Expensive Spoliation

Attorneys normally worry about an adverse inference instruction when discussing potential spoliation of evidence — a ruling that would advise jurors that they may infer that a destroyed piece of evidence exists and essentially that it would prove the facts asserted. Heavy fines, however, are also possible, and one Minnesota federal judge thought that would be the most appropriate vehicle to rectify a situation in Multifeeder Tech. Inc. v. British Confectionery Co. Ltd.

The defendant was also held in contempt of court and the magistrate judge recommended an adverse inference instruction be issued at trial. Why?

The court determined that two of the defendant’s employees acted intentionally to spoliate evidence, deleting information that would have been discoverable by the plaintiff. They also failed to disclose the existence of certain encrypted data. The spoliation was discovered because the plaintiff had suspected some sort of foul play and made a motion for sanctions, causing the court to appoint a forensic investigator, who discovered the digital actions of the defendant’s employees.

High level employees used wiping software to attempt to delete some PST files containing potentially damaging evidence from their computer systems. A company vice president was also found to have spoliated evidence when he failed to reveal the existence of some encrypted files on his laptop, despite an order requiring him to provide the forensic investigator with “reasonable access” to that data.

What perhaps makes the case more interesting, however, is the fact that upon an objection, the District Court not only adopted the Magistrate’s recommendations, but also increased the monetary sanctions to $600,000 payable to the plaintiff and an additional $25,000 to the Court.

The fines were designed to cover the reasonable expenses incurred in uncovering and acting on the spoliation by the defendant. The District Court judge increased the fines in order to better compensate the plaintiff for those additional expenses as well as to compensate for other factors, such as the “significant prejudice” that the plaintiff suffered as a result of the defendant’s actions.

According to K&L Gates:

Accordingly, the court raised the sanction to $600,000, an amount which “represents reasonable expenses and attorneys’ fees because it encompasses much of CFS’s current unpaid invoices, at least some past paid amounts by Multifeeder to CFS, and reasonable legal fees and expenses in litigating this discovery dispute.”  The court also ordered Defendant to pay the recommended $25,000 to the court.

This was largely because the plaintiff was obligated to pay the costs of the forensic investigator, which was necessary because of the spoliation. So the court essentially shifted that cost to the defendant, whose actions caused the investigation to occur.