E-Mail Destruction Leads to Adverse Inference and Fee-Shifting Sanctions (Telequest Int'l v. Dedicated Business Systems)

Few cases implicate discovery sanctions and spoliation of evidence like claims of unfair competition against an ex-employee. With most evidence of trade secrets theft and customer solicitation documented and proven electronically, it is far easier for plaintiffs to trace unfairly competitive activity.

For whatever reason, employees seem to think that computer forensics is still a dark ages novelty. It is routine to read cases where hard-drives are deleted are scraper programs are used to wipe files during litigation. Employees think they are helping their cause by covering their tracks.

They're not.

The recent decision in Telequest International v. Dedicated Business Systems is a good example of what discovery sanctions will be imposed for destruction of evidence. During the course of a protracted discovery dispute about production of documents, one of the defendants ran a "defrag" program just two days before he was under court order to produce a forensic copy of his hard-drive to the plaintiff's expert witness. He installed Secure Clean software, rendering certain key documents untraceable. Though some cases involve e-mail or hard-drive deletion prior to litigation, this occurred well into the dispute. As such, there was no issue the employee was under a duty not to destroy relevant evidence.

Therefore, the primary question was the appropriate level of sanctions. The court discussed the plaintiff's request for a default judgment and concluded this was too severe of a sanction. Instead, the court held an adverse inference instruction to the finder of fact, coupled with a fee award related to the discovery dispute, was a sufficient sanction under the circumstances.

The adverse inference sanction is intended to level the playing field with respect to the discovery violation, since the defendant will be unable to benefit in any way from the deletion activity. Indeed, the fact-finder is instructed that the spoliation is evidence the party did so out of the well-founded fear the contents would harm him.

In a non-compete dispute, this generally means a fact-finder is able to presume improper customer solicitation or wrongful retention of confidential information.

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Court: United States District Court for the District of New Jersey
Opinion Date: 3/11/09
Cite: Telequest Int'l. Corp. v. Dedicated Business Systems, Inc., 2009 U.S. Dist. LEXIS 19546 (D. N.J. Mar. 11, 2009)
Favors: Employer
Law: Federal

Employer Hit For Sanctions in Washington Non-Compete Dispute (Anderson Paper & Packaging v. Johnson)

Sanctions, destruction of evidence, nefarious computer activity. All continue to be part and parcel of non-compete/trade secrets litigation these days.

In a recent Washington case, alteration of evidence was front and center after an employer sued a former sales representative for violating his covenant not to compete. Rick Johnson was a former employee of Anderson Paper & Packaging from 1994 through 1998. He was then re-hired in January of 2002.

At that time, Johnson was presented with a non-compete agreement - which he contended he did not sign. His employer claimed he signed it after being offered a signing bonus. Several years later, Johnson left and went to work for a competitor. Anderson Paper then sued to enforce the non-compete against him.

During the preliminary injunction phase of the proceedings, Rick Anderson, the plaintiff's President, submitted a declaration which attached a letter dated January 5 containing the covenant Johnson says he refused to sign. (Though the facts are not clear, it appears the document submitted to the court bore Johnson's signature.)

The parties later discovered that the January 5 letter Anderson submitted contained a letterhead the company was not using in 2002. In fact, Anderson manipulated the evidence to make it appear Johnson signed the January 5 covenant when he in fact did not. The trial court imposed evidentiary and monetary sanctions, effectively ending Anderson Paper's claim to enforce the non-compete clause.

On appeal, Anderson Paper did not challenge the appropriateness of sanctions ordered under the state court's equivalent of Rule 11. It did challenge the amount of the fees, since the court awarded Johnson all fees spent defending the non-compete claim. The court affirmed, though, reasoning that Anderson Paper's argument concerning consideration was so wrapped up in the January 5 letter that fees could not be parsed out.

As to the remaining issue on appeal, the court reversed the dismissal of the other common-law claims, reasoning that the dismissal sanction was not the "least severe sanction adequate to serve the purpose of" the sanctions rule. Those dismissed claims had included causes of action to which Johnson was not a party.

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Court: Court of Appeals of Washington, Division One
Opinion Date: 11/3/08
Cite: Anderson Paper & Packaging, Inc. v. Johnson, 2008 Wash. App. LEXIS 2569 (Wash. Ct. App. Nov. 3, 2008)
Favors: Employee
Law: Washington