In Drips Holdings, LLC v. Teledrip LLC, No. 5:19-cv-2789 (N.D. Ohio Sept. 29, 2022), Ohio District Judge John R. Adams adopted the Report and Recommendation (“R&R”) of the Magistrate Judge for the defendants to be sanctioned for changing their Slack retention policy, but changed the recommended sanction from a permissive adverse-inference instruction to a mandatory adverse-inference instruction sanction.

Case Discussion

In this trademark infringement case, the R&R summarized the relevant facts associated with the defendants’ changing their Slack retention policy as follows:

“From 2017 to present, Teledrip has used Slack as a typical mode of communication for both internal communications as well as customer communications. On October 25, 2019, {defendant Taylor} Murray downloaded a portion of the Slack data, which did not include Slack channels containing internal communications. On October 28, 2019, Murray changed the retention setting of Teledrip’s Slack from unlimited to seven days and deleted the previously exported Slack data. On November 26, 2019, Drips brought the instant action and the following day Teledrip received a litigation hold letter from Drips along with service of the complaint. Teledrip did not change the seven-day retention policy for its Slack communications until September 2020.”

Judge’s Ruling

Judge Adams, in his ruling, stated: “Upon review, the Court concurs with the R&R’s conclusion that Teledrip was aware of anticipated litigation in August of 2019. Specifically, the R&R states ‘Teledrip, through Murray, was admittedly aware that it was potentially infringing on a trademark [‘Conversational SMS’] belonging to Drips as early as the August 2019 trade show. Accordingly, Defendants’ duty to preserve the Slack data was triggered no later than August of 2019 as it was reasonably foreseeable that Defendants faced a trademark dispute with Drips at that time.’”

To illustrate that it was reasonably foreseeable, Judge Adams pointed to an email dated August 22, 2019, “when Christopher Moreira, a Teledrip member, instructed a vendor to change Teledrip’s trade show booth panels because ‘[w]e just found out that our competitor has trademarked the phrase ‘Conversational SMS.’ ‘”. He also pointed to a screenshot of a Slack message “(that has since been deleted) between Moreira and Defendant Murray wherein Moreira warned Murray of a potential trademark issue and Murray responded, “[Y]ou’re scared of a trademark dispute[.] [M]arketing? Yes it’s branding. [I]’ve done all the branding so far. [Y]ou’ve trust me[.] [N]ow we have a trademark dispute you want to change the branding[.]”

Finding also that the defendants had a culpable state of mind, Judge Adams stated: “As noted above, Defendants were on notice of litigation in August of 2019. It is not disputed that on October 28, 2019, Defendants changed their Slack retention settings from indefinite to a seven-day retention period and deleted all its Slack data up to that point. It is telling of Defendants’ state of mind that they admitted to intentionally deleting and changing the retention policy after they became aware of litigation. Defendants do not object or otherwise contest the R&R’s conclusion that Slack was their primary mode of communication, and ‘the spoliated evidence from Teledrip’s Slack data would likely have contained evidence relevant to Drips’ claims of trademark infringement, unfair competition, false advertising, misappropriation of trade secrets, tortious interference, business disparagement, and deceptive trade practices.’”

He also added: “Further evidencing their intent to destroy relevant data, Defendants did not change their Slack retention settings for ten months after receiving the litigation hold, claiming that ‘Murray was uncertain how to comply’ with the CCPA and the ISO considering the litigation hold in this case…Defendants defend their actions by asserting that they ‘unfortunately…did not consult with counsel on how to properly comply with the various obligations under the CCPA/ISO and the litigation hold in this action.’…Defendants inaccurately state that ‘once Drips asked Teledrip to produce the Slack messages, Murray changed Teledrip’s Slack retention settings to store all messages.’…This is blatantly false.”

While noting: “Regarding Defendants’ excuse, the R&R found that it was doubtful, but plausible”, Judge Adams stated: “simply because the excuse might be plausible does not necessarily mean that it is credible. As explained above, this Court concludes that the excuse is not credible. Regardless of plausibility, the R&R recommended that this court find that Defendants ‘knowingly spoliated the Slack data with the intent to deprive Drips from discovering its content.’…This Court agrees with this conclusion.”

As a result, Judge Adams disagreed with the R&R recommendation of a permissive adverse-inference instruction for the defendants’ changing their Slack retention policy and instead imposed a mandatory adverse-inference instruction sanction.

So, what do you think? Was the sanction appropriate for the defendants’ changing their Slack retention policy? Please share any comments you might have or if you’d like to know more about a particular topic.

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