Electronic Discovery Law

KCH Servs., Inc. v. Vanaire, Inc., 2009 WL 2216601 (W.D. Ky. July 22, 2009)

Plaintiff moved the court for default judgment, sanctions, or an adverse inference instruction based on defendant Vanaire’s spoliation of evidence, including the deletion of software and electronically stored information (“ESI”) from its computers.  Specifically, following a phone call from plaintiff’s president indicating his belief that Vanaire was using plaintiff’s software, defendant Guillermo Vanegas instructed Vanaire employees to delete any software “that he did not purchase or did not own.”  Additionally, even after plaintiff filed its complaint and sent an evidence-preservation letter, Vanaire failed in its duty to preserve “by continuing to delete and overwrite” ESI.

Regarding the question of when Vanaire’s duty to preserve arose, the court stated:

Hankinson's telephone call to Vanegas, Sr. in October 2005 should have put the defendants on notice that issues of software may be relevant to future litigation.  For the duty to preserve to have attached, it is not required that Vanegas, Sr. actually knew that litigation was on the horizon, or that the software would be relevant, but only that he "should have known" the software "may be" relevant to future litigation.  Id.  In October 2005, the defendants were familiar with their competitor's willingness and ability to file suit; Vanegas, Sr. had been personally involved with Vanaire during the 1995 litigation with KCH.  See KCH Services, Inc. v. Brooks, et. al., No. 3:95-cv-672-S, Dep. (R. 19), Dec 4., 1995.  Even with such experience, Vanegas, Sr. ordered the software deleted immediately after the telephone call, before KCH had an opportunity to inspect.  Vanegas Sr.'s conversations with Vanaire employees and other correspondence among Vanaire employees immediately after Hankinson's telephone call show clearly that the defendants were, in fact, alerted to the problem and saw it as such.

The court went on to reject the possibility that the continued deletions were protected from sanctions by Fed. R. Civ. P. 37(e) finding instead that Vanaire’s conduct fell “beyond the scope of ‘routine, good faith operation of an electronic information system’” and stating that it was “ Vanegas Sr.’s order to delete the software and defendants’ continued unwillingness to place a meaningful litigation hold on relevant electronic information” that resulted in the loss of ESI. 

Noting that “[a] proper spoliation sanction should serve both fairness and punitive functions”, the court found that default judgment was not warranted “because a less drastic measure will address the spoliation” and ordered an adverse inference instruction instead.