Terminating Sanctions and Injunction for Defendant Upheld by Fourth Circuit: eDiscovery Case Week

eDiscovery Shark, er, Case Week continues!  I think we can all agree that in a copyright infringement case entailing software source code, destroying the computer you were using to work on source code and stating you didn’t use a source code management system when you sent a screen shot to a colleague that proved otherwise is not going to lead to a good outcome for you.

In QueTel Corp. v. Abbas, No. 18-2334 (4th Cir. July 17, 2020), the Fourth Circuit Court of Appeals affirmed the judgment of the district court which awarded judgment to the plaintiff as a sanction for the defendants’ spoliation of evidence and also imposed a permanent injunction against the defendants.

Case Background

This case involved claims, inter alia, of copyright infringement, under the Copyright Act, 17 U.S.C. §§ 101-1332 (2018), and misappropriation of trade secrets, under the Virginia Uniform Trade Secrets Act.  The crux of the plaintiff’s claims was that defendant Abbas—a former employee of the plaintiff—misappropriated source code from the plaintiff’s copyrighted software for the defendants’ competing software, CaseGuard.

During discovery, the defendants were shown to have intentionally destroyed relevant evidence several times after receiving the plaintiff’s preservation letter. Four months after receiving the letter, Abbas purchased a new computer and disposed of the computer he had used to create his product by wiping its data and disposing of it in a commercial trash can. After the plaintiff filed a motion to compel previous versions of the defendants’ source code, forensic images of all computers used to create the software, and their source code control system (used to track changes in the source code over time), the defendants stated they had not used a source code control system to develop the software.  They also failed at that time to disclose that Abbas’ computer had been destroyed, but eventually admitted the destruction of the computer at a later deposition.

But, while developing the defendants’ version of the software, Abbas had sent a screenshot of his work to an employee of the plaintiff, which illustrated his use of a source code control system and displayed code that appeared essentially the same as the plaintiff’s code. Forensic imaging of remaining devices and further depositions revealed that the defendants deleted “thousands” of likely relevant files just days before the forensic imaging took place.

After the district court awarded judgment to the plaintiff as a sanction for the defendants’ spoliation of evidence and also imposed a permanent injunction against the defendants, they appealed, contending that the district court abused its discretion in both instances.

Court’s Ruling

Regarding the judgment awarded to the plaintiff, the Court stated: “The district court, accepting a recommendation from the magistrate judge, found that, as a result of the cease-and-desist letter, Defendants were on notice of potential litigation and had a duty to preserve the destroyed evidence, and that the Defendants intentionally destroyed the evidence in bad faith, with the intent of depriving QueTel of the evidence’s use in the instant litigation. The court further concluded that QueTel had been irreparably harmed and that the magistrate judge’s recommendation of a jury instruction was insufficient because Defendants’ purposeful spoliation effectively deprived QueTel of its ability to pursue Counts I and II. We discern no abuse of discretion in the district court’s decision to impose judgment as a sanction against Defendants based on its finding that no less drastic sanction would adequately address the prejudice suffered by QueTel or adequately deter the type of spoliation that occurred in this case.”

Regarding the permanent injunction against the defendants, the Court said: “we conclude that the district court did not rely on an error of law or a clearly erroneous factual finding in determining that QueTel had suffered, and would continue to suffer, irreparable harm as a result of Defendants’ actions, that monetary damages were inadequate, and that the balance of equities and the public interest weighed in favoring of granting the injunction. We therefore discern no abuse of discretion in the court’s decision to impose a permanent injunction.”

As a result, the Court stated: “Accordingly, we affirm the district court’s judgment. We dispense with oral argument because the facts and legal contentions are adequately presented in the materials before this court and argument would not aid the decisional process.”

So, what do you think?  Should spoliation of ESI in certain types of cases be more subject to severe sanctions than in other types of cases?  Please share any comments you might have or if you’d like to know more about a particular topic.

Case opinion link courtesy of eDiscovery Assistant.

Disclaimer: The views represented herein are exclusively the views of the author, and do not necessarily represent the views held by my employer, my partners or my clients. eDiscovery Today is made available solely for educational purposes to provide general information about general eDiscovery principles and not to provide specific legal advice applicable to any particular circumstance. eDiscovery Today should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you.

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