Spoliation of Evidence; the Surest Road to Sanctions

Financial Institutions and Electronic Discovery Law Alert

Although there are potential pitfalls at every step of the eDiscovery process that parties and their counsel need to consider and avoid, spoliation of electronically stored information (“ESI”) ranks at the top of the list, and subjects the non-compliant party to a substantial likelihood of sanctions. Indeed, sanctions for failure to preserve ESI were recently addressed by the US District Court for the Southern District of Florida in FTC v. Dluca, et al. (Case No. 0:18-cv-60379-KMM).

In Dluca, the Federal Trade Commission brought a claim against three defendants alleging that they created a cryptocurrency investment pyramid scheme. In April 2018, the Court entered a preliminary injunction that required the defendants to preserve ESI regarding their “promotion of money-making opportunities since January 1, 2014” and to further “preserve certain business records relevant to the instant cause.” (See October 29, 2018 Order in Dluca at p. 1 (the “Order”)) Following the entry of the preliminary injunction, Dluca deleted all of his emails prior to May 2018 that were stored in his Gmail account.

The Court found that Dluca violated the preliminary injunction by deleting his emails and that the FTC was prejudiced as a result. Therefore, the Court sanctioned Dluca by: (1) permitting the introduction of a rebuttable adverse inference at trial or in connection with a summary judgment motion “that the deleted emails would have supported the factual allegations of the Complaint…[and] that the deleted emails would tend to negate the factual allegations underlying [Dluca’s] purported ‘Affirmative Defenses’”; (2) barring him from “introducing any evidence of the contents of the deleted emails”; and, (3) striking his “Good Faith” and “Mootness” affirmative defenses (Order, pp. 2 – 3) Interestingly, the sanction motion was a joint motion filed by the FTC and Dluca. It can only be assumed that Dluca joined in the motion because he was concerned that the sanctions could/would have been worse if he had fought the motion.

Although the Court’s sanction in Dluca relates to the violation of a preliminary injunction requiring the preservation of ESI, even absent a preliminary injunction, parties are nonetheless under an obligation to preserve relevant documents, including ESI, once the litigation is reasonably contemplated. Practitioners need to be mindful of this obligation and counsel their clients accordingly. To that end, without appropriate litigation hold letters issued to the correct custodians, the chances that relevant ESI being destroyed is greatly increased as is the risk of sanctions.