Texas Judge Orders Adverse Inference Sanction for ‘Staggering’ Loss of Evidence

Quantlab Techs. Ltd. v. Godlevsky, No. No. 4:09-cv-4039, 2014 U.S. Dist. LEXIS 20305 (S.D. Tex. Feb. 19, 2014)

The court determined that an adverse inference instruction was the appropriate remedy for the loss of a “staggering amount of evidence potentially relevant to this case,” id. at *82, even though the plaintiffs could not adduce evidence that the contents of the computers and devices lost would have been relevant or that they would have been prejudiced by their loss.

After the plaintiff fired two of the defendants, who had written code and algorithms on the plaintiff’s behalf, the plaintiff sued them, claiming they were using the company’s trade secrets. The plaintiff argued that because it had begun litigation against these two defendants in 2007 and filed the instant lawsuit in 2009, the defendants were required to preserve their computers since at least 2009. In 2010, it had also asked for the computers the defendants had used since March 2007.

The court first considered whether “death penalty” case-terminating sanctions or, in the alternative, whether a spoliation jury instruction was necessary. To evaluate the issue, the court considered three factors:

(1) the party with control over the evidence had an obligation to preserve it at the time it was destroyed; (2) the evidence was destroyed with a culpable state of mind; and (3) the destroyed evidence was “relevant” to the party’s claim or defense such that a reasonable trier of fact could find that it would support that claim or defense.

 Id. at *29 (citation omitted).

The court considered the transgressions of various defendants in turn. First, it found that the owner of a company the defendants formed after leaving their company had a duty to preserve evidence, but he wiped clean or gave away 23 workstations. The owner claimed that when his company closed its doors, he got rid of the computers but did not do so in bad faith; he believed a copy of everything existed on the company’s servers. The court noted that the owner “disclaim[ed] any intent to liquidate,” id. at *45-46, but later admitted getting rid of the workstations as part of a liquidation plan. The court noted it could not “say which story is true; that there are multiple of them is enough to raise red flags.” Id. at *46. The court ruled he acted in bad faith because the owner “intentionally wiped and gave away numerous computers nearly three years after the initiation of this lawsuit and concealed it from the Court” and gave “contradictory explanations of [his company’s] plans to liquidate.” Id. at *47-48. Finally, the court ruled that the computers were relevant and that their loss was prejudicial because they were the best evidence of whether the defendants used the plaintiff’s code as a guide for their work.

The court reached the same conclusion for two other defendants, both of whom had discarded computers and other storage devices. Their “inability to keep track of the tools of [their] trade seems more indicative of a reckless disregard for [their] obligations as a litigant and, more likely, bad faith.” However, the plaintiff could not establish that either acted with “sinister motives, and thus they had not acted with the most culpable state of mind possible. Id. at *60. Between this and the other categories of electronic evidence and devices that were lost, the court felt an adverse inference instruction was warranted. However, because so much information remained in flux, the court delayed drafting the instruction until it crafted the remainder of the jury instructions at trial.


Shifting memories and explanations as to the existence of computers, devices, and evidence will not inspire confidence in the court or opposing counsel that you have done everything to preserve potentially relevant evidence. Therefore, it is imperative for organizations to create and follow a comprehensive information governance program, anchored by a litigation hold procedure, to shore up the defensibility of their actions in the event of litigation.

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