The case of Easton Sports v. Warrior Lacrosse involves the movement of an employee from one company to another and the allegation that he misappropriated trade secrets and confidential business information from his first employer.
A federal magistrate in Michigan recently was called upon in the case to decide whether and to what extent sanctions should be awarded with respect to the failure to preserve certain electronic evidence.
The magistrate found that the employee had inappropriately accessed numerous confidential electronic documents in his first employer's computer record system. He then transferred at least a portion of those records to his personal Yahoo computer system account. The magistrate further found that the employee corruptly terminated his Yahoo contract with the intent to cause the destruction of information or data compiled through that service.
Additionally, the magistrate concluded that he improperly copied confidential business information of his first employer to a CD, that he retained control of the CD after he ceased working for that employer, and that he later accessed the contents of the CD via a computer assigned to him by his second employer. That information was deleted after the filing of the lawsuit by the first employer--but before it was ordered that there be an examination of the relevant computer hard drive, according to the magistrate.
While the first employer sought a sanction for this conduct that effectively would have gutted the defenses of the second employer, the magistrate did not go that far. But it did reason that the failure to preserve electronic evidence at least constituted negligence and warranted an appropriate sanction.
The magistrate, in his decision, expressed concern that the second employer was aware of the employee's lack of loyalty to the first employer. Indeed, there was "definite evidence" that the information from the first employer was transmitted to the second employer from the CD and the Yahoo account. The magistrate held that the second employer "should have done more to detect and preserve relevant data" under the control of the employee. The magistrate concluded that the failure to ensure preservation of data "was the result of bad faith."
Understanding that the imposition of a sanction should be proportionate to the circumstances, the magistrate did not go so far as to dismiss the defenses of the defendants. However, the magistrate did impose a sanction that likely will have a material affect at trial.
Specifically, the magistrate ruled that the spoliation of evidence by the employee, the agent of the second employer, would result in: a) the first employer being able to present evidence at trial about the defendants' failure to preserve electronic data (which likely will result in a serious black eye); b) an instruction to the jury that it may presume that the destroyed evidence would have been favorable to the first employer; and c) permission for counsel for the first employer to argue to the jury that the evidence that was destroyed likely was negative for the second employer. The second employer was ordered to pay the attorney's fees of the first employer in connection with the sanctions motion.
Not surprisingly, there will not be a level playing field at trial. Because of the failure to preserve electronic data, the second employer will be cast in a very poor light--something that it may not be able to overcome to achieve a judgment in its favor. The sanction, frankly, could have been much worse. Parties in other recent cases have been ordered to pay millions of dollars in sanctions for failing to retain key electronic data.
Lesson learned. It's better to preserve relevant electronic data, even if it is not the best evidence for your case. The sanction for destruction of evidence can be far worse than the evidence itself.