (Order at pp. 2–3). Interestingly, the sanctions motion was a joint motion filed by the FTC and Dluca based on a stipulation as to the spoliation violation. It might be assumed that Dluca joined in the motion because he was concerned that the sanctions could or would have been worse if he had opposed the motion.

Takeaway

Although the court’s sanctions in Dluca relate to the violation of a preliminary injunction requiring the preservation of ESI, even absent a preliminary injunction, parties are nonetheless under an obligation by court rules and case law to preserve relevant documents, including ESI, once litigation is reasonably contemplated. Practitioners need to be mindful of this obligation and counsel their clients accordingly. To that end, counsel should, at a bare minimum, (1) communicate with clients and client personnel to identify all possible data sources and repositories, whether hard copy or ESI, (2) cause the client to issue appropriate litigation hold letters to the correct custodians, and (3) follow up with the client to ensure that any litigation holds have been followed. Failing these minimal steps, the chance of relevant documents and ESI being destroyed is greatly increased, as is the risk of sanctions for spoliation.
 

Matthew C. Plant is a principal with Bressler, Amery & Ross, P.C., New York, New York.


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