‘Lost and irreplaceable’: Employee sanctioned over spoliation

A federal court has sanctioned an employee who deleted electronically stored information, or ESI, from his former employer’s computers after receiving a litigation hold letter when he was fired for starting a competing company with several co-workers.

Judge Roderick C. Young of the Eastern District of Virginia rejected the employee’s argument that his former employer’s sanctions motion was untimely. He found that the defendant intended to irrevocably deprive the plaintiff of potentially relevant ESI and rejected arguments that he had negligently deleted publicly available ESI.

The opinion is GMS Industrial Supply, Inc., v. G&S Supply, LLC, et al. (VLW 022-3-137).

Improper competition

GMS Industrial Supply, a multinational industrial sales company which caters almost exclusively to military customers, hired the defendant, Westly L. Greer, as a sales agent in 2011. Within four years Greer was promoted to director of sales and given “almost unfettered access” to GMS’s confidential, proprietary, and trade secret information.

In 2017, Greer secretly started a business named G&S Supply with other GMS sales agents, and began competing with GMS by selling to their customers and poaching sales agents. He stepped down as director of sales and became a contract sales agent for GMS in Jan. 2019.

In April 2019, GMS discovered the existence of G&S and that it was owned by Greer. GMS demanded to discuss G&S with Greer immediately. Two days later, it sent termination letters to Greer and the other GMS agents working with G&S. Greer’s letter included a litigation hold.

Two weeks later, GMS sent another letter demanding Greer return all GMS computer equipment, which included a laptop, a desktop computer and a tablet.  Greer returned the computer equipment within the week.

GMS soon discovered that all user-created files had been deleted from the computers and that the tablet was password protected.  It requested the password, but the one Greer provided did not work.

The spoliation

GMS sent the computer equipment to BDO USA, a digital forensics and cyber investigations firm, which produced a forensic analysis report. BDO reported that Greer deleted nearly 70,000 files — more than 18,000 of which were deleted after receiving the litigation hold letter.

BDO also found that after receiving the litigation hold letter, Greer installed a “File Shredder” program which permanently deleted nearly 4,000 files from the desktop.

GMS sued Greer and G&S for injunctive relief and damages in June 2019. Despite conducting discovery and issuing a subpoena to an agency which tracks industrial sales to the military, GMS was unable to recover hundreds of documents Greer destroyed.

In July 2021, GMS moved for sanctions against Greer and G&S.

Timeliness

The defendants argued the sanctions motion was an untimely discovery motion filed after discovery was closed. GMS responded that although spoliation can touch upon discovery, it was primarily an evidentiary issue, and they were not seeking discovery-related sanctions.

The court was persuaded by GMS’ explanation that it was unable to file for sanctions until after the BDO examination and discovery were completed. Young noted the defendants’ objections to plaintiff’s efforts to obtain additional information about the ESI.

The judge concluded that the sanctions motion was timely because such motions often can only be filed “where extensive ESI recovery efforts have failed, or after forensic review gives the movant a much better idea of the quantity and nature of the unproduced, deleted ESI.”

‘Lost and irreplaceable’

Young noted that “[w]hile the burden of proof on a motion for spoliation sanctions is unsettled, ‘the general approach of courts in the Fourth Circuit has been to apply the clear and convincing evidence standard, especially where a relatively harsh sanction like an adverse inference is sought.’”

Here, the defendants conceded two of the four threshold spoliation findings required before a court may impose sanctions had been met — “that ESI should have been preserved and that the loss was due to Greer’s failure to take reasonable steps to preserve the ESI.”

“Irreplaceability does not require a party to ‘pursue every possible avenue for replacing or restoring the ESI, but it must show that it made some good-faith attempt to explore its alternatives before pursuing spoliation sanctions.’”

— Judge Roderick C. Young

That meant GMS only had to establish the ESI was lost and that it could be restored or replaced through additional discovery.

“Irreplaceability does not require a party to ‘pursue every possible avenue for replacing or restoring the ESI, but it must show that it made some good-faith attempt to explore its alternatives before pursuing spoliation sanctions,’” the judge wrote.

GMS argued that neither they nor BDO were able to recover the deleted ESI, and that their agency subpoena had proven fruitless.

The defendants claimed that the agency documents were public record and therefore not irreplaceable. But Young said that claim was “misleading” because the agency only retained such documents for a few months.

Finding that GMS made a good-faith attempt to explore alternatives for replacing or restoring the deleted ESI, Young concluded that it met its threshold burden of proving the ESI was lost and irreplaceable.

Intent to deprive

Once a threshold of spoliation had been established, a court must then consider whether sanctions are warranted under Federal Rule of Civil Procedure 37 by determining that either the ESI loss was prejudicial or that the spoliating party acted with the intent to deprive another party of the ESI’s use in litigation.

Although the 4th U.S. Circuit Court of Appeals has not yet addressed the level of intent required for Rule 37 sanctions, Young cited a 2017 decision from the court which held “the spoliating party’s conduct does not need to be in bad faith to qualify as intentional.”

The defendants argued that Greer’s conduct was negligent, rather than intentional, because he intended to use the File Shredder program only to remove his own personal information rather than deprive GMS of any relevant ESI.

Young was unpersuaded by that argument, finding that it was “apparent … that [Greer] acted with the intent to deprive GMS of all information stored on [the computers], including possibly relevant documents.”

As a result, the judge concluded that “Greer’s blatant and intentional disregard for his obligation to preserve ESI … warrant[ed] an adverse inference instruction.”

The judge further held that Greer was liable for the attorneys’ fees and costs GMS incurred prosecuting the sanctions motion, and that because Greer used GMS computers for work related to G&S, G&S could also be liable for the spoliation.

However, because these sanctions served the “prophylactic, punitive, and remedial rationales underlying the spoliation doctrine,” the judge declined GMS’s requests to strike Greer’s counterclaim or bar him from testifying in his own defense.

Attorneys for the parties did not respond to requests for comment.