You Can’t Spoliate Evidence That You Don’t Possess

HCC Ins. Holdings, Inc. v. Flowers, No. 1:15-cv-3262-WSD, 2017 WL 393732 (N.D. Ga. Jan. 30, 2017).

In this case, the court denied a motion for sanctions because the plaintiff failed to prove that the defendant ever possessed its confidential information. Despite the defendant’s “troubling … breach of her duty to preserve,” the court concluded that the defendant could not have spoliated evidence that she never controlled.

This misappropriation of trade secrets case began when the defendants, including Valda Flowers, resigned from HCC Life Insurance Company (“HCC Life”) to open a competing business. The plaintiff, HCC Insurance Holdings, Inc. (“HCC”), sought sanctions due to numerous “suspicious” actions. HCC argued that Flowers’s conduct, together with that of her husband, “an experienced IT professional,” indicated that she stole HCC’s confidential information and destroyed the evidence.

Before resigning, Flowers moved over 8,500 emails from her HCC Life account and deleted at least 1,000. She also copied approximately 500 HCC Life “Hot Sheets” to the local drive on her work computer and later deleted them. Flowers explained that she was asked to update all the Hot Sheets. She asserted that the deleted files, left in the recycle bin of her HCC laptop, were easily recoverable.

HCC served a preservation notice on Flowers on August 27, 2015, six days after she resigned, asking that she “retain all electronic evidence.” On September 21, the court ordered her “to produce her personal computer for examination by a neutral forensic examiner.”

Mr. Flowers admitted that on September 20, he inserted a “personal Thumb Drive … to back-up data on [his wife’s] personal laptop.” He stated that the drive “was corrupted and did not work, and that he therefore threw it away.” On September 22, Mr. Flowers “used a different thumb drive” to copy music and picture folders from the laptop. Additionally, on both September 19 and 22, “the computer wiping program CCleaner was manually run on Flowers’s personal laptop.” Mr. Flowers countered that “the laptop had a ‘blue screen’ crash” and he used the program “to get the laptop to properly run.”

On September 22, “a program called Defraggler was run on the laptop [to] overwrite[] deleted files.” Additionally, on September 24, the day before the computer was produced to the forensic examiner, “WinUndelete, which is used to recover deleted files, was run” on that computer. Flowers argued that her laptop, purchased in 2008, was “an unstable machine that frequently crashe[d].”

Flowers turned over “all of her personal and work computers,” including physical and cloud storage accounts, to the neutral forensic examiner. “After running extensive searches over several weeks,” the examiner “did not locate any HCC confidential information or trade secrets” on those devices or accounts. Nor did HCC’s independent forensic expert “identify any document, information, files, or other data taken from HCC.” Despite subpoenaing Google, Microsoft, and Citrix, HCC did not “present[] any evidence that HCC’s Hot Sheets or other sensitive information were resident on any electronic device or storage medium in Flowers’[s] custody, possession, or control.”

The court, applying amended Federal Rule of Civil Procedure 37(e), noted that it must find bad faith to give the adverse inference instruction that HCC requested. The court agreed that once Flowers received HCC’s preservation letter, she was “under a duty to preserve evidence.” It also found Mr. Flowers’s actions “troubling, and in breach of her duty to preserve.”

However, HCC “offer[ed] only bare speculation” that Flowers ever had any of its information. The court concluded that “for there to be spoliation, the evidence in question must have existed and been in the control of a party.” Here, “HCC [did] not provide any evidence to show that Flowers or her husband actually transferred any data from HCC Life to her personal devices or cloud storage media she controlled.”

Despite HCC’s suspicions and its argument that “temporal proximity in combination with inconsistent or suspect explanations” indicated spoliation, the court concluded that “Mr. Flowers’[s] explanations [were] generally consistent with the forensic evidence.” Nor did HCC “present evidence to cast significant doubt on Mr. Flowers’[s] stated reasons for his actions.” The court therefore denied HCC’s motion for sanctions.

Case law takeaways

In discovery, where there’s smoke, there’s not always fire. The possession of evidence is an obvious, but necessary, prerequisite to the spoliation of evidence. If you believe that your opponent has destroyed evidence due to suspicious timing and “cleanup” efforts, seek discovery targeting the loss of evidence. Be prepared to offer the court reasonable arguments and evidence supporting your suspicions.

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