The Best Label Company v. Custom Label & Decal, LLC

Background

The Best Label Company, LLC (BLC) sought sanctions against Custom Label & Decal, LLC (CLD), Daniel Crammer, Scott McKean, Gareth Cole, and Travis Gilkey for alleged spoliation of electronically stored information. Spoliation means failing to preserve evidence for litigation. BLC asked for jury instructions stating that the defendants failed to preserve relevant evidence, destroyed evidence after their preservation duties arose, and lost evidence favorable to BLC. BLC also requested monetary sanctions, inspection of additional devices and accounts, and production of CLD’s litigation-hold communications.

The individual defendants were former BLC employees who left BLC and began working for CLD in late 2018. BLC’s counsel sent letters to CLD and Crammer on November 29, 2018, alleging potential breaches by Crammer, warning against use or disclosure of BLC’s confidential information, and instructing CLD to preserve evidence related to the dispute. CLD later advised its employees on January 25, 2019, to preserve evidence that might be relevant to a dispute with BLC. BLC filed its complaint on May 3, 2019.

BLC alleged that files were deleted from various computers, phones, hard drives, and accounts. The alleged deletions included approximately 1,800 files Crammer downloaded to an SD card, nearly 57,000 documents deleted from two laptops, more than 200 files deleted from a USB drive associated with McKean, more than 16,000 files deleted from Cole’s external hard drive, and other files associated with McKean and Gilkey. BLC also argued that additional devices and accounts had not been searched or produced.

Legal standard

Under Federal Rule of Civil Procedure 37(e), a party must take reasonable steps to preserve electronically stored information when litigation is pending or reasonably foreseeable, if the information should have been preserved and cannot be restored or replaced through additional discovery. If the loss caused prejudice, the court could order measures necessary to cure that prejudice. If a party acted with the intent to deprive another party of the information’s use in litigation, the court could also impose stronger measures, including an adverse evidentiary presumption, dismissal, or default judgment.

Court’s analysis

The court concluded that litigation involving BLC, CLD, and Crammer was reasonably foreseeable as of December 5, 2018. The letters to CLD and Crammer contained specific allegations about Crammer’s obligations and potential litigation. The court rejected the argument that Crammer’s letter relieved him of a preservation duty because the letter did not expressly demand preservation.

The court reached a different conclusion regarding McKean, Cole, and Gilkey. Their letters reminded them of their obligations and asked them to return BLC’s confidential information, but did not accuse them of violating a law or breaching an obligation. The court also noted that Gilkey apparently never received his letter. BLC therefore had not shown that those individuals had an independent duty to preserve evidence concerning foreseeable litigation against them before January 25, 2019. The court did not consider additional evidence about McKean that BLC presented for the first time in reply papers.

The court found that BLC had shown that the defendants deleted at least some files, but that fact alone was insufficient. BLC did not adequately connect particular deleted files to a claim or defense, show that the deletions occurred after the relevant defendant’s preservation duty arose, or address the defendants’ explanations for the deletions. The explanations included that some files were personal, temporary automatic-recovery files, customer files unrelated to the case, publicly available images, or information preserved from another source.

The court also found BLC’s claimed prejudice speculative. BLC relied mainly on forensic reports listing deleted files, without providing enough evidence about the files’ contents or their importance to the case. The court would not presume that every deleted file contained information relevant to BLC’s claims or that BLC was harmed by the files’ unavailability.

Finally, the court declined to require searches of additional devices and accounts. BLC had received the forensic examiner’s reports in September 2021 but did not demand production from the additional sources until November 16, 2021. The court found that BLC should have made the demand earlier and had not adequately justified making it at that point.

Disposition

The court concluded that BLC was not entitled to remedies under Rule 37(e) and denied BLC’s motions for sanctions.